FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report: November 7, 1997
PECO ENERGY COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 1-1401 23-0970240
(State or other (SEC (IRS Employer
jurisdiction of file number) Identification
incorporation) Number)
230l Market Street, Philadelphia, Pennsylvania 19101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(215) 841-4000
<PAGE>
Item 5. Other Events
On November 7, 1997, PECO Energy Company (Company) filed with the Pennsylvania
Public Utility Commission (PUC) testimony in the Company's restructuring
proceeding. The testimony is the latest filing by the Company in the proceeding,
which began April 1, 1997, pursuant to the Pennsylvania Electricity Generation
Customer Choice and Competition Act (Competition Act).
The testimony supports the Company's position that the PUC should reject the
proposal filed by Enron Energy Services Power, Inc. (Enron) on October 7, 1997.
The filing outlines deficiencies, inaccuracies and technical flaws in the Enron
proposal and explains why it is unachievable and cannot deliver its stated
savings to customers.
BACKGROUND
On August 27, 1997, the Company and a group of intervenors filed a Joint
Petition for Partial Settlement (Pennsylvania Plan). The Pennsylvania Plan,
which must be approved by the PUC, includes the following parties: the Company;
Senator Vincent J. Fumo; Lance S. Haver; the Consumers Education and Protective
Association et al. (CEPA); the Office of Trial Staff (OTS); the Office of
Consumer Advocate (OCA); the Office of Small Business Advocate (OSBA); the
Philadelphia Area Industrial Energy Users Group (PAIEUG); the American
Association of Retired Persons (AARP) and the Department of the Navy. On October
9, 1997, the PUC issued an order consolidating consideration of the Enron
proposal in its review of the Pennsylvania Plan.
THE PENNSYLVANIA PLAN
The Pennsylvania Plan proposes: a guaranteed 10-percent rate cut on September 1,
1998; an accelerated two-year phase-in of customer choice, with 100 percent of
the Company's customers eligible to choose a power supplier by January 2, 2000;
an initial energy/capacity credit of 2.8 cents/kWh; the opportunity for the
Company to recover over a transition period $5.46 billion of its stranded costs
through a non-bypassable competitive transition charge (CTC) and/or intangible
transition charge (ITC); the authorization for the Company to issue up to $4
billion of transition bonds; and a write-off, by the Company, of at least $2
billion of unrecovered stranded costs.
THE ENRON PROPOSAL
The Enron proposal purports to provide customers a 20-percent rate cut beginning
September 1, 1998, effected through a realigned CTC/ITC rate structure. Energy
and capacity would be initially priced at 3.48 cents/kWh. The proposal is
totally dependent on the Company securitizing $5.46 billion of its stranded
costs through the issuance of transition bonds with a stated coupon rate of 9.66
percent. Enron would re-securitize the bonds by selling Class A pass-through
securities at market rates and retaining the residual Class B pass-through
securities. Enron would become the default supplier in the Company's service
territory, although the Company would serve the default customers' load under a
Power Purchase Agreement.
<PAGE>
KEY FINANCIAL CONSIDERATIONS
The following is a summary of certain aspects of the Company's testimony:
SECURITIZATION UNDER THE ENRON PROPOSAL IS NOT ACHIEVABLE.
- The revenue stream included in the Enron proposal is not
sufficient to service the bonds in the early years. The
shortfall stems in part from Enron's failure to reflect gross
receipts tax in the ITC rates.
- It is highly unlikely that the Enron proposal would receive the
necessary tax rulings from the Internal Revenue Service.
- The Enron proposal violates provisions of the Company's mortgage
related to the release of property.
IF IMPLEMENTED, THE ENRON PROPOSAL WOULD DESTROY THE COMPANY'S
FINANCIAL INTEGRITY.
- The Company expects that it would not maintain an investment-
grade rating of its mortgage bonds.
- The Company would experience a negative net cash flow (cash from
operations less scheduled maturities, capital expenditures and
common dividends) of $709 million in 1999 and a cumulative
negative net cash flow of $2.9 billion through 2005.
- Earnings per share would show a loss of $0.22 per share in 1999
and would not exceed $0.97 per share during the period 2000 to
2005 (see note below).
OTHER ISSUES
- The Enron proposal violates the Competition Act.
- The proposal is dependent on a Power Purchase Agreement that
is one-sided, undervalued and transfers all risk to the
Company without due compensation from Enron. The Company
would never sign such an agreement.
- Enron's analysis of market prices for energy and capacity is
seriously flawed and provides no evidentiary basis for the
generation credits.
- Enron's proposed requirement that the Company not be allowed to
market power using its corporate name is anti-competitive.
- Many other provisions, including the proposed services agreement
and tariff revisions, are not in the best interests of the
Company and its customers.
A PUC decision is scheduled for December 11, 1997.
(Note) - The Company cannot currently predict what decision the PUC will
ultimately reach in the Company's restructuring proceeding or what impact that
decision will ultimately have on the Company's future financial condition,
results of operation or common stock dividend. The estimates are not intended to
be and should not be used as a forecast or projection of the Company's future
financial condition or results of operation.
* * * *
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PECO ENERGY COMPANY
\s\ J. B. Mitchell
Vice President - Finance
and Treasurer
November 10, 1997
