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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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
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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.)
P.O. Box 8699
2301 Market Street, Philadelphia, PA (215) 841-4000
(Address of principal executive offices) (Registrant's telephone number,
including area code)
19101
(Zip Code)
------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
First and Refunding Mortgage Bonds (Registered on the New York
Stock Exchange):
<TABLE>
<S> <C> <C> <C>
6 1/8% Series due 1997 (*) 7 3/8% Series due 2000 6 1/2% Series due 2003 7 1/8% Series due 2023
5 3/8% Series due 1998 5 5/8% Series due 2001 6 3/8% Series due 2005 7 3/4% Series 2 due 2023
7 1/4% Series due 2024
__________________
(*) Also registered on the Philadelphia Stock Exchange
</TABLE>
Cumulative Preferred Stock -- without par value (Registered on the New York
and Philadelphia Stock Exchanges):
$7.96 Series $4.68 Series $4.40 Series $4.30 Series
$3.80 Series
Common Stock -- without par value (Registered on the New York and
Philadelphia Stock Exchanges)
9.00% Cumulative Monthly Income Preferred Securities, Series B, $25 stated
value, issued by PECO Energy Capital, L.P. and unconditionally guaranteed by the
Company (Registered on the New York Stock Exchange)
Trust Receipts of PECO Energy Capital Trust I, each representing a 8.72%
Cumulative Monthly Income Preferred Security, Series B, $25 stated value, issued
by PECO Energy Capital, L.P. and unconditionally guaranteed by the Company
(Registered on the New York Stock Exchange)
Securities registered pursuant to Section 12(g) of the Act:
Cumulative Preferred Stock -- without par value:
$7.48 Series $6.12 Series
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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 and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's common stock (only voting
stock) held by non-affiliates of the registrant was $6,832,147,699 at January
31, 1996.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
Common Stock -- without par value: 222,255,816 shares outstanding at
January 31, 1996.
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DOCUMENTS INCORPORATED BY REFERENCE (In Part)
Annual Report of PECO Energy Company to Shareholders for the year 1995
is incorporated in part in Parts I, II and IV hereof, as specified herein.
Proxy Statement of PECO Energy Company in connection with its
1996 Annual Meeting of Shareholders is incorporated in part in
Part III hereof, as specified herein.
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<PAGE>
TABLE OF CONTENTS
Page No.
PART I
ITEM 1. BUSINESS.......................................................1
The Company....................................................1
Electric Operations............................................1
General...................................................1
Limerick Generating Station...............................4
Peach Bottom Atomic Power Station.........................5
Salem Generating Station..................................6
Fuel...........................................................8
Nuclear...................................................8
Coal.....................................................10
Oil......................................................11
Natural Gas..............................................11
Gas Operations................................................11
Segment Information...........................................12
Rate Matters..................................................12
Construction..................................................14
Capital Requirements and Financing Activities.................15
Employee Matters..............................................16
Environmental Regulations.....................................17
Water....................................................17
Air......................................................17
Solid and Hazardous Waste................................18
Costs....................................................22
Competition...................................................22
Telecommunications............................................24
PECO Energy Capital Corp. and Related Entities................24
Executive Officers of the Registrant..........................25
ITEM 2. PROPERTIES....................................................27
ITEM 3. LEGAL PROCEEDINGS.............................................29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........30
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS..............................30
ITEM 6. SELECTED FINANCIAL DATA.......................................31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE...................31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............31
ITEM 11. EXECUTIVE COMPENSATION........................................31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...............................................32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.................................................33
Financial Statements and Financial Statement Schedule.........33
REPORT OF INDEPENDENT ACCOUNTANTS.............................34
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS..............35
Exhibits......................................................36
Reports on Form 8-K...........................................39
SIGNATURES
i
<PAGE>
PART I
ITEM 1. BUSINESS
The Company
PECO Energy Company (Company), incorporated in Pennsylvania in 1929, is an
operating utility which provides electric and gas service to the public in
southeastern Pennsylvania. The total area served by the Company covers 2,107
square miles. Electric service is supplied in an area of 1,972 square miles with
a population of about 3,700,000, including 1,600,000 in the City of
Philadelphia. Approximately 94% of the electric service area and 64% of retail
kilowatthour (kWh) sales are in the suburbs around Philadelphia, and 6% of the
service area and 36% of such sales are in the City of Philadelphia. Natural gas
service is supplied in a 1,475-square-mile area of southeastern Pennsylvania
adjacent to Philadelphia with a population of 1,900,000. The Company has the
necessary franchise rights, which are generally non-exclusive, to operate in the
areas served.
The Company is subject to regulation by the Pennsylvania Public Utility
Commission (PUC) as to retail electric and gas rates, issuances of securities
and certain other aspects of the Company's operations and by the Federal Energy
Regulatory Commission (FERC) as to wholesale electric and transmission rates.
Specific operations of the Company are also subject to the jurisdiction of
various other federal, state, regional and local agencies, including the United
States Nuclear Regulatory Commission (NRC), the United States Environmental
Protection Agency (EPA), the United States Department of Energy (DOE), the
Delaware River Basin Commission and the Pennsylvania Department of Environmental
Protection (PDEP). The Company's Muddy Run Pumped Storage Project and the
Conowingo Hydroelectric Project are subject to the licensing jurisdiction of the
FERC. Due to its ownership of subsidiary-company stock, the Company is a holding
company as defined by the Public Utility Holding Company Act of 1935 (1935 Act);
however, it is predominantly an operating company and, by filing an exemption
statement annually, is exempt from all provisions of the 1935 Act, except
Section 9(a)(2) relating to the acquisition of securities of a public utility
company.
Electric Operations
General
During 1995, 90.2% of the Company's operating revenues and 93.5% of its
operating income were from electric operations. Electric sales and operating
revenues for 1995 by class of customer are set forth below:
<TABLE>
<CAPTION>
Operating
Sales Revenues
(millions of kWh) (millions of $)
<S> <C> <C>
Residential ................... 10,859 $1,401
Small commercial and industrial 6,299 739
Large commercial and industrial 15,976 1,147
Other ......................... 860 137
------ ------
Service territory ........ 33,994 3,424
Interchange sales ............. 496 17
Sales to other utilities ...... 14,041 334
------ ------
Total .................... 48,531 $3,775
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</TABLE>
Energy from the Company's installed generating capacity together with power
purchases are utilized to satisfy the requirements of jurisdictional customers,
to meet sales commitments to other utilities and to make spot sales.
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<PAGE>
The net installed electric generating capacity (summer rating) of the
Company and its subsidiaries at December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Type of Capacity Megawatts % of Total
<S> <C> <C>
Nuclear ....................... 4,040 44.5%
Mine-mouth, coal-fired ........ 709 7.8
Service-area, coal-fired ...... 725 8.0
Oil-fired ..................... 1,176 13.0
Gas-fired ..................... 201 2.2
Hydro (includes pumped storage) 1,392 15.3
Internal combustion ........... 835 9.2
----- -----
Total ..................... 9,078(1)(2) 100.0%
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<FN>
- ---------------
(1) Includes capacity available for sale to other utilities.
(2) See "Fuel" for sources of fuels used in electric generation.
</FN>
</TABLE>
As a result of the developing wholesale generation market, the Company has
increased both its wholesale power purchases and sales. In the ordinary course
of its business, the Company enters into long-term and short-term commitments to
buy and sell power. At December 31, 1995, the Company had 1,199 megawatts (MW)
of installed generating capacity available for sales to others. In addition,
during 1995, the Company entered into an agreement to purchase energy associated
with 300 MW from 1996 through 2000 from an unaffiliated utility. The Company
also has agreements with other utilities to sell energy and/or capacity. The
Company has long-term agreements over the next five years with unaffiliated
utilities to sell energy associated with 1,185 MW of capacity. These power sales
agreements extend from 1996 to 2023. See note 4 of Notes to Consolidated
Financial Statements included in the Company's Annual Report to Shareholders for
the year 1995.
Annual and quarterly operating results can be significantly affected by
weather. Traditionally, sales of electricity are higher in the first and third
quarters due to colder weather and warmer weather, respectively. The maximum
hourly demand on the Company's system was 7,244 MW which occurred on August 4,
1995. The Company estimates its generating reserve margin for 1996 to be 26%.
This is based on the most recent annual peak-load forecast which assumes normal
peak weather conditions and the sale to other utilities of 400 MW of capacity.
The Company is a member of the Pennsylvania-New Jersey-Maryland
Interconnection Association (PJM), which fully integrates, on the basis of
relative cost of generation, the bulk-power generating and transmission
operations of eleven investor-owned electric utilities serving more than 22
million people in a 50,000-square-mile territory. In addition, PJM companies
coordinate planning and install facilities to obtain the greatest practicable
degree of reliability, compatible economy and other advantages from the pooling
of their respective electric system loads, transmission facilities and
generating capacity. The maximum PJM demand of 48,524 MW occurred on August 2,
1995 when PJM's installed capacity (summer rating) was 55,962 MW. The Company's
installed capacity for 1996-99 is expected to be sufficient for the Company to
meet its obligation to supply its PJM reserve margin share during that period.
During 1995, the Company notified the FERC of its intention to propose
initiatives to increase wholesale electric competition in the Mid-Atlantic
region served by PJM. See "Competition."
The Company's nuclear-generated electricity is supplied by Limerick
Generating Station (Limerick) Units No. 1 and No. 2 and Peach Bottom Atomic
Power Station (Peach Bottom) Units No. 2 and No. 3, which are operated by the
Company, and by Salem Generating Station (Salem) Units No. 1 and No. 2, which
are operated by Public Service Electric and Gas Company (PSE&G). The Company
owns 100% of Limerick, 42.49% of Peach Bottom and 42.59% of Salem. Limerick
Units No. 1 and No. 2 each has a capacity of 1,115 MW; Peach Bottom Units No. 2
and No. 3 each has a capacity of 1,093 MW, of which the Company is entitled to
464 MW of each unit; and Salem Units No. 1 and No. 2 each has a capacity of
1,106 MW, of which the Company is entitled to 471 MW of each unit.
2
<PAGE>
The Company's nuclear generating facilities represent approximately 45% of
its installed generating capacity and 65% of its investment in electric plant.
In 1995, approximately 50% of the Company's electric output was generated from
nuclear sources. Changes in regulations by the NRC that require a substantial
increase in capital expenditures for the Company's nuclear generating facilities
or that result in increased operating costs of nuclear generating units could
adversely affect the Company.
The Price-Anderson Act sets the limit of liability of approximately $8.9
billion 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 $79 million per reactor per incident, payable at no more than $10 million per
reactor per incident per year. This assessment is subject to inflation and state
premium taxes. If the damages from an incident at a licensed nuclear facility
exceed $8.9 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 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, following an
accident, the facility 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 permit either 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 will 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 have been 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 timing of the availability of insurance proceeds to
the Company for the Company's bondholders and the amount of such proceeds which
would be available. Under the terms of the various insurance agreements, the
Company could be assessed up to $46 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 or results of operations.
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 policy contains a 21-week waiting period before
recovery of costs can commence. The premium for this coverage is subject to an
assessment for adverse loss experience. The Company's maximum share of any
assessment is $14 million per year.
NRC regulations require that licensees of nuclear generating facilities
demonstrate that funds will be available in certain minimum amounts at the end
of the life of the facility to decommission the facility. The PUC, based on
estimates of decommissioning costs for each of the nuclear facilities in which
the Company has an ownership interest, permits the Company to collect from its
customers and deposit in segregated accounts amounts which, together with
earnings thereon, will be used to decommission such nuclear facilities. The
Company's ownership portion of decommissioning costs is approximately $643
million expressed in 1990 dollars to be collected over the life of each
generating unit. Under current rates, which reflect decommissioning costs of
$643 million, the
3
<PAGE>
Company collects and expenses approximately $20 million annually from customers
for decommissioning the Company's ownership portion of its nuclear units. At
December 31, 1995, the Company held $223 million in trust accounts, representing
amounts recovered from customers and net realized and unrealized investment
earnings thereon, to fund future decommissioning costs. Based on a recent
Company study, the Company's share of the cost to decommission its nuclear units
is estimated to be $1.2 billion in 1995 dollars. The Company will ultimately
seek to recover through the ratemaking process increased decommissioning costs,
although such recovery is not assured. In February 1996, the Financial
Accounting Standards Board (FASB) issued an Exposure Draft entitled "Accounting
for Certain Liabilities Related to Closure or Removal of Long-Lived Assets,"
which proposes, among other things, changes in the recognition, measurement and
classification of decommissioning costs for nuclear generating stations. The
proposed statement would be effective for years beginning after December 15,
1996, and applies to all entities having either legal or constructive
obligations (defined as an obligation which the entity has "little or no
discretion to avoid") for closure or removal of long-lived assets. The FASB is
expected to issue a final pronouncement by the end of 1996. For additional
information concerning nuclear decommissioning, see note 4 of Notes to
Consolidated Financial Statements included in the Company's Annual Report to
Shareholders for the year 1995.
Limerick Generating Station
Limerick Unit No. 1 achieved a capacity factor of 88% in 1995 and 85% in
1994. Limerick Unit No. 2 achieved a capacity factor of 85% in 1995 and 93% in
1994. Limerick Units No. 1 and No. 2 are each on a 24-month refueling cycle. The
last refueling outages for Units No. 1 and No. 2 were in 1996 and 1995,
respectively.
On May 24, 1995, the NRC issued its periodic Systematic Assessment of
Licensee Performance (SALP) Report for Limerick for the period September 26,
1993 through April 1, 1995. Limerick achieved ratings of "1," the highest of the
three rating categories, in all four functional areas - Operations, Maintenance,
Engineering and Plant Support. The NRC stated that, overall, it observed an
excellent level of performance at Limerick. The NRC noted continued strong
performance in the Operations and Engineering areas during this SALP period and
improved performance was noted in the Maintenance and Plant Support areas. The
NRC stated that factors contributing to this level of performance included
excellent management oversight, along with excellent interdepartmental
communication and coordination of activities. Particularly, the NRC noted the
Company's excellent planning and execution of the two refueling outages during
the SALP period and the aggressive use of probabilistic safety assessment in
scheduling outage and non-outage maintenance activities. The NRC also stated
that, in recognition of Limerick's superior performance, the next SALP period
for Limerick has been extended to 24 months and both the number of resident NRC
inspectors and planned total inspection hours have been reduced.
In October 1990, General Electric Company (GE) reported that crack
indications were discovered near the seam welds of the core shroud assembly in a
GE Boiling Water Reactor (BWR) located outside the United States. As a result,
GE issued a letter requesting that the owners of GE BWRs take interim corrective
actions, including a review of fabrication records and visual examinations of
accessible areas of the core shroud seam welds. Each of the reactors at Limerick
and Peach Bottom is a GE BWR. Initial examination of Limerick Unit No. 1 was
completed during the February 1996 refueling outage. Although crack indications
were identified at one location, the Company concluded that there is a
substantial margin for each core shroud weld to allow for continued operation of
Unit No. 1 for a minimum of the next two operating cycles. Initial examination
of Unit No. 2 has been scheduled for the refueling outage planned for January
1999 in accordance with industry experience and guidance. Peach Bottom Unit No.
3 was initially examined during its refueling outage in the fall of 1993.
Although crack indications were identified at two locations, the Company
presented its finding to the NRC and recommended continued operation of Unit No.
3 for a two-year cycle. Unit No. 3 was re-examined during its last refueling
outage in the fall of 1995 and the extent of cracking identified was determined
to be within industry-established guidelines. In a letter to the NRC dated
November 3, 1995, the Company concluded that there is a substantial margin for
each core shroud weld to allow for continued operation of Unit No. 3 until its
next refueling outage, scheduled for 1997, at which time it will be reinspected.
Peach Bottom Unit No. 2 was
4
<PAGE>
examined in October 1994 during its last refueling outage and the inspection
revealed a minimal number of flaws. In a letter dated November 7, 1994, the
Company submitted its findings to the NRC and also recommended continued
operation of Unit No. 2 until its next refueling outage, scheduled for September
1996, at which time it will be reinspected. The Company is also participating in
a GE BWR Owners Group to develop long-term corrective actions.
The NRC has raised concerns that the Thermo-Lag 330 fire barrier systems
used to protect cables and equipment may not provide the necessary level of fire
protection and requested licensees to describe short- and long-term measures
being taken to address this concern. The Company has informed the NRC that it
has taken short-term corrective actions to address the inadequacies of the
Thermo-Lag barriers installed at Limerick and Peach Bottom and is participating
in an industry-coordinated program to provide long-term corrective solutions. By
letter dated December 21, 1992, the NRC stated that the Company's interim
actions were acceptable. The Company has been in contact with the NRC regarding
the Company's long-term measures to address Thermo-Lag fire barrier issues. In
1995, the Company completed its engineering re-analysis for both Peach Bottom
and Limerick. This re-analysis identified proposed modifications to be performed
over the next several years at both plants in order to implement the long-term
measures addressing the concern over Thermo-Lag use.
In 1992, the Company requested authorization from the NRC to rerate the
maximum reactor-core power levels of each Limerick unit by 5% to 1,115 MW. The
NRC approved the Company's request for Unit No. 2 on February 16, 1995 and for
Unit No. 1 on January 24, 1996. Modifications to Unit No. 2 were completed
during the Unit's 1995 refueling outage. Modifications to Unit No. 1 were
completed during the Unit's February 1996 refueling outage.
Water for the operation of Limerick is drawn from the Schuylkill River
adjacent to Limerick and from the Perkiomen Creek, a tributary of the Schuylkill
River. During certain periods of the year, generally the summer months but
possibly for as much as six months or more in some years, the Company would not
be able to operate Limerick without the use of supplemental cooling water due to
existing regulatory water withdrawal constraints applicable to the Schuylkill
River and the Perkiomen Creek. Supplemental cooling water for Limerick is
provided by a supplemental cooling water system which draws water from the
Delaware River at the Point Pleasant Pumping Station, transports it to the
Bradshaw Reservoir (Point Pleasant Project), then to the east and main branches
of the Perkiomen Creek and finally to Limerick. The supplemental cooling water
system also provides water for public use to two Montgomery County water
authorities. The Company has obtained all permits for the construction and
operation of the supplemental cooling water system. Certain of the permits
relating to the operation of the system must be renewed periodically.
The Company has also entered into an agreement with a municipality to
secure a backup source of water for the operation of Limerick should the amount
of water from the supplemental cooling water system not be sufficient. Should
the supplemental cooling water system be completely unavailable, this backup
source is capable of providing only enough cooling water to operate both
Limerick units simultaneously at 70% of rated capacity for short periods of
time.
Peach Bottom Atomic Power Station
Peach Bottom Unit No. 2 achieved a capacity factor of 98% in 1995 and 81%
in 1994. Peach Bottom Unit No. 3 achieved a capacity factor of 78% in 1995 and
98% in 1994. Peach Bottom Units No. 2 and No. 3 are each on a 24-month refueling
cycle. The last refueling outages for Units No. 2 and No. 3 were in 1994 and
1995, respectively.
On December 5, 1995, the NRC issued its periodic SALP Report for Peach
Bottom for the period May 1, 1994 to October 15, 1995. Peach Bottom achieved
ratings of "1" in the areas of Operations, Maintenance and Plant Support. The
area of Engineering achieved a rating of "2." Overall, the NRC observed
excellent performance at Peach Bottom during the assessment period. Station
management oversight, effective use of performance enhancement at all levels of
the organization and other measures in identifying and evaluating issues
5
<PAGE>
contributed to the strong performance. The NRC noted performance improvements in
all of the assessment areas, particularly in Maintenance and Plant Support.
Although the NRC noted that excellent performance was often displayed in the
Engineering area, errors in modification work, in addition to some other lapses,
indicated inconsistent engineering performance. The Company is taking actions to
further improve Peach Bottom performance.
By letter dated October 18, 1994, the NRC approved the Company's request to
rerate the authorized maximum reactor-core power levels of each Peach Bottom
unit by 5% to 1,093 MW. The amendment of the Unit No. 2 facility operating
license was effective upon the date of the NRC approval letter, and the
associated hardware changes were implemented during the Unit No. 2 refueling
outage in the fall of 1994. The amendment for Unit No. 3 was issued by the NRC
on July 18, 1995 and the associated hardware changes were implemented during the
Unit No. 3 refueling outage in the fall of 1995.
In addition to the matters discussed above, see "Limerick Generating
Station" for a discussion of certain matters which affect both Peach Bottom and
Limerick.
Salem Generating Station
Salem Unit No. 1 achieved a capacity factor of 26% in 1995 and 59% in 1994.
Salem Unit No. 2 achieved a capacity factor of 21% in 1995 and 58% in 1994.
Salem Units No. 1 and No. 2 are each on an 18-month refueling cycle. The last
refueling outages for Units No. 1 and No. 2 were in 1995.
Salem Units No. 1 and No. 2 have been out of service since May 16, 1995 and
June 7, 1995, respectively, due to various operational and technical problems.
The Company has been informed by PSE&G that since the shutdown of Salem, PSE&G
has been engaged in an assessment of each unit to identify and complete the work
necessary to achieve restart. PSE&G has stated that it will keep each unit off
line until it is satisfied that the unit is ready to return to service and to
operate reliably over the long term and the NRC has agreed that the unit is
sufficiently prepared to restart. On June 9, 1995, the NRC issued a Confirmatory
Action Letter documenting these commitments of PSE&G.
On December 11, 1995, PSE&G presented its restart plan for both units to
the NRC at a public meeting. On February 13, 1996, the NRC staff issued a letter
to PSE&G indicating that it had concluded that PSE&G's overall restart plan, if
implemented effectively, should adequately address the numerous Salem issues to
support a plant restart, and describing further actions the NRC will undertake
to confirm that PSE&G's actions have resulted in the necessary performance
improvements to support plant restart.
The Company has been informed by PSE&G that as a part of PSE&G's review, an
examination is being performed on the steam generators, which are large heat
exchangers used to produce steam to drive the turbines. Within the industry,
certain pressurized water reactors (PWRs) other than Salem have experienced
cracking in a sufficient number of the steam generator tubes to require various
modifications to these tubes and replacement of the steam generators in some
cases. Until the current outage, regular periodic inspections of the steam
generators for each Salem unit have resulted in repairs of a small number of
tubes well within NRC limits. As a result of the experience of other utilities
with cracking in steam generator tubes, in April 1995, the NRC issued a generic
letter to all utilities with PWRs. This generic letter requested utilities with
PWRs to conduct steam generator examinations with more sensitive inspection
devices capable of detecting evidence of degradation. Subsequently, PSE&G
conducted steam generator inspections of the Salem units using the latest
technology available, including a new, more sensitive, eddy current testing
device.
With respect to Salem Unit No. 1, the most recent inspection of the steam
generators is not complete, but partial results from eddy current inspections
conducted in February 1996 indicate degradation in a significant number of
tubes. The inspections are continuing and PSE&G has decided to remove several
tubes for laboratory examination to confirm the results of the inspections.
Removal of the tubes is expected to commence in April and preliminary results of
the state of Salem Unit No. 1 tubes from the subsequent laboratory examinations
6
<PAGE>
should be known in the third quarter of 1996. However, based on the results of
inspections to date, PSE&G has concluded that the Salem Unit No. 1 outage, which
was expected to be completed in the second quarter of 1996, will be required to
be extended for a substantial additional period to evaluate the state of the
steam generators and to subsequently determine an appropriate course of action.
Degradation of steam generators in PWRs has become of increasing concern for the
nuclear industry. Nationally and internationally, utilities have undertaken
actions to repair or replace steam generators. In the extreme, degradation of
steam generators has contributed to the retirement of several American nuclear
power reactors. After the Salem Unit No. 1 tubes are fully examined, PSE&G will
be able to evaluate its course of action in light of NRC and other industry
requirements.
The examination of the Salem Unit No. 2 generators was completed in January
1996 using the same inspection procedure used in the examination of Salem Unit
No. 1. The results of the Salem Unit No. 2 inspection are being reviewed again
to confirm their results in light of the experience with Salem Unit No. 1.
Although this review has not yet been completed, results to date appear to
confirm that the condition of the Salem Unit No. 2 steam generators are well
within current operating limits at the present time. PSE&G has also removed
tubes from Salem Unit No. 2 steam generators for laboratory analysis to confirm
the results of this testing, the results of which should be known in May.
PSE&G had planned to return Salem Unit No. 1 to service in the second
quarter of 1996 and Salem Unit No. 2 in the third quarter of 1996. As a result
of the extent of the recently discovered degradation in the Salem Unit No. 1
steam generators, PSE&G is focusing its efforts on returning Salem Unit No. 2 to
service in the third quarter of 1996. The additional steam generator inspections
and testing on Salem Unit No. 2 are not expected to adversely affect the timing
of its restart. However, because the timing of the restart is subject to
satisfactory completion of the requirements of the restart plan, as determined
by PSE&G and the NRC, no assurance can be given that the projected return date
will be met. For information concerning additional costs associated with the
shutdown of Salem, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and note 24 of Notes to Consolidated
Financial Statements in the Company's Annual Report to Shareholders for the year
1995 and "Rate Matters."
The Company has been informed by PSE&G that on January 3, 1995, the NRC
issued its periodic SALP Report for Salem for the period June 20, 1993 to
November 5, 1994. Salem received ratings of "3" in the areas of Operations and
Maintenance, a rating of "2" in the area of Engineering, and a rating of "1" in
the area of Plant Support. The NRC noted an overall decline in performance and
evidenced particular concern with plant and operator challenges caused by
repetitive equipment problems and personnel errors. The NRC also noted that
although PSE&G has initiated several comprehensive actions within the past year
to improve plant performance, and that some recent incremental gains have been
made, these efforts have yet to noticeably change overall performance at Salem.
The Company has been informed by PSE&G that PSE&G's own assessments, as
well as those by the NRC and the Institute of Nuclear Power Operations, indicate
that additional efforts are required to further improve operating performance,
and that PSE&G is committed to taking the necessary actions to address Salem's
performance needs. It is anticipated that the NRC will maintain a close watch on
Salem's performance and corrective actions related to the Salem shutdown. No
assurance can be given as to what, if any, further or additional actions may be
taken or required by the NRC to improve Salem's performance.
In addition to the matters discussed above, see "Legal Proceedings" and
"Environmental Regulations -- Water."
7
<PAGE>
Fuel
The following table shows the Company's sources of electric output for 1995
and as estimated for 1996:
<TABLE>
<CAPTION>
1995 1996 (Est.) (1)
<S> <C> <C>
Nuclear ....................................... 50.0% 54.5%
Mine-mouth, coal-fired ........................ 9.5 9.6
Service-area, coal-fired ...................... 6.2 8.5
Oil-fired ..................................... 1.8 3.2
Gas-fired ..................................... 3.6 4.2
Hydro (includes pumped storage) ............... 1.3 2.6
Internal combustion ........................... 0.3 0.1
Purchased, interchange and nonutility generated 27.3 17.3
---- ----
100.0% 100.0%
===== =====
<FN>
- ---------------
(1) Does not reflect the extended outage beyond June 1996 of Salem Unit No. 1
due to cracking in steam generator tubes.
</FN>
</TABLE>
The following table shows the Company's average fuel cost used to generate
electricity:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Nuclear
Cost per million Btu(1) $ 0.64 $ 0.53 $ 0.56 $ 0.53 $ 0.47
Coal
Mine-mouth plants
Cost per ton ........ 37.26 33.75 32.73 33.30 32.68
Cost per million Btu 1.51 1.36 1.32 1.34 1.32
Service-area plants
Cost per ton ........ 50.24 45.25 43.38 38.76 38.82
Cost per million Btu 2.00 1.78 1.66 1.51 1.51
Oil
Residual
Cost per barrel ..... 19.42 15.94 15.87 16.22 14.92
Cost per million Btu 3.11 2.53 2.50 2.54 2.40
Distillate
Cost per barrel ..... 29.90 24.96 27.21 22.77 20.74
Cost per million Btu 5.12 4.26 4.15 3.87 3.66
Gas
Cost per mcf ........ -- 3.05 2.86 2.31 2.13
Cost per million Btu -- 2.96 2.77 2.25 2.00
<FN>
- ------
(1) British thermal unit.
</FN>
</TABLE>
Nuclear
The cycle of production and utilization of nuclear fuel includes the mining
and milling of uranium ore; the conversion of uranium concentrates to uranium
hexafluoride; the enrichment of the uranium hexafluoride; the fabrication of
fuel assemblies; and the utilization of the nuclear fuel in the generating
station reactor. The Company has contracts for the supply of uranium
concentrates for Limerick and Peach Bottom which extend through 2002. On
February 23, 1995, two companies which supply uranium concentrates to the
Company filed petitions for bankruptcy protection under Chapter 11 of the
Bankruptcy Code. The Company has contracts with the two companies to supply
approximately half of the Company's 1995 and 1996 requirements for uranium
concentrates. In addition, one of the companies is under contract to supply
approximately 25% of the Company's uranium concentrate requirements for the
period 1997 to 2002. The Company has made alternative arrangements
8
<PAGE>
with other suppliers to satisfy its short-term requirements for uranium
concentrates. The Company is also finalizing arrangements with another supplier
to satisfy the Company's longer-term needs. The Company does not anticipate any
difficulty in obtaining its requirements for uranium concentrates. The Company's
contracts for uranium concentrates are allocated to Limerick and Peach Bottom on
an as-needed basis. PSE&G has informed the Company that it presently has under
contract sufficient uranium concentrates to fully meet the current projected
requirements for Salem through 2000 and 60% of the requirements through 2002.
PSE&G has informed the Company that it does not anticipate any difficulty in
obtaining its requirements for uranium concentrates. The following table
summarizes the years through which the Company and PSE&G have contracted for the
other segments of the nuclear fuel supply cycle:
<TABLE>
<CAPTION>
Conversion Enrichment Fabrication
<S> <C> <C> <C>
Limerick Unit No. 1 ... (1) (2) 2003
Limerick Unit No. 2 ... (1) (2) 2004
Peach Bottom Unit No. 2 (1) (2) 1999
Peach Bottom Unit No. 3 (1) (2) 1998
Salem Unit No. 1 ...... 2000 (3) 2004
Salem Unit No. 2 ...... 2000 (3) 2005
<FN>
- ---------------
(1) The Company has commitments for 100% of its conversion services for
Limerick and Peach Bottom through 1997. Approximately 40% of the conversion
services requirements are covered through 2001. The Company does not
anticipate any difficulty in obtaining necessary conversion services for
Limerick and Peach Bottom.
(2) The Company has contractual commitments for enrichment services for
Limerick and Peach Bottom with the United States Enrichment Corporation.
These commitments represent 100% of the enrichment requirements through
1998 and 70% through 1999. The Company does not anticipate any difficulty
in obtaining necessary enrichment services for Limerick and Peach Bottom.
(3) PSE&G has contractual commitments for 100% of enrichment requirements
through 1998; approximately 50% through 2002; and approximately 30% through
2004. The Company has been informed by PSE&G that PSE&G does not anticipate
any difficulty in obtaining necessary enrichment services for Salem.
</FN>
</TABLE>
There are no commercial facilities for the reprocessing of spent nuclear
fuel currently in operation in the United States, nor has the NRC licensed any
such facilities. The Company currently stores all spent nuclear fuel from its
nuclear generating facilities in on-site, spent-fuel storage pools. By letter
dated November 29, 1994, the NRC approved the Company's request to install new
high-density, spent-fuel storage racks at Limerick, which will provide for
storage capacity to 2007. The new configuration will be designed to accommodate
rod consolidation. Spent-fuel racks at Peach Bottom have storage capacity until
2000 for Unit No. 2 and 2001 for Unit No. 3. Options for expansion of storage
capacity at Peach Bottom, including rod consolidation, are being investigated.
The Company has been informed by PSE&G that as a result of reracking the two
spent-fuel pools at Salem, the spent-fuel storage capability of Salem Units No.
1 and No. 2 is estimated to be 2008 and 2012, respectively.
Under the Nuclear Waste Policy Act of 1982 (NWPA), the DOE was to begin
accepting spent fuel for permanent off-site storage no later than 1998. The DOE
has stated that it has no legal obligation under the NWPA to begin accepting
spent fuel absent an operational repository or other facility constructed under
the NWPA. The DOE acknowledges, however, that it may have created the
expectation of such a commitment on the part of utilities by issuing certain
regulations and projected waste acceptance schedules. In June 1994, a number of
utilities and state agencies, including the PUC, filed a lawsuit against the DOE
seeking a determination of the DOE's legal obligation to accept fuel by 1998.
The DOE has stated that it will not be able to open a permanent, high-level
nuclear waste repository until 2015, at the earliest. The DOE stated that the
delay was a result of federal budget cuts, the DOE seeking new data about the
suitability of the proposed repository site at Yucca Mountain, Nevada,
opposition to this location for the repository and the DOE's revision of its
civilian nuclear waste program. Legislation has been introduced in Congress for
the construction of a temporary storage
9
<PAGE>
facility which would accept spent nuclear fuel from utilities beginning in 1998
or soon thereafter. Although progress is being made at Yucca Mountain and
several communities have expressed interest in providing a temporary storage
site, the Company cannot predict when the temporary federal storage facilities
or permanent repository will become available. The DOE is exploring options to
address delays in the currently projected waste acceptance schedules. The
options under consideration by the DOE include offsetting a portion of the
financial burden associated with the costs of continued on-site storage of spent
fuel after 1998. Under the NWPA, the DOE is authorized to assess utilities for
the cost of nuclear fuel disposal. The current cost of such disposal is one mil
($.001) per kWh of net nuclear generation. The 1995 charge collected by the
Company from its customers for spent-fuel disposal was $21 million. The DOE may
revise this charge as necessary for full-cost recovery of nuclear fuel disposal.
As a by-product of their operations, nuclear generating units, including
those in which the Company owns an interest, produce Low Level Radioactive Waste
(LLRW). LLRW is accumulated at each facility and permanently disposed of at a
federally licensed disposal facility. The Company is currently shipping LLRW
generated at Peach Bottom and Limerick to the site located in Barnwell, South
Carolina for disposal. Due to the uncertainty of the continued availability of
LLRW disposal sites, on-site storage facilities were constructed at Peach Bottom
and Limerick, each with five-year storage capacities.
The Company is also pursuing alternative disposal strategies for LLRW
generated at Peach Bottom and Limerick, including an aggressive LLRW reduction
program. Pennsylvania is the host site for LLRW generators located in
Pennsylvania, Delaware, Maryland and West Virginia and is pursuing a permanent
disposal site through a volunteer siting process. The Company has contributed
$12 million towards the total cost of a permanent Pennsylvania disposal site.
The Company has been informed by PSE&G that it has an on-site LLRW storage
facility at Salem, with a five-year storage capacity. PSE&G ships LLRW generated
at Salem to Barnwell, South Carolina and currently uses the Salem facility for
interim storage. PSE&G has also advised the Company that New Jersey also plans
to host a LLRW disposal site. The Company, as a Salem co-owner, has paid
$857,000 as its share of the New Jersey siting costs.
The National Energy Policy Act of 1992 (Energy Act) requires, among other
things, that utilities with nuclear reactors pay for the decommissioning and
decontamination of the DOE nuclear fuel enrichment facilities. The total costs
to domestic utilities are estimated to be $150 million per year for 15 years, of
which the Company's share is $5 million per year. The Energy Act provides that
these costs are to be recoverable in the same manner as other fuel costs. The
Company has recorded the liability and a related regulatory asset of $54 million
for such costs at December 31, 1995. The Company is currently recovering these
costs through the Energy Cost Adjustment (ECA).
The Company is currently recovering in rates the costs for nuclear
decommissioning and decontamination (based on 1990 cost estimates) and
spent-fuel storage. The Company believes that the ultimate costs of
decommissioning and decontamination, spent-fuel disposal and any assessment
under the Energy Act will continue to be recoverable through rates, although
such recovery is not assured. For additional information concerning
decommissioning, see "Electric Operations - General."
Coal
The Company has a 20.99% ownership interest in Keystone Station (Keystone)
and a 20.72% ownership interest in Conemaugh Station (Conemaugh), coal-fired,
mine-mouth generating stations in western Pennsylvania operated by Pennsylvania
Electric Company. A majority of Keystone's fuel requirements is supplied by one
coal company under a contract which expires on December 31, 2004. The contract
calls for varying amounts of coal purchases as follows: between 3,000,000 and
3,500,000 tons for each of the years 1996 through 1999; and a total of 6,500,000
tons for the years 2000 through 2004. At December 31, 1995, approximately 20% of
Conemaugh's fuel requirements were secured by a long-term contract and 21% by
several short-term contracts.
10
<PAGE>
The Company has entered into medium-term contracts for a significant
portion of its coal requirements and makes spot purchases for the balance of
coal required by its Philadelphia-area, coal-fired units at Eddystone Station
(Eddystone) and Cromby Station (Cromby). At January 1, 1996, the Company had
contracts with two suppliers for 1.5 million tons per year or approximately 80%
of expected annual requirements. Both contracts expire on December 31, 2000.
The coal requirements of each station not covered by existing contracts are
met through additional short-term contracts or spot purchases from suppliers.
Oil
The Company customarily enters into yearly purchase orders with its various
oil suppliers for the bulk of its requirements and makes spot purchases for the
balance. At present, the Company's purchase orders are sufficient to meet the
estimated residual fuel oil needs of its oil-fired generating units through June
1996, when current orders expire and new yearly orders begin. Purchase orders
for distillate fuel oil are expected to meet the Company's needs through June
1996, when current orders expire and new yearly orders begin.
Natural Gas
The Company obtains natural gas for electric generation through a
combination of short-term orders and spot purchases made on the open market, as
well as through the Company's own City Gate Sales Tariff. The Company obtains
the limited quantities of natural gas used by the auxiliary boilers and
pollution control equipment at Eddystone through the same means. The Company has
the capability to use either oil or natural gas at Cromby Unit No. 2 and
Eddystone Units No. 3 and No. 4.
Gas Operations
During 1995, 9.8% of the Company's operating revenues and 6.5% of its
operating income were from gas operations. Gas sales and operating revenues for
1995 by class of customer are set forth below:
<TABLE>
<CAPTION>
Operating
Sales Revenues
(mmcf) (millions of $)
<S> <C> <C>
House heating ......................... 31,848 $ 240
Residential (other than house heating) 1,516 15
Commercial and industrial ............. 19,422 129
Other ................................. 1,184 4
------- -------
Total gas sales ................... 53,970 388
Gas transported for customers ......... 48,531 22
------- -------
Total gas sales and gas transported 102,501 $ 410
======= =======
</TABLE>
Annual and quarterly operating results can be significantly affected by
weather. Traditionally, sales of gas are higher in the first and fourth quarters
due to colder weather.
The Company's natural gas supply is provided by purchases from a number of
suppliers for terms of up to five years. These purchases are delivered under
several long-term firm transportation contracts with Texas Eastern Transmission
Corporation (Texas Eastern) and Transcontinental Gas Pipe Line Corporation
(Transcontinental). The Company's aggregate annual entitlement under these firm
transportation contracts is 98.1 million dekatherms. Peak gas is provided by the
Company's liquefied natural gas facility and propane-air plant (see "ITEM 2.
PROPERTIES").
11
<PAGE>
Through service agreements with Texas Eastern, Transcontinental, Equitrans,
Inc. and CNG Transmission Corporation, underground storage capacity of 21.5
million dekatherms is under contract to the Company. Natural gas from
underground storage represents approximately 40% of the Company's 1995-96
heating season supplies.
As a result of FERC Order 636 and the subsequent restructuring of the
interstate pipeline industry, the gas distribution merchant function has come
under continued pressure as smaller customers elect to purchase non- utility gas
supplies. This has raised significant issues at the state level regarding the
long-term role of the gas distribution utility as a merchant. Other policy
issues have arisen regarding the obligation to serve by the utility, the erosion
of tax base, the potential for stranded costs associated with long-term
contracts, the implications for social programs now supported by utilities and
overall system reliability.
PECO Gas Supply Company, a wholly owned subsidiary, was formed in 1995 as
an unregulated marketing enterprise. PECO Gas Supply Company is a member of a
natural gas buying cooperative, also formed in 1995, to enhance reliability of
service and access less expensive gas supplies for its eight gas utility
members.
Eastern Pennsylvania Exploration Company, a wholly owned subsidiary, is a
party to several joint ventures formed to develop natural gas resources in the
Gulf Coast area. These joint ventures do not contribute to the Company's natural
gas supply. The Company is engaged in pursuing the sale of these joint ventures.
Segment Information
Segment information is incorporated herein by reference to note 2 of Notes
to Consolidated Financial Statements included in the Company's Annual Report to
Shareholders for the year 1995.
Rate Matters
In 1995, approximately 90% of the Company's electric sales revenue and 100%
of its gas sales revenue were derived pursuant to rates regulated by the PUC.
The PUC establishes through regulatory proceedings the base rates which the
Company may charge for electric and gas service in Pennsylvania. In addition,
the PUC regulates various fuel and tax adjustment clauses applicable to
customers' bills. The Company's wholesale electric and transmission rates are
regulated by the FERC. For information concerning wholesale electric
competition, see "Competition."
The Company has agreed with the PUC not to seek an increase in electric
base rates before April 1, 1999 except under specified circumstances for items
such as energy cost adjustments, changes in state taxes, changes in federal
taxes, demand side management surcharges, and increases in nuclear plant
decommissioning expenses or funding requirements and spent nuclear fuel disposal
expenses.
The Company's last electric base rate case, intended primarily to recover
costs associated with Limerick Unit No. 2 and associated common facilities, was
filed in 1989. The Company voluntarily excluded 400 MW of capacity from base
rates, and the PUC denied a return on common equity on an additional 399 MW of
capacity. Under its electric tariffs, the Company is allowed to retain for
shareholders any proceeds above the average energy cost for sales of this 399 MW
of capacity and/or associated energy. In addition, beginning April 1994, the
Company became entitled to share in the benefits which result from the operation
of both Limerick Units No. 1 and No. 2 through the retention of 16.5% of the
energy savings, subject to certain limits. During 1995, 1994 and 1993, the
Company recorded as revenue net of fuel costs $79, $68 and $38 million,
respectively, as a result of the sale of the 399 MW of capacity and/or
associated energy and the Company's share of Limerick energy savings.
On February 22, 1996, the PUC approved the Company's petition for a
declaratory accounting order to change the estimated depreciable lives of
certain of the Company's electric plant. The order approves the reduction of the
terminal dates by ten years, for depreciation accrual purposes only, of Limerick
Units No. 1 and
12
<PAGE>
No. 2 and associated common facilities, the utilization of new life spans for
various categories of electric production plant and changes in the remaining
life estimates for transmission, distribution, general and common plant. The
order also approves the amortization over a nine-year period of $331 million of
deferred Limerick costs representing $240 million of carrying charges and
depreciation associated with 50% of Limerick common facilities and $91 million
of operating and maintenance expenses, depreciation and accrued carrying charges
on the Company's capital investment in Limerick Unit No. 2 and 50% of Limerick
common facilities during the period from January 8, 1990, the commercial
operation date of Limerick Unit No. 2, until April 20, 1990, the effective date
of the Limerick Unit No. 2 rate order. The changes will increase depreciation
and amortization on assets associated with Limerick by approximately $100
million per year and decrease depreciation and amortization on other Company
assets by approximately $10 million per year, for a net increase in depreciation
and amortization of approximately $90 million per year. The order will not
increase rates charged to customers. The changes will be effective October 1,
1996.
Effective January 1995, in accordance with a PUC Joint Petition, the
Company increased electric base rates by $25 million per year to recover the
increased costs, including the annual amortization of the transition obligation
(over 18 years) deferred in 1994 and 1993, associated with the implementation of
Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." See note 7 of Notes
to Consolidated Financial Statements included in the Company's Annual Report to
Shareholders for the year 1995. Subsequent to January 1, 1995, retail electric
non-pension postretirement benefits expense in excess of the amount allowed to
be recovered under the Joint Petition may not be deferred for future rate
recovery. In accordance with the Joint Petition, any of the parties to the Joint
Petition may elect to void the settlement in the event current rate recovery of
non-pension postretirement benefits expense is ultimately disallowed as a result
of the Office of Consumer Advocate's appeal to the Supreme Court of Pennsylvania
of cases involving other Pennsylvania utilities. In such event, the Company
would refund to customers, with interest, any increased base rate amounts
collected.
The Company recovers fuel and gas costs through base rates and various
automatic adjustment clauses. The Company's ECA, applicable to retail electric
service, is adjusted annually. Pursuant to a PUC proceeding applicable to all
Pennsylvania gas utilities, effective March 1, 1996, purchased gas cost rates
are adjusted quarterly in lieu of annual filings. Regulatory audits of the
operation of the adjustment clauses are conducted to determine if refunds to or
recoupments from customers are necessary as a result of over- or
under-collections of fuel and gas costs. In addition, the PUC may investigate
outages of electric generating units which exceed 120 days or if the annual
capacity factor of a unit is less than 50% to determine whether to deny the
recovery of replacement power costs.
The Company's ECA provides for recovery of 100% of the difference between
the Company's PUC- jurisdictional costs of fuel, energy interchange and
purchased power and the costs billed to customers in base rates. The ECA also
incorporates a nuclear performance standard which allows for financial bonuses
or penalties depending on whether the Company's system nuclear capacity factor
exceeds or falls below a specified range. If the capacity factor is within the
range of 60% to 70%, there is no bonus or penalty. If the capacity factor
exceeds 70%, then progressive bonuses are allowed. If the capacity factor falls
below 60%, then progressive penalties are imposed. The bonuses or penalties are
based upon average system replacement energy costs. For the year ended December
31, 1995, the Company's system nuclear capacity factor was 72%, which entitled
the Company to a bonus of $2.5 million.
On March 6, 1996, the Company filed its new ECA to become effective April
1, 1996. The ECA filing proposes a change from a credit value of 5.086 mils per
kWh to a credit value of 4.424 mils per kWh, which represents a decrease in
annual revenue of $21.7 million. The ECA filing reflects a settlement agreement
with the Office of Consumer Advocate, the Office of Small Business Advocate and
a group of the Company's industrial customers, which was filed with the ECA,
under which recovery of $33.1 million of replacement power costs associated with
the shutdown of Salem would be denied for the reconciliation period ended
January 31, 1996, offset by an additional $6 million adjustment to the Company's
nuclear performance bonus. The approval of the ECA, including the joint
settlement agreement, is pending before the PUC.
13
<PAGE>
On May 31, 1995, the Company filed Purchased Gas Cost (PGC) No. 12 rates
for the period December 1, 1995 through November 30, 1996, which reflected a
$0.80 per thousand cubic feet (mcf) decrease in natural gas sales rates. On
November 13, 1995, the PUC approved the Joint Settlement setting a $0.88 per mcf
decrease, effective December 1, 1995, representing a decrease in annual revenue
of $48.4 million. Effective March 1, 1996, the first quarterly adjustment of the
PGC resulted in an increase of $0.335 per mcf in natural gas sales rates.
The Company is authorized under a general order of the PUC to add a State
Tax Adjustment Surcharge to customers' bills to reflect the cost of increases or
decreases in certain state tax rates not recovered in base rates.
On October 2, 1990, the PUC issued an order initiating an investigation
into Demand-Side Management (DSM) by electric utilities. Generally, DSM programs
involve utilities providing assistance or incentives to customers to encourage
them to conserve energy and reduce peak demand. On December 1, 1993, the PUC
issued an order establishing a special DSM cost-recovery mechanism for a
five-year period. The PUC order would have permitted surcharge recovery of DSM
program costs and allowed utilities to earn an incentive on kWh saved from DSM.
The PUC order also would have permitted utilities to defer "lost revenues," with
interest, for eventual recovery in the next base rate case. On January 9, 1995,
the Commonwealth Court issued a decision in which it upheld the PUC's order
related to surcharge recovery of DSM program costs, but reversed the PUC's
decision to award DSM incentives through a surcharge. The Commonwealth Court
also remanded all issues related to "lost revenue" recovery for further
consideration by the PUC. The PUC appealed the decision to the Supreme Court of
Pennsylvania which affirmed the Commonwealth Court's decision.
In addition to the matters discussed above, see "Competition" for a
discussion of the PUC's investigation of electric power competition issues.
Construction
The Company maintains a construction program designed to meet the projected
requirements of its customers and to provide service reliability, including the
timely replacement of existing facilities. The Company's current construction
program includes no new generating facilities. During the five years 1991-95,
gross property additions (excluding capital leases) amounted to $2.6 billion and
retirements amounted to $272 million, resulting in a net increase of
approximately 17% in the Company's gross utility plant. Investment in new plant
and equipment in 1995 amounted to $480 million. At December 31, 1995,
construction work in progress, excluding nuclear fuel, aggregated $494 million.
The following table shows the Company's most recent estimates of capital
expenditures for plant additions and improvements for 1996 and for 1997-99:
<TABLE>
<CAPTION>
(Millions of $)
1996 1997-99
<S> <C> <C>
Electric:
Production .................. $ 158 $ 402
Nuclear fuel ................ 67 139
Transmission and distribution 117 280
Other electric .............. 2 9
------ ------
Total electric .......... 344 830
Gas .............................. 55 158
Other ............................ 139 254
------ ------
Total ....................... $ 538 $1,242
====== ======
</TABLE>
Nuclear fuel requirements exclude the Company's share of the requirements
for Peach Bottom and Salem which are provided by an independent fuel company
under a capital lease. See note 16 of Notes to Consolidated Financial Statements
included in the Company's Annual Report to Shareholders for the year 1995.
14
<PAGE>
Capital Requirements and Financing Activities
The following table shows the Company's most recent estimates of capital
requirements for 1996 and for 1997-99:
<TABLE>
<CAPTION>
(Millions of $)
1996 1997-99
<S> <C> <C>
Construction .............................. $ 538 $1,242
Long-term debt maturities and sinking funds 401 867
------ ------
Total capital requirements ....... $ 939 $2,109
====== ======
</TABLE>
The Company expects to meet its capital requirements, including long-term
debt maturities, for 1996 with internally generated funds and short-term
borrowings; however, for 1997-99 the Company expects internally generated funds
to more than satisfy its capital requirements including long-term debt
maturities. The estimates of capital requirements do not include any amounts for
unscheduled refundings of higher-dividend preferred stock or higher-interest
debt, which refundings are dependent on future market conditions and internal
cash generation.
The following table shows the Company's financing activities for 1995:
<TABLE>
<CAPTION>
(Millions of $)
<S> <C>
Term Loan:
Floating Rate due 1997 ................... $175
Trust Receipts, each representing a Company
Obligated Mandatorily Redeemed
Preferred Securities of a Partnership (1):
8.72% ............................... 81
Pollution Control:
Floating Rate due 1996 ................... 8
----
$264
====
<FN>
- ---------------
(1) Issued through PECO Energy Capital, L.P., of which a wholly owned
subsidiary of the Company is the general partner.
</FN>
</TABLE>
The long-term debt and the Trust Receipts (recorded in the financial
statements as Company Obligated Mandatorily Redeemed Preferred Securities of a
Partnership) issued during 1995 replaced debt and preferred stock carrying
higher after-tax rates of interest and dividends. During 1995, the Company
utilized cash from operations, proceeds from the sale of its subsidiary
Conowingo Power Company and $100 million from the sale of an undivided interest
in trade receivables to reduce debt by $401 million.
Under the Company's mortgage (Mortgage), additional mortgage bonds may not
be issued on the basis of property additions or cash deposits unless earnings
before income taxes and interest during 12 consecutive calendar months of the
preceding 15 calendar months from the month in which the additional mortgage
bonds are issued are at least two times the pro forma annual interest on all
mortgage bonds outstanding and then applied for. For the purpose of this test,
the Company has not included Allowance for Funds Used During Construction which
is included in net income in the Company's consolidated financial statements in
accordance with the prescribed system of accounts. The coverage under the
earnings test of the Mortgage for the 12 months ended December 31, 1995 was 4.94
times. Earnings coverages under the Mortgage for the calendar years 1994 and
1993 were 3.48 and 4.20 times, respectively. At December 31, 1995, the most
restrictive issuance test of the Mortgage related to available property
additions. At December 31, 1995, the Company had at least $1.44 billion of
available property additions against which $864 million of mortgage bonds could
have been issued. In addition,
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at December 31, 1995, the Company was entitled to issue approximately $3.5
billion of mortgage bonds without regard to the earnings and property additions
tests against previously retired mortgage bonds.
Under the Company's Amended and Restated Articles of Incorporation
(Articles), the issuance of additional preferred stock requires an affirmative
vote of the holders of two-thirds of all preferred shares outstanding unless
certain tests are met. Under the most restrictive of these tests, additional
preferred stock may not be issued without such a vote unless earnings after
income taxes but before interest on debt during 12 consecutive calendar months
of the preceding 15 calendar months from the month in which the additional
shares of stock are issued are at least 1.5 times the aggregate of the pro forma
annual interest and preferred stock dividend requirements on all indebtedness
and preferred stock. Coverage under this earnings test of the Articles for the
12 months ended December 31, 1995 was 2.74 times. Earnings coverage under the
Articles for the calendar years 1994 and 1993 was 2.05 and 2.47 times,
respectively.
The following table sets forth the Company's ratios of earnings to fixed
charges and the ratios of earnings to combined fixed charges and preferred stock
dividends for the periods indicated:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges..................... 2.55 2.43 3.15 2.66 3.49
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends......................... 2.14 2.06 2.67 2.32 3.18
</TABLE>
For purposes of these ratios, (i) earnings consist of income from continuing
operations before income taxes and fixed charges and (ii) fixed charges consist
of all interest deductions and the financing costs associated with capital
leases.
At December 31, 1995, the Company had a total of $517 million outstanding
under unsecured term-loan agreements with banks with maturities extending to
1997. Most of the Company's unsecured debt agreements contain cross-default
provisions to the Company's other debt obligations.
The Company has a $300 million commercial paper program supported by a $400
million revolving credit agreement. At December 31, 1995, there was no
commercial paper outstanding. At December 31, 1995, the Company and its
subsidiaries had formal and informal lines of credit with banks aggregating $221
million against which there was no short-term debt outstanding. The Company's
bank lines are comprised of both committed and uncommitted lines of credit. As
of December 31, 1995, the Company had no compensating balance agreements with
any bank.
Employee Matters
The Company and its subsidiaries had 7,217 employees at December 31, 1995.
None of the Company's employees are represented by a union. In 1993, in a
National Labor Relations Board (NLRB) certified election, a majority of
non-management employees voted to continue not to be represented by a union.
On March 7, 1995, a New Jersey local of the International Brotherhood of
Electrical Workers (IBEW) filed two petitions with the NLRB to hold a
certification election to determine whether a group of production and
maintenance employees from Eddystone and Cromby want the IBEW to represent them.
The petitions seek to establish separate bargaining units for 225 employees from
Eddystone and 70 employees from Cromby. The petitions cover craft and technical
employees, including operators, but exclude office clerical, professional,
supervisory and management employees.
On March 22, 1995, the Utility Workers Union of America, AFL-CIO (UWUA)
filed a petition with the NLRB to hold a certification election to determine
whether certain production and maintenance employees from Peach Bottom and
Limerick want the UWUA to represent them. The petition seeks a bargaining unit
of
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approximately 600 employees composed of all maintenance employees and all
control room and alternate control room operators and auxiliary operators,
instrumental and control technicians, health physics technicians, chemistry
technicians, material handlers and technicians, and rad waste technicians. The
petition excludes security guards, clerical and supervisory employees. On March
23, 1995, the NLRB issued an order consolidating for hearing the three
petitions. From April through September, the NLRB conducted hearings regarding
the appropriateness of the petitioned units and the eligibility issues for those
units. The Company has taken the position that the only appropriate bargaining
unit is the same system-wide unit that was certified by the NLRB for the 1993
election, and that it will oppose any attempt by outside interests to organize
its employees. An NLRB decision is pending.
On October 2, 1995, ten days after the record in proceedings discussed
above were closed, the UWUA filed another petition seeking certification of a
bargaining unit consisting of all production and maintenance employees of the
Consumer Energy Services Group. The Company unsuccessfully sought to consolidate
this petition with the other three petitions. Hearings regarding the latest UWUA
petition are scheduled to begin in April 1996.
Environmental Regulations
Environmental controls at the federal, state, regional and local levels
have a substantial impact on the Company's operations due to the cost of
installation and operation of equipment required for compliance with such
controls. In addition to the matters discussed below, see "Electric Operations
- -- General" and "Electric Operations -- Limerick Generating Station."
An environmental issue with respect to construction and operation of
electric transmission and distribution lines and other facilities is whether
exposure to electric and magnetic fields (EMF) causes adverse human health
effects. A large number of scientific studies have examined this question and
certain studies have indicated an association between exposure to EMF and
adverse health effects, including certain types of cancer. However, the
scientific community still has not reached a consensus on the issue. Additional
research intended to provide a better understanding of EMF is continuing. On
January 11, 1995, researchers at the University of North Carolina released the
results of an EMF study in which the Company had participated. The researchers
stated that this study does not resolve the fundamental question of whether
magnetic fields cause cancer. The Company supports further research in this area
and is funding, monitoring and participating in such studies. The Company cannot
predict at this time what effect, if any, this matter will have on future
operations.
Public concerns about the possible health risks of exposure to EMF have,
and are expected in the future to, adversely affect the costs of, and time
required to, site new distribution and transmission facilities and upgrade
existing facilities.
Water
The Company has been informed by PSE&G that PSE&G is implementing the 1994
New Jersey Pollutant Discharge Elimination System permit issued for Salem which
requires, among other things, water intake screen modifications and wetlands
restoration. In addition, PSE&G is seeking permits and approvals from various
agencies needed to fully implement the special conditions of the permit. No
assurances can be given as to receipt of any such additional permits or
approvals. The estimated capital cost of compliance with the final permit is
approximately $100 million, of which the Company's share is 42.59% and is
included in the Company's capital requirements for 1996 and 1997-98. PSE&G must
apply to renew the Salem permit in March 1999 which renewal application must
provide updated demonstrations for review by the New Jersey Department of
Environmental Protection and Energy (NJDEPE).
Air
Air quality regulations promulgated by the PDEP and the City of
Philadelphia in accordance with the federal Clean Air Act impose restrictions on
emission of particulates, sulfur dioxide (SO2) and other pollutants and require
permits for operation of emission sources. Such permits have been obtained by
the Company and must
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<PAGE>
be renewed periodically. Under the Clean Air Act Amendments of 1990
(Amendments), new permits will have to be obtained.
The Amendments establish a comprehensive and complex national program to
substantially reduce air pollution over the next decades. The Amendments include
a two-phase program to reduce acid rain effects by significantly reducing
emissions of SO2 and nitrogen oxides (NOx) from electric power plants. Flue-gas
desulfurization systems (scrubbers) have been installed at Conemaugh Units No. 1
and No. 2 to reduce SO2 emissions to meet the 1995 Phase I requirements of the
Amendments. The Company's share of the capital costs to construct the scrubbers
and make other related improvements at Conemaugh was approximately $78 million.
Units No. 1 and No. 2 at Keystone are subject to the Phase II SO2 and NOx limits
of the Amendments which must be met by January 1, 2000. The Company and the
other Keystone co-owners are evaluating the Phase II compliance options for
Keystone, including the purchase of SO2 emission allowances and the installation
of scrubbers.
The Company's service-area, coal-fired generating units at Eddystone and
Cromby are equipped with scrubbers and their SO2 emissions meet the SO2 emission
rate limits of both Phase I and Phase II of the Amendments. The Company has
completed the implementation of measures, including the installation of NOx
emissions controls and the imposition of certain operational constraints, to
comply with the Reasonably Available Control Technology limitations of the
Amendments. The Company's capital expenditures to satisfy these compliance
requirements were approximately $19 million. The Company expects that the cost
of compliance with anticipated air-quality regulations may be substantially
higher due to further limitations on permitted NOx emissions. As a result of its
prior investments in scrubbers for Eddystone and Cromby and its investment in
nuclear and hydroelectric generating capacity, the Company believes that
compliance with the Amendments will have less impact on the Company's electric
rates than on the rates of other Pennsylvania utilities which are more dependent
on coal-fired generation.
Many other provisions of the Amendments affect the Company's business. The
Amendments establish stringent new control measures for geographical regions
which have been determined by the EPA to not meet National Ambient Air Quality
Standards; establish limits on the purchase and operation of motor vehicles and
require increased use of alternative fuels; establish stringent controls on
emissions of toxic air pollutants and provide for possible future designation of
some utility emissions as toxic; establish new permit and monitoring
requirements for sources of air emissions; and provide for significantly
increased enforcement power, and civil and criminal penalties.
Solid and Hazardous Waste
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 and the Superfund Amendments and Reauthorization Act of 1986
(collectively CERCLA) authorize the EPA to cause "potentially responsible
parties" (PRPs) to conduct (or for the EPA to conduct at the PRPs' expense)
remedial action at waste disposal sites that pose a hazard to human health or
the environment. Parties contributing hazardous substances to a site or owning
or operating a site typically are viewed as jointly and severally liable for
conducting or paying for remediation and for reimbursing the government for
related costs incurred. PRPs may agree to allocate liability among themselves,
or a court may perform that allocation according to equitable factors deemed
appropriate. In addition, the Company is subject to the Resource Conservation
and Recovery Act (RCRA) which governs treatment, storage and disposal of solid
and hazardous wastes.
By notice issued in November 1986, the EPA notified over 800 entities,
including the Company, that they may be PRPs under CERCLA with respect to
releases of radioactive and/or toxic substances from the Maxey Flats disposal
site, a low-level radioactive waste disposal site near Moorehead, Kentucky,
where Company wastes were deposited. Approximately 90 PRPs, including the
Company, formed a steering committee and entered into an administrative consent
order with the EPA to conduct a remedial investigation and feasibility study
(RI/FS), which was substantially revised based on the EPA comments. In September
1991, following public review and comments, the EPA issued a Record of Decision
in which it selected a natural stabilization remedy for the Maxey
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<PAGE>
Flats disposal site. The steering committee has preliminarily estimated that
implementing the EPA proposed remedy at the Maxey Flats site would cost $60-$70
million in 1993 dollars. A settlement has been reached among the PRPs, the
federal and private PRPs, the Commonwealth of Kentucky and the EPA concerning
their respective roles and responsibilities in conducting remedial activities at
the site. Under the settlement, the private PRPs will perform the initial
remedial work at the site and the Commonwealth of Kentucky will assume
responsibility for long-range maintenance and final remediation of the site. The
Company estimates that it will be responsible for $600,000 of the remediation
costs to be incurred by the private PRPs. On June 5, 1995, a consent decree,
which included the terms of the settlement, was filed with the United States
District Court for the Eastern District of Kentucky. The United States
Department of Justice, following a public comment period, filed a motion with
the court for entry of the decree. The PRPs have entered into a contract for the
design and implementation of the remedial plan and preliminary work has
commenced.
By notice issued in December 1987, the EPA notified several entities,
including the Company, that they may be PRPs under CERCLA with respect to wastes
resulting from the treatment and disposal of transformers and miscellaneous
electrical equipment at a site located in Philadelphia, Pennsylvania (the Metal
Bank of America site). Several of the PRPs, including the Company, have formed a
steering committee to investigate the nature and extent of possible involvement
in this matter. On May 29, 1991, a Consent Order was issued by the EPA pursuant
to which the members of the steering committee agree to perform the RI/FS as
described in the work plan issued with the Consent Order. The Company's share of
the cost of the RI/FS was approximately 30%. On October 14, 1994, the PRPs
submitted to the EPA the RI/FS which identified a range of possible remedial
alternatives for the site from taking no action to removal of essentially all
contaminated material with an estimated cost range of $2 million to $90 million.
On July 19, 1995, the EPA issued a proposed plan for remediation of the site
which involves removal of contaminated soil, sediment and groundwater and which
the EPA estimates would cost approximately $17 million to implement. On October
18, 1995, the PRPs submitted comments to the EPA on the proposed plan which
identified several inadequacies with the plan, including substantial
underestimates of the costs associated with remediation. Until the Record of
Decision has been issued by the EPA, the Company cannot estimate its share of
the cost to implement the selected remedy.
By notice issued in September 1985, the EPA notified the Company that it
has been identified as a PRP for the costs associated with the cleanup of a site
(Berks Associates/Douglasville site) where waste oils generated from Company
operations were transported, treated, stored and disposed. In August 1991, the
EPA filed suit in the United States District Court for the Eastern District of
Pennsylvania (Eastern District Court) against 36 named PRPs, not including the
Company, seeking a declaration that these PRPs are jointly and severally liable
for cleanup of the Berks Associates/Douglassville site and for costs already
expended by the EPA on the site. Simultaneously, the EPA issued an
Administrative Order against the same named defendants, not including the
Company, which requires the PRPs named in the Administrative Order to commence
cleanup of a portion of the site. On September 29, 1992, the Company and 169
other parties were served with a third-party complaint joining these parties as
additional defendants. Subsequently, an additional 150 parties were joined as
defendants. A group of approximately 100 PRPs with allocated shares of less than
1%, including the Company, have formed a negotiating committee to negotiate a
settlement offer with the EPA. In December 1994, the EPA proposed a de minimis
PRP settlement which would require the Company to pay approximately $800,000 in
exchange for the EPA agreeing not to sue, take administrative action under
CERCLA for recovery of past or future response costs or seek injunctive relief
with respect to the site. The Company has notified the EPA that it wishes to
participate with other eligible PRPs in the de minimus settlement, and is
currently awaiting approval of the settlement.
In June 1989, a group of PRPs (Metro PRP Group) entered into an
Administrative Order on Consent (AOC) with the EPA pursuant to which they agreed
to perform certain removal activities at the Metro Container Superfund Site
located in Trainer, Pennsylvania. In January 1990, the Metro PRP Group notified
the Company that the group considered the Company to be a PRP at the site based
on evidence which it believes indicates between 200 and 300 empty Company drums
were transported to the site. The Company was invited to participate in the
allocation process and was further informed that, unless it agreed to sign the
AOC, the Company risked either being named in a cost recovery action brought by
the EPA or in a contribution action to be filed by the Metro PRP Group. In
response, the Company notified the Metro PRP Group that it would be
19
<PAGE>
interested in participating in the allocation process. The Metro PRP Group has
proposed a settlement which would involve the Company paying less than $10,000
towards the costs of a removal action estimated to cost approximately $5
million. The Company has requested additional information from the Metro PRP
Group.
In October 1995, the Company, along with over 500 other companies, received
a General Notice from the EPA advising that the Company had been identified as
having sent hazardous substances to the Spectron/Galaxy Superfund Site and
requesting the companies to conduct an RI/FS at the site. The Company had
previously been identified as a de minimus PRP and paid $2,100 to settle an
earlier phase. Additionally, the Company had participated in a PRP agreement and
consent order related to further work at the Spectron site. In conjunction with
the EPA's General Notice, the existing PRP group has proposed a settlement
which, based on the volume of hazardous substances sent to the Spectron site by
the Company, would allow the Company to settle the matter as a de minimus party
for less than $10,000.
In April 1990, the Company received a notice from the NJDEPE which alleges
that the Company is potentially liable for certain cleanup costs at the
Gloucester Environmental Management Services, Inc. (GEMS) site located in New
Jersey because wastes generated by the Company were deposited at the site by a
third party. The Company was added as a defendant in a suit commenced by the
NJDEPE several years ago, which now names several hundred defendants, and which
relates to the GEMS site. The Company has joined a pre-existing group of PRPs
which is dealing with the NJDEPE on these matters. Settlement negotiations are
ongoing. In February 1995, the Company was named as an additional defendant in a
private party class action seeking damages associated with the GEMS site. The
Company settled the private party class action for $52,500.
On October 16, 1989, the EPA and the NJDEPE commenced a civil action in the
United States District Court for the District of New Jersey against 26
defendants, not including the Company, alleging the right to collect past and
future response costs for cleanup of the Helen Kramer landfill located in New
Jersey. In October 1991, the direct defendants joined the Company and over 100
other parties as third-party defendants. The third-party complaint alleges that
the Company generated materials containing hazardous substances that were
transported to and disposed at the landfill by a third party. The direct and
third-party defendants are presently involved in settlement negotiations
involving an allocation process.
In November 1987, the Company received correspondence from the EPA which
indicated that the EPA was investigating the source, extent and nature of the
release or threatened release of hazardous substances from the Blosenski
Landfill located in West Caln Township, Chester County, Pennsylvania (Blosenski
Landfill Superfund Site). The EPA letter requested information on several
Blosenski entities and affiliates (Blosenski entities) and also whether any
wastes generated by the Company had been transported to, stored, treated or
disposed at the Blosenski Landfill Superfund Site. In January 1988, the Company
notified the EPA that, after searching its files and records, it was unable to
locate or identify any information related to the Blosenski entities or
activities conducted at the Blosenski Landfill Superfund Site. Subsequently, on
July 8, 1992, the Company was notified by a group of PRPs who had been ordered
by the EPA to implement one portion of the four-part remedial plan for the site,
that based on information which it believed indicated Company wastes were
disposed of at the site, the group considered the Company to be responsible for
a share of the cleanup and remediation costs. The PRP group advised the Company
that unless it voluntarily joined the existing PRP group, the Company risked
being named as a defendant in a contribution lawsuit which had been filed
against certain other PRPs in federal court. On August 3, 1992, the PRP group
served the Company with a subpoena which required the production of Company
documents and records relating to Company operations and waste disposal
practices and procedures. In September 1992, the Company informed the PRP group
that due to its inability to identify any pertinent records in its own files or
confirm the PRP group's allegations, that it did not, at that time, intend to
join the Blosenski PRP Group or contribute to the remediation costs. In
addition, the Company submitted documentation which responded to some of the
subpoena requests and notified the PRP group of its objection to others. On
September 7, 1995, the federal court approved a consent decree which required
the site owner and approximately 20 PRPs to implement an estimated $13 million
remedy at the site and reimburse the federal government and the Commonwealth of
Pennsylvania $5 million for past costs and oversight costs related to the
cleanup.
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In November 1992, the Company received a subpoena from the non-government
parties (party participants) in a consolidated action relating to the Bridgeport
Rental and Oil Services (BROS) site which requested information on various
haulers who transported hazardous and solid waste materials to the BROS site.
Information gathered pursuant to the subpoena indicates that one of the haulers
associated with the BROS site picked up and transported waste generated by the
Company. Additionally, the party participants possess information which they
believe connects the Company to the site. At the invitation of the party
participants, the Company along with several others (voluntary participants) is
participating in a "voluntary, informal, non-litigated settlement/mediation
process." In April 1993, the Company received a Request for Information from the
EPA regarding the Company's potential involvement at the BROS site. On May 27,
1993, the Company provided the EPA with the same documents gathered in response
to the subpoena served by the party participants. The voluntary participants are
presently engaged in negotiations with the party participants.
On March 3, 1989, the Company received a Notice of Violation from the PDEP
for soil contamination at one of the Company's maintenance facilities. The
Company suspects that the contamination was caused by leakage of transformer
dielectric fluid. The PDEP required the Company to initiate sampling to
determine the scope of the contamination. The Company conducted sampling and
ground water monitoring and submitted the results to the PDEP on November 18,
1991. The Company has identified the presence of oil and polychlorinated
byphenols (PCBs) at the site. On February 19, 1993, the Company submitted to the
PDEP a revised remedial clean-up strategy. On March 9, 1993, the PDEP accepted
the Company's revised remedial clean-up strategy. The Company is implementing
the remedial clean-up strategy accepted by the PDEP, which is expected to cost
approximately $2 million over a period of three to five years.
On November 30, 1995, the Company was added as a third party defendant in
an existing suit alleging that the Company is responsible for sending waste to
the Cinnaminson Ground Water Contamination Site located in the Township of
Cinnaminson in Burlington County, New Jersey. The Company joined with other
third party defendants in filing a motion to dismiss the complaint for failure
to state a claim. While the parties await a ruling by the court, they will
participate in a court-ordered mediation process. The Company is currently
unable to estimate the cost of any potential corrective action.
The Company has been named as a defendant in a Superfund matter involving
the Greer Landfill in South Carolina. The Company is currently involved in
settlement discussions with the plaintiff. The Company is currently unable to
estimate the cost of any potential corrective action.
The Company has identified 23 sites where former 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 various levels of activities at these sites, including
initial evaluation to determine the existence and nature of the contamination,
detailed evaluation to determine the extent of the contamination and the
necessity and possible methods of remediation, and implementation of
remediation. Seven of the sites are currently in the detailed evaluation or
remediation stage. At December 31, 1995, the Company had accrued approximately
$13 million for investigation and remediation of these manufactured gas plant
sites. The Company expects that it will incur additional liabilities with
respect to these sites, which cannot be reasonably estimated at this time.
The Company has also responded to various governmental requests,
principally those of the EPA pursuant to CERCLA, for information with respect to
the possible deposit of Company waste materials at various disposal, processing
and other sites.
On June 4, 1993, the Company entered into a Corrective Action Consent Order
(CACO) from the EPA under RCRA. The CACO order requires the Company to
investigate the extent of alleged releases of hazardous wastes and to evaluate
corrective measures, if necessary, for a site located along the Delaware River
in Chester, Pennsylvania, which had previously been leased to Chem Clear, Inc.
Chem Clear operated an industrial waste water pretreatment facility on the site.
In October 1994, the Company entered into an agreement with Clean Harbors, the
successor to Chem Clear, pursuant to which the Company will be responsible for
approximately 25%
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<PAGE>
of the costs incurred under the CACO and Clean Harbors will be responsible for
75% of the costs. The Company estimates that its share of the costs to comply
with the CACO will be approximately $2.5 million. At December 31, 1995, the
Company had spent $1.0 million to comply with the CACO. Until completion of the
required investigation, the Company is unable to predict the nature and cost of
any potential corrective action.
Costs
At December 31, 1995, the Company had accrued $27 million for various
investigation and remediation costs that can be reasonably estimated, including
approximately $13 million for investigation and remediation of former
manufactured gas plant sites. The Company cannot currently predict whether it
will incur other significant liabilities for additional investigation and
remediation costs at sites presently identified or additional sites which may be
identified by the Company, environmental agencies or others or whether all such
costs will be recoverable through rates or from third parties.
The Company's budget for capital requirements for 1996 and its most recent
estimate of capital requirements for 1997-98 for compliance with environmental
requirements total $80 million. This estimate includes the Company's share of
the costs to comply with the revised NJDEPE permit for Salem, but does not
include any amounts that may be required for its share of scrubbers or other
systems at Keystone to comply with the Amendments. In addition, the Company may
be required to make significant additional expenditures not presently
determinable.
Competition
Over the last few years, legislative and regulatory initiatives and market
forces have laid the foundation for continued development of competition in the
electric utility industry. As a result, the electric utility industry is
reviewing the potential impacts of a major transition from a traditional rate
regulated environment of bundled service based on cost recovery to unbundled
services with some combination of a competitive marketplace for some services,
principally generation, and modified regulation of other market segments.
Increased competition is expected to reduce the margin on certain classes of
energy sales and may result in customer and revenue losses. Increased
competition may also limit high cost utilities' ability to recover capital
investment through rates, resulting in stranded investment and potential
writedown of assets. Potential competition has resulted in increased focus on
cost cutting and consideration of strategic alternatives, including mergers and
restructuring of operations. For additional information concerning competition,
see "Competition" in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report to
Shareholders for the year 1995.
The Energy Act was enacted to promote competition among utility and
nonutility generators in the wholesale electric generation market. The Energy
Act allows the FERC to order owners of electric transmission systems to provide
third parties with transmission access for wholesale power transactions. During
1995, the FERC issued proposed rules which, if adopted, would require that all
public utilities have on file with the FERC nondiscriminatory open-access
transmission tariffs for network and point-to-point services, including separate
rates for ancillary services. The FERC's proposed rules would also provide for
recovery of legitimate and verifiable wholesale stranded investment. These
proposals further expressed the FERC's strong expectation that state regulatory
commissions provide for similar full recovery of legitimate and verifiable
stranded investment that could result if state regulatory commissions ordered
retail competition and direct access. The Company filed comments in response to
the FERC's proposal. The comments, while generally supportive, suggested several
adjustments to ensure full stranded investment recovery. An order from the FERC
is expected in the first half of 1996.
The Company also filed a tariff for network and point-to-point services and
a market-based rate tariff that would allow the Company to sell wholesale energy
at market-based rates outside the PJM control area. These tariffs would be
available to wholesale buyers and sellers of electricity, although the Company
would continue to make sales within the PJM control area under its existing
FERC-approved cost-based tariffs. The market-based
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tariff described above is not expected to affect the applicability of SFAS No.
71, "Accounting for the Effects of Certain Types of Regulation," to the
Company's operations. For additional information concerning SFAS No. 71, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report to Shareholders for the year 1995.
During 1995, the Company proposed a plan to enable the PJM companies to
offer regional open access to their transmission facilities, to create an
independent system operator, to adapt the existing PJM regional wholesale energy
market to increased competition and to preserve those elements of power pooling
which are still beneficial.
While the Energy Act encourages competition on a wholesale level, the
Energy Act prohibits the FERC from ordering wheeling for sales to retail
customers. Currently, a number of states, including Pennsylvania, are assessing
the issue of retail competition with varying outcomes. While assessing their
positions, many issues must be considered which will require significant
deliberation and may result in legal challenges. These issues include the
recovery of any resulting stranded investment, the impact of
inter-jurisdictional sales and whether such change is enacted by regulatory or
legislative action.
In August 1995, after seeking input from Pennsylvania utilities and
interest groups, the PUC staff issued a report recommending against the
implementation of retail electric power competition at this time. The PUC also
issued an order inviting further comments and establishing hearings on
competition issues with the expectation of submitting a report to the
Pennsylvania legislature and the Governor in June 1996. In November 1995, the
Company submitted testimony which proposes five major initiatives to reduce the
costs of electricity while preserving the reliability and universal service that
is essential to Pennsylvania citizens. These initiatives are: 1) improvements in
the PJM interconnection to incorporate an independent system operator, provide
for wholesale energy exchange based on a market bidding mechanism, provide a
regional transmission tariff and expand participation in the wholesale energy
market to others, including firms that are not traditional utilities; 2)
performance-based regulation which would link utility earnings to performance
rather than historic costs; 3) flexible pricing to allow utilities to offer
customers a variety of service options tailored to individual requests, and to
bring certain rates closer to market levels; 4) accelerated depreciation and
other cost mitigation measures that challenge the utilities to reduce possible
stranded investment associated with existing generation assets; and 5)
competitive bidding of new generation to ensure that needs are met as
efficiently as possible. The Company believes that these proposed initiatives
will allow the PUC to improve the efficiency of the electric industry, while
continuing to assure the availability of reliable service for all customers at
reasonable rates, without significant adverse consequences on the financial
condition of the electric utilities.
The Company believes that retail competition should not be adopted if it
represents a mere shifting of costs from one class of customers to another or to
shareholders, and that retail competition does not currently provide a net
benefit. Regulatory changes permitting retail competition may also create
stranded investment if the FERC's position of allowing full recovery of stranded
investment as described in its proposal is not adopted. Investments by the
Company in assets which would not be recoverable from customers, including its
investment in nuclear facilities, may have to be written down, which would have
a material adverse effect on the Company's financial condition and results of
operations. The Company is not able to predict whether retail competition will
be implemented and, if implemented, what impact it would have on the Company's
financial condition or results of operations.
As a result of competitive pressures, the Company has negotiated long-term
contracts with many of its larger- volume industrial customers. Although these
agreements have resulted in lower revenues from this class of customers, they
have permitted the Company to maintain this segment of its customer base.
The gas industry is also undergoing structural changes in response to FERC
policies designed to increase competition in this market. This has included
requirements that interstate gas pipelines unbundle their gas sales service from
other regulated tariff services, such as transportation and storage. In
anticipation of these policies,
23
<PAGE>
the Company has modified its gas purchasing arrangements to enable the purchase
of gas and transportation at lower costs, and has become more active in the area
of gas transportation.
During 1995, there were an unprecedented number of mergers in the utility
industry and this trend is expected to continue. In August 1995, the Company
proposed a merger with PP&L Resources, Inc., an electric utility with operations
in northeast Pennsylvania. In November, PP&L Resources declined the Company's
final offer and the Company withdrew its proposal. The Company will continually
evaluate all opportunities to improve its strategic and competitive position
but, because of its strong stand-alone position, is not compelled to pursue such
opportunities at any cost.
Telecommunications
To take advantage of emerging opportunities in the telecommunications
field, in 1995, the Company created a new strategic business unit, the
Telecommunications Group. The business unit has initiated several joint ventures
in newly emerging wireless personal communications services businesses and other
competitive telecommunications opportunities. The telecommunications field
presents the Company with many opportunities to expand its business and generate
additional revenues.
PECO Energy Capital Corp. and Related Entities
PECO Energy Capital Corp., a wholly owned subsidiary, is the sole general
partner of PECO Energy Capital, L.P., a Delaware limited partnership
(Partnership). The Partnership was created solely for the purpose of issuing
preferred securities, representing limited partnership interests, and lending
the proceeds thereof to the Company, and entering into similar financing
arrangements. Such loans to the Company are evidenced by the Company's
subordinated debentures, which are the only assets of the Partnership. The only
revenues of the Partnership are interest on the Company's subordinated
debentures (Subordinated Debentures). All of the operating expenses of the
Partnership are paid by PECO Energy Capital Corp. At December 31, 1995, the
Partnership held $308,612,964 aggregate principal amount of the Subordinated
Debentures.
PECO Energy Capital Trust I (Trust) was created in October 1995 as a
statutory business trust under the laws of the State of Delaware solely for the
purpose of issuing trust receipts (Trust Receipts), each representing an 8.72%
Cumulative Monthly Income Preferred Security, Series B (Series B Preferred
Securities) of the Partnership. The Partnership is the sponsor of the Trust. On
December 19, 1995, the Trust issued 3,124,183 Trust Receipts. At December 31,
1995, the assets of the Trust consisted solely of 3,124,183 Series B Preferred
Securities with an aggregate stated liquidation preference of $78,104,575.
Distributions were made on the Trust Receipts on December 29, 1995 in the
aggregate amount of $1,074,893, or $0.3441 per Trust Receipt. The payment
reflects accrued distributions at the rate of 7.96% per annum from November 1,
1995 through December 18, 1995 and at the rate of 8.72% per annum from December
19, 1995 through December 31, 1995. Expenses of the Trust for 1995 were
approximately $2.1 million, all of which were paid by PECO Energy Capital Corp.
or the Company. The number of holders of record of the Trust Receipts as of
March 20, 1996 was 884.
24
<PAGE>
Executive Officers of the Registrant
<TABLE>
<CAPTION>
Age at Effective Date of Election
Name Dec. 31, 1995 Position to Present Position
<S> <C> <C> <C>
J. F. Paquette, Jr............. 61 Chairman of the Board............................... April 12, 1995
C. A. McNeill, Jr.............. 56 President and Chief Executive Officer............... April 12, 1995
D. M. Smith.................... 62 President-- PECO Nuclear and Chief
Nuclear Officer................................. February 1, 1996
W. L. Bardeen.................. 57 Senior Vice President and Group Executive--
Consumer Energy Services Group.................. March 1, 1994
J. W. Durham................... 58 Senior Vice President and General Counsel........... October 24, 1988
W. J. Kaschub.................. 53 Senior Vice President-- Human Resources............. June 10, 1991
G. S. King..................... 55 Senior Vice President-- Corporate and
Public Affairs.................................. October 1, 1992
K. G. Lawrence................. 48 Senior Vice President-- Finance and Chief
Financial Officer............................... March 1, 1994
J. M. Madara, Jr............... 52 Senior Vice President and Group
Executive-- Power Generation Group.............. March 1, 1994
R. J. Patrylo.................. 49 Senior Vice President and Group
Executive-- Gas Services Group.................. August 1, 1994
G. R. Rainey................... 46 Senior Vice President-- Nuclear Operations.......... April 1, 1996
A. J. Weigand.................. 57 Senior Vice President and Group
Executive-- Bulk Power Enterprises ............. March 1, 1994
J. M. Bauer.................... 49 Vice President-- Customer Services.................. April 13, 1994
G. A. Cucchi................... 46 Vice President-- Planning and Performance........... March 1, 1994
D. B. Fetters.................. 44 Vice President-- Station Support.................... September 25, 1995
D. R. Helwig................... 44 Vice President-- Power Delivery..................... March 1, 1995
T. P. Hill, Jr................. 47 Vice President and Controller....................... January 1, 1991
K. C. Holland.................. 43 Vice President-- Information Systems
and Chief Information Officer................... March 21, 1994
W. G. MacFarland, IV........... 46 Vice President-- Limerick Generating
Station......................................... March 1, 1995
J. B. Mitchell................. 47 Vice President-- Finance and Treasurer.............. December 1, 1994
W. E. Powell, Jr............... 59 Vice President-- Support Services................... January 30, 1995
T. N. Mitchell................. 40 Vice President-- Peach Bottom Atomic
Power Station................................... April 1, 1996
W. H. Smith, III............... 47 Vice President and Group Executive,
Telecommunications Group........................ September 25, 1995
D. A. Thomas................... 49 Vice President-- Marketing and Sales................ January 30, 1995
N. J. Zausner.................. 42 Vice President-- Power Transactions................. October 11, 1994
K. K. Combs.................... 45 Corporate Secretary................................. November 1, 1994
</TABLE>
The present term of office of each of the above executive officers extends
to the first meeting of the Company's Board of Directors after the next annual
election of Directors (scheduled to be held April 10, 1996).
Prior to his election to his current position with the Company, Mr.
Paquette was Chairman and Chief Executive Officer of the Company.
Prior to his election to his current position with the Company, Mr. McNeill
was President and Chief Operating Officer and Executive Vice President - Nuclear
of the Company.
Prior to his election to his current position with the Company, Mr. Bardeen
was Senior Vice President Finance and Chief Financial Officer. Prior to joining
the Company in 1992, Mr. Bardeen was Vice President Finance and Controller for
Bell Atlantic Corporation.
25
<PAGE>
Prior to joining the Company in 1991, Mr. Kaschub was Vice President of
Human Resources with GTE North Incorporated.
Prior to joining the Company in 1992, Mrs. King served as Commissioner of
the United States Social Security Administration.
Prior to his election to his current position with the Company, Mr.
Lawrence was Vice President - Gas Operations.
Prior to his election to his current position with the Company, Mr. Madara
was Vice President - Production, Assistant Manager - Mechanical Engineering and
General Manager - Nuclear Quality Assurance.
Prior to joining the Company in 1994, Mr. Patrylo was Senior Vice President
- - Gas Services Business Unit at Niagara Mohawk Power Corporation and President
of RJP Associates, Inc., a business consulting firm.
Prior to his election to his current position with the Company, Mr. D. M.
Smith was Senior Vice President - Nuclear Generation Group, Senior Vice
President - Nuclear and Vice President - Peach Bottom Atomic Power Station.
Prior to his election to his current position with the Company, Mr. Weigand
was Vice President - Transmission and Distribution Systems.
Prior to joining the Company in March 1994, Mrs. Holland was Director of
Technology Services and Director of Business Services and Operations at
SmithKline Beecham, Inc.
Prior to joining the Company in 1996, Mr. T.N. Mitchell was Team Manager -
Institute of Nuclear Power Operations (INPO), Director - Site Engineering at
Peach Bottom (on loan from INPO), Department Manager Engineering Support at
INPO, Core Team Member - Nuclear Electric, U.K. (on loan from INPO), and
Department Manager - Plant Analysis at INPO.
Prior to joining the Company in 1995, Mr. Powell was Vice President -
Logistics with E.I. DuPont DeNemours & Co.
Prior to joining the Company in 1995, Mr. Thomas was General Manager -
American Parts and Services, Manager - Utility Parts Sales, Manager - Gateway
Region - Utility Sales, and Manager - Product Services at General Electric
Company.
Prior to joining the Company in 1994, Ms. Zausner was Vice President of
U.S. Generating Company, an independent power producer.
Prior to their election to the positions shown above, the following
executive officers held other positions with the Company since January 1, 1991:
Ms. Bauer was Operations Manager - Montgomery County Division and Manager -
Nuclear Operations; Mr. Cucchi was Director of System Planning and Performance;
Mr. Fetters was Director - Nuclear Engineering, Director - Limerick Maintenance
and a project manager; Mr. Helwig was Vice President - Limerick Generating
Station and Vice President - Nuclear Engineering and Services; Mr. Hill was
Controller; Mr. MacFarland was Outage Director - Limerick, Manager - Nuclear
Maintenance, Manager - Peach Bottom Installation Division and Senior Project
Manager - Limerick Nuclear Engineering; Mr. Mitchell was Director of Financial
Operations and Assistant Treasurer; Mr. Rainey was Vice President - Peach Bottom
Atomic Power Station, Vice President - Nuclear Services and Plant Manager -
Eddystone Generating Station; Mr. W. H. Smith was Vice President - Station
Support, Vice President - Planning and Performance, Manager - Corporate Strategy
and Performance, General Manager - Human Resources, Director - Organization
Change Task Force and Manager - Purchasing; and Ms. Combs was an Assistant
General Counsel.
There are no family relationships among directors or executive officers of
the Company.
26
<PAGE>
ITEM 2. PROPERTIES
The principal plants and properties of the Company are subject to the lien
of the Mortgage under which the Company's First and Refunding Mortgage Bonds are
issued.
The following table sets forth the Company's net electric generating
capacity by station at December 31, 1995:
<TABLE>
<CAPTION>
Net Generating Estimated
Capacity (1) Retirement
Station Location (Kilowatts) Year
<S> <C> <C> <C>
Nuclear
Limerick.................................. Limerick Twp., PA.............. 2,170,000(2) 2024(3), 2029(3)
Peach Bottom.............................. Peach Bottom Twp., PA.......... 928,000(4) 2013, 2014
Salem..................................... Hancock's Bridge, NJ........... 942,000(4) 2016, 2020
Hydro
Conowingo................................. Harford Co., MD................ 512,000 2014
Pumped Storage
Muddy Run................................. Lancaster Co., PA.............. 880,000 2014
Fossil (Steam Turbines)
Cromby .................................. Phoenixville, PA............... 345,000 2004
Delaware.................................. Philadelphia, PA............... 250,000 (5)
Eddystone................................. Eddystone, PA.................. 1,341,000 2009, 2010, 2011
Schuylkill................................ Philadelphia, PA............... 166,000 (5)
Conemaugh................................. New Florence, PA............... 352,000(4) 2005, 2006
Keystone.................................. Shelocta, PA................... 357,000(4) 2002, 2003
Fossil (Gas Turbines)
Chester .................................. Chester, PA.................... 39,000 (5)
Croydon................................... Bristol Twp., PA............... 370,000 (5)
Delaware.................................. Philadelphia, PA............... 60,000 (5)
Eddystone................................. Eddystone, PA.................. 62,000 (5)
Falls..................................... Falls Twp., PA................. 48,000 (5)
Moser..................................... Lower Pottsgrove Twp., PA...... 48,000 (5)
Richmond.................................. Philadelphia, PA............... 96,000 (5)
Schuylkill................................ Philadelphia, PA............... 30,000 (5)
Southwark................................. Philadelphia, PA............... 53,000 (5)
Salem..................................... Hancock's Bridge, NJ........... 16,000(4) (5)
Fossil (Internal Combustion)
Cromby .................. ............... Phoenixville, PA............... 2,700 (5)
Delaware.................................. Philadelphia, PA............... 2,700 (5)
Schuylkill................................ Philadelphia, PA............... 2,800 (5)
Keystone.................................. Shelocta, PA................... 2,300(4) 2003
Conemaugh................................. New Florence, PA............... 2,300(4) 2006
---------
Total.................................................................... 9,077,800
=========
<FN>
- ---------------
(1) Summer rating.
(2) Effective January 24, 1996, Limerick Unit No. 1 was rerated to 1,115,000
kilowatts, making the entire station's capacity 2,230,000 kilowatts. This
rerate increased the Company's net generating capacity to 9,137,800
kilowatts.
(3) For depreciation accrual purposes only, retirement dates have been reduced
by 10 years. See "Rate Matters."
(4) Company portion.
(5) Retirement dates are under on-going review by the Company. Current plans
call for the continued operation of these units beyond 1996.
</FN>
</TABLE>
27
<PAGE>
The following table sets forth the Company's major transmission and
distribution lines in service at December 31, 1995:
<TABLE>
<CAPTION>
Voltage in Kilovolts (Kv) Conductor Miles
<S> <C>
Transmission:
500 Kv .............. 824
220 Kv .............. 1,746
132 Kv .............. 656
66 Kv ............... 646
33 Kv and below ..... 37
Distribution:
33 Kv and below ..... 48,809
</TABLE>
At December 31, 1995, the Company's principal electric distribution system
included 11,770 pole-line miles of overhead lines and 20,673 cable miles of
underground cables.
The Company is in the midst of an ongoing program to implement a 33 Kv
distribution system for a large portion of outlying suburban areas. These areas
are now primarily served by a combination of 4 Kv distribution circuits, which
are being phased out, and direct connections to 33 Kv subtransmission lines,
which are being converted to 33 Kv distribution circuits. The new system is
designed to improve the Company's ability to meet the growing load requirements
of suburban areas, improve system reliability and reduce service interruptions.
The following table sets forth the Company's gas pipeline miles at December
31, 1995:
<TABLE>
<CAPTION>
Pipeline Miles
<S> <C>
Transmission ..... 28
Distribution ..... 5,458
Service piping.... 4,401
-----
Total ........ 9,887
=====
</TABLE>
The Company has a liquefied natural gas facility located in West
Conshohocken, Pennsylvania which has a storage capacity of 1,200,000 mcf and a
sendout capacity of 200,000 mcf/day and a propane-air plant located in Chester,
Pennsylvania, with a tank storage capacity of 1,980,000 gallons and a peaking
capability of 30,000 mcf/day. In addition, the Company owns 23 natural gas city
gate stations (including one temporary station) at various locations throughout
its gas service territory.
The Company owns an office building in downtown Philadelphia, in which it
maintains its headquarters, and also owns or leases elsewhere in its service
area a number of properties which are used for office, service and other
purposes. Information regarding rental and lease commitments is incorporated
herein by reference to note 16 of Notes to Consolidated Financial Statements
included in the Company's Annual Report to Shareholders for the year 1995.
The Company maintains property insurance against loss or damage to its
principal plants and properties by fire or other perils, subject to certain
exceptions. Although it is impossible to determine the total amount of the loss
that may result from an occurrence at a nuclear generating station, the Company
maintains its $2.75 billion proportionate share for each station. Under the
terms of the various insurance agreements, the Company could be assessed up to
$46 million for property losses incurred at any plant insured by the insurance
companies (see "ITEM 1. BUSINESS -- Electric Operations -- General"). 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 and results of operations.
28
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On April 11, 1991, 33 former employees of the Company filed an amended
class action suit against the Company in the 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), alleged 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
named the Company, the Company's Service Annuity Plan (SAP) and two Company
officers as defendants. On May 13, 1994, the Eastern District Court issued a
decision, finding the Company liable to all plaintiffs who made inquiries about
any early retirement plan after March 12, 1990 and retired prior to April 1990.
In an order dated August 23, 1995, the Eastern District Court awarded the
plaintiffs $1.5 million. The Company has filed appeals from the order and has
accrued the amount of the award.
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 between January and June 1987. The lawsuit was filed under ERISA and
concerned the August 1, 1987 amendment to the SAP. The plaintiffs claimed that
the Company concealed or misrepresented the fact that the 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. On May 13, 1994, the Eastern District Court issued a decision, finding
the Company liable to all plaintiffs who made inquiries about any pension
improvement after March 1, 1987 and retired prior to June 1987. In an order
dated August 23, 1995, the Eastern District Court awarded the plaintiffs $1.8
million. The Company has filed appeals from the order and has accrued the amount
of the award.
On May 25, 1993, the Company received a letter from attorneys on behalf of
a shareholder demanding that the Company's Board of Directors commence legal
action against certain Company officers and directors with respect to the
Company's credit and collections practices. The basis of the demand was the
findings and conclusions contained in the Credit and Collection section of the
May 1991 PUC Management Audit Report (Audit Report) prepared by Ernst & Young.
At its June 28, 1993 meeting, the Board of Directors appointed a special
committee of directors to consider whether such legal action would be in the
best interests of the Company and its shareholders. On March 14, 1994, upon the
recommendation of the special committee, the Board of Directors approved a
resolution refusing the shareholder demand set forth in the May 25, 1993 demand
letter, and authorizing and directing officers of the Company to take all steps
necessary to terminate the derivative suit discussed below. On August 15, 1995,
attorneys on behalf of the shareholders filed a derivative action in the Court
of Common Pleas of Philadelphia County (Court of Common Pleas) asserting the
same claims against several present and former officers which are asserted in
the July 26, 1993 shareholder derivative suit discussed below. On February 20,
1996, the Court of Common Pleas ordered that the suit be consolidated with the
July 26, 1993 shareholder derivative suit. Any monetary damages which may be
recovered, net of expenses, would be paid to the Company because the lawsuit is
brought derivatively by shareholders on behalf of the Company.
On July 26, 1993, attorneys on behalf of two shareholders filed a
shareholder derivative action in the Court of Common Pleas 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. The derivative suit is based on the findings
and conclusions contained in the Credit and Collections section of the Audit
Report. The plaintiffs seek, among other things, an unspecified amount of
damages and the awarding to the plaintiffs of the costs and disbursements of the
action, including attorneys' fees. A trial date has been set for November 4,
1996. Any monetary damages which may be recovered, net of expenses, would be
paid to the Company because the lawsuit is brought derivatively by shareholders
on behalf of the Company.
On March 5, 1996, the Company and Delmarva Power & Light Company (Delmarva)
filed an action in the United States District Court for the Eastern District of
Pennsylvania against Public Service Enterprise Group
29
<PAGE>
Incorporated and its subsidiary PSE&G (Enterprise Group) concerning the shutdown
of Salem; on the same date, Atlantic Electric Company (Atlantic Electric) filed
a similar suit against Enterprise Group in New Jersey state court. The suit
alleges that Enterprise Group breached the provisions of the Owners Agreement
pursuant to which the four companies own Salem and under which Enterprise Group
operates Salem. The suit also alleges negligence, gross negligence, reckless,
and willful and wanton misconduct. The plaintiffs seek compensation for certain
replacement power costs they incurred as a result of the shutdown of Salem and
for increased operating and maintenance costs and lost profits. The complaint
does not specify any dollar amount of damages.
During the shutdown of Salem, examinations of the steam generator tubes at
Salem Unit No. 1 revealed significant cracking. On February 27, 1996, the
Company, PSE&G, Atlantic Electric and Delmarva, the co-owners of Salem, filed an
action in the United States District Court for the District of New Jersey
against Westinghouse Electric Corporation, the designer and manufacturer of the
Salem steam generators. The suit alleges that the significant cracking of the
steam generator tubes is the result of defects in the design and fabrication of
the steam generators and that Westinghouse knew that the steam generators
supplied to Salem were defective and that Westinghouse deliberately concealed
this from PSE&G. The suit alleges violations of both the federal and New Jersey
Racketeer Influenced and Corrupt Organizations Acts (RICO), fraud, negligent
misrepresentation and breach of contract. For additional information concerning
the cracking of steam generator tubes at Salem, see "ITEM 1. BUSINESS - Electric
Operations - Salem Generating Station."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is listed on the New York and Philadelphia Stock
Exchanges. At January 31, 1996, there were 186,754 owners of record of the
Company's common stock. The information with respect to the prices of and
dividends on the Company's common stock for each quarterly period during 1995
and 1994 is incorporated herein by reference to "Operating Statistics" in the
Company's Annual Report to Shareholders for the year 1995.
The book value of the Company's common stock at December 31, 1995 was
$20.40 per share.
Dividends may be declared on common stock out of funds legally available
for dividends whenever full dividends on all series of preferred stock
outstanding at the time have been paid or declared and set apart for payment for
all past quarter-yearly dividend periods. No dividends may be declared on common
stock, however, at any time when the Company has failed to satisfy the sinking
fund obligations with respect to certain series of the Company's preferred
stock. Future dividends on common stock will depend upon earnings, the Company's
financial condition and other factors, including the availability of cash.
The Company's Articles prohibit payment of any dividend on, or other
distribution to the holders of, common stock if, after giving effect thereto,
the capital of the Company represented by its common stock together with its
Other Paid-In Capital and Retained Earnings is, in the aggregate, less than the
involuntary liquidating value of its then outstanding preferred stock. At
December 31, 1995, such capital ($4.53 billion) amounted to about 12 times the
liquidating value of the outstanding preferred stock ($292.1 million).
The Company may not declare dividends on any shares of its capital stock in
the event that: (1) the Company exercises its right to extend the interest
payment periods on the Company's subordinated debentures (Subordinated
Debentures) which were issued to the Partnership; (2) the Company defaults on
its guarantee of
30
<PAGE>
the payment of distributions on the Cumulative Monthly Income Preferred
Securities of the Partnership; or (3) an event of default occurs under the
Indenture under which the Subordinated Debentures are issued.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for each of the last five years for the Company and
its subsidiaries is incorporated herein by reference to "Financial Statistics"
and "Operating Statistics" in the Company's Annual Report to Shareholders for
the year 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information with respect to this caption is incorporated herein by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's Annual Report to Shareholders for the
year 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information with respect to this caption is incorporated herein by
reference to "Consolidated Financial Statements" and "Financial Statistics" in
the Company's Annual Report to Shareholders for the year 1995.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors.
The information required for Directors is included in the Proxy Statement
of the Company in connection with its 1996 Annual Meeting of Shareholders to be
held April 10, 1996, under the heading "Proposal 1. Election of Directors" and
is incorporated herein by reference.
(b) Identification of Executive Officers.
The information required for Executive Officers is set forth in "ITEM 1.
BUSINESS -- Executive Officers of the Registrant" of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to this caption is included in the Proxy
Statement of the Company in connection with its 1996 Annual Meeting of
Shareholders to be held April 10, 1996, under the heading "Executive
Compensation Disclosure" and is incorporated herein by reference.
31
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to this caption is included in the Proxy
Statement of the Company in connection with its 1996 Annual Meeting of
Shareholders to be held April 10, 1996, under the heading "Proposal 1. Election
of Directors" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to this caption is included in the Proxy
Statement of the Company in connection with its 1996 Annual Meeting of
Shareholders to be held April 10, 1996, under the heading "Proposal 1. Election
of Directors" and is incorporated herein by reference.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements and Financial Statement Schedule
<TABLE>
<CAPTION>
Reference (Page)
Form 10-K Annual Report
Index Annual Report to Shareholders
<S> <C> <C>
Data incorporated by reference from the Annual Report to Shareholders for the
year 1995:
Report of Independent Accountants............................................. -- 19
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993............................................ -- 20
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993............................................ -- 21
Consolidated Balance Sheets as of December 31, 1995 and 1994.................. -- 22
Consolidated Statements of Changes in Common Shareholders'
Equity and Preferred Stock for the years ended
December 31, 1995, 1994 and 1993............................................ -- 24
Notes to Consolidated Financial Statements.................................... -- 25
Data submitted herewith:
Report of Independent Accountants............................................. 34 --
Schedule II-- Valuation and Qualifying Accounts for the years
ended December 31, 1995, 1994 and 1993....................... 35 --
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
With the exception of the consolidated financial statements and the
independent accountants' report listed in the above index and the information
referred to in Items 1, 2, 5, 6, 7 and 8, all of which is included in the
Company's Annual Report to Shareholders for the year 1995 and incorporated by
reference into this Form 10-K Annual Report, the Annual Report to Shareholders
for the year 1995 is not to be deemed "filed" as part of this Form 10-K.
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
PECO Energy Company:
Our report on the consolidated financial statements of PECO Energy Company
has been incorporated by reference in this Form 10-K from page 19 of the 1995
Annual Report to Shareholders of PECO Energy Company. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the index in Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 2, 1996
34
<PAGE>
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Column A Column B Column C-Additions Column D Column E
Charged to
Balance at Charged to Other Balance at
Beginning of Costs and Accounts Deductions End of
Description Period Expenses -Describe -Describe(1) Period
FOR THE YEAR ENDED DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR UNCOLLECTIBLE
ACCOUNTS............................. $16,500 $39,043 $ -- $34,683 $20,860
------- ------- -------- ------- -------
TOTAL.......................... $16,500 $39,043 $ -- $34,683 $20,860
======= ======= ======== ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1994
ALLOWANCE FOR UNCOLLECTIBLE
ACCOUNTS............................. $15,086 $44,186 $ -- $42,772 $16,500
------- ------- -------- ------- -------
TOTAL.......................... $15,086 $44,186 $ -- $42,772 $16,500
======= ======= ======== ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1993
ALLOWANCE FOR UNCOLLECTIBLE
ACCOUNTS............................. $17,916 $40,758 $ -- $43,588 $15,086
------- ------- -------- ------- -------
TOTAL.......................... $17,916 $40,758 $ -- $43,588 $15,086
======= ======= ======== ======= =======
<FN>
- ---------------
(1) Write-off of individual accounts receivable.
</FN>
</TABLE>
35
<PAGE>
Exhibits
Certain of the following exhibits have been filed with the Securities and
Exchange Commission (Commission) pursuant to the requirements of the Acts
administered by the Commission. Such exhibits are identified by the references
following the listing of each such exhibit and are incorporated herein by
reference under Rule 24 of the Commission's Rules of Practice. Certain other
instruments which would otherwise be required to be listed below have not been
so listed because such instruments do not authorize securities in an amount
which exceeds 10% of the total assets of the Company and its subsidiaries on a
consolidated basis and the Company agrees to furnish a copy of any such
instrument to the Commission upon request.
Exhibit No. Description
3-1 Amended and Restated Articles of Incorporation of PECO Energy
Company (1993 Form 10-K, Exhibit 3-1).
3-2 Bylaws of the Company, adopted February 26, 1990 and amended
January 24, 1994 (1993 Form 10-K, Exhibit 3-2).
4-1 First and Refunding Mortgage dated May 1, 1923 between The
Counties Gas and Electric Company (predecessor to the Company) and
Fidelity Trust Company, Trustee (First Fidelity Bank, National
Association, successor), (Registration No. 2-2881, Exhibit B-1).
4-2 Supplemental Indentures to the Company's First and Refunding
Mortgage:
<TABLE>
<CAPTION>
Dated as of File Reference Exhibit No.
<S> <C> <C>
May 1, 1927 2-2881 B-1(c)
March 1, 1937 2-2881 B-1(g)
December 1, 1941 2-4863 B-1(h)
November 1, 1944 2-5472 B-1(i)
December 1, 1946 2-6821 7-1(j)
September 1, 1957 2-13562 2(b)-17
May 1, 1958 2-14020 2(b)-18
May 1, 1964 2-25628 4(b)-21
October 1, 1967 2-28242 2(b)-23
March 1, 1968 2-34051 2(b)-24
May 1, 1970 2-38849 2(b)-28
December 15, 1970 2-41081 2(b)-29
December 15, 1971 2-44195 2(b)-31
January 15, 1973 2-49842 2(b)-33
March 1, 1981 2-72802 4-46
March 1, 1981 2-72802 4-47
November 15, 1984 1984 Form 10-K 4-2(a)
December 1, 1984 1984 Form 10-K 4-2(b)
May 15, 1985 1985 Form 10-K 4-2(a)
October 1, 1985 1985 Form 10-K 4-2(b)
November 1, 1986 1986 Form 10-K 4-2(c)
July 15, 1987 Form 8-K dated July 21, 1987 4(c)-63
July 15, 1987 Form 8-K dated July 21, 1987 4(c)-64
August 1, 1987 33-17438 4(c)-65
October 15, 1987 Form 8-K dated October 7, 1987 4(c)-66
October 15, 1987 Form 8-K dated October 7, 1987 4(c)-67
April 15, 1988 Form 8-K dated April 11, 1988 4(e)-68
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Dated as of File Reference Exhibit No.
<S> <C> <C>
April 15, 1988 Form 8-K dated April 11, 1988 4(e)-69
October 1, 1989 Form 8-K dated October 6, 1989 4(e)-72
October 1, 1989 Form 8-K dated October 18, 1989 4(e)-73
April 1, 1991 1991 Form 10-K 4(e)-76
December 1, 1991 1991 Form 10-K 4(e)-77
January 15, 1992 Form 8-K dated January 27, 1992 4(e)-78
April 1, 1992 March 31, 1992 Form 10-Q 4(e)-79
April 1, 1992 March 31, 1992 Form 10-Q 4(e)-80
June 1, 1992 June 30, 1992 Form 10-Q 4(e)-81
June 1, 1992 June 30, 1992 Form 10-Q 4(e)-82
July 15, 1992 June 30, 1992 Form 10-Q 4(e)-83
September 1, 1992 1992 Form 10-K 4(e)-84
September 1, 1992 1992 Form 10-K 4(e)-85
March 1, 1993 1992 Form 10-K 4(e)-86
March 1, 1993 1992 Form 10-K 4(e)-87
May 1, 1993 March 31, 1993 Form 10-Q 4(e)-88
May 1, 1993 March 31, 1993 Form 10-Q 4(e)-89
May 1, 1993 March 31, 1993 Form 10-Q 4(e)-90
August 15, 1993 Form 8-A dated August 19, 1993 4(e)-91
August 15, 1993 Form 8-A dated August 19, 1993 4(e)-92
August 15, 1993 Form 8-A dated August 19, 1993 4(e)-93
November 1, 1993 Form 8-A dated October 27, 1993 4(e)-94
November 1, 1993 Form 8-A dated October 27, 1993 4(e)-95
May 1, 1995 Form 8-K dated May 24, 1995 4(e)-96
</TABLE>
4-3 Deposit Agreement with respect to $7.96 Cumulative Preferred Stock
(Form 8-K dated October 20, 1992, Exhibit 4-5).
4-4 PECO Energy Company Dividend Reinvestment and Stock Purchase Plan,
as amended January 28, 1994 (Post-Effective Amendment No. 1 to
Registration No. 33-43523, Exhibit 28).
4-5 Indenture, dated as of July 1, 1994, between the Company and
Meridian Trust Company, as trustee (1994 Form 10-K, Exhibit 4-5).
4-6 Deferrable Interest Subordinated Debenture Certificate, Series A
(1994 Form 10-K, Exhibit 4-6).
4-7 First Supplemental Indenture, dated as of December 1, 1995,
between the Company and Meridian Trust Company, as trustee, to
Indenture dated as of July 1, 1994.
4-8 Deferrable Interest Subordinated Debenture Certificates, Series B,
No. 1 and No. 2.
4-9 Payment and Guarantee Agreement, dated July 27, 1994, executed by
the Company in favor of the holders of Cumulative Monthly Income
Preferred Securities, Series A of PECO Energy Capital, L.P. (1994
Form 10-K, Exhibit 4-7).
4-10 Payment and Guarantee Agreement, dated as of December 19, 1995,
executed by the Company in favor of the holders of Cumulative
Monthly Income Preferred Securities, Series B of PECO Energy
Capital, L.P.
37
<PAGE>
10-1 Pennsylvania-New Jersey-Maryland Interconnection Agreement dated
September 26, 1956 (Registration No. 2-13340, Exhibit 13-40) and
agreements supplemental thereto:
<TABLE>
<CAPTION>
Dated as of File Reference Exhibit No.
<S> <C> <C>
March 1, 1965 2-38342 5-1(a)
January 1, 1971 2-40368 5-1(b)
June 1, 1974 2-51887 5-1(c)
September 1, 1977 1989 Form 10-K 10-1(a)
October 1, 1980 1989 Form 10-K 10-1(b)
June 1, 1981 1989 Form 10-K 10-1(c)
</TABLE>
10-2 Agreement, dated November 24, 1971, between Atlantic City Electric
Company, Delmarva Power & Light Company, Public Service Electric
and Gas Company and the Company for ownership of Salem Nuclear
Generating Station (1988 Form 10-K, Exhibit 10-3); supplemental
agreement dated September 1, 1975; and supplemental agreement
dated January 26, 1977 (1991 Form 10-K, Exhibit 10-3).
10-3 Agreement, dated November 24, 1971, between Atlantic City Electric
Company, Delmarva Power & Light Company, Public Service Electric
and Gas Company and the Company for ownership of Peach Bottom
Atomic Power Station; supplemental agreement dated September 1,
1975; and supplemental agreement dated January 26, 1977 (1988 Form
10-K, Exhibit 10-4).
10-4 Deferred Compensation and Supplemental Pension Benefit Plan (1981
Form 10-K, Exhibit 10-16).*
10-5 Forms of Agreement between the Company and certain officers.
10-6 PECO Energy Company Long-Term Incentive Plan (Registration No.
333-451, Exhibit 99).*
10-7 Amended and Restated Limited Partnership Agreement of PECO Energy
Capital, L.P., dated July 25, 1994 (1994 Form 10-K, Exhibit 10-7).
10-8 Amendment No. 1 to the Amended and Restated Limited Partnership
Agreement of PECO Energy Capital, L.P.
10-9 Amendment No. 2 to the Amended and Restated Limited Partnership
Agreement of PECO Energy Capital, L.P.
10-10 Amended and Restated Trust Agreement of PECO Energy Capital Trust
I, dated as of December 19, 1995.
10-11 Agreement between the Company and Delmarva Power & Light Company
for the purchase and sale of capacity and energy, dated May 24,
1994 (1994 Form 10-K, Exhibit 10-9).
12-1 Ratio of Earnings to Fixed Charges.
12-2 Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends.
13 Management's Discussion and Analysis of Financial Condition and
Results of Operations, Consolidated Financial Statements, Notes to
Consolidated Financial Statements, Financial Statistics, and
Operating Statistics of the Annual Report to Shareholders for the
year 1995.
38
<PAGE>
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
- ---------------
* Compensatory plans or arrangements in which directors or officers of the
Company participate and which are not available to all employees.
Reports on Form 8-K
During the quarter ended December 31, 1995, the Company filed Current
Reports on Form 8-K, dated:
October 17, 1995 reporting information under "ITEM 5. OTHER EVENTS"
relating to the shutdown of Salem Generating Station operated by Public
Service Electric and Gas Company.
October 23, 1995 reporting information under "ITEM 5. OTHER EVENTS"
relating to the proposed merger with PP&L Resources, Inc.
November 1, 1995 reporting information under "ITEM 5. OTHER EVENTS"
relating to the proposed merger with PP&L Resources, Inc.
December 11, 1995 reporting information under "ITEM 5. OTHER EVENTS"
relating to the shutdown of Salem Generating Station operated by Public
Service Electric and Gas Company.
Subsequent to December 31, 1995, the Company filed a Current Report on Form
8-K, dated:
February 23, 1996 reporting information under "ITEM 5. OTHER EVENTS"
relating to the cracking of steam generator tubes at Unit No. 1 at
Salem Generating Station operated by Public Service Electric and Gas
Company.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, PECO ENERGY COMPANY, has duly caused this
annual report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, and Commonwealth of Pennsylvania, on
the 27th day of March 1996.
PECO ENERGY COMPANY
By /s/ C.A. MCNEILL, JR.
----------------------------------------
C.A. McNeill, Jr.,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ J. F. PAQUETTE, JR.
- ------------------------------------ Chairman of the Board and Director March 27, 1996
J. F. Paquette, Jr.
/s/ C. A. MCNEILL, JR.
- ----------------------------------- President, Chief Executive Officer March 27, 1996
C. A. McNeill, Jr. and Director (Principal Executive
Officer)
/s/ K. G. LAWRENCE
- ----------------------------------- Senior Vice President - Finance March 27, 1996
K. G. Lawrence and Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
This annual report has also been signed below by C. A. McNeill, Jr.,
Attorney-in-Fact, on behalf of the following Directors on the date indicated:
SUSAN W. CATHERWOOD JOSEPH C. LADD
M. WALTER D'ALESSIO EDITHE J. LEVIT
RICHARD G. GILMORE KINNAIRD R. MCKEE
RICHARD H. GLANTON JOSEPH J. MCLAUGHLIN
JAMES A. HAGEN JOHN M. PALMS
NELSON G. HARRIS RONALD RUBIN
ROBERT SUBIN
By /s/ C. A. MCNEILL, JR. March 27, 1996
- -----------------------------------
C. A. McNeill, Jr., Attorney-in-Fact
Exhibit 4-7
PECO ENERGY COMPANY
AND
Meridian Trust Company, as Trustee
FIRST SUPPLEMENTAL
INDENTURE
Dated as of December 1, 1995
to
INDENTURE
Dated as of July 1, 1994
Providing for the Issuance of
8.72% Deferrable Interest Subordinated Debentures, Series B
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions....................................................2
ARTICLE 2
THE SERIES B DEBENTURES
SECTION 2.01 Form of the Series B Debentures;
Denominations..................................................2
ARTICLE 3
REDEMPTION
SECTION 3.01 Redemption; Notice to Trustee..................................3
SECTION 3.02. Compliance with Terms of Indenture.............................3
ARTICLE 4
EXTENSION PERIOD
SECTION 4.01 Limitation on Right of Company to Extend
Interest Payment Period........................................4
ARTICLE 5
CONCERNING THE TRUSTEE
SECTION 5.01. Not Responsible for Recitals...................................4
SECTION 5.02. Qualification Under Trust Indenture Act of
1939.........................................................4
ARTICLE 6
MISCELLANEOUS
SECTION 6.01 Trust Indenture Act Controls...................................5
SECTION 6.02 Severability Clause............................................5
SECTION 6.03 Governing Law..................................................5
SECTION 6.04 No Recourse Against Others.....................................5
SECTION 6.05. Use of Term "Trustee"..........................................5
SECTION 6.06. Confirmation of Original Indenture.............................6
SECTION 6.07 Successors.....................................................6
SECTION 6.08 Multiple Original Copies of this Indenture.....................6
SECTION 6.09 Table of Contents; Headings, Etc...............................6
SECTION 6.10 Benefits of the Indenture......................................6
SECTION 6.11. Date of Indenture..............................................7
(i)
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of December 1, 1995, by
and between PECO Energy Company, a Pennsylvania corporation (the "Company"), and
Meridian Trust Company, a Pennsylvania trust company, as trustee (the "Trustee),
to an Indenture, dated as of July 1, 1994, by and between the Company and the
Trustee (the "Original Indenture", together with this Supplemental Indenture,
the "Indenture").
WHEREAS, the Company has formed a wholly owned subsidiary,
PECO Energy Capital Corp., which is the general partner of PECO Energy Capital,
L.P., a Delaware limited partnership ("PECO Energy Capital"), to issue in series
from time to time its limited partner interests ("Preferred Securities") and to
loan the proceeds thereof, together with the investment by PECO Energy Capital
Corp. in PECO Energy Capital, to the Company and to effect other similar
arrangements.
WHEREAS, the Company has duly executed and delivered to the
Trustee the Original Indenture to provide for the issue of one or more series of
deferrable interest subordinated debentures (herein sometimes called the
"Debentures"), issuable as in the Indenture provided, and authorized and issued
the initial series of Debentures which were designated therein as the 9%
Deferrable Interest Subordinated Debentures, Series A; and
WHEREAS, the Company desires to effect the exchange of Trust
Receipts, each representing a 8.72% Cumulative Monthly Income Preferred
Security, Series B of PECO Energy Capital for up to 5,400,000 Depositary Shares,
each representing a one-fourth interest in a share of $7.96 Cumulative Preferred
Stock of the Company and the Company has authorized the issuance of $229,900,000
aggregate principal amount of its 8.72% Deferrable Subordinated Debentures,
Series B (the "Series B Debentures") under this First Supplemental Indenture for
such purpose;
WHEREAS, all things necessary to make the Series B Debentures
when duly issued and executed by the Company and authenticated and delivered
hereunder, the valid obligations of the Company, and to make this Supplemental
Indenture a valid and binding agreement of the Company, in accordance with its
terms, have been done.
NOW THEREFORE:
Each of the Company and the Trustee, intending to be legally
bound hereby, agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Series B Debentures:
<PAGE>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Additional Interest", with respect to the Series B Debentures, means
amounts, if any, which PECO Energy Capital would be required to pay as taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
with respect to the Series B Debentures.
"Additional Payments" means an amount equal to interest on the principal
amount of the Series B Debentures at the rate of 7.96% per annum from and
including November 1, 1995 through but not including the Issue Date of the
Series B Debentures, payable on the first interest payment date for the Series B
Debentures.
"Exchange Agent" means First Chicago Trust Company of New York in its
capacity as the Exchange Agent under an Exchange Agreement dated as of November
8, 1995 between the Company and the Exchange Agent.
"Issue Date" means December 19, 1995.
"Series B Debentures" means any of the Company's 8.72% Deferrable Interest
Subordinated Debentures, Series B issued under this Supplemental Indenture.
"Series B Debentureholder" or "Series B Holder" means a Person in whose
name a Series B Debenture is registered on the Registrar's books.
"Series B Preferred Securities" means the 8.72% Cumulative Monthly Income
Preferred Securities, Series B, representing limited partner interests of PECO
Energy Capital.
Unless otherwise defined herein, all other capitalized terms used herein
have the meanings set forth in the Original Indenture.
ARTICLE 2
THE SERIES B DEBENTURES
SECTION 2.01 Form of the Series B Debentures; Denominations.
The Series B Debentures and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A
2
<PAGE>
attached hereto. The terms and provisions contained in the Series B Debentures,
a form of which is annexed hereto as Exhibit A, shall constitute, and are hereby
expressly made, a part of this Supplemental Indenture. The Company and the
Trustee, by their execution and delivery of this First Supplemental Indenture,
expressly agree to such terms and provisions and to be bound thereby.
The Trustee shall authenticate and make available for delivery the Series B
Debentures for original issue in the aggregate principal amount of $80,520,180
upon receipt by the Trustee of a Board of Directors resolution and a written
order of the Company signed by two Officers of the Company, but without any
further action by the Company. Upon authentication by the Trustee, the Series B
Debentures shall be delivered by the Trustee as follows: (i) $78,104,575 of
Series B Debentures shall be delivered to the Exchange Agent in exchange for
Depositary Shares and subsequent delivery by the Exchange Agent (acting pursuant
to the directions of the holders of such Depositary Shares) to PECO Energy
Capital and (ii) $2,415,605 of Series B Debentures shall be delivered to PECO
Energy Capital as evidence of the Company's obligation with respect to the loan
to the Company of the investment by PECO Energy Capital Corp. in PECO Energy
Capital on the date of issuance of the Series B Subordinated Debentures.
The Series B Debentures shall be issuable only in registered form without
coupons and only in denominations of $25.00 and any integral multiple thereof
attached hereto as Exhibit A.
ARTICLE 3
REDEMPTION
SECTION 3.01 Redemption; Notice to Trustee.
(a) The Series B Debentures are subject to redemption prior to maturity as
provided in the form thereof attached hereto as Exhibit A.
(b) If any or all of the Series B Debentures are to be redeemed pursuant to
paragraph (a) above, in addition to the notices required by the Original
Indenture, the Company shall give notice by first class mail, postage prepaid,
to the Trustee at least 40 days prior to the date of such redemption. Any such
notice of redemption shall state the date and price of redemption.
3
<PAGE>
SECTION 3.02. Compliance with Terms of Indenture.
In case the Company shall desire to exercise such right to redeem all or
any part of said Series B Debentures as hereinbefore provided, it shall comply
with all the terms and provisions of Article III of the Original Indenture
applicable thereto, and such redemption shall be made under and subject to the
terms and provisions of said Article III and in the manner and with the effect
therein provided, but at the time or times and at the respective redemption
rates and upon mailing of notice, all as hereinbefore set forth in Section 3.01
of this Article.
ARTICLE 4
EXTENSION PERIOD
SECTION 4.01 Limitation on Right of Company to Extend Interest
Payment Period.
The Company agrees not to exercise its right under Section 4.01(b) of the
Original Indenture to extend the interest payment period for the Debentures for
up to 60 months until the Additional Payment has been paid in full. The Company
also agrees that no extended interest payment period shall extend beyond the
stated maturity date or redemption date of the Series B Debentures.
ARTICLE 5
CONCERNING THE TRUSTEE
The Trustee hereby reaffirms acceptance of the trust herein declared and
provided and agrees to perform the same upon the terms and conditions set forth
in the Indenture, as supplemented by this First Supplemental Indenture, and upon
the following terms and conditions:
SECTION 5.01. Not Responsible for Recitals.
The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this First Supplemental Indenture or
the due execution thereof by the Company or for or in respect of the recitals
contained herein, all of which recitals are made solely by the Company.
SECTION 5.02. Qualification Under Trust Indenture Act of 1939.
The Trustee hereby acknowledges that the Company proposes to qualify this
First Supplemental Indenture under the Trust Indenture Act of 1939, as amended.
4
<PAGE>
ARTICLE 6
MISCELLANEOUS
SECTION 6.01 Trust Indenture Act Controls.
If any provision of this First Supplemental Indenture limits, qualifies or
conflicts with the duties imposed by operation of subsection (c) of Section 318
of the TIA, the imposed duties shall control. The provisions of Sections 310 to
317, inclusive, of the TIA that impose duties on any Person (including
provisions automatically deemed included in an indenture unless the indenture
provides that such provisions are excluded) as a part of and govern this First
Supplemental Indenture, except as, and to the extent, they are expressly
excluded from this Supplemental Indenture, as permitted by the TIA.
SECTION 6.02 Severability Clause.
If any provision in this First Supplemental Indenture or in the Series B
Debentures shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 6.03 Governing Law.
This First Supplemental Indenture and the Series B Debentures shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania as applied to contracts made and performed within the Commonwealth
of Pennsylvania, without regard to its principles of conflicts of laws.
SECTION 6.04 No Recourse Against Others.
No director, officer, employee or stockholder, as such, of the Company
shall have any liability for any obligations of the Company under the Series B
Debentures or this First Supplemental Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Series B Debenture, each Series B Debentureholder shall waive and release all
such liability. The waiver and release shall be part of the consideration for
the issue of the Series B Debentures.
5
<PAGE>
SECTION 6.05. Use of Term "Trustee".
Unless otherwise clearly required by the context, the term, "Trustee," or
any other equivalent term used in this First Supplemental Indenture shall be
held and construed to mean the trustee under the Indenture for the time being
whether the original or a successor trustee.
SECTION 6.06. Confirmation of Original Indenture.
As supplemented by this First Supplemental Indenture, the Original
Indenture is in all respects ratified and confirmed, and this First Supplemental
Indenture shall be read, taken and construed as a part of the Indenture so that
all of the rights, remedies, terms, conditions, covenants and agreements of the
Original Indenture shall apply and remain in full force and effect with respect
to this First Supplemental Indenture and to the Series B Debentures issued
hereunder.
SECTION 6.07 Successors.
All agreements of the Company in this First Supplemental Indenture and the
Series B Debentures shall bind its successors and assigns. All agreements of the
Trustee in this First Supplemental Indenture shall bind its successors and
assigns.
SECTION 6.08 Multiple Original Copies of this Indenture.
The parties may sign any number of copies of this First Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement. Any signed copy shall be sufficient proof of this
First Supplemental Indenture.
SECTION 6.09 Table of Contents; Headings, Etc.
The Table of Contents, Cross-Reference Table, and headings of the Articles
and Sections of this First Supplemental Indenture have been inserted for
convenience of reference only, are not to be considered a part hereof, and shall
in no way modify or restrict any of the terms or provisions hereof.
SECTION 6.10 Benefits of the Indenture.
Except as expressly provided in Article 10 of the Original Indenture,
nothing in this First Supplemental Indenture or in the Series B Debentures,
express or implied, shall give to any Person, other than the parties hereto and
their successors hereunder, the Series B Holders and the Special Representative,
6
<PAGE>
any benefit or any legal or equitable right, remedy or claim under this First
Supplemental Indenture.
SECTION 6.11. Date of Indenture.
This First Supplemental Indenture is dated as of December 1, 1995, but was
actually executed and delivered on December 19, 1995.
7
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed
this First Supplemental Indenture on behalf of the respective parties hereto as
of the date first above written.
PECO ENERGY COMPANY
By: /s/ J. Barry Mitchell
Name: J. Barry Mitchell
Title: Vice President/Finance
MERIDIAN TRUST COMPANY,
as Trustee
By: /s/ William J. Roberts
Name: William J. Roberts
Title: Relationship Officer
PECO Energy Capital, L.P.
By its General Partner,
PECO Energy Capital Corp.
By: /s/ J. Barry Mitchell
Solely for the purposes stated
in the recitals hereto.
8
<PAGE>
Exhibit A
8.72% Deferrable Interest Subordinated Debentures,
Series B due 2025
No. ___
PECO Energy Company, a Pennsylvania corporation (the "Company"), which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to PECO Energy Capital, L.P. or
registered assigns, the principal sum of ______________________________________
Dollars on December 19, 2025, and to pay interest on said principal sum from
December 19, 1995 (the "Issue Date") or from the most recent interest payment
date (each such date, an "Interest Payment Date") to which interest has been
paid or duly provided for, monthly in arrears on the last day of each calendar
month of each year commencing December 29, 1995 at the rate of 8.72% per annum
plus Additional Interest, if any, until the principal hereof shall have become
due and payable, and on any overdue principal and premium, if any, and (to the
extent that payment of such interest is enforceable under applicable law) on any
overdue installment of interest at the same rate per annum. The Company also
promises to pay to PECO Energy Capital, L.P. or registered assigns on December
29, 1995 an amount (the "Additional Payment") equal to interest on the principal
amount hereof at the rate of 7.96% per annum from and including November 1, 1995
through but not including the Issue Date. If at any time PECO Energy Capital,
L.P. ("PECO Energy Capital") would be required to pay any taxes, duties, or
other governmental charges (other than withholding taxes) imposed by the United
States, or any other taxing authority, then, in any such case, the Company also
will pay as Additional Interest such amounts as shall be required so that the
net amounts received and retained by PECO Energy Capital after paying any such
taxes, duties, or other governmental charges will not be less than the amounts
PECO Energy Capital would have received had no such taxes, duties, assessments
or other governmental charges been imposed.
The amount of interest payable on any Interest Payment Date (and the
Additional Payment) shall be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which interest is payable on the
Series B Debentures is not a Business Day, then payment of interest payable on
such date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same
A-1
<PAGE>
force and effect as if made on such date. The interest installment so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the person in whose name this Debenture is
registered at the close of business on the regular record date for such interest
installment, which shall be the fifteenth day of the month of, or in the case of
an Interest Payment Date which is on the first Business Day of a month, the
fifteenth day of the month next preceding, such Interest Payment Date. Any such
interest installment not punctually paid or duly provided for shall forthwith
cease to be payable to the registered holders on such regular record date, and
may be paid to the person in whose name this Debenture is registered at the
close of business on a special record date to be fixed by the Trustee for the
payment of such defaulted interest, notice whereof shall be given to the
registered holders of this series of Debentures not less than 10 days prior to
such special record date, as more fully provided in the Indenture hereinafter
referred to. The principal of (and premium, if any) and the interest on this
Debenture shall be payable at the office or agency of the Company maintained for
that purpose in Wilmington, Delaware in any coin or currency of the United
States of America which at the time of payment is legal tender for payment of
public and private debts; provided however, that payment of interest may be made
at the option of the Company by check mailed to the registered holder at such
address as shall appear in the Debenture Register. Notwithstanding the
foregoing, so long as the holder of this Debenture is PECO Energy Capital, the
payment of the principal of (and premium) and interest (including the Additional
Payment and Additional Interest, if any) in this Debenture will be made at such
place and to such account as may be designated by PECO Energy Capital.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Debenture is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Debenture,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on its behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination so
provided and (c) appoints the Trustee its attorney-in-fact for any and all such
purposes. Each Holder hereof, by its acceptance hereof, hereby waives all notice
of the acceptance of the subordination provisions contained herein and in the
Indenture by each holder of Senior Indebtedness, whether now outstanding or
hereafter incurred, and waives reliance by each such Holder upon said
provisions.
A-2
<PAGE>
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Series B Debentures"), specified
in the Indenture, limited in aggregate principal amount as specified in the
Indenture, issued under and pursuant to an Indenture dated as of July 1, 1994,
as supplemented by a First Supplemental Indenture, dated as of December 1, 1995
(as supplemented, the "Indenture") executed and delivered between the Company
and Meridian Trust Company, as trustee (the "Trustee") to which reference is
made to the Indenture for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Debentures. By the terms of the Indenture, Debentures are
issuable in series which may vary as to amount, date of maturity, rate of
interest and in other respects as in the Indenture provided.
The Series B Debentures are subject to mandatory redemption prior to
maturity at 100% of the principal amount thereof plus accrued interest to the
redemption date as follows:
(i) in whole upon the dissolution of PECO Energy Capital; and
(ii) in whole or in part upon a redemption of the Series B
Preferred Securities (as defined in the Indenture), but if
in part, in an aggregate principal amount equal to the
aggregate stated liquidation preference of the Series B
Preferred Securities redeemed.
At the option of the Company, the Series B Debentures are subject to
redemption prior to maturity (i) at any time on or after October 1, 1997 at the
option of the Company, in whole or in part, and (ii) if a Tax Event shall occur
and be continuing, in whole (but not in part), and in each case at 100% of the
principal amount thereof plus accrued interest to the redemption date. "Tax
Event" shall mean that PECO Energy Capital shall have received an opinion of
counsel (which may be regular counsel to the Company or an Affiliate, but not an
employee thereof) experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such interpretation or pronouncement is announced on or after the
date of original issuance of the Series B Preferred Securities, there is more
than an insubstantial risk that (i) PECO Energy Capital is subject to United
States Federal income tax with respect to interest
A-3
<PAGE>
received on the Debentures or PECO Energy Capital will otherwise not be taxed as
a partnership, (ii) interest payable by the Company to PECO Energy Capital on
the Series B Debentures will not be deductible for United States Federal income
tax purposes or (iii) PECO Energy Capital is subject to more than a de minimis
amount of other taxes, duties or other governmental charges.
In the event of redemption of this Debenture in part only, a new Debenture
or Debentures of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Debenture upon compliance by the Company with certain
conditions set forth therein.
Subject to certain exceptions in the Indenture which require the consent of
every Holder, (i) the Indenture or the Series B Debentures may be amended with
the written consent of the Holders of a majority in aggregate principal amount
of the Series B Debentures at the time outstanding, and (ii) certain defaults or
noncompliance with certain provisions may be waived by the written consent of
the holders of a majority in aggregate principal amount of the Series B
Debentures at the time outstanding. Subject to certain exceptions in the
Indenture, without the consent of any Debentureholder, the Company and the
Trustee may amend the Indenture or the Debentures to cure any ambiguity, defect
or inconsistency, to bind a successor to the obligations of the Indenture, to
provide for uncertificated Debentures in addition to certificated Debentures, to
comply with any requirements of the Debentures or the Securities and Exchange
Commission in connection with the qualification of the Indenture under the TIA,
or to make any change that does not adversely affect the rights of any
Debentureholder. Amendments bind all Holders and subsequent Holders.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Debenture at the time and place and at the rate and in the
money herein prescribed.
A-4
<PAGE>
After payment in full of the Additional Payment, the Company shall have the
right at any time during the term of the Series B Debentures, from time to time
to extend the interest payment period of such Debentures to up to 60 consecutive
months (the "Extended Interest Payment Period"), at the end of which period the
Company shall pay all interest then accrued and unpaid (together with interest
thereon at the rate specified for the Series B Debentures to the extent that
payment of such interest is enforceable under applicable law); provided that,
during such Extended Interest Payment Period the Company shall not declare or
pay any dividend on, redeem or purchase any of its capital stock. Prior to the
termination of any such Extended Interest Payment Period, the Company may
further extend such Extended Interest Payment Period, provided that such Period
together with all such further extensions thereof shall not exceed 60
consecutive months. At the termination of any such Extended Interest Payment
Period and upon the payment of all accrued and unpaid interest and any
additional amounts then due, the Company may select a new Extended Interest
Payment period.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the registered holder hereof on the
Debenture Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Registrar accompanied by
a written instrument or instruments of transfer in form satisfactory to the
Company or the Trustee duly executed by the registered holder hereof or its
attorney duly authorized in writing, and thereupon one or more new Debentures of
authorized denominations and for the same aggregate principal amount and series
will be issued to the designated transferee or transferees. No service charge
will be made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to presentment for registration of transfer of this Debenture, the
Company, the Trustee, any paying agent and any Debenture Registrar may deem and
treat the registered holder hereof as the absolute owner hereof (whether or not
this Debenture shall be overdue and notwithstanding any notice of ownership or
writing hereon made by anyone other than the Debenture Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and interest due hereon and for all other purposes, and neither
the Company nor the Trustee nor any payment agent nor any Debenture Registrar
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in
A-5
<PAGE>
respect of the Indenture, against any incorporator, stockholder, officer or
director, past, present or future, as such, of the Company or of any predecessor
or successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability being, by the acceptance hereof and as part of the consideration
for the issuance hereof, expressly waived and released. Debentures of this
series so issued are issuable only in registered form without coupons in
denominations of $25 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Debentures of
this series are exchangeable for a like aggregate principal amount of Debentures
of this series of a different authorized denomination, as requested by the
Holder surrendering the same.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
This Debenture shall not be valid until an authorized officer of the
Trustee manually signs the Trustee's Certificate of Authentication below.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
PECO ENERGY COMPANY
(Seal)
By: __________________________
Name:
Title:
Attest:_______________________
Dated: December 19, 1995
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred
to in the within-mentioned Indenture.
MERIDIAN TRUST COMPANY, as Trustee
By: __________________________
Name
______________________________
Authorized Signatory
A-6
Exhibit 4-8
8.72% Deferrable Interest Subordinated Debentures,
Series B due 2025
No. 1
PECO Energy Company, a Pennsylvania corporation (the "Company"), which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to PECO Energy Capital, L.P. or
registered assigns, the principal sum of Seventy-eight Million, One Hundred and
Four Thousand, Five Hundred and Seventy-five Dollars ($78,104,575) on December
19, 2025, and to pay interest on said principal sum from December 19, 1995 (the
"Issue Date") or from the most recent interest payment date (each such date, an
"Interest Payment Date") to which interest has been paid or duly provided for,
monthly in arrears on the last day of each calendar month of each year
commencing December 29, 1995 at the rate of 8.72% per annum plus Additional
Interest, if any, until the principal hereof shall have become due and payable,
and on any overdue principal and premium, if any, and (to the extent that
payment of such interest is enforceable under applicable law) on any overdue
installment of interest at the same rate per annum. The Company also promises to
pay to PECO Energy Capital, L.P. or registered assigns on December 29, 1995 an
amount (the "Additional Payment") equal to interest on the principal amount
hereof at the rate of 7.96% per annum from and including November 1, 1995
through but not including the Issue Date. If at any time PECO Energy Capital,
L.P. ("PECO Energy Capital") would be required to pay any taxes, duties, or
other governmental charges (other than withholding taxes) imposed by the United
States, or any other taxing authority, then, in any such case, the Company also
will pay as Additional Interest such amounts as shall be required so that the
net amounts received and retained by PECO Energy Capital after paying any such
taxes, duties, or other governmental charges will not be less than the amounts
PECO Energy Capital would have received had no such taxes, duties, assessments
or other governmental charges been imposed.
The amount of interest payable on any Interest Payment Date (and the
Additional Payment) shall be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which interest is payable on the
Series B Debentures is not a Business Day, then payment of interest payable on
such date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date. The interest
<PAGE>
installment so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the person
in whose name this Debenture is registered at the close of business on the
regular record date for such interest installment, which shall be the fifteenth
day of the month of, or in the case of an Interest Payment Date which is on the
first Business Day of a month, the fifteenth day of the month next preceding,
such Interest Payment Date. Any such interest installment not punctually paid or
duly provided for shall forthwith cease to be payable to the registered holders
on such regular record date, and may be paid to the person in whose name this
Debenture is registered at the close of business on a special record date to be
fixed by the Trustee for the payment of such defaulted interest, notice whereof
shall be given to the registered holders of this series of Debentures not less
than 10 days prior to such special record date, as more fully provided in the
Indenture hereinafter referred to. The principal of (and premium, if any) and
the interest on this Debenture shall be payable at the office or agency of the
Company maintained for that purpose in Wilmington, Delaware in any coin or
currency of the United States of America which at the time of payment is legal
tender for payment of public and private debts; provided however, that payment
of interest may be made at the option of the Company by check mailed to the
registered holder at such address as shall appear in the Debenture Register.
Notwithstanding the foregoing, so long as the holder of this Debenture is PECO
Energy Capital, the payment of the principal of (and premium) and interest
(including the Additional Payment and Additional Interest, if any) in this
Debenture will be made at such place and to such account as may be designated by
PECO Energy Capital.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Debenture is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Debenture,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on its behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination so
provided and (c) appoints the Trustee its attorney-in-fact for any and all such
purposes. Each Holder hereof, by its acceptance hereof, hereby waives all notice
of the acceptance of the subordination provisions contained herein and in the
Indenture by each holder of Senior Indebtedness, whether now outstanding or
hereafter incurred, and waives reliance by each such Holder upon said
provisions.
2
<PAGE>
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Series B Debentures"), specified
in the Indenture, limited in aggregate principal amount as specified in the
Indenture, issued under and pursuant to an Indenture dated as of July 1, 1994,
as supplemented by a First Supplemental Indenture, dated as of December 1, 1995
(as supplemented, the "Indenture") executed and delivered between the Company
and Meridian Trust Company, as trustee (the "Trustee") to which reference is
made to the Indenture for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Debentures. By the terms of the Indenture, Debentures are
issuable in series which may vary as to amount, date of maturity, rate of
interest and in other respects as in the Indenture provided.
The Series B Debentures are subject to mandatory redemption prior to
maturity at 100% of the principal amount thereof plus accrued interest to the
redemption date as follows:
(i) in whole upon the dissolution of PECO Energy Capital; and
(ii) in whole or in part upon a redemption of the Series B Preferred
Securities (as defined in the Indenture), but if in part, in an
aggregate principal amount equal to the aggregate stated
liquidation preference of the Series B Preferred Securities
redeemed.
At the option of the Company, the Series B Debentures are subject to
redemption prior to maturity (i) at any time on or after October 1, 1997 at the
option of the Company, in whole or in part, and (ii) if a Tax Event shall occur
and be continuing, in whole (but not in part), and in each case at 100% of the
principal amount thereof plus accrued interest to the redemption date. "Tax
Event" shall mean that PECO Energy Capital shall have received an opinion of
counsel (which may be regular counsel to the Company or an Affiliate, but not an
employee thereof) experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such interpretation or pronouncement is announced on or after the
date of original issuance of the Series B Preferred Securities, there is more
than an insubstantial risk that (i) PECO Energy Capital is subject to
3
<PAGE>
United States Federal income tax with respect to interest received on the
Debentures or PECO Energy Capital will otherwise not be taxed as a partnership,
(ii) interest payable by the Company to PECO Energy Capital on the Series B
Debentures will not be deductible for United States Federal income tax purposes
or (iii) PECO Energy Capital is subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
In the event of redemption of this Debenture in part only, a new Debenture
or Debentures of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Debenture upon compliance by the Company with certain
conditions set forth therein.
Subject to certain exceptions in the Indenture which require the consent of
every Holder, (i) the Indenture or the Series B Debentures may be amended with
the written consent of the Holders of a majority in aggregate principal amount
of the Series B Debentures at the time outstanding, and (ii) certain defaults or
noncompliance with certain provisions may be waived by the written consent of
the holders of a majority in aggregate principal amount of the Series B
Debentures at the time outstanding. Subject to certain exceptions in the
Indenture, without the consent of any Debentureholder, the Company and the
Trustee may amend the Indenture or the Debentures to cure any ambiguity, defect
or inconsistency, to bind a successor to the obligations of the Indenture, to
provide for uncertificated Debentures in addition to certificated Debentures, to
comply with any requirements of the Debentures or the Securities and Exchange
Commission in connection with the qualification of the Indenture under the TIA,
or to make any change that does not adversely affect the rights of any
Debentureholder. Amendments bind all Holders and subsequent Holders.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this
4
<PAGE>
Debenture at the time and place and at the rate and in the money herein
prescribed.
After payment in full of the Additional Payment, the Company shall have the
right at any time during the term of the Series B Debentures, from time to time
to extend the interest payment period of such Debentures to up to 60 consecutive
months (the "Extended Interest Payment Period"), at the end of which period the
Company shall pay all interest then accrued and unpaid (together with interest
thereon at the rate specified for the Series B Debentures to the extent that
payment of such interest is enforceable under applicable law); provided that,
during such Extended Interest Payment Period the Company shall not declare or
pay any dividend on, redeem or purchase any of its capital stock. Prior to the
termination of any such Extended Interest Payment Period, the Company may
further extend such Extended Interest Payment Period, provided that such Period
together with all such further extensions thereof shall not exceed 60
consecutive months. At the termination of any such Extended Interest Payment
Period and upon the payment of all accrued and unpaid interest and any
additional amounts then due, the Company may select a new Extended Interest
Payment period.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the registered holder hereof on the
Debenture Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Registrar accompanied by
a written instrument or instruments of transfer in form satisfactory to the
Company or the Trustee duly executed by the registered holder hereof or its
attorney duly authorized in writing, and thereupon one or more new Debentures of
authorized denominations and for the same aggregate principal amount and series
will be issued to the designated transferee or transferees. No service charge
will be made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to presentment for registration of transfer of this Debenture, the
Company, the Trustee, any paying agent and any Debenture Registrar may deem and
treat the registered holder hereof as the absolute owner hereof (whether or not
this Debenture shall be overdue and notwithstanding any notice of ownership or
writing hereon made by anyone other than the Debenture Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and interest due hereon and for all other purposes, and neither
the Company nor the Trustee nor any payment agent nor any Debenture Registrar
shall be affected by any notice to the contrary.
5
<PAGE>
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released. Debentures of this series so issued are issuable only in
registered form without coupons in denominations of $25 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Debentures of this series are exchangeable for a
like aggregate principal amount of Debentures of this series of a different
authorized denomination, as requested by the Holder surrendering the same.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
This Debenture shall not be valid until an authorized officer of the
Trustee manually signs the Trustee's Certificate of Authentication below.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
PECO ENERGY COMPANY
(Seal)
By: /s/ J. Barry Mitchell
Name: J. Barry Mitchell
Title: Vice President/Finance
Attest: /s/ Todd D. Cutler
Dated: December 19, 1995
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred
to in the within-mentioned Indenture.
MERIDIAN TRUST COMPANY, as Trustee
By: /s/ William S. Roberts
Name
Relationship Officer
Authorized Signatory
7
<PAGE>
Exhibit 4-8
8.72% Deferrable Interest Subordinated Debentures,
Series B due 2025
No. 2
PECO Energy Company, a Pennsylvania corporation (the "Company"), which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to PECO Energy Capital, L.P. or
registered assigns, the principal sum of Two Million, Four Hundred and Fifteen
Thousand, Six Hundred and Five Dollars ($2,415,605) on December 19, 2025, and to
pay interest on said principal sum from December 19, 1995 (the "Issue Date") or
from the most recent interest payment date (each such date, an "Interest Payment
Date") to which interest has been paid or duly provided for, monthly in arrears
on the last day of each calendar month of each year commencing December 29, 1995
at the rate of 8.72% per annum plus Additional Interest, if any, until the
principal hereof shall have become due and payable, and on any overdue principal
and premium, if any, and (to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest at the
same rate per annum. The Company also promises to pay to PECO Energy Capital,
L.P. or registered assigns on December 29, 1995 an amount (the "Additional
Payment") equal to interest on the principal amount hereof at the rate of 7.96%
per annum from and including November 1, 1995 through but not including the
Issue Date. If at any time PECO Energy Capital, L.P. ("PECO Energy Capital")
would be required to pay any taxes, duties, or other governmental charges (other
than withholding taxes) imposed by the United States, or any other taxing
authority, then, in any such case, the Company also will pay as Additional
Interest such amounts as shall be required so that the net amounts received and
retained by PECO Energy Capital after paying any such taxes, duties, or other
governmental charges will not be less than the amounts PECO Energy Capital would
have received had no such taxes, duties, assessments or other governmental
charges been imposed.
The amount of interest payable on any Interest Payment Date (and the
Additional Payment) shall be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which interest is payable on the
Series B Debentures is not a Business Day, then payment of interest payable on
such date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date. The interest
<PAGE>
installment so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the person
in whose name this Debenture is registered at the close of business on the
regular record date for such interest installment, which shall be the fifteenth
day of the month of, or in the case of an Interest Payment Date which is on the
first Business Day of a month, the fifteenth day of the month next preceding,
such Interest Payment Date. Any such interest installment not punctually paid or
duly provided for shall forthwith cease to be payable to the registered holders
on such regular record date, and may be paid to the person in whose name this
Debenture is registered at the close of business on a special record date to be
fixed by the Trustee for the payment of such defaulted interest, notice whereof
shall be given to the registered holders of this series of Debentures not less
than 10 days prior to such special record date, as more fully provided in the
Indenture hereinafter referred to. The principal of (and premium, if any) and
the interest on this Debenture shall be payable at the office or agency of the
Company maintained for that purpose in Wilmington, Delaware in any coin or
currency of the United States of America which at the time of payment is legal
tender for payment of public and private debts; provided however, that payment
of interest may be made at the option of the Company by check mailed to the
registered holder at such address as shall appear in the Debenture Register.
Notwithstanding the foregoing, so long as the holder of this Debenture is PECO
Energy Capital, the payment of the principal of (and premium) and interest
(including the Additional Payment and Additional Interest, if any) in this
Debenture will be made at such place and to such account as may be designated by
PECO Energy Capital.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Debenture is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Debenture,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on its behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination so
provided and (c) appoints the Trustee its attorney-in-fact for any and all such
purposes. Each Holder hereof, by its acceptance hereof, hereby waives all notice
of the acceptance of the subordination provisions contained herein and in the
Indenture by each holder of Senior Indebtedness, whether now outstanding or
hereafter incurred, and waives reliance by each such Holder upon said
provisions.
2
<PAGE>
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Series B Debentures"), specified
in the Indenture, limited in aggregate principal amount as specified in the
Indenture, issued under and pursuant to an Indenture dated as of July 1, 1994,
as supplemented by a First Supplemental Indenture, dated as of December 1, 1995
(as supplemented, the "Indenture") executed and delivered between the Company
and Meridian Trust Company, as trustee (the "Trustee") to which reference is
made to the Indenture for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Debentures. By the terms of the Indenture, Debentures are
issuable in series which may vary as to amount, date of maturity, rate of
interest and in other respects as in the Indenture provided.
The Series B Debentures are subject to mandatory redemption prior to
maturity at 100% of the principal amount thereof plus accrued interest to the
redemption date as follows:
(i) in whole upon the dissolution of PECO Energy Capital; and
(ii) in whole or in part upon a redemption of the Series B Preferred
Securities (as defined in the Indenture), but if in part, in an
aggregate principal amount equal to the aggregate stated
liquidation preference of the Series B Preferred Securities
redeemed.
At the option of the Company, the Series B Debentures are subject to
redemption prior to maturity (i) at any time on or after October 1, 1997 at the
option of the Company, in whole or in part, and (ii) if a Tax Event shall occur
and be continuing, in whole (but not in part), and in each case at 100% of the
principal amount thereof plus accrued interest to the redemption date. "Tax
Event" shall mean that PECO Energy Capital shall have received an opinion of
counsel (which may be regular counsel to the Company or an Affiliate, but not an
employee thereof) experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such interpretation or pronouncement is announced on or after the
date of original issuance of the Series B Preferred Securities, there is more
than an insubstantial risk that (i) PECO Energy Capital is subject to
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United States Federal income tax with respect to interest received on the
Debentures or PECO Energy Capital will otherwise not be taxed as a partnership,
(ii) interest payable by the Company to PECO Energy Capital on the Series B
Debentures will not be deductible for United States Federal income tax purposes
or (iii) PECO Energy Capital is subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
In the event of redemption of this Debenture in part only, a new Debenture
or Debentures of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Debenture upon compliance by the Company with certain
conditions set forth therein.
Subject to certain exceptions in the Indenture which require the consent of
every Holder, (i) the Indenture or the Series B Debentures may be amended with
the written consent of the Holders of a majority in aggregate principal amount
of the Series B Debentures at the time outstanding, and (ii) certain defaults or
noncompliance with certain provisions may be waived by the written consent of
the holders of a majority in aggregate principal amount of the Series B
Debentures at the time outstanding. Subject to certain exceptions in the
Indenture, without the consent of any Debentureholder, the Company and the
Trustee may amend the Indenture or the Debentures to cure any ambiguity, defect
or inconsistency, to bind a successor to the obligations of the Indenture, to
provide for uncertificated Debentures in addition to certificated Debentures, to
comply with any requirements of the Debentures or the Securities and Exchange
Commission in connection with the qualification of the Indenture under the TIA,
or to make any change that does not adversely affect the rights of any
Debentureholder. Amendments bind all Holders and subsequent Holders.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this
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Debenture at the time and place and at the rate and in the money herein
prescribed.
After payment in full of the Additional Payment, the Company shall have the
right at any time during the term of the Series B Debentures, from time to time
to extend the interest payment period of such Debentures to up to 60 consecutive
months (the "Extended Interest Payment Period"), at the end of which period the
Company shall pay all interest then accrued and unpaid (together with interest
thereon at the rate specified for the Series B Debentures to the extent that
payment of such interest is enforceable under applicable law); provided that,
during such Extended Interest Payment Period the Company shall not declare or
pay any dividend on, redeem or purchase any of its capital stock. Prior to the
termination of any such Extended Interest Payment Period, the Company may
further extend such Extended Interest Payment Period, provided that such Period
together with all such further extensions thereof shall not exceed 60
consecutive months. At the termination of any such Extended Interest Payment
Period and upon the payment of all accrued and unpaid interest and any
additional amounts then due, the Company may select a new Extended Interest
Payment period.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the registered holder hereof on the
Debenture Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Registrar accompanied by
a written instrument or instruments of transfer in form satisfactory to the
Company or the Trustee duly executed by the registered holder hereof or its
attorney duly authorized in writing, and thereupon one or more new Debentures of
authorized denominations and for the same aggregate principal amount and series
will be issued to the designated transferee or transferees. No service charge
will be made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to presentment for registration of transfer of this Debenture, the
Company, the Trustee, any paying agent and any Debenture Registrar may deem and
treat the registered holder hereof as the absolute owner hereof (whether or not
this Debenture shall be overdue and notwithstanding any notice of ownership or
writing hereon made by anyone other than the Debenture Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and interest due hereon and for all other purposes, and neither
the Company nor the Trustee nor any payment agent nor any Debenture Registrar
shall be affected by any notice to the contrary.
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No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released. Debentures of this series so issued are issuable only in
registered form without coupons in denominations of $25 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Debentures of this series are exchangeable for a
like aggregate principal amount of Debentures of this series of a different
authorized denomination, as requested by the Holder surrendering the same.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
This Debenture shall not be valid until an authorized officer of the
Trustee manually signs the Trustee's Certificate of Authentication below.
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IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
PECO ENERGY COMPANY
(Seal)
By: /s/ J. Barry Mitchell
Name: J. Barry Mitchell
Title: Vice President/Finance
Attest: /s/ Todd D. Cutler
Dated: December 19, 1995
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred
to in the within-mentioned Indenture.
MERIDIAN TRUST COMPANY, as Trustee
By: /s/ William S. Roberts
Name
Relationship Officer
Authorized Signatory
7
Exhibit 4-10
PAYMENT AND GUARANTEE AGREEMENT
THIS PAYMENT AND GUARANTEE AGREEMENT ("Guarantee Agreement"), dated as
of December 19, 1995, is executed and delivered by PECO Energy Company, a
Pennsylvania corporation (the "Guarantor"), for the benefit of the Holders (as
defined below) of the Series B Preferred Securities (as defined below) of PECO
Energy Capital, L.P., a Delaware limited partnership ("PECO Energy Capital"),
the general partner of which is PECO Energy Capital Corp. (the "General
Partner"), a Delaware corporation and a wholly owned subsidiary of the
Guarantor.
WHEREAS, PECO Energy Capital is issuing on the date hereof $78,104,575
aggregate stated liquidation preference of limited partner interests of a series
designated the 8.72% Cumulative Monthly Income Preferred Securities, Series B
(the "Series B Preferred Securities"), and the Guarantor desires to enter into
this Guarantee Agreement for the benefit of the Holders, as provided herein;
WHEREAS, the Guarantor will issue Series B Subordinated Debentures (as
defined below) in accordance with the Indenture (as defined below) to PECO
Energy Capital in an amount equal to the aggregate stated liquidation preference
of the Series B Preferred Securities and the capital contribution of the General
Partner to PECO Energy Capital (the "G.P. Capital Contribution"); and
WHEREAS, the Guarantor desires to irrevocably and unconditionally
agree to the extent set forth herein to pay to the Holders the Guarantee
Payments (as defined below) and to make certain other undertakings on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and other
consideration, receipt of which is hereby acknowledged, the Guarantor, intending
to be legally bound hereby, agrees as follows:
ARTICLE I
As used in this Guarantee Agreement, each term set forth below, unless
the context otherwise requires, shall have the following meaning. Each
capitalized term used but not otherwise defined herein shall have the meaning
assigned to such term in the Amended and Restated Limited Partnership Agreement
of PECO Energy Capital dated as of July 25, 1994 (as amended from time to time,
the "Limited Partnership Agreement").
<PAGE>
"Guarantee Payments" shall mean the following payments, without
duplication, to the extent not paid by PECO Energy Capital: (i) any accumulated
and unpaid monthly distributions on the Series B Preferred Securities out of
moneys legally available therefor held by PECO Energy Capital, (ii) the
Redemption Price (as defined below) payable with respect to any Series B
Preferred Securities called for redemption by PECO Energy Capital out of moneys
legally available therefor held by PECO Energy Capital, (iii) upon liquidation
of PECO Energy Capital, the lesser of (a) the Liquidation Distribution (as
defined below) and (b) the amount of assets of PECO Energy Capital available for
distribution to the Holders in liquidation of PECO Energy Capital and (iv) a
cash distribution at the rate of 7.96% per annum of the stated liquidation
preference of $25 per Series B Preferred Security accumulating from November 1,
1995 through but not including December 19, 1995.
"Holders" shall mean the persons or entities in whose name any Series
B Preferred Securities are registered on the registration books maintained by
PECO Energy Capital; provided, however, that in determining whether the Holders
of the requisite percentage of Series B Preferred Securities have given any
request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor or any entity owned more than 50% by the Guarantor, either directly or
indirectly.
"Indenture" shall mean the Indenture, dated as of July 1, 1994 (the
"Original Indenture"), as supplemented by the Supplemental Indenture, between
the Guarantor and Meridian Trust Company, pursuant to which the Guarantor has
issued and will issue its Deferrable Interest Subordinated Debentures in series.
"Liquidation Distribution" shall mean the aggregate of the stated
liquidation preference of $25 per Series B Preferred Security and all
accumulated and unpaid distributions to the date of payment.
"Preferred Trust Receipts" shall mean the trust receipts issued by the
Trust each representing a Series B Preferred Security.
"Redemption Price" shall mean the aggregate of $25 per Series B
Preferred Security and all accumulated and unpaid distributions to the date
fixed for redemption.
"Special Representative" shall mean any representative of the Holders
appointed pursuant to Section 13.02(d) of the Limited Partnership Agreement.
"Supplemental Indenture" shall mean the First Supplemental Indenture,
dated as of December 19, 1995, between
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the Guarantor and Meridian Trust Company, pursuant to which the Guarantor has
issued its 8.72% Deferrable Interest Subordinated Debentures, Series B (the
"Series B Subordinated Debentures") in an amount equal to the aggregate stated
liquidation preference of the Series B Preferred Securities and the G.P. Capital
Contribution.
"Trust" shall mean PECO Energy Capital Trust I, a Delaware business
trust.
"Trust Agreement" shall mean the Amended and Restated Trust Agreement
of PECO Energy Capital Trust I, as amended from time to time, among PECO Energy
Capital, L.P., as Grantor and PNC Bank, Delaware, as Trustee, dated as of
December 19, 1995.
"Trustee" shall mean PNC Bank, Delaware or a successor trustee under
the Trust Agreement.
ARTICLE II
SECTION 2.01. The Guarantor hereby irrevocably and unconditionally
agrees to pay in full to the Holders the Guarantee Payments, as and when due
(except to the extent paid by PECO Energy Capital), to the fullest extent
permitted by law, regardless of any defense, right of set-off or counterclaim
which the Guarantor may have or assert against PECO Energy Capital, the General
Partner, the Trust or the Trustee. The Guarantor's obligation to make a
Guarantee Payment may be satisfied by direct payment by the Guarantor to the
Holders or by payment of such amounts by PECO Energy Capital to the Holders.
Notwithstanding anything to the contrary herein, the Guarantor retains all of
its rights under Section 4.01(b) of the Indenture to extend the interest payment
period on the Series B Subordinated Debentures and the Guarantor shall not be
obligated hereunder to pay during an Extension Period any monthly distributions
on the Series B Preferred Securities which are not paid by PECO Energy Capital
during such Extension Period.
SECTION 2.02. The Guarantor hereby waives notice of acceptance of this
Guarantee Agreement and of any liability to which it applies or may apply,
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
SECTION 2.03. Except as otherwise set forth herein, the obligations,
covenants, agreements and duties of the Guarantor under this Guarantee Agreement
shall in no way be affected or impaired by reason of the happening from time to
time of any of the following:
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(a) the release or waiver, by operation of law or otherwise, of
the performance or observance by PECO Energy Capital of any express or implied
agreement, covenant, term or condition relating to the Series B Preferred
Securities to be performed or observed by PECO Energy Capital;
(b) the extension of time for the payment by PECO Energy Capital
of all or any portion of the distributions, Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Series B Preferred
Securities or the extension of time for the performance of any other obligation
under, arising out of, or in connection with, the Series B Preferred Securities;
(c) any failure, omission, delay or lack of diligence on the part
of the Holders or the Special Representative to enforce, assert or exercise any
right, privilege, power or remedy conferred on the Holders or the Special
Representative pursuant to the terms of the Series B Preferred Securities, or
any action on the part of PECO Energy Capital granting indulgence or extension
of any kind;
(d) the voluntary or involuntary liquidation, dissolution,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of debt of, or other
similar proceedings affecting, PECO Energy Capital or any of the assets of PECO
Energy Capital;
(e) any invalidity of, or defect or deficiency in, any of the
Series B Preferred Securities; or
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred.
There shall be no obligation to the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the occurrence of any of the
foregoing.
SECTION 2.04. The Guarantor expressly acknowledges that (i) this
Guarantee Agreement will be deposited with the General Partner to be held for
the benefit of the Holders; (ii) in the event of the appointment of a Special
Representative, the Special Representative may enforce this Guarantee Agreement
for such purpose; (iii) if no Special Representative has been appointed, the
General Partner has the right to enforce this Guarantee Agreement on behalf of
the Holders; (iv) the holders of Preferred Trust Receipts, together with the
holders of the Series B Preferred Securities other than the Trust, representing
not less than 10% in aggregate stated liquidation preference of the Series B
Preferred Securities have the right to direct the time,
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method and place of conducting any proceeding for any remedy available in
respect of this Guarantee Agreement including the giving of directions to the
General Partner or the Special Representative as the case may be; and (v) if the
General Partner or the Special Representative fails to enforce this Guarantee
Agreement as above provided, any holder of Preferred Trust Receipts representing
Series B Preferred Securities may institute a legal proceeding directly against
the Guarantor to enforce its rights under this Guarantee Agreement, without
first instituting a legal proceeding against PECO Energy Capital or any other
person or entity.
SECTION 2.05. This is a guarantee of payment and not of collection.
The General Partner or Special Representative may enforce this Guarantee
Agreement directly against the Guarantor, and the Guarantor will waive any right
or remedy to require that any action be brought against PECO Energy Capital or
any other person or entity before proceeding against the Guarantor. The
Guarantor agrees that this Guarantee Agreement shall not be discharged except by
payment of the Guarantee Payments in full (to the extent not paid by PECO Energy
Capital) and by complete performance of all obligations of the Guarantor
contained in this Guarantee Agreement.
SECTION 2.06. The Guarantor will be subrogated to all rights of the
Holders against PECO Energy Capital in respect of any amounts paid to the
Holders by the Guarantor under this Guarantee Agreement and shall have the right
to waive payment by PECO Energy Capital pursuant to Section 2.01; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) exercise any rights which it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of a payment under this Guarantee Agreement, if, at the time of any
such payment, any amounts remain due and unpaid under this Guarantee Agreement.
If any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to pay over such amount to the Holders.
SECTION 2.07. The Guarantor acknowledges that its obligations
hereunder are independent of the obligations of PECO Energy Capital with respect
to the Series B Preferred Securities and that the Guarantor shall be liable as
principal and sole debtor hereunder to make Guarantee Payments pursuant to the
terms of this Guarantee Agreement notwithstanding the occurrence of any event
referred to in subsections (a) through (f), inclusive, of Section 2.03 hereof.
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ARTICLE III
SECTION 3.01. So long as any Series B Preferred Securities remain
outstanding, neither the Guarantor nor any majority-owned subsidiary of the
Guarantor shall declare or pay any dividend on, or redeem, purchase, acquire or
make a liquidation payment with respect to, any of its capital stock (other than
dividends by a wholly owned subsidiary) if at such time the Guarantor shall be
in default with respect to its payment or other obligations hereunder or there
shall have occurred any event that, with the giving of notice or the lapse of
time or both, would constitute an Event of Default under the Indenture. The
Guarantor shall take all actions necessary to ensure the compliance of its
subsidiaries with this Section 3.01.
SECTION 3.02. So long as any Series B Preferred Securities are
outstanding, the Guarantor agrees to maintain its corporate existence; provided
that the Guarantor may consolidate with or merge with or into, or sell, convey,
transfer or lease all or substantially all of its assets (either in one
transaction or a series of transactions) to, any person, corporation,
partnership, limited liability company, joint venture association, joint stock
company, trust or unincorporated association if such entity formed by or
surviving such consolidation or merger or to which such sale, conveyance,
transfer or lease shall have been made, if other than the Guarantor, (i) is
organized and existing under the laws of the United States of America or any
state thereof or the District of Columbia, and (ii) shall expressly assume all
the obligations of the Guarantor under this Guarantee Agreement.
SECTION 3.03. This Guarantee Agreement will constitute an unsecured
obligation of the Guarantor and will rank subordinate and junior in right of
payment to all general liabilities of the Guarantor.
ARTICLE IV
This Guarantee Agreement shall terminate and be of no further force
and effect upon full payment of the Redemption Price of all Series B Preferred
Securities or upon full payment of the amounts payable to the Holders upon
liquidation of PECO Energy Capital; provided, however, that this Guarantee
Agreement shall continue to be effective or shall be reinstated, as the case may
be, if at any time the Holders must restore payments of any sums paid under the
Series B Preferred Securities or under this Guarantee Agreement for any reason
whatsoever.
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ARTICLE V
SECTION 5.01. All guarantees and agreements contained in this
Guarantee Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders.
Except as provided in Section 3.02, the Guarantor may not assign its obligations
hereunder without the prior approval of the Holders of not less than 662/3% of
the aggregate stated liquidation preference of all Series B Preferred Securities
then outstanding.
SECTION 5.02. This Guarantee Agreement may only be amended by a
written instrument executed by the Guarantor; provided that, so long as any of
the Series B Preferred Securities remain outstanding, any amendment that
materially adversely affects the Holders, any termination of this Guarantee
Agreement and any waiver of compliance with any covenant hereunder shall be
effected only with the prior approval of the holders of Preferred Trust Receipts
together with the holders of Series B Preferred Securities other than the Trust,
representing not less than 662/3% of the aggregate liquidation preference of all
Series B Preferred Securities then outstanding.
SECTION 5.03. All notices, requests or other communications required
or permitted to be given hereunder to the Guarantor shall be deemed given if in
writing and delivered personally or by recognized overnight courier or express
mail service or by facsimile transmission (confirmed in writing) or by
registered or certified mail (return receipt requested), addressed to the
Guarantor at the following address (or at such other address as shall be
specified by like notice to the Holders):
PECO Energy Company
2301 Market Street
P.O. Box 8699
Philadelphia, Pennsylvania 19101
Facsimile No.: (215) 841-5743
Attention: Treasurer
All notices, requests or other communications required or permitted to
be given hereunder to the Holders shall be deemed given if in writing and
delivered by the Guarantor in the same manner as notices sent by PECO Energy
Capital to the Holders.
SECTION 5.04. This Guarantee Agreement is solely for the benefit of
the Holders and is not separately transferable from the Series B Preferred
Securities.
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SECTION 5.05. This Guarantee Agreement shall be governed by and
construed and interpreted in accordance with the laws of the Commonwealth of
Pennsylvania without giving effect to the conflict of law principles thereof.
THIS GUARANTEE AGREEMENT is executed as of the day and year first
above written.
PECO ENERGY COMPANY
By: /s/ J. Barry Mitchell
-----------------------------
J. Barry Mitchell
Vice President - Finance
8
Exhibit 10-5
Forms of Agreement between the Company and Certain Officers
GROUP 1
AGREEMENT
Agreement made as of the ___ day of ____________, 1995, between PECO Energy
Company (the "Company"), and [name of employee] (the "Employee").
WHEREAS, the Employee is presently employed by the Company as its [title];
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Company exists and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of key management personnel to the detriment of the
Company;
WHEREAS, the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of key members of
the Company's management to their assigned duties without distraction in the
face of potentially disturbing circumstances arising from the possibility of a
change in control of the Company; and
WHEREAS, in order to induce the Employee to remain in the employ of the
Company, the Company agrees that the Employee shall receive the compensation set
forth in this Agreement as a cushion against the financial and career impact on
the Employee in the event the Employee's employment with the Company is
terminated subsequent to a "Change of Control" (as defined in Section 1.3
hereof) of the Company;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth and intending to be legally bound hereby,
the parties hereto agree as follows:
1. Definitions. For all purposes of this Agreement, the following terms
shall have the meanings specified in this Section unless the context clearly
otherwise requires:
1.1 "Annual Base Salary" shall mean twelve times the greater of (a) the
highest monthly base salary paid or payable (including any base salary which has
been earned but deferred) to the Employee by the Company, and its affiliates (as
defined in Section 1504 of the Code without regard to subsection (b) thereof),
together with any and all salary reduction authorized amounts under any
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of the Company's benefit plans or programs, in respect of the twelve-month
period immediately preceding the date of the Change in Control, or (b) the
monthly base salary paid or payable to the Employee by the Company (including
authorized deferrals and salary reduction amounts) immediately prior to the
Employee's Termination of Employment.
1.2 "Annual Bonus" shall mean an amount equal to the Employee's highest
annual bonus for the last three full fiscal years prior to the Change of Control
(annualized in the event that the Employee was not employed for the whole of
such fiscal year).
1.3 "Change of Control" shall mean (a) the purchase or other acquisition by
any person, entity or group of persons, within the meaning of section 13(d) or
14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable
successor provisions, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of 20 percent or more of either the outstanding
shares of common stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally, or (b) the approval by
the shareholders of the Company of a reorganization, merger, or consolidation,
in each case, with respect to which persons who were shareholders of the Company
immediately prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 50 percent of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or consolidated Company's then outstanding securities, or of a
liquidation or dissolution of the Company or the sale of all or substantially
all of the Company's assets, or (c) a change of 25% (rounded up to the next
whole person) in the membership of the Board of Directors of the Company within
a 12-month period, unless the election or nomination for election by
shareholders of each new director within such period was approved by a vote of
85% (rounded up to the next whole person) of the directors then still in office
who were in office at the beginning of the 12-month period.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 "Separation Period" shall mean the two-year period beginning on the
date of the Employee's Termination of Employment.
1.6 "Termination Date" shall mean the date of receipt of the Notice of
Termination described in Section 2 hereof or any later date specified therein,
as the case may be.
1.7 "Termination of Employment" shall mean the termination of the
Employee's actual employment relationship with the Company.
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1.8 "Termination following a Change of Control" shall mean a Termination of
Employment within three years after a Change of Control either:
1.8 (a) initiated by the Company for any reason other than (i) the
Employee's death, continuous illness, injury or incapacity for a period of
twelve consecutive months or (ii) for "cause," which shall mean misappropriation
of funds, habitual insobriety, substance abuse, conviction of a crime involving
moral turpitude, or gross negligence in the performance of duties, which gross
negligence has had a material adverse effect on the business, operations,
assets, properties or financial condition of the Company and its Subsidiaries
taken as a whole; or
1.8 (b) initiated by the Employee upon one or more of the following
occurrences:
(i) any failure of the Company to comply with and satisfy any of the
terms of this Agreement;
(ii) any change resulting in a significant reduction by the Company of
the authority, duties, compensation or responsibilities of the
Employee;
(iii) any removal by the Company of the Employee from the employment
grade, compensation level or officer positions which the Employee
holds as of the effective date hereof except in connection with
promotions to higher office; or
(iv) the requirement that the Employee undertake business travel (or
commuting in excess of seventy-five miles each way from the Company's
current headquarters at 2301 Market Street, Philadelphia,
Pennsylvania) to an extent substantially greater than is reasonable
and customary for the position the Employee holds.
2. Notice of Termination. Any Termination following a Change of Control
shall be communicated by a Notice of Termination to the other party hereto given
in accordance with Section 15 hereof. For purposes of this Agreement, a "Notice
of Termination" means a written notice which (a) indicates the specific
termination provision in this Agreement relied upon, (b) briefly summarizes the
facts and circumstances deemed to provide a basis for termination of the
Employee's employment under the provision so indicated, and (c) if the
Termination Date is other than the date of receipt of such notice, specifies the
Termination Date (which date shall not be more than 15 days after the giving of
such notice).
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3. Compensation Upon Termination. Subject to the provisions of Section 10
hereof, in the event of the Employee's Termination following a Change of
Control, the Company shall pay or provide to the Employee during the Separation
Period ( or, in the event of the Employee's death following such termination
during the Separation Period, to the Employee's estate), the following:
3.1 the Employee's earned but unpaid compensation as of the date of
Termination of Employment;
3.2 the benefits, if any, to which the Employee is entitled as a former
employee under the employee benefit programs and compensation plans and programs
maintained for the benefit of the Company's officers and employees;
3.3 continued group hospitalization, health, dental care, life or other
insurance, travel or accident insurance and disability insurance, for the
Separation Period, with coverage equivalent to the coverage to which the
Employee would have been entitled had the Employee continued working for the
Company during the Separation Period at his Annual Base Salary;
3.4 the Annual Base Salary and Annual Bonus the Employee would have earned
if the Employee had continued working for the Company during the Separation
Period;
3.5 the benefits to which the Employee would be entitled under the
Company's long term incentive, stock option, savings and retirement plans if the
Employee had continued working for the Company during the Separation Period at
his Annual Base Salary, and were making the maximum amount of employee
contributions, if any, as are required under such plans, together with dividend
equivalents on awards under the Company's long term incentive plan assuming the
Employee's ratings justified a 100% pay-out. In the event that applicable law
does not permit continued coverage under any tax qualified benefit plan or
incentive or option plan during the Separation Period, the Company shall provide
economically- equivalent benefits to the employee on a nonqualified,
supplemental or other basis;
3.6 in the event the Employee and the Employee's spouse are not otherwise
eligible for the Company's retiree health care coverage, following the end of
the Separation Period, Employee (or if employee is deceased, Employee's
surviving spouse) may continue to purchase health care coverage for himself and
eligible dependents under the Company's health benefits plan at the prevailing
rate then in effect for COBRA continuation coverage, until the Employee and the
Employee's spouse have attained eligibility for Medicare coverage; and
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<PAGE>
3.7 a minimum of twenty credited years of service under the Company's
Deferred Compensation and Supplemental Pension Benefit Plan for purposes of
determining the Employee's pension.
4. Other Payments. The payment due under Section 3 hereof shall be in
addition to and not in lieu of any payments or benefits due to the Employee
under any other plan, policy or program of the Company except that no payments
shall be due to the Employee under the Company's then severance pay plan for
employees, if any.
5. Enforcement.
5.1 In the event that the Company shall fail or refuse to make payment of
any amounts due the Employee under Sections 3 and 4 hereof within the respective
time periods provided therein, the Company shall pay to the Employee, in
addition to the payment of any other sums provided in this Agreement, interest,
compounded daily, on any amount remaining unpaid from the date payment is
required under Section 3 and 4, as appropriate, until paid to the Employee, at
the rate from time to time announced by Chase Manhattan Bank as its "prime rate"
plus 2%, each change in such rate to take effect on the effective date of the
change in such prime rate.
5.2 It is the intent of the parties that the Employee not be required to
incur any expenses associated with the enforcement of his rights under this
Agreement by arbitration, litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Employee hereunder. Accordingly, the Company shall pay the
Employee on demand the amount necessary to reimburse the Employee in full for
all expenses (including all attorneys' fees and legal expenses) incurred by the
Employee in enforcing any of the obligations of the Company under this
Agreement.
6. No Mitigation. The Employee shall not be required to mitigate the amount
of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for herein be reduced by any compensation earned by other employment or
otherwise.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in or rights under any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its subsidiaries or affiliates and for which the Employee may qualify;
provided, however, that following a Change of Control, the Employee hereby
waives the Employee's right to receive any payments under any severance pay plan
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<PAGE>
or similar program applicable to other employees of the Company (other than
outplacement services, if such services are provided as part of the severance
program) for so long as the Employer is eligible for termination benefits under
this Agreement.
8. No Set-Off. The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Employee or others.
9. Taxes. Any payment required under this Agreement shall be subject to all
requirements of the law with regard to the withholding of taxes, filing, making
of reports and the like, and the Company shall use its best efforts to satisfy
promptly all such requirements.
10. Parachute Payment Limitations.
10.1 Anything in this Agreement to the contrary notwithstanding, in the
event that it shall be determined that any payment or distribution by the
Company to or for the benefit of the Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would constitute an "excess parachute payment" within
the meaning of Section 280G of the Code, the aggregate present value of amounts
payable or distributable to or for the benefit of the Employee pursuant to this
Agreement (such payments or distributions pursuant to this Agreement are
hereinafter referred to as "Agreement Payments") shall be reduced (but not below
zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed
in present value which maximizes the aggregate present value of Agreement
Payments without causing any Payment to be subject to taxation under Section
4999 of the Code. For purposes of this Section 10, present value shall be
determined in accordance with Section 280G(d)(4) of the Code. In the event that
the amount payable to the Employee shall be limited to the Reduced Amount, then
the Employee shall have the right, in the Employee's sole discretion, to
designate those payments or benefits under this Agreement that should be reduced
or eliminated so as to avoid having the payment to the Employee under this
Agreement be subject to the Excise Tax.
10.2 All determinations as to applicability of the Excise Tax to be made
under this Section 10 shall be made by the Company's independent public
accountant immediately prior to the Change of Control (the "Accounting Firm")),
which firm shall provide its determinations and any supporting calculations both
to the Company and the Employee within 10 days of the Termination Date. Any such
determination by the Accounting Firm shall be binding upon the Company and the
Employee. Within five days after this determination, the Company shall pay (or
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<PAGE>
cause to be paid) or distribute (or cause to be distributed) to or for the
benefit of the Employee such amounts as are then due to the Employee under this
Agreement.
10.3 As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that payments under this Agreement, will have been
made by the Company which should not have been made ("Overpayment") or that
additional payments which have not been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculations required to be
made hereunder. Within two years after the Termination of Employment, the
Accounting Firm shall review the determination made by it pursuant to the
preceding paragraph. In the event that the Accounting Firm determines that an
Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan to the Employee which the Employee shall repay to the Company
together with interest at the applicable Federal rate provided for in Section
7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no amount
shall be payable by the Employee to the Company if and to the extent such
payment would not reduce the amount which is subject to taxation under Section
4999 of the Code. In the event that the Accounting Firm determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee together with interest at the
Federal Rate.
10.4 All of the fees and expenses of the Accounting Firm in performing the
determinations referred to in subsections 10.2 and 10.3 above shall be borne
solely by the Company. The Company agrees to indemnify and hold harmless the
Accounting Firm of and from any and all claims, damages and expenses resulting
from or relating to its determinations pursuant to subsections 10.2 and 10.3
above, except for claims, damages or expenses resulting from the gross
negligence or willful misconduct of the Accounting Firm.
11. Term of Agreement. The term of this Agreement shall be for three years
from the date hereof and shall be automatically renewed for successive one-year
periods unless the Company notifies the Employee in writing that this Agreement
will not be renewed at least sixty days prior to the end of the current term;
provided, however, that (a) after a Change of Control during the term of this
Agreement, this Agreement shall remain in effect until all of the obligations of
the parties hereunder are satisfied or have expired, and (b) this Agreement
shall terminate if, prior to a Change of Control, the employment of the Employee
with the Company or any of its subsidiaries, as the case may be, shall terminate
for any reason, or the Employee shall cease to be an Employee.
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<PAGE>
12. Restrictive Covenant. Employee agrees that following any termination of
Employee's employment relationship following a Change of Control which entitles
Employee to the payments due under Section 3, for a period of two years Employee
will not participate (either in any employee or non-employee capacity, e.g., as
a consultant or partner) in the gas or electric business with any corporation,
partnership, sole proprietorship or entity engaged in competition with the
Company or any of its affiliates. For this purpose, an entity shall be
considered to be "engaged in competition" if such entity is, or is a holding
company for, a gas or electric utility or generator with the ability to sell
into the Company's service territory, or the service territory of a gas or
electric utility or generator which is interconnected with the Company's system
or engages in transactions with the members of the Pennsylvania-New
Jersey-Maryland-Interconnection Association. Employee further agrees that if he
were to breach this restrictive covenant, said breach would cause the Company
irreparable harm for which injunctive relief, as well as damages, would be
appropriate. Employee hereby consents to the jurisdiction and venue of the Court
of Common Pleas of Philadelphia County, Pennsylvania as the forum in which any
suit to enforce this restrictive covenant may be instituted.
13. Arbitration; Expenses.
13.1 Except as provided in Section 12, in the event of any dispute under
the provisions of this Agreement, either party shall have the right to have such
dispute, controversy or claim to be settled by arbitration in the City of
Philadelphia, Pennsylvania, in accordance with the commercial arbitration rules
then in effect of the American Arbitration Association, before a panel of three
arbitrators, one of whom shall be selected by the Company, one of whom shall be
selected by the Employee, and the third of whom shall be selected by the other
two arbitrators. Any award entered by the arbitrators shall be final, binding
and nonappealable and judgment may be entered thereon by any party in accordance
with applicable law in any court of competent jurisdiction. This arbitration
provision shall be specifically enforceable. The party or parties bringing the
challenge under this Agreement shall in all circumstances have the burden of
proof.
13.2 In the event of an arbitration or lawsuit by either party to enforce
the provisions of this Agreement following a Change of Control, Employee shall
be entitled to recover reasonable costs, expenses and attorney's fees from the
Company pursuant to Section 5.2.
14. Successor Company. The Company shall require any successor or
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Employee, to
acknowledge expressly that this Agreement is binding upon and enforceable
against the
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<PAGE>
Company in accordance with the terms hereof, and to become jointly and severally
obligated with the Company to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such
succession or successions had taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement. As used in this Agreement, the Company shall mean the Company as
hereinbefore defined and any such successor or successors to its business and/or
assets, jointly and severally.
15. Notice. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be delivered personally or mailed by registered or certified mail,
return receipt requested, or by overnight express courier service, as follows:
If to the Company, to:
PECO Energy Company
Attn: Senior Vice President of Human Resources
2301 Market Street
Philadelphia, PA 19101
If to the Employee, to:
[Name of Employee]
[Address]
or to such other names or addresses as the Company or the Employee, as the case
may be, shall designate by notice to the other party hereto in the manner
specified in this Section; provided, however, that if no such notice is given by
the Company following a Change of Control, notice at the last address of the
Company or to any successor pursuant to Section 14 hereof shall be deemed
sufficient for the purposes hereof. Any such notice shall be deemed delivered
and effective when received in the case of personal delivery, five days after
deposit, postage prepaid, with the U.S. Postal Service in the case of registered
or certified mail, or on the next business day in the case of overnight express
courier service.
16. Governing Law. This Agreement shall be governed by and interpreted
under the laws of the Commonwealth of Pennsylvania without giving effect to any
conflict of laws provisions.
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<PAGE>
17. Contents of Agreement, Amendment and Assignment.
17.1 This Agreement supersedes all prior agreements, sets forth the entire
understanding between the parties hereto with respect to the subject matter
hereof and cannot be changed, modified, extended or terminated except upon
written amendment executed by the Employee and approved by the Board and
executed on the Company's behalf by the Chairman of the Compensation Committee
of the Board. The provisions of this Agreement may provide for payments to the
Employee under certain compensation or bonus plans under circumstances where
such plans would not provide for payment thereof. It is the specific intention
of the parties that the provisions of this Agreement shall supersede any
provisions to the contrary in such plans, and such plans shall be deemed to have
been amended to correspond with this Agreement without further action by the
Company or the Board.
17.2 Nothing in this Agreement shall be construed as giving the Employee
any right to be retained in the employ of the Company.
17.3 All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
representatives, successors and assigns of the parties hereto, except that the
duties and responsibilities of the Employee and the Company hereunder shall not
be assignable in whole or in part by the Company.
18. Severability. If any provision of this Agreement or application thereof
to anyone or under any circumstances shall be determined to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application. If any restriction in
this Section 12 of the Agreement is adjudicated to exceed the time, geographic,
service or other limitations permitted by applicable law in any jurisdiction,
the Employee agrees that such may be modified and narrowed, either by a court or
the Company, to the maximum time, geographic, service or other limitations
permitted by applicable law so as to preserve and protect the Company's
legitimate business interest, without negating or impairing any other
restrictions or undertaking set forth in the Agreement.
19. Remedies Cumulative; No Waiver. No right conferred upon the Employee by
this Agreement is intended to be exclusive of any other right or remedy, and
each and every such right or remedy shall be cumulative and shall be in addition
to any other right or remedy given hereunder or now or hereafter existing at law
or in equity. No delay or omission by the Employee in exercising any right,
remedy or power hereunder or existing at law or in equity shall be construed as
a waiver thereof, including, without limitation, any delay by the
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<PAGE>
Employee in delivering a Notice of Termination pursuant to Section 2 hereof
after an event has occurred which would, if the Employee had resigned, have
constituted a Termination following a Change of Control pursuant to Section
1.8(b) of this Agreement.
20. Miscellaneous. All section headings are for convenience only. This
Agreement may be executed in several counterparts, each of which is an original.
It shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
Attest: PECO Energy Company
[Seal]
____________________ By_________________________
Secretary Chairman, Compensation Committee
of the Board of Directors
and
By_________________________
Member, Compensation Committee
of the Board of Directors
_________________________ _________________________
Witness [Name of Employee]
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GROUP 2
AGREEMENT
Agreement made as of the ___ day of ____________, 1995, between PECO Energy
Company (the "Company"), and [name of employee] (the "Employee").
WHEREAS, the Employee is presently employed by the Company as its [title];
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Company exists and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of key management personnel to the detriment of the
Company;
WHEREAS, the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of key members of
the Company's management to their assigned duties without distraction in the
face of potentially disturbing circumstances arising from the possibility of a
change in control of the Company; and
WHEREAS, in order to induce the Employee to remain in the employ of the
Company, the Company agrees that the Employee shall receive the compensation set
forth in this Agreement as a cushion against the financial and career impact on
the Employee in the event the Employee's employment with the Company is
terminated subsequent to a "Change of Control" (as defined in Section 1.3
hereof) of the Company;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth and intending to be legally bound hereby,
the parties hereto agree as follows:
1. Definitions. For all purposes of this Agreement, the following terms
shall have the meanings specified in this Section unless the context clearly
otherwise requires:
1.1 "Annual Base Salary" shall mean twelve times the greater of (a) the
highest monthly base salary paid or payable (including any base salary which has
been earned but deferred) to the Employee by the Company, and its affiliates (as
defined in Section 1504 of the Code without regard to subsection (b) thereof),
together with any and all salary reduction authorized amounts under any
<PAGE>
of the Company's benefit plans or programs, in respect of the twelve-month
period immediately preceding the date of the Change in Control, or (b) the
monthly base salary paid or payable to the Employee by the Company (including
authorized deferrals and salary reduction amounts) immediately prior to the
Employee's Termination of Employment.
1.2 "Annual Bonus" shall mean an amount equal to the Employee's highest
annual bonus for the last three full fiscal years prior to the Change of Control
(annualized in the event that the Employee was not employed for the whole of
such fiscal year).
1.3 "Change of Control" shall mean (a) the purchase or other acquisition by
any person, entity or group of persons, within the meaning of section 13(d) or
14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable
successor provisions, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of 20 percent or more of either the outstanding
shares of common stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally, or (b) the approval by
the shareholders of the Company of a reorganization, merger, or consolidation,
in each case, with respect to which persons who were shareholders of the Company
immediately prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 50 percent of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or consolidated Company's then outstanding securities, or of a
liquidation or dissolution of the Company or the sale of all or substantially
all of the Company's assets, or (c) a change of 25% (rounded up to the next
whole person) in the membership of the Board of Directors of the Company within
a 12-month period, unless the election or nomination for election by
shareholders of each new director within such period was approved by a vote of
85% (rounded up to the next whole person) of the directors then still in office
who were in office at the beginning of the 12-month period.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 "Separation Period" shall mean the two-year period beginning on the
date of the Employee's Termination of Employment.
1.6 "Termination Date" shall mean the date of receipt of the Notice of
Termination described in Section 2 hereof or any later date specified therein,
as the case may be.
1.7 "Termination of Employment" shall mean the termination of the
Employee's actual employment relationship with the Company.
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1.8 "Termination following a Change of Control" shall mean a Termination of
Employment within three years after a Change of Control either:
1.8 (a) initiated by the Company for any reason other than (i) the
Employee's death, continuous illness, injury or incapacity for a period of
twelve consecutive months or (ii) for "cause," which shall mean misappropriation
of funds, habitual insobriety, substance abuse, conviction of a crime involving
moral turpitude, or gross negligence in the performance of duties, which gross
negligence has had a material adverse effect on the business, operations,
assets, properties or financial condition of the Company and its Subsidiaries
taken as a whole; or
1.8 (b) initiated by the Employee upon one or more of the following
occurrences:
(i) any failure of the Company to comply with and satisfy any of the
terms of this Agreement;
(ii) any change resulting in a significant reduction by the Company of
the authority, duties, compensation or responsibilities of the
Employee;
(iii) any removal by the Company of the Employee from the employment
grade, compensation level or officer positions which the Employee
holds as of the effective date hereof except in connection with
promotions to higher office; or
(iv) the requirement that the Employee undertake business travel (or
commuting in excess of seventy-five miles each way from the Company's
current headquarters at 2301 Market Street, Philadelphia,
Pennsylvania) to an extent substantially greater than is reasonable
and customary for the position the Employee holds.
2. Notice of Termination. Any Termination following a Change of Control
shall be communicated by a Notice of Termination to the other party hereto given
in accordance with Section 15 hereof. For purposes of this Agreement, a "Notice
of Termination" means a written notice which (a) indicates the specific
termination provision in this Agreement relied upon, (b) briefly summarizes the
facts and circumstances deemed to provide a basis for termination of the
Employee's employment under the provision so indicated, and (c) if the
Termination Date is other than the date of receipt of such notice, specifies the
Termination Date (which date shall not be more than 15 days after the giving of
such notice).
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3. Compensation Upon Termination. Subject to the provisions of Section 10
hereof, in the event of the Employee's Termination following a Change of
Control, the Company shall pay or provide to the Employee during the Separation
Period ( or, in the event of the Employee's death following such termination
during the Separation Period, to the Employee's estate), the following:
3.1 the Employee's earned but unpaid compensation as of the date of
Termination of Employment;
3.2 the benefits, if any, to which the Employee is entitled as a former
employee under the employee benefit programs and compensation plans and programs
maintained for the benefit of the Company's officers and employees;
3.3 continued group hospitalization, health, dental care, life or other
insurance, travel or accident insurance and disability insurance, for the
Separation Period, with coverage equivalent to the coverage to which the
Employee would have been entitled had the Employee continued working for the
Company during the Separation Period at his Annual Base Salary;
3.4 the Annual Base Salary and Annual Bonus the Employee would have earned
if the Employee had continued working for the Company during the Separation
Period;
3.5 the benefits to which the Employee would be entitled under the
Company's long term incentive, stock option, savings and retirement plans if the
Employee had continued working for the Company during the Separation Period at
his Annual Base Salary, and were making the maximum amount of employee
contributions, if any, as are required under such plans, together with dividend
equivalents on awards under the Company's long term incentive plan assuming the
Employee's ratings justified a 100% pay-out. In the event that applicable law
does not permit continued coverage under any tax qualified benefit plan or
incentive or option plan during the Separation Period, the Company shall provide
economically- equivalent benefits to the employee on a nonqualified,
supplemental or other basis;
3.6 in the event the Employee and the Employee's spouse are not otherwise
eligible for the Company's retiree health care coverage, following the end of
the Separation Period, Employee (or if employee is deceased, Employee's
surviving spouse) may continue to purchase health care coverage for himself and
eligible dependents under the Company's health benefits plan at the prevailing
rate then in effect for COBRA continuation coverage, until the Employee and the
Employee's spouse have attained eligibility for Medicare coverage.
4. Other Payments. The payment due under Section 3 hereof shall be in
addition to and not in lieu of any payments or benefits due to the
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Employee under any other plan, policy or program of the Company except that no
payments shall be due to the Employee under the Company's then severance pay
plan for employees, if any.
5. Enforcement.
5.1 In the event that the Company shall fail or refuse to make payment of
any amounts due the Employee under Sections 3 and 4 hereof within the respective
time periods provided therein, the Company shall pay to the Employee, in
addition to the payment of any other sums provided in this Agreement, interest,
compounded daily, on any amount remaining unpaid from the date payment is
required under Section 3 and 4, as appropriate, until paid to the Employee, at
the rate from time to time announced by Chase Manhattan Bank as its "prime rate"
plus 2%, each change in such rate to take effect on the effective date of the
change in such prime rate.
5.2 It is the intent of the parties that the Employee not be required to
incur any expenses associated with the enforcement of his rights under this
Agreement by arbitration, litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Employee hereunder. Accordingly, the Company shall pay the
Employee on demand the amount necessary to reimburse the Employee in full for
all expenses (including all attorneys' fees and legal expenses) incurred by the
Employee in enforcing any of the obligations of the Company under this
Agreement.
6. No Mitigation. The Employee shall not be required to mitigate the amount
of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for herein be reduced by any compensation earned by other employment or
otherwise.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in or rights under any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its subsidiaries or affiliates and for which the Employee may qualify;
provided, however, that following a Change of Control, the Employee hereby
waives the Employee's right to receive any payments under any severance pay plan
or similar program applicable to other employees of the Company (other than
outplacement services, if such services are provided as part of the severance
program) for so long as the Employer is eligible for termination benefits under
this Agreement.
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8. No Set-Off. The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Employee or others.
9. Taxes. Any payment required under this Agreement shall be subject to all
requirements of the law with regard to the withholding of taxes, filing, making
of reports and the like, and the Company shall use its best efforts to satisfy
promptly all such requirements.
10. Parachute Payment Limitations.
10.1 Anything in this Agreement to the contrary notwithstanding, in the
event that it shall be determined that any payment or distribution by the
Company to or for the benefit of the Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would constitute an "excess parachute payment" within
the meaning of Section 280G of the Code, the aggregate present value of amounts
payable or distributable to or for the benefit of the Employee pursuant to this
Agreement (such payments or distributions pursuant to this Agreement are
hereinafter referred to as "Agreement Payments") shall be reduced (but not below
zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed
in present value which maximizes the aggregate present value of Agreement
Payments without causing any Payment to be subject to taxation under Section
4999 of the Code. For purposes of this Section 10, present value shall be
determined in accordance with Section 280G(d)(4) of the Code. In the event that
the amount payable to the Employee shall be limited to the Reduced Amount, then
the Employee shall have the right, in the Employee's sole discretion, to
designate those payments or benefits under this Agreement that should be reduced
or eliminated so as to avoid having the payment to the Employee under this
Agreement be subject to the Excise Tax.
10.2 All determinations as to applicability of the Excise Tax to be made
under this Section 10 shall be made by the Company's independent public
accountant immediately prior to the Change of Control (the "Accounting Firm")),
which firm shall provide its determinations and any supporting calculations both
to the Company and the Employee within 10 days of the Termination Date. Any such
determination by the Accounting Firm shall be binding upon the Company and the
Employee. Within five days after this determination, the Company shall pay (or
cause to be paid) or distribute (or cause to be distributed) to or for the
benefit of the Employee such amounts as are then due to the Employee under this
Agreement.
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10.3 As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that payments under this Agreement, will have been
made by the Company which should not have been made ("Overpayment") or that
additional payments which have not been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculations required to be
made hereunder. Within two years after the Termination of Employment, the
Accounting Firm shall review the determination made by it pursuant to the
preceding paragraph. In the event that the Accounting Firm determines that an
Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan to the Employee which the Employee shall repay to the Company
together with interest at the applicable Federal rate provided for in Section
7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no amount
shall be payable by the Employee to the Company if and to the extent such
payment would not reduce the amount which is subject to taxation under Section
4999 of the Code. In the event that the Accounting Firm determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee together with interest at the
Federal Rate.
10.4 All of the fees and expenses of the Accounting Firm in performing the
determinations referred to in subsections 10.2 and 10.3 above shall be borne
solely by the Company. The Company agrees to indemnify and hold harmless the
Accounting Firm of and from any and all claims, damages and expenses resulting
from or relating to its determinations pursuant to subsections 10.2 and 10.3
above, except for claims, damages or expenses resulting from the gross
negligence or willful misconduct of the Accounting Firm.
11. Term of Agreement. The term of this Agreement shall be for three years
from the date hereof and shall be automatically renewed for successive one-year
periods unless the Company notifies the Employee in writing that this Agreement
will not be renewed at least sixty days prior to the end of the current term;
provided, however, that (a) after a Change of Control during the term of this
Agreement, this Agreement shall remain in effect until all of the obligations of
the parties hereunder are satisfied or have expired, and (b) this Agreement
shall terminate if, prior to a Change of Control, the employment of the Employee
with the Company or any of its subsidiaries, as the case may be, shall terminate
for any reason, or the Employee shall cease to be an Employee.
12. Restrictive Covenant. Employee agrees that following any termination of
Employee's employment relationship following a Change of Control which entitles
Employee to the payments due under Section 3, for a period of two years Employee
will not participate (either in any employee or non-employee capacity, e.g., as
a consultant or partner) in the gas or electric business with any
-7-
<PAGE>
corporation, partnership, sole proprietorship or entity engaged in competition
with the Company or any of its affiliates. For this purpose, an entity shall be
considered to be "engaged in competition" if such entity is, or is a holding
company for, a gas or electric utility or generator with the ability to sell
into the Company's service territory, or the service territory of a gas or
electric utility or generator which is interconnected with the Company's system
or engages in transactions with the members of the Pennsylvania-New
Jersey-Maryland-Interconnection Association. Employee further agrees that if he
were to breach this restrictive covenant, said breach would cause the Company
irreparable harm for which injunctive relief, as well as damages, would be
appropriate. Employee hereby consents to the jurisdiction and venue of the Court
of Common Pleas of Philadelphia County, Pennsylvania as the forum in which any
suit to enforce this restrictive covenant may be instituted.
13. Arbitration; Expenses.
13.1 Except as provided in Section 12, in the event of any dispute under
the provisions of this Agreement, either party shall have the right to have such
dispute, controversy or claim to be settled by arbitration in the City of
Philadelphia, Pennsylvania, in accordance with the commercial arbitration rules
then in effect of the American Arbitration Association, before a panel of three
arbitrators, one of whom shall be selected by the Company, one of whom shall be
selected by the Employee, and the third of whom shall be selected by the other
two arbitrators. Any award entered by the arbitrators shall be final, binding
and nonappealable and judgment may be entered thereon by any party in accordance
with applicable law in any court of competent jurisdiction. This arbitration
provision shall be specifically enforceable. The party or parties bringing the
challenge under this Agreement shall in all circumstances have the burden of
proof.
13.2 In the event of an arbitration or lawsuit by either party to enforce
the provisions of this Agreement following a Change of Control, Employee shall
be entitled to recover reasonable costs, expenses and attorney's fees from the
Company pursuant to Section 5.2.
14. Successor Company. The Company shall require any successor or
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Employee, to
acknowledge expressly that this Agreement is binding upon and enforceable
against the Company in accordance with the terms hereof, and to become jointly
and severally obligated with the Company to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession or successions had taken place. Failure of the Company to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this
-8-
<PAGE>
Agreement. As used in this Agreement, the Company shall mean the Company as
hereinbefore defined and any such successor or successors to its business and/or
assets, jointly and severally.
15. Notice. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be delivered personally or mailed by registered or certified mail,
return receipt requested, or by overnight express courier service, as follows:
If to the Company, to:
PECO Energy Company
Attn: Senior Vice President of Human Resources
2301 Market Street
Philadelphia, PA 19101
If to the Employee, to:
[Name of employee]
[Address]
or to such other names or addresses as the Company or the Employee, as the case
may be, shall designate by notice to the other party hereto in the manner
specified in this Section; provided, however, that if no such notice is given by
the Company following a Change of Control, notice at the last address of the
Company or to any successor pursuant to Section 14 hereof shall be deemed
sufficient for the purposes hereof. Any such notice shall be deemed delivered
and effective when received in the case of personal delivery, five days after
deposit, postage prepaid, with the U.S. Postal Service in the case of registered
or certified mail, or on the next business day in the case of overnight express
courier service.
16. Governing Law. This Agreement shall be governed by and interpreted
under the laws of the Commonwealth of Pennsylvania without giving effect to any
conflict of laws provisions.
17. Contents of Agreement, Amendment and Assignment.
17.1 This Agreement supersedes all prior agreements, sets forth the entire
understanding between the parties hereto with respect to the subject matter
hereof and cannot be changed, modified, extended or terminated except upon
written amendment executed by the Employee and approved by the Board and
executed on the Company's behalf by the Chairman of the Compensation Committee
of the Board. The provisions of this Agreement may provide for
-9-
<PAGE>
payments to the Employee under certain compensation or bonus plans under
circumstances where such plans would not provide for payment thereof. It is the
specific intention of the parties that the provisions of this Agreement shall
supersede any provisions to the contrary in such plans, and such plans shall be
deemed to have been amended to correspond with this Agreement without further
action by the Company or the Board.
17.2 Nothing in this Agreement shall be construed as giving the Employee
any right to be retained in the employ of the Company.
17.3 All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
representatives, successors and assigns of the parties hereto, except that the
duties and responsibilities of the Employee and the Company hereunder shall not
be assignable in whole or in part by the Company.
18. Severability. If any provision of this Agreement or application thereof
to anyone or under any circumstances shall be determined to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application. If any restriction in
this Section 12 of the Agreement is adjudicated to exceed the time, geographic,
service or other limitations permitted by applicable law in any jurisdiction,
the Employee agrees that such may be modified and narrowed, either by a court or
the Company, to the maximum time, geographic, service or other limitations
permitted by applicable law so as to preserve and protect the Company's
legitimate business interest, without negating or impairing any other
restrictions or undertaking set forth in the Agreement.
19. Remedies Cumulative; No Waiver. No right conferred upon the Employee by
this Agreement is intended to be exclusive of any other right or remedy, and
each and every such right or remedy shall be cumulative and shall be in addition
to any other right or remedy given hereunder or now or hereafter existing at law
or in equity. No delay or omission by the Employee in exercising any right,
remedy or power hereunder or existing at law or in equity shall be construed as
a waiver thereof, including, without limitation, any delay by the Employee in
delivering a Notice of Termination pursuant to Section 2 hereof after an event
has occurred which would, if the Employee had resigned, have constituted a
Termination following a Change of Control pursuant to Section 1.8(b) of this
Agreement.
20. Miscellaneous. All section headings are for convenience only. This
Agreement may be executed in several counterparts, each of which is an
-10-
<PAGE>
original. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
Attest: PECO Energy Company
[Seal]
____________________ By_________________________
Secretary Chairman, Compensation Committee
of the Board of Directors
and
By_________________________
Member, Compensation Committee
of the Board of Directors
_________________________ _________________________
Witness [Name of Employee]
-11-
Exhibit 10-8
AMENDMENT NO. 1 TO THE
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF PECO ENERGY CAPITAL, L.P.
This Amendment No. 1 to the Amended and Restated Limited Partnership
Agreement of PECO Energy Capital, L.P., a Delaware limited partnership (the
"Partnership"), dated as of October 20, 1995 (this "Amendment"), is made by and
among PECO Energy Capital Corp., as general partner of the Partnership, and the
Persons who are limited partners of the Partnership.
WHEREAS, PECO Energy Capital Corp. and PECO Energy Company have
heretofore formed a limited partnership pursuant to the Delaware Act, by filing
a Certificate of Limited Partnership of the Partnership with the Secretary of
State of the State of Delaware on May 23, 1994, and entering into a Limited
Partnership Agreement of the Partnership, dated as of May 23, 1994 (the
"Original Agreement");
WHEREAS, the Original Agreement was amended and restated in its
entirety by the Amended and Restated Limited Partnership Agreement of the
Partnership, dated as of July 25, 1994 (the "Partnership Agreement");
WHEREAS, upon the admission of one Preferred Partner as a limited
partner of the Partnership, the Class A Limited Partner withdrew from the
Partnership as a limited partner of the Partnership and has no further interest
in the Partnership;
WHEREAS, the parties hereto desire to amend the Partnership Agreement
as described herein; and
WHEREAS, this Amendment does not adversely affect the powers,
preferences or special rights of any series of Preferred Partner Interests.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree to amend the Partnership Agreement as follows:
ARTICLE I- AMENDMENTS
1.1. Article I of the Partnership Agreement is hereby amended to add a
new definition of "Global Certificate" in its proper alphabetical order to read
as follows:
"Global Certificate" shall mean a Certificate issued in the form
of a typewritten Certificate or Certificates representing the
Book Entry Interests to be delivered to a Clearing Agency in
accordance with Section 14.04.
<PAGE>
1.2. Section 2.03 of the Partnership Agreement is hereby amended by
inserting "(a)" immediately before the first sentence thereof and by adding a
new subsection to said section to be designated as subsection "(b)" to read as
follows:
(b) In furtherance of the purposes set forth in
Section 2.03(a) and without limiting the generality thereof, the
Partnership may issue Preferred Partner Interests for
consideration other than cash, including Subordinated Debentures,
which consideration shall constitute payment for the Preferred
Partner Interests so issued.
1.3. The last sentence of Section 3.01 of the Partnership Agreement is
hereby deleted in its entirety and replaced with the following:
Each Preferred Partner, or its predecessor in interest, will be
deemed to have contributed to the capital of the Partnership the
amount of the Purchase Price for the Preferred Partner Interests
held by it.
1.4. Section 8.04 of the Partnership Agreement is hereby amended by
(i) redesignating paragraph (h) thereof as paragraph (i), (ii) deleting the word
"and" at the end of paragraph (g), and (iii) adding a new paragraph (h) to read
as follows:
(h) Enter into and perform one or more trust agreements or other
organizational documents relating to the creation of one or more
Preferred Partners that will own Preferred Partner Interests,
including by entering into and performing agreements or documents
referred to in such trust agreements or other organizational
documents, in each case on behalf of the Partnership; and
1.5. Section 14.04(d) of the Partnership Agreement is hereby amended
by deleting the word "To" contained therein and substituting therefor the words
"Subject in all respects to Section 14.07, to".
1.6. The Partnership Agreement is hereby amended by adding a new
Section 14.07 in its proper numerical order to read as follows:
Section 14.07. Definitive Certificates on Original
Issuance. Notwithstanding anything in this Agreement to the
contrary, including, without limitation, Sections 14.04, 14.05
and 14.06, on original issuance, Certificates may but need not be
issued to The Depository Trust Company in the form of a Global
Certificate or Global Certificates in accordance with
2
<PAGE>
Section 14.04, and may but need not be issued to any Person in
the form of a Definitive Certificate or Definitive Certificates
in accordance with this Section 14.07. Without limiting the
generality of the foregoing, in connection with the original
issuance of Certificates as Definitive Certificates in accordance
with this Section 14.07, (i) a Clearing Agency or a nominee of
the Clearing Agency that is a limited partner of the Partnership
in accordance with Sections 14.03 and 14.04 with respect to one
or more series of Preferred Partner Interests shall continue to
be a limited partner of the Partnership notwithstanding the fact
that another Person holding a Definitive Certificate issued in
accordance with this Section 14.07 has been admitted to the
Partnership as a limited partner of the Partnership with respect
to one or more series of Preferred Partner Interests, and (ii)
Sections 14.04, 14.05 and 14.06 shall be inapplicable to a Person
holding a Definitive Certificate issued in accordance with this
Section 14.07. The General Partner will appoint a registrar,
transfer agent and paying agent for the Preferred Partner
Interests. The Definitive Certificates shall be printed,
lithographed or engraved or may be produced in any other manner
as is reasonably acceptable to the General Partner, as is
evidenced by its execution thereof. Registration of transfers of
Preferred Partner Interests will be effected without charge by or
on behalf of the Partnership, but upon payment of any tax or
other governmental charges which may be imposed in relation to
it. The Partnership will not be required to register or cause to
be registered the transfer of Preferred Partner Interests after
such Preferred Partner Interests have been called for redemption.
Any Person receiving a Definitive Certificate in accordance with
this Section 14.07 shall be admitted to the Partnership as a
Preferred Partner pursuant to Section 2.06.
1.7. Exhibit A to the Partnership Agreement is hereby amended (a) by
deleting the reference to "Cede & Co." contained therein and substituting for
such reference a "________________," by deleting the reference to "1994"
contained in the 31st line of the first paragraph thereof and substituting for
such reference "199_," and (c) by deleting the reference to "1994" contained in
the last paragraph thereof and substituting for such reference "199_."
ARTICLE II - MISCELLANEOUS
2.1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined are used as defined in the Partnership Agreement.
3
<PAGE>
2.2. Full Force and Effect. Except to the extent modified hereby, the
Partnership Agreement shall remain in full force and effect.
2.3. Successors and Assigns. This Amendment shall be binding upon, and
shall enure to the benefit of, the parties hereto and their respective
successors and assigns.
2.4. Counterparts. This Amendment may be executed in counterparts, all
of which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all such parties are not signatories to the original or
same counterpart.
2.5. Governing Law. This Amendment shall be interpreted in accordance
with the laws of the State of Delaware (without regard to conflict of laws
principles), all rights and remedies being governed by such laws.
GENERAL PARTNER:
PECO ENERGY CAPITAL CORP.
By: /s/ J. Barry Mitchell
Name: J. Barry Mitchell
Title: President
PREFERRED PARTNERS:
All Preferred Partners now and hereafter
admitted as limited partners of the
Partnership pursuant to Powers of
Attorney now or hereafter executed in
favor of, and delivered to, the General
Partner.
By: /s/ J. Barry Mitchell
Name: J. Barry Mitchell
Title: President
4
Exhibit 10-9
AMENDMENT NO. 2 TO THE
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF PECO ENERGY CAPITAL, L.P.
This Amendment No. 2 to the Amended and Restated Limited Partnership
Agreement of PECO Energy Capital, L.P., a Delaware limited partnership (the
"Partnership"), dated as of March 1, 1996 (this "Amendment"), is made by and
among PECO Energy Capital Corp., a Delaware corporation (the "General Partner"),
as general partner of the Partnership, and the Persons who are limited partners
of the Partnership.
WHEREAS, the General Partner and PECO Energy Company, a Pennsylvania
corporation, have heretofore formed a limited partnership pursuant to the
Delaware Act by filing a Certificate of Limited Partnership of the Partnership
with the Secretary of State of the State of Delaware on May 23, 1994, and by
entering into a Limited Partnership Agreement of the Partnership dated as of May
23, 1994 (the "Original Agreement");
WHEREAS, the Original Agreement was amended and restated in its
entirety by the Amended and Restated Limited Partnership Agreement of the
Partnership dated as of July 25, 1994 and was further amended by Amendment No. 1
dated as of October 20, 1995 (as amended, the "Partnership Agreement");
WHEREAS, the parties hereto desire to amend the Partnership Agreement
as described herein; and
WHEREAS, this Amendment does not adversely affect the powers,
preferences or special rights of any series of Preferred Partner Interests.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree to amend the Partnership Agreement as follows:
ARTICLE I - AMENDMENT
Section 7.02(b) of the Partnership Agreement is hereby amended and
restated as follows:
The General Partner shall cause to be prepared, within ninety
days after the end of any Fiscal Year of the Partnership, annual
financial statements of the Partnership, including a balance
sheet of the Partnership as of the end of such Fiscal Year and
the related statements of income or loss. The General Partner
shall cause such financial statements to be delivered to each
Partner that so requests in writing, together with a statement
indicating such Partner's share of each item of Partnership
income, gain, loss, deduction or credit for such Fiscal Year for
income tax purposes.
<PAGE>
ARTICLE II - MISCELLANEOUS
2.1 Capitalized Terms. Capitalized terms used but not otherwise
defined herein shall have the meanings assigned to them in the Partnership
Agreement.
2.2 Full Force and Effect. Except to the extent modified hereby, the
Partnership Agreement shall remain in full force and effect.
2.3 Successors and Assigns. This Amendment shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns.
2.4 Counterparts. This Amendment may be executed in counterparts, all
of which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all such parties are not signatories to the original or
same counterpart.
2.5 Governing Law. This Amendment shall be interpreted in accordance
with the laws of the State of Delaware (without regard to conflict of law
principles) with all rights and remedies being governed by such laws.
GENERAL PARTNER:
PECO ENERGY CAPITAL CORP.
By:
Name: J. Barry Mitchell
Title: President
PREFERRED PARTNERS:
All Preferred Partners now and hereafter
admitted as Limited Partners of the
Partnership pursuant to the Powers of
Attorney now or hereafter executed in
favor of, and delivered to, the General
Partner.
By: PECO ENERGY CAPITAL CORP.
By:
Name: J. Barry Mitchell
Title: President
2
Exhibit 10-10
===============================================================================
AMENDED AND RESTATED
TRUST AGREEMENT
OF
PECO ENERGY CAPITAL TRUST I
PECO ENERGY CAPITAL, L.P.,
as Grantor
and
PNC BANK, DELAWARE
as Trustee
Dated as of December 19, 1995
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
ARTICLE II
CONTINUATION OF TRUST
SECTION 2.01. Continuation of Trust ........................................4
SECTION 2.02. Trust Account ................................................5
SECTION 2.03. Title to Trust Property ......................................5
SECTION 2.04. Situs of Trust ...............................................5
SECTION 2.05. Powers of Trustee Limited ....................................5
SECTION 2.06. Liability of Holders of Receipts .............................6
ARTICLE III
FORM OF RECEIPTS, EXECUTION AND
DELIVERY, TRANSFER, AND SURRENDER OF RECEIPTS
SECTION 3.01. Form and Transferability of Receipts .........................6
SECTION 3.02. Issuance of Receipts .........................................7
SECTION 3.03. Registration, Transfer and Exchange of
Receipts .....................................................7
SECTION 3.04. Lost or Stolen Receipts, Etc .................................8
SECTION 3.05. Cancellation and Destruction of
Surrendered Receipts .........................................9
ARTICLE IV
DISTRIBUTIONS AND OTHER RIGHTS OF HOLDERS OF RECEIPTS
SECTION 4.01. Distributions of Monthly Distributions
on Preferred Securities .....................................12
SECTION 4.02. Redemptions of Preferred Securities .........................12
SECTION 4.03. Distributions in Liquidation of Grantor .....................13
SECTION 4.04. Fixing of Record Date for Holders of
Receipts ....................................................13
SECTION 4.05. Payment of Distributions ....................................14
SECTION 4.06. Special Representative and Voting
Rights ......................................................14
SECTION 4.07. Changes Affecting Preferred Securities
and Reclassifications, Recapitalizations, Etc ...............15
ARTICLE V
THE GUARANTEE
SECTION 5.01. The Guarantee................................................15
i
<PAGE>
Page
ARTICLE VI
THE TRUSTEE
SECTION 6.01. Eligibility .................................................16
SECTION 6.02. Obligations of the Trustee ..................................16
SECTION 6.03. Resignation and Removal of the Trustee,
Appointment of Successor Trustee ............................18
SECTION 6.04. Corporate Notices and Reports ...............................19
SECTION 6.05. Status of Trust .............................................19
SECTION 6.07. Indemnification by the General Partner ......................20
SECTION 6.08. Fees, Charges and Expenses ..................................20
SECTION 6.09. Appointment of Co-Trustee or Separate
Trustee .....................................................21
ARTICLE VII
AMENDMENT AND TERMINATION
SECTION 7.01. Supplemental Trust Agreement ................................22
SECTION 7.02. Termination .................................................23
ARTICLE VIII
MERGER, CONSOLIDATION, ETC. OF GRANTOR
SECTION 8.01. Limitation on Permitted Merger
Consolidation, Etc. of Grantor...............................23
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Counterparts ................................................24
SECTION 9.02. Exclusive Benefits of Parties ...............................24
SECTION 9.03. Invalidity of Provisions ....................................24
SECTION 9.04. Notices .....................................................24
SECTION 9.05. Trustee's Agents ............................................25
SECTION 9.06. Holders of Receipts Are Parties .............................25
SECTION 9.07. Governing Law ...............................................25
SECTION 9.08. Headings ....................................................25
SECTION 9.09. Receipts Non-Assessable and Fully Paid ......................25
SECTION 9.10. No Preemptive Rights ........................................26
TESTIMONIUM..................................................................27
SIGNATURES...................................................................27
EXHIBIT A.................................................................. A-1
ii
<PAGE>
AMENDED AND RESTATED
TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of December 19, 1995
(as amended from time to time, this "Trust Agreement") among PECO ENERGY
CAPITAL, L.P., a Delaware limited partnership, as grantor (the "Grantor"), PNC
BANK, DELAWARE, a Delaware banking corporation, as trustee (the "Trustee"), and
joined in by PECO ENERGY CAPITAL CORP., a Delaware corporation and the general
partner of the Grantor, not as a grantor, trustee or beneficiary but solely for
the purposes stated herein (the "General Partner").
W I T N E S S E T H:
WHEREAS, the Trustee and the Grantor established the Trust (as defined
below) under the Delaware Business Trust Act (12 Del. C. ss. 3801, et seq.) (as
amended from time to time, the "Business Trust Act"), pursuant to a Trust
Agreement, dated as of October 20, 1995 (the "Original Trust Agreement"), and a
Certificate of Trust filed with the Secretary of State of the State of Delaware
on October 20, 1995; and
WHEREAS, the Trustee and the Grantor hereby desire to continue the
Trust and to amend and restate in its entirety the Original Trust Agreement; and
WHEREAS, PECO Energy Company ("PECO Energy") proposes to effect the
exchange (the "Exchange") of Receipts each representing a 8.72% Cumulative
Monthly Income Preferred Security, Series B, representing a limited partner
interest of the Grantor (the "Preferred Securities"), for Depositary Shares (as
hereinafter defined), each representing a one-fourth interest in a share of
$7.96 Cumulative Preferred Stock of PECO Energy; and
WHEREAS, to facilitate the Exchange, PECO Energy requests the Grantor
to issue one Preferred Security for each Depositary Share accepted in the
Exchange and to deposit the Preferred Securities in trust for the benefit of the
holders of the Depositary Shares tendering shares which have been accepted in
the Exchange; and
WHEREAS, interests in the Trust are to be evidenced by Receipt
certificates issued by the Trustee in accordance with this Trust Agreement,
which are to be delivered to the Exchange Agent (as hereinafter defined) for
distribution to the holders of the Depositary Shares which have been accepted in
the Exchange;
<PAGE>
NOW, THEREFORE, in consideration of the premises contained herein and
intending to be legally bound hereby, it is agreed by and among the parties
hereto to amend and restate in its entirety the Original Trust Agreement as
follows:
ARTICLE I
DEFINITIONS
The following definitions shall apply to the respective terms (in the
singular and plural forms of such terms) used in this Trust Agreement and the
Receipts:
"Affiliate" of any specified Person means any other Person controlling
or controlled by or under common control with such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Business Day" means any day other than a day on which banking
institutions in the City of New York or the State of Delaware are closed for
business.
"Business Trust Act" shall have the meaning set forth in the recitals
to this Trust Agreement.
"Commission" shall have the meaning set forth in Section 6.06.
"Corporate Office" means the office of the Trustee at which at any
particular time its business in respect of matters governed by this Trust
Agreement shall be administered, which at the date of this Trust Agreement is
located at 222 Delaware Avenue, Wilmington, Delaware 19801.
"Depositary Shares" mean receipts issued pursuant to a Deposit
Agreement dated as of October 20, 1992 among Philadelphia Electric Company (now
PECO Energy), First Chicago Trust Company of New York, as Depositary, and the
holders of such receipts, each evidencing a one-fourth interest in a share of
$7.96 Cumulative Preferred Stock of PECO Energy.
"Exchange" shall have the meaning set forth in the recitals to this
Trust Agreement.
2
<PAGE>
"Exchange Agent" means First Chicago Trust Company of New York in its
capacity as the Exchange Agent under an Exchange Agreement dated as of November
8, 1995 between PECO Energy and the Exchange Agent to effect the exchange of
Depository Shares for Receipts.
"General Partner" means PECO Energy Capital Corp., a Delaware
corporation, as general partner of the Grantor, and any successor thereto
pursuant to the terms of the Partnership Agreement.
"Grantor" means PECO Energy Capital, L.P., a Delaware limited
partnership, and its successors.
"Guarantee" means the Payment and Guarantee Agreement dated as of
December 19, 1995, as amended from time to time with respect to the Preferred
Securities delivered by PECO Energy to the Grantor.
"Holder" means the Person in whose name a certificate representing one
or more Receipts is registered on the Register maintained by the Registrar for
such purposes.
"Partnership Agreement" means the Amended and Restated Limited
Partnership Agreement of the Grantor dated as of July 25, 1994, as amended from
time to time, together with any Action (as defined in the Partnership Agreement)
established by the General Partner.
"Paying Agent" means the Person from time to time acting as Paying
Agent as provided in Section 4.05.
"PECO Energy" means PECO Energy Company, a Pennsylvania corporation.
"Person" means any individual, general partnership, limited
partnership, corporation, limited liability company, joint venture, trust,
business trust, cooperative or association and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.
"Preferred Securities" means the 8.72% Cumulative Monthly Income
Preferred Securities, Series B, representing limited partner interests of the
Grantor, or any Successor Securities issued to the Trust and held by the Trustee
(unless withdrawn under Section 3.06) from time to time under this Trust
Agreement for the benefit of the Holders.
"Receipt" shall mean a trust receipt issued hereunder representing an
interest in the Trust equal to and representing a
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Preferred Security and evidenced by a certificate issued by the Trustee pursuant
to Article III.
"Register" shall have the meaning set forth in Section 3.03 of this
Trust Agreement.
"Registrar" shall mean any bank or trust company appointed to register
Receipt certificates and to register transfers thereof as herein provided.
"Special Representative" shall have the meaning set forth in Section
13.02(d) of the Partnership Agreement.
"Successor Securities" shall have the meaning set forth in Section
13.02(e) of the Partnership Agreement.
"Tendering Holders" means the holders of the Depositary Shares which
have been validly tendered to the Exchange Agent and accepted by the Company for
exchange.
"Trust" means the trust governed by this Trust Agreement.
"Trust Agreement" shall mean this Amended and Restated Trust
Agreement, as the same may be amended, modified, or supplemented from time to
time.
"Trust Estate" means all right, title and interest of the Trust in and
to the Preferred Securities (including any Successor Securities), and all
distributions and payments with respect thereto, including payments by PECO
Energy under the Guarantee. "Trust Estate" shall not include any amounts paid or
payable to the Trustee pursuant to this Trust Agreement, including, without
limitation, fees, expenses and indemnities.
"Trustee" shall mean PNC Bank, Delaware, a Delaware banking
corporation, in its capacity as Trustee and not in its individual capacity and
any successor as trustee hereunder.
ARTICLE II
CONTINUATION OF TRUST
SECTION 2.01. Continuation of Trust.
(a) The Trust continued hereby shall be known as "PECO Energy
Capital Trust I." The Trust exists for the sole purpose of issuing Receipts
representing the Preferred Securities held by the Trust and performing functions
directly related
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thereto. The Grantor hereby delivers to the Trustee for deposit in the Trust a
certificate representing 3,124,183 Preferred Securities for the benefit of the
Holders. Each Holder is intended by the Grantor to be the beneficial owner of
the number of Preferred Securities represented by the Receipts held by such
Holder, not to hold an undivided interest in all of the Preferred Securities. To
the fullest extent permitted by law, without the need for any other action of
any Person, including the Trustee and any other Holder, each Holder shall be
entitled to enforce in the name of the Trust the Trust's rights under the
Preferred Securities represented by the Receipts held by such Holder and any
recovery on such an enforcement action shall belong solely to such Holder who
brought the action, not to the Trust, Trustee or any other Holder individually
or to Holders as a group. Subject to Section 7.02, this Trust shall be
irrevocable.
(b) The Trustee hereby acknowledges receipt of the Preferred
Securities, registered in the name of the Trust, and its acceptance on behalf of
the Trust of the Preferred Securities, and declares that it shall hold the
Preferred Securities (including any Successor Securities) in the Trust for the
benefit of the Holders.
SECTION 2.02. Trust Account. The Trustee shall open an account
entitled "PECO Energy Capital Trust I - Trust Account." All funds received by
the Trustee on behalf of the Trust from the Preferred Securities or pursuant to
Article V will be deposited in such account by the Trustee until distributed as
provided in Article IV.
SECTION 2.03. Title to Trust Property. Legal title to all of the Trust
Estate shall be vested at all times in the Trustee.
SECTION 2.04. Situs of Trust. The situs of the Trust shall be in
Wilmington, Delaware. The Trust's bank account shall be maintained with a bank
in the State of Delaware. The Trustee shall cause to be maintained the books and
records of the Trust at the Corporate Office. The Trust Estate shall be held in
the State of Delaware. Notwithstanding the foregoing, the Trustee may transfer
such of the books and records of the Trust to a Co-Trustee appointed pursuant to
Section 6.09 or to such agents as it may appoint in accordance with the Section
9.05 hereof, as shall be reasonably necessary (and for so long as may be
reasonably necessary) to enable such Co-Trustee or agents to perform the duties
and obligations for which such Co-Trustee or agents may be so employed.
SECTION 2.05. Powers of Trustee Limited. The Trustee shall have no
power to create, assume or incur indebtedness or other liabilities in the name
of the Trust. The Trustee shall
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have full power to conduct the business of the Trust of holding the Preferred
Securities for the Holders and taking the other actions provided by this Trust
Agreement.
SECTION 2.06. Liability of Holders of Receipts. With respect to the
Trust, Holders of Receipts shall be entitled to the same limitation of personal
liability to which stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware are extended.
ARTICLE III
FORM OF RECEIPTS, EXECUTION AND
DELIVERY, TRANSFER, AND SURRENDER OF RECEIPTS
SECTION 3.01. Form and Transferability of Receipts.
(a) Receipts shall be evidenced by certificates engraved or
printed or lithographed with steel-engraved borders and underlying tint in
substantially the form set forth in Exhibit A annexed to this Trust Agreement,
with the appropriate insertions, modifications, and omissions, as hereinafter
provided.
(b) Certificates evidencing Receipts shall be executed by the
Trustee by the manual signature of a duly authorized signatory of the Trustee,
provided, however, that such signature may be a facsimile if a Registrar (other
than the Trustee) shall have countersigned the Receipts by manual signature of a
duly authorized signatory of the Registrar. No certificate evidencing one or
more Receipts shall be entitled to any benefit under this Trust Agreement or be
valid or obligatory for any purpose unless it shall have been executed as
provided in the preceding sentence. The Registrar shall record on the Register
each Receipt certificate executed as provided above and delivered as hereinafter
provided.
(c) Certificates evidencing Receipts shall be in denominations of
any whole number of Preferred Securities. All Receipt certificates shall be
dated the date of their execution or countersignature.
(d) Certificates evidencing Receipts may be endorsed with or have
incorporated in the text thereof such legends or recitals or changes not
inconsistent with the provisions of this Trust Agreement as may be required by
the Trustee or required to comply with any applicable law or regulation or with
the rules and regulations of any securities exchange upon which the
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Receipts may be listed or to conform with any usage with respect thereto.
(e) Title to any Receipt certificate that is properly endorsed or
accompanied by a properly executed instrument of transfer or endorsement shall
be transferable by delivery with the same effect as in the case of a negotiable
instrument; provided, however, that until the transfer shall be registered on
the Register as provided in Section 3.03, the Trust, the Trustee, the Registrar
and the Grantor may, notwithstanding any notice to the contrary, treat the
Holder thereof at such time as the absolute owner thereof for the purpose of
determining the Person entitled to distributions or to any notice provided for
in this Trust Agreement and for all other purposes.
SECTION 3.02. Issuance of Receipts. In connection with the Exchange,
upon receipt by the Trustee on behalf of the Trust of a certificate or
certificates for the Preferred Securities, subject to the terms and conditions
of this Trust Agreement, the Trustee on behalf of the Trust shall execute and
deliver to the Exchange Agent certificates evidencing the Receipts for
distribution to the former holders of Depositary Shares who shall thereupon be
Holders of Receipts.
SECTION 3.03. Registration, Transfer and Exchange of Receipts. The
Trustee shall cause the Register to be kept at the office of the Registrar in
which, subject to such reasonable regulations as the Trustee and the Registrar
may prescribe, the Trustee shall provide for the registration of Receipt
certificates and of transfers and exchanges of Receipt certificates as herein
provided. The Grantor hereby appoints First Chicago Trust Company of New York as
the Registrar. The Registrar shall also act as transfer agent. The Grantor may
remove the Registrar and, upon removal or resignation of the Registrar, appoint
a successor Registrar. Subject to the terms and conditions of this Trust
Agreement, the Registrar shall register the transfers on the Register from time
to time of Receipt certificates upon any surrender thereof by the Holder in
person or by a duly authorized attorney, properly endorsed or accompanied by a
properly executed instrument of transfer or endorsement, together with evidence
of the payment of any transfer taxes as may be required by law. Upon such
surrender, the Trustee shall execute a new Receipt certificate representing the
same number of Preferred Securities in accordance with Section 3.01(b) and
deliver the same to or upon the order of the Person entitled thereto.
At the option of a Holder, Receipt certificates may be exchanged for
other Receipt certificates representing the same number of Preferred Securities.
Upon surrender of a Receipt certificate at the office of the Registrar or such
other office
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as the Trustee may designate for the purpose of effecting an exchange of Receipt
certificates, subject to the terms and conditions of this Trust Agreement, the
Trustee shall execute and deliver a new Receipt certificate representing the
same number of Preferred Securities as the Receipt certificate surrendered.
As a condition precedent to the registration of the transfer or
exchange of any Receipt certificate, the Registrar may require (i) production of
proof satisfactory to it as to the identity and genuineness of any signature;
and (ii) compliance with such regulations, if any, as the Trustee or the
Registrar may establish not inconsistent with the provisions of this Trust
Agreement.
No service charge shall be made to a Holder of Receipts for any
registration of transfer or exchange of Receipt certificates, but the Trustee or
the Registrar shall require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Receipt certificates.
Neither the Trustee nor the Registrar shall be required (a) to
register the transfer of or exchange any Receipt certificate for a period
beginning at the opening of business ten days preceding any selection of
Receipts to be redeemed and ending at the close of business on the day of the
mailing a notice of redemption of Receipts or (b) to register the transfer of or
exchange of Receipts called or being called for redemption in whole or in part,
except as provided in Section 4.02.
SECTION 3.04. Lost or Stolen Receipts, Etc. In case any Receipt
certificate shall be mutilated or destroyed or lost or stolen and in the absence
of notice to the Trustee that such Receipt has been acquired by a bona fide
purchaser, the Trustee shall execute and deliver a Receipt certificate of like
form and tenor in exchange and substitution for such mutilated Receipt
certificate or in lieu of and in substitution for such destroyed, lost or stolen
Receipt certificate, provided, however, that the Holder thereof provides the
Trustee with (i) evidence satisfactory to the Trustee of such destruction, loss
or theft of such Receipt certificate, of the authenticity thereof and of his
ownership thereof, (ii) reasonable indemnification satisfactory to the Trustee
and (iii) payment of any expense (including fees, charges and expenses of the
Trustee) in connection with such execution and delivery. Any duplicate Receipt
certificate issued pursuant to this Section 3.04 shall constitute complete and
indefeasible evidence of ownership in the Trust, as if originally issued,
whether or not the lost, stolen or destroyed Receipt certificate shall be found
at any time.
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SECTION 3.05. Cancellation and Destruction of Surrendered Receipts.
All Receipt certificates surrendered to the Trustee shall be cancelled by the
Trustee. Except as prohibited by applicable law or regulation, at any time after
six years from the date of surrender of any Receipt certificate, the Trustee may
destroy such cancelled Receipt certificates.
SECTION 3.06. Surrender of Receipts and Withdrawal of Preferred
Securities. Any Holder of a Receipt or Receipts may withdraw any or all of the
Preferred Securities (but only in whole numbers of Preferred Securities)
represented by such Receipt or Receipts by surrendering the certificate
evidencing such Receipt or Receipts accompanied by a written instrument of
transfer and an agreement to be bound by the terms of the Partnership Agreement
at the Corporate Office or at such other office as the Trustee may designate for
such withdrawals. After such surrender, without unreasonable delay, the Trustee
shall transfer to such Holder, or to the Person or Persons designated by such
Holder as hereinafter provided, the whole number of Preferred Securities
represented by the Receipt or Receipts so surrendered; provided, however, that
the Trustee shall not issue any fractional number of Preferred Securities. If
the Receipt or Receipts delivered by the Holder to the Trustee in connection
with such withdrawal shall evidence a number of Preferred Securities in excess
of the number of Preferred Securities to be withdrawn, the Trustee shall at the
same time, in addition to such number of Preferred Securities to be withdrawn,
execute in accordance with Section 3.01 and deliver to such Holder, a new
Receipt or Receipts evidencing such excess number of Preferred Securities. If a
Holder withdraws in accordance with this Section 3.06 all of the Preferred
Securities represented by its Receipt or Receipts, such Holder shall cease to be
a Holder under this Trust Agreement and shall cease to be a beneficial owner in
the Trust. Delivery of the Preferred Securities may be made by the delivery of
such certificates, documents of title and other instruments as the Trustee may
deem appropriate, which, if required by the Holder, shall be properly endorsed
or accompanied by proper instruments of transfer.
If the Preferred Securities being withdrawn are to be delivered to a
Person or Persons other than the Holder of the Receipt or Receipts being
surrendered for withdrawal of Preferred Securities, such Holder shall execute
and deliver to the Trustee a written order so directing the Trustee and the
Trustee may require that the certificate evidencing the Receipt or Receipts
surrendered by such Holder for withdrawal of such Preferred Securities be
properly endorsed in blank or accompanied by a properly executed instrument of
transfer or endorsement in blank.
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A Holder who surrenders its Receipts in accordance with this Section
3.06, or the Person or Persons designated by such Holder in the immediately
preceding paragraph, will be required to provide the Grantor with a completed
Form W-8 or such other documents or information as are requested by the Grantor
for tax reporting purposes and thereafter shall be admitted to the Grantor as a
preferred partner of the Grantor upon such Holder's or such Person's or Persons'
receipt of a certificate evidencing such Preferred Securities registered in such
Holder's or such Person's or Persons' name.
The Trustee shall deliver the Preferred Securities represented by the
Receipts surrendered to the Holder in accordance with this Section 3.06 at the
Corporate Office, except that, at the request, risk and expense of the Holder
surrendering such Receipt or Receipts and for the account of the Holder thereof,
such delivery may be made at such other place as may be designated by such
Holder.
Notwithstanding anything in this Section 3.06 to the contrary, if the
Preferred Securities represented by a Receipt or Receipts have been called for
redemption in accordance with the Partnership Agreement, no Holder of such
Receipt or Receipts may withdraw any or all of the Preferred Securities
represented by such Receipt or Receipts.
SECTION 3.07. Redeposit of Preferred Securities; Execution and
Delivery of Receipts in Response Thereof. Subject to the terms and conditions of
this Trust Agreement, any holder of Preferred Securities may redeposit withdrawn
Preferred Securities under this Trust Agreement by delivery to the Trust, of a
certificate or certificates for the Preferred Securities to be deposited,
properly endorsed or accompanied, if required by the Trust, by a properly
executed instrument of transfer or endorsement in form satisfactory to the
Trustee and in compliance with the terms of the Partnership Agreement, together
with (i) all such certifications as may be required by the Trustee in accordance
with the provisions of this Trust Agreement and (ii) a written order directing
the Trustee to execute in accordance with Section 3.01 and deliver to or upon
the written order of the Person or Persons stated in such order a certificate
evidencing a Receipt or Receipts for the number of Preferred Securities so
deposited.
If required by the Trustee, Preferred Securities presented for deposit
at any time shall also be accompanied by an agreement or assignment, or other
instrument satisfactory to the Trustee, that will provide for the prompt
transfer to the Trustee or its nominee of any distribution or other right that
any Person in whose name the Preferred Securities are registered may thereafter
receive upon or in respect of such deposited Preferred
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Securities, or in lieu thereof such agreement of indemnity or other agreement as
shall be satisfactory to the Trustee.
Upon receipt by the Trustee of a certificate or certificates for
Preferred Securities to be deposited hereunder, together with the other
documents specified above, the Trustee shall, as soon as transfer and
registration can be accomplished in accordance with the terms of the Partnership
Agreement, present such certificate or certificates to the General Partner of
the Grantor for transfer and registration in the name of the Trustee or its
nominee of the Preferred Securities being deposited. Deposited Preferred
Securities shall be held by the Trustee on behalf of the Trust for the benefit
of the Holders.
Upon receipt by the Trustee of a certificate or certificates for
Preferred Securities to be deposited hereunder, together with the other
documents specified above, the Trust, subject to the terms and conditions of
this Trust Agreement, shall execute in accordance with Section 3.01 and deliver
to or upon the order of the Person or Persons named in the written order
delivered to the Trustee referred to in the first or second paragraph of this
Section 3.07 a Receipt or Receipts for the number of Preferred Securities so
deposited by such Person or Persons. The Trustee shall execute and deliver such
Receipt or Receipts at the Corporate Office, except that, at the request, risk
and expense of any Person requesting such delivery, such delivery may be made at
such other place as may be designated by such Person. In each case, delivery
will be made only upon payment by such Person to the Trustee of all taxes and
other governmental charges and any fees payable in connection with such deposit
and the transfer of the deposited Preferred Securities.
SECTION 3.08. Filing Proofs, Certificates, and Other Information. Any
Person presenting Preferred Securities for redeposit in accordance with Section
3.07 may be required from time to time to file such proof of residence or other
information, to execute such Preferred Security certificates and to make such
representations and warranties as the Trustee may reasonably deem necessary or
proper. The Trustee may withhold or delay the delivery of any Receipt or
Receipts, the transfer, redemption or exchange of any Receipt or Receipts or the
making of any distribution until such proof or other information is filed, such
certificates are executed or such representations and warranties are made.
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ARTICLE IV
DISTRIBUTIONS AND OTHER RIGHTS OF HOLDERS OF RECEIPTS
SECTION 4.01. Distributions of Monthly Distributions on Preferred
Securities. Whenever the Trustee shall receive any cash distribution
representing a monthly distribution on the Preferred Securities (whether or not
distributed by the Grantor on the regular monthly distribution date therefor) or
payment under the Guarantee in respect thereof pursuant to Article V of this
Agreement, the Trustee acting directly or through any Paying Agent shall
distribute to Holders of Receipts on the record date fixed pursuant to Section
4.04, such amounts in proportion to the respective numbers of Preferred
Securities represented by the Receipts held by such Holders.
SECTION 4.02. Redemptions of Preferred Securities. Whenever the
Grantor shall elect or is required to redeem Preferred Securities in accordance
with the Partnership Agreement, it shall (unless otherwise agreed in writing
with the Trustee) give the Trustee not less than 40 days' prior notice thereof.
The Trustee shall, as directed by the Grantor, mail, or cause to be mailed,
first-class postage prepaid, notice of the redemption of Preferred Securities
and the proposed simultaneous redemption of the Receipts to be redeemed in
connection herewith, not less than 30 and not more than 60 days prior to the
date fixed for redemption (the "Redemption Date") of the Receipts. Such notice
shall be mailed to the Holders of the Receipts to be redeemed, at the addresses
of such Holders as the same appear on the records of the Registrar. No defect in
the notice of redemption or in the mailing or delivery thereof or publication of
its contents shall affect the validity of the redemption proceedings. The
Grantor shall provide the Trustee with such notice, and each such notice shall
state: the Redemption Date; the redemption price at which the Receipts and the
Preferred Securities are to be redeemed; that all outstanding Receipts are to be
redeemed or, in the case of a redemption of fewer than all outstanding Receipts
in connection with a partial redemption of Preferred Securities, the number of
such Receipts held by such Holder to be so redeemed; the place or places where
Receipts to be redeemed are to be surrendered for redemption; and specifying the
CUSIP number assigned to the Receipts. In case fewer than all the outstanding
Receipts are to be redeemed, the Receipts to be redeemed shall be selected by
lot or pro rata (as nearly as may be practicable without creating fractional
shares) or by any other equitable method determined by the Trustee.
The Grantor agrees that if a partial redemption of the Preferred
Securities would result in a delisting of the Receipts
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from any national exchange on which the Receipts are then listed, the Grantor
will only redeem the Preferred Securities in whole.
On the date of any such redemption of Preferred Securities, provided
that the Grantor (or PECO Energy pursuant to the Guarantee) shall then have
deposited with the Trustee the aggregate amount payable upon redemption of the
Preferred Securities to be redeemed, the Trustee shall redeem (using the funds
so deposited with it) Receipts representing the same number of Preferred
Securities redeemed by the Grantor.
Notice having been mailed by the Trustee as aforesaid, from and after
the Redemption Date (unless the Grantor shall have failed to redeem the
Preferred Securities to be redeemed by it as set forth in the Grantor's notice
provided for in this Section 4.02 and PECO Energy shall have failed to pay the
redemption price of the Preferred Securities under the Guarantee), the Receipts
called for redemption shall be deemed no longer to be outstanding and all rights
of the Holders of Receipts (except the right to receive cash upon surrender of
Receipts) shall cease and terminate. Upon surrender in accordance with said
notice of the Receipts endorsed or assigned for transfer, if the Trustee shall
so require, the Holders of such Receipts shall receive for each such Receipt an
amount equal to the redemption price for each Preferred Security, in addition to
accrued and unpaid distributions thereon to the date fixed for redemption.
If fewer than all of the Receipts of any Holder are called for
redemption, the Registrar will deliver to the Holder of such Receipts upon
surrender of the certificate evidencing such Receipts a new certificate
evidencing the number of Receipts not called for redemption.
SECTION 4.03. Distributions in Liquidation of Grantor. Upon receipt by
the Trust of any distribution from the Grantor upon the liquidation of the
Grantor or any payment under the Guarantee in respect thereof pursuant to
Article V of this Trust Agreement, after satisfaction of creditors of the Trust
as required by applicable law, the Trustee shall distribute to the Holders of
Receipts on the record date fixed pursuant to Section 4.04, such amounts in
proportion to the respective number of Preferred Securities which were
represented by the Receipts held by such Holders.
SECTION 4.04. Fixing of Record Date for Holders of Receipts. Whenever
any distribution (other than upon any redemption) shall become payable, or
whenever the Trustee shall receive notice of any meeting at which holders of
Preferred Securities are entitled to vote or of which holders of Preferred
Securities are entitled to notice, the Trustee shall in each such
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instance fix a record date (which shall be the same date as the record date
fixed by the General Partner with respect to the Preferred Securities) for the
determination of the Holders of Receipts who shall be entitled (i) to receive
such distribution, and (ii) to receive notice of, and to give instructions for
the exercise of voting rights at, any such meeting.
SECTION 4.05. Payment of Distributions. The Grantor shall appoint one
or more Paying Agents for the purpose of paying monthly distributions on, the
redemption price of, and distributions in liquidation on the Receipts. The
Grantor hereby appoints First Chicago Trust Company of New York to act as Paying
Agent and designates the Jersey City, New Jersey office of the Paying Agent as
the place of payment of the redemption price of and to distribution in
liquidation on the Receipts. The aforesaid appointment and designation shall
remain in effect until changed by the Grantor. Payments of monthly distributions
on the Receipts shall be payable by check mailed to the addresses of the Holders
thereof on the record date therefor. Payments of the redemption price of
Receipts and distributions in liquidation shall be made upon surrender of such
Receipts at the office of the Paying Agent. The Trustee is hereby authorized to
direct the Grantor to pay monthly distributions on, the redemption price of, and
distributions in liquidation on, the Preferred Securities directly to the Paying
Agent for distribution in accordance with the terms of this Trust Agreement.
SECTION 4.06. Special Representative and Voting Rights.
(a) If the holders of the Preferred Partner Interests (as defined
in the Partnership Agreement), acting as a single class, are entitled to appoint
and authorize a Special Representative pursuant to Section 13.02(d) of the
Partnership Agreement, the Trustee shall notify the Holders of the Receipts of
such right, request direction of each Holder of a Receipt as to the appointment
of a Special Representative and vote the Preferred Securities represented by
such Receipt in accordance with such direction. If the General Partner fails to
convene a general meeting of the Partnership as required in Section 13.02(d) of
the Partnership Agreement, the Trustee shall notify the Holders of the Receipts
and, if so directed by the Holders of Receipts representing Preferred Securities
constituting at least 10% of the aggregated stated liquidation preference of the
outstanding Preferred Partner Interests (as defined in the Partnership
Agreement) shall convene such meeting.
(b) Upon receipt of notice of any meeting at which the Holders of
Preferred Securities are entitled to vote, the Trustee shall, as soon as
practicable thereafter, mail to the Holders of Receipts a notice, which shall be
provided by the General Partner
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and which shall contain (i) such information as is contained in such notice of
meeting, (ii) a statement that the Holders of Receipts at the close of business
on a specified record date fixed pursuant to Section 4.04 will be entitled,
subject to any applicable provision of law or of the Partnership Agreement, to
instruct the Trustee as to the exercise of the voting rights pertaining to the
amount of Preferred Securities represented by their respective Receipts, and
(iii) a brief statement as to the manner in which such instructions may be
given. Upon the written request of a Holder of a Receipt on such record date,
the Trustee shall vote or cause to be voted the number of Preferred Securities
represented by the Receipts evidenced by such Receipt in accordance with the
instructions set forth in such request. The Grantor hereby agrees to take all
reasonable action that may be deemed necessary by the Trustee in order to enable
the Trustee to vote such Preferred Securities or cause such Preferred Securities
to be voted. In the absence of specific instructions from the Holder of a
Receipt, the Trustee will abstain from voting to the extent of the Preferred
Securities represented by such Receipt.
SECTION 4.07. Changes Affecting Preferred Securities and
Reclassifications, Recapitalizations, Etc. Upon any consolidation, amalgamation,
merger, replacement, or conveyance, transfer or lease by the Partnership of its
properties and assets as an entirety in accordance with Section 13.02(e) of the
Partnership Agreement, the Trustee shall, upon the instructions of the Grantor,
treat any Successor Securities or other property (including cash) that shall be
received by the Trustee in exchange for or upon conversion of or in respect of
the Preferred Securities as part of the Trust Estate and Receipts then
outstanding shall thenceforth represent the proportionate interests of Holders
thereof in the new deposited property so received in exchange for or upon
conversion or in respect of such Preferred Securities.
ARTICLE V
THE GUARANTEE
SECTION 5.01. The Guarantee. In connection with the issuance of the
Preferred Securities, PECO Energy has delivered to the General Partner the
Guarantee for the benefit of the holders of the Preferred Securities. If the
General Partner or the Grantor receives any payment under the Guarantee, the
General Partner or the Grantor, as the case may be, will immediately transfer
such payment to the Trustee. All rights to enforce the Guarantee shall remain in
the General Partner, except to the extent set forth in Section 2.04 of the
Payment and Guarantee
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Agreement executed by PECO Energy Company on December 19, 1995 for the benefit
of the holders of the Preferred Securities.
ARTICLE VI
THE TRUSTEE
SECTION 6.01. Eligibility. This Trust Agreement shall at all times
have a Trustee which is a bank that has its principal place of business in the
State of Delaware and shall have a combined capital and surplus of at least
$50,000,000. If such corporation publishes reports of conditions at least
annually, pursuant to law or to the requirements of Federal, State, Territorial
or District of Columbia supervising or examining authority, then for the
purposes of this Section 6.01, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of conditions so published.
In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 6.01, the Trustee shall resign
immediately in the manner and with the effect specified in Section 6.03.
The Trustee shall make available for inspection by Holders of Receipts
at the Corporate Office and at such other places as it may from time to time
deem advisable during normal business hours any reports and communications
received from the Grantor, the General Partner or PECO Energy by the Trustee as
the holder of Preferred Securities.
Promptly upon request from time to time by the Grantor, the Trustee
shall cause the Registrar to furnish to it a list, at the sole expense of the
General Partner, as of a recent date, of the names, addresses and holdings of
all Persons in whose names Receipts are registered on the Register.
SECTION 6.02. Obligations of the Trustee. The Trustee does not assume
any obligation nor shall it be subject to any liability under this Trust
Agreement or any Receipt to Holders of Receipts other than that it agrees to use
good faith in the performance of such duties as are specifically assigned to the
Trustee in this Trust Agreement.
The Trustee shall not be under any obligation to appear in, prosecute
or defend any action, suit or other proceeding with respect to Preferred
Securities or Receipts that in its opinion may involve it in expense or
liability, unless indemnity
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satisfactory to it against all expense and liability be furnished as often as
may be required.
In the event that the Trustee is uncertain as to application or
interpretation of any provision of this Trust Agreement or must choose between
alternative courses of action, the Trustee may seek the instructions of the
Grantor (or the Special Representative if one has been appointed) by written
notice requesting instructions. The Trustee shall take and be protected in
taking such action as has been directed by the Grantor (or the Special
Representative if one has been approved) provided that if the Trustee does not
receive instructions within 10 days or such shorter time as is set forth in the
Trustee notice, the Trustee shall be under no duty to take or refrain from
taking such action not inconsistent with this Trust Agreement as it shall deem
advisable and in the interest of the Holders.
The Trustee shall not be liable for any action or any failure to act
by it in reliance upon the advice of or information from legal counsel,
accountants, any Holder of a Receipt or any other Person believed by it in good
faith to be competent to give such advice or information. The Trustee may rely
and shall be protected in acting upon any written notice, request, direction or
other document believed by it to be genuine and to have been signed or presented
by the proper party or parties.
The Trustee, its parent, Affiliates, or subsidiaries may own, buy,
sell, or deal in any class of securities of the Grantor, the General Partner or
PECO Energy and its Affiliates and in Receipts or become pecuniarily interested
in any transaction in which the Grantor, the General Partner or PECO Energy or
its Affiliates may be interested or contract with or lend money to or otherwise
act as fully or as freely as if it were not the Trustee hereunder. The Trustee
may also act as transfer agent or registrar of any of the securities of the
Grantor, the General Partner or PECO Energy and its Affiliates or act in any
other capacity for PECO Energy or its Affiliates.
The Trustee (and its officers, directors, employees, and agents) makes
no representation nor shall it have any responsibility with respect to the
Exchange or as to the validity of the registration statement pursuant to which
the Receipts are registered under the Securities Act, the Preferred Securities,
the Guarantee or the Receipts (except for its counter-signatures thereon) or any
instruments referred to therein or herein, or as to the correctness of any
statement made therein or herein; provided, however, that the Trustee is
responsible for its representations in this Trust Agreement.
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The Trustee assumes no responsibility for the correctness of the
description that appears in the Receipts, which can be taken as a statement of
the Grantor summarizing certain provisions of this Trust Agreement.
Notwithstanding any other provision herein or in the Receipts, the Trustee makes
no warranties or representations as to the validity, genuineness or sufficiency
of any Preferred Securities or the Guarantee or of the Receipts, as to the
validity or sufficiency of this Trust Agreement, as to the value of the Receipts
or as to any right, title or interest of the Holders of Receipts, except that
the Trustee hereby represents and warrants as follows: (i) the Trustee has been
duly organized and is validly existing and in good standing under the laws of
the State of Delaware, with full power, authority and legal right under such
laws to execute, deliver and carry out the terms of this Trust Agreement; (ii)
this Trust Agreement has been duly authorized, executed and delivered by the
Trustee; and (iii) this Trust Agreement constitutes a valid and binding
obligation of the Trustee enforceable against the Trustee in accordance with its
terms subject to equitable principles and laws affecting the enforcement of
creditors' rights generally.
SECTION 6.03. Resignation and Removal of the Trustee, Appointment of
Successor Trustee. The Trustee may at any time resign as Trustee hereunder by
notice of its election to do so delivered to the Grantor and the General
Partner, such resignation to take effect upon the appointment of a successor
trustee and its acceptance of such appointment as hereinafter provided.
The Trustee may at any time be removed by the Grantor by notice of
such removal delivered to the Trustee, such removal to take effect upon the
appointment of a successor trustee and its acceptance of such appointment as
hereinafter provided.
In case at any time the Trustee acting hereunder shall resign or be
removed, the Grantor shall, within 45 days after the delivery of the notice of
resignation or removal, as the case may be, appoint a successor trustee, which
shall be a bank or trust company, or an Affiliate of a bank or trust company,
having its principal office in the State of Delaware and having a combined
capital and surplus of at least $50,000,000. If a successor Trustee shall not
have been appointed in 45 days, the resigning Trustee may petition a court of
competent jurisdiction to appoint a successor trustee. Every successor trustee
shall execute and deliver to its predecessor and to the Grantor and the General
Partner an instrument in writing accepting its appointment hereunder, and
thereupon such successor trustee, without any further act or deed, shall become
fully vested with all the rights, powers, duties, and obligations of its
predecessor and for all purposes shall be the Trustee under this Trust
Agreement,
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and such predecessor, upon payment of all sums due it and on the written request
of the Grantor, shall promptly execute and deliver an instrument transferring to
such successor all rights and powers of such predecessor hereunder, shall duly
assign, transfer and deliver all rights, title and interest in the Preferred
Securities and any moneys or property held hereunder to such successor and shall
deliver to such successor a list of the Holders of all outstanding Receipts. Any
successor depositary shall promptly mail notice of its appointment to the
Holders of Receipts.
Any Person into or with which the Trustee may be merged, consolidated
or converted, or any Person succeeding to the corporate trust business of the
Trustee, shall be the successor of such Trustee without the execution or filing
of any document or any further act, provided such Person shall be eligible under
the provisions of the immediately preceding paragraph.
SECTION 6.04. Corporate Notices and Reports. The General Partner
agrees that it will give timely notice to the Trustee and any Paying Agent of
any record date for the Preferred Securities and that it will deliver to the
Trustee, and the Trustee will, promptly after receipt thereof, transmit to the
Holders of Receipts, in each case at the address recorded on the Register,
copies of all notices and reports (including financial statements) required by
law, by the rules of any national securities exchange upon which the Receipts
are listed or by the Partnership Agreement to be furnished to holders of
Preferred Securities. Such transmission will be at the expense of the General
Partner and the General Partner will provide the Trustee with such number of
copies of such documents as the Trustee may reasonably request. In addition, the
Trustee will transmit to the Holders of Receipts at the Grantor's expense such
other documents as may be requested by the Grantor.
SECTION 6.05. Status of Trust. It is intended that the Trust shall not
be an "investment company" under the Investment Company Act of 1940, as amended.
While it is expressly understood and agreed that the Trustee is acting only in a
ministerial capacity hereunder, the Securities and Exchange Commission (the
"Commission") has determined that as of the date hereof, the Trust is an issuer
under the Federal securities laws and is thus required to sign any registration
statement filed or to be filed in connection with the Receipts.
SECTION 6.06. Appointment of Grantor to File on Behalf of Trust. The
Grantor and the Trustee hereby authorize and direct the Grantor, as the sponsor
of the Trust (i) to file with the Commission and execute, in each case on behalf
of the Trust, (a) the Registration Statement on Form S-4 (the "1933 Act
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Registration Statement"), including any pre-effective or post-effective
amendments to such 1933 Act Registration Statement (including the offering
circular/prospectus and the exhibits contained therein), relating to the
registration under the Securities Act of 1933, as amended, of the Receipts of
the Trust and certain other securities; (b) a Registration Statement on Form 8-A
(the "1934 Act Registration Statement"), including all pre-effective and
post-effective amendments thereto relating to the registration of the Receipts
under Section 12(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); and (c) any reports or other papers on documents required to be
filed by, or desirable to be filed with, the Commission, under the Exchange Act
("Exchange Act Reports"); (ii) to file with the New York Stock Exchange or
Philadelphia Stock Exchange (each an "Exchange") and execute on behalf of the
Trust one or more listing applications and all other applications, statements,
certificates, agreements and other instruments as shall be necessary or
desirable to cause the Receipts to be listed on any of the Exchanges; (iii) to
file and execute on behalf of the Trust such applications, reports, surety
bonds, irrevocable consents, appointments of attorney for service of process and
other papers and documents as shall be necessary or desirable to register the
Receipts under the securities or "Blue Sky" laws of such jurisdictions as the
Grantor, on behalf of the Trust, may deem necessary or desirable and (iv) to
execute on behalf of the Trust that certain Dealer Manager Agreement relating to
the Receipts, among the Trust, the Grantor and the Dealer Managers named
therein, substantially in the form included as Exhibit 1 to the 1933 Act
Registration Statement.
SECTION 6.07. Indemnification by the General Partner. To the fullest
extent permitted by law, the General Partner agrees to indemnify and defend the
Trustee, the Registrar and any Paying Agent and their directors, officers,
employees and agents against, and hold each of them harmless from, any
liability, costs and expenses (including reasonable attorneys' fees) that may
arise out of or in connection with its acting as the Trustee or the Registrar or
Paying Agent, respectively, under this Trust Agreement and the Receipts, except
for any liability arising out of negligence, bad faith or willful misconduct on
the part of any such Person or Persons.
SECTION 6.08. Fees, Charges and Expenses. No fees, charges, or
expenses of the Trustee or any Trustee's agent hereunder or of any Registrar
shall be payable by any Person other than the General Partner, provided that if
the Trustee incurs fees, charges or expenses for which it is not otherwise
liable under this Trust Agreement due to any action taken at the election of a
Holder of Receipts or other Person, such Holder or other Person will be liable
for such fees, charges and expenses.
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SECTION 6.09. Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Trust Agreement,
at any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any party of the Trust must at the time be located, the
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Holders,
such title to the Trust, or any part thereof, and, subject to the other
provisions of this Section 6.09, such powers, duties, obligations, rights and
trusts as the Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
successor trustee under Section 6.03 and no notice to the Holders of the
appointment of any co-trustee or separate trustee shall be required.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon and exercised or performed by the
Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such
act), except to the extent that under any laws of any
jurisdiction in which any particular act or acts are to be
performed, the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the
Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Trustee;
(ii) no Trustee hereunder shall be personally
liable by reason of any act or omission of any other trustee
hereunder; and
(iii) the Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Trust
Agreement. Each separate
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trustee and co-trustee, upon its acceptance of the trusts conferred, shall be
vested with the estates or property specified in its instrument of appointment,
either jointly with the Trustee or separately, as may be provided therein,
subject to all the provisions of this Trust Agreement, specifically including
every provision of this Trust Agreement relating to the conduct of, affecting
the liability of, or affording protection to, the Trustee. Every such instrument
shall be filed with the Trustee and a copy thereof given to the Grantor.
(d) Any separate trustee or co-trustee may at any time constitute
the Trustee as its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect to
this Trust Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
ARTICLE VII
AMENDMENT AND TERMINATION
SECTION 7.01. Supplemental Trust Agreement. The Grantor or the General
Partner may, and the Trustee shall, at any time and from time to time, without
the consent of the Holders, enter into one or more agreements supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another partnership,
corporation or other entity to the Grantor or the General Partner and the
assumption by any such successor of the covenants of the Grantor or the General
Partner herein contained; or
(b) to add to the covenants of the Grantor or the General Partner
for the benefit of the Holders, or to surrender any right or power herein
conferred upon the Grantor or the General Partner; or
(c) (i) to correct or supplement any provision herein which may
be defective or inconsistent with any other provision herein or (ii) to make any
other provisions with respect to matters or questions arising under this Trust
Agreement, provided that any such action taken under subsection (c)(ii) hereof
shall not materially adversely affect the interests of the Holders; or
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(d) to cure any ambiguity or correct any mistake.
Any other amendment or agreement supplemental hereto must be in
writing and approved by Holders of 66-2/3% of the then-outstanding Receipts.
SECTION 7.02. Termination. The Trust Agreement shall terminate on the
date that all outstanding Receipts have been redeemed or there has been a final
distribution in respect of the Preferred Securities in connection with any
liquidation, dissolution or winding up of the Grantor and such distribution has
been made to the Holders of the Receipts. Except as provided in Section 6.07 and
Section 6.08, upon termination of this Trust Agreement and the Trust in
accordance with the foregoing, the respective obligations and responsibilities
of the Trustee, the Grantor and the General Partner created hereby shall
terminate.
ARTICLE VIII
MERGER, CONSOLIDATION, ETC. OF GRANTOR
SECTION 8.01. Limitation on Permitted Merger Consolidation, Etc. of
Grantor. The Grantor agrees that it will not consolidate, amalgamate, merge with
or into, or be replaced by, or convey, transfer or lease its properties and
assets substantially in their entirety to any corporation or other entity
without the consent of the Holders of 66-2/3% of the Receipts unless permitted
by Section 13.02(e) of the Partnership Agreement and (i) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Receipts to be delisted by any national securities exchange or other
organization on which the Receipts are then listed, (ii) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Receipts to be downgraded by any "nationally recognized statistical
rating organization," as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the Securities Act of 1933, as amended, and (iii) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, PECO Energy has received an opinion of counsel (which may be regular
counsel to PECO Energy or an Affiliate, but not an employee thereof) experienced
in such matters to the effect that Holders of outstanding Receipts will not
recognize any gain or loss for Federal income tax purposes as a result of the
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Counterparts. This Trust Agreement may be executed by
the Grantor, the Trustee and the General Partner in separate counterparts, each
of which counterparts, when so executed and delivered shall be deemed an
original, but all such counterparts taken together shall constitute one and the
same instrument. Delivery of an executed counterpart of a signature page to this
Trust Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Trust Agreement. Copies of this Trust Agreement
shall be filed with the Trustee and the Trustee's agents and shall be open to
inspection during business hours at the Corporate Office and the respective
offices of the Trustee's agents, if any, by any Holder of a Receipt.
SECTION 9.02. Exclusive Benefits of Parties. This Trust Agreement is
for the exclusive benefit of the parties hereto and the Holders of the Receipts
and the holders of Series B Preferred Securities, and their respective
successors hereunder, and shall not be deemed to give any legal or equitable
right, remedy or claim to any other Person whatsoever.
SECTION 9.03. Invalidity of Provisions. In case any one or more of the
provisions contained in this Trust Agreement or in the Receipts should be or
become invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein or therein shall
in no way be affected, prejudiced or disturbed thereby.
SECTION 9.04. Notices. Any notices to be given to the Grantor or the
General Partner hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or sent by mail, or by telegram or telex or
telecopier confirmed by letter, addressed to the General Partner at 1013 Centre
Road, Suite 350F, Wilmington, Delaware 19805, Attention: President, or at any
other place to which the General Partner may have transferred its principal
executive office.
Any notices to be given to the Trustee hereunder or under the Receipts
shall be in writing and shall be deemed to have been duly given if personally
delivered or sent by mail, or by telegram or telex or telecopier confirmed by
letter, addressed to the Trustee at the Corporate Office.
Any notices given to any Holder of a Receipt hereunder or under the
Receipts shall be in writing and shall be deemed to
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have been duly given if personally delivered or sent by mail, or by telegram or
telex or telecopier confirmed by letter, addressed to such Holder at the address
of such record holder as it appears on the books of the Trustee or, if such
holder shall have timely filed with the Trustee a written request that notices
intended for such holder be mailed to some other address, at the address
designated in such request.
Delivery of a notice sent by mail, or by telegram or telex or
telecopier shall be deemed to be effected at the time when a duly addressed
letter containing the same (or a duly addressed letter confirming an earlier
notice in the case of a telegram or telex or telecopier message) is deposited,
postage prepaid, in a post office letter box. The Trustee may, however, act upon
any telegram or telex or telecopier message received by it from the other or
from any Holder of a Receipt, notwithstanding that such telegram or telex or
telecopier message shall not subsequently be confirmed by letter as aforesaid.
SECTION 9.05. Trustee's Agents. The Trustee may from time to time
appoint agents to act in any respect for the Trustee for the purposes of this
Trust Agreement. The Trustee shall have no liability for the acts or omissions
of agents selected by it with due care. The Trustee will notify the General
Partner prior to any such action.
SECTION 9.06. Holders of Receipts Are Parties. Notwithstanding that
Holders of Receipts have not executed and delivered this Trust Agreement or any
counterpart thereof, the Holders of Receipts from time to time shall be bound by
all of the terms and conditions hereof and of the Receipts by acceptance of
delivery of Receipts.
SECTION 9.07. Governing Law. This Trust Agreement and the Receipts and
all rights hereunder and thereunder and provisions hereof and thereof shall be
governed by, and construed in accordance with, the law of the State of Delaware
without giving effect to principles of conflict of laws.
SECTION 9.08. Headings. The headings of articles and sections of this
Trust Agreement and in the form of the Receipt set forth in Exhibit A hereto
have been inserted for convenience only and are not to be regarded as part of
this Trust Agreement or to have any bearing upon the meaning or interpretation
of any provision contained herein or in the Receipts.
SECTION 9.09. Receipts Non-Assessable and Fully Paid. The Holders of
the Receipts shall not be personally liable for obligations of the Trust, the
interests in the Trust represented by the Receipts shall be non-assessable for
any losses or expenses of the Trust or for any reason whatsoever, and the
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Receipts upon delivery thereof by the Trustee pursuant to this Trust Agreement
are and shall be deemed fully paid.
SECTION 9.10. No Preemptive Rights. No Holder shall be entitled as a
matter of right to subscribe for or purchase, or have any preemptive right with
respect to, any part of any new or additional interest in the Trust, whether now
or hereafter authorized and whether issued for cash or other consideration or by
way of distribution.
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IN WITNESS WHEREOF, the Grantor and the Trustee and the General
Partner have duly executed this Trust Agreement as of the day and year first
above set forth.
PECO ENERGY CAPITAL, L.P.
By: PECO ENERGY CAPITAL CORP.,
its general partner
By: /s/ J. Barry Mitchell
Authorized Officer
PNC BANK, DELAWARE
By: /s/ Michael B. McCarthy
Authorized Signatory
The General Partner joins in this Trust Agreement solely for the
purposes of obligating itself under Sections 6.04, 6.07 and 6.08 of this Trust
Agreement and not as grantor, trustee or beneficiary.
PECO ENERGY CAPITAL CORP.
By: /s/ J. Barry Mitchell
Authorized Officer
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EXHIBIT A
TRUST RECEIPTS
OF PECO ENERGY CAPITAL TRUST I,
a Delaware Business Trust,
each Representing an 8.72% Cumulative
Monthly Income Preferred Security, Series B of
PECO Energy Capital, L.P. (a Delaware limited partnership)
No. _________ ___________ Receipts
PNC Bank, Delaware, a Delaware banking corporation, not in its
individual capacity, but solely as Trustee (the "Trustee"), hereby certifies
that ______________ is the registered owner of __________ Receipts (the
"Receipts"), each representing an 8.72% Cumulative Monthly Income Preferred
Security, Series B (the "Preferred Securities") of PECO Energy Capital, L.P., a
Delaware limited partnership (the "Grantor"), deposited in trust by the Grantor
with the Trustee pursuant to an Amended and Restated Trust Agreement of PECO
Energy Capital Trust I dated as of December 19, 1995 (as amended or supplemented
from time to time, the "Trust Agreement") among the Grantor, the Trustee and
PECO Energy Capital Corp., the general partner of the Grantor (the "General
Partner"). Subject to the terms of the Trust Agreement, the registered Holder
hereof is entitled to a full interest in the same number of Preferred Securities
held by the Trustee under the Trust Agreement, as are represented by the
Receipts including the distribution, voting, liquidation, and other rights of
the Preferred Securities specified in the Amended and Restated Limited
Partnership Agreement of the Grantor, as amended, a copy of which is on file at
the Corporate Office.
1. The Trust Agreement. The Receipts are issued upon the terms and
conditions set forth in the Trust Agreement. The Trust Agreement (a copy of
which is on file at the Corporate Office of the Trustee) sets forth the rights
of Holders of Receipts and the rights and duties of the Trustee, the Grantor and
the General Partner. The statements made on the face and the reverse hereof are
summaries of certain provisions of the Trust Agreement and are subject to the
detailed provisions thereof, to which reference is hereby made. In the event of
any conflict or discrepancy between the provisions hereof and the provisions of
the Trust Agreement, the provisions of the Trust Agreement will govern. Unless
otherwise expressly herein provided, all defined terms used herein shall have
the meanings ascribed thereto in the Trust Agreement.
2. Enforcement of Rights; Withdrawal of Preferred Securities. To the
fullest extent permitted by law, without the need for any other action of any
Person, including the Trustee
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and any other Holder, each Holder shall be entitled to enforce in the name of
the Trust the Trust's rights under the Preferred Securities represented by the
Receipts held by such Holder and any recovery on such an enforcement action
shall belong solely to such Holder who brought the action, not to the Trust,
Trustee or any other Holder individually or to Holders as a group. Any Holder of
a Receipt or Receipts may withdraw any or all of the Preferred Securities (but
only in whole numbers of Preferred Securities) represented by such Receipt or
Receipts by surrendering the certificate evidencing such Receipt or Receipts
accompanied by a written instrument of transfer and an agreement to be bound by
the terms of the Partnership Agreement at the Corporate Office or at such other
office as the Trustee may designate for such withdrawals; provided, however,
that the Trustee shall not issue any fractional number of Preferred Securities.
If the Receipt or Receipts delivered by the Holder to the Trust in connection
with such withdrawal shall evidence a number of Preferred Securities in excess
of the number of Preferred Securities to be withdrawn, the Trustee shall at the
same time, in addition to such number of Preferred Securities to be withdrawn,
deliver to such Holder, a new Receipt or Receipts evidencing such excess number
of Preferred Securities.
3. Distributions of Monthly Distributions on Preferred Securities.
Whenever the Trustee shall receive any cash distribution representing a monthly
distribution on the Preferred Securities (whether or not distributed by the
Grantor on the regular monthly distribution date therefor) or payment by PECO
Energy Company ("PECO Energy") under the Payment and Guarantee Agreement dated
as of December 19, 1995 (the "Guarantee") in respect thereof, the Trustee acting
directly or through any Paying Agent shall distribute to record Holders of
Receipts on the record date therefor, such amounts in proportion to the
respective numbers of Preferred Securities represented by the Receipts held by
such Holders.
4. Redemptions of Preferred Securities. Whenever the Grantor shall
elect or is required to redeem Preferred Securities in accordance with the
Partnership Agreement, it shall (unless otherwise agreed in writing with the
Trustee) give the Trustee not less than 40 days' prior notice thereof. The
Trustee shall, as directed by the Grantor, mail, first-class postage prepaid,
notice of the redemption of Preferred Securities and the proposed simultaneous
redemption of the Receipts to be redeemed, not less than 30 and not more than 60
days prior to the date fixed for redemption (the "redemption date") of such
Preferred Securities and Receipts. Such notice shall be mailed to the Holders of
the Receipts, at the addresses of such Holders as the same appear on the records
of the Trustee. No defect in the notice of redemption or in the mailing or
delivery thereof or publication of its contents shall affect the validity of the
redemption
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proceedings. In case fewer than all the outstanding Receipts are to be redeemed,
the Receipts to be redeemed shall be selected by lot or pro rata (as nearly as
may be practicable without creating fractional shares) or by any other equitable
method determined by the Grantor. On the date of any such redemption of
Preferred Securities, provided that the Grantor (or PECO Energy pursuant to the
Guarantee) shall then have deposited with the Trustee the aggregate amount
payable upon redemption of the Preferred Securities to be redeemed, the Trustee
shall redeem (using the funds so deposited with it) Receipts representing the
same number of Preferred Securities to be redeemed by the Grantor.
5. Distributions in Liquidation. Upon receipt by the Trustee of any
distribution from the Grantor upon the liquidation of the Grantor or any payment
under the Guarantee in respect thereof, after satisfaction of creditors of the
Trust required by applicable law, the Trustee shall distribute to record Holders
of Receipts on the record date therefor, such amounts in proportion to the
respective number of Preferred Securities which were represented by the Receipts
held by such Holders.
6. Fixing of Record Date for Holders of Receipts. Whenever any
distribution (other than upon any redemption) shall become payable, or whenever
the Trustee shall receive notice of any meeting at which holders of Preferred
Securities are entitled to vote or of which holders of Preferred Securities are
entitled to notice, the Trustee shall in each such instance fix a record date
(which shall be the same date as the record date fixed by the General Partner
with respect to the Preferred Securities) for the determination of the record
holders of Receipts who shall be entitled (i) to receive such distribution or
(ii) to receive notice of, and to give instructions for the exercise of voting
rights at, any such meeting.
7. Payment of Distributions. Payments of monthly distributions on the
Receipts shall be payable by check mailed to the addresses of the Holders
thereof on the record date therefor. Payments of the redemption price of
Receipts and distributions in liquidation shall be made against surrender of
such Receipts at the office of First Chicago Trust Company of New York, as the
Paying Agent.
8. Special Representative; Voting Rights. (a) If the holders of the
Preferred Partner Interests (as defined in the Partnership Agreement), acting as
a single class, are entitled to appoint and authorize a Special Representative
pursuant to Section 13.02(d) of the Partnership Agreement, the Trustee shall
notify the Holders of the Receipts of such right, request direction of each
Holder of a Receipt and vote the Preferred Securities represented by such
Receipt in accordance with such direction. If the General Partner fails to
convene a general
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meeting of the Partnership as required in Section 13.02(d) of the Partnership
Agreement, the Trustee shall notify the Holders of the Receipts and, if so
directed by the Holders of Receipts representing Preferred Securities
constituting at least 10% of the aggregated stated liquidation preference of the
outstanding Preferred Partner Interests (as defined in the Partnership
Agreement) shall convene such meeting.
(b) Upon receipt of notice of any meeting at which the holders of
Preferred Securities are entitled to vote, the Trustee shall, as soon as
practicable thereafter, mail to the Holders of Receipts a notice, which shall be
provided by the Grantor and which shall contain (i) such information as is
contained in such notice of meeting, (ii) a statement that the Holders of
Receipts at the close of business on a specified record date therefor will be
entitled, subject to any applicable provision of law or of the Partnership
Agreement, to instruct the Trustee as to the exercise of the voting rights
pertaining to the amount of Preferred Securities represented by their respective
Receipts, and (iii) a brief statement as to the manner in which such
instructions may be given. Upon the written request of a Holder of a Receipt on
such record date, the Trustee shall vote or cause to be voted the number of
Preferred Securities represented by the Receipts in accordance with the
instructions set forth in such request. In the absence of specific instructions
from the Holder of a Receipt, the Trustee will abstain from voting to the extent
of the Preferred Securities represented by such Receipt.
9. Changes Affecting Preferred Securities and Reclassifications,
Recapitalizations, Etc. Upon any consolidation, amalgamation, merger,
replacement, or conveyance, transfer or lease by the Grantor of its properties
and assets in their entirety in accordance with Section 13.02(e) of the
Partnership Agreement, the Trustee shall, upon the instructions of the Grantor,
treat any Successor Securities or other property that shall be received by the
Trustee in exchange for or upon conversion of or in respect of the Preferred
Securities as part of the Trust Estate, and Receipts then outstanding shall
thenceforth represent the proportionate interests of Holders thereof in the new
deposited property so received in exchange for or upon conversion or in respect
of such Preferred Securities.
10. Transfer and Exchange of Receipts. Subject to the terms and
conditions of the Trust Agreement, the Trustee shall register the transfer on
its books from time to time of Receipt certificates upon any surrender thereof
by the Holder in person or by a duly authorized attorney, properly endorsed or
accompanied by a properly executed instrument of transfer or endorsement,
together with evidence of the payment of any transfer taxes as may be required
by law. Upon such surrender,
A-4
<PAGE>
the Trustee shall execute a new Receipt representing the same aggregate number
of the Receipts surrendered in accordance with the Trust Agreement and deliver
the same to or upon the order of the Person entitled thereto.
Upon surrender of a Receipt at the Corporate Office or such other
office as the Trustee may designate for the purpose of effecting an exchange of
Receipt certificates, subject to the terms and conditions of the Trust
Agreement, the Trustee shall execute and deliver a new Receipt certificate
representing the same number of Preferred Securities as the Receipt certificate
surrendered.
As a condition precedent to the registration of transfer or exchange
of any Receipt certificate, the Registrar, may require (i) the production of
proof satisfactory to it as to the identity and genuineness of any signature;
and (ii) compliance with such regulations, if any, as the Trustee or the
Registrar may establish not inconsistent with the provisions of the Trust
Agreement.
Neither the Trustee nor the Registrar shall be required (a) to
register the transfer of or exchange any Receipt certificate for a period
beginning at the opening of business ten days next preceding any selection of
Receipts to be redeemed and ending at the close of business on the day of the
mailing a notice of redemption of Receipts or (b) to transfer or exchange of
Receipts called or being called for redemption in whole or in part.
11. Title to Receipts. It is a condition of the Receipt, and every
successive Holder hereof by accepting or holding the same consents and agrees,
that title to this Receipt certificate, when properly endorsed or accompanied by
a properly executed instrument of transfer or endorsement, is transferable by
delivery with the same effect as in the case of a negotiable instrument;
provided, however, that until the transfer of this Receipt certificate shall be
registered on the books of the Trustee, the Trustee may, notwithstanding any
notice to the contrary, treat the Holder hereof at such time as the absolute
owner hereof for the purpose of determining the Person entitled to distributions
or to any notice provided for in the Trust Agreement and for all other purposes.
12. Reports, Inspection of Transfer Books. The Trustee shall make
available for inspection by Holders of Receipts at the Corporate Office and at
such other places as it may from time to time deem advisable during normal
business hours any reports and communications received by the Trustee as the
record holder of Preferred Securities. The Registrar shall keep books at the
corporate office for the registration and
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<PAGE>
registration of transfer of Receipts, which books at all reasonable times will
be open for inspection by the record Holders of Receipts as and to the extent
provided by applicable law.
13. Supplemental Trust Agreement. The Grantor or the General Partner
may, and the Trustee shall, at any time and from time to time, without the
consent of the Holders, enter into one or more agreements supplemental hereto,
in form satisfactory to the Trustee, for any of the following purposes: (a) to
evidence the succession of another partnership, corporation or other entity to
the Grantor or the General Partner and the assumption by any such successor of
the covenants of the Grantor or the General Partner herein contained; or (b) to
add to the covenants of the Grantor or the General Partner for the benefit of
the Holders, or to surrender any right or power herein conferred upon the
Grantor or the General Partner; or (c)(i) to correct or supplement any provision
herein which may be defective or inconsistent with any other provision herein or
(ii) to make any other provisions with respect to matters or questions arising
under this Trust Agreement, provided that any such action taken under subsection
(ii) hereof shall not materially adversely affect the interests of the Holders;
or (d) to cure any ambiguity or correct any mistake. Any other amendment or
agreement supplemental hereto must be in writing and approved by Holders of
66-2/3% of the then-outstanding Trust Receipts.
14. Governing Law. The Trust Agreement and this Receipt and all rights
thereunder and hereunder and provisions thereof and hereof shall be governed by,
and construed in accordance with, the law of the State of Delaware without
giving effect to principles of conflict of laws.
15. Receipt Non-Assessable and Fully Paid. Holders of Receipts shall
not be personally liable for obligations of the Trust, the interest in the Trust
represented by the Receipts shall be non-assessable for any losses or expenses
of the Trust or for any reason whatsoever, and the Receipts upon delivery
thereof by the Trustee pursuant to the Trust Agreement are and shall be deemed
fully paid.
16. Liability of Holders of Receipts. Holders of Receipts shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
17. No Preemptive Rights. No Holder shall be entitled as a matter of
right to subscribe for or purchase, or have any preemptive right with respect
to, any part of any new or additional interest in the Trust, whether now or
hereafter
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<PAGE>
authorized and whether issued for cash or other consideration or by way of
distribution.
This Receipt certificate shall not be entitled to any benefits under
the Trust Agreement or be valid or obligatory for any purpose unless this
Receipt certificate shall have been executed manually or, if a Registrar for the
Receipts (other than the Trustee) shall have been appointed, by facsimile
signature of a duly authorized signatory of the Trustee and, if executed by
facsimile signature of the Trustee, shall have been countersigned manually by
such Registrar by the signature of a duly authorized signatory.
THE TRUSTEE IS NOT RESPONSIBLE FOR THE VALIDITY OF ANY PREFERRED
SECURITIES. THE TRUSTEE ASSUMES NO RESPONSIBILITY FOR THE CORRECTNESS OF THE
FOREGOING DESCRIPTION WHICH CAN BE TAKEN AS A STATEMENT OF THE GRANTOR
SUMMARIZING CERTAIN PROVISIONS OF THE TRUST AGREEMENT. THE TRUSTEE MAKES NO
WARRANTIES OR REPRESENTATIONS AS TO THE VALIDITY, GENUINENESS OR SUFFICIENCY OF
PREFERRED SECURITIES OR OF THE RECEIPTS; AS TO THE VALIDITY OR SUFFICIENCY OF
THE TRUST AGREEMENT; AS TO THE VALUE OF THE RECEIPTS OR AS TO ANY RIGHT, TITLE
OR INTEREST OF THE RECORD HOLDERS OF THE RECEIPTS IN AND TO THE RECEIPTS.
Dated:
PNC BANK, DELAWARE, as Trustee,
By_________________________________
Authorized Officer
Countersigned by
First Chicago Trust Company
of New York, as Transfer
Agent and Registrar
By_________________________________
Authorized Officer
A-7
<PAGE>
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto ____________________ the within Receipt and all rights and
interests represented by the Receipts evidenced thereby, and hereby irrevocably
constitutes and appoints ____________________ attorney, to transfer the same on
the books of the within-named Trustee, with full power of substitution in the
premises.
Dated:_________________ Signature:________________________
NOTE: The signature to this assignment
must correspond with the name as written
upon the face of the Receipt in every
particular, without alteration or
enlargement, or any change whatever.
Signature Guarantee:
_________________________________
A-8
Exhibit 12-1
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
RATIO OF EARNINGS TO FIXED CHARGES
SEC METHOD
($000)
12 Months Ended
12/31/95
NET INCOME $ 609,732
ADD BACK
- -INCOME TAXES:
OPERATING INCOME 396,897
NON-OPERATING INCOME 34,820
NET TAXES $ 431,717
- -FIXED CHARGES:
INTEREST APPLICABLE TO DEBT $ 408,904
ANNUAL RENTALS ESTIMATE 9,981
TOTAL FIXED CHARGES $ 418,885
ADJUSTED EARNINGS INCLUDING AFUDC $1,460,334
RATIO OF EARNINGS TO FIXED CHARGES 3.49
Exhibit 12-2
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS REQUIREMENTS
SEC METHOD
($000)
12 Months Ended
12/31/95
NET INCOME $ 609,732
ADD BACK
- -INCOME TAXES:
OPERATING INCOME 396,897
NON-OPERATING INCOME 34,820
NET TAXES $ 431,717
- -FIXED CHARGES:
TOTAL INTEREST $ 408,904
ANNUAL RENTALS ESTIMATE 9,981
TOTAL FIXED CHARGES $ 418,885
EARNINGS REQUIRED FOR PREFERRED DIVIDENDS:
DIVIDENDS ON PREFERRED STOCK $ 23,217
ADJUSTMENT TO PREFERRED DIVIDENDS $ 16,439
$ 39,656
FIXED CHARGES AND PREFERRED DIVIDENDS $ 458,541
EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES $1,460,334
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND 3.18
EARNINGS REQUIRED FOR PREFERRED DIVIDENDS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Earnings and Dividends
1995 Compared to 1994
Earnings per common share in 1995 were $2.64 compared to $1.76 in 1994. The
increase in earnings was primarily due to a one-time charge of $0.66 per share
in the third quarter of 1994 associated with the Company's Voluntary Retirement
Incentive Program (VRIP) and Voluntary Separation Incentive Program (VSIP).
Earnings also increased by $0.22 per share due to increased electric sales, by
$0.19 per share due to the Company's ongoing emphasis on cost control, by $0.12
per share due to the gain on the sale of Conowingo Power Company (COPCO), and by
$0.04 per share due to reduced financing costs. These increases were partially
offset by $0.14 per share due to additional costs incurred as a result of the
shutdown of Salem Generating Station (Salem), by $0.14 per share due to
increased taxes and by $0.07 per share due to revenues recorded in 1994 from the
receipt of nuclear fuel from Shoreham Generating Station (Shoreham).
The Company increased its annual common stock dividend by 7.4% to $1.74 per
share, effective with the dividend paid in December 1995.
Operating Revenues
Increases/(decreases) in electric sales and operating revenues by class of
customer for 1995 compared to 1994 are set forth below:
Electric Sales Electric Revenues
Millions of kWh Millions of $
Residential 43 $ 31
Small Commercial and
Industrial 191 32
Large Commercial and
Industrial 129 4
Other 69 1
----- ------
Service Territory 432 68
Interchange Sales (272) (5)
Sales to Other Utilities 4,002 88
----- ------
Total 4,162 $ 151
===== ======
Electric revenues increased $151 million in 1995 compared to 1994 primarily due
to increased sales to other utilities and higher retail sales due to favorable
weather in the third and fourth quarters of 1995. The increase in electric
revenues from residential sales was also attributable to higher fuel-clause
revenues resulting from yearly changes in the Company's Energy Cost Adjustment
(ECA).
Gas revenues decreased $5 million in 1995 compared to 1994 primarily due to
lower interruptible sales and sales of gas to the Company's electric generating
units because of reduced spot market rates. This decrease was partially offset
by higher fuel-clause revenues and increased transportation revenues related to
higher levels of gas transported for customers purchasing their own gas on the
spot market.
Fuel and Energy Interchange Expense
Fuel and energy interchange expense increased $59 million in 1995 compared to
1994 primarily due to increased output needed to meet service-territory customer
demand, higher levels of sales to other utilities and replacement power costs
required by the shutdown of Salem. These increases were partially offset by net
credits to expense from the retention by the Company of a share of the energy
savings resulting from the operation of Limerick Generating Station (Limerick)
and from certain energy sales to other utilities. The increases were further
offset by lower purchased gas costs resulting from reduced output.
Other Operating and Maintenance Expenses
Other operating and maintenance expenses decreased by $268 million in 1995
compared to 1994 primarily due to the one-time charge in 1994 associated with
VRIP and VSIP. The decrease was also due to other continuing cost-control
efforts, including the savings associated with VRIP and VSIP, lower customer
expenses as a result of improved collection processes and lower nuclear
generating station charges resulting from shorter refueling and maintenance
outages at Company-owned nuclear generating units. These decreases were
partially offset by increased process reengineering costs and maintenance
expenses at Salem.
Depreciation Expense
Depreciation expense increased in 1995 compared to 1994 primarily due to
additions to plant in service.
Income Taxes
Income taxes charged to operations increased $163 million in 1995 compared to
1994 primarily due to increases in operating income.
Allowance for Funds Used During Construction
Allowance for Funds Used During Construction (AFUDC) increased in 1995 compared
to 1994 primarily due to an increase in the 1995 AFUDC rate.
Other Income and Deductions
Other income and deductions increased $16 million in 1995 compared to 1994
primarily due to the gain recognized on the sale of COPCO, partially offset by
revenues recorded in 1994 from the receipt of nuclear fuel from Shoreham.
Total Interest Charges
Total interest charges increased primarily due to the July 1994 issuance of
Monthly Income Preferred Securities, Series A (recorded in the financial
statements as Company Obligated Mandatorily Redeemable Preferred Securities of a
Partnership, which holds Solely Subordinated Debentures of the Company).
Preferred Stock Dividends
Preferred stock dividends decreased primarily due to redemptions of preferred
stock in the third quarter of 1994 with the proceeds from the issuance of
Monthly Income Preferred Securities, Series A.
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<PAGE>
1994 Compared to 1993
Earnings per common share in 1994 were $1.76 compared to $2.45 in 1993. The
decrease in earnings was primarily due to a one-time charge of $0.66 per share
associated with VRIP and VSIP. Also contributing to the decrease in earnings
were other strategic and non-recurring operating and maintenance charges which
decreased 1994 earnings by $0.13 per share. These decreases were partially
offset by savings from the Company's ongoing debt and preferred stock
refinancing and redemption program, which increased earnings by $0.14 per share.
Operating Revenues
Increases/(decreases) in electric sales and operating revenues by class of
customer for 1994 compared to 1993 are set forth below:
Electric Sales Electric Revenues
Millions of kWh Millions of $
Residential 160 $ 15
Small Commercial and
Industrial 335 28
Large Commercial and
Industrial (88) (21)
Other 20 (25)
----- ------
Service Territory 427 (3)
Interchange Sales 311 9
Sales to Other Utilities 1,369 13
----- ------
Total 2,107 $ 19
===== ======
Electric revenues increased $19 million in 1994 compared to 1993 primarily due
to increased sales to other utilities and increased interchange sales. These
increases were partially offset by lower revenue margins obtained on these
sales.
Gas revenues increased $33 million in 1994 compared to 1993 primarily due to
higher fuel-clause revenues.
Fuel and Energy Interchange Expense
Fuel and energy interchange expense increased $44 million in 1994 compared to
1993 primarily due to increased electric output associated with interchange
sales and increased sales to other utilities. A portion of this increase was
deferred pending regulatory action. The increase was also attributable to an
increase in gas fuel costs.
Other Operating and Maintenance Expenses
Other operating and maintenance expenses increased $304 million in 1994 compared
to 1993 primarily due to a one-time, pre-tax charge of $254 million in the third
quarter of 1994 for VRIP and VSIP. In addition, other operating and maintenance
expenses increased due to higher environmental, customer and employee-related
charges, and other strategic and non-recurring operating and maintenance
charges. These increases were partially offset by lower generating station
charges resulting from fewer and shorter refueling and maintenance outages.
Depreciation Expense
Depreciation expense increased in 1994 compared to 1993 due to additions to
plant in service.
Income Taxes
Income taxes charged to operations decreased in 1994 compared to 1993 primarily
due to the charge for VRIP and VSIP and lower operating income. These decreases
were partially offset by lower interest expense allocated to operations.
Other Taxes
Other taxes increased in 1994 compared to 1993 primarily due to an increase in
the real estate tax base and increased Pennsylvania gross receipts tax resulting
from higher operating revenues.
Allowance for Funds Used During Construction
AFUDC decreased in 1994 compared to 1993 primarily due to a decrease in the 1994
AFUDC rate, partially offset by an increase in Construction Work in Progress.
Total Interest Charges
Total interest charges decreased in 1994 compared to 1993 primarily due to the
Company's ongoing program to refinance and redeem higher-cost, long-term debt.
Preferred Stock Dividends
Preferred stock dividends decreased in 1994 compared to 1993 primarily due to
the reduced number of preferred shares outstanding and the refinancing of
higher-cost preferred stock.
Liquidity and Capital Resources
The Company's capital resources are primarily provided by internally generated
cash flows from utility operations and, to the extent necessary, external
financing. Such capital resources are generally used to fund the Company's
construction program, to repay outstanding debt and to make preferred and common
stock dividend payments.
In 1995 and each of the preceding five years, internally generated cash exceeded
the Company's capital requirements and dividend payments, thereby improving the
Company's financial condition. Contributing to the Company's improved cash
position were a reduction in interest expense and dividend requirements
associated with the Company's ongoing program to reduce debt and refinance
higher-cost, long-term debt and preferred stock, and increased revenues from the
sale of capacity and energy to other utilities. Net cash provided by operating
activities for 1995 was $1.3 billion. For the period 1996 through 1999, the
Company expects that internally generated cash will exceed its capital and
dividend requirements.
The Company expects its level of capital investment in utility plant to remain
relatively stable since it has sufficient electric generating capacity to meet
the anticipated needs of its service territory well into the next decade. The
Company also expects to fund all new business initiatives through internally
generated funds. Construction program expenditures for 1995 were $480 million
and are estimated to be $538 million in 1996 and $1.2 billion for the period
1997 to 1999. As a result of its prior investments in scrubbers for Eddystone
and Cromby Generating Stations and its investment in nuclear generating
capacity, the Company believes that com-
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<PAGE>
pliance with the Clean Air Act will have significantly less impact on the
Company's capital requirements than on other Pennsylvania utilities which are
more dependent on coal-fired generation. Certain facilities under construction
and to be constructed may require permits and licenses which the Company has no
assurance will be granted.
During 1995, the Company utilized cash from operations, proceeds from the sale
of COPCO and $100 million from the sale of an undivided interest in trade
receivables to reduce the Company's debt by $401 million. Also during 1995, $349
million of long-term debt and Company obligated mandatorily redeemable preferred
securities of a partnership were sold or exchanged to refund debt and preferred
stock carrying less-favorable after-tax rates of interest and dividends. These
transactions resulted in a reduction of approximately $33 million in annualized
interest and preferred stock dividends.
The Company meets its short-term liquidity requirements primarily through the
issuance of commercial paper, borrowings under a revolving credit agreement and
bank lines of credit. The Company did not have any commercial paper or
short-term debt outstanding at December 31, 1995.
At December 31, 1995, the Company's embedded cost of debt was 7.1% with 14.5% of
the Company's long-term debt having floating rates. The coverage ratios under
the Company's mortgage indenture and Amended and Restated Articles of
Incorporation as of December 31, 1995, were 4.94 and 2.74 times, respectively,
compared with minimum issuance requirements of 2.00 and 1.50 times,
respectively. The Company believes that its internal sources of funds will be
sufficient to cover its fixed charges for 1996.
As of December 31, 1995, the Company's capital structure consisted of 46.6%
common equity; 6.1% preferred stock and Company obligated mandatorily redeemable
preferred securities of a partnership (which comprised 3.1% of the Company's
total capitalization structure); and 47.3% long-term debt. The Company's capital
structure as of December 31, 1994, consisted of 43.5% common equity; 6.0%
preferred stock and Company obligated mandatorily redeemable preferred
securities of a partnership (which comprised 2.2% of the Company's total
capitalization structure); and 50.5% long-term debt.
Outlook
The Company's financial condition and its future operating results are dependent
on a number of factors affecting the Company and the utility industry in
general. Among these factors are increased competition in electric and gas
markets, regulation and operation of nuclear generating facilities, sales to
other utilities, accounting issues and other factors including weather and
compliance with environmental regulations.
Due to the Company's substantial investment in Limerick, which represents 54% of
the Company's investment in electric plant, any regulatory changes which do not
provide for the recovery of the Company's investment in Limerick could result in
substantial write-downs of assets. This may adversely affect the Company's
financial condition and future results of operations.
Competition
Over the last few years, legislative and regulatory initiatives and market
forces have laid the foundation for the continued development of competition in
the electric utility industry. As a result, the electric utility industry is
reviewing the potential impacts of a major transition from a traditional rate
regulated environment based on cost recovery to some combination of a
competitive marketplace and modified regulation of certain market segments.
Although a competitive environment may create new opportunities for revenue
growth, it may also reduce the margin on certain classes of energy sales and may
result in customer and revenue losses. Increased competition may limit high-cost
utilities' ability to recover capital investment through rates, resulting in
stranded investment and the potential write-down of assets. Potential
competition has resulted in increased focus on cost-cutting and consideration of
strategic alternatives, including mergers and restructuring of operations.
The Energy Policy Act of 1992 (Energy Act) was enacted to promote competition
among utility and nonutility generators in the wholesale electric generation
market. The Energy Act allows the Federal Energy Regulatory Commission (FERC) to
order owners of electric transmission systems to provide third parties with
transmission access for wholesale power transactions. During 1995, the FERC
issued proposed rules which, if adopted, would require that all public utilities
have on file with the FERC nondiscriminatory open-access transmission tariffs
for network and point-to-point services, including separate rates for ancillary
services. The FERC's proposed rules would also provide for recovery of
legitimate and verifiable wholesale stranded investment. These proposals further
expressed the FERC's strong expectation that state regulatory commissions
provide for similar full recovery of legitimate and verifiable stranded
investment that could result if state regulatory commissions ordered retail
competition and direct access. The Company filed comments in response to the
FERC's proposal. The comments, while generally supportive, suggested several
adjustments to ensure full stranded investment recovery. An order from the FERC
is expected in the first half of 1996.
The Company also filed a tariff for network and point-to-point services and a
market-based rate tariff that would allow the Company to sell wholesale energy
at market-based rates outside the Pennsylvania-New Jersey-Maryland
Interconnection Association (PJM) control area. These tariffs would be available
to wholesale buyers and sellers of electricity, although the Company would
continue to make sales within the PJM control area under its existing
FERC-approved cost-based tariffs. The market-based rate tariff is not expected
to affect the applicability of Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," to
the Company's operations.
During 1995, the Company proposed other initiatives to the FERC, including a
plan to increase wholesale electric competition in the Mid-Atlantic region
served by the PJM. The objectives of the Company's plan are to enable the PJM
companies to offer comparable open access to their transmission facilities, to
adapt the existing PJM regional wholesale energy market to increased
competition, and to preserve those elements of power pooling which are still
beneficial.
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<PAGE>
While the Energy Act encourages competition on a wholesale level, the Energy Act
prohibits the FERC from ordering wheeling for sales to retail customers.
Currently, a number of states, including Pennsylvania, are assessing the issue
of retail competition with varying outcomes. For instance, California has
aggressively promoted the concept of retail competition while Maryland has
stated that it is strongly opposed to such measures. While assessing their
position, many issues must be considered which will require significant
deliberation and may result in legal challenges. These issues include the
recovery of any resulting stranded investment, the impact of interjurisdictional
sales and whether such change is enacted by regulatory or legislative action.
In August 1995, after seeking input from Pennsylvania utilities and interest
groups, the Pennsylvania Public Utility Commission (PUC) staff issued a report
recommending against retail electric power competition at this time. The PUC
also issued an order inviting further comments and establishing hearings on
competition issues with the expectation of submitting a report to the
Pennsylvania legislature and the Governor in the second quarter of 1996. In
November 1995, the Company submitted testimony which proposes five major
initiatives to reduce the costs of electricity while preserving the reliability
and universal service that is essential to Pennsylvania citizens. These
initiatives are: 1) improvements in the PJM interconnection to incorporate an
independent system operator, provide for wholesale energy exchange based on a
market bidding mechanism, provide a regional transmission tariff, and expand
participation in the wholesale energy market to others, including firms that are
not traditional utilities; 2) performance-based regulation to increase utility
accountability by linking utility earnings to performance rather than historic
costs; 3) flexible pricing to allow utilities to offer customers a variety of
service options tailored to individual requests, and to bring certain rates
closer to market levels; 4) accelerated depreciation and other cost mitigation
measures that challenge the utilities to reduce possible stranded investment
associated with existing generation assets; and 5) competitive bidding of new
generation to ensure that needs are met as efficiently as possible. The Company
believes that these proposed initiatives will allow the PUC to improve the
efficiency of the electric industry, while continuing to assure the availability
of reliable service for all customers at reasonable rates, without significant
adverse consequences on the financial condition of electric utilities.
The Company believes that retail competition should not be adopted if it
represents a mere shifting of costs from one class of customers to another or to
shareholders, and that retail competition does not currently provide a net
benefit. Regulatory changes permitting retail competition may also create
stranded investment if the FERC's position of allowing full recovery of stranded
investment as described in its proposal is not adopted. Investments by the
Company in assets which would not be recoverable from customers, including its
investment in nuclear facilities, may have to be written down, which would have
a material adverse effect on the Company's financial condition and results of
operations. The Company is not able to predict whether retail competition will
be implemented and, if implemented, what impact it would have on the Company's
financial condition or results of operations.
The gas industry is also undergoing structural changes in response to FERC
policies designed to increase competition in this market. This has included
requirements that interstate gas pipelines unbundle their gas sales service from
other regulated tariff services, such as transportation and storage. In
anticipation of these policies, the Company has modified its gas purchasing
arrangements to enable the purchase of gas and transportation at lower cost, and
has become more active in the area of gas transportation.
In 1995, the Company introduced to regulators and industry analysts its
Competitive Breakthrough Strategy, which is an integrated strategy designed to
improve the efficiency, financial condition and rate stability of the Company
through a broad array of initiatives, including but not limited to,
reengineering of processes, expense reduction and containment, development of
new revenue opportunities, reduction of exposure to asset write-downs and
reduction of existing debt.
As part of its Competitive Breakthrough Strategy, in October 1995, the Company
filed a petition for a declaratory accounting order with the PUC requesting
approval to increase Limerick-related depreciation and amortization by $100
million per year and decrease depreciation and amortization of other Company
assets by approximately $10 million per year, effective October 1, 1996. The
requested order would not affect rates charged to customers. The Company
expects, but cannot be assured, that the net increased depreciation and
amortization would be offset by the reduced costs and increased revenues
generated by the Company's Competitive Breakthrough Strategy. For further
details see note 3 of Notes to Consolidated Financial Statements.
The Company has realized wage and benefit savings of approximately $60 million
in 1995 as a result of the Company's VRIP and VSIP. The Company expects VRIP and
VSIP to provide savings in wages and benefits to the Company of approximately
$100 million annually beginning in 1996.
To take advantage of emerging opportunities in the telecommunications field, in
1995, the Company's Board of Directors created a new strategic business unit,
the Telecommunications Group. The business unit has initiated several joint
ventures in newly emerging wireless personal communications services businesses
and other competitive telecommunications opportunities. The telecommunications
field presents the Company with many opportunities to expand its business,
generate additional revenue and provide greater shareholder value. The Company
possesses a highly skilled technical staff and a substantial infrastructure
which will enable it to successfully participate in the ever-changing
telecommunications industry.
As a result of competitive pressures, the Company has negotiated long-term
contracts with many of its larger-volume industrial customers. Although these
agreements have resulted in lower revenues from this class of customers, they
have permitted the Company to maintain this segment of its customer base.
During 1995, there were an unprecedented number of mergers in the utility
industry and this trend is expected to continue. In August 1995, the Company
proposed a merger with PP&L Resources, Inc., an electric utility with operations
in northeast Pennsylvania. In November, PP&L Resources declined the Company's
final offer and the Company withdrew its proposal. The Company will continually
evaluate all
16
<PAGE>
opportunities to improve its strategic and competitive position but, because of
its strong stand-alone position, is not compelled to pursue such opportunities
at any cost.
Regulation and Operation of Nuclear Generating Facilities
The Company's financial condition and results of operations are in part
dependent on the continued successful operation of its nuclear generating
facilities. The Company's nuclear generating facilities represent approximately
45% of its installed generating capacity. Because of the Company's substantial
investment in and reliance on its nuclear generating units, any changes in
regulations by the Nuclear Regulatory Commission (NRC) requiring additional
investments or resulting in increased operating costs of nuclear generating
units could adversely affect the Company.
During 1995, Company-operated nuclear plants operated at an 88% weighted-average
capacity factor and Company-owned nuclear plants, including Salem, operated at a
72% weighted-average capacity factor and produced 50% of the Company's output
including purchased power. Nuclear generation is the most cost-effective way for
the Company to meet customer needs and commitments for sales to other utilities.
Continued operation of the nuclear plants above 60% of capacity is necessary to
avoid penalties under the ECA. In addition, the terms of the 1991 settlement of
the Limerick Unit No. 2 rate case afford the Company the opportunity, through
sales to other utilities and the efficient operation of Limerick, to increase
earnings. See note 3 of Notes to Consolidated Financial Statements for a
description of the ECA and the terms of the Limerick Unit No. 2 rate case
settlement.
Public Service Electric and Gas Company (PSE&G), the operator of Salem Units No.
1 and No. 2, which are 42.59% owned by the Company, removed the units from
service on May 16, 1995 and June 7, 1995, respectively. PSE&G informed the NRC
at that time that it had determined to keep the Salem units shut down pending
review and resolution of certain equipment and management issues, and NRC
agreement that each unit is sufficiently prepared to restart. Salem Units No. 1
and No. 2 are expected to be out of service until the second and third quarters
of 1996, respectively. The Company expects to incur and expense at least $85
million in 1996 for increased costs related to the shutdown. Under Pennsylvania
law, the PUC may investigate outages of electric generating units which exceed
120 days or if the annual capacity factor is less than 50% to determine whether
to deny the recovery of replacement power costs. See note 24 of Notes to
Consolidated Financial Statements.
The Financial Accounting Standards Board is currently reviewing the accounting
for closure and removal costs of production facilities including the
recognition, measurement and classification of decommissioning costs for nuclear
generating stations, and will issue an Exposure Draft in 1996. The Company will
review the Exposure Draft to determine the effect on its financial condition and
results of operations. See note 4 of Notes to Consolidated Financial Statements.
The Company may seek to recover through rates capital costs and any increased
operating costs, including those associated with NRC regulation of the Company's
nuclear generating stations and environmental compliance and remediation,
although such recovery is not assured. To the extent that such amounts are not
recovered, they would be charged against income.
Sales to Other Utilities
At December 31, 1995, the Company had 1,199 megawatts (MW) of installed
generating capacity available for sales to other utilities. In the ordinary
course of business, the Company enters into commitments to buy and sell power.
During 1995, the Company entered into an agreement to purchase energy associated
with 300 MW from 1996 through 2000 from an unaffiliated utilitiy. The Company's
future results of operations are dependent in part on its ability to
successfully market this generation. See note 4 of Notes to Consolidated
Financial Statements.
In the wholesale market, the Company has increased its sales to other utilities,
but increased competition has reduced the Company's margin on these sales. The
Company has agreements with other utilities to sell energy and/or capacity. The
Company has long-term agreements over the next five years with unaffiliated
utilities to sell energy associated with 1,185 MW of capacity. These power sales
agreements extend from 1996 to 2023. The Company expects these wholesale sales
to generate approximately $300 million of revenue in 1996.
Accounting Issues
The Company continues to account for its operations in accordance with SFAS No.
71 which is appropriate for companies that meet three criteria in order to
account for the economic impacts of rate regulation: 1) third-party regulation
of rates; 2) cost-based rates; and 3) a reasonable assumption that costs will be
recoverable from customers through rates. Discontinuance of SFAS No. 71 would
result in a charge against income from the elimination of regulatory assets
created by the regulatory process as well as certain plant costs that may no
longer be recoverable. The impact of such events could have a material adverse
effect on the Company's financial condition and results of operations. Continued
application of SFAS No. 71 is periodically assessed by the Company.
At December 31, 1995, the Company had deferred on its balance sheet certain
regulatory assets for which recovery has been approved by the PUC. These
regulatory assets include $300 million associated with Limerick Units No. 1 and
No. 2, $248 million associated with the Company's non-pension postretirement
benefits and $2.0 billion associated with recoverable deferred income taxes. For
more details on these regulatory assets see notes 3, 7 and 14 of Notes to
Consolidated Financial Statements.
At December 31, 1995, the Company had deferred on its balance sheet certain
regulatory assets for which current recovery has not yet been approved. Any
deferred costs that are not ultimately recovered through base rates would be
charged against income. These regulatory assets include $107 million for the
effect on deferred income taxes of the change in the statutory federal income
tax rate from 34% to 35% in 1993, and $91 million of operating and maintenance
expenses, depreciation and accrued carrying charges on its investment in
Limerick Unit No. 2 and 50% of Limerick common facilities, deferred pursuant to
a Declaratory Order of the PUC. See notes 3 and 14 of Notes to Consolidated
Financial Statements. These and other regulatory assets are deferred pursuant to
PUC action. In October 1995, the Company filed a petition for a declaratory
accounting order
17
<PAGE>
with the PUC requesting approval to, among other things, amortize $91 million of
operating and maintenance expenses, depreciation and accrued carrying charges on
its investment in Limerick Unit No. 2 and 50% of Limerick common facilities. The
petition requests that these deferred costs be amortized over a nine-year period
beginning October 1996. The requested order would not affect customer rates.
The Company will adopt SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," in the first
quarter of 1996. Upon adoption, the Company does not expect SFAS No. 121 to have
an effect upon the Company's financial condition or results of operations.
Significant changes in the regulatory environment, abandonment of cost-based
rates, or losses of major customers that result in stranded investment are
events that may necessitate a review of the Company's assets for impairment.
The Company will adopt SFAS No. 123, "Accounting for Stock-Based Compensation,"
in the first quarter of 1996, but will continue to use the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," supplemented by SFAS No. 123's
required footnote disclosures. Adoption of SFAS No. 123 will not have an effect
upon the Company's financial condition or results of operations.
Other Factors
Annual and quarterly operating results can be significantly affected by weather.
Inflation affects the Company through increased operating costs and increased
capital costs for utility plant. During periods of high inflation, the Company
could be adversely affected if it is unable to offset increasing costs with
improved productivity or rate increases. In addition, the replacement costs of
the Company's utility plant are significantly higher than the historical costs
reflected in the financial statements. The Company has agreed not to seek a
retail electric base rate increase before April 1, 1999, except under specified
circumstances. Therefore, the effects of future inflation and other potential
cost increases may not be subject to rate recovery. See note 3 of Notes to
Consolidated Financial Statements.
The Company's operations have in the past and may in the future require
substantial capital expenditures in order to comply with environmental laws.
Additionally, 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 and of property contaminated by
hazardous substances generated by the Company. The Company owns or leases a
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.
The Company has identified 23 sites where former 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 various levels of activities at these sites, including
initial evaluation to determine the existence and nature of the contamination,
detailed evaluation to determine the extent of the contamination and the
necessity and possible methods of remediation, and implementation of
remediation. Seven of the sites are currently in the detailed evaluation or
remediation stage.
As of December 31, 1995 and 1994, the Company had accrued $27 and $24 million,
respectively, for environmental investigation and remediation costs that
currently can be reasonably estimated. The Company expects to expend $8 million
for such activities in 1996. The Company cannot currently predict whether it
will incur other significant liabilities for any additional investigation and
remediation costs at these or additional sites identified by the Company,
environmental agencies or others, or whether all such costs will be recoverable
through rates or from third parties.
For a discussion of other contingencies, see notes 3 and 4 of Notes to
Consolidated Financial Statements.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
PECO Energy Company:
We have audited the accompanying consolidated balance sheets of PECO Energy
Company and Subsidiary Companies as of December 31, 1995 and 1994, and the
related consolidated statements of income, cash flows, and changes in common
shareholders' equity and preferred stock for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PECO Energy
Company and Subsidiary Companies as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Coopers & Lybrand LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 2,1996
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
Thousands of Dollars
<S> <C> <C> <C>
Operating Revenues
Electric $ 3,775,326 $ 3,624,797 $ 3,605,425
Gas 410,830 415,835 382,704
----------- ----------- -----------
Total Operating Revenues 4,186,156 4,040,632 3,988,129
----------- ----------- -----------
Operating Expenses
Fuel and Energy Interchange 762,762 703,590 659,580
Other Operating 943,476 937,849 851,254
Early Retirement and Separation
Programs -- 254,106 --
Maintenance 307,797 327,714 364,409
Depreciation 457,254 442,101 424,952
Income Taxes 396,897 234,033 354,391
Other Taxes 314,071 311,689 298,132
----------- ----------- -----------
Total Operating Expenses 3,182,257 3,211,082 2,952,718
----------- ----------- -----------
Operating Income 1,003,899 829,550 1,035,411
----------- ----------- -----------
Other Income and Deductions
Allowance for Other Funds Used
During Construction 14,371 10,180 11,885
Gain on Sale of Subsidiary 58,745 -- --
Income Taxes (34,820) (15,291) (11,808)
Other, net (444) 23,121 11,980
----------- ----------- -----------
Total Other Income and Deductions 37,852 18,010 12,057
----------- ----------- -----------
Income Before Interest Charges 1,041,751 847,560 1,047,468
----------- ----------- -----------
Interest Charges
Long-Term Debt 386,205 387,279 432,707
Company Obligated Mandatorily Redeemable
Preferred Securities of a Partnership, which
holds Solely Subordinated Debentures of the
Company 20,987 8,570 --
Short-Term Debt 37,506 36,987 36,002
----------- ----------- -----------
Total Interest Charges 444,698 432,836 468,709
Allowance for Borrowed Funds Used During
Construction (12,679) (11,989) (11,889)
----------- ----------- -----------
Net Interest Charges 432,019 420,847 456,820
----------- ----------- -----------
Net Income 609,732 426,713 590,648
Preferred Stock Dividends 23,217 37,298 49,058
----------- ----------- -----------
Earnings Applicable to Common Stock $ 586,515 $ 389,415 $ 541,590
=========== =========== ===========
Average Shares of Common Stock
Outstanding (Thousands) 221,859 221,554 221,072
=========== =========== ===========
Earnings per Average Common Share (Dollars) $ 2.64 $ 1.76 $ 2.45
=========== =========== ===========
Dividends per Common Share (Dollars) $ 1.65 $ 1.545 $ 1.43
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
Thousands of Dollars
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 609,732 $ 426,713 $ 590,648
Adjustments to reconcile Net Income to Net Cash
provided by Operating Activities:
Depreciation and Amortization 531,299 517,681 507,069
Deferred Income Taxes 183,514 (23,306) 139,846
Gain on Sale of Subsidiary (58,745) -- --
Early Retirement and Separation Programs -- 254,106 --
Deferred Energy Costs (71,104) (33,205) (24,308)
Amortization of Leased Property 42,900 61,900 58,400
Changes in Working Capital:
Accounts Receivable (8,198) 23,508 31,102
Inventories (10,872) 18,210 11,222
Accounts Payable (4,686) 5,342 777
Other Current Assets and Liabilities 9,641 52,940 (34,694)
Other Items affecting Operations 40,649 (9,175) (18,287)
----------- ----------- -----------
Net Cash Flows from Operating Activities 1,264,130 1,294,714 1,261,775
----------- ----------- -----------
Cash Flows from Investing Activities
Investment in Plant (577,908) (570,903) (568,076)
Proceeds from Sale of Subsidiary 150,000 -- --
Increase in Other Investments (60,541) (17,951) (16,214)
----------- ----------- -----------
Net Cash Flows from Investing Activities (488,449) (588,854) (584,290)
----------- ----------- -----------
Cash Flows from Financing Activities
Change in Short-Term Debt (11,499) (107,851) 8,850
Issuance of Common Stock 15,585 2,308 29,346
Issuance of Preferred Stock -- -- 142,700
Retirement of Preferred Stock (78,105) (238,800) (187,330)
Issuance of Company Obligated Mandatorily Redeemable
Preferred Securities of a Partnership 81,032 221,250 --
Issuance of Long-Term Debt 182,540 245,100 1,994,765
Retirement of Long-Term Debt (575,713) (397,763) (2,148,963)
Loss on Reacquired Debt 12,302 22,125 (69,884)
Dividends on Preferred and Common Stock (390,340) (377,883) (366,081)
Change in Dividends Payable 5,626 (3,249) (1,114)
Expenses of Issuing Long-Term Debt and Preferred Stock (577) (9,150) (24,820)
Capital Lease Payments (42,900) (61,900) (58,400)
----------- ----------- -----------
Net Cash Flows from Financing Activities (802,049) (705,813) (680,931)
----------- ----------- -----------
(Decrease)/Increase in Cash and Cash Equivalents (26,368) 47 (3,446)
Cash and Cash Equivalents at beginning of period 46,970 46,923 50,369
----------- ----------- -----------
Cash and Cash Equivalents at end of period $ 20,602 $ 46,970 $ 46,923
=========== =========== ===========
</TABLE>
21
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31, 1995 1994
Thousands of Dollars
<S> <C> <C>
Assets
Utility Plant, at Original Cost
Electric $ 13,441,880 $ 13,283,888
Gas 954,180 895,946
Common 299,899 234,769
------------ ------------
14,695,959 14,414,603
Less Accumulated Provision for Depreciation 4,623,707 4,242,576
------------ ------------
10,072,252 10,172,027
Nuclear Fuel, net 191,084 184,161
Construction Work in Progress 494,194 472,512
Leased Property, net 180,425 174,565
------------ ------------
Net Utility Plant 10,937,955 11,003,265
------------ ------------
Current Assets
Cash and Temporary Cash Investments 20,602 46,970
Accounts Receivable, net
Customers 75,220 96,987
Other 71,997 49,854
Inventories, at average cost
Fossil Fuel 78,260 72,732
Materials and Supplies 123,387 118,230
Deferred Energy Costs 55,883 (15,486)
Other 60,868 58,069
------------ ------------
Total Current Assets 486,217 427,356
------------ ------------
Deferred Debits and Other Assets
Recoverable Deferred Income Taxes 2,077,426 2,138,079
Deferred Limerick Costs 390,433 413,885
Deferred Non-Pension Postretirement Benefits Costs 248,085 261,912
Investments 296,948 236,587
Loss on Reacquired Debt 308,577 320,879
Other 214,979 263,308
------------ ------------
Total Deferred Debits and Other Assets 3,536,448 3,634,650
------------ ------------
Total Assets $ 14,960,620 $ 15,065,271
============ ============
</TABLE>
22
<PAGE>
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
At December 31, 1995 1994
Thousands of Dollars
<S> <C> <C>
Capitalization and Liabilities
Capitalization
Common Shareholders' Equity
Common Stock $ 3,506,313 $ 3,490,728
Other Paid-In Capital 1,326 1,271
Retained Earnings 1,023,708 810,507
------------ ------------
4,531,347 4,302,506
Preferred and Preference Stock
Without Mandatory Redemption 199,367 277,472
With Mandatory Redemption 92,700 92,700
Company Obligated Mandatorily Redeemable Preferred
Securities of a Partnership, which holds Solely
Subordinated Debentures of the Company 302,282 221,250
Long-Term Debt 4,198,283 4,785,631
------------ ------------
Total Capitalization 9,323,979 9,679,559
------------ ------------
Current Liabilities
Notes Payable, Bank -- 11,499
Long-Term Debt Due Within One Year 401,003 201,213
Capital Lease Obligations Due Within One Year 60,320 60,476
Accounts Payable 299,731 308,832
Taxes Accrued 107,621 87,185
Deferred Income Taxes 17,072 (12,002)
Interest Accrued 88,047 93,159
Dividends Payable 20,722 15,096
Other 82,775 85,649
------------ ------------
Total Current Liabilities 1,077,291 851,107
------------ ------------
Deferred Credits and Other Liabilities
Capital Lease Obligations 120,105 114,089
Deferred Income Taxes 3,312,649 3,225,915
Unamortized Investment Tax Credits 351,569 374,100
Pension Obligation for Early Retirement Plans 216,283 238,250
Non-Pension Postretirement Benefits Obligation 326,251 354,458
Other 232,493 227,793
------------ ------------
Total Deferred Credits and Other Liabilities 4,559,350 4,534,605
------------ ------------
Commitments and Contingencies (Notes 3 and 4)
Total Capitalization and Liabilities $ 14,960,620 $ 15,065,271
============ ============
</TABLE>
23
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY AND
PREFERRED STOCK
<TABLE>
<CAPTION>
Other
Common Stock Paid-In Retained Preferred Stock
All Amounts in Thousands Shares Amount Capital Earnings Share Amount
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 220,534 $3,459,131 $1,214 $561,824 6,536 $653,602
Net Income 590,648
Cash Dividends Declared
Preferred Stock
(at specified annual rates) (49,919)
Common Stock ($1.43 per share) (316,162)
Expenses of Capital Stock Activity (5,625)
Capital Stock Activity
Long-Term Incentive Plan Issuances 983 29,346 (7,039)
Preferred Stock Issuances 1,427 142,700
Preferred Stock Redemptions (1,873) (187,330)
------- ---------- ------ -------- ----- --------
Balance at December 31, 1993 221,517 3,488,477 1,214 773,727 6,090 608,972
Net Income 426,713
Cash Dividends Declared
Preferred Stock
(at specified annual rates) (35,706)
Common Stock ($1.545 per share) (342,177)
Expenses of Capital Stock Activity (11,662)
Capital Stock Activity
Long-Term Incentive Plan Issuances 92 2,251 (388)
Preferred Stock Issuances 57
Preferred Stock Redemptions (2,388) (238,800)
------- ---------- ------ -------- ----- --------
Balance at December 31, 1994 221,609 3,490,728 1,271 810,507 3,702 370,172
Net Income 609,732
Cash Dividends Declared
Preferred Stock
(at specified annual rates) (24,253)
Common Stock ($1.65 per share) (366,087)
Expenses of Capital Stock Activity (4,035)
Capital Stock Activity
Long-Term Incentive Plan Issuances 563 15,585 (2,156)
Preferred Stock Issuances 55
Preferred Stock Redemptions (781) (78,105)
------- ---------- ------ -------- ----- --------
Balance at December 31, 1995 222,172 $ 3,506,313 $ 1,326 $ 1,023,708 2,921 $ 292,067
======= =========== =========== =========== ===== ===========
</TABLE>
24
<PAGE>
1. Significant Accounting Policies
General
The consolidated financial statements of PECO Energy Company (Company) include
the accounts of its utility subsidiary companies, all of which are wholly owned.
Accounting policies are in accordance with those prescribed by the regulatory
authorities having jurisdiction, principally the Pennsylvania Public Utility
Commission (PUC) and the Federal Energy Regulatory Commission (FERC). The
Company has unconsolidated subsidiaries which are not material.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenues
Customers' meters are read and bills are prepared on a cyclical basis. At the
end of each month, the Company accrues an estimate for the unbilled amount of
energy delivered or services provided to customers.
Fuel and Energy Cost Adjustment Clauses
The Company's classes of service are subject to fuel adjustment clauses designed
to recover or refund the differences between actual costs of fuel, energy
interchange, and purchased power and gas, and the amounts of such costs included
in base rates. Differences between the amounts billed to customers and the
actual costs recoverable are deferred and recovered or refunded in future
periods by means of prospective adjustments to rates. Generally, such rates are
adjusted every twelve months. In addition to reconciling fuel costs and
revenues, the Company's Energy Cost Adjustment (ECA), established by the PUC,
incorporates a nuclear performance standard which allows for financial bonuses
or penalties depending upon whether the Company's system nuclear capacity factor
exceeds or falls below a specified range (see note 3).
Nuclear Fuel
Nuclear fuel is capitalized and charged to fuel expense on the unit of
production method. Estimated costs of nuclear fuel disposal are charged to fuel
expense as the related fuel is consumed. The Company's share of nuclear fuel at
Peach Bottom Atomic Power Station (Peach Bottom) and Salem Generating Station
(Salem) is accounted for as a capital lease. Nuclear fuel at Limerick Generating
Station (Limerick) is owned.
Depreciation and Decommissioning
The annual provision for depreciation is provided over the estimated service
lives of plant on the straight-line method. Annual depreciation provisions for
financial reporting purposes, expressed as a percent of average depreciable
utility plant in service, were approximately 2.80% in 1995, 2.77% in 1994 and
2.75% in 1993. See note 3 for information concerning the Company's petition to
the PUC for a declaratory accounting order to change the estimated depreciable
lives of certain of the Company's electric plant.
The Company's share of the 1990 estimated costs for decommissioning nuclear
generating stations currently included in electric base rates is being charged
to operations over the expected service life of the related plant. The amounts
recovered from customers are deposited in trust accounts and invested for
funding of future costs. These amounts, and investment earnings thereon, are
credited to accumulated depreciation (see note 4).
Income Taxes
The Company uses an asset and liability approach for financial accounting and
reporting of income taxes. The effects of the Alternative Minimum Tax (AMT) are
normalized. Investment Tax Credit (ITC) is deferred and amortized to income over
the estimated useful life of the related utility plant. ITC related to plant in
service, not included in rate base, is accounted for on the flow-through method
(see note 14).
Allowance for Funds Used During Construction (AFUDC)
AFUDC is the cost, during the period of construction, of debt and equity funds
used to finance construction projects. AFUDC is recorded as a charge to
Construction Work in Progress, and the credits are to Interest Charges for the
cost of borrowed funds and to Other Income and Deductions for the remainder as
the allowance for other funds. The rates used for capitalizing AFUDC, which
averaged 9.88% in 1995, 7.74% in 1994 and 9.39% in 1993, are computed under a
method prescribed by regulatory authorities. AFUDC is not included in regular
taxable income and the depreciation of capitalized AFUDC is not tax deductible.
Nuclear Outage Costs
Incremental nuclear maintenance and refueling outage costs are accrued over the
unit operating cycle. For each unit, an accrual for incremental nuclear
maintenance and refueling outage expense is estimated based upon the latest
planned outage schedule and estimated costs for the outage. Differences between
the accrued and actual expense for the outage are recorded when such differences
are known.
Capitalized Software Costs
Software projects which exceed $5 million are capitalized. At December 31,1995
and 1994, capitalized software costs totaled $50 million and $51 million (net of
$19 million and $10 million accumulated amortization), respectively. Such
capitalized amounts are amortized ratably over the expected lives of the
projects when they become operational, not to exceed ten years.
Gains and Losses on Reacquired Debt
Gains and losses on reacquired debt are deferred and amortized to interest
expense over the stated life of the reacquired debt.
Reclassifications
Certain prior-year amounts have been reclassified for comparative purposes.
These reclassifications had no effect on net income.
25
<PAGE>
2. Nature of Operations and Segment Information
The Company is an operating utility which provides electric and gas service to
the public in southeastern Pennsylvania. The total area served by the Company
covers 2,107 square miles. Electric service is supplied to an area of 1,972
square miles with a population of 3.7 million, including 1.6 million in the City
of Philadelphia. Approximately 94% of the retail electric service area and 64%
of retail kilowatthour sales are in the suburbs around Philadelphia, and 6% of
the retail service area and 36% of such sales are in the City of Philadelphia.
Natural gas service is supplied to a 1,475-square-mile area of southeastern
Pennsylvania adjacent to Philadelphia with a population of 1.9 million.
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
Thousands of Dollars
<S> <C> <C> <C>
Electric Operations
Operating revenues:
Residential $ 1,401,296 $ 1,369,617 $ 1,354,061
Small commercial and industrial 738,910 706,808 678,896
Large commercial and industrial 1,147,190 1,142,903 1,163,997
Other 136,988 136,002 161,290
----------- ----------- -----------
Service territory 3,424,384 3,355,330 3,358,244
Interchange sales 17,488 23,017 14,269
Sales to other utilities 333,454 246,450 232,912
----------- ----------- -----------
Total operating revenues 3,775,326 3,624,797 3,605,425
----------- ----------- -----------
Operating expenses, excluding depreciation 2,405,876 2,429,452 2,228,507
Depreciation 430,993 415,854 400,851
----------- ----------- -----------
Operating income $ 938,457 $ 779,491 $ 976,067
=========== =========== ===========
Utility plant additions $ 435,400 $ 457,728 $ 458,125
=========== =========== ===========
Gas Operations
Operating revenues:
Residential $ 15,482 $ 16,048 $ 15,032
House heating 240,147 235,407 205,483
Commercial and industrial 129,223 133,124 124,224
Other 3,639 13,971 15,172
----------- ----------- -----------
Subtotal 388,491 398,550 359,911
Other revenues (including transported
for customers) 22,339 17,285 22,793
----------- ----------- -----------
Total operating revenues 410,830 415,835 382,704
----------- ----------- -----------
Operating expenses, excluding depreciation 319,127 339,529 299,259
Depreciation 26,261 26,247 24,101
----------- ----------- -----------
Operating income $ 65,442 $ 50,059 $ 59,344
=========== =========== ===========
Utility plant additions $ 63,192 $ 67,090 $ 72,481
=========== =========== ===========
Identifiable Assets* at December 31,
Electric $10,408,105 $10,410,461 $10,395,488
Gas 785,881 768,279 727,690
Nonallocable assets 3,766,634 3,886,531 3,909,149
----------- ----------- -----------
Total assets $14,960,620 $15,065,271 $15,032,327
=========== =========== ===========
</TABLE>
*Includes utility plant less accumulated depreciation, inventories and allocated
common utility property.
26
<PAGE>
3. Rate Matters
Limerick
Under its electric tariffs, the Company is recovering $285 million of deferred
Limerick costs representing carrying charges and depreciation associated with
50% of Limerick common facilities. These costs are included in base rates and
are being recovered over the life of Limerick. The Company is also recovering
$137 million of Limerick Unit No. 1 costs over a ten-year period without a
return on investment. At December 31, 1995, the unrecovered portion of these
balances were $240 million and $59 million, respectively.
Under its electric tariffs, the Company is allowed to retain for shareholders
any proceeds above the average energy cost for sales of 399 megawatts (MW) of
near-term excess capacity and/or associated energy. In addition, beginning April
1994, the Company became entitled to share in the benefits which result from the
operation of both Limerick Units No. 1 and No. 2 through the retention of 16.5%
of the energy savings, subject to certain limits. During 1995, 1994 and 1993,
the Company recorded as revenue net of fuel costs $79, $68 and $38 million,
respectively, as a result of the sale of the 399 MW of capacity and/or
associated energy and the Company's share of Limerick energy savings.
Pursuant to a PUC Declaratory Order, the Company deferred certain operating and
maintenance expenses, depreciation and accrued carrying charges on its capital
investment in Limerick Unit No. 2 and 50% of Limerick common facilities. At
December 31, 1995 and 1994, such costs included in Deferred Limerick Costs
totaled $91 million.
Petition for Declaratory Accounting Order
In October 1995, the Company filed a petition for a declaratory accounting order
with the PUC requesting approval to change the estimated depreciable lives of
certain of the Company's electric plant. The petition requests the approval to
reduce the terminal dates by ten years, for depreciation accrual purposes only,
of Limerick Units No. 1 and No. 2 and associated common facilities, to utilize
new life spans for various categories of electric production plant, and to
change remaining life estimates for transmission, distribution, general and
common plant. The petition also requests approval to amortize over a nine-year
period $331 million of deferred Limerick costs representing $240 million of
carrying charges and depreciation associated with 50% of Limerick common
facilities and $91 million of unrecovered Limerick Unit No. 2 Declaratory Order
costs. If approved, the proposed changes will increase depreciation and
amortization on assets associated with Limerick by approximately $100 million
per year and decrease depreciation and amortization on other Company assets by
approximately $10 million per year, for a net increase in depreciation and
amortization of approximately $90 million per year. The requested order will not
affect rates charged to customers. The changes would be effective October 1,
1996.
Recovery of Non-Pension Postretirement Benefits Costs
Effective January 1995, in accordance with a PUC Joint Petition, the Company
increased electric base rates by $25 million per year to recover the increased
costs, including the annual amortization of the transition obligation (over 18
years) deferred in 1994 and 1993, associated with the implementation of
Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," (see note 7). The
Joint Petition provides that the Company will not file for an increase in retail
electric service rates before April 1, 1999, except under specified
circumstances for items such as energy cost adjustments, changes in state taxes,
changes in federal taxes, demand side management surcharges, and increases in
nuclear plant decommissioning expense or funding requirements and spent nuclear
fuel disposal expenses. Subsequent to January 1, 1995, retail electric
non-pension postretirement benefits expense in excess of the amount allowed to
be recovered under the Joint Petition may not be deferred for future rate
recovery. During 1995, the Company deposited $59.6 million in trust accounts to
fund its retail electric non-pension postretirement benefits costs. These costs
include amounts charged to operating expense or capitalized on and after January
1, 1995.
In accordance with the Joint Petition, any of the parties to the Joint Petition
may elect to void the settlement in the event current rate recovery of
non-pension postretirement benefits expense is ultimately disallowed as a result
of the Office of Consumer Advocate's appeal to the Supreme Court of Pennsylvania
of cases involving other Pennsylvania utilities. In such event, the Company
would refund to customers, with interest, any increased base rate amounts
collected.
In December 1994, the PUC approved the Company's petition for an accounting
order associated with gas utility operations permitting recognition of $2.8
million of non-pension postretirement benefits costs annually and recognition of
$1.5 million of environmental costs annually for the remediation of sites of
former manufactured gas plant facilities using a cost of removal methodology, in
exchange for a reduction in depreciation rates to reflect the results of a
current life study. During 1995, the Company deposited $3.8 million in trust
accounts to fund its gas non-pension postretirement benefits costs. The
accounting order did not result in any increase in rates to customers (see note
7).
Energy Cost Adjustment
The Company is subject to a PUC-established electric ECA which, in addition to
reconciling fuel costs and revenues, incorporates a nuclear performance standard
which allows for financial bonuses or penalties depending on whether the
Company's system nuclear capacity factor exceeds or falls below a specified
range. The bonuses or penalties are based upon average system replacement energy
costs. If the capacity factor is within the range of 60-70%, there is no bonus
or penalty. If the capacity factor exceeds the specified range, progressive
incremental bonuses are earned and, if the capacity factor falls below the
specified range, progressive incremental penalties are incurred.
For the year ended December 31, 1995, the Company's system nuclear capacity
factor was 72%, for which the Company recorded an immaterial bonus in 1995
income. The Company-operated units performed at a capacity factor of 88%, but
the overall factor was adversely affected by the Salem shutdown (see note 24).
For the years ended December 31, 1994 and 1993, the Company's system nuclear
capacity factors were 82% and 78%, respectively, which entitled the Company to
bonuses reflected in 1994 and 1993 income of $14 and $10 million, respectively.
27
<PAGE>
4. Commitments and Contingencies
Construction Expenditures
Construction expenditures are estimated to be $538 million for 1996 and $1.2
billion for the period 1997 to 1999. For the period 1996 to 1999, the Company
expects that all of its capital needs will be provided through internally
generated funds. Construction expenditure estimates are reviewed and revised
periodically 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.
The Company's operations have in the past and may in the future require
substantial capital expenditures in order to comply with environmental laws.
Nuclear Insurance
The Price-Anderson Act sets the limit of liability of approximately $8.9 billion
for claims that could arise from an incident involving any licensed nuclear
facility in the nation. The limit is subject to change 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 $79
million per reactor per incident, payable at no more than $10 million per
reactor per incident per year. This assessment is subject to inflation and state
premium taxes. In addition, Congress could impose revenue raising measures on
the nuclear industry to pay claims.
Although the Nuclear Regulatory Commission (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. In the event of an accident, insurance proceeds must first be used
for reactor stabilization and site decontamination. If the decision is made to
decommission the facility, a portion of the insurance proceeds will be allocated
to a fund which the Company is required by the NRC to maintain to provide for
decommissioning the facility. The Company is unable to predict the timing of the
availability of insurance proceeds to the Company for the Company's bondholders,
and the amount of such proceeds which would be available. Under the terms of the
various insurance agreements, the Company could be assessed up to $46 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 and
results of operations.
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 $14
million per year.
Nuclear Decommissioning and Spent Fuel Storage
As a component of the PUC's April 19, 1990 electric base rate order, the PUC
recognized a revised decommissioning cost estimate based upon total cost. The
Company's share of this revised cost is $643 million expressed in 1990 dollars
to be collected over the life of each generating unit. Under current rates, the
Company collects and expenses approximately $20 million annually from customers
for decommissioning the Company's nuclear units. The expense is accounted for as
a component of depreciation expense and accumulated depreciation. At December
31, 1995, $216 million was included in accumulated depreciation. In order to
fund future decommissioning costs, the Company has recorded $223 million in
trust accounts which are included as an Investment in the Company's Consolidated
Balance Sheet and include both net realized and unrealized gains. At December
31, 1995, net realized gains of $9 million were recognized as Other Income in
the Company's Consolidated Statement of Income and net unrealized gains of $19
million were recognized as a Deferred Credit in the Company's Consolidated
Balance Sheet. The most recent estimate of the Company's share of the cost to
decommission its nuclear units is approximately $1.2 billion in 1995 dollars.
Any increase in the 1990 decommissioning cost estimate being recovered in base
rates is to be recoverable in the Company's next base rate case. As a result,
the Company expects to receive recovery of a higher level of decommissioning
expense in its next base rate proceeding.
The Financial Accounting Standards Board (FASB) is currently reviewing the
accounting for closure and removal costs of production facilities including the
recognition, measurement and classification of decommissioning costs for nuclear
generating stations, and will issue an Exposure Draft in 1996. The Company will
review the Exposure Draft to determine the effect on its financial condition and
results of operations. If current electric utility industry accounting practices
for decommissioning are changed, annual provisions for decommissioning could
increase and the estimated cost for decommissioning could be recorded as a
liability rather than as accumulated depreciation with recognition of an
increase in the cost of the related asset.
Under the Nuclear Waste Policy Act of 1982 (NWPA), the U.S. Department of Energy
(DOE) is required to begin taking possession of all spent nuclear fuel generated
by the Company's nuclear units for long-term storage by no later than 1998.
Under the NWPA, the DOE is authorized to assess utilities for the cost of
nuclear fuel disposal. The current cost of such disposal is one mill ($.001) per
kilowatthour of net nuclear generation. The fee may be adjusted prospectively in
order to ensure full cost recovery.
The DOE has stated that it is under no legal obligation to begin accepting spent
fuel absent an operational repository or other facility constructed under the
NWPA. The DOE acknowledges, however, that it may have created the expectation of
such a commitment on the part of utilities by issuing certain regulations and
projected waste acceptance schedules. In June 1994, a number of utilities and
state agencies, including the PUC, filed a lawsuit against the DOE seeking a
determination of the DOE's legal obligation to accept fuel by 1998. The DOE has
stated that it will not be able to open a permanent, high-level nuclear waste
storage facility until 2015, at the earliest. The DOE stated that the delay was
a result of federal budget cuts, the DOE seeking new data about the suitability
of the proposed repository site at Yucca
28
<PAGE>
4. Commitments and Contingencies (Continued)
Mountain, Nevada, opposition to this location for the repository and the DOE's
revision of its civilian nuclear waste program. The DOE stated that it would
seek legislation from Congress for the construction of a temporary storage
facility which would accept spent nuclear fuel from utilities in 1998 or soon
thereafter. Although progress is being made at Yucca Mountain and several
communities have expressed interest in providing a temporary storage site, the
Company cannot predict when the temporary storage facilities or permanent
repository will become available. The DOE is exploring options to address delays
in the currently projected waste acceptance schedules which include offsetting a
portion of the financial burden associated with the costs of continued on-site
storage of spent fuel after 1998 and the issuance by the DOE to utilities of
multi-purpose canisters for on-site storage.
Peach Bottom and Limerick have on-site facilities with the capacity to store
spent nuclear fuel discharged from the units through the early 2000s.
Life-of-plant storage capacity could be provided by the construction of on-site
dry cask storage facilities. Salem has recently expanded spent fuel storage
capacity through 2008 for Unit No. 1 and 2012 for Unit No. 2. Public Service
Electric and Gas (PSE&G) is the operator of Salem, which is 42.59% owned by the
Company.
The Company is currently recovering in rates costs for nuclear decommissioning
and decontamination and spent fuel storage. The Company believes that the
ultimate costs of decommissioning and decontamination and spent fuel disposal
will continue to be recoverable through rates, although such recovery is not
assured.
Energy Purchases
In the ordinary course of business, the Company enters into commitments to buy
and sell energy. During 1995, the Company entered into a long-term agreement to
purchase 300 MW in 1996 through 2000. At December 31, 1995, these purchases
result in commitments of approximately $44 million for 1996, $45 million for
1997, $48 million for 1998, $51 million for 1999 and $52 million for 2000. These
purchases will be utilized through a combination of sales to jurisdictional
customers, long-term sales to other utilities and spot sales.
Environmental Issues
The Company's operations have in the past and may in the future require
substantial capital expenditures in order to comply with environmental laws.
Additionally, 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 and of property contaminated by
hazardous substances generated by the Company. The Company owns or leases a
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.
The Company has identified 23 sites where former 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 various levels of activities at these sites, including
initial evaluation to determine the existence and nature of the contamination,
detailed evaluation to determine the extent of the contamination and the
necessity and possible methods of remediation, and implementation of
remediation. Seven of the sites are currently in the detailed evaluation or
remediation stage.
As of December 31, 1995 and 1994, the Company had accrued $27 and $24 million,
respectively, for environmental investigation and remediation costs that
currently can be reasonably estimated. The PUC approved the recognition of $1.5
million of environmental costs annually for the remediation of sites of former
manufactured gas plant facilities effective January 1, 1995 (see note 3). 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 all such costs will be recoverable through rates or from third parties.
Litigation
The Company is involved in litigation, the ultimate outcome of which, while
uncertain, is not expected to have a material adverse effect on the Company's
financial condition or results of operations.
5. Changes in Accounting
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires
that long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The new
standard is effective for fiscal years beginning after December 15, 1995. The
Company will adopt SFAS No. 121 in the first quarter of 1996. Upon adoption, the
Company does not expect SFAS No. 121 to have an effect upon the Company's
financial condition or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which encourages entities to recognize compensation costs for
stock-based employee compensation plans using the fair value based method of
accounting defined in SFAS No. 123, but allows for the continued use of the
intrinsic value based method of accounting prescribed by Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
electing to continue with the accounting prescribed by APB Opinion No. 25 are
required to disclose pro forma net income and earnings per share as if the fair
value based method of accounting had been applied. The new standard is effective
for fiscal years beginning after December 15, 1995. The Company will adopt SFAS
No. 123 in the first quarter of 1996, but will continue to use the intrinsic
value based method of accounting prescribed by APB Opinion No. 25 supplemented
by SFAS No. 123's required footnote disclosures. Adoption of SFAS No. 123 will
not have an effect upon the Company's financial condition or results of
operations.
29
<PAGE>
6. Retirement Benefits
The Company and its subsidiaries have a non-contributory trusteed retirement
plan applicable to all regular employees. The benefits are based primarily upon
employees' years of service and average earnings prior to retirement. The
Company's funding policy is to contribute, at a minimum, amounts sufficient to
meet the Employee Retirement Income Security Act requirements. Approximately
74%, 85% and 71% of pension costs were charged to operations in 1995, 1994 and
1993, respectively, and the remainder, associated with construction labor, to
the cost of new utility plant.
Pension costs for 1995, 1994 and 1993 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
Thousands of Dollars
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 19,710 $ 33,403 $ 33,673
Interest cost on projected benefit obligation 147,261 136,690 134,658
Actual return on plan assets (456,057) 12,946 (226,240)
Amortization of transition asset (4,538) (4,538) (4,538)
Amortization and deferral 300,214 (161,955) 87,733
--------- --------- ---------
Net pension cost $ 6,590 $ 16,546 $ 25,286
========= ========= =========
</TABLE>
The changes in net periodic pension costs in 1995, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
Thousands of Dollars
<S> <C> <C> <C>
Change in number, characteristics and salary levels
of participants and net actuarial gain $ 1,486 $(6,004) $ (756)
Change in plan provisions (8,305) (1,777) --
Change in actuarial assumptions (3,136) (959) --
------- ------- -------
Net change $(9,955) $(8,740) $ (756)
======= ======= =======
</TABLE>
Plan assets consist principally of common stock, U.S. government obligations and
other fixed income instruments. In determining pension costs, the assumed
long-term rate of return on assets was 9.5% for 1995, 1994 and 1993.
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.25% at December 31, 1995, 8.25%
at December 31, 1994, and 7% at December 31, 1993. The average rate of increase
in future compensation levels ranged from 4% to 6% at December 31, 1995, from
4.25% to 6.25% at December 31, 1994, and from 4% to 6% at December 31, 1993.
Prior service cost is amortized on a straight-line basis over the average
remaining service period of employees expected to receive benefits under the
plan.
The funded status of the plan at December 31, 1995 and 1994 is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
Thousands of Dollars
<S> <C> <C>
Actuarial present value of accumulated plan benefit obligations:
Vested benefit obligation $(1,746,685) $(1,505,552)
Accumulated benefit obligation (1,838,661) (1,632,666)
Projected benefit obligation for services rendered to date $(2,097,300) $(1,814,209)
Plan assets at fair value 2,088,950 1,741,271
----------- -----------
Funded status (8,350) (72,938)
Unrecognized transition asset (44,789) (49,327)
Unrecognized prior service costs 68,223 73,338
Unrecognized net gain (265,472) (230,105)
----------- -----------
Pension liability $ (250,388) $ (279,032)
=========== ===========
</TABLE>
30
<PAGE>
7. Non-Pension Postretirement Benefits
The Company provides certain health care and life insurance benefits for retired
employees. Company employees become eligible for these benefits if they retire
from the Company with ten years of service. These benefits and similar benefits
for active employees are provided by an insurance company whose premiums are
based upon the benefits paid during the year.
The transition obligation resulting from the adoption of SFAS No. 106 was $505
million at January 1, 1993, which represented the previously unrecognized
accumulated non-pension postretirement benefit obligation. The transition
obligation is being amortized on a straight-line basis over an allowed 20-year
period. As a result of the Voluntary Retirement Incentive Program (VRIP) and the
Voluntary Separation Incentive Program (VSIP), the Company accelerated
recognition of $177 million of its non-pension postretirement benefits
obligation (see note 22). Effective January 1, 1995, the Company was permitted
by the PUC to recover non-pension postretirement benefits costs associated with
the Company's retail electric and gas operations, including the annual
amortization of the transition obligation (over 18 years) deferred in 1994 and
1993 (see note 3).
The transition obligation was determined by application of the terms of medical,
dental and life insurance plans, including the effects of established maximums
on covered costs, together with relevant actuarial assumptions and health care
cost trend rates, which are projected to range from 9% in 1996 to 5% in 2002.
The effect of a 1% annual increase in these assumed cost trend rates would
increase the accumulated postretirement benefit obligation by $63 million and
the annual service and interest costs by $7 million.
Total costs for all plans amounted to $71, $81 and $83 million in 1995, 1994 and
1993, respectively.
The net periodic benefits costs for 1995 and 1994 included the following
components:
<TABLE>
<CAPTION>
1995 1994
Thousands of Dollars
<S> <C> <C>
Service cost - benefits earned during the period $ 8,681 $ 17,056
Interest cost on projected benefit obligation 48,641 41,196
Amortization of the transition obligation 14,882 22,659
Actual return on plan assets (2,075) --
Deferred asset gain 1,359 --
-------- --------
Net periodic postretirement benefits costs $ 71,488 $ 80,911
======== ========
</TABLE>
The funded status of the plan at December 31, 1995 and 1994 is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
Thousands of Dollars
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 628,804 $ 566,128
Fully eligible active plan participants 4,199 7,895
Other active plan participants 41,863 16,006
--------- ---------
Total 674,866 590,029
Plan assets at fair value (66,735) (1,200)
--------- ---------
Accumulated postretirement benefit obligation in excess of plan assets 608,131 588,829
Unrecognized transition obligation (252,990) (267,871)
Unrecognized net gain (28,890) 33,500
--------- ---------
Accrued postretirement benefits cost recognized on the balance sheet $ 326,251 $ 354,458
========= =========
</TABLE>
Measurement of the accumulated postretirement benefits obligation was based on a
7.5% and 8.5% assumed discount rate as of December 31, 1995 and 1994,
respectively.
31
<PAGE>
8. Accounts Receivable
Accounts receivable at December 31, 1995 and 1994 included unbilled operating
revenues of $148 and $100 million, respectively. Accounts receivable at December
31, 1995 and 1994 were net of an allowance for uncollectible accounts of $21 and
$17 million, respectively.
The Company is party to an agreement with a financial institution whereby it can
sell on a daily basis and with limited recourse an undivided interest in up to
$425 million of designated accounts receivable until November 14, 2000. At
December 31, 1995 and 1994, the Company had sold a $425 million and $325 million
interest in accounts receivable, respectively. The Company retains the servicing
responsibility for these receivables.
By terms of this agreement, under certain circumstances, a portion of deferred
Limerick costs may be included in the pool of eligible receivables. At December
31, 1995, $30 million of deferred Limerick costs were included in the pool of
eligible receivables.
9. Common Stock
At December 31, 1995 and 1994, common stock without par value consisted of
500,000,000 shares authorized and 222,172,216 and 221,608,984 shares
outstanding, respectively. At December 31, 1995, there were 5,800,841 shares
reserved for issuance under the dividend reinvestment and stock purchase plan.
The Company maintains a Long-Term Incentive Plan (LTIP) for certain full-time
salaried employees of the Company. The types of long-term incentive awards which
may be granted under the LTIP are non-qualified options to purchase shares of
the Company's common stock, dividend equivalents and shares of restricted common
stock. Pursuant to the LTIP, 2,591,765 shares of stock were authorized for
issuance upon exercise of options at December 31, 1995.
The following table summarizes option activity during 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance at January 1 2,651,397 1,961,882 2,445,833
Options granted 850,700 909,000 533,800
Options exercised (561,232) (90,885) (981,551)
Options cancelled (349,100) (128,600) (36,200)
--------- --------- ---------
Balance at December 31 2,591,765 2,651,397 1,961,882
========= ========= =========
Exercisable at December 31 1,813,565 1,865,397 1,447,282
========= ========= =========
</TABLE>
Options were exercised at average option prices of $23.91 per share, $22.91 per
share and $22.66 per share in 1995, 1994 and 1993, respectively. The average
exercise prices of shares under option were $26.16 per share, $26.73 per share
and $25.12 per share at December 31, 1995, 1994 and 1993, respectively.
32
<PAGE>
10. Preferred and Preference Stock
At December 31, 1995 and 1994, Series Preference Stock consisted of 100,000,000
shares authorized, of which no shares were outstanding. At December 31, 1995 and
1994, cumulative Preferred Stock, no par value, consisted of 15,000,000 shares
authorized.
<TABLE>
<CAPTION>
Current Shares Amount
Redemption Outstanding Thousands of Dollars
Price (a) 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C>
Series (without mandatory redemption)
$4.68 104.00 150,000 150,000 $ 15,000 $15,000
$4.40 112.50 274,720 274,720 27,472 27,472
$4.30 102.00 150,000 150,000 15,000 15,000
$3.80 106.00 300,000 300,000 30,000 30,000
$7.96(b) (c) 618,954 1,400,000 61,895 140,000
$7.48 (d) 500,000 500,000 50,000 50,000
--------- --------- ------- -------
1,993,674 2,774,720 199,367 277,472
Series (with mandatory redemption)(e)
$6.12 (f) 927,000 927,000 92,700 92,700
--------- --------- -------- --------
Total preferred stock 2,920,674 3,701,720 $292,067 $370,172
========= ========= ======== ========
<FN>
(a) Redeemable, at the option of the Company, at the indicated dollar amounts
per share, plus accrued dividends.
(b) Ownership of this series of preferred stock is evidenced by depositary
receipts, each representing one-fourth of a share of preferred stock. On
December 19, 1995, the Company issued Series B Company Obligated
Mandatorily Redeemable Preferred Securities of a Partnership in exchange
for 3,124,183 depositary receipts, which together with the underlying 7.96%
cumulative preferred stock, were cancelled (see note 11).
(c) None of the shares of this series are subject to redemption prior to
October 1,1997.
(d) None of the shares of this series are subject to redemption prior to April
1, 2003.
(e) There are no annual sinking fund requirements in the period 1996-1998.
Annual sinking fund requirements in 1999 are $18,540,000.
(f) None of the shares of this series are subject to redemption prior to August
1, 1999.
</FN>
</TABLE>
11. Company Obligated Mandatorily Redeemable Preferred Securities of a
Partnership (COMRPS)
At December 31, 1995 and 1994, PECO Energy Capital, L.P. (Partnership), a
Delaware limited partnership of which a wholly owned subsidiary of the Company
is the sole general partner, had outstanding two series of cumulative COMRPS,
each with a liquidation value of $25 per security. Each series is supported by
the Company's deferrable interest subordinated debentures, held by the
Partnership, which bear interest at rates equal to the distribution rates on the
securities. The interest paid by the Company on the debentures is included in
Interest Charges in the Consolidated Statements of Income and is deductible for
income tax purposes.
<TABLE>
<CAPTION>
Shares Amount
Distribution Outstanding Thousands of Dollars
At December 31, Rate 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C>
Series
A 9.00% 8,850,000 8,850,000 $221,250 $221,250
B (a) 8.72% 3,124,183 -- 81,032 --
---------- --------- -------- --------
Total 11,974,183 8,850,000 $302,282 $221,250
========== ========= ======== ========
<FN>
(a) On December 19, 1995, the Company exchanged Trust Receipts, each
representing a 8.72% COMRPS, Series B, representing limited partnership
interests, for depositary shares each representing a one-fourth interest in
a share of $7.96 Cumulative Preferred Stock of the Company. The premium
paid on the exchange is being accreted over the contractual life of the
COMRPS. The Trust Receipts were issued by PECO Energy Capital Trust I, the
sole assets of which are 8.72% COMRPS, Series B. Each holder of Trust
Receipts is entitled to withdraw the corresponding number of 8.72% COMRPS,
Series B from the Trust in exchange for the Trust Receipts so held.
</FN>
</TABLE>
33
<PAGE>
12. Long-Term Debt
<TABLE>
<CAPTION>
At December 31, Series Due 1995 1994
Thousands of Dollars
<S> <C> <C> <C> <C>
First and refunding mortgage bonds (a) 6-1/8% 1997 $75,000 $75,000
5-3/8% 1998 225,000 225,000
7-1/2%-9-1/4% 1999 325,000 325,000
10% 2000 -- 30,069
5-5/8%-8% 2001-2005 1,355,000 1,355,000
10-1/4% 2006-2010 48,750 52,813
(b) 2011-2015 154,200 154,200
8-7/8%-10-1/2% 2016-2020 34,000 203,431
6-5/8%-8-3/4% 2021-2024 1,607,130 1,607,130
---------- ----------
Total first and refunding mortgage bonds 3,824,080 4,027,643
Notes payable - banks (c) 1996-1998 167,000 167,000
Revolving credit and term loan agreements (d) 1996-1997 350,000 525,000
Pollution control notes (e) 1996-2029 169,005 161,465
Medium-term notes (f) 1996-2005 121,800 134,200
Sinking fund debentures -
PECO Energy Power Company, a subsidiary 4-1/2% 1995 -- 9,750
Unamortized debt discount and premium, net (32,599) (38,214)
---------- ----------
Total long-term debt 4,599,286 4,986,844
Due within one year (g) 401,003 201,213
---------- ----------
Long-term debt included in capitalization (h) $4,198,283 $4,785,631
========== ==========
<FN>
(a) Utility plant is subject to the lien of the Company's mortgage.
(b) Floating rates, which were an average annual interest rate of 3.295% at
December 31,1995.
(c) The Company has entered into interest rate swap agreements to fix the
effective interest rates on these notes. At December 31, 1995 and 1994, the
Company had two interest rate swap agreements outstanding with commercial
banks, for a total notional principal amount of $167 million, respectively.
These agreements are subject to performance by the commercial banks, which
are counterparties to the interest rate swaps. The Company does not
anticipate nonperformance by the counterparties. The average annual
interest rate for these notes, giving effect to the interest rate swaps,
was 10.51% at December 31,1995.
(d) On October 3, 1994, borrowings by the Company under its $525 million
revolving credit and term loan agreement with a group of banks converted to
a term loan. The loan was due in six semi-annual installments commencing
April 3, 1995. During 1995, $175 million was retired; $175 million was
refinanced with another group of banks under a new term loan agreement and
$175 million was outstanding at December 31, 1995. The average annual rate
for the $175 million outstanding under the original revolving credit and
term loan agreement was 6.416% and the average rate for the $175 million
outstanding under the new term loan was 6.081% at December 31, 1995. The
Company also has a $400 million revolving credit and term loan agreement
with a group of banks which terminates in 2000. There is an annual
commitment fee of 0.125% on the unused amount. At December 31, 1995, no
amount was outstanding under this agreement.
(e) Floating rates, which were an average annual interest rate of 3.728% at
December 31,1995.
(f) Medium-term notes collateralized by mortgage bonds. The average annual
interest rate was 8.413% at December 31,1995.
(g) Long-term debt maturities, including mandatory sinking fund requirements,
in the period 1997-2000 are as follows: 1997 - $266,063,000; 1998 -
$241,463,000; 1999 - $359,063,000; 2000 - $22,603,000.
(h) The annualized interest on long-term debt at December 31, 1995, was $327
million, of which $281 million was associated with mortgage bonds and $46
million was associated with other long-term debt.
</FN>
</TABLE>
34
<PAGE>
13. Short-Term Debt
<TABLE>
<CAPTION>
1995 1994 1993
Thousands of Dollars
<S> <C> <C> <C>
Average borrowings $ 17,560 $ 130,539 $ 113,193
Average interest rates, computed on daily basis 6.25% 4.03% 3.35%
Maximum borrowings outstanding $182,000 $ 418,600 $ 368,400
Average interest rates, at December 31 --% 6.73% 3.45%
</TABLE>
The Company has a $300 million commercial paper program which is supported by
the $400 million revolving credit agreement discussed in note 12; at December
31, 1995, no amounts were outstanding. At December 31, 1995, the Company had
formal and informal lines of credit with banks aggregating $221 million. No
short-term debt was outstanding against these lines at that date. During 1995,
the Company discontinued its compensating balance arrangements for these credit
lines.
14. Income Taxes
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
Thousands of Dollars
<S> <C> <C> <C>
Included in operating income:
Federal
Current $ 170,042 $ 164,472 $ 117,535
Deferred 159,970 (2,691) 113,054
Investment tax credit, net (21,679) 28,006 43,344
State
Current 72,177 77,754 70,740
Deferred 16,387 (33,508) 9,718
--------- --------- ---------
396,897 234,033 354,391
--------- --------- ---------
Included in other income and deductions:
Federal
Current 20,754 1,989 (3,650)
Deferred 7,556 9,722 15,926
State
Current 6,909 409 (1,615)
Deferred (399) 3,171 1,147
--------- --------- ---------
34,820 15,291 11,808
--------- --------- ---------
Total $ 431,717 $ 249,324 $ 366,199
========= ========= =========
</TABLE>
In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company has
recorded an accumulated net deferred income tax liability and pursuant to SFAS
No. 71, "Accounting for the Effects of Certain Types of Regulation," a
corresponding recoverable deferred income tax asset of $2.1 billion at December
31, 1995 and 1994.
The accumulated net deferred income tax liability reflects the tax effect of
anticipated revenues and reverses as the related temporary differences reverse
over the life of the related depreciable assets concurrent with the recovery of
their cost in rates. Also included in the accumulated deferred income tax
liability are other accumulated deferred income taxes, principally associated
with liberalized tax depreciation, established in accordance with the ratemaking
policies of the PUC based on flow-through accounting.
The Internal Revenue Service (IRS) has completed and settled its examinations of
the Company's federal income tax returns through 1986. The 1987 through 1990
federal income tax returns have been examined and the IRS subsequently issued an
assessment that the Company has appealed. The Company does not expect the
ultimate resolution of the assessment and its appeal to have a material effect
upon the Company's financial condition or results of operations.
ITC and other general business credits were fully utilized for tax purposes at
December 31, 1994 and reduced federal income taxes currently payable by $43 and
$60 million in 1994 and 1993, respectively.
At December 31, 1995, the Company had an AMT credit of $76 million available for
an indefinite carryforward period against future federal income taxes payable to
the extent that regular federal income taxes payable exceeds the AMT payable.
35
<PAGE>
The tax effect of temporary differences which gives rise to the Company's net
deferred tax liability as of December 31,1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Liability or (Asset)
1995 1994
Millions of Dollars
<S> <C> <C>
Nature of temporary difference
Utility plant
Accelerated depreciation $ 1,387 $ 1,377
Deferred ITC 351 374
AMT credits (84) (176)
Other plant related temporary differences 1,283 1,305
Taxes recoverable through future rates, net 857 882
Deferred debt refinancing costs 130 132
Other, net (243) (306)
------- -------
Deferred income taxes per the balance sheet $ 3,681 $ 3,588
======= =======
</TABLE>
The net deferred tax liability shown above as of December 31, 1995 and 1994 is
comprised of $4.053 and $4.127 billion of deferred tax liabilities, partly
offset by $372 and $539 million of deferred tax assets, respectively.
Amendments to Pennsylvania tax law changed the corporate income tax rate from
12.25% to 11.99% for 1994 and 9.99% for 1995 and thereafter. This change
resulted in a $6 and $2 million decrease in Income Taxes in the Consolidated
Statements of Income for the years ended December 31, 1995 and 1994,
respectively. These changes also resulted in a $174 million decrease in the
Deferred Income Taxes liability on the December 31, 1994 Consolidated Balance
Sheet. The decrease in the Deferred Income Taxes liability is returned to
customers through the State Tax Adjustment Clause in the year realized.
The Omnibus Budget Reconciliation Act of 1993 changed the federal income tax
rate for corporations to 35% from 34%, effective January 1, 1993. This change
resulted in a $107 million increase in the Deferred Income Taxes liability and
regulatory asset in 1993, and is included in the December 31, 1995 and 1994
Consolidated Balance Sheets. The Company expects to receive recovery of all
taxes when paid.
Provisions for deferred income taxes consist of the tax effects of the following
timing differences:
<TABLE>
<CAPTION>
1995 1994 1993
Thousands of Dollars
<S> <C> <C> <C>
Depreciation and amortization $ 32,287 $ 85,772 $ 78,324
Deferred energy costs 30,073 13,777 19,013
Retirement and separation programs 15,733 (82,008) --
Incremental nuclear maintenance and refueling outage costs 8,079 (2,751) (827)
Uncollectible accounts (1,991) (23,096) 625
Reacquired debt (3,266) (12,954) 28,959
Unrecovered revenue (5) (2,239) (806)
Environmental clean-up costs 2,433 (3,949) (2,479)
Obsolete inventory 6,362 (6,192) (6,887)
Limerick plant disallowances and phase-in plan 2,507 12,894 17,073
AMT credits 91,399 -- --
Other (97) (2,560) 6,850
--------- --------- ---------
Total $ 183,514 $ (23,306) $ 139,845
========= ========= =========
</TABLE>
36
<PAGE>
14. Income Taxes (Continued)
The total income tax provisions differed from amounts computed by applying the
federal statutory tax rate to income and adjusted income before income taxes as
shown below:
<TABLE>
<CAPTION>
1995 1994 1993
Thousands of Dollars
<S> <C> <C> <C>
Net income $ 609,732 $ 426,713 $ 590,648
Total income tax provisions 431,717 249,324 366,199
----------- ----------- -----------
Income before income taxes 1,041,449 676,037 956,847
Deduct: allowance for funds used during construction 27,050 22,169 23,774
----------- ----------- -----------
Adjusted income before income taxes $ 1,014,399 $ 653,868 $ 933,073
=========== =========== ===========
Income taxes on above at federal statutory rate of 35% $ 355,040 $ 228,854 $ 326,576
Increase (decrease) due to:
Depreciation timing differences not normalized 14,127 12,767 9,721
Limerick plant disallowances and phase-in plan (736) (530) 5,094
State income taxes, net of federal income tax benefits 61,799 31,086 51,994
Amortization of ITC (13,604) (14,570) (13,470)
Prior period income taxes 1,791 (14,524) (3,942)
Other, net 13,300 6,241 (9,774)
----------- ----------- -----------
Total income tax provisions $ 431,717 $ 249,324 $ 366,199
=========== =========== ===========
Provisions for income taxes as a percent of:
Income before income taxes 41.5% 36.9% 38.3%
Adjusted income before income taxes 42.6% 38.1% 39.2%
</TABLE>
15. Taxes, Other Than Income - Operating
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
Thousands of Dollars
<S> <C> <C> <C>
Gross receipts $165,172 $160,704 $155,407
Capital stock 42,444 39,957 38,990
Real estate 71,600 77,571 71,445
Payroll 30,109 31,556 31,490
Other 4,746 1,901 800
-------- -------- --------
Total $314,071 $311,689 $298,132
======== ======== ========
</TABLE>
16. Leases
Leased property included in Utility Plant at December 31, was as follows:
<TABLE>
<CAPTION>
1995 1994
Thousands of Dollars
<S> <C> <C>
Nuclear fuel $ 494,051 $ 445,338
Electric plant 2,076 2,110
--------- ---------
Gross leased property 496,127 447,448
Accumulated amortization (315,702) (272,883)
--------- ---------
Net leased property $ 180,425 $ 174,565
========= =========
</TABLE>
The nuclear fuel obligation is amortized as the fuel is consumed. Amortization
of leased property totaled $43, $62 and $58 million for the years ended December
31, 1995, 1994 and 1993, respectively. Other operating expenses included
interest on capital lease obligations of $10, $7 and $8 million in 1995,1994 and
1993, respectively.
37
<PAGE>
16. Leases (Continued)
Minimum future lease payments as of December 31, 1995 were:
<TABLE>
<CAPTION>
For the Year Ending December 31, Capital Leases Operating Leases Total
Thousands of Dollars
<S> <C> <C> <C>
1996 $ 56,403 $ 51,226 $107,629
1997 58,234 50,503 108,737
1998 52,094 46,821 98,915
1999 23,906 44,549 68,455
2000 10,839 43,688 54,527
Remaining years 777 557,441 558,218
--------- -------- --------
Total minimum future lease payments $ 202,253 $794,228 $996,481
--------- ======== ========
Imputed interest (rates ranging from 6.0% to 17.0%) (21,828)
---------
Present value of net minimum future lease payments $180,425
========
</TABLE>
Rental expense under operating leases totaled $115, $101 and $99 million in
1995, 1994 and 1993, respectively.
17. Jointly Owned Electric Utility Plant
The Company's ownership interests in jointly owned electric utility plant at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Transmission and
Production Plants Other Plant
Peach Bottom Salem Keystone Conemaugh
Public Service
PECO Energy Electric and Gas Pennsylvania Pennsylvania Various
Operator Company Company Electric Company Electric Company Companies
<S> <C> <C> <C> <C> <C>
Participating interest 42.49% 42.59% 20.99% 20.72% 21% to 43%
Company's share (Thousands of Dollars)
Utility plant $ 748,790 $ 1,214,381 $ 109,363 $ 164,239 $ 88,272
Accumulated depreciation 299,822 403,384 53,223 57,472 29,602
Construction work in progress 35,218 72,744 5,363 19,388 1,900
</TABLE>
The Company's participating interests are financed with Company funds and, when
placed in service, all operations are accounted for as if such participating
interests were wholly owned facilities.
18. Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. The following disclosures supplement the accompanying
Statements of Cash Flows:
<TABLE>
<CAPTION>
1995 1994 1993
Thousands of Dollars
<S> <C> <C> <C>
Cash paid during the year:
Interest (net of amount capitalized) $449,664 $437,096 $474,735
Income taxes (net of refunds) 257,677 205,316 182,751
Noncash investing and financing:
Capital lease obligations incurred 112,917 41,710 42,484
</TABLE>
38
<PAGE>
19. Investments
<TABLE>
<CAPTION>
At December 31, 1995 1994
Thousands of Dollars
<S> <C> <C>
Trust accounts for decommissioning nuclear plants $ 222,655 $ 175,326
Energy services and other ventures 40,779 42,298
Nonutility property 26,816 19,609
Emission allowances 6,347 --
Gas exploration and development joint ventures 219 (722)
Other deposits 132 76
--------- ---------
Total $ 296,948 $ 236,587
========= =========
</TABLE>
20. Financial Instruments
Fair values of financial instruments, including liabilities, are estimated based
on quoted market prices for the same or similar issues. The carrying amounts and
fair values of the Company's financial instruments as of December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
Thousands of Dollars 1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and temporary cash investments $ 20,602 $ 20,602 $ 46,970 $ 46,970
Long-Term debt (including amounts due within one year) 4,599,286 4,773,700 4,986,844 4,730,005
Trust accounts for decommissioning nuclear plants 222,655 222,655 175,326 175,326
</TABLE>
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and customer
accounts receivable. The Company places its temporary cash investments with
high-credit, quality financial institutions. At times, such investments may be
in excess of the Federal Deposit Insurance Corporation limit. Concentrations of
credit risk with respect to customer accounts receivable are limited due to the
Company's large number of customers and their dispersion across many industries.
21. Nuclear Fuel Agreement with Long Island Power Authority (LIPA)
In 1993, the Company entered into an agreement with LIPA and other parties to
receive $46 million as compensation for accepting slightly irradiated nuclear
fuel from Shoreham Nuclear Power Station. The Company received the payments in
installments as the shipments of nuclear fuel were accepted. The Company also
earned a $4 million bonus as a result of receiving all shipments prior to the
September 5, 1994 target date.
The payments from LIPA, net of related costs of $4 million, were recognized in
income. The Company recognized $26 and $20 million as Other Income in the
Consolidated Statements of Income for the years ended December 31, 1994 and
1993, respectively.
22. Voluntary Retirement and Separation Incentive Programs
The Company incurred a one-time, pre-tax charge of $254 million ($145 million
net of taxes) in the third quarter of 1994 as a result of voluntary retirement
and separation programs approved by the Company's Board of Directors in April
1994. Pursuant to these programs 1,474 employees elected to retire and 1,008
employees elected to voluntarily separate from the Company. The retirements and
separations took place in stages through December 31, 1995. As a result of the
programs, in 1994 the Company accelerated recognition of $177 million of its
non-pension postretirement benefits obligation. The Company recorded a
corresponding regulatory asset and is recovering this amount in rates as a
component of non-pension postretirement benefits expense. The recognition of the
$177 million of non-pension postretirement benefits obligation and corresponding
regulatory asset did not impact earnings.
39
<PAGE>
23. Sale of Subsidiary
On June 19, 1995, the Company completed the sale of Conowingo Power Company
(COPCO) to Delmarva Power & Light Company (Delmarva) for $150 million. The
transaction also included a ten-year contract for the Company to sell power to
Delmarva.
The Company's gain on the sale of $59 million ($27 million net of taxes) was
recorded in the second quarter of 1995.
24. Shutdown of Salem Generating Station
PSE&G removed Salem Units No. 1 and No. 2 from service on May 16, 1995 and June
7, 1995, respectively. PSE&G informed the NRC at that time that it had
determined to keep the Salem units shut down pending review and resolution of
certain equipment and management issues, and NRC agreement that each unit is
sufficiently prepared to restart. PSE&G has informed the Company that Salem
Units No. 1 and No. 2 are expected to be out of service until the second and
third quarters of 1996, respectively. As of December 31, 1995, the Company had
incurred and expensed approximately $50 million of replacement power and
operating and maintenance costs.
25. Quarterly Data (Unaudited)
The data shown below include all adjustments which the Company considers
necessary for a fair presentation of such amounts:
<TABLE>
<CAPTION>
Operating Revenues Operating Income Net Income
Millions of Dollars 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Quarter ended
March 31 $1,059 $1,128 $ 257 $ 260 $ 152 $ 159
June 30 959 952 233 203 154 116
September 30 1,125 1,041 292 128 184 22
December 31 1,044 920 222 238 120 129
</TABLE>
<TABLE>
<CAPTION>
Earnings Applicable Average Shares Earnings
to Common Stock Outstanding Per Average Share
Millions of Dollars 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Quarter ended
March 31 $146 $149 221.7 221.5 $ 0.66 $ 0.67
June 30 148 105 221.8 221.5 0.67 0.48
September 30 178 13 221.9 221.6 0.80 0.06
December 31 115 123 221.9 221.6 0.52 0.55
</TABLE>
1994 third quarter results include a pre-tax charge of $254 million ($145
million net of taxes), or $0.66 per share, as a result of VRIP and VSIP (see
note 22).
1995 second quarter results include a pre-tax gain of $59 million ($27 million
net of taxes), or $0.12 per share, as a result of the sale of COPCO (see note
23).
40
<PAGE>
Financial Statistics
Summary of Earnings and Financial Condition
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993 1992 1991 1990
Millions of Dollars
<S> <C> <C> <C> <C> <C> <C>
Income Data
Operating Revenues $ 4,186 $ 4,041 $ 3,988 $ 3,963 $ 4,019 $ 3,787
Operating Income 1,004 830 1,035 1,033 1,081 768
Income from Continuing Operations 610 427 591 479 535 106
Net Income 610 427 591 479 535 214
Earnings Applicable to Common Stock 587 389 542 418 469 124
Earnings per Average Common Share
from Continuing Operations
(Dollars) 2.64 1.76 2.45 1.90 2.15 0.07
Earnings per Average Common Share
(Dollars) 2.64 1.76 2.45 1.90 2.15 0.58
Dividends per Common Share (Dollars) 1.65 1.545 1.43 1.325 1.225 1.45
Common Stock Equity (Per Share) 20.40 19.41 19.25 18.24 17.69 16.71
Average Shares of Common Stock
Outstanding (Millions) 221.9 221.6 221.1 220.2 218.2 214.4
At December 31,
Balance Sheet Data
Net Utility Plant, at Original Cost $10,758 $10,829 $10,763 $10,691 $10,599 $10,591
Leased Property, net 181 174 194 210 224 241
Total Current Assets 486 427 515 550 783 745
Total Deferred Debits and Other
Assets 3,536 3,635 3,560 1,127 918 939
------- ------- ------- ------- ------- -------
Total Assets $14,961 $15,065 $15,032 $12,578 $12,524 $12,516
======= ======= ======= ======= ======= =======
Common Shareholders' Equity $ 4,531 $ 4,303 $ 4,263 $ 4,022 $ 3,892 $ 3,624
Preferred and Preference Stock
Without Mandatory Redemption 199 277 423 423 423 423
With Mandatory Redemption 93 93 187 231 315 331
Company Obligated Mandatorily
Redeemable Preferred Securities
of a Partnership 302 221 -- -- -- --
Long-Term Debt 4,199 4,786 4,884 5,204 5,416 5,831
------- ------- ------- ------- ------- -------
Total Capitalization 9,324 9,680 9,757 9,880 10,046 10,209
Total Current Liabilities 1,077 850 954 830 824 784
Total Deferred Credits and
Other Liabilities 4,560 4,535 4,321 1,868 1,654 1,523
------- ------- ------- ------- ------- -------
Total Capitalization and Liabilities $14,961 $15,065 $15,032 $12,578 $12,524 $12,516
======= ======= ======= ======= ======= =======
</TABLE>
41
<PAGE>
Operating Statistics
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993 1992 1991 1990
Electric Operations
<S> <C> <C> <C> <C> <C> <C>
Output (Millions of Kilowatthours)
Fossil 10,792 11,239 10,352 8,082 7,376 7,913
Nuclear 25,499 28,195 27,026 24,428 25,735 23,715
Hydro 1,425 1,970 1,699 1,803 1,388 2,266
Pumped storage output 1,741 1,596 1,478 1,597 1,653 1,437
Pumped storage input (2,507) (2,256) (2,192) (2,217) (2,355) (2,059)
Purchase and interchange 13,945 6,164 6,447 8,675 8,603 5,787
Internal combustion 175 106 56 29 79 152
Other -- -- -- -- -- 180
----------- ----------- ----------- ----------- ----------- -----------
Total electric output 51,070 47,014 44,866 42,397 42,479 39,391
=========== =========== =========== =========== =========== ===========
Sales (Millions of Kilowatthours)
Residential 10,859 10,817 10,657 9,894 10,311 9,815
Small commercial and industrial 6,299 6,108 5,773 5,367 5,284 5,066
Large commercial and industrial 15,976 15,847 15,935 15,770 16,177 16,554
Other 860 791 771 962 1,029 1,010
----------- ----------- ----------- ----------- ----------- -----------
Service territory 33,994 33,563 33,136 31,993 32,801 32,445
Interchange sales 496 768 457 1,231 1,612 2,751
Sales to other utilities 14,041 10,039 8,670 6,699 5,445 1,865
----------- ----------- ----------- ----------- ----------- -----------
Total electric sales 48,531 44,370 42,263 39,923 39,858 37,061
=========== =========== =========== =========== =========== ===========
Number of Customers, December 31,
Residential 1,321,379 1,350,210 1,341,873 1,333,926 1,324,795 1,320,126
Small commercial and industrial 141,653 143,605 142,363 141,253 140,901 140,305
Large commercial and industrial 3,394 3,603 3,742 3,972 4,162 4,344
Other 959 944 888 857 840 817
----------- ----------- ----------- ----------- ----------- -----------
Total electric customers 1,467,385 1,498,362 1,488,866 1,480,008 1,470,698 1,465,592
=========== =========== =========== =========== =========== ===========
Operating Revenues (Millions of Dollars)
Residential $ 1,401 $ 1,369 $ 1,354 $ 1,305 $ 1,342 $ 1,230
Small commercial and industrial 739 707 679 670 641 595
Large commercial and industrial 1,147 1,143 1,164 1,223 1,279 1,247
Other 137 136 161 168 171 167
----------- ----------- ----------- ----------- ----------- -----------
Service territory 3,424 3,355 3,358 3,366 3,433 3,239
Interchange sales 17 23 14 32 43 82
Sales to other utilities 334 247 233 199 187 81
----------- ----------- ----------- ----------- ----------- -----------
Total electric revenues 3,775 3,625 3,605 3,597 3,663 3,402
----------- ----------- ----------- ----------- ----------- -----------
Operating Expenses
Operating expenses, excluding
depreciation 2,406 2,430 2,228 2,237 2,253 2,325
Depreciation 431 416 401 391 380 338
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses 2,837 2,846 2,629 2,628 2,633 2,663
----------- ----------- ----------- ----------- ----------- -----------
Electric Operating Income $ 938 $ 779 $ 976 $ 969 $ 1,030 $ 739
=========== =========== =========== =========== =========== ===========
Average Use per Residential Customer
(Kilowatthours)
Without electric heating 6,908 6,736 6,727 6,259 6,707 6,376
With electric heating 17,189 17,527 17,096 16,298 16,201 16,038
Total 8,130 8,041 7,970 7,443 7,801 7,464
Electrical Peak Load, Demand
(Thousands of Kilowatts) 7,244 7,227 7,100 6,617 7,096 6,755
Net Electric Generating Capacity -
Year-End Summer Rating
(Thousands of Kilowatts) 9,078 8,956 8,877 8,836 8,766 8,766
Cost of Fuel per Million Btu $ 0.87 $ 0.89 $ 0.90 $ 0.82 $ 0.92 $ 1.13
Btu per net Kilowatthour Generated 10,705 11,617 10,675 10,657 10,849 10,844
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993 1992 1991 1990
Gas Operations
<S> <C> <C> <C> <C> <C> <C>
Sales (Millions of Cubic Feet)
Residential 1,516 1,636 1,637 1,819 1,746 1,778
House heating 31,848 31,974 30,687 29,750 26,423 25,303
Commercial and industrial 19,422 21,520 22,943 21,497 20,492 23,228
Other 1,184 5,079 5,656 2,146 534 1,567
-------- -------- -------- -------- -------- --------
Total gas sales 53,970 60,209 60,923 55,212 49,195 51,876
Gas transported for customers 48,531 29,801 22,946 22,060 21,414 24,413
-------- -------- -------- -------- -------- --------
Total gas sales and gas transported 102,501 90,010 83,869 77,272 70,609 76,289
======= ====== ====== ====== ====== ======
Number of Customers, December 31,
Residential 56,533 57,122 59,573 59,859 62,444 63,267
House heating 295,481 287,481 277,500 269,577 260,473 254,564
Commercial and industrial 33,308 32,292 31,573 30,956 30,204 29,456
-------- -------- -------- -------- -------- --------
Total gas customers 385,322 376,895 368,646 360,392 353,121 347,287
======= ======= ======= ======= ======= =======
Operating Revenues (Millions of Dollars)
Residential $ 15 $ 16 $ 15 $ 16 $ 17 $ 18
House heating 240 236 205 202 192 201
Commercial and industrial 129 133 124 121 124 145
Other 4 14 15 3 2 5
-------- -------- -------- -------- -------- --------
Subtotal 388 399 359 342 335 369
Other revenues (including transported
for customers) 22 17 23 23 21 16
-------- -------- -------- -------- -------- --------
Total gas revenues 410 416 382 365 356 385
-------- -------- -------- -------- -------- --------
Operating Expenses
Operating expenses, excluding
depreciation 319 340 299 278 284 336
Depreciation 26 26 24 23 21 20
-------- -------- -------- -------- -------- --------
Total operating expenses 345 366 323 301 305 356
-------- -------- -------- -------- -------- --------
Gas Operating Income $ 65 $ 50 $ 59 $ 64 $ 51 $ 29
======== ======== ======== ======== ======== ========
</TABLE>
43
Exhibit 21
PECO Energy Company Subsidiaries
and State of Incorporation
At December 31, 1995
PECO Energy Power Company - Incorporated in Pennsylvania
Susquehanna Power Company - Incorporated in Maryland
PECO Energy Capital Corp. - Incorporated in Delaware
PECO Gas Supply Company - Incorporated in Pennsylvania
PECO Wireless, Inc. - Incorporated in Pennsylvania
The Proprietors of the Susquehanna Canal (Inactive)- Incorporated in Maryland
Susquehanna Electric Company - Incorporated in Maryland
Eastern Pennsylvania Development Company - Incorporated in Pennsylvania
Adwin (Schuylkill) Cogeneration, Inc. - Incorporated in Pennsylvania
Adwin Equipment Company - Incorporated in Pennsylvania
Adwin Realty Company - Incorporated in Pennsylvania
Adwin Investment Company - Incorporated in Delaware
Buttonwood Associates, Inc. - Incorporated in Delaware
Energy Performance Services, Inc. - Incorporated In Pennsylvania
Eastern Pennsylvania Exploration Company - Incorporated in Pennsylvania
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
PECO Energy Company on Form S-3 (File Nos. 33-31436, 33-59152, 33-49887,
33-43523, and 33-54935), Form S-4 (File Nos. 33-53785, 33-53785-01, 33-60859,
and 33-60859-01), and Form S-8 (File Nos. 33-30317 and 333-451) of our report
dated February 2, 1996, on our audits of the consolidated financial statements
of PECO Energy Company as of December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995, which report is incorporated
by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 27, 1996
Exhibit 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Susan W. Catherwood of Bryn Mawr,
PA, do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1995 of PECO Energy
Company to be filed with the Securities and Exchange Commission, and generally
to do and perform all things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present.
DATE: 2/26/96 /s/ Susan W. Catherwood (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, M. Walter D'Alessio of Philadelphia,
PA, do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1995 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: 2/26/96 /s/ M. Walter D'Alessio (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Richard G. Gilmore of Sarasota, FL,
do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1995 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: 2/26/96 /s/ Richard G. Gilmore (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Richard H. Glanton of Philadelphia,
PA, do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1995 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: 2/26/96 /s/ Richard H. Glanton (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, James A. Hagen of Villanova, PA, do
hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of them,
attorney for me and in my name and on my behalf to sign the annual Securities
and Exchange Commission report on Form 10-K for 1995 of PECO Energy Company
(formerly Philadelphia Electric Company), to be filed with the Securities and
Exchange Commission, and generally to do and perform all things necessary to be
done in the premises as fully and effectually in all respects as I could do if
personally present.
DATE: 2/26/96 /s/ James A. Hagen (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Nelson G. Harris of Lafayette Hill,
PA, do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1995 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: 2/26/96 /s/ Nelson G. Harris (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Robert Subin of Blue Bell, PA, do
hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of them,
attorney for me and in my name and on my behalf to sign the annual Securities
and Exchange Commission report on Form 10-K for 1995 of PECO Energy Company
(formerly Philadelphia Electric Company), to be filed with the Securities and
Exchange Commission, and generally to do and perform all things necessary to be
done in the premises as fully and effectually in all respects as I could do if
personally present.
DATE: 2/26/96 /s/ Robert Subin (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Joseph C. Ladd of Rosemont, PA, do
hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of them,
attorney for me and in my name and on my behalf to sign the annual Securities
and Exchange Commission report on Form 10-K for 1995 of PECO Energy Company
(formerly Philadelphia Electric Company), to be filed with the Securities and
Exchange Commission, and generally to do and perform all things necessary to be
done in the premises as fully and effectually in all respects as I could do if
personally present.
DATE: 2/26/96 /s/ Joseph C. Ladd (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Edithe J. Levit of Philadelphia, PA,
do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1995 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: 2/26/96 /s/ Edithe J. Levit (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Kinnaird R. McKee of Oxford, MD, do
hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of them,
attorney for me and in my name and on my behalf to sign the annual Securities
and Exchange Commission report on Form 10-K for 1995 of PECO Energy Company
(formerly Philadelphia Electric Company), to be filed with the Securities and
Exchange Commission, and generally to do and perform all things necessary to be
done in the premises as fully and effectually in all respects as I could do if
personally present.
DATE: 2/26/96 /s/ Kinnaird R. McKee (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Joseph J. McLaughlin of Rosemont,
PA, do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1995 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: 2/26/96 /s/ Joseph J. McLaughlin (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Dr. John M. Palms of Columbia, SC,
do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1995 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: 2/26/96 /s/ John M. Palms (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Ronald Rubin of Narberth, PA, do
hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of them,
attorney for me and in my name and on my behalf to sign the annual Securities
and Exchange Commission report on Form 10-K for 1995 of PECO Energy Company
(formerly Philadelphia Electric Company), to be filed with the Securities and
Exchange Commission, and generally to do and perform all things necessary to be
done in the premises as fully and effectually in all respects as I could do if
personally present.
DATE: 2/26/96 /s/ Ronald Rubin (L.S.)
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000078100
<NAME> PECO ENERGY COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 10,938
<OTHER-PROPERTY-AND-INVEST> 297
<TOTAL-CURRENT-ASSETS> 486
<TOTAL-DEFERRED-CHARGES> 2,716
<OTHER-ASSETS> 524
<TOTAL-ASSETS> 14,961
<COMMON> 3,506
<CAPITAL-SURPLUS-PAID-IN> 1
<RETAINED-EARNINGS> 1,024
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,531
93
199
<LONG-TERM-DEBT-NET> 4,198
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 401
0
<CAPITAL-LEASE-OBLIGATIONS> 120
<LEASES-CURRENT> 60
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,358
<TOT-CAPITALIZATION-AND-LIAB> 14,961
<GROSS-OPERATING-REVENUE> 4,186
<INCOME-TAX-EXPENSE> 397
<OTHER-OPERATING-EXPENSES> 2,785
<TOTAL-OPERATING-EXPENSES> 3,182
<OPERATING-INCOME-LOSS> 1,004
<OTHER-INCOME-NET> 38
<INCOME-BEFORE-INTEREST-EXPEN> 1,042
<TOTAL-INTEREST-EXPENSE> 432
<NET-INCOME> 610
23
<EARNINGS-AVAILABLE-FOR-COMM> 587
<COMMON-STOCK-DIVIDENDS> 366
<TOTAL-INTEREST-ON-BONDS> 386
<CASH-FLOW-OPERATIONS> 1,264
<EPS-PRIMARY> 2.64
<EPS-DILUTED> 2.64
</TABLE>
