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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, 1997
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 Identification No.)
incorporation or organization)
P.O. Box 8699
2301 Market Street, Philadelphia, PA (215) 841-4000 19101
(Address of principal executive offices)
(Registrant's telephone number, including area code) (Zip Code)
------------------------
Securities registered pursuant to Section 12(b) of the Act:
First and Refunding Mortgage Bonds (Listed on the New York Stock Exchange):
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 3/8% Series due 2001 6 1/2% Series due 2003
7 1/8% Series due 2023 7 1/4% Series due 2024
Cumulative Preferred Stock -- without par value (Listed on the New York and
Philadelphia Stock Exchanges):
$4.68 Series $4.40 Series $4.30 Series $3.80 Series
Common Stock -- without par value (Listed on the New York and Philadelphia
Stock Exchanges)
9.00% Cumulative Monthly Income Preferred Securities, Series A, $25 stated
value, issued by PECO Energy Capital, L.P. and unconditionally guaranteed by the
Company (Listed on the New York Stock Exchange)
Trust Receipts of PECO Energy Capital Trust I, each representing an 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
(Listed on the New York Stock Exchange)
Trust Receipts of PECO Energy Capital Trust II, each representing an 8.00%
Cumulative Monthly Income Preferred Security, Series C, $25 stated value, issued
by PECO Energy Capital, L.P. and unconditionally guaranteed by the Company
(Listed 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. [X]
The aggregate market value of the registrant's common stock (only voting
stock) held by non-affiliates of the registrant was $4,407,775,384 at February
28, 1998.
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: 222,546,562 shares outstanding at
February 28, 1998.
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DOCUMENTS INCORPORATED BY REFERENCE (In Part)
Annual Report of PECO Energy Company to Shareholders for the year 1997
is incorporated in part in Parts I, II and IV hereof, as
specified herein. Proxy Statement of PECO Energy Company in
connection with its 1998 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
Deregulation and Rate Matters.....................................1
Electric - Retail..............................................1
Electric -Wholesale............................................3
Gas............................................................4
Competition....................................................5
Electric Operations...............................................5
General........................................................5
Limerick Generating Station....................................8
Peach Bottom Atomic Power Station.............................10
Salem Generating Station......................................10
Fuel ............................................................12
Nuclear.......................................................12
Coal..........................................................14
Oil...........................................................14
Natural Gas...................................................14
Gas Operations...................................................14
Segment Information..............................................15
Construction.....................................................15
Capital Requirements and Financing Activities....................16
Employee Matters.................................................17
Environmental Regulations........................................17
Water.........................................................18
Air...........................................................18
Solid and Hazardous Waste.....................................18
Costs.........................................................21
Telecommunications and Other Ventures............................21
PECO Energy Capital Corp. and Related Entities...................22
Executive Officers of the Registrant.............................23
ITEM 2. PROPERTIES.......................................................25
ITEM 3. LEGAL PROCEEDINGS................................................27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............27
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS....................................27
ITEM 6. SELECTED FINANCIAL DATA..........................................28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................28
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.........................28
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............29
ITEM 11.EXECUTIVE COMPENSATION...........................................29
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.....................................................29
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................29
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.......................................................30
Financial Statements and Financial Statement Schedule............30
REPORT OF INDEPENDENT ACCOUNTANTS................................31
SCHEDULE II-- VALUATION AND QUALIFYING ACCOUNTS..................32
Exhibits.........................................................33
Reports on Form 8-K..............................................36
SIGNATURES
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PART I
ITEM 1. BUSINESS
The Company
Incorporated in Pennsylvania in 1929, PECO Energy Company (Company)
provides retail electric and natural gas service in southeastern Pennsylvania
and, through pilot programs, natural gas service to areas in Maryland and New
Jersey. The Company also engages in the wholesale marketing of electricity on a
national basis and participates in joint ventures which provide
telecommunication services in the Philadelphia area.
The Company's traditional retail service territory covers 2,107 square
miles. Electric service is furnished to an area of 1,972 square miles with a
population of approximately 3.6 million, including 1.6 million in the City of
Philadelphia. Approximately 94% of the retail electric service area and 64% of
retail kilowatthour (kWh) 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 in a 1,475-square-mile area of
southeastern Pennsylvania adjacent to Philadelphia with a population of
approximately 1.9 million. Through Horizon Energy, a wholly owned subsidiary of
the Company, and PECO Energy/EnergyOne, a franchised energy products brand, the
Company participates in Pennsylvania's pilot program for retail competition for
generation.
The electric and gas utility industries are both undergoing fundamental
restructuring. In 1996, the Federal Energy Regulatory Commission (FERC) issued
Order No. 888 providing for competition in wholesale generation by requiring
that all public utilities file non-discriminatory, open-access transmission
tariffs. In December 1996, Pennsylvania Governor Ridge signed into law the
Electricity Generation Customer Choice and Competition Act (Competition Act)
which provides for the restructuring of the electric utility industry in
Pennsylvania, including retail competition for generation beginning in 1999. At
December 31, 1997, the Company discontinued the use of regulatory accounting in
its financial statements for its electric generation operations. For additional
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's Annual Report to Shareholders for
the year 1997.
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 FERC as to
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.
Deregulation and Rate Matters
Historically, all of the Company's retail electric and gas revenues have
been derived pursuant to bundled rates regulated by the PUC and all of the
Company's wholesale electric revenue has been derived pursuant to rates
regulated by the FERC. As a result of the adoption of the Competition Act and
deregulation initiatives by the FERC, electric services are being unbundled into
separate generation, transmission and distribution services with open
competition for both retail and wholesale generation services. Certain
transmission and distribution services will remain subject to regulation.
Electric - Retail
The Competition Act was enacted in December 1996 providing for the
restructuring of the electric utility industry in Pennsylvania, including retail
competition for generation beginning in 1999. The Competition Act
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required each electric utility in Pennsylvania to submit to the PUC a
restructuring plan, including its retail electric generation-related stranded
costs (the loss in value of electric generation-related assets which will result
from competition). The Competition Act authorizes the recovery of stranded costs
through charges to distribution customers beginning January 1, 1999 for a period
up to seven years (or for an alternative period determined by the PUC for good
cause shown). During that period, the utility is subject to a rate cap which
provides that total charges to customers cannot exceed rates in place as of
December 31, 1996, subject to certain exceptions. The Competition Act also caps
transmission and distribution rates from December 31, 1996 through June 30,
2001, subject to certain exceptions.
Pursuant to the Competition Act, in April 1997, the Company filed with the
PUC a comprehensive restructuring plan detailing its proposal to implement full
customer choice of electric generation supplier. The Company's restructuring
plan identified $7.5 billion of retail electric generation-related stranded
costs. In August 1997, the Company and various intervenors in the Company's
restructuring proceeding filed with the PUC a Joint Petition for Partial
Settlement (Pennsylvania Plan). In December 1997, the PUC rejected the
Pennsylvania Plan and entered an Opinion and Order, revised in January 1998 (PUC
Restructuring Order), which deregulates the Company's electric generation
operations. The PUC Restructuring Order allows the Company to recover stranded
costs of $4.9 billion on a discounted basis, or $5.3 billion on a book value
basis, over 8-1/2 years beginning in 1999. Recovery of stranded costs will be
through a separate charge to be levelized over the recovery period using a 7.47%
cost of capital.
The PUC Restructuring Order provides for the phasing in of customer choice
of electric generation supplier for all customers: one-third of the peak load of
each customer class on January 1, 1999; one-third on January 2, 1999 (one day
later); and the remainder on January 2, 2000. All customers will continue to
take bundled electric service under the Company's PUC-approved rates through
December 31, 1998. From January 1, 1999 through June 30, 2007, the Company will
be obligated to provide generation service to customers who do not choose an
alternate energy supplier as well as all customers who seek a new energy
supplier but are unable to reach a service agreement with another supplier. The
Company's rates for these customers will remain bundled and are capped at 1996
levels through June 30, 2007, subject to certain exceptions.
The PUC Restructuring Order caps all customer bills at the year-end 1996
system-wide average of 9.95 cents per kWh. Beginning January 1, 1999, electric
rates for customers who choose an alternate energy supplier will be unbundled
into a transmission and distribution component, the charge for recovery of
stranded costs and a "shopping credit" for generation. On a system-wide average
basis, the transmission and distribution component will be 2.93 cents per kWh,
the charge for recovery of stranded costs will be 2.45 cents per kWh and the
"shopping credit" for generation will be 4.58 cents per kWh. Bundled rates are
capped through June 30, 2001, subject to certain provisions.
To encourage competition, the PUC established the "shopping credit" for
generation in excess of current market prices. The PUC estimates that customers
who choose an alternate energy supplier will save up to 15% of their total
electric bill beginning in 1999 through June 30, 2007 and will save 30 % of
their total electric bill thereafter.
The PUC Restructuring Order requires the Company to increase enrollment in
its Customer Assistance Program for low-income customers, presently limited to
40,000 customers, to at least 80,000 customers with no limit on the number of
enrollees. The Company has also been directed to spend $5.6 million on
weatherization programs for low-income customers.
The Company believes that the PUC Restructuring Order provides sufficient
details regarding the deregulation of the Company's electric generation
operations to require the Company to discontinue the use of regulatory
accounting in its financial statements for those operations. The Company
determined that at December 31, 1997, $5.8 billion of its $7.1 billion of
electric generation assets were impaired and it had $2.6 billion of other
electric generation-related regulatory assets. At December 31, 1997, the Company
recorded an extraordinary charge against income of $3.1 billion ($1.8 billion
net of income taxes) to reflect the amount of electric generation-related assets
that will not be recovered from customers either prior to the commencement of
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competition or under the PUC Restructuring Order. See note 4 of Notes to
Consolidated Financial Statements included in the Company's Annual Report to
Shareholders for the year 1997.
On January 21, 1998, the Company filed a complaint in the U.S. District
Court for the Eastern District of Pennsylvania (Eastern District Court) seeking
injunctive and monetary relief on the grounds that the Competition Act and the
PUC Restructuring Order: (1) are preempted by Section 201(b) of the Federal
Power Act; (2) effect a taking of private property without just compensation in
violation of the Fifth and Fourteenth Amendments to the U.S. Constitution; (3)
violate the Due Process Clause, the Contract Clause and the First Amendment of
the U.S. Constitution; and (4) deprive the Company of certain other federally
protected rights.
On January 22, 1998, the Company filed two Petitions for Review in the
Commonwealth Court of Pennsylvania (Commonwealth Court) appealing the PUC
Restructuring Order. The petitions state that the PUC Restructuring Order must
be set aside because it is based upon errors of law, is not supported by
substantial evidence, constitutes an arbitrary and capricious abuse of
administrative discretion and deprives the Company of the due process of law, to
which it is entitled under Article I of the Pennsylvania Constitution.
In addition to the Company's appeals, numerous other parties, including
various intervenors, have filed appeals and cross appeals of the PUC
Restructuring Order. There are also two pending actions alleging that the manner
in which the Competition Act was passed by the Pennsylvania legislature violates
the Pennsylvania Constitution.
The Competition Act authorizes the PUC to approve, by adopting a Qualified
Rate Order (QRO), the issuance of Transition Bonds as a mechanism to mitigate
stranded costs and reduce customer rates. The Transition Bonds may be issued by
a utility, a finance subsidiary of a utility or a third-party assignee of a
utility. Under the Competition Act, proceeds of Transition Bonds are required to
be used principally to reduce qualified stranded costs and the related
capitalization of the utility. The Transition Bonds are payable from irrevocable
customer charges and may have a maximum maturity of the earlier of ten years or
the recovery period of stranded costs.
On January 22, 1997, the Company filed an Application with the PUC for a
QRO authorizing the issuance of Transition Bonds to fund $3.6 billion of
stranded costs and related transaction and use of proceeds costs. On May 22,
1997, the PUC adopted an order authorizing the Company to securitize up to $1.1
billion of stranded costs. Such authorization, which expires May 22, 1998 unless
extended, does not preclude the Company from applying for an additional QRO to
securitize additional stranded costs. Certain parties which intervened in the
Company's Application for a QRO have appealed the PUC's order to the
Commonwealth Court. The Company believes it is unlikely that it will securitize
the recovery of its stranded costs until these appeals and the appeals of the
PUC Restructuring Order are resolved. If the Company does securitize, it cannot
predict the amount of stranded cost recovery that it would be permitted to
securitize or the impact of such securitization on the Company's capitalization.
The Competition Act requires each regulated electric utility to implement a
Retail Access Pilot Program (Pilot Program) for customers representing 5% of the
peak load of each customer class. On August 29, 1997, the PUC issued a final
order outlining the guidelines for Pilot Programs. Among other things, the Pilot
Programs guidelines provide for: residential and commercial customers to be
given a 3 cent per kWh energy credit and a 13% reduction in the regulated
portion of their bills; industrial customers to be given a 2.7 cent per kWh
energy credit and a 10% reduction in the regulated portion of their bills.
Approximately 400,000 of the Company's customers applied to participate in the
Company's Pilot Program. In a lottery held by an independent third party,
approximately 75,000 customers were chosen to participate in the Company's Pilot
Program. The Pilot Programs began on November 1, 1997 and will last through
December 31, 1998.
Electric - Wholesale
During 1996, the FERC issued Order No. 888 which requires all public
utilities that own, control or operate interstate transmission facilities to
file open-access transmission tariffs for wholesale transmission services in
accordance with non-discriminatory terms and conditions established by the FERC.
The FERC's stated goal in
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promulgating Order No. 888 and related orders is to remove impediments to
competition in the wholesale bulk power market place and to bring more
efficient, lower cost power to electricity consumers.
In response to Order No. 888, on July 3, 1996, the Company filed an
individual compliance tariff with the FERC which became effective July 9, 1996.
In December 1996, the Company and the other members of the PJM Interconnection
(PJM) filed a joint compliance filing with the FERC. The PJM is a power pool
which integrates through central dispatch the generation and transmission
operations of its member companies across a 50,000 square-mile territory in the
Mid-Atlantic region. That filing included a PJM regional transmission tariff.
Under the PJM tariff, which became effective on March 1, 1997, transmission
service is provided on a pool-wide, open-access basis using the transmission
facilities of the PJM members at rates based on the costs of the transmission
system at the point of delivery.
On March 31, 1997, the members of the PJM converted that organization from
an unincorporated association into a limited liability company and filed with
the FERC a revised PJM Operating Agreement to reflect that change.
In November 1997, the FERC issued an order authorizing the establishment of
an independent system operator (ISO) for the PJM on January 1, 1998 and
designated the PJM Interconnection, L.L.C.'s Office of the Interconnection as
the ISO. The ISO is responsible for operation of the PJM control area and
administration of the PJM open-access transmission tariff and the hourly energy
market in the PJM. In that same order, the FERC directed the Company and the
other transmission owners in the PJM to turn over control of their transmission
facilities to the ISO and put in place a new PJM regional transmission tariff
and energy market arrangement. Although the Company cannot predict the long-term
economic effect of the restructured pooling arrangements approved by the FERC,
the arrangements, together with the introduction of retail competition, could
adversely affect the Company's ability to fully recover its transmission costs.
Authority has been requested from the FERC to sell energy from PJM-dispatched
generating units in the PJM markets, including the hourly energy market, at
market based rates. The FERC has not yet acted on this request.
The Company received approval from the FERC to remove the cost-based cap on
prices charged for power in the wholesale market and certain changes regarding
the terms of the buy-for-resale agreements. The new tariff provisions allow the
Company to sell energy at market-based rates both within and outside the
geographical boundaries of the PJM.
Gas
The Company's gas sales and gas transportation revenues are derived
pursuant to rates regulated by the PUC. The PUC has established through
regulatory proceedings the base rates the Company may charge for gas service in
Pennsylvania. The Company's gas rates are subject to a purchased gas cost (PGC)
adjustment clause and a State Tax Adjustment Surcharge (STAS). The PGC is
designed to recover or refund the difference between the actual cost of
purchased gas and the amount included in base rates. The PGC is adjusted
quarterly. The STAS is designed to recover or refund increases or decreases in
certain state taxes not recovered in base rates.
On August 1, 1997, the Company reached a settlement on all outstanding
issues regarding its PGC No. 14 rates for the period December 1, 1997 to
November 30, 1998, which reflects a $0.0731 per thousand cubic feet (mcf)
decrease in natural gas sales rates. PGC No. 14 became effective December 1,
1997.
The gas industry is continuing to undergo structural changes in response to
FERC policies designed to increase competition. FERC policies have required
interstate gas pipelines to unbundle their gas sales service from other
regulated tariff services, such as transportation and storage. In anticipation
of these changes, the Company modified its gas purchasing arrangements to enable
the purchase and transportation of gas at lower cost. The Company, through
Horizon Energy Company, is participating in pilot programs outside the Company's
gas service territory to market natural gas and other services.
There is an initiative in the Pennsylvania legislature to deregulate the
gas industry, which has the support of the Governor. The Company cannot predict
whether the Pennsylvania legislature will enact legislation that
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deregulates the gas industry or whether the Governor will ultimately sign into
law any such legislation. The Company cannot predict the ultimate effect of gas
industry deregulation on its future financial condition and results of
operations.
Competition
The Company actively competes in the developing wholesale markets for
electricity. The Company's wholesale marketing activities include the sale of
energy from the Company's installed capacity, the purchase of energy to meet the
Company's retail requirements, the resale of energy purchased from unaffiliated
utilities and others and the marketing of energy of other generators. The
Company competes in the wholesale market for electricity on the bases of price,
dependability of service and execution of transactions.
The Company, through Horizon Energy and PECO Energy/EnergyOne, expects to
compete for retail customers within the Company's traditional retail electric
service territory. The Company, through Horizon Energy Company, is participating
in electric and gas retail access pilot programs outside the Company's
traditional service territory. Over 30 companies, including investor-owned
utilities located in Pennsylvania and elsewhere, unregulated energy companies
and power marketers, are participating in the Company's Pilot Program.
Competition for retail customers in the Company's Pilot Program has been
extensive. Certain companies have targeted specific segments of the market for
retail generation services and other companies are competing in all segments.
The majority of participating companies have targeted customers in the large
commercial and industrial segments of the market. The bases of competition in
the Pilot Program are primarily price and reliability. The Company cannot
predict whether the competitive factors in the Company's Pilot Program are
indicative of future competition for retail generation services.
The Company anticipates very active competition for retail generation
services within the Company's traditional electric service territory. As a
result of competitive pressures, the Company has continued to negotiate
long-term contracts with many of its larger-volume customers. Although these
agreements have generally resulted in reduced margins, they have permitted the
Company to retain these customers. For additional information regarding
competition, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's Annual Report to Shareholders for
the year 1997.
Electric Operations
General
During 1997, 90% of the Company's operating revenues and 91% of its
operating income were from electric operations. 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. Electric sales and operating revenues for 1997 by
class of customer are set forth below:
<TABLE>
<CAPTION>
Operating
Sales Revenues
(millions of kWh) (millions of $)
<S> <C> <C>
Residential................................................... 10,407 $1,357
Small commercial and industrial............................... 6,685 779
Large commercial and industrial............................... 15,034 1,077
Other......................................................... 841 148
Change in unbilled............................................ 70 19
------- -------
Service territory......................................... 33,037 3,380
Interchange sales............................................. 1,927 59
Sales to other utilities...................................... 28,893 728
------- -------
Total 63,857 $4,167
======= =======
</TABLE>
The Company is engaged in the wholesale marketing of electricity on a
national basis. The Company's wholesale marketing activities include the sale of
energy from the Company's installed capacity, the purchase of energy to meet the
Company's retail requirements, the resale of energy purchased from unaffiliated
utilities and
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others and the marketing of energy of other generators. During 1997, the Company
purchased 44.6% of its total requirements and estimates that for 1998 it will
purchase 39.6% of its total requirements.
At December 31, 1997, the Company had long-term commitments to purchase
from unaffiliated utilities and others energy associated with 1,330 megawatts
(MW) of capacity in 1998, energy associated with 2,540 MW of capacity during the
period 1999 through 2002 and energy associated with 2,430 MW of capacity
thereafter. Under some of these contracts, the Company may purchase, at its
option, additional power as needed. These purchases will be utilized through a
combination of sales to jurisdictional customers, long-term sales to other
utilities and open-market sales. At December 31, 1997, the Company had entered
into long-term agreements with unaffiliated utilities to sell energy associated
with 540 MW of capacity in 1998, energy associated with 1,700 MW of capacity
during the period 1999 through 2002 and energy associated with 2,040 MW of
capacity thereafter. See note 5 of Notes to Consolidated Financial Statements
included in the Company's Annual Report to Shareholders for the year 1997.
The net installed electric generating capacity (summer rating) of the
Company and its subsidiaries at December 31, 1997 was as follows:
<TABLE>
<CAPTION>
Type of Capacity MW % of Total
<S> <C> <C>
Nuclear........................................................... 4,090 44.4%
Mine-mouth, coal-fired............................................ 709 7.7
Service-area, coal-fired.......................................... 725 7.9
Oil-fired......................................................... 1,176 12.8
Gas-fired......................................................... 267 2.9
Hydro (includes pumped storage)................................... 1,392 15.1
Internal combustion 845 9.2
----- -----
Total 9,204(1) 100.0%
===== =====
<FN>
- ---------------
(1) See "Fuel" for sources of fuels used in electric generation.
</FN>
</TABLE>
The all-time maximum hourly demand on the Company's system was 7,390 MW
which occurred on July 15, 1997. The Company's peak service territory load for
1998 is estimated to be 7,267 MW. The Company estimates its generating reserve
margin for 1998 to be 33%.
The all-time maximum PJM demand of 49,406 MW occurred on July 15, 1997.
PJM's installed capacity (summer rating) is more than 56,000 MW. The Company's
installed capacity is expected to be sufficient to meet its obligation to supply
its PJM reserve margin share during the period 1998-2001. See "Deregulation and
Rate Matters Electric - Retail."
The Company's nuclear-generated electricity is supplied by Limerick
Generating Station (Limerick) Units No. 1 and No. 2, Peach Bottom Atomic Power
Station (Peach Bottom) Units No. 2 and No. 3, which are operated by the Company,
and 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 1,110 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.
The Company's nuclear generating facilities represent approximately 44% of
its installed generating capacity. In 1997, approximately 39% of the Company's
electric output was generated from the Company's nuclear generating facilities.
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.
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The Price-Anderson Act currently limits the liability of nuclear reactor
owners to $8.9 billion for claims that could arise from a single incident. The
limit is subject to change to account for the effects of inflation and changes
in the number of licensed reactors. The Company carries the maximum available
commercial insurance of $200 million and the remaining $8.7 billion is provided
through 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 if the damages from an incident at a licensed
nuclear facility exceed $8.9 billion. The Price-Anderson Act and the extensive
regulation of nuclear safety by the NRC do not preclude claims under state law
for personal, property or punitive damages related to radiation hazards.
Property insurance in the amount of $2.75 billion is maintained for each
nuclear power plant in which the Company has an ownership interest. The Company
is responsible for its proportionate share of such insurance based on its
ownership interest. 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, as a result of
an accident, 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 $26 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
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 waiting period before
recovery of costs can commence. The premium for this coverage is subject to
assessment for adverse loss experience. The Company's maximum share of any
assessment is $13 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. Based on estimates of
decommissioning costs for each of the nuclear facilities in which the Company
has an ownership interest, the PUC 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 current estimate of the cost of decommissioning its nuclear facilities
is $1.5 billion in 1997 dollars which is being collected through electric rates
over the life of each generating unit. Beginning in 1999, decommissioning costs
will be recoverable through transmission and distribution rates. At December 31,
1997, the Company held $320 million in trust accounts, representing amounts
recovered from customers and net realized and unrealized investment earnings
thereon, to fund future decommissioning costs.
In an Exposure Draft issued in 1996, the Financial Accounting Standards
Board (FASB) proposed changes in the accounting for closure and removal costs of
production facilities, including the recognition, measurement and classification
of decommissioning costs for nuclear generating stations. The FASB has expanded
the scope of the Exposure Draft to include closure or removal liabilities that
are incurred at any time during the operating
7
<PAGE>
life of the related long-lived asset. The FASB has decided that it should
proceed toward either a final Statement or a revised Exposure Draft. The timing
of this project is still to be determined. If current electric utility industry
accounting practices for decommissioning are changed, annual provisions for
decommissioning costs could increase and the estimated cost for decommissioning
could be recorded as a liability rather than as accumulated depreciation, and
the increased cost would be recognized as a regulatory asset. For additional
information concerning nuclear decommissioning, see note 5 of Notes to
Consolidated Financial Statements included in the Company's Annual Report to
Shareholders for the year 1997.
On January 29, 1998, the NRC proposed to issue a generic letter which would
require all nuclear plant operators to provide the agency with information
concerning their programs, planned or implemented, to address Year 2000 computer
and systems issues at their facilities. In particular, operators would be asked
to provide confirmation of implementation of their programs and certification
that their facilities are Year 2000 ready and in compliance with the terms and
conditions of their licenses and NRC regulations. Licensees would be required to
submit a written response indicating the status of their Year 2000 readiness
program, including scope, assessment process and plans for corrective action.
Upon completion of their Year 2000 readiness program and no later than July 1,
1999, licensees would be required to confirm to the NRC that their facilities
are Year 2000 ready, together with a status report of work necessary to be Year
2000 compliant. Year 2000 ready means computer systems and applications are
suitable for continued use into the year 2000. Year 2000 compliant means that
such systems and applications accurately process date/time data beyond the year
2000. The Company cannot predict if this or any proposal will be adopted by the
NRC. For additional information regarding Year 2000 issues, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's Annual Report to Shareholders for the year 1997.
In 1996, the NRC requested that all nuclear plant operators inform the NRC
whether their nuclear units are operated and maintained within the design bases
of the facilities and confirm that any deviations have been or will be
reconciled in a timely manner. The Company responded to the NRC's request on
February 4, 1997 with a detailed description of ongoing activities and new
initiatives to ensure that Limerick and Peach Bottom are operated and maintained
within their design bases. PSE&G provided a similar response to the NRC on
February 11, 1997 concerning Salem. Since the information that was submitted
will be used by the NRC to determine follow-up inspection activity or potential
enforcement actions, the Company cannot predict what impact the NRC's request
will have.
Limerick Generating Station
Limerick Unit No. 1 achieved a capacity factor of 85% in 1997 and 84% in
1996. Limerick Unit No. 2 achieved a capacity factor of 95% in 1997 and 91% in
1996. 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 the spring of 1996 and
1997, respectively.
On May 9, 1997, the NRC issued its periodic Systematic Assessment of
Licensee Performance (SALP) for Limerick for the period April 2, 1995 to March
29, 1997. Limerick achieved ratings of "1," the highest of three rating
categories, in the areas of Operations, Maintenance and Plant Support. In the
area of Engineering, Limerick achieved a rating of "2." The NRC stated that the
overall performance of Limerick remained excellent. Strong management
involvement and conservative decision making were exhibited in day-to-day
activities. Self-assessment and quality assurance activities continued to be
effective. The Performance Enhancement Process continued to be an effective
program for identifying, evaluating and correcting issues with appropriate
thresholds and priorities. Oversight and independent review committees
contributed to the corrective actions program effectiveness. While noting
strengths in design, analysis and modifications, the NRC stated that earlier
engineering intervention could have prevented equipment problems that resulted
in a number of plant trips and forced shutdowns. The NRC also noted that
management has recognized this performance weakness and has initiated remedial
actions. The Company is continuing to take actions in response to the NRC's
comments.
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,
8
<PAGE>
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. In accordance with industry
experience and guidance, initial examination of Limerick Unit No. 2 has been
scheduled for the refueling outage planned for April 1999. 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 refueling outage
in the fall of 1995 and the extent of cracking identified was determined to be
within industry-established guidelines. The Company has concluded, and the NRC
has concurred, that there is a substantial margin for each core shroud weld to
allow for continued operation of Unit No. 3 until its refueling outage scheduled
for 1999, at which time it will be re-examined. Peach Bottom Unit No. 2 was
initially examined during its October 1994 refueling outage and the examination
revealed a minimal number of flaws. Unit No. 2 was re-examined during its last
refueling outage in September 1996. Although the examination revealed additional
minor flaw indications, the Company concluded, and the NRC concurred, that
neither repair nor modification to the core shroud was necessary. The Company is
also participating in a GE BWR Owners Group to develop long-term corrective
actions.
As a result of several BWRs experiencing clogging of some emergency core
cooling system suction strainers, which are part of the water supply system for
emergency cooling of the reactor core, the NRC issued a Bulletin in May 1996 to
operators of BWRs requesting that measures be taken to minimize the potential
for clogging. The NRC proposed three resolution options, including the
installation of large capacity passive strainers, with a request that actions be
completed by the end of the unit's first refueling outage after January 1997.
Strainers were installed at Peach Bottom Unit No. 3 during the October 1997
refueling outage. Installation of strainers at Peach Bottom Unit No. 2 and
Limerick Unit No. 1 is scheduled for their next refueling outages in October
1998 and April 1998, respectively. For Limerick Unit No. 2, the NRC granted the
Company's request to defer the installation of strainers until the end of 1998.
The Company has requested that the deferral period for installation of strainers
at Limerick Unit No. 2 be extended until its scheduled refueling outage in April
1999. No assurance can be given that such additional deferral will be granted.
The Company cannot predict what other actions, if any, the NRC may take in this
matter.
The NRC has raised concerns that the Thermo-Lag 330 fire barrier systems
used to protect cables and equipment at certain nuclear facilities, including
Limerick and Peach Bottom, 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 Limerick and
Peach Bottom. 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. The Company met with the
NRC during 1997 regarding the Company's plans for the resolution of the
Thermo-Lag issue. In August 1997, the NRC informed the Company that it was
satisfied with the progress to date on this issue. The Company continues to work
towards completion of activities to resolve this issue by the previously
committed dates of April 1999 for Limerick and October 1999 for Peach Bottom.
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
9
<PAGE>
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. Certain of the
permits relating to the operation of the supplemental cooling water system must
be renewed periodically.
The Company has 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 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 100% in 1997 and 79%
in 1996. Peach Bottom Unit No. 3 achieved a capacity factor of 79% in 1997 and
99% in 1996. 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 the fall of
1996 and 1997, respectively.
On July 17, 1997, the NRC issued its periodic SALP report for Peach Bottom
for the period October 15, 1995 to June 7, 1997. Peach Bottom achieved ratings
of "1," in the areas of Plant Operations, Maintenance and Plant Support. In the
area of Engineering, Peach Bottom achieved a rating of "2." Overall, the NRC
observed excellent performance at Peach Bottom during the assessment period. The
NRC stated that station management provided excellent oversight and control of
engineering activities throughout the period. The NRC noted that, while overall
engineering performance was good, there were several instances where operating
procedures, surveillances, and tests were not consistent with the design and
licensing bases. The Company is continuing to take actions in response to the
NRC's comments.
During the Unit No. 3 refueling outage in October 1997, cracks were
identified in three of the ten recirculation system jet pump riser pipes within
the reactor vessel. The Company developed a plan allowing for the continued
operation of the unit for several months until permanent repairs can be made.
The plan limits operation of the unit to 94% of its rated power level for most
of this period. The Company plans to remove Unit No. 3 from service for
approximately two weeks during March 1998 to perform permanent repairs. The
Company expects that the permanent repairs will cost approximately $3.25
million.
The Company, Delmarva Power & Light Company and PSE&G have agreed to an
operating performance standard through December 31, 2007 for Peach Bottom and
through December 31, 2011 for Salem. Under the standard, the operator of each
respective station would be required to make payments to the non-operating
owners if the three-year capacity factor, determined annually, of such station
falls below 40 percent, subject to a maximum of $25 million per year. The
initial three-year period began on January 1, 1998 for Peach Bottom and will
begin on the date Salem Unit No. 1 returns to service for Salem. The parties
have also agreed to forego litigation in the future, except for limited cases in
which the operator would be responsible for damages of no more than $5 million
per year.
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 Units No. 1 and No. 2 were taken out of service by PSE&G in the
second quarter of 1995. In June 1995, the NRC issued a Confirmatory Action
Letter (CAL) which documented commitments of PSE&G to 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 until the NRC agrees that the unit is
sufficiently prepared to restart. Salem Unit No. 2 returned to service on August
30, 1997. The NRC amended the CAL to require a final assessment of Salem Unit
No. 2 after approximately two months of full operation. The Company has been
informed by PSE&G that a meeting was held with the NRC on December 4, 1997 which
satisfied this final CAL requirement for Salem Unit No. 2.
10
<PAGE>
The Company has been informed by PSE&G that Salem Unit No. 1 is expected to
return to service in the second quarter of 1998. Restart of Salem Unit No. 1 is
also subject to completion of the requirements of the restart plan to the
satisfaction of PSE&G and the NRC. The Company has been informed by PSE&G that
the NRC's Readiness Assessment Team Inspection (RATI) of Salem Unit No. 1 (a
requirement for restart) was completed on February 20, 1998. The inspection team
concluded that Salem Unit No. 1 was ready to return to operation. The inability
to successfully return the Salem Unit No. 1 to operation could have a material
adverse effect on the Company's financial condition and results of operations.
During 1997, the Company incurred and expensed $152 million for replacement
power and maintenance costs related to the shutdown of Salem. See note 5 of
Notes to Consolidated Financial Statements included in the Company's Annual
Report to Shareholders for the year 1997. See also "Peach Bottom Atomic Power
Station" for a discussion of operating performance standards.
The Company has been informed by PSE&G that as a part of PSE&G's efforts to
return the Salem units to service, an examination was performed on the steam
generators, which are large heat exchangers used to produce steam to drive the
turbines. Inspection of Salem Unit No. 1 indicated degradation in a significant
number of tubes. Inspection and testing of Salem Unit No. 2 confirmed that the
condition of the steam generators are well within current repair limits. The
Salem co-owners purchased and installed in Salem Unit No. 1 unused steam
generators from the unfinished Seabrook Nuclear Generating Station Unit No. 2 in
New Hampshire. The cost of replacing the Salem Unit No. 1 steam generators,
including installation of the new steam generators and disposal of the old steam
generators, was approximately $178 million, of which the Company's share was
approximately $76 million.
At the January 1997 semi-annual NRC Senior Management Meeting, the Salem
units were placed on the NRC Watch List (Watch List) and were designated as
Category 2 facilities. In a letter to PSE&G advising of the action, the NRC
noted that its decision to place the Salem units on the Watch List was not based
on any recent performance problems or decline but was due to the NRC's
determination that the Salem units should have been placed on the Watch List
previously because of Salem's past safety performance. The NRC also indicated in
its letter that it had increased its attention and resources at Salem
commensurate with a Watch List plant. Finally, the NRC concluded that,
notwithstanding the improvements at Salem (which were noted), had it been
previously identified as a Watch List plant, Salem would not have been removed
from the Watch List since Salem had yet to demonstrate a period of safe
performance at power. The NRC has three classifications of facility monitoring.
A Category 3 facility is one which is having or has had significant weaknesses
that warrant maintaining the plant in a shutdown condition until the licensee
can demonstrate to the NRC that adequate programs have both been established and
implemented to ensure substantial improvement. Full NRC approval is required for
restart of plants in this category which the NRC will monitor closely. A
Category 2 facility is a plant that is authorized to operate but that the NRC
will monitor closely. Although being operated in a manner that adequately
protects public health and safety, plants in this category are having or have
had weaknesses that warrant increased NRC attention. A plant will remain in this
category until the licensee either demonstrates a period of improved
performance, or until a further deterioration of performance results in the
plant being placed in Category 3. A Category 1 facility is a plant that has been
removed from the Watch List.
On July 8, 1997, a predecisional enforcement conference was held with the
NRC to discuss apparent violations at Salem. These apparent violations,
identified in May and June 1997, concerned emergency core cooling system switch
over and related residual heat removal system (RHR) flow issues and fire
protection issues. In a letter dated October 8, 1997, the NRC informed PSE&G
that a Level III violation was cited for the issues surrounding the RHR system
and Level IV violations were cited for the two fire protection issues. There was
no civil penalty issued by the NRC for any of these violations.
The Company has been informed by PSE&G that predecisional enforcement
conferences were held on December 9, 1997 to discuss two allegations concerning
security program issues which occurred at Salem in 1996. PSE&G cannot predict
what other actions, if any, the NRC may take in these matters.
In addition to the matters discussed above, see "Environmental Regulations
- -- Water."
11
<PAGE>
Fuel
The following table shows the Company's sources of electric output for 1997
and as estimated for 1998:
<TABLE>
<CAPTION>
1997 1998 (Est.)
<S> <C> <C>
Nuclear........................................................... 39.0% 43.6%
Mine-mouth, coal-fired............................................ 8.0 7.2
Service-area, coal-fired.......................................... 5.7 6.8
Oil-fired......................................................... 0.9 1.0
Hydro (includes pumped storage)................................... 1.6 1.6
Internal combustion............................................... 0.2 0.2
Purchased, interchange and nonutility generated................... 44.6 39.6
------ ------
100.0% 100.0%
====== ======
</TABLE>
Nuclear
The cycle of production and utilization of nuclear fuel includes the mining
and milling of uranium ore into uranium concentrate; 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 does not anticipate
difficulty in obtaining the necessary uranium concentrates or conversion,
enrichment or fabrication services for Limerick or Peach Bottom. PSE&G has
informed the Company that it presently has sufficient contracts for uranium and
services related to the nuclear fuel cycle to fully meet its current projected
requirements. The following table summarizes the years through which the Company
has contracts for the segments of the nuclear fuel supply cycle:
<TABLE>
<CAPTION>
Concentrates (1) Conversion (2) Enrichment Fabrication
<S> <C> <C> <C> <C>
Limerick Unit No. 1 ................................ 2002 2001 2004 2003
Limerick Unit No. 2 ................................ 2002 2001 2004 2004
Peach Bottom Unit No. 2 ........................ 2002 2001 2004 2001
Peach Bottom Unit No. 3 ........................ 2002 2001 2004 2002
<FN>
- ---------------
(1) The Company's contracts for uranium concentrates are allocated to Limerick
and Peach Bottom on an as-needed basis.
(2) The Company also has commitments for at least 60% of the conversion
services requirements for Limerick and Peach Bottom through 2002.
</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. Limerick has
on-site facilities with capacity to store spent fuel to 2007. Peach Bottom has
on-site facilities with capacity to store spent fuel until 2000 for Unit No. 2
and 2001 for Unit No. 3. In 1998, the Company will begin construction of a dry
spent-fuel storage facility at Peach Bottom to maintain full-core discharge
capacity in the spent-fuel pools. Construction is expected to take approximately
27 months. The Company expects that such a facility will cost $16 million to
construct and will provide spent-fuel storage capacity at Peach Bottom for the
life of the plant. The Company expects to purchase storage canisters for the
spent fuel at an estimated cost of $6 million per year. The Company has been
informed by PSE&G that as a result of reracking the two spent-fuel pools at
Salem, the spent-fuel storage capacity of Salem Units No. 1 and No. 2 is
estimated to be 2012 and 2016, respectively.
Under the Nuclear Waste Policy Act of 1982 (NWPA), the DOE is required to
begin taking possession of all spent nuclear fuel generated by nuclear
facilities, including the Company's, for long-term storage by no later than
1998. Based on recent public pronouncements, it is not likely that a permanent
disposal site will be available for the industry before 2015, at the earliest.
In reaction to statements from the DOE that it was not legally obligated to
begin to accept spent fuel in 1998, a group of utilities and state government
agencies filed a lawsuit against the DOE which resulted in a decision by the
U.S. Court of Appeals for the District of Columbia (D.C. Court of Appeals) in
July 1996 that the DOE had an unequivocal obligation to begin to
12
<PAGE>
accept spent fuel in 1998. In accordance with the NWPA, the Company pays the DOE
one mill ($.001) per kWh of net nuclear generation for the cost of nuclear fuel
disposal. This fee may be adjusted prospectively in order to ensure full cost
recovery. Because of inaction by the DOE following the D.C. Court of Appeals
finding of the DOE's obligation to begin receiving spent fuel in 1998, a group
of forty-two utility companies, including the Company, and forty-six state
agencies, filed suit against the DOE seeking authorization to suspend further
payments to the U.S. government under the NWPA and to deposit such payments into
an escrow account until such time as the DOE takes effective action to meet its
1998 obligations. In November 1997, the D.C. Court of Appeals issued a decision
in which it held that the DOE had not abided by its prior determination that the
DOE has an unconditional obligation to begin disposal of spent nuclear fuel by
January 31, 1998. The D.C. Court of Appeals also precluded the DOE from
asserting that it was not required to begin receiving spent nuclear fuel because
it had not yet prepared a permanent repository or an interim storage facility.
The DOE and one of the utility companies have filed a Petition for
Reconsideration of the decision. In February 1998, a group of utilities,
including the Company, filed a petition with the D.C. Court of Appeals for
further orders to enforce the court's previous decisions. The state agencies
have filed a similar petition. The U.S. House of Representatives and the U.S.
Senate passed separate bills in 1997 authorizing construction of a temporary
storage facility which could accept spent nuclear fuel from utilities in 2003.
In addition, the DOE is exploring other options to address delays in the waste
acceptance schedule. The charge collected by the Company from its customers in
1997 for spent-fuel disposal was $24 million.
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 disposal site located in Barnwell,
South Carolina for disposal. On-site storage facilities have been constructed at
Peach Bottom and Limerick, each with a five-year storage capacity, which are
currently being used for interim storage.
The Company is also pursuing alternative disposal strategies for LLRW
generated at Peach Bottom and Limerick, including a LLRW reduction program.
Pennsylvania has agreed to be the host site for a LLRW disposal facility for
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.
Salem has on-site LLRW storage facilities with a five-year storage
capacity. The Company has been informed by PSE&G that 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 plans to
establish a LLRW disposal facility by 2000. Public meetings have been held in an
effort to provide information to and obtain feedback from the public. To date,
there have been no voluntary sites identified. Consequently, on February 10,
1998, the state agency responsible for this program recommended to the Governor
of New Jersey that this effort be abandoned. 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 $46 million
for such costs at December 31, 1997. The Company is currently recovering these
costs through rates.
The Company is currently recovering in rates the costs for nuclear
decommissioning and decontamination 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. For additional information concerning decommissioning, see
"Electric Operations - General."
13
<PAGE>
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 GPU
Generating Corp. 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 3.0 million and
3.5 million tons for each of the years through 1999; and a total of 6.5 million
tons for the years 2000 through 2004. Approximately 80% of Conemaugh's 1998 fuel
requirements are secured by a long-term contract and the remainder by several
short-term contracts or spot purchases.
The Company has entered into 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, 1998, 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.
Oil
The Company purchases fuel oil through a combination of short-term
contracts and spot market purchases. The contracts are normally not longer than
one year in length. Fuel oil inventories are managed such that in the winter
months sufficient volumes of fuel are available in the event of extreme weather
conditions and during the remaining months inventory levels are managed to take
advantage of favorable market pricing.
Natural Gas
The Company obtains natural gas for electric generation through a
combination of short-term contracts and spot purchases made on the open market,
as well as through the Company's own gas 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 1997, 10% of the Company's operating revenues and 9% of its
operating income were from gas operations. Gas sales and operating revenues for
1997 by class of customer are set forth below:
<TABLE>
<CAPTION>
Operating
Sales Revenues
(mmcf) (millions of $)
<S> <C> <C>
House heating................................................. 32,666 $265
Residential (other than house heating)........................ 1,614 17
Commercial and industrial..................................... 19,830 145
Other......................................................... 673 3
Change in unbilled............................................ 212 (1)
------ ------
Total gas sales........................................... 54,995 429
Gas transported for customers................................. 30,412 22
------ ------
Total gas sales and gas transported....................... 85,407 $451
====== ======
</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
14
<PAGE>
(Transcontinental). The Company's aggregate annual entitlement under these firm
transportation contracts is 98.5 million dekatherms. Peak gas is provided by the
Company's liquefied natural gas facility and propane-air plant. See "ITEM 2.
PROPERTIES."
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 1997-98
heating season supplies.
The gas industry is continuing to undergo structural changes in response to
FERC policies designed to increase competition. In addition, there is an
initiative in the Pennsylvania legislature to deregulate the gas industry, which
has the support of Governor Ridge. See "Deregulation and Rate Matters."
Horizon Energy Company, a wholly owned subsidiary of the Company, is an
unregulated marketing enterprise. Horizon Energy is engaged in marketing gas to
residential and commercial gas customers outside of the Company's service
territory. Horizon Energy is also a member of a natural gas buying cooperative
created to enhance reliability of service and to access less expensive gas
supplies for its eight gas utility members.
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 1997.
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 does not include any new generating facilities. At December 31, 1997,
construction work in progress, excluding nuclear fuel, aggregated $611 million.
Due to the expected adverse impact of the PUC Restructuring Order and
competition for electric generating services on its future capital resources,
the Company is currently evaluating its capital commitments for 1999 and beyond.
The following table shows the Company's most recent estimate of capital
expenditures for plant additions and improvements for 1998:
<TABLE>
<CAPTION>
(Millions of $)
<S> <C>
Electric:
Production........................................................ $155
Nuclear fuel...................................................... 53
Transmission and distribution..................................... 126
Other electric.................................................... 3
----
Total electric................................................ 337
Gas.................................................................... 40
Other.................................................................. 73
----
Total............................................................. $450
====
</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 1997.
15
<PAGE>
Capital Requirements and Financing Activities
The following table shows the Company's most recent estimate of capital
requirements for 1998:
<TABLE>
<CAPTION>
(Millions of $)
<S> <C>
Construction.................................................. $450
New ventures (1).............................................. 150
Long-term debt maturities and sinking funds................... 247
----
Total capital requirements........................... $847
====
<FN>
- ---------------
(1) A portion of these expenditures will be expensed.
</FN>
</TABLE>
The following table shows the Company's financing activities for 1997:
<TABLE>
<CAPTION>
(Millions of $)
<S> <C>
Pollution Control
Variable Rate due 2027...................................... $23
Term-Loan Facility
Variable Rate due 1998...................................... 88
Trust Preferred Securities
8% Series C................................................. 50
----
Total................................................ $161
====
</TABLE>
During 1997, the Company entered into a $900 million unsecured revolving
credit facility with a group of banks. The credit facility is composed of a $450
million 364-day credit agreement and a $450 million three-year credit agreement.
The Company uses the credit facility principally to support the Company's
commercial paper program.
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. As a result of the
extraordinary charge in December 1997, the Company did not meet the earnings
test under the Mortgage required for the issuance of additional bonds against
property additions for the twelve months ended December 31, 1997. In addition,
the Company does not expect to meet the earnings test under the Mortgage for any
twelve-month period ending prior to December 31, 1998. Earnings coverages under
the Mortgage for the calendar years 1996 and 1995 were 4.39 and 4.94 times,
respectively. At December 31, 1997, the Company was entitled to issue
approximately $3.7 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. As a result of the extraordinary charge in December 1997,
the Company did not meet the earnings test of the Articles for the twelve months
ended December 31, 1997. In addition, the Company does not expect to meet the
earnings test under the Articles for any twelve-month period ending prior to
December 31, 1998. Earnings coverage under the Articles for the calendar years
1996 and 1995 was 2.50 and 2.34 times, respectively.
16
<PAGE>
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>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges..................... 3.15 2.66 3.41 3.29 2.71
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends......................... 2.67 2.32 3.12 3.04 2.50
</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. For purposes of calculating these ratios, income from continuing
operations for 1997 does not include the extraordinary charge against income of
$3.1 billion ($1.8 billion net of income taxes).
At December 31, 1997, the Company had a total of $87.5 million outstanding
under an unsecured term-loan agreement with banks maturing in 1998. Most of the
Company's unsecured debt agreements contain cross-default provisions to the
Company's other debt obligations.
The Company has a $600 million commercial paper program. At December 31,
1997, there was $314 million of commercial paper outstanding. At December 31,
1997, the Company and its subsidiaries had formal and informal lines of credit
with banks aggregating $75 million against which there was no short-term debt
outstanding. As of December 31, 1997, the Company had no compensating balance
agreements with any bank.
For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's Annual Report to
Shareholders for the year 1997.
Employee Matters
The Company and its subsidiaries had 7,359 employees at December 31, 1997.
None of the employees of the Company or its subsidiaries are represented by a
union. Over the past several years, a number of unions have filed petitions with
the National Labor Relations Board to hold certification elections with regard
to different segments of employees within the Company. In all cases, the Company
employees have rejected union representation. The Company expects that such
petitions will continue to be filed in the future.
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 electro-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. The Company also supports
further research in this area and is funding and monitoring such studies.
Public concerns about the possible health risks of exposure to EMF have
adversely affected, 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. The Company cannot predict at this
time what effect, if any, this issue will have on other future operations.
17
<PAGE>
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. The estimated capital cost of compliance with the final permit is
approximately $100 million, of which approximately $10 million remains to be
spent. The Company's share of such costs is 42.59% and is included in the
Company's capital requirements. In 1999, PSE&G must apply to the New Jersey
Department of Environmental Protection and Energy (NJDEPE) and other agencies to
renew such Salem permit. Failure to obtain renewal of this permit on a timely
basis, which cannot be assured, could have a material adverse effect on the
Company's financial condition and results of operations.
Air
Air quality regulations promulgated by the EPA, the PDEP and the City of
Philadelphia in accordance with the federal Clean Air Act and the Clean Air Act
Amendments of 1990 (Amendments) impose restrictions on emission of particulates,
sulfur dioxide (SO2), nitrogen oxides (NOx) and other pollutants and require
permits for operation of emission sources. Such permits have been obtained by
the Company and must be renewed periodically.
The Amendments establish a comprehensive and complex national program to
substantially reduce air pollution. The Amendments include a two-phase program
to reduce acid rain effects by significantly reducing emissions of SO2 and 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 Phase I requirements of the Amendments. Keystone Units No. 1 and No. 2
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.
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 expects that the cost of compliance with anticipated
air-quality regulations may be substantial due to further limitations on
permitted NOx emissions.
The PDEP has adopted a NOx allowance program which could restrict the
operation of the Company's fossil-fired units, require the purchase of NOx
emission allowances from others or require the installation of additional
control equipment to permit operation above certain limits. The Company has
appealed a portion of the PDEP NOx allowance program.
Many other provisions of the Amendments affect the Company's business. The
Amendments establish stringent 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
18
<PAGE>
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 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 April 18, 1996, a consent decree, which included the terms of
the settlement, was entered by the United States District Court for the Eastern
District of Kentucky. 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, 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. In December 1997, the
EPA finalized its record of decision (ROD) for the site. The Company is
evaluating the cost of implementing the remedy described in the ROD, which
differs from the remedy previously proposed by the EPA. In January 1998, the EPA
sent letters to approximately 20 PRPs, including the Company, giving them 60
days to negotiate with the EPA to perform the proposed 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/Douglassville site) where waste oils generated from Company
operations were transported, treated, stored and disposed. In August 1991, the
EPA filed suit in the 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 $991,835 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
19
<PAGE>
EPA that it wishes to participate with other eligible PRPs in the de minimis
settlement, and is currently awaiting approval of the settlement.
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 minimis 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 minimis party
for less than $10,000.
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 (New Jersey District
Court) 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
Company, together with a number of other direct and third-party defendants, has
agreed to participate in a proposed de minimis settlement which would allow the
Company to settle its potential liability at the site for approximately $40,000.
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 has reached an
agreement with the plaintiff resolving the Company's liabilities for the site
for an amount that is not material to the Company's financial condition or
results of operations.
The Company has been named as a defendant in a Superfund matter involving
the Greer Landfill in South Carolina. The plaintiff's motion to dismiss the
complaint against the Company was granted, although the third-party defendant's
cross-claims against the Company remain. The Company is currently involved in
settlement discussions with the third-party defendants.
On November 18, 1996, the Company received a notice from the EPA that the
Company is a PRP at the Malvern TCE Superfund Site, located in Malvern,
Pennsylvania. The Company is currently unable to estimate the amount of
liability, if any, it may have with respect to this site.
On February 3, 1997, the Company was served with a third-party complaint
involving the Pennsauken Sanitary Landfill. The Company is currently unable to
estimate the amount of liability it may have with respect to this site.
In June 1989, a group of PRPs (Metro PRP Group) entered into an
Administrative Order on Consent 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. Since
that time, the Company has reviewed, and continues to review its files and
records and has been unable to locate any information which would indicate any
connection to the site. The Company does not believe that it has any liability
with respect to this site.
In November 1987, the Company received correspondence from the EPA which
indicated that the EPA was investigating the release of hazardous substances
from the Blosenski Landfill located in West Caln Township, Chester County,
Pennsylvania. The Company has been unable to locate any information which would
indicate any connection to this site. The Company does not believe it has any
liability with respect to this site.
20
<PAGE>
The Company has identified 27 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. The PDEP has approved the Company's clean-up of two sites. Six
other sites are currently under some degree of active study and/or remediation.
At December 31, 1997, the Company had accrued approximately $35 million for
investigation and remediation of these manufactured gas plant sites that
currently can be reasonably estimated.
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.
Costs
At December 31, 1997, the Company had accrued $63 million for various
investigation and remediation costs that can be reasonably estimated, including
approximately $35 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 1998 for compliance with
environmental requirements total approximately $14 million. In addition, the
Company may be required to make significant additional expenditures not
presently determinable.
Telecommunications and Other Ventures
In 1995, the Company and Hyperion Telecommunications, Inc., a subsidiary of
Adelphia Cable Company, formed PECO Hyperion Telecommunications. The partnership
is a Competitive Local Exchange Carrier (CLEC) and provides local phone service
in the Philadelphia metropolitan region. PECO Hyperion utilizes a large-scale
fiber optic, cable-based network that currently extends over 525 miles and is
connected to major long-distance carriers and local businesses. The Company and
Hyperion Telecommunications, Inc. each holds a 50% interest in the partnership.
On behalf of its venture with AT&T Wireless Services, the Company has
completed the initial build-out of a new digital wireless Personal
Communications Services (PCS) network. Commercial launch of PCS in the
Philadelphia area occurred in October 1997. The Company holds a 49% equity
interest in the venture.
In 1997, the Company and UtiliCorp United formed EnergyOne, L.L.C.
(EnergyOne), a separate nationwide marketing company designed to integrate
traditional energy commodities with a portfolio of competitively priced products
and services. These products and services will be offered by participating
distributors and suppliers under franchise arrangements with EnergyOne. The
Company and UtiliCorp each holds a 50% equity interest in EnergyOne, with an
aggregate investment totaling approximately $22 million. The Company is also an
EnergyOne franchisee.
In 1997, the Company and British Energy of Edinburgh, Scotland formed
AmerGen Energy, LLC (AmerGen) to pursue opportunities to acquire and operate
nuclear generating stations in the United States. The Company and British Energy
each own a 50% equity interest in AmerGen.
Due to their start-up nature, these joint ventures and investments are
expected to negatively affect earnings in the near future. See note 19 of Notes
to Consolidated Financial Statements included in the Company's Annual Report to
Shareholders for the year 1997.
21
<PAGE>
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 (Subordinated Debentures), which are the only assets of
the Partnership. The only revenues of the Partnership are interest on the
Subordinated Debentures. All of the operating expenses of the Partnership are
paid by PECO Energy Capital Corp. As of December 31, 1997, the Partnership held
$360,175,464 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. As
of December 31, 1997, the Trust had outstanding 3,124,183 Trust Receipts. At
December 31, 1997, 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 during 1997 in the
aggregate amount of $6,810,719, or $2.18 per Trust Receipt. Expenses of the
Trust for 1997 were approximately $50,000, all of which were paid by PECO Energy
Capital Corp. There were 828 holders of record of the Trust Receipts as of
December 31, 1997.
PECO Energy Capital Trust II (Trust II) was created in June 1997 as a
statutory business trust under the laws of the State of Delaware solely for the
purpose of issuing trust receipts (Trust II Receipts) each representing an 8.00%
Cumulative Monthly Income Preferred Security, Series C (Series C Preferred
Securities) of the Partnership. The Partnership is the sponsor of the Trust II.
As of December 31, 1997, the Trust II had outstanding 2,000,000 Trust II
Receipts. At December 31, 1997, the assets of the Trust II consisted solely of
2,000,000 Series C Preferred Securities with an aggregate stated liquidation
preference of $50,000,000. Distributions were made on the Trust II Receipts
during 1997 in the aggregate amount of $2,666,667. Expenses of the Trust II for
1997 were approximately $50,000, all of which were paid by PECO Energy Capital
Corp. The Trust II Receipts are issued in book-entry-only form.
22
<PAGE>
Executive Officers of the Registrant at December 31, 1997
<TABLE>
<CAPTION>
Age at Effective Date of Election
Name Dec. 31, 1997 Position to Present Position
<S> <C> <C> <C>
C. A. McNeill, Jr.............. 58 Chairman of the Board, President and
Chief Executive Officer........................ July 1, 1997
D. M. Smith.................... 64 President-- PECO Nuclear and Chief
Nuclear Officer................................ February 1, 1996
G. A. Cucchi................... 48 Senior Vice President-- Ventures.................. June 1, 1997
J. W. Durham................... 60 Senior Vice President-- Legal and
General Counsel................................ October 24, 1988
M. J. Egan..................... 44 Senior Vice President-- Finance and
Chief Financial Officer........................ October 13, 1997
W. J. Kaschub.................. 55 Senior Vice President-- Human Resources........... June 10, 1991
G. S. King..................... 57 Senior Vice President-- Corporate and
Public Affairs................................. October 1, 1992
K. G. Lawrence................. 50 Senior Vice President-- Local Distribution
Company........................................ October 13, 1997
J. M. Madara, Jr............... 54 Senior Vice President-- Power Generation
Group.......................................... March 1, 1994
W. H. Smith, III............... 49 Senior Vice President-- Business Services
Group.......................................... November 7, 1997
A. J. Weigand.................. 59 Senior Vice President............................. June 1, 1997
G. R. Rainey................... 48 Senior Vice President-- Nuclear Operations........ April 1, 1996
N. J. Bessey................... 44 Vice President-- Power Transactions............... October 11, 1994
J. B. Cotton................... 53 Vice President-- Station Support.................. April 9, 1997
J. Doering, Jr................. 54 Vice President-- Operations-- Power
Generation Group............................... October 28, 1996
G. N. Dudkin................... 40 Vice President-- Power Delivery................... June 1, 1997
D. B. Fetters.................. 46 Vice President-- Nuclear Planning and
Development.................................... April 9, 1997
T. P. Hill, Jr................. 49 Vice President and Controller..................... January 1, 1991
W. G. MacFarland, IV........... 48 Vice President-- Limerick Generating
Station........................................ March 1, 1995
C. A. Matthews................. 47 Vice President-- Information Systems
and Chief Information Officer.................. July 28, 1997
J. P. McElwain................. 47 Vice President-- Nuclear Projects................. April 9, 1997
J. B. Mitchell................. 49 Vice President-- Finance and Treasurer............ December 1, 1994
T. N. Mitchell................. 42 Vice President-- Peach Bottom Atomic
Power Station.................................. April 1, 1996
W. E. Powell, Jr............... 61 Vice President-- Support Services................. January 30, 1995
K. K. Combs.................... 47 Corporate Secretary............................... November 1, 1994
</TABLE>
Each of the above executive officers holds such office at the discretion of
the Company's Board of Directors until his or her replacement or earlier
resignation, retirement or death.
Prior to his election to his current position, Mr. McNeill was President
and Chief Executive Officer, President and Chief Operating Officer and Executive
Vice President - Nuclear.
Prior to his election to his current position, Mr. D. M. Smith was Senior
Vice President - Nuclear Generation Group and Senior Vice President - Nuclear.
23
<PAGE>
Prior to his election to his current position, Mr. Cucchi was Vice
President - Power Delivery, Vice President - Corporate Planning and Development,
Director of System Planning and Performance, and Manager - System Planning.
Prior to joining the Company, Mr. Egan was Senior Vice President and Chief
Financial Officer of Aristech Chemical Company and Vice President of Planning
and Control of ARCO Chemical Company, Americas.
Prior to his election to his current position, Mr. Lawrence was Senior Vice
President - Finance and Chief Financial Officer and Vice President - Gas
Operations.
Prior to his election to his current position, Mr. Madara was Vice
President - Production.
Prior to his election to his current position, Mr. W. H. Smith, III was
Vice President and Group Executive - Telecommunications Group, Vice President -
Station Support, Vice President - Planning and Performance, and Manager -
Corporate Strategy and Performance.
Prior to his election to his current position, Mr. Weigand was Senior Vice
President and Group Executive Bulk Power Enterprises and Vice President -
Transmission and Distribution Services.
Prior to joining the Company in 1994, Ms. Bessey was Vice President of U.S.
Generating Company, an independent power producer.
Prior to her election to her current position, Ms. Matthews was Director of
Consumer Energy Information Systems and Distributed Information Officer. Prior
to joining the Company in 1996, Ms. Matthews was Vice President of Strategic
Business Development for Europe Online S.A. Luxembourg.
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 their election to the positions shown above, the following
executive officers held other positions with the Company since January 1, 1993:
Mr. Cotton was Director - Nuclear Engineering, Director - Nuclear Quality
Assurance and Superintendent - Operations; Mr. Doering was Plant Manager -
Limerick, Director - Nuclear Strategies Support, and General Manager -
Operations; Mr. Dudkin was Acting General Manager - Power Delivery, Regional
Director - Power Delivery and Manager - Electric Operations; Mr. Fetters was
Vice President - Nuclear Planning and Development, Director - Nuclear
Engineering, Director - Limerick Maintenance and a project manager; Mr.
MacFarland was Outage Management Director - Limerick, Manager - Nuclear
Maintenance, and Manager - Peach Bottom Installation Division; Mr. McElwain was
Director of Outage Management - Peach Bottom; Mr. J. B. 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; and Ms. Combs was an Assistant General
Counsel.
There are no family relationships among directors or executive officers of
the Company.
24
<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, 1997:
<TABLE>
<CAPTION>
Net Generating Estimated
Capacity (1) Retirement
Station Location (Kilowatts) Year
<S> <C> <C> <C>
Nuclear
Limerick............................. Limerick Twp., PA .................. 2,220,000 2024(2), 2029(2)
Peach Bottom......................... Peach Bottom Twp., PA............... 928,000(3) 2013, 2014
Salem ............................. Hancock's Bridge, NJ................ 942,000(3) 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 (4)
Eddystone............................ Eddystone, PA....................... 1,341,000 2009, 2010, 2011
Schuylkill........................... Philadelphia, PA.................... 166,000 (4)
Conemaugh............................ New Florence, PA.................... 352,000(3) 2005, 2006
Keystone............................. Shelocta, PA ....................... 357,000(3) 2002, 2003
Fossil (Gas Turbines)
Chester ............................. Chester, PA......................... 39,000 (4)
Croydon ............................. Bristol Twp., PA ................... 373,000 (4)
Delaware............................. Philadelphia, PA ................... 60,000 (4)
Eddystone............................ Eddystone, PA....................... 64,000 (4)
Fairless Hills....................... Falls Twp., PA...................... 60,000 (4)
Falls................................ Falls Twp., PA...................... 50,000 (4)
Moser................................ Lower Pottsgrove Twp., PA........... 48,000 (4)
Pennsbury............................ Falls Twp., PA...................... 6,000 (4)
Richmond............................. Philadelphia, PA ................... 96,000 (4)
Schuylkill........................... Philadelphia, PA.................... 32,000 (4)
Southwark............................ Philadelphia, PA.................... 54,000 (4)
Salem................................ Hancock's Bridge, NJ................ 16,000(3) (4)
Fossil (Internal Combustion)
Cromby............................... Phoenixville, PA.................... 2,700 (4)
Delaware............................. Philadelphia, PA ................... 2,700 (4)
Schuylkill........................... Philadelphia, PA.................... 2,800 (4)
Conemaugh............................ New Florence, PA.................... 2,300(3) 2006
Keystone............................. Shelocta, PA ....................... 2,300(3) 2003
---------
Total.................................................................... 9,203,800
=========
<FN>
- ---------------
(1) Summer rating.
(2) For depreciation accrual purposes only, retirement dates have been reduced
by 10 years.
(3) Company portion.
(4) Retirement dates are under on-going review by the Company. Current plans
call for the continued operation of these units beyond 1998.
</FN>
</TABLE>
25
<PAGE>
The following table sets forth the Company's major transmission and
distribution lines in service at December 31, 1997:
<TABLE>
<CAPTION>
Voltage in Kilovolts (Kv) Conductor Miles
<S> <C>
Transmission:
500 Kv........................................................ 891
220 Kv........................................................ 1,634
132 Kv........................................................ 15
66 Kv......................................................... 570
33 Kv and below............................................... 29
Distribution:
33 Kv and below............................................... 46,817
</TABLE>
At December 31, 1997, the Company's principal electric distribution system
included 21,009 pole-line miles of overhead lines and 21,002 cable miles of
underground cables.
The following table sets forth the Company's gas pipeline miles at December
31, 1997:
<TABLE>
<CAPTION>
Pipeline Miles
<S> <C>
Transmission...................................................... 28
Distribution...................................................... 5,679
Service piping.................................................... 4,507
------
Total......................................................... 10,214
======
</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 157,000 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 25,000 mcf/day. In addition, the Company owns 24 natural gas city
gate stations (including one temporary station) at various locations throughout
its gas service territory.
At December 31, 1997, the Company had 545 miles of fiber optic cable.
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 1997.
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
$26 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 could have a material adverse effect on
the Company's financial condition and results of operations.
26
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On July 26, 1993 and August 15, 1995, attorneys on behalf of shareholders
filed separate derivative actions in the Court of Common Pleas in Philadelphia
County (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. The basis of these suits, which were subsequently consolidated,
was the findings and conclusions contained in a credit collection section of the
May 1991 PUC management audit report prepared by Ernst & Young. In June 1993,
the Board of Directors of the Company appointed a special committee of directors
to consider whether legal action against the Company officers and directors
would be in the best interest 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 related to the suit
subsequently filed in 1995 and authorizing and directing officers of the Company
to take all steps necessary to terminate the suit filed in 1993. On February 23,
1996, the Company and the defendants filed a petition to terminate the
consolidated action on the basis of the March 14, 1994 Board of Directors
resolution, which petition was denied by the Court of Common Pleas. On appeal,
the Supreme Court of Pennsylvania held that the business judgment rule, which
permits the Board of Directors of a Pennsylvania corporation to terminate
derivative lawsuits brought by minority shareholders, is the law in
Pennsylvania; established a procedure for determining whether the criteria for
application of the business judgment rule had been met in a specific case;
reversed the order of the Court of Common Pleas; and remanded the matter to the
Court of Common Pleas for further proceedings consistent with its opinion. On
February 26, 1998, the Court of Common Pleas granted the motion of the
defendants and the Company to dismiss the derivative suits because the decision
of the Company's Board of Directors to terminate the suits based on the
recommendation of its special committee was proper.
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 Company and Delmarva, the co-owners of Salem,
filed an action in the New Jersey District Court 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. Westinghouse has filed a motion for summary judgment on the grounds
that the claim of the plaintiffs is barred by the statute of limitations. In
addition, Westinghouse has filed a motion to dismiss the RICO claims. The
Company cannot predict the outcome of this proceeding. 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, 1998, there were 163,049 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 1997
and 1996 is incorporated herein by reference to "Operating Statistics" in the
Company's Annual Report to Shareholders for the year 1997.
The book value of the Company's common stock at December 31, 1997 was
$12.25 per share.
27
<PAGE>
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, 1997, such capital ($2.73 billion) amounted to about 12 times the
liquidating value of the outstanding preferred stock ($230.2 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 Subordinated Debentures which were issued to the
Partnership; (2) the Company defaults on its guarantee of 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 1997.
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 1997.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE>
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 1998 Annual Meeting of Shareholders to be
held April 8, 1998, under the heading "Election of Directors" and is
incorporated herein by reference.
(b) Identification of Executive Officers.
The information required for Executive Officers is set forth in "PART I.
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 1998 Annual Meeting of
Shareholders to be held April 8, 1998, under the heading "Executive Compensation
Disclosure" and is incorporated herein by reference.
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 1998 Annual Meeting of
Shareholders to be held April 8, 1998, under the heading "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 1998 Annual Meeting of
Shareholders to be held April 8, 1998, under the heading "Election of Directors"
and is incorporated herein by reference.
29
<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 1997:
Report of Independent Accountants............................................. -- 21
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995............................................ -- 22
Consolidated Balance Sheets as of December 31, 1997 and 1996.................. -- 24
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995............................................ -- 23
Consolidated Statements of Changes in Common Shareholders'
Equity and Preferred Stock for the years ended
December 31, 1997, 1996 and 1995............................................ -- 26
Notes to Consolidated Financial Statements.................................... -- 27
Data submitted herewith:
Report of Independent Accountants............................................. 31 --
Schedule II-- Valuation and Qualifying Accounts for the years
ended December 31, 1997, 1996 and 1995....................... 32 --
</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 1997 and incorporated by
reference into this Form 10-K, the Annual Report to Shareholders for the year
1997 is not to be deemed filed as part of this Form 10-K.
30
<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 21 of the 1997
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, 1998
31
<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
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997
ALLOWANCE FOR UNCOLLECTIBLE
ACCOUNTS............................. $24,040 $58,367 $ -- $50,593 $31,814
------- ------- ------- ------- -------
TOTAL.......................... $24,040 $58,367 $ -- $50,593 $31,814
======= ======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1996
ALLOWANCE FOR UNCOLLECTIBLE
ACCOUNTS............................. $20,860 $50,976 $ -- $47,796 $24,040
------- ------- ------- ------- -------
TOTAL.......................... $20,860 $50,976 $ -- $47,796 $24,040
======= ======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1995
ALLOWANCE FOR UNCOLLECTIBLE
ACCOUNTS............................. $16,500 $39,043 $ -- $34,683 $20,860
------- ------- ------- ------- -------
TOTAL.......................... $16,500 $39,043 $ -- $34,683 $20,860
======= ======= ======= ======= =======
<FN>
- ---------------
(1) Write-off of individual accounts receivable.
</FN>
</TABLE>
32
<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 12b-32 of the Securities and Exchange Act of 1934, as
amended. 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 26, 1998.
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 Union National
Bank, 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
March 1, 1968 2-34051 2(b)-24
March 1, 1981 2-72802 4-46
March 1, 1981 2-72802 4-47
December 1, 1984 1984 Form 10-K 4-2(b)
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
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
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
33
<PAGE>
Dated as of File Reference Exhibit No.
------------------------------------------------------------------------------------------
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 Indenture, dated as of July 1, 1994, between the Company and
First Union National Bank, as successor trustee (1994 Form
10-K, Exhibit 4-5).
4-4 First Supplemental Indenture, dated as of December 1, 1995,
between the Company and First Union National Bank, as
successor trustee, to Indenture dated as of July 1, 1994 (1995
Form 10-K, Exhibit 4-7).
4-5 Second Supplemental Indenture, dated as of June 1, 1997,
between the Company and First Union National Bank, as
successor trustee, to Indenture dated as of July 1, 1994.
4-6 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).
4-7 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 (1995 Form 10-K, Exhibit 4-10).
4-8 Payment and Guarantee Agreement, dated as of June 6, 1997,
executed by the Company in favor of the holders of Cumulative
Monthly Income Preferred Securities, Series C of PECO Energy
Capital, L.P.
4-9 Revolving Credit Agreement, dated as of October 7, 1997, among
the Company, as borrower, and certain banks named therein.
4-10 364-day Credit Agreement, dated as of October 7, 1997, among
the Company, as borrower, and certain banks named therein.
4-11 PECO Energy Company Dividend Reinvestment and Stock Purchase
Plan, as amended January 28, 1994 (Post-Effective Amendment
No. 1 to Registration No. 33-42523, Exhibit 28).
10-1 Amended and Restated Operating Agreement of PJM
Interconnection, L.L.C., dated June 2, 1997, (Revised December
31, 1997).
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;
supplemental agreement dated January 26, 1977 (1991 Form 10-K,
Exhibit 10-3); and supplemental agreement dated May 27, 1997.
34
<PAGE>
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; supplemental agreement dated January
26, 1977 (1988 Form 10-K, Exhibit 10-4) and supplemental
agreement dated May 27, 1997.
10-4 Deferred Compensation and Supplemental Pension Benefit Plan.*
10-5 Management Group Deferred Compensation and Supplemental
Pension Benefit Plan.*
10-6 Unfunded Deferred Compensation Plan for Directors.*
10-7 Forms of Agreement between the Company and certain officers
(1995 Form 10-K, Exhibit 10-5).
10-8 PECO Energy Company 1989 Long-Term Incentive Plan, amended
April 9, 1997 (1997 Proxy Statement, Appendix B).*
10-9 PECO Energy Company Management Incentive Compensation Plan
(1997 Proxy Statement, Appendix A).*
10-10 Amended and Restated Limited Partnership Agreement of PECO
Energy Capital, L.P., dated July 25, 1994 (1994 Form 10-K,
Exhibit 10-7).
10-11 Amendment No. 1 to the Amended and Restated Limited
Partnership Agreement of PECO Energy Capital, L.P. (1995 Form
10-K, Exhibit 10-8).
10-12 Amendment No. 2 to the Amended and Restated Limited
Partnership Agreement of PECO Energy Capital, L.P. (1995 Form
10-K, Exhibit 10-9).
10-13 Amended and Restated Trust Agreement of PECO Energy Capital
Trust I, dated as of December 19, 1995. (1995 Form 10-K,
Exhibit 10-10).
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 1997.
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.
35
<PAGE>
Reports on Form 8-K
During the quarter ended December 31, 1997, the Company filed Current
Reports on Form 8-K, dated:
November 7, 1997 reporting information under "ITEM 5. OTHER EVENTS"
regarding the Company's filing of testimony with the Pennsylvania
Public Utility Commission in connection with its restructuring
proceeding.
December 11, 1997 reporting information under "ITEM 5. OTHER EVENTS"
regarding the Pennsylvania Public Utility Commission's approval of a
restructuring plan in the Company's restructuring proceeding.
December 12, 1997 reporting information under "ITEM 5. OTHER EVENTS"
regarding the terms of the Pennsylvania Public Utility Commission's
restructuring plan in the Company's restructuring proceeding.
Subsequent to December 31, 1997, the Company filed Current Reports on Form
8-K, dated:
January 9, 1998 reporting information under "ITEM 5. OTHER EVENTS"
regarding the Company's filing of a Petition for Rehearing,
Reconsideration, Clarification, and Amendment to the Pennsylvania
Public Utility Commission's Opinion and Order in the Company's
restructuring proceeding.
January 15, 1998 reporting information under "ITEM 5. OTHER EVENTS"
regarding the Pennsylvania Public Utility Commission's response to the
Company's filing of a Petition for Rehearing, Reconsideration,
Clarification, and Amendment to the Opinion and Order in the Company's
Restructuring Proceeding.
January 22, 1998 reporting information under "ITEM 5. OTHER EVENTS"
regarding the Company's filing of complaints appealing the Pennsylvania
Public Utility Commission's decision in its restructuring proceeding.
January 23, 1998 reporting information under "ITEM 5. OTHER EVENTS"
regarding the Company's filing of complaints appealing the Pennsylvania
Public Utility Commission's decision in its restructuring proceeding.
January 26, 1998 reporting information under "ITEM 5. OTHER EVENTS"
regarding the Company's decision to reduce the Company's quarterly
common stock dividend and reporting 1997 financial results.
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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 9th day of March 1998.
PECO ENERGY COMPANY
By /s/ C.A. McNeill, Jr.
----------------------------------------
C.A. McNeill, Jr., Chairman of the Board,
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.
Signature Title Date
/s/ C. A. McNeill, Jr. Chairman of the Board, President, March 9, 1998
_________________________ Chief Executive Officer and
C. A. McNeill, Jr. Director (Principal Executive
Officer)
/s/ M. J. Egan Senior Vice President - Finance March 9, 1998
_________________________ and Chief Financial Officer
M. J. Egan (Principal Financial and
Accounting Officer)
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 JAMES A. HAGEN
DANIEL L. COOPER KINNAIRD R. MCKEE
M. WALTER D'ALESSIO JOSEPH J. MCLAUGHLIN
G. FRED DIBONA, JR. JOHN M. PALMS
R. KEITH ELLIOTT JOSEPH F. PAQUETTE, JR.
RICHARD G. GILMORE RONALD RUBIN
RICHARD H. GLANTON ROBERT SUBIN
By /s/ C. A. McNeill, Jr. March 9, 1998
______________________________________
C. A. McNeill, Jr., Attorney-in-Fact
PECO ENERGY COMPANY
B Y L A W S
ARTICLE I
Offices and Fiscal Year
Section 1.01. Registered Office.--The registered office of the
corporation in the Commonwealth of Pennsylvania shall be at 2301 Market Street,
Philadelphia, Pennsylvania 19101 until otherwise established by an amendment of
the articles or by the board of directors and a record of such change is filed
with the Department of State in the manner provided by law.
Section 1.02. Other Offices.--The corporation may also have offices at
such other places within or without the Commonwealth of Pennsylvania as the
board of directors may from time to time appoint or the business of the
corporation may require.
Section 1.03. Fiscal Year.--The fiscal year of the corporation shall
begin on the first day of January in each year.
ARTICLE II
Notice - Waivers - Meetings Generally
Section 2.01. Manner of Giving Notice.
(a) General Rule.--Whenever written notice is required to be given to
any person under the provisions of the Business Corporation Law or by the
articles or these bylaws, it may be given to the person either personally or by
sending a copy thereof by first class or express mail, postage prepaid, or by
telegram (with messenger services specified), telex or TWX (with answerback
received) or courier service, charges prepaid, or by facsimile transmission, to
the address (or to the telex, TWX or facsimile transmission telephone number) of
the person appearing on the books of the corporation or, in the case of
directors, supplied by the director to the corporation for the purpose of
notice. If the notice is sent by mail, telegraph or courier service, it shall be
deemed to have been given to the person entitled thereto when deposited in the
United States mail or with a telegraph office or courier service for delivery to
that person or, in the case of telex or TWX, when dispatched or, in the case of
facsimile transmission, when received. A notice of meeting shall specify the
place, day and hour of the meeting and any other information required by any
other provision of the Business Corporation Law, the articles or these bylaws.
(b) Adjourned Shareholder Meetings.--When a meeting of shareholders is
adjourned, it shall not be necessary to give any notice of the adjourned meeting
or of the business to be transacted at an adjourned meeting, other than by
<PAGE>
announcement at the meeting at which the adjournment is taken, unless the board
fixes a new record date for the adjourned meeting.
Section 2.02. Notice of Meetings of the Board of Directors.--Notice of
a regular meeting of the board of directors need not be given. Notice of every
special meeting of the board of directors shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone,
telex, TWX or facsimile transmission) or 48 hours (in the case of notice by
telegraph, courier service or express mail) or five days (in the case of notice
by first class mail) before the time at which the meeting is to be held. Every
such notice shall state the time and place of the meeting. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
board need be specified in a notice of the meeting.
Section 2.03. Notice of Meetings of Shareholders.
(a) General Rule.-- Written notice of every meeting of the shareholders
shall be given by, or at the direction of, the secretary to each shareholder of
record entitled to vote at the meeting at least ten days prior to the day named
for a meeting called to consider amendment of the articles or adoption of a plan
of merger, consolidation, exchange, asset, transfer, division or conversion or
adoption of a proposal of dissolution, or five days prior to the day named for
the meeting in any other case. If the secretary neglects or refuses to give
notice of a meeting, the person or persons calling the meeting may do so. In the
case of a special meeting of shareholders, the notice shall specify the general
nature of the business to be transacted.
(b) Notice of Action by Shareholders on Bylaws.--In the case of a
meeting of shareholders that has as one of its purposes action on the bylaws,
written notice shall be given to each shareholder that the purpose, or one of
the purposes, of the meeting is to consider the adoption, amendment or repeal of
the bylaws. There shall be included in, or enclosed with, the notice a copy of
the proposed amendment or a summary of the changes to be effected thereby.
Section 2.04. Waiver of Notice.
(a) Written Waiver.--Whenever any written notice is required to be
given under the provisions of the Business Corporation Law, the articles or
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of the notice. Except as otherwise required
by this subsection, neither the business to be transacted at, nor the purpose
of, a meeting need be specified in the waiver of notice of the meeting. In the
case of a special meeting of shareholders, the waiver of notice shall specify
the general nature of the business to be transacted.
(b) Waiver by Attendance.--Attendance of a person at any meeting shall
constitute a waiver of notice of the meeting except where a person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to
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the transaction of any business because the meeting was not lawfully called or
convened.
Section 2.05. Modification of Proposal Contained in Notice.--Whenever
the language of a proposed resolution is included in a written notice of a
meeting required to be given under the provisions of the Business Corporation
Law or the articles or these bylaws, the meeting considering the resolution may
without further notice adopt it with such clarifying or other amendments as do
not enlarge its original purpose.
Section 2.06. Exception to Requirement of Notice.
(a) General Rule.--Whenever any notice or communication is required to
be given to any person under the provisions of the Business Corporation Law or
by the articles or these bylaws or by the terms of any agreement or other
instrument or as a condition precedent to taking any corporate action and
communication with that person is then unlawful, the giving of the notice or
communication to that person shall not be required.
(b) Shareholders Without Forwarding Addresses.--Notice or other
communications shall not be sent to any shareholder with whom the corporation
has been unable to communicate for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder has
otherwise failed to provide the corporation with a current address. Whenever the
shareholder provides the corporation with a current address, the corporation
shall commence sending notices and other communications to the shareholder in
the same manner as to other shareholders.
Section 2.07. Use of Conference Telephone and Similar Equipment.--Any
director may participate in any meeting of the board of directors, and the board
of directors may provide by resolution with respect to a specific meeting or
with respect to a class of meetings that one or more persons may participate in
a meeting of the shareholders of the corporation, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this section shall constitute presence in person at the meeting.
ARTICLE III
Shareholders
Section 3.01. Place of Meeting.--All meetings of the shareholders of
the corporation shall be held at the registered office of the corporation unless
another place is designated by the board of directors in the notice of a
meeting.
Section 3.02. Annual Meeting.--The board of directors may fix and
designate the date and time of the annual meeting of the shareholders, but if no
such date and time is fixed and designated by the board, the meeting for any
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calendar year shall be held on the second Wednesday in April in such year, if
not a legal holiday under the laws of Pennsylvania, and, if a legal holiday,
then on the next succeeding business day, not a Saturday, at 10:30 o'clock a.m.,
and at said meeting the shareholders then entitled to vote shall elect directors
and shall transact such other business as may properly be brought before the
meeting. If the annual meeting shall not have been called and held within six
months after the designated time, any shareholder may call the meeting at any
time thereafter.
Section 3.03. Special Meetings.--Special meetings of the shareholders
may be called at any time by resolution of the board of directors, which may fix
the date, time and place of the meeting, and shall be called as provided in the
terms of the Preferred Stock. If the board does not fix the date, time or place
of the meeting, it shall be the duty of the secretary to do so. A date fixed by
the secretary shall not be more than 60 days after the date of the adoption of
the resolution of the board calling the special meeting.
Section 3.04. Quorum and Adjournment.
(a) General Rule.--A meeting of the shareholders of the corporation
duly called shall not be organized for the transaction of business unless a
quorum is present. Except as otherwise provided in the terms of the Preferred
Stock, the presence of shareholders entitled to cast at least a majority of the
votes that all shareholders are entitled to cast on a particular matter to be
acted upon at the meeting shall constitute a quorum for the purposes of
consideration and action on the matter. Shares of the corporation owned,
directly or indirectly, by it and controlled, directly or indirectly, by the
board of directors of this corporation, as such, shall not be counted in
determining the total number of outstanding shares for quorum purposes at any
given time.
(b) Withdrawal of a Quorum.--The shareholders present at a duly
organized meeting can continue to do business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
(c) Adjournments Generally.--Any regular or special meeting of the
shareholders, including one at which directors are to be elected and one which
cannot be organized because a quorum has not attended, may be adjourned for such
period and to such place as the shareholders present and entitled to vote shall
direct.
(d) Electing Directors at Adjourned Meeting.--Those shareholders
entitled to vote who attend a meeting called for the election of directors that
has been previously adjourned for lack of a quorum, although less than a quorum
as fixed in this section, shall nevertheless constitute a quorum for the purpose
of electing directors.
(e) Other Action in Absence of Quorum.--Those shareholders entitled to
vote who attend a meeting of shareholders that has been previously adjourned for
one or more periods aggregating at least 15 days because of an absence of a
quorum, although less than a quorum as fixed in this section, shall nevertheless
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constitute a quorum for the purpose of acting upon any matter set forth in the
notice of the meeting if the notice states that those shareholders who attend
the adjourned meeting shall nevertheless constitute a quorum for the purpose of
acting upon the matter.
Section 3.05. Action by Shareholders.--Except as otherwise provided in
the Business Corporation Law or the articles or these bylaws, whenever any
corporate action is to be taken by vote of the shareholders of the corporation,
it shall be authorized by a majority of the votes cast at a duly organized
meeting of shareholders by the holders of shares entitled to vote thereon.
Except as otherwise provided in the terms of the Preferred Stock or when acting
by unanimous consent to remove a director or directors, the shareholders of the
corporation may act only at a duly organized meeting. Only such business will be
conducted at an annual or special meeting of shareholders as shall have been
properly brought before the meeting: (i) by or at the direction of the Board of
Directors, or (ii) by any shareholder who complies with the procedures set forth
in this section.
For business to be properly brought before an annual or special meeting
by a shareholder, the shareholder must have given to the secretary of the
corporation timely written notice of the shareholder's intention to make a
proposal, in the manner and form prescribed herein. In addition, the proposal
must otherwise be lawful and satisfy the requirements for inclusion in a proxy
statement contained in Rule 14a-8 of the Securities and Exchange Commission (or
any similar or successor rule or regulation), promulgated under the Securities
Exchange Act of 1934, as amended.
To be timely, a shareholder's notice with respect to an annual meeting
of shareholders must be addressed to the secretary of the corporation at the
principal executive offices of the corporation and received by the secretary not
less than 120 days in advance of the date the corporation's proxy statement was
released to shareholders in connection with the previous year's annual meeting
of shareholders, and this notice requirement shall not be affected by any
adjournment of the meeting; provided, however, that if no annual meeting was
held the previous year or the date of the annual meeting has been changed by
more than 30 calendar days from the date contemplated at the time of the
previous year's proxy statement, to be timely, a shareholder's notice must be
received at least 80 days prior to the date the corporation intends to
distribute its proxy statement with respect to such meeting.
To be timely, a shareholder's notice with respect to a special meeting
of the shareholders must be addressed to the secretary of the corporation at the
principal executive offices of the corporation and received by the secretary not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by the
shareholder must be received not later than the close of business on the tenth
day following the day on
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which notice of the date of the special meeting was mailed or such public
disclosure was made, whichever first occurs.
The notice must include all the information required by Rule 14a-8 of
the Securities and Exchange Commission (or any similar or successor rule or
regulation), promulgated under the Securities Exchange Act of 1934, as amended,
for inclusion of a shareholder proposal in a proxy statement.
Notwithstanding anything in the bylaws to the contrary, no business
shall be conducted at any annual or special meeting except in accordance with
the procedures set forth in this section. The chairman of the annual meeting or
special meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this section, and if he or she should so determine, such
business shall not be transacted.
Section 3.06. Organization.
(a) Chairman and Secretary of Meeting.--At every meeting of the
shareholders, the chairman of the board, if there be one, or, in the case of
vacancy in office or absence of the chairman of the board, one of the following
officers present in the order stated: the vice chairman of the board, if there
be one, the president, the vice presidents in their order of rank and seniority,
or a person chose by vote of the shareholders present, shall act as chairman of
the meeting. The secretary or, in the absence of the secretary, an assistant
secretary, or, in the absence of both the secretary and assistant secretaries, a
person appointed by the chairman of the meeting, shall act as secretary of the
meeting.
(b) Rules of Conduct.-- The board of directors or the chairman shall be
entitled to make such rules or regulations for the conduct of meetings of
shareholders as are deemed necessary, appropriate or convenient for the proper
conduct of the meeting, including, without limitation, establishing an agenda or
order of business for the meeting, rules and procedures for maintaining order at
the meeting and the safety of those present, limitations on participation in
such meeting to shareholders of record of the corporation and their duly
authorized and constituted proxies, and such other persons as the chairman shall
permit, restrictions on entry to the meeting after the time fixed for the
commencement thereof, limitations on the time allotted to questions or comment
by participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless, and to the
extent determined by the board of directors or the chairman of the meeting,
meetings of shareholders need not be conducted in accordance with rules of
parliamentary procedure.
Section 3.07. Voting Rights of Shareholders.--Unless otherwise provided
in the articles, every shareholder of the corporation shall be entitled to one
vote for every share standing in the name of the shareholder on the books of the
corporation.
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Section 3.08. Voting and other Action by Proxy.
(a) General Rule.--
(1) Every shareholder entitled to vote at a meeting of
shareholders may authorize another person to act for the shareholder by
proxy.
(2) The presence of, or vote or other action at a meeting of
shareholders by a proxy of a shareholder shall constitute the presence
of, or vote or action by the shareholder.
(3) Where two or more proxies of a shareholder are present,
the corporation shall, unless otherwise expressly provided in the
proxy, accept as the vote of all shares represented thereby the vote
cast by a majority of them and, if a majority of the proxies cannot
agree whether the shares represented shall be voted, or upon the manner
of voting the shares, the voting of the shares shall be divided equally
among those persons.
(b) Minimum Requirements.--Every proxy shall be executed in writing by
the shareholder or by the duly authorized attorney-in-fact of the shareholder
and filed with the secretary of the corporation. A proxy, unless coupled with an
interest, shall be revocable at will, notwithstanding any other agreement or any
provision in the proxy to the contrary, but the revocation of a proxy shall not
be effective until written notice thereof has been given to the secretary of the
corporation. An unrevoked proxy shall not be valid after three years from the
date of its execution unless a longer time is expressly provided therein. A
proxy shall not be revoked by the death or incapacity of the maker unless,
before the vote is counted or the authority is exercised, written notice of the
death or incapacity is given to the secretary of the corporation.
(c) Expenses.--The corporation shall pay the reasonable expenses of
solicitation of votes or proxies of shareholders by or on behalf of the board of
directors or its nominees for election to the board, including solicitation by
professional proxy solicitors and otherwise.
Section 3.09. Voting by Fiduciaries and Pledgees.--Shares of the
corporation standing in the name of a trustee or other fiduciary and shares held
by an assignee for the benefit of creditors or by a receiver may be voted by the
trustee, fiduciary, assignee or receiver. A shareholder whose shares are pledged
shall be entitled to vote the shares until the shares have been transferred into
the name of the pledgee, or a nominee of the pledgee, but nothing in this
section shall affect the validity of a proxy given to a pledgee or nominee.
Section 3.10. Voting by Joint Holders of Shares.
(a) General Rule.--Where shares of the corporation are held jointly or
as tenants in common by two or more persons, as fiduciaries or otherwise:
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(1) if only one or more of such persons is present in person
or by proxy, all of the shares standing in the names of such persons
shall be deemed to be represented for the purpose of determining a
quorum and the corporation shall accept as the vote of all the shares
the vote cast by a joint owner or a majority of them; and
(2) if the persons are equally divided upon whether the shares
held by them shall be voted or upon the manner of voting the shares,
the voting of the shares shall be divided equally among the persons
without prejudice to the rights of the joint owners or the beneficial
owners thereof among themselves.
(b) Exception.--If there has been filed with the secretary of the
corporation a copy, certified by an attorney-at-law to be correct, of the
relevant portions of the agreement under which the shares are held or the
instrument by which the trust or estate was created or the order of court
appointing them or of an order of court directing the voting of the shares, the
persons specified as having such voting power in the document latest in date of
operative effect so filed, and only those persons, shall be entitled to vote the
shares but only in accordance therewith.
Section 3.11. Voting by Corporations.
(a) Voting by Corporate Shareholders.--Any corporation that is a
shareholder of this corporation may vote at meetings of shareholders of this
corporation by any of its officers or agents, or by proxy appointed by any
officer or agent, unless some other person, by resolution of the board of
directors of the other corporation or a provision of its articles or bylaws, a
copy of which resolution or provision certified to be correct by one of its
officers has been filed with the secretary of this corporation, is appointed its
general or special proxy in which case that person shall be entitled to vote the
shares.
(b) Controlled Shares.--Shares of this corporation owned, directly or
indirectly, by it and controlled, directly or indirectly, by the board of
directors of this corporation, as such, shall not be voted at any meeting and
shall not be counted in determining the total number of outstanding shares for
voting purposes at any given time.
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Section 3.12. Determination of Shareholders of Record.
(a) Fixing Record Date.--The board of directors may fix a time prior to
the date of any meeting of shareholders as a record date for the determination
of the shareholders entitled to notice of, or to vote at, the meeting, which
time, except as otherwise provided in the articles or in the case of an
adjourned meeting, shall be not more than 90 days prior to the date of the
meeting of shareholders. Only shareholders of record on the date fixed shall be
so entitled notwithstanding any transfer of shares on the books of the
corporation after any record date fixed as provided in this subsection. The
board of directors may similarly fix a record date for the determination of
shareholders of record for any other purpose, except that the record date fixed
to determine the holders of Preferred Stock entitled to receive dividends
thereon shall not precede the respective dividend payment date by more than 40
days. When a determination of shareholders of record has been made as provided
in this section for purposes of a meeting, the determination shall apply to any
adjournment thereof unless the board fixes a new record date for the adjourned
meeting.
(b) Determining When a Record Date is Not Fixed.--If a record date is
not fixed:
(1) The record date for determining shareholders entitled to
notice of, or to vote at, a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is
given.
(2) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the board
of directors adopts the resolution relating thereto.
(c) Certification by Nominee.--The board of directors may adopt a
procedure whereby a shareholder of the corporation may certify in writing to the
corporation that all or a portion of the shares registered in the name of the
shareholder are held for the account of a specified person or persons. Upon
receipt by the corporation of a certification complying with the procedure, the
persons specified in the certification shall be deemed, for the purposes set
forth in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
Section 3.13. Voting Lists.
(a) General Rule.--The officer or agent having charge of the transfer
books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and the number of shares held by each.
The list shall be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting for the purposes thereof except that, if the corporation has
5,000 or more shareholders, in lieu of the making of the list the corporation
may make the information therein available at the meeting by any other means.
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(b) Effect of List.--Failure to comply with the requirements of this
section shall not affect the validity of any action taken at a meeting prior to
a demand at the meeting by any shareholder entitled to vote thereat to examine
the list. The original share register or transfer book, or a duplicate thereof
kept in the Commonwealth of Pennsylvania, shall be prima facie evidence as to
who are the shareholders entitled to examine the list or share register or
transfer book or to vote at any meeting of shareholders.
Section 3.14. Judges of Election.
(a) Appointment.--In advance of any meeting of shareholders of the
corporation, the board of directors may appoint judges of election, who need not
be shareholders, to act at the meeting or any adjournment thereof. If judges of
election are not so appointed, the presiding officer of the meeting may, and on
the request of any shareholder shall, appoint judges of election at the meeting.
The number of judges shall be one or three. A person who is a candidate for an
office to be filled at the meeting shall not act as a judge.
(b) Vacancies.--In case any person appointed as a judge fails to appear
or fails or refuses to act, the vacancy may be filled by appointment made by the
board of directors in advance of the convening of the meeting or at the meeting
by the presiding officer thereof.
(c) Duties.--The judges of election shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect of
proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with nominations by shareholders or
the right to vote, count and tabulate all votes, determine the result and do
such acts as may be proper to conduct the election or vote with fairness to all
shareholders. The judges of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is practical.
If there are three judges of election, the decision, act or certificate of a
majority shall be effective in all respects as the decision, act or certificate
of all.
(d) Report.--On request of the presiding officer of the meeting or of
any shareholder, the judges shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated therein.
Section 3.15. Minors as Security Holders.--The corporation may treat a
minor who holds shares or obligations of the corporation as having capacity to
receive and to empower others to receive dividends, interest, principal and
other payments or distributions, to vote or express consent or dissent and to
make elections and exercise rights relating to such shares or obligations
unless, in the case of payments or distributions on shares, the corporate
officer responsible for maintaining the list of shareholders or the transfer
agent of the corporation or, in
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the case of payments or distributions on obligations, the treasurer or paying
officer or agent has received written notice that the holder is a minor.
ARTICLE IV
Board of Directors
Section 4.01. Powers.
(a) General Rule.--Unless otherwise provided by statute, all powers
vested by law in the corporation shall be exercised by or under the authority
of, and the business and affairs of the corporation shall be managed under the
direction of, the board of directors.
(b) Personal Liability of Directors.--
(1) A director shall not be personally liable, as such, for
monetary damages for any action taken, or any failure to take any
action, unless:
(i) the director has breached or failed to perform
the duties of his or her office under 15 Pa.C.S. ss.ss. 511
and 1721 and 42 Pa.C.S. ss. 8363; and
(ii) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
(2) The provisions of paragraph (1) shall not apply to the
responsibility or liability of a director pursuant to any criminal
statute, or the liability of a director for the payment of taxes
pursuant to local, State or Federal law.
Section 4.02. Qualifications and Selection of Directors.
(a) Qualifications.--Each director of the corporation shall be a
natural person of full age who need not be a resident of the Commonwealth of
Pennsylvania or a shareholder of the corporation.
(b) Notice of Certain Nominations Required.--Nominations for election
of directors may be made by any shareholder entitled to vote for the election of
directors if written notice (the "Notice") of the shareholder's intent to
nominate a director at the meeting is given by the shareholder and received by
the secretary of the corporation in the manner and within the time specified in
this section. The Notice shall be delivered to the secretary of the corporation
not less than 14 days nor more than 50 days prior to any meeting of the
shareholders called for the election of directors; except that if less than 21
days' notice of the meeting is given to shareholders, the Notice shall be
delivered to the secretary of the corporation not later than the earlier of the
seventh day following the day on which notice of the meeting was first mailed to
shareholders or the fourth day
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prior to the meeting. In lieu of delivery to the secretary, the Notice may be
mailed to the secretary by certified mail, return receipt requested, but shall
be deemed to have been given only upon actual receipt by the secretary. The
requirements of this subsection shall not apply to a nomination for directors
made to the shareholders by the board of directors.
(c) Contents of Notice.--The Notice shall be in writing and shall
contain or be accompanied by:
(1) the name and residence address of the nominating
shareholder;
(2) a representation that the shareholder is a holder of
record of voting stock of the corporation and intends to appear in
person or by proxy at the meeting to nominate the person or persons
specified in the Notice;
(3) such information regarding each nominee as would have been
required to be included in a proxy statement filed pursuant to
Regulation 14A of the rules and regulations established by the
Securities and Exchange Commission under the Securities Exchange Act of
1934 (or pursuant to any successor act or regulation) had proxies been
solicited with respect to such nominee by the management or board of
directors of the corporation;
(4) a description of all arrangements or understandings among
the shareholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; and
(5) the consent of each nominee to serve as a director of the
corporation if so elected.
(d) Determination of Compliance.--If a judge or judges of election
shall not have been appointed pursuant to these bylaws, the chairman of the
meeting may, if the facts warrant, determine and declare to the meeting that any
nomination made at the meeting was not made in accordance with the procedures of
this section and, in such event, the nomination shall be disregarded. Any
decision by the chairman of the meeting made in good faith shall be conclusive
and binding upon all shareholders of the corporation for any purpose.
(e) Election of Directors.--Except as otherwise provided in these
bylaws, directors of the corporation shall be elected by the shareholders. In
elections for directors, voting need not be by ballot, except upon demand made
by a shareholder entitled to vote at the election and before voting begins. The
candidates receiving the highest number of votes from each class or group of
classes, if any, entitled to elect directors separately up to the number of
directors to be elected by the class or group of classes shall be elected. If at
any meeting of shareholders, directors of more than one class are to be elected,
each class of directors shall be elected in a separate election.
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Section 4.03. Number and Term of Office.
(a) Number.--The board of directors shall consist of such number of
directors as may be determined from time to time by resolution of the board of
directors.
(b) Term of Office.--Each director shall hold office until the
expiration of the term for which he or she was selected and until a successor
has been selected and qualified or until his or her earlier death, resignation
or removal. A decrease in the number of directors shall not have the effect of
shortening the term of any incumbent director.
(c) Resignation.--Any director may resign at any time upon written
notice to the corporation. The resignation shall be effective upon receipt
thereof by the corporation or at such subsequent time as shall be specified in
the notice of resignation.
(d) Classified Board of Directors.--The directors shall be classified
in respect to the time for which they shall severally hold office as follows:
(1) Each class shall be as nearly equal in number as possible.
(2) The term of office of at least one class shall expire in
each year.
(3) Except as otherwise provided in the terms of the Preferred
Stock or in the articles, the members of each class shall be elected
for a period of three years.
Section 4.04. Vacancies.
(a) General Rule.--Except as otherwise provided in the terms of the
Preferred Stock, vacancies in the board of directors, including vacancies
resulting from an increase in the number of directors, may be filled by a
majority vote of the remaining members of the board though less than a quorum,
or by a sole remaining director, and each person so selected shall be a director
to serve until the next selection of the class for which such director has been
chosen, and until a successor has been selected and qualified or until his or
her earlier death, resignation or removal.
(b) Action by Resigned Directors.--When one or more directors resign
from the board effective at a future date, the directors then in office,
including those who have so resigned, shall have power by the applicable vote to
fill the vacancies, the vote thereon to take effect when the resignations become
effective.
Section 4.05. Removal of Directors.
(a) Removal by the Shareholders.--The entire board of directors, or any
class of the board, or any individual director may be removed from office by
vote
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of the shareholders entitled to vote thereon only for cause. In case the board
or a class of the board or any one or more directors are so removed, new
directors may be elected at the same meeting. The repeal of a provision of the
articles or bylaws prohibiting, or the addition of a provision to the articles
or bylaws permitting, the removal by the shareholders of the board, a class of
the board or a director without assigning any cause shall not apply to any
incumbent director during the balance of the term for which the director was
selected.
(b) Removal by the Board.--The board of directors may declare vacant
the office of a director who has been judicially declared of unsound mind or who
has been convicted of an offense punishable by imprisonment for a term of more
than one year or if, within 60 days after notice of his or her selection, the
director does not accept the office either in writing or by attending a meeting
of the board of directors.
Section 4.06. Place of Meetings.--Meetings of the board of directors
may be held at such place within or without the Commonwealth of Pennsylvania as
the board of directors may from time to time appoint or as may be designated in
the notice of the meeting.
Section 4.07. Organization of Meetings.--At every meeting of the board
of directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the board,
if there be one, the president, the vice presidents in their order of rank and
seniority, or a person chosen by a majority of the directors present, shall act
as chairman of the meeting. The secretary or, in the absence of the secretary,
an assistant secretary, or, in the absence of the secretary and the assistant
secretaries, any person appointed by the chairman of the meeting, shall act as
secretary of the meeting.
Section 4.08. Regular Meetings.--Regular meetings of the board of
directors shall be held at such time and place as shall be designated from time
to time by resolution of the board of directors.
Section 4.09. Special Meetings.--Special meetings of the board of
directors shall be held whenever called by the chairman or by two or more of the
directors.
Section 4.10. Quorum of and Action by Directors.
(a) General Rule.--A majority of the directors in office of the
corporation shall be necessary to constitute a quorum for the transaction of
business and the acts of a majority of the directors present and voting at a
meeting at which a quorum is present shall be the acts of the board of
directors.
(b) Action by Written Consent.--Any action required or permitted to be
taken at a meeting of the directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents thereto by all of the directors
in office is filed with the secretary of the corporation.
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(c) Notation of Dissent.--A director who is present at a meeting of the
board of directors, or of a committee of the board, at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his or her dissent is entered in the minutes of the meeting or unless the
director files a written dissent to the action with the secretary of the meeting
before the adjournment thereof or transmits the dissent in writing to the
secretary of the corporation immediately after the adjournment of the meeting.
The right to dissent shall not apply to a director who voted in favor of the
action. Nothing in this section shall bar a director from asserting that minutes
of the meeting incorrectly omitted his or her dissent if, promptly upon receipt
of a copy of such minutes, the director notifies the secretary, in writing, of
the asserted omission or inaccuracy.
Section 4.11. Executive and Other Committees.
(a) Establishment and Powers.--The board of directors may, by
resolution adopted by a majority of the directors in office, establish one or
more committees to consist of one or more directors of the corporation. Any
committee, to the extent provided in the resolution of the board of directors,
shall have and may exercise all of the powers and authority of the board of
directors except that a committee shall not have any power or authority as to
the following:
(1) The submission to shareholders of any action requiring
approval of shareholders under the Business Corporation Law.
(2) The creation or filling of vacancies in the board of
directors.
(3) The adoption, amendment or repeal of these bylaws.
(4) The amendment or repeal of any resolution of the board
that by its terms is amendable or repealable only by the board.
(5) Action on matters committed by a resolution of the board
of directors to another committee of the board.
(b) Alternate Committee Members.--The board may designate one or more
directors as alternate members of any committee who may replace any absent or
disqualified member at any meeting of the committee or for the purposes of any
written action by the committee. In the absence or disqualification of a member
and alternate member or members of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another director to act at the
meeting in the place of the absent or disqualified member.
(c) Term.--Each committee of the board shall serve at the pleasure of
the board.
(d) Committee Procedures.--The term "board of directors" or "board,"
when used in any provision of these bylaws relating to the organization or
procedures of
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or the manner of taking action by the board of directors, shall be construed to
include and refer to any executive or other committee of the board.
Section 4.12. Compensation.--The board of directors shall have the
authority to fix the compensation of directors for their services as directors
and a director may be a salaried officer of the corporation.
ARTICLE V
Officers
Section 5.01. Officers Generally.
(a) Number, Qualifications and Designation.--The officers of the
corporation shall be a president, one or more vice presidents, a secretary, a
treasurer, and such other officers as may be elected in accordance with the
provisions of Section 5.03. Officers may but need not be directors or
shareholders of the corporation. The president and secretary shall be natural
persons of full age. The treasurer may be a corporation, but if a natural person
shall be of full age. The board of directors may elect from among the members of
the board a chairman of the board and vice chairman of the board who shall be
officers of the corporation. Any number of offices may be held by the same
person.
(b) Bonding.--The corporation may secure the fidelity of any or all of
its officers by bond or otherwise.
Section 5.02. Election, Term of Office and Resignations.
(a) Election and Term of Office.--The officers of the corporation,
except those elected by delegated authority pursuant to Section 5.03, shall be
elected by the board of directors, and each such officer shall hold office at
the discretion of the board until his or her death, resignation or removal with
or without cause.
(b) Resignations.--Any officer may resign at any time upon written
notice to the corporation. The resignation shall be effective upon receipt
thereof by the corporation or at such subsequent time as may be specified in the
notice of resignation.
Section 5.03. Subordinate Officers, Committees and Agents.--The board
of directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the corporation may
require, including one or more assistant secretaries, and one or more assistant
treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws, or as the board of
directors may from time to time determine. The board of directors may delegate
to any officer or committee the power to elect subordinate officers and to
retain or appoint employees or other agents, or committees thereof, and to
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prescribe the authority and duties of such subordinate officers, committees,
employees or other agents.
Section 5.04. Removal of Officers and Agents.--Any officer or agent of
the corporation may be removed by the board of directors with or without cause.
The removal shall be without prejudice to the contract rights, if any, of any
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section 5.05. Vacancies.--A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, may be filled by the
board of directors or by the officer or committee to which the power to fill
such office has been delegated pursuant to Section 5.03, as the case may be, and
if the office is one for which these bylaws prescribe a term, shall be filled
for the unexpired portion of the term.
Section 5.06. Authority.
(a) General Rule.--All officers of the corporation, as between
themselves and the corporation, shall have such authority and perform such
duties in the management of the corporation as may be provided by or pursuant to
resolutions or orders of the board of directors or, in the absence of
controlling provisions in the resolutions or orders of the board of directors,
as may be determined by or pursuant to these bylaws.
(b) Chief Executive Officer--The chairman of the board or the
president, as designated from time to time by resolution of the board of
directors, shall be the chief executive officer of the corporation.
Section 5.07. The Chairman and Vice Chairman of the
Board.--The chairman of the board, or in the absence of the chairman, the vice
chairman of the board, shall preside at all meetings of the shareholders and of
the board of directors, and shall perform such other duties as may from time to
time be requested by the board of directors.
Section 5.08. The President.--The president shall have general
supervision over the business and operations of the corporation, subject
however, to the control of the board of directors and, if the chairman of the
board is the chief executive officer of the corporation, the chairman of the
board. The president shall sign, execute, and acknowledge, in the name of the
corporation, deeds, mortgages, bonds, contracts or other instruments, authorized
by the board of directors, except in cases where the signing and execution
thereof shall be expressly delegated by the board of directors, or by these
bylaws, to some other officer or agent of the corporation; and, in general,
shall perform all duties incident to the office of president and such other
duties as from time to time may be assigned by the board of directors and, if
the chairman of the board is the chief executive officer of the corporation, the
chairman of the board.
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Section 5.09. The Vice Presidents.--The vice presidents shall perform
the duties of the president in the absence of the president and such other
duties as may from time to time be assigned to them by the board of directors or
the president.
Section 5.10. The Secretary.--The secretary or an assistant secretary
shall attend all meetings of the shareholders and of the board of directors and
shall record all the votes of the shareholders and of the directors and the
minutes of the meetings of the shareholders and of the board of directors and of
committees of the board in a book or books to be kept for that purpose; shall
see that notices are given and records and reports properly kept and filed by
the corporation as required by law; shall be the custodian of the seal of the
corporation and see that it is affixed to all documents to be executed on behalf
of the corporation under its seal; and, in general, shall perform all duties
incident to the office of secretary, and such other duties as may from time to
time be assigned by the board of directors or the president.
Section 5.11. The Treasurer.--The treasurer or an assistant treasurer
shall have or provide for the custody of the funds or other property of the
corporation; shall collect and receive or provide for the collection and receipt
of moneys earned by or in any manner due to or received by the corporation;
shall deposit all funds in his or her custody as treasurer in such banks or
other places of deposit as the board of directors may from time to time
designate; shall, whenever so required by the board of directors, render an
account showing all transactions as treasurer, and the financial condition of
the corporation; and, in general, shall discharge such other duties as may from
time to time be assigned by the board of directors or the president.
Section 5.12. Salaries.--The salaries of the officers elected by the
board of directors shall be fixed from time to time by the board of directors or
by such officer as may be designated by resolution of the board. The salaries or
other compensation of any other officers, employees and other agents shall be
fixed from time to time by the officer or committee to which the power to elect
such officers or to retain or appoint such employees or other agents has been
delegated pursuant to Section 5.03. No officer shall be prevented from receiving
such salary or other compensation by reason of the fact that the officer is also
a director of the corporation.
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ARTICLE VI
Certificates of Stock, Transfer, Etc.
Section 6.01. Share Certificates.
(a) Form of Certificates.--Certificates for shares of the corporation
shall be in such form as approved by the board of directors, and shall state
that the corporation is incorporated under the laws of the Commonwealth of
Pennsylvania, the name of the person to whom issued, and the number and class of
shares and the designation of the series (if any) that the certificate
represents. Certificates for shares of the corporation shall set forth upon the
face or back of the certificate (or shall state on the face or back of the
certificate that the corporation will furnish to any shareholder upon request
and without charge), a full or summary statement of the designations, voting
rights, preferences, limitations and special rights of the shares of each class
or series authorized to be issued so far as they have been fixed and determined
and the authority of the board of directors to fix and determine the
designations, voting rights, preferences, limitations and special rights of the
classes and series of shares of the corporation.
(b) Share Register.--The share register or transfer books and blank
share certificates shall be kept by the treasurer or by any transfer agent or
registrar designated by the board of directors for that purpose.
Section 6.02. Issuance.--The share certificates of the corporation
shall be numbered and registered in the share register or transfer books of the
corporation as they are issued. They shall be executed in such manner as the
board of directors shall determine.
Section 6.03. Transfer.--Transfers of shares shall be made on the share
register or transfer books of the corporation upon surrender of the certificate
therefor, endorsed by the person named in the certificate or by an attorney
lawfully constituted in writing. No transfer shall be made inconsistent with the
provisions of the Uniform Commercial Code, 13 Pa.C.S. ss.ss. 8101 et seq., and
its amendments and supplements.
Section 6.04. Record Holder of Shares.--The corporation shall be
entitled to treat the person in whose name any share or shares of the
corporation stand on the books of the corporation as the absolute owner thereof,
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share or shares on the part of any other person.
Section 6.05. Lost, Destroyed or Mutilated Certificates.--The holder of
any shares of the corporation shall immediately notify the corporation of any
loss, destruction or mutilation of the certificate therefor, and the officers of
the corporation may, in their discretion, cause a new certificate or
certificates to be issued to such holder, in case of mutilation of the
certificate, upon the surrender of the mutilated certificate or, in case of loss
or destruction of the certificate, upon satisfactory proof of such loss or
destruction and, if such officers shall so
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determine, the deposit of a bond in such form and in such sum, and with such
surety or sureties, as any of them may direct.
ARTICLE VII
Indemnification of Directors, Officers and
Other Authorized Representatives
Section 7.01. Scope of Indemnification.
(a) General Rule.--The corporation shall indemnify an indemnified
representative against any liability incurred in connection with any proceeding
in which the indemnified representative may be involved as a party or otherwise
by reason of the fact that such person is or was serving in an indemnified
capacity, including, without limitation, liabilities resulting from any actual
or alleged breach or neglect of duty, error, misstatement or misleading
statement, negligence, gross negligence or act giving rise to strict or products
liability, except:
(1) where such indemnification is expressly prohibited by
applicable law;
(2) where the conduct of the indemnified representative has
been finally determined pursuant to Section 7.06 or otherwise:
(i) to constitute willful misconduct or recklessness
within the meaning of 15 Pa.C.S. ss.ss. 513(b) and 1746(b) and
42 Pa.C.S. ss. 8365(b) or any superseding provision of law
sufficient in the circumstances to bar indemnification against
liabilities arising from the conduct; or
(ii) to be based upon or attributable to the receipt
by the indemnified representative from the corporation of a
personal benefit to which the indemnified representative is
not legally entitled; or
(3) to the extent such indemnification has been finally
determined in a final adjudication pursuant to Section 7.06 to be
otherwise unlawful.
(b) Partial Payment.--If an indemnified representative is entitled to
indemnification in respect of a portion, but not all, of any liabilities to
which such person may be subject, the corporation shall indemnify such
indemnified representative to the maximum extent for such portion of the
liabilities.
(c) Presumption.--The termination of a proceeding by judgment, order,
settlement or conviction or upon a plea of nolo contendere or its equivalent
shall not of itself create a presumption that the indemnified representative is
not entitled to indemnification.
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(d) Definitions.--For purposes of this Article:
(1) "indemnified capacity" means any and all past, present and
future service by an indemnified representative in one or more
capacities as a director, officer, employee or agent of the
corporation, or, at the request of the corporation, as a director,
officer, employee, agent fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other
entity or enterprise;
(2) "indemnified representative" means any and all directors
and officers of the corporation any other person designated as an
indemnified representative by the board of directors of the corporation
(which may, but need not, include any person serving at the request of
the corporation, as a director, officer, employee, agent, fiduciary or
trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other entity or enterprise);
(3) "liability" means any damage, judgment, amount paid in
settlement, fine, penalty, punitive damages, excise tax assessed with
respect to an employee benefit plan, or cost or expense, of any nature
(including, without limitation, attorneys' fees and disbursements); and
(4) "proceeding" means any threatened, pending or completed
action, suit, appeal or other proceeding of any nature, whether civil,
criminal, administrative or investigative, whether formal or informal,
and whether brought by or in the right of the corporation, a class of
its security holders or otherwise.
Section 7.02. Proceedings Initiated by Indemnified
Representatives.--Notwithstanding any other provision of this Article, the
corporation shall not indemnify under this Article an indemnified representative
for any liability incurred in a proceeding initiated (which shall not be deemed
to include counter-claims or affirmative defenses) or participated in as an
intervenor or amicus curiae by the person seeking indemnification unless such
initiation of or participation in the proceeding is authorized, either before or
after its commencement, by the affirmative vote of a majority of the directors
in office. This section does not apply to reimbursement of expenses incurred in
successfully prosecuting or defending an arbitration under Section 7.06 or
otherwise successfully prosecuting or defending the rights of an indemnified
representative granted by or pursuant to this Article.
Section 7.03. Advancing Expenses.--The corporation shall pay the
expenses (including attorneys' fees and disbursements) incurred in good faith by
an indemnified representative in advance of the final disposition of a
proceeding described in Section 7.01 or the initiation of or participation in
which is authorized pursuant to Section 7.02 upon receipt of an undertaking by
or on behalf of the indemnified representative to repay the amount if it is
ultimately determined pursuant to Section 7.06 that such person is not entitled
to be indemnified by the corporation pursuant to this Article. The financial
ability of an indemnified
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representative to repay an advance shall not be a prerequisite to the making of
such advance.
Section 7.04. Securing of Indemnification Obligations.--To further
effect, satisfy or secure the indemnification obligations provided herein or
otherwise, the corporation may maintain insurance, obtain a letter of credit,
act as self-insurer, create a reserve, trust, escrow, cash collateral or other
fund or account, enter into indemnification agreements, pledge or grant a
security interest in any assets or properties of the corporation, or use any
other mechanism or arrangement whatsoever in such amounts, at such costs, and
upon such other terms and conditions as the board of directors shall deem
appropriate. Absent fraud, the determination of the board of directors with
respect to such amounts, costs, terms and conditions shall be conclusive against
all security holders, officers and directors and shall not be subject to
voidability.
Section 7.05. Payment of Indemnification.--An indemnified
representative shall be entitled to indemnification within 30 days after a
written request for indemnification has been delivered to the secretary of the
corporation.
Section 7.06. Arbitration.
(a) General Rule.--Any dispute related to the right to indemnification,
contribution or advancement of expenses as provided under this Article, except
with respect to indemnification for liabilities arising under the Securities Act
of 1933 that the corporation has undertaken to submit to a court for
adjudication, shall be decided only by arbitration in the metropolitan area in
which the principal executive offices of the corporation are located at the
time, 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 corporation, the second of whom shall be selected
by the indemnified representative and the third of whom shall be selected by the
other two arbitrators. In the absence of the American Arbitration Association,
or if for any reason arbitration under the arbitration rules of the American
Arbitration Association cannot be initiated, and if one of the parties fails or
refuses to select an arbitrator or the arbitrators selected by the corporation
and the indemnified representative cannot agree on the selection of the third
arbitrator within 30 days after such time as the corporation and the indemnified
representative have each been notified of the selection of the other's
arbitrator, the necessary arbitrator or arbitrators shall be selected by the
presiding judge of the court of general jurisdiction in such metropolitan area.
(b) Qualifications of Arbitrators.--Each arbitrator selected as
provided herein is required to be or have been a director or executive officer
of a corporation whose shares of common stock were listed during at least one
year of such service on the New York Stock Exchange or the American Stock
Exchange or quoted on the National Association of Securities Dealers Automated
Quotations System.
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(c) Burden of Proof.--The party or parties challenging the right of an
indemnified representative to the benefits of this Article shall have the burden
of proof.
(d) Expenses.--The corporation shall reimburse an indemnified
representative for the expenses (including attorneys' fees and disbursements)
incurred in successfully prosecuting or defending such arbitration.
(e) Effect.--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, except
that the corporation shall be entitled to interpose as a defense in any such
judicial enforcement proceeding any prior final judicial determination adverse
to the indemnified representative under Section 7.01(a)(2) in a proceeding not
directly involving indemnification under this Article. This arbitration
provision shall be specifically enforceable.
Section 7.07. Contribution.--If the indemnification provided for in
this Article or otherwise is unavailable for any reason in respect of any
liability or portion thereof, the corporation shall contribute to the
liabilities to which the indemnified representative may be subject in such
proportion as is appropriate to reflect the intent of this Article or otherwise.
Section 7.08. Mandatory Indemnification of Directors, Officers,
Etc.--To the extent that an authorized representative of the corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1741 or 1742 of the Business Corporation Law
or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees and disbursements)
actually and reasonably incurred by such person in connection therewith.
Section 7.09. Contract Rights; Amendment or Repeal.--All rights under
this Article shall be deemed a contract between the corporation and the
indemnified representative pursuant to which the corporation and each
indemnified representative intend to be legally bound. Any repeal, amendment or
modification hereof shall be prospective only and shall not affect any rights or
obligations then existing.
Section 7.10. Scope of Article.--The rights granted by this Article
shall not be deemed exclusive of any other rights to which those seeking
indemnification, contribution or advancement of expenses may be entitled under
any statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in an indemnified capacity and as to action in any
other capacity. The indemnification, contribution and advancement of expenses
provided by or granted pursuant to this Article shall continue as to a person
who has ceased to be an indemnified representative in respect of matters arising
prior to such time, and shall inure to the benefit of the heirs, executors,
administrators and person representatives of such a person.
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Section 7.11. Reliance on Provisions.--Each person who shall act as an
indemnified representative of the corporation shall be deemed to be doing so in
reliance upon the rights provided by this Article.
Section 7.12. Interpretation.--The provisions of this Article are
intended to constitute bylaws authorized by 15 Pa.C.S. ss.ss. 513 and 1746 and
42 Pa.C.S. ss. 8365.
ARTICLE VIII
Emergency Bylaws
Section 8.01. Scope of Article.--This Article shall be applicable
during any emergency resulting from a catastrophe as a result of which a quorum
of the board of directors cannot readily be assembled. To the extent not in
conflict with this Article, these bylaws shall remain in effect during the
emergency.
Section 8.02. Special Meetings of the Board.--A special meeting of the
board of directors may be called by any director by means feasible at the time.
Section 8.03. Emergency Committee of the Board.
(a) Composition.--The emergency committee of the board shall consist of
nine persons standing highest on the following list who are available and able
to act:
Members of the board of directors.
President.
The individual who, immediately prior to the emergency, was the
senior officer in charge of nuclear operations.
The individual who, immediately prior to the emergency, was the
senior officer in charge of other operations.
The individual who, immediately prior to the emergency, was the
senior officer in charge of finance operations.
Other officers.
Where more than one person holds any of the listed ranks, the order of
precedence shall be determined by length of time in rank. Each member of the
emergency committee thus constituted shall continue to act until replaced by an
individual standing higher on the list. The emergency committee shall continue
to act until a quorum of the board of directors is available and able to act. If
the corporation has no directors, the emergency committee shall cause a special
meeting of shareholders for the election of directors to be called and held as
soon as practicable.
(b) Powers.--The emergency committee shall have and may exercise all of
the powers and authority of the board of directors, including the power to fill
a vacancy in any office of the corporation or to designate a temporary
replacement
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for any officer of the corporation who is unavailable, but shall not have the
power to fill vacancies in the board of directors.
(c) Quorum.--A majority of the members of the emergency committee in
office shall constitute a quorum.
(d) Status.--Each member of the emergency committee who is not a
director shall during his or her service as such be entitled to the rights and
immunities conferred by law, the articles and these bylaws upon directors of the
corporation and upon persons acting in good faith as a representative of the
corporation during an emergency.
ARTICLE IX
Miscellaneous
Section 9.01. Corporate Seal.--The corporation shall have a corporate
seal in the form of a circle containing the name of the corporation, the year of
incorporation and such other details as may be approved by the board of
directors.
Section 9.02. Checks.--All checks, notes, bills of exchange or other
orders in writing shall be signed by such person or persons as the board of
directors or any person authorized by resolution of the board of directors may
from time to time designate.
Section 9.03. Contracts.--Except as otherwise provided in the Business
Corporation Law in the case of transactions that require action by the
shareholders, the board of directors may authorize any officer or agent to enter
into any contract or to execute or deliver any instrument on behalf of the
corporation, and such authority may be general or confined to specific
instances.
Section 9.04. Interested Directors or Officers; Quorum.
(a) General Rule.--A contract or transaction between the corporation
and one or more of its directors or officers or between the corporation and
another corporation, partnership, joint venture, trust or other enterprise in
which one or more of its directors or officers are directors or officers or have
a financial or other interest, shall not be void or voidable solely for that
reason, or solely because the director or officer is present at or participates
in the meeting of the board of directors that authorizes the contract or
transaction, or solely because his, her or their votes are counted for that
purpose, if:
(1) the material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known to the
board of directors and the board authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors
even though the disinterested directors are less than a quorum;
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(2) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are
known to the shareholders entitled to vote thereon and the contract or
transaction is specifically approved in good faith by vote of those
shareholders; or
(3) the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified by the board of
directors or the shareholders.
(b) Quorum.--Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board which authorizes
a contract or transaction specified in subsection (a).
Section 9.05. Deposits.--All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the board of directors shall from time to
time determine.
Section 9.06. Corporate Records.
(a) Required Records.--The corporation shall keep complete and accurate
books and records of account, minutes of the proceedings of the incorporators,
shareholders and directors and a share register giving the names and addresses
of all shareholders and the number and class of shares held by each. The share
register shall be kept at either the registered office of the corporation in the
Commonwealth of Pennsylvania or at its principal place of business wherever
situated or at the office of its registrar or transfer agent. Any books, minutes
or other records may be in written form or any other form capable of being
converted into written form within a reasonable time.
(b) Right of Inspection.--Every shareholder shall, upon written
verified demand stating the purpose thereof, have a right to examine, in person
or by agent or attorney, during the usual hours for business for any proper
purpose, the share register, books and records of account, and records of the
proceedings of the incorporators, shareholders and directors and to make copies
or extracts therefrom. A proper purpose shall mean a purpose reasonably related
to the interest of the person as a shareholder. In every instance where an
attorney or other agent is the person who seeks the right of inspection, the
demand shall be accompanied by a verified power of attorney or other writing
that authorizes the attorney or other agent to so act on behalf of the
shareholder. The demand shall be directed to the corporation at its registered
office in the Commonwealth of Pennsylvania or at its principal place of business
wherever situated.
Section 9.07. Amendment of Bylaws.
(a) General Rule.--Except as otherwise provided in the express terms of
any series of the shares of the corporation:
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(1) The shareholders shall have the power to amend or repeal
these bylaws, or to adopt new bylaws, only with the approval of the
board of directors. A direction by the board that a shareholder
proposal with respect to the bylaws shall be submitted to the
shareholders for action thereon, or the sufferance by the board that
such a proposal shall be so submitted, shall not constitute approval by
the board of directors of the amendment, repeal or new bylaws.
(2) These bylaws may be amended or repealed, or new bylaws may
be adopted, by vote of a majority of the board of directors of the
corporation in office at any regular special meeting of directors,
including in circumstances otherwise reserved by statute exclusively to
the shareholders, the board of directors of the corporation having
under the articles of incorporation the full authority conferred by law
upon the shareholders of the corporation to adopt, amend or repeal
these bylaws. Any bylaw adopted by the board of directors under this
paragraph shall be consistent with the articles of incorporation.
(b) Effective Date.--Any change in these bylaws shall take effect when
adopted unless otherwise provided in the resolution effecting the change.
As adopted February 26, 1990 and amended January 26, 1998.
27
PECO ENERGY COMPANY
AND
First Union National Bank, as Trustee
SECOND SUPPLEMENTAL
INDENTURE
Dated as of June 1, 1997
to
INDENTURE
Dated as of July 1, 1994
Providing for the Issuance of
8% Deferrable Interest Subordinated Debentures, Series C
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE................. 2
SECTION 1.01 Definitions.................................................... 2
ARTICLE 2
THE SERIES C DEBENTURES.......................... 2
SECTION 2.01 Form of the Series C Debentures; Denominations................. 2
ARTICLE 3
REDEMPTION................................. 3
SECTION 3.01 Redemption; Notice to Trustee.................................. 3
SECTION 3.02. Compliance with Terms of Indenture............................. 3
ARTICLE 4
EXTENSION PERIOD.............................. 4
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................................... 4
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............................. 5
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.............................................. 6
(i)
<PAGE>
SECOND SUPPLEMENTAL INDENTURE, dated as of June 1, 1997, by and between
PECO Energy Company, a Pennsylvania corporation (the "Company"), and First Union
National Bank, a national association, as successor trustee (the "Trustee"), to
an Indenture, dated as of July 1, 1994 (the "Original Indenture"), by and
between the Company and the Trustee, which was supplemented by a First
Supplemental Indenture (the "First Supplemental Indenture") dated as of December
1, 1995 (the Original Indenture, as supplemented, 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.
WHEREAS, the Company has duly executed and delivered to the Trustee the
First Supplemental Indenture authorizing and providing for the issuance of the
second series of Debentures which were designated the 8.72% Deferrable Interest
Subordinated Debentures, Series B.
WHEREAS, the Company desires to authorize and to effect the issuance of
a third series of Debentures in an aggregate principal amount of $51,562,500 and
to designate such series 8% Deferrable Interest Subordinated Debentures, Series
C (the "Series C Debentures") under this Second Supplemental Indenture.
WHEREAS, all things necessary to make the Series C Debentures when duly
issued and executed by the Company and authenticated and delivered hereunder,
the valid obligations of the Company, and to make this Second 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 C Debentures:
<PAGE>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Additional Interest", with respect to the Series C 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 C Debentures.
"Issue Date" means June 6, 1997.
"Series C Debentures" means any of the Company's 8% Deferrable Interest
Subordinated Debentures, Series C issued under this Second Supplemental
Indenture.
"Series C Debentureholder" or "Series C Holder" means a Person in whose
name a Series C Debenture is registered on the Registrar's books.
"Series C Preferred Securities" means the 8% Cumulative Monthly Income
Preferred Securities, Series C, 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 C DEBENTURES
SECTION 2.01 Form of the Series C Debentures; Denominations.
The Series C Debentures and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A attached hereto. The terms and
provisions contained in the Series C Debentures, a form of which is annexed
hereto as Exhibit A, shall constitute, and are hereby expressly made, a part of
this Second Supplemental Indenture. The Company and the Trustee, by their
execution and delivery of this Second 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 C Debentures for original issue in the aggregate principal amount of
$51,562,500 to evidence the Company's obligation with respect to the loan from
PECO Energy
2
<PAGE>
Capital, 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. Such order shall specify the amount of the
Series C Debentures to be authenticated and the date on which the original issue
of Series C Debentures is to be authenticated and delivered to evidence the
Company's obligation with respect to the loan from PECO Energy Capital. The
aggregate principal amount of Series C Debentures outstanding at any time may
not exceed $51,546,392 except as provided in Section 2.09 of the Original
Indenture.
The Series C 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 C 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 C 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.
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 C 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.
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<PAGE>
ARTICLE 4
EXTENSION PERIOD
SECTION 4.01 Limitation on Right of Company to Extend Interest Payment Period.
The Company agrees that no extended interest payment period shall
extend beyond the stated maturity date or redemption date of the Series C
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 the First Supplemental Indenture and
this Second 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 Second 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 Second Supplemental Indenture under the Trust Indenture Act of 1939, as
amended.
ARTICLE 6
MISCELLANEOUS
SECTION 6.01 Trust Indenture Act Controls.
If any provision of this Second 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 Second Supplemental Indenture, except as, and to the extent, they are
expressly
4
<PAGE>
excluded from this Second Supplemental Indenture, as permitted by the TIA.
SECTION 6.02 Severability Clause.
If any provision in this Second Supplemental Indenture or in the Series
C 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 Second Supplemental Indenture and the Series C 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 C
Debentures or this Second Supplemental Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Series C Debenture, each Series C Debentureholder shall waive and release all
such liability. The waiver and release shall be part of the consideration for
the issue of the Series C Debentures.
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 Second 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 the First Supplemental Indenture and this Second
Supplemental Indenture, the Original Indenture, is in all respects ratified and
confirmed, and this Second 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 Indenture shall apply and remain in
full force and effect with respect to this Second Supplemental Indenture and to
the Series C Debentures issued hereunder.
5
<PAGE>
SECTION 6.07 Successors.
All agreements of the Company in this Second Supplemental Indenture and
the Series C Debentures shall bind its successors and assigns. All agreements of
the Trustee in this Second 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 Second 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
Second 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 Second 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 Second Supplemental Indenture or in the Series C Debentures,
express or implied, shall give to any Person, other than the parties hereto and
their successors hereunder, the Series C Holders and the Special Representative,
any benefit or any legal or equitable right, remedy or claim under this Second
Supplemental Indenture.
SECTION 6.11. Date of Indenture.
This Second Supplemental Indenture is dated as of June 1, 1997, but was
actually executed and delivered on June 6, 1997.
6
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the undersigned, being duly authorized, have
executed this Second Supplemental Indenture on behalf of the respective parties
hereto as of the date first above written.
PECO ENERGY COMPANY
By:
Name: J. Barry Mitchell
Title: Vice President - Finance
FIRST UNION NATIONAL BANK,
as Trustee
By:
Name:
Title:
PECO Energy Capital, L.P.
By its General Partner,
PECO Energy Capital Corp.
By:
Name: J. Barry Mitchell
Title: President
7
<PAGE>
Exhibit A
8% Deferrable Interest Subordinated Debentures,
Series C due 2037
No. 1
PECO Energy Company, a Pennsylvania corporation (the "Company"), which term
includes any successor corporation under the Indenture, as defined herein), for
value received, hereby promises to pay to PECO Energy Capital, L.P. or
registered assigns, the principal sum of Fifty One Million Five Hundred Sixty
Two Thousand Five Hundred Dollars ($51,562,500) on June 6, 2037, and to pay
interest on said principal sum from June 6, 1997 (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 June 30, 1997 at the
rate of 8% 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. 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 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 C 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 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
A-1
<PAGE>
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. 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 Additional Interest, if any) on 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.
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Series C 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
and a Second Supplemental Indenture dated as of June 1, 1997 (as supplemented,
the "Indenture") executed and delivered between the Company and First Union
National Bank, as successor 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
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<PAGE>
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 C 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 C
Preferred Securities, but if in part, in an aggregate
principal amount equal to the aggregate stated liquidation
preference of the Series C Preferred Securities redeemed.
At the option of the Company, the Series C Debentures are subject to
redemption prior to maturity (i) at any time on or after June 6, 2002, in whole
or in part, and (ii) if a Tax Event shall occur and be continuing, in whole or
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 C 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 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 C 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.
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In case an Event of Default 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 C Debentures may be
amended with the written consent of the Holders of a majority in aggregate
principal amount of the Series C 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 C 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.
So long as an Event of Default has not occurred and is continuing, the
Company shall have the right at any time during the term of the Series C
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 C 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
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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 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 capitalized terms used in this Debenture which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
A-5
<PAGE>
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: June 6, 1997
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred
to in the within-mentioned Indenture.
FIRST UNION NATIONAL BANK, as Trustee
By: ___________________________________
Name:
Title:
A-6
PAYMENT AND GUARANTEE AGREEMENT
THIS PAYMENT AND GUARANTEE AGREEMENT ("Guarantee Agreement"), dated as
of June 6, 1997, 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 C 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 $50,000,000
aggregate stated liquidation preference of limited partner interests of a series
designated the 8% Cumulative Monthly Income Preferred Securities, Series C (the
"Series C 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 C 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 C 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").
"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
<PAGE>
the Series C 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 C Preferred Securities called for redemption by PECO
Energy Capital out of moneys legally available therefor held by PECO Energy
Capital, and (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.
"Holders" shall mean the persons or entities in whose name any Series C
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 C 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 First Supplemental Indenture,
dated as of December 1, 1995, between the Guarantor and First Union National
Bank, as successor trustee, and the Second Supplemental Indenture, dated as of
June 1, 1997, between the Guarantor and First Union National Bank, as trustee,
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 C 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 C Preferred Security.
"Redemption Price" shall mean the aggregate of $25 per Series C
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 Second Supplemental Indenture,
dated as of June 1, 1997, between the Guarantor and First Union National Bank,
as trustee, pursuant to which the Guarantor has issued its 8% Deferrable
Interest Subordinated Debentures, Series C (the "Series C Subordinated
Debentures") in an amount equal to the aggregate stated
2
<PAGE>
liquidation preference of the Series C Preferred Securities and the G.P. Capital
Contribution.
"Trust" shall mean PECO Energy Capital Trust II, a Delaware business
trust.
"Trust Agreement" shall mean the Amended and Restated Trust Agreement
of PECO Energy Capital Trust II, as amended from time to time, among PECO Energy
Capital, L.P., as Grantor, First Union National Bank, as trustee, and the
General Partner, for the limited purpose stated therein, dated as of June 6,
1997.
"Trustee" shall mean First Union National Bank 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 C Subordinated Debentures and the Guarantor shall not be
obligated hereunder to pay during an Extension Period any monthly distributions
on the Series C 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:
(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 C Preferred
Securities to be performed or observed by PECO Energy Capital;
3
<PAGE>
(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 C Preferred
Securities or the extension of time for the performance of any other obligation
under, arising out of, or in connection with, the Series C 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 C 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 C 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 C Preferred Securities other than the Trust, representing
not less than 10% in aggregate stated liquidation preference of the Series C
Preferred Securities have the right to direct the time, 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 C Preferred
Securities may institute a legal proceeding directly against the Guarantor to
enforce its
4
<PAGE>
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 C 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.
ARTICLE III
SECTION 3.01. So long as any Series C 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
5
<PAGE>
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 C 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 C 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 C Preferred Securities or under this Guarantee Agreement for any reason
whatsoever.
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 C 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 C Preferred Securities remain outstanding, any amendment that materially
6
<PAGE>
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 C Preferred Securities other than the Trust, representing not
less than 662/3% of the aggregate liquidation preference of all Series C
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) 557-9885
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 C Preferred
Securities.
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:
Name: J. Barry Mitchell
Title: Vice President-Finance
7
CONFORMED COPY
$450,000,000
REVOLVING CREDIT AGREEMENT
dated as of October 7, 1997
among
PECO ENERGY COMPANY
as Borrower
THE BANKS NAMED HEREIN
as Banks
CERTAIN BANKS SPECIFIED HEREIN
as Lead Managers
CERTAIN BANKS SPECIFIED HEREIN
as Co-Agents
FIRST CHICAGO CAPITAL MARKETS, INC.,
MELLON BANK, N.A. and
CITICORP SECURITIES, INC.
as Syndication Agents
FIRST CHICAGO CAPITAL MARKETS, INC. and
MELLON BANK, N.A.
as Arrangers
THE FIRST NATIONAL BANK OF CHICAGO
as Administrative Agent
and
MELLON BANK, N.A.
as Documentation Agent
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Certain Defined Terms .................................. 1
1.02 Computation of Time Periods ............................ 11
1.03 Accounting Principles .................................. 11
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
2.01 The Contract Advances .................................. 11
2.02 Making the Contract Advances ........................... 11
2.03 The Auction Advances ................................... 12
2.04 Fees ................................................... 15
2.05 Reduction of the Commitments ........................... 16
2.06 Repayment of Contract Advances ......................... 16
2.07 Interest on Contract Advances .......................... 16
2.08 Additional Interest on Contract Advances ............... 16
2.09 Interest Rate Determination ............................ 17
2.10 Conversion of Contract Advances ........................ 17
2.11 Prepayments ............................................ 18
2.12 Increased Costs ........................................ 18
2.13 Illegality ............................................. 19
2.14 Payments and Computations .............................. 19
2.15 Taxes .................................................. 20
2.16 Sharing of Payments, Etc ............................... 22
2.17 Extension of Termination Date .......................... 22
2.18 Additional Lenders ..................................... 23
ARTICLE III
CONDITIONS OF LENDING
3.01 Conditions Precedent to Initial Advances ................ 25
3.02 Conditions Precedent to Certain Contract Borrowings ..... 26
3.03 Conditions Precedent to Each Auction Borrowing .......... 26
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 Representations and Warranties of the Borrower .......... 27
ARTICLE V
COVENANTS OF THE BORROWER
5.01 Affirmative Covenants ................................... 28
5.02 Negative Covenants ...................................... 30
i
<PAGE>
Section Page
ARTICLE VI
EVENTS OF DEFAULT
6.01 Events of Default ......................................... 31
ARTICLE VII
THE AGENTS
7.01 Authorization and Action .................................. 33
7.02 Agents' Reliance, Etc ..................................... 33
7.03 Agents and Affiliates ..................................... 34
7.04 Lender Credit Decision .................................... 34
7.05 Indemnification ........................................... 34
7.06 Successor Administrative Agent ............................ 35
7.07 Syndication Agents, Co-Agents, Lead Managers and Arrangers. 35
ARTICLE VIII
MISCELLANEOUS
8.01 Amendments, Etc............................................. 35
8.02 Notices, Etc................................................ 35
8.03 No Waiver; Remedies......................................... 36
8.04 Costs and Expenses; Indemnification......................... 36
8.05 Right of Set-off............................................ 37
8.06 Binding Effect.............................................. 37
8.07 Assignments and Participations.............................. 37
8.08 Governing Law............................................... 39
8.09 Consent to Jurisdiction..................................... 40
8.10 Execution in Counterparts; Integration...................... 40
Schedule I List of Applicable Lending Offices
Exhibit A-1 Form of Contract Note
Exhibit A-2 Form of Auction Note
Exhibit B-1 Notice of a Contract Borrowing
Exhibit B-2 Notice of an Auction Borrowing
Exhibit C Assignment and Acceptance
Exhibit D Form of Opinion of Special Counsel for the Borrower
Exhibit E Form of Opinion of Counsel to the Documentation Agent
Exhibit F Form of Annual and Quarterly Compliance Certificate
Exhibit G Form of Additional Lender Supplement
ii
<PAGE>
REVOLVING CREDIT AGREEMENT
dated as of October 7, 1997
PECO Energy Company, a Pennsylvania corporation (the "Borrower"), the
banks listed on the signature pages hereof (the "Banks"), certain Banks
specified herein, as lead managers hereunder (in such capacity, the "Lead
Managers"), certain Banks specified herein, as co-agents hereunder (in such
capacity, the "Co-Agents"), First Chicago Capital Markets, Inc. ("First Chicago
Capital Markets"), Mellon Bank, N.A. ("Mellon") and CitiCorp Securities, Inc.
("CitiCorp"), as syndication agents hereunder (in such capacity, the
"Syndication Agents"), First Chicago Capital Markets and Mellon, as arrangers
hereunder (in such capacity, the "Arrangers"), The First National Bank of
Chicago ("First Chicago"), as administrative agent for the Lenders hereunder (in
such capacity, the "Administrative Agent"), and Mellon, as documentation agent
for the Lenders hereunder (in such capacity, the "Documentation Agent"), hereby
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, each
of the following terms shall have the meaning set forth next to such term below
(each such meaning to be equally applicable to both the singular and plural
forms of the term defined):
"Additional Lender" has the meaning specified in Section 2.18.
"Adjusted CD Rate" means, for any Interest Period for each Adjusted CD
Rate Advance made as part of the same Contract Borrowing, an interest rate
per annum equal to the sum of:
(a) the rate per annum obtained by dividing (i) the rate of interest
determined by the Administrative Agent to be the average (rounded
upward to the nearest whole multiple of 1/100 of 1% per annum, if such
average is not such a multiple) of the consensus bid rate determined
by each of the Reference Banks for the bid rates per annum, at 10:00
A.M. (Chicago time) (or as soon thereafter as practicable) on the
first day of such Interest Period, of New York certificate of deposit
dealers of recognized standing selected by such Reference Bank for the
purchase at face value of certificates of deposit of such Reference
Bank in an amount substantially equal to such Reference Bank's
Adjusted CD Rate Advance made as part of such Contract Borrowing and
with a maturity equal to such Interest Period, by (ii) a percentage
equal to 100% minus the Domestic Rate Reserve Percentage for such
Interest Period, plus
(b) the Assessment Rate for such Interest Period.
The Adjusted CD Rate for the Interest Period for each Adjusted CD Rate
Advance made as part of the same Contract Borrowing shall be determined by
the Administrative Agent on the basis of applicable rates furnished to and
received by the Administrative Agent from the Reference Banks on the first
day of such Interest Period, subject, however, to the provisions of Section
2.09.
"Adjusted CD Rate Advance" means a Contract Advance that bears
interest as provided in Section 2.07(b).
"Administrative Agent" means First Chicago in its capacity as
administrative agent for the Lenders pursuant to Article VII, and not in
its individual capacity as a Lender, and any successor Administrative Agent
appointed pursuant to Article VII.
<PAGE>
"Advance" means a Contract Advance or an Auction Advance.
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person.
"Agents" means the Administrative Agent, the Documentation Agent, the
Syndication Agents, the Arrangers, the Co-Agents and Lead Managers,
collectively.
"Applicable Commitment Fee Rate" means (i) during any Level 1 Rating
Period, 0.100% per annum, (ii) during any Level 2 Rating Period, 0.125% per
annum, (iii) during any Level 3 Rating Period, 0.150% per annum, (iv)
during any Level 4 Rating Period, 0.1875% per annum and (v) during any
Level 5 Rating Period, 0.300% per annum. The Applicable Commitment Fee Rate
shall change when and as the Rating Period changes.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Advance, such
Lender's CD Lending Office in the case of an Adjusted CD Rate Advance, and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of an Auction Advance, the office of such Lender
notified by such Lender to the Administrative Agent as its Applicable
Lending Office with respect to such Auction Advance.
"Applicable Margin" means, on any date, for a Base Rate Advance, an
Adjusted CD Rate Advance or a Eurodollar Rate Advance, the interest rate
per annum set forth below in the column entitled "Base Rate", "CD Rate" or
"Eurodollar Rate", as appropriate, opposite the applicable Rating Period in
effect on such date:
<TABLE>
<CAPTION>
Rating Period Base Rate CD Rate Eurodollar Rate
<S> <C> <C> <C>
Level 1 0 .400% .275%
Level 2 0 .450% .325%
Level 3 0 .500% .400%
Level 4 0 .625% .500%
Level 5 0 .875% .750%
</TABLE>
The Applicable Margin applicable to an outstanding Contract Advance shall
change when and as the Rating Period changes.
"Arranger" means either of First Chicago Capital Markets or Mellon, in
its capacity as Arranger, and not in its individual capacity as a Lender.
"Assessment Rate" for the Interest Period for each Adjusted CD Rate
Advance made as part of the same Contract Borrowing means the assessment
rate per annum (rounded upwards to the next higher multiple of 1/100 of 1%
if the rate is not such a multiple) payable to the Federal Deposit
Insurance Corporation (or any successor) by a member of the Bank Insurance
Fund which is classified as adequately capitalized and within supervisory
subgroup "A" (or a comparable successor assessment risk classification)
within the meaning of 12 C.F.R. ss.327.4(a) (or any successor provision)
for the insurance of time deposits at the offices of such institution in
the United States, as estimated by the Administrative Agent on the first
day of such Interest Period.
2
<PAGE>
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C hereto.
"Auction Advance" means an advance by a Lender to the Borrower as part
of an Auction Borrowing resulting from the auction bidding procedure
described in Section 2.03.
"Auction Borrowing" means a borrowing consisting of simultaneous
Auction Advances from each of the Lenders whose offer to make one or more
Auction Advances as part of such borrowing has been accepted by the
Borrower under the auction bidding procedure described in Section 2.03.
"Auction Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of Exhibit A-2 hereto,
evidencing the indebtedness of the Borrower to such Lender resulting from
an Auction Advance made by such Lender.
"Auction Reduction" has the meaning specified in Section 2.01.
"Base Rate" means, for any period, a fluctuating interest rate per
annum as shall be in effect from time to time which rate per annum shall at
all times be equal to the higher of:
(a) the rate of interest announced by First Chicago, from time to
time, as its corporate base rate; and
(b) the sum of 1/2 of 1% per annum plus the Federal Funds Rate in
effect from time to time.
"Base Rate Advance" means a Contract Advance that bears interest as
provided in Section 2.07(a).
"Benchmark Debt" means the Borrower's senior secured long-term debt
or, in the event that the Borrower has no senior secured long-term debt
rated by S&P (or by a generally recognized successor to S&P) or by Moody's
(or by a generally recognized successor to Moody's), the Borrower's senior
unsecured long-term debt.
"Borrowing" means a Contract Borrowing or an Auction Borrowing.
"Business Day" means a day of the year on which banks are not required
or authorized to close in Philadelphia, Pennsylvania, Chicago, Illinois or
New York, New York, and, if the applicable Business Day relates to any
Eurodollar Rate Advances, on which dealings are carried on in the London
interbank market.
"CD Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "CD Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance pursuant to which it
became a Lender (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time
to time specify to the Borrower and the Administrative Agent.
"Co-Agent" means a Bank identified as such on the signature pages to
this Agreement, in its capacity as Co-Agent, and not in its individual
capacity as a Lender.
"Code" means the Internal Revenue Code of 1986, and the regulations
promulgated thereunder, in each case as amended, reformed or otherwise
modified from time to time.
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"Commitment" has the meaning specified in Section 2.01.
"Consolidated Adjusted Total Capitalization" on any date shall mean
the sum, without duplication, of the following with respect to the Borrower
and its consolidated Subsidiaries (exclusive, in each case, of Nonrecourse
Transition Bond Debt, to the extent Nonrecourse Transition Bond Debt would
otherwise be included in such item): (a) total capitalization as of such
date, as determined in accordance with GAAP, (b) the current portion of
liabilities which as of such date would be classified in whole or part as
long-term debt in accordance with GAAP (it being understood that the
noncurrent portion of such liabilities is included in the total
capitalization referred to in clause (a)), (c) all obligations as lessee
which, in accordance with GAAP, are capitalized as liabilities (including
the current portion thereof), and (d) all other liabilities which would be
classified as short-term debt in accordance with GAAP (including, without
limitation, all liabilities of the types classified as "Notes Payable,
Bank" on the Borrower's audited balance sheet for December 31, 1996).
"Consolidated Adjusted Total Debt" on any date shall mean the sum,
without duplication, of the following with respect to the Borrower and its
consolidated Subsidiaries (exclusive, in each case, of Nonrecourse
Transition Bond Debt, to the extent Nonrecourse Transition Bond Debt would
otherwise be included in such item): (a) all liabilities which as of such
date would be classified in whole or in part as long-term debt in
accordance with GAAP (including the current portion thereof), (b) all
obligations as lessee which, in accordance with GAAP, are capitalized as
liabilities (including the current portion thereof), and (c) all other
liabilities which would be classified as short-term debt in accordance with
GAAP (including, without limitation, all liabilities of the types
classified as "Notes Payable, Bank" on the Borrower's audited balance sheet
for December 31, 1996).
"Contract Advance" means an advance by a Lender to the Borrower as
part of a Contract Borrowing and refers to an Adjusted CD Rate Advance, a
Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a
"Type" of Contract Advance.
"Contract Borrowing" means a borrowing consisting of simultaneous
Contract Advances of the same Type and, if such Borrowing comprises
Adjusted CD Rate Advances or Eurodollar Rate Advances, having Interest
Periods of the same duration, made by each of the Lenders pursuant to
Section 2.01 or Converted pursuant to Section 2.10.
"Contract Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of Exhibit A-1 hereto,
evidencing the aggregate indebtedness of the Borrower to such Lender
resulting from the Contract Advances made by such Lender.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated)
under common control that, together with the Borrower or any Subsidiary,
are treated as a single employer under Section 414(b) or 414(c) of the
Code.
"Convert", "Conversion" and "Converted" each refers to a conversion of
Advances of one Type into Advances of another Type or the selection of a
new, or the renewal of the same, Interest Period for Eurodollar Rate
Advances or CD Rate Advances, as the case may be, pursuant to Section 2.10.
"Debt" means (i) indebtedness for borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar instrument, (iii)
obligations to pay the deferred purchase price of property or services
(other than trade payables incurred in the ordinary course of business),
(iv) obligations as lessee under leases that shall have been or are
required to be, in accordance with GAAP, recorded as capital leases, (v)
obligations (contingent or otherwise) under
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reimbursement or similar agreements with respect to the issuance of letters
of credit (other than obligations in respect of documentary letters of
credit opened to provide for the payment of goods or services purchased in
the ordinary course of business) and (vi) obligations under direct or
indirect guaranties in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others
of the kinds referred to in clauses (i) through (v) above.
"Documentation Agent" means Mellon in its capacity as documentation
agent pursuant to Article VII, and not in its individual capacity as a
Lender.
"Domestic Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant
to which it became a Lender, or such other office of such Lender as such
Lender may from time to time specify to the Borrower and the Administrative
Agent.
"Domestic Rate Reserve Percentage" for the Interest Period for any
Adjusted CD Rate Advance means the reserve percentage applicable on the
first day of such Interest Period under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including, but
not limited to, any emergency, supplemental or other marginal reserve
requirement) with respect to liabilities consisting of or including (among
other liabilities) U.S. dollar nonpersonal time deposits of $100,000 or
more in the United States with a maturity equal to such Interest Period.
"Eligible Assignee" means (i) a commercial bank organized under the
laws of the United States, or any State thereof; (ii) a commercial bank
organized under the laws of any other country that is a member of the OECD
or has concluded special lending arrangements with the International
Monetary Fund associated with its General Arrangements to Borrow, or a
political subdivision of any such country, provided that such bank is
acting through a branch or agency located in the United States; (iii) a
finance company, insurance company or other financial institution or fund
(whether a corporation, partnership or other entity) engaged generally in
making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business; or (iv) the central bank of any country
that is a member of the OECD; provided, however, that (A) any such Person
described in clause (i), (ii) or (iii) above shall also (x) have
outstanding unsecured long-term debt that is rated BBB- or better by S&P
and Baa3 or better by Moody's (or an equivalent rating by another
nationally recognized credit rating agency of similar standing if either
such corporation is no longer in the business of rating unsecured
indebtedness of entities engaged in such businesses) and (y) have combined
capital and surplus (as established in its most recent report of condition
to its primary regulator) of not less than $100,000,000 (or its equivalent
in foreign currency), and (B) any Person described in clause (ii), (iii) or
(iv) above shall, on the date on which it is to become a Lender hereunder,
be entitled to receive payments hereunder without deduction or withholding
of any United States Federal income taxes (as contemplated by Section
2.15(e)).
"Eligible Successor" means a Person which (i) is a corporation duly
incorporated, validly existing and in good standing under the laws of one
of the states of the United States or the District of Columbia, (ii) is
qualified to do business in Pennsylvania, (iii) as a result of the
contemplated acquisition, consolidation or merger, will succeed to all or
substantially all of the consolidated business and assets of the Borrower
and its Subsidiaries, (iv) upon giving effect to the contemplated
acquisition, consolidation or merger, will have all or substantially all of
its consolidated business and assets conducted and located in the United
States and (v) is acceptable to the Majority Lenders as a credit matter.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder, each as amended and modified from time to time.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant
to which it became a Lender (or, if no such office is specified, its
Domestic Lending Office), or such other office of such Lender as such
Lender may from time to time specify to the Borrower and the Administrative
Agent.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Rate Advance made as part of the same Contract Borrowing, an interest rate
per annum equal to the average (rounded upward to the nearest whole
multiple of 1/16 of 1% per annum, if such average is not such a multiple)
of the rate per annum at which deposits in U.S. dollars are offered by the
principal office of each of the Reference Banks in London, England, to
prime banks in the London interbank market at 11:00 A.M. (London time) two
Business Days before the first day of such Interest Period in an amount
substantially equal to such Reference Bank's Eurodollar Rate Advance made
as part of such Contract Borrowing and for a period equal to such Interest
Period. The Eurodollar Rate for the Interest Period for each Eurodollar
Rate Advance made as part of the same Contract Borrowing shall be
determined by the Administrative Agent on the basis of applicable rates
furnished to and received by the Administrative Agent from the Reference
Banks two Business Days before the first day of such Interest Period,
subject, however, to the provisions of Section 2.09.
"Eurodollar Rate Advance" means a Contract Advance that bears interest
as provided in Section 2.07(c).
"Eurodollar Rate Reserve Percentage" of any Lender for the Interest
Period for any Eurodollar Rate Advance means the reserve percentage
applicable during such Interest Period (or if more than one such percentage
shall be so applicable, the daily average of such percentages for those
days in such Interest Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for such
Lender with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
and modified from time to time.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized
standing selected by it.
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"GAAP" shall have the meaning given that term in Section 1.03.
"Interest Period" means, for each Contract Advance, the period
commencing on the date of such Contract Advance or the date of the
Conversion of any Contract Advance into such a Contract Advance and ending
on the last day of the period selected by the Borrower pursuant to the
provisions below and, thereafter, each subsequent period commencing on the
last day of the immediately preceding Interest Period and ending on the
last day of the period selected by the Borrower pursuant to the provisions
below. The duration of each such Interest Period shall be 30, 60, 90 or 180
days in the case of an Adjusted CD Rate Advance, and 1, 2, 3 or 6 months in
the case of a Eurodollar Rate Advance, in each case as the Borrower may
select in accordance with Section 2.02 or 2.10; provided, however, that:
(i) the Borrower may not select any Interest Period that ends
after the Termination Date then in effect;
(ii) Interest Periods commencing on the same date for Contract
Advances made as part of the same Contract Borrowing shall be of the
same duration, and
(iii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided, in the case of any Interest Period for a
Eurodollar Rate Advance, that if such extension would cause the last
day of such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the next
preceding Business Day.
"Lead Manager" means a Bank identified as such on the signature pages
to this Agreement, in its capacity as Lead Manager, and not in its
individual capacity as a Lender.
"Lenders" means the Banks listed on the signature pages hereof and
each Eligible Assignee that shall become a party hereto pursuant to Section
2.18 or 8.07.
"Level 1 Rating Period" means any period during which the Benchmark
Debt is rated A- or higher by S&P (or a comparable rating from any
generally recognized successor to S&P) or A3 or higher by Moody's (or a
comparable rating from any generally recognized successor to Moody's) (it
being understood that, for this purpose, such ratings shall be subject to
the Split Rating Adjustment).
"Level 2 Rating Period" means any period which does not qualify as a
Level 1 Rating Period during which the Benchmark Debt is rated BBB+ or
higher by S&P (or a comparable rating from any generally recognized
successor to S&P) or Baa1 or higher by Moody's (or a comparable rating from
any generally recognized successor to Moody's) (it being understood that,
for this purpose, such ratings shall be subject to the Split Rating
Adjustment).
"Level 3 Rating Period" means any period which does not qualify as a
Level 1 or Level 2 Rating Period during which the Benchmark Debt is rated
BBB or higher by S&P (or a comparable rating from any generally recognized
successor to S&P) or Baa2 or higher by Moody's (or a comparable rating from
any generally recognized successor to Moody's) (it being understood that,
for this purpose, such ratings shall be subject to the Split Rating
Adjustment).
"Level 4 Rating Period" means any period which does not qualify as a
Level 1, Level 2 or Level 3 Rating Period during which the Benchmark Debt
is rated BBB- or higher by S&P (or a comparable rating from any generally
recognized successor to S&P) or Baa3 or higher by Moody's (or a comparable
rating from any generally recognized successor to Moody's) (it being
understood that, for this purpose, such ratings shall be subject to the
Split Rating Adjustment).
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"Level 5 Rating Period" means any period which does not qualify as a
Level 1, Level 2, Level 3 or Level 4 Rating Period (it being understood
that, for this purpose, such ratings shall be subject to the Split Rating
Adjustment).
"Lien" means any lien (statutory or other), mortgage, pledge, security
interest or other charge or encumbrance, or any other type of preferential
arrangement (including, without limitation, the interest of a vendor or
lessor under any conditional sale, capitalized lease or other title
retention agreement).
"Material Adverse Change" and "Material Adverse Effect" each means,
relative to any occurrence, fact or circumstances of whatsoever nature
(including, without limitation, any determination in any litigation,
arbitration or governmental investigation or proceeding), any materially
adverse change in, or materially adverse effect on, the financial
condition, operations, assets or business of the Borrower and its
consolidated Subsidiaries, taken as a whole.
"Majority Lenders" means, at any time prior to the Termination Date,
Lenders having at least 66-2/3% of the Commitments, and, at any time on or
after the Termination Date, Lenders having at least 66-2/3% of the Advances
outstanding (provided that, for purposes hereof, neither the Borrower, nor
any of its Affiliates, if a Lender, shall be included in (i) the Lenders
having such amount of the Commitments or the Advances or (ii) determining
the total amount of the Commitments or the Advances).
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means the First and Refunding Mortgage, dated as of May 1,
1923, between The Counties Gas & Electric Company (to which the Borrower is
successor) and Fidelity Trust Company, Trustee (to which First Union
National Bank is successor), as amended, supplemented or refinanced from
time to time, provided, that no effect shall be given to any amendment,
supplement or refinancing after the date of this Agreement that would
broaden the definition of "excepted encumbrances" as defined in the
Mortgage as constituted on the date of this Agreement.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer
is obligated to make contributions.
"Non-Consenting Lender" has the meaning specified in Section 2.17(a).
"Nonrecourse Transition Bond Debt" means obligations evidenced by
"transition bonds" (as defined in 66 Pa. Cons. Stat. Ann. ss. 2812(g) (West
Supp. 1997), or any successor provision of similar import), rated AA or
higher by S&P (or a comparable rating from a generally recognized successor
to S&P) or Aa2 or higher by Moody's (or a comparable rating from a
generally recognized successor to Moody's), representing a securitization
of "intangible transition property" (as defined in the foregoing statute),
as to which obligations neither the Borrower nor any Subsidiary of the
Borrower (other than a Special Purpose Subsidiary) has any direct or
indirect liability (whether as primary obligor, guarantor, or surety,
provider of collateral security, put option, asset repurchase agreement or
capital maintenance agreement, debt subordination agreement, or through
other right or arrangement of any nature providing direct or indirect
assurance of payment or performance of any such obligations in whole or in
part), except for liability to repurchase "intangible transition property"
conveyed to the securitization vehicle, on terms and conditions customary
in receivables securitizations, in the event such "intangible transition
property" violates representations and warranties of scope customary in
receivables securitizations. "Special Purpose Subsidiary" means a direct or
indirect wholly-owned corporate Subsidiary of the Borrower, substantially
all of the assets of which are
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"intangible transition property" and proceeds thereof, formed solely for
the purpose of holding such assets and issuing such "transition bonds," and
which complies with the requirements customarily imposed on
bankruptcy-remote corporations in receivables securitizations.
"Note" means a Contract Note or an Auction Note.
"Notice of a Contract Borrowing" has the meaning specified in Section
2.02(a).
"Notice of an Auction Borrowing" has the meaning specified in Section
2.03(a).
"OECD" means the Organization for Economic Cooperation and
Development.
"Order of Registration" has the meaning assigned to that term in
Section 3.01(a)(iii).
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture, limited liability company or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means an employee pension benefit plan that is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412
of the Code as to which the Borrower or any member of the Controlled Group
may have any liability.
"PPUC" means the Pennsylvania Public Utility Commission.
"Principal Subsidiary" means (i) each Utility Subsidiary and (ii) from
and after the date on which the aggregate book value of the assets of the
Subsidiaries of the Borrower that are not Utility Subsidiaries exceeds
$250,000,000, each such Subsidiary the assets of which exceeded $75,000,000
in book value at any time during the preceding 24-month period.
"Rating Period" means a Level 1 Rating Period, a Level 2 Rating
Period, a Level 3 Rating Period, a Level 4 Rating Period or a Level 5
Rating Period, as the case may be.
"Reference Banks" means First Chicago, Mellon and Citibank, N.A.
"Register" has the meaning specified in Section 8.07(c).
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and regulations issued under such section with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30
days of the occurrence of such event, provided that a failure to meet the
minimum funding standard of Section 412 of the Code and Section 302 of
ERISA shall be a Reportable Event regardless of the issuance of any such
waivers in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Securities Certificate" has the meaning assigned to that term in
Section 3.01(a)(iii).
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member
of the Controlled Group.
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"Special Purpose Subsidiary" has the meaning assigned to that term in
the definition of "Nonrecourse Transition Bond Debt."
"Split Rating Adjustment": For the purpose of determining the
appropriate Rating Period, the rating of the Benchmark Debt shall be
subject to adjustment as follows. In the event that the Benchmark Debt is
rated at equivalent rating levels or not more than one rating level apart
by S&P (or any generally accepted successor to S&P) and Moody's (or any
generally accepted successor to Moody's), then no adjustment shall apply.
Otherwise, the higher of the two ratings shall be deemed to be reduced to
the next lower rating level. For this purpose, (i) determination of the
rating level shall take into account "+" and "-" modifiers to S&P ratings
and numerical modifiers to Moody's ratings (so that, for example, an S&P
rating of A- shall be deemed equivalent to a Moody's rating of A3, an S&P
rating of BBB+ shall be deemed equivalent to a Moody's rating of Baa1, an
S&P rating of BBB shall be deemed equivalent to a Moody's rating of Baa2,
an S&P rating of BBB- shall be deemed equivalent to a Moody's rating of
Baa3, and so on), and (ii) by way of clarification, in the event the
Benchmark Debt is rated by only one of the two referenced rating agencies,
such rating shall be deemed to be reduced to the next lower rating level.
"Subsidiary" means, with respect to any Person, any corporation or
unincorporated entity of which more than 50% of the outstanding capital
stock (or comparable interest) having ordinary voting power (irrespective
of whether or not at the time capital stock, or comparable interests, of
any other class or classes of such corporation or entity shall or might
have voting power upon the occurrence of any contingency) is at the time
directly or indirectly owned by such Person (whether directly or through
one or more other Subsidiaries).
"Syndication Agent" means any of First Chicago Capital Markets, Mellon
or CitiCorp, in its capacity as Syndication Agent, and not in its
individual capacity as a Lender.
"Termination Date" means the earlier of (i) October 7, 2000 (or, if
such date is not a Business Day, the next preceding Business Day) or such
later date that may be established pursuant to Section 2.17(a) or (ii) the
date of termination in whole of the Commitments pursuant to Section 2.05 or
Section 6.01.
"364-Day Credit Agreement" means that certain 364-Day Credit
Agreement, dated as of October 7, 1997, among the Borrower, the banks named
therein, certain banks specified therein, as lead managers thereunder,
certain banks specified therein, as co-agents thereunder, First Chicago
Capital Markets, Mellon and CitiCorp, as syndication agents thereunder,
First Chicago Capital Markets and Mellon, as arrangers thereunder, First
Chicago, as administrative agent for the lenders thereunder, and Mellon, as
documentation agent for the lenders thereunder, as the same may be amended,
modified or supplemented from time to time.
"Unfunded Liabilities" means, (i) in the case of any Single Employer
Plan, the amount (if any) by which the present value of all vested
nonforfeitable benefits under such Plan exceeds the fair market value of
all Plan assets allocable to such benefits, all determined as of the then
most recent evaluation date for such Plan, and (ii) in the case of any
Multiemployer Plan, the withdrawal liability that would be incurred by the
Controlled Group if all members of the Controlled Group completely withdrew
from such Multiemployer Plan.
"Utility Subsidiary" means each Subsidiary of the Borrower that is
engaged principally in the generation, transmission, or distribution of
electricity or gas and is subject to regulation as a public utility by
federal or state regulatory authorities.
"Yield" means, for any Auction Advance, the effective rate per annum
at which interest on such Auction Advance is payable, computed on the basis
of a year of 360 days for the actual
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number of days (including the first day but excluding the last day)
occurring in the period for which such interest is payable.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".
SECTION 1.03. Accounting Principles. As used in this Agreement, "GAAP"
shall mean generally accepted accounting principles in the United States,
applied on a basis consistent with the principles used in preparing the
Borrower's audited consolidated financial statements as of December 31, 1996 and
for the fiscal year then ended. In this Agreement, except to the extent, if any,
otherwise provided herein, all accounting and financial terms shall have the
meanings ascribed to such terms by GAAP, and all computations and determinations
as to accounting and financial matters shall be made in accordance with GAAP. In
the event that the financial statements generally prepared by the Borrower apply
accounting principles other than GAAP, the compliance certificate delivered
pursuant to Section 5.01(b)(iv) accompanying such financial statements shall
include information in reasonable detail reconciling such financial statements
to GAAP to the extent relevant to the calculations set forth in such compliance
certificate.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Contract Advances. Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make Contract Advances to the
Borrower from time to time on any Business Day during the period from the date
hereof until (but excluding) the Termination Date in an aggregate amount not to
exceed at any time outstanding the amount set forth opposite such Lender's name
on the signature pages hereof or, if such Lender has entered into any Assignment
and Acceptance or Additional Lender Supplement, set forth for such Lender in the
Register maintained by the Administrative Agent pursuant to Section 8.07(c), as
such amount may be reduced pursuant to Section 2.05 or 2.17 (such Lender's
"Commitment"); provided, that the aggregate amount of the Commitments of the
Lenders shall be deemed used from time to time to the extent of the aggregate
amount of the Auction Advances then outstanding, and such deemed use of the
aggregate amount of the Commitments shall be applied to the Lenders ratably
according to their respective Commitments (such deemed use of the aggregate
amount of the Commitments being an "Auction Reduction"). Each Contract Borrowing
shall consist of Contract Advances of the same Type made or Converted on the
same day by the Lenders ratably according to their respective Commitments. Each
Contract Borrowing comprising Base Rate Advances shall be in an aggregate amount
not less than $5,000,000, and each Contract Borrowing comprising Adjusted CD
Rate Advances or Eurodollar Rate Advances shall be in an aggregate amount not
less than $10,000,000. Within the limits of each Lender's Commitment, the
Borrower may from time to time borrow, prepay pursuant to Section 2.11 and
reborrow under this Section 2.01.
SECTION 2.02. Making the Contract Advances. (a) Each Contract
Borrowing (other than pursuant to a Conversion) shall be made on notice, given
not later than 10:00 A.M. (Chicago time) on the third Business Day prior to the
date of any proposed Contract Borrowing comprising Eurodollar Rate Advances, on
the second Business Day prior to the date of any proposed Contract Borrowing
comprising Adjusted CD Rate Advances and on the date of any proposed Contract
Borrowing comprising Base Rate Advances, by the Borrower to the Administrative
Agent, which shall give to each Lender prompt notice thereof. Each such notice
of a Contract Borrowing (a "Notice of a Contract Borrowing") shall be sent by
telecopier, telex or cable, confirmed immediately in writing, in substantially
the form of Exhibit B-1 hereto, specifying therein the requested (i) date of
such Contract Borrowing, (ii) Type of Contract Advances to be made in connection
with such Contract Borrowing, (iii)
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aggregate amount of such Contract Borrowing, and (iv) in the case of a Contract
Borrowing comprising Adjusted CD Rate Advances or Eurodollar Rate Advances,
initial Interest Period for the Contract Advances to be made in connection with
such Contract Borrowing. Each Lender shall, before 11:00 A.M. (Chicago time) on
the date of such Contract Borrowing, make available for the account of its
Applicable Lending Office to the Administrative Agent at its address referred to
in Section 8.02, in same day funds, such Lender's ratable portion of such
Contract Borrowing. After the Administrative Agent's receipt of such funds and
upon fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will make such funds available to the Borrower at the
Administrative Agent's aforesaid address.
(b) Each Notice of a Contract Borrowing shall be irrevocable and
binding on the Borrower. In the case of any Contract Borrowing that the related
Notice of a Contract Borrowing specifies is to comprise Adjusted CD Rate
Advances or Eurodollar Rate Advances, the Borrower shall indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result of any
failure to fulfill on or before the date specified in such Notice of a Contract
Borrowing for such Contract Borrowing the applicable conditions set forth in
Article III, including, without limitation, any loss, cost or expense incurred
by reason of the liquidation or reemployment of deposits or other funds acquired
by such Lender to fund the Contract Advance to be made by such Lender as part of
such Contract Borrowing when such Contract Advance, as a result of such failure,
is not made on such date.
(c) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Contract Borrowing that such Lender will not
make available to the Administrative Agent such Lender's ratable portion of such
Contract Borrowing, the Administrative Agent may assume that such Lender has
made such portion available to the Administrative Agent on the date of such
Contract Borrowing in accordance with subsection (a) of this Section 2.02 and
the Administrative Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent that
such Lender shall not have so made such ratable portion available to the
Administrative Agent, such Lender and the Borrower severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent, at (i) in the case of the Borrower, the interest rate applicable at the
time to Contract Advances made in connection with such Contract Borrowing and
(ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount so
repaid shall constitute such Lender's Contract Advance as part of such Contract
Borrowing for purposes of this Agreement.
(d) The failure of any Lender to make the Contract Advance to be made
by it as part of any Contract Borrowing shall not relieve any other Lender of
its obligation, if any, hereunder to make its Contract Advance on the date of
such Contract Borrowing, but no Lender shall be responsible for the failure of
any other Lender to make the Contract Advance to be made by such other Lender on
the date of any Contract Borrowing.
(e) Notwithstanding anything to the contrary contained herein, no more
than sixteen (16) Contract Borrowings comprising Adjusted CD Rate Advances and
Eurodollar Rate Advances may be outstanding at any time.
SECTION 2.03. The Auction Advances. (a) Each Lender severally agrees
that the Borrower may request Auction Borrowings under this Section 2.03 from
time to time on any Business Day during the period from the date hereof until
the date occurring seven days prior to the Termination Date, in the manner set
forth below; provided that, following the making of each Auction Borrowing, the
aggregate amount of the Advances then outstanding shall not exceed the aggregate
amount of the Commitments of the Lenders.
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(i) The Borrower may request an Auction Borrowing by delivering to the
Administrative Agent by telecopier, telex or cable, confirmed immediately
in writing, a notice of an Auction Borrowing (a "Notice of an Auction
Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying
the date and aggregate amount of the proposed Auction Borrowing, the
maturity date for repayment of each Auction Advance to be made as part of
such Auction Borrowing (which maturity date may not be earlier than the
date occurring seven days after the date of such Auction Borrowing or later
than the earlier to occur of (A) 270 days after the date of such Auction
Borrowing and (B) the Termination Date), the interest payment date or dates
relating thereto (which shall occur at least every 90 days), and any other
terms to be applicable to such Auction Borrowing, not later than 9:00 A.M.
(Chicago time) at least one Business Day prior to the date of the proposed
Auction Borrowing. The Administrative Agent shall in turn promptly notify
each Lender of each request for an Auction Borrowing received by it from
the Borrower by sending such Lender a copy of the related Notice of an
Auction Borrowing.
(ii) Each Lender may, in its sole discretion, elect to irrevocably
offer to make one or more Auction Advances to the Borrower as part of such
proposed Auction Borrowing at a rate or rates of interest specified by such
Lender in its sole discretion, by notifying the Administrative Agent (which
shall give prompt notice thereof to the Borrower), before 9:00 A.M.
(Chicago time) on the date of such proposed Auction Borrowing of the
minimum amount and maximum amount of each Auction Advance that such Lender
would be willing to make as part of such proposed Auction Borrowing (which
amounts may, subject to the proviso to the first sentence of this Section
2.03(a), exceed such Lender's Commitment), the rate or rates of interest
therefor, the interest period relating thereto and such Lender's Applicable
Lending Office with respect to such Auction Advance; provided that if the
Administrative Agent in its capacity as a Lender shall, in its sole
discretion, elect to make any such offer, it shall notify the Borrower of
such offer before 8:00 A.M. (Chicago time) on the date on which notice of
such election is to be given to the Administrative Agent by the other
Lenders.
(iii) The Borrower shall, in turn, before 10:00 A.M. (Chicago time) on
the date of such proposed Auction Borrowing, either
(A) cancel such Auction Borrowing by giving the Administrative
Agent notice to that effect, or
(B) irrevocably accept one or more of the offers made by any
Lender or Lenders pursuant to paragraph (ii) above, in its sole
discretion, in an aggregate amount not in excess of the aggregate
amount of the proposed Auction Borrowing requested in the relevant
Notice of an Auction Borrowing, subject only to the provisions of this
paragraph (iii), by giving notice to the Administrative Agent of the
amount of each Auction Advance (which amount shall be equal to or
greater than the minimum amount, and equal to or less than the maximum
amount, notified to the Borrower by the Administrative Agent on behalf
of such Lender for such Auction Advance pursuant to paragraph (ii)
above) to be made by each Lender as part of such Auction Borrowing,
and reject any remaining offers made by Lenders pursuant to paragraph
(ii) above by giving the Administrative Agent notice to that effect;
provided, however, that (x) the Borrower shall not accept an offer
made pursuant to paragraph (ii) above, at any Yield if the Borrower
shall have, or shall be deemed to have, rejected any other offer made
pursuant to paragraph (ii) above, at a lower Yield, (y) if the
Borrower declines to accept, or is otherwise restricted by the
provisions of this Agreement from accepting, the maximum aggregate
principal amount of Auction Borrowings offered at the same Yield
pursuant to paragraph (ii) above,
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then the Borrower shall accept a pro rata portion of each offer made
at such Yield, based as nearly as possible on the ratio of the
aggregate principal amount of such offers to be accepted by the
Borrower to the maximum aggregate principal amount of such offers made
pursuant to paragraph (ii) above (rounding up or down to the next
higher or lower multiple of $1,000,000), and (z) no offer made
pursuant to paragraph (ii) above shall be accepted unless the Auction
Borrowing in respect of such offer is in an integral multiple of
$1,000,000 and the aggregate amount of such offers accepted by the
Borrower is equal to at least $10,000,000.
Any offer or offers made pursuant to paragraph (ii) above not expressly
accepted or rejected by the Borrower in accordance with this paragraph
(iii) shall be deemed to have been rejected by the Borrower.
(iv) If the Borrower notifies the Administrative Agent that such
Auction Borrowing is canceled pursuant to clause (A) of paragraph (iii)
above, the Administrative Agent shall give prompt notice thereof to the
Lenders and such Auction Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers made by any
Lender or Lenders pursuant to clause (B) of paragraph (iii) above, the
Administrative Agent shall in turn promptly notify (A) each Lender that has
made an offer as described in paragraph (ii) above, of the date and
aggregate amount of such Auction Borrowing and whether or not any offer or
offers made by such Lender pursuant to paragraph (ii) above have been
accepted by the Borrower, (B) each Lender that is to make an Auction
Advance as part of such Auction Borrowing of the amount of each Auction
Advance to be made by such Lender as part of such Auction Borrowing, and
(C) each Lender that is to make an Auction Advance as part of such Auction
Borrowing, upon receipt, that the Administrative Agent has received forms
of documents appearing to fulfill the applicable conditions set forth in
Article III. Each Lender that is to make an Auction Advance as part of such
Auction Borrowing shall, before 11:00 A.M. (Chicago time) on the date of
such Auction Borrowing specified in the notice received from the
Administrative Agent pursuant to clause (A) of the preceding sentence or
any later time when such Lender shall have received notice from the
Administrative Agent pursuant to clause (C) of the preceding sentence, make
available for the account of its Applicable Lending Office to the
Administrative Agent at its address referred to in Section 8.02 such
Lender's portion of such Auction Borrowing, in same day funds. Upon
fulfillment of the applicable conditions set forth in Article III and after
receipt by the Administrative Agent of such funds, the Administrative Agent
will make such funds available to the Borrower at the Administrative
Agent's aforesaid address. Promptly after each Auction Borrowing, the
Administrative Agent will notify each Lender of the amount of the Auction
Borrowing, the consequent Auction Reduction and the dates upon which such
Auction Reduction commenced and will terminate.
(b) Each Auction Advance shall be in an amount not less than
$1,000,000 or an integral multiple of $1,000,000 in excess thereof and,
following the making of each Auction Borrowing, the Borrower shall be in
compliance with the limitation set forth in the proviso to the first sentence of
subsection (a) above.
(c) Within the limits and on the conditions set forth in this Section
2.03, the Borrower may from time to time borrow under this Section 2.03, repay
or prepay pursuant to subsection (d) below, and reborrow under this Section
2.03; provided, that an Auction Borrowing shall not be made within three
Business Days of the date of any other Auction Borrowing.
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(d) The Borrower shall repay to the Administrative Agent for the
account of each Lender that has made an Auction Advance, or each other holder of
an Auction Note, on the maturity date of each Auction Advance (such maturity
date being that specified by the Borrower for repayment of such Auction Advance
in the related Notice of an Auction Borrowing delivered pursuant to subsection
(a)(i) above and provided in the Auction Note evidencing such Auction Advance),
the then unpaid principal amount of such Auction Advance. The Borrower shall
have no right to prepay any principal amount of any Auction Advance unless, and
then only on the terms, specified by the Borrower for such Auction Advance in
the related Notice of an Auction Borrowing delivered pursuant to subsection
(a)(i) above and set forth in the Auction Note evidencing such Auction Advance.
(e) The Borrower shall pay interest on the unpaid principal amount of
each Auction Advance from the date of such Auction Advance to the date the
principal amount of such Auction Advance is repaid in full, at the rate of
interest for such Auction Advance specified by the Lender making such Auction
Advance in its notice with respect thereto delivered pursuant to subsection
(a)(ii) above, payable on the interest payment date or dates specified by the
Borrower for such Auction Advance in the related Notice of an Auction Borrowing
delivered pursuant to subsection (a)(i) above, as provided in the Auction Note
evidencing such Auction Advance.
(f) The indebtedness of the Borrower resulting from each Auction
Advance made to the Borrower as part of an Auction Borrowing shall be evidenced
by a separate Auction Note of the Borrower payable to the order of the Lender
making such Auction Advance.
(g) Upon payment in full of the principal amount of any Auction Note
and interest accrued thereon, the holder of such Auction Note shall cancel and
return such Auction Note to the Borrower.
SECTION 2.04. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee on the
average daily unused portion of such Lender's Commitment (after giving effect to
any Auction Reduction) from the date hereof in the case of each Bank, and from
the effective date specified in the Assignment and Acceptance or the Additional
Lender Supplement pursuant to which it became a Lender in the case of each other
Lender, until the Termination Date, and, in the case of the termination in whole
of a Lender's Commitment pursuant to Section 2.05 or 2.17, the date of such
termination, payable on the last day of each March, June, September and December
during such period, and on the Termination Date, and, in the case of the
termination in whole of a Lender's Commitment pursuant to Section 2.05 or 2.17,
the date of such termination, at a percentage rate per annum equal to the
Applicable Commitment Fee Rate in effect from time to time, changing when and as
the Applicable Commitment Fee Rate changes.
(b) The Borrower agrees to pay to the Administrative Agent for the
account of each Lender an auction facility fee on the average daily aggregate
principal amount of such Lender's Auction Reduction during the period from the
date hereof in the case of each Bank, and from the effective date specified in
the Assignment and Acceptance pursuant to which it became a Lender in the case
of each other Lender, until the Termination Date, and, in the case of the
termination in whole of a Lender's Commitment pursuant to Section 2.05 or 2.17,
the date of such termination, payable on the last day of each March, June,
September and December during such period, and on the Termination Date, and, in
the case of the termination in whole of a Lender's Commitment pursuant to
Section 2.05 or 2.17, the date of such termination, at a percentage rate per
annum equal to the Applicable Commitment Fee Rate in effect from time to time,
changing when and as the Applicable Commitment Fee Rate changes.
(c) The Borrower agrees to pay to the Documentation Agent for its own
account a closing fee as agreed to in writing between the Borrower and the
Documentation Agent, payable upon the execution and delivery of this Agreement.
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(d) The Borrower agrees to pay to the Administrative Agent for its own
account a closing fee, an auction administration fee and an Administrative
Agent's administration fee, each payable in such amounts and on such dates as
may be agreed to in writing from time to time between the Borrower and the
Administrative Agent.
SECTION 2.05. Reduction of the Commitments. The Borrower shall have
the right, upon at least two Business Days' notice to the Administrative Agent,
to terminate in whole or reduce ratably in part the unused portions of the
respective Commitments of the Lenders; provided, that the aggregate amount of
the Commitments of the Lenders shall not be reduced to an amount that is less
than the aggregate principal amount of the Advances then outstanding; and
provided, further, that each partial reduction shall be in the aggregate amount
of $1,000,000 or an integral multiple thereof.
SECTION 2.06. Repayment of Contract Advances. The Borrower shall repay
the principal amount of each Contract Advance made by each Lender in accordance
with the Contract Note to the order of such Lender.
SECTION 2.07. Interest on Contract Advances. The Borrower shall pay
interest on the unpaid principal amount of each Contract Advance made by each
Lender from the date of such Contract Advance until such principal amount shall
be paid in full, at the following rates per annum:
(a) Base Rate Advances. If such Contract Advance is a Base Rate
Advance, a rate per annum equal at all times to the Base Rate in effect from
time to time, payable quarterly on the last day of each March, June, September
and December during such periods and on the date such Base Rate Advance shall be
Converted or paid in full.
(b) Adjusted CD Rate Advances. If such Contract Advance is an Adjusted
CD Rate Advance, a rate per annum equal at all times during the Interest Period
for such Contract Advance to the sum of the Adjusted CD Rate for such Interest
Period plus the Applicable Margin for such Adjusted CD Rate in effect from time
to time, payable on the last day of the Interest Period for such Adjusted CD
Rate Advance (or, if the Interest Period for such Advance is 180 days, accrued
interest shall be payable on the 90th day and the 180th day of such Interest
Period) or, if earlier, on the date such Adjusted CD Rate Advance shall be
Converted or paid in full.
(c) Eurodollar Rate Advances. Subject to Section 2.08, if such
Contract Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during the Interest Period for such Contract Advance to the sum of the
Eurodollar Rate for such Interest Period plus the Applicable Margin for such
Eurodollar Rate Advance in effect from time to time, payable on the last day of
the Interest Period for such Eurodollar Rate Advance (or, if the Interest Period
for such Advance is six months, accrued interest shall be payable on the day
that is three months and on the day that is six months from the date such
Advance was made) or, if earlier, on the date such Eurodollar Rate Advance shall
be Converted or paid in full.
SECTION 2.08. Additional Interest on Contract Advances. The Borrower
shall pay to each Lender, so long as such Lender shall be required under
regulations of the Board of Governors of the Federal Reserve System to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, additional interest on the unpaid principal amount of
each Eurodollar Rate Advance of such Lender, from the date of such Contract
Advance until such principal amount is paid in full or Converted, at an interest
rate per annum equal at all times to the remainder obtained by subtracting (i)
the Eurodollar Rate for the Interest Period for such Contract Advance from (ii)
the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100%
minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest
Period, payable on each date on which interest is payable on such Contract
Advance; provided, that no Lender shall be entitled to demand such additional
interest more than 90 days following the last day of the Interest Period in
respect of which such demand is made; provided further, however, that the
foregoing proviso shall in no way limit the right of any
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Lender to demand or receive such additional interest to the extent that such
additional interest relates to the retroactive application of the reserve
requirements described above if such demand is made within 90 days after the
implementation of such retroactive reserve requirements. Such additional
interest shall be determined by such Lender and notified to the Borrower through
the Administrative Agent, and such determination shall be conclusive and binding
for all purposes, absent manifest error.
SECTION 2.09. Interest Rate Determination. (a) Each Reference Bank
agrees to furnish to the Administrative Agent timely information for the purpose
of determining each Adjusted CD Rate or Eurodollar Rate, as applicable. If any
one of the Reference Banks shall not furnish such timely information to the
Administrative Agent for the purpose of determining any such interest rate, the
Administrative Agent shall determine such interest rate on the basis of timely
information furnished by the remaining Reference Banks.
(b) The Administrative Agent shall give prompt notice to the Borrower
and the Lenders of the applicable interest rate determined by the Administrative
Agent for purposes of Section 2.07(a), (b) or (c), and the applicable rate, if
any, furnished by each Reference Bank for the purpose of determining the
applicable interest rate under Section 2.07(b) or (c).
(c) If fewer than two Reference Banks furnish timely information to
the Administrative Agent for determining the Adjusted CD Rate for any Adjusted
CD Rate Advances, or the Eurodollar Rate for any Eurodollar Rate Advances,
(i) the Administrative Agent shall forthwith notify the Borrower
and the Lenders that the interest rate cannot be determined for such
Adjusted CD Rate Advances or Eurodollar Rate Advances, as the case may
be,
(ii) each such Advance will automatically, on the last day of the
then existing Interest Period therefor, Convert into a Base Rate
Advance (or if such Advance is then a Base Rate Advance, will continue
as a Base Rate Advance), and
(iii) the obligation of the Lenders to make, or to Convert
Contract Advances into, Adjusted CD Rate Advances or Eurodollar Rate
Advances, as the case may be, shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that
the circumstances causing such suspension no longer exist.
(d) If, with respect to any Eurodollar Rate Advances, the Majority
Lenders notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Majority Lenders of making, funding or maintaining their respective Eurodollar
Rate Advances for such Interest Period, the Administrative Agent shall forthwith
so notify the Borrower and the Lenders, whereupon
(i) each Eurodollar Rate Advance will automatically, on the last
day of the then existing Interest Period therefor (unless prepaid or
Converted to any Type of Advance other than a Eurodollar Rate Advance
prior to such date), Convert into a Base Rate Advance, and
(ii) the obligation of the Lenders to make, or to Convert
Contract Advances into, Eurodollar Rate Advances shall be suspended
until the Administrative Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer
exist.
SECTION 2.10. Conversion of Contract Advances. (a) Voluntary. The
Borrower may on any Business Day, upon notice given to the Administrative Agent
not later than 10:00 A.M. (Chicago time) on the third Business Day prior to the
date of any proposed Conversion into Eurodollar Rate
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Advances, the second Business Day prior to the date of any proposed Conversion
into Adjusted CD Rate Advances and on the date of any proposed Conversion into
Base Rate Advances, and subject to the provisions of Sections 2.09 and 2.13,
Convert all Contract Advances of one Type made in connection with the same
Contract Borrowing into Advances of another Type or Types or Advances of the
same Type having the same or a new Interest Period; provided, however, that any
Conversion of Adjusted CD Rate Advances or Eurodollar Rate Advances into
Advances of another Type or Advances of the same Type having the same or new
Interest Periods shall be made on, and only on, the last day of an Interest
Period for such Adjusted CD Rate Advances or Eurodollar Rate Advances, unless
the Borrower shall also reimburse the Lenders in respect thereof pursuant to
Section 8.04(b) on the date of such Conversion. Each such notice of a Conversion
shall, within the restrictions specified above, specify (i) the date of such
Conversion, (ii) the Contract Advances to be Converted, and (iii) if such
Conversion is into, or with respect to, Adjusted CD Rate Advances or Eurodollar
Rate Advances, the duration of the Interest Period for each such Contract
Advance.
(b) Automatic. If the Borrower shall fail to select the Type of any
Contract Advance or the duration of any Interest Period for any Contract
Borrowing comprising Adjusted CD Rate Advances or Eurodollar Rate Advances in
accordance with the provisions contained in the definition of "Interest Period"
in Section 1.01 and Section 2.10(a), the Administrative Agent will forthwith so
notify the Borrower and the Lenders and such Advances will automatically, on the
last day of the then existing Interest Period therefor, Convert into Base Rate
Advances.
SECTION 2.11. Prepayments. The Borrower may, upon at least two
Business Days' notice (or same day notice in the case of any prepayment of Base
Rate Advances) to the Administrative Agent stating the proposed date and
aggregate principal amount of the prepayment, and if such notice is given the
Borrower shall, prepay the outstanding principal amounts of the Advances made as
part of the same Contract Borrowing in whole or ratably in part, together with
accrued interest to the date of such prepayment on the principal amount prepaid;
provided, however, that (i) each partial prepayment shall be in an aggregate
principal amount not less than $10,000,000 (or $5,000,000 in the case of any
prepayment of Base Rate Advances) and (ii) in the case of any such prepayment of
an Adjusted CD Advance or Eurodollar Rate Advance, the Borrower shall be
obligated to reimburse the Lenders in respect thereof pursuant to Section
8.04(b) on the date of such prepayment.
SECTION 2.12. Increased Costs. (a) If on or after (x) the date of this
Agreement, in the case of any Contract Advance or any obligation to make a
Contract Advance, or (y) the date a Lender offers to make such Auction Advance,
in the case of any Auction Advance, any Lender determines that (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements, in the case of Adjusted CD Rate Advances,
included in the Domestic Rate Reserve Percentage or, in the case of Eurodollar
Rate Advances, included in the Eurodollar Rate Reserve Percentage) in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) shall increase the cost to such Lender
of agreeing to make or making, funding or maintaining Adjusted CD Rate Advances
or Eurodollar Rate Advances, then the Borrower shall from time to time, upon
demand by such Lender (with a copy of such demand to the Administrative Agent),
pay to the Administrative Agent for the account of such Lender additional
amounts (without duplication of any amount payable pursuant to Section 2.15)
sufficient to compensate such Lender for such increased cost; provided, that no
Lender shall be entitled to demand such compensation more than 90 days following
the last day of the Interest Period in respect of which such demand is made;
provided further, however, that the foregoing proviso shall in no way limit the
right of any Lender to demand or receive such compensation to the extent that
such compensation relates to the retroactive application of any law, regulation,
guideline or request described in clause (i) or (ii) above if such demand is
made within 90 days after the implementation of such retroactive law,
interpretation, guideline or request. A certificate as to the amount of such
increased cost, submitted to the Borrower and the Administrative Agent by such
Lender, shall be conclusive and binding for all purposes, absent manifest error.
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(b) If any Lender determines that, after the date of this Agreement,
compliance with any law or regulation or any guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) affects or would affect the amount of capital required or expected to be
maintained by such Lender or any corporation controlling such Lender and that
the amount of such capital is increased by or based upon the existence of such
Lender's commitment to lend hereunder and other commitments of this type or the
Advances made by such Lender, then, upon demand by such Lender (with a copy of
such demand to the Administrative Agent), the Borrower shall immediately pay to
the Administrative Agent for the account of such Lender, from time to time as
specified by such Lender, additional amounts sufficient to compensate such
Lender or such corporation in the light of such circumstances, to the extent
that such Lender determines such increase in capital to be allocable to the
existence of such Lender's commitment to lend hereunder or the Advances made by
such Lender; provided, that no Lender shall be entitled to demand such
compensation more than one year following the payment to or for the account of
such Lender of all other amounts payable hereunder and under any Note held by
such Lender and the termination of such Lender's Commitment; provided further,
however, that the foregoing proviso shall in no way limit the right of any
Lender to demand or receive such compensation to the extent that such
compensation relates to the retroactive application of any law, regulation,
guideline or request described above if such demand is made within one year
after the implementation of such retroactive law, interpretation, guideline or
request. A certificate as to such amounts submitted to the Borrower and the
Administrative Agent by such Lender shall be conclusive and binding, for all
purposes, absent manifest error.
(c) Any Lender claiming compensation pursuant to this Section 2.12
shall use its best efforts (consistent with its internal policy and legal and
regulatory restrictions) to change the jurisdiction of its Applicable Lending
Office if the making of such a change would avoid the need for, or reduce the
amount of, any such compensation that may thereafter accrue and would not, in
the reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender.
SECTION 2.13. Illegality. Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for such Lender or its Eurodollar Lending
Office to perform its obligations hereunder to make Eurodollar Rate Advances or
to fund or maintain Eurodollar Rate Advances hereunder, (i) the obligation of
such Lender to make, or to Convert Contract Advances into, Eurodollar Rate
Advances shall be suspended (subject to the following paragraph of this Section
2.13) until the Administrative Agent shall notify the Borrower and the Lenders
that the circumstances causing such suspension no longer exist and (ii) all
Eurodollar Rate Advances of such Lender then outstanding shall, on the last day
of then applicable Interest Period (or such earlier date as such Lender shall
designate upon not less than five Business Days prior written notice to the
Administrative Agent), be automatically Converted into Base Rate Advances.
If the obligation of any Lender to make, fund or maintain Eurodollar
Rate Advances has been suspended pursuant to the preceding paragraph, then,
unless and until the Administrative Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer exist (i) all
Contract Advances that would otherwise be made by such Lender as Eurodollar Rate
Advances shall instead be made as Base Rate Advances and (ii) to the extent that
Eurodollar Rate Advances of such Lender have been Converted into Base Rate
Advances pursuant to the preceding paragraph or made instead as Base Rate
Advances pursuant to the preceding clause (i), all payments and prepayments of
principal that would have otherwise been applied to such Eurodollar Rate
Advances of such Lender shall be applied instead to such Base Rate Advances of
such Lender.
SECTION 2.14. Payments and Computations. (a) The Borrower shall make
each payment hereunder and under the Notes not later than 10:00 A.M. (Chicago
time) on the day when due in U.S. dollars to the Administrative Agent at its
address referred to in Section 8.02 in same day funds. The Administrative Agent
will promptly thereafter cause to be distributed like funds relating to the
payment of principal or interest or commitment and auction facility fees ratably
(other than amounts payable pursuant to Section 2.02(c), 2.03, 2.08, 2.12, 2.15,
2.17(a) or 8.04(b)) to the Lenders for the account of their respective
Applicable Lending Offices, and like funds relating to the payment
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of any other amount payable to any Lender to such Lender for the account of its
Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 8.07(d), from and after the effective date specified in such Assignment
and Acceptance, the Administrative Agent shall make all payments hereunder and
under the Notes in respect of the interest assigned thereby to the Lender
assignee thereunder, and the parties to such Assignment and Acceptance shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.
(b) The Borrower hereby authorizes each Lender, if and to the extent
payment owed to such Lender is not made when due hereunder or under any Note
held by such Lender, to charge from time to time against any or all of the
Borrower's accounts with such Lender any amount so due.
(c) All computations of interest based on the Base Rate shall be made
by the Administrative Agent on the basis of a year of 365 or 366 days, as the
case may be, and all computations of interest based on the Adjusted CD Rate, the
Eurodollar Rate or the Federal Funds Rate and of commitment fees, auction
facility fees and interest payable on Auction Advances shall be made by the
Administrative Agent, and all computations of interest pursuant to Section 2.08
shall be made by a Lender, on the basis of a year of 360 days, in each case for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or commitment fees are payable.
Each determination by the Administrative Agent (or, in the case of Section 2.08,
by a Lender) of an interest rate hereunder shall be conclusive and binding for
all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or commitment fee, as the
case may be; provided, however, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(e) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Lenders
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent that the Borrower shall not have so made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
(f) Notwithstanding anything to the contrary contained herein, any
amount payable by the Borrower hereunder or under any Note that is not paid when
due (whether at stated maturity, by acceleration or otherwise) shall (to the
fullest extent permitted by law) bear interest from the date when due until paid
in full at a rate per annum equal at all times to the Base Rate plus 2%, payable
upon demand.
SECTION 2.15. Taxes. (a) Any and all payments by the Borrower
hereunder or under the Contract Notes shall be made, in accordance with Section
2.14, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Lender and the
Administrative
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Agent, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Lender or the Administrative Agent (as
the case may be) is organized or any political subdivision thereof and, in the
case of each Lender, taxes imposed on its income, and franchise taxes imposed on
it, by the jurisdiction of such Lender's Applicable Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note to any Lender or
the Administrative Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.15) such Lender or
the Administrative Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies to the extent arising from the execution, delivery or
registration of this Agreement or the Contract Notes (hereinafter referred to as
"Other Taxes").
(c) No Lender may claim or demand payment or reimbursement in respect
of any Taxes or Other Taxes pursuant to this Section 2.15 if such Taxes or Other
Taxes, as the case may be, were imposed solely as the result of a voluntary
change in the location of the jurisdiction of such Lender's Applicable Lending
Office.
(d) The Borrower will indemnify each Lender and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.15) paid by such Lender or the Administrative Agent
(as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. This indemnification shall be
made within 30 days from the date such Lender or the Administrative Agent (as
the case may be) makes written demand therefor.
(e) Prior to the date of the initial Borrowing in the case of each
Bank, and on the date of the Assignment and Acceptance or Additional Lender
Supplement pursuant to which it became a Lender in the case of each other
Lender, and from time to time thereafter within 30 days from the date of request
if requested by the Borrower or the Administrative Agent, each Lender organized
under the laws of a jurisdiction outside the United States shall provide the
Administrative Agent and the Borrower with the forms prescribed by the Internal
Revenue Service of the United States certifying that such Lender is exempt from
United States withholding taxes with respect to all payments to be made to such
Lender hereunder and under the Notes. If for any reason during the term of this
Agreement, any Lender becomes unable to submit the forms referred to above or
the information or representations contained therein are no longer accurate in
any material respect, such Lender shall notify the Administrative Agent and the
Borrower in writing to that effect. Unless the Borrower and the Administrative
Agent have received forms or other documents satisfactory to them indicating
that payments hereunder or under any Note are not subject to United States
withholding tax, the Borrower or the Administrative Agent shall withhold taxes
from such payments at the applicable statutory rate in the case of payments to
or for any Lender organized under the laws of a jurisdiction outside the United
States and no Lender may claim or demand payment or reimbursement for such
withheld taxes pursuant to this Section 2.15.
(f) Any Lender claiming any additional amounts payable pursuant to
this Section 2.15 shall use its best efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Applicable Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts which may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.
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(g) If the Borrower makes any additional payment to any Lender
pursuant to this Section 2.15 in respect of any Taxes or Other Taxes, and such
Lender determines that it has received (i) a refund of such Taxes or Other Taxes
or (ii) a credit against or relief or remission for, or a reduction in the
amount of, any tax or other governmental charge attributable solely to any
deduction or credit for any Taxes or Other Taxes with respect to which it has
received payments under this Section 2.15, such Lender shall, to the extent that
it can do so without prejudice to the retention of such refund, credit, relief,
remission or reduction, pay to the Borrower such amount as such Lender shall
have determined to be attributable to the deduction or withholding of such Taxes
or Other Taxes. If, within one year after the payment of any such amount to the
Borrower, such Lender determines that it was not entitled to such refund,
credit, relief, remission or reduction to the full extent of any payment made
pursuant to the first sentence of this Section 2.15(g), the Borrower shall upon
notice and demand of such Lender promptly repay the amount of such overpayment.
Any determination made by such Lender pursuant to this Section 2.15(g) shall in
the absence of bad faith or manifest error be conclusive, and nothing in this
Section 2.15(g) shall be construed as requiring any Lender to conduct its
business or to arrange or alter in any respect its tax or financial affairs
(except as required by Section 2.15(f)) so that it is entitled to receive such a
refund, credit or reduction or as allowing any person to inspect any records,
including tax returns, of any Lender.
(h) Without prejudice to the survival of any other agreement of the
Borrower or any Lender hereunder, the agreements and obligations of the Borrower
and the Lenders contained in this Section 2.15 shall survive the payment in full
of principal and interest hereunder and under the Notes; provided, that no
Lender shall be entitled to demand any payment under this Section 2.15 more than
one year following the payment to or for the account of such Lender of all other
amounts payable hereunder and under any Note held by such Lender and the
termination of such Lender's Commitment; provided further, however, that the
foregoing proviso shall in no way limit the right of any Lender to demand or
receive any payment under this Section 2.15 to the extent that such payment
relates to the retroactive application of any Taxes or Other Taxes if such
demand is made within one year after the implementation of such Taxes or Other
Taxes.
SECTION 2.16. Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Contract Advances made by it (other
than pursuant to Section 2.02(c), 2.08, 2.12, 2.15, 2.17(a) or 8.04(b)) in
excess of its ratable share of payments on account of the Contract Advances
obtained by all the Lenders, such Lender shall forthwith purchase from the other
Lenders such participations in the Contract Advances made by them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them, provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of (i) the
amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 2.16 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
SECTION 2.17. Extension of Termination Date. (a) Unless the
Termination Date shall have occurred, the Borrower may request the Lenders, by
written notice to the Administrative Agent not more than 90 days and not less
than 60 days prior to the then effective Termination Date, to consent to
extension of the Termination Date to the date which is one year after the then
effective Termination Date (or, if such date is not a Business Day, the next
preceding Business Day). Each Lender shall, in its sole discretion, determine
whether to consent to such request and shall notify the Administrative Agent of
its determination not more than 45 days and not less than 30 days prior to the
then-effective Termination Date. Any Lender which fails to give such notice to
the Administrative Agent shall be deemed to have
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not consented to such request. If any Lender shall not have consented to such
request 30 days prior to the then effective Termination Date (such Lender being
referred to herein as a "Non-Consenting Lender"), the Administrative Agent shall
promptly so notify the Borrower and the other Lenders, whereupon each other
Lender may, not more than 30 days and not less than 25 days prior to the then
effective Termination Date, revoke any consent to such extension previously
given by such Lender (in which case such Lender shall be deemed a Non-Consenting
Lender). If such request shall have been consented to by the Majority Lenders
(as determined after giving effect to the replacement of any Non-Consenting
Lender pursuant to Section 8.07(h)), the Administrative Agent shall notify the
Borrower and the Lenders in writing of such consent, and such extension shall
become effective upon the delivery by the Borrower to the Administrative Agent
and each Lender, on or prior to the then-effective Termination Date, of (i) a
certificate of a duly authorized officer of the Borrower, dated such date, as to
the accuracy, both before and after giving effect to such proposed extension, of
the representations and warranties set forth in Section 4.01 and as to the
absence, both before and after giving effect to such proposed extension, of any
Event of Default or event that with the giving of notice or the passage of time
or both would constitute an Event of Default, (ii) certified copies of all
corporate and governmental approvals, if any, required to be obtained by the
Borrower in connection with such proposed extension and (iii) an opinion of
counsel to the Borrower (who shall be satisfactory to the Administrative Agent)
as to the matters set forth in Exhibit D, upon giving effect to the extension of
the Termination Date, and such other matters as any Lender, through the
Administrative Agent, may reasonably request, all of the foregoing to be
satisfactory in form and substance to the Administrative Agent. In the event of
any such extension of the Termination Date, the Commitment of each
Non-Consenting Lender that has not been replaced pursuant to Section 8.07(h)
shall be terminated in whole as of such former Termination Date, the aggregate
principal amount of all Advances made by such Non-Consenting Lender, together
with accrued and unpaid interest, commitment fees and auction facility fees, and
all other amounts payable hereunder to or for the account of such Non-Consenting
Lender shall be due and payable on such former Termination Date, and upon such
reduction and payment of such amounts such Non-Consenting Lender shall cease to
be a party to this Agreement.
(b) Upon the effectiveness of any extension of the Termination Date
pursuant to subsection (a) above, each reference in Section 4.01(e) and Exhibit
D to (i) the year-end financial statements of the Borrower, (ii) December 31 of
any year, (iii) the quarter-end financial statements of the Borrower and (iv)
the last day of any fiscal quarter (other than December 31) of any year, shall
be deemed to be amended to be references to (A) the year-end financial
statements of the Borrower included in the Borrower's Annual Report on Form 10-K
most recently delivered to the Lenders pursuant to Section 5.01(b)(iii), (B)
December 31 of the year of the financial statements described in clause (A)
above, (C) the fiscal quarter-end financial statements of the Borrower included
in the Borrower's Quarterly Report on Form 10-Q most recently delivered to the
Lenders pursuant to Section 5.01(b)(ii) and (D) the last day of the fiscal
quarter of the financial statements described in clause (C) above, respectively.
SECTION 2.18. Additional Lenders. (a) For a period of 60 days after
extension of a Termination Date pursuant to Section 2.17(a) that has resulted in
a reduction of the aggregate Commitments of the Lenders, the Borrower may
request that one or more additional banks or other Persons (each, an "Additional
Lender") become party to this Agreement as Lenders and that the aggregate amount
of the Commitments of the Lenders be increased to reflect the Commitments
allocated to each such Additional Lender; provided, that the aggregate
Commitments of the Lenders after giving effect so such increase shall not exceed
the aggregate Commitments of the Lenders immediately prior to such former
Termination Date. Addition of an Additional Lender shall be made only with the
written consent of the Administrative Agent (which consent shall not be
unreasonably withheld or delayed) and with the written consent of the Borrower
(which consent may be granted or withheld in its absolute discretion). Each
Additional Lender must be an Eligible Assignee and, without the consent of the
Administrative Agent, the initial Commitment of each Additional Lender shall not
be less than $5,000,000.
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(b) Addition of an Additional Lender shall be effected by the
Additional Lender executing and delivering to the Administrative Agent, for its
acceptance and recording in the Register, a duly completed Additional Lender
Supplement in substantially the form of Exhibit G attached hereto. The Borrower
shall execute and deliver to the Administrative Agent for transmittal to such
Additional Lender a Contract Note in substantially the form of Exhibit A-1
attached hereto in the amount of the Commitment of such Additional Lender.
Acceptance by the Administrative Agent of an Additional Lender is subject to the
conditions that the Administrative Agent shall have received, with a counterpart
for each Lender, (i) a certificate of a duly authorized officer of the Borrower,
dated the effective date of such Additional Lender Supplement, as to the
accuracy, both before and after giving effect to such proposed addition, of the
representations and warranties set forth in Section 4.01 and as to the absence,
both before and after giving effect to such proposed extension, of any Event of
Default or event that with the giving of notice or the passage of time or both
would constitute an Event of Default, (ii) certified copies of all corporate and
governmental approvals, if any, required to be obtained by the Borrower in
connection with such proposed addition, (iii) an opinion of counsel to the
Borrower (who shall be satisfactory to the Administrative Agent) as to the
matters set forth in Exhibit D (appropriately modified to include, in addition
to the other matters set forth therein, such Additional Lender Supplement and
the new Contract Note), and such other matters as any Lender, through the
Administrative Agent, may reasonably request, and (iv) such other certificates
and documents as the Administrative Agent may reasonably request, all of the
foregoing to be satisfactory in form and substance to the Administrative Agent.
Upon execution and delivery of the Additional Lender Supplement, acceptance by
the Administrative Agent and recording in the Register, from and after the
effective date specified in such Additional Lender Supplement, such Additional
Lender shall be a party hereto and shall, to the extent of the Commitment
specified in such Additional Lender Supplement, have the rights and obligations
of a Lender hereunder.
(c) If, at the time an Additional Lender is to become party to this
Agreement, the continuing Lenders have any outstanding Contract Advances, such
Additional Lender shall offer to purchase from each continuing Lender, effective
as of the date such Additional Lender becomes party to this Agreement, a portion
of each continuing Lender's outstanding Contract Advances, in such amounts as
will have the result that, immediately after giving effect to such Additional
Lender becoming party to this Agreement and to such purchases, each Lender
(including the Additional Lender) shall share in the outstanding Contract
Advances in the same proportion as their respective Commitments. The Additional
Lender shall offer in writing to purchase the requisite portion of each
continuing Lender's outstanding Contract Advances, at a price equal to the
outstanding principal amount thereof together with accrued and unpaid interest
thereon to the date of purchase, and a continuing Lender shall not unreasonably
decline to accept such offer. Each such purchase shall be made in accordance
with Section 8.07 (with the related Assignment and Acceptance modified, mutatis
mutandis, to reflect that such purchase is not a purchase of any portion of the
Commitment of the continuing Lender). Such purchases shall not be subject to the
provisions of clause (ii) of Section 8.07(a), and the Borrower shall be
responsible for all amounts payable to the Administrative Agent pursuant to
clause (iv) of Section 8.07(a). The Borrower shall pay to each continuing Lender
on demand any amount that would be payable to such continuing Lender pursuant to
Section 8.04(b) (which for this purpose shall be applied as if such assignment
were a prepayment of the Contract Advances assigned by such continuing Lender),
and shall reimburse each continuing Lender on demand for all reasonable fees and
expenses (including reasonable fees and expenses of counsel) incurred by it in
connection with such assignment.
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ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Advances. The obligation
of each Lender to make its initial Advance is subject to the satisfaction, prior
to or concurrently with, the making of such initial Advance, of each of the
following conditions precedent:
(a) Documents and Other Agreements. The Administrative Agent shall
have received on or before the day of the initial Borrowing the following, each
dated the same date, in form and substance satisfactory to the Administrative
Agent and (except for the Notes) with one copy for each Lender:
(i) The Contract Notes payable to the order of each of the
Lenders, respectively;
(ii) Certified copies of the resolutions of the Board of
Directors of the Borrower approving the transactions contemplated by
this Agreement and the Notes, and of all documents evidencing other
necessary corporate action with respect to this Agreement and the
Notes;
(iii) A certificate of the Secretary or an Assistant Secretary of
the Borrower certifying (A) the names and true signatures of the
officers of the Borrower authorized to sign this Agreement and the
Notes and the other documents to be delivered hereunder; (B) that
attached thereto are true and correct copies of the Restated Articles
of Incorporation and the By-laws of the Borrower, in each case in
effect on such date; and (C) that attached thereto are true and
correct copies of all governmental and regulatory authorizations and
approvals required for the due execution, delivery and performance of
this Agreement and the Notes, including, without limitation, the
Securities Certificate filed with the PPUC by the Borrower (the
"Securities Certificate") and the Order of Registration issued by the
PPUC registering the Securities Certificate (the "Order of
Registration");
(iv) Copies of the financial statements referred to in Section
4.01(e);
(v) A certificate signed by either the chief financial officer,
principal accounting officer or treasurer of the Borrower stating that
(A) the representations and warranties contained in Section 4.01 are
correct on and as of the date of such certificate as though made on
and as of such date and (B) no event has occurred and is continuing on
the date of such certificate that constitutes an Event of Default or
would constitute an Event of Default but for the requirement that
notice be given or time elapse or both;
(vi) A favorable opinion of Ballard Spahr Andrews & Ingersoll,
special counsel for the Borrower, substantially in the form of Exhibit
D hereto; and
(vii) A favorable opinion of Reed Smith Shaw & McClay LLP,
counsel for the Documentation Agent, substantially in the form of
Exhibit E hereto.
(b) Termination of Prior Credit Facility. The Administrative Agent
shall have received evidence of (i) the payment in full of all obligations of
the Borrower under the $400,000,000 Credit Agreement, dated as of June 26, 1995,
among the Borrower, the banks named therein, Citibank, N.A., as administrative
agent, and The First National Bank of Chicago, as documentation agent, and (ii)
the termination of the "Commitments" under such agreement.
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SECTION 3.02. Conditions Precedent to Certain Contract Borrowings. The
obligation of each Lender to make a Contract Advance on the occasion of each
Contract Borrowing (including the initial Contract Borrowing) that would
increase the aggregate amount of Contract Advances outstanding shall be subject
to the further conditions precedent that on the date of such Contract Borrowing
the following statements shall be true, and each of the giving of the applicable
Notice of a Contract Borrowing and the acceptance by the Borrower of the
proceeds of such Contract Borrowing shall constitute a representation and
warranty by the Borrower that on the date of such Contract Borrowing such
statements are true:
(A) The representations and warranties contained in Section 4.01
are correct on and as of the date of such Borrowing, before and after
giving effect to such Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date; and
(B) No event has occurred and is continuing, or would result from
such Borrowing or from the application of the proceeds therefrom, that
constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or
both (it being understood for clarification that (i) without limiting
the foregoing, it is a condition of this clause (B) that the Borrower
shall be in compliance with Section 5.01(a)(iv), Section 5.02(a) and
Section 5.02(c) upon giving effect to such Borrowing and (ii) the
conditions of this clause (B) shall apply whether or not the
respective Commitments of the Lenders have been terminated pursuant to
Section 6.01).
SECTION 3.03. Conditions Precedent to Each Auction Borrowing. The
obligation of each Lender that is to make an Auction Advance on the occasion of
an Auction Borrowing (including the initial Auction Borrowing) to make such
Auction Advance as part of such Auction Borrowing is subject to the conditions
precedent that (i) the Administrative Agent shall have received the written
confirmatory Notice of an Auction Borrowing with respect thereto, (ii) on or
before the date of such Auction Borrowing, but prior to such Auction Borrowing,
the Administrative Agent shall have received an Auction Note payable to the
order of such Lender for each of the Auction Advances to be made by such Lender
as part of such Auction Borrowing, in a principal amount equal to the principal
amount of the Auction Advance to be evidenced thereby and otherwise on such
terms as were agreed to for such Auction Advance in accordance with Section
2.03, and (iii) except as otherwise waived in accordance with Section 8.01, on
the date of such Auction Borrowing the following statements shall be true, and
each of the giving of the applicable Notice of an Auction Borrowing and the
acceptance by the Borrower of the proceeds of such Auction Borrowing shall
constitute a representation and warranty by the Borrower that on the date of
such Auction Borrowing such statements are true:
(A) The representations and warranties contained in Section 4.01
are correct on and as of the date of such Borrowing, before and after
giving effect to such Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date, and
(B) No event has occurred and is continuing, or would result from
such Borrowing or from the application of the proceeds therefrom,
which constitutes an Event of Default or which would constitute an
Event of Default but for the requirement that notice be given or time
elapse or both (it being understood for clarification that (i) without
limiting the foregoing, it is a condition of this clause (B) that the
Borrower shall be in compliance with Section 5.01(a)(iv), Section
5.02(a) and Section 5.02(c) upon giving effect to such Borrowing and
(ii) the conditions of this clause (B) shall apply whether or not the
respective Commitments of the Lenders have been terminated pursuant to
Section 6.01).
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized. validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania.
(b) The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, and do not and will not
contravene (i) the Borrower's Restated Articles of Incorporation or By-laws,
(ii) applicable law or (iii) any contractual or legal restriction binding on or
affecting the Borrower or its properties.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Borrower of this Agreement or
the Notes except for the filing of the Securities Certificate with, and the
final approval of, and the Order of Registration issued by, the PPUC, which
filing has been duly made and which final approval and Order of Registration
have been duly obtained; such Order of Registration is in full force and effect
and is final; and on and after the date of the initial Borrowing hereunder, the
action of the PPUC registering the Securities Certificate shall no longer be
subject to appeal.
(d) This Agreement is, and the Notes when delivered hereunder will be,
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms, except as the enforceability
thereof may be limited by equitable principles or bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
(e) The consolidated balance sheet of the Borrower and its
Subsidiaries as at December 31, 1996, and the related statements of income and
retained earnings and of cash flows of the Borrower and its Subsidiaries for the
fiscal year then ended, certified by Coopers & Lybrand, and the unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as at June 30,
1997 and the related unaudited statements of income for the six-month period
then ended, copies of which have been furnished to each Lender, fairly present
in all material respects (subject, in the case of such balance sheets and
statements of income for the period ended June 30, 1997, to year-end
adjustments) the consolidated financial condition of the Borrower and its
Subsidiaries as at such dates and the consolidated results of the operations of
the Borrower and its Subsidiaries for the periods ended on such dates, all in
accordance with GAAP, and since December 31, 1996, there has been no Material
Adverse Change.
(f) Except as disclosed in the Borrower's Annual, Quarterly or Current
Reports, each as filed with the Securities and Exchange Commission and delivered
to the Lenders (including reports filed prior to the date of execution and
delivery of this Agreement and reports delivered to the Lenders pursuant to
Section 5.01(b)), there is no pending or threatened action, investigation or
proceeding affecting the Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator that may reasonably be anticipated to have a
Material Adverse Effect. There is no pending or threatened action or proceeding
against the Borrower or its Subsidiaries that purports to affect the legality,
validity, binding effect or enforceability of this Agreement or any Note.
(g) No proceeds of any Advance have been or will be used directly or
indirectly in connection with the acquisition of in excess of 5% of any class of
equity securities that is registered
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pursuant to Section 12 of the Exchange Act or any transaction subject to the
requirements of Section 13 or 14 of the Exchange Act.
(h) The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of any Advance will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock. Not more than 25% of the value of the assets of the Borrower
and its Principal Subsidiaries is represented by margin stock.
(i) The Borrower (i) is exempt from the provisions of the Public
Utility Holding Company Act of 1935, as amended, other than Section 9(a)(2)
thereof, pursuant to Section 3(a)(2) thereof, and (ii) is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
(j) During the twelve consecutive month period prior to the date of
the execution and delivery of this Agreement and prior to the date of any
Borrowing under this Agreement, no steps have been taken to terminate any Plan,
and no contribution failure by the Borrower or any member of the Controlled
Group has occurred with respect to any Plan. No condition exists or event or
transaction has occurred with respect to any Plan (including any Multiemployer
Plan) which might result in the incurrence by the Borrower or any member of the
Controlled Group of any material liability, fine or penalty.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Note or any amount
payable by the Borrower hereunder shall remain unpaid or any Lender shall have
any Commitment hereunder (except with respect to subsection (a)(iv), which shall
be applicable only as of the date hereof and at any time that any Advance is
outstanding hereunder), the Borrower will, and, in the case of Section 5.01(a),
will cause its Principal Subsidiaries to, unless the Majority Lenders shall
otherwise consent in writing:
(a) Keep Books; Corporate Existence; Maintenance of Properties;
Compliance with Laws; Insurance; Taxes.
(i) keep proper books of record and account, all in accordance
with generally accepted accounting principles;
(ii) subject to Section 5.02(b), preserve and keep in full force
and effect its existence;
(iii) maintain and preserve all of its properties (except such
properties the failure of which to maintain or preserve would not
have, individually or in the aggregate, a Material Adverse Effect)
which are used or useful in the conduct of its business in good
working order and condition, ordinary wear and tear excepted;
(iv) comply in all material respects with the requirements of all
applicable laws, rules, regulations and orders (including those of any
governmental authority and including with respect to environmental
matters) to the extent the failure to so comply, individually or in
the aggregate, would have either a Material Adverse Effect or a
material adverse effect on the ability of the Borrower to perform its
obligations under this Agreement and the Notes;
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(v) maintain insurance with responsible and reputable insurance
companies or associations, or self-insure, as the case may be, in each
case in such amounts and covering such contingencies, casualties and
risks as is customarily carried by or self-insured against by
companies engaged in similar businesses and owning similar properties
in the same general areas in which the Borrower and its Principal
Subsidiaries operate;
(vi) at any reasonable time and from time to time, pursuant to
prior notice delivered to the Borrower, permit any Lender, or any
agents or representatives of any thereof, to examine and, at such
Lender's expense, make copies of, and abstracts from the records and
books of account of, and visit the properties of, the Borrower and any
of its Principal Subsidiaries and to discuss the affairs, finances and
accounts of the Borrower and any of its Subsidiaries with any of their
respective officers; provided, that any non-public information (which
has been identified as such by the Borrower) obtained by any Lender,
or any of their respective agents or representatives pursuant to this
subsection (vi) shall be treated confidentially by such Person;
provided, further, that such Person may disclose such information to
any other party to this Agreement, its examiners, affiliates, outside
auditors, counsel or other professional advisors in connection with
the Agreement or if otherwise required to do so by law or regulatory
process; and
(vii) use the proceeds of the Advances for general corporate
purposes (including, without limitation, the refinancing of its
commercial paper, the repayment of outstanding Advances, and the
making of acquisitions) but in no event for any purpose which would be
contrary to clause (g) or clause (h) of Section 4.01.
(b) Reporting Requirements. Furnish to the Lenders:
(i) as soon as possible, and in any event within 5 Business Days
after the occurrence of each Event of Default or each event which,
with the giving of notice or lapse of time, or both, would constitute
an Event of Default, continuing on the date of such statement, a
statement of an authorized officer of the Borrower setting forth
details of such Event of Default or event and the action which the
Borrower proposes to take with respect thereto;
(ii) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of the
Borrower, a copy of the Borrower's Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission with respect to such
quarter, together with a certificate of an authorized officer of the
Borrower stating that no Event of Default, or event which, with notice
or lapse of time or both, would constitute an Event of Default, has
occurred and is continuing or, if any Event of Default or such event
has occurred and is continuing, a statement as to the nature thereof
and the action which the Borrower proposes to take with respect
thereto;
(iii) as soon as available and in any event within 105 days after
the end of each fiscal year of the Borrower, a copy of the Borrower's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission with respect to such fiscal year, together with a
certificate of an authorized officer of the Borrower stating that no
Event of Default, or event which, with notice of lapse of time or
both, would constitute an Event of Default, has occurred and is
continuing or, if any Event of Default or such event has occurred and
is continuing, a statement as to the nature thereof and the action
which the Borrower proposes to take with respect thereto;
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(iv) concurrently with the delivery of the annual and quarterly
reports referred to in Sections 5.01(b)(ii) and 5.01(b)(iii), a
compliance certificate in substantially the form set forth in Exhibit
F, duly completed and signed by the Chief Financial Officer, Treasurer
or an Assistant Treasurer of the Borrower;
(v) except as otherwise provided in subsections (ii) and (iii)
above, promptly after the sending or filing thereof, copies of all
reports that the Borrower sends to any of its security holders, and
copies of all Reports on Form 10-K, 10-Q or 8-K, and registration
statements and prospectuses that the Borrower or any of its
Subsidiaries files with the Securities and Exchange Commission or any
national securities exchange (except to the extent that any such
registration statement or prospectus relates solely to the issuance of
securities pursuant to employee or dividend reinvestment plans of the
Borrower or such Subsidiary);
(vi) promptly upon becoming aware of the institution of any steps
by the Borrower or any other Person to terminate any Plan, or the
failure to make a required contribution to any Plan if such failure is
sufficient to give rise to a lien under section 302(f) of ERISA, or
the taking of any action with respect to a Plan which could result in
the requirement that the Borrower furnish a bond or other security to
the PBGC or such Plan, or the occurrence of any event with respect to
any Plan, which could result in the incurrence by the Borrower or any
member of the Controlled Group of any material liability, fine or
penalty; and
(vii) such other information respecting the condition,
operations, business or prospects, financial or otherwise, of the
Borrower or any of its Subsidiaries as any Lender, through the
Administrative Agent, may from time to time reasonably request.
SECTION 5.02. Negative Covenants. So long as any Note or any amount
payable by the Borrower hereunder shall remain unpaid or any Lender shall have
any Commitment hereunder (except with respect to subsection (a), which shall be
applicable only as of the date hereof and at any time any Advance is outstanding
hereunder), the Borrower will not, without the written consent of the Majority
Lenders:
(a) Limitation on Liens. Create, incur, assume or suffer to exist, or
permit any of its Principal Subsidiaries to create, incur, assume or suffer to
exist, any Lien on its respective property, revenues or assets, whether now
owned or hereafter acquired except (i) Liens upon or in any property acquired by
the Borrower or any of its Principal Subsidiaries in the ordinary course of
business to secure the purchase price of such property or to secure any
obligation incurred solely for the purpose of financing the acquisition of such
property, (ii) Liens existing on such property at the time of its acquisition
(other than any such Lien created in contemplation of such acquisition unless
permitted by the preceding clause (i)), (iii) Liens granted under the Mortgage
and "excepted encumbrances" as defined in the Mortgage, (iv) Liens granted in
connection with any financing arrangement for the purchase of nuclear fuel or
the financing of pollution control facilities, limited to the fuel or facilities
so purchased or acquired, (v) Liens arising in connection with sales or
transfers of, or financing secured by, accounts receivable or related contracts,
(vi) Liens securing the Borrower's notes collateralized solely by mortgage bonds
of the Borrower issued under the terms of the Mortgage, (vii) Liens arising in
connection with sale and leaseback transactions, but only to the extent (x) the
proceeds received by the Borrower or such Principal Subsidiary from such sale
shall immediately be applied to retire mortgage bonds of the Borrower issued
under the terms of the Mortgage, or (y) the aggregate purchase price of assets
sold pursuant to such sale and leaseback transactions where such proceeds are
not so applied shall not exceed $1,000,000,000, (viii) Liens granted by a
Special Purpose Subsidiary to secure Nonrecourse Transition Bond Debt of such
Special Purpose Subsidiary, and (ix) Liens, other than those described in
clauses (i) through (viii) of this subsection granted by the Borrower or any of
its Principal Subsidiaries in
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the ordinary course of business securing Debt of the Borrower and its Principal
Subsidiaries in an amount not to exceed $50,000,000 in the aggregate at any one
time outstanding.
(b) Mergers and Consolidations; Disposition of Assets. Merge with or
into or consolidate with or into, or sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired) to any Person or
permit any Principal Subsidiary to do so, except that (i) the Borrower or any
Principal Subsidiary may merge with or into or consolidate with or transfer
assets to any other Principal Subsidiary, (ii) any Principal Subsidiary may
merge with or into or consolidate with or transfer assets to the Borrower and
(iii) the Borrower may merge with or into or consolidate with or transfer assets
to any other Person; provided in each case, immediately thereafter in giving
effect thereto, no Event of Default or event that would, with the giving of
notice or the passage of time or both constitute an Event of Default shall have
occurred and be continuing and (A) in the case of any such merger, consolidation
or transfer of assets to which the Borrower is a party, either (x) the Borrower
shall be the surviving corporation or (y) the surviving corporation shall be an
Eligible Successor and shall have assumed all of the obligations of the Borrower
under this Agreement and the Notes pursuant to a written instrument in form and
substance satisfactory to the Administrative Agent and (B) subject to clause (A)
above, in the case of any such merger to which a Principal Subsidiary is a
party, a Principal Subsidiary shall be the surviving corporation.
(c) Financial Covenant. Permit Consolidated Adjusted Total Debt to
exceed 65% of Consolidated Adjusted Total Capitalization at any time.
(d) Continuation of Businesses.
(i) Generation Business. (A) Cease to own (through the Borrower
or wholly-owned Subsidiaries) the business of generating electricity,
or (B) reduce the net installed electric generating capacity (summer
rating) of the electricity generation business owned by the Borrower
and its wholly-owned Subsidiaries taken as a whole to less than 7821
Megawatts.
(ii) Distribution, Transmission and Gas Businesses. Cease to own
(directly by the Borrower, and not through Subsidiaries) the business
of distributing electricity to end-users, the business of transmitting
electricity, or the businesses of transmitting and distributing
natural gas, each substantially as conducted by the Borrower as of the
date of this Agreement (and the Borrower warrants that as of the date
of this Agreement substantially all of such businesses conducted by
the Borrower on a consolidated basis, and the assets relating thereto,
are operated and owned by the Borrower directly and not through
Subsidiaries).
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable, or interest thereon or any other amount
payable under this Agreement or any of the Notes within three Business Days
after the same becomes due and payable; or
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(b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) pursuant to the terms of this Agreement
shall prove to have been incorrect or misleading in any material respect when
made; or
(c) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 5.02, Section 5.01(a)(vii) or Section
5.01(b)(i), or (ii) any other term, covenant or agreement contained in this
Agreement on its part to be performed or observed if the failure to perform or
observe such other term, covenant or agreement shall remain unremedied for 30
days after written notice thereof shall have been given to the Borrower by the
Administrative Agent (which notice shall be given by the Administrative Agent at
the written request of any Lender); or
(d) The Borrower or any Principal Subsidiary shall fail to pay any
principal of or premium or interest on any Debt that is outstanding in a
principal amount in excess of $50,000,000 in the aggregate (but excluding Debt
evidenced by the Notes and Nonrecourse Transition Bond Debt) of the Borrower or
such Principal Subsidiary (as the case may be) when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such Debt;
or any other event shall occur or condition shall exist under any agreement or
instrument relating to any such Debt and shall continue after the applicable
grace period, if any, specified in such agreement or instrument, if the effect
of such event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof, other than any acceleration
of any Debt secured by equipment leases or fuel leases of the Borrower or a
Principal Subsidiary as a result of the occurrence of any event requiring a
prepayment (whether or not characterized as such) thereunder, which prepayment
will not result in a Material Adverse Change; or
(e) The Borrower or any Principal Subsidiary (other than a Special
Purpose Subsidiary) shall generally not pay its debts as such debts become due,
or shall admit in writing its inability to pay its debts generally, or shall
make a general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against the Borrower or any Principal Subsidiary (other than
a Special Purpose Subsidiary) seeking to adjudicate it a bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or unstayed
for a period of 60 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official for, it
or for any substantial part of its property,) shall occur; or the Borrower or
any Principal Subsidiary (other than a Special Purpose Subsidiary) shall take
any corporate action to authorize or to consent to any of the actions set forth
above in this subsection (e); or
(f) One or more judgments or orders for the payment of money in an
aggregate amount exceeding $50,000,000 (excluding any such judgments or orders
which are fully covered by insurance, subject to any customary deductible, and
under which the applicable insurance carrier has acknowledged such full coverage
in writing) shall be rendered against the Borrower or any Principal Subsidiary
and either (i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be any period of 30 consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or
(g) (i) any Reportable Event that the Majority Lenders determine in
good faith might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United
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States District Court of a trustee to administer a Plan shall have occurred and
be continuing 30 days after written notice to such effect shall have been given
to the Borrower by the Administrative Agent or (ii) any Plan shall be
terminated, or (iii) a Trustee shall be appointed by an appropriate United
States District Court to administer any Plan or (iv) the PBGC shall institute
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan; provided, however that on the date of any event described in clauses (i)
through (iv) above the Unfunded Liabilities of such Plan exceed $20,000,000; or
(h) any "Event of Default" shall occur under the 364-Day Credit
Agreement;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Majority Lenders, by notice to the Borrower,
declare the respective Commitments of the Lenders to be terminated, whereupon
the same shall forthwith terminate, and (ii) shall at the request, or may with
the consent, of the Majority Lenders, by notice to the Borrower, declare the
principal amount outstanding under the Notes, all interest thereon and all other
amounts payable under this Agreement to be forthwith due and payable, whereupon
the principal amount outstanding under the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; provided, however, that in the event of an actual or
deemed entry of an order for relief with respect to the Borrower or any
Principal Subsidiary under the Federal Bankruptcy Code, (A) the obligation of
each Lender to make Advances shall automatically be terminated and (B) the
principal amount outstanding under the Notes, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.
ARTICLE VII
THE AGENTS
SECTION 7.01. Authorization and Action. Each Lender hereby appoints
and authorizes the Administrative Agent to take such action as administrative
agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto. Each Lender hereby appoints and
authorizes the Documentation Agent to prepare this Agreement and the Contract
Notes on behalf of the Lenders, provided, that it is hereby understood and
agreed that the Documentation Agent shall not have any responsibilities or
obligations hereunder subsequent to the execution and delivery of this Agreement
by and among the Borrower, the Banks, and the Agents. As to any matters not
expressly provided for by this Agreement (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action which exposes the Administrative Agent to personal liability or which
is contrary to this Agreement or applicable law. The Administrative Agent agrees
to give to each Lender prompt notice of each notice given to it by the Borrower
pursuant to the terms of this Agreement.
SECTION 7.02. Agents' Reliance, Etc. Neither the Administrative Agent
nor the Documentation Agent nor any of their respective directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
by it or them under or in connection with this Agreement, except for its or
their respective own gross negligence or willful misconduct. Without limitation
of the generality of the foregoing: (i) the Administrative Agent may treat the
payee of any Note as the holder thereof until the Administrative Agent receives
and accepts an Assignment and Acceptance entered into by the Lender which is the
payee of such Note, as assignor, and an Eligible Assignee, as assignee, as
provided in Section 8.07; (ii) the Administrative Agent and the Documentation
Agent each may consult
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with legal counsel (including counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (iii) neither the Administrative
Agent nor the Documentation Agent makes any warranty or representation to any
Lender and shall not be responsible to any Lender for any statements, warranties
or representations (whether written or oral) made in or in connection with this
Agreement; (iv) neither the Administrative Agent nor the Documentation Agent
shall have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement on the
part of the Borrower or to inspect the property (including the books and
records) of the Borrower; (v) neither the Administrative Agent nor the
Documentation Agent shall be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto; and
(vi) neither the Administrative Agent nor the Documentation Agent shall incur
any liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram, cable or telex) believed by it to be genuine and signed or sent by the
proper party or parties.
SECTION 7.03. Agents and Affiliates. With respect to their respective
Commitments, their respective Advances and their respective Notes, each of
Mellon and First Chicago shall have the same rights and powers under this
Agreement as any other Lender and may exercise the same as though it were not an
Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly
indicated, include Mellon and First Chicago in their respective individual
capacities. Mellon, First Chicago and their respective affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with, the Borrower, any of its subsidiaries and
any Person who may do business with or own securities of the Borrower or any
such subsidiary, all as if First Chicago was not the Administrative Agent and
Mellon was not the Documentation Agent, as the case may be, and without any duty
to account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon the Administrative Agent, the
Documentation Agent or any other Lender and based on the financial statements
referred to in Section 4.01(e) and such other documents and information as it
has deemed appropriate, made its own credit analysis and decision to enter into
this Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Agent or the Documentation Agent or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify the
Administrative Agent, the Documentation Agent and the Syndication Agents (to the
extent not reimbursed by the Borrower), ratably according to the respective
principal amounts of the Contract Notes then held by each of the Lenders (or if
no Contract Notes are at the time outstanding, ratably according to the
respective amounts of their Commitments), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against any such Agent in any way relating
to or arising out of this Agreement or any action taken or omitted by any such
Agent under this Agreement, provided that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from such Agent's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Lender agrees to reimburse each such Agent promptly upon demand for its
ratable share of any out-of-pocket expenses (including reasonable counsel fees)
incurred by such Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that such
expenses are reimbursable by the Borrower but for which such Agent is not
reimbursed by the Borrower.
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SECTION 7.06. Successor Administrative Agent. The Administrative Agent
may resign at any time by giving written notice thereof to the Lenders and the
Borrower and may be removed at any time with or without cause by the Majority
Lenders. Upon any such resignation or removal, the Majority Lenders shall have
the right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Majority Lenders, and
shall have accepted such appointment, within 30 days after the retiring
Administrative Agent's giving of notice of resignation or the Majority Lenders'
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of the Lenders, appoint a successor Administrative Agent,
which shall be a commercial bank described in clause (i) or (ii) of the
definition of "Eligible Assignee" and having a combined capital and surplus of
at least $150,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Administrative Agent's
resignation or removal hereunder as Administrative Agent, the provisions of this
Article VII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under this Agreement.
Notwithstanding the foregoing, if no Event of Default, and no event that with
the giving of notice or the passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing, then no successor
Administrative Agent shall be appointed under this Section 7.06 without the
prior written consent of the Borrower, which consent shall not be unreasonably
withheld or delayed.
SECTION 7.07. Syndication Agents, Co-Agents, Lead Managers and
Arrangers. The titles "Syndication Agent," "Co-Agent," "Lead Manager" and
"Arranger" are purely honorific, and the Syndication Agents, Co-Agents, Lead
Managers and Arrangers shall have no duties or responsibilities in such
capacities.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision
of this Agreement or the Contract Notes, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Lenders (other than any Lender that is
the Borrower or an Affiliate of the Borrower), do any of the following: (a)
waive any of the conditions specified in Section 3.01 or 3.02, (b) increase the
Commitments of the Lenders or subject the Lenders to any additional obligations,
(c) reduce the principal of, or interest on, the Contract Notes or any fees or
other amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Contract Notes or any fees or other amounts
payable hereunder, (e) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Contract Notes, or the number of
Lenders, that shall be required for the Lenders or any of them to take any
action hereunder, or (f) amend this Section 8.01; provided, further, that in
connection with any Auction Borrowing, any waiver of the conditions specified in
clause (iii) of Section 3.03 relating to the representation set forth in
paragraph (A) of Section 3.03 shall be effective if in writing and signed by
each Lender that is to make an Auction Advance in connection with such Auction
Borrowing; and provided, further, that no amendment, waiver or consent shall,
unless in writing and signed by the Administrative Agent or the Documentation
Agent (as the case may be), in addition to the Lenders required above to take
such action, affect the rights or duties of the Administrative Agent or the
Documentation Agent (as the case may be) under this Agreement or any Note.
SECTION 8.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and
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mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the
Borrower, at its address at 2301 Market Street, Philadelphia, Pennsylvania
19101, Attention: Vice President-Finance and Treasurer, S21-1, Telecopy: (215)
841-5743; if to any Bank, at its Domestic Lending Office specified opposite its
name on Schedule I hereto; if to any other Lender, at its Domestic Lending
Office specified in the Assignment and Acceptance or Additional Lender
Supplement pursuant to which it became a Lender; and if to the Administrative
Agent, at its address at One First National Plaza, Mail Suite 0634, 1FPN-10,
Chicago, Illinois 60670, Attention: Ms. Gwendolyn Watson, Telecopy: (312)
732-4840 or, as to each party, at such other address as shall be designated by
such party in a written notice to the other parties. All such notices and
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answerback or delivered to the cable company,
respectively, except that notices and communications to the Administrative Agent
pursuant to Article II or VII shall not be effective until received by the
Administrative Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any
Lender or the Administrative Agent to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses; Indemnification. (a) The Borrower
agrees to pay on demand all costs and expenses incurred by the Administrative
Agent, the Documentation Agent, the Syndication Agents and the Arrangers in
connection with the preparation, execution, delivery, administration,
syndication, modification and amendment of this Agreement, the Notes and the
other documents to be delivered hereunder, including, without limitation, the
reasonable fees, internal charges and out-of-pocket expenses of counsel
(including, without limitation, in-house counsel) for such Agents with respect
thereto and with respect to advising the such Agents as to their respective
rights and responsibilities under this Agreement. The Borrower further agrees to
pay on demand all costs and expenses, if any (including, without limitation,
counsel fees and expenses of outside counsel and of internal counsel), incurred
by the Administrative Agent, the Documentation Agent and any Lender in
connection with the collection and enforcement (whether through negotiations,
legal proceedings or otherwise) of this Agreement, the Notes and the other
documents to be delivered hereunder, including, without limitation, reasonable
counsel fees and expenses in connection with the enforcement of rights under
this Section 8.04(a).
(b) If any payment of principal of, or Conversion of, any Adjusted CD
Rate Advance or Eurodollar Rate Advance is made other than on the last day of
the Interest Period for such Contract Advance, as a result of a payment or
Conversion pursuant to Section 2.10 or 2.13 or acceleration of the maturity of
the Notes pursuant to Section 6.01 or for any other reason, the Borrower shall,
upon demand by any Lender (with a copy of such demand to the Administrative
Agent), pay to the Administrative Agent for the account of such Lender any
amounts required to compensate such Lender for any additional losses, costs or
expenses which it may reasonably incur as a result of such payment or
Conversion, including, without limitation, any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
any Lender to fund or maintain such Contract Advance.
(c) The Borrower hereby agrees to indemnify and hold each Lender, each
Agent and each of their respective Affiliates, officers, directors and employees
(each, an "Indemnified Person") harmless from and against any and all claims,
damages, losses, liabilities, costs or expenses (including reasonable attorney's
fees and expenses, whether or not such Indemnified Person is named as a party to
any proceeding or is otherwise subjected to judicial or legal process arising
from any such proceeding) that any of them may pay or incur arising out of or
relating to this Agreement, the Notes or the transactions contemplated thereby,
or the use by the Borrower or any of its subsidiaries of the proceeds of any
Advance, provided that the Borrower shall not be liable for any portion of such
claims, damages,
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<PAGE>
losses, liabilities, costs or expenses resulting from such Indemnified Person's
gross negligence or willful misconduct. The Borrower's obligations under this
Section 8.04(c) shall survive the repayment of all amounts owing to the Lenders
and the Administrative Agent under this Agreement and the Notes and the
termination of the Commitments. If and to the extent that the obligations of the
Borrower under this Section 8.04(c) are unenforceable for any reason, the
Borrower agrees to make the maximum contribution to the payment and satisfaction
thereof which is permissible under applicable law.
SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement and
any Note held by such Lender, whether or not such Lender shall have made any
demand under this Agreement or such Note and although such obligations may be
unmatured. Each Lender agrees promptly to notify the Borrower after any such
set-off and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Lender under this Section 8.05 are in addition to other rights
and remedies (including, without limitation, other rights of set-off) that such
Lender may have.
SECTION 8.06. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agents and when the
Administrative Agent shall have been notified by each Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agents and each Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.
SECTION 8.07. Assignments and Participations. (a) Each Lender may,
with the prior written consent of the Borrower and the Administrative Agent
(neither of which consents shall be unreasonably withheld or delayed), and if
demanded by the Borrower pursuant to subsection (h) hereof shall to the extent
required by such subsection (h), assign to one or more banks or other entities
all or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Contract Advances
owing to it and the Contract Note or Notes held by it); provided, however, that
(i) each such assignment shall be of a constant, and not a varying, percentage
of all of the assigning Lender's rights and obligations under this Agreement
(other than any Auction Advances or Auction Notes), (ii) the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000 or, if
less, the entire amount of such Lender's Commitment, and shall be an integral
multiple of $1,000,000 or such Lender's entire Commitment, (iii) each such
assignment shall be to an Eligible Assignee, and (iv) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Contract Note or Notes subject to such assignment and a processing and
recordation fee of $3,500 (which shall be payable by one or more of the parties
to the Assignment and Acceptance, and not by the Borrower, and shall not be
payable if the assignee is a Bank, any Affiliate of any Bank or the Federal
Reserve Bank). Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto).
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<PAGE>
Notwithstanding anything contained in this Section 8.07(a) to the contrary, (A)
the consent of the Borrower and the Administrative Agent shall not be required
with respect to any assignment by any Lender to an Affiliate of such Lender or
to another Lender and (B) any Lender may at any time, without the consent of the
Borrower or the Administrative Agent, and without any requirement to have an
Assignment and Acceptance executed, assign all or any part of its rights under
this Agreement and its Notes to a Federal Reserve Bank, provided that such
assignment does not release the transferor Lender from any of its obligations
hereunder.
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01(e) and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent or the Documentation Agent, such
assigning Lender or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement; (v) such assignee
confirms that it is an Eligible Assignee; (vi) such assignee appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its address referred to
in Section 8.02 a copy of each Assignment and Acceptance and each Additional
Lender Supplement delivered to and accepted by it and a register for the
recordation of the names and addresses of the Lenders and the Commitment of, and
principal amount of the Contract Advances owing to, each Lender from time to
time (the "Register"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Contract Note or Notes subject to such assignment, the
Administrative Agent shall, if such Assignment and Acceptance has been completed
and is in substantially the form of Exhibit C hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the Borrower. Within five Business Days
after its receipt of such notice, the Borrower, at its own expense, shall
execute and deliver to the Administrative Agent in exchange for the surrendered
Contract Note or Notes a new Contract Note to the order of such Eligible
Assignee in an amount equal to the Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained a Commitment
hereunder, a new Contract Note to the order of the assigning Lender in an amount
equal to the Commitment retained by it hereunder. Such new Contract Note or
Notes shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Contract Note or Notes, shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in substantially
the form of Exhibit A-1 hereto.
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<PAGE>
(e) Each Lender may assign to one or more Eligible Assignees any
Auction Note or Notes held by it.
(f) Each Lender may sell participations to one or more banks or other
entities (each, a "Participant") in or to all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Advances owing to it and the Note or Notes held
by it); provided, however, that (i) such Lender's obligations under this
Agreement (including, without limitation, its Commitment to the Borrower
hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
(v) such Lender shall retain the sole right to approve, without the consent of
any Participant, any amendment, modification or waiver of any provision of this
Agreement or the Note or Notes held by such Lender, other than any such
amendment, modification or waiver with respect to any Advance or Commitment in
which such Participant has an interest that forgives principal, interest or fees
or reduces the interest rate or fees payable with respect to any such Advance or
Commitment, postpones any date fixed for any regularly scheduled payment of
principal of, or interest or fees on, any such Advance or Commitment, releases
any guarantor of any such Advance or releases any substantial portion of
collateral, if any, securing any such Advance.
(g) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 8.07, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any confidential information relating to the Borrower
received by it from such Lender (subject to customary exceptions regarding
regulatory requirements, compliance with legal process and other requirements of
law).
(h) If (i) any Lender shall make demand for payment under Section
2.12(a), 2.12(b) or 2.15, or (ii) shall deliver any notice to the Administrative
Agent pursuant to Section 2.13 resulting in the suspension of certain
obligations of the Lenders with respect to Eurodollar Rate Advances or (iii)
shall fail to consent to, or shall revoke its consent to, the extension of any
Termination Date pursuant to Section 2.17 or (iv) shall fail to consent to, or
shall revoke its consent to, any extension of the "Termination Date" (as defined
in the 364-Day Credit Agreement) requested by the Borrower pursuant to Section
2.17 of the 364-Day Credit Agreement as originally constituted (or any successor
provision of similar import), then (in the case of clause (i)) within 60 days
after such demand (if, but only if, such payment demanded under Section 2.12(a),
2.12(b) or 2.15 has been made by the Borrower), or (in the case of clause (ii))
within 60 days after such notice (if such suspension is still in effect), or (in
the case of clauses (iii) and (iv)) no later than 10 days prior to the then
effective Termination Date, as the case may be, the Borrower may demand that
such Lender assign in accordance with this Section 8.07 to one or more Eligible
Assignees designated by the Borrower and reasonably acceptable to the
Administrative Agent all (but not less than all) of such Lender's Commitment and
the Advances owing to it within the next succeeding 30 days (in the case of
clause (i) or clause (ii)), or within the next succeeding 5 days (in the case of
clauses (iii) and (iv)) . If any such Eligible Assignee designated by the
Borrower shall fail to consummate such assignment on terms acceptable to such
Lender, or if the Borrower shall fail to designate any such Eligible Assignee
for all of such Lender's Commitment or Advances, then such Lender may (but shall
not be required to) assign such Commitment and Advances to any other Eligible
Assignee in accordance with this Section 8.07 during such period.
SECTION 8.08. Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA.
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<PAGE>
SECTION 8.09. Consent to Jurisdiction. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF
PENNSYLVANIA AND ANY UNITED STATES DISTRICT COURT SITTING IN THE COMMONWEALTH OF
PENNSYLVANIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE NOTES AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE
AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT
OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE
RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 8.10. Execution in Counterparts; Integration. This Agreement
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes all prior and contemporaneous agreements
and understandings, oral or written, relating to the subject matter hereof.
[Remainder of the page intentionally left blank]
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
[SEAL] PECO ENERGY COMPANY
/s/Todd D. Cutler By /s/J. B. Mitchell
Todd D. Cutler Name: J. B. Mitchell
Assistant Secretary Title: Vice President - Finance and Treasurer
MELLON BANK, N.A.,
as Documentation Agent, Arranger and
Syndication Agent
By /s/Mary Ellen Usher
Name: Mary Ellen Usher
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent
By /s/Kenneth J. Bauer
Name: Kenneth J. Bauer
Title: Authorized Agent
FIRST CHICAGO CAPITAL MARKETS, INC.,
as Arranger and Syndication Agent
By /s/Kenneth J. Bauer
Name: Kenneth J. Bauer
Title: Vice President/Senior Banker
CITICORP SECURITIES, INC.,
as Syndication Agent
By /s/Anita J. Brickell
Name: Anita J. Brickell
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
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<PAGE>
THE BANKS
Commitment
$37,500,000
THE FIRST NATIONAL BANK OF CHICAGO, as
Administrative Agent and as Bank
By /s/Kenneth J. Bauer
Name: Kenneth J. Bauer
Title: Authorized Agent
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
42
<PAGE>
Commitment
$37,500,000
CITIBANK, N.A., as Bank
By /s/Anita J. Brickell
Name: Anita J. Brickell
Title: Attorney-in-Fact
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
43
<PAGE>
Commitment
$37,500,000
MELLON BANK, N.A., as Documentation Agent,
as Syndication Agent, as Arranger and as
Bank
By /s/Mary Ellen Usher
Name: Mary Ellen Usher
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
44
<PAGE>
Commitment
$25,000,000
THE BANK OF NEW YORK, as Co-Agent and as
Bank
By /s/John N. Watt
Name: John N. Watt
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
45
<PAGE>
Commitment
$25,000,000
THE CHASE MANHATTAN BANK, as Co-Agent and
as Bank
By /s/Paul V. Farrell
Name: Paul V. Farrell
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
46
<PAGE>
Commitment
$25,000,000
CORESTATES BANK, N.A., as Co-Agent and as
Bank
By /s/Anthony D. Braxton
Name: Anthony D. Braxton
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
47
<PAGE>
Commitment
$25,000,000
FIRST UNION NATIONAL BANK, as Co-Agent and
as Bank
By /s/Michael J. Kolosowsky
Name: Michael J. Kolosowsky
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
48
<PAGE>
Commitment
$25,000,000
THE TOKAI BANK, LIMITED, NEW YORK BRANCH,
as Co-Agent and as Bank
By /s/Kaoru Oda
Name: Kaoru Oda
Title: Assistant General Manager
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
49
<PAGE>
Commitment
$25,000,000
TORONTO DOMINION (NEW YORK), INC., as
Co-Agent and as Bank
By /s/Jorge A. Garcia
Name: Jorge A. Garcia
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
50
<PAGE>
Commitment
$25,000,000
UNION BANK OF CALIFORNIA, N.A., as
Co-Agent and as Bank
By /s/Karyssa M. Britton
Name: Karyssa M. Britton
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
51
<PAGE>
Commitment
$17,500,000
THE FUJI BANK, LIMITED, as Lead Manager
and as Bank
By /s/Raymond Ventura
Name: Raymond Ventura
Title: Vice President & Manager
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
52
<PAGE>
Commitment
$17,500,000
THE INDUSTRIAL BANK OF JAPAN TRUST
COMPANY, as Lead Manager and as Bank
By /s/John V. Veltri
Name: John V. Veltri
Title: Deputy General Manager
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
53
<PAGE>
Commitment
$17,500,000
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Lead Manager and as Bank
By /s/Philip S. Detjens
Name: Philip S. Detjens
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
54
<PAGE>
Commitment
$17,500,000
SUMMIT BANK, as Lead Manager and as Bank
By /s/Bruce A. Gray
Name: Bruce A. Gray
Title: Vice President, Large Corporate
Bank, Summit Bank
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
55
<PAGE>
Commitment
$12,500,000
BANK OF MONTREAL, as Bank
By /s/John L. Smith
Name: John L. Smith
Title: Director
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
56
<PAGE>
Commitment
$12,500,000
BANKERS TRUST COMPANY, as Bank
By /s/Marcus M. Tarkington
Name: Marcus M. Tarkington
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
57
<PAGE>
Commitment
$12,500,000
DEUTSCHE BANK AG, NEW YORK BRANCH, as Bank
By /s/Gabrielle C. Upton
Name: Gabrielle C. Upton
Title: Assistant Vice President
DEUTSCHE BANK AG, CAYMAN ISLAND BRANCH, as
Bank
By /s/Joel D. Makowsky
Name: Joel D. Makowsky
Title: Assistant Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
58
<PAGE>
Commitment
$12,500,000
THE LONG-TERM CREDIT BANK OF JAPAN, as Bank
By /s/Hiroshi Kitada
Name: Hiroshi Kitada
Title: Deputy General Manager
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
59
<PAGE>
Commitment
$12,500,000
THE TOYO TRUST & BANKING CO., LTD., as Bank
By /s/Takashi Mikumo
Name: Takashi Mikumo
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
60
<PAGE>
Commitment
$12,500,000
UNION BANK OF SWITZERLAND, NEW YORK
BRANCH, as Bank
By /s/Paul R. Morrison
Name: Paul R. Morrison
Title: Director
UNION BANK OF SWITZERLAND, NEW YORK
BRANCH, as Bank
By /s/Andrew N. Taylor
Name: Andrew N. Taylor
Title: Assistant Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
61
<PAGE>
Commitment
$10,000,000
BANK HAPOALIM B.M., as Bank
By /s/Carl Kopfinger
Name: Carl Kopfinger
Title: Vice President
By /s/Jonathan Kulka
Name: Jonathan Kulka
Title: First Vice President & Branch
Manager
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
62
<PAGE>
Commitment
$7,500,000
ABU DHABI INTERNATIONAL BANK INC., as Bank
By /s/David J. Young
Name: David J. Young
Title: Assistant Vice President
By /s/Nagy S. Kolta
Name: Nagy S. Kolta
Title: Senior Vice President
This is a signature page to the Revolving Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent.
63
<PAGE>
SCHEDULE I
Revolving Credit Agreement, dated as of October 7, 1997, among PECO Energy
Company, as Borrower, the banks named therein, as Banks, certain Banks specified
therein, as Lead Managers, certain Banks specified therein, as Co-Agents, First
Chicago Capital Markets, Inc. , Mellon Bank, N.A. and CitiCorp Securities, Inc.,
as Syndication Agents, First Chicago Capital Markets, Inc. and Mellon Bank,
N.A., as Arrangers, The First National Bank of Chicago, as Administrative Agent,
and Mellon Bank, N.A., as Documentation Agent.
<TABLE>
<CAPTION>
Domestic CD Lending Eurodollar
Name of Bank Lending Office Office Lending Office
<S> <C> <C> <C>
Union Bank of Energy Capital Services same same
California, N.A. 445 S. Figueroa Street
20th Floor
Los Angeles, CA 90071
Attn: Yolande C. Hollis
Phone: (213) 236-6199
Fax: (213) 236-4096
Abu Dhabi International Bank Inc. 1020 19th Street, N.W. same same
Suite 500
Washington, DC 20036
Attn: Robert Ford
Phone: (202) 842-7903
Fax: (202) 842-7955
CoreStates Bank, N.A. 1339 Chestnut Street same same
FC 1-8-11-28
Philadelphia, PA 19107
Attn: Mary Lockhart
Phone: (215) 786-4313
Fax: (215) 786-7721
Deutsche Bank A.G., New York 31 West 52nd Street same same
Branch and/or Cayman Islands New York, NY 10019
Branch Attn: Jo Curcio
Phone: (212) 469-4103
Fax: (212) 469-4139
First Union National Bank One First Union Center same same
301 South College Street
Charlotte, NC 28288-0735
Attn: Dana Maloney
Phone: (704) 383-0296
Fax: (704) 383-6670
The Chase Manhattan Bank One Chase Manhattan Plaza same same
New York, NY 10081
Attn: Lynette Lang
Phone: (212) 552-7692
Fax: (212) 552-5777
<PAGE>
Domestic CD Lending Eurodollar
Name of Bank Lending Office Office Lending Office
Mellon Bank, N.A. Three Mellon Bank Center Room 2303 same same
(Loan Administration)
Pittsburgh, PA 15259-0003
Attn: Cathy Capp
Phone: (412) 234-1870
Fax: (412) 236-2027, 2028
The Industrial Bank of Japan 1251 Avenue of the Americas same same
Trust Company New York, NY 10020-1104
Attn: Atsushi Kawai
Credit Administration
Phone: (212) 282-4060
Fax: (212) 282-4480
The Toronto-Dominion Bank 909 Fannin, Suite 1700 TDSI (USA), Inc. same
Houston, TX 77010 31 West 52nd Street
Attn: Jorge A. Garcia 21st Floor
Manager-Credit Administration New York, NY 10019-6101
Phone: (713) 653-8242 Attn: Senior Dealer
Fax: (713) 951-9921 Phone: (212) 468-0400
Fax: (212) 974-5283
Bank Hapoalim B.M. Commercial Loan & Documentation same same
1515 Market Street, Suite 200
Philadelphia, PA 19102
Attn: Sheila D. Joe
Phone: (215) 665-2228
Fax: (215) 665-2217
The Tokai Bank, Limited, New 55 East 52nd Street, 11th Floor same same
York Branch New York, NY 10055
Attn: Eva Cordova
Phone: (212) 339-1145
Fax: (212) 754-2171
Union Bank of Switzerland New York Branch same same
299 Park Avenue
New York, NY 10171
Attn: Mike Peterson
Loan Servicing Group
Phone: (212) 821-3230
Fax: (212) 821-3259
The Long-Term Credit Bank of One Liberty Plaza same same
Japan New York, NY 10006
Attn: Robert Pacitici
Phone: (212) 335-4801
Fax: (212) 608-3452
2
<PAGE>
Domestic CD Lending Eurodollar
Name of Bank Lending Office Office Lending Office
The Toyo Trust & Banking Co., 666 Fifth Avenue, 33rd Floor same same
Ltd. New York, NY 10103
Attn: Debra Wylie
Phone: (212) 307-3400, ext.287
Fax: (212) 977-5611
The Fuji Bank, Limited Two World Trade Center same same
New York, NY 10048
Attn: Gemma Dizon
Phone: (212) 898-2069
Fax: (212) 488-8216
Bank of Montreal 115 South LaSalle Street same same
Chicago, IL 60603
Attn: John Paseka
Phone: (312) 750-3771
Fax: (312) 750-4345
Summit Bank 750 Walnut Avenue, 3rd Floor same same
Cranford, NJ 07016
Attn: Carolyn Swiss
Phone: (201) 229-5288
Fax: (201) 641-4462
The Bank of New York One Wall Street, 19th Floor same same
Energy Industries Division
New York, NY 10286
Attn: Theresa A. Foran
Phone: (212) 635-7921
Fax: (212) 635-7923
First National Bank of Chicago One First National Plaza same same
Mail Suite 0634, 1FNP-10
Chicago, IL 60670
Attn: Gwendolyn Watson
Phone: (312) 732-4509
Fax: (312) 732-4840
Bankers Trust Company 130 Liberty Street same same
New York, NY 10006
Attn: Joe Regan
Phone: (212) 250-4169
Fax: (212) 250-7351
3
<PAGE>
Domestic CD Lending Eurodollar
Name of Bank Lending Office Office Lending Office
Morgan Guaranty and Trust 60 Wall Street same Nassau Bahamas Office
Company of New York New York, NY 10260-0060 c/o J.P. Morgan Services,
Attn: Sandra Doherty Inc.
Credit Administrator Loan Operations, 3rd Floor
Phone: (302) 634-8122 500 Stanton Christiana Rd.
Fax: (302) 634-1092 Newark, DE 19713
Attn: Allison Hollis
Loan Department
Phone: (302) 634-4671
Fax: (302) 634-1094
Citibank, N.A. 399 Park Avenue same same
4th Floor, Zone 22
New York, New York 10021
Attn: Kate Bohen
Phone: (302) 894-6120
Fax: (302) 894-6077
</TABLE>
4
<PAGE>
EXHIBIT A-1
FORM OF CONTRACT NOTE
$____________________ Dated: October 7, 1997
FOR VALUE RECEIVED, the undersigned, PECO Energy Company, a
Pennsylvania corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order
of (the "Lender") for the account of its Applicable Lending Office (such term
and other capitalized terms herein being used as defined in the Credit Agreement
referred to below) on the Termination Date the principal sum of U.S.$[amount of
the Lender's Commitment in figures] or, if less, the aggregate principal amount
of the Contract Advances made by the Lender to the Borrower pursuant to the
Credit Agreement outstanding on the Termination Date.
The Borrower promises to pay interest on the unpaid principal amount
of each Contract Advance from the date of such Contract Advance until such
principal amount is paid in full, at such interest rates, and payable at such
times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to The First National Bank of Chicago, as Administrative
Agent, at One First National Plaza, Chicago, Illinois 60670, in same day funds.
Each Contract Advance made by the Lender to the Borrower pursuant to the Credit
Agreement, and all payments made on account of principal thereof, shall be
recorded by the Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this Promissory Note.
This Promissory Note is one of the Contract Notes referred to in, and
is entitled to the benefits of, the Revolving Credit Agreement, dated as of
October 7, 1997, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, certain Banks specified therein, as Lead Managers, certain
Banks specified therein, as Co-Agents, First Chicago Capital Markets, Inc.,
Mellon Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First
Chicago Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First
National Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent (as amended, modified or supplemented from time to time, the
"Credit Agreement"). The Credit Agreement, among other things, (i) provides for
the making of Contract Advances by the Lender to the Borrower from time to time
in an aggregate amount not to exceed at any time outstanding the U.S. dollar
amount first above mentioned, the indebtedness of the Borrower resulting from
each such Contract Advance being evidenced by this Promissory Note, and (ii)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.
The Borrower hereby waives presentment, demand, protest and notice of
any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
PECO ENERGY COMPANY
By
Name:
Title:
<PAGE>
ADVANCES, MATURITIES, AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
Maturity Principal Unpaid
Amount of of Paid or Principal Notation
Date Advance Advance Prepaid Balance Made By
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT A-2
FORM OF AUCTION NOTE
$_________________________ Dated: _________, 19___
FOR VALUE RECEIVED, the undersigned, PECO Energy Company, a
Pennsylvania corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order
of (the "Lender") for the account of its Applicable Lending Office (as defined
in the Credit Agreement referred to below), on , 19 , the principal amount of
Dollars ($ ).
The Borrower promises to pay interest on the unpaid principal amount
hereof from the date hereof until such principal amount is paid in full, at the
interest rate and payable on the interest payment date or dates provided below:
Interest Rate: % per annum (calculated on the basis of a year of days
for the actual number of days elapsed).
Interest Payment Date or Dates:
Both principal and interest are payable in lawful money of the United
States of America to or the account of the Lender at the office of The First
National Bank of Chicago, as Administrative Agent, at One First National Plaza,
Chicago, Illinois 60670, in same day funds, free and clear of and without any
deduction, with respect to the payee named above, for any and all present and
future taxes, deductions, charges or withholdings (other than United States
withholding taxes, if applicable), and all liabilities with respect thereto.
This Promissory Note is one of the Auction Notes referred to in, and
is entitled to the benefits of, the Revolving Credit Agreement, dated as of
October 7, 1997, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, certain Banks specified therein, as Lead Managers, certain
Banks specified therein, as Co-Agents, First Chicago Capital Markets, Inc.,
Mellon Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First
Chicago Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First
National Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent (as amended, modified or supplemented from time to time, the
"Credit Agreement"). The Credit Agreement, among other things, contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events.
The Borrower hereby waives presentment, demand, protest and notice of
any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
PECO ENERGY COMPANY
By
Name:
Title:
2
<PAGE>
EXHIBIT B-1
NOTICE OF A CONTRACT BORROWING
The First National Bank of Chicago, as Administrative Agent for the Lenders
parties to the Credit Agreement referred to below
One First National Plaza
Chicago, Illinois 60670
[Date]
Attention: Utilities Department
North American Finance Group
Ladies and Gentlemen:
The undersigned, PECO Energy Company, refers to the Revolving Credit
Agreement, dated as of October 7, 1997, among PECO Energy Company, as Borrower,
the banks named therein, as Banks, certain Banks specified therein, as Lead
Managers, certain Banks specified therein, as Co-Agents, First Chicago Capital
Markets, Inc., Mellon Bank, N.A. and CitiCorp Securities, Inc., as Syndication
Agents, First Chicago Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers,
The First National Bank of Chicago, as Administrative Agent, and Mellon Bank,
N.A., as Documentation Agent (as amended, modified or supplemented from time to
time, the "Credit Agreement"), and hereby gives you notice, irrevocably,
pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby
requests a Contract Borrowing under the Credit Agreement, and in that connection
sets forth below the information relating to such Contract Borrowing (the
"Proposed Contract Borrowing") as required by Section 2.02(a) of the Credit
Agreement:
(i) The Business Day of the Proposed Contract Borrowing is , 19 .
(ii) The Type of Contract Advances to be made in connection with
the Proposed Contract Borrowing is [Adjusted CD Rate Advances] [Base
Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Contract Borrowing is
$________________.
(iv) The Interest Period for each Contract Advance made as part
of the Proposed Contract Borrowing is [ days] [ month[s]].
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Contract
Borrowing:
(A) the representations and warranties contained in Section 4.01
are correct, before and after giving effect to the Proposed Contract
Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date; and
(B) no event has occurred and is continuing, or would result from
such Proposed Contract Borrowing or from the application of the
proceeds therefrom, that
<PAGE>
constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or
both.
Very truly yours,
PECO ENERGY COMPANY
By
Name:
Title:
2
<PAGE>
EXHIBIT B-2
NOTICE OF AN AUCTION BORROWING
The First National Bank of Chicago, as Administrative Agent, for the Lenders
parties to the Credit Agreement referred to below
One First National Plaza
Chicago, Illinois 60670
[Date]
Attention: Utilities Department
North American Finance Group
Ladies and Gentlemen:
The undersigned, PECO Energy Company, refers to the Revolving Credit
Agreement, dated as of October 7, 1997, among PECO Energy Company, as Borrower,
the banks named therein, as Banks, certain Banks specified therein, as Lead
Managers, certain Banks specified therein, as Co-Agents, First Chicago Capital
Markets, Inc., Mellon Bank, N.A. and CitiCorp Securities, Inc., as Syndication
Agents, First Chicago Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers,
The First National Bank of Chicago, as Administrative Agent, and Mellon Bank,
N.A., as Documentation Agent (as amended, modified or supplemented from time to
time, the "Credit Agreement"), and hereby gives you notice pursuant to Section
2.03 of the Credit Agreement that the undersigned hereby requests an Auction
Borrowing under the Credit Agreement, and in that connection sets forth the
terms on which such Auction Borrowing (the "Proposed Auction Borrowing") is
requested to be made:
(A) Date of Auction Borrowing ______
(B) Amount of Auction Borrowing ______
(C) Maturity Date ______
(D) Interest Payment Date(s) ______
(E) ______ ______
(F) ______ ______
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Auction
Borrowing:
(a) the representations and warranties contained in Section 4.01
are correct, before and after giving effect to the Proposed Auction
Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date:
(b) no event has occurred and is continuing, or would result from
the Proposed Auction Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or would constitute
an Event of Default but for the requirement that notice be given or
time elapse or both; and
<PAGE>
(c) the aggregate amount of the Proposed Auction Borrowing and
all other Borrowings to be made on the same day under the Credit
Agreement is within the aggregate amount of the unused Commitments of
the Lenders.
The undersigned hereby confirms that the Proposed Auction Borrowing is
to be made available to it in accordance with Section 2.03(a)(v) of the Credit
Agreement.
Very truly yours,
PECO ENERGY COMPANY
By
Name:
Title:
2
<PAGE>
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Dated ___________, 19___
Reference is made to the Revolving Credit Agreement, dated as of
October 7, 1997, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, certain Banks specified therein, as Lead Managers, certain
Banks specified therein, as Co-Agents, First Chicago Capital Markets, Inc.,
Mellon Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First
Chicago Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First
National Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent (as amended, modified or supplemented from time to time, the
"Credit Agreement"). Terms defined in the Credit Agreement are used herein with
the same meaning.
_________________ (the "Assignor") and _______________ (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, that interest in and to
all of the Assignor's rights and obligations under the Credit Agreement as of
the date hereof (other than in respect of Auction Advances and Auction Notes)
which represents the percentage interest specified on Schedule 1 of all
outstanding rights and obligations under the Credit Agreement (other than in
aspect of Auction Advances and Auction Notes), including, without limitation,
such interest in the Assignor's Commitment, the Contract Advances owing to the
Assignor, and the Contract Note[s] held by the Assignor. After giving effect to
such sale and assignment, the Assignee's Commitment and the amount of the
Contract Advances owing to the Assignee will be as set forth in Section 2 of
Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (iv) attaches the Contract Note[s] referred to in paragraph 1 above and
requests that the Administrative Agent exchange such Contract Note[s] for a new
Contract Note payable to the order of the Assignee in an amount equal to the
Commitment assumed by the Assignee pursuant hereto or new Contract Notes payable
to the order of the Assignee in an amount equal to the Commitment assumed by the
Assignee pursuant hereto and the Assignor in an amount equal to the Commitment
retained by the Assignor under the Credit Agreement, respectively as specified
on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Documentation Agent, the Assignor or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (iii) confirms that it is an
Eligible Assignee; (iv) appoints and authorizes the Administrative Agent to take
such action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the
<PAGE>
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Lender; (vi) none of the
consideration used to make the purchase being made by the Assignee hereunder are
"plan assets" as defined under ERISA and the rights and interests of the
Assignee in and under the Credit Agreement will not be "plan assets" under ERISA
[and] (vii) specifies as its CD Lending Office, Domestic Lending Office (and
address for notices) and Eurodollar Lending Office the offices set forth beneath
its name on the signature pages hereof [and (viii) attaches the forms prescribed
by the Internal Revenue Service of the United States certifying that it is
exempt from United States withholding taxes with respect to all payments to be
made to the Assignee under the Credit Agreement and the Notes].(1)
4. Following the execution of this Assignment and Acceptance by the
Assignor and the Assignee, it will be delivered to the Administrative Agent for
acceptance and recording by the Administrative Agent. The effective date of this
Assignment and Acceptance shall be the date of acceptance thereof by the
Administrative Agent, unless otherwise specified on Schedule 1 hereto (the
"Effective Date").
5. Upon such acceptance and recording by the Administrative Agent, as
of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the rights
and obligations of a Lender thereunder and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative Agent,
from and after the Effective Date, the Administrative Agent shall make all
payments under the Credit Agreement and the Contract Notes in respect of the
interest assigned hereby (including, without limitation, all payments of
principal, interest and commitment fees with respect thereto) to the Assignee.
The Assignor and Assignee shall make all appropriate adjustments in payments
under the Credit Agreement and the Contract Notes for periods prior to the
Effective Date directly between themselves.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
______________
(1) If the Assignee is organized under the laws of a jurisdiction outside the
United States.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution being made on
Schedule 1 hereto.
[NAME OF ASSIGNOR]
By
Name:
Title:
[NAME OF ASSIGNEE]
By
Name:
Title:
CD Lending Office:
[Address]
Domestic Lending
Office (and address
for notices):
[Address]
Eurodollar Lending Office:
[Address]
Consented to this ____________ day
of __________________, 19___
PECO ENERGY COMPANY
By
Name:
Title:
Consented to and Accepted this ______________ day
of ___________________, 19___
[NAME OF ADMINISTRATIVE AGENT]
By
Name:
Title:
3
<PAGE>
Schedule 1
to
Assignment and Acceptance
Dated ______________, 19___
Section 1.
Percentage Interest: ___%
Section 2.
Assignee's Commitment: $_____
Aggregate Outstanding Principal
Amount of Contract Advances
owing to the Assignee: $_____
A Contract Note payable to the
order of the Assignee
Dated: _________, 19___
Principal amount: $______
A Contract Note payable to the
order of the Assignor
Dated: __________, 19___
Principal amount: $______
Section 3.
Effective Date(2): _____________, 19___
________________
(2) This date should be no earlier than the date of acceptance by the
Administrative Agent.
<PAGE>
EXHIBIT D
FORM OF OPINION OF BALLARD SPAHR
ANDREWS & INGERSOLL
________________, 19___
To each of the Banks, the Administrative Agent,
the Documentation Agent, the Syndication Agents,
the Arrangers, the Co-Agents and the Lead Managers
party to the Revolving Credit Agreement, dated as
of October 7, 1997, among PECO Energy Company, as
Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers,
certain Banks specified therein, as Co-Agents,
First Chicago Capital Markets, Inc., Mellon Bank,
N.A. and CitiCorp Securities, Inc., as Syndication
Agents, First Chicago Capital Markets, Inc. and
Mellon Bank, N.A., as Arrangers, The First
National Bank of Chicago, as Administrative Agent,
and Mellon Bank, N.A., as Documentation Agent
Re: PECO Energy Company
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.01(a)(vi) of
the Revolving Credit Agreement, dated as of October 7, 1997, among PECO Energy
Company, as Borrower, the banks named therein, as Banks, certain Banks specified
therein, as Lead Managers, certain Banks specified therein, as Co-Agents, First
Chicago Capital Markets, Inc., Mellon Bank, N.A. and CitiCorp Securities, Inc.,
as Syndication Agents, First Chicago Capital Markets, Inc. and Mellon Bank,
N.A., as Arrangers, The First National Bank of Chicago, as Administrative Agent,
and Mellon Bank, N.A., as Documentation Agent (as amended, modified or
supplemented from time to time, the "Credit Agreement"). Unless otherwise
specified, terms defined in the Credit Agreement are used herein as therein
defined.
We have acted as special counsel for the Borrower in connection with
the preparation, execution and delivery of the Credit Agreement. In that
capacity we have examined the following:
(i) The Credit Agreement, the Contract Notes and the form of the
Auction Notes to be delivered in connection with Auction Borrowings;
(ii) The documents furnished by the Borrower pursuant to Section
3.01 of the Credit Agreement;
(iii) The Amended and Restated Articles of Incorporation of the
Borrower and all amendments thereto (the "Charter");
(iv) The by-laws of the Borrower and all amendments thereto (the
"By-laws"); and
<PAGE>
(v) A certificate of the Secretary of State of the Commonwealth
of Pennsylvania, dated , 19 , attesting to the continued subsistence
of the Borrower in Pennsylvania.
We have also examined the originals, or copies certified to our
satisfaction, of such other corporate records of the Borrower, certificates of
public officials and of officers of the Borrower, and agreements, instruments
and documents, as we have deemed necessary as a basis for the opinions
hereinafter expressed. We have assumed the legal capacity and competence of
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to original documents
of documents submitted to us as certified, conformed or photostatic copies. We
have assumed that the Agents and the Banks have duly executed and delivered,
with all necessary power and authority (corporate and otherwise), the Credit
Agreement. We have further assumed that the Auction Notes, when delivered under
the Credit Agreement, will be duly executed by the Borrower.
When an opinion or confirmation is given to our knowledge or with
reference to matters of which we are aware or which are known to us, or with
another similar qualification, the relevant knowledge or awareness is limited to
the actual knowledge or awareness of the lawyer who is the current primary
contact for the Borrower and the individual lawyers in this firm who have
participated in the specific transaction to which this opinion relates and
without any special or additional investigation undertaken for the purposes of
this opinion, except as otherwise noted herein. Based upon the foregoing and
subject to the exceptions, limitations and qualifications set forth herein, we
are of the following opinion:
1. The Borrower is a corporation duly incorporated and validly
subsisting under the laws of the Commonwealth of Pennsylvania.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate
powers, have been duly authorized by all necessary corporate action,
do not contravene (i) the Charter or the By-laws or (ii) any law of
the United States or the Commonwealth of Pennsylvania (including,
without limitation, any order, rule or regulation of the PPUC or (iii)
to the best of our knowledge, any agreement or instrument to which the
Borrower is a party or by which it is bound, and do not result in or
require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties.
3. No authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body of
the United States or the Commonwealth of Pennsylvania is required for
the due execution, delivery and performance by the Borrower of the
Credit Agreement or the Notes except for the filing of the Securities
Certificate with, and the final approval of, and the Order of
Registration issued by, the PPUC, which filing has been duly made and
which final approval and Order of Registration have been duly
obtained; such Order of Registration is in full force and effect and
is final; and the action of the PPUC registering the Securities
Certificate is no longer subject to appeal.
4. The Credit Agreement and the Contract Notes have been duly
executed and delivered by the Borrower, and the Credit Agreement and
the Contract Notes are, and the Auction Notes, when executed and
delivered hereunder will be, the legal, valid and binding obligations
of the Borrower enforceable against the Borrower in accordance with
their respective terms.
5. The Borrower (i) is exempt from the provisions of the Public
Utility Holding Company Act of 1935, as amended, other than Section
9(a)(2) thereof, pursuant
2
<PAGE>
to Section 3(a)(2) thereof, and (ii) is not an "investment company" or
a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
6. We confirm to you that to our knowledge, after inquiry of each
lawyer who is the current primary contact for the Borrower or who has
devoted substantive attention to matters on behalf of the Borrower
during the preceding twelve months and who is still currently employed
by or a member of this firm, except as disclosed in the Borrower's
Annual Report on Form 10-K for the year ended December 31, 1996 and
the Borrower's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, no litigation or governmental proceeding is pending or
threatened in writing against the Borrower (i) with respect to the
Credit Agreement or the Notes, or (ii) which is likely to have a
material adverse effect upon the financial condition, business,
properties or prospects of the Borrower and its subsidiaries taken as
a whole.
We draw to your attention the existence of the following two
Pennsylvania statutes in connection with the fact that the Contract Advances
bear floating rates of interest:
(i) Section 911 of the Pennsylvania "Crime Code," 18 Pa. C.S.A.
ss.911, enacted by the Act of December 6, 1972, P.L. 1482. Section 911
of the Crime Code bears a close resemblance to certain of the
provisions of the Federal Racketeer Influenced and Corrupt
Organizations Act of 1970, 18 U.S.C. ss.ss.1961-1968, commonly known
as RICO, and is referred to hereinafter as the "Pennsylvania RICO
Act." The Pennsylvania RICO Act provides, among other things, that it
is a criminal offense, punishable as a felony, to "use or invest,
directly or indirectly ... in the acquisition of any interest in, or
the establishment or operation of, any enterprise" any income
collected in full or partial satisfaction of a loan made "at a rate of
interest exceeding 25% per annum... ."
(ii) The Act of December 29, 1982, P.L. 1671, 18 Pa. C.S.A.
ss.4806.1 et seq. (superseded volume) (the "Criminal Usury Statute").
The Criminal Usury Statute provides, among other things, that it is a
criminal offense, punishable as a felony, to engage in, "charging,
taking or receiving any money ... on the loan ... of any money ... at
a rate exceeding thirty-six percent per annum... ."
The Criminal Usury Statute may have been repealed, but the manner in
which the repeal was enacted leaves the matter subject to uncertainty.
Both the Pennsylvania RICO Act and the Criminal Usury Statute appear
to be intended by the legislature to apply only to racketeering and loan
sharking type activities, and not to the type of commercial loan transaction
evidenced by the Loan Document. Nevertheless, in view of the plain language of
the Pennsylvania courts, we cannot say that the ultimate resolution of this
issue is free from doubt.
The foregoing opinions are subject to the following exceptions,
limitations and qualifications:
(a) Our opinion is subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer or similar laws affecting creditors'
rights and remedies generally, general principles of equity, including
without limitation, concepts of materiality, reasonableness, good
faith and fair dealing (regardless of whether such enforceability is
considered in a proceeding in equity or at law); and limitations on
enforceability of rights to indemnification by federal or state
securities laws or regulations or by public policy.
3
<PAGE>
(b) We express no opinion as to the application or requirements
of the Pennsylvania Securities Act or federal or state securities,
patent, trademark, copyright, antitrust and unfair competition,
pension or employee benefit, labor, environmental health and safety or
tax laws in respect of the transactions contemplated by or referred to
in the Credit Agreement.
(c) We express no opinion as to the validity or enforceability of
any provision of the Credit Agreement or the Notes which (i) permits
the Lenders to increase the rate of interest in the event of
delinquency or default if such increase would be deemed a penalty
under applicable law; (ii) purports to be a waiver by Borrower of any
right or benefit except to the extent permitted by applicable law;
(iii) purports to require that waivers must be in writing to the
extent that an oral agreement or implied agreement by trade practice
or course of conduct modifying provisions of the Credit Agreement or
the Notes has been made; or (iv) purports to exculpate any party from
its own negligent acts.
We express no opinion as to the law of any jurisdiction other than the
law of the Commonwealth of Pennsylvania and the federal law of the United
States.
The foregoing opinion is solely for your benefit in connection with
the consummation of the transaction described herein and may not be used or
relied upon by you or any other Person without our express written consent for
any other purpose other than (i) any Eligible Assignee that may become a Lender
under the Credit Agreement after the date hereof and (ii) Reed Smith Shaw &
McClay LLP, which may rely upon this opinion in rendering their opinion
furnished pursuant to Article III of the Credit Agreement. The opinions given
herein are as of the date hereof, and we assume no obligation to update or
supplement this opinion to reflect facts or circumstances which may hereafter
come to our attention or any changes in laws which may hereafter occur.
Very truly yours,
BALLARD SPAHR
ANDREWS & INGERSOLL
4
<PAGE>
EXHIBIT E
FORM OF OPINION OF REED SMITH SHAW & McCLAY LLP
_______________, 19___
To each of the Banks, the Administrative Agent,
the Documentation Agent, the Syndication Agents,
the Arrangers, the Co-Agents and the Lead Managers
party to the Revolving Credit Agreement, dated as
of October 7, 1997, among PECO Energy Company, as
Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers,
certain Banks specified therein, as Co-Agents,
First Chicago Capital Markets, Inc., Mellon Bank,
N.A. and CitiCorp Securities, Inc., as Syndication
Agents, First Chicago Capital Markets, Inc. and
Mellon Bank, N.A., as Arrangers, The First
National Bank of Chicago, as Administrative Agent,
and Mellon Bank, N.A., as Documentation Agent
Re: PECO Energy Company
Ladies and Gentlemen:
We have acted as counsel to Mellon Bank, N.A., individually and as
Documentation Agent, in connection with the preparation, execution and delivery
of the Revolving Credit Agreement, dated as of October 7, 1997, among PECO
Energy Company, as Borrower, the banks named therein, as Banks, certain Banks
specified therein, as Lead Managers, certain Banks specified therein, as
Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A. and CitiCorp
Securities, Inc., as Syndication Agents, First Chicago Capital Markets, Inc. and
Mellon Bank, N.A., as Arrangers, The First National Bank of Chicago, as
Administrative Agent, and Mellon Bank, N.A., as Documentation Agent (as amended,
modified or supplemented from time to time, the "Credit Agreement"). We are
delivering this opinion pursuant to Section 3.01(a)(vii) of the Credit
Agreement. Unless otherwise defined herein, terms defined in the Credit
Agreement are used herein as therein defined.
In that connection, we have examined (i) counterparts of the Credit
Agreement, executed by the Borrower, the Banks, the Administrative Agent, the
Documentation Agent, the Syndication Agents, the Arrangers, the Co-Agents and
the Lead Managers, (ii) the Contract Notes, executed by the Borrower, (iii) the
form of the Auction Notes to be delivered by the Borrower in connection with
Auction Borrowings and (iv) the other documents listed on Exhibit A hereto,
including the opinion of Ballard Spahr Andrews & Ingersoll, counsel to the
Borrower (the "Opinion"), furnished to the Administrative Agent pursuant to
Section 3.01(a) of the Credit Agreement.
In our examination of the documents referred to above, we have assumed
the authenticity of all such documents submitted to us as originals, the
genuineness of all signatures, the due authority of the parties executing such
documents and the conformity to the originals of all such documents submitted to
us as copies. We have also assumed that the Banks, the Administrative Agent, the
Documentation Agent, the Syndication Agents, the Arrangers, the Co-Agents and
the Lead Managers have duly executed and delivered, with all necessary power and
authority (corporate and otherwise), the Credit Agreement. As to matters of
fact, we have relied solely upon the documents we have examined.
<PAGE>
Based upon the foregoing, we are of the opinion that, while we have
not independently considered the matters covered by the Opinion to the extent
necessary to enable us to express the conclusions stated therein, each of the
Opinion and the other documents listed in Exhibit A hereto are substantially
responsive to the corresponding requirements set forth in Section 3.01 of the
Credit Agreement pursuant to which the same have been delivered.
Please note that Richard H. Glanton, Esquire, a partner in this firm,
is a director of PECO Energy Company. We have rendered and continue to render
legal services to PECO Energy Company.
The foregoing opinion is solely for your benefit and may not be relied
upon by any other Person other than any Person that may become a lender under
the Credit Agreement after the date hereof.
Very truly yours,
KCK:TEW:ARN
2
<PAGE>
EXHIBIT F
FORM OF ANNUAL AND QUARTERLY COMPLIANCE CERTIFICATE
______________________, 19__
Pursuant to the Revolving Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent
(as amended, modified or supplemented from time to time, the "Credit
Agreement"), the undersigned, being ______________________ of the Borrower,
hereby certifies on behalf of the Borrower as follows:
1. Delivered herewith are the financial statements prepared pursuant
to Section 5.01(b)(ii) and Section 5.01(b)(iii) of the Credit Agreement, for the
fiscal ________ ended ___________, 19__. All such financial statements comply
with the applicable requirements of the Credit Agreement.
2. Schedule I hereto sets forth in reasonable detail the information
and calculations necessary to establish compliance with the provisions of
Section 5.02(c) of the Credit Agreement as of the end of the fiscal period
referred to in paragraph 1 above.
3. (Check one and only one:)
No Event of Default, or event which with notice or lapse of time or
both would constitute an Event of Default, has occurred and is continuing or
exists.
An Event of Default, or event which with notice or lapse of time or
both would constitute an Event of Default, has occurred and is continuing or
exists, and the document(s) attached hereto as Schedule II specify in detail the
nature and period of existence of such Event of Default or such other event as
well as any and all actions with respect thereto taken or contemplated to be
taken by the Borrower.
4. The undersigned has personally reviewed the Credit Agreement, and
this certificate was based on an examination made by or under the supervision of
the undersigned sufficient to assure that this certificate is accurate.
5. Capitalized terms used in this certificate and not otherwise
defined shall have the meanings given in the Credit Agreement.
PECO ENERGY COMPANY
By
Name:
Title:
Date:
<PAGE>
EXHIBIT G
FORM OF ADDITIONAL LENDER SUPPLEMENT
THIS SUPPLEMENT, dated as of ____________, 19_____, by the undersigned.
Recitals:
A. This Supplement is being executed and delivered in accordance with
Section 2.18 of the Revolving Credit Agreement, dated as of October 7, 1997,
among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent
(as amended, modified or supplemented from time to time, the "Credit
Agreement"). Capitalized terms used herein without definition have the meanings
specified in the Credit Agreement.
B. The undersigned wishes to become a Lender party to the Credit
Agreement, as an Additional Lender.
NOW, THEREFORE, the undersigned, intending to be legally bound, hereby
agrees as follows:
1. The undersigned hereby becomes party to the Credit Agreement as
Lender thereunder, and shall be subject to and bound by all of the provisions
thereof.
2. The Commitment of the undersigned shall be $_____________.
3. The undersigned (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Additional Lender Supplement; (ii) agrees that it will, independently and
without reliance upon the Administrative Agent, the Documentation Agent or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (iii) confirms that it is an
Eligible Assignee; (iv) appoints and authorizes the Administrative Agent to take
such action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (v) agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of the Credit Agreement are required to be performed by it as a
Lender; (vi) none of the consideration used to make the purchase being made by
the undersigned hereunder are "plan assets" as defined under ERISA and the
rights and interests of the undersigned in and under the Credit Agreement will
not be "plan assets" under ERISA [and] (vii) specifies as its CD Lending Office,
Domestic Lending Office (and address for notices) and Eurodollar Lending Office
the offices set forth beneath its name on the signature pages hereof [and (viii)
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying that it
<PAGE>
is exempt from United States withholding taxes with respect to all payments to
be made to the undersigned under the Credit Agreement and the Notes].(3)
4. This Supplement shall be effective upon the date of acceptance
thereof by the Administrative Agent, unless otherwise specified under the
undersigned's name signature below.
5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
executed and delivered by a duly authorized officer on the date first above
written.
[NAME OF ADDITIONAL LENDER]
By:________________________
Name:______________________
Title:_______________________
CD Lending Office: [Address]
Domestic Lending Office (and
address for notices): [Address]
Eurodollar Lending Office: [Address]
Effective Date(4): ______________, 19___
CONSENTED TO:
[NAME OF ADMINISTRATIVE AGENT]
By:
Name:
Title:
CONSENTED TO:
PECO ENERGY COMPANY
By:
Name:
Title:
_________________
(3) If the undersigned is organized under the laws of a jurisdiction outside
the United States.
(4) This date should be no earlier than the date of acceptance by the
Administrative Agent.
October 7, 1997 4:29 PM
CONFORMED COPY
$450,000,000
364-DAY CREDIT AGREEMENT
dated as of October 7, 1997
among
PECO ENERGY COMPANY
as Borrower
THE BANKS NAMED HEREIN
as Banks
CERTAIN BANKS SPECIFIED HEREIN
as Lead Managers
CERTAIN BANKS SPECIFIED HEREIN
as Co-Agents
FIRST CHICAGO CAPITAL MARKETS, INC.,
MELLON BANK, N.A. and
CITICORP SECURITIES, INC.
as Syndication Agents
FIRST CHICAGO CAPITAL MARKETS, INC. and
MELLON BANK, N.A.
as Arrangers
THE FIRST NATIONAL BANK OF CHICAGO
as Administrative Agent
and
MELLON BANK, N.A.
as Documentation Agent
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Certain Defined Terms .............................................. 1
1.02 Computation of Time Periods ........................................ 11
1.03 Accounting Principles .............................................. 11
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
2.01 The Contract Advances .............................................. 11
2.02 Making the Contract Advances ....................................... 11
2.03 The Auction Advances ............................................... 12
2.04 Fees ............................................................... 15
2.05 Reduction of the Commitments ....................................... 16
2.06 Repayment of Contract Advances ..................................... 16
2.07 Interest on Contract Advances ...................................... 16
2.08 Additional Interest on Contract Advances ........................... 16
2.09 Interest Rate Determination ........................................ 17
2.10 Conversion of Contract Advances .................................... 17
2.11 Prepayments ........................................................ 18
2.12 Increased Costs .................................................... 18
2.13 Illegality ......................................................... 19
2.14 Payments and Computations .......................................... 20
2.15 Taxes .............................................................. 21
2.16 Sharing of Payments, Etc ........................................... 22
2.17 Extension of Termination Date ...................................... 22
2.18 Additional Lenders ................................................. 23
ARTICLE III
CONDITIONS OF LENDING
3.01 Conditions Precedent to Initial Advances ........................... 25
3.02 Conditions Precedent to Certain Contract Borrowings ................ 26
3.03 Conditions Precedent to Each Auction Borrowing ..................... 26
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 Representations and Warranties of the Borrower ..................... 27
ARTICLE V
COVENANTS OF THE BORROWER
5.01 Affirmative Covenants .............................................. 28
5.02 Negative Covenants ................................................. 30
i
<PAGE>
ARTICLE VI
EVENTS OF DEFAULT
6.01 Events of Default .................................................. 31
ARTICLE VII
THE AGENTS
7.01 Authorization and Action ........................................... 33
7.02 Agents' Reliance, Etc .............................................. 33
7.03 Agents and Affiliates .............................................. 34
7.04 Lender Credit Decision ............................................. 34
7.05 Indemnification .................................................... 34
7.06 Successor Administrative Agent ..................................... 35
7.07 Syndication Agents, Co-Agents, Lead Managers and Arrangers ......... 35
ARTICLE VIII
MISCELLANEOUS
8.01 Amendments, Etc .................................................... 35
8.02 Notices, Etc ....................................................... 35
8.03 No Waiver; Remedies ................................................ 36
8.04 Costs and Expenses; Indemnification ................................ 36
8.05 Right of Set-off ................................................... 37
8.06 Binding Effect ..................................................... 37
8.07 Assignments and Participations ..................................... 37
8.08 Governing Law ...................................................... 39
8.09 Consent to Jurisdiction ............................................ 40
8.10 Execution in Counterparts; Integration ............................. 40
Schedule I List of Applicable Lending Offices
Exhibit A-1 Form of Contract Note
Exhibit A-2 Form of Auction Note
Exhibit B-1 Notice of a Contract Borrowing
Exhibit B-2 Notice of an Auction Borrowing
Exhibit C Assignment and Acceptance
Exhibit D Form of Opinion of Special Counsel for the Borrower
Exhibit E Form of Opinion of Counsel to the Documentation Agent
Exhibit F Form of Annual and Quarterly Compliance Certificate
Exhibit G Form of Additional Lender Supplement
ii
<PAGE>
364-DAY CREDIT AGREEMENT
dated as of October 7, 1997
PECO Energy Company, a Pennsylvania corporation (the "Borrower"), the
banks listed on the signature pages hereof (the "Banks"), certain Banks
specified herein, as lead managers hereunder, (in such capacity, the "Lead
Managers"), certain Banks specified herein, as co-agents hereunder (in such
capacity, the "Co-Agents"), First Chicago Capital Markets, Inc. ("First Chicago
Capital Markets"), Mellon Bank, N.A. ("Mellon") and CitiCorp Securities, Inc.
("CitiCorp"), as syndication agents hereunder (in such capacity, the
"Syndication Agents"), First Chicago Capital Markets and Mellon, as arrangers
hereunder (in such capacity, the "Arrangers"), The First National Bank of
Chicago ("First Chicago"), as administrative agent for the Lenders hereunder (in
such capacity, the "Administrative Agent"), and Mellon, as documentation agent
for the Lenders hereunder (in such capacity, the "Documentation Agent"), hereby
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, each
of the following terms shall have the meaning set forth next to such term below
(each such meaning to be equally applicable to both the singular and plural
forms of the term defined):
"Additional Lender" has the meaning specified in Section 2.18.
"Adjusted CD Rate" means, for any Interest Period for each Adjusted CD
Rate Advance made as part of the same Contract Borrowing, an interest rate
per annum equal to the sum of:
(a) the rate per annum obtained by dividing (i) the rate of interest
determined by the Administrative Agent to be the average (rounded
upward to the nearest whole multiple of 1/100 of 1% per annum, if such
average is not such a multiple) of the consensus bid rate determined
by each of the Reference Banks for the bid rates per annum, at 10:00
A.M. (Chicago time) (or as soon thereafter as practicable) on the
first day of such Interest Period, of New York certificate of deposit
dealers of recognized standing selected by such Reference Bank for the
purchase at face value of certificates of deposit of such Reference
Bank in an amount substantially equal to such Reference Bank's
Adjusted CD Rate Advance made as part of such Contract Borrowing and
with a maturity equal to such Interest Period, by (ii) a percentage
equal to 100% minus the Domestic Rate Reserve Percentage for such
Interest Period, plus
(b) the Assessment Rate for such Interest Period.
The Adjusted CD Rate for the Interest Period for each Adjusted CD Rate
Advance made as part of the same Contract Borrowing shall be determined by
the Administrative Agent on the basis of applicable rates furnished to and
received by the Administrative Agent from the Reference Banks on the first
day of such Interest Period, subject, however, to the provisions of Section
2.09.
"Adjusted CD Rate Advance" means a Contract Advance that bears
interest as provided in Section 2.07(b).
"Administrative Agent" means First Chicago in its capacity as
administrative agent for the Lenders pursuant to Article VII, and not in
its individual capacity as a Lender, and any successor Administrative Agent
appointed pursuant to Article VII.
<PAGE>
"Advance" means a Contract Advance or an Auction Advance.
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person.
"Agents" means the Administrative Agent, the Documentation Agent, the
Syndication Agents, the Arrangers, the Co-Agents and Lead Managers,
collectively.
"Applicable Commitment Fee Rate" means (i) during any Level 1 Rating
Period, 0.075% per annum, (ii) during any Level 2 Rating Period, 0.100% per
annum, (iii) during any Level 3 Rating Period, 0.125% per annum, (iv)
during any Level 4 Rating Period, 0.1625% per annum and (v) during any
Level 5 Rating Period, 0.275% per annum. The Applicable Commitment Fee Rate
shall change when and as the Rating Period changes.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Advance, such
Lender's CD Lending Office in the case of an Adjusted CD Rate Advance, and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of an Auction Advance, the office of such Lender
notified by such Lender to the Administrative Agent as its Applicable
Lending Office with respect to such Auction Advance.
"Applicable Margin" means, on any date, for a Base Rate Advance, an
Adjusted CD Rate Advance or a Eurodollar Rate Advance, the interest rate
per annum set forth below in the column entitled "Base Rate", "CD Rate" or
"Eurodollar Rate", as appropriate, opposite the applicable Rating Period in
effect on such date:
<TABLE>
<CAPTION>
Rating Period Base Rate CD Rate Eurodollar Rate
<S> <C> <C> <C>
Level 1 0 .400% .275%
Level 2 0 .450% .325%
Level 3 0 .500% .400%
Level 4 0 .625% .500%
Level 5 0 .875% .750%
</TABLE>
The Applicable Margin applicable to an outstanding Contract Advance shall
change when and as the Rating Period changes.
"Arranger" means either of First Chicago Capital Markets or Mellon, in
its capacity as Arranger, and not in its individual capacity as a Lender.
"Assessment Rate" for the Interest Period for each Adjusted CD Rate
Advance made as part of the same Contract Borrowing means the assessment
rate per annum (rounded upwards to the next higher multiple of 1/100 of 1%
if the rate is not such a multiple) payable to the Federal Deposit
Insurance Corporation (or any successor) by a member of the Bank Insurance
Fund which is classified as adequately capitalized and within supervisory
subgroup "A" (or a comparable successor assessment risk classification)
within the meaning of 12 C.F.R. ss.327.4(a) (or any successor provision)
for the insurance of time deposits at the offices of such institution in
the United States, as estimated by the Administrative Agent on the first
day of such Interest Period.
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<PAGE>
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C hereto.
"Auction Advance" means an advance by a Lender to the Borrower as part
of an Auction Borrowing resulting from the auction bidding procedure
described in Section 2.03.
"Auction Borrowing" means a borrowing consisting of simultaneous
Auction Advances from each of the Lenders whose offer to make one or more
Auction Advances as part of such borrowing has been accepted by the
Borrower under the auction bidding procedure described in Section 2.03.
"Auction Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of Exhibit A-2 hereto,
evidencing the indebtedness of the Borrower to such Lender resulting from
an Auction Advance made by such Lender.
"Auction Reduction" has the meaning specified in Section 2.01.
"Base Rate" means, for any period, a fluctuating interest rate per
annum as shall be in effect from time to time which rate per annum shall at
all times be equal to the higher of:
(a) the rate of interest announced by First Chicago, from time to
time, as its corporate base rate; and
(b) the sum of 1/2 of 1% per annum plus the Federal Funds Rate in
effect from time to time.
"Base Rate Advance" means a Contract Advance that bears interest as
provided in Section 2.07(a).
"Benchmark Debt" means the Borrower's senior secured long-term debt
or, in the event that the Borrower has no senior secured long-term debt
rated by S&P (or by a generally recognized successor to S&P) or by Moody's
(or by a generally recognized successor to Moody's), the Borrower's senior
unsecured long-term debt.
"Borrowing" means a Contract Borrowing or an Auction Borrowing.
"Business Day" means a day of the year on which banks are not required
or authorized to close in Philadelphia, Pennsylvania, Chicago, Illinois or
New York, New York, and, if the applicable Business Day relates to any
Eurodollar Rate Advances, on which dealings are carried on in the London
interbank market.
"CD Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "CD Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance pursuant to which it
became a Lender (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time
to time specify to the Borrower and the Administrative Agent.
"Co-Agent" means a Bank identified as such on the signature pages to
this Agreement, in its capacity as Co-Agent, and not in its individual
capacity as a Lender.
"Code" means the Internal Revenue Code of 1986, and the regulations
promulgated thereunder, in each case as amended, reformed or otherwise
modified from time to time.
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<PAGE>
"Commitment" has the meaning specified in Section 2.01.
"Consolidated Adjusted Total Capitalization" on any date shall mean
the sum, without duplication, of the following with respect to the Borrower
and its consolidated Subsidiaries (exclusive, in each case, of Nonrecourse
Transition Bond Debt, to the extent Nonrecourse Transition Bond Debt would
otherwise be included in such item): (a) total capitalization as of such
date, as determined in accordance with GAAP, (b) the current portion of
liabilities which as of such date would be classified in whole or part as
long-term debt in accordance with GAAP (it being understood that the
noncurrent portion of such liabilities is included in the total
capitalization referred to in clause (a)), (c) all obligations as lessee
which, in accordance with GAAP, are capitalized as liabilities (including
the current portion thereof), and (d) all other liabilities which would be
classified as short-term debt in accordance with GAAP (including, without
limitation, all liabilities of the types classified as "Notes Payable,
Bank" on the Borrower's audited balance sheet for December 31, 1996).
"Consolidated Adjusted Total Debt" on any date shall mean the sum,
without duplication, of the following with respect to the Borrower and its
consolidated Subsidiaries (exclusive, in each case, of Nonrecourse
Transition Bond Debt, to the extent Nonrecourse Transition Bond Debt would
otherwise be included in such item): (a) all liabilities which as of such
date would be classified in whole or in part as long-term debt in
accordance with GAAP (including the current portion thereof), (b) all
obligations as lessee which, in accordance with GAAP, are capitalized as
liabilities (including the current portion thereof), and (c) all other
liabilities which would be classified as short-term debt in accordance with
GAAP (including, without limitation, all liabilities of the types
classified as "Notes Payable, Bank" on the Borrower's audited balance sheet
for December 31, 1996).
"Contract Advance" means an advance by a Lender to the Borrower as
part of a Contract Borrowing and refers to an Adjusted CD Rate Advance, a
Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a
"Type" of Contract Advance.
"Contract Borrowing" means a borrowing consisting of simultaneous
Contract Advances of the same Type and, if such Borrowing comprises
Adjusted CD Rate Advances or Eurodollar Rate Advances, having Interest
Periods of the same duration, made by each of the Lenders pursuant to
Section 2.01 or Converted pursuant to Section 2.10.
"Contract Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of Exhibit A-1 hereto,
evidencing the aggregate indebtedness of the Borrower to such Lender
resulting from the Contract Advances made by such Lender.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated)
under common control that, together with the Borrower or any Subsidiary,
are treated as a single employer under Section 414(b) or 414(c) of the
Code.
"Convert", "Conversion" and "Converted" each refers to a conversion of
Advances of one Type into Advances of another Type or the selection of a
new, or the renewal of the same, Interest Period for Eurodollar Rate
Advances or CD Rate Advances, as the case may be, pursuant to Section 2.10.
"Debt" means (i) indebtedness for borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar instrument, (iii)
obligations to pay the deferred purchase price of property or services
(other than trade payables incurred in the ordinary course of business),
(iv) obligations as lessee under leases that shall have been or are
required to be, in accordance with GAAP, recorded as capital leases, (v)
obligations (contingent or otherwise) under
4
<PAGE>
reimbursement or similar agreements with respect to the issuance of letters
of credit (other than obligations in respect of documentary letters of
credit opened to provide for the payment of goods or services purchased in
the ordinary course of business) and (vi) obligations under direct or
indirect guaranties in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others
of the kinds referred to in clauses (i) through (v) above.
"Documentation Agent" means Mellon in its capacity as documentation
agent pursuant to Article VII, and not in its individual capacity as a
Lender.
"Domestic Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant
to which it became a Lender, or such other office of such Lender as such
Lender may from time to time specify to the Borrower and the Administrative
Agent.
"Domestic Rate Reserve Percentage" for the Interest Period for any
Adjusted CD Rate Advance means the reserve percentage applicable on the
first day of such Interest Period under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including, but
not limited to, any emergency, supplemental or other marginal reserve
requirement) with respect to liabilities consisting of or including (among
other liabilities) U.S. dollar nonpersonal time deposits of $100,000 or
more in the United States with a maturity equal to such Interest Period.
"Eligible Assignee" means (i) a commercial bank organized under the
laws of the United States, or any State thereof; (ii) a commercial bank
organized under the laws of any other country that is a member of the OECD
or has concluded special lending arrangements with the International
Monetary Fund associated with its General Arrangements to Borrow, or a
political subdivision of any such country, provided that such bank is
acting through a branch or agency located in the United States; (iii) a
finance company, insurance company or other financial institution or fund
(whether a corporation, partnership or other entity) engaged generally in
making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business; or (iv) the central bank of any country
that is a member of the OECD; provided, however, that (A) any such Person
described in clause (i), (ii) or (iii) above shall also (x) have
outstanding unsecured long-term debt that is rated BBB- or better by S&P
and Baa3 or better by Moody's (or an equivalent rating by another
nationally recognized credit rating agency of similar standing if either
such corporation is no longer in the business of rating unsecured
indebtedness of entities engaged in such businesses) and (y) have combined
capital and surplus (as established in its most recent report of condition
to its primary regulator) of not less than $100,000,000 (or its equivalent
in foreign currency), and (B) any Person described in clause (ii), (iii) or
(iv) above shall, on the date on which it is to become a Lender hereunder,
be entitled to receive payments hereunder without deduction or withholding
of any United States Federal income taxes (as contemplated by Section
2.15(e)).
"Eligible Successor" means a Person which (i) is a corporation duly
incorporated, validly existing and in good standing under the laws of one
of the states of the United States or the District of Columbia, (ii) is
qualified to do business in Pennsylvania, (iii) as a result of the
contemplated acquisition, consolidation or merger, will succeed to all or
substantially all of the consolidated business and assets of the Borrower
and its Subsidiaries, (iv) upon giving effect to the contemplated
acquisition, consolidation or merger, will have all or substantially all of
its consolidated business and assets conducted and located in the United
States and (v) is acceptable to the Majority Lenders as a credit matter.
5
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder, each as amended and modified from time to time.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant
to which it became a Lender (or, if no such office is specified, its
Domestic Lending Office), or such other office of such Lender as such
Lender may from time to time specify to the Borrower and the Administrative
Agent.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Rate Advance made as part of the same Contract Borrowing, an interest rate
per annum equal to the average (rounded upward to the nearest whole
multiple of 1/16 of 1% per annum, if such average is not such a multiple)
of the rate per annum at which deposits in U.S. dollars are offered by the
principal office of each of the Reference Banks in London, England, to
prime banks in the London interbank market at 11:00 A.M. (London time) two
Business Days before the first day of such Interest Period in an amount
substantially equal to such Reference Bank's Eurodollar Rate Advance made
as part of such Contract Borrowing and for a period equal to such Interest
Period. The Eurodollar Rate for the Interest Period for each Eurodollar
Rate Advance made as part of the same Contract Borrowing shall be
determined by the Administrative Agent on the basis of applicable rates
furnished to and received by the Administrative Agent from the Reference
Banks two Business Days before the first day of such Interest Period,
subject, however, to the provisions of Section 2.09.
"Eurodollar Rate Advance" means a Contract Advance that bears interest
as provided in Section 2.07(c).
"Eurodollar Rate Reserve Percentage" of any Lender for the Interest
Period for any Eurodollar Rate Advance means the reserve percentage
applicable during such Interest Period (or if more than one such percentage
shall be so applicable, the daily average of such percentages for those
days in such Interest Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for such
Lender with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
and modified from time to time.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized
standing selected by it.
6
<PAGE>
"GAAP" shall have the meaning given that term in Section 1.03.
"Interest Period" means, for each Contract Advance, the period
commencing on the date of such Contract Advance or the date of the
Conversion of any Contract Advance into such a Contract Advance and ending
on the last day of the period selected by the Borrower pursuant to the
provisions below and, thereafter, each subsequent period commencing on the
last day of the immediately preceding Interest Period and ending on the
last day of the period selected by the Borrower pursuant to the provisions
below. The duration of each such Interest Period shall be 30, 60, 90 or 180
days in the case of an Adjusted CD Rate Advance, and 1, 2, 3 or 6 months in
the case of a Eurodollar Rate Advance, in each case as the Borrower may
select in accordance with Section 2.02 or 2.10; provided, however, that:
(i) the Borrower may not select any Interest Period that ends
after the Termination Date then in effect;
(ii) Interest Periods commencing on the same date for Contract
Advances made as part of the same Contract Borrowing shall be of the
same duration, and
(iii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided, in the case of any Interest Period for a
Eurodollar Rate Advance, that if such extension would cause the last
day of such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the next
preceding Business Day.
"Lead Manager" means a Bank identified as such on the signature pages
to this Agreement, in its capacity as Lead Manager, and not in its
individual capacity as a Lender
"Lenders" means the Banks listed on the signature pages hereof and
each Eligible Assignee that shall become a party hereto pursuant to Section
2.18 or 8.07.
"Level 1 Rating Period" means any period during which the Benchmark
Debt is rated A- or higher by S&P (or a comparable rating from any
generally recognized successor to S&P) or A3 or higher by Moody's (or a
comparable rating from any generally recognized successor to Moody's) (it
being understood that, for this purpose, such ratings shall be subject to
the Split Rating Adjustment).
"Level 2 Rating Period" means any period which does not qualify as a
Level 1 Rating Period during which the Benchmark Debt is rated BBB+ or
higher by S&P (or a comparable rating from any generally recognized
successor to S&P) or Baa1 or higher by Moody's (or a comparable rating from
any generally recognized successor to Moody's) (it being understood that,
for this purpose, such ratings shall be subject to the Split Rating
Adjustment).
"Level 3 Rating Period" means any period which does not qualify as a
Level 1 or Level 2 Rating Period during which the Benchmark Debt is rated
BBB or higher by S&P (or a comparable rating from any generally recognized
successor to S&P) or Baa2 or higher by Moody's (or a comparable rating from
any generally recognized successor to Moody's) (it being understood that,
for this purpose, such ratings shall be subject to the Split Rating
Adjustment).
"Level 4 Rating Period" means any period which does not qualify as a
Level 1, Level 2 or Level 3 Rating Period during which the Benchmark Debt
is rated BBB- or higher by S&P (or a comparable rating from any generally
recognized successor to S&P) or Baa3 or higher by Moody's (or a comparable
rating from any generally recognized successor to Moody's) (it being
understood that, for this purpose, such ratings shall be subject to the
Split Rating Adjustment).
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<PAGE>
"Level 5 Rating Period" means any period which does not qualify as a
Level 1, Level 2, Level 3 or Level 4 Rating Period (it being understood
that, for this purpose, such ratings shall be subject to the Split Rating
Adjustment).
"Lien" means any lien (statutory or other), mortgage, pledge, security
interest or other charge or encumbrance, or any other type of preferential
arrangement (including, without limitation, the interest of a vendor or
lessor under any conditional sale, capitalized lease or other title
retention agreement).
"Material Adverse Change" and "Material Adverse Effect" each means,
relative to any occurrence, fact or circumstances of whatsoever nature
(including, without limitation, any determination in any litigation,
arbitration or governmental investigation or proceeding), any materially
adverse change in, or materially adverse effect on, the financial
condition, operations, assets or business of the Borrower and its
consolidated Subsidiaries, taken as a whole.
"Majority Lenders" means, at any time prior to the Termination Date,
Lenders having at least 66-2/3% of the Commitments, and, at any time on or
after the Termination Date, Lenders having at least 66-2/3% of the Advances
outstanding (provided that, for purposes hereof, neither the Borrower, nor
any of its Affiliates, if a Lender, shall be included in (i) the Lenders
having such amount of the Commitments or the Advances or (ii) determining
the total amount of the Commitments or the Advances).
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means the First and Refunding Mortgage, dated as of May 1,
1923, between The Counties Gas & Electric Company (to which the Borrower is
successor) and Fidelity Trust Company, Trustee (to which First Union
National Bank is successor), as amended, supplemented or refinanced from
time to time, provided, that no effect shall be given to any amendment,
supplement or refinancing after the date of this Agreement that would
broaden the definition of "excepted encumbrances" as defined in the
Mortgage as constituted on the date of this Agreement.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer
is obligated to make contributions.
"Non-Consenting Lender" has the meaning specified in Section 2.17(a).
"Nonrecourse Transition Bond Debt" means obligations evidenced by
"transition bonds" (as defined in 66 Pa. Cons. Stat. Ann. ss. 2812(g) (West
Supp. 1997), or any successor provision of similar import), rated AA or
higher by S&P (or a comparable rating from a generally recognized successor
to S&P) or Aa2 or higher by Moody's (or a comparable rating from a
generally recognized successor to Moody's), representing a securitization
of "intangible transition property" (as defined in the foregoing statute),
as to which obligations neither the Borrower nor any Subsidiary of the
Borrower (other than a Special Purpose Subsidiary) has any direct or
indirect liability (whether as primary obligor, guarantor, or surety,
provider of collateral security, put option, asset repurchase agreement or
capital maintenance agreement, debt subordination agreement, or through
other right or arrangement of any nature providing direct or indirect
assurance of payment or performance of any such obligations in whole or in
part), except for liability to repurchase "intangible transition property"
conveyed to the securitization vehicle, on terms and conditions customary
in receivables securitizations, in the event such "intangible transition
property" violates representations and warranties of scope customary in
receivables securitizations. "Special Purpose Subsidiary" means a direct or
indirect wholly-owned corporate Subsidiary of the Borrower, substantially
all of the assets of which are
8
<PAGE>
"intangible transition property" and proceeds thereof, formed solely for
the purpose of holding such assets and issuing such "transition bonds," and
which complies with the requirements customarily imposed on
bankruptcy-remote corporations in receivables securitizations.
"Note" means a Contract Note or an Auction Note.
"Notice of a Contract Borrowing" has the meaning specified in Section
2.02(a).
"Notice of an Auction Borrowing" has the meaning specified in Section
2.03(a).
"OECD" means the Organization for Economic Cooperation and
Development.
"Order of Registration" has the meaning assigned to that term in
Section 3.01(a)(iii).
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture, limited liability company or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means an employee pension benefit plan that is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412
of the Code as to which the Borrower or any member of the Controlled Group
may have any liability.
"PPUC" means the Pennsylvania Public Utility Commission.
"Principal Subsidiary" means (i) each Utility Subsidiary and (ii) from
and after the date on which the aggregate book value of the assets of the
Subsidiaries of the Borrower that are not Utility Subsidiaries exceeds
$250,000,000, each such Subsidiary the assets of which exceeded $75,000,000
in book value at any time during the preceding 24-month period.
"Rating Period" means a Level 1 Rating Period, a Level 2 Rating
Period, a Level 3 Rating Period, a Level 4 Rating Period or a Level 5
Rating Period, as the case may be.
"Reference Banks" means First Chicago, Mellon and Citibank, N.A.
"Register" has the meaning specified in Section 8.07(c).
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and regulations issued under such section with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30
days of the occurrence of such event, provided that a failure to meet the
minimum funding standard of Section 412 of the Code and Section 302 of
ERISA shall be a Reportable Event regardless of the issuance of any such
waivers in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"Revolving Credit Agreement" means that certain Revolving Credit
Agreement, dated as of October 7, 1997, among the Borrower, the banks named
therein, certain banks specified therein, as lead managers thereunder,
certain banks specified therein, as co-agents thereunder, First Chicago
Capital Markets, Mellon and CitiCorp, as syndication agents thereunder,
First Chicago Capital Markets and Mellon, as arrangers thereunder, First
Chicago, as administrative agent for the lenders thereunder, and Mellon, as
documentation agent for the lenders thereunder, as the same may be amended,
modified or supplemented from time to time.
9
<PAGE>
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Securities Certificate" has the meaning assigned to that term in
Section 3.01(a)(iii).
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member
of the Controlled Group.
"Special Purpose Subsidiary" has the meaning assigned to that term in
the definition of "Nonrecourse Transition Bond Debt."
"Split Rating Adjustment": For the purpose of determining the
appropriate Rating Period, the rating of the Benchmark Debt shall be
subject to adjustment as follows. In the event that the Benchmark Debt is
rated at equivalent rating levels or not more than one rating level apart
by S&P (or any generally accepted successor to S&P) and Moody's (or any
generally accepted successor to Moody's), then no adjustment shall apply.
Otherwise, the higher of the two ratings shall be deemed to be reduced to
the next lower rating level. For this purpose, (i) determination of the
rating level shall take into account "+" and "-" modifiers to S&P ratings
and numerical modifiers to Moody's ratings (so that, for example, an S&P
rating of A- shall be deemed equivalent to a Moody's rating of A3, an S&P
rating of BBB+ shall be deemed equivalent to a Moody's rating of Baa1, an
S&P rating of BBB shall be deemed equivalent to a Moody's rating of Baa2,
an S&P rating of BBB- shall be deemed equivalent to a Moody's rating of
Baa3, and so on), and (ii) by way of clarification, in the event the
Benchmark Debt is rated by only one of the two referenced rating agencies,
such rating shall be deemed to be reduced to the next lower rating level.
"Subsidiary" means, with respect to any Person, any corporation or
unincorporated entity of which more than 50% of the outstanding capital
stock (or comparable interest) having ordinary voting power (irrespective
of whether or not at the time capital stock, or comparable interests, of
any other class or classes of such corporation or entity shall or might
have voting power upon the occurrence of any contingency) is at the time
directly or indirectly owned by such Person (whether directly or through
one or more other Subsidiaries).
"Syndication Agent" means any of First Chicago Capital Markets, Mellon
or CitiCorp, in its capacity as Syndication Agent, and not in its
individual capacity as a Lender.
"Termination Date" means the earlier of (i) October 6, 1998 (or, if
such date is not a Business Day, the next preceding Business Day) or such
later date that may be established pursuant to Section 2.17(a) or (ii) the
date of termination in whole of the Commitments pursuant to Section 2.05 or
Section 6.01.
"Unfunded Liabilities" means, (i) in the case of any Single Employer
Plan, the amount (if any) by which the present value of all vested
nonforfeitable benefits under such Plan exceeds the fair market value of
all Plan assets allocable to such benefits, all determined as of the then
most recent evaluation date for such Plan, and (ii) in the case of any
Multiemployer Plan, the withdrawal liability that would be incurred by the
Controlled Group if all members of the Controlled Group completely withdrew
from such Multiemployer Plan.
"Utility Subsidiary" means each Subsidiary of the Borrower that is
engaged principally in the generation, transmission, or distribution of
electricity or gas and is subject to regulation as a public utility by
federal or state regulatory authorities.
"Yield" means, for any Auction Advance, the effective rate per annum
at which interest on such Auction Advance is payable, computed on the basis
of a year of 360 days for the actual
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number of days (including the first day but excluding the last day)
occurring in the period for which such interest is payable.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".
SECTION 1.03. Accounting Principles. As used in this Agreement, "GAAP"
shall mean generally accepted accounting principles in the United States,
applied on a basis consistent with the principles used in preparing the
Borrower's audited consolidated financial statements as of December 31, 1996 and
for the fiscal year then ended. In this Agreement, except to the extent, if any,
otherwise provided herein, all accounting and financial terms shall have the
meanings ascribed to such terms by GAAP, and all computations and determinations
as to accounting and financial matters shall be made in accordance with GAAP. In
the event that the financial statements generally prepared by the Borrower apply
accounting principles other than GAAP, the compliance certificate delivered
pursuant to Section 5.01(b)(iv) accompanying such financial statements shall
include information in reasonable detail reconciling such financial statements
to GAAP to the extent relevant to the calculations set forth in such compliance
certificate.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Contract Advances. Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make Contract Advances to the
Borrower from time to time on any Business Day during the period from the date
hereof until (but excluding) the Termination Date in an aggregate amount not to
exceed at any time outstanding the amount set forth opposite such Lender's name
on the signature pages hereof or, if such Lender has entered into any Assignment
and Acceptance or Additional Lender Supplement, set forth for such Lender in the
Register maintained by the Administrative Agent pursuant to Section 8.07(c), as
such amount may be reduced pursuant to Section 2.05 or 2.17 (such Lender's
"Commitment"); provided, that the aggregate amount of the Commitments of the
Lenders shall be deemed used from time to time to the extent of the aggregate
amount of the Auction Advances then outstanding, and such deemed use of the
aggregate amount of the Commitments shall be applied to the Lenders ratably
according to their respective Commitments (such deemed use of the aggregate
amount of the Commitments being an "Auction Reduction"). Each Contract Borrowing
shall consist of Contract Advances of the same Type made or Converted on the
same day by the Lenders ratably according to their respective Commitments. Each
Contract Borrowing comprising Base Rate Advances shall be in an aggregate amount
not less than $5,000,000, and each Contract Borrowing comprising Adjusted CD
Rate Advances or Eurodollar Rate Advances shall be in an aggregate amount not
less than $10,000,000. Within the limits of each Lender's Commitment, the
Borrower may from time to time borrow, prepay pursuant to Section 2.11 and
reborrow under this Section 2.01.
SECTION 2.02. Making the Contract Advances. (a) Each Contract
Borrowing (other than pursuant to a Conversion) shall be made on notice, given
not later than 10:00 A.M. (Chicago time) on the third Business Day prior to the
date of any proposed Contract Borrowing comprising Eurodollar Rate Advances, on
the second Business Day prior to the date of any proposed Contract Borrowing
comprising Adjusted CD Rate Advances and on the date of any proposed Contract
Borrowing comprising Base Rate Advances, by the Borrower to the Administrative
Agent, which shall give to each Lender prompt notice thereof. Each such notice
of a Contract Borrowing (a "Notice of a Contract Borrowing") shall be sent by
telecopier, telex or cable, confirmed immediately in writing, in substantially
the form of Exhibit B-1 hereto, specifying therein the requested (i) date of
such Contract Borrowing, (ii) Type of Contract Advances to be made in connection
with such Contract Borrowing, (iii)
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aggregate amount of such Contract Borrowing, and (iv) in the case of a Contract
Borrowing comprising Adjusted CD Rate Advances or Eurodollar Rate Advances,
initial Interest Period for the Contract Advances to be made in connection with
such Contract Borrowing. Each Lender shall, before 11:00 A.M. (Chicago time) on
the date of such Contract Borrowing, make available for the account of its
Applicable Lending Office to the Administrative Agent at its address referred to
in Section 8.02, in same day funds, such Lender's ratable portion of such
Contract Borrowing. After the Administrative Agent's receipt of such funds and
upon fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will make such funds available to the Borrower at the
Administrative Agent's aforesaid address.
(b) Each Notice of a Contract Borrowing shall be irrevocable and
binding on the Borrower. In the case of any Contract Borrowing that the related
Notice of a Contract Borrowing specifies is to comprise Adjusted CD Rate
Advances or Eurodollar Rate Advances, the Borrower shall indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result of any
failure to fulfill on or before the date specified in such Notice of a Contract
Borrowing for such Contract Borrowing the applicable conditions set forth in
Article III, including, without limitation, any loss, cost or expense incurred
by reason of the liquidation or reemployment of deposits or other funds acquired
by such Lender to fund the Contract Advance to be made by such Lender as part of
such Contract Borrowing when such Contract Advance, as a result of such failure,
is not made on such date.
(c) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Contract Borrowing that such Lender will not
make available to the Administrative Agent such Lender's ratable portion of such
Contract Borrowing, the Administrative Agent may assume that such Lender has
made such portion available to the Administrative Agent on the date of such
Contract Borrowing in accordance with subsection (a) of this Section 2.02 and
the Administrative Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent that
such Lender shall not have so made such ratable portion available to the
Administrative Agent, such Lender and the Borrower severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent, at (i) in the case of the Borrower, the interest rate applicable at the
time to Contract Advances made in connection with such Contract Borrowing and
(ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount so
repaid shall constitute such Lender's Contract Advance as part of such Contract
Borrowing for purposes of this Agreement.
(d) The failure of any Lender to make the Contract Advance to be made
by it as part of any Contract Borrowing shall not relieve any other Lender of
its obligation, if any, hereunder to make its Contract Advance on the date of
such Contract Borrowing, but no Lender shall be responsible for the failure of
any other Lender to make the Contract Advance to be made by such other Lender on
the date of any Contract Borrowing.
(e) Notwithstanding anything to the contrary contained herein, no more
than sixteen (16) Contract Borrowings comprising Adjusted CD Rate Advances and
Eurodollar Rate Advances may be outstanding at any time.
SECTION 2.03. The Auction Advances. (a) Each Lender severally agrees
that the Borrower may request Auction Borrowings under this Section 2.03 from
time to time on any Business Day during the period from the date hereof until
the date occurring seven days prior to the Termination Date, in the manner set
forth below; provided that, following the making of each Auction Borrowing, the
aggregate amount of the Advances then outstanding shall not exceed the aggregate
amount of the Commitments of the Lenders.
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(i) The Borrower may request an Auction Borrowing by delivering to the
Administrative Agent by telecopier, telex or cable, confirmed immediately
in writing, a notice of an Auction Borrowing (a "Notice of an Auction
Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying
the date and aggregate amount of the proposed Auction Borrowing, the
maturity date for repayment of each Auction Advance to be made as part of
such Auction Borrowing (which maturity date may not be earlier than the
date occurring seven days after the date of such Auction Borrowing or later
than the earlier to occur of (A) 270 days after the date of such Auction
Borrowing and (B) the Termination Date), the interest payment date or dates
relating thereto (which shall occur at least every 90 days), and any other
terms to be applicable to such Auction Borrowing, not later than 9:00 A.M.
(Chicago time) at least one Business Day prior to the date of the proposed
Auction Borrowing. The Administrative Agent shall in turn promptly notify
each Lender of each request for an Auction Borrowing received by it from
the Borrower by sending such Lender a copy of the related Notice of an
Auction Borrowing.
(ii) Each Lender may, in its sole discretion, elect to irrevocably
offer to make one or more Auction Advances to the Borrower as part of such
proposed Auction Borrowing at a rate or rates of interest specified by such
Lender in its sole discretion, by notifying the Administrative Agent (which
shall give prompt notice thereof to the Borrower), before 9:00 A.M.
(Chicago time) on the date of such proposed Auction Borrowing of the
minimum amount and maximum amount of each Auction Advance that such Lender
would be willing to make as part of such proposed Auction Borrowing (which
amounts may, subject to the proviso to the first sentence of this Section
2.03(a), exceed such Lender's Commitment), the rate or rates of interest
therefor, the interest period relating thereto and such Lender's Applicable
Lending Office with respect to such Auction Advance; provided that if the
Administrative Agent in its capacity as a Lender shall, in its sole
discretion, elect to make any such offer, it shall notify the Borrower of
such offer before 8:00 A.M. (Chicago time) on the date on which notice of
such election is to be given to the Administrative Agent by the other
Lenders.
(iii) The Borrower shall, in turn, before 10:00 A.M. (Chicago time) on
the date of such proposed Auction Borrowing, either
(A) cancel such Auction Borrowing by giving the Administrative
Agent notice to that effect, or
(B) irrevocably accept one or more of the offers made by any
Lender or Lenders pursuant to paragraph (ii) above, in its sole
discretion, in an aggregate amount not in excess of the aggregate
amount of the proposed Auction Borrowing requested in the relevant
Notice of an Auction Borrowing, subject only to the provisions of this
paragraph (iii), by giving notice to the Administrative Agent of the
amount of each Auction Advance (which amount shall be equal to or
greater than the minimum amount, and equal to or less than the maximum
amount, notified to the Borrower by the Administrative Agent on behalf
of such Lender for such Auction Advance pursuant to paragraph (ii)
above) to be made by each Lender as part of such Auction Borrowing,
and reject any remaining offers made by Lenders pursuant to paragraph
(ii) above by giving the Administrative Agent notice to that effect;
provided, however, that (x) the Borrower shall not accept an offer
made pursuant to paragraph (ii) above, at any Yield if the Borrower
shall have, or shall be deemed to have, rejected any other offer made
pursuant to paragraph (ii) above, at a lower Yield, (y) if the
Borrower declines to accept, or is otherwise restricted by the
provisions of this Agreement from accepting, the maximum aggregate
principal amount of Auction Borrowings offered at the same Yield
pursuant to paragraph (ii) above,
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then the Borrower shall accept a pro rata portion of each offer made
at such Yield, based as nearly as possible on the ratio of the
aggregate principal amount of such offers to be accepted by the
Borrower to the maximum aggregate principal amount of such offers made
pursuant to paragraph (ii) above (rounding up or down to the next
higher or lower multiple of $1,000,000), and (z) no offer made
pursuant to paragraph (ii) above shall be accepted unless the Auction
Borrowing in respect of such offer is in an integral multiple of
$1,000,000 and the aggregate amount of such offers accepted by the
Borrower is equal to at least $10,000,000.
Any offer or offers made pursuant to paragraph (ii) above not expressly
accepted or rejected by the Borrower in accordance with this paragraph
(iii) shall be deemed to have been rejected by the Borrower.
(iv) If the Borrower notifies the Administrative Agent that such
Auction Borrowing is canceled pursuant to clause (A) of paragraph (iii)
above, the Administrative Agent shall give prompt notice thereof to the
Lenders and such Auction Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers made by any
Lender or Lenders pursuant to clause (B) of paragraph (iii) above, the
Administrative Agent shall in turn promptly notify (A) each Lender that has
made an offer as described in paragraph (ii) above, of the date and
aggregate amount of such Auction Borrowing and whether or not any offer or
offers made by such Lender pursuant to paragraph (ii) above have been
accepted by the Borrower, (B) each Lender that is to make an Auction
Advance as part of such Auction Borrowing of the amount of each Auction
Advance to be made by such Lender as part of such Auction Borrowing, and
(C) each Lender that is to make an Auction Advance as part of such Auction
Borrowing, upon receipt, that the Administrative Agent has received forms
of documents appearing to fulfill the applicable conditions set forth in
Article III. Each Lender that is to make an Auction Advance as part of such
Auction Borrowing shall, before 11:00 A.M. (Chicago time) on the date of
such Auction Borrowing specified in the notice received from the
Administrative Agent pursuant to clause (A) of the preceding sentence or
any later time when such Lender shall have received notice from the
Administrative Agent pursuant to clause (C) of the preceding sentence, make
available for the account of its Applicable Lending Office to the
Administrative Agent at its address referred to in Section 8.02 such
Lender's portion of such Auction Borrowing, in same day funds. Upon
fulfillment of the applicable conditions set forth in Article III and after
receipt by the Administrative Agent of such funds, the Administrative Agent
will make such funds available to the Borrower at the Administrative
Agent's aforesaid address. Promptly after each Auction Borrowing, the
Administrative Agent will notify each Lender of the amount of the Auction
Borrowing, the consequent Auction Reduction and the dates upon which such
Auction Reduction commenced and will terminate.
(b) Each Auction Advance shall be in an amount not less than
$1,000,000 or an integral multiple of $1,000,000 in excess thereof and,
following the making of each Auction Borrowing, the Borrower shall be in
compliance with the limitation set forth in the proviso to the first sentence of
subsection (a) above.
(c) Within the limits and on the conditions set forth in this Section
2.03, the Borrower may from time to time borrow under this Section 2.03, repay
or prepay pursuant to subsection (d) below, and reborrow under this Section
2.03; provided, that an Auction Borrowing shall not be made within three
Business Days of the date of any other Auction Borrowing.
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(d) The Borrower shall repay to the Administrative Agent for the
account of each Lender that has made an Auction Advance, or each other holder of
an Auction Note, on the maturity date of each Auction Advance (such maturity
date being that specified by the Borrower for repayment of such Auction Advance
in the related Notice of an Auction Borrowing delivered pursuant to subsection
(a)(i) above and provided in the Auction Note evidencing such Auction Advance),
the then unpaid principal amount of such Auction Advance. The Borrower shall
have no right to prepay any principal amount of any Auction Advance unless, and
then only on the terms, specified by the Borrower for such Auction Advance in
the related Notice of an Auction Borrowing delivered pursuant to subsection
(a)(i) above and set forth in the Auction Note evidencing such Auction Advance.
(e) The Borrower shall pay interest on the unpaid principal amount of
each Auction Advance from the date of such Auction Advance to the date the
principal amount of such Auction Advance is repaid in full, at the rate of
interest for such Auction Advance specified by the Lender making such Auction
Advance in its notice with respect thereto delivered pursuant to subsection
(a)(ii) above, payable on the interest payment date or dates specified by the
Borrower for such Auction Advance in the related Notice of an Auction Borrowing
delivered pursuant to subsection (a)(i) above, as provided in the Auction Note
evidencing such Auction Advance.
(f) The indebtedness of the Borrower resulting from each Auction
Advance made to the Borrower as part of an Auction Borrowing shall be evidenced
by a separate Auction Note of the Borrower payable to the order of the Lender
making such Auction Advance.
(g) Upon payment in full of the principal amount of any Auction Note
and interest accrued thereon, the holder of such Auction Note shall cancel and
return such Auction Note to the Borrower.
SECTION 2.04. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee on the
average daily unused portion of such Lender's Commitment (after giving effect to
any Auction Reduction) from the date hereof in the case of each Bank, and from
the effective date specified in the Assignment and Acceptance or the Additional
Lender Supplement pursuant to which it became a Lender in the case of each other
Lender, until the Termination Date, and, in the case of the termination in whole
of a Lender's Commitment pursuant to Section 2.05 or 2.17, the date of such
termination, payable on the last day of each March, June, September and December
during such period, and on the Termination Date, and, in the case of the
termination in whole of a Lender's Commitment pursuant to Section 2.05 or 2.17,
the date of such termination, at a percentage rate per annum equal to the
Applicable Commitment Fee Rate in effect from time to time, changing when and as
the Applicable Commitment Fee Rate changes.
(b) The Borrower agrees to pay to the Administrative Agent for the
account of each Lender an auction facility fee on the average daily aggregate
principal amount of such Lender's Auction Reduction during the period from the
date hereof in the case of each Bank, and from the effective date specified in
the Assignment and Acceptance pursuant to which it became a Lender in the case
of each other Lender, until the Termination Date, and, in the case of the
termination in whole of a Lender's Commitment pursuant to Section 2.05 or 2.17,
the date of such termination, payable on the last day of each March, June,
September and December during such period, and on the Termination Date, and, in
the case of the termination in whole of a Lender's Commitment pursuant to
Section 2.05 or 2.17, the date of such termination, at a percentage rate per
annum equal to the Applicable Commitment Fee Rate in effect from time to time,
changing when and as the Applicable Commitment Fee Rate changes.
(c) The Borrower agrees to pay to the Documentation Agent for its own
account a closing fee as agreed to in writing between the Borrower and the
Documentation Agent, payable upon the execution and delivery of this Agreement.
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(d) The Borrower agrees to pay to the Administrative Agent for its own
account a closing fee, an auction administration fee and an Administrative
Agent's administration fee, each payable in such amounts and on such dates as
may be agreed to in writing from time to time between the Borrower and the
Administrative Agent.
SECTION 2.05. Reduction of the Commitments. The Borrower shall have
the right, upon at least two Business Days' notice to the Administrative Agent,
to terminate in whole or reduce ratably in part the unused portions of the
respective Commitments of the Lenders; provided, that the aggregate amount of
the Commitments of the Lenders shall not be reduced to an amount that is less
than the aggregate principal amount of the Advances then outstanding; and
provided, further, that each partial reduction shall be in the aggregate amount
of $1,000,000 or an integral multiple thereof.
SECTION 2.06. Repayment of Contract Advances. The Borrower shall repay
the principal amount of each Contract Advance made by each Lender in accordance
with the Contract Note to the order of such Lender.
SECTION 2.07. Interest on Contract Advances. The Borrower shall pay
interest on the unpaid principal amount of each Contract Advance made by each
Lender from the date of such Contract Advance until such principal amount shall
be paid in full, at the following rates per annum:
(a) Base Rate Advances. If such Contract Advance is a Base Rate
Advance, a rate per annum equal at all times to the Base Rate in effect from
time to time, payable quarterly on the last day of each March, June, September
and December during such periods and on the date such Base Rate Advance shall be
Converted or paid in full.
(b) Adjusted CD Rate Advances. If such Contract Advance is an Adjusted
CD Rate Advance, a rate per annum equal at all times during the Interest Period
for such Contract Advance to the sum of the Adjusted CD Rate for such Interest
Period plus the Applicable Margin for such Adjusted CD Rate in effect from time
to time, payable on the last day of the Interest Period for such Adjusted CD
Rate Advance (or, if the Interest Period for such Advance is 180 days, accrued
interest shall be payable on the 90th day and the 180th day of such Interest
Period) or, if earlier, on the date such Adjusted CD Rate Advance shall be
Converted or paid in full.
(c) Eurodollar Rate Advances. Subject to Section 2.08, if such
Contract Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during the Interest Period for such Contract Advance to the sum of the
Eurodollar Rate for such Interest Period plus the Applicable Margin for such
Eurodollar Rate Advance in effect from time to time, payable on the last day of
the Interest Period for such Eurodollar Rate Advance (or, if the Interest Period
for such Advance is six months, accrued interest shall be payable on the day
that is three months and on the day that is six months from the date such
Advance was made) or, if earlier, on the date such Eurodollar Rate Advance shall
be Converted or paid in full.
SECTION 2.08. Additional Interest on Contract Advances. The Borrower
shall pay to each Lender, so long as such Lender shall be required under
regulations of the Board of Governors of the Federal Reserve System to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, additional interest on the unpaid principal amount of
each Eurodollar Rate Advance of such Lender, from the date of such Contract
Advance until such principal amount is paid in full or Converted, at an interest
rate per annum equal at all times to the remainder obtained by subtracting (i)
the Eurodollar Rate for the Interest Period for such Contract Advance from (ii)
the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100%
minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest
Period, payable on each date on which interest is payable on such Contract
Advance; provided, that no Lender shall be entitled to demand such additional
interest more than 90 days following the last day of the Interest Period in
respect of which such demand is made; provided further, however, that the
foregoing proviso shall in no way limit the right of any
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Lender to demand or receive such additional interest to the extent that such
additional interest relates to the retroactive application of the reserve
requirements described above if such demand is made within 90 days after the
implementation of such retroactive reserve requirements. Such additional
interest shall be determined by such Lender and notified to the Borrower through
the Administrative Agent, and such determination shall be conclusive and binding
for all purposes, absent manifest error.
SECTION 2.09. Interest Rate Determination. (a) Each Reference Bank
agrees to furnish to the Administrative Agent timely information for the purpose
of determining each Adjusted CD Rate or Eurodollar Rate, as applicable. If any
one of the Reference Banks shall not furnish such timely information to the
Administrative Agent for the purpose of determining any such interest rate, the
Administrative Agent shall determine such interest rate on the basis of timely
information furnished by the remaining Reference Banks.
(b) The Administrative Agent shall give prompt notice to the Borrower
and the Lenders of the applicable interest rate determined by the Administrative
Agent for purposes of Section 2.07(a), (b) or (c), and the applicable rate, if
any, furnished by each Reference Bank for the purpose of determining the
applicable interest rate under Section 2.07(b) or (c).
(c) If fewer than two Reference Banks furnish timely information to
the Administrative Agent for determining the Adjusted CD Rate for any Adjusted
CD Rate Advances, or the Eurodollar Rate for any Eurodollar Rate Advances,
(i) the Administrative Agent shall forthwith notify the Borrower
and the Lenders that the interest rate cannot be determined for such
Adjusted CD Rate Advances or Eurodollar Rate Advances, as the case may
be,
(ii) each such Advance will automatically, on the last day of the
then existing Interest Period therefor, Convert into a Base Rate
Advance (or if such Advance is then a Base Rate Advance, will continue
as a Base Rate Advance), and
(iii) the obligation of the Lenders to make, or to Convert
Contract Advances into, Adjusted CD Rate Advances or Eurodollar Rate
Advances, as the case may be, shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that
the circumstances causing such suspension no longer exist.
(d) If, with respect to any Eurodollar Rate Advances, the Majority
Lenders notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Majority Lenders of making, funding or maintaining their respective Eurodollar
Rate Advances for such Interest Period, the Administrative Agent shall forthwith
so notify the Borrower and the Lenders, whereupon
(i) each Eurodollar Rate Advance will automatically, on the last
day of the then existing Interest Period therefor (unless prepaid or
Converted to any Type of Advance other than a Eurodollar Rate Advance
prior to such date), Convert into a Base Rate Advance, and
(ii) the obligation of the Lenders to make, or to Convert
Contract Advances into, Eurodollar Rate Advances shall be suspended
until the Administrative Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer
exist.
SECTION 2.10. Conversion of Contract Advances. (a) Voluntary. The
Borrower may on any Business Day, upon notice given to the Administrative Agent
not later than 10:00 A.M. (Chicago time) on the third Business Day prior to the
date of any proposed Conversion into Eurodollar Rate
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Advances, the second Business Day prior to the date of any proposed Conversion
into Adjusted CD Rate Advances and on the date of any proposed Conversion into
Base Rate Advances, and subject to the provisions of Sections 2.09 and 2.13,
Convert all Contract Advances of one Type made in connection with the same
Contract Borrowing into Advances of another Type or Types or Advances of the
same Type having the same or a new Interest Period; provided, however, that any
Conversion of Adjusted CD Rate Advances or Eurodollar Rate Advances into
Advances of another Type or Advances of the same Type having the same or new
Interest Periods shall be made on, and only on, the last day of an Interest
Period for such Adjusted CD Rate Advances or Eurodollar Rate Advances, unless
the Borrower shall also reimburse the Lenders in respect thereof pursuant to
Section 8.04(b) on the date of such Conversion. Each such notice of a Conversion
shall, within the restrictions specified above, specify (i) the date of such
Conversion, (ii) the Contract Advances to be Converted, and (iii) if such
Conversion is into, or with respect to, Adjusted CD Rate Advances or Eurodollar
Rate Advances, the duration of the Interest Period for each such Contract
Advance.
(b) Automatic. If the Borrower shall fail to select the Type of any
Contract Advance or the duration of any Interest Period for any Contract
Borrowing comprising Adjusted CD Rate Advances or Eurodollar Rate Advances in
accordance with the provisions contained in the definition of "Interest Period"
in Section 1.01 and Section 2.10(a), the Administrative Agent will forthwith so
notify the Borrower and the Lenders and such Advances will automatically, on the
last day of the then existing Interest Period therefor, Convert into Base Rate
Advances.
SECTION 2.11. Prepayments. The Borrower may, upon at least two
Business Days' notice (or same day notice in the case of any prepayment of Base
Rate Advances) to the Administrative Agent stating the proposed date and
aggregate principal amount of the prepayment, and if such notice is given the
Borrower shall, prepay the outstanding principal amounts of the Advances made as
part of the same Contract Borrowing in whole or ratably in part, together with
accrued interest to the date of such prepayment on the principal amount prepaid;
provided, however, that (i) each partial prepayment shall be in an aggregate
principal amount not less than $10,000,000 (or $5,000,000 in the case of any
prepayment of Base Rate Advances) and (ii) in the case of any such prepayment of
an Adjusted CD Advance or Eurodollar Rate Advance, the Borrower shall be
obligated to reimburse the Lenders in respect thereof pursuant to Section
8.04(b) on the date of such prepayment.
SECTION 2.12. Increased Costs. (a) If on or after (x) the date of this
Agreement, in the case of any Contract Advance or any obligation to make a
Contract Advance, or (y) the date a Lender offers to make such Auction Advance,
in the case of any Auction Advance, any Lender determines that (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements, in the case of Adjusted CD Rate Advances,
included in the Domestic Rate Reserve Percentage or, in the case of Eurodollar
Rate Advances, included in the Eurodollar Rate Reserve Percentage) in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) shall increase the cost to such Lender
of agreeing to make or making, funding or maintaining Adjusted CD Rate Advances
or Eurodollar Rate Advances, then the Borrower shall from time to time, upon
demand by such Lender (with a copy of such demand to the Administrative Agent),
pay to the Administrative Agent for the account of such Lender additional
amounts (without duplication of any amount payable pursuant to Section 2.15)
sufficient to compensate such Lender for such increased cost; provided, that no
Lender shall be entitled to demand such compensation more than 90 days following
the last day of the Interest Period in respect of which such demand is made;
provided further, however, that the foregoing proviso shall in no way limit the
right of any Lender to demand or receive such compensation to the extent that
such compensation relates to the retroactive application of any law, regulation,
guideline or request described in clause (i) or (ii) above if such demand is
made within 90 days after the implementation of such retroactive law,
interpretation, guideline or request. A certificate as to the amount of such
increased cost, submitted to the Borrower and the Administrative Agent by such
Lender, shall be conclusive and binding for all purposes, absent manifest error.
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(b) If any Lender determines that, after the date of this Agreement,
compliance with any law or regulation or any guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) regarding capital adequacy requirements affects or would affect the amount
of capital required or expected to be maintained by such Lender or any
corporation controlling such Lender (including, in any event, any determination
after the date of this Agreement by any such governmental authority or central
bank that, for purposes of capital adequacy requirements, any Lender's
Commitment hereunder does not constitute a commitment with an original maturity
of one year or less) and that the amount of such capital is increased by or
based upon the existence of such Lender's commitment to lend hereunder and other
commitments of this type or the Advances made by such Lender, then, upon demand
by such Lender (with a copy of such demand to the Administrative Agent), the
Borrower shall immediately pay to the Administrative Agent for the account of
such Lender, from time to time as specified by such Lender, additional amounts
sufficient to compensate such Lender or such corporation in the light of such
circumstances, to the extent that such Lender determines such increase in
capital to be allocable to the existence of such Lender's commitment to lend
hereunder or the Advances made by such Lender; provided, that no Lender shall be
entitled to demand such compensation more than one year following the payment to
or for the account of such Lender of all other amounts payable hereunder and
under any Note held by such Lender and the termination of such Lender's
Commitment; provided further, however, that the foregoing proviso shall in no
way limit the right of any Lender to demand or receive such compensation to the
extent that such compensation relates to the retroactive application of any law,
regulation, guideline or request described above if such demand is made within
one year after the implementation of such retroactive law, interpretation,
guideline or request. A certificate as to such amounts submitted to the Borrower
and the Administrative Agent by such Lender shall be conclusive and binding, for
all purposes, absent manifest error.
(c) Any Lender claiming compensation pursuant to this Section 2.12
shall use its best efforts (consistent with its internal policy and legal and
regulatory restrictions) to change the jurisdiction of its Applicable Lending
Office if the making of such a change would avoid the need for, or reduce the
amount of, any such compensation that may thereafter accrue and would not, in
the reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender.
SECTION 2.13. Illegality. Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for such Lender or its Eurodollar Lending
Office to perform its obligations hereunder to make Eurodollar Rate Advances or
to fund or maintain Eurodollar Rate Advances hereunder, (i) the obligation of
such Lender to make, or to Convert Contract Advances into, Eurodollar Rate
Advances shall be suspended (subject to the following paragraph of this Section
2.13) until the Administrative Agent shall notify the Borrower and the Lenders
that the circumstances causing such suspension no longer exist and (ii) all
Eurodollar Rate Advances of such Lender then outstanding shall, on the last day
of then applicable Interest Period (or such earlier date as such Lender shall
designate upon not less than five Business Days prior written notice to the
Administrative Agent), be automatically Converted into Base Rate Advances.
If the obligation of any Lender to make, fund or maintain Eurodollar
Rate Advances has been suspended pursuant to the preceding paragraph, then,
unless and until the Administrative Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer exist (i) all
Contract Advances that would otherwise be made by such Lender as Eurodollar Rate
Advances shall instead be made as Base Rate Advances and (ii) to the extent that
Eurodollar Rate Advances of such Lender have been Converted into Base Rate
Advances pursuant to the preceding paragraph or made instead as Base Rate
Advances pursuant to the preceding clause (i), all payments and prepayments of
principal that would have otherwise been applied to such Eurodollar Rate
Advances of such Lender shall be applied instead to such Base Rate Advances of
such Lender.
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SECTION 2.14. Payments and Computations. (a) The Borrower shall make
each payment hereunder and under the Notes not later than 10:00 A.M. (Chicago
time) on the day when due in U.S. dollars to the Administrative Agent at its
address referred to in Section 8.02 in same day funds. The Administrative Agent
will promptly thereafter cause to be distributed like funds relating to the
payment of principal or interest or commitment and auction facility fees ratably
(other than amounts payable pursuant to Section 2.02(c), 2.03, 2.08, 2.12, 2.15,
2.17(a) or 8.04(b)) to the Lenders for the account of their respective
Applicable Lending Offices, and like funds relating to the payment of any other
amount payable to any Lender to such Lender for the account of its Applicable
Lending Office, in each case to be applied in accordance with the terms of this
Agreement. Upon its acceptance of an Assignment and Acceptance and recording of
the information contained therein in the Register pursuant to Section 8.07(d),
from and after the effective date specified in such Assignment and Acceptance,
the Administrative Agent shall make all payments hereunder and under the Notes
in respect of the interest assigned thereby to the Lender assignee thereunder,
and the parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves.
(b) The Borrower hereby authorizes each Lender, if and to the extent
payment owed to such Lender is not made when due hereunder or under any Note
held by such Lender, to charge from time to time against any or all of the
Borrower's accounts with such Lender any amount so due.
(c) All computations of interest based on the Base Rate shall be made
by the Administrative Agent on the basis of a year of 365 or 366 days, as the
case may be, and all computations of interest based on the Adjusted CD Rate, the
Eurodollar Rate or the Federal Funds Rate and of commitment fees, auction
facility fees and interest payable on Auction Advances shall be made by the
Administrative Agent, and all computations of interest pursuant to Section 2.08
shall be made by a Lender, on the basis of a year of 360 days, in each case for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or commitment fees are payable.
Each determination by the Administrative Agent (or, in the case of Section 2.08,
by a Lender) of an interest rate hereunder shall be conclusive and binding for
all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or commitment fee, as the
case may be; provided, however, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(e) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Lenders
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent that the Borrower shall not have so made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
(f) Notwithstanding anything to the contrary contained herein, any
amount payable by the Borrower hereunder or under any Note that is not paid when
due (whether at stated maturity, by acceleration or otherwise) shall (to the
fullest extent permitted by law) bear interest from the date when due until paid
in full at a rate per annum equal at all times to the Base Rate plus 2%, payable
upon demand.
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SECTION 2.15. Taxes. (a) Any and all payments by the Borrower
hereunder or under the Contract Notes shall be made, in accordance with Section
2.14, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Lender and the
Administrative Agent, taxes imposed on its income, and franchise taxes imposed
on it, by the jurisdiction under the laws of which such Lender or the
Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Lender, taxes imposed on its
income, and franchise taxes imposed on it, by the jurisdiction of such Lender's
Applicable Lending Office or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to any Lender or the Administrative Agent, (i) the
sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.15) such Lender or the Administrative Agent (as the case
may be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies to the extent arising from the execution, delivery or
registration of this Agreement or the Contract Notes (hereinafter referred to as
"Other Taxes").
(c) No Lender may claim or demand payment or reimbursement in respect
of any Taxes or Other Taxes pursuant to this Section 2.15 if such Taxes or Other
Taxes, as the case may be, were imposed solely as the result of a voluntary
change in the location of the jurisdiction of such Lender's Applicable Lending
Office.
(d) The Borrower will indemnify each Lender and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.15) paid by such Lender or the Administrative Agent
(as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. This indemnification shall be
made within 30 days from the date such Lender or the Administrative Agent (as
the case may be) makes written demand therefor.
(e) Prior to the date of the initial Borrowing in the case of each
Bank, and on the date of the Assignment and Acceptance or Additional Lender
Supplement pursuant to which it became a Lender in the case of each other
Lender, and from time to time thereafter within 30 days from the date of request
if requested by the Borrower or the Administrative Agent, each Lender organized
under the laws of a jurisdiction outside the United States shall provide the
Administrative Agent and the Borrower with the forms prescribed by the Internal
Revenue Service of the United States certifying that such Lender is exempt from
United States withholding taxes with respect to all payments to be made to such
Lender hereunder and under the Notes. If for any reason during the term of this
Agreement, any Lender becomes unable to submit the forms referred to above or
the information or representations contained therein are no longer accurate in
any material respect, such Lender shall notify the Administrative Agent and the
Borrower in writing to that effect. Unless the Borrower and the Administrative
Agent have received forms or other documents satisfactory to them indicating
that payments hereunder or under any Note are not subject to United States
withholding tax, the Borrower or the Administrative Agent shall withhold taxes
from such payments at the applicable statutory rate in the case of payments to
or for any Lender organized under the laws of a jurisdiction outside the United
States and no Lender may claim or demand payment or reimbursement for such
withheld taxes pursuant to this Section 2.15.
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(f) Any Lender claiming any additional amounts payable pursuant to
this Section 2.15 shall use its best efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Applicable Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts which may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.
(g) If the Borrower makes any additional payment to any Lender
pursuant to this Section 2.15 in respect of any Taxes or Other Taxes, and such
Lender determines that it has received (i) a refund of such Taxes or Other Taxes
or (ii) a credit against or relief or remission for, or a reduction in the
amount of, any tax or other governmental charge attributable solely to any
deduction or credit for any Taxes or Other Taxes with respect to which it has
received payments under this Section 2.15, such Lender shall, to the extent that
it can do so without prejudice to the retention of such refund, credit, relief,
remission or reduction, pay to the Borrower such amount as such Lender shall
have determined to be attributable to the deduction or withholding of such Taxes
or Other Taxes. If, within one year after the payment of any such amount to the
Borrower, such Lender determines that it was not entitled to such refund,
credit, relief, remission or reduction to the full extent of any payment made
pursuant to the first sentence of this Section 2.15(g), the Borrower shall upon
notice and demand of such Lender promptly repay the amount of such overpayment.
Any determination made by such Lender pursuant to this Section 2.15(g) shall in
the absence of bad faith or manifest error be conclusive, and nothing in this
Section 2.15(g) shall be construed as requiring any Lender to conduct its
business or to arrange or alter in any respect its tax or financial affairs
(except as required by Section 2.15(f)) so that it is entitled to receive such a
refund, credit or reduction or as allowing any person to inspect any records,
including tax returns, of any Lender.
(h) Without prejudice to the survival of any other agreement of the
Borrower or any Lender hereunder, the agreements and obligations of the Borrower
and the Lenders contained in this Section 2.15 shall survive the payment in full
of principal and interest hereunder and under the Notes; provided, that no
Lender shall be entitled to demand any payment under this Section 2.15 more than
one year following the payment to or for the account of such Lender of all other
amounts payable hereunder and under any Note held by such Lender and the
termination of such Lender's Commitment; provided further, however, that the
foregoing proviso shall in no way limit the right of any Lender to demand or
receive any payment under this Section 2.15 to the extent that such payment
relates to the retroactive application of any Taxes or Other Taxes if such
demand is made within one year after the implementation of such Taxes or Other
Taxes.
SECTION 2.16. Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Contract Advances made by it (other
than pursuant to Section 2.02(c), 2.08, 2.12, 2.15, 2.17(a) or 8.04(b)) in
excess of its ratable share of payments on account of the Contract Advances
obtained by all the Lenders, such Lender shall forthwith purchase from the other
Lenders such participations in the Contract Advances made by them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them, provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of (i) the
amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 2.16 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
SECTION 2.17. Extension of Termination Date. (a) Unless the
Termination Date shall have occurred, the Borrower may request the Lenders, by
written notice to the Administrative Agent not
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more than 90 days and not less than 60 days prior to the then effective
Termination Date, to consent to extension of the Termination Date to the date
which is 364 days after the then effective Termination Date (or, if such date is
not a Business Day, the next preceding Business Day). Each Lender shall, in its
sole discretion, determine whether to consent to such request and shall notify
the Administrative Agent of its determination not more than 45 days and not less
than 30 days prior to the then-effective Termination Date. Any Lender which
fails to give such notice to the Administrative Agent shall be deemed to have
not consented to such request. If any Lender shall not have consented to such
request 30 days prior to the then effective Termination Date (such Lender being
referred to herein as a "Non-Consenting Lender"), the Administrative Agent shall
promptly so notify the Borrower and the other Lenders, whereupon each other
Lender may, not more than 30 days and not less than 25 days prior to the then
effective Termination Date, revoke any consent to such extension previously
given by such Lender (in which case such Lender shall be deemed a Non-Consenting
Lender). If such request shall have been consented to by the Majority Lenders
(as determined after giving effect to the replacement of any Non-Consenting
Lender pursuant to Section 8.07(h)), the Administrative Agent shall notify the
Borrower and the Lenders in writing of such consent, and such extension shall
become effective upon the delivery by the Borrower to the Administrative Agent
and each Lender, on or prior to the then-effective Termination Date, of (i) a
certificate of a duly authorized officer of the Borrower, dated such date, as to
the accuracy, both before and after giving effect to such proposed extension, of
the representations and warranties set forth in Section 4.01 and as to the
absence, both before and after giving effect to such proposed extension, of any
Event of Default or event that with the giving of notice or the passage of time
or both would constitute an Event of Default, (ii) certified copies of all
corporate and governmental approvals, if any, required to be obtained by the
Borrower in connection with such proposed extension and (iii) an opinion of
counsel to the Borrower (who shall be satisfactory to the Administrative Agent)
as to the matters set forth in Exhibit D, upon giving effect to the extension of
the Termination Date, and such other matters as any Lender, through the
Administrative Agent, may reasonably request, all of the foregoing to be
satisfactory in form and substance to the Administrative Agent. In the event of
any such extension of the Termination Date, the Commitment of each
Non-Consenting Lender that has not been replaced pursuant to Section 8.07(h)
shall be terminated in whole as of such former Termination Date, the aggregate
principal amount of all Advances made by such Non-Consenting Lender, together
with accrued and unpaid interest, commitment fees and auction facility fees, and
all other amounts payable hereunder to or for the account of such Non-Consenting
Lender shall be due and payable on such former Termination Date, and upon such
reduction and payment of such amounts such Non-Consenting Lender shall cease to
be a party to this Agreement.
(b) Upon the effectiveness of any extension of the Termination Date
pursuant to subsection (a) above, each reference in Section 4.01(e) and Exhibit
D to (i) the year-end financial statements of the Borrower, (ii) December 31 of
any year, (iii) the quarter-end financial statements of the Borrower and (iv)
the last day of any fiscal quarter (other than December 31) of any year, shall
be deemed to be amended to be references to (A) the year-end financial
statements of the Borrower included in the Borrower's Annual Report on Form 10-K
most recently delivered to the Lenders pursuant to Section 5.01(b)(iii), (B)
December 31 of the year of the financial statements described in clause (A)
above, (C) the fiscal quarter-end financial statements of the Borrower included
in the Borrower's Quarterly Report on Form 10-Q most recently delivered to the
Lenders pursuant to Section 5.01(b)(ii) and (D) the last day of the fiscal
quarter of the financial statements described in clause (C) above, respectively.
SECTION 2.18. Additional Lenders. (a) For a period of 60 days after
extension of a Termination Date pursuant to Section 2.17(a) that has resulted in
a reduction of the aggregate Commitments of the Lenders, the Borrower may
request that one or more additional banks or other Persons (each, an "Additional
Lender") become party to this Agreement as Lenders and that the aggregate amount
of the Commitments of the Lenders be increased to reflect the Commitments
allocated to each such Additional Lender; provided, that the aggregate
Commitments of the Lenders after giving effect so such increase shall not exceed
the aggregate Commitments of the Lenders immediately prior to such former
Termination Date. Addition of an Additional Lender shall be made only with the
written
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consent of the Administrative Agent (which consent shall not be unreasonably
withheld or delayed) and with the written consent of the Borrower (which consent
may be granted or withheld in its absolute discretion). Each Additional Lender
must be an Eligible Assignee and, without the consent of the Administrative
Agent, the initial Commitment of each Additional Lender shall not be less than
$5,000,000.
(b) Addition of an Additional Lender shall be effected by the
Additional Lender executing and delivering to the Administrative Agent, for its
acceptance and recording in the Register, a duly completed Additional Lender
Supplement in substantially the form of Exhibit G attached hereto. The Borrower
shall execute and deliver to the Administrative Agent for transmittal to such
Additional Lender a Contract Note in substantially the form of Exhibit A-1
attached hereto in the amount of the Commitment of such Additional Lender.
Acceptance by the Administrative Agent of an Additional Lender is subject to the
conditions that the Administrative Agent shall have received, with a counterpart
for each Lender, (i) a certificate of a duly authorized officer of the Borrower,
dated the effective date of such Additional Lender Supplement, as to the
accuracy, both before and after giving effect to such proposed addition, of the
representations and warranties set forth in Section 4.01 and as to the absence,
both before and after giving effect to such proposed extension, of any Event of
Default or event that with the giving of notice or the passage of time or both
would constitute an Event of Default, (ii) certified copies of all corporate and
governmental approvals, if any, required to be obtained by the Borrower in
connection with such proposed addition, (iii) an opinion of counsel to the
Borrower (who shall be satisfactory to the Administrative Agent) as to the
matters set forth in Exhibit D (appropriately modified to include, in addition
to the other matters set forth therein, such Additional Lender Supplement and
the new Contract Note), and such other matters as any Lender, through the
Administrative Agent, may reasonably request, and (iv) such other certificates
and documents as the Administrative Agent may reasonably request, all of the
foregoing to be satisfactory in form and substance to the Administrative Agent.
Upon execution and delivery of the Additional Lender Supplement, acceptance by
the Administrative Agent and recording in the Register, from and after the
effective date specified in such Additional Lender Supplement, such Additional
Lender shall be a party hereto and shall, to the extent of the Commitment
specified in such Additional Lender Supplement, have the rights and obligations
of a Lender hereunder.
(c) If, at the time an Additional Lender is to become party to this
Agreement, the continuing Lenders have any outstanding Contract Advances, such
Additional Lender shall offer to purchase from each continuing Lender, effective
as of the date such Additional Lender becomes party to this Agreement, a portion
of each continuing Lender's outstanding Contract Advances, in such amounts as
will have the result that, immediately after giving effect to such Additional
Lender becoming party to this Agreement and to such purchases, each Lender
(including the Additional Lender) shall share in the outstanding Contract
Advances in the same proportion as their respective Commitments. The Additional
Lender shall offer in writing to purchase the requisite portion of each
continuing Lender's outstanding Contract Advances, at a price equal to the
outstanding principal amount thereof together with accrued and unpaid interest
thereon to the date of purchase, and a continuing Lender shall not unreasonably
decline to accept such offer. Each such purchase shall be made in accordance
with Section 8.07 (with the related Assignment and Acceptance modified, mutatis
mutandis, to reflect that such purchase is not a purchase of any portion of the
Commitment of the continuing Lender). Such purchases shall not be subject to the
provisions of clause (ii) of Section 8.07(a), and the Borrower shall be
responsible for all amounts payable to the Administrative Agent pursuant to
clause (iv) of Section 8.07(a). The Borrower shall pay to each continuing Lender
on demand any amount that would be payable to such continuing Lender pursuant to
Section 8.04(b) (which for this purpose shall be applied as if such assignment
were a prepayment of the Contract Advances assigned by such continuing Lender),
and shall reimburse each continuing Lender on demand for all reasonable fees and
expenses (including reasonable fees and expenses of counsel) incurred by it in
connection with such assignment.
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ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Advances. The obligation
of each Lender to make its initial Advance is subject to the satisfaction, prior
to or concurrently with, the making of such initial Advance, of each of the
following conditions precedent:
(a) Documents and Other Agreements. The Administrative Agent shall
have received on or before the day of the initial Borrowing the following, each
dated the same date, in form and substance satisfactory to the Administrative
Agent and (except for the Notes) with one copy for each Lender:
(i) The Contract Notes payable to the order of each of the
Lenders, respectively;
(ii) Certified copies of the resolutions of the Board of
Directors of the Borrower approving the transactions contemplated by
this Agreement and the Notes, and of all documents evidencing other
necessary corporate action with respect to this Agreement and the
Notes;
(iii) A certificate of the Secretary or an Assistant Secretary of
the Borrower certifying (A) the names and true signatures of the
officers of the Borrower authorized to sign this Agreement and the
Notes and the other documents to be delivered hereunder; (B) that
attached thereto are true and correct copies of the Restated Articles
of Incorporation and the By-laws of the Borrower, in each case in
effect on such date; and (C) that attached thereto are true and
correct copies of all governmental and regulatory authorizations and
approvals required for the due execution, delivery and performance of
this Agreement and the Notes, including, without limitation, the
Securities Certificate filed with the PPUC by the Borrower (the
"Securities Certificate") and the Order of Registration issued by the
PPUC registering the Securities Certificate (the "Order of
Registration");
(iv) Copies of the financial statements referred to in Section
4.01(e);
(v) A certificate signed by either the chief financial officer,
principal accounting officer or treasurer of the Borrower stating that
(A) the representations and warranties contained in Section 4.01 are
correct on and as of the date of such certificate as though made on
and as of such date and (B) no event has occurred and is continuing on
the date of such certificate that constitutes an Event of Default or
would constitute an Event of Default but for the requirement that
notice be given or time elapse or both;
(vi) A favorable opinion of Ballard Spahr Andrews & Ingersoll,
special counsel for the Borrower, substantially in the form of Exhibit
D hereto; and
(vii) A favorable opinion of Reed Smith Shaw & McClay LLP,
counsel for the Documentation Agent, substantially in the form of
Exhibit E hereto.
(b) Termination of Prior Credit Facility. The Administrative Agent
shall have received evidence of (i) the payment in full of all obligations of
the Borrower under the $400,000,000 Credit Agreement, dated as of June 26, 1995,
among the Borrower, the banks named therein, Citibank, N.A., as administrative
agent, and The First National Bank of Chicago, as documentation agent, and (ii)
the termination of the "Commitments" under such agreement.
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SECTION 3.02. Conditions Precedent to Certain Contract Borrowings. The
obligation of each Lender to make a Contract Advance on the occasion of each
Contract Borrowing (including the initial Contract Borrowing) that would
increase the aggregate amount of Contract Advances outstanding shall be subject
to the further conditions precedent that on the date of such Contract Borrowing
the following statements shall be true, and each of the giving of the applicable
Notice of a Contract Borrowing and the acceptance by the Borrower of the
proceeds of such Contract Borrowing shall constitute a representation and
warranty by the Borrower that on the date of such Contract Borrowing such
statements are true:
(A) The representations and warranties contained in Section
4.01 are correct on and as of the date of such Borrowing, before and
after giving effect to such Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date; and
(B) No event has occurred and is continuing, or would result
from such Borrowing or from the application of the proceeds therefrom,
that constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or
both (it being understood for clarification that (i) without limiting
the foregoing, it is a condition of this clause (B) that the Borrower
shall be in compliance with Section 5.01(a)(iv), Section 5.02(a) and
Section 5.02(c) upon giving effect to such Borrowing and (ii) the
conditions of this clause (B) shall apply whether or not the
respective Commitments of the Lenders have been terminated pursuant to
Section 6.01).
SECTION 3.03. Conditions Precedent to Each Auction Borrowing. The
obligation of each Lender that is to make an Auction Advance on the occasion of
an Auction Borrowing (including the initial Auction Borrowing) to make such
Auction Advance as part of such Auction Borrowing is subject to the conditions
precedent that (i) the Administrative Agent shall have received the written
confirmatory Notice of an Auction Borrowing with respect thereto, (ii) on or
before the date of such Auction Borrowing, but prior to such Auction Borrowing,
the Administrative Agent shall have received an Auction Note payable to the
order of such Lender for each of the Auction Advances to be made by such Lender
as part of such Auction Borrowing, in a principal amount equal to the principal
amount of the Auction Advance to be evidenced thereby and otherwise on such
terms as were agreed to for such Auction Advance in accordance with Section
2.03, and (iii) except as otherwise waived in accordance with Section 8.01, on
the date of such Auction Borrowing the following statements shall be true, and
each of the giving of the applicable Notice of an Auction Borrowing and the
acceptance by the Borrower of the proceeds of such Auction Borrowing shall
constitute a representation and warranty by the Borrower that on the date of
such Auction Borrowing such statements are true:
(A) The representations and warranties contained in Section
4.01 are correct on and as of the date of such Borrowing, before and
after giving effect to such Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date, and
(B) No event has occurred and is continuing, or would result
from such Borrowing or from the application of the proceeds therefrom,
which constitutes an Event of Default or which would constitute an
Event of Default but for the requirement that notice be given or time
elapse or both (it being understood for clarification that (i) without
limiting the foregoing, it is a condition of this clause (B) that the
Borrower shall be in compliance with Section 5.01(a)(iv), Section
5.02(a) and Section 5.02(c) upon giving effect to such Borrowing and
(ii) the conditions of this clause (B) shall apply whether or not the
respective Commitments of the Lenders have been terminated pursuant to
Section 6.01).
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized. validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania.
(b) The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, and do not and will not
contravene (i) the Borrower's Restated Articles of Incorporation or By-laws,
(ii) applicable law or (iii) any contractual or legal restriction binding on or
affecting the Borrower or its properties.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Borrower of this Agreement or
the Notes except for the filing of the Securities Certificate with, and the
final approval of, and the Order of Registration issued by, the PPUC, which
filing has been duly made and which final approval and Order of Registration
have been duly obtained; such Order of Registration is in full force and effect
and is final; and on and after the date of the initial Borrowing hereunder, the
action of the PPUC registering the Securities Certificate shall no longer be
subject to appeal.
(d) This Agreement is, and the Notes when delivered hereunder will be,
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms, except as the enforceability
thereof may be limited by equitable principles or bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
(e) The consolidated balance sheet of the Borrower and its
Subsidiaries as at December 31, 1996, and the related statements of income and
retained earnings and of cash flows of the Borrower and its Subsidiaries for the
fiscal year then ended, certified by Coopers & Lybrand, and the unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as at June 30,
1997 and the related unaudited statements of income for the six-month period
then ended, copies of which have been furnished to each Lender, fairly present
in all material respects (subject, in the case of such balance sheets and
statements of income for the period ended June 30, 1997, to year-end
adjustments) the consolidated financial condition of the Borrower and its
Subsidiaries as at such dates and the consolidated results of the operations of
the Borrower and its Subsidiaries for the periods ended on such dates, all in
accordance with GAAP, and since December 31, 1996, there has been no Material
Adverse Change.
(f) Except as disclosed in the Borrower's Annual, Quarterly or Current
Reports, each as filed with the Securities and Exchange Commission and delivered
to the Lenders (including reports filed prior to the date of execution and
delivery of this Agreement and reports delivered to the Lenders pursuant to
Section 5.01(b)), there is no pending or threatened action, investigation or
proceeding affecting the Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator that may reasonably be anticipated to have a
Material Adverse Effect. There is no pending or threatened action or proceeding
against the Borrower or its Subsidiaries that purports to affect the legality,
validity, binding effect or enforceability of this Agreement or any Note.
(g) No proceeds of any Advance have been or will be used directly or
indirectly in connection with the acquisition of in excess of 5% of any class of
equity securities that is registered
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pursuant to Section 12 of the Exchange Act or any transaction subject to the
requirements of Section 13 or 14 of the Exchange Act.
(h) The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of any Advance will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock. Not more than 25% of the value of the assets of the Borrower
and its Principal Subsidiaries is represented by margin stock.
(i) The Borrower (i) is exempt from the provisions of the Public
Utility Holding Company Act of 1935, as amended, other than Section 9(a)(2)
thereof, pursuant to Section 3(a)(2) thereof, and (ii) is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
(j) During the twelve consecutive month period prior to the date of
the execution and delivery of this Agreement and prior to the date of any
Borrowing under this Agreement, no steps have been taken to terminate any Plan,
and no contribution failure by the Borrower or any member of the Controlled
Group has occurred with respect to any Plan. No condition exists or event or
transaction has occurred with respect to any Plan (including any Multiemployer
Plan) which might result in the incurrence by the Borrower or any member of the
Controlled Group of any material liability, fine or penalty.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Note or any amount
payable by the Borrower hereunder shall remain unpaid or any Lender shall have
any Commitment hereunder (except with respect to subsection (a)(iv), which shall
be applicable only as of the date hereof and at any time that any Advance is
outstanding hereunder), the Borrower will, and, in the case of Section 5.01(a),
will cause its Principal Subsidiaries to, unless the Majority Lenders shall
otherwise consent in writing:
(a) Keep Books; Corporate Existence; Maintenance of Properties;
Compliance with Laws; Insurance; Taxes.
(i) keep proper books of record and account, all in accordance
with generally accepted accounting principles;
(ii) subject to Section 5.02(b), preserve and keep in full force
and effect its existence;
(iii) maintain and preserve all of its properties (except such
properties the failure of which to maintain or preserve would not
have, individually or in the aggregate, a Material Adverse Effect)
which are used or useful in the conduct of its business in good
working order and condition, ordinary wear and tear excepted;
(iv) comply in all material respects with the requirements of all
applicable laws, rules, regulations and orders (including those of any
governmental authority and including with respect to environmental
matters) to the extent the failure to so comply, individually or in
the aggregate, would have either a Material Adverse Effect or a
material adverse effect on the ability of the Borrower to perform its
obligations under this Agreement and the Notes;
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(v) maintain insurance with responsible and reputable insurance
companies or associations, or self-insure, as the case may be, in each
case in such amounts and covering such contingencies, casualties and
risks as is customarily carried by or self-insured against by
companies engaged in similar businesses and owning similar properties
in the same general areas in which the Borrower and its Principal
Subsidiaries operate;
(vi) at any reasonable time and from time to time, pursuant to
prior notice delivered to the Borrower, permit any Lender, or any
agents or representatives of any thereof, to examine and, at such
Lender's expense, make copies of, and abstracts from the records and
books of account of, and visit the properties of, the Borrower and any
of its Principal Subsidiaries and to discuss the affairs, finances and
accounts of the Borrower and any of its Subsidiaries with any of their
respective officers; provided, that any non-public information (which
has been identified as such by the Borrower) obtained by any Lender,
or any of their respective agents or representatives pursuant to this
subsection (vi) shall be treated confidentially by such Person;
provided, further, that such Person may disclose such information to
any other party to this Agreement, its examiners, affiliates, outside
auditors, counsel or other professional advisors in connection with
the Agreement or if otherwise required to do so by law or regulatory
process; and
(vii) use the proceeds of the Advances for general corporate
purposes (including, without limitation, the refinancing of its
commercial paper, the repayment of outstanding Advances, and the
making of acquisitions) but in no event for any purpose which would be
contrary to clause (g) or clause (h) of Section 4.01.
(b) Reporting Requirements. Furnish to the Lenders:
(i) as soon as possible, and in any event within 5 Business Days
after the occurrence of each Event of Default or each event which,
with the giving of notice or lapse of time, or both, would constitute
an Event of Default, continuing on the date of such statement, a
statement of an authorized officer of the Borrower setting forth
details of such Event of Default or event and the action which the
Borrower proposes to take with respect thereto;
(ii) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of the
Borrower, a copy of the Borrower's Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission with respect to such
quarter, together with a certificate of an authorized officer of the
Borrower stating that no Event of Default, or event which, with notice
or lapse of time or both, would constitute an Event of Default, has
occurred and is continuing or, if any Event of Default or such event
has occurred and is continuing, a statement as to the nature thereof
and the action which the Borrower proposes to take with respect
thereto;
(iii) as soon as available and in any event within 105 days after
the end of each fiscal year of the Borrower, a copy of the Borrower's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission with respect to such fiscal year, together with a
certificate of an authorized officer of the Borrower stating that no
Event of Default, or event which, with notice of lapse of time or
both, would constitute an Event of Default, has occurred and is
continuing or, if any Event of Default or such event has occurred and
is continuing, a statement as to the nature thereof and the action
which the Borrower proposes to take with respect thereto;
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(iv) concurrently with the delivery of the annual and quarterly
reports referred to in Sections 5.01(b)(ii) and 5.01(b)(iii), a
compliance certificate in substantially the form set forth in Exhibit
F, duly completed and signed by the Chief Financial Officer, Treasurer
or an Assistant Treasurer of the Borrower;
(v) except as otherwise provided in subsections (ii) and (iii)
above, promptly after the sending or filing thereof, copies of all
reports that the Borrower sends to any of its security holders, and
copies of all Reports on Form 10-K, 10-Q or 8-K, and registration
statements and prospectuses that the Borrower or any of its
Subsidiaries files with the Securities and Exchange Commission or any
national securities exchange (except to the extent that any such
registration statement or prospectus relates solely to the issuance of
securities pursuant to employee or dividend reinvestment plans of the
Borrower or such Subsidiary);
(vi) promptly upon becoming aware of the institution of any steps
by the Borrower or any other Person to terminate any Plan, or the
failure to make a required contribution to any Plan if such failure is
sufficient to give rise to a lien under section 302(f) of ERISA, or
the taking of any action with respect to a Plan which could result in
the requirement that the Borrower furnish a bond or other security to
the PBGC or such Plan, or the occurrence of any event with respect to
any Plan, which could result in the incurrence by the Borrower or any
member of the Controlled Group of any material liability, fine or
penalty; and
(vii) such other information respecting the condition,
operations, business or prospects, financial or otherwise, of the
Borrower or any of its Subsidiaries as any Lender, through the
Administrative Agent, may from time to time reasonably request.
SECTION 5.02. Negative Covenants. So long as any Note or any amount
payable by the Borrower hereunder shall remain unpaid or any Lender shall have
any Commitment hereunder (except with respect to subsection (a), which shall be
applicable only as of the date hereof and at any time any Advance is outstanding
hereunder), the Borrower will not, without the written consent of the Majority
Lenders:
(a) Limitation on Liens. Create, incur, assume or suffer to exist, or
permit any of its Principal Subsidiaries to create, incur, assume or suffer to
exist, any Lien on its respective property, revenues or assets, whether now
owned or hereafter acquired except (i) Liens upon or in any property acquired by
the Borrower or any of its Principal Subsidiaries in the ordinary course of
business to secure the purchase price of such property or to secure any
obligation incurred solely for the purpose of financing the acquisition of such
property, (ii) Liens existing on such property at the time of its acquisition
(other than any such Lien created in contemplation of such acquisition unless
permitted by the preceding clause (i)), (iii) Liens granted under the Mortgage
and "excepted encumbrances" as defined in the Mortgage, (iv) Liens granted in
connection with any financing arrangement for the purchase of nuclear fuel or
the financing of pollution control facilities, limited to the fuel or facilities
so purchased or acquired, (v) Liens arising in connection with sales or
transfers of, or financing secured by, accounts receivable or related contracts,
(vi) Liens securing the Borrower's notes collateralized solely by mortgage bonds
of the Borrower issued under the terms of the Mortgage, (vii) Liens arising in
connection with sale and leaseback transactions, but only to the extent (x) the
proceeds received by the Borrower or such Principal Subsidiary from such sale
shall immediately be applied to retire mortgage bonds of the Borrower issued
under the terms of the Mortgage, or (y) the aggregate purchase price of assets
sold pursuant to such sale and leaseback transactions where such proceeds are
not so applied shall not exceed $1,000,000,000, (viii) Liens granted by a
Special Purpose Subsidiary to secure Nonrecourse Transition Bond Debt of such
Special Purpose Subsidiary, and (ix) Liens, other than those described in
clauses (i) through (viii) of this subsection granted by the Borrower or any of
its Principal Subsidiaries in
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the ordinary course of business securing Debt of the Borrower and its Principal
Subsidiaries in an amount not to exceed $50,000,000 in the aggregate at any one
time outstanding.
(b) Mergers and Consolidations; Disposition of Assets. Merge with or
into or consolidate with or into, or sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired) to any Person or
permit any Principal Subsidiary to do so, except that (i) the Borrower or any
Principal Subsidiary may merge with or into or consolidate with or transfer
assets to any other Principal Subsidiary, (ii) any Principal Subsidiary may
merge with or into or consolidate with or transfer assets to the Borrower and
(iii) the Borrower may merge with or into or consolidate with or transfer assets
to any other Person; provided in each case, immediately thereafter in giving
effect thereto, no Event of Default or event that would, with the giving of
notice or the passage of time or both constitute an Event of Default shall have
occurred and be continuing and (A) in the case of any such merger, consolidation
or transfer of assets to which the Borrower is a party, either (x) the Borrower
shall be the surviving corporation or (y) the surviving corporation shall be an
Eligible Successor and shall have assumed all of the obligations of the Borrower
under this Agreement and the Notes pursuant to a written instrument in form and
substance satisfactory to the Administrative Agent and (B) subject to clause (A)
above, in the case of any such merger to which a Principal Subsidiary is a
party, a Principal Subsidiary shall be the surviving corporation.
(c) Financial Covenant. Permit Consolidated Adjusted Total Debt to
exceed 65% of Consolidated Adjusted Total Capitalization at any time.
(d) Continuation of Businesses.
(i) Generation Business. (A) Cease to own (through the Borrower
or wholly-owned Subsidiaries) the business of generating electricity,
or (B) reduce the net installed electric generating capacity (summer
rating) of the electricity generation business owned by the Borrower
and its wholly-owned Subsidiaries taken as a whole to less than 7821
Megawatts.
(ii) Distribution, Transmission and Gas Businesses. Cease to own
(directly by the Borrower, and not through Subsidiaries) the business
of distributing electricity to end-users, the business of transmitting
electricity, or the businesses of transmitting and distributing
natural gas, each substantially as conducted by the Borrower as of the
date of this Agreement (and the Borrower warrants that as of the date
of this Agreement substantially all of such businesses conducted by
the Borrower on a consolidated basis, and the assets relating thereto,
are operated and owned by the Borrower directly and not through
Subsidiaries).
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable, or interest thereon or any other amount
payable under this Agreement or any of the Notes within three Business Days
after the same becomes due and payable; or
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(b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) pursuant to the terms of this Agreement
shall prove to have been incorrect or misleading in any material respect when
made; or
(c) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 5.02, Section 5.01(a)(vii) or Section
5.01(b)(i), or (ii) any other term, covenant or agreement contained in this
Agreement on its part to be performed or observed if the failure to perform or
observe such other term, covenant or agreement shall remain unremedied for 30
days after written notice thereof shall have been given to the Borrower by the
Administrative Agent (which notice shall be given by the Administrative Agent at
the written request of any Lender); or
(d) The Borrower or any Principal Subsidiary shall fail to pay any
principal of or premium or interest on any Debt that is outstanding in a
principal amount in excess of $50,000,000 in the aggregate (but excluding Debt
evidenced by the Notes and Nonrecourse Transition Bond Debt) of the Borrower or
such Principal Subsidiary (as the case may be) when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such Debt;
or any other event shall occur or condition shall exist under any agreement or
instrument relating to any such Debt and shall continue after the applicable
grace period, if any, specified in such agreement or instrument, if the effect
of such event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof, other than any acceleration
of any Debt secured by equipment leases or fuel leases of the Borrower or a
Principal Subsidiary as a result of the occurrence of any event requiring a
prepayment (whether or not characterized as such) thereunder, which prepayment
will not result in a Material Adverse Change; or
(e) The Borrower or any Principal Subsidiary (other than a Special
Purpose Subsidiary) shall generally not pay its debts as such debts become due,
or shall admit in writing its inability to pay its debts generally, or shall
make a general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against the Borrower or any Principal Subsidiary (other than
a Special Purpose Subsidiary) seeking to adjudicate it a bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or unstayed
for a period of 60 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official for, it
or for any substantial part of its property,) shall occur; or the Borrower or
any Principal Subsidiary (other than a Special Purpose Subsidiary) shall take
any corporate action to authorize or to consent to any of the actions set forth
above in this subsection (e); or
(f) One or more judgments or orders for the payment of money in an
aggregate amount exceeding $50,000,000 (excluding any such judgments or orders
which are fully covered by insurance, subject to any customary deductible, and
under which the applicable insurance carrier has acknowledged such full coverage
in writing) shall be rendered against the Borrower or any Principal Subsidiary
and either (i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be any period of 30 consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or
(g) (i) any Reportable Event that the Majority Lenders determine in
good faith might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United
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States District Court of a trustee to administer a Plan shall have occurred and
be continuing 30 days after written notice to such effect shall have been given
to the Borrower by the Administrative Agent or (ii) any Plan shall be
terminated, or (iii) a Trustee shall be appointed by an appropriate United
States District Court to administer any Plan or (iv) the PBGC shall institute
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan; provided, however that on the date of any event described in clauses (i)
through (iv) above the Unfunded Liabilities of such Plan exceed $20,000,000; or
(h) any "Event of Default" shall occur under the Revolving Credit
Agreement;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Majority Lenders, by notice to the Borrower,
declare the respective Commitments of the Lenders to be terminated, whereupon
the same shall forthwith terminate, and (ii) shall at the request, or may with
the consent, of the Majority Lenders, by notice to the Borrower, declare the
principal amount outstanding under the Notes, all interest thereon and all other
amounts payable under this Agreement to be forthwith due and payable, whereupon
the principal amount outstanding under the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; provided, however, that in the event of an actual or
deemed entry of an order for relief with respect to the Borrower or any
Principal Subsidiary under the Federal Bankruptcy Code, (A) the obligation of
each Lender to make Advances shall automatically be terminated and (B) the
principal amount outstanding under the Notes, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.
ARTICLE VII
THE AGENTS
SECTION 7.01. Authorization and Action. Each Lender hereby appoints
and authorizes the Administrative Agent to take such action as administrative
agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto. Each Lender hereby appoints and
authorizes the Documentation Agent to prepare this Agreement and the Contract
Notes on behalf of the Lenders, provided, that it is hereby understood and
agreed that the Documentation Agent shall not have any responsibilities or
obligations hereunder subsequent to the execution and delivery of this Agreement
by and among the Borrower, the Banks, and the Agents. As to any matters not
expressly provided for by this Agreement (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action which exposes the Administrative Agent to personal liability or which
is contrary to this Agreement or applicable law. The Administrative Agent agrees
to give to each Lender prompt notice of each notice given to it by the Borrower
pursuant to the terms of this Agreement.
SECTION 7.02. Agents' Reliance, Etc. Neither the Administrative Agent
nor the Documentation Agent nor any of their respective directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
by it or them under or in connection with this Agreement, except for its or
their respective own gross negligence or willful misconduct. Without limitation
of the generality of the foregoing: (i) the Administrative Agent may treat the
payee of any Note as the holder thereof until the Administrative Agent receives
and accepts an Assignment and Acceptance entered into by the Lender which is the
payee of such Note, as assignor, and an Eligible Assignee, as assignee, as
provided in Section 8.07; (ii) the Administrative Agent and the Documentation
Agent each may consult
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with legal counsel (including counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (iii) neither the Administrative
Agent nor the Documentation Agent makes any warranty or representation to any
Lender and shall not be responsible to any Lender for any statements, warranties
or representations (whether written or oral) made in or in connection with this
Agreement; (iv) neither the Administrative Agent nor the Documentation Agent
shall have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement on the
part of the Borrower or to inspect the property (including the books and
records) of the Borrower; (v) neither the Administrative Agent nor the
Documentation Agent shall be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto; and
(vi) neither the Administrative Agent nor the Documentation Agent shall incur
any liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram, cable or telex) believed by it to be genuine and signed or sent by the
proper party or parties.
SECTION 7.03. Agents and Affiliates. With respect to their respective
Commitments, their respective Advances and their respective Notes, each of
Mellon and First Chicago shall have the same rights and powers under this
Agreement as any other Lender and may exercise the same as though it were not an
Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly
indicated, include Mellon and First Chicago in their respective individual
capacities. Mellon, First Chicago and their respective affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with, the Borrower, any of its subsidiaries and
any Person who may do business with or own securities of the Borrower or any
such subsidiary, all as if First Chicago was not the Administrative Agent and
Mellon was not the Documentation Agent, as the case may be, and without any duty
to account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon the Administrative Agent, the
Documentation Agent or any other Lender and based on the financial statements
referred to in Section 4.01(e) and such other documents and information as it
has deemed appropriate, made its own credit analysis and decision to enter into
this Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Agent or the Documentation Agent or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify the
Administrative Agent, the Documentation Agent and the Syndication Agents (to the
extent not reimbursed by the Borrower), ratably according to the respective
principal amounts of the Contract Notes then held by each of the Lenders (or if
no Contract Notes are at the time outstanding, ratably according to the
respective amounts of their Commitments), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against any such Agent in any way relating
to or arising out of this Agreement or any action taken or omitted by any such
Agent under this Agreement, provided that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from such Agent's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Lender agrees to reimburse each such Agent promptly upon demand for its
ratable share of any out-of-pocket expenses (including reasonable counsel fees)
incurred by such Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that such
expenses are reimbursable by the Borrower but for which such Agent is not
reimbursed by the Borrower.
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SECTION 7.06. Successor Administrative Agent. The Administrative Agent
may resign at any time by giving written notice thereof to the Lenders and the
Borrower and may be removed at any time with or without cause by the Majority
Lenders. Upon any such resignation or removal, the Majority Lenders shall have
the right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Majority Lenders, and
shall have accepted such appointment, within 30 days after the retiring
Administrative Agent's giving of notice of resignation or the Majority Lenders'
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of the Lenders, appoint a successor Administrative Agent,
which shall be a commercial bank described in clause (i) or (ii) of the
definition of "Eligible Assignee" and having a combined capital and surplus of
at least $150,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Administrative Agent's
resignation or removal hereunder as Administrative Agent, the provisions of this
Article VII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under this Agreement.
Notwithstanding the foregoing, if no Event of Default, and no event that with
the giving of notice or the passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing, then no successor
Administrative Agent shall be appointed under this Section 7.06 without the
prior written consent of the Borrower, which consent shall not be unreasonably
withheld or delayed.
SECTION 7.07. Syndication Agents, Co-Agents, Lead Managers and
Arrangers. The titles "Syndication Agent," "Co-Agent," "Lead Manager" and
"Arranger" are purely honorific, and the Syndication Agents, Co-Agents, Lead
Managers and Arrangers shall have no duties or responsibilities in such
capacities.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision
of this Agreement or the Contract Notes, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Lenders (other than any Lender that is
the Borrower or an Affiliate of the Borrower), do any of the following: (a)
waive any of the conditions specified in Section 3.01 or 3.02, (b) increase the
Commitments of the Lenders or subject the Lenders to any additional obligations,
(c) reduce the principal of, or interest on, the Contract Notes or any fees or
other amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Contract Notes or any fees or other amounts
payable hereunder, (e) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Contract Notes, or the number of
Lenders, that shall be required for the Lenders or any of them to take any
action hereunder, or (f) amend this Section 8.01; provided, further, that in
connection with any Auction Borrowing, any waiver of the conditions specified in
clause (iii) of Section 3.03 relating to the representation set forth in
paragraph (A) of Section 3.03 shall be effective if in writing and signed by
each Lender that is to make an Auction Advance in connection with such Auction
Borrowing; and provided, further, that no amendment, waiver or consent shall,
unless in writing and signed by the Administrative Agent or the Documentation
Agent (as the case may be), in addition to the Lenders required above to take
such action, affect the rights or duties of the Administrative Agent or the
Documentation Agent (as the case may be) under this Agreement or any Note.
SECTION 8.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and
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mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the
Borrower, at its address at 2301 Market Street, Philadelphia, Pennsylvania
19101, Attention: Vice President-Finance and Treasurer, S21-1, Telecopy: (215)
841-5743; if to any Bank, at its Domestic Lending Office specified opposite its
name on Schedule I hereto; if to any other Lender, at its Domestic Lending
Office specified in the Assignment and Acceptance or Additional Lender
Supplement pursuant to which it became a Lender; and if to the Administrative
Agent, at its address at One First National Plaza, Mail Suite 0634, 1FPN-10,
Chicago, Illinois 60670, Attention: Ms. Gwendolyn Watson, Telecopy: (312)
732-4840 or, as to each party, at such other address as shall be designated by
such party in a written notice to the other parties. All such notices and
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answerback or delivered to the cable company,
respectively, except that notices and communications to the Administrative Agent
pursuant to Article II or VII shall not be effective until received by the
Administrative Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any
Lender or the Administrative Agent to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses; Indemnification. (a) The Borrower
agrees to pay on demand all costs and expenses incurred by the Administrative
Agent, the Documentation Agent, the Syndication Agents and the Arrangers in
connection with the preparation, execution, delivery, administration,
syndication, modification and amendment of this Agreement, the Notes and the
other documents to be delivered hereunder, including, without limitation, the
reasonable fees, internal charges and out-of-pocket expenses of counsel
(including, without limitation, in-house counsel) for such Agents with respect
thereto and with respect to advising the such Agents as to their respective
rights and responsibilities under this Agreement. The Borrower further agrees to
pay on demand all costs and expenses, if any (including, without limitation,
counsel fees and expenses of outside counsel and of internal counsel), incurred
by the Administrative Agent, the Documentation Agent and any Lender in
connection with the collection and enforcement (whether through negotiations,
legal proceedings or otherwise) of this Agreement, the Notes and the other
documents to be delivered hereunder, including, without limitation, reasonable
counsel fees and expenses in connection with the enforcement of rights under
this Section 8.04(a).
(b) If any payment of principal of, or Conversion of, any Adjusted CD
Rate Advance or Eurodollar Rate Advance is made other than on the last day of
the Interest Period for such Contract Advance, as a result of a payment or
Conversion pursuant to Section 2.10 or 2.13 or acceleration of the maturity of
the Notes pursuant to Section 6.01 or for any other reason, the Borrower shall,
upon demand by any Lender (with a copy of such demand to the Administrative
Agent), pay to the Administrative Agent for the account of such Lender any
amounts required to compensate such Lender for any additional losses, costs or
expenses which it may reasonably incur as a result of such payment or
Conversion, including, without limitation, any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
any Lender to fund or maintain such Contract Advance.
(c) The Borrower hereby agrees to indemnify and hold each Lender, each
Agent and each of their respective Affiliates, officers, directors and employees
(each, an "Indemnified Person") harmless from and against any and all claims,
damages, losses, liabilities, costs or expenses (including reasonable attorney's
fees and expenses, whether or not such Indemnified Person is named as a party to
any proceeding or is otherwise subjected to judicial or legal process arising
from any such proceeding) that any of them may pay or incur arising out of or
relating to this Agreement, the Notes or the transactions contemplated thereby,
or the use by the Borrower or any of its subsidiaries of the proceeds of any
Advance, provided that the Borrower shall not be liable for any portion of such
claims, damages,
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losses, liabilities, costs or expenses resulting from such Indemnified Person's
gross negligence or willful misconduct. The Borrower's obligations under this
Section 8.04(c) shall survive the repayment of all amounts owing to the Lenders
and the Administrative Agent under this Agreement and the Notes and the
termination of the Commitments. If and to the extent that the obligations of the
Borrower under this Section 8.04(c) are unenforceable for any reason, the
Borrower agrees to make the maximum contribution to the payment and satisfaction
thereof which is permissible under applicable law.
SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement and
any Note held by such Lender, whether or not such Lender shall have made any
demand under this Agreement or such Note and although such obligations may be
unmatured. Each Lender agrees promptly to notify the Borrower after any such
set-off and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Lender under this Section 8.05 are in addition to other rights
and remedies (including, without limitation, other rights of set-off) that such
Lender may have.
SECTION 8.06. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agents and when the
Administrative Agent shall have been notified by each Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agents and each Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.
SECTION 8.07. Assignments and Participations. (a) Each Lender may,
with the prior written consent of the Borrower and the Administrative Agent
(neither of which consents shall be unreasonably withheld or delayed), and if
demanded by the Borrower pursuant to subsection (h) hereof shall to the extent
required by such subsection (h), assign to one or more banks or other entities
all or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Contract Advances
owing to it and the Contract Note or Notes held by it); provided, however, that
(i) each such assignment shall be of a constant, and not a varying, percentage
of all of the assigning Lender's rights and obligations under this Agreement
(other than any Auction Advances or Auction Notes), (ii) the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000 or, if
less, the entire amount of such Lender's Commitment, and shall be an integral
multiple of $1,000,000 or such Lender's entire Commitment, (iii) each such
assignment shall be to an Eligible Assignee, and (iv) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Contract Note or Notes subject to such assignment and a processing and
recordation fee of $3,500 (which shall be payable by one or more of the parties
to the Assignment and Acceptance, and not by the Borrower, and shall not be
payable if the assignee is a Bank, any Affiliate of any Bank or the Federal
Reserve Bank). Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto).
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Notwithstanding anything contained in this Section 8.07(a) to the contrary, (A)
the consent of the Borrower and the Administrative Agent shall not be required
with respect to any assignment by any Lender to an Affiliate of such Lender or
to another Lender and (B) any Lender may at any time, without the consent of the
Borrower or the Administrative Agent, and without any requirement to have an
Assignment and Acceptance executed, assign all or any part of its rights under
this Agreement and its Notes to a Federal Reserve Bank, provided that such
assignment does not release the transferor Lender from any of its obligations
hereunder.
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01(e) and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent or the Documentation Agent, such
assigning Lender or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement; (v) such assignee
confirms that it is an Eligible Assignee; (vi) such assignee appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its address referred to
in Section 8.02 a copy of each Assignment and Acceptance and each Additional
Lender Supplement delivered to and accepted by it and a register for the
recordation of the names and addresses of the Lenders and the Commitment of, and
principal amount of the Contract Advances owing to, each Lender from time to
time (the "Register"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Contract Note or Notes subject to such assignment, the
Administrative Agent shall, if such Assignment and Acceptance has been completed
and is in substantially the form of Exhibit C hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the Borrower. Within five Business Days
after its receipt of such notice, the Borrower, at its own expense, shall
execute and deliver to the Administrative Agent in exchange for the surrendered
Contract Note or Notes a new Contract Note to the order of such Eligible
Assignee in an amount equal to the Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained a Commitment
hereunder, a new Contract Note to the order of the assigning Lender in an amount
equal to the Commitment retained by it hereunder. Such new Contract Note or
Notes shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Contract Note or Notes, shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in substantially
the form of Exhibit A-1 hereto.
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(e) Each Lender may assign to one or more Eligible Assignees any
Auction Note or Notes held by it.
(f) Each Lender may sell participations to one or more banks or other
entities (each, a "Participant") in or to all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Advances owing to it and the Note or Notes held
by it); provided, however, that (i) such Lender's obligations under this
Agreement (including, without limitation, its Commitment to the Borrower
hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
(v) such Lender shall retain the sole right to approve, without the consent of
any Participant, any amendment, modification or waiver of any provision of this
Agreement or the Note or Notes held by such Lender, other than any such
amendment, modification or waiver with respect to any Advance or Commitment in
which such Participant has an interest that forgives principal, interest or fees
or reduces the interest rate or fees payable with respect to any such Advance or
Commitment, postpones any date fixed for any regularly scheduled payment of
principal of, or interest or fees on, any such Advance or Commitment, releases
any guarantor of any such Advance or releases any substantial portion of
collateral, if any, securing any such Advance.
(g) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 8.07, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any confidential information relating to the Borrower
received by it from such Lender (subject to customary exceptions regarding
regulatory requirements, compliance with legal process and other requirements of
law).
(h) If (i) any Lender shall make demand for payment under Section
2.12(a), 2.12(b) or 2.15, or (ii) shall deliver any notice to the Administrative
Agent pursuant to Section 2.13 resulting in the suspension of certain
obligations of the Lenders with respect to Eurodollar Rate Advances or (iii)
shall fail to consent to, or shall revoke its consent to, the extension of any
Termination Date pursuant to Section 2.17 or (iv) shall fail to consent to, or
shall revoke its consent to, any extension of the "Termination Date" (as defined
in the Revolving Credit Agreement) requested by the Borrower pursuant to Section
2.17 of the Revolving Credit Agreement as originally constituted (or any
successor provision of similar import), then (in the case of clause (i)) within
60 days after such demand (if, but only if, such payment demanded under Section
2.12(a), 2.12(b) or 2.15 has been made by the Borrower), or (in the case of
clause (ii)) within 60 days after such notice (if such suspension is still in
effect), or (in the case of clauses (iii) and (iv)) no later than 10 days prior
to the then effective Termination Date, as the case may be, the Borrower may
demand that such Lender assign in accordance with this Section 8.07 to one or
more Eligible Assignees designated by the Borrower and reasonably acceptable to
the Administrative Agent all (but not less than all) of such Lender's Commitment
and the Advances owing to it within the next succeeding 30 days (in the case of
clause (i) or clause (ii)), or within the next succeeding 5 days (in the case of
clauses (iii) and (iv)) . If any such Eligible Assignee designated by the
Borrower shall fail to consummate such assignment on terms acceptable to such
Lender, or if the Borrower shall fail to designate any such Eligible Assignee
for all of such Lender's Commitment or Advances, then such Lender may (but shall
not be required to) assign such Commitment and Advances to any other Eligible
Assignee in accordance with this Section 8.07 during such period.
SECTION 8.08. Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA.
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SECTION 8.09. Consent to Jurisdiction. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF
PENNSYLVANIA AND ANY UNITED STATES DISTRICT COURT SITTING IN THE COMMONWEALTH OF
PENNSYLVANIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE NOTES AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE
AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT
OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE
RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 8.10. Execution in Counterparts; Integration. This Agreement
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes all prior and contemporaneous agreements
and understandings, oral or written, relating to the subject matter hereof.
[Remainder of the page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
[SEAL] PECO ENERGY COMPANY
PECO ENERGY COMPANY
By /s/J. B. Mitchell
Name: J. B. Mitchell
Title: Vice President - Finance and Treasurer
/s/Todd D. Cutler
Todd D. Cutler
Assistant Secretary
MELLON BANK, N.A.,
as Documentation Agent, Arranger and
Syndication Agent
By /s/Mary Ellen Usher
Name: Mary Ellen Usher
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent
By /s/Kenneth J. Bauer
Name: Kenneth J. Bauer
Title: Authorized Agent
FIRST CHICAGO CAPITAL MARKETS, INC.,
as Arranger and Syndication Agent
By /s/Kenneth J. Bauer
Name: Kenneth J. Bauer
Title: Vice President/Senior Banker
CITICORP SECURITIES, INC.,
as Syndication Agent
By /s/Anita J. Brickell
Name: Anita J. Brickell
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
41
<PAGE>
THE BANKS
Commitment
$37,500,000
THE FIRST NATIONAL BANK OF CHICAGO, as
Administrative Agent and as Bank
By /s/Kenneth J. Bauer
Name: Kenneth J. Bauer
Title: Authorized Agent
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
42
<PAGE>
Commitment
$37,500,000
CITIBANK, N.A., as Bank
By /s/Anita J. Brickell
Name: Anita J. Brickell
Title: Attorney-in-Fact
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
43
<PAGE>
Commitment
$37,500,000
MELLON BANK, N.A., as Documentation Agent,
as Syndication Agent, as Arranger and as
Bank
By /s/Mary Ellen Usher
Name: Mary Ellen Usher
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
44
<PAGE>
Commitment
$25,000,000
THE BANK OF NEW YORK, as Co-Agent and as
Bank
By /s/John N. Watt
Name: John N. Watt
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
45
<PAGE>
Commitment
$25,000,000
THE CHASE MANHATTAN BANK, as Co-Agent and
as Bank
By /s/Paul V. Farrell
Name: Paul V. Farrell
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
46
<PAGE>
Commitment
$25,000,000
CORESTATES BANK, N.A., as Co-Agent and as
Bank
By /s/Anthony D. Braxton
Name: Anthony D. Braxton
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
47
<PAGE>
Commitment
$25,000,000
FIRST UNION NATIONAL BANK, as Co-Agent and
as Bank
By /s/Michael J. Kolosowsky
Name: Michael J. Kolosowsky
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
48
<PAGE>
Commitment
$25,000,000
THE TOKAI BANK, LIMITED, NEW YORK BRANCH,
as Co-Agent and as Bank
By /s/Kaoru Oda
Name: Kaoru Oda
Title: Assistant General Manager
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
49
<PAGE>
Commitment
$25,000,000
TORONTO DOMINION (NEW YORK), INC., as
Co-Agent and as Bank
By /s/Jorge A. Garcia
Name: Jorge A. Garcia
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
50
<PAGE>
Commitment
$25,000,000
UNION BANK OF CALIFORNIA, N.A., as
Co-Agent and as Bank
By /s/Karyssa M. Britton
Name: Karyssa M. Britton
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
51
<PAGE>
Commitment
$17,500,000
THE FUJI BANK, LIMITED, as Lead Manager
and as Bank
By /s/Raymond Ventura
Name: Raymond Ventura
Title: Vice President & Manager
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
52
<PAGE>
Commitment
$17,500,000
THE INDUSTRIAL BANK OF JAPAN TRUST
COMPANY, as Lead Manager and as Bank
By /s/John V.Veltri
Name: John V. Veltri
Title: Deputy General Manager
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
53
<PAGE>
Commitment
$17,500,000
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Lead Manager and as Bank
By /s/Philip S. Detjens
Name: Philip S. Detjens
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
54
<PAGE>
Commitment
$17,500,000
SUMMIT BANK, as Lead Manager and as Bank
By /s/Bruce A.Gray
Name: Bruce A.Gray
Title: Vice President, Large Corporate
Bank, Summit Bank
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
55
<PAGE>
Commitment
$12,500,000
BANK OF MONTREAL, as Bank
By /s/John L. Smith
Name: John L. Smith
Title: Director
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
56
<PAGE>
Commitment
$12,500,000
BANKERS TRUST COMPANY, as Bank
By /s/Marcus M. Tarkington
Name: Marcus M. Tarkington
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
57
<PAGE>
Commitment
$12,500,000
DEUTSCHE BANK AG, NEW YORK BRANCH, as Bank
By /s/Gabrielle C. Upton
Name: Gabrielle C. Upton
Title: Assistant Vice President
DEUTSCHE BANK AG, CAYMAN ISLAND BRANCH, as
Bank
By /s/Joel D. Makowsky
Name: Joel D. Makowsky
Title: Assistant Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
58
<PAGE>
Commitment
$12,500,000
THE LONG-TERM CREDIT BANK OF JAPAN, as Bank
By /s/Hiroshi Kitada
Name: Hiroshi Kitada
Title: Deputy General Manager
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
59
<PAGE>
Commitment
$12,500,000
THE TOYO TRUST & BANKING CO., LTD., as Bank
By /s/Takashi Mikumo
Name: Takashi Mikumo
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
60
<PAGE>
Commitment
$12,500,000
UNION BANK OF SWITZERLAND, NEW YORK
BRANCH, as Bank
By /s/Paul R. Morrison
Name: Paul R. Morrison
Title: Director
UNION BANK OF SWITZERLAND, NEW YORK
BRANCH, as Bank
By /s/Andrew N. Taylor
Name: Andrew N. Taylor
Title: Assistant Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
61
<PAGE>
Commitment
$10,000,000
BANK HAPOALIM B.M., as Bank
By /s/Carl Kopfinger
Name: Carl Kopfinger
Title: Vice President
By /s/Jonathan Kulka
Name: Jonathan Kulka
Title: First Vice President & Branch
Manager
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
62
<PAGE>
Commitment
$7,500,000
ABU DHABI INTERNATIONAL BANK INC., as Bank
By /s/David J. Young
Name: David J. Young
Title: Assistant Vice President
By /s/Nagy S. Kolta
Name: Nagy S. Kolta
Title: Senior Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of October 7,
1997, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent.
63
<PAGE>
SCHEDULE I
364-Day Credit Agreement, dated as of October 7, 1997, among PECO Energy
Company, as Borrower, the banks named therein, as Banks, certain Banks specified
therein, as Lead Managers, certain Banks specified therein, as Co-Agents, First
Chicago Capital Markets, Inc. , Mellon Bank, N.A. and CitiCorp Securities, Inc.,
as Syndication Agents, First Chicago Capital Markets, Inc. and Mellon Bank,
N.A., as Arrangers, The First National Bank of Chicago, as Administrative Agent,
and Mellon Bank, N.A., as Documentation Agent.
<TABLE>
<CAPTION>
Domestic CD Lending Eurodollar
Name of Bank Lending Office Office Lending Office
<S> <C> <C> <C>
Union Bank of Energy Capital Services same same
California, N.A. 445 S. Figueroa Street
20th Floor
Los Angeles, CA 90071
Attn: Yolande C. Hollis
Phone: (213) 236-6199
Fax: (213) 236-4096
Abu Dhabi International Bank Inc. 1020 19th Street, N.W. same same
Suite 500
Washington, DC 20036
Attn: Robert Ford
Phone: (202) 842-7903
Fax: (202) 842-7955
CoreStates Bank, N.A. 1339 Chestnut Street same same
FC 1-8-11-28
Philadelphia, PA 19107
Attn: Mary Lockhart
Phone: (215) 786-4313
Fax: (215) 786-7721
Deutsche Bank A.G., New York 31 West 52nd Street same same
Branch and/or Cayman Islands New York, NY 10019
Branch Attn: Jo Curcio
Phone: (212) 469-4103
Fax: (212) 469-4139
First Union National Bank One First Union Center same same
301 South College Street
Charlotte, NC 28288-0735
Attn: Dana Maloney
Phone: (704) 383-0296
Fax: (704) 383-6670
The Chase Manhattan Bank One Chase Manhattan Plaza same same
New York, NY 10081
Attn: Lynette Lang
Phone: (212) 552-7692
Fax: (212) 552-5777
<PAGE>
Domestic CD Lending Eurodollar
Name of Bank Lending Office Office Lending Office
Mellon Bank, N.A. Three Mellon Bank Center Room 2303 same same
(Loan Administration)
Pittsburgh, PA 15259-0003
Attn: Cathy Capp
Phone: (412) 234-1870
Fax: (412) 236-2027, 2028
The Industrial Bank of Japan 1251 Avenue of the Americas same same
Trust Company New York, NY 10020-1104
Attn: Atsushi Kawai
Credit Administration
Phone: (212) 282-4060
Fax: (212) 282-4480
The Toronto-Dominion Bank 909 Fannin, Suite 1700 TDSI (USA), Inc. same
Houston, TX 77010 31 West 52nd Street
Attn: Jorge A. Garcia 21st Floor
Manager-Credit Administration New York, NY 10019-6101
Phone: (713) 653-8242 Attn: Senior Dealer
Fax: (713) 951-9921 Phone: (212) 468-0400
Fax: (212) 974-5283
Bank Hapoalim B.M. Commercial Loan & Documentation same same
1515 Market Street, Suite 200
Philadelphia, PA 19102
Attn: Sheila D. Joe
Phone: (215) 665-2228
Fax: (215) 665-2217
The Tokai Bank, Limited, New 55 East 52nd Street, 11th Floor same same
York Branch New York, NY 10055
Attn: Eva Cordova
Phone: (212) 339-1145
Fax: (212) 754-2171
Union Bank of Switzerland New York Branch same same
299 Park Avenue
New York, NY 10171
Attn: Mike Peterson
Loan Servicing Group
Phone: (212) 821-3230
Fax: (212) 821-3259
The Long-Term Credit Bank of One Liberty Plaza same same
Japan New York, NY 10006
Attn: Robert Pacitici
Phone: (212) 335-4801
Fax: (212) 608-3452
2
<PAGE>
Domestic CD Lending Eurodollar
Name of Bank Lending Office Office Lending Office
The Toyo Trust & Banking Co., 666 Fifth Avenue, 33rd Floor same same
Ltd. New York, NY 10103
Attn: Debra Wylie
Phone: (212) 307-3400, ext.287
Fax: (212) 977-5611
The Fuji Bank, Limited Two World Trade Center same same
New York, NY 10048
Attn: Gemma Dizon
Phone: (212) 898-2069
Fax: (212) 488-8216
Bank of Montreal 115 South LaSalle Street same same
Chicago, IL 60603
Attn: John Paseka
Phone: (312) 750-3771
Fax: (312) 750-4345
Summit Bank 750 Walnut Avenue, 3rd Floor same same
Cranford, NJ 07016
Attn: Carolyn Swiss
Phone: (201) 229-5288
Fax: (201) 641-4462
The Bank of New York One Wall Street, 19th Floor same same
Energy Industries Division
New York, NY 10286
Attn: Theresa A. Foran
Phone: (212) 635-7921
Fax: (212) 635-7923
First National Bank of Chicago One First National Plaza same same
Mail Suite 0634, 1FNP-10
Chicago, IL 60670
Attn: Gwendolyn Watson
Phone: (312) 732-4509
Fax: (312) 732-4840
Bankers Trust Company 130 Liberty Street same same
New York, NY 10006
Attn: Joe Regan
Phone: (212) 250-4169
Fax: (212) 250-7351
3
<PAGE>
Domestic CD Lending Eurodollar
Name of Bank Lending Office Office Lending Office
Morgan Guaranty and Trust 60 Wall Street same Nassau Bahamas Office
Company of New York New York, NY 10260-0060 c/o J.P. Morgan Services,
Attn: Sandra Doherty Inc.
Credit Administrator Loan Operations, 3rd Floor
Phone: (302) 634-8122 500 Stanton Christiana Rd.
Fax: (302) 634-1092 Newark, DE 19713
Attn: Allison Hollis
Loan Department
Phone: (302) 634-4671
Fax: (302) 634-1094
Citibank, N.A. 399 Park Avenue
4th Floor, Zone 22
New York, New York 10021
Attn: Kate Bohen
Phone: (302) 894-6120
Fax: (302) 894-6077
</TABLE>
4
<PAGE>
EXHIBIT A-1
FORM OF CONTRACT NOTE
$____________________ Dated: October 7, 1997
FOR VALUE RECEIVED, the undersigned, PECO Energy Company, a
Pennsylvania corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order
of (the "Lender") for the account of its Applicable Lending Office (such term
and other capitalized terms herein being used as defined in the Credit Agreement
referred to below) on the Termination Date the principal sum of U.S.$[amount of
the Lender's Commitment in figures] or, if less, the aggregate principal amount
of the Contract Advances made by the Lender to the Borrower pursuant to the
Credit Agreement outstanding on the Termination Date.
The Borrower promises to pay interest on the unpaid principal amount
of each Contract Advance from the date of such Contract Advance until such
principal amount is paid in full, at such interest rates, and payable at such
times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to The First National Bank of Chicago, as Administrative
Agent, at One First National Plaza, Chicago, Illinois 60670, in same day funds.
Each Contract Advance made by the Lender to the Borrower pursuant to the Credit
Agreement, and all payments made on account of principal thereof, shall be
recorded by the Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this Promissory Note.
This Promissory Note is one of the Contract Notes referred to in, and
is entitled to the benefits of, the 364-Day Credit Agreement, dated as of
October 7, 1997, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, certain Banks specified therein, as Lead Managers, certain
Banks specified therein, as Co-Agents, First Chicago Capital Markets, Inc.,
Mellon Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First
Chicago Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First
National Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent (as amended, modified or supplemented from time to time, the
"Credit Agreement"). The Credit Agreement, among other things, (i) provides for
the making of Contract Advances by the Lender to the Borrower from time to time
in an aggregate amount not to exceed at any time outstanding the U.S. dollar
amount first above mentioned, the indebtedness of the Borrower resulting from
each such Contract Advance being evidenced by this Promissory Note, and (ii)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.
The Borrower hereby waives presentment, demand, protest and notice of
any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
PECO ENERGY COMPANY
By
Name:
Title:
2
<PAGE>
ADVANCES, MATURITIES, AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
Maturity Principal Unpaid
Amount of of Paid or Principal Notation
Date Advance Advance Prepaid Balance Made By
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT A-2
FORM OF AUCTION NOTE
$_________________________ Dated: _________, 19___
FOR VALUE RECEIVED, the undersigned, PECO Energy Company, a
Pennsylvania corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order
of (the "Lender") for the account of its Applicable Lending Office (as defined
in the Credit Agreement referred to below), on , 19 , the principal amount of
Dollars ($ ).
The Borrower promises to pay interest on the unpaid principal amount
hereof from the date hereof until such principal amount is paid in full, at the
interest rate and payable on the interest payment date or dates provided below:
Interest Rate: % per annum (calculated on the basis of a year of days
for the actual number of days elapsed).
Interest Payment Date or Dates:
Both principal and interest are payable in lawful money of the United
States of America to or the account of the Lender at the office of The First
National Bank of Chicago, as Administrative Agent, at One First National Plaza,
Chicago, Illinois 60670, in same day funds, free and clear of and without any
deduction, with respect to the payee named above, for any and all present and
future taxes, deductions, charges or withholdings (other than United States
withholding taxes, if applicable), and all liabilities with respect thereto.
This Promissory Note is one of the Auction Notes referred to in, and
is entitled to the benefits of, the 364-Day Credit Agreement, dated as of
October 7, 1997, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, certain Banks specified therein, as Lead Managers, certain
Banks specified therein, as Co-Agents, First Chicago Capital Markets, Inc.,
Mellon Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First
Chicago Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First
National Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent (as amended, modified or supplemented from time to time, the
"Credit Agreement"). The Credit Agreement, among other things, contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events.
The Borrower hereby waives presentment, demand, protest and notice of
any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
PECO ENERGY COMPANY
By
Name:
Title:
2
<PAGE>
EXHIBIT B-1
NOTICE OF A CONTRACT BORROWING
The First National Bank of Chicago, as Administrative Agent for the Lenders
parties to the Credit Agreement referred to below
One First National Plaza
Chicago, Illinois 60670
[Date]
Attention: Utilities Department
North American Finance Group
Ladies and Gentlemen:
The undersigned, PECO Energy Company, refers to the 364-Day Credit
Agreement, dated as of October 7, 1997, among PECO Energy Company, as Borrower,
the banks named therein, as Banks, certain Banks specified therein, as Lead
Managers, certain Banks specified therein, as Co-Agents, First Chicago Capital
Markets, Inc., Mellon Bank, N.A. and CitiCorp Securities, Inc., as Syndication
Agents, First Chicago Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers,
The First National Bank of Chicago, as Administrative Agent, and Mellon Bank,
N.A., as Documentation Agent (as amended, modified or supplemented from time to
time, the "Credit Agreement"), and hereby gives you notice, irrevocably,
pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby
requests a Contract Borrowing under the Credit Agreement, and in that connection
sets forth below the information relating to such Contract Borrowing (the
"Proposed Contract Borrowing") as required by Section 2.02(a) of the Credit
Agreement:
(i) The Business Day of the Proposed Contract Borrowing is , 19 .
(ii) The Type of Contract Advances to be made in connection with
the Proposed Contract Borrowing is [Adjusted CD Rate Advances] [Base
Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Contract Borrowing is
$_________________.
(iv) The Interest Period for each Contract Advance made as part
of the Proposed Contract Borrowing is [ days] [ month[s]].
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Contract
Borrowing:
(A) the representations and warranties contained in Section 4.01
are correct, before and after giving effect to the Proposed Contract
Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date; and
(B) no event has occurred and is continuing, or would result from
such Proposed Contract Borrowing or from the application of the
proceeds therefrom, that
<PAGE>
constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or
both.
Very truly yours,
PECO ENERGY COMPANY
By
Name:
Title:
2
<PAGE>
EXHIBIT B-2
NOTICE OF AN AUCTION BORROWING
The First National Bank of Chicago, as Administrative Agent, for the Lenders
parties to the Credit Agreement referred to below
One First National Plaza
Chicago, Illinois 60670
[Date]
Attention: Utilities Department
North American Finance Group
Ladies and Gentlemen:
The undersigned, PECO Energy Company, refers to the 364-Day Credit
Agreement, dated as of October 7, 1997, among PECO Energy Company, as Borrower,
the banks named therein, as Banks, certain Banks specified therein, as Lead
Managers, certain Banks specified therein, as Co-Agents, First Chicago Capital
Markets, Inc., Mellon Bank, N.A. and CitiCorp Securities, Inc., as Syndication
Agents, First Chicago Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers,
The First National Bank of Chicago, as Administrative Agent, and Mellon Bank,
N.A., as Documentation Agent (as amended, modified or supplemented from time to
time, the "Credit Agreement"), and hereby gives you notice pursuant to Section
2.03 of the Credit Agreement that the undersigned hereby requests an Auction
Borrowing under the Credit Agreement, and in that connection sets forth the
terms on which such Auction Borrowing (the "Proposed Auction Borrowing") is
requested to be made:
(A) Date of Auction Borrowing ______
(B) Amount of Auction Borrowing ______
(C) Maturity Date ______
(D) Interest Payment Date(s) ______
(E) _________ ______
(F) _________ ______
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Auction
Borrowing:
(a) the representations and warranties contained in Section 4.01
are correct, before and after giving effect to the Proposed Auction
Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date:
(b) no event has occurred and is continuing, or would result from
the Proposed Auction Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or would constitute
an Event of Default but for the requirement that notice be given or
time elapse or both; and
<PAGE>
(c) the aggregate amount of the Proposed Auction Borrowing and
all other Borrowings to be made on the same day under the Credit
Agreement is within the aggregate amount of the unused Commitments of
the Lenders.
The undersigned hereby confirms that the Proposed Auction Borrowing is
to be made available to it in accordance with Section 2.03(a)(v) of the Credit
Agreement.
Very truly yours,
PECO ENERGY COMPANY
By
Name:
Title:
<PAGE>
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Dated ______________, 19___
Reference is made to the 364-Day Credit Agreement, dated as of October
7, 1997, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, certain Banks specified therein, as Lead Managers, certain Banks
specified therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A. and CitiCorp Securities, Inc., as Syndication Agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent (as amended, modified or supplemented from time to time, the
"Credit Agreement"). Terms defined in the Credit Agreement are used herein with
the same meaning.
______________ (the "Assignor") and ________________ (the "Assignee")
agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, that interest in and to
all of the Assignor's rights and obligations under the Credit Agreement as of
the date hereof (other than in respect of Auction Advances and Auction Notes)
which represents the percentage interest specified on Schedule 1 of all
outstanding rights and obligations under the Credit Agreement (other than in
aspect of Auction Advances and Auction Notes), including, without limitation,
such interest in the Assignor's Commitment, the Contract Advances owing to the
Assignor, and the Contract Note[s] held by the Assignor. After giving effect to
such sale and assignment, the Assignee's Commitment and the amount of the
Contract Advances owing to the Assignee will be as set forth in Section 2 of
Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (iv) attaches the Contract Note[s] referred to in paragraph 1 above and
requests that the Administrative Agent exchange such Contract Note[s] for a new
Contract Note payable to the order of the Assignee in an amount equal to the
Commitment assumed by the Assignee pursuant hereto or new Contract Notes payable
to the order of the Assignee in an amount equal to the Commitment assumed by the
Assignee pursuant hereto and the Assignor in an amount equal to the Commitment
retained by the Assignor under the Credit Agreement, respectively as specified
on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Documentation Agent, the Assignor or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (iii) confirms that it is an
Eligible Assignee; (iv) appoints and authorizes the Administrative Agent to take
such action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the
<PAGE>
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Lender; (vi) none of the
consideration used to make the purchase being made by the Assignee hereunder are
"plan assets" as defined under ERISA and the rights and interests of the
Assignee in and under the Credit Agreement will not be "plan assets" under ERISA
[and] (vii) specifies as its CD Lending Office, Domestic Lending Office (and
address for notices) and Eurodollar Lending Office the offices set forth beneath
its name on the signature pages hereof [and (viii) attaches the forms prescribed
by the Internal Revenue Service of the United States certifying that it is
exempt from United States withholding taxes with respect to all payments to be
made to the Assignee under the Credit Agreement and the Notes].1
4. Following the execution of this Assignment and Acceptance by the
Assignor and the Assignee, it will be delivered to the Administrative Agent for
acceptance and recording by the Administrative Agent. The effective date of this
Assignment and Acceptance shall be the date of acceptance thereof by the
Administrative Agent, unless otherwise specified on Schedule 1 hereto (the
"Effective Date").
5. Upon such acceptance and recording by the Administrative Agent, as
of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the rights
and obligations of a Lender thereunder and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative Agent,
from and after the Effective Date, the Administrative Agent shall make all
payments under the Credit Agreement and the Contract Notes in respect of the
interest assigned hereby (including, without limitation, all payments of
principal, interest and commitment fees with respect thereto) to the Assignee.
The Assignor and Assignee shall make all appropriate adjustments in payments
under the Credit Agreement and the Contract Notes for periods prior to the
Effective Date directly between themselves.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
1 If the Assignee is organized under the laws of a jurisdiction outside the
United States.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution being made on
Schedule 1 hereto.
[NAME OF ASSIGNOR]
By
Name:
Title:
[NAME OF ASSIGNOR]
By
Name:
Title:
CD Lending Office:
[Address]
Domestic Lending
Office (and address
for notices):
[Address]
Eurodollar Lending Office:
[Address]
Consented to this ________ day
of __________________, 19___
PECO ENERGY COMPANY
By
Name:
Title:
Consented to and Accepted this ____________ day
of __________________, 19___
[NAME OF ADMINISTRATIVE AGENT]
By
Name:
Title:
3
<PAGE>
Schedule 1
to
Assignment and Acceptance
Dated ____________, 19___
Section 1.
Percentage Interest: ___%
Section 2.
Assignee's Commitment: $____
Aggregate Outstanding Principal
Amount of Contract Advances
owing to the Assignee: $____
A Contract Note payable to the
order of the Assignee
Dated:_____, 19___
Principal amount: $____
A Contract Note payable to the
order of the Assignor
Dated:_____, 19___
Principal amount: $____
Section 3.
Effective Date(2): __________, 19___
__________________
(2) This date should be no earlier than the date of acceptance by the
Administrative Agent.
<PAGE>
EXHIBIT D
FORM OF OPINION OF BALLARD SPAHR
ANDREWS & INGERSOLL
_____________, 19_______
To each of the Banks, the Administrative Agent,
the Documentation Agent, the Syndication Agents,
the Arrangers, the Co-Agents and the Lead Managers
party to the 364-Day Credit Agreement, dated as of
October 7, 1997, among PECO Energy Company, as
Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers,
certain Banks specified therein, as Co-Agents,
First Chicago Capital Markets, Inc., Mellon Bank,
N.A. and CitiCorp Securities, Inc., as Syndication
Agents, First Chicago Capital Markets, Inc. and
Mellon Bank, N.A., as Arrangers, The First
National Bank of Chicago, as Administrative Agent,
and Mellon Bank, N.A., as Documentation Agent
Re: PECO Energy Company
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.01(a)(vi) of
the 364-Day Credit Agreement, dated as of October 7, 1997, among PECO Energy
Company, as Borrower, the banks named therein, as Banks, certain Banks specified
therein, as Lead Managers, certain Banks specified therein, as Co-Agents, First
Chicago Capital Markets, Inc., Mellon Bank, N.A. and CitiCorp Securities, Inc.,
as Syndication Agents, First Chicago Capital Markets, Inc. and Mellon Bank,
N.A., as Arrangers, The First National Bank of Chicago, as Administrative Agent,
and Mellon Bank, N.A., as Documentation Agent (as amended, modified or
supplemented from time to time, the "Credit Agreement"). Unless otherwise
specified, terms defined in the Credit Agreement are used herein as therein
defined.
We have acted as special counsel for the Borrower in connection with
the preparation, execution and delivery of the Credit Agreement. In that
capacity we have examined the following:
(i) The Credit Agreement, the Contract Notes and the form of the
Auction Notes to be delivered in connection with Auction Borrowings;
(ii) The documents furnished by the Borrower pursuant to Section
3.01 of the Credit Agreement;
(iii) The Amended and Restated Articles of Incorporation of the
Borrower and all amendments thereto (the "Charter");
(iv) The by-laws of the Borrower and all amendments thereto (the
"By-laws"); and
(v) A certificate of the Secretary of State of the Commonwealth
of Pennsylvania, dated , 19 , attesting to the continued subsistence
of the Borrower in Pennsylvania.
<PAGE>
We have also examined the originals, or copies certified to our
satisfaction, of such other corporate records of the Borrower, certificates of
public officials and of officers of the Borrower, and agreements, instruments
and documents, as we have deemed necessary as a basis for the opinions
hereinafter expressed. We have assumed the legal capacity and competence of
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to original documents
of documents submitted to us as certified, conformed or photostatic copies. We
have assumed that the Agents and the Banks have duly executed and delivered,
with all necessary power and authority (corporate and otherwise), the Credit
Agreement. We have further assumed that the Auction Notes, when delivered under
the Credit Agreement, will be duly executed by the Borrower.
When an opinion or confirmation is given to our knowledge or with
reference to matters of which we are aware or which are known to us, or with
another similar qualification, the relevant knowledge or awareness is limited to
the actual knowledge or awareness of the lawyer who is the current primary
contact for the Borrower and the individual lawyers in this firm who have
participated in the specific transaction to which this opinion relates and
without any special or additional investigation undertaken for the purposes of
this opinion, except as otherwise noted herein. Based upon the foregoing and
subject to the exceptions, limitations and qualifications set forth herein, we
are of the following opinion:
1. The Borrower is a corporation duly incorporated and validly
subsisting under the laws of the Commonwealth of Pennsylvania.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate
powers, have been duly authorized by all necessary corporate action,
do not contravene (i) the Charter or the By-laws or (ii) any law of
the United States or the Commonwealth of Pennsylvania (including,
without limitation, any order, rule or regulation of the PPUC or (iii)
to the best of our knowledge, any agreement or instrument to which the
Borrower is a party or by which it is bound, and do not result in or
require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties.
3. No authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body of
the United States or the Commonwealth of Pennsylvania is required for
the due execution, delivery and performance by the Borrower of the
Credit Agreement or the Notes except for the filing of the Securities
Certificate with, and the final approval of, and the Order of
Registration issued by, the PPUC, which filing has been duly made and
which final approval and Order of Registration have been duly
obtained; such Order of Registration is in full force and effect and
is final; and the action of the PPUC registering the Securities
Certificate is no longer subject to appeal.
4. The Credit Agreement and the Contract Notes have been duly
executed and delivered by the Borrower, and the Credit Agreement and
the Contract Notes are, and the Auction Notes, when executed and
delivered hereunder will be, the legal, valid and binding obligations
of the Borrower enforceable against the Borrower in accordance with
their respective terms.
5. The Borrower (i) is exempt from the provisions of the Public
Utility Holding Company Act of 1935, as amended, other than Section
9(a)(2) thereof, pursuant to Section 3(a)(2) thereof, and (ii) is not
an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
2
<PAGE>
6. We confirm to you that to our knowledge, after inquiry of each
lawyer who is the current primary contact for the Borrower or who has
devoted substantive attention to matters on behalf of the Borrower
during the preceding twelve months and who is still currently employed
by or a member of this firm, except as disclosed in the Borrower's
Annual Report on Form 10-K for the year ended December 31, 1996 and
the Borrower's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, no litigation or governmental proceeding is pending or
threatened in writing against the Borrower (i) with respect to the
Credit Agreement or the Notes, or (ii) which is likely to have a
material adverse effect upon the financial condition, business,
properties or prospects of the Borrower and its subsidiaries taken as
a whole.
We draw to your attention the existence of the following two
Pennsylvania statutes in connection with the fact that the Contract Advances
bear floating rates of interest:
(i) Section 911 of the Pennsylvania "Crime Code," 18 Pa. C.S.A.
ss.911, enacted by the Act of December 6, 1972, P.L. 1482. Section 911
of the Crime Code bears a close resemblance to certain of the
provisions of the Federal Racketeer Influenced and Corrupt
Organizations Act of 1970, 18 U.S.C. ss.ss.1961-1968, commonly known
as RICO, and is referred to hereinafter as the "Pennsylvania RICO
Act." The Pennsylvania RICO Act provides, among other things, that it
is a criminal offense, punishable as a felony, to "use or invest,
directly or indirectly ... in the acquisition of any interest in, or
the establishment or operation of, any enterprise" any income
collected in full or partial satisfaction of a loan made "at a rate of
interest exceeding 25% per annum... ."
(ii) The Act of December 29, 1982, P.L. 1671, 18 Pa. C.S.A.
ss.4806.1 et seq. (superseded volume) (the "Criminal Usury Statute").
The Criminal Usury Statute provides, among other things, that it is a
criminal offense, punishable as a felony, to engage in, "charging,
taking or receiving any money ... on the loan ... of any money ... at
a rate exceeding thirty-six percent per annum... ."
The Criminal Usury Statute may have been repealed, but the manner in
which the repeal was enacted leaves the matter subject to uncertainty.
Both the Pennsylvania RICO Act and the Criminal Usury Statute appear
to be intended by the legislature to apply only to racketeering and loan
sharking type activities, and not to the type of commercial loan transaction
evidenced by the Loan Document. Nevertheless, in view of the plain language of
the Pennsylvania courts, we cannot say that the ultimate resolution of this
issue is free from doubt.
The foregoing opinions are subject to the following exceptions,
limitations and qualifications:
(a) Our opinion is subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer or similar laws affecting creditors'
rights and remedies generally, general principles of equity, including
without limitation, concepts of materiality, reasonableness, good
faith and fair dealing (regardless of whether such enforceability is
considered in a proceeding in equity or at law); and limitations on
enforceability of rights to indemnification by federal or state
securities laws or regulations or by public policy.
(b) We express no opinion as to the application or requirements
of the Pennsylvania Securities Act or federal or state securities,
patent, trademark, copyright, antitrust and unfair competition,
pension or employee benefit, labor, environmental
3
<PAGE>
health and safety or tax laws in respect of the transactions
contemplated by or referred to in the Credit Agreement.
(c) We express no opinion as to the validity or enforceability of
any provision of the Credit Agreement or the Notes which (i) permits
the Lenders to increase the rate of interest in the event of
delinquency or default if such increase would be deemed a penalty
under applicable law; (ii) purports to be a waiver by Borrower of any
right or benefit except to the extent permitted by applicable law;
(iii) purports to require that waivers must be in writing to the
extent that an oral agreement or implied agreement by trade practice
or course of conduct modifying provisions of the Credit Agreement or
the Notes has been made; or (iv) purports to exculpate any party from
its own negligent acts.
We express no opinion as to the law of any jurisdiction other than the
law of the Commonwealth of Pennsylvania and the federal law of the United
States.
The foregoing opinion is solely for your benefit in connection with
the consummation of the transaction described herein and may not be used or
relied upon by you or any other Person without our express written consent for
any other purpose other than (i) any Eligible Assignee that may become a Lender
under the Credit Agreement after the date hereof and (ii) Reed Smith Shaw &
McClay LLP, which may rely upon this opinion in rendering their opinion
furnished pursuant to Article III of the Credit Agreement. The opinions given
herein are as of the date hereof, and we assume no obligation to update or
supplement this opinion to reflect facts or circumstances which may hereafter
come to our attention or any changes in laws which may hereafter occur.
Very truly yours,
BALLARD SPAHR
ANDREWS & INGERSOLL
4
<PAGE>
EXHIBIT E
FORM OF OPINION OF REED SMITH SHAW & McCLAY LLP
_______________, 19___
To each of the Banks, the Administrative Agent,
the Documentation Agent, the Syndication Agents,
the Arrangers, the Co-Agents and the Lead Managers
party to the 364-Day Credit Agreement, dated as of
October 7, 1997, among PECO Energy Company, as
Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers,
certain Banks specified therein, as Co-Agents,
First Chicago Capital Markets, Inc., Mellon Bank,
N.A. and CitiCorp Securities, Inc., as Syndication
Agents, First Chicago Capital Markets, Inc. and
Mellon Bank, N.A., as Arrangers, The First
National Bank of Chicago, as Administrative Agent,
and Mellon Bank, N.A., as Documentation Agent
Re: PECO Energy Company
Ladies and Gentlemen:
We have acted as counsel to Mellon Bank, N.A., individually and as
Documentation Agent, in connection with the preparation, execution and delivery
of the 364-Day Credit Agreement, dated as of October 7, 1997, among PECO Energy
Company, as Borrower, the banks named therein, as Banks, certain Banks specified
therein, as Lead Managers, certain Banks specified therein, as Co-Agents, First
Chicago Capital Markets, Inc., Mellon Bank, N.A. and CitiCorp Securities, Inc.,
as Syndication Agents, First Chicago Capital Markets, Inc. and Mellon Bank,
N.A., as Arrangers, The First National Bank of Chicago, as Administrative Agent,
and Mellon Bank, N.A., as Documentation Agent (as amended, modified or
supplemented from time to time, the "Credit Agreement"). We are delivering this
opinion pursuant to Section 3.01(a)(vii) of the Credit Agreement. Unless
otherwise defined herein, terms defined in the Credit Agreement are used herein
as therein defined.
In that connection, we have examined (i) counterparts of the Credit
Agreement, executed by the Borrower, the Banks, the Administrative Agent, the
Documentation Agent, the Syndication Agents, the Arrangers, the Co-Agents and
the Lead Managers, (ii) the Contract Notes, executed by the Borrower, (iii) the
form of the Auction Notes to be delivered by the Borrower in connection with
Auction Borrowings and (iv) the other documents listed on Exhibit A hereto,
including the opinion of Ballard Spahr Andrews & Ingersoll, counsel to the
Borrower (the "Opinion"), furnished to the Administrative Agent pursuant to
Section 3.01(a) of the Credit Agreement.
In our examination of the documents referred to above, we have assumed
the authenticity of all such documents submitted to us as originals, the
genuineness of all signatures, the due authority of the parties executing such
documents and the conformity to the originals of all such documents submitted to
us as copies. We have also assumed that the Banks, the Administrative Agent, the
Documentation Agent, the Syndication Agents, the Arrangers, the Co-Agents and
the Lead Managers have duly executed and delivered, with all necessary power and
authority (corporate and otherwise), the Credit Agreement. As to matters of
fact, we have relied solely upon the documents we have examined.
<PAGE>
Based upon the foregoing, we are of the opinion that, while we have
not independently considered the matters covered by the Opinion to the extent
necessary to enable us to express the conclusions stated therein, each of the
Opinion and the other documents listed in Exhibit A hereto are substantially
responsive to the corresponding requirements set forth in Section 3.01 of the
Credit Agreement pursuant to which the same have been delivered.
Please note that Richard H. Glanton, Esquire, a partner in this firm,
is a director of PECO Energy Company. We have rendered and continue to render
legal services to PECO Energy Company.
The foregoing opinion is solely for your benefit and may not be relied
upon by any other Person other than any Person that may become a lender under
the Credit Agreement after the date hereof.
Very truly yours,
KCK:TEW:ARN
2
<PAGE>
EXHIBIT F
FORM OF ANNUAL AND QUARTERLY COMPLIANCE CERTIFICATE
______________________, 19__
Pursuant to the 364-Day Credit Agreement, dated as of October 7, 1997,
among PECO Energy Company, as Borrower, the banks named therein, as Banks,
certain Banks specified therein, as Lead Managers, certain Banks specified
therein, as Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A.
and CitiCorp Securities, Inc., as Syndication Agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as Arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as Documentation Agent
(as amended, modified or supplemented from time to time, the "Credit
Agreement"), the undersigned, being ______________________ of the Borrower,
hereby certifies on behalf of the Borrower as follows:
1. Delivered herewith are the financial statements prepared pursuant
to Section 5.01(b)(ii) and Section 5.01(b)(iii) of the Credit Agreement, for the
fiscal ________ ended ___________, 19__. All such financial statements comply
with the applicable requirements of the Credit Agreement.
2. Schedule I hereto sets forth in reasonable detail the information
and calculations necessary to establish compliance with the provisions of
Section 5.02(c) of the Credit Agreement as of the end of the fiscal period
referred to in paragraph 1 above.
3. (Check one and only one:)
No Event of Default, or event which with notice or lapse of time or
both would constitute an Event of Default, has occurred and is continuing or
exists.
An Event of Default, or event which with notice or lapse of time or
both would constitute an Event of Default, has occurred and is continuing or
exists, and the document(s) attached hereto as Schedule II specify in detail the
nature and period of existence of such Event of Default or such other event as
well as any and all actions with respect thereto taken or contemplated to be
taken by the Borrower.
4. The undersigned has personally reviewed the Credit Agreement, and
this certificate was based on an examination made by or under the supervision of
the undersigned sufficient to assure that this certificate is accurate.
5. Capitalized terms used in this certificate and not otherwise
defined shall have the meanings given in the Credit Agreement.
PECO ENERGY COMPANY
By _______________________________________
Name:
Title:
Date:
<PAGE>
EXHIBIT G
FORM OF ADDITIONAL LENDER SUPPLEMENT
THIS SUPPLEMENT, dated as of ____________, 19_____, by the undersigned.
Recitals:
A. This Supplement is being executed and delivered in accordance with
Section 2.18 of the 364-Day Credit Agreement, dated as of October 7, 1997, among
PECO Energy Company, as Borrower, the banks named therein, as Banks, certain
Banks specified therein, as Lead Managers, certain Banks specified therein, as
Co-Agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A. and CitiCorp
Securities, Inc., as Syndication Agents, First Chicago Capital Markets, Inc. and
Mellon Bank, N.A., as Arrangers, The First National Bank of Chicago, as
Administrative Agent, and Mellon Bank, N.A., as Documentation Agent (as amended,
modified or supplemented from time to time, the "Credit Agreement"). Capitalized
terms used herein without definition have the meanings specified in the Credit
Agreement.
B. The undersigned wishes to become a Lender party to the Credit
Agreement, as an Additional Lender.
NOW, THEREFORE, the undersigned, intending to be legally bound, hereby
agrees as follows:
1. The undersigned hereby becomes party to the Credit Agreement as
Lender thereunder, and shall be subject to and bound by all of the provisions
thereof.
2. The Commitment of the undersigned shall be $_____________.
3. The undersigned (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Additional Lender Supplement; (ii) agrees that it will, independently and
without reliance upon the Administrative Agent, the Documentation Agent or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (iii) confirms that it is an
Eligible Assignee; (iv) appoints and authorizes the Administrative Agent to take
such action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (v) agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of the Credit Agreement are required to be performed by it as a
Lender; (vi) none of the consideration used to make the purchase being made by
the undersigned hereunder are "plan assets" as defined under ERISA and the
rights and interests of the undersigned in and under the Credit Agreement will
not be "plan assets" under ERISA [and] (vii) specifies as its CD Lending Office,
Domestic Lending Office (and address for notices) and Eurodollar Lending Office
the offices set forth beneath its name on the signature pages hereof [and (viii)
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying that it
<PAGE>
is exempt from United States withholding taxes with respect to all payments to
be made to the undersigned under the Credit Agreement and the Notes].(3)
4. This Supplement shall be effective upon the date of acceptance
thereof by the Administrative Agent, unless otherwise specified under the
undersigned's name signature below.
5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
executed and delivered by a duly authorized officer on the date first above
written.
[NAME OF ADDITIONAL LENDER]
By:
Name:
Title:
CD Lending Office: [Address]
Domestic Lending Office (and
address for notices): [Address]
Eurodollar Lending Office: [Address]
Effective Date(4):________, 19__
CONSENTED TO:
[NAME OF ADMINISTRATIVE AGENT]
By:
Name:
Title:
CONSENTED TO:
PECO ENERGY COMPANY
By:
Name:
Title:
________________
(3) If the undersigned is organized under the laws of a jurisdiction outside
the United States.
(4) This date should be no earlier than the date of acceptance by the
Administrative Agent.
3
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
PJM INTERCONNECTION, L.L.C.
Dated June 2, 1997
(Revised December 31, 1997)
<PAGE>
OPERATING AGREEMENT
TABLE OF CONTENTS
1. DEFINITIONS ........................................................... 2
1.1 Act ............................................................. 2
1.2 Affiliate ....................................................... 2
1.3 Agreement ....................................................... 2
1.4 Annual Meeting of the Members ................................... 2
1.5 Board Member .................................................... 2
1.6 Capacity Resource ............................................... 2
1.7 Control Area .................................................... 3
1.8 Electric Distributor ............................................ 3
1.9 Effective Date .................................................. 3
1.10 Emergency ...................................................... 3
1.11 End-Use Customer ............................................... 3
1.12 FERC ........................................................... 3
1.13 Finance Committee .............................................. 4
1.14 Generation Owner ............................................... 4
1.15 Good Utility Practice .......................................... 4
1.16 Interconnection ................................................ 4
1.17 LLC ............................................................ 4
1.18 Load Serving Entity ............................................ 4
1.19 Locational Marginal Price ...................................... 4
1.20 MAAC ........................................................... 4
1.21 Market Buyer ................................................... 5
1.22 Market Participant ............................................. 5
1.23 Market Seller .................................................. 5
1.24 Member ......................................................... 5
1.25 Members Committee .............................................. 5
1.26 NERC ........................................................... 5
1.27 Office of the Interconnection .................................. 5
1.28 Operating Reserve .............................................. 5
1.29 Original PJM Agreement ......................................... 5
1.30 Other Supplier ................................................. 6
1.31 PJM Board ...................................................... 6
1.32 PJM Control Area ............................................... 6
1.33 PJM Dispute Resolution Procedures .............................. 6
1.34 PJM Interchange Energy Market .................................. 6
1.35 PJM Manuals .................................................... 6
1.36 PJM Tariff ..................................................... 6
1.37 Planning Period ................................................ 6
1.38 President ...................................................... 6
i
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1.39 Related Parties ............................................... 7
1.40 Reliability Assurance Agreement ............................... 7
1.41 Sector Votes .................................................. 7
1.42 State ......................................................... 7
1.43 System ........................................................ 7
1.44 Transmission Facilities ....................................... 7
1.45 Transmission Owner ............................................ 7
1.46 Transmission Owners Agreement ................................. 8
1.47 User Group .................................................... 8
1.48 Voting Member ................................................. 8
1.49 Weighted Interest ............................................. 8
2. FORMATION, NAME; PLACE OF BUSINESS ................................... 8
2.1 Formation of LLC; Certificate of Formation ..................... 8
2.2 Name of LLC .................................................... 9
2.3 Place of Business .............................................. 9
2.4 Registered Office and Registered Agent ......................... 9
3. PURPOSES AND POWERS OF LLC ........................................... 9
3.1 Purposes ....................................................... 9
3.2 Powers ......................................................... 10
4. EFFECTIVE DATE AND TERMINATION ....................................... 10
4.1 Effective Date and Termination ................................. 10
4.2 Governing Law .................................................. 10
5. WORKING CAPITAL AND CAPITAL CONTRIBUTIONS ............................ 11
5.1 Funding of Working Capital and Capital Contributions ........... 11
5.2 Contributions to Association ................................... 11
6. TAX STATUS AND DISTRIBUTIONS ......................................... 11
6.1 Tax Status ..................................................... 11
6.2 Return of Capital Contributions ................................ 12
6.3 Liquidating Distribution ....................................... 12
7. PJM BOARD ............................................................ 12
7.1 Composition .................................................... 12
7.2 Qualifications ................................................. 13
7.3 Term of Office ................................................. 13
7.4 Quorum ......................................................... 13
7.5 Operating and Capital Budgets .................................. 14
7.5.1 Finance Committee ....................................... 14
7.5.2 Adoption of Budgets ..................................... 14
7.6 By-laws ........................................................ 14
7.7 Duties and Responsibilities of the PJM Board ................... 14
8. MEMBERS COMMITTEE .................................................... 16
8.1 Sectors ........................................................ 16
8.1.1 Designation ............................................. 16
8.1.2 Related Parties ......................................... 17
8.2 Representatives ................................................ 17
ii
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8.2.1 Appointment ............................................. 17
8.2.2 Regulatory Authorities .................................. 17
8.2.3 Initial Representatives ................................. 17
8.2.4 Change of or Substitution for a Representative .......... 17
8.3 Meetings ....................................................... 18
8.3.1 Regular and Special Meetings ............................ 18
8.3.2 Attendance .............................................. 18
8.3.3 Quorum .................................................. 18
8.4 Manner of Acting ............................................... 18
8.5 Chair and Vice Chair of the Members Committee .................. 19
8.5.1 Selection and Term ...................................... 19
8.5.2 Duties .................................................. 19
8.6 Other Committees ............................................... 19
8.7 User Groups .................................................... 20
8.8 Powers of the Members Committee ................................ 20
9. OFFICERS ............................................................. 21
9.1 Election and Term .............................................. 21
9.2 President ...................................................... 21
9.3 Secretary ...................................................... 21
9.4 Treasurer ...................................................... 22
9.5 Renewal of Officers; Vacancies ................................. 22
9.6 Compensation ................................................... 22
10. OFFICE OF THE INTERCONNECTION ....................................... 22
10.1 Establishment ................................................. 22
10.2 Processes and Organization .................................... 23
10.3 Confidential Information ...................................... 23
10.4 Duties and Responsibilities ................................... 25
11. MEMBERS ............................................................. 25
11.1 Management Rights ............................................. 25
11.2 Other Activities .............................................. 25
11.3 Member Responsibilities ....................................... 25
11.3.1 General ................................................ 25
11.3.2 Facilities Planning and Operation ...................... 26
11.3.3 Electric Distributors .................................. 27
11.3.4 Reports to the Office of the Interconnection ........... 28
11.4 Regional Transmission Expansion Planning Protocol ............. 28
11.5 Member Right to Petition ...................................... 28
11.6 Membership Requirements ....................................... 29
12. TRANSFERS OF MEMBERSHIP INTEREST .................................... 30
13. INTERCHANGE ......................................................... 30
13.1 Interchange Arrangements with Non-Members ..................... 30
13.2 Energy Market ................................................. 30
14. METERING ............................................................ 30
14.1 Installation, Maintenance and Reading of Meters ............... 30
iii
<PAGE>
14.2 Metering Procedures ........................................... 30
14.3 Integrated Megawatt-Hours ..................................... 31
14.4 Meter Locations ............................................... 31
15. ENFORCEMENT OF OBLIGATIONS .......................................... 31
15.1 Failure to Meet Obligations ................................... 31
15.1.1 Termination of Market Buyer Rights ..................... 31
15.1.2 Termination of Market Seller Rights .................... 31
15.1.3 Payment of Bills ............................................ 32
15.2 Enforcement of Obligations .................................... 33
15.3 Obligations to a Member in Default ............................ 33
15.4 Obligations of a Member in Default ............................ 33
15.5 No Implied Waiver ............................................. 33
16. LIABILITY AND INDEMNITY ............................................. 34
16.1 Members ....................................................... 34
16.2 LLC Indemnified Parties ....................................... 35
16.3 Worker' Compensation Claims ................................... 36
16.4 Limitation of Liability ....................................... 36
16.5 Resolution of Disputes ........................................ 36
16.6 Gross Negligence or Willful Misconduct ........................ 36
16.7 Insurance ..................................................... 37
17. MEMBER REPRESENTATIONS, WARRANTIES AND COVENANTS .................... 37
17.1 Representations and Warranties ................................ 37
17.1.1 Organization and Existence ............................. 37
17.1.2 Power and Authority .................................... 37
17.1.3 Authorization and Enforceability ....................... 37
17.1.4 No Government Consents ................................. 37
17.1.5 No Conflict or Breach .................................. 37
17.1.6 No Proceedings ......................................... 38
17.2 Municipal Electric Systems .................................... 38
17.3 Survival ...................................................... 38
18. MISCELLANEOUS PROVISIONS ............................................ 38
18.1 Transmission Owners Rights .................................... 38
18.2 Fiscal and Taxable Year ....................................... 38
18.3 Reports ....................................................... 38
18.4 Bank Accounts; Checks, Notes and Drafts ....................... 39
18.5 Books and Records ............................................. 39
18.6 Amendment ..................................................... 40
18.7 Interpretation ................................................ 40
18.8 Severability .................................................. 40
18.9 Force Majeure ................................................. 41
18.10 Further Assurances ........................................... 41
18.11 Seal ......................................................... 41
18.12 Counterparts ................................................. 41
18.13 Costs of Meetings ............................................ 41
iv
<PAGE>
18.14 Notice ....................................................... 42
18.15 Headings ..................................................... 42
18.16 No Third-Party Beneficiaries ................................. 42
18.17 Confidentiality .............................................. 42
18.17.1 Party Access .......................................... 42
18.17.2 Required Disclosure ................................... 43
18.18 Termination and Withdrawal ................................... 43
18.18.1 Termination ........................................... 43
18.18.2 Withdrawal ............................................ 43
18.18.3 Winding Up ............................................ 44
SCHEDULE 1 - PJM INTERCHANGE ENERGY MARKET .............................. 1
1. MARKET OPERATIONS .................................................... 1
1.1 Introduction ................................................... 1
1.2 Cost-based Offers .............................................. 1
1.3 Definitions .................................................... 1
1.3.1 Dispatch Rate ........................................... 1
1.3.2 Equivalent Load ......................................... 1
1.3.3 External Market Buyer ................................... 1
1.3.4 External Resource ....................................... 2
1.3.5 Fixed Transmission Right ................................ 2
1.3.6 Generating Market Buyer ................................. 2
1.3.7 Generator Forced Outage ................................. 2
1.3.8 Generator Maintenance Outage ............................ 2
1.3.9 Generator Planned Outage ................................ 2
1.3.10 Internal Market Buyer .................................. 2
1.3.11 Inadvertent Interchange ................................ 2
1.3.12 Market Operations Center ............................... 3
1.3.13 Maximum Generation Emergency ........................... 3
1.3.14 Minimum Generation Emergency ........................... 3
1.3.15 Network Resource ....................................... 3
1.3.16 Network Service User ................................... 3
1.3.17 Network Transmission Service ........................... 3
1.3.18 Normal Maximum Generation .............................. 3
1.3.19 Normal Minimum Generation .............................. 3
1.3.20 Offer Data ............................................. 3
1.3.21 Office of the Interconnection Control Center ........... 4
1.3.22 Operating Day .......................................... 4
1.3.23 Operating Margin ....................................... 4
1.3.24 Operating Margin Customer .............................. 4
1.3.25 PJM Interchange ........................................ 4
1.3.26 PJM Interchange Export ................................. 4
1.3.27 PJM Interchange Import ................................. 5
1.3.28 PJM Open Access Same-time Information System ........... 5
1.3.29 Point-to-Point Transmission Service .................... 5
v
<PAGE>
1.3.30 Ramping Capability .......................................... 5
1.3.31 Regulation .................................................. 5
1.3.32 Regulation Class ............................................ 5
1.3.33 Spot Market Energy .......................................... 5
1.3.34 Transmission Congestion Charge .............................. 5
1.3.35 Transmission Congestion Credit .............................. 6
1.3.36 Transmission Customer ....................................... 6
1.3.37 Transmission Forced Outage .................................. 6
1.3.38 Transmission Planned Outage ................................. 6
1.4 Market Buyers ....................................................... 6
1.4.1 Qualification ................................................ 6
1.4.2 Submission of Information .................................... 7
1.4.3 Fees and Costs ............................................... 7
1.4.4 Office of the Interconnection Determination .................. 8
1.4.5 Existing Participants ........................................ 8
1.4.6 Withdrawal ................................................... 8
1.5 Market Sellers ...................................................... 9
1.5.1 Qualification ................................................ 9
1.5.2 Withdrawal ................................................... 9
1.6 Office of the Interconnection ....................................... 9
1.6.1 Operation of the PJM Interchange Energy Market ............... 9
1.6.2 Scope of Services ............................................ 9
1.6.3 Records and Reports .......................................... 10
1.6.4 PJM Manuals .................................................. 11
1.7 General ............................................................. 11
1.7.1 Market Sellers ............................................... 11
1.7.2 Market Buyers ................................................ 11
1.7.3 Agents ....................................................... 11
1.7.4 General Obligations of the Market Participants ............... 11
1.7.5 Market Operations Center ..................................... 13
1.7.6 Scheduling and Dispatching ................................... 13
1.7.7 Pricing ...................................................... 13
1.7.8 Generating Market Buyer Resources ............................ 13
1.7.9 Delivery to an External Market Buyer ......................... 13
1.7.10 Other Transactions .......................................... 14
1.7.11 Emergencies ................................................. 14
1.7.12 Fees and Charges ............................................ 14
1.7.13 Relationship to PJM Control Area ............................ 14
1.7.14 PJM Manuals ................................................. 15
1.7.15 Corrective Action ........................................... 15
1.7.16 Recording ................................................... 15
1.7.17 Operating Reserves .......................................... 15
1.7.18 Regulation .................................................. 15
1.7.19 Ramping ..................................................... 16
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<PAGE>
1.7.20 Communication and Operating Requirements ............... 16
1.7.21 Multi-settlement System ................................ 17
1.8 Selection, Scheduling and Dispatch Procedure Adjustment
Process ........................................................ 17
1.8.1 PJM Dispute Resolution Agreement ........................ 17
1.8.2 Market or Control Area Hourly Operational Disputes ...... 17
1.9 Prescheduling .................................................. 18
1.9.1 Outage Scheduling ....................................... 18
1.9.2 Planned Outages ......................................... 18
1.9.3 Generator Maintenance Outages ........................... 19
1.9.4 Forced Outages .......................................... 19
1.9.5 Market Participant Responsibilities ..................... 20
1.9.6 Internal Market Buyer Responsibilities .................. 20
1.9.7 Market Seller Responsibilities .......................... 20
1.9.8 Office of the Interconnection Responsibilities .......... 20
1.10 Scheduling .................................................... 21
1.10.1 Day-Ahead Scheduling ................................... 21
1.10.2 Pool-Scheduled Resources ............................... 23
1.10.3 Self-scheduled Resources ............................... 24
1.10.4 Capacity Resources ..................................... 24
1.10.5 External Resources ..................................... 25
1.10.6 External Market Buyers ................................. 26
1.10.7 Bilateral Transactions ................................. 26
1.10.8 Office of the Interconnection Responsibilities ......... 27
1.10.9 Hourly Scheduling ...................................... 27
1.11 Dispatch ...................................................... 28
1.11.1 Resource Output ........................................ 28
1.11.2 Operating Basis ........................................ 28
1.11.3 Pool-dispatched Resources .............................. 29
1.11.4 Regulation ............................................. 29
1.11.5 PJM Open Access Same-time Information System ........... 29
2. CALCULATION OF LOCATIONAL MARGINAL PRICES ............................ 30
2.1 Introduction ................................................... 30
2.2 General ........................................................ 30
2.3 Determination of System Conditions Using the State
Estimator ...................................................... 31
2.4 Determination of Energy Offers Used in Calculating
Locational Marginal Prices ..................................... 31
2.5 Calculation of Locational Marginal Prices ...................... 32
2.6 Performance Evaluation ......................................... 32
3. ACCOUNTING AND BILLING ............................................... 33
3.1 Introduction ................................................... 33
3.2 Market Buyers .................................................. 33
3.2.1 Spot Market Energy ...................................... 33
3.2.2 Regulation .............................................. 34
3.2.3 Operating Reserves ...................................... 35
3.2.4 Transmission Congestion ................................. 35
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<PAGE>
3.2.5 Transmission Losses ..................................... 35
3.2.6 Emergency Energy ........................................ 36
3.2.7 Billing ................................................. 36
3.3 Market Sellers ................................................. 36
3.3.1 Spot Market Energy ...................................... 37
3.3.2 Regulation .............................................. 37
3.3.3 Operating Reserves ...................................... 37
3.3.4 Emergency Energy ........................................ 37
3.3.5 Billing ................................................. 38
3.4 Transmission Customers ......................................... 38
3.4.1 Transmission Congestion ................................. 38
3.4.2 Transmission Losses ..................................... 38
3.4.3 Billing ................................................. 38
3.5 Other Control Areas ............................................ 39
3.5.1 Energy Sales ............................................ 39
3.5.2 Operating Margin Sales .................................. 39
3.5.3 Transmission Congestion ................................. 39
3.5.4 Billing ................................................. 39
3.6 Metering Reconciliation ........................................ 39
3.6.1 Meter Correction Billing ................................ 39
3.6.2 Meter Corrections Between Market Participants ........... 40
3.6.3 500 kV Meter Errors ..................................... 40
3.6.4 Meter Corrections Between Control Areas ................. 40
3.6.5 Meter Correction Data ................................... 40
3.6.6 Correction Limits ............................................ 40
4. RATE TABLE ........................................................... 41
4.1 Offered Price Rates ............................................ 41
4.2 Transmission Losses ............................................ 41
4.3 Emergency Energy Purchases ..................................... 41
5. CALCULATION OF TRANSMISSION CONGESTION CHARGES AND CREDITS ........... 42
5.1 Transmission Congestion Charge Calculation ..................... 42
5.1.1 Calculation by Office of the Interconnection ............ 42
5.1.2 General ................................................. 42
5.1.3 Network Service User Calculation ........................ 42
5.1.4 Transmission Customer Calculation ....................... 42
5.1.5 Operating Margin Customer Calculation ................... 42
5.1.6 Total Transmission Congestion Charges ................... 43
5.2 Transmission Congestion Credit Calculation ..................... 43
5.2.1 Eligibility ............................................. 43
5.2.2 Fixed Transmission Rights ............................... 43
5.2.3 Target Allocation for Network Service Users ............. 44
5.2.4 Target Allocation for other Holders ..................... 44
5.2.5 Calculation of Transmission Congestion Credits .......... 44
5.2.6 Distribution of Excess Congestion Charges ............... 44
viii
<PAGE>
SCHEDULE 2 - COMPONENTS OF COST .......................................... 1
SCHEDULE 3 - ALLOCATION OF OI COSTS ...................................... 1
SCHEDULE 4 - STANDARD MEMBERSHIP AGREEMENT ............................... 1
SCHEDULE 5 - DISPUTE RESOLUTION PROCEDURE ................................ 1
1. DEFINITIONS ........................................................... 1
1.1 Alternate Dispute Resolution Committee .......................... 1
1.2 MAAC Dispute Resolution Committee ............................... 1
1.3 Related PJM Agreements .......................................... 1
2. PURPOSES AND OBJECTIVES ............................................... 1
2.1 Common and Uniform Procedures ................................... 1
2.2 Interpretation .................................................. 1
3. NEGOTIATION AND MEDIATION ............................................. 2
3.1 When Required ................................................... 2
3.2 Procedures ...................................................... 2
3.2.1 Initiation ............................................... 2
3.2.2 Selection of Mediator .................................... 2
3.2.3 Advisory Mediator ........................................ 2
3.2.4 Mediation Process ........................................ 3
3.2.5 Mediator's Assessment .................................... 3
3.3 Costs ........................................................... 4
4. ARBITRATION ........................................................... 4
4.1 When Required ................................................... 4
4.2 Binding Decision ................................................ 4
4.3 Initiation ...................................................... 4
4.4 Selection of Arbitrator(s) ...................................... 4
4.5 Procedures ...................................................... 5
4.6 Summary Disposition and Interim Measures ........................ 5
4.6.1 Lack of Good Faith Basis ................................. 5
4.6.2 Discovery Limits ......................................... 5
4.6.3 Interim Decision ......................................... 5
4.7 Discovery of Facts .............................................. 6
4.7.1 Discovery Procedures ..................................... 6
4.7.2 Procedures Arbitrator .................................... 6
4.8 Evidentiary Hearing ............................................. 6
4.9 Confidentiality ................................................. 7
4.9.1 Designation .............................................. 7
4.9.2 Compulsory Disclosure .................................... 7
4.9.3 Public Information ....................................... 7
4.10 Timetable ...................................................... 8
4.11 Advisory Interpretations ....................................... 8
4.12 Decisions ...................................................... 8
4.13 Costs .......................................................... 8
4.14 Enforcement .................................................... 9
5. ALTERNATE DISPUTE RESOLUTION COMMITTEE ................................ 9
ix
<PAGE>
5.1 Membership ..................................................... 9
5.1.1 Representatives ......................................... 9
5.1.2 Term .................................................... 9
5.2 Voting Requirements ............................................ 9
5.3 Officers ....................................................... 9
5.4 Meetings ....................................................... 10
5.5 Responsibilities ............................................... 10
SCHEDULE 6 - REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL .......... 1
1. REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL .................... 1
1.1 Purpose and Objectives ......................................... 1
1.2 Conformity with NERC and MAAC Criteria ......................... 1
1.3 Establishment of Committees .................................... 1
1.4 Contents of the Regional Transmission Expansion Plan ........... 2
1.5 Procedure for Development of the Regional Transmission
Expansion Plan ................................................. 2
1.5.1 Commencement of the Process ............................. 2
1.5.2 Development of Scope, Assumptions and Procedures ........ 3
1.5.3 Scope of Studies ........................................ 3
1.5.4 Supply of Data .......................................... 3
1.5.5 Coordination of the Regional Transmission Expansion Plan 3
1.5.6 Development of the Recommended Regional Transmission
Expansion Plan .. 3
1.6 Approval of the Final Regional Transmission Expansion Plan ..... 4
1.7 Obligation to Build ............................................ 5
1.8 Relationship to the PJM Control Area Open Access
Transmission PJM Tariff ........................................ 5
SCHEDULE 7 - UNDERFREQUENCY RELAY OBLICATIONS AND CHARGES ............... 1
1. UNDERFREQUENCY RELAY OBLIGATION ...................................... 1
1.1 Application .................................................... 1
1.2 Obligations .................................................... 1
2. UNDERFREQUENCY RELAY CHARGES ......................................... 1
3. DISTRIBUTION OF UNDERFREQUENCY RELAY CHARGES ......................... 2
3.1 Share of Charges ............................................... 2
3.2 Allocation by the Office of the Interconnection ................ 2
SCHEDULE 8 -DELEGATION OF RELIABILITY RESPONSIBILITIES .................. 1
1. DELEGATION ........................................................... 1
2. NEW PARTIES .......................................................... 1
3. IMPLEMENTATION OF RELIABILITY ASSURANCE AGREEMENT .................... 1
SCHEDULE 9 - EMERGENCY PROCEDURE CHARGES ................................ 1
1. EMERGENCY PROCEDURE CHARGE ........................................... 1
2. DISTRIBUTION OF EMERGENCY PROCEDURE CHARGES .......................... 1
2.1 Complying Parties .............................................. 1
2.2 All Parties .................................................... 1
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<PAGE>
AMENDED AND RESTATED
OPERATING AGREEMENT
of
PJM INTERCONNECTION, L.L.C.
This Amended and Restated Operating Agreement of PJM Interconnection,
L.L.C., dated as of this 2ndday of June, 1997, amends and restates as of the
Effective Date the Operating Agreement of PJM Interconnection, L.L.C. filed with
the FERC on April 2, 1997, as amended.of PJM Interconnection, L.L.C. filed with
the FERC on April 2, 1997, as amended.
WHEREAS, certain of the Members have previously entered into an agreement,
originally dated September 26, 1956, as amended and supplemented up to and
including December 31, 1996, stating "their respective rights and obligations
with respect to the coordinated operation of their electric supply systems and
the interchange of electric capacity and energy among their systems" (such
agreement as amended and supplemented being referred to as the "Original PJM
Agreement"), and which coordinated operations and interchange came to be known
as the PJM Interconnection (the "Interconnection"); and
WHEREAS, pursuant to a resolution of June 16, 1993, an unincorporated
association comprised of the parties to the Original PJM Agreement was formed
for the purpose of implementation of the Original PJM Agreement as it then
existed and as it subsequently has been amended and supplemented, such
association being known as the "PJM Interconnection Association"; and
WHEREAS, because of changes in federal law and policy, the Original PJM
Agreement, together with other documents and agreements, was amended, restated
and submitted to FERC on December 31, 1996 to restructure fundamental aspects of
the operation of the Interconnection; and
WHEREAS, so that the provisions of the Original PJM Agreement could be
placed into effect consistent with a February 28, 1997 order of FERC, including
those provisions related to the governance of the Interconnection, the parties
to the Original PJM Agreement, along with the other interested parties, approved
the conversion of the PJM Interconnection Association into the LLC pursuant to
the provisions of the Delaware Limited Liability Company Act, as amended (the
"Delaware LLC Act"), pursuant to a Certificate of Formation (the "Certificate of
Formation") and a Certificate of Conversion (the "Certificate of Conversion"),
each filed with the Delaware Secretary of State (the "Recording Office") on
March 31, 1997; and
WHEREAS, the Members wish to amend and restate the Operating Agreement of
PJM Interconnection, L.L.C. adopted in connection with the formation of the LLC
and as in effect immediately prior to the Effective Date in the form set forth
below; and
WHEREAS, the Members intend to form an Independent System Operator in
accordance with the regulations of the Federal Energy Regulatory Commission; and
Now, therefore, in consideration of the foregoing, and of the covenants and
agreements hereinafter set forth, the Members hereby agree as follows:
1
<PAGE>
DEFINITIONS
Unless the context otherwise specifies or requires, capitalized terms used
in this Agreement shall have the respective meanings assigned herein or in the
Schedules hereto for all purposes of this Agreement (such definitions to be
equally applicable to both the singular and the plural forms of the terms
defined). Unless otherwise specified, all references herein to Sections,
Schedules, Exhibits or Appendices are to Sections, Schedules, Exhibits or
Appendices of this Agreement. As used in this Agreement:
1.1 Act.
"Act" shall mean the Delaware Limited Liability Company Act, Title 6,
ss.ss. 18-101 to 18- 1109 of the Delaware Code.
1.2 Affiliate.
"Affiliate" shall mean any two or more entities, one of which controls the
other or that are under common control. "Control" shall mean the possession,
directly or indirectly, of the power to direct the management or policies of an
entity. Ownership of publicly-traded equity securities of another entity shall
not result in control or affiliation for purposes of this Agreement if the
securities are held as an investment, the holder owns (in its name or via
intermediaries) less than 10 percent of the outstanding securities of the
entity, the holder does not have representation on the entity's board of
directors (or equivalent managing entity) or vice versa, and the holder does not
in fact exercise influence over day-to-day management decisions. Unless the
contrary is demonstrated to the satisfaction of the Members Committee, control
shall be presumed to arise from the ownership of or the power to vote, directly
or indirectly, ten percent or more of the voting securities of such entity.
1.3 Agreement.
"Agreement" shall mean this Amended and Restated Operating Agreement of PJM
Interconnection, L.L.C., including all Schedules, Exhibits, Appendices, addenda
or supplements hereto, as amended from time to time.
1.4 Annual Meeting of the Members.
"Annual Meeting of the Members" shall mean the meeting specified in Section
8.3.1 of this Agreement.
1.5 Board Member.
"Board Member" shall mean a member of the PJM Board.
1.6 Capacity Resource.
"Capacity Resource" shall mean the net capacity from owned or contracted
for generating facilities all of which (i) are accredited to a Load Serving
Entity pursuant to the procedures set forth in the Reliability Assurance
Agreement and (ii) are committed to satisfy that Load Serving Entity's
obligations under the Reliability Assurance Agreement and this Agreement.
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1.7 Control Area.
"Control Area" shall mean an electric power system or combination of
electric power systems bounded by interconnection metering and telemetry to
which a common automatic generation control scheme is applied in order to:
(a) match the power output of the generators within the electric power
system(s) and energy purchased from entities outside the electric power
system(s), with the load within the electric power system(s);
(b) maintain scheduled interchange with other Control Areas, within the
limits of Good Utility Practice;
(c) maintain the frequency of the electric power system(s) within
reasonable limits in accordance with Good Utility Practice and the criteria of
NERC and the applicable regional reliability council of NERC;
(d) maintain power flows on transmission facilities within appropriate
limits to preserve reliability; and
(e) provide sufficient generating capacity to maintain operating reserves
in accordance with Good Utility Practice.
1.8 Electric Distributor.
"Electric Distributor" shall mean a Member that owns or leases with rights
equivalent to ownership electric distribution facilities that are used to
provide electric distribution service to electric load within the PJM Control
Area.
1.9 Effective Date.
"Effective Date" shall mean August 1, 1997, or such later date that FERC
permits this Agreement to go into effect.
1.10 Emergency.
"Emergency" shall mean: (i) an abnormal system condition requiring manual
or automatic action to maintain system frequency, or to prevent loss of firm
load, equipment damage, or tripping of system elements that could adversely
affect the reliability of an electric system or the safety of persons or
property; or (ii) a fuel shortage requiring departure from normal operating
procedures in order to minimize the use of such scarce fuel; or (iii) a
condition that requires implementation of emergency procedures as defined in the
PJM Manuals.
1.11 End-Use Customer.
"End-Use Customer" shall mean a Member that is a retail end-user of
electricity within the PJM Control Area.
1.12 FERC.
"FERC" shall mean the Federal Energy Regulatory Commission or any successor
federal agency, commission or department exercising jurisdiction over this
Agreement.
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1.13 Finance Committee.
"Finance Committee" shall mean the body formed pursuant to Section 0 of
this Agreement.
1.14 Generation Owner.
"Generation Owner" shall mean a Member that owns or leases with rights
equivalent to ownership facilities for the generation of electric energy that
are located within the PJM Control Area. Purchasing all or a portion of the
output of a generation facility shall not be sufficient to qualify a Member as a
Generation Owner.
1.15 Good Utility Practice.
"Good Utility Practice" shall mean any of the practices, methods and acts
engaged in or approved by a significant portion of the electric utility industry
during the relevant time period, or any of the practices, methods and acts
which, in the exercise of reasonable judgment in light of the facts known at the
time the decision was made, could have been expected to accomplish the desired
result at a reasonable cost consistent with good business practices,
reliability, safety and expedition. Good Utility Practice is not intended to be
limited to the optimum practice, method, or act to the exclusion of all others,
but rather is intended to include acceptable practices, methods, or acts
generally accepted in the region.
1.16 Interconnection.
"Interconnection" shall mean the coordinated operations and interchange
resulting from the Original PJM Agreement as continued in this Agreement.
1.17 LLC.
"LLC" shall mean PJM Interconnection, L.L.C., a Delaware limited liability
company.
1.18 Load Serving Entity.
"Load Serving Entity" shall mean an entity, including a load aggregator or
power marketer, (1) serving end-users within the PJM Control Area, and (2) that
has been granted the authority or has an obligation pursuant to state or local
law, regulation or franchise to sell electric energy to end- users located
within the PJM Control Area, or the duly designated agent of such an entity.
1.19 Locational Marginal Price.
"Locational Marginal Price" shall mean the hourly integrated market
clearing marginal price for energy at the location the energy is delivered or
received, calculated as specified in Section 0 of Schedule 1 of this Agreement.
1.20 MAAC.
"MAAC" shall mean the Mid-Atlantic Area Council, a reliability council
under ss. 202 of the Federal Power Act established pursuant to the MAAC
Agreement dated August 1, 1994, or any successor thereto.
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1.21 Market Buyer.
"Market Buyer" shall mean a Member that has met reasonable creditworthiness
standards established by the Office of the Interconnection and that is otherwise
able to make purchases in the PJM Interchange Energy Market.
1.22 Market Participant.
"Market Participant" shall mean a Market Buyer or a Market Seller, or both.
1.23 Market Seller.
"Market Seller" shall mean a Member that has met reasonable
creditworthiness standards established by the Office of the Interconnection and
that is otherwise able to make sales in the PJM Interchange Energy Market.
1.24 Member.
"Member" shall mean an entity that satisfies the requirements of Section
11.6 of this Agreement and that (i) is a member of the LLC immediately prior to
the Effective Date, or (ii) has executed an Additional Member Agreement in the
form set forth in Schedule 4 hereof.
1.25 Members Committee.
"Members Committee" shall mean the committee specified in Section 8 of this
Agreement composed of representatives of all the Members.
1.26 NERC.
"NERC" shall mean the North American Electric Reliability Council, or any
successor thereto.
1.27 Office of the Interconnection.
"Office of the Interconnection" shall mean the employees and agents of the
LLC engaged in implementation of this Agreement and administration of the PJM
Tariff, subject to the supervision and oversight of the PJM Board acting
pursuant to this Agreement.
1.28 Operating Reserve.
"Operating Reserve" shall mean the amount of generating capacity scheduled
to be available for a specified period of an Operating Day to ensure the
reliable operation of the PJM Control Area, as specified in the PJM Manuals.
1.29 Original PJM Agreement.
"Original PJM Agreement" shall mean that certain agreement between certain
of the Members, originally dated September 26, 1956, and as amended and
supplemented up to and including December 31, 1996, relating to the coordinated
operation of their electric supply systems and the interchange of electric
capacity and energy among their systems.
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1.30 Other Supplier.
"Other Supplier" shall mean a Member that is (i) a seller, buyer or
transmitter of electric capacity or energy in, from or through the PJM Control
Area, and (ii) is not a Generation Owner, Electric Distributor, Transmission
Owner or End-Use Customer.
1.31 PJM Board.
"PJM Board" shall mean the Board of Managers of the LLC, acting pursuant to
this Agreement.
1.32 PJM Control Area.
"PJM Control Area" shall mean the Control Area recognized by NERC as the
PJM Control Area.
1.33 PJM Dispute Resolution Procedures
"PJM Dispute Resolution Procedures" shall mean the procedures for the
resolution of disputes set forth in Schedule 5 of this Agreement.
1.34 PJM Interchange Energy Market.
"PJM Interchange Energy Market" shall mean the regional competitive market
administered by the Office of the Interconnection for the purchase and sale of
spot electric energy at wholesale in interstate commerce and related services
established pursuant to Schedule 1 to this Agreement.
1.35 PJM Manuals.
"PJM Manuals" shall mean the instructions, rules, procedures and guidelines
established by the Office of the Interconnection for the operation, planning,
and accounting requirements of the PJM Control Area and the PJM Interchange
Energy Market.
1.36 PJM Tariff.
"PJM Tariff" shall mean the PJM Open Access Transmission Tariff providing
transmission service within the PJM Control Area, including any schedules,
appendices, or exhibits attached thereto, as in effect from time to time.
1.37 Planning Period.
"Planning Period" shall initially mean the 12 months be ginning June 1
through May 31 of the following year, or such other period established by the
Reliability Committee established under the Reliability Assurance Agreement.
1.38 President.
"President" shall have the meaning specified in Section 9.2.
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1.39 Related Parties.
"Related Parties" shall mean, solely for purposes of the governance
provisions of this Agreement: (i) any generation and transmission cooperative
and one of its distribution cooperative members; and (ii) any joint municipal
agency and one of its members. For purposes of this Agreement, representatives
of state or federal government agencies shall not be deemed Related Parties with
respect to each other, and a public body's regulatory authority, if any, over a
Member shall not be deemed to make it a Related Party with respect to that
Member.
1.40 Reliability Assurance Agreement.
"Reliability Assurance Agreement" shall mean that certain agreement, dated
June 2, 1997 and as amended from time to time, establishing obligations,
standards and procedures for maintaining the reliable operation of the PJM
Control Area.
1.41 Sector Votes.
"Sector Votes" shall mean the affirmative and negative votes of each sector
on the Members Committee, as specified in Section 8.4.
1.42 State.
"State" shall mean the District of Columbia and any State or Commonwealth
of the United States.
1.43 System.
"System" shall mean the interconnected electric supply system of a Member
and its interconnected subsidiaries exclusive of facilities which it may own or
control outside of the PJM Control Area. Each Member may include in its system
the electric supply systems of any party or parties other than Members which are
within the PJM Control Area, provided its interconnection agreements with such
other party or parties do not conflict with such inclusion.
1.44 Transmission Facilities.
"Transmission Facilities" shall mean facilities that: (i) are within the
PJM Control Area; (ii) meet the definition of transmission facilities pursuant
to FERC's Uniform System of Accounts or have been classified as transmission
facilities in a ruling by FERC addressing such facilities; and (iii) have been
demonstrated to the satisfaction of the Office of the Interconnection to be
integrated with the PJM Control Area transmission system and integrated into the
planning and operation of the PJM Control Area to serve all of the power and
transmission customers within the PJM Control Area.
1.45 Transmission Owner.
"Transmission Owner" shall mean a Member that owns or leases with rights
equivalent to ownership Transmission Facilities. Taking transmission service
shall not be sufficient to qualify a Member as a Transmission Owner.
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1.46 Transmission Owners Agreement.
"Transmission Owners Agreement" shall mean that certain agreement, dated
June 2, 1997 and as amended from time to time, by and among Transmission Owners
in the PJM Control Area providing for an open-access transmission tariff in the
PJM Control Area, and for other purposes.
1.47 User Group.
"User Group" shall mean a group formed pursuant to Section 0 of this
Agreement.
1.48 Voting Member
"Voting Member" shall mean (i) a Member as to which no other Member is an
Affiliate or Related Party, or (ii) a Member together with any other Members as
to which it is an Affiliate or Related Party.
1.49 Weighted Interest.
"Weighted Interest" shall be equal to (0.1(1/N) + 0.5(B/C) + 0.2(D/E) +
0.2(F/G)), where:
N = the total number of Members
B = the Member's internal peak demand for the previous calendar year
C = the sum of factor B for all Members
D = the Member's net installed generating capacity located in the PJM
Control Area as of January 1 of the current calendar year
E = the sum of factor D for all Members
F = the sum of the Member's circuit miles of transmission facilities
multiplied by the respective operating voltage for facilities 100 kV
and above as of January 1 of the current calendar year
G = the sum of factor F for all Members
2. FORMATION, NAME; PLACE OF BUSINESS
2.1 Formation of LLC; Certificate of Formation.
The Members of the LLC hereby:
(a) acknowledge the conversion of the PJM Interconnection Association into
the LLC, a limited liability company pursuant to the Act, by virtue of the
filing of both the Certificate of Formation and the Certificate of Conversion
with the Recording Office, effective as of March 31, 1997;
(b) confirm and agree to their status as Members of the LLC;
(c) enter into this Agreement for the purpose of amending and restating the
rights, duties, and relationship of the Members; and
(d) agree that if the laws of any jurisdiction in which the LLC transacts
business so require, the PJM Board also shall file, with the appropriate office
in that jurisdiction, any documents necessary for the LLC to qualify to transact
business under such laws; and (ii) agree and obligate themselves to execute,
acknowledge, and cause to be filed for record, in the place or places and manner
prescribed by law, any amendments to the Certificate of Formation as may be
required,
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either by the Act, by the laws of any jurisdiction in which the LLC transacts
business, or by this Agreement, to reflect changes in the information contained
therein or otherwise to comply with the requirements of law for the
continuation, preservation, and operation of the LLC as a limited liability
company under the Act.
2.2 Name of LLC.
The name under which the LLC shall conduct its business is "PJM
Interconnection, L.L.C."
2.3 Place of Business.
The location of the principal place of business of the LLC shall be 955
Jefferson Avenue, Valley Forge Corporate Center, Norristown, Pennsylvania
19403-2497. The LLC may also have offices at such other places both within and
without the State of Delaware as the PJM Board may from time to time determine
or the business of the LLC may require.
2.4 Registered Office and Registered Agent.
The street address of the initial registered office of the LLC shall be
1209 Orange Street, Wilmington, Delaware 19801, and the LLC's registered agent
at such address shall be The Corporation Trust Company. The registered office
and registered agent may be changed by resolution of the PJM Board.
3. PURPOSES AND POWERS OF LLC
3.1 Purposes.
The purposes of the LLC shall be:
(a) to operate in accordance with FERC requirements as an Independent
System Operator, comprised of the PJM Board, the Office of the Interconnection,
and the Members Committee, with the authorities and responsibilities set forth
in this Agreement;
(b) as necessary for the operation of the Interconnection as specified
above: (i) to acquire and obtain licenses, permits and approvals, (ii) to own or
lease property, equipment and facilities, and (iii) to contract with third
parties to obtain goods and services, provided that, the L.L.C. may procure
goods and services from a Member only after open and competitive bidding; and
(c) to engage in any lawful business permitted by the Act or the laws of
any jurisdiction in which the LLC may do business and to enter into any lawful
transaction and engage in any lawful activities in furtherance of the foregoing
purposes and as may be necessary, incidental or convenient to carry out the
business of the LLC as contemplated by this Agreement.
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3.2 Powers.
The LLC shall have the power to do any and all acts and things necessary,
appropriate, advisable, or convenient for the furtherance and accomplishment of
the purposes of the LLC, including, without limitation, to engage in any kind of
activity and to enter into and perform obligations of any kind necessary to or
in connection with, or incidental to, the accomplishment of the purposes of the
LLC, so long as said activities and obligations may be lawfully engaged in or
performed by a limited liability company under the Act.
4. EFFECTIVE DATE AND TERMINATION
4.1 Effective Date and Termination.
(a) The existence of the LLC commenced on March 31, 1997, as provided in
the Certificate of Formation and Certificate of Conversion which were filed with
the Recording Office on March 31, 1997. This Agreement shall amend and restate
the Operating Agreement of PJM Interconnection, L.L.C. as of the Effective Date.
(b) The LLC shall continue in existence until terminated in accordance with
the terms of this Agreement. The withdrawal or termination of any Member is
subject to the provisions of Section 0 of this Agreement.
(c) Any termination of this Agreement or withdrawal of any Member from the
Agreement shall be filed with the FERC and shall become effective only upon the
FERC 's approval.
Governing Law.
This Agreement and all questions with respect to the rights and obligations
of the Members, the construction, enforcement and interpretation hereof, and the
formation, administration and termination of the LLC shall be governed by the
provisions of the Act and other applicable laws of the State of Delaware, and
the Federal Power Act.
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5. WORKING CAPITAL AND CAPITAL CONTRIBUTIONS
5.1 Funding of Working Capital and Capital Contributions.
(a) The Office of the Interconnection shall attempt to obtain financing of
up to five million two hundred thousand dollars ($5,200,000) to meet the working
capital needs of the LLC, which shall be limited to such working capital needs
that arise from timing in cash flows from interchange accounting, tariff
administration and payment of the operating costs of the Office of the
Interconnection. Such financing, which shall be non-recourse to the Members of
the LLC and which shall be for a stated term without penalty for prepayment, may
be obtained by borrowing the amount required at market-based interest rates,
negotiated on an arm's length basis, (i) from a Member or Members or (ii) from a
commercial lender, supported, if necessary, by credit enhancements provided by a
Member or Members; provided, however, no Member shall be obligated to provide
such financing or credit enhancements. The LLC shall make such filings and seek
such approvals as necessary in order for the principal, interest and fees
related to any such borrowing to be repaid through charges under the PJM Tariff
as appropriate under Schedule 3 of this Agreement.
(b) In the event financing of the working capital needs of the Office of
the Interconnection is unavailable on commercially reasonable terms, the PJM
Board may require the Members to contribute capital in the aggregate up to five
million two hundred thousand dollars ($5,200,000) for the working capital needs
that could not be financed; provided that in such event each Member's obligation
to contribute additional capital shall be in proportion to its Weighted
Interest, multiplied by the amount so requested by the PJM Board. Each Member
that contributes such capital shall be entitled to earn a return on the
contribution to the extent such contribution has not been repaid, which return
shall be at a fair market rate as determined by the PJM Board but in no event
less than the current interest rate established pursuant to 18 C.F.R. ss.
35.19a(a)(2)(iii); provided further, that any Member not wanting to contribute
the requested capital contribution may withdraw from the LLC upon 90 days
written notice as provided in Section 18.18.2 of this Agreement. 5.2
Contributions to Association. All contributions prior to the Effective Date of
the original Operating Agreement of PJM Interconnection, L.L.C. of cash or other
assets to the PJM Interconnection Association by persons who are now or in the
future may become Members of the LLC shall be deemed contributions by such
Members to the LLC.
6. TAX STATUS AND DISTRIBUTIONS
6.1 Tax Status.
The LLC shall make all necessary filings under the applicable Treasury
Regulations to have the LLC taxed as a corporation.
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6.2 Return of Capital Contributions.
(a) In the event Members are required to contribute capital to the LLC in
accordance with Section 5.1 herein, the LLC shall request the Transmission
Owners to recover such working capital through charges under the PJM Tariff as
provided in Schedule 3 of this Ag reement. In the event all or a portion of the
working capital is recovered pursuant to the PJM Tariff, such amount(s) shall be
returned to the Members in accordance with their actual contributions.
(b) Except for return of capital contributions and liquidating
distributions as provided in the foregoing section and Section 6.3 herein,
respectively, the LLC does not intend to make any distributions of cash or other
assets to its Members.
6.3 Liquidating Distribution.
Upon termination or liquidation of the LLC, the cash or other assets of the
LLC shall be distributed as follows:
(a) first, in the event the LLC has any liabilities at the time of its
termination or dissolution, the LLC shall liquidate such of its assets as is
necessary to satisfy such liabilities;
(b) second, any capital contribution in cash or in kind by any Member of
the PJM Interconnection Association prior to the Effective Date shall be
distributed by the LLC back to such Member in the form received by the PJM
Interconnection Association; and
(c) third, any remaining assets of the LLC shall be distributed to the
Members in proportion to their Weighted Interests.
7. PJM BOARD
7.1 Composition.
There shall be an LLC Board of Man agers, referred to herein as the "PJM
Board," composed of seven voting members, with the President as a non-voting
member. The seven voting Board Members shall be elected by the Members Committee
from a slate of candidates for the then- existing vacancies or expiring terms on
the PJM Board. An independent consultant, retained by the Office of the
Interconnection upon consideration of the advice and recommendations of the
Members Committee, shall be directed to prepare a list of persons qualified and
willing to serve on the PJM Board. Not later than 30 days prior to each Annual
Meeting of the Members, the Office of the Interconnection shall distribute to
the representatives on the Members Committee a slate from among the list
proposed by the independent consultant, along with information on the background
and experience of the persons on the slate appropriate to evaluating their
fitness for service on the PJM Board. Elections for the PJM Board shall be held
at each Annual Meeting of the Members, for the purpose of selecting the initial
PJM Board in accordance with the provisions of Section 7.3(a), or selecting a
person to fill the seat of a Board Member whose term is expiring. Should the
Members Committee fail to elect a full PJM Board from the slate proposed by the
independent consultant, the Office of the Interconnection shall direct the
independent consultant, or a replacement consultant selected by the Office of
the Interconnection, to propose a list for a slate of nominees for any vacancies
on the PJM Board for consideration by the Members at the next regular meeting of
the Members Committee.
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7.2 Qualifications.
A Board Member shall not be, and shall not have been at any time within
five years of election to the PJM Board, a director, officer or employee of a
Member or of an Affiliate or Related Party of a Member. Except as provided in
the LLC's Standards of Conduct filed with the FERC, at any time while serving on
the PJM Board, a Board Member shall have no direct business relationship or
other affiliation with any Member or its Affiliates or Related Parties. Of the
seven Board Members, four shall have expertise and experience in the areas of
corporate leadership at the senior management or board of directors level, or in
the professional disciplines of finance or accounting, engineering, or utility
laws and regulation. Of the other three Board Members, one shall have expertise
and experience in the operation or concerns of transmission dependent utilities,
one shall have expertise and experience in the operation or planning of
transmission systems, and one shall have expertise and experience in the area of
commercial markets and trading and associated risk management.
7.3 Term of Office.
(a) The persons serving as the Board of Managers of the LLC immediately
prior to the Effective Date shall continue in office until the first Annual
Meeting of the Members. At the first Annual Meeting of the Members, the then
current members of the PJM Board who desire to continue in office shall be
elected by the Members to serve until the second Annual Meeting of the Members
or until their successors are elected, along with such additional persons as
necessary to meet the composition requirements of Section 7.1 and the
qualification requirements of Section 7.2.
(b) A Board Member shall serve for a term of three years commencing with
the Annual Meeting of the Members at which the Board Member was elected;
provided, however, that two of the Board Members elected at the first Annual
Meeting of the Members following the Effective Date shall be chosen by lot to
serve a term of one year, three of such Board Members shall be chosen by lot to
serve a term of two years and the final two such Board Members shall serve a
term of three years.
(c) Vacancies on the PJM Board occurring between Annual Meetings of the
Members shall be filled by vote of the then remaining Board Members; a Board
Member so selected shall serve until the next Annual Meeting at which time a
person shall be elected to serve the balance of the term of the vacant Board
Seat. Removal of a Board Member shall require the approval of the Members
Committee.
7.4 Quorum.
The presence in person or by telephone or other authorized electronic means
of a majority of the voting Board Members shall constitute a quorum at all
meetings of the PJM Board for the transaction of business except as otherwise
provided by statute. If a quorum shall not be present, the Board Members then
present shall have the power to adjourn the meeting from time to time, until a
quorum shall be present. Provided a quorum is present at a meeting, the PJM
Board shall act by majority vote of the Board Members present.
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7.5 Operating and Capital Budgets.
7.5.1 Finance Committee.
Not later than February 1 of each year, the entities specified below
shall select the members of a Finance Committee. The Finance Committee shall be
composed of one representative of the parties to the Reliability Assurance
Agreement chosen by the parties to that agreement, one representative of the
parties to the Transmission Owners Agreement chosen by the parties to that
agreement, two representatives of the Members Committee chosen by the Members
Committee and that are not representatives of an entity that is a party to the
Transmission Owners Agreement or an Affiliate or Related Party of such an
entity, one representative of the Office of the Interconnection selected by the
President, and two Board Members selected by the PJM Board. The Members
Committee shall endeavor to elect members of the Finance Committee that are
broadly representative of the diversity of interests among the Members. The
Office of the Interconnection shall prepare annual budgets in accordance with
processes and procedures established by the PJM Board, and shall timely submit
its budgets to the Finance Committee for review. The Finance Committee shall
submit its analysis of and recommendations on the budgets to the PJM Board, with
copies to the Members Committee. The Finance Committee shall also review and
comment upon any additional or amended budgets prepared by the Office of the
Interconnection at the request of the PJM Board or the Members Committee.
7.5.2 Adoption of Budgets.
The PJM Board shall adopt, upon consideration of the advice and
recommendations of the Finance Committee, operating and capital budgets for the
LLC, and shall distribute to the Members for their information final annual
budgets for the following fiscal year not later than 60 days prior to the
beginning of each fiscal year of the LLC.
7.6 By-laws.
To the extent not inconsistent with any provision of this Agreement, the
PJM Board shall adopt such by-laws establishing procedures for the
implementation of this Agreement as it may deem appropriate, including but not
limited to by-laws governing the scheduling, noticing and conduct of meetings of
the PJM Board, selection of a Chair and Vice Chair of the PJM Board, action by
the PJM Board without a meeting, and the organization and responsibilities of
standing and special committees of the PJM Board. Such by-laws shall not modify
or be inconsistent with any of the rights or obligations established by this
Agreement.
7.7 Duties and Responsibilities of the PJM Board.
In accordance with this Agreement, the PJM Board shall supervise and
oversee all matters pertaining to the Interconnection and the LLC, and carry out
such other duties as are herein specified, including but not limited to the
following duties and responsibilities:
i) As its primary responsibility, ensure that the President,
the other officers of the LLC, and Office of the
Interconnection perform the duties and responsibilities set
forth in this Agreement, including but not limited to those
set forth in Sections 9.2 through 9.4 and Section 10.4 in a
manner consistent with (A) the safe and reliable operation
of the Interconnection, (B)
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the creation and operation of a robust, competitive, and
non-discriminatory electric power market in the PJM Control
Area, and (C) the principle that a Member or group of
Members shall not have undue influence over the operation of
the Interconnection;
ii) Select the Officers of the LLC;
iii) Adopt budgets for the LLC;
iv) Approve the Regional Transmission Expansion Plan in
accordance with the provisions of the Regional Transmission
Expansion Planning Protocol set forth in Schedule 6 of this
Agreement.
v) On its own initiative or at the request of a User Group as
specified herein, submit to the Members Committee such
proposed amendments to this Agreement or any Schedule
hereto, or a proposed new Schedule, as it may deem
appropriate;
vi) Petition FERC to modify any provision of this Agreement or
any Schedule or practice hereunder that the PJM Board
believes to be unjust, unreasonable, or unduly
discriminatory under Section 206 of the Federal Power Act,
subject to the right of any Member or the Members to
intervene in any resulting proceedings;
vii) Review for consistency with the creation and operation of a
robust, competitive and non-discriminatory electric power
market in the PJM Control Area any change to rate design or
to non-rate terms and conditions proposed by Transmission
Owners for filing under Section 205 of the Federal Power
Act.
viii) If and to the extent it shall deem appropriate, intervene in
any proceeding at FERC initiated by the Members in
accordance with Section 11.5(b), and participate in other
state and federal regulatory proceedings relating to the
interests of the LLC; ix) Review, in accordance with Section
15.1.3, determinations of the Office of the Interconnection
with respect to events of default;
x) Assess against the other Members in proportion to their
Weighted Interest an amount equal to any payment to the
Office of the Interconnection, including interest thereon,
as to which a Member is in default;
xi) Esablish reasonable sanctions for failure of a Member to
comply with its obligations under this Agreement;
xii) Direct the Office of the Interconnection on behalf of the
LLC to take appropriate legal or regulatory action against a
Member (A) to recover any unpaid amounts due from the Member
to the Office of the Interconnection under this Agreement
and to make whole any Members subject to an assessment as a
result of such unpaid amount, or (B) as may otherwise be
necessary to enforce the obligations of this Agreement;
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xiii) Resolve claims by a Member that the Reliability Committee
established by the Reliability Assurance Agreement has
exercised its responsibilities in a manner inconsistent with
the creation and operation of a robust, competitive and
non-discriminatory electric power market in the PJM Control
Area, upon due consideration of the views of the Member and
of the Reliability Committee, and of the need to preserve
the reliability of electric service in the PJM Control Area.
xiv) Solicit the views of Members on, and commission from time to
time as it shall deem appropriate independent reviews of,
(A) the performance of the PJM Interchange Energy Market,
(B) compliance by Market Participants with the rules and
requirements of the PJM Interchange Energy Market, and (C)
the performance of the Office of the Interconnection under
performance criteria proposed by the Members Committee and
approved by the PJM Board; and
xv) Terminate a Member as may be appropriate under the terms of
this Agreement.
8. MEMBERS COMMITTEE
8.1 Sectors.
18.1.1 Designation.
Voting on the Members Committee shall be by sectors. The Members
Committee shall be composed of five sectors, one for Generation Owners, one for
Other Suppliers, one for Transmission Owners, one for Electric Distributors, and
one for End-Use Customers, provided that there are at least five Members in each
Sector. Except as specified in Section 8.1.2, each Voting Member shall have one
vote. Each Voting Member shall, within thirty (30) days after the Effective Date
or, if later, thirty (30) days after becoming a Member, and thereafter not later
than 10 days prior to the Annual Meeting of the Members for each annual period
beginning with the Annual Meeting of the Members, submit to the President a
sealed notice of the sector in which it is qualified to vote or, if qualified to
participate in more than one sector, its rank order preference of the sectors in
which it wishes to vote, and shall be assigned to its highest-ranked sector that
has the minimum number of Members specified above. If a Member is assigned to a
sector other than its highest-ranked sector in accordance with the preceding
sentence, its higher sector preference or preferences shall be honored as soon
as a higher-ranked sector has five or more Members. A Voting Member may
designate as its voting sector any sector for which it or its Affiliate or
Related Party Members is qualified. The sector designations of the Voting
Members shall be announced by the President at the Annual Meeting.
8.1.2 Related Parties.
The Members in a group of Related Parties shall each be entitled to a
vote, provided that all the Members in a group of Related Parties that chooses
to exercise such rights shall be assigned to the Electric Distributor sector.
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8.2 Representatives.
8.2.1 Appointment.
Each Member may appoint a representative to serve on the Members
Committee, with authority to act for that Member with respect to actions or
decisions by the Members Committee. Each Member may appoint an alternate
representative to act for that Member at meetings of the Members Committee in
the absence of the representative. A Member participating in the PJM Interchange
Energy Market through an agent may be represented on the Members Committee by
that agent. A Member shall appoint its representative by giving written notice
identifying its representative and alternate representative to the Office of the
Interconnection. Members that are Affiliates or Related Parties may each appoint
a representative and alternate representative to the Members Committee, but
shall vote as specified in Section 8.1.
8.2.2 Regulatory Authorities.
FERC and any other federal agency with regulatory authority over a
Member, each State electric utility regulatory commission with regulatory
jurisdiction within the PJM Control Area, and each office of consumer advocate
from each State all or any part of the territory of which is within the PJM
Control Area, may nominate one representative to serve as an ex officio
non-voting member of the Members Committee.
8.2.3 Initial Representatives.
Initial representatives to the Members Committee shall be appointed no
later than 30 days after the Effective Date; provided, however, that each
representative to the Management Committee under the Operating Agreement of PJM
Interconnection, L.L.C. as in effect immediately prior to the Effective Date
shall automatically become a representative to the Members Committee on the
Effective Date unless replaced as specified in Section 8.2.4. An entity becoming
a Member shall appoint a representative to the Members Committee no later than
30 days after becoming a Member.
8.2.4 Change of or Substitution for a Representative.
Any Member may change its representative or alternate on the Members
Committee at any time by providing written notice to the Office of the
Interconnection identifying its replacement representative or alternate. Any
representative to the Members Committee may, by written notice to the Chair,
designate a substitute representative from that Member to act for him or her
with respect to any matter specified in such notice.
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8.3 Meetings.
8.3.1 Regular and Special Meetings.
The Members Committee shall hold regular meetings, no less frequently
than once each calendar quarter at such time and at such place as shall be fixed
by the Chair. The Members Committee shall hold an Annual Meeting of the Members
each calendar year at such time and place as shall be specified by the Chair. At
the Annual Meeting of the Members, Board Members as necessary, officers of the
Members Committee, and representatives to the Finance Committee shall be
elected. The Members Committee may hold special meetings for one or more
designated purposes within the scope of the authority of the Members Committee
when called by the Chair on the Chair's own initiative, or at the request of
five or more representatives on the Members Committee. The notice of a regular
or special meeting shall be distributed to the representatives as specified in
Section 18.13 of this Agreement not later than seven days prior to the meeting,
shall state the time and place of the meeting, and shall include an agenda
sufficient to notify the representatives of the substance of matters to be
considered at the meeting; provided, however, that meetings may be called on
shorter notice at the discretion of the Chair as the Chair shall deem necessary
to deal with an emergency or to meet a deadline for action.
8.3.2 Attendance.
Regular and special meetings may be conducted in person or by
telephone, or other electronic means as authorized by the Members Committee. The
attendance in person or by telephone or other electronic means of a
representative or a duly designated substitute shall be required in order to
vote.
8.3.3 Quorum.
The attendance as specified in Section 8.3.2 of a majority of the
Voting Members from each of at least three sectors that each have at least five
Members shall constitute a quorum. No action may be taken by the Members
Committee at a meeting unless a quorum is present; provided, however, that if a
quorum is not present, the Voting Members then present shall have the power to
adjourn the meeting from time to time until a quorum shall be present.
8.4 Manner of Acting.
(a) All matters brought up for a vote or approval by the Members Committee
shall be stated in the form of a motion, which must be seconded. Only one motion
may be pending at one time.
(b) Each Sector shall be entitled to cast one and zero one-hundredths
(1.00) Sector Votes. Each Voting Member shall be entitled to cast one (1)
non-divisible vote in its sector. In the case of a Voting Member comprised of
Affiliates or Related Parties, any representative, alternate or substitute of
any of the Affiliated or Related Parties may cast the vote of the Voting Member.
The Sector Vote of each sector shall be split into an affirmative component
based on votes for the pending motion, and a negative component based on votes
against the pending motion, in direct proportion to the votes cast within the
sector for and against the pending motion, rounded to two decimal places.
(c) The sum of affirmative Sector Votes necessary to pass the pending
motion shall be
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greater than (but not merely equal to) the product of .667 multiplied by the
number of sectors that have at least five Members and that participated in the
vote.
(d) Voting Members not in attendance at the meeting as specified in Section
8.3.2 of this Agreement or abstaining shall not be counted as affirmative or
negative votes.
8.5 Chair and Vice Chair of the Members Committee.
8.5.1 Selection and Term.
The representatives or their alternates or substitutes on the Members
Committee shall elect from among the representatives a Chair and a Vice Chair.
The offices of Chair and Vice Chair shall be held for a term of one year and
until succession to the office occurs as specified herein. Except as specified
below, at each Annual Meeting of the Members the Vice Chair shall succeed to the
office of Chair, and a new Vice Chair shall be elected. If the office of Chair
becomes vacant, or the Chair leaves the employment of the Member for whom the
Chair is the representative, or the Chair is no longer the representative of
such Member, the Vice Chair shall succeed to the office of Chair, and a new Vice
Chair shall be elected at the next regular or special meeting of the Members
Committee, both such officers to serve until the second Annual Meeting of the
Members following such succession or election to a vacant office. If the office
of Vice Chair becomes vacant, or the Vice Chair leaves the employment of the
Member for whom the Vice Chair is the representative, or the Vice Chair is no
longer the representative of such Member, a new Vice Chair shall be elected at
the next regular or special meeting of the Members Committee.
8.5.2 Duties.
The Chair shall call and preside at meetings of the Members Committee,
and shall carry out such other responsibilities as the Members Committee shall
assign. The Chair shall cause minutes of each meeting of the Members Committee
to be taken and maintained, and shall cause notices of meetings of the Members
Committee to be distributed. The Vice Chair shall preside at meetings of the
Members Committee in the absence of the Chair, and shall otherwise act for the
Chair at the Chair's request.
8.6 Other Committees.
(a) The Members Committee may form, select the membership, and oversee the
activities, of an Operating Committee, a Planning Committee, and an Energy
Market Committee as standing committees, and such other committees,
subcommittees, task forces, working groups or other bodies as it shall deem
appropriate, to provide advice and recommendations to the Members Committee or
to the Office of the Interconnection as directed by the Members Committee.
(b) The Members Committee shall elect representatives to the Alternate
Dispute Resolution Committee as specified in the PJM Dispute Resolution
Procedures.
8.7 User Groups.
(a) Any five or more Members sharing a common interest may form a User
Group, and may invite such other Members to join the User Group as the User
Group shall deem appropriate. Notification of the formation of a User Group
shall be provided to all members of the Members Committee.
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(b) The Members Committee shall create a User Group composed of
representatives of bona fide public interest and environmental organizations
that are interested in the activities of the LLC and are willing and able to
participate in such a User Group.
Meetings of User Groups shall be open to all Members and the Office of the
Interconnection. Notices and agendas of meetings of a User Group shall be
provided to all Members that ask to receive them.
(d) Any recommendation or proposal for action adopted by affirmative vote
of three-fourths or more of the members of a User Group shall be circulated by
the Office of the Interconnection to the representatives on the Members
Committee and shall be considered by the Members Committee at its next regular
meeting occurring not earlier than 30 days after the circulation of such notice.
(e) If the Members Committee does not adopt a recommendation or proposal
submitted to it by a User Group, upon vote of nine-tenths or more of the members
of the User Group the recommendation or proposal may be submitted to the PJM
Board for its consideration in accordance with Section 7.7(v).
8.8 Powers of the Members Committee.
The Members Committee, acting by adoption of a motion as specified in
Section 8.4, shall have the power to take the actions specified in this
Agreement, including:
i) Elect the members of the PJM Board;
ii) In accordance with the provisions of Section 18.6
of this Agreement, amend any portion of this
Agreement, including the Schedules hereto, or
create new Schedules, and file any such amendments
or new Schedules with FERC or other regulatory
body of competent jurisdiction;
iii) Terminate thisAgreement; and
iv) Provide advice and recommendations to the PJM
Board and the Office of the Interconnection.
9. OFFICERS
9.1 Election and Term.
The officers of the LLC shall consist of a President, a Secretary and a
Treasurer. The PJM Board may elect such other officers as it deems necessary to
carry out the business of the LLC. All officers shall be elected by the PJM
Board and shall hold office until the next annual meeting of the PJM Board and
until their successors are elected. Any number of offices may be held by the
same person, except that the offices of the President and Treasurer may not be
held by the same person.
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9.2 President.
The PJM Board shall appoint a President and Chief Executive Officer of the
LLC (the "President"). The President shall direct and supervise the day-to-day
operation of the LLC, and shall report to the PJM Board. The President shall be
responsible for directing and supervising the Office of the Interconnection in
the performance of the duties and responsibilities specified in Section 10.4.
The President shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the LLC, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the board to some other officer or agent of the
LLC. In the absence of the President or in the event of his or her inability or
refusal to act, and if a vice president has been appointed by the PJM Board, the
Vice President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the PJM Board in its Minutes) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
President shall perform such other duties and have such other powers as the PJM
Board may from time to time prescribe.
9.3 Secretary.
The Secretary shall attend all meetings of the PJM Board and record all the
proceedings of the meetings of the PJM Board in a minute book to be kept for
that purpose and shall perform like duties for the standing committees or
special committees when required. He or she shall give, or cause to be given,
notice of all special meetings of the PJM Board, and shall perform such other
duties as may be prescribed by the PJM Board or President, under whose
supervision he or she shall be. He or she shall have custody of the corporate
seal of the LLC, and he or she, or an assistant secretary, shall have authority
to affix the same to any instrument requiring it and, when so affixed, it may be
attested by his or her signature or by the signature of such assistant
secretary. The PJM Board may give general authority to any other officer to
affix the seal of the LLC and to attest the affixing by his or her signature.
9.4 Treasurer.
The Treasurer shall have or arrange for the custody of the LLC's funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belongings to the LLC and shall deposit all moneys and
other valuable effects in the name and to the credit of the LLC in such
depositories as may be designated by the PJM Board. The Treasurer shall disburse
the funds of the LLC as may be ordered by the PJM Board, taking proper vouchers
for such disbursements, and shall render to the President and PJM Board at its
regular meetings, or when the PJM Board so requires, an account of his or her
transactions as Treasurer and of the financial condition of the LLC. If required
by the Board, the Treasurer shall give the LLC a bond (which shall be renewed
periodically) in such sum and with such surety or sureties as shall be
satisfactory to the PJM Board for the faithful performance of the duties of his
office and of the restoration to the LLC, in case of his or her death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his or her possession or under his
or her control belonging to the LLC.
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9.5 Renewal of Officers; Vacancies.
Any officer elected or appointed by the PJM Board may be removed at any
time by the affirmative vote of a majority of the PJM Board eligible to vote.
Any vacancy occurring in any office of the LLC shall be filled by the PJM Board.
9.6 Compensation.
The salaries of all officers and agents of the LLC, and the reasonable
compensation of the PJM Board, shall be fixed by the PJM Board.
10. OFFICE OF THE INTERCONNECTION.
10.1 Establishment.
The Office of the Interconnection shall implement this Agreement,
administer the PJM Tariff, and undertake such other responsibilities as set
forth herein. All personnel of the Office of the Interconnection shall be
employees of the LLC or under contract thereto. The cost of the Office of the
Interconnection and expenses associated therewith, including salaries and
expenses of said personnel, space and any necessary facilities or other capital
expenditures, shall be recovered in accordance with Schedule 3. The Office of
the Interconnection shall adopt, publish and comply with standards of conduct
that satisfy the regulations of FERC.
10.2 Processes and Organization.
In order to carry out the responsibilities of the Office of the
Interconnection for the safe and reliable operation of the Interconnection, the
President may establish processes and organization for operating personnel and
facilities as the President shall deem appropriate, and shall request such
Members as the President shall deem appropriate to participate in such processes
and organization. All such processes and organization shall be carried out in
accordance with all applicable code of conduct or other functional separation
requirements of FERC.
10.3 Confidential Information.
The Office of the Interconnection shall comply with the requirements of
Section 18.17 with respect to any proprietary or confidential information
received from or about any Member.
10.4 Duties and Responsibilities.
The Office of the Interconnection, under the direction of the President as
supervised and overseen by the PJM Board, shall carry out the following duties
and responsibilities, in accordance with the provisions of this Agreement:
i) Administer and implement this Agreement;
ii) Perform such functions in furtherance of this
Agreement as the PJM Board, acting within the
scope of its duties and responsibilities under
this Agreement, may direct;
iii) Prepare, maintain, update and disseminate the PJM
Manuals;
iv) Comply with MAAC and NERC operation and planning
standards,
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principles and guidelines;
v) Maintain an appropriately trained workforce, and such
equipment and facilities, including computer hardware and
software and backup power supplies, as necessary or
appropriate to implement or administer this Agreement;
vi) Direct the operation and coordinate the maintenance of the
facilities of the Interconnection used for both load and
reactive supply, so as to maintain reliability of service
and obtain the benefits of pooling and interchange
consistent with this Agreement and the Reliability Assurance
Agreement;
vii) Direct the operation and coordinate the maintenance of the
bulk power supply facilities of the Interconnection with
such facilities and systems of others not party to this
Agreement in accordance with agreements between the LLC and
such other systems to secure reliability and continuity of
service and other advantages of pooling on a regional basis;
viii) Perform interchange accounting and maintain records
pertaining to the operation of the PJM Interchange Energy
Market and the Interconnection;
ix) Notify the Members of the receipt of any application to
become a Member, and of the action of the Office of the
Interconnection on such application, including but not
limited to the completion of integration of a new Member's
system into the PJM Control Area as specified in Section
11.6(f);
x) Calculate the Weighted Interest of each Member;
xi) Maintain accurate records of the sectors in which each
Voting Member is entitled to vote, and calculate the results
of any vote taken in the Members Committee;
xii) Furnish appropriate information and reports as are required
to keep the Members regularly informed of the outlook for,
the functioning of, and results achieved by the
Interconnection;
xiii) File with FERC on behalf of the Members any amendments to
this Agreement or the Schedules hereto, any new Schedules
hereto, and make any other regulatory filings on behalf of
the Members or the LLC necessary to implement this
Agreement;
xiv) At the direction of the PJM Board, submit comments to
regulatory authorities on matters pertinent to the
Interconnection;
xv) Consult with the standing or other committees established
pursuant to Section 8.6(a) on matters within the
responsibility of the committee;
xvi) Perform operating studies of the bulk power supply
facilities of the Interconnection and make such
recommendations and initiate such actions as may be
necessary to maintain reliable operation of the
Interconnection;
xvii) Accept, on behalf of the Members, notices served under this
Agreement;
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xviii) Perform those functions and undertake those responsibilities
transferred to it under the Transmission Owners Agreement,
including (A) direct the operation of the transmission
facilities of the parties to the Transmission Owners
Agreement, (B) administer the PJM Tariff, and (C) administer
the Regional Transmission Expansion Planning Protocol set
forth as Schedule 6 to this Agreement.
xix) Perform those functions and undertake those responsibilities
transferred to it under the Reliability Assurance Agreement,
as specified in Schedule 8 of this Agreement.
xx) Monitor the operation of the PJM Control Area, ensure that
appropriate Emergency plans are in place and appropriate
Emergency drills are conducted, declare the existence of an
Emergency, and direct the operations of the Members as
necessary to manage, alleviate or end an Emergency;
xxi) Incorporate the grid reliability requirements applicable to
nuclear generating units in the PJM Control Area planning
and operating principles and practices; and
xxii) Initiate such legal or regulatory proceedings as directed by
the PJM Board to enforce the obligations of this Agreement.
11. MEMBERS
11.1 Management Rights.
The Members or any of them shall not take part in the management of the
business of, and shall not transact any business for, the LLC in their capacity
as Members, nor shall they have power to sign for or to bind the LLC.
11.2 Other Activities.
Except as otherwise expressly provided herein, any Member may engage in or
possess any interest in another business or venture of any nature and
description, independently or with others, even if such activities compete
directly with the business of the LLC, and neither the LLC nor any Member hereof
shall have any rights in or to any such independent ventures or the income or
profits derived therefrom.
11.3 Member Responsibilities.
11.3.1 General.
To facilitate and provide for the work of the Office of the
Interconnection and of the several committees appointed by the Members
Committee, each Member shall, to the extent applicable;
(a) Maintain adequate records and, subject to the provisions of this
Agreement for the protection of the confidentiality of proprietary or
commercially sensitive information, provide data required for (i) coordination
of operations, (ii) accounting for all interchange
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transactions, (iii) preparation of required reports, (iv) coordination of
planning, including those data required for capacity accounting, (v) preparation
of maintenance schedules, (vi) analysis of system disturbances, and (vii) such
other purposes, including those set forth in Schedule 2, as will contribute to
the reliable and economic operation of the Interconnection;
(b) Provide such recording, telemetering, communication and control
facilities as are required for the coordination of its operations with the
Office of the Interconnection and those of the other Members and to enable the
Office of the Interconnection to operate the PJM Control Area and otherwise
implement and administer this Agreement, including equipment required in normal
and Emergency operations and for the recording and analysis of system
disturbances;
(c) Provide adequate and properly trained personnel to (i) permit
participation in the coordinated operation of the Interconnection, (ii) meet its
obligation on a timely basis for supply of records and data, (iii) serve on
committees and participate in their investigations, and (iv) share in the
representation of the Interconnection in inter-regional and national reliability
activities;
(d) Share in the costs of committee activities and investigations
(including costs of consultants, computer time and other appropriate items),
communication facilities used by all the Members (in addition to those provided
in the Office of the Interconnection), and such other expenses as are approved
for payment by the PJM Board, such costs to be recovered as provided in Schedule
3;
(e) Comply with the requirements of the PJM Manuals and all directives
of the Office of the Interconnection to take any action for the purpose of
managing, alleviating or ending an Emergency, and authorize the Office of the
Interconnection to direct the transfer or interruption of the delivery of energy
on their behalf to meet an Emergency and to implement agreements with other
Control Areas interconnected with the PJM Control Area for the mutual provision
of service to meet an Emergency, and be subject to the emergency procedure
charges specified in Schedule 9 of this Agreement for any failure to follow the
Emergency instructions of the Office of the Interconnection.
11.3.2 Facilities Planning and Operation.
Consistent with and subject to the requirements of this Agreement, the
PJM Tariff, the MAAC Agreement, the Reliability Assurance Agreement, the
Transmission Owners Agreement, and the PJM Manuals, each Member shall cooperate
with the other Members in the coordinated planning and operation of the
facilities of its System within the PJM Control Area so as to obtain the
greatest practicable degree of reliability, compatible economy and other
advantages from such coordinated planning and operation. In furtherance of such
cooperation each Member shall, as applicable:
(a) Consult with the other Members and the Office of the
Interconnection, and coordinate the installation of its electric generation and
Transmission Facilities with those of such other Members so as to maintain
reliable service in the PJM Control Area;
(b) Coordinate with the other Members, the Office of the
Interconnection and with others in the planning and operation of the regional
facilities to secure a high level of reliability and continuity of service and
other advantages;
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(c) Cooperate with the other Members and the Office of the
Interconnection in the implementation of all policies and procedures established
pursuant to this Agreement for dealing with Emergencies, including but not
limited to policies and procedures for maintaining or arranging for a portion of
a Member's Capacity Resources at least equal to the level established pursuant
to the Reliability Assurance Agreement to have the ability to go from a shutdown
condition to an operating condition and start delivering power without
assistance from the power system;
(d) Cooperate with the members of MAAC to augment the reliability of
the bulk power supply facilities of the region and comply with MAAC and NERC
operating and planning standards, principles and guidelines and the PJM Manuals;
(e) Obtain or arrange for transmission service as appropriate to carry
out this Agreement;
(f) Cooperate with the Office of the Interconnection's coordination of
the operating and maintenance schedules of the Member's generating and
Transmission Facilities with the facilities of other Members to maintain
reliable service to its own customers and those of the other Members and to
obtain economic efficiencies consistent therewith;
(g) Cooperate with the other Members and the Office of the
Interconnection in the analysis, formulation and implementation of plans to
prevent or eliminate conditions that impair the reliability of the
Interconnection; and
(h) Adopt and apply standards adopted pursuant to this Agreement and
conforming to MAAC and NERC standards, principles and guidelines and the PJM
Manuals, for system design, equipment ratings, operating practices and
maintenance practices.
11.3.3 Electric Distributors.
In addition to any of the foregoing responsibilities that may be
applicable, each Member that is an Electric Distributor, whether or not that
Member votes in the Members Committee in the Electric Distributor sector or
meets the eligibility requirements for any other sector of the Members
Committee, shall:
(a) Accept, comply with or be compatible with all standards applicable
within the PJM Control Area with respect to system design, equipment ratings,
operating practices and maintenance practices as set forth in the PJM Manuals,
or be subject to an interconnected Member's requirements relating to the
foregoing, so that sufficient electrical equipment, control capability,
information and communication are available to the Office of the Interconnection
for planning and operation of the PJM Control Area;
(b) Assure the continued compatibility of its local system energy
management system monitoring and telecommunications systems to satisfy the
technical requirements of interacting automatically or manually with the Office
of the Interconnection as it directs the operation of the PJM Control Area;
(c) Maintain or arrange for a portion of its connected load to be
subject to control by automatic underfrequency, under-voltage, or other
load-shedding devices at least equal to the levels established pursuant to the
Reliability Assurance Agreement, or be subject to another
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Member's control for these purposes;
(d) Provide or arrange for sufficient reactive capability and voltage
control facilities to conform to Good Utility Practice and (i) to meet the
reactive requirements of its system and customers and (ii) to maintain adequate
voltage levels and the stability required by the bulk power supply facilities of
the Interconnection;
(e) Shed connected load, share Capacity Resources, initiate active
load management programs, and take such other coordination actions as may be
necessary in accordance with the directions of the Office of the Interconnection
in Emergencies;
(f) Maintain or arrange for a portion of its Capacity Resources at
least equal to the level established pursuant to the Reliability Assurance
Agreement to have the ability to go from a shutdown condition to an operating
condition and start delivering power without assistance from the power system;
(g)Provide or arrange through another Member for the services of a
24-hour local control center to coordinate with the Office of the
Interconnection, each such control center to be furnished with appropriate
telemetry equipment as specified in the PJM Manuals, and to be staffed by system
operators trained and delegated sufficient authority to take any action
necessary to assure that the system for which the operator is responsible is
operated in a stable and reliable manner;
(h) Provide to the Office of the Interconnection all System,
accounting, customer tracking, load forecasting and other data necessary or
appropriate to implement or administer this Agreement or the Reliability
Assurance Agreement; and
(i) Comply with the underfrequency relay obligations and charges
specified in Schedule 7 of this Agreement.
11.3.4 Reports to the Office of the Interconnection.
Each Member shall report as promptly as possible to the Office of the
Interconnection any changes in its operating practices and procedures relating
to the reliability of the bulk power supply facilities of the Interconnection.
The Office of the Interconnection shall review such reports, and if any change
in an operating practice or procedure of the Member is not in accord with the
established operating principles, practices and procedures for the
Interconnection and such change adversely affects the Interconnection and
regional reliability, it shall so inform such Member, and the other Members
through their representative on the Operating Committee, and shall direct that
such change be modified to conform to the established operating principles,
practices and procedures.
11.4 Regional Transmission Expansion Planning Protocol.
The Members shall participate in regional transmission expansion planning
in accordance with the Regional Transmission Expansion Planning Protocol set
forth in Schedule 6 to this Agreement.
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11.5 Member Right to Petition.
(a) Nothing herein shall deprive any Member of the right to petition FERC
to modify any provision of this Agreement or any Schedule or practice hereunder
that the petitioning Member believes to be unjust, unreasonable, or unduly
discriminatory under Section 206 of the Federal Power Act, subject to the right
of any other Member (a) to oppose said proposal, or (b) to withdraw from the LLC
pursuant to Section 4.1.
(b) Nothing herein shall be construed as affecting in any way the right of
the Members, acting pursuant to a vote of the Members Committee as specified in
Section 8.4, unilaterally to make an application to FERC for a change in any
rate, charge, classification, tariff or service, or any rule or regulation
related thereto, under section 205 of the Federal Power Act and pursuant to the
rules and regulations promulgated by FERC thereunder, subject to the right of
any Member that voted against such change in any rate, charge, classification,
tariff or service, or any rule or regulation related thereto, in intervene in
opposition to any such application.
(c) Nothing in this Agreement shall preclude those Members joining in the
proposal to utilize Locational Marginal Prices to deal with transmission
congestion from (i) filing amendments to the Agreement necessary to implement
the use of Locational Marginal Prices in the PJM Control Area in accordance with
such orders or other directives as may be issued by FERC relating thereto, or
(ii) implementing the provisions of Sections 1.7.21 and 5.2.2(d) of Schedule 1
to this Agreement, without further authorization or approval by the Members
Committee.
11.6 Membership Requirements.
(a) To qualify as a Member, an entity shall:
i) Be a Transmission Owner within the PJM Control Area or an
Eligible Customer under the PJM Tariff;
ii) If not a Transmission Owner, be a Generation Owner, an Other
Supplier, an Electric Distributor, or an End-Use Consumer;
iii) Be engaged in buying, selling or transmitting electric
energy in or through the Interconnection or have a good
faith intent to do so; and
iv) Accept the obligations set forth in this Agreement.
(b) Certain Members that are Load Serving Entities are parties to the
Reliability Assurance Agreement. Upon becoming a Member, any entity that is a
Load Serving Entity and that wishes to become a Market Buyer shall also
simultaneously execute the Reliability Assurance Agreement.
(c) An entity that wishes to become a party to this Agreement shall apply,
in writing, to the President setting forth its request, its qualifications for
membership, its agreement to supply data as specified in this Agreement, its
agreement to pay all costs and expenses in accordance with Schedule 3, and
providing all information specified pursuant to the Schedules to this Agreement
for entities that wish to become Market Participants. Any such application that
meets all applicable requirements shall be approved by the President within
sixty (60) days.
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(d)Nothing in this Section 11 is intended to remove, in any respect, the
choice of participation by other utility companies or organizations in the
operation of the Interconnection through inclusion in the System of a Member.
(e) An entity whose application is accepted by the President pursuant to
Section 11.6(c) shall execute a supplement to this Agreement in substantially
the form prescribed in Schedule 4, which supplement shall be countersigned by
the President and tendered for filing with FERC by the President. The entity
shall become a Member effective on the date specified by FERC when accepting the
supplement for filing.
(f) Entities whose applications contemplate expansion or rearrangement of
the PJM Control Area may become Members promptly as described in Sections
11.6(c) and 11.6(e) above, but the integration of the applicant's system into
all of the operation and accounting provisions of this Agreement and the
Reliability Assurance Agreement shall occur only after completion of all
required installations and modifications of metering, communications, computer
programming, and other necessary and appropriate facilities and procedures, as
determined by the Office of the Interconnection. The Office of the
Interconnection shall notify the other Members when such integration has
occurred.
12. TRANSFERS OF MEMBERSHIP INTEREST
The rights and obligations created by this Agreement shall inure to and
bind the successors and assigns of such Member; provided, however, that the
rights and obligations of any Member hereunder shall not be assigned without the
approval of the Members Committee except as to a successor in operation of a
Member's electric operating properties by reason of a merger, consolidation,
reorganization, sale, spinoff, or foreclosure, as a result of which
substantially all such electric operating properties are acquired by such a
successor, and such successor becomes a Member.
13. INTERCHANGE
13.1 Interchange Arrangements with Non-Members.
Any Member may enter into interchange arrangements with others who are not
Members with respect to the delivery or receipt of capacity and energy to
fulfill its obligations hereunder or for any other purpose, subject to the
standards and requirements established in or pursuant to this Agreement.
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13.2 Energy Market.
The Office of the Interconnection shall administer an efficient energy
market within the Interconnection, to be known as the PJM Interchange Energy
Market, in which Members may buy and sell energy. The Office of the
Interconnection will schedule in advance and dispatch generation on the basis of
least-cost, security-constrained dispatch and the prices and operating
characteristics offered by sellers within and into the Interconnection,
continuing until sufficient generation is dispatched to serve the energy
purchase requirements of the Interconnection and buyers out of the
Interconnection, as well as the requirements of the Interconnection for
ancillary services provided by such generation. Scheduling and dispatch shall be
conducted in accordance with applicable schedules to the PJM Tariff and the
Schedules to this Agreement.
14. METERING
14.1 Installation, Maintenance and Reading of Meters.
The quantities of electric energy involved in determination of the amounts
of the billing rendered hereunder shall be ascertained by means of meters
installed, maintained and read either at the expense of the party on whose
premises the meters are located or as otherwise provided for by agreement
between the parties concerned.
14.2 Metering Procedures.
Procedures with respect to maintenance, testing, calibrating, correction
and registration records, and precision tolerance of all metering equipment
shall be in accordance with Good Utility Practice. The expense of testing any
meter shall be borne by the party owning such meter, except that when a meter
tested upon request of another party is found to register within the established
tolerance the party making the request shall bear the expense of such test.
14.3 Integrated Megawatt-Hours
All metering of energy required herein shall be the integration of megawatt
hours in the clock hour, and the quantities thus obtained shall constitute the
megawatt load for such clock hour; provided, however, that adjustment shall be
made for other contractual obligations of any Member as may be required to
determine the quantity to be accounted for hereunder, and for transmission
losses.
14.4 Meter Locations.
The meter locations to be used by the Members in determining their energy
transactions on the Interconnection shall be as reasonably determined from time
to time by the Member or the Office of the Interconnection.
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15. ENFORCEMENT OF OBLIGATIONS
15.1 Failure to Meet Obligations.
15.1.1 Termination of Market Buyer Rights.
The Office of the Interconnection shall terminate a Market Buyer's
right to make purchases from the PJM Interchange Energy Market if it determines
that the Market Buyer does not continue to meet the obligations set forth in
this Agreement, provided that the Office of the Interconnection has notified the
Market Buyer of any such deficiency and afforded the Market Buyer a reasonable
opportunity to cure it. The Office of the Interconnection shall reinstate a
Market Buyer's right to make purchases from the PJM Interchange Energy Market
upon demonstration by the Market Buyer that it has come into compliance with the
obligations set forth in this Agreement.
15.1.2 Termination of Market Seller Rights.
The Office of the Interconnection shall not accept offers from a
Market Seller that has not complied with the prices, terms, or operating
characteristics of any of its prior scheduled transactions in the PJM
Interchange Energy Market, unless such Market Seller has taken appropriate
measures to the satisfaction of the Office of the Interconnection to ensure
future compliance.
15.1.3 Payment of Bills.
(a) A Member shall make full and timely payment, in accordance with
the terms specified by the Office of the Interconnection, of all bills rendered
in connection with transactions in the PJM Interchange Energy Market or other
services performed by the Office of the Interconnection, notwithstanding any
disputed amount, but any such payment shall not be deemed a waiver of any right
with respect to such dispute. Any Member that fails to make such payment, or
otherwise fails to meet its financial or other obligations to a Member, the
Office of the Interconnection or the LLC under this Agreement, shall upon
expiration of the 30 day period specified below be in default. If the Office of
the Interconnection concludes, upon its own initiative or the recommendation of
or complaint by the Members Committee or any Member, that a Member is in breach
of any obligation under this Agreement, the Office of the Interconnection shall
so notify such Member and inform all other Members. The notified Member may
remedy such asserted breach by: (i) paying all amounts assertedly due, along
with interest on such amounts calculated in accordance with the methodology
specified for interest on refunds in FERC's regulations at 18 C.F.R. ss.
35.19a(a)(2)(iii); and (ii) demonstration to the satisfaction of the Office of
the Interconnection that the Member has taken appropriate measures to meet any
other obligation of which it was deemed to be in breach; provided, however, that
any such payment or demonstration may be subject to a reservation of rights, if
any, to subject such matter to the PJM Dispute Resolution Procedures; and
provided, further, that any such determination by the Office of the
Interconnection may be subject to review by the PJM Board upon request of the
Member involved or the Office of the Interconnection. If a Member has not
remedied a breach by the 30th day following receipt of the Office of the
Interconnection's notice, or receipt of the PJM Board's decision on review, if
applicable, then the Member shall be in default and, in addition to such other
remedies as may be available to the LLC:
i) A defaulting Market Participant shall be precluded from
buying or selling
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energy in the PJM Interchange Energy Market until the
default is remedied as set forth above.
ii) A defaulting Member shall not be entitled to participate in
the activities of any committee or other body established by
the Members Committee or the Office of the Interconnection.
iii) A defaulting Member shall not be entitled to vote on the
Members Committee or any other committee or other body
established pursuant to this Agreement.
15.2 Enforcement of Obligations.
If the Office of the Interconnection sends a notice to the PJM Board that a
Member has failed to perform an obligation under this Agreement, the PJM Board
shall initiate such action against such Member to enforce such obligation as the
PJM Board shall deem appropriate. Subject to the procedures specified in Section
15.1, a Member's failure to perform such obligation shall be deemed to be a
default under this Agreement. In order to remedy a default, but without limiting
any rights the LLC may have against the defaulting Member, the PJM Board may
assess against, and collect from, the Members not in default, in proportion to
their Weighted Interest, an amount equal to the amount that the defaulting
Member has failed to pay to the Office of the Interconnection, along with
appropriate interest, but such assessment shall in no way relieve the defaulting
Member of its obligations, and shall confer upon the Members Committee the right
to recover the assessed amounts from the defaulting Member. In addition to any
amounts in default, the defaulting Member shall be liable to the LCC for
reasonable costs incurred in enforcing the defaulting Member's obligations.
15.3 Obligations to a Member in Default.
The Members have no continuing obligation to provide the benefits of
interconnected operations to a Member in default.
15.4 Obligations of a Member in Default.
A Member found to be in default shall take all possible measures to
mitigate the continued impact of the default on the Members not in default,
including, but not limited to, loading its own generation to supply its own load
to the maximum extent possible.
15.5 No Implied Waiver.
A failure of a Member, the PJM Board, or the LLC to insist upon or enforce
strict performance of any of the provisions of this Agreement shall not be
construed as a waiver or relinquishment to any extent of such entity's right to
assert or rely upon any such provisions, rights and remedies in that or any
other instance; rather, the same shall be and remain in full force and effect.
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16. LIABILITY AND INDEMNITY
16.1 Members.
(a) As between the Members, except as may be otherwise agreed upon between
individual Members with respect to specified interconnections, each Member will
indemnify and hold harmless each of the other Members, and its directors,
officers, employees, agents, or representatives, of and from any and all
damages, losses, claims, demands, suits, recoveries, costs and expenses
(including all court costs and reasonable attorneys' fees), caused by reason of
bodily injury, death or damage to property of any third party, resulting from or
attributable to the fault, negligence or willful misconduct of such Member, its
directors, officers, employees, agents, or representatives, or resulting from,
arising out of, or in any way connected with the performance of its obligations
under this Agreement, excepting only, and to the extent, such cost, expense,
damage, liability or loss may be caused by the fault, negligence or willful
misconduct of any other Member. The duty to indemnify under this Agreement will
continue in full force and effect notwithstanding the expiration or termination
of this Agreement or the withdrawal of a Member from this Agreement, with
respect to any loss, liability, damage or other expense based on facts or
conditions which occurred prior to such termination or withdrawal.
(b) The amount of any indemnity payment arising hereunder shall be reduced
(including, without limitation, retroactively) by any insurance proceeds or
other amounts actually recovered by the Member seeking indemnification in
respect of the indemnified action, claim, demand, costs, damage or liability. If
any Member shall have received an indemnity payment for an action, claim,
demand, cost, damage or liability and shall subsequently actually receive
insurance proceeds or other amounts for such action, claim, demand, cost, damage
or liability, then such Member shall pay to the Member that made such indemnity
payment the lesser of the amount of such insurance proceeds or other amounts
actually received and retained or the net amount of the indemnity payments
actually received previously.
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16.2 LLC Indemnified Parties.
(a) The LLC will indemnify and hold harmless the PJM Board, the LLC's
officers, employees and agents, and any representatives of the Members serving
on the Members Committee and any other committee created under Section 8 of this
Agreement (all such Board Members, officers, employees, agents and
representatives for purposes of this Section 160 being referred to as "LLC
Indemnified Parties"), of and from any and all actions, claims, demands, costs
(including consequential or indirect damages, economic losses and all court
costs and reasonable attorneys' fees) and liabilities to any third parties,
arising from, or in any way connected with, the performance of the LLC under
this Agreement, or the fact that such LLC Indemnified Party was serving in such
capacity, except to the extent that such action, claim, demand, cost or
liability results from the willful misconduct of any LLC Indemnified Party with
respect to participation in the misconduct. To the extent any dispute arises
between any Member and the LLC arising from, or in any way connected with, the
performance of the LLC under this Agreement, the Member and the LLC shall follow
the PJM Dispute Resolution Procedures. To the extent that any such action,
claim, demand, cost or liability arises from a Member's contractual or other
obligation to provide electric service directly or indirectly to said third
party, which obligation to provide service is limited by the terms of any
tariff, service agreement, franchise, statute, regulatory requirement, court
decision or other limiting provision, the Member designates the LLC and each LLC
Indemnified Party a beneficiary of said limitation.
(b) An LLC Indemnified Party shall not be personally liable for monetary
damages for any breach of fiduciary duty by such LLC Indemnified Party, except
that an LLC Indemnified Party shall be liable to the extent provided by
applicable law (i) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, or (ii) for any
transaction from which the LLC Indemnified Party derived an improper personal
benefit. Notwithstanding (i) and (ii), indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the LLC if and to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper. If applicable law is hereafter construed or
amended to authorize the further elimination or limitation of the liability of
LLC Indemnified Parties, then the liability of the LLC Indemnified Parties, in
addition to the limitation on personal liability provided herein, shall be
limited to the fullest extent permitted by law. No amendment to or repeal of
this section shall apply to or have any effect on the liability or alleged
liability of any LLC Indemnified Party or with respect to any acts or omissions
occurring prior to such amendment or repeal. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the LLC,
and with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
(c) The LLC may pay expenses incurred by an LLC Indemnified Party in
defending a civil, criminal, administrative or investigative action, suit or
proceeding in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such LLC
Indemnified Party to repay such amount if it shall ultimately be determined that
such LLC
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Indemnified Party is not entitled to be indemnified by the LLC as authorized in
this Section.
(d) In the event the LLC incurs liability under this Section 16.2 that is
not adequately covered by insurance, such amounts shall be recovered pursuant to
the PJM Tariff as provided in Schedule 3 of this Agreement.
16.3 Worker' Compensation Claims.
Each Member shall be solely responsible for all claims of its own
employees, agents and servants growing out of any Worker's Compensation Law.
16.4 Limitation of Liability.
No Member or its directors, officers, employees, agents, or representatives
shall be liable to any other Member or its directors, officers, employees,
agents, or representatives, whether liability arises out of contract, tort
(including negligence), strict liability, or any other cause of or form of
action whatsoever, for any indirect, incidental, consequential, special or
punitive cost, expense, damage or loss, including but not limited to loss of
profits or revenues, cost of capital of financing, loss of goodwill or cost of
replacement power, arising from such Member's performance or failure to perform
any of its obligations under this Agreement or the ownership, maintenance or
operation of its System; provided, however, that nothing herein shall be deemed
to reduce or limit the obligations of any Member with respect to the claims of
persons or entities that are not parties to this Agreement.
16.5 Resolution of Disputes.
To the extent any dispute arises between one or more Members regarding any
issue covered by this Agreement, the Members shall follow the dispute resolution
procedures set forth in the PJM Dispute Resolution Procedures.
16.6 Gross Negligence or Willful Misconduct.
Neither the LLC nor the LLC Indemnified Parties shall be liable to the
Members or any of them for any claims, demands or costs arising from, or in any
way connected with, the performance of the LLC under this Agreement other than
actions, claims or demands based on gross negligence or willful misconduct;
provided, however, that nothing herein shall limit or reduce the obligations of
the LLC to the Members or any of them under the express terms of this Agreement
or the PJM Tariff, including, but not limited to, those set forth in Sections
6.2 and 6.3 of this Agreement.
16.7 Insurance.
The PJM Board shall be authorized to procure insurance against the risks
borne by the LLC and the LLC Indemnified Parties, the cost of which shall be
treated as a cost and expense of the LLC.
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17. MEMBER REPRESENTATIONS, WARRANTIES AND COVENANTS
17.1 Representations and Warranties.
Each Member makes the following representations and warranties to the LLC
and each other Member, as of the Effective Date or such later date as such
Member shall become admitted as a Member of the LLC.
17.1.1 Organization and Existence.
Such Member is an entity duly organized, validly existing and in good
standing under the laws of the state of its organization.
17.1.2 Power and Authority.
Such Member has the full power and authority to execute, deliver and
perform this Agreement and to carry out the transactions contemplated hereby.
17.1.3 Authorization and Enforceability.
The execution and delivery of this Agreement by such Member and the
performance of its obligations hereunder have been duly authorized by all
requisite action on the part of the Member, and do not conflict with any
applicable law or with any other agreement binding upon the Member. The
Agreement has been duly executed and delivered by such Member and constitutes
the legal, valid and binding obligation of such Member, enforceable against it
in accordance with the terms thereof, except insofar as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and to general principles of equity whether such
principles are considered in proceedings in law or in equity.
17.1.4 No Government Consents.
No authorization, consent, approval or order of, notice to or
registration, qualification, declaration or filing with, any governmental
authority is required for the execution, delivery and performance by such Member
of this Agreement or the carrying out by such Member of the transactions
contemplated hereby other than such authorization, consent, approval or order
of, notice to or registration, qualification, declaration or filing that is
pending before such governmental authority.
17.1.5 No Conflict or Breach.
None of the execution, delivery and performance by such Member of this
Agreement, the compliance with the terms and provisions hereof and the carrying
out of the transactions contemplated hereby, conflicts or will conflict with or
will result in a breach or violation of any of the terms, conditions or
provisions of any law, governmental rule or regulation or the charter documents
or bylaws of such Member or any applicable order, writ, injunction, judgment or
decree of any court or governmental authority against such Member or by which it
or any of its properties, is bound, or any loan agreement, indenture, mortgage,
bond, note, resolution, contract or other agreement or instrument to which such
Member is a party or by which it or any of its properties is bound, or
constitutes or will constitute a default thereunder or will result in the
imposition of any lien upon any of its properties.
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17.1.6 No Proceedings.
There are no actions at law, suits in equity, proceedings or claims
pending or, to the knowledge of the Member, threatened against the Member before
any federal, state, foreign or local court, tribunal or government agency or
authority that might materially delay, prevent or hinder the performance by the
Member of its obligations hereunder.
17.2 Municipal Electric Systems.
Any provisions of Section 17.1 notwithstanding, if any Member that is a
municipal electric system believes in good faith that the provisions of Sections
5.1(b) and 16.1 of this Agreement may not lawfully be applied to that Member
under applicable state law governing municipal activities, the Member may
request a waiver of the pertinent provisions of the Agreement. Any such request
for waiver shall be supported by an opinion of counsel for the Member to the
effect that the provision of the Agreement as to which waiver is sought may not
lawfully be applied to the Member under applicable state law. The PJM Board
shall have the right to have the opinion of the Member's counsel reviewed by
counsel to the LLC. If the PJM Board concludes that either or both of Sections
5.1(b) and 16.1 of this Agreement may not lawfully be applied to a municipal
electric system Member, it shall waive the application of the affected provision
or provisions to such municipal Member. Any Member not permitted by law to
indemnify the other Members shall not be indemnified by the other Members.
17.3 Survival.
All representations and warranties contained in this Section 17 shall
survive the execution and delivery of this Agreement.
18. MISCELLANEOUS PROVISIONS
18.1 [Reserved.]
18.2 Fiscal and Taxable Year.
The fiscal year and taxable year of the LLC shall be the calendar year.
18.3 Reports.
Each year prior to the Annual Meeting of the Members, the PJM Board shall
cause to be prepared and distributed to the Members a report of the LLC's
activities since the prior report.
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18.4 Bank Accounts; Checks, Notes and Drafts.
(a) Funds of the LLC shall be deposited in an account or accounts of a
type, in form and name and in a bank(s) or other financial institution(s) which
are participants in federal insurance programs as selected by the PJM Board. The
PJM Board shall arrange for the appropriate conduct of such accounts. Funds may
be withdrawn from such accounts only for bona fide and legitimate LLC purposes
and may from time to time be invested in such short-term securities, money
market funds, certificates of deposit or other liquid assets as the PJM Board
deems appropriate. All checks or demands for money and notes of the LLC shall be
signed by any officer or by any other person designated by the PJM Board.
(b) The Members acknowledge that the PJM Board may maintain LLC funds in
accounts, money market funds, certificates of deposit, other liquid assets in
excess of the insurance provided by the Federal Deposit Insurance Corporation,
or other depository insurance institutions and that the PJM Board shall not be
accountable or liable for any loss of such funds resulting from failure or
insolvency of the depository institution.
(c) Checks, notes, drafts and other orders for the payment of money shall
be signed by such persons as the PJM Board from time to time may authorize. When
the PJM Board so authorizes, the signature of any such person may be a
facsimile.
18.5 Books and Records.
(a) At all times during the term of the LLC, the PJM Board shall keep, or
cause to be kept, full and accurate books of account, records and supporting
documents, which shall reflect, completely, accurately and in reasonable detail,
each transaction of the LLC. The books of account shall be maintained and tax
returns prepared and filed on the method of accounting determined by the PJM
Board. The books of account, records and all documents and other writings of the
LLC shall be kept and maintained at the principal office of the Interconnection.
(b) The PJM Board shall cause the Office of the Interconnection to keep at
its principal office the following:
i) A current list in alphabetical order of the full name and
last known business address of each Member, the Weighted
Interest of each Member, and the Members Committee sector of
each Voting Member;
ii) A copy of the Certificate of Formation and the Certificate
of Conversion, and all Certificates of Amendment thereto;
iii) Copies of the LLC's federal, state, and local income tax
returns and reports, if any, for the three most recent
years; and
iv) Copies of the Operating Agreement, as amended, and of any
financial statements of the LLC for the three most recent
years.
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18.6 Amendment.
(a) Except as provided by law or otherwise set forth herein, this
Agreement, including any Schedule hereto, may be amended, or a new Schedule may
be created, only upon: (i) submission of the proposed amendment to the PJM Board
for its review and comments; (ii) approval of the amendment or new Schedule by
the Members Committee, after consideration of the comments of the PJM Board, in
accordance with Section 8.4, or written agreement to an amendment of all Members
not in default at the time the amendment is agreed upon; and (iii) approval
and/or acceptance for filing of the amendment by FERC and any other regulatory
body with jurisdiction thereof as may be required by law. If and as necessary,
the Members Committee may file with FERC or other regulatory body of competent
jurisdiction any amendment to this Agreement or to its Schedules or a new
Schedule not filed by the Office of the Interconnection.
(b) Notwithstanding the foregoing, an applicant eligible to become a Member
in accordance with the procedures specified in this Agreement shall become a
Member by executing a counterpart of this Agreement without the need for
amendment of this Agreement or execution of such counterpart by any other
Member.
(c) Each of the following fundamental changes to the LLC shall require or
be deemed to require an amendment to this Agreement and shall require the prior
approval of FERC:
i) Adoption of any plan of merger or consolidation;
ii) Adoption of any plan of sale, lease or exchange of assets
relating to all, or substantially all, of the property and
assets of the LLC;
iii) Adoption of any plan of division relating to the division of
the LLC into two or more corporations or other legal
entities;
iv) Adoption of any plan relating to the conversion of the LLC
into a stock corporation;
v) Adoption of any proposal of voluntary dissolution; or
vi) Taking any action which has the purpose or effect of the
adoption of any plan or proposal described in items (i),
(ii), (iii), (iv) or (v) above.
18.7 Interpretation.
Wherever the context may require, any noun or pronoun used herein shall
include the corresponding masculine, feminine or neuter forms. The singular form
of nouns, pronouns and verbs shall include the plural and vice versa.
18.8 Severability.
Each provision of this Agreement shall be considered severable and if for
any reason any provision is determined by a court or regulatory authority of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated, and such invalid, void or
unenforceable provision shall be replaced with valid and enforceable provision
or provisions which otherwise give effect to the original intent of the invalid,
void or unenforceable provision.
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18.9 Force Majeure.
No Member shall be liable to any other Member for damages or otherwise be
in breach of this Agreement to the extent and during the period such Member's
performance is prevented by any cause or causes beyond such Member's control and
without such Member's fault or negligence, including but not limited to any act,
omission, or circumstance occasioned by or in consequence of any act of God,
labor disturbance, act of the public enemy, war, insurrection, riot, fire, storm
or flood, explosion, breakage or accident to machinery or equipment, or
curtailment, order, regulation or restriction imposed by governmental, military
or lawfully established civilian authorities; provided, however, that any such
foregoing event shall not excuse any payment obligation. Upon the occurrence of
an event considered by a Member to constitute a force majeure event, such Member
shall use due diligence to endeavor to continue to perform its obligations as
far as reasonably practicable and to remedy the event, provided that no Member
shall be required by this provision to settle any strike or labor dispute.
18.10 Further Assurances.
Each Member hereby agrees that it shall hereafter execute and deliver such
further instruments, provide all information and take or forbear such further
acts and things as may be reasonably required or useful to carry out the intent
and purpose of this Agreement and as are not inconsistent with the terms hereof.
18.11 Seal.
The seal of the LLC shall have inscribed thereon the name of the LLC, the
year of its organization and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
18.12 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be an original but all of which together will constitute one instrument,
binding upon all parties hereto, notwithstanding that all of such parties may
not have executed the same counterpart.
18.13 Costs of Meetings.
Each Member shall be responsible for all costs of its representative,
alternate or substitute in attending any meeting. The Office of the
Interconnection shall pay the other reasonable costs of meetings of the PJM
Board and the Members Committee, and such other committees, subcommittees, task
forces, working groups, User Groups or other bodies as determined to be
appropriate by the Office of the Interconnection, which costs otherwise shall be
paid by the Members attending. The Office of the Interconnection shall reimburse
all Board Members for their reasonable costs of attending meetings.
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18.14 Notice.
(a) Except as otherwise expressly provided herein, notices required under
this Agreement shall be in writing and shall be sent to a Member by overnight
courier, hand delivery, telecopier or other reliable electronic means to the
representative on the Members Committee of such Member at the address for such
Member previously provided by such Member to the other Members or as otherwise
directed by the Members Committee. Any such notice so sent shall be deemed to
have been given (i) upon delivery if given by overnight couriers or hand
delivery, or (ii) upon confirmation if given by telecopier or other reliable
electronic means.
(b) Notices, as well as copies of the agenda and minutes of all meetings of
committees, subcommittees, task forces, working groups, User Groups, or other
bodies formed under this Agreement, shall be posted in a timely fashion on and
made available for downloading from the PJM website.
18.15 Headings.
The section headings used in this Agreement are for convenience only and
shall not affect the construction or interpretation of any of the provisions of
this Agreement.
18.16 No Third-Party Beneficiaries.
This Agreement is intended to be solely for the benefit of the Members and
their respective successors and permitted assigns and, unless expressly stated
herein, is not intended to and shall not confer any rights or benefits on any
third party (other than successors and permitted assigns) not a signatory
hereto.
18.17 Confidentiality.
18.17.1 Party Access.
No Member shall have a right hereunder to receive or review any
documents, data or other information of another Member, including documents,
data or other information provided to the Office of the Interconnection, to the
extent such documents, data or information have been designated as confidential
pursuant to the procedures adopted by the Office of the Interconnection or to
the extent that they have been designated as confidential by such other Member;
provided, however, a Member may receive and review any composite documents, data
and other information that may be developed based on such confidential
documents, data or information if the composite does not disclose any individual
Member's confidential data or information.
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18.17.2 Required Disclosure.
(a) Notwithstanding anything in the foregoing Section to the contrary,
if a Member or the Office of the Interconnection is required by applicable law,
or in the course of administrative or judicial proceedings, to disclose
information that is otherwise required to be maintained in confidence pursuant
to this Agreement, that Member or the Office of the Interconnection may make
disclosure of such information; provided, however, that as soon as the Member or
the Office of the Interconnection learns of the disclosure requirement and prior
to making disclosure, that Member or the Office of the Interconnection shall
notify the affected Member or Members of the requirement and the terms thereof
and the affected Member or Members may direct, at their sole discretion and
cost, any challenge to or defense against the disclosure requirement. The
disclosing Member and the Office of the Interconnection shall cooperate with
such affected Members to the maximum extent practicable to minimize the
disclosure of the information consistent with applicable law. Each Member and
the Office of the Interconnection shall cooperate with the affected Members to
obtain proprietary or confidential treatment of such information by the person
to whom such information is disclosed prior to any such disclosure.
(b)The Office of the Interconnection shall endeavor to impose on any
contractors retained to provide technical support or otherwise to assist with
the implementation or administration of this Agreement a contractual duty of
confidentiality consistent with this Agreement. A Member shall not be obligated
to provide confidential or proprietary information to any contractor that does
not assume such a duty of confidentiality, and the Office of the Interconnection
shall not provide any such information to any such contractor without the
express written permission of the Member providing the information. 18.18
Termination and Withdrawal.
18.18.1 Termination.
Upon termination of this Agreement, final settlement for obligations
under this Agreement shall include the accounting for the period ending with the
last day of the last month for which the Agreement was effective.
18.18.2 Withdrawal.
Subject to the requirements of Section 4.1(c) of this Agreement and
Section 1.4.6 of the Schedule 1 to this Agreement, any Member may withdraw from
this Agreement upon 90 days notice to the Office of the Interconnection.
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18.18.3 Winding Up.
Any provision of this Agreement that expressly or by implication comes
into or remains in force following the termination or expiration of this
Agreement shall survive such termination or expiration. The surviving provisions
shall include, but shall not be limited to: (i) those provisions necessary to
permit the orderly conclusion, or continuation pursuant to another agreement, of
transactions entered into prior to the decision to terminate this Agreement,
(ii) those provisions necessary to conduct final billing, collection, and
accounting with respect to all matters arising hereunder, and (iii) the
indemnification provisions as applicable to periods prior to such termination or
expiration.
IN WITNESS whereof, the Members have caused this Agreement to be
executed by their duly authorized representatives.
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SCHEDULE 1
PJM INTERCHANGE ENERGY MARKET
(Revises and replaces former Schedules 7.01 and 7.03)
Issued: June 2, 1997
Effective: August 1, 1997
1. MARKET OPERATIONS
1.1 Introduction.
This Schedule sets forth the scheduling, other procedures, and certain
general provisions applicable to the operation of the PJM Interchange Energy
Market within the PJM Control Area. This Schedule addresses each of the three
time-frames pertinent to the daily operation of the PJM Interchange Energy
Market: Prescheduling, Scheduling, and Dispatch.
1.2 Cost-based Offers.
Unless and until the FERC shall authorize the use of market-based prices in
the PJM Interchange Energy Market, all offers for energy or other services to be
sold on the PJM Interchange Energy Market from generating resources located
within the PJM Control Area shall not exceed the variable cost of producing such
energy or other service, as determined in accordance with Schedule 2 to this
Agreement and applicable regulatory standards, requirements and determinations;
provided that, a Market Seller may offer to the PJM Interchange Energy Market
the right to call on energy from a resource the output of which has been sold on
a bilateral basis, with the rate for such energy if called equal to the
curtailment rate specified in the bilateral contract.
1.3 Definitions.
1.3.1 Dispatch Rate.
"Dispatch Rate" shall mean the control signal, expressed in dollars
per megawatt-hour, calculated and transmitted continuously and dynamically to
direct the output level of all generation resources dispatched by the Office of
the Interconnection in accordance with the Offer Data.
1.3.2 Equivalent Load.
"Equivalent Load" shall mean the sum of an Internal Market Buyer's net
system requirements to serve its customer load in the PJM Control Area, plus its
net bilateral transactions.
1.3.3 External Market Buyer.
"External Market Buyer" shall mean a Market Buyer making purchases of
energy from the PJM Interchange Energy Market for consumption by end-users
outside the PJM Control Area, or for load in the Control Area that is not served
by Network Transmission Service.
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1.3.4 External Resource.
"External Resource" shall mean a generation resource located outside
the metered boundaries of the PJM Control Area.
1.3.5 Fixed Transmission Right.
"Fixed Transmission Right" shall mean a number determined as specified
in Section 0 of this Schedule.
1.3.6 Generating Market Buyer.
"Generating Market Buyer" shall mean an Internal Market Buyer that
owns or has contractual rights to the output of generation resources capable of
serving the Market Buyer's load in the PJM Control Area, or of selling energy or
related services in the PJM Interchange Energy Market or elsewhere.
1.3.7 Generator Forced Outage.
"Generator Forced Outage" shall mean an immediate reduction in output
or capacity or removal from service, in whole or in part, of a generating unit
by reason of an Emergency or threatened Emergency, unanticipated failure, or
other cause beyond the control of the owner or operator of the facility, as
specified in the relevant portions of the PJM Manuals. A reduction in output or
removal from service of a generating unit in response to changes in market
conditions shall not constitute a Generator Forced Outage.
1.3.8 Generator Maintenance Outage.
"Generator Maintenance Outage" shall mean the scheduled removal from
service, in whole or in part, of a generating unit in order to perform necessary
repairs on specific components of the facility, if removal of the facility meets
the guidelines specified in the PJM Manuals.
1.3.9 Generator Planned Outage.
"Generator Planned Outage" shall mean the scheduled removal from
service, in whole or in part, of a generating unit for inspection, maintenance
or repair with the approval of the Office of the Interconnection in accordance
with the PJM Manuals.
1.3.10 Internal Market Buyer.
"Internal Market Buyer" shall mean a Market Buyer making purchases of
energy from the PJM Interchange Energy Market for consumption by end-users
inside the PJM Control Area.
1.3.11 Inadvertent Interchange.
"Inadvertent Interchange" shall mean the difference between net actual
energy flow and net scheduled energy flow into or out of the PJM Control Area,
as determined and allocated each hour by the Office of the Interconnection in
accordance with the procedures set forth in the PJM Manuals.
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1.3.12 Market Operations Center.
"Market Operations Center" shall mean the equipment, facilities and
personnel used by or on behalf of a Market Participant to communicate and
coordinate with the Office of the Interconnection in connection with
transactions in the PJM Interchange Energy Market or the operation of the PJM
Control Area.
1.3.13 Maximum Generation Emergency.
"Maximum Generation Emergency" shall mean an Emergency declared by the
Office of the Interconnection in which the Office of the Interconnection
anticipates requesting one or more Capacity Resources to operate at its maximum
net or gross electrical power output, subject to the equipment stress limits for
such Capacity Resource, in order to manage, alleviate, or end the Emergency.
1.3.14 Minimum Generation Emergency.
"Minimum Generation Emergency" shall mean an Emergency declared by the
Office of the Interconnection in which the Office of the Interconnection
anticipates requesting one or more generating resources to operate at or below
Normal Minimum Generation, in order to manage, alleviate, or end the Emergency.
1.3.15 Network Resource.
"Network Resource" shall have the meaning specified in the PJM Tariff.
1.3.16 Network Service User.
"Network Service User" shall mean an entity using Network Transmission
Service.
1.3.17 Network Transmission Service.
"Network Transmission Service" shall mean transmission service
provided pursuant to the rates, terms and conditions set forth in Part III of
the PJM Tariff, or transmission service comparable to such service that is
provided to a Load Serving Entity that is also a Regional Transmission Owner as
that term is defined in the PJM Tariff.
1.3.18 Normal Maximum Generation.
"Normal Maximum Generation" shall mean the highest output level of a
generating resource under normal operating conditions.
1.3.19 Normal Minimum Generation.
"Normal Minimum Generation" shall mean the lowest output level of a
generating resource under normal operating conditions.
1.3.20 Offer Data.
"Offer Data" shall mean the scheduling, operations planning, dispatch,
new resource, and other data and information necessary to schedule and dispatch
generation resources for the provision of energy and other services and the
maintenance of the reliability and security of the transmission system in the
PJM Control Area, and specified for submission to the PJM Interchange Energy
Market for such purposes by the Office of the Interconnection.
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1.3.21 Office of the Interconnection Control Center.
"Office of the Interconnection Control Center" shall mean the
equipment, facilities and personnel used by the Office of the Interconnection to
coordinate and direct the operation of the PJM Control Area and to administer
the PJM Interchange Energy Market, including facilities and equipment used to
communicate and coordinate with the Market Participants in connection with
transactions in the PJM Interchange Energy Market or the operation of the PJM
Control Area.
1.3.22 Operating Day.
"Operating Day" shall mean the daily 24 hour period beginning at
midnight for which transactions on the PJM Interchange Energy Market are
scheduled.
1.3.23 Operating Margin.
"Operating Margin" shall mean the incremental adjustments, measured in
megawatts, required in PJM Control Area operations in order to accommodate, on a
first contingency basis, an operating contingency in the PJM Control Area
resulting from operations in an interconnected Control Area. Such adjustments
may result in constraints causing Transmission Congestion Charges, or may result
in Ancillary Services charges pursuant to the PJM Tariff.
1.3.24 Operating Margin Customer.
"Operating Margin Customer" shall mean a Control Area purchasing
Operating Margin pursuant to an agreement between such other Control Area and
the LLC.
1.3.25 PJM Interchange.
"PJM Interchange" shall mean the following, as determined in
accordance with the Schedules to this Agreement: (a) the amount by which an
Internal Market Buyer's hourly Equivalent Load exceeds, or is exceeded by, the
sum of the hourly outputs of the Internal Market Buyer's operating generating
resources; or (b) the hourly scheduled deliveries of Spot Market Energy by an
External Market Seller; or (c) the hourly net metered output of any other Market
Seller; or (d) the hourly scheduled deliveries of Spot Market Energy to an
External Market Buyer.
1.3.26 PJM Interchange Export.
"PJM Interchange Export" shall mean the following, as determined in
accordance with Schedules to this Agreement: (a) the amount by which an Internal
Market Buyer's hourly Equivalent Load is exceeded by the sum of the hourly
outputs of the Internal Market Buyer's operating generating resources; or (b)
the hourly scheduled deliveries of Spot Market Energy by a Market Seller from an
External Resource; or (c) the hourly net metered output of any other Market
Seller.
1.3.27 PJM Interchange Import.
"PJM Interchange Import" shall mean the following, as determined in
accordance with the Schedules to this Agreement: (a) the amount by which an
Internal Market Buyer's hourly Equivalent Load exceeds the sum of the hourly
outputs of the Internal Market Buyer's operating generating resources; or (b)
the hourly scheduled deliveries of Spot Market Energy to an External Market
Buyer.
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1.3.28 PJM Open Access Same-time Information System.
"PJM Open Access Same-time Information System" shall mean the
electronic communication system for the collection and dissemination of
information about transmission services in the PJM Control Area, established and
operated by the Office of the Interconnection in accordance with FERC standards
and requirements.
1.3.29 Point-to-Point Transmission Service.
"Point-to-Point Transmission Service" shall mean transmission service
provided pursuant to the rates, terms and conditions set forth in Part II of the
PJM Tariff.
1.3.30 Ramping Capability.
"Ramping Capability" shall mean the sustained rate of change of
generator output, in megawatts per minute.
1.3.31 Regulation.
"Regulation" shall mean the capability of a specific generating unit
with appropriate telecommunications, control and response capability to increase
or decrease its output in response to a regulating control signal, in accordance
with the specifications in the PJM Manuals.
1.3.32 Regulation Class.
"Regulation Class" shall mean a subset of the generation units capable
of providing Regulation to the PJM Control Area determined by a range of costs
for providing Regulation as specified by the Office of the Interconnection using
procedures specified in the PJM Manuals.
1.3.33 Spot Market Energy.
"Spot Market Energy" shall mean energy bought or sold by Market
Participants through the PJM Interchange Energy Market at Locational Marginal
Prices determined as specified in Section 2 of this Schedule.
1.3.34 Transmission Congestion Charge.
"Transmission Congestion Charge" shall mean a charge attributable to
the increased cost of energy delivered at a given load bus when the transmission
system serving that load bus is operating under constrained conditions, which
shall be calculated and allocated as specified in Section 5.1 of this Schedule.
1.3.35 Transmission Congestion Credit.
"Transmission Congestion Credit" shall mean the allocated share of
total Transmission Congestion Charges credited to each holder of Fixed
Transmission Rights, calculated and allocated as specified in Section 5.2 of
this Schedule.
1.3.36 Transmission Customer.
"Transmission Customer" shall mean an entity using Point-to-Point
Transmission Service.
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1.3.37 Transmission Forced Outage.
"Transmission Forced Outage" shall mean an immediate removal from
service of a transmission facility by reason of an Emergency or threatened
Emergency, unanticipated failure, or other cause beyond the control of the owner
or operator of the transmission facility, as specified in the relevant portions
of the PJM Manuals. A removal from service of a transmission facility at the
request of the Office of the Interconnection to improve transmission capability
shall not constitute a Forced Transmission Outage.
1.3.38 Transmission Planned Outage.
"Transmission Planned Outage" shall mean any transmission outage
scheduled in advance for a pre-determined duration and which meets the
notification requirements for such outages specified in the PJM Manuals.
1.4 Market Buyers.
1.4.1 Qualification.
(a) To become a Market Buyer, an entity shall submit an application to
the Office of the Interconnection, in such form as shall be established by the
Office of the Interconnection.
(b) An applicant that is a Load Serving Entity or that will purchase
on behalf of a Load Serving Entity shall establish to the satisfaction of the
Office of the Interconnection that the end-users as to which it or its principal
is the Load Serving Entity, and which will be served through energy and related
services purchased in the PJM Interchange Energy Market, are located
electrically within the PJM Control Area, or will be brought within the PJM
Control Area prior to any purchases from the PJM Interchange Energy Market by
the Load Serving Entity or its agent. Such applicant shall further demonstrate
that:
i) The foregoing Load Serving Entity (the applicant or its
principal) is obligated to meet the requirements of the
Reliability Assurance Agreement; and
ii) The foregoing Load Serving Entity has arrangements in place
for Network Transmission Service or Point-To-Point
Transmission Service for all PJM Interchange Energy Market
purchases.
(c) An applicant that is not a Load Serving Entity or purchasing on
behalf of a Load Serving Entity shall demonstrate that:
i) The applicant has obtained or will obtain Network
Transmission Service or Point-to-Point Transmission Service
for all PJM Interchange Energy Market purchases; and
ii) The applicant's PJM Interchange Energy Market purchases will
ultimately be delivered to a load in another Control Area
that is recognized by NERC and that complies with NERC's
standards for operating and planning reliable bulk electric
systems.
(d) All applicants shall demonstrate that:
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i) The applicant is capable of complying with all applicable
metering, data storage and transmission, and other
reliability, operation, planning and accounting standards
and requirements for the operation of the PJM Control Area
and the PJM Interchange Energy Market;
ii) The applicant meets the creditworthiness standards
established by the Office of the Interconnection, or has
provided a letter of credit or other form of security
acceptable to the Office of the Interconnection; and
iii) The applicant has paid all applicable fees and reimbursed
the Office of the Interconnection for all unusual or
extraordinary costs of processing and evaluating its
application to become a Market Buyer, and has agreed in its
application to subject any disputes arising from its
application to the PJM Dispute Resolution Procedures.
(e) The applicant shall become a Market Buyer upon a final favorable
determination on its application by the Office of the Interconnection as
specified below, and execution by the applicant of counterparts of this
Agreement.
1.4.2 Submission of Information.
The applicant shall furnish all information reasonably requested by
the Office of the Interconnection in order to determine the applicant's
qualification to be a Market Buyer. The Office of the Interconnection may waive
the submission of information relating to any of the foregoing criteria, to the
extent the information in the Office of the Interconnection's possession is
sufficient to evaluate the application against such criteria.
1.4.3 Fees and Costs.
The Office of the Interconnection shall require all applicants to
become a Market Buyer to pay a uniform application fee, initially in the amount
of $1,500, to defray the ordinary costs of processing such applications. The
application fee shall be revised from time to time as the Office of the
Interconnection shall determine to be necessary to recover its ordinary costs of
processing applications. Any unusual or extraordinary costs incurred by the
Office of the Interconnection in processing an application shall be reimbursed
by the applicant.
1.4.4 Office of the Interconnection Determination.
Upon submission of the information specified above, and such other
information as shall reasonably be requested by the Office of the
Interconnection, the Office of the Interconnection shall undertake an evaluation
and investigation to determine whether the applicant meets the criteria
specified above. As soon as practicable, but in any event not later than 60 days
after submission of the foregoing information, or such later date as may be
necessary to satisfy the requirements of the Reliability Assurance Agreement,
the Office of the Interconnection shall notify the applicant and the members of
the Members Committee of its determination, along with a written summary of the
basis for the determination. The Office of the Interconnection shall respond
promptly to any reasonable and timely request by a Member for additional
information regarding the basis for the Office of the Interconnection's
determination, and shall take such action as it shall deem appropriate in
response to any request for reconsideration or other action submitted to the
Office of the Interconnection not later than 30 days from the initial
notification to the Members Committee.
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1.4.5 Existing Participants.
Any entity that was qualified to participate as a Market Buyer in the
PJM Interchange Energy Market under the Operating Agreement of PJM
Interconnection L.L.C. in effect immediately prior to the Effective Date shall
continue to be qualified to participate as a Market Buyer in the PJM Interchange
Energy Market under this Agreement.
1.4.6 Withdrawal.
(a) An Internal Market Buyer may withdraw from this Agreement by
giving written notice to the Office of the Interconnection specifying an
effective date of withdrawal not earlier than the effective date of (i) its
withdrawal from the Reliability Assurance Agreement, or (ii) the assumption of
its obligations under the Reliability Assurance Agreement by an agent that is a
Market Buyer.
(b)An External Market Buyer may withdraw from this Agreement by giving
written notice to the Office of the Interconnection specifying an effective date
of withdrawal at least one day after the date of the notice.
(c) Withdrawal from this Agreement shall not relieve a Market Buyer of
any obligation to pay for electric energy or related services purchased from the
PJM Interchange Energy Market prior to such withdrawal, to pay its share of any
fees and charges incurred or assessed by the Office of the Interconnection prior
to the date of such withdrawal, or to fulfill any obligation to provide
indemnification for the consequences of acts, omissions or events occurring
prior to such withdrawal; and provided, further, that withdrawal from this
Agreement shall not relieve any Market Buyer of any obligations it may have
under, or constitute withdrawal from, any other Related PJM Agreement.
(d) A Market Buyer that has withdrawn from this Agreement may reapply
to become a Market Buyer in accordance with the provisions of this Section 0,
provided it is not in default of any obligation incurred under this Agreement.
1.5 Market Sellers.
1.5.1 Qualification.
A Member that demonstrates to the Office of the Interconnection that
the Member meets the standards for the issuance of an order mandating the
provision of transmission service under section 211 of the Federal Power Act, as
amended by the Energy Policy Act of 1992, may become a Market Seller upon
execution of this Agreement and submission to the Office of the Interconnection
of the applicable Offer Data in accordance with the provisions of this Schedule.
All Members that are Market Buyers shall become Market Sellers upon execution of
the PJM Dispute Resolution Agreement and submission to the Office of the
Interconnection of the applicable Offer Data in accordance with the provisions
of this Schedule.
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1.5.2 Withdrawal.
(a) A Market Seller may withdraw from this Agreement by giving written
notice to the Office of the Interconnection specifying an effective date of
withdrawal at least one day after the date of the notice; provided, however,
that withdrawal shall not relieve a Market Seller of any obligation to deliver
electric energy or related services to the PJM Interchange Energy Market
pursuant to an offer made prior to such withdrawal, to pay its share of any fees
and charges incurred or assessed by the Office of the Interconnection prior to
the date of such withdrawal, or to fulfill any obligation to provide
indemnification for the consequences of acts, omissions, or events occurring
prior to such withdrawal; and provided, further, that withdrawal shall not
relieve any entity that is a Market Seller and is also a Market Buyer of any
obligations it may have as a Market Buyer under, or constitute withdrawal as a
Market Buyer from, this Agreement or any other Related PJM Agreement.
(b) A Market Seller that has withdrawn from this Agreement may reapply
to become a Market Seller at any time, provided it is not in default with
respect to any obligation incurred under this Agreement.
1.6 Office of the Interconnection.
1.6.1 Operation of the PJM Interchange Energy Market The Office of the
Interconnection shall operate the PJM Interchange Energy Market in accordance
with this Agreement.
1.6.2 Scope of Services. The Office of the Interconnection shall, on
behalf of the Market Participants, perform the services pertaining to the PJM
Interchange Energy Market specified in this Agreement, including but not limited
to the following:
i) Administer the PJM Interchange Energy Market as part of the
PJM Control Area, including scheduling and dispatching of
generation resources, accounting for transactions, rendering
bills to the Market Participants, receiving payments from
and disbursing payments to the Market Participants,
maintaining appropriate records, and monitoring the
compliance of Market Participants with the provisions of
this Agreement, all in accordance with applicable provisions
of the Office of the Interconnection Agreement, and the
Schedules to this Agreement;
ii) Review and evaluate the qualification of entities to be
Market Buyers or Market Sellers under applicable provisions
of this Agreement;
iii) Coordinate, in accordance with applicable provisions of this
Agreement, the Reliability Assurance Agreement, and the
Transmission Owners Agreement, maintenance schedules for
generation and transmission resources operated as part of
the PJM Control Area;
iv) Provide or coordinate the provision of ancillary services
necessary for the operation of PJM Control Area or the PJM
Interchange Energy Market; v) Determine and declare that an
Emergency is expected to exist, exists, or has
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ceased to exist, in all or any part of the PJM Control Area,
or in another Control Area interconnected directly or
indirectly with the PJM Control Area, and serve as a primary
point of contact for interested state or federal agencies;
vi) Enter into agreements for the transfer of energy in
conditions constituting an Emergency in the PJM Control Area
or in a Control Area interconnected with it, and the mutual
provision of other support in such Emergency conditions with
other Control Areas interconnected with the PJM Control
Area, in accordance with the Schedules to this Agreement;
vii) Coordinate the curtailment or shedding of load, or other
measures appropriate to alleviate an Emergency, in order to
preserve reliability in accordance with NERC and MAAC
principles, guidelines and standards, and to ensure the
operation of the PJM Control Area in accordance with Good
Utility Practice and the this Agreement;
viii) Protect confidential information as specified in this
Agreement; and
ix) Send a representative to meetings of the Members Committee
or other Committees, subcommittees, or working groups
specified in this Agreement or formed by the Members
Committee when requested to do so by the chair or other head
of such committee or other group.
1.6.3 Records and Reports.
The Office of the Interconnection shall prepare and maintain such
records and prepare such reports, including, but not limited to quarterly budget
reports, as are required to document the performance of its obligations to the
Market Participants hereunder in a form adopted by the Office of the
Interconnection upon consideration of the advice and recommendations of the
Members Committee. The Office of the Interconnection shall also produce special
reports reasonably requested by the Members Committee and consistent with FERC's
standards of conduct; provided, however, the Market Participants shall reimburse
the Office of the Interconnection for the costs of producing any such report.
Notwithstanding the foregoing, the Office of the Interconnection shall not be
required to disclose confidential or commercially sensitive information in any
such report.
1.6.4 PJM Manuals.
The Office of the Interconnection shall prepare, maintain and update
the PJM Manuals consistent with this Agreement. The PJM Manuals shall be
available for inspection by the Market Participants, regulatory authorities with
jurisdiction over the LLC or any Member, and the public.
1.7 General.
1.7.1 Market Sellers.
Only Market Sellers shall be eligible to submit offers to the Office
of the Interconnection for the sale of electric energy or related services in
the PJM Interchange Energy Market. Market Sellers shall comply with the prices,
terms, and operating characteristics of all Offer Data submitted to and accepted
by the PJM Interchange Energy Market.
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1.7.2 Market Buyers.
Only Market Buyers shall be eligible to purchase energy or related
services in the PJM Interchange Energy Market. Market Buyers shall comply with
all requirements for making purchases from the PJM Interchange Energy Market.
1.7.3 Agents.
A Market Participant may participate in the PJM Interchange Energy
Market through an agent, provided that the Market Participant informs the Office
of the Interconnection in advance in writing of the appointment of such agent. A
Market Participant participating in the PJM Interchange Energy Market through an
agent shall be bound by all of the acts or representations of such agent with
respect to transactions in the PJM Interchange Energy Market, and shall ensure
that any such agent complies with the requirements of this Agreement.
1.7.4 General Obligations of the Market Participants.
(a) In performing its obligations to the Office of the Interconnection
hereunder, each Market Participant shall at all times (i) follow Good Utility
Practice, (ii) comply with all applicable laws and regulations, (iii) comply
with the applicable principles, guidelines, standards and requirements of FERC,
NERC and MAAC, (iv) comply with the procedures established for operation of the
PJM Interchange Energy Market and PJM Control Area and (v) cooperate with the
Office of the Interconnection as necessary for the operation of the PJM Control
Area in a safe, reliable manner consistent with Good Utility Practice.
(b) Market Participants shall undertake all operations in or affecting
the PJM Interchange Energy Market and the PJM Control Area, including but not
limited to compliance with all Emergency procedures, in accordance with the
power and authority of the Office of the Interconnection with respect to the
operation of the PJM Interchange Energy Market and the PJM Control Area as
established in this Agreement, and as specified in the Schedules to this
Agreement and the PJM Manuals. Failure to comply with the foregoing operational
requirements shall subject a Market Participant to such reasonable charges or
other remedies or sanctions for non-compliance as may be established by the PJM
Board, including legal or regulatory proceedings as authorized by the PJM Board
to enforce the obligations of this Agreement.
(c) The Office of the Interconnection may establish such committees
with a representative of each Market Participant, and the Market Participants
agree to provide appropriately qualified personnel for such committees, as may
be necessary for the Office of the Interconnection to perform its obligations
hereunder.
(d) All Market Participants shall provide to the Office of the
Interconnection the scheduling and other information specified in the Schedules
to this Agreement, and such other information as the Office of the
Interconnection may reasonably require for the reliable and efficient operation
of the PJM Control Area and the PJM Interchange Energy Market, and for
compliance with applicable regulatory requirements for posting market and
related information. Such information shall be provided as much in advance as
possible, but in no event later than the deadlines established by the Schedules
to this Agreement, or by the Office of the Interconnection in conformance with
such Schedules. Such information shall include, but not be limited to,
maintenance and other anticipated outages of generation or transmission
facilities, scheduling and related information on bilateral transactions and
self-scheduled resources, and implementation of
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active load management, interruption of load, and other load reduction measures.
The Office of the Interconnection shall abide by appropriate requirements for
the non-disclosure and protection of any confidential or proprietary information
given to the Office of the Interconnection by a Market Participant. Each Market
Participant shall maintain or cause to be maintained compatible information and
communications systems, as specified by the Office of the Interconnection,
required to transmit scheduling, dispatch, or other time-sensitive information
to the Office of the Interconnection in a timely manner.
(e) Each Market Participant shall install and operate, or shall
otherwise arrange for, metering and related equipment capable of recording and
transmitting all voice and data communications reasonably necessary for the
Office of the Interconnection to perform the services specified in this
Agreement. A Market Participant that elects to be separately billed for its PJM
Interchange shall be individually metered in accordance with Section 0 of this
Agreement, or shall agree upon an allocation of PJM Interchange between it and
the Market Participant through whose meters the unmetered Market Participant's
PJM Interchange is delivered. The Office of the Interconnection shall be
notified of the allocation by the foregoing Market Participants.
(f) Each Market Participant shall operate, or shall cause to be
operated, any generating resources owned or controlled by such Market
Participant that are within the PJM Control Area or otherwise supplying energy
to or through the PJM Control Area in a manner that is consistent with the
standards, requirements or directions of the Office of the Interconnection and
that will permit the Office of the Interconnection to perform its obligations
under this Agreement; provided, however, no Market Participant shall be required
to take any action that is inconsistent with Good Utility Practice or applicable
law.
(g) Each Market Participant shall follow the directions of the Office
of the Interconnection to take actions to prevent, manage, alleviate or end an
Emergency in a manner consistent with this Agreement and the procedures of the
PJM Control Area as specified in the PJM Manuals.
(h) Each Market Participant shall obtain and maintain all permits,
licenses or approvals required for the Market Participant to participate in the
PJM Interchange Energy Market in the manner contemplated by this Agreement.
1.7.5 Market Operations Center.
Each Market Participant shall maintain a Market Operations Center, or
shall make appropriate arrangements for the performance of such services on its
behalf. A Market Operations Center shall meet the performance, equipment,
communications, staffing and training standards and requirements specified in
this Agreement for the scheduling and completion of transactions in the PJM
Interchange Energy Market and the maintenance of the reliable operation of the
PJM Control Area, and shall be sufficient to enable (i) a Market Seller to
perform all terms and conditions of its offers to the PJM Interchange Energy
Market, and (ii) a Market Buyer to conform to the requirements for purchasing
from the PJM Interchange Energy Market.
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1.7.6 Scheduling and Dispatching.
(a) The Office of the Interconnection shall schedule and dispatch
generation economically on the basis of least-cost, security-constrained
dispatch and the prices and operating characteristics offered by Market Sellers,
continuing until sufficient generation is dispatched to serve the PJM
Interchange Energy Market energy purchase requirements under normal system
conditions of the Market Buyers, as well as the requirements of the PJM Control
Area for ancillary services provided by such generation, in accordance with this
Agreement. Scheduling and dispatch shall be conducted in accordance with this
Agreement.
(b) The Office of the Interconnection shall undertake to identify any
conflict or incompatibility between the scheduling or other deadlines or
specifications applicable to the PJM Interchange Energy Market, and any relevant
procedures of another Control Area, or any tariff (including the PJM Tariff).
Upon determining that any such conflict or incompatibility exists, the Office of
the Interconnection shall propose tariff or procedural changes, and undertake
such other efforts as may be appropriate, to resolve any such conflict or
incompatibility.
1.7.7 Pricing.
The price paid for energy bought and sold in the PJM Interchange
Energy Market will reflect the hourly Locational Marginal Price at each load and
generation bus, determined by the Office of the Interconnection in accordance
with this Agreement. Transmission Congestion Charges, which shall be determined
by differences in Locational Marginal Prices in an hour caused by transmission
constraints, shall be calculated and collected, and the revenues therefrom shall
be disbursed, by the Office of the Interconnection in accordance with this
Schedule.
1.7.8 Generating Market Buyer Resources.
A Generating Market Buyer may elect to self-schedule its generation
resources up to that Generating Market Buyer's Equivalent Load, in accordance
with and subject to the procedures specified in this Schedule, and the
accounting and billing requirements specified in Section 0 to this Agreement.
1.7.9 Delivery to an External Market Buyer.
A purchase of Spot Market Energy by an External Market Buyer shall be
delivered to a bus or busses at the border of the PJM Control Area specified by
the Office of the Interconnection, or to load in the Control Area that is not
served by Network Transmission Service, using Point-to-Point Transmission
Service paid for by the External Market Buyer. Further delivery of such energy
shall be the responsibility of the External Market Buyer.
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1.7.10 Other Transactions.
Market Participants may enter into bilateral contracts for the
purchase or sale of electric energy to or from each other or any other entity,
subject to the obligations of Internal Market Buyers to make Capacity Resources
available for dispatch by the Office of the Interconnection. Bilateral
arrangements that contemplate the physical transfer of energy to or from a
Market Participant shall be reported to and coordinated with the Office of the
Interconnection in accordance with this Schedule. To the extent the Office of
the Interconnection dispatches a Generating Market Buyer's generation resources,
such Generating Market Buyer may elect to net the output of such resources
against its hourly Equivalent Load. Such a Generating Market Buyer shall be
deemed a buyer from the PJM Interchange Energy Market to the extent of its PJM
Interchange Imports, and shall be deemed a seller to the PJM Interchange Energy
Market to the extent of its PJM Interchange Exports.
1.7.11 Emergencies.
The Office of the Interconnection, with the assistance of the Member's
dispatchers as it may request, shall be responsible for monitoring the operation
of the PJM Control Area, for declaring the existence of an Emergency, and for
directing the operations of Market Participants as necessary to manage,
alleviate or end an Emergency. The standards, policies and procedures of the
Office of the Interconnection for declaring the existence of an Emergency,
including but not limited to a Minimum Generation Emergency, and for managing,
alleviating or ending an Emergency, shall apply to all Members on a
non-discriminatory basis. Actions by the Office of the Interconnection and the
Market Participants shall be carried out in accordance with this Agreement, the
NERC Operating Policies, MAAC reliability principles and standards, Good Utility
Practice, and the PJM Manuals. A declaration that an Emergency exists or is
likely to exist by the Office of the Interconnection shall be binding on all
Market Participants until the Office of the Interconnection announces that the
actual or threatened Emergency no longer exists. Consistent with existing
contracts, all Market Participants shall comply with all directions from the
Office of the Interconnection for the purpose of managing, alleviating or ending
an Emergency. The Market Participants shall authorize the Office of the
Interconnection to purchase or sell energy on their behalf to meet an Emergency,
and otherwise to implement agreements with other Control Areas interconnected
with the PJM Control Area for the mutual provision of service to meet an
Emergency, in accordance with this Agreement.
1.7.12 Fees and Charges.
Each Market Participant shall pay all fees and charges of the Office
of the Interconnection for operation of the PJM Interchange Energy Market as
determined by and allocated to the Market Participant by the Office of the
Interconnection in accordance with Schedule 3.
1.7.13 Relationship to PJM Control Area.
The PJM Interchange Energy Market operates within and subject to the
requirements for the operation of the PJM Control Area.
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1.7.14 PJM Manuals.
The Office of the Interconnection shall be responsible for
maintaining, updating, and promulgating the PJM Manuals as they relate to the
operation of the PJM Interchange Energy Market. The PJM Manuals, as they relate
to the operation of the PJM Interchange Energy Market, shall conform and comply
with this Agreement, NERC operating policies, and MAAC reliability principles,
guidelines and standards, and shall be designed to facilitate administration of
an efficient energy market within industry reliability standards and the
physical capabilities of the PJM Control Area.
1.7.15 Corrective Action.
Consistent with Good Utility Practice, the Office of the
Interconnection shall be authorized to direct or coordinate corrective action,
whether or not specified in the PJM Manuals, as necessary to alleviate unusual
conditions that threaten the integrity or reliability of the PJM Control Area or
the regional power system.
1.7.16 Recording.
Subject to the requirements of applicable State or federal law, all
voice communications with the Office of the Interconnection Control Center may
be recorded by the Office of the Interconnection and any Market Participant
communicating with the Office of the Interconnection Control Center, and each
Market Participant hereby consents to such recording. 1.7.17 Operating Reserves.
The Office of the Interconnection shall schedule to the Operating Reserve and
load- following objectives of the PJM Control Area in scheduling resources
pursuant to this Schedule. A table of Operating Reserve objectives is calculated
seasonally for various peak load levels and eight weekly periods and is
published in the PJM Manuals. Reserve levels are probabilistically determined
based on the season's historical load forecasting error and expected generation
mix (including typical Planned and Forced/Unplanned Outages).
1.7.18 Regulation.
(a) Regulation shall be supplied from generators located within the
metered electrical boundaries of the PJM Control Area. Generating Market Buyers,
and Market Sellers offering Regulation, shall comply with applicable standards
and requirements for Regulation capability and dispatch specified in the PJM
Manuals.
(b) The Office of the Interconnection shall obtain and maintain an
amount of Regulation equal to the PJM Control Area Regulation objective as
specified in the PJM Manuals.
(c) The Regulation range of a unit shall be at least twice the amount
of Regulation assigned.
(d) A unit capable of automatic energy dispatch that is also providing
Regulation shall have its energy dispatch range reduced by twice the amount of
the Regulation provided. The amount of Regulation provided by a unit shall serve
to redefine the Normal Minimum Generation and Normal Maximum Generation energy
limits of that unit, in that the amount of Regulation shall be added to the
unit's Normal Minimum Generation energy limit, and subtracted from its Normal
Maximum Generation energy limit.
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(e) Qualified Regulation must satisfy the verification tests described
in the PJM Manuals.
1.7.19 Ramping.
A generator dispatched by the Office of the Interconnection pursuant
to a control signal appropriate to increase or decrease the generator's megawatt
output level shall be able to change output at the ramping rate specified in the
Offer Data submitted to the Office of the Interconnection for that generator.
1.7.20 Communication and Operating Requirements.
(a) Market Participants. Each Market Participant shall have, or shall
arrange to have, its transactions in the PJM Interchange Energy Market subject
to control by a Market Operations Center, with staffing and communications
systems capable of real-time communication with the Office of the
Interconnection during normal and Emergency conditions and of control of the
Market Participant's relevant load or facilities sufficient to meet the
requirements of the Market Participant's transactions with the PJM Interchange
Energy Market, including but not limited to the following requirements as
applicable.
(b) Market Sellers selling from resources within the PJM Control Area
shall: report to the Office of the Interconnection sources of energy available
for operation; supply to the Office of the Interconnection all applicable Offer
Data; report to the Office of the Interconnection units that are self-scheduled;
report to the Office of the Interconnection bilateral sales transactions to
buyers not within the PJM Control Area; confirm to the Office of the
Interconnection bilateral sales to Market Buyers within the PJM Control Area;
respond to the Office of the Interconnection's directives to start, shutdown or
change output levels of generation units, or change scheduled voltages or
reactive output levels; continuously maintain all Offer Data concurrent with
on-line operating information; and ensure that, where so equipped, generating
equipment is operated with control equipment functioning as specified in the PJM
Manuals.
(c) Market Sellers selling from resources outside the PJM Control Area
shall: provide to the Office of the Interconnection all applicable Offer Data,
including offers specifying amounts of energy available, hours of availability
and prices of energy and other services; respond to Office of the
Interconnection directives to schedule delivery or change delivery schedules;
and communicate delivery schedules to the Market Seller's Control Area.
(d) Internal Market Buyers shall: provide to the Office of the
Interconnection forecasts of load to be served as required by the Office of the
Interconnection; respond to Office of the Interconnection directives for load
management steps; report to the Office of the Interconnection Capacity Resources
to satisfy capacity obligations that are available for pool operation; report to
the Office of the Interconnection all bilateral purchase transactions; respond
to other Office of the Interconnection directives such as those required during
Emergency operation.
(e) External Market Buyers shall: provide to the Office of the
Interconnection requests to purchase specified amounts of energy for each hour
of the Operating Day during which it intends to purchase from the PJM
Interchange Energy Market, along with Dispatch Rate levels above which it does
not desire to purchase; respond to other Office of the Interconnection
directives such as those required during Emergency operation.
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1.7.21 Multi-settlement System.
The PJM Interchange Energy Market shall be enhanced by an amendment to
this Schedule, to be filed with FERC not later than December 31, 1997, that will
provide for the implementation of a multi-settlement system as soon thereafter
as shall be determined by the Office of the Interconnection to be reasonably
practical. Such a system will provide an opportunity for Market Participants to
commit and obtain commitments to energy prices and transmission congestion
charges at certain specified deadlines in advance of the Office of the
Interconnection's real-time dispatch. The Members specified in Section 11.5(c)
of the Agreement, working with the Office of the Interconnection, shall develop
the details of the implementation of such a multi- settlement system.
1.8 Selection, Scheduling and Dispatch Procedure Adjustment Process.
1.8.1 PJM Dispute Resolution Agreement.
Subject to the condition specified below, any Member adversely
affected by a decision of the Office of the Interconnection with respect to the
operation of the PJM Interchange Energy Market, including the qualification of
an entity to participate in that market as a buyer or seller, make seek such
relief as may be appropriate under the PJM Dispute Resolution Procedures on the
grounds that such decision does not have an adequate basis in fact or does not
conform to the requirements of this Agreement.
1.8.2 Market or Control Area Hourly Operational Disputes.
(a) Market Participants shall comply with all determinations of the
Office of the Interconnection on the selection, scheduling or dispatch of
resources in the PJM Interchange Energy Market, or to meet the operational
requirements of the PJM Control Area. Complaints arising from or relating to
such determinations shall be brought to the attention of the Office of the
Interconnection not later than the end of the fifth business day after the end
of the Operating Day to which the selection or scheduling relates, or in which
the scheduling or dispatch took place, and shall include, if practicable, a
proposed resolution of the complaint. Upon receiving notification of the
dispute, the Office of the Interconnection and the Market Participant raising
the dispute shall exert their best efforts to obtain and retain all data and
other information relating to the matter in dispute, and to notify other Market
Participants that are likely to be affected by the proposed resolution. Subject
to confidentiality or other non-disclosure requirements, representatives of the
Office of the Interconnection, the Market Participant raising the dispute, and
other interested Market Participants, shall meet within three business days of
the foregoing notification, or at such other or further times as the Office of
the Interconnection and the Market Participants may agree, to review the
relevant facts, and to seek agreement on a resolution of the dispute.
(b) If the Office of the Interconnection determines that the matter in
dispute discloses a defect in operating policies, practices or procedures
subject to the discretion of the Office of the Interconnection, the Office of
the Interconnection shall implement such changes as it deems appropriate and
shall so notify the Members Committee. Alternatively, the Office of the
Interconnection may notify the Members Committee of a proposed change and
solicit the comments or other input of the Members.
(c) If either the Office of the Interconnection, the Market
Participant raising the dispute, or another affected Market Participant believes
that the matter in dispute has not been
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adequately resolved, or discloses a need for changes in standards or policies
established in or pursuant to the Operating Agreement, any of the foregoing
parties may make a written request for review of the matter by the Members
Committee, and shall include with the request the forwarding party's
recommendation and such data or information (subject to confidentiality or other
non-disclosure requirements) as would enable the Members Committee to assess the
matter and the recommendation. The Members Committee shall take such action on
the recommendation as it shall deem appropriate.
(d) Subject to the right of a Market Participant to obtain correction
of accounting or billing errors, the LLC or a Market Participant shall not be
entitled to actual, compensatory, consequential or punitive damages, opportunity
costs, or other form of reimbursement from the LLC or any other Market
Participant for any loss, liability or claim, including any claim for lost
profits, incurred as a result of a mistake, error or other fault by the Office
of the Interconnection in the selection, scheduling or dispatch of resources.
1.9 Prescheduling.
The following procedures and principles shall govern the prescheduling
activities necessary to plan for the reliable operation of the PJM Control Area
and for the efficient operation of the PJM Interchange Energy Market.
1.9.1 Outage Scheduling.
The Office of the Interconnection shall be responsible for
coordinating and approving requests for outages of generation and transmission
facilities as necessary for the reliable operation of the PJM Control Area, in
accordance with the PJM Manuals. The Office of the Interconnection shall
maintain records of outages and outage requests of these facilities.
1.9.2 Planned Outages.
(a) A Generator Planned Outage shall be included in Generator Planned
Outage schedules established prior to the scheduled start date for the outage,
in accordance with standards and procedures specified in the PJM Manuals.
(b) The Office of the Interconnection shall conduct Generator Planned
Outage scheduling for Capacity Resources in accordance with the Reliability
Assurance Agreement and the PJM Manuals and in consultation with the Members
owning or controlling the output of Capacity Resources. A Market Participant
shall not be expected to submit offers for the sale of energy or other services,
or to satisfy delivery obligations, from all or part of a generation resource
undergoing an approved Generator Planned Outage. If the Office of the
Interconnection determines that approval of a Generator Planned Outage would
significantly affect the reliable operation of the PJM Control Area, the Office
of the Interconnection may withhold approval or withdraw a prior approval.
Approval for a Generator Planned Outage of a Capacity Resource shall be withheld
or withdrawn only as necessary to ensure the adequacy of reserves or the
reliability of the PJM Control Area in connection with anticipated
implementation or avoidance of Emergency procedures. If the Office of the
Interconnection withholds or withdraws approval, it shall coordinate with the
Market Participant owning or controlling the resource to reschedule the
Generator Planned Outage of the Capacity Resource at the earliest practical
time. The Office of the Interconnection shall if possible propose alternative
schedules with the intent of minimizing the economic impact on the Market
Participant of a Generator Planned Outage.
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(c) The Office of the Interconnection shall conduct Planned
Transmission Outage scheduling in accordance with procedures specified in the
Transmission Owners Agreement and the PJM Manuals. If the Office of the
Interconnection determines that transmission maintenance schedules proposed by
one or more Members would significantly affect the efficient and reliable
operation of the PJM Control Area, the Office of the Interconnection may propose
alternative schedules, but such alternative shall minimize the economic impact
on the Member or Members whose maintenance schedules the Office of the
Interconnection proposes to modify.
The Office of the Interconnection shall coordinate resolution of
outage or other planning conflicts that may give rise to unreliable system
conditions. The Members shall comply with all maintenance schedules established
by the Office of the Interconnection.
1.9.3 Generator Maintenance Outages
A Market Participant may request approval for a Generator Maintenance
Outage of any Capacity Resource from the Office of the Interconnection in
accordance with the timetable and other procedures specified in the PJM Manuals.
The Office of the Interconnection shall approve requests for Generator
Maintenance Outages for a Capacity Resource unless the outage would threaten the
adequacy of reserves in, or the reliability of, the PJM Control Area. A Market
Participant shall not be expected to submit offers for the sale of energy or
other services, or to satisfy delivery obligations, from a generation resource
undergoing an approved full or partial Generator Maintenance Outage.
1.9.4 Forced Outages
(a) Each Market Seller that owns or controls a pool-scheduled
resource, or Capacity Resource whether or not pool-scheduled, shall: (i) advise
the Office of the Interconnection of a Generator Forced Outage suffered or
anticipated to be suffered by any such resource as promptly as possible; (ii)
provide the Office of the Interconnection with the expected date and time that
the resource will be made available; and (iii) make a record of the events and
circumstances giving rise to the Generator Forced Outage. A Market Seller shall
not be expected to submit offers for the sale of energy or other services, or
satisfy delivery obligations, from a generation resource undergoing a Generator
Forced Outage. A Capacity Resource that does not deliver all or part of its
scheduled energy shall be deemed to have experienced a Generator Forced Outage
with respect to such undelivered energy, in accordance with standards and
procedures for full and partial Generator Forced Outages specified in the
Reliability Assurance Agreement and the PJM Manuals.
(b)The Office of the Interconnection shall receive notification of
Forced Transmission Outages, and information on the return to service, of
Transmission Facilities in the PJM Control Area in accordance with standards and
procedures specified in the Transmission Owners Agreement and the PJM Manuals.
1.9.5 Market Participant Responsibilities.
Each Market Participant making a bilateral sale covering a period
greater than the following Operating Day from a generating resource located
within the PJM Control Area for delivery outside the PJM Control Area shall
furnish to the Office of the Interconnection, in the form and manner specified
in the PJM Manuals, information regarding the source of the energy, the load
sink, the energy schedule, and the amount of energy being delivered.
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1.9.6 Internal Market Buyer Responsibilities.
Each Internal Market Buyer making a bilateral purchase covering a
period greater than the following Operating Day shall furnish to the Office of
the Interconnection, in the form an manner specified in the PJM Manuals,
information regarding the source of the energy, the load sink, the energy
schedule, and the amount of energy being delivered. Each Internal Market Buyer
shall provide the Office of the Interconnection with details of any load
management agreements with customers that allow the Office of the
Interconnection to reduce load under specified circumstances.
1.9.7 Market Seller Responsibilities
(a) Not less than 30 days before a Market Seller's initial offer to
sell energy from a given generation resource on the PJM Interchange Energy
Market, the Market Seller shall furnish to the Office of the Interconnection the
information specified in the Offer Data for new generation resources.
(b) Market Sellers authorized and intending to request market-based
start-up and no-load fees in their Offer Data shall submit a specification of
such fees to the Office of the Interconnection for each generating unit as to
which the Market Seller intends to request such fees. Any such specification
shall be submitted on or before March 31 for the period April 1 through
September 30, and on or before September 30 for the period October 1 through
March 31, and shall remain in effect without change throughout each such period
for which a specification was submitted. The Office of the Interconnection shall
reject any request for start-up and no-load fees in a Market Seller's Offer Data
that does not conform to the Market Seller's specification on file with the
Office of the Interconnection.
1.9.8 Office of the Interconnection Responsibilities
(a) The Office of the Interconnection shall perform seasonal operating
studies to assess the forecasted adequacy of generating reserves and of the
transmission system, in accordance with the procedures specified in the PJM
Manuals.
(b) The Office of the Interconnection shall maintain and update tables
setting forth Operating Reserve and other reserve objectives as specified in the
PJM Manuals.
(c) The Office of the Interconnection shall receive and process
requests for firm and non-firm transmission service in accordance with
procedures specified in the PJM Tariff.
(d) The Office of the Interconnection shall maintain such data and
information relating to generation and transmission facilities in the PJM
Control Area as may be necessary or appropriate to conduct the scheduling and
dispatch of the PJM Interchange Energy Market and PJM Control Area.
(e)The Office of the Interconnection shall coordinate with other
interconnected Control Area as necessary to manage, alleviate or end an
Emergency.
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1.10 Scheduling.
The following scheduling procedures and principles shall govern the
commitment of resources to the PJM Interchange Energy Market over a period
extending from one week to one day prior to the Operating Day that transactions
are to take place. Scheduling encompasses the day- ahead and hourly scheduling
process, through which the Office of the Interconnection determines, based on
changing forecasts of conditions and actions by Market Participants and system
constraints, a plan to serve the hourly energy and reserve requirements of the
Internal Market Buyers and the purchase requests of the External Market Buyers
in the least costly manner, subject to maintaining the reliability of the PJM
Control Area. Scheduling shall be conducted as specified below, subject to the
following condition. If the Office of the Interconnection's forecast for the
next seven days projects a likelihood of Emergency conditions, the Office of the
Interconnection may commit, for all or part of such seven day period, to the use
of generation resources with notification or start-up times greater than one day
as necessary in order to alleviate or mitigate such Emergency, in accordance
with the Market Sellers' offers for such units for such periods and the
specifications in the PJM Manuals.
1.10.1 Day-Ahead Scheduling.
The following actions shall occur not later than 12:00 noon on the day
before the Operating Day for which transactions are being scheduled.
(a) Each Internal Market Buyer shall submit to the Office of the
Interconnection forecasts of its customer loads for the next Operating Day as
required by the PJM Manuals. If an Internal Market Buyer expects to curtail load
at a specific Dispatch Rate, it should specify the Dispatch Rate and estimated
load curtailment.
(b) An External Market Buyer shall submit to the Office of the
Interconnection requests to purchase specified amounts of energy for each hour
of the Operating Day during which it intends to purchase from the PJM
Interchange Energy Market, along with Dispatch Rate levels above which it does
not desire to purchase, in accordance with the specifications set forth in the
PJM Manuals.
(c) Each Generating Market Buyer shall submit to the Office of the
Interconnection: (i) hourly schedules for resource increments, including
hydropower units, self-scheduled by the Market Buyer to meet its Equivalent
Load; and (ii) the Dispatch Rate at which each such self-scheduled resource will
disconnect or reduce output, or confirmation of the Market Buyer's intent not to
reduce output.
(d) All Market Participants shall submit to the Office of the
Interconnection schedules for any bilateral transactions involving use of
generation or Transmission Facilities as specified below, and shall inform the
Office of the Interconnection if the parties to the transaction are not willing
to incur Transmission Congestion Charges in order to complete any such scheduled
bilateral transaction. Scheduling of bilateral transactions shall be conducted
in accordance with the specifications in the PJM Manuals and the following
requirements:
i) Internal Market Buyers shall submit schedules for all
bilateral purchases for delivery within the PJM Control
Area, whether from generation resources inside or outside
the PJM Control Area;
ii) Market Sellers shall submit schedules for bilateral sales to
entities outside
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the PJM Control Area from generation within the PJM Control
Area; and
iii) In addition to the foregoing schedules for bilateral
transactions, Market Participants shall submit confirmations
of each scheduled bilateral transaction from each other
party to the transaction in addition to the party submitting
the schedule, or the adjacent Control Area.
(e) Market Sellers wishing to sell on the PJM Interchange Energy
Market shall submit offers for the supply of energy (including energy from
hydropower units), Regulation, Operating Reserves or other services for the
following Operating Day. Offers shall be submitted to the Office of the
Interconnection in the form specified by the Office of the Interconnection and
shall contain the information specified in the Office of the Interconnection's
Offer Data specification, as applicable. Market Sellers owning or controlling
the output of a Capacity Resource that has not been rendered unavailable by a
Generation Planned Outage, a Generator Maintenance Outage, or a Generation
Forced Outage shall submit offers for the available capacity of such Capacity
Resource, including any portion that is self-scheduled by the Generating Market
Buyer claiming the resource as a Capacity Resource. The submission of offers for
resource increments that are not Capacity Resources shall be optional, but any
such offers must contain the information specified in the Office of the
Interconnection's Offer Data specification, as applicable. Energy offered from
generation resources that are not Capacity Resources shall not be supplied from
resources that are included in or otherwise committed to supply the Operating
Reserves of another Control Area. The foregoing offers:
i) Shall specify the generation resource and energy for each
hour in the offer period;
ii) Shall specify the amounts and prices for the entire
Operating Day for each resource component offered by the
Market Seller to the Office of the Interconnection;
iii) If based on energy from a specific generating unit, may
specify start-up and no-load fees equal to the specification
of such fees for such unit on file with the Office of the
Interconnection;
iv) Shall set forth any special conditions upon which the Market
Seller proposes to supply a resource increment, including
any curtailment rate specified in a bilateral contract for
the output of the resource, or any cancellation fees;
v) May include a schedule of offers for prices and operating
data contingent on acceptance by the deadline specified in
this Schedule, with a second schedule applicable if accepted
after the foregoing deadline;
vi) Shall constitute an offer to submit the resource increment
to the Office of the Interconnection for scheduling and
dispatch in accordance with the terms of the offer, which
offer shall remain open through the Operating Day for which
the offer is submitted;
vii) Shall be final as to the price or prices at which the Market
Seller proposes to supply energy or other services to the
PJM Interchange Energy Market, such price or prices being
guaranteed by the Market Seller for the period extending
through the end of the following Operating Day; and
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viii) Shall not exceed an energy offer price of
$1,000/megawatt-hour.
(f) A Market Seller that wishes to sell Regulation service shall
submit an offer for Regulation that shall specify the MW of Regulation being
offered and the Regulation Class from which such Regulation is being offered.
The range of costs defining Regulation Classes, and the average cost for each
Regulation Class, shall be determined periodically by the Office of the
Interconnection on the basis of prior energy bid prices and appropriate fuel
indices, in accordance with procedures specified in the PJM Manuals. Qualified
Regulation capability must satisfy the verification tests specified in the PJM
Manuals.
Each Market Seller owning or controlling the output of a Capacity
Resource shall submit a forecast of the availability of each such Capacity
Resource for the next seven days. A Market Seller (i) may submit a non-binding
forecast of the price at which it expects to offer a generation resource
increment to the Office of the Interconnection over the next seven days, and
(ii) shall submit a binding offer for energy, along with start-up and no-load
fees, if any, for the next seven days or part thereof, for any generation
resource with minimum notification or start-up requirement greater than 24
hours.
(h) Each offer by a Market Seller of a Capacity Resource shall remain
in effect for subsequent Operating Days until superseded or canceled.
(i) The Office of the Interconnection shall post on the PJM Open
Access Same-time Information System its estimate of the combined hourly load of
the Market Buyers for the next four days, and peak load forecasts for an
additional three days.
1.10.2 Pool-Scheduled Resources.
Pool-scheduled resources shall be governed by the following principles
and procedures.
(a) Pool-scheduled resources shall be selected by the Office of the
Interconnection on the basis of the prices offered for energy and related
services, start-up, no-load and cancellation fees, and the specified operating
characteristics, offered by Market Sellers to the Office of the Interconnection
by the 12:00 noon offer deadline.
(b) A resource that is scheduled by a Market Participant to support a
bilateral sale, or that is self-scheduled by a Generating Market Buyer, shall
not be selected by the Office of the Interconnection as a pool-scheduled
resource except in an Emergency.
(c) Market Sellers offering energy from hydropower or other facilities
with fuel or environmental limitations may submit data to the Office of the
Interconnection that is sufficient to enable the Office of the Interconnection
to determine the available operating hours of such facilities.
(d) The Market Seller of a resource selected as a pool-scheduled
resource shall receive payments or credits for energy or related services, or
for start-up and no-load fees, from the Office of the Interconnection on behalf
of the Market Buyers in accordance with Schedule 3 to this Agreement.
Alternatively, the Market Seller shall receive any cancellation fee reflected in
the Market Seller's offer in lieu of start-up and no-load fees, if any, if the
Office of the Interconnection cancels its selection of the resource as a
pool-scheduled resource and so notifies the Market Seller before the resource is
synchronized.
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(e) Market Participants shall make available their pool-scheduled
resources to the Office of the Interconnection for coordinated operation to
supply the needs of the PJM Control Area for Operating Reserves.
1.10.3 Self-scheduled Resources.
Self-scheduled resources shall be governed by the following principles
and procedures.
Each Generating Market Buyer shall use all reasonable efforts,
consistent with Good Utility Practice, not to self-schedule resources in excess
of its Equivalent Load.
(b) The offered prices of resources that are self-scheduled, or
otherwise not following the dispatch orders of the Office of the
Interconnection, shall not be considered by the Office of the Interconnection in
determining Locational Marginal Prices.
(c) Market Participants shall make available their self-scheduled
resources to the Office of the Interconnection for coordinated operation to
supply the needs of the PJM Control Area for Operating Reserves.
1.10.4 Capacity Resources.
(a) A Capacity Resource selected as a pool-scheduled resource shall be
made available for scheduling and dispatch at the direction of the Office of the
Interconnection. A Capacity Resource that does not deliver energy as scheduled
shall be deemed to have experienced a Generator Forced Outage to the extent of
such energy not delivered.
(b) Energy from a Capacity Resource that has not been selected as a
pool-scheduled resource may be sold on a bilateral basis by the Market Seller,
or may be self-scheduled. A Capacity Resource that has not been selected as a
pool-scheduled resource and that has been sold on a bilateral basis must be made
available upon request to the Office of the Interconnection for scheduling and
dispatch if the Office of the Interconnection declares a Maximum Generation
Emergency. Any such resource so scheduled and dispatched shall receive the
applicable Locational Marginal Price for energy delivered.
(c) A Capacity Resource that has been self-scheduled shall not receive
payments or credits for start-up or no-load fees.
1.10.5 External Resources.
(a) External Resources may submit offers to the PJM Interchange Energy
Market, in accordance with the day-ahead scheduling process specified above. An
External Resource selected as a pool-scheduled resource shall be made available
for scheduling and dispatch at the direction of the Office of the
Interconnection, and except as specified below shall be compensated on the same
basis as other pool-scheduled resources. External Resources that are not capable
of dynamic dispatch shall, if selected by the Office of the Interconnection on
the basis of the Market Seller's Offer Data, be block loaded on an hourly
scheduled basis. Market Sellers shall offer External Resources to the PJM
Interchange Energy Market on either a resource-specific or an aggregated
resource basis.
(b) Offers for External Resources from an aggregation of two or more
generating units shall so indicate, and shall specify, in accordance with the
Offer Data requirements
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specified by the Office of the Interconnection: (i) energy prices; (ii) hours of
energy availability; (iii) a minimum dispatch level; (iv) a maximum dispatch
level; and (v) unless such information has previously been made available to the
Office of the Interconnection, sufficient information, as specified in the PJM
Manuals, to enable the Office of the Interconnection to model the flow into the
PJM Control Area of any energy from the External Resources scheduled in
accordance with the Offer Data. If a Market Seller submits more than one offer
on an aggregated resource basis, the withdrawal of any such offer shall be
deemed a withdrawal of all higher priced offers for the same period. A Market
Seller offering energy from External Resources on an aggregated basis and that
does not deliver energy as scheduled by the Office of the Interconnection shall
be assessed a non-delivery charge as specified below.
(c) Offers for External Resources on a resource-specific basis shall
specify the resource being offered, along with the information specified in the
Offer Data as applicable. A Market Seller offering an External Resource on a
resource-specific basis that does not deliver energy as scheduled by the Office
of the Interconnection shall be assessed a non-delivery charge as specified
below, unless the resource being offered has suffered a Generator Forced Outage.
The burden shall be on the Market Seller to demonstrate to the reasonable
satisfaction of the Office of the Interconnection that the resource being
offered has experienced a Generator Forced Outage.
(d) Subject to the conditions specified in this paragraph, the
non-delivery charge for External Resources that do not deliver energy as
scheduled shall be calculated hourly as follows: Pro-rated start-up plus hourly
no-load fees specified in the Offer Data + [offered minimum dispatch level x
(Locational Marginal Price - offered energy price) x 110%] . For purposes of the
foregoing calculation: (i) the Locational Marginal Price shall be the Locational
Marginal Price at the buses at which the energy from the External Resource
should have been delivered to the PJM Control Area; (ii) if the Locational
Marginal Price less the offered energy price is less than zero, this difference
shall be set to zero; and (iii) start-up and no-load fees shall be subject to
the requirements of this Schedule. Payments or credits for non-delivery charges
shall be used by the Office of the Interconnection to reduce or offset PJM
Control Area costs for Operating Reserves.
1.10.6 External Market Buyers.
(a) Deliveries to an External Market Buyer not subject to dynamic
dispatch by the Office of the Interconnection shall be delivered on a block
loaded basis to the load bus or busses at the border of the PJM Control Area, or
in the PJM Control Area with respect to an External Market Buyer's load within
the PJM Control Area not served by Network Service, at which the energy is
delivered to or for the External Market Buyer. External Market Buyers shall be
charged the Locational Marginal Price for energy at the foregoing load bus or
busses.
(b) An External Market Buyer's hourly schedules for energy purchased
from the PJM Interchange Energy Market shall conform to the ramping and other
applicable requirements of the interconnection agreement between the PJM Control
Area and the Control Area to which, whether as an intermediate or final point of
delivery, the purchased energy will initially be delivered.
(c) The Office of the Interconnection shall curtail deliveries to an
External Market Buyer if necessary to maintain appropriate reserve levels for
the PJM Control Area as defined in the PJM Manuals, or to avoid shedding load in
the PJM Control Area.
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(d) An External Market Buyer that does not take delivery of the
amounts of energy specified in its request to purchase shall be assessed a
non-delivery charge, or if using Point- to-Point service within the PJM Control
Area shall pay for imbalance service as specified in the Tariff. The
non-delivery charge shall be calculated as the summation for all applicable
busses of the product of (i) the Locational Marginal Price at each load bus at
which delivery was not taken, times (ii) the amount of energy not taken each
hour at such bus. The non-delivery charge shall not apply to deliveries
curtailed by the Office of the Interconnection in accordance with this Schedule,
or for periods when the Dispatch Rate exceeds the maximum value specified by the
External Market Buyer in accordance with this Schedule. Payments or credits for
non-delivery charges shall be used by the Office of the Interconnection to
reduce or offset PJM Control Area costs for Operating Reserves.
1.10.7 Bilateral Transactions.
Bilateral transactions as to which the parties have notified the
Office of the Interconnection by 12:00 p.m. of the day before the Operating Day
that they are not willing to incur Transmission Congestion Charges shall be
curtailed by the Office of the Interconnection as necessary to reduce or
alleviate transmission congestion. Bilateral transactions willing to incur
congestion charges shall continue to be implemented during periods of
congestion, except as may be necessary to respond to Emergencies.
1.10.8 Office of the Interconnection Responsibilities.
(a) The Office of the Interconnection shall use its best efforts to
determine the least-cost means of satisfying the projected hourly requirements
for energy, Operating Reserves, and other ancillary services of the Market
Buyers, including the reliability requirements of the PJM Control Area. In
making this determination, the Office of the Interconnection shall take into
account: (i) the Office of the Interconnection's forecasts of PJM Interchange
Energy Market and PJM Control Area energy requirements, giving due consideration
to the energy requirement forecasts and purchase requests submitted by Market
Buyers; (ii) the offers submitted by Market Sellers; (iii) the availability of
limited energy resources; (iv) the capacity, location, and other relevant
characteristics of self-scheduled resources; (v) the objectives of the PJM
Control Area for Operating Reserves, as specified in the PJM Manuals; (vi) the
requirements of the PJM Control Area for Regulation and other ancillary
services, as specified in the PJM Manuals; (vii) the benefits of avoiding or
minimizing transmission constraint control operations, as specified in the PJM
Manuals; and (viii) such other factors as the Office of the Interconnection
reasonably concludes are relevant to the foregoing determination. The Office of
the Interconnection shall develop a schedule of generation resources based on
the foregoing determination. The Office of the Interconnection shall report the
planned schedule for a hydropower resource to the operator of that resource as
necessary for plant safety and security, and legal limitations on pond
elevations.
(b) Not later than 4:00 p.m. of the day before each Operating Day, or
such earlier deadline as may be specified by the Office of the Interconnection
in the PJM Manuals, the Office of the Interconnection shall: (i) post on the PJM
Open Access Same-time Information System its forecast of the location and
duration of any expected transmission congestion, and of the range of
differences in Locational Marginal Prices between major subareas of the PJM
Control Area expected to result from such transmission congestion; and (ii)
inform each Market Seller whether its offer or offers have been accepted.
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(c) The Office of the Interconnection shall revise its schedule of
generation resources to reflect updated projections of load, conditions
affecting electric system operations in the PJM Control Area, the availability
of and constraints on limited energy and other resources, transmission
constraints, and other relevant factors. The Office of the Interconnection shall
post on the PJM Open Access Same-time Information System at times specified in
the PJM Manuals a revised forecast of the location and duration of any expected
transmission congestion, and of the range of differences in Locational Marginal
Prices between major subareas of the PJM Control Area expected to result from
such transmission congestion.
1.10.9 Hourly Scheduling
(a) Following the initial posting of the Office of the
Interconnection's transmission congestion forecast, and subject to the right of
the Office of the Interconnection to schedule and dispatch pool-scheduled
resources and to direct that schedules be changed in an Emergency, a Market
Participant may adjust the schedule of a resource under its dispatch control on
an hour-to-hour basis beginning at 10:00 p.m. of the day before each Operating
Day, provided that the Office of the Interconnection is notified not later than
60 minutes prior to the hour in which the adjustment is to take effect, as
follows:
i) A Generating Market Buyer may self-schedule any of its
resource increments, including hydropower resources, not
previously designated as self-scheduled and not selected as
a pool-scheduled resource;
ii) A Market Participant may request the scheduling of a
non-firm bilateral transaction; or
iii) A Generating Market Buyer may remove from service a resource
increment, including a hydropower resource, that it had
previously designated as self-scheduled, provided that the
Office of the Interconnection shall have the option to
schedule energy from any such resource increment that is a
Capacity Resource at the price offered in the scheduling
process, with no obligation to pay any start-up fee.
(b) An External Market Buyer may refuse delivery of some or all of the
energy it requested to purchase by notifying the Office of the Interconnection
of the adjustment in deliveries not later than 60 minutes prior to the hour in
which the adjustment is to take effect. Any such refusal of delivery shall be
subject to non-delivery charges in accordance with this Schedule.
1.11 Dispatch.
The following procedures and principles shall govern the dispatch of the
resources available to the Office of the Interconnection.
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1.11.1 Resource Output.
The Office of the Interconnection shall have the authority to direct
any Market Seller to adjust the output of any pool-scheduled resource increment
within the operating characteristics specified in the Market Seller's offer. The
Office of the Interconnection may cancel its selection of, or otherwise release,
pool-scheduled resources, subject to an obligation to pay any applicable
start-up, no-load or cancellation fees. The Office of the Interconnection shall
adjust the output of pool-scheduled resource increments as necessary: (a) to
maintain reliability, and subject to that constraint, to minimize the cost of
supplying the energy, reserves, and other services required by the Market Buyers
and the operation of the PJM Control Area; (b) to balance load and generation,
maintain scheduled tie flows, and provide frequency support within the PJM
Control Area; and (c) to minimize unscheduled interchange not frequency related
between the PJM Control Area and other Control Areas.
1.11.2 Operating Basis.
In carrying out the foregoing objectives, the Office of the
Interconnection shall conduct the operation of the PJM Control Area in
accordance with the PJM Manuals, and shall: (i) utilize available generating
reserves and obtain required replacements; and (ii) monitor the availability of
adequate reserves.
1.11.3 Pool-dispatched Resources
(a) The Office of the Interconnection shall implement the dispatch of
energy from pool-scheduled resources with limited energy by direct request. In
implementing mandatory or economic use of limited energy resources, the Office
of the Interconnection shall use its best efforts to select the most economic
hours of operation for limited energy resources, in order to make optimal use of
such resources consistent with the dynamic load-following requirements of the
PJM Control Area and the availability of other resources to the Office of the
Interconnection.
(b) The Office of the Interconnection shall implement the dispatch of
energy from other pool-dispatched resource increments, including generation
increments from Capacity Resources the remaining increments of which are
self-scheduled, by sending appropriate signals and instructions to the entity
controlling such resources, in accordance with the PJM Manuals. Each Market
Seller shall ensure that the entity controlling a pool-dispatched resource
offered or made available by that Market Seller complies with the energy
dispatch signals and instructions transmitted by the Office of the
Interconnection.
1.11.4 Regulation
(a) A Market Buyer may satisfy its Regulation obligation from its own
resources capable of performing Regulation service, by contractual arrangements
with other Market Participants able to provide Regulation service, or by
purchases from the PJM Interchange Energy Market.
(b) The Office of the Interconnection shall obtain Regulation service
from the least-cost alternatives available from either pool-scheduled or
self-scheduled resources as needed to meet PJM Control Area requirements not
otherwise satisfied by the Market Buyers.
(c) The Office of the Interconnection shall dispatch resources for
Regulation by sending Regulation signals and instructions to resources from
which Regulation service has been
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offered by Market Sellers, in accordance with the PJM Manuals. Market Sellers
shall comply with Regulation dispatch signals and instructions transmitted by
the Office of the Interconnection and, in the event of conflict, Regulation
dispatch signals and instructions shall take precedence over energy dispatch
signals and instructions. Market Sellers shall exert all reasonable efforts to
operate, or ensure the operation of, their resources supplying load in the PJM
Control Area as close to desired output levels as practical, consistent with
Good Utility Practice.
1.11.5 PJM Open Access Same-time Information System.
The Office of the Interconnection shall update the information posted
on the PJM Open Access Same-time Information System to reflect its dispatch of
generation resources.
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2. CALCULATION OF LOCATIONAL MARGINAL PRICES
2.1 Introduction.
The Office of the Interconnection shall calculate the price of energy at
the load busses and generation busses in the PJM Control Area and at the
interface busses between the PJM Control Area and adjacent Control Areas on the
basis of Locational Marginal Prices. Locational Marginal Prices determined in
accordance with this Section shall be calculated every five minutes and
integrated hourly values of such calculations shall be the basis of sales and
purchases of energy in the PJM Interchange Energy Market and of Transmission
Congestion Charges under the PJM Tariff.
2.2 General.
The Office of the Interconnection shall determine the least cost
security-constrained dispatch, which is the least costly means of serving load
at different locations in the PJM Control Area based on actual operating
conditions existing on the power grid and on the prices at which Market Sellers
have offered to supply energy in the PJM Interchange Energy Market. Locational
Marginal Prices for the generation and load busses in the PJM Control Area,
including interconnections with other Control Areas, will be calculated based on
the actual economic dispatch and the prices of energy offers. The process for
the determination of Locational Marginal Prices shall be as follows:
(a) To determine actual operating conditions on the power grid in the PJM
Control Area, the Office of the Interconnection shall use a computer model of
the interconnected grid that uses available metered inputs regarding generator
output, loads, and power flows to model remaining flows and conditions,
producing a consistent representation of power flows on the network. The
computer model employed for this purpose, referred to as the State Estimator
program, is a standard industry tool and is described in Section 2.3 below. It
will be used to obtain information regarding the output of generation supplying
energy to the PJM Control Area, loads at buses in the PJM Control Area,
transmission losses, and power flows on binding transmission constraints for use
in the calculation of Locational Marginal Prices. Additional information used in
the calculation, including Dispatch Rates and real time schedules for external
transactions between PJM and other Control Areas, will be obtained from the
Office of the Interconnection's dispatchers.
(b) Using the prices at which energy is offered by Market Sellers to the
PJM Interchange Energy Market, the Office of the Interconnection shall determine
the offers of energy that will be considered in the calculation of Locational
Marginal Prices. As described in Section 2.4 below, every offer of energy by a
Market Seller from a resource that is following economic dispatch instructions
of the Office of the Interconnection will be utilized in the calculation of
Locational Marginal Prices.
(c) Based on the system conditions on the PJM power grid, determined as
described in (a), and the eligible energy offers, determined as described in
(b), the Office of the Interconnection shall determine the least costly means of
obtaining energy to serve the next increment of load at each bus in the PJM
Control Area, in the manner described in Section 2.5 below. The result of that
calculation shall be a set of Locational Marginal Prices based on the system
conditions at the time.
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2.3 Determination of System Conditions Using the State Estimator.
Power system operations, including, but not limited to, the determination
of the least costly means of serving load, depend upon the availability of a
complete and consistent representation of generator outputs, loads, and power
flows on the network. In calculating Locational Marginal Prices, the Office of
the Interconnection shall obtain a complete and consistent description of
conditions on the electric network in the PJM Control Area by using the most
recent power flow solution produced by the State Estimator, which is also used
by the Office of the Interconnection for other functions within power system
operations. The State Estimator is a standard industry tool that produces a
power flow model based on available real-time metering information, information
regarding the current status of lines, generators, transformers, and other
equipment, bus load distribution factors, and a representation of the electric
network, to provide a complete description of system conditions, including
conditions at busses for which real-time information is unavailable. The current
version of the State Estimator includes over 1600 busses in the PJM Control
Area, as well as interface busses with adjacent Control Areas. The Office of the
Interconnection shall obtain a State Estimator solution every five minutes,
which shall provide the megawatt output of generators and the loads at busses in
the PJM Control Area, transmission line losses, and actual flows or loadings on
constrained transmission facilities. External transactions between PJM and other
Control Areas shall be included in the Locational Marginal Price calculation on
the basis of the real time transaction schedules implemented by the Office of
the Interconnection's dispatcher.
2.4 Determination of Energy Offers Used in Calculating Locational Marginal
Prices.
(a) To determine the energy offers submitted to the PJM Interchange Energy
Market that shall be used to calculate the Locational Marginal Prices, the
Office of the Interconnection shall determine which resources are following its
economic dispatch instructions. A resource will be considered to be following
economic dispatch instructions and shall be included in the calculation of
Locational Marginal Prices if:
i) the price bid by a Market Seller for energy from the
resource is less than or equal to the Dispatch Rate for the
area of the PJM Control Area in which the resource is
located; or
ii) the resource is specifically requested to operate by the
Office of the Interconnection's dispatcher.
(b) In determining whether a resource satisfies the condition described in
(a), the Office of the Interconnection will determine the bid price associated
with an energy offer by comparing the actual megawatt output of the resource
with the Market Seller's offer price curve. Because of practical generator
response limitations, a resource whose megawatt output is not ten percent more
than the megawatt level specified on the offer price curve for the applicable
Dispatch Rate shall be deemed to be following economic dispatch instructions,
but the energy price offer used in the calculation of Locational Marginal Prices
shall not exceed the applicable Dispatch Rate. Units that must be run for local
area protection shall not be considered in the calculation of Locational
Marginal Prices.
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2.5 Calculation of Locational Marginal Prices.
(a) The Office of the Interconnection shall determine the least costly
means of obtaining energy to serve the next increment of load at each bus in the
PJM Control Area represented in the State Estimator and each interface bus
between the PJM Control Area and an adjacent Control Area, based on the system
conditions described by the most recent power flow solution produced by the
State Estimator program and the energy offers determined to be eligible for
consideration under Section 2.4. This calculation shall be made by applying an
incremental linear optimization method to minimize energy costs, given actual
system conditions, a set of energy offers, and any binding transmission
constraints that may exist. In performing this calculation, the Office of the
Interconnection shall calculate the cost of serving an increment of load at each
bus from each resource associated with an eligible energy offer as the sum of:
(1) the price at which the Market Seller has offered to supply an additional
increment of energy from the resource, and (2) the effect on transmission
congestion costs (whether positive or negative) associated with increasing the
output of the resource, based on the effect of increased generation from that
resource on transmission line loadings. The energy offer or offers that can
serve an increment of load at a bus at the lowest cost, calculated in this
manner, shall determine the Locational Marginal Price at that bus.
(b) The calculation set forth in (a) shall be performed every five minutes,
using the Office of the Interconnection's Locational Marginal Price program,
producing a set of Locational Marginal Prices based on system conditions during
the preceding interval. The prices produced at five-minute intervals during an
hour will be integrated to determine the Locational Marginal Prices for that
hour, which will determine prices in the PJM Interchange Energy Market and
Transmission Congestion Costs under the PJM Tariff.
2.6 Performance Evaluation.
The Office of the Interconnection shall undertake an evaluation of the
foregoing procedures for the determination of Locational Marginal Prices, as
well as the procedures for determining and allocating Fixed Transmission Rights
and associated Transmission Congestion Charges and Credits, not less often than
every two years, in accordance with the PJM Manuals. To the extent practical,
the Office of the Interconnection shall retain all data needed to perform
comparisons and other analyses of locational marginal pricing. The Office of the
Interconnection shall report the results of its evaluation to the Market
Participants, along with its recommendations, if any, for changes in the
procedures.
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3. ACCOUNTING AND BILLING
3.1 Introduction.
This schedule sets forth the accounting and billing principles and
procedures for the purchase and sale of services on the PJM Interchange Energy
Market and for the operation of the PJM Control Area.
3.2 Market Buyers.
3.2.1 Spot Market Energy.
(a) At the end of each hour during an Operating Day, the Office of the
Interconnection shall calculate the load payment for each Market Buyer's load
bus. The load payment at each bus shall be the product of the Market Buyer's
megawatts of load at such load bus in the hour times the Locational Marginal
Price at the bus. The megawatts of load at each load bus shall be the sum of the
megawatts of load for that bus of that Market Buyer as determined by the State
Estimator, plus an allocated share of transmission losses, plus any megawatts of
that Market Buyer's bilateral sales to purchasers outside the PJM Control Area
attributable to that bus. The total load payment for each Market Buyer shall be
the sum of the load payments for each of a Market Buyer's load busses.
(b) At the end of each hour during an Operating Day, the Office of the
Interconnection shall calculate the generation revenue for each Generating
Market Buyer's generation bus. The generation revenue at each generation bus
shall be the product of the Generating Market Buyer's megawatts of generation at
such generation bus in the hour times the Locational Marginal Price at the bus.
The megawatts of generation at each generation bus shall be the sum of the
megawatts of generation for that bus of that Generating Market Buyer as
determined by the State Estimator, plus any megawatts of bilateral purchases of
that Generating Market Buyer from sellers outside the PJM Control Area
attributable to that bus. The total generation revenue for each Generating
Market Buyer shall be the sum of the generation revenues for each of the
Generating Market Buyer's generation busses.
(c) At the end of each hour during an Operating Day, the Office of the
Interconnection shall calculate a net bill for each Market Buyer, determined as
the difference between its total load payment and its total generation revenue.
The portions of the net bill attributable to net hourly PJM Interchange and to
Transmission Congestion Charges shall be determined as set forth below.
(d) At the end of each hour during an Operating Day, the Office of the
Interconnection shall calculate the total amount of net hourly PJM Interchange
for each Market Buyer, including Generating Market Buyers, in accordance with
the PJM Manuals. For Internal Market Buyers, this calculation shall include
determination of the net energy flows from: (i) tie lines; (ii) any generation
resource the output of which is controlled by the Market Buyer but delivered to
it over another entity's Transmission Facilities; (iii) any generation resource
the output of which is controlled by another entity but which is directly
interconnected with the Market Buyer's transmission system; (iv) 500 kV
transmission losses; (v) deliveries pursuant to bilateral energy sales; (vi)
receipts pursuant to bilateral energy purchases; (vii) Inadvertent Interchange
allocated to the Market Buyer; and (viii) the Market Buyer's allocated share of
energy purchased from another Control Area in connection with a Minimum
Generation Emergency in such other
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Control Area as specified in Section 0(0). For External Market Buyers, this
calculation shall determine the energy delivered pursuant to the External Market
Buyer's purchase request.
(e) The Office of the Interconnection shall calculate Locational
Marginal Prices for each load and generation bus in the PJM Control Area, in
accordance with Section 0 of this Schedule.
(f) An Internal Market Buyer shall be charged for Spot Market Energy
purchases to the extent of its hourly net PJM Interchange Imports, determined as
specified above. An External Market Buyer shall be charged for its Spot Market
Energy purchases based on the energy delivered to it, determined as specified
above. The Office of the Interconnection shall calculate an hourly weighted
average Locational Marginal Price for each such Market Buyer, based on the
Locational Marginal Price at each load bus and the Market Buyer's load at that
bus. The total charge shall be the Market Buyer's total net PJM Interchange
Imports times the weighted average Locational Marginal Price.
(g) A Generating Market Buyer shall be credited as a Market Seller for
sales of Spot Market Energy to the extent of its hourly net PJM Interchange
Exports, determined as specified above. The total credit shall be the sum of the
credits determined by the product of (i) the hourly net amount of energy of PJM
Interchange Exports at the applicable generation bus from each of the Generating
Market Buyer's generation resources determined to be making such deliveries,
times (ii) the hourly Locational Marginal Price at that generation bus. If the
Office of the Interconnection dispatches energy to serve load in the PJM Control
Area, the pool-dispatched generation resources determined to be making
deliveries into PJM Interchange of such Generating Market Buyer shall be those
that have the highest Locational Marginal Prices of the Market Seller's
generation resources.
(h) If energy in excess of a Generating Market Buyer's Equivalent Load
flows to the PJM Control Area from a self-scheduled resource, the Generating
Market Buyer shall receive a payment or credit for such excess energy at a rate
equal to the lesser of (i) 95% of the Locational Marginal Price at the delivery
bus for such energy, or (ii) the Locational Marginal Price at the delivery bus
for such energy if the Locational Marginal Price is negative. For purposes of
the foregoing calculation, such excess energy shall be deemed to have been
delivered from the Generating Market Buyer's self-scheduled resource or
resources with the lowest Locational Marginal Price or Prices at the time of
delivery. Revenues attributable to the difference between the market clearing
price in the PJM Interchange Energy Market and payments or credits for excess
energy from self-scheduled resources shall be used by the Office of the
Interconnection to reduce or offset PJM Control Area costs for Operating
Reserves.
3.2.2 Regulation.
(a) Each Internal Market Buyer shall have an hourly Regulation
objective equal to its pro rata share of the PJM Control Area Regulation
requirements for the hour, based on the Market Buyer's total load in the PJM
Control Area for the hour.
A Generating Market Buyer supplying Regulation at the direction of the
Office of the Interconnection in excess of its hourly Regulation obligation
shall be credited for each increment of such Regulation at the price in that
hour for the Regulation Class from which the Regulation was supplied, as
determined by the Office of the Interconnection in accordance with
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procedures specified in the PJM Manuals. An Internal Market Buyer that does not
meet its hourly Regulation obligation shall be charged for Regulation dispatched
by the Office of the Interconnection to meet such obligation at the average
price paid by the Office of the Interconnection for Regulation.
3.2.3 Operating Reserves.
(a) A Market Seller's pool-scheduled resources capable of providing
operating reserves shall be credited as specified below based on the prices
offered for the operation of such resource, provided that the resource was
available for the entire time specified in the Offer Data for such resource.
(b) At the end of each Operating Day, the following determination
shall be made for each synchronized pool-scheduled resource of each Market
Seller: the total offered price for start-up and no-load fees and Spot Market
Energy, determined on the basis of the resource's actual output or available and
requested time and type of operation, shall be compared to the total value of
that resource's Spot Market Energy. If the total offered price exceeds the total
value, the difference shall be credited to the Market Seller. Market Sellers
shall also be credited on the basis of their offered prices for synchronized
condensing for any hydropower or combustion turbine units operated as
synchronous condensers at the request of Office of the Interconnection but
producing no energy.
(c) The sum of the foregoing credits, plus any cancellation fees paid
in accordance with Section 1.10.2(d), less any amounts received in accordance
with Sections 1.10.5(d), 1.10.6(d) and 3.2.1(h) of this Schedule and payments
received from another Control Area for Operating Reserves or from users of
Point-to-Point Transmission Service within the PJM Control Area for imbalance
service, shall be the cost of Operating Reserves for the PJM Control Area for
each Operating Day.
(d) The cost of Operating Reserves for each Operating Day shall be
allocated and charged to each Market Buyer in proportion to its total load
during that Operating Day in the PJM Control Area.
3.2.4 Transmission Congestion.
Each Market Buyer shall be charged or credited for Transmission
Congestion Charges as specified in Section 5 of this Schedule.
3.2.5 Transmission Losses.
(a) Whenever the Office of the Interconnection has in place
appropriate computer hardware, software, and other necessary resources to
account for marginal losses in the dispatch of energy and the calculation of
Locational Marginal Prices, loss accounting shall be determined on that basis,
and the provisions of this Section shall be revised accordingly. Until such
time, the following accounting provisions for losses shall apply.
(b) Each Internal Market Buyer shall be credited in an amount equal to
its pro rata share of the hourly total amounts collected from Transmission
Customers either as charges for transmission losses in the PJM Control Area as
specified in Section 3.4.2 or for transmission losses supplied in kind in
accordance with Section 3.4.2(c) based on the Locational Marginal Price at the
interface where such losses were delivered. This credit shall be determined by
the ratio of the
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Internal Market Buyer's total hourly load, divided by the total hourly load in
the PJM Control Area.
(c)PJM Control Area 500 kV losses shall be allocated to each Internal
Market Buyer in proportion to its hourly load in the PJM Control Area.
3.2.6 Emergency Energy.
(a) Internal Market Buyers shall be allocated a proportionate share of
the net cost of Emergency energy purchased by the Office of the Interconnection.
Such allocated share shall be determined in proportion to the amount of net PJM
Interchange Imports by each Internal Market Buyer during the hour of each such
energy purchase.
(b) Net revenues in excess of Locational Marginal Prices attributable
to sales of energy in connection with Emergencies to other Control Areas shall
be credited to Internal Market Buyers in proportion to the amount of net PJM
Interchange Imports by each Internal Market Buyer during each hour of such
energy sales.
(c) The costs, revenues, and energy associated with hourly energy
purchased from another Control Area in connection with a Minimum Generation
Emergency in such other Control Area, shall be allocated to each Internal Market
Buyer in proportion to its load in the PJM Control Area during the hour of such
purchases.
3.2.7 Billing.
(a) The Office of the Interconnection shall prepare a billing
statement each billing cycle for each Market Buyer in accordance with the
charges and credits specified in Sections 3.2.1 through 3.2.6 of this Schedule,
and showing the net amount to be paid or received by the Market Buyer. Billing
statements shall provide sufficient detail, as specified in the PJM Manuals, to
allow verification of the billing amounts and completion of the Market Buyer's
internal accounting.
(b) If deliveries to a Market Buyer that has PJM Interchange meters in
accordance with Section 14 of the Operating Agreement include amounts delivered
for a Market Participant that does not have PJM Interchange meters separate from
those of the metered Market Buyer, the Office of the Interconnection shall
prepare a separate billing statement for the unmetered Market Participant based
on the allocation of deliveries agreed upon between the Market Buyer and the
unmetered Market Participant specified by them to the Office of the
Interconnection.
3.3 Market Sellers.
Except as provided in the following sentence, the accounting and billing
principles and procedures applicable to Generating Market Buyers functioning as
Market Sellers shall be as set forth in Section 3.2. This Section sets forth the
accounting and billing principles and procedures applicable to all other Market
Sellers, and to Generating Market Buyers functioning as Market Sellers with
respect to any matters not specified in Section 3.2.
3.3.1 Spot Market Energy.
(a) At the end of each hour during an Operating Day, the Office of the
Interconnection shall determine the total net amount of hourly energy delivered
to the PJM Control Area by each pool-scheduled or pool-dispatched resource of
each Market Seller, in accordance with the PJM Manuals and the calculation
described in Section 3.2.1(d).
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(b) The Office of the Interconnection shall calculate Locational
Marginal Prices for each generation and load bus in the PJM Control Area,
including the bus at each point of interconnection between the PJM Control Area
and each adjacent Control Area, in accordance with Section 0 of this Schedule.
(c) A Market Seller shall be credited for sales of Spot Market Energy
to the extent of its hourly net deliveries of energy to the PJM Control Area
from the Market Seller's pool-scheduled or pool-dispatched resources. For
pool-scheduled resources that are External Resources, the Office of the
Interconnection shall model, based on an appropriate flow analysis, the hourly
amounts delivered from each such resource to the corresponding interface point
between the PJM Control Area and adjacent Control Areas. The total credit for
each Market Seller shall be the sum of its credits determined by the product of
(i) the hourly net amount of energy delivered to the PJM Control Area at the
applicable generation or interface bus from each of the Market Seller's
pool-scheduled or pool-dispatched resources, times (ii) the hourly Locational
Marginal Price at that bus.
(d) Market Sellers, including Generating Market Buyers, shall be
charged for non-delivery of Spot Market Energy from resources that are not
Capacity Resources, as specified in Section 1.10.5(d) of this Schedule.
3.3.2 Regulation.
Each Market Seller that is also an Internal Market Buyer shall have an
hourly Regulation objective as specified in Section 3.2.2(a), and shall be
credited or charged in connection therewith as specified in Section 3.2.2(b).
All other Market Sellers supplying Regulation at the direction of the Office of
the Interconnection shall be credited for each increment of such Regulation at
the price in that hour for the Regulation Class from which the Regulation was
supplied, as determined by the Office of the Interconnection in accordance with
procedures specified in the PJM Manuals.
3.3.3 Operating Reserves.
A Market Seller shall be credited for its pool-scheduled resources
based on the prices offered for the operation of such resource, provided that
the resource was available for the entire time specified in the Offer Data for
such resource, in accordance with the procedures set forth in Section 3.2.3(b).
3.3.4 Emergency Energy.
The costs and net revenues associated with hourly energy sales to
other Control Areas in connection with a Minimum Generation Emergency in the PJM
Control Area shall be allocated to Market Sellers in proportion to their sales
to the PJM Interchange Energy Market from generation resources within the
metered boundaries of the PJM Control Area in each hour in which such energy was
sold to other Control Areas.
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3.3.5 Billing.
The Office of the Interconnection shall prepare a billing statement
each billing cycle for each Market Seller in accordance with the charges and
credits specified in Sections 3.3.1 through 3.3.4 of this Schedule, and showing
the net amount to be paid or received by the Market Seller. Billing statements
shall provide sufficient detail, as specified in the PJM Manuals, to allow
verification of the billing amounts and completion of the Market Seller's
internal accounting.
3.4 Transmission Customers.
3.4.1 Transmission Congestion.
Each Transmission Customer shall be charged and credited for
Transmission Congestion Charges as specified in Section 5 of this Schedule.
3.4.2 Transmission Losses
(a) Whenever the Office of the Interconnection has in place
appropriate computer hardware, software, and other necessary resources to
account for marginal losses in the dispatch of energy and the calculation of
Locational Marginal Prices, loss accounting shall be determined on that basis,
and the provisions of this Section shall be revised accordingly. Until such
time, the following accounting provisions for losses shall apply.
(b) Transmission Customers other than entities that are also Internal
Market Buyers shall be charged for transmission losses in an amount equal to the
product of (i) the Transmission Customer's megawatt-hours of deliveries using
Point-to-Point Transmission Service, times (ii) the appropriate loss factor for
deliveries using Point-to-Point Transmission Service, times (iii) the weighted
average Locational Marginal Price for all load busses in the PJM Control Area.
The foregoing average hourly loss factor shall be: (i) determined by the Office
of the Interconnection from time to time as conditions affecting losses shall
warrant; and (ii) calculated separately for on-peak and off-peak hours on the
basis of the average ratio of losses to load served in each such period.
(c) A Transmission Customer may elect to pay for losses in kind,
rounded off to the nearest whole megawatt, rather than as specified above if its
total deliveries in an hour using Point-to-Point Transmission Service are
greater than 200 megawatts. If it so elects, the Transmission Customer's
specified source for the energy to be delivered using Point-to-Point
Transmission Service may be scheduled to supply to the PJM Control Area boundary
an amount of energy equal to the delivery schedule plus the amount of losses
determined by applying the appropriate hourly loss factor as specified above to
the delivered amount.
3.4.3 Billing.
The Office of the Interconnection shall prepare a billing statement
each billing cycle for each Transmission Customer in accordance with the charges
and credits specified in Sections 0 through 0 of this Schedule, and showing the
net amount to be paid or received by the Transmission Customer. Billing
statements shall provide sufficient detail, as specified in the PJM Manuals, to
allow verification of the billing amounts and completion of the Transmission
Customer's internal accounting.
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3.5 Other Control Areas.
3.5.1 Energy Sales.
To the extent appropriate in accordance with Good Utility Practice,
the Office of the Interconnection may sell energy to an interconnected Control
Area as necessary to alleviate or end an Emergency in that Control Area. Such
sales shall be made (i) only to Control Areas that have undertaken a commitment
pursuant to a written agreement with the LLC to sell energy on a comparable
basis to the PJM Control Area, and (ii) only to the extent consistent with the
maintenance of reliability in the PJM Control Area. The Office of the
Interconnection may decline to make such sales to a Control Area that the Office
of the Interconnection determines does not have in place and implement Emergency
procedures that are comparable to those followed in the PJM Control Area. If the
Office of the Interconnection sells energy to an interconnected Control Area as
necessary to alleviate or end an Emergency in that Control Area, such energy
shall be sold at 150% of the Locational Marginal Price at the bus or busses at
the border of the PJM Control Area at which such energy is delivered.
3.5.2 Operating Margin Sales.
The extent appropriate in accordance with Good Utility Practice, the
Office of the Interconnection may sell Operating Margin to an interconnected
Control Area as requested to alleviate an operating contingency resulting from
the affect of the purchasing Control Area's operations on the dispatch of
resources in the PJM Control Area. Such sales shall be made only to Control
Areas that have undertaken a commitment pursuant to a written agreement with the
Office of the Interconnection (i) to purchase Operating Margin whenever the
purchasing Control Area's operations will affect the dispatch of resources in
the PJM Control Area, and (ii) to sell Operating Margin on a comparable basis to
the LLC.
3.5.3 Transmission Congestion.
Each Control Area purchasing Operating Margin shall be assessed
Transmission Congestion Charges as specified in Section 5.1.5 of this Schedule.
3.5.4 Billing.
The Office of the Interconnection shall prepare a billing statement
each billing cycle for each Control Area to which Emergency energy or Operating
Margin was sold, and showing the net amount to be paid by such Control Area.
Billing statements shall provide sufficient detail, as specified in the PJM
Manuals, to allow verification of the billing amounts.
3.6 Metering Reconciliation.
3.6.1 Meter Correction Billing.
Metering errors and corrections will be reconciled at the end of each
month by a meter correction charge or credit. The monthly meter correction
charge or credit shall be determined by the product of the positive or negative
deviation in energy amounts, times the weighted average Locational Marginal
Price for the affected Market Buyer.
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3.6.2 Meter Corrections Between Market Participants.
If a Market Participant or the Office of the Interconnection discovers
a meter error affecting an interchange of energy with another Market Participant
and makes the error known to such other Market Participant prior to the
completion by the Office of the Interconnection of the accounting for the
interchange, and if both Market Participants are willing to adjust hourly load
records to compensate for the error and such adjustment does not affect other
parties, an adjustment in load records may be made by the Market Participants in
order to correct for the meter error, provided corrected information is
furnished to the Office of the Interconnection in accordance with the Office of
the Interconnection's accounting deadlines. No such adjustment may be made if
the accounting for the Operating Day in which the interchange occurred has been
completed by the Office of the Interconnection.
3.6.3 500 kV Meter Errors.
Billing cycle accounting for 500 kV transmission losses shall be
adjusted to account for errors in meters on 500 kV Transmission Facilities.
3.6.4 Meter Corrections Between Control Areas.
An error between accounted for and metered interchange between a Party
in the PJM Control Area and an entity in another Control Area shall be corrected
by adjusting the hourly meter readings. If this is not practical, the error
shall be accounted for by a correction at the end of the billing cycle. The
Market Participant with ties to such other Control Area experiencing the error
shall account for the full amount of the discrepancy and an appropriate debit or
credit shall be applied equally among all Market Buyers. The Office of the
Interconnection will adjust the actual interchange between the PJM Control Area
and the other Control Area to maintain a proper record of inadvertent energy
flow. Meter corrections on the 500 kV system between the PJM Control Area and
other Control Areas shall be accounted for through the internal 500 kV system
meter error allocation at the end of the billing cycle.
3.6.5 Meter Correction Data.
Meter error data shall be submitted to the Office of the
Interconnection not later than noon on the second working day of the Office of
the Interconnection after the end of the billing cycle applicable to the meter
correction.
3.6.6 Correction Limits.
A Market Participant may not assert a claim for an adjustment in
billing as a result of a meter error for any error discovered more than two
years after the date on which the metering occurred. Any claim for an adjustment
in billing as a result of a meter error shall be limited to bills for
transactions occurring in the most recent annual accounting period of the
billing Market Participant in which the meter error occurred, and the prior
annual accounting period.
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4. RATE TABLE
4.1 Offered Price Rates.
Spot Market Energy, Regulation, Operating Reserve, and Transmission
Congestion are based on offers to the Office of the Interconnection specified in
this Agreement.
4.2 Transmission Losses.
Average loss factors shall be as specified in the PJM Tariff.
4.3 Emergency Energy Purchases.
The pricing for Emergency energy purchases will be determined by the Office
of the Interconnection and the adjacent Control Area, in accordance with an
agreement between the Office of the Interconnection and such adjacent Control
Area that complies with this Agreement.
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5. CALCULATION OF TRANSMISSION CONGESTION CHARGES AND CREDITS
5.1 Transmission Congestion Charge Calculation
5.1.1 Calculation by Office of the Interconnection.
When the transmission system is operating under constrained
conditions, the Office of the Interconnection shall calculate Transmission
Congestion Charges for each Network Service User, the PJM Interchange Energy
Market, and each Transmission Customer.
5.1.2 General.
The basis for the Transmission Congestion Charges shall be the
Locational Marginal Prices determined in accordance with Section 2 of this
Schedule.
5.1.3 Network Service User Calculation.
Each Network Service User shall be charged for the increased cost of
energy incurred by it during each constrained hour to deliver the output of its
firm Capacity Resources or other owned or contracted for resources, its firm
bilateral purchases, and its non-firm bilateral purchases as to which it has
elected to pay Transmission Congestion Charges. The Transmission Congestion
Charge for deliveries from each such source shall be the Network Service User's
hourly net bill less its hourly net PJM Interchange payments or sales as
determined in accordance with Section 3.2.1 or Sections 3.3 and 3.3.1 of this
Schedule.
5.1.4 Transmission Customer Calculation.
Each Transmission Customer using Firm Point-to-Point Transmission
Service (as defined in the PJM Tariff), and each Transmission Customer using
Non-Firm Point-to-Point Transmission Service (as defined in the PJM Tariff) that
has elected to pay Transmission Congestion Charges, shall be charged for the
increased cost of energy during constrained hours for the delivery of energy
using Point-to-Point Transmission Service. The Transmission Congestion Charge
for each such delivery shall be the delivery amount multiplied by the difference
between the Locational Marginal Price at the delivery interface and the
Locational Marginal Price at the source interface, or for Market Sellers using
point-to-point transmission service for deliveries out of the PJM Control Area
from generating resources within the PJM Control Area shall be the amount of its
net bill less its net hourly PJM Interchange payments or sales as determined in
accordance with Section 3.3 of this Schedule.
5.1.5 Operating Margin Customer Calculation.
Each Control Area purchasing Operating Margin shall be assessed
Transmission Congestion Charges for any the increase in the cost of energy
resulting from the provision of Operating Margin. The Transmission Congestion
Charge shall be the amount of Operating Margin purchased in an hour multiplied
by the difference in the Locational Marginal Price at what would be the delivery
interface and the Locational Marginal Price at what would be the source
interface, if the operating contingency that was the basis for the purchase of
Operating Margin had occurred in that hour. Operating Margin may be allocated
among multiple source and delivery interfaces in accordance with an applicable
load flow study.
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5.1.6 Total Transmission Congestion Charges.
The total Transmission Congestion Charges collected by the Office of
the Interconnection each hour will be the sum of the amounts determined as
specified in this Schedule. The Office of the Interconnection shall collect
Transmission Congestion Charges for each hour the transmission system operates
under constrained conditions.
5.2 Transmission Congestion Credit Calculation.
5.2.1 Eligibility.
Each Transmission Customer using firm Point-to-Point Transmission
Service and each Network Service User shall receive as a Transmission Congestion
Credit a proportional share of the total Transmission Congestion Charges
collected for each constrained hour.
5.2.2 Fixed Transmission Rights
(a) Transmission Congestion Credits will be calculated based upon the
Fixed Transmission Rights of each Network Service User and Transmission
Customer, determined as specified below.
(b)Each Network Service User shall designate a subset of its Network
Resources for which Fixed Transmission Rights will be assigned. The Fixed
Transmission Right for each Network Resource shall be a number of megawatts
equal to or less than the installed capacity summer megawatt rating of each
designated Network Resource, determined at the PJM Control Area transmission bus
at which the designated Network Resource is connected to the aggregate load
busses of the Network Service User. The sum of each Network Service User's Fixed
Transmission Rights must be equal to or less than the Network Service User's
projected annual peak load.
(c)Each Transmission Customer receiving firm Point-to-Point
Transmission Service shall be assigned Fixed Transmission Rights. The Fixed
Transmission Right for each instance of Point-to-Point Transmission Service
shall be a number of megawatts equal to the megawatts of firm service being
provided between the receipt and delivery points as to which the Transmission
Customer has firm Point-to-Point Transmission Service.
(d) The foregoing assignment of Fixed Transmission Rights shall be
enhanced by an amendment to this Schedule, to be filed with FERC not later than
December 31, 1997, that will provide for an auction of Fixed Transmission Rights
over and above those FTRs obtained and retained by Network Service Users and
Transmission Customers then receiving firm Point-to-Point Transmission Service
(including firm Point-to-Point transmission service for existing bilateral
contracts), such auction to be implemented as soon after December 31, 1997 as
shall be determined by the Office of the Interconnection to be reasonably
practical. For so long as Fixed Transmission Rights are assigned on the basis of
Network Transmission Service and firm Point-to-Point Transmission Service, any
Fixed Transmission Rights awarded pursuant to an auction shall be simultaneously
feasible with all Network Transmission Service and firm Point-to-Point
Transmission Service obligations. The Members specified in Section 11.5(c) of
the Agreement, working with the Office of the Interconnection, shall develop the
details of the implementation of such an auction, including but not limited to
the nature of the bidding process, the frequency of auctions, and the duration
of the Fixed Transmission Rights purchased at auction.
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5.2.4 Target Allocation for Network Service Users.
A target allocation of Transmission Congestion Credits for each
Network Service User shall be determined for each of its Fixed Transmission
Rights. Each Fixed Transmission Right shall be multiplied by the percent of the
Network Service User's annual peak load assigned to each load bus multiplied by
the difference calculated as the Network Service User's load bus Locational
Marginal Price minus the generation bus Locational Marginal Price of the Network
Resource associated with the Fixed Transmission Right. The total target
allocation for each Fixed Transmission Right is the sum of the target
allocations for each load bus. The total target allocation for each Network
Service User for each hour is the sum of the total target allocations for each
of the Network Service User's Fixed Transmission Rights.
5.2.4 Target Allocation for other Holders.
A target allocation of Transmission Congestion Credits for each
Transmission Customer or entity holding an FTR acquired by other means shall be
determined for each Fixed Transmission Right. Each Fixed Transmission Right
shall be multiplied by the hourly Locational Marginal Price differences for the
receipt and delivery points associated with the Fixed Transmission Right,
calculated as the Locational Marginal Price at the delivery point(s) minus the
Locational Marginal Price at the receipt point(s). The total target allocation
for the Transmission Customer for each hour shall be the sum of the target
allocations associated with all of the Transmission Customer's Fixed
Transmission Rights.
5.2.5 Calculation of Transmission Congestion Credits
(a) The total of all the target allocations determined as specified
above shall be compared to the total Transmission Congestion Charges in each
hour. If the total of the target allocations is less than the total of the
Transmission Congestion Charges, the Transmission Congestion Credit for each
Network Service User and Transmission Customer shall be equal to its target
allocation. All remaining Transmission Congestion Charges shall be distributed
as described below in Section 5.2.6 "Distribution of Excess Congestion Charges."
(b) If the total of the target allocations is greater than the total
Transmission Congestion Charges for the hour, each holder of Fixed Transmission
Rights shall receive a share of the total Transmission Congestion Charges in
proportion to its target allocations.
5.2.6 Distribution of Excess Congestion Charges
(a) Excess Transmission Congestion Charges accumulated in a month
shall be distributed to each holder of Fixed Transmission Rights in proportion
to, but not more than, any deficiency in the share of Transmission Congestion
Charges received by the holder during that month as compared to its total target
allocations for the month.
(b) Any excess Transmission Congestion Charges remaining at the end of
a month shall be distributed to Network Service Users and Transmission Customers
purchasing Firm Point-to-Point Transmission Service in proportion to their
Demand Charges for Network Service and their charges for Reserved Capacity for
Firm Point-to-Point Transmission Service.
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SCHEDULE 2
Revision No. 2
COMPONENTS OF COST
Issued: June 2, 1997
Effective: August 1, 1997
(a) Each Market Participant obligated to sell operating capacity on the PJM
Interchange Energy Market at cost-based rates shall include the following
components or their equivalent in the determination of costs for operating
capacity supplied to or from the Interconnection:
(1) Boilers
Firing-up cost;
No-load cost during period of operation;
Peak-prepared-for maintenance cost;
Incremental labor cost; and
Other incremental operating costs.
(2) Machines
Starting cost from cold to synchronized operation;
No-load cost during period of operation;
Incremental labor cost; and
Other incremental operating costs.
(b) Each Member obligated to sell energy on the PJM Interchange Energy
Market at cost-based rates shall include the following components or their
equivalent in the determination of costs for energy supplied to the
Interconnection:
Incremental fuel cost;
Incremental maintenance cost;
Incremental labor cost; and
Other incremental operating costs.
(c) All fuel costs shall employ the marginal fuel price experienced by the
Member.
(d) The PJM Board, upon consideration of the advice and recommendations of
the Members Committee, shall from time to time define in detail the method of
determining the costs entering into the said components, and the Members shall
adhere to such definitions in the preparation of incremental costs used on the
Interconnection.
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SCHEDULE 2 -- EXHIBIT A
EXPLANATION OF THE TREATMENT OF THE COSTS OF
EMISSION ALLOWANCES
Issued: June 2, 1997
Effective: August 1, 1997
The cost of emission allowances is included in "Other Incremental Operating
Costs" pursuant to Schedule 2. The replacement cost of emission allowances will
be used to recover the cost of emission allowances consumed as a result of
producing energy for the Interconnection.
Index
Consistent with definitions promulgated by the PJM Board upon consideration
of the advice and recommendations of the Members Committee under Schedule 2,
each Member Schedule 2 will determine and provide to the Interconnection its
replacement cost of emission allowances, such cost to be an amount not exceeding
the market price index published by Cantor- Fitzgerald Environmental Brokerage
Services ("EBS"), or a PJM Board approved index in the event that EBS should
cease publication of such index. As with all other components of cost required
for accounting under this Agreement, each Member subject to Schedule 2 will use
the same replacement cost of emissions allowances, so determined, as it uses for
coordinating operation of its generating facilities hereunder.
For each Member subject to Schedule 2, the cost of emissions allowances is
included in the cost of energy supplied to or received from the Interconnection.
Payment
The Members subject to Schedule 2 waive the right of payment-in-kind for
emission allowances for transactions wholly between the parties. Cash payments
for emission allowances consumed in providing energy for the Interconnection
shall be incorporated into and conducted pursuant to the billing procedures for
energy prescribed by this Agreement.
Calculation of Emission Allowance Amount and Cost
Pursuant to the letter from the PJM Interconnection to FERC dated June 26,
1995, the calculation of an annual average for the cost of emission allowances,
described below, is required due to the profile of the PJM physical system and
PJM Energy Management software system. Approximately five hundred and forty
generating units comprise the PJM system, of which 9 units are Phase I units.
Current real-time operational software and hardware tools used in the
transaction of energy do not identify individual units, and therefore do not
identify Phase I units. (The pool has contracted with a vendor to supply a new
Energy Management System to be installed over the next several years.) It is
currently not possible for system operators to provide actual individual unit
emission allowance costs in real time transaction quotations.
An average emission allowance cost based on a standard production cost
study case will be used to calculate the average cost of emission allowances for
each pool megawatt produced. This cost for the current year is less than 0.2
dollars per megawatt-hour.
In summary, for the above-mentioned reasons, it is not practical nor cost
effective to provide actual individual emission allowance costs in real-time
transaction quotations. Therefore,
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the annual average method is proposed.
The Emission Allowances (Tons of SO2)associated with a transaction will be
calculated by multiplying the magnitude of a transaction (MWhr) by an Emissions
per MWHr Factor (Tons of SO2 per MWhr):
Emission Transaction Emissions
Allowances = Magnitude x per MWhr
Used Factor
(Tons of S02) (MWhr) (Tons of S02 per MWhr)
The Emissions per MWHr Factor will be calculated by dividing the forecast
annual emissions from all Phase I units (Tons of S02) by the Forecast Annual
Total PJM Energy Production (MWhr):
Emissions
per MWhr= Forecast Annual Phase I Unit Emissions (Tons of SO2)
Factor Forecast Annual Total PJM Energy Production (MWhr)
(Tons of S02
per MWhr)
Likewise, the cost (Dollars) of the Emission Allowances for a transaction
will be calculated by multiplying the transaction magnitude (MWhr) by a Charge
per MWhr Factor (Dollars per MWHr).
Cost of Emission Transaction Charge
Allowances Used = Magnitude x per MWhr Factor
(Dollars) (MWhr) (Dollars per MWhr)
The Charge per MWhr Factor will be calculated by multiplying, for each
Member subject to Schedule 2, its Forecast Annual Emissions (Tons of S02) by its
respective Emissions Allowance Replacement Cost (Dollars per Ton of S02) to
yield each the forecasted annual costs of emissions (Dollars). Then, the total
of forecasted annual cost of emissions for each Member subject to Schedule 2 is
divided by the Forecast Annual Total PJM Energy Production (MWhr) to determine
the Charge per MWHr Factor (Dollars per MWHr).
Charge per
MWhr Factor = Summation(A x B), where:
C
A = Member's Forecasted Annual Emissions, (Tons of S20)
B = Emission Allowance Replacement Cost, (Dollars per Ton of SO2, per
company)
C = Forecast Annual PJM Energy Production, (MWhr)
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SCHEDULE 3
Revision No. 6
ALLOCATION OF THE COST AND EXPENSES
OF THE OFFICE OF THE INTERCONNECTION
Issued: June 2, 1997
Effective: August 1, 1997
(a) Each group of Affiliates, each group of Related Parties, and each
Member that is not in such a group shall pay an annual membership fee, the
proceeds of which shall be used to defray the costs and expenses of the LLC,
including the Office of the Interconnection. The amount of the annual fee as of
the Effective Date shall be $5,000. The amount of the annual membership fee
shall be adjusted from time to time by the PJM Board to keep pace with
inflation.
(b) All remaining costs of the operation of the LLC and the Office of the
Interconnection and the expenses, including, without limitation, the costs of
any insurance and any claims not covered by insurance, associated therewith as
provided in this Agreement shall be costs of Scheduling, System Control and
Dispatching Service under the PJM Tariff and shall be recovered pursuant to the
PJM Tariff.
(c) An entity accepted for membership in the LLC shall pay all costs and
expenses associated with additions and modifications to its own metering,
communication, computer, and other appropriate facilities and procedures needed
to effect the inclusion of the entity in the operation of the Interconnection.
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SCHEDULE 4
Revision No. 1
STANDARD FORM OF AGREEMENT TO BECOME A MEMBER OF THE LLC
Issued: June 2, 1997
Effective: August 1, 1997
Any entity which wishes to become a Member of the LLC shall, pursuant to
Section 0 of this Agreement, tender to the President an application, upon the
acceptance of which it shall execute a supplement to this Agreement in the
following form:
Additional Member Agreement
1. This Additional Member Agreement (the "Supplemental Agreement"), dated as of
__________________, is entered into among _____________ and the President of the
LLC acting on behalf of its Members.
2. _____________ has demonstrated that it meets all of the qualifications
required of a Member to the Operating Agreement. If expansion of the PJM Control
Area is required to integrate ____________________'s facilities, a copy of
Attachment J from the PJM Tariff marked to show changes in Control Area
boundaries is attached hereto. ____________________ agrees to pay for all
required metering, telemetering and hardware and software appropriate for it to
become a member.
3. ______________________ agrees to be bound by and accepts all the terms of the
Operating Agreement as of the above date.
4. _________________________ hereby gives notice that the name and address of
its initial representative to the Members Committee under the Operating
Agreement shall be:
- --------------------------------------------------------------------------------
5. The President of the LLC is authorized under the Operating Agreement to
execute this Supplemental Agreement on behalf of the Members and to file it with
regulatory authorities having jurisdiction.
6. The Operating Agreement is hereby amended to include ___________ as a Member
of the LLC thereto, effective as of ___________________, _____.
IN WITNESS WHEREOF, _______________________ and the Members of the LLC have
caused this Supplemental Agreement to be executed by their duly authorized
representatives.
Members of the LLC
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By:
Name:
Title: President
By:
Name:
Title:
2
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SCHEDULE 5
Revision No. 1
PJM DISPUTE RESOLUTION PROCEDURES
Issued: June 2, 1997
Effective: August 1, 1997
1. DEFINITIONS
1.1 Alternate Dispute Resolution Committee.
"Alternate Dispute Resolution Committee" shall mean the Committee
established pursuant to Section 0 of this Schedule.
1.2 MAAC Dispute Resolution Committee.
"MAAC Dispute Resolution Committee" shall mean the committee established by
the Mid- Atlantic Area Council to administer its industry-specific mechanism for
resolving certain types of wholesale electricity disputes.
1.3 Related PJM Agreements.
"Related PJM Agreements" shall mean this Agreement, the Transmission Owners
Agreement, and the Reliability Assurance Agreement.
2. PURPOSES AND OBJECTIVES
2.1 Common and Uniform Procedures.
The PJM Dispute Resolution Procedures are intended to establish common and
uniform procedures for resolving disputes arising under the Related PJM
Agreements. To the extent any of the foregoing agreements or the PJM Tariff
contain dispute resolution provisions expressly applicable to disputes arising
thereunder, however, this Agreement shall not supplant such provisions, which
shall apply according to their terms.
2.2 Interpretation.
To the extent permitted by applicable law, the PJM Dispute Resolution
Procedures are to be interpreted to effectuate the objectives set forth in
Section 2.1. To the extent permitted by these PJM Dispute Resolution Procedures,
the Alternate Dispute Resolution Committee shall coordinate with the MAAC
Dispute Resolution Committee, where appropriate, in order to conserve
administrative resources and to avoid duplication of dispute resolution
staffing.
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NEGOTIATION AND MEDIATION
3.1 When Required.
The parties to a dispute shall undertake good-faith negotiations to resolve
any dispute as to a matter governed by one of the Related PJM Agreements. Each
party to a dispute shall designate an executive with authority to resolve the
matter in dispute to participate in such negotiations. Any dispute as to a
matter governed by one of the Related PJM Agreements that has not been resolved
through good-faith negotiation shall be subject to non-binding mediation prior
to the initiation of arbitral, regulatory, judicial, or other dispute resolution
proceedings as may be appropriate as provided by these PJM Dispute Resolution
Procedures.
3.2 Procedures.
3.2.1 Initiation.
If a dispute that is subject to the mediation procedures specified
herein has not been resolved through good-faith negotiation, a party to the
dispute shall notify the Alternate Dispute Resolution Committee in writing of
the existence and nature of the dispute prior to commencing any other form of
proceeding for resolution of the dispute. The Alternate Dispute Resolution
Committee shall have ten calendar days from the date it first receives
notification of the existence of a dispute from any of the parties to the
dispute in which to distribute to the parties a list of mediators.
3.2.2 Selection of Mediator.
The Chair of the Alternate Dispute Resolution Committee shall
distribute to the parties by facsimile or other electronic means a list
containing the names of seven mediators with mediation experience, or with
technical or business experience in the electric power industry, or both, as it
shall deem appropriate to the dispute. The Chair of the Alternate Dispute
Resolution Committee may draw from the lists of mediators maintained by the MAAC
Dispute Resolution Committee, as the Chair shall deem appropriate. The persons
on the proposed list of mediators shall have no official, financial, or personal
conflict of interest with respect to the issues in controversy, unless the
interest is fully disclosed in writing to all participants in the mediation
process and all such participants waive in writing any objection to the
interest. The parties shall alternate in striking names from the list with the
last name on the list becoming the mediator. The determination of which party
shall have the first strike off the list shall be determined by lot. The parties
shall have ten calendar days to complete the mediator selection process, unless
the time is extended by mutual agreement.
3.2.3 Advisory Mediator.
If the Alternate Dispute Resolution Committee deems it appropriate, it
shall distribute two lists, one containing the names of seven mediators with
mediation experience, and one containing the names of seven mediators with
technical or business experience in the electric power industry. In connection
with circulating the foregoing lists, the Alternate Dispute Resolution Committee
shall specify one of the lists as containing the proposed mediators, and the
other as a list of proposed advisors to assist the mediator in resolving the
dispute. The parties shall then utilize the alternative strike procedure set
forth above until one name remains on each list, with the last named persons
serving as the mediator and advisor.
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3.2.4 Mediation Process.
The disputing parties shall attempt in good faith to resolve their
dispute in accordance with procedures and a timetable established by the
mediator. In furtherance of the mediation efforts, the mediator may:
(a) Require the parties to meet for face-to-face discussions, with or
without the mediator;
(b) Act as an intermediary between the disputing parties;
(c) Require the disputing parties to submit written statements of
issues and positions;
(d) If requested by the disputing parties at any time in the mediation
process, provide a written recommendation on resolution of the dispute
including, if requested, the assessment by the mediator of the merits of the
principal positions being advanced by each of the disputing parties; and
(e) Adopt, when appropriate, the Center for Public Resources Model ADR
Procedures for the Meditation of Business Disputes (as revised from time to
time) to the extent such Procedures are not inconsistent with any rule,
standard, or procedure adopted by the Alternate Dispute Resolution Committee or
with any provision of this Agreement.
3.2.5 Mediator's Assessment.
(a) If a resolution of the dispute is not reached by the thirtieth day
after the appointment of the mediator or such later date as may be agreed to by
the parties, if not previously requested to do so the mediator shall promptly
provide the disputing parties with a written, confidential, non-binding
recommendation on resolution of the dispute, including the assessment by the
mediator of the merits of the principal positions being advanced by each of the
disputing parties. The recommendation may incorporate or append, if and as the
mediator may deem appropriate, any recommendations or any assessment of the
positions of the parties by the advisor, if any. Upon request, the mediator
shall provide any additional recommendations or assessments the mediator shall
deem appropriate.
(b) At a time and place specified by the mediator after delivery of
the foregoing recommendation, the disputing parties shall meet in a good faith
attempt to resolve the dispute in light of the recommendation of the mediator.
Each disputing party shall be represented at the meeting by a person with
authority to settle the dispute, along with such other persons as each disputing
party shall deem appropriate. If the disputing parties are unable to resolve the
dispute at or in connection with this meeting, then: (i) any disputing party may
commence such arbitral, judicial, regulatory or other proceedings as may be
appropriate as provided in the PJM Dispute Resolution Procedures; and (ii) the
recommendation of the mediator, and any statements made by any party in the
mediation process, shall have no further force or effect, and shall not be
admissible for any purpose, in any subsequent arbitral, administrative,
judicial, or other proceeding.
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3.3 Costs.
Except as specified in Section 0, the costs of the time, expenses, and
other charges of the mediator and any advisor, and of the mediation process,
shall be borne by the parties to the dispute, with each side in a mediated
matter bearing one-half of such costs, and each party bearing its own costs and
attorney's fees incurred in connection with the mediation.
4. ARBITRATION
4.1 When Required.
Any dispute as to a matter: (i) governed by one of the Related PJM
Agreements that has not been resolved through the mediation procedures specified
herein, (ii) involving a claim that one or more of the parties owes or is owed a
sum of money, and (iii) the amount in controversy is less than $1,000,000.00,
shall be subject to binding arbitration in accordance with the procedures
specified herein. If the parties so agree, any other disputes as to a matter
governed by a Related PJM Agreement may be submitted to binding arbitration in
accordance with the procedures specified herein.
4.2 Binding Decision.
Except as specified in Section 0, the resolution by arbitration of any
dispute under this Agreement shall not be binding.
4.3 Initiation.
A party or parties to a dispute which is subject to the arbitration
procedures specified herein shall send a written demand for arbitration to the
Chair of the Alternate Dispute Resolution Committee with a copy to the other
party or parties to the dispute. The demand for arbitration shall state each
claim for which arbitration is being demanded, the relief being sought, a brief
summary of the grounds for such relief and the basis for the claim, and shall
identify all other parties to the dispute.
4.4 Selection of Arbitrator(s).
The parties to a dispute for which arbitration has been demanded may agree
on any person to serve as a single arbitrator, or shall endeavor in good faith
to agree on a single arbitrator from a list of arbitrators prepared for the
dispute by the Alternate Dispute Resolution Committee and delivered to the
parties by facsimile or other electronic means promptly after receipt by the
Alternate Dispute Resolution Committee of a demand for arbitration. The
Alternate Dispute Resolution Committee may draw from the lists of arbitrators
maintained by the MAAC Dispute Resolution Committee, as the Alternate Dispute
Resolution Committee deems appropriate. If the parties are unable to agree on a
single arbitrator by the fourteenth day following delivery of the foregoing list
of arbitrators or such other date as agreed to by the parties, then not later
than the end of the seventh business day thereafter the party or parties
demanding arbitration on the one hand, and the party or parties responding to
the demand for arbitration on the other, shall each designate an arbitrator from
a list for the dispute prepared by the Alternate Dispute Resolution Committee.
The arbitrators so chosen shall then choose a third arbitrator.
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4.5 Procedures.
The Alternate Dispute Resolution Committee shall compile and make available
to the arbitrator(s) and the parties standard procedures for the arbitration of
disputes, which procedures (i) shall include provision, upon good cause shown,
for intervention or other participation in the proceeding by any party whose
interests may be affected by its outcome, (ii) shall conform to the requirements
specified in these PJM Dispute Resolution Procedures, and (iii) may be modified
or adopted for use in a particular proceeding as the arbitrator(s) deem
appropriate. To the extent deemed appropriate by the Alternate Dispute
Resolution Committee, the procedures adopted by the Alternate Dispute Resolution
Committee shall be based on the American Arbitration Association Rules, to the
extent such Rules are not inconsistent with any rule, standard or procedure
adopted by the Alternate Dispute Resolution Committee, or with any provision of
these PJM Dispute Resolution Procedures. Upon selection of the arbitrator(s),
arbitration shall go forward in accordance with applicable procedures.
4.6 Summary Disposition and Interim Measures.
4.6.1 Lack of Good Faith Basis.
The procedures for arbitration of a dispute shall provide a means for
summary disposition of a demand for arbitration, or a response to a demand for
arbitration, that in the reasoned opinion of the arbitrator(s) does not have a
good faith basis in either law or fact. If the arbitrator(s) determine(s) that a
demand for arbitration or response to a demand for arbitration does not have a
good faith basis in either law or fact, the arbitrator(s) shall have discretion
to award the costs of the time, expenses, and other charges of the arbitrator(s)
to the prevailing party.
4.6.2 Discovery Limits.
The procedures for the arbitration of a dispute shall provide a means
for summary disposition without discovery of facts if there is no dispute as to
any material fact, or with such limited discovery as the arbitrator(s) shall
determine is reasonably likely to lead to the prompt resolution of any disputed
issue of material fact.
4.6.3 Interim Decision.
The procedures for the arbitration of a dispute shall permit any party
to a dispute to request the arbitrator(s) to render a written interim decision
requiring that any action or decision that is the subject of a dispute not be
put into effect, or imposing such other interim measures as the arbitrator(s)
deem necessary or appropriate, to preserve the rights and obligations secured by
any of the Related PJM Agreements during the pendency of the arbitration
proceeding. The parties shall be bound by such written decision pending the
outcome of the arbitration proceeding.
5
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4.7 Discovery of Facts.
4.7.1 Discovery Procedures.
The procedures for the arbitration of a dispute shall include adequate
provision for the discovery of relevant facts, including the taking of testimony
under oath, production of documents and other things, and inspection of land and
tangible items. The nature and extent of such discovery shall be determined as
provided herein and shall take into account (i) the complexity of the dispute,
(ii) the extent to which facts are disputed, and (iii) the amount in
controversy. The forms and methods for taking such discovery shall be as
described in the Federal Rules of Civil Procedure, except as modified by the
procedures established by the Alternate Dispute Resolution Committee, the
arbitrator(s) or agreement of the parties.
4.7.2 Procedures Arbitrator.
The sole arbitrator, or the arbitrator selected by the arbitrators
chosen by the parties, as the case may be (such arbitrator being hereafter
referred to as the "Procedures Arbitrator"), shall be responsible for
establishing the timing, amount, and means of discovery, and for resolving
discovery and other pre-hearing disagreement. If a dispute involves contested
issues of fact, promptly after the selection of the arbitrator(s) the Procedures
Arbitrator shall convene a meeting of the parties for the purpose of
establishing a schedule and plan of discovery and other pre-hearing actions.
4.8 Evidentiary Hearing.
The procedures for the arbitration of a dispute shall provide for an
evidentiary hearing, with provision for the cross-examination of witnesses,
unless all parties consent to the resolution of the matter on the basis of a
written record. The forms and methods for taking evidence shall be as described
in the Federal Rules of Evidence, except as modified by the procedures
established by the Alternate Dispute Resolution Committee, the arbitrator(s) or
agreement of the parties. The arbitrator(s) may require such written or other
submissions from the parties as shall be deemed appropriate, including
submission of the direct testimony of witnesses in written form. The
arbitrator(s) may exclude any evidence that is irrelevant, immaterial, unduly
repetitious or prejudicial, or privileged. Any party or parties may arrange for
the preparation of a record of the hearing, and shall pay the costs thereof.
Such party or parties shall have no obligation to provide or agree to the
provision of a copy of the record of the hearing to any party that does not pay
an equal share of the cost of the record. At the request of any party, the
arbitrator(s) shall determine a fair and equitable allocation of the costs of
the preparation of a record between or among the parties to the proceeding
willing to share such costs.
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4.9 Confidentiality.
4.9.1 Designation.
Any document or other information obtained in the course of an
arbitral proceeding and not otherwise available to the receiving party,
including any such information contained in documents or other means of
recording information created during the course of the proceeding, may be
designated "Confidential" by the producing party. The party producing documents
or other information marked "Confidential" shall have twenty days from the
production of such material to submit a request to the Procedures Arbitrator to
establish such requirements for the protection of such documents or other
information designated as "Confidential" as may be reasonable and necessary to
protect the confidentiality and commercial value of such information and the
rights of the parties, which requirements shall be binding on all parties to the
dispute. Prior to the decision of the Procedures Arbitrator on a request for
confidential treatment, documents or other information designated as
"Confidential" shall not be used by the receiving party or parties, or the
arbitrator(s), or anyone working for or on behalf of any of the foregoing, for
any purpose other than the arbitration proceeding, and shall not be disclosed in
any form to any person not involved in the arbitration proceeding without the
prior written consent of the party producing the information or as permitted by
the Procedures Arbitrator.
4.9.2 Compulsory Disclosure.
Any party receiving a request or demand for disclosure, whether by
compulsory process, discovery request, or otherwise, of documents or information
obtained in the course of an arbitration proceeding that have been designated
"Confidential" and that are subject to a non-disclosure requirement under these
PJM Dispute Resolution Procedures or a decision of the Procedures Arbitrator,
shall immediately inform the party from which the information was obtained, and
shall take all reasonable steps, short of incurring sanctions or other
penalties, to afford the person or entity from which the information was
obtained an opportunity to protect the information from disclosure. Any party
disclosing information in violation of these PJM Dispute Resolution Procedures
or requirements established by the Procedures Arbitrator shall thereby waive any
right to introduce or otherwise use such information in any judicial,
regulatory, or other legal or dispute resolution proceeding, including the
proceeding in which the information was obtained.
4.9.3 Public Information.
Nothing in the Related PJM Agreements shall preclude the use of
documents or information properly obtained outside of an arbitral proceeding, or
otherwise public, for any legitimate purpose, notwithstanding that the
information was also obtained in the course of the arbitral proceeding.
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4.10 Timetable.
Promptly after the selection of the arbitrator(s), the arbitrator(s)
shall set a date for the issuance of the arbitral decision, which shall be not
later than eight months (or such earlier date as may be agreed to by the parties
to the dispute) from the date of the selection of the arbitrator(s), with other
dates, including the dates for an evidentiary hearing or other final submissions
of evidence, set in light of this date. The date for the evidentiary hearing or
other final submission of evidence shall not be changed absent extraordinary
circumstances. The arbitrator(s) shall have the power to impose sanctions,
including dismissal of the proceeding for dilatory tactics or undue delay in
completing the arbitral proceedings.
4.11 Advisory Interpretations.
Except as to matters subject to decision in the arbitration
proceeding, the arbitrator(s) may request as may be appropriate from any
committee or subcommittee established under a Related PJM Agreement or by the
Office of the Interconnection, an interpretation of any Related PJM Agreements,
or of any standard, requirement, procedure, tariff, Schedule, principle, plan or
other criterion or policy established by any committee or subcommittee. Except
to the extent that the Office of the Interconnection is itself a party to a
dispute, the arbitrator(s) may request the advice of the Office of the
Interconnection with respect to any matter relating to a responsibility of the
Office of the Interconnection under the Agreement or with respect to any of the
Related PJM Agreements, or to the PJM Manuals. Any such interpretation or advice
shall not relieve the arbitrator(s) of responsibility for resolving the dispute
or deciding the arbitration proceeding in accordance with the standards
specified herein.
4.12 Decisions.
The arbitrator(s) shall issue a written decision, including findings
of fact and the legal basis for the decision. The arbitral decision shall be
based on (i) the evidence in the record, (ii) the terms of the Related PJM
Agreements, as applicable, (iii) applicable United States federal and state law,
including the Federal Power Act and any applicable FERC regulations and
decisions, and international treaties or agreements as applicable, and (iv)
relevant decisions in previous arbitration proceedings. The arbitrator(s) shall
have no authority to revise or alter any provision of the Related PJM
Agreements. Any arbitral decision issued pursuant to these PJM Dispute
Resolution Procedures that affects matters subject to the jurisdiction of FERC
under Section 205 of the Federal Power Act shall be filed with FERC.
4.13 Costs.
Unless the arbitrator(s) shall decide otherwise, the costs of the
time, expenses, and other charges of the arbitrator(s) shall be borne by the
parties to the dispute, with each side on an arbitrated issue bearing its
pro-rata share of such costs, and each party to an arbitral proceeding shall
bear its own costs and fees. The arbitrator(s) may award all or a portion of the
costs of the time, expenses, and other charges of the arbitrator(s), the costs
of arbitration, attorney's fees, and the costs of mediation, if any, to any
party that substantially prevails on an issue determined by the arbitrator(s) to
have been raised without a substantial basis.
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4.14 Enforcement.
If the decision of the arbitrator(s) is binding, the judgment may be
entered on such arbitral award by any court having jurisdiction thereof;
provided, however, that within one year of the issuance of the arbitral decision
any party affected thereby may request FERC or any other federal, state,
regulatory or judicial authority having jurisdiction to vacate, modify, or take
such other action as may be appropriate with respect to any arbitral decision
that is based upon an error of law, or is contrary to the statutes, rules, or
regulations administered or applied by such authority. Any party making or
responding to, or intervening in proceedings resulting from, any such request,
shall request the authority to adopt the resolution, if not clearly erroneous,
of any issue of fact expressly or necessarily decided in the arbitral
proceeding, whether or not the party participated in the arbitral proceeding.
5. ALTERNATE DISPUTE RESOLUTION COMMITTEE
5.1 Membership.
5.1.1 Representatives.
The Alternate Dispute Resolution Committee shall be composed of two
representatives selected by each of the following: (i) the Office of the
Interconnection; (ii) the Members Committee; (iii) the parties to the
Reliability Assurance Agreement; and (iv) the parties to the Transmission Owners
Agreement.
5.1.2 Term.
Representatives on the Alternate Dispute Resolution Committee shall
serve for terms of three years and may serve additional terms.
5.2 Voting Requirements.
Approval or adoption of measures by the Alternate Dispute Resolution
Committee shall require two-thirds of the votes of the representatives present
and voting. Two-thirds of the representatives on the Alternate Dispute
Resolution Committee shall constitute a quorum for the conduct of business.
5.3 Officers.
At the first meeting of the Alternate Dispute Resolution Committee, the
representatives to the Alternate Dispute Resolution Committee shall choose a
Chair and Vice Chair from among the representatives on the Committee. The Chair
of the Alternate Dispute Resolution Committee shall preside at meetings of the
Committee, and shall have the power to call meetings of the Committee and to
exercise such other powers as are specified in this Agreement or are authorized
by the Alternate Dispute Resolution Committee. The Vice Chair shall preside at
meetings of the Alternate Dispute Resolution Committee in the absence of the
Chair, and shall exercise such other powers as are delegated by the Chair.
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5.4 Meetings.
The Alternate Dispute Resolution Committee shall meet at such times and
places as determined by the Committee, or at the call of the Chair. The Chair
shall call a meeting of the Alternate Dispute Resolution Committee upon the
request of two or more representatives on the Alternate Dispute Resolution
Committee.
5.5 Responsibilities.
The duties of the Alternate Dispute Resolution Committee include but are
not limited to the following:
i) Maintain a list of persons qualified by temperament and
experience, and with technical or legal expertise in matters
likely to be the subject of disputes, to serve as mediators
or arbitrators under these PJM Dispute Resolution
Procedures;
ii) Determine the rates and other costs and charges that shall
be paid to mediators, advisors and arbitrators for or in
connection with their services;
iii) Determine whether mediation is not warranted in a particular
dispute;
iv) Provide to disputing parties lists of mediators, advisors or
arbitrators to resolve particular disputes;
v) Compile and make available to parties to disputes,
arbitrators, and other interested persons suggested
procedures for the arbitration of disputes in accordance
with Section 4.5;
vi) Maintain and make available to parties to disputes,
mediators, advisors, arbitrators, and other interested
persons the written decisions required by Section 4.12;
vii) Establish such procedures and schedules, in addition to
those specified herein, as it shall deem appropriate to
further the prompt, efficient, fair and equitable resolution
of disputes; and
viii) Provide such oversight and supervision of the dispute
resolution processes and procedures instituted pursuant to
the Related PJM Agreements as may be appropriate to
facilitate the prompt, efficient, fair and equitable
resolution of disputes.
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SCHEDULE 6
Revision No. 1
REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL
Issued: June 2, 1997
Effective: August 1, 1997
1. REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL
Purpose and Objectives
This Regional Transmission Expansion Planning Protocol shall govern the
process by which the Members shall rely upon the Office of the Interconnection
to prepare a plan for the enhancement and expansion of the Transmission
Facilities in order to meet the demands for firm transmission service in the PJM
Control Area. The Regional Transmission Expansion Plan to be developed shall
enable the transmission needs in the PJM Control Area to be met on a reliable,
economic and environmentally acceptable basis.
1.2 Conformity with NERC and MAAC Criteria
(a) NERC establishes Planning Principles and Guides to promote the
reliability and adequacy of the North American bulk power supply as related to
the operation and planning of electric systems.
(b) MAAC is responsible for ensuring the adequacy, reliability and security
of the bulk electric supply systems in the MAAC region through coordinated
operations and planning of generation and transmission facilities. Toward that
end, it has adopted the NERC Planning Principles and Guides and has established
detailed Reliability Principles and Standards for Planning the Bulk Electric
Supply System of the MAAC Group.
(c) The Regional Transmission Expansion Plan shall conform with the
applicable reliability principles, guidelines and standards of NERC and MAAC in
accordance with the procedures detailed in the PJM Manuals.
1.3 Establishment of Committees
(a) The Regional Transmission Owners shall supply representatives to the
Planning Committee to provide the data, information, and analysis support
necessary to perform studies as required. As used herein, "Regional Transmission
Owner" shall be defined as it is in the PJM Open Access Transmission PJM Tariff
("PJM Tariff").
(b) The Transmission Expansion Advisory Committee established by the Office
of the Interconnection will provide input to the development of the Regional
Transmission Expansion Plan. The Transmission Expansion Advisory Committee will
invite participation by: (i) all Transmission Customers, as that term is defined
in the PJM Tariff, and applicants for transmission service; (ii) any other
entity proposing to provide Transmission Facilities to be integrated into the
PJM Control Area; (iii) all Members; (iv) the agencies and offices of consumer
advocates of the States in the PJM Control Area exercising regulatory authority
over the rates, terms or conditions of
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electric service or the planning, siting, construction or operation of electric
facilities and (v) any other interested entities or persons.
1.4 Contents of the Regional Transmission Expansion Plan
(a) The Office of the Interconnection shall prepare the Regional
Transmission Expansion Plan, which shall consolidate the transmission needs of
the region into a single plan which is assessed on the basis of maintaining the
PJM Control Area's reliability in an economic and environmentally acceptable
manner.
(b) The Regional Transmission Expansion Plan shall reflect transmission
enhancements and expansions, load and capacity forecasts and generation
additions and retirements for the ensuing ten years.
(c) The Regional Transmission Expansion Plan shall, as a minimum, include a
designation of the Regional Transmission Owner or Owners or other entity that
will own a transmission facility and how all reasonably incurred costs are to be
recovered.
(d) The Regional Transmission Expansion Plan shall (i) avoid unnecessary
duplication of facilities; (ii) avoid the imposition of unreasonable costs on
any Regional Transmission Owner or any user of Transmission Facilities; (iii)
take into account the legal and contractual rights and obligations of the
Regional Transmission Owners; (iv) provide, if appropriate, alternative means
for meeting transmission needs in the PJM Control Area; and (v) provide for
coordination with existing transmission systems and with appropriate
interregional and local expansion plans.
1.5 Procedure for Development of the Regional Transmission Expansion Plan
1.5.1 Commencement of the Process
(a) The Office of the Interconnection shall initiate the enhancement
and expansion study process if (i) required as a result of a need for transfer
capability identified by the Office of the Interconnection in its evaluation of
requests for firm transmission service with a term of one year or more or as a
result of the Office of the Interconnection's on-going evaluation of
transmission system adequacy and performance; (ii) identified as a result of the
MAAC reliability assessment or more stringent local reliability criteria, if
any; (iii) constraints or available transfer capability shortage are identified
by the Office of the Interconnection as a result of generation additions or
retirements, evaluation of load forecasts or proposals for the addition of
Transmission Facilities in the PJM Control Area; or (iv) expansion of the
transmission system is proposed by the Regional Transmission Owners or others.
(b) The Office of the Interconnection shall notify the Transmission
Expansion Advisory Committee of the commencement of an enhancement and expansion
study. The Transmission Expansion Advisory Committee shall notify the Office of
the Interconnection in writing of any additional transmission considerations to
be included.
1.5.2 Development of Scope, Assumptions and Procedures
Once the need for an enhancement and expansion study has been
established, the Office of the Interconnection shall consult with the
Transmission Expansion Advisory Committee to prepare the study's scope,
assumptions and procedures.
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1.5.3 Scope of Studies
In general, enhancement and expansion studies shall include:
(a) An identification of existing and projected electric system
limitations, with accompanying simulations to identify the costs of controlling
those limitations. Potential enhancements and expansions will be proposed to
mitigate limitations controlled by non-economic means.
(b) Evaluation and analysis of potential enhancements and expansions,
including alternatives thereto, needed to mitigate such limitations.
(c) Engineering studies needed to determine the effectiveness and
compliance (with reliability criteria) of recommended enhancements and
expansions.
1.5.4 Supply of Data
The Regional Transmission Owners, those entities requesting
transmission service and any other entities proposing to provide Transmission
Facilities to be integrated into the PJM Control Area shall supply such
information and data reasonably required by the Office of the Interconnection to
perform the enhancement and expansion study.
1.5.5 Coordination of the Regional Transmission Expansion Plan
(a) The Regional Transmission Expansion Plan shall be developed in
coordination with the transmission systems of the surrounding regional
reliability councils and with the local transmission providers.
(b) The Regional Transmission Expansion Plan shall be developed by the
Office of the Interconnection in consultation with the Transmission Expansion
Advisory Committee during the enhancement and expansion study process.
1.5.6 Development of the Recommended Regional Transmission Expansion
Plan
(a) Upon completion of its studies and analysis, the Office of the
Interconnection shall prepare a recommended enhancement and expansion plan for
review by the Transmission Expansion Advisory Committee. The recommended plan
shall include recommendations for cost responsibility, except for directly
assigned costs, for any enhancement or expansion, based on the planning analysis
and other input from participants, including any indications of a willingness to
bear cost responsibility for an enhancement or expansion.
(b)For the purposes of Section 1.5.6(a), any allocation of costs to
all of the Regional Transmission Owners shall be proportional to the load within
the Zones. Load shall be measured consistent with the loads utilized to develop
the rates included in Attachment H to the PJM Tariff.
(c) Any Regional Transmission Owner and other participants on the
Transmission Expansion Advisory Committee may offer an alternative.
(d) If the Office of the Interconnection adopts the alternative, based
upon its review of the relative costs and benefits, the ability of the
alternative to supply the required level of transmission service, and its impact
on the reliability of the Transmission Facilities, the Office of
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the Interconnection shall make any necessary changes to the recommended plan.
(e) If, based upon its review of the relative costs and benefits, the
ability of the alternative to supply the required level of transmission service,
and the alternative's impact on the reliability of the Transmission Facilities,
the Office of the Interconnection does not adopt such alternative, the Regional
Transmission Owner or Owners whose alternative or alternatives have not been
accepted or to whom cost responsibility has been assigned and other participants
on the Transmission Expansion Advisory Committee may require that its or their
alternative(s) be submitted to Alternative Dispute Resolution.
1.6 Approval of the Final Regional Transmission Expansion Plan
(a) The PJM Board shall approve the final Regional Transmission Expansion
Plan, including any alternatives therein, in accordance with the requirements of
this Section 1.6.
(b) If the facilities to be provided in the Regional Transmission Expansion
Plan are acceptable, but the Regional Transmission Owners and other entities who
have indicated a willingness to bear some or all of the cost responsibility
cannot unanimously agree on the allocation of the costs of enhancements or
expansions, the cost responsibility shall be allocated (a) to those entities who
have indicated a willingness to bear some or all of the cost of responsibility,
and (b) among the Regional Transmission Owners in accordance with the following
guidelines:
i) All of the costs of Transmission Facilities (other than
transformers) with a nominal operating voltage of 500 kV or
higher shall be allocated to all of the Regional
Transmission Owners;
ii) One-half of the costs of Transmission Facilities (other than
transformers) with a nominal operating voltage of 230 kV or
345 kV shall be allocated to all Regional Transmission
Owners and one-half of the costs of such facilities shall be
allocated to the Regional Transmission Owners in whose Zone,
as that term is defined in the PJM Tariff, the enhancement
or expansion is to be located;
iii) All of the costs of Transmission Facilities (other than
transformers) with a nominal operating voltage below 230 kV
shall be allocated to the Regional Transmission Owner or
Owners in whose Zone the enhancement or expansion is
located;
iv) One-half of the costs of transformers shall be allocated in
accordance with the methodology specified in (a), (b), or
(c) above, based upon the voltage at the high side of the
transformer and one-half of the costs shall be allocated in
accordance with the methodology specified in (a), (b), and
(c) above based upon the voltage at the low side of the
transformer, unless the low side of the transformer is less
than 100 kV, in which case all of the costs of the
transformer shall be allocated to the Regional Transmission
Owner or Owners in whose Zone the transformer is located.
If a Regional Transmission Expansion Plan is not approved, or if the
transmission service requested by any entity is not included in an approved
Regional Transmission Expansion Plan, nothing herein shall limit in any way the
right of any entity to seek relief pursuant to the provisions
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of Section 211 of the Federal Power Act.
(d) Following PJM Board approval, the final Regional Transmission Expansion
Plan shall be submitted to MAAC for verification that all enhancements or
expansions conform to all MAAC Reliability Principles and Standards.
1.7 Obligation to Build
(a) Subject to the requirements of applicable law, government regulations
and approvals, including, without limitation, requirements to obtain any
necessary state or local siting, construction and operating permits, to the
availability of required financing, to the ability to acquire necessary
right-of-way, and to the right to recover, pursuant to appropriate financial
arrangements and tariffs or contracts, all reasonably incurred costs, plus a
reasonable return on investment, Regional Transmission Owners designated as the
appropriate entities to construct and own or finance enhancements or expansions
specified in the Regional Transmission Expansion Plan shall construct and own or
finance such facilities or enter into appropriate contracts to fulfill such
obligations.
(b) Nothing herein shall prohibit any Regional Transmission Owner from
seeking to recover the cost of enhancements or expansions on an incremental cost
basis or from seeking approval of such rate treatment from any regulatory agency
with jurisdiction over such rates.
1.8 Relationship to the PJM Control Area Open Access Transmission PJM
Tariff
Nothing herein shall modify the rights and obligations of an Eligible
Customer or a Transmission Customer, as those terms are defined in the PJM
Tariff, with respect to required studies and completion of necessary
enhancements or expansions. An Eligible Customer or Transmission Customer
electing to follow the procedures in the PJM Tariff instead of the procedures
provided herein, shall also be responsible for the related costs. The
enhancement and expansion study process under this Protocol shall be funded as a
part of the operating budget of the Office of the Interconnection.
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SCHEDULE 7
Revision No. 1
UNDERFREQUENCY RELAY OBLICATIONS AND CHARGES
Issued: June 2, 1997
Effective: August 1, 1997
1. UNDERFREQUENCY RELAY OBLIGATION
1.1 Application.
The obligations of this Schedule apply to each Member that is an Electric
Distributor, whether or not that Member participates in the Electric Distributor
sector on the Members Committee or meets the eligibility requirements for any
other sector of the Members Committee.
1.2 Obligations.
Each Electric Distributor shall install or contractually arrange for
underfrequency relays to interrupt at least 30 percent of its peak load with 10
percent of the load interrupted at each of three frequency levels: 59.3 Hz, 58.9
Hz and 58.5 Hz. Upon the request of the Reliability Committee, each Electric
Distributor shall document that it has complied with the requirement for
underfrequency load shedding relays.
2. UNDERFREQUENCY RELAY CHARGES
If an Electric Distributor is determined to not have the required
underfrequency relays, it shall pay an underfrequency relay charge of:
Charge = D x R x 365
where
D = the amount, in megawatts, the Electric Distributor is deficient; and
R = the daily rate per megawatt, which shall be based on the annual
carrying charges for a new combustion turbine generator, installed and
connected to the transmission system, which daily deficiency rate as
of the Effective Date shall be $58.400/per kilowatt-year or $160 per
megawatt-day.
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3. DISTRIBUTION OF UNDERFREQUENCY RELAY CHARGES
3.1 Share of Charges.
Each Electric Distributor that has complied with the requirements for
underfrequency relays imposed by this Agreement during a Planning Period,
without incurring an underfrequency relay charge, shall share in any
underfrequency relay charges paid by any other Electric Distributor that has
failed to satisfy said obligation during such Planning Period. Such shares shall
be in proportion to the number of megawatts of a Electric Distributor's load in
the most recently completed month at the time of the peak for the PJM Control
Area during that month rounded to the next higher whole megawatt, as established
initially on the Effective Date and as updated at the beginning of each month
thereafter.
3.2 Allocation by the Office of the Interconnection.
In the event all of the Electric Distributors have incurred underfrequency
relay charges during a Planning Period, the underfrequency relay charges shall
be distributed among the Electric Distributors on an equitable basis as
determined by the Office of the Interconnection.
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SCHEDULE 8
Revision No. 1
DELEGATION OF RELIABILITY RESPONSIBILTIES
Issued: June 2, 1997
Effective: August 1, 1997
1. DELEGATION
The following responsibilities shall be delegated to the Office of the
Interconnection by the parties to the Reliability Assurance Agreement.
2. NEW PARTIES
With regard to the addition, withdrawal or removal of a party to the
Reliability Assurance Agreement, the Office of the Interconnection shall:
(a) Receive and evaluate the information submitted by entities that plan to
serve loads within the PJM Control Area, including entities whose participation
in the Agreement will expand the boundaries of the PJM Control Area, such
evaluation to be conducted in accordance with the requirements of the
Reliability Assurance Agreement; and
(b) Evaluate the effects of the withdrawal or removal of a party from the
Reliability Assurance Agreement.
3. IMPLEMENTATION OF RELIABILITY ASSURANCE AGREEMENT.
With regard to the implementation of the provisions of the Reliability
Assurance Agreement, the Office of the Interconnection shall:
(a) Receive all required data and forecasts from the parties to the
Reliability Assurance Agreement;
(b) Perform all calculations and analyses necessary to determine the
Forecast Pool Requirement, the Forecast Zone Requirement and the Forecast LSE
Obligation, including periodic reviews of the capacity benefit margin for
consistency with the Reliability Principles and Standards, as the foregoing
terms are defined in the Reliability Assurance Agreement;
(c) Monitor the compliance of each party to the Reliability Assurance
Agreement with its obligations under the Reliability Assurance Agreement;
(d) Keep cost records, and bill and collect any costs or charges due from
the parties to the Reliability Assurance Agreement and distribute those charges
in accordance with the terms of the Reliability Assurance Agreement;
(e) Assist with the development of rules and procedures for determining and
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demonstrating the capability of Capacity Resources;
(f) Establish the capability and deliverability of Capacity Resources
consistent with the requirements of the Reliability Assurance Agreement;
(g) Collect and maintain generator availability data;
(h) Perform any other studies or analyses required to administer the
Reliability Assurance Agreement;
(i) Coordinate maintenance schedules for generation resources operated as
part of the PJM Control Area;
(j) Determine and declare that an Emergency exists or has ceased to exist
in all or any part of the PJM Control Area or in a Control Area interconnected
with the PJM Control Area;
(k) Enter into agreements for (i) the transfer of energy in Emergencies in
the PJM Control Area or in a Control Area interconnected with the PJM Control
Area and (ii) mutual support in such Emergencies with other Control Areas
interconnected with the PJM Control Area; and
(l) Coordinate the curtailment or shedding of load, or other measures
appropriate to alleviate an Emergency, to preserve reliability in accordance
with FERC, NERC or MAAC principles, guidelines, standards and requirements and
the PJM Manuals, and to ensure the operation of the PJM Control Area in
accordance with Good Utility Practice.
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SCHEDULE 9
Revision No. 1
EMERGENCY PROCEDURE CHARGES
Issued: June 2, 1997
Effective: August 1, 1997
EMERGENCY PROCEDURE CHARGE
Following an Emergency, the compliance of each Member with the instructions
of the Office of the Interconnection shall be evaluated by the Office of the
Interconnection. If, based on such evaluation, it is determined that a Member
failed to comply with the instructions of the Office of the Interconnection to
implement voltage reductions or to drop load, that Member shall demonstrate that
it employed its best efforts to comply with such instructions. In the event a
Member failed to employ its best efforts to comply with the instructions of the
Office of the Interconnection, that Member shall pay an emergency procedure
charge as follows:
(a) For each megawatt of voltage reduction that was not implemented as
directed, the Member shall pay 365 times the daily deficiency rate per megawatt
based on the annual carrying charges for a new combustion turbine generator,
installed and connected to the transmission system, which daily deficiency rate
as of the Effective Date shall be $58.400/per kilowatt-year or $160 per
megawatt-day; and
(b) For each megawatt of load that was not dropped as directed, the Member
shall pay 730 times the daily deficiency rate per megawatt based on the annual
carrying charges for a new combustion turbine generator, installed and connected
to the transmission system, which daily deficiency rate as of the Effective Date
shall be $58.400/per kilowatt-year or $160 per megawatt- day.
2. DISTRIBUTION OF EMERGENCY PROCEDURE CHARGES
2.1 Complying Parties. Each Member that has complied with the emergency
procedures imposed by this Agreement during an Emergency, without incurring an
emergency procedure charge, shall share in any emergency procedure charges paid
by any other Member that has failed to satisfy said obligation during such
Emergency in an equitable manner to be determined by the PJM Board.
2.2 All Parties.
In the event all of the Members have incurred emergency procedure charges
with respect to an Emergency, the emergency procedure charges related to that
Emergency shall be distributed in an equitable manner as directed by the PJM
Board.
AGREEMENT
AMONG DELMARVA POWER & LIGHT COMPANY,
PECO ENERGY COMPANY AND PUBLIC SERVICE
ELECTRIC AND GAS COMPANY REGARDING LIABILITY
AND PERFORMANCE OBLIGATIONS OF THE PLANT OPERATOR
This Agreement dated May 27, 1997 is by and among Delmarva Power &
Light Company (hereinafter referred to as "DP&L"), PECO Energy Company (formerly
the Philadelphia Electric Company) hereinafter referred to as "PECO") and Public
Service electric and Gas Company (and Public Services Enterprise Group
Incorporated) (hereinafter referred to as "PSE&G"). DP&L, PECO Energy Company
and PSE&G are hereinafter collectively referred to as the "Parties."
RECITALS:
WHEREAS, DP&L and PECO Energy Company filed a lawsuit against PSE&G and
Public Services Enterprise Group Incorporated in the United States District
Court for the Eastern District of Pennsylvania styled Delmarva Power & Light
Company, et al. V. Public Service Enterprise Group, Inc., et al., C.A. No.
96-CV-1705 (E.D. Pa.) (hereinafter referred to as the "Litigation");
WHEREAS, DP&L, PECO and PSE&G are parties to the Salem Owners
Agreement, as amended, and are co-owners of the Salem Nuclear Generating Station
Units 1, 2 and 3 ("Salem Station");
WHEREAS, DP&L, PECO and PSE&G are parties to the Peach Bottom Owners
Agreement, as amended, and are co-owners of the Peach Bottom Atomic Power
Station Units 2 and 3 ("Peach Bottom Station");
<PAGE>
WHEREAS, in an order dated March 28, 1997, Judge Clarence C. Newcomer
encouraged the Parties to enter into settlement negotiations, and supported the
use of an alternative dispute resolution process;
WHEREAS, the Parties engaged in an alternative dispute resolution
process with the assistance of the Honorable Harold R. Tyler, Jr., of New York,
New York, former United States District Judge for the Southern District of New
York; and
WHEREAS, in consideration for the settlement of the litigation and for
the additional consideration provided in this Agreement, the Parties desire to
minimize the possibility of future litigation among the Owners of the Salem and
Peach Bottom Stations and to establish for the remainder of the operating lives
of the Salem and Peach Bottom Stations the extent of responsibility of the
Owner-operator to the Non-operating Owner Parties of each Station for all
management or operating errors and omissions or the failure to generate power
and energy at either Station as economically and reliably as is practicable.
NOW, THEREFORE, as part of the settlement of the Litigation, in
consideration of the mutual covenants made by and between the Parties in
settling the Litigation and for other valuable consideration, the Parties,
intending to be legally bound, hereby agree as follows:
DEFINITIONS
Unless otherwise defined herein, the following terms used in this
Agreement shall have the meanings ascribed to them as set forth below:
(a) "Agreement" shall mean this Agreement Among DP&L, PECO and PSE&G
Regarding Liability and Performance Obligations of the Plant Operator.
(b) "Court" shall mean the United States District Court for the Eastern
District of Pennsylvania.
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(c) "Litigation" shall mean the lawsuit described in the recitals to
this Agreement and all contentions and claims made therein.
(d) "Salem Station" shall mean the Salem Nuclear Generating Station.
(e) "Peach Bottom Station" shall mean the Peach Bottom Atomic Power
Station.
(f) "Salem Owners Agreement" shall mean the owners Agreement for Salem
Nuclear Generating Station Units No. 1, 2 and 3, dated November 24, 1971, as
amended.
(g) "Peach Bottom owners Agreement" shall mean the Owners Agreement for
the Peach Bottom Atomic Power Station Units No. 2 and 3, dated November 24,
1971, as amended.
(h) "Owners Agreements" shall mean the Salem Owners Agreement and the
Peach Bottom Owners Agreement referred to collectively.
(i) "Owner-operator" refers to the owner which operates the Station(s)
under each Owners Agreement. PSE&G is the Owner-operator of the Salem Station.
PECO is the Owner-operator of the Peach Bottom Station.
(j) "Non-operating owner Parties" refers to the owners which do not
operate the Station(s) under each owners Agreement. For Salem, PECO and DP&L are
Non-operating owner Parties; for Peach Bottom, PSE&G and DP&L are Non-operating
Owner Parties.
(k) "Current Outage": Salem Station Unit 1 has been off line (i.e., not
producing electricity) since may 17, 1995, and Unit 2 since June '/, 1995. The
Current Outage for each unit shall mean from June 1, 1995 to the first day of
the month that is closest to the date of Synchronization of that unit with the
grid as described herein. In the event the date of Synchronization of a unit
with the grid falls on or between days 1 through 16 of a month, the Current
Outage for that unit shall mean from June 1, 1995 to the first day of the month
that the Synchronization with the grid takes place. In the event the date of
Synchronization of a unit with the grid falls on or between days 17 through 31
of a month, the Current Outage for that unit shall mean from June 1, 1995 to
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the first day of the next month following the date on which Synchronization with
the grid takes place.
(l) "Synchronization" shall have the special meaning accorded to it in
the electric power industry. In general (and without intending to modify or
alter its special meaning), the term refers to the point during restart at which
the turbine generator of the nuclear plant is synchronously interconnected with
the transmission grid and the first megawatt of sustained, continuous flow of
electricity begins to flow from the plant to the grid.
(m) "Replacement Power Costs" mean the costs incurred to obtain
electricity, whether it is generated or purchased, to replace the output of a
particular generation unit that is wholly or partially out of service. For
purposes of this Agreement, Replacement Power Costs also shall include any
alternative measure of the cost burden of maintaining a unit that is
nonproductive.
(n) "MDC" shall mean the maximum dependable capacity net. This shall be
defined, for each Station, as the gross electrical output measured at the output
terminals of the turbine generators during the most restrictive seasonal
conditions, less the station service load.
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TERMS AND CONDITIONS
1. This Agreement shall govern the relationship among the Parties with
respect to liability and performance obligations of the undersigned
Owner-operators of the Salem and Peach Bottom Stations.
2. The arrangements provided herein shall be effective for the Peach
Bottom Station beginning on January 1, 1998 and for the Salem Station beginning
on the later of the end of the Current Outage of Salem Unit 1 or Salem Unit 2.
As to Salem, if the above occurs prior to January 1, 1998, then the beginning
date for the Salem Station shall be January 1, 1998. The arrangements provided
herein shall continue for each Station until the date of retirement of both
units at that Station.
3. For the Salem Station, the following performance standards shall
apply:
a. The Owner-operator shall compensate the Non-operatinq Owner
Parties a total of $10 million (PECO: $8,518,000; DP&L: $1,482,000) for
each year that the three year historical average MDC capacity factor
(excluding therefrom any period of time to which the Force Maleure
Clause of this Agreement applies) for the Salem Station as calculated
as of December 31 of that year is less than 40% but equal to or above
20%.(1) In the event that the three year historical average MDC
capacity factor (excluding therefrom any period of time to which the
Force Majeure Clause of this Agreement applies) for the Salem Station
calculated as of December 31 of that year falls below 20%, the total
- -----------------
(1) In the event that the beginning date for the Salem Station occurs after
January 1, 1998, the calculation for the Salem Station shall be made
initially as of December 31 of the first calendar year that is at least 24
months after the end of the Current Outage of the later of Unit 1 or Unit 2
of the Salem Station. In such event, the capacity factor calculation shall
be made for the period beginning on the later of the end of the Current
Outage of Salem Unit 1 or Salem Unit 2.
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payment to the Non-operating Owner Parties shall be $25 million per
year (PECO: $21,295,000; DP&L: $3,705,000).(2)
b. The performance standards provided in paragraph 3(a) shall
be applied beginning with the month these arrangements take effect for
the Salem Station as set forth in paragraph 2 above. Any payments to
Non-operating Owner Parties shall be in proportion to their ownership
interests under the respective Owners Agreement. In no event will a
payment be owing prior to two years from the effective date of the
performance standard as it applies to the Salem Station.
c. The calculation of amounts owed under paragraph 3(a) shall
be done annually with any amounts owed for the preceding year becoming
due and payable by the end of the first month following that year.
Where one unit of the Salem Station has been retired, 1/2 of the
payments provided in paragraph 3(a) will apply.
4. For the Peach Bottom Station, the following performance standards
shall apply:
a. The Owner-operator shall compensate the Non-operating Owner
Parties a total of $10 million (PSE&G: $8,498,000; DP&L: $1,502,000)
for each year that the three year historical average MDC capacity
factor (excluding therefrom any period of time to which the Force
Majeure Clause of this Agreement applies) for the Peach Bottom Station
as calculated as of December 31 of that year is less than 40% but equal
to or above 20%.(3) In the event that the three year historical average
MDC capacity factor (excluding therefrom any period of time to which
the Force
- -----------------
(2) See Footnote 1.
(3) The first "calculation" date shall be December 31, 2000.
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Majeure Clause of this agreement applies) for the Peach Bottom Station
calculated as of December 31 of that year falls below 20%, the total
payment to the Non-operating Owner Parties shall be S25 million per
year (PSE&G: $21,245,000; DP&L: $3,755,000).
b. The performance standards provided in paragraph 4(a) shall
be applied beginning with the month these arrangements take effect for
the Peach Bottom Station as set forth in paragraph 2 above. Any
payments to Non-operatinq Owner Parties shall be in proportion to their
ownership interests under the respective Owners Agreement. In no event
will a payment be owing prior to three years from the effective date of
the performance standard as it applies to the Peach Bottom Station.
c. The calculation of amounts owed under paragraph 4(a) shall
be done annually with any amounts owed for the preceding year becoming
due and payable by the end of the first month following that year.
Where one unit of the Peach Bottom Station has been retired, 1/2 of the
payments provided in paragraph 4(a) will apply-
5. The performance standards set forth in paragraph 3 shall be
effective until December 31, 2011 at the dollar amounts set forth in paragraph
3(a). After that date, the performance standards and other provisions of this
Agreement will remain effective, but the dollar amounts in paragraph 3(a) will
be $1. The performance standards in paragraph 4 shall be effective until
December 31, 2007 at the dollar amounts set forth in paragraph 4(a). After that
date, the performance standards and other provisions of this Agreement shall
remain effective, but the dollar amounts in paragraph 4(a) shall be $1.
6. The Parties agree that paragraphs 2-5 of this Agreement shall be the
Non-operating Owner Parties, sole and exclusive remedy for all management or
operating errors or omissions or the failure to generate power and energy at
either
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Station as economically and reliably as is practicable. The Owner-operator of
the Salem Station or the Peach Bottom Station shall not be liable to the
Non-operating Owner Parties in contract, or in tort (including, but not limited
to negligence or gross negligence), or otherwise based upon facts, matters, or
occurrences relating to or arising out of the construction, management,
operation or maintenance of the Salem or Peach Bottom Stations or for any
failures of the Owner-operator to perform any of its responsibilities except for
Willful Action and then only up to a combined total of $5 million to the
Non-operating Owner Parties for all such facts, matters or occurrences or
failures to perform based upon Willful Action(s) during any one annual period,
which amount shall be reduced to $2.5 million where one unit of a Station has
been retired. Each Party shall bear the entire amount of its own Replacement
Power Costs. "Willful Action" is defined as: action knowingly or intentionally
taken or not taken by the chief nuclear officer and approved by his superior,
which action or non-action and approval is taken with intent that injury or
damage would result or would probably result therefrom or with intent to defraud
another Party.
7. Each Party waives and covenants not to assert against any other
Party all rights under the Owners Agreements to the extent that they are
inconsistent with this Agreement. This Agreement does not alter or change the
duties of all Parties to share the costs of the Salem and Peach Bottom Stations
as specified in Article 3 of the Owners Agreements (and related budget and
accounting articles of the Owners Agreements).
The Parties to this Agreement do not intend, and this Agreement shall
not be construed to affect the currently existing rights and interests of
Atlantic Energy, Inc. or Atlantic City Electric Company (hereinafter referred to
collectively as "Atlantic") that arise from Atlantic's ownership interests in
the Salem and Peach Bottom Stations.
8. Times during which the operation of a Station is adversely affected
by Force Majeure Conditions shall not form any part of the basis for a payment
for low
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capacity factors as set forth in paragraphs 3 and 4 of this Agreement. "Force
Majeure Conditions" as used herein means the following: acts of God, floods,
earthquakes, tornadoes, hurricanes; terrorism, or acts of public enemies; war,
insurrections, riots or other civil disturbances; failure of or the necessity to
replace equipment for reasons of obsolescence or defect in design or manufacture
where the condition is generic to the equipment involved and for such time as is
reasonably required therefor; plant shutdown, modification, derating, or
decommissioning requirement which is necessary to comply with any Nuclear
Regulatory Commission or other governmental action that is applicable to any
generic category of plants or is based on considerations external to the Station
itself (including, but not limited to, seismological, meteorological,
hydrological, demographic or soil conditions). Any outage required to repair or
replace steam generators shall conclusively be deemed to constitute a Force
Majeure condition.
9. Any dispute over the application of the performance standards or any
other disputes under the Owners Agreements for Salem and Peach Bottom shall be
the subject of non-binding mediation prior to resort to any legal process. All
Parties waive the right to trial by jury in any court proceeding involving any
such dispute.
MISCELLANEOUS PROVISIONS
10. Intent to Be Legally Bound
The Parties intend that this Agreement create legally binding and
enforceable obligations, and that each of the covenants and obligations
contained herein may be legally enforced.
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11. Warranty of Enforceabilitv
Each Party represents, agrees, and warrants, that this Agreement, and
each instrument required hereby to be executed and delivered by it, constitute
legally valid, binding obligations, and shall be enforceable against each Party.
12. Assignment
This Agreement may not be assigned by any Party hereto without the
express written consent of each other Party hereto. The representations,
warranties, covenants, and agreements contained in this Agreement are for the
sole benefit of the Parties hereto and their successors and permitted assigns,
and shall not be construed to confer any right or to avail any remedy to any
other person.
13. Governing Law
This Agreement shall be governed by, construed, and interpreted, and
the rights of the Parties determined in accordance with, the laws of New Jersey
as it applies to the Salem Station and the laws of Pennsylvania as it applies to
the Peach Bottom Station.
14 Entire Agreement
This Agreement contains the entire understanding of the Parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, representations, warranties, covenants and undertakings governing the
subject matter of this Agreement other than those expressly set forth or
referred to herein. To the extent the terms and conditions of this Agreement can
be construed to be inconsistent with the terms and conditions of either of the
Owners Agreements, this Agreement supersedes the Owners Agreements and any other
prior agreements and understandings among the Parties hereto with respect to the
rights and obligations of the Parties under the Owners Agreements and the
obligations of the Owner-operators of the Salem and Peach Bottom Stations.
10
<PAGE>
15. Waiver of Compliance
Any failure of any Party hereto to comply with any obligation,
covenant, agreement or condition herein may be expressly waived in writing, to
the extent permitted under applicable law, by the Party or Parties hereto
entitled to the benefit of such obligation, covenant, agreement or condition. A
waiver or failure to insist upon strict compliance with any representation,
warranty, covenant, agreement or condition shall not operate a waiver of, or
estoppel with respect to, any subsequent or other failure.
16. Counterparts
This Agreement may be executed in any number of counterparts and any
Party hereto may execute any such counterpart, each of which when executed and
delivered shall be deemed to be an original and all of which counterparts taken
together shall constitute but one and the same instrument. 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.
17. Severance
The Parties agree that if any provision of this Agreement is declared
invalid in whole or in part, it will have no effect on the validity of the other
provisions of the Agreement.
18. Joint Drafting
This Agreement is the product of the joint drafting of the parties. The
parties agree that no provision of this Agreement shail be construed against any
party as the drafter.
11
<PAGE>
19. Recitals
The Recitals to this Agreement are incorporated into and are part of this
Agreement.
PUBLIC SERVICE ELECTRIC
AND GAS COMPANY
Attest: By: /s/ R. Edwin Selover
--------------------------------------
Its: Senior Vice President
and General Counsel
/s/ E.J. BIGGINS, Jr.
Corporate Secretary
PUBLIC SERVICE ELECTRIC
AND GAS COMPANY
Attest: By: /s/ R. Edwin Selover
--------------------------------------
Its: Vice President
and General Counsel
/s/ E.J. BIGGINS, Jr.
Corporate Secretary
PECO ENERGY COMPANY
Attest: By: /s/ Dikinson M. Smith
--------------------------------------
Its: President, PECO Nuclear,
PECO Energy Company
/s/ Katherine K. Combs
Corporate Secretary
DELMARVA POWER & LIGHT COMPANY
Attest: By: /s/ H. E. Cosgrove
--------------------------------------
Its: Chairman, President and C.E.O.
/s/ D. P. Connelly
SECRETARY
12
AGREEMENT
AMONG DELMARVA POWER & LIGHT COMPANY,
PECO ENERGY COMPANY AND PUBLIC SERVICE
ELECTRIC AND GAS COMPANY REGARDING LIABILITY
AND PERFORMANCE OBLIGATIONS OF THE PLANT OPERATOR
This Agreement dated May 27, 1997 is by and among Delmarva Power &
Light Company (hereinafter referred to as "DP&L"), PECO Energy Company (formerly
the Philadelphia Electric Company) hereinafter referred to as "PECO") and Public
Service electric and Gas Company (and Public Services Enterprise Group
Incorporated) (hereinafter referred to as "PSE&G"). DP&L, PECO Energy Company
and PSE&G are hereinafter collectively referred to as the "Parties."
RECITALS:
WHEREAS, DP&L and PECO Energy Company filed a lawsuit against PSE&G and
Public Services Enterprise Group Incorporated in the United States District
Court for the Eastern District of Pennsylvania styled Delmarva Power & Light
Company, et al. V. Public Service Enterprise Group, Inc., et al., C.A. No.
96-CV-1705 (E.D. Pa.) (hereinafter referred to as the "Litigation");
WHEREAS, DP&L, PECO and PSE&G are parties to the Salem Owners
Agreement, as amended, and are co-owners of the Salem Nuclear Generating Station
Units 1, 2 and 3 ("Salem Station");
WHEREAS, DP&L, PECO and PSE&G are parties to the Peach Bottom Owners
Agreement, as amended, and are co-owners of the Peach Bottom Atomic Power
Station Units 2 and 3 ("Peach Bottom Station");
<PAGE>
WHEREAS, in an order dated March 28, 1997, Judge Clarence C. Newcomer
encouraged the Parties to enter into settlement negotiations, and supported the
use of an alternative dispute resolution process;
WHEREAS, the Parties engaged in an alternative dispute resolution
process with the assistance of the Honorable Harold R. Tyler, Jr., of New York,
New York, former United States District Judge for the Southern District of New
York; and
WHEREAS, in consideration for the settlement of the litigation and for
the additional consideration provided in this Agreement, the Parties desire to
minimize the possibility of future litigation among the Owners of the Salem and
Peach Bottom Stations and to establish for the remainder of the operating lives
of the Salem and Peach Bottom Stations the extent of responsibility of the
Owner-operator to the Non-operating Owner Parties of each Station for all
management or operating errors and omissions or the failure to generate power
and energy at either Station as economically and reliably as is practicable.
NOW, THEREFORE, as part of the settlement of the Litigation, in
consideration of the mutual covenants made by and between the Parties in
settling the Litigation and for other valuable consideration, the Parties,
intending to be legally bound, hereby agree as follows:
DEFINITIONS
Unless otherwise defined herein, the following terms used in this
Agreement shall have the meanings ascribed to them as set forth below:
(a) "Agreement" shall mean this Agreement Among DP&L, PECO and PSE&G
Regarding Liability and Performance Obligations of the Plant Operator.
(b) "Court" shall mean the United States District Court for the Eastern
District of Pennsylvania.
2
<PAGE>
(c) "Litigation" shall mean the lawsuit described in the recitals to
this Agreement and all contentions and claims made therein.
(d) "Salem Station" shall mean the Salem Nuclear Generating Station.
(e) "Peach Bottom Station" shall mean the Peach Bottom Atomic Power
Station.
(f) "Salem Owners Agreement" shall mean the owners Agreement for Salem
Nuclear Generating Station Units No. 1, 2 and 3, dated November 24, 1971, as
amended.
(g) "Peach Bottom owners Agreement" shall mean the Owners Agreement for
the Peach Bottom Atomic Power Station Units No. 2 and 3, dated November 24,
1971, as amended.
(h) "Owners Agreements" shall mean the Salem Owners Agreement and the
Peach Bottom Owners Agreement referred to collectively.
(i) "Owner-operator" refers to the owner which operates the Station(s)
under each Owners Agreement. PSE&G is the Owner-operator of the Salem Station.
PECO is the Owner-operator of the Peach Bottom Station.
(j) "Non-operating owner Parties" refers to the owners which do not
operate the Station(s) under each owners Agreement. For Salem, PECO and DP&L are
Non-operating owner Parties; for Peach Bottom, PSE&G and DP&L are Non-operating
Owner Parties.
(k) "Current Outage": Salem Station Unit 1 has been off line (i.e., not
producing electricity) since may 17, 1995, and Unit 2 since June '/, 1995. The
Current Outage for each unit shall mean from June 1, 1995 to the first day of
the month that is closest to the date of Synchronization of that unit with the
grid as described herein. In the event the date of Synchronization of a unit
with the grid falls on or between days 1 through 16 of a month, the Current
Outage for that unit shall mean from June 1, 1995 to the first day of the month
that the Synchronization with the grid takes place. In the event the date of
Synchronization of a unit with the grid falls on or between days 17 through 31
of a month, the Current Outage for that unit shall mean from June 1, 1995 to
3
<PAGE>
the first day of the next month following the date on which Synchronization with
the grid takes place.
(l) "Synchronization" shall have the special meaning accorded to it in
the electric power industry. In general (and without intending to modify or
alter its special meaning), the term refers to the point during restart at which
the turbine generator of the nuclear plant is synchronously interconnected with
the transmission grid and the first megawatt of sustained, continuous flow of
electricity begins to flow from the plant to the grid.
(m) "Replacement Power Costs" mean the costs incurred to obtain
electricity, whether it is generated or purchased, to replace the output of a
particular generation unit that is wholly or partially out of service. For
purposes of this Agreement, Replacement Power Costs also shall include any
alternative measure of the cost burden of maintaining a unit that is
nonproductive.
(n) "MDC" shall mean the maximum dependable capacity net. This shall be
defined, for each Station, as the gross electrical output measured at the output
terminals of the turbine generators during the most restrictive seasonal
conditions, less the station service load.
4
<PAGE>
TERMS AND CONDITIONS
1. This Agreement shall govern the relationship among the Parties with
respect to liability and performance obligations of the undersigned
Owner-operators of the Salem and Peach Bottom Stations.
2. The arrangements provided herein shall be effective for the Peach
Bottom Station beginning on January 1, 1998 and for the Salem Station beginning
on the later of the end of the Current Outage of Salem Unit 1 or Salem Unit 2.
As to Salem, if the above occurs prior to January 1, 1998, then the beginning
date for the Salem Station shall be January 1, 1998. The arrangements provided
herein shall continue for each Station until the date of retirement of both
units at that Station.
3. For the Salem Station, the following performance standards shall
apply:
a. The Owner-operator shall compensate the Non-operatinq Owner
Parties a total of $10 million (PECO: $8,518,000; DP&L: $1,482,000) for
each year that the three year historical average MDC capacity factor
(excluding therefrom any period of time to which the Force Maleure
Clause of this Agreement applies) for the Salem Station as calculated
as of December 31 of that year is less than 40% but equal to or above
20%.(1) In the event that the three year historical average MDC
capacity factor (excluding therefrom any period of time to which the
Force Majeure Clause of this Agreement applies) for the Salem Station
calculated as of December 31 of that year falls below 20%, the total
- -----------------
(1) In the event that the beginning date for the Salem Station occurs after
January 1, 1998, the calculation for the Salem Station shall be made
initially as of December 31 of the first calendar year that is at least 24
months after the end of the Current Outage of the later of Unit 1 or Unit 2
of the Salem Station. In such event, the capacity factor calculation shall
be made for the period beginning on the later of the end of the Current
Outage of Salem Unit 1 or Salem Unit 2.
5
<PAGE>
payment to the Non-operating Owner Parties shall be $25 million per
year (PECO: $21,295,000; DP&L: $3,705,000).(2)
b. The performance standards provided in paragraph 3(a) shall
be applied beginning with the month these arrangements take effect for
the Salem Station as set forth in paragraph 2 above. Any payments to
Non-operating Owner Parties shall be in proportion to their ownership
interests under the respective Owners Agreement. In no event will a
payment be owing prior to two years from the effective date of the
performance standard as it applies to the Salem Station.
c. The calculation of amounts owed under paragraph 3(a) shall
be done annually with any amounts owed for the preceding year becoming
due and payable by the end of the first month following that year.
Where one unit of the Salem Station has been retired, 1/2 of the
payments provided in paragraph 3(a) will apply.
4. For the Peach Bottom Station, the following performance standards
shall apply:
a. The Owner-operator shall compensate the Non-operating Owner
Parties a total of $10 million (PSE&G: $8,498,000; DP&L: $1,502,000)
for each year that the three year historical average MDC capacity
factor (excluding therefrom any period of time to which the Force
Majeure Clause of this Agreement applies) for the Peach Bottom Station
as calculated as of December 31 of that year is less than 40% but equal
to or above 20%.(3) In the event that the three year historical average
MDC capacity factor (excluding therefrom any period of time to which
the Force
- -----------------
(2) See Footnote 1.
(3) The first "calculation" date shall be December 31, 2000.
6
<PAGE>
Majeure Clause of this agreement applies) for the Peach Bottom Station
calculated as of December 31 of that year falls below 20%, the total
payment to the Non-operating Owner Parties shall be S25 million per
year (PSE&G: $21,245,000; DP&L: $3,755,000).
b. The performance standards provided in paragraph 4(a) shall
be applied beginning with the month these arrangements take effect for
the Peach Bottom Station as set forth in paragraph 2 above. Any
payments to Non-operatinq Owner Parties shall be in proportion to their
ownership interests under the respective Owners Agreement. In no event
will a payment be owing prior to three years from the effective date of
the performance standard as it applies to the Peach Bottom Station.
c. The calculation of amounts owed under paragraph 4(a) shall
be done annually with any amounts owed for the preceding year becoming
due and payable by the end of the first month following that year.
Where one unit of the Peach Bottom Station has been retired, 1/2 of the
payments provided in paragraph 4(a) will apply-
5. The performance standards set forth in paragraph 3 shall be
effective until December 31, 2011 at the dollar amounts set forth in paragraph
3(a). After that date, the performance standards and other provisions of this
Agreement will remain effective, but the dollar amounts in paragraph 3(a) will
be $1. The performance standards in paragraph 4 shall be effective until
December 31, 2007 at the dollar amounts set forth in paragraph 4(a). After that
date, the performance standards and other provisions of this Agreement shall
remain effective, but the dollar amounts in paragraph 4(a) shall be $1.
6. The Parties agree that paragraphs 2-5 of this Agreement shall be the
Non-operating Owner Parties, sole and exclusive remedy for all management or
operating errors or omissions or the failure to generate power and energy at
either
7
<PAGE>
Station as economically and reliably as is practicable. The Owner-operator of
the Salem Station or the Peach Bottom Station shall not be liable to the
Non-operating Owner Parties in contract, or in tort (including, but not limited
to negligence or gross negligence), or otherwise based upon facts, matters, or
occurrences relating to or arising out of the construction, management,
operation or maintenance of the Salem or Peach Bottom Stations or for any
failures of the Owner-operator to perform any of its responsibilities except for
Willful Action and then only up to a combined total of $5 million to the
Non-operating Owner Parties for all such facts, matters or occurrences or
failures to perform based upon Willful Action(s) during any one annual period,
which amount shall be reduced to $2.5 million where one unit of a Station has
been retired. Each Party shall bear the entire amount of its own Replacement
Power Costs. "Willful Action" is defined as: action knowingly or intentionally
taken or not taken by the chief nuclear officer and approved by his superior,
which action or non-action and approval is taken with intent that injury or
damage would result or would probably result therefrom or with intent to defraud
another Party.
7. Each Party waives and covenants not to assert against any other
Party all rights under the Owners Agreements to the extent that they are
inconsistent with this Agreement. This Agreement does not alter or change the
duties of all Parties to share the costs of the Salem and Peach Bottom Stations
as specified in Article 3 of the Owners Agreements (and related budget and
accounting articles of the Owners Agreements).
The Parties to this Agreement do not intend, and this Agreement shall
not be construed to affect the currently existing rights and interests of
Atlantic Energy, Inc. or Atlantic City Electric Company (hereinafter referred to
collectively as "Atlantic") that arise from Atlantic's ownership interests in
the Salem and Peach Bottom Stations.
8. Times during which the operation of a Station is adversely affected
by Force Majeure Conditions shall not form any part of the basis for a payment
for low
8
<PAGE>
capacity factors as set forth in paragraphs 3 and 4 of this Agreement. "Force
Majeure Conditions" as used herein means the following: acts of God, floods,
earthquakes, tornadoes, hurricanes; terrorism, or acts of public enemies; war,
insurrections, riots or other civil disturbances; failure of or the necessity to
replace equipment for reasons of obsolescence or defect in design or manufacture
where the condition is generic to the equipment involved and for such time as is
reasonably required therefor; plant shutdown, modification, derating, or
decommissioning requirement which is necessary to comply with any Nuclear
Regulatory Commission or other governmental action that is applicable to any
generic category of plants or is based on considerations external to the Station
itself (including, but not limited to, seismological, meteorological,
hydrological, demographic or soil conditions). Any outage required to repair or
replace steam generators shall conclusively be deemed to constitute a Force
Majeure condition.
9. Any dispute over the application of the performance standards or any
other disputes under the Owners Agreements for Salem and Peach Bottom shall be
the subject of non-binding mediation prior to resort to any legal process. All
Parties waive the right to trial by jury in any court proceeding involving any
such dispute.
MISCELLANEOUS PROVISIONS
10. Intent to Be Legally Bound
The Parties intend that this Agreement create legally binding and
enforceable obligations, and that each of the covenants and obligations
contained herein may be legally enforced.
9
<PAGE>
11. Warranty of Enforceabilitv
Each Party represents, agrees, and warrants, that this Agreement, and
each instrument required hereby to be executed and delivered by it, constitute
legally valid, binding obligations, and shall be enforceable against each Party.
12. Assignment
This Agreement may not be assigned by any Party hereto without the
express written consent of each other Party hereto. The representations,
warranties, covenants, and agreements contained in this Agreement are for the
sole benefit of the Parties hereto and their successors and permitted assigns,
and shall not be construed to confer any right or to avail any remedy to any
other person.
13. Governing Law
This Agreement shall be governed by, construed, and interpreted, and
the rights of the Parties determined in accordance with, the laws of New Jersey
as it applies to the Salem Station and the laws of Pennsylvania as it applies to
the Peach Bottom Station.
14 Entire Agreement
This Agreement contains the entire understanding of the Parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, representations, warranties, covenants and undertakings governing the
subject matter of this Agreement other than those expressly set forth or
referred to herein. To the extent the terms and conditions of this Agreement can
be construed to be inconsistent with the terms and conditions of either of the
Owners Agreements, this Agreement supersedes the Owners Agreements and any other
prior agreements and understandings among the Parties hereto with respect to the
rights and obligations of the Parties under the Owners Agreements and the
obligations of the Owner-operators of the Salem and Peach Bottom Stations.
10
<PAGE>
15. Waiver of Compliance
Any failure of any Party hereto to comply with any obligation,
covenant, agreement or condition herein may be expressly waived in writing, to
the extent permitted under applicable law, by the Party or Parties hereto
entitled to the benefit of such obligation, covenant, agreement or condition. A
waiver or failure to insist upon strict compliance with any representation,
warranty, covenant, agreement or condition shall not operate a waiver of, or
estoppel with respect to, any subsequent or other failure.
16. Counterparts
This Agreement may be executed in any number of counterparts and any
Party hereto may execute any such counterpart, each of which when executed and
delivered shall be deemed to be an original and all of which counterparts taken
together shall constitute but one and the same instrument. 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.
17. Severance
The Parties agree that if any provision of this Agreement is declared
invalid in whole or in part, it will have no effect on the validity of the other
provisions of the Agreement.
18. Joint Drafting
This Agreement is the product of the joint drafting of the parties. The
parties agree that no provision of this Agreement shail be construed against any
party as the drafter.
11
<PAGE>
19. Recitals
The Recitals to this Agreement are incorporated into and are part of this
Agreement.
PUBLIC SERVICE ELECTRIC
AND GAS COMPANY
Attest: By: /s/ R. Edwin Selover
--------------------------------------
Its: Senior Vice President
and General Counsel
/s/ E.J. BIGGINS, Jr.
Corporate Secretary
PUBLIC SERVICE ELECTRIC
AND GAS COMPANY
Attest: By: /s/ R. Edwin Selover
--------------------------------------
Its: Vice President
and General Counsel
/s/ E.J. BIGGINS, Jr.
Corporate Secretary
PECO ENERGY COMPANY
Attest: By: /s/ Dikinson M. Smith
--------------------------------------
Its: President, PECO Nuclear,
PECO Energy Company
/s/ Katherine K. Combs
Corporate Secretary
DELMARVA POWER & LIGHT COMPANY
Attest: By: /s/ H. E. Cosgrove
--------------------------------------
Its: Chairman, President and C.E.O.
/s/ D. P. Connelly
SECRETARY
12
Exhibit 10-4
PECO Energy Company
Deferred Compensation and
Supplemental Pension Benefit Plan
(Effective Date: November 1, 1981)
(As Amended Through February 23, 1998)
The purposes of this plan are to permit the total pension of
executive employees of PECO Energy Company ("PECO") to be determined on a basis
that is no less favorable than for all other employees of PECO, to consolidate
prior deferred compensation agreements with certain of PECO's executive
employees into one document, to offset the impact of deferrals under the PECO
Management Incentive Compensation Plan on the pensions of participating
employees, and to provide uniform rules and regulations of plan administration.
PECO therefore adopts the following plan of Deferred
Compensation and Supplemental Pension Benefit Plan (the "Deferred Compensation
Plan" or the "Plan"):
1. Administration. This Deferred Compensation Plan shall be
administered by the Compensation Committee (the "Committee") of the Board of
Directors of PECO (the "Board"). The Committee shall interpret the Deferred
Compensation Plan; make factual determinations; establish such rules and
regulations of plan administration that it deems appropriate; and appoint an
administrator to assist the Committee in its responsibilities. The Committee's
decisions with respect to the construction, administration and interpretation of
the Plan shall be conclusive and binding, unless otherwise determined by the
Board. The cost of the plan administration shall be paid by PECO, and shall not
be charged against the deferred accounts of Plan participants.
<PAGE>
2. Eligibility. Eligibility under the Deferred Compensation
Plan is restricted to key management employees whose eligibility is determined
by the Committee. Notwithstanding the foregoing, any employee who contributes an
amount to the Deferred Compensation Plan through PECO's Management Incentive
Compensation Plan shall be automatically eligible to participate in the Deferred
Compensation Plan to the extent of such contribution.
3. Deferrals.
(a) Subject to such rules and procedures as the Committee
deems appropriate, each eligible employee may elect in writing (i) effective
November 1, 1981 (the "Effective Date"), to receive a portion of his or her
future cash compensation as deferred compensation, provided each such election
is made prior to the period with respect to which the compensation is earned or
otherwise payable, (ii) effective June 1, 1988 to receive all or a portion of
his or her future awards under the PECO Management Incentive Compensation Plan
as deferred compensation, provided each such election is made prior to the end
of the calendar year with respect to which the award is calculated, and (iii)
effective November 25, 1996 to receive all or a portion (in increments of 1%) of
the lump sum payment pursuant to Paragraph 9(b)(1), below, as deferred
compensation, provided such election is made prior to the calendar year in which
such lump sum is scheduled to be paid and at least ninety (90) days prior to the
date such lump sum is scheduled to be paid.
Deferred amounts shall be credited to a deferral account in
the participant's name ("Deferral Account") for later distribution. Each
participant's Deferral Account shall be a bookkeeping entry only, and PECO shall
not be required to fund the Deferral Account. Any
-2-
<PAGE>
assets that may be held by PECO to fund a Deferral Account shall at all times
remain unrestricted assets of PECO in its corporate capacity and not as
fiduciary, and shall be subject to the claims of PECO's general creditors.
Pending distribution, after the Effective Date each participant's Deferral
Account shall be credited with earnings or interest as provide in Paragraph
3(b).
(b) (1) For purposes of measuring the
earnings or losses credited to his Deferral Account, the participant
may select, from among the investment vehicles available from time to
time under the PECO Energy Company Employee Savings Plan (the "Savings
Plan"), the investment media in which all or part of his Deferral
Account shall be deemed to be invested.
(2) The participant shall make an investment
designation in the form and manner prescribed by the Committee or its
designee, which shall remain effective until another valid designation
has been made by the participant as herein provided. The participant
may amend his investment designation at such times and in such manner
as prescribed by the Committee or its designee. A timely change to the
participant's investment designation shall become effective as soon as
administratively practicable.
(3) The investment media deemed to be made
available to the participant, and any limitation on the maximum or
minimum percentages of the participant's Deferral Account that may be
deemed to be invested in any particular medium, shall be the same as
available or in effect from time-to-time under the Savings Plan.
-3-
<PAGE>
(4) Except as provided below, the
participant's Deferral Account shall be deemed to be invested in
accordance with his investment designations, and the Deferral Account
shall be credited with earnings (or losses) as if invested as directed
by the participant. If --
(i) the participant does not furnish
complete investment instructions, or
(ii) the investment instructions from
the participant are unclear,
then the Deferral Account shall be credited with interest compounded
and adjusted monthly, at a rate equal to the prime commercial lending
rate of The Chase Manhattan Bank, N.A. in effect at the opening of
business on the 15th day of each month (or if such day is a
non-business day, on the first business day thereafter) plus 1/2 of 1%.
The Deferral Accounts maintained pursuant to this Plan are for
bookkeeping purposes only and PECO is under no obligation to invest
such amounts.
PECO shall provide a statement to the participant not less
frequently than annually showing such information as is appropriate,
including the aggregate amount in his Deferral Account, as of a
reasonably current date.
4. Prior Deferrals. The status of prior deferrals under
individual contracts of deferred compensation shall be determined under the
respective individual contracts until the Effective Date. After the Effective
Date, in consideration of the supplemental pension benefit under Paragraph 9
below, the participant shall surrender any and all rights in amounts previously
credited for additional pension benefits under individual contracts and the
accumulated interest
-4-
<PAGE>
thereon (excluding amounts allocable for preretirement contingent annuitant
option coverage). The balance of the employee's deferred compensation (including
amounts allocable for preretirement contingent annuitant option coverage with
interest thereon) shall be credited to his or her Deferral Account. Those
employees with prior deferrals who have retired or otherwise separated from
service prior to the Effective Date shall not participate in the Deferred
Compensation Plan, and their rights shall be determined under the respective
individual contracts.
5. Distributions. If the participant's employment with PECO is
terminated for retirement, the amount standing to a participant's Deferral
Account shall be distributed to the participant commencing after the
participant's separation from service when the participant's accrued benefit
begins to be paid under PECO's Service Annuity Plan. Distributions shall be paid
monthly over 15 consecutive twelve-month periods.
Each payment shall be determined by multiplying the balance
remaining to the credit of the Deferral Account at the beginning of such
twelve-month period (including earnings or interest credited under Paragraph
3(b)) by a fraction, the numerator of which is "1" and the denominator of which
is the number of twelve-month periods (including the current period) for which
payments are yet to be made. If application of the foregoing would result in a
payment for any twelve-month period of less than $12,000 the amount payable for
such period shall be at the rate of $12,000 per twelve-month period, until the
Deferral Account is exhausted. Any unpaid balance in the Deferral Account shall
be credited with earnings or interest as provided in Paragraph 3(b). If the
participant is ineligible to receive benefits under the Service Annuity Plan,
-5-
<PAGE>
benefits will begin to be paid on or about the first business day of the month
following the later of the month the participant reaches age 65 or actually
retires.
In any calendar year prior to the calendar year in which
payments are scheduled to begin and at least ninety (90) days prior to the date
such payments are scheduled to begin, a participant may elect to receive the
amounts payable hereunder in such other manner as is acceptable to the
Committee, provided that no such election shall accelerate the commencement of
benefits, and provided further that any such election to receive periodic
installments determined by application of a formula based, in part, on
investment return assumptions may subsequently be amended irrevocably to provide
for installments thereafter in an amount equal to the lesser of (i) the initial
periodic installment received by the participant or (ii) the most recent
periodic installment received by the participant. Notwithstanding the foregoing,
however, a participant who retires from employment with PECO under any early
retirement incentive arrangement or non-recurring reduction in force (including,
but not limited to, the 1990 Special Retirement and Service Completion Plan, the
1993 Nuclear Voluntary Retirement Plan, the 1993 Nuclear Voluntary Separation
Plan, the 1993 Nuclear Involuntary Separation Plan, the 1994 Voluntary
Retirement Incentive Plan ("1994 VRIP") and the 1994 Voluntary Separation
Incentive Plan ("1994 VSIP")) may, prior to separation from service with PECO,
make a one-time irrevocable election to receive a lump sum distribution of his
or her account (or, in the case of a retirement under the 1994 VRIP or VSIP, a
distribution paid over a period of three (3) years or in such other manner as
may be acceptable to the Committee) in accordance with the terms of such
arrangement or reduction in force and, if such election is approved by PECO,
receive such a distribution upon his or her retirement. If at any time a
-6-
<PAGE>
participant's employment with PECO is terminated (other than for retirement),
unless otherwise directed by the Committee, he or she shall receive his or her
account balance (with accrued earnings or interest) in a lump sum upon
termination of employment with PECO, determined as of the date of separation
from service.
Notwithstanding the foregoing, a participant whose employment
with PECO was terminated for retirement and who is receiving installment
payments of his or her Deferral Account ("a retired participant"), or the
beneficiary of a deceased retired participant, may elect to receive 90% of the
balance of his or her Deferral Account in a lump sum. The remaining 10% of the
balance of his or her Deferral Account shall be forfeited.
6. Death Benefits. Each participant shall designate a
beneficiary or beneficiaries to receive any payments provided under Paragraphs 3
or 4 after the participant's death. The beneficiaries, and any priority or
allocation between them, shall be designated in the manner specified by the
Committee. If a participant dies before the entire balance in his or her
Deferral Account has been paid out, the remaining balance shall be paid in the
same form and number of installments as would have been the case had the
participant lived (and terminated his or her employment on the date of his or
her death, if he or she died while in the employment of PECO). If the
participant is not survived by a designated beneficiary, the participant's
beneficiary shall be the participant's spouse, if living, or otherwise, the
participant's estate. If a beneficiary survives the participant but dies before
the entire balance payable to him or her has been distributed, any remaining
balance shall be paid to the beneficiary's estate. In the absence of contrary
proof, the participant shall be deemed to have survived any designated
beneficiary. A participant may change his or her beneficiary designation under
this Paragraph at any time until
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his or her death by filing a written beneficiary designation with the Company,
in the manner specified by the Committee.
7. Financial Hardship. The Committee may, in its discretion,
direct that a participant be paid an amount in cash (not in excess of the
balance of his or her Deferral Account) sufficient to meet a financial hardship.
Financial hardship shall mean (a) medical care for the participant, a member of
his or her family, or any other person for whom the participant wishes or is
legally required to provide such care; (b) education costs for a participant,
spouse or child; (c) acquiring, constructing or renovating the participant's
principal residence; or (d) other similar substantial and nonrecurring expenses
for the welfare of the participant and his or her dependents, as the Committee
shall determine in its sole discretion. To preserve the tax benefits of the
deferral program, the Committee may require evidence of financial hardship.
8. No Assignment or Alienation of Benefits. Except as
hereinafter provided with respect to marital disputes, a participant's Deferral
Account may not be voluntarily or involuntarily assigned or alienated. In cases
of marital dispute, PECO will observe the terms of the Plan unless and until
ordered to do otherwise by a state or Federal court. As a condition of
participation, a participant agrees to hold PECO harmless from any claim that
arises out of PECO's obeying the final order of any state or Federal court,
whether such order effects a judgment of such court or is issued to enforce a
judgment or order of another court.
9. Supplemental Pension Benefit.
(a) PECO will supplement a participant's monthly pension or
preretirement death benefit payable under the Service Annuity Plan by the amount
which is the difference, if any, between such pension or preretirement death
benefit and the monthly pension
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or preretirement death benefit which would have been payable under the Service
Annuity Plan as if: (i) the provisions of that Plan were administered without
regard to the maximum benefit limitations or the maximum compensation
limitations imposed under the Internal Revenue Code of 1986, as amended; (ii)
for purposes of calculating the participant's benefit under Section 3.1(a) (the
"2% accrued" formula), the participant's salary includes in the year payable
(whether or not deferred) the amount of any award under PECO's Management
Incentive Compensation Plan or the prior Incentive Compensation Plan; (iii) for
purposes of calculating the participant's benefit under Section 3.1(b) (the
"minimum" formula), the participant's annual base salary includes the amount of
any award under PECO's Management Incentive Compensation Plan, whether paid
currently or deferred, and in either case imputed ratably over the months worked
by the participant in the year earned; and (iv) for purposes of both benefit
formulas under the Service Annuity Plan, the participant's salary had not been
reduced (whether before or after the Effective Date) in connection with a
deferral of cash compensation. In addition, for any participant whose
compensation is established by the Board, such supplemental benefit will also
reflect the following adjustment: for purposes of calculating the participant's
benefit under Section 3.1(b) (the "minimum" formula), the participant's annual
base salary shall include the amount of any award under PECO's prior Incentive
Compensation Plan, whether paid currently or deferred, and in either case
imputed ratably over the months worked by the participant in the year earned.
Except as otherwise determined by the Committee, or as otherwise elected by the
participant under this Paragraph, supplemental pension and death benefits will
be in the same form and paid to the employee (or on his or her behalf, to his or
her beneficiaries) in the same manner as payment of retirement and death
benefits under the Service Annuity Plan. This supplement shall
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also reflect to the appropriate extent any post-retirement benefit increases
with respect to benefits under the Service Annuity Plan.
(b) (1) In any calendar year before the year of
retirement but in no event less than ninety days prior to retirement, a
participant, while employed by PECO, may elect to receive the present
value of all or a portion (in increments of 25%) of the supplemental
retirement benefit payable to the participant under Paragraph 9(a) in a
lump sum at retirement; provided, however, that no such election shall
accelerate the commencement of benefits. Notwithstanding the foregoing,
however, a participant who retires from employment with PECO under any
early retirement incentive arrangement or non-recurring reduction in
force (including, but not limited to, the 1990 Special Retirement and
Service Completion Plan, the 1993 Nuclear Voluntary Retirement
Incentive Plan, the 1993 Nuclear Voluntary Separation Plan, the 1993
Nuclear Involuntary Separation Plan, the 1994 Voluntary Retirement
Incentive Plan and the 1994 Voluntary Separation Incentive Plan) may,
prior to separation from service with PECO, make a one-time irrevocable
election to receive a lump sum distribution of the present value of all
or a portion of the supplemental retirement benefit payable to the
participant under Paragraph 9(a) in accordance with the terms of such
arrangement or reduction in force and, if such election is approved by
PECO, receive such a distribution upon his or her retirement.
(2) The present value of amounts payable in a
lump sum pursuant to this Paragraph 9(b) will be actuarially determined
by discounting the expected stream of annuity payments (based upon the
life expectancy of the participant and, if
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applicable, the life expectancy of the participant's beneficiary as
provided under the Contingent Annuity Option of the PECO Service
Annuity Plan, determined as of the date of payment under the mortality
table used in the most recent actuarial analysis of the PECO Service
Annuity Plan) at a rate equivalent to the Pension Benefit Guaranty
Corporation (PBGC) Immediate Annuity Rate in effect on January 1 of the
year of retirement; provided, however, that a lump sum payable pursuant
to a lump sum election made prior to June 1, 1993 (even if such
election was later modified to apply to a lesser portion of the amount
payable) shall be valued using the PBGC Immediate Annuity Rate in
effect during the month in which the election is made, if the use of
such rate would result in a larger lump sum payment. Such calculation
shall reflect the Contingent Annuity Option benefit under the PECO
Service Annuity Plan if the participant otherwise satisfies the
conditions for that benefit, but shall not reflect any possible
post-retirement benefit increases; provided, however, that, if the
participant's Contingent Annuity Option election under the PECO Service
Annuity Plan is not irrevocable at the time the lump sum payment is
made hereunder, the participant will receive an initial lump sum
payment reflecting the Contingent Annuity Option resulting in the
smallest lump sum payment from the Deferred Compensation Plan and, at
age 65 (or at the participant's death, if earlier), a payment will be
made to the participant (or his or her beneficiary) equal to the
balance due the participant (which shall be the present value of the
difference between the value of the total pension payable to the
participant or beneficiary at such time over the sum of the value of
benefits payable to the participant or beneficiary under the Service
Annuity Plan and the lump sum previously paid, taking into account the
Contingent
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Annuity Option then in effect, the Contingent Annuity Option in effect
between retirement and age 65, and increases in benefit payable under
the Service Annuity Plan due to adjustment of Internal Revenue Code
limitations, and reflecting the interest rate used to calculate the
prior lump sum). The specific calculation methodology and manner of
payment, which will be made in a manner acceptable to the Committee,
will be applied in a uniform, non-discriminatory fashion. An election
made pursuant to Paragraph 9(b)(1), once made, shall be irrevocable;
provided, however, that a participant who made an election prior to
June 1, 1993 to receive the entire supplemental retirement benefit
payable to the participant hereunder in a lump sum may, while employed
by PECO, make one subsequent election on or after June 1, 1993 to
receive less than the full benefit in a lump sum, subject to the timing
limitations described in Paragraph 9(b)(1).
(c) (1) A participant may elect to have supplemental
death benefits under Paragraph 9(a) paid to such beneficiary or
beneficiaries as the participant may designate in writing, in the
manner specified by the Committee. A change in beneficiary designation
may be made at any time until the participant's death, notwithstanding
that the form and amount of the benefit may be fixed upon the
participant's termination of employment with PECO. In the absence of a
written beneficiary designation, death benefits will be paid to the
beneficiary or beneficiaries entitled to the participant's survivor and
death benefits under the Service Annuity Plan.
(2) Should a participant who has made a lump sum
election as described in Paragraph 9(b)(1) prior to June 1, 1993 die
between the time such election is made and the date payments are
scheduled to begin, the present value of supplemental
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death benefits payable to the participant's beneficiary under Paragraph
9(a) shall be paid in a lump sum to the participant's beneficiary as
soon as administratively practicable following the participant's death;
provided, however, that the participant has not made a contrary
election pursuant to the following sentence. In accordance with
procedures prescribed by the Committee, a participant (including a
participant described in the preceding sentence), while employed by
PECO, may elect, or revoke or change a prior election, to have the
present value of all or a portion of the supplemental death benefits
payable to the participant's beneficiary under Paragraph 9(a) paid to
the beneficiary in a lump sum as soon as administratively practicable
following the participant's death; provided, however, that such
election, or revocation or change, will not be effective unless made in
any calendar year prior to the year in which the participant dies and
at least ninety (90) days prior to the date of such participant's
death.
(3) The present value of amounts payable in a lump
sum pursuant to Paragraph 9(c)(2) will be actuarially determined by
discounting the expected stream of annuity payments (based upon the
beneficiary's life expectancy determined as of the date of payment
under the mortality table used in the most recent actuarial analysis of
the PECO Service Annuity Plan) at a rate equivalent to the Pension
Benefit Guaranty Corporation (PBGC) Immediate Annuity Rate in effect on
January 1 of the year of the participant's death; provided, however,
that a lump sum payable to the beneficiary of a participant who made a
lump sum election under this Paragraph 9 prior to June 1, 1993 (even if
such election was later modified, or revoked and reinstated, with
respect to the participant's beneficiary) shall be valued using the
PBGC Immediate Annuity Rate in
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effect during the month such election was made, if the use of such rate
would result in a larger lump sum payment
10. Participation in Management Group Deferred Compensation
Plan. A participant in the Company's Management Group Deferred Compensation Plan
who becomes eligible to participate in the Deferred Compensation Plan shall
cease to participate in the Management Group Deferred Compensation Plan, and all
benefits payable to the participant with respect to either plan shall be
provided under the Deferred Compensation Plan. The participant shall be credited
with a Deferral Account under the Deferred Compensation Plan equal to the value
of his or her Deferral Account under the Management Group Deferred Compensation
Plan, and the participant's supplemental pension benefit (if any) shall be
determined as though the employee had participated in the Deferred Compensation
Plan during the period he or she was a participant in the Management Group
Deferred Compensation Plan. The Committee shall establish such rules and
regulations with respect to transferred participants as it deems appropriate to
assure that any participant is not disadvantaged by the transfer.
11. Amendment or Discontinuance. The Deferred Compensation
Plan may be altered, amended, suspended, or terminated at any time by the Board,
provided that no such action shall result in the distribution of amounts
credited to the Deferral Accounts of all participants in any manner than is
otherwise provided in this Plan, nor shall such action reduce the availability
of amounts previously deferred. The rules relating to distribution may be
generally altered or specifically waived by the Committee in its sole
discretion, but no such action shall reduce the availability of amounts
previously deferred unless it is necessary to do so to preserve the tax deferral
on amounts deferred.
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12. No Right to Continued Employment. The Deferred
Compensation Plan shall not confer upon any person any right to be continued in
the employment of PECO.
13. Governing Law. The Deferred Compensation Plan shall be
governed by the law of the Commonwealth of Pennsylvania.
APPENDIX A
WHEREAS, Edward G. Bauer, Jr. (Bauer) and William F. Thompson
(Thompson) were each awarded supplemental pension credits by Board resolution to
reflect prior service;
WHEREAS, the Company has been advised that such supplemental
pension benefits cannot be paid under the Service Annuity Plan, but may be paid
under the Company's Deferred Compensation and Supplemental Pension Benefit Plan.
NOW, THEREFORE, be it resolved that the Company shall
supplement the monthly pension or preretirement death benefit payable under the
Service Annuity Plan to Bauer and Thompson or their beneficiaries as follows.
The amount of the supplement payable to each shall be the difference, if any,
between such pension or preretirement death benefit and the monthly pension or
preretirement death benefit which would have been payable to him under the
Service Annuity Plan if, in the case of Bauer seven additional years, and in the
case of Thompson, six additional years, of past service credits had been
credited thereunder and were used to calculate his benefits. This supplement
shall be paid under the Company's Deferred Compensation and Supplemental Pension
Benefit Plan (the "Deferred Compensation Plan"), and shall also reflect to the
appropriate extent any post-retirement benefit increases granted with
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<PAGE>
respect to benefits under the Service Annuity Plan. Supplemental pension and
death benefits will be paid in the same form to Bauer and Thompson (or on their
behalf, to their beneficiaries) in the same manner as payment of retirement and
death benefits under the Service Annuity Plan, except the Committee which
administers the Deferred Compensation Plan may, in its sole discretion,
accelerate the payment of benefits to a beneficiary.
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APPENDIX C
WHEREAS, the Company has committed to grant Corbin A. McNeill,
Jr. supplemental service credit for purposes of determining his pension amount
as part of the consideration for his accepting employment with the Company, and
WHEREAS, the Company desires that the benefit resulting from
such service credit be paid under the Company's Deferred Compensation and
Supplemental Pension Benefit Plan (the "Deferred Compensation Plan").
NOW, THEREFORE, be it resolved, that the Deferred Compensation
Plan is hereby amended with respect to Mr. McNeill to provide the following:
1. If Mr. McNeill's employment with the Company terminates
after he has nonforfeitable rights to a pension payable under the Service
Annuity Plan, the Company will supplement Mr. McNeill's pension or, in the case
of a pre-retirement death benefit, Mr. McNeill's beneficiary's pension, by the
additional amount which would be payable under the Service Annuity Plan if Mr.
McNeill's service for purposes of calculating benefits is increased by twenty
additional years.
2. Payments authorized under this Resolution shall be in the
form and manner provided under Paragraph 9 of the Deferred Compensation Plan,
including any post-retirement benefit increases and settlement options otherwise
applicable to payments thereunder.
3. In all other respects, the Deferred Compensation Plan shall
remain in full force and effect as to Mr. McNeill.
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APPENDIX D
WHEREAS, the Company is committed to grant Joseph A. Carter
and James W. Durham supplemental service credit for purposes of determining each
of their pension amount as part of the consideration for each of their accepting
employment with the Company, and
WHEREAS, the Company desires that the benefits resulting from
such service credit be paid under the Company's Deferred Compensation and
Supplemental Pension Benefit Plan (the "Deferred Compensation Plan").
NOW, THEREFORE, be it resolved, that the Deferred Compensation
Plan is hereby amended with respect to Mr. Carter and Mr. Durham to provide the
following:
1. If the employment of Mr. Carter or Mr. Durham with the
Company terminates after he has nonforfeitable rights to a pension payable under
the Service Annuity Plan, the Company will supplement the individual's pension
or, in the case of the pre-retirement death benefit, the individual's
beneficiary pension, by the additional amount which would be payable under the
Service Annuity Plan if the individual's service for purposes of calculating
benefits were supplemented by an additional year of service for each completed
year of service, to a maximum of 10 additional years of service.
2. Payments authorized under this resolution shall be in the
form and manner provided under Paragraph 9 of the Deferred Compensation Plan,
including any post-retirement benefit increases and settlement options otherwise
applicable to payments thereunder.
3. In all other respects, the Deferred Compensation Plan shall
remain in full force and effect as to Mr. Carter and Mr. Durham.
D-1
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APPENDIX E
WHEREAS, the Company is committed to grant William J. Kaschub
and Gwendolyn S. King supplemental service credit for purposes of determining
each of their pension amounts as part of the consideration for each of their
accepting employment with the Company, and
WHEREAS, the Company desires that the benefits resulting from
such service credit be paid under the Company's Deferred Compensation and
Supplemental Pension Benefit Plan (the "Deferred Compensation Plan").
NOW, THEREFORE, be it resolved, that the Deferred Compensation
Plan is hereby amended with respect to Mr. Kaschub and Ms. King to provide the
following:
1. If the employment of Mr. Kaschub or Ms. King with the
Company terminates after the individual has nonforfeitable rights to a pension
payable under the Service Annuity Plan, the Company will supplement the
individual's pension or, in the case of the pre-retirement death benefit, the
pension of the individual's beneficiary, by the additional amount which would be
payable under the Service Annuity Plan if the individual's service for purposes
of calculating benefits were supplemented by an additional year of service for
each completed year of service, to a maximum of 10 additional years of service.
2. Payments authorized under this resolution shall be in the
form and manner provided under Paragraph 9 of the Deferred Compensation Plan,
including any post-retirement benefit increases and settlement options otherwise
applicable to payments thereunder.
3. In all other respects, the Deferred Compensation Plan shall
remain in full force and effect as to Mr. Kaschub and Ms. King.
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APPENDIX F
WHEREAS, the Company has committed to grant William L. Bardeen
supplemental service credit for purposes of determining his pension amount as
part of the consideration for his accepting employment with the Company, and
WHEREAS, the Company desires that the benefit resulting from
such service credit be paid under the Company's Deferred Compensation and
Supplemental Pension Benefit Plan (the "Deferred Compensation Plan").
NOW, THEREFORE, be it resolved, that the Deferred Compensation
Plan is hereby amended with respect to Mr. Bardeen to provide the following:
1. If Mr. Bardeen's employment with the Company terminates
after he has nonforfeitable rights to a pension payable under the Service
Annuity Plan, the Company will supplement Mr. Bardeen's pension or, in the case
of a pre-retirement death benefit, the pension of Mr. Bardeen's beneficiary, by
the additional amount which would be payable under the Service Annuity Plan if
Mr. Bardeen's service for purposes of calculating benefits is increased by
twenty additional years.
2. Payments authorized under this Resolution shall be in the
form and manner provided under Paragraph 9 of the Deferred Compensation Plan,
including any post-retirement benefit increases and settlement options otherwise
applicable to payments thereunder.
3. In all other respects, the Deferred Compensation Plan shall
remain in full force and effect as to Mr. Bardeen.
F-1
Exhibit 10-5
PECO Energy Company
Management Group Deferred Compensation and
Supplemental Pension Benefit Plan
(Effective Date: June 1, 1988)
(As Amended Through February 23, 1998)
The purposes of this plan are to permit the total pension of
certain management employees of PECO Energy Company ("PECO") and to offset the
impact of deferrals under the PECO Management Incentive Compensation Plan on the
pensions of participating employees, and to provide uniform rules and
regulations of plan administration.
PECO therefore adopts the following Management Group Deferred
Compensation and Supplemental Pension Benefit Plan (the "Management Group
Deferred Compensation Plan" or the "Plan"):
1. Administration. This Management Group Deferred Compensation
Plan shall be administered by the Vice President - Finance and Accounting of
PECO (the "Administrator") or such other individual or individuals as may be
designated by the Board of Directors of PECO (the "Board"). The Administrator
shall interpret the Management Group Deferred Compensation Plan, make factual
determinations, and establish such rules and regulations of plan administration
that he deems appropriate. The Administrator's decisions with respect to the
construction, administration and interpretation of the Plan shall be conclusive
and binding, unless otherwise determined by the Board. The cost of the plan
administration shall be paid by PECO, and shall not be charged against the
deferred accounts of Plan participants.
<PAGE>
2. Eligibility. Eligibility under the Management Group
Deferred Compensation Plan is restricted to key management employees who are
eligible to participate in the PECO Management Incentive Compensation Plan, but
who are not eligible to participate in the Company's previously adopted Deferred
Compensation Plan.
3. Deferrals.
(a) Each eligible employee may elect in writing to
receive all or a portion of his or her future awards under the PECO Management
Incentive Compensation Plan as deferred compensation, subject to such rules and
procedures as the Administrator deems appropriate. Each such election shall be
made prior to the end of the calendar year with respect to which the award is
calculated. Effective November 25, 1996, each eligible employee may elect in
writing to receive all or a portion (in increments of 1%) of the lump sum
payment pursuant to Paragraph 8(b)(1) below, as deferred compensation, provided
each such election is made prior to the calendar year in which payments are
scheduled to begin and at least ninety (90) days prior to the date such payments
are scheduled to begin.
Deferred amounts shall be credited to a deferral account in
the participant's name ("Deferral Account") for later distribution. Each
participant's Deferral Account shall be a bookkeeping entry only, and PECO shall
not be required to fund the Deferral Account. Any assets that may be held by
PECO to fund a Deferral Account shall at all times remain unrestricted assets of
PECO in its corporate capacity and not as fiduciary, and shall be subject to the
claims of PECO's general creditors. Pending distribution, each participant's
Deferral Account shall be credited with earnings or interest as provide in
Paragraph 3(b).
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(b) (1) For purposes of measuring the earnings or
losses credited to his Deferral Account, the participant may select,
from among the investment vehicles available from time to time under
the PECO Energy Company Employee Savings Plan (the "Savings Plan"), the
investment media in which all or part of his Deferral Account shall be
deemed to be invested.
(2) The participant shall make an investment
designation in the form and manner prescribed by the Committee or its
designee, which shall remain effective until another valid designation
has been made by the participant as herein provided. The participant
may amend his investment designation at such times and in such manner
as prescribed by the Committee or its designee. A timely change to the
participant's investment designation shall become effective as soon as
administratively practicable.
(3) The investment media deemed to be made
available to the participant, and any limitation on the maximum or
minimum percentages of the participant's Deferral Account that may be
deemed to be invested in any particular medium, shall be the same as
available or in effect from time-to-time under the Savings Plan.
(4) Except as provided below, the participant's
Deferral Account shall be deemed to be invested in accordance with his
investment designations, and the Deferral Account shall be credited
with earnings (or losses) as if invested as directed by the
participant. If --
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(i) the participant does not furnish
complete investment instructions, or
(ii) the investment instructions from the
participant are unclear, then the Deferral Account shall be
credited with interest compounded and adjusted monthly, at a
rate equal to the prime commercial lending rate of The Chase
Manhattan Bank, N.A. in effect at the opening of business on
the 15th day of each month (or if such day is a non-business
day, on the first business day thereafter) plus 1/2 of 1%. The
Deferral Accounts maintained pursuant to this Plan are for
bookkeeping purposes only and PECO is under no obligation to
invest such amounts.
PECO shall provide a statement to the participant not less
frequently than annually showing such information as is appropriate, including
the aggregate amount in his Deferral Account, as of a reasonably current date.
4. Distributions. If the participant's employment with PECO is
terminated for retirement, the amount standing to a participant's Deferral
Account shall be distributed to the participant commencing after the
participant's separation from service when the participant's accrued benefit
begins to be paid under PECO's Service Annuity Plan. Distributions shall be paid
monthly over 15 consecutive twelve-month periods.
Each payment shall be determined by multiplying the balance
remaining to the credit of the Deferral Account at the beginning of such
twelve-month period (including earnings or interest credited under Paragraph
3(b)) by a fraction, the numerator of which is "1" and the denominator of which
is the number of twelve-month periods (including the current period) for
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which payments are yet to be made. If application of the foregoing would result
in a payment for any twelve-month period of less than $12,000 the amount payable
for such period shall be at the rate of $12,000 per twelve-month period, until
the Deferral Account is exhausted. Any unpaid balance in the Deferral Account
shall be credited with earnings or interest as provided in Paragraph 3(b).
In any calendar year prior to the calendar year in which
payments are scheduled to begin and at least ninety (90) days prior to the date
such payments are scheduled to begin, a participant may elect to receive the
amounts payable hereunder in such other manner as is acceptable to the
Administrator, provided that no such election shall accelerate the commencement
of benefits, and provided further that any such election to receive periodic
installments determined by application of a formula based, in part, on
investment return assumptions may subsequently be amended irrevocably to provide
for installments thereafter in an amount equal to the lesser of (i) the initial
periodic installment received by the participant or (ii) the most recent
periodic installment received by the participant.
Notwithstanding the foregoing, however, a participant who
retires from employment with PECO under any early retirement incentive
arrangement or non-recurring reduction in force (including, but not limited to,
the 1990 Special Retirement and Service Completion Plan, the 1993 Nuclear
Voluntary Retirement Incentive Plan, the 1993 Nuclear Voluntary Separation Plan,
the 1993 Nuclear Involuntary Separation Plan, the 1994 Voluntary Retirement
Incentive Plan ("1994 VRIP"), and the 1994 Voluntary Separation Incentive Plan
("1994 VSIP")) may, prior to separation from service with PECO, make a one-time
irrevocable election to receive a lump-sum distribution of his or her account
(or, in the case of a retirement
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under the 1994 VRIP or VSIP, a distribution paid over a period of three (3)
years or in such other manner as may be acceptable to the Administrator) in
accordance with the terms of such arrangement or reduction in force and, if such
election is approved by PECO, receive such a distribution upon his or her
retirement.
If at any time a participant's employment with PECO is
terminated other than for retirement, unless otherwise directed by the
Administrator, he or she shall receive his or her account balance (with accrued
earnings or interest) in a lump sum upon termination of employment with PECO,
determined as of the date of separation from service.
Notwithstanding the foregoing, a participant whose employment
with PECO was terminated for retirement and who is receiving installment
payments of his or her Deferral Account ("a retired participant"), or the
beneficiary of a deceased retired participant, may elect to receive 90% of the
balance of his or her Deferral Account in a lump sum. The remaining 10% of the
balance of his or her Deferral Account shall be forfeited.
5. Death Benefits. Each participant shall designate a
beneficiary or beneficiaries to receive any payments under Paragraph 4 after the
participant's death. The beneficiaries, and any priority or allocation between
them, shall be designated in the manner specified by the Administrator. If a
participant dies before the entire balance in his or her Deferral Account has
been paid out, the remaining balance shall be paid in the same form and number
of installments as would have been the case had the participant lived (and
terminated his or her employment on the date of his or her death, if he or she
died while in the employment of PECO). If the participant is not survived by a
designated beneficiary, the participant's
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beneficiary shall be the participant's spouse, if living, or otherwise, the
participant's estate. If a beneficiary survives the participant but dies before
the entire balance payable to him or her has been distributed, any remaining
balance shall be paid to the beneficiary's estate. In the absence of contrary
proof, the participant shall be deemed to have survived any designated
beneficiary.
A participant may change his or her beneficiary designation
under this Paragraph at any time until his or her death by filing a written
beneficiary designation with the Company, in the manner specified by the
Administrator.
6. Financial Hardship. The Administrator may, in his
discretion, direct that a participant be paid an amount in cash (not in excess
of the balance of his or her Deferral Account) sufficient to meet a financial
hardship. Financial hardship shall mean (a) medical care for the participant, a
member of his or her family, or any other person for whom the participant wishes
or is legally required to provide such care; (b) education costs for a
participant, spouse or child; (c) acquiring, constructing or renovating the
participant's principal residence; or (d) other similar substantial and
nonrecurring expenses for the welfare of the participant and his or her
dependents, as the Administrator shall determine in his sole discretion. To
preserve the tax benefits of the deferral program, the Administrator may require
evidence of financial hardship.
7. No Assignment or Alienation of Benefits. Except as
hereinafter provided with respect to marital disputes, a participant's Deferral
Account may not be voluntarily or involuntarily assigned or alienated. In cases
of marital dispute, PECO will observe the terms of the Plan unless and until
ordered to do otherwise by a state or Federal court. As a condition of
participation, a participant agrees to hold PECO harmless from any claim that
arises out of
-7-
<PAGE>
PECO's obeying the final order of any state or Federal court, whether such order
effects a judgment of such court or is issued to enforce a judgment or order of
another court.
8. Supplemental Pension Benefit.
(a) PECO will supplement a participant's monthly pension
or preretirement death benefit payable under the Service Annuity Plan by the
amount which is the difference, if any, between such pension or preretirement
death benefit and the monthly pension or preretirement death benefit which would
have been payable under the Service Annuity Plan as if: (i) the provisions of
that Plan were administered without regard to the maximum benefit limitations or
the maximum compensation limitations imposed under the Internal Revenue Code of
1986, as amended; (ii) for purposes of calculating the participant's benefit
under Section 3.1(a) (the "2% accrued" formula), the participant's salary
includes in the year payable (whether or not deferred) the amount of any award
under PECO's Management Incentive Compensation Plan; and (iii) for purposes of
calculating the participant's benefit under Section 3.1(b) (the "minimum"
formula), the participant's annual base salary includes the amount of any award
under PECO's Management Incentive Compensation Plan, whether paid currently or
deferred, and in either case imputed ratably over the months worked by the
participant in the year earned. Except as otherwise determined by the
Administrator, or as otherwise elected by the participant under this Paragraph,
supplemental pension and death benefits will be in the same form and paid to the
employee (or on his or her behalf, to his or her beneficiaries) in the same
manner as payment of retirement and death benefits under the Service Annuity
Plan. This supplement shall also reflect to the appropriate extent any
post-retirement benefit increases with respect to benefits under the Service
Annuity Plan.
-8-
<PAGE>
(b) (1) In any calendar year before the year of
retirement but in no event less than ninety days prior to retirement, a
participant, while employed by PECO, may elect to receive the present
value of all or a portion (in increments of 25%) of the supplemental
retirement benefit payable to the participant under Paragraph 8(a) in a
lump sum at retirement; provided, however, that no such election shall
accelerate the commencement of benefits. Notwithstanding the foregoing,
however, a participant who retires from employment with PECO under any
early retirement incentive arrangement or non-recurring reduction in
force (including, but not limited to, the 1990 Special Retirement and
Service Completion Plan, the 1993 Nuclear Voluntary Retirement
Incentive Plan, the 1993 Nuclear Voluntary Separation Plan, the 1993
Nuclear Involuntary Separation Plan, the 1994 Voluntary Retirement
Incentive Plan and the 1994 Voluntary Separation Incentive Plan) may,
prior to separation from service with PECO, make a one-time irrevocable
election to receive a lump-sum distribution of the present value of all
or a portion of the supplemental retirement benefit payable to the
participant under Paragraph 8(a) in accordance with the terms of such
arrangement or reduction in force and, if such election is approved by
PECO, receive such a distribution upon his or her retirement.
(2) The present value of amounts payable in a lump sum
pursuant to this Paragraph 8(b) will be actuarially determined by
discounting the expected stream of annuity payments (based upon the
life expectancy of the participant and, if applicable, the life
expectancy of the participant's beneficiary as provided under the
Contingent Annuity Option of the PECO Service Annuity Plan, determined
as of the date
-9-
<PAGE>
of payment under the mortality table used in the most recent actuarial
analysis of the PECO Service Annuity Plan) at a rate equivalent to the
Pension Benefit Guaranty Corporation (PBGC) Immediate Annuity Rate in
effect on January 1 of the year of retirement; provided, however, that
a lump sum payable pursuant to a lump sum election made prior to June
1, 1993 (even if such election was later modified to apply to a lesser
portion of the amount payable) shall be valued using the PBGC Immediate
Annuity Rate in effect during the month in which the election was made,
if the use of such rate would result in a larger lump sum payment. Such
calculation shall reflect the Contingent Annuity Option benefit under
the PECO Service Annuity Plan if the participant otherwise satisfies
the conditions for that benefit, but shall not reflect any possible
post-retirement benefit increases; provided, however, that, if the
participant's Contingent Annuity Option election under the PECO Service
Annuity Plan is not irrevocable at the time the lump sum payment is
made hereunder, the participant will receive an initial lump sum
payment reflecting the Contingent Annuity Option resulting in the
smallest lump sum payment from the Management Group Deferred
Compensation Plan and, at age 65 (or at the participant's death, if
earlier), a payment will be made to the participant (or his or her
beneficiary) equal to the balance due the participant (which shall be
the present value of the difference between the value of the total
pension payable to the participant or beneficiary at such time over the
sum of the value of benefits payable to the participant or beneficiary
under the Service Annuity Plan and the lump sum previously paid, taking
into account the Contingent Annuity Option then in effect, the
Contingent Annuity Option in effect between retirement and age 65, and
increases in benefits payable under the Service
-10-
<PAGE>
Annuity Plan due to adjustment of Internal Revenue Code limitations,
and reflecting the interest rate used to calculate the prior lump sum).
The specific calculation methodology and manner of payment, which will
be made in a manner acceptable to the Administrator, will be applied in
a uniform, non-discriminatory fashion. An election made pursuant to
Paragraph 8(b)(1), once made, shall be irrevocable; provided, however,
that a participant who made an election prior to June 1, 1993 to
receive the entire supplemental retirement benefit payable to the
participant hereunder in a lump sum may, while employed by PECO, make
one subsequent election on or after June 1, 1993 to receive less than
the full benefit in a lump sum, subject to the timing limitations
described in Paragraph 8(b)(1).
(c) (1) A participant may elect to have supplemental
death benefits under Paragraph 8(a) paid to such beneficiary or
beneficiaries as the participant may designate in writing, in the
manner specified by the Administrator. A change in beneficiary
designation may be made at any time until the participant's death,
notwithstanding that the form and amount of the benefit may be fixed
upon the participant's termination of employment with PECO. In the
absence of a written beneficiary designation, death benefits will be
paid to the beneficiary or beneficiaries entitled to the participant's
survivor and death benefits under the Service Annuity Plan.
(2) Should a participant who has made a lump sum
election as described in Paragraph 8(b)(1) prior to June 1, 1993 die
between the time such election is made and the date payments are
scheduled to begin, the present value of supplemental death benefits
payable to the participant's beneficiary under Paragraph 8(a) shall be
paid in a lump sum to the participant's beneficiary as soon as
administratively practicable
-11-
<PAGE>
following the participant's death; provided, however, that the
participant has not made a contrary election pursuant to the following
sentence. In accordance with procedures prescribed by the
Administrator, a participant (including a participant described in the
preceding sentence), while employed by PECO, may elect, or revoke or
change a prior election, to have the present value of all or a portion
of the supplemental death benefits payable to the participant's
beneficiary under Paragraph 8(a) paid to the beneficiary in a lump sum
as soon as administratively practicable following the participant's
death; provided, however, that such election, or revocation or change,
will not be effective unless made in the calendar year prior to the
calendar year in which payments are scheduled to begin and at least
ninety (90) days prior to the date such payments are scheduled to
begin.
(3) The present value of amounts payable in a
lump sum pursuant to Paragraph 8(c)(2) will be actuarially determined
by discounting the expected stream of annuity payments (based upon the
beneficiary's life expectancy determined as of the date of payment
under the mortality table used in the most recent actuarial analysis of
the PECO Service Annuity Plan) at a rate equivalent to the Pension
Benefit Guaranty Corporation (PBGC) Immediate Annuity Rate in effect on
January 1 of the year of the participant's death; provided, however,
that a lump sum payable to the beneficiary of a participant who made a
lump sum election under this Paragraph 8 prior to June 1, 1993 (even if
such election was later modified, or revoked and reinstated, with
respect to the participant's beneficiary) shall be valued using the
PBGC Immediate Annuity Rate in
-12-
<PAGE>
effect during the month such election was made, if the use of such rate
would result in a larger lump sum payment.
9. Participation in Deferred Compensation Plan. A participant
in the Management Group Deferred Compensation Plan who becomes eligible to
participate in the Company's Deferred Compensation Plan shall cease to
participate in the Management Group Deferred Compensation Plan, and all benefits
payable to the participant with respect to either plan shall be provided under
the Deferred Compensation Plan. The participant shall be credited with a
Deferral Account under the Deferred Compensation Plan equal to the value of his
or her Deferral Account under the Management Group Deferred Compensation Plan,
and the participant's supplemental pension benefit (if any) shall be determined
as though the employee had participated in the Deferred Compensation Plan during
the period he or she was a participant in the Management Group Deferred
Compensation Plan.
10. Amendment or Discontinuance. The Management Group Deferred
Compensation Plan may be altered, amended, suspended, or terminated at any time
by the Board, provided that no such action shall result in the distribution of
amounts credited to the Deferral Accounts of all participants in any manner than
is otherwise provided in this Plan, nor shall such action reduce the
availability of amounts previously deferred. The rules relating to distribution
may be generally altered or specifically waived by the Administrator in his sole
discretion, but no such action shall reduce the availability of amounts
previously deferred unless it is necessary to do so to preserve the tax deferral
on amounts deferred.
-13-
<PAGE>
11. No Right to Continued Employment. The Management Group
Deferred Compensation Plan shall not confer upon any person any right to be
continued in the employment of PECO.
12. Governing Law. The Management Group Deferred Compensation
Plan shall be governed by the law of the Commonwealth of Pennsylvania.
-14-
Exhibit 10-6
PECO Energy Company
Unfunded Deferred Compensation Plan for Directors
(Effective Date: April 1, 1983)
(As Amended through February 23, 1998)
The purpose of this plan is to permit Directors of PECO Energy
Company ("PECO") to elect to defer receipt of directors' fees. To carry out this
purpose PECO therefore adopts the following plan of Deferred Compensation for
Directors (the "Deferred Compensation Plan for Directors" or the "Plan"):
1. Administration. The Deferred Compensation Plan for Directors shall
be administered by the Treasurer of PECO (the "Treasurer"), or such other
individual or individuals as designated by the Board of Directors of PECO (the
"Board"). The Treasurer shall interpret the Deferred Compensation Plan and
establish such rules and regulations of plan administration that he deems
appropriate. The cost of plan administration shall be paid by PECO, and shall
not be charged against the deferred accounts of Plan participants.
2. Eligibility. All Directors of PECO (other than full-time employees
of PECO) shall be eligible to participate in the Deferred Compensation Plan for
Directors.
3. Deferrals. (a) Effective April 1, 1983 (the "Effective Date"), each
eligible Director may elect in writing to receive a portion of his or her future
directors' fees as deferred compensation, by filing a written Director's
Deferral Agreement form with the Treasurer. In all events, each such election
shall be made prior to the period with respect to which the fees are earned or
otherwise payable. Deferred amounts shall be credited to a deferral account in
the participant's name ("Deferral Account") for later distribution. Each
participant's Deferral Account
<PAGE>
shall be a bookkeeping entry only, and PECO shall not be required to fund the
Deferral Account. Any assets that may be held by PECO to fund a Deferral Account
shall at all times remain unrestricted assets of PECO in its corporate capacity
and not as fiduciary, and shall be subject to the claims of PECO's general
creditors. Pending distribution, after the Effective Date each participant's
Deferral Account shall be credited with earnings or interest as provided in
Paragraph 3(b).
(b) (1) For purposes of measuring the earnings or losses
credited to his Deferral Account, the participant may select, from
among the investment vehicles available from time to time under the
PECO Energy Company Employee Savings Plan (the "Savings Plan"), the
investment media in which all or part of his Deferral Account shall be
deemed to be invested.
(2) The participant shall make an investment
designation in the form and manner prescribed by the Committee or its
designee, which shall remain effective until another valid designation
has been made by the participant as herein provided. The participant
may amend his investment designation at such times and in such manner
as prescribed by the Committee or its designee. A timely change to the
participant's investment designation shall become effective as soon as
administratively practicable.
(3) The investment media deemed to be made available
to the participant, and any limitation on the maximum or minimum
percentages of the participant's Deferral Account that may be deemed to
be invested in any particular medium, shall be the same as available or
in effect from time-to-time under the Savings Plan.
(4) Except as provided below, the participant's
Deferral Account shall be deemed to be invested in accordance with his
investment designations, and the Deferral Account shall be credited
with earnings (or losses) as if invested as directed by the
participant. If --
2
<PAGE>
(i) the participant does not furnish complete
investment instructions, or
(ii) the investment instructions from the
participant are unclear, then the Deferral Account shall be credited
with interest compounded and adjusted monthly, at a rate equal to the
prime commercial lending rate of The Chase Manhattan Bank, N.A. in
effect at the opening of business on the 15th day of each month (or if
such day is a non-business day, on the first business day thereafter)
plus 1/2 of 1%. The Deferral Accounts maintained pursuant to this Plan
are for bookkeeping purposes only and PECO is under no obligation to
invest such amounts.
PECO shall provide a statement to the participant not less
frequently than annually showing such information as is appropriate,
including the aggregate amount in his Deferral Account, as of a
reasonably current date.
4. Distributions. The amount standing to a participant's
Deferral Account shall be distributed to the participant as the participant
shall direct in his or her Benefit Distribution Election Form beginning with the
first day of the month following the participant's termination of service as
Director of PECO, the termination of the participant's full-time employment, or
the participant's 65th birthday. Distributions shall be paid monthly over not
more than 15 consecutive twelve-month periods.
Each payment shall be determined by multiplying the balance
remaining to the credit of the Deferral Account at the beginning of such
twelve-month period (including earnings or interest credited under Paragraph 3)
by a fraction, the numerator of which is "1" and the denominator of which is the
number of twelve month periods (including the current period) for which payments
are yet to be made. If application of the foregoing would result in a payment
for any twelve-month
3
<PAGE>
period of less than $10,000, the amount payable for such period shall be at the
rate of $10,000 per twelve-month period, until the Deferral Account is
exhausted. Any unpaid balance in the Deferral Account shall be credited with
earnings or interest as provided in Paragraph 3.
In any calendar year before payments are scheduled to begin
and at least ninety (90) days prior to the date such payments are scheduled to
begin, a participant may elect to receive the amounts payable hereunder in such
other manner as is acceptable to the Treasurer, provided that no such election
shall accelerate the commencement of benefits, and provided further that any
such election to receive periodic installments determined by application of a
formula based, in part, on investment return assumptions may subsequently be
amended irrevocably to provide for installments thereafter in an amount equal to
the lesser of (i) the initial periodic installment received by the participant
or (ii) the most recent periodic installment received by the participant.
Notwithstanding the foregoing, a participant whose service as
a Director of PECO was terminated for retirement and who is receiving
installment payments of his or her Deferral Account ("a retired participant"),
or the beneficiary of a deceased retired participant, may elect to receive 90%
of the balance of his or her Deferral Account in a lump sum. The remaining 10%
of the balance of his or her Deferral Account shall be forfeited.
5. Death Benefits. Each participant shall designate a
beneficiary or beneficiaries to receive any payments hereunder after the
participant's death. The beneficiaries, and any priority or allocation between
them, shall be designated in the manner specified by the Treasurer. If a
participant dies before the entire balance in his or her Deferral Account has
been paid out, the remaining balance shall be paid at the discretion of the
Treasurer either in installments as they would have been due to be paid to the
participant or in a lump sum to the beneficiary. If the participant is not
survived by a designated beneficiary, the participant's beneficiary shall be the
4
<PAGE>
participant's spouse, if living, or otherwise, the participant's estate. If a
beneficiary survives the participant but dies before the entire balance payable
to him or her has been distributed, any remaining balance shall be paid to the
beneficiary's estate. In the absence of contrary proof, the participant shall be
deemed to have survived any designated beneficiary. A participant may change his
beneficiary designation under this Paragraph at any time until his death by
filing a written beneficiary designation with the Treasurer, in the manner
specified by the Treasurer.
6. Financial Hardship. The Treasurer may, in his discretion,
direct that a participant be paid an amount in cash (not in excess of the
balance of his or her Deferral Account) sufficient to meet a financial hardship.
Financial hardship shall mean (a) medical care for the participant, a member of
his or her family, or any other person for whom the participant wishes or is
legally required to provide such care; (b) education costs for a participant,
spouse or child; (c) acquiring, constructing or renovating the participant's
principal residence; or (d) other similar substantial and non-recurring expenses
for the welfare of the participant and his dependents, as the Treasurer shall
determine in his sole discretion. To preserve the tax benefits of the deferral
program, the Treasurer may require evidence of financial hardship.
7. No Assignment or Alienation of Benefits. Except as
hereinafter provided with respect to marital disputes, a participant's Deferral
Account may not be voluntarily or involuntarily assigned or alienated. In cases
of marital dispute, PECO will observe the terms of the Plan unless and until
ordered to do otherwise by a state or Federal court. As a condition of
participation, a participant agrees to hold PECO harmless from any claim that
arises out of PECO's obeying the final order of any state or Federal court,
whether such order effects a judgment of such court or is issued to enforce a
judgment or order of another court.
5
<PAGE>
8. Amendment or Discontinuance. The Deferred Compensation Plan
for Directors may be altered, amended, suspended, or terminated at any time by
the Board, provided that no such action shall result in the distribution of
amounts credited to the Deferral Accounts of all participants in any manner than
is otherwise provided in this Plan, nor shall such action reduce the
availability of amounts previously deferred. The rules relating to distribution
may be generally altered or specifi cally waived by the Treasurer in his sole
discretion, but no such action shall reduce the availability of amounts
previously deferred unless it is necessary to do so to preserve the tax deferral
on amounts deferred.
9. Governing Law. The Deferred Compensation Plan for Directors
shall be governed by the law of the Commonwealth of Pennsylvania.
6
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SEC METHOD
($000)
12 Months
Ended
12/31/97
- --------------------------------------------------------------------------------
NET INCOME $336,558
ADD BACK:
- - INCOME TAXES:
OPERATING INCOME 285,343
NON-OPERATING INCOME 7,426
- --------------------------------------------------------------------------------
NET TAXES $292,769
================================================================================
- - FIXED CHARGES:
INTEREST APPLICABLE TO DEBT $359,363
ANNUAL RENTALS ESTIMATE $ 8,723
- --------------------------------------------------------------------------------
TOTAL FIXED CHARGES $368,086
================================================================================
- --------------------------------------------------------------------------------
ADJUSTED EARNINGS INCLUDING AFUDC $997,413
================================================================================
- --------------------------------------------------------------------------------
RATIO OF EARNINGS TO FIXED CHARGES 2.71
================================================================================
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
SEC METHOD
($000)
12 Months
Ended
12/31/97
- --------------------------------------------------------------------------------
NET INCOME $336,558
ADD BACK:
- - INCOME TAXES:
OPERATING INCOME 285,343
NON-OPERATING INCOME 7,426
- --------------------------------------------------------------------------------
NET TAXES $292,769
================================================================================
- - FIXED CHARGES:
TOTAL INTEREST $359,363
ANNUAL RENTALS ESTIMATE 8,723
- --------------------------------------------------------------------------------
TOTAL FIXED CHARGES $368,086
================================================================================
EARNINGS REQUIRED FOR PREFERRED DIVIDENDS:
DIVIDENDS ON PREFERRED STOCK $ 16,804
ADJUSTMENT TO PREFERRED DIVIDENDS* $ 14,618
--------
$ 31,422
================================================================================
FIXED CHARGES AND PREFERRED DIVIDENDS $399,508
================================================================================
EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES $997,413
================================================================================
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
EARNINGS REQUIRED FOR PREFERRED DIVIDENDS 2.50
================================================================================
* ADDITIONAL CHARGE EQUIVALENT TO EARNINGS REQUIRED
TO ADJUST DIVIDENDS ON PREFERRED STOCK TO A PRE-TAX BASIS
13
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
In December 1996, Pennsylvania Governor Ridge signed into law the Electricity
Generation Customer Choice and Competition Act (Competition Act) which provides
for the restructuring of the electric utility industry in Pennsylvania,
including retail competition for generation beginning in 1999.
Pursuant to the Competition Act, in April 1997, the Company filed with the
Pennsylvania Public Utility Commission (PUC) a comprehensive restructuring plan
detailing its proposal to implement full customer choice of electric generation
supplier. The Company's restructuring plan identified $7.5 billion of stranded
costs (the loss in value of the Company's electric generation-related assets,
which will result from competition). In August 1997, the Company and various
intervenors in the Company's restructuring proceeding filed with the PUC a Joint
Petition for Partial Settlement (Pennsylvania Plan).
In December 1997, the PUC rejected the Pennsylvania Plan and entered an
Opinion and Order, revised in January 1998 (PUC Restructuring Order), that
deregulates the Company's electric generation operations. The PUC Restructuring
Order authorizes the Company to recover stranded costs of $4.9 billion on a
discounted basis, or $5.3 billion on a book-value basis, over 8-1/2 years
beginning in 1999. In January 1998, the Company filed appeals of the PUC
Restructuring Order with the U.S. District Court for the Eastern District of
Pennsylvania (Eastern District Court) and the Commonwealth Court of Pennsylvania
(Commonwealth Court).
The Company believes that the PUC Restructuring Order provides sufficient
details regarding the deregulation of the Company's electric generation
operations to require the Company to discontinue the use of regulatory
accounting in its financial statements for those operations. The Company
determined that at December 31, 1997, $5.8 billion of its $7.1 billion of
electric generation assets were impaired and it had $2.6 billion of other
electric generation-related regulatory assets. Effective December 31, 1997, the
Company recorded an extraordinary charge against income of $3.1 billion ($1.8
billion net of income taxes) to reflect the amount of such electric
generation-related assets which will not be recovered from customers either
prior to the commencement of competition or under the PUC Restructuring Order.
For additional information regarding the extraordinary charge, see note 4 of
Notes to Consolidated Financial Statements.
On January 26, 1998, the Company's Board of Directors reduced the quarterly
common stock dividend from $0.45 per share to $0.25 per share, effective with
the dividend payable on March 31, 1998. The Board of Directors concluded that,
given the impact of the PUC Restructuring Order, the dividend reduction was
necessary to provide the Company with the financial flexibility needed to meet
the demands of competition. Although the Company cannot predict the ultimate
effect of the PUC Restructuring Order and competition for electric generation
services, the Company believes that its future financial condition and results
of operations will be adversely affected. See "Outlook-PUC Restructuring Order."
Discussion of Operating Results
Earnings
The Company recorded a loss per common share of $6.80 in 1997 as compared with
earnings per share of $2.24 and $2.64 in 1996 and 1995, respectively. The loss
in 1997 was primarily due to an extraordinary charge of $8.24 per share
reflecting the effects of the PUC Restructuring Order and deregulation of the
Company's electric generation operations. 1997 earnings were also reduced by
several one-time charges totaling $0.56 per share for changes in employee
benefits, write-offs of information systems development charges reflecting
clarification of accounting guidelines and additional reserves, including for
environmental site remediation; by $0.30 per share for higher depreciation
expense resulting from a full year's increase in depreciation and amortization
of assets associated with Limerick Generating Station (Limerick) and other
assets; by $0.12 per share for income tax adjustments; by $0.09 per share for
losses from new non-utility ventures; and by $0.05 per share for increased
depreciation expense due to plant additions. These decreases were partially
offset by a one-time $0.18 per share recognition of income resulting from the
settlement of litigation arising from the current outage of Salem Generating
Station (Salem); by $0.08 per share for operational efficiencies; and by higher
revenues net of fuel of $0.06 per share primarily due to increased sales to
other utilities.
The $0.40 per share decrease in 1996 earnings was primarily due to higher
Salem outage-related replacement power and maintenance costs which reduced
earnings by $0.27 per share. Earnings also decreased by $0.18 per share in 1996
due to lower electric revenues resulting from milder weather conditions compared
to 1995; by $0.12 per share due to the gain recognized in 1995 on the sale of
Conowingo Power Company (COPCO); by $0.11 per share due to higher customer
expenses; and by $0.10 per share due to the increased depreciation of assets
associated with Limerick. These decreases were partially offset by $0.18 per
share due to the Company's continuing cost control initiatives; by $0.09 per
share due to savings resulting from the Company's ongoing debt and preferred
stock refunding and refinancing program; and by $0.08 per share due to higher
revenues resulting from increased sales to other utilities.
<PAGE>
14
Significant Operating Items
<TABLE>
<CAPTION>
Revenue and Expense Items as a Percentage of Total Operating Revenues Percentage Dollar Changes
1995 1996 1997 1997-1996 1996-1995
<C> <C> <C> <S> <C> <C>
90% 90% 90% Electric 8% 2%
10% 10% 10% Gas 5% 4%
---- ---- ---- ---- -----
100% 100% 100% Total Operating Revenues 8% 2%
==== ==== ==== ==== ====
18% 23% 28% Fuel and Energy Interchange 33% 27%
30% 30% 31% Operating and Maintenance 12% 2%
11% 11% 12% Depreciation 19% 7%
8% 7% 7% Taxes Other Than Income 4% (5%)
---- ---- ---- ---- -----
67% 71% 78% Total Operating Expenses 19% 9%
==== ==== ==== ==== ====
33% 29% 22% Operating Income (19%) (11%)
==== ==== ==== ==== ====
(11%) (10%) (9%) Interest Expense (2%) (8%)
---- ---- ---- ---- -----
(9%) (9%) (8%) Total Other Income and Deductions 4% (9%)
---- ---- ---- ---- -----
24% 20% 14% Income Before Taxes and Extraordinary Item (27%) (18%)
---- ---- ---- ---- -----
10% 8% 6% Income Taxes (14%) (21%)
---- ---- ---- ---- -----
14% 12% 8% Income Before Extraordinary Item (35%) (15%)
==== ==== ==== ==== ====
</TABLE>
Operating Revenues
Total operating revenues increased in 1997 by $334 million to $4,618 million.
This represented a $312 million increase in electric revenues and a $22 million
increase in gas revenues over 1996. The increase in electric revenues was
primarily due to increased sales to other utilities. The increase in gas
revenues was primarily due to higher revenues from sales to commercial, house
heating and residential customers resulting from higher purchased gas-clause
revenues charged in 1997 compared to 1996, partially offset by lower sales
volume resulting from milder weather conditions in 1997. This increase was
partially offset by reduced sales to interruptible customers switching to
transportation service.
Total operating revenues increased in 1996 by $98 million to $4,284
million. This represented an $80 million increase in electric revenues and an
$18 million increase in gas revenues over 1995. The increase in electric
revenues was primarily due to increased sales to other utilities, partially
offset by decreased retail sales due to milder weather conditions. The increase
in gas revenues was primarily due to increased sales to retail customers from
colder weather conditions in the first half of 1996 and higher levels of firm
sales resulting from customers switching from transportation service to firm
service. These increases were partially offset by decreased sales and
transportation revenues resulting from unusually mild weather in December 1996.
Increases/(decreases) in electric sales and operating revenues by class of
customer for 1997 compared to 1996 and 1996 compared to 1995 are set forth as
follows:
<TABLE>
<CAPTION>
1997 - 1996 1996 - 1995
Electric Electric Electric Electric
Sales Revenues Sales Revenues
(Millions of kWh) (Millions of $) (Millions of kWh) (Millions of $)
<S> <C> <C> <C> <C>
Residential (48) $ (1) (86) $ (14)
House Heating (217) (12) 121 5
Small Commercial
and Industrial 194 30 291 19
Large Commercial
and Industrial (174) (21) (555) (37)
Other (61) 8 42 3
Unbilled 397 45 (862) (69)
Service Territory 91 49 (1,049) (93)
Interchange Sales 992 33 439 9
Sales to Other Utilities 8,650 230 6,202 164
Total 9,733 $ 312 5,592 $ 80
</TABLE>
Fuel and Energy Interchange Expense
Fuel and energy interchange expense increased in 1997 by $318 million to $1,290
million. The increase was primarily due to purchases needed for increased sales
to other utilities and a one-time billing credit in 1996 from a non-utility
generator. Fuel and energy interchange expense as a percentage of operating
revenues increased from 23% to 28% principally due to purchases needed for
increased sales to other utilities.
Fuel and energy interchange expense increased in 1996 by $210 million to
$973 million. The increase was primarily due to purchases needed for increased
sales to other utilities, increased replacement power costs resulting from the
shutdown of Salem and a net credit to expense in 1995 from certain energy sales
to other utilities. Fuel and energy interchange expense as a percentage of
operating revenues increased from 18% to 23% principally due to increased
replacement power costs resulting from the shutdown of Salem.
<PAGE>
15
Operating and Maintenance Expense
Operating and maintenance expense increased in 1997 by $157 million to $1,431
million primarily due to several one-time charges totaling $187 million,
including charges for changes in employee benefits, write-offs of information
systems development charges reflecting clarification of accounting guidelines
and additional reserves, including for environmental site remediation. These
increases were partially offset by lower operating costs at Company-operated
nuclear generating stations and lower administrative and general expenses
resulting from the Company's ongoing cost-control efforts.
Operating and maintenance expense increased in 1996 by $23 million to
$1,274 million due to higher customer expenses, higher contractor costs and
higher nuclear generating station charges resulting from the shutdown of Salem.
These increases were partially offset by lower operating costs at
Company-operated nuclear generating stations and lower administrative and
general expenses resulting from the Company's ongoing cost-control efforts.
Depreciation Expense
Effective October 1, 1996, the Company increased depreciation and amortization
on assets associated with Limerick by $100 million per year and decreased
depreciation and amortization on other Company assets by $10 million per year.
Depreciation expense increased in 1997 by $92 million to $581 million. The
increase was primarily due to increased depreciation of assets associated with
Limerick. Depreciation expense also increased due to additions to plant in
service.
Depreciation expense increased in 1996 by $32 million to $489 million. The
increase was primarily due to increased depreciation of assets associated with
Limerick. Depreciation expense also increased due to additions to plant in
service.
Interest Charges
Interest charges decreased in 1997 by $7 million to $402 million. The decrease
was primarily due to the Company's ongoing program to reduce and/or refinance
higher-cost, long-term debt. This decrease was partially offset by the
replacement of $62 million of preferred stock with Monthly Income Preferred
Securities (MIPS) in the third quarter of 1997. MIPS are recorded in the
financial statements as Company Obligated Mandatorily Redeemable Preferred
Securities of a Partnership.
Interest charges decreased in 1996 by $36 million to $409 million. The
decrease was primarily due to the Company's ongoing program to reduce and/or
refinance higher-cost, long-term debt. This decrease was partially offset by the
replacement of $78 million of preferred stock with MIPS in the fourth quarter of
1995.
Other Income and Deductions
Other income and deductions excluding interest charges increased in 1997 by $6
million to $4 million. The increase was primarily due to the settlement of
litigation arising from the shutdown of Salem. The increase was partially offset
by losses from the Company's new non-utility ventures. Also offsetting the
increase was the write-off of one of the Company's telecommunications
investments as a result of the circumstances involved in the Federal
Communication Commission's auctioning of the personal communications systems
"C-block" licenses.
Other income and deductions excluding interest charges decreased in 1996 by
$60 million to a net deduction of $2 million. The decrease was primarily due to
the gain recognized in 1995 on the sale of COPCO.
Income Taxes
Income taxes on operating and non-operating income decreased in 1997 by $47
million to $293 million. The decrease was primarily due to lower operating
income. The decrease was partially offset by reduced tax depreciation benefits
from plant and regulatory assets which are not fully normalized for ratemaking
purposes.
Income taxes decreased in 1996 by $92 million to $340 million. The decrease
was primarily due to lower operating income and the gain recognized in 1995 on
the sale of COPCO.
Preferred Stock Dividends
Preferred stock dividends decreased in 1997 by $1 million to $17 million. The
decrease was primarily due to the replacement of $62 million of preferred stock
with MIPS in the third quarter of 1997.
Preferred stock dividends decreased in 1996 by $5 million to $18 million.
The decrease was primarily due to the replacement of $78 million of preferred
stock with MIPS in the fourth quarter of 1995.
Discussion of 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
capital requirements, including investments in new and existing ventures, to
repay maturing debt and to make preferred and common stock dividend payments.
In 1997, 1996 and 1995, internally generated cash exceeded the Company's
capital requirements and dividend payments. The Company anticipates that it will
be able to meet its capital requirements with internally generated cash from
utility operations in 1998. Beginning in 1999, the Company expects that
internally generated cash will be reduced due to price pressures resulting from
competition for electric generation services and the effects of the PUC
Restructuring Order. In anticipation of this expected reduction of internally
generated cash, in January 1998, the Board of Directors voted to reduce the
Company's common stock dividend, effective with the first quarter 1998 dividend.
Based upon the 222.5 million shares of common stock currently out-
<PAGE>
16
standing, the common stock dividend reduction will reduce the Company's cash
requirements by $178 million per year. Absent increases in the market price of
electric generation services, the Company expects that internally generated cash
will be further reduced in 2007, when the Company completes the recovery of its
allowed stranded costs from customers. The magnitude of the reduction of
internally generated cash will be affected by a number of factors, including how
quickly electric generation competition develops, the Company's ability to
compete, the impact of additional cost-cutting initiatives, future market prices
of electric generation and the outcome of the Company's appeals of the PUC
Restructuring Order.
The Competition Act authorizes the securitization of the recovery of
allowed stranded costs. Under the Competition Act, securitization proceeds must
be used principally to reduce qualified stranded costs and related
capitalization. Unless extended by the PUC, the Company has authorization until
May 22, 1998 to securitize $1.1 billion of stranded costs. It is unlikely that
the Company will securitize the recovery of its stranded costs until appeals of
the PUC Restructuring Order are resolved. If the Company does securitize, it
cannot predict the level of stranded cost recovery that it would be permitted to
securitize or the impact of such securitization on the Company's capitalization.
At December 31, 1997, the Company's capital structure consisted of 36.8%
common equity; 7.9% preferred stock and Company obligated mandatorily redeemable
preferred securities (which comprised 4.8% of the Company's total capitalization
structure); and 55.3% long-term debt.
The Company expects its level of net capital investment to decrease in
future years. Total capital expenditures, primarily for utility plant, were $573
million in 1997 and are estimated to be $600 million in 1998. Due to the
expected adverse impact of the PUC Restructuring Order and competition for
electric generating services on its future capital resources, the Company is
currently evaluating its capital commitments for 1999 and beyond. 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.
The Company has undertaken a number of new ventures, principally through
its Telecommunications Group, some of which require significant cash
commitments. For 1998, the Company's expected capital expenditures include
approximately $150 million in such ventures.
Cash flows from operations were $1,038 million in 1997 as compared to
$1,172 million in 1996 and $1,240 million in 1995. Cash flows consist of
earnings, non-cash charges of depreciation and deferred income taxes
Cash flows used in investing activities were $573 million in 1997 as
compared to $663 million in 1996 and $465 million in 1995. Expenditures under
the Company's construction program decreased in 1997. The Company has also made
significant investments in diversified activities and other obligations. Net
funds used in these activities in 1997 were $83 million, consisting of $26
million for telecommunications ventures, $54 million for nuclear plant
decommissioning trust funds and $3 million for other deposits and ventures. In
1996 and 1995, funds used in similar activities were $114 million and $82
million, respectively. 1995 cash flows benefited from the sale of COPCO.
Cash flows used in financing activities were $461 million in 1997 as
compared to $501 million in 1996 and $802 million in 1995. The decreases in 1997
and 1996 were primarily due to less available cash permitting fewer retirements
of higher-cost debt.
The Company meets its short-term liquidity requirements primarily through
the issuance of commercial paper and borrowings under an unsecured credit
facility with a group of banks. The Company had $402 million of short-term debt,
including $314 million of commercial paper, outstanding at December 31, 1997.
At December 31, 1997, the Company's embedded cost of debt was 6.9% with
12.0% of the Company's long-term debt having floating rates. As a result of the
extraordinary charge in December 1997, the Company does not expect to meet the
earnings test under the Company's mortgage required for the issuance of
additional bonds against property additions for the twelve months ended December
31, 1998. As of December 31, 1997, the Company was entitled to issue
approximately $3.6 billion of mortgage bonds without regard to the earnings test
against previously retired mortgage bonds. As a result of the extraordinary
charge, the Company also does not expect to meet the coverage test under
Company's Articles of Incorporation required for the issuance of additional
preferred stock for the twelve months ended December 31, 1998.
The Company cannot predict whether the Competition Act or the PUC
Restructuring Order will ultimately affect the Company's credit ratings.
Outlook
The Company is entering a period of financial uncertainty with the deregulation
of its electric generation operations in which revenues from regulated rates
will be replaced by revenues from the competitive sale of electric generation at
market prices. The Company believes that the deregulation of its electric
generation operations and other regulatory initiatives designed to encourage
competition will increase the Company's risk profile by changing and increasing
the number of factors upon which the Company's financial results are dependent.
This may result in more volatility in the Company's future results of
operations. The Company believes that it has significant advantages that will
assist it in the increasingly competitive electric generation environment. These
advantages include the ability to produce electricity at a low marginal cost, a
high reserve margin and the demonstrated ability to efficiently operate its
electric generation facilities.
The Company's future financial condition and its results of operations are
substantially dependent upon the effects of the Competition Act and the PUC
Restructuring Order. Additional factors that affect the Company's financial
condition and results of operations include operation of nuclear generating
facilities, sales to other utilities, accounting issues, inflation, weather and
compliance with environmental regulations.
Another factor affecting the Company's future financial condition is its
ability to develop its investments in new ventures into profitable enterprises.
<PAGE>
17
PUC Restructuring Order
The Competition Act was enacted in December 1996, providing for the
restructuring of the electric utility industry in Pennsylvania, including retail
competition for generation beginning in 1999. The Competition Act requires the
unbundling of electric services into separate generation, transmission and
distribution services with open retail competition for generation. Electric
distribution and transmission services will remain regulated by the PUC. The
Competition Act requires utilities to submit to the PUC restructuring plans,
including their quantification of stranded costs which will result from
competition. The Competition Act authorizes the recovery of stranded costs
through charges to distribution customers for up to nine years (or for an
alternative period determined by the PUC for good cause shown). During that
period, the utility is subject to a rate cap which provides that total charges
to customers cannot exceed rates in place as of December 31, 1996, subject to
certain exceptions. The Competition Act also caps transmission and distribution
rates from December 31, 1996 through June 30, 2001, subject to certain
exceptions.
Pursuant to the Competition Act, in April 1997, the Company filed with the
PUC a comprehensive restructuring plan. In December 1997, the PUC adopted its
own restructuring plan which deregulates the Company's electric generation
operations and allows the Company to recover stranded costs of $4.9 billion on a
discounted basis, or $5.3 billion on a book value basis, over 8-1/2 years
beginning in 1999. Recovery of allowed stranded costs will be through a separate
charge to be levelized over the recovery period using a 7.47% cost of capital.
Other major provisions of the PUC Restructuring Order include capping customer
bills at the year-end 1996 system-wide average of 9.95 cents per kWh; beginning
January 1, 1999, unbundling rates into a transmission and distribution
component, the charge for recovery of stranded costs and a "shopping credit" for
generation; and phasing in customer choice of electric generation supplier for
all customers in three steps, one-third of the peak load of each customer class
on January 1, 1999, one-third on January 2, 1999 (one day later) and the
remainder on January 2, 2000. To encourage competition, the PUC established the
"shopping credit" for generation in excess of current market prices.
On January 21, 1998, the Company filed a complaint in the Eastern District
Court seeking injunctive and monetary relief on the grounds that the Competition
Act and the PUC Restructuring Order: (1) are preempted by Section 201(b) of the
Federal Power Act; (2) effect a taking of private property without just
compensation in violation of the Fifth and Fourteenth Amendments to the U.S.
Constitution; (3) violate the Due Process Clause, the Contract Clause and the
First Amendment of the U.S. Constitution; and (4) deprive the Company of certain
other federally protected rights .
On January 22, 1998, the Company filed two Petitions for Review in the
Commonwealth Court appealing the PUC Restructuring Order. The petitions state
that the PUC Restructuring Order must be set aside because it is based upon
errors of law, is not supported by substantial evidence, constitutes an
arbitrary and capricious abuse of administrative discretion and deprives the
Company of the due process of law, to which it is entitled under Article I of
the Pennsylvania Constitution.
Uncertainties of Electric Generation Restructuring
Competition in wholesale and retail electric generation is expected to create
new uncertainties in the utility industry. These uncertainties include future
prices of electricity in both the retail and wholesale markets, potential
changes in the Company's sales portfolio and supply and demand volatility.
The Company expects that deregulation of the Company's electric generating
operations will result in price pressures that will reduce the Company's future
revenues. While the Company cannot predict the ultimate impact of the PUC
Restructuring Order on customer bills, the PUC estimates that customers will
save up to 15% of their total electric bill beginning in 1999 through June 30,
2007 and will save 30% of their total electric bill thereafter.
Competition is also expected to affect the ultimate composition of the
Company's electricity sales. The "shopping credit" established by the PUC
encourages electric retail customers to choose a supplier. The Company cannot
predict how successful its affiliated generation marketers will be in competing
for these customers and customers elsewhere in Pennsylvania. To the extent that
the Company loses retail customers, it will be compelled to sell generation
previously used to serve retail customers in the wholesale market. Since margins
in the wholesale market are currently lower than in the retail market, this
could adversely affect the Company's profit margins.
The Company is a low marginal-cost electricity producer, which puts it in a
favorable position to take advantage of opportunities in the electric retail and
wholesale generation markets. The Company's competitive position and its future
financial condition and results of operations are dependent on the Company's
ability to successfully operate its low marginal-cost power plants.
The Company enters into commitments to buy and sell power. Currently, these
commitments make the Company a net power purchaser. Since the price and supply
volatility of electricity generation cannot be predicted at this time, the
Company's position as a net purchaser exposes it to risk to the extent that it
has entered into contracts that may require the Company to pay prices for
purchased power in excess of market prices.
The Company, as the local distribution provider, is obligated under the PUC
Restructuring Order to serve as the electric generation supplier of last resort
in its service territory. This obligation will include all customers who do not
elect to choose an electricity supplier as well as all customers who seek a new
energy supplier but are unable to reach a service agreement with another
supplier. The Company's rates are capped at 1996 levels. If energy prices rise
above that level, the Company would still be obligated to serve these customers
at the capped rate.
Other Competitive Initiatives
During 1996, the Federal Energy Regulatory Commission (FERC) issued Order No.
888 which requires public utilities to file open-access transmission tariffs for
wholesale transmission services in accordance with non-discriminatory terms and
conditions established by the FERC.
In response to Order No. 888, in December 1996, the Company and the other
members of PJM Interconnection, L.L.C. (PJM) filed a joint compliance filing
with the FERC
<PAGE>
18
proposing to restructure PJM. In November 1997, the FERC issued an order which
allows for the establishment of an Independent System Operator (ISO) to operate
the day-to-day operations of PJM. Transmission service is on a pool-wide,
open-access basis using the transmission facilities of the eight historical PJM
companies with a flat rate based on the costs of the transmission system where
the point of delivery is located (thus there are eight rates). By January 1,
2003, PJM is required to have in place a uniform system-wide transmission rate.
The Company received approval from the FERC to remove the existing
cost-based cap on prices charged for power purchased by the Company in
anticipation of later resale in the wholesale market and certain changes
regarding the terms of the buy-for-resale agreements. The new tariff provisions
allow the Company to purchase and re-sell energy at market-based rates both
within PJM and outside PJM.
The gas industry is continuing to undergo structural changes in response to
FERC policies designed to increase competition. FERC policies have required
interstate gas pipelines to unbundle their gas sales service from other
regulated tariff services, such as transportation and storage. In anticipation
of these changes, the Company has modified its gas purchasing arrangements to
enable the purchase of gas and transportation at lower cost. The Company,
through Horizon Energy Company, a wholly owned subsidiary, has successfully
participated in pilot programs outside the Company's gas service territory to
market natural gas and other services.
There is an initiative in the Pennsylvania legislature to deregulate the
gas industry, which has the support of Governor Ridge. The Company cannot
predict whether the Pennsylvania legislature will enact legislation that
deregulates the gas industry or whether Governor Ridge will ultimately sign into
law any such legislation. The Company cannot predict the ultimate effect of gas
industry deregulation on its future financial condition or results of
operations.
As a result of competitive pressures, the Company has continued to
negotiate long-term contracts with many of its larger-volume industrial
customers. Although these agreements have generally resulted in reduced margins,
they have permitted the Company to retain these customers.
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
44% of its installed generating capacity. Because of the Company's 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 1997, Company-operated nuclear plants operated at an 90%
weighted-average capacity factor and Company-owned nuclear plants operated at a
73% weighted-average capacity factor. Company-owned nuclear plants produced 39%
of the Company's electricity, despite the shutdown of the Salem units. Nuclear
generation is the most cost-effective way for the Company to meet customer needs
and commitments for sales to other utilities.
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 in the second quarter of 1995. 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. Unit No. 2 returned to service on
August 30, 1997 and Unit No. 1 is expected to return to service late in the
first quarter of 1998. The Company expects to incur and expense at least $20
million in 1998 for increased costs related to the shutdown. As of December 31,
1997, 1996 and 1995, the Company had incurred and expensed $152, $149 and $50
million, respectively, for replacement power and maintenance costs related to
the shutdown of Salem. See note 5 of Notes to Consolidated Financial Statements.
Sales to Other Utilities
The Company's electric utility operations include the wholesale marketing of
electricity. At December 31, 1997, the Company had long-term commitments
relating to the purchase from unaffiliated utilities and others, energy
associated with 1,330 megawatts (MW) of capacity in 1998, with 2,540 MW of
capacity during the period 1999 through 2002 and with 2,430 MW of capacity
thereafter. These purchases will be utilized through a combination of sales to
jurisdictional customers, long-term sales to other utilities and open-market
sales. Under some of these contracts, the Company may purchase, at its option,
additional power as needed. The Company's future results of operations are
dependent in part on its ability to successfully market the rest of this
generation. See note 5 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 profit margins on
these sales. At December 31, 1997, the Company had entered into long-term
agreements with unaffiliated utilities to sell energy associated with 4,280 MW
of capacity, of which 540 MW of these agreements are for 1998, 1,700 MW are for
1999 through 2002 and the remaining 2,040 MW extend through 2022.
Accounting Issues
Effective December 31, 1997, the Company discontinued accounting for its
electric generation operations in accordance with Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types
of Regulation." For further information, see note 4 of Notes to Consolidated
Financial Statements. The Company believes that its electric transmission and
distribution system and gas operations continue to meet the provisions of SFAS
No. 71. The Company believes that it is probable that regulatory assets
associated with these operations will be recovered.
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income," to establish standards for reporting and
display of comprehensive income and its components in financial statements. The
new standard requires an entity to classify items of other comprehensive income
by their nature in a financial statement and to display the accumulated balance
of other comprehensive income separately from retained earnings and
<PAGE>
19
additional paid in capital in the equity section of a statement of financial
position. The new standard is effective for fiscal years beginning after
December 15, 1997. The Company will adopt SFAS No. 130 in 1998. Adoption of SFAS
No. 130 will not affect the Company's financial condition or results of
operations. The Company is evaluating the impact on its disclosures, but does
not expect SFAS No. 130 to materially change its disclosures.
In 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," to establish standards for reporting
information about operating segments in annual financial statements and to
require reporting of selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographical areas and major
customers. The new standard is effective for fiscal years beginning after
December 31, 1997. Adoption of SFAS No. 131 will not affect the Company's
financial condition or results of operations. The Company is evaluating the
impact on its operating segment disclosures.
During 1996, the FASB issued the Exposure Draft "Accounting for Certain
Liabilities Related to Closure or Removal of Long-Lived Assets." The FASB has
expanded the scope of the project to include closure or removal liabilities that
are incurred at any time in the operating life of the related long-lived asset.
The FASB has decided that it should proceed toward either a final Statement or a
revised Exposure Draft. The timing of this project is still to be determined.
Until such time that the final Statement is issued, the Company will be unable
to determine what, if any, effect this issue might have on its financial
condition or results of operations. See note 5 of Notes to Consolidated
Financial Statements.
Other Factors
Annual and quarterly operating results can be significantly affected by weather.
Since the Company's peak demand is in the summer months, temperature variations
in summer months are generally more significant than variations during winter
months.
Inflation affects the Company through increased operating costs and
increased capital costs for utility plant. As a result of the rate caps imposed
by the Competition Act, the elimination of the Energy Cost Adjustment and
expected price pressures due to competition, the Company may have limited
opportunity to pass the costs of inflation through to customers.
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year and other programming
techniques which constrain date calculations or assign special meanings to
certain dates. Any of the Company's computer systems that have date-sensitive
software or microprocessors may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send bills or operate
electric generation stations.
The Company has determined that it will be required to modify or replace
significant portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. The Company presently believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue can be mitigated. However, if such modifications and conversions are
not made, or are not completed timely, the Year 2000 Issue could have a material
adverse impact on the operations and financial condition of the Company. The
costs associated with this potential impact are speculative and not presently
quantifiable.
The Company initiated formal communications with all of its significant
suppliers in March 1997 to determine the extent to which the Company is
vulnerable to the suppliers' failure to remediate their own Year 2000 issue. The
Company's estimated total Year 2000 project costs include the estimated costs
and time associated with the impact of Year 2000 issues of third parties and are
based on presently available information. There can be no guarantee that the
systems of other companies on which the Company's systems rely will timely be
converted, or that a failure to convert by another company, or a conversion that
is incompatible with the Company's systems, would not have material adverse
impact on the Company.
The Company will utilize both internal and external resources to reprogram,
or replace, and test software and computer systems for Year 2000 modifications.
Management believes that adequate resources are being devoted to the Year 2000
Issue. The Company plans to complete the Year 2000 project not later than June
1, 1999. To date, the Company has funded the Year 2000 project from current
operating cash flows as a base level of activity for the preliminary efforts in
connection with its Year 2000 assessment and remediation plan. The Company
expects the remaining costs of the Year 2000 project to be approximately $25
million.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on Management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third-party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved; actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer programs and microprocessors, and
similar uncertainties.
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
<PAGE>
20
substances have been deposited and may be subject to additional proceedings in
the future.
The Company has identified 27 sites where former manufactured gas plant
(MGP) activities have or may have resulted in 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. The Pennsylvania Department of Environmental Protection has
approved the Company's clean-up of two sites. Six other sites are currently
under some degree of active study and/or remediation.
As of December 31, 1997 and 1996, the Company had accrued $63 and $28
million, respectively, for environmental investigation and remediation costs,
including $35 and $16 million, respectively, for MGP investigation and
remediation that currently can be reasonably estimated. The Company expects to
expend $5 million for environmental remediation activities in 1998. 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 such
costs will be recoverable from third parties.
For a discussion of other contingencies, see notes 3, 4 and 5 of Notes to
Consolidated Financial Statements.
Forward-Looking Statements
Except for the historical information contained herein, certain of the matters
discussed in this Report are forward-looking statements which are subject to
risks and uncertainties. The factors that could cause actual results to differ
materially include those discussed herein as well as those listed in notes 3, 4
and 5 of Notes to Consolidated Financial Statements and other factors discussed
in the Company's filings with the Securities and Exchange Commission. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this Report. The Company undertakes no
obligation to publicly release any revision to these forward-looking statements
to reflect events or circumstances after the date of this Report.
<PAGE>
21
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Coopers & Lybrand LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 2, 1998
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Operating Revenues
Electric $ 4,166,669 $ 3,854,836 $ 3,775,326
Gas 451,232 428,814 410,830
----------- ----------- -----------
Total Operating Revenues 4,617,901 4,283,650 4,186,156
----------- ----------- -----------
Operating Expenses
Fuel and Energy Interchange 1,290,164 972,380 762,762
Operating and Maintenance 1,431,420 1,274,222 1,251,273
Depreciation 580,595 489,001 457,254
Taxes Other Than Income 310,091 299,546 314,071
----------- ----------- -----------
Total Operating Expenses 3,612,270 3,035,149 2,785,360
----------- ----------- -----------
Operating Income 1,005,631 1,248,501 1,400,796
----------- ----------- -----------
Other Income and Deductions
Interest Expense (372,857) (382,443) (423,711)
Company Obligated Mandatorily Redeemable
Preferred Securities of a Partnership, which
holds Solely Subordinated Debentures of
the Company (28,990) (26,723) (20,987)
Allowance for Funds Used During Construction 21,771 19,947 27,050
Settlement of Salem Litigation 69,800 -- --
Gain on Sale of Subsidiary -- -- 58,745
Other, net (66,028) (1,976) (444)
----------- ----------- -----------
Total Other Income and Deductions (376,304) (391,195) (359,347)
----------- ----------- -----------
Income Before Income Taxes and Extraordinary Item 629,327 857,306 1,041,449
Income Taxes 292,769 340,101 431,717
----------- ----------- -----------
Income Before Extraordinary Item 336,558 517,205 609,732
Extraordinary Item (net of $1,290,961 income taxes) (1,833,664) -- --
----------- ----------- -----------
Net (Loss) Income (1,497,106) 517,205 609,732
Preferred Stock Dividends 16,804 18,036 23,217
----------- ----------- -----------
Earnings Applicable to Common Stock $(1,513,910) $ 499,169 $ 586,515
=========== =========== ===========
Average Shares of Common Stock
Outstanding (Thousands) 222,543 222,490 221,859
=========== =========== ===========
Basic and Dilutive Earnings per Average Common
Share Before Extraordinary Item (Dollars) $ 1.44 $ 2.24 $ 2.64
Extraordinary Item (Dollars) $ (8.24) -- --
----------- ----------- -----------
Basic and Dilutive Earnings per Average
Common Share (Dollars) $ (6.80) $ 2.24 $ 2.64
=========== =========== ===========
Dividends per Common Share (Dollars) $ 1.80 $ 1.755 $ 1.65
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
23
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $(1,497,106) $ 517,205 $ 609,732
Extraordinary Item (net of $1,290,961 income taxes) (1,833,664) -- --
----------- ----------- -----------
Income Before Extraordinary Item 336,558 517,205 609,732
Adjustments to reconcile Net Income to Net Cash
provided by Operating Activities:
Depreciation and Amortization 664,294 566,412 531,299
Deferred Income Taxes (17,228) 166,771 183,514
Salem Litigation Settlement 69,800 -- --
Gain on Sale of Subsidiary -- -- (58,745)
Deferred Energy Costs (5,652) (66,151) (71,104)
Amortization of Leased Property 39,100 31,400 42,900
Changes in Working Capital:
Accounts Receivable (289,610) 53,681 (8,198)
Inventories 28,628 (2,729) (10,872)
Accounts Payable 93,881 (86,765) (4,686)
Other Current Assets and Liabilities 58,539 (25,040) 9,641
Deferred Credits - Other 78,846 (4,609) 5,172
Other Items affecting Operations (19,005) 22,070 11,683
----------- ----------- -----------
Net Cash Flows from Operating Activities 1,038,151 1,172,245 1,240,336
----------- ----------- -----------
Cash Flows from Investing Activities
Investment in Plant (490,200) (548,854) (532,614)
Proceeds from Sale of Subsidiary -- -- 150,000
Increase in Other Investments (83,261) (114,126) (82,041)
----------- ----------- -----------
Net Cash Flows from Investing Activities (573,461) (662,980) (464,655)
----------- ----------- -----------
Cash Flows from Financing Activities
Change in Short-Term Debt 114,000 287,500 (11,499)
Issuance of Common Stock 117 11,301 15,585
Retirement of Preferred Stock (61,895) -- (78,105)
Issuance of Company Obligated Mandatorily Redeemable
Preferred Securities of a Partnership 50,000 -- 81,032
Issuance of Long-Term Debt 161,813 43,700 182,540
Retirement of Long-Term Debt (283,303) (427,463) (575,713)
Loss on Reacquired Debt 22,752 24,724 12,302
Dividends on Preferred and Common Stock (417,383) (411,569) (390,340)
Change in Dividends Payable (5,438) 1,685 5,626
Expenses of Issuing Long-Term Debt and Capital Stock (2,084) 890 (577)
Capital Lease Payments (39,100) (31,400) (42,900)
----------- ----------- -----------
Net Cash Flows from Financing Activities (460,521) (500,632) (802,049)
----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents 4,169 8,633 (26,368)
Cash and Cash Equivalents at beginning of period 29,235 20,602 46,970
----------- ----------- -----------
Cash and Cash Equivalents at end of period $ 33,404 $ 29,235 $ 20,602
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
24
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At December 31, 1997 1996
Thousands of Dollars
<S> <C> <C>
Assets
Utility Plant
Electric - Transmission & Distribution $ 3,617,666 $ 3,494,778
Electric - Generation 1,434,895 10,127,602
Gas 1,071,819 1,005,507
Common 302,672 317,065
----------- -----------
6,427,052 14,944,952
Less Accumulated Provision for Depreciation 2,690,824 5,046,950
----------- -----------
3,736,228 9,898,002
Nuclear Fuel, net 147,359 199,579
Construction Work in Progress 611,204 661,871
Leased Property, net 175,933 182,088
----------- -----------
Net Utility Plant 4,670,724 10,941,540
----------- -----------
Current Assets
Cash and Temporary Cash Investments 33,404 29,235
Accounts Receivable, net
Customers 173,350 19,159
Other 139,996 74,377
Inventories, at average cost
Fossil Fuel 84,858 84,633
Materials and Supplies 90,890 119,743
Deferred Generation Costs Recoverable in Current Rates 424,497 --
Deferred Energy Costs-Gas 35,665 30,013
Other 20,115 63,234
----------- -----------
Total Current Assets 1,002,775 420,394
----------- -----------
Deferred Debits and Other Assets
Competitive Transition Charge 5,274,624 --
Recoverable Deferred Income Taxes 590,267 2,325,721
Deferred Limerick Costs -- 361,762
Deferred Non-Pension Postretirement Benefits Costs 97,409 233,492
Deferred Energy Costs-Electric -- 92,021
Investments 515,835 432,574
Loss on Reacquired Debt 83,918 283,853
Other 121,016 169,262
----------- -----------
Total Deferred Debits and Other Assets 6,683,069 3,898,685
----------- -----------
Total Assets $12,356,568 $15,260,619
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
25
Consolidated Balance Sheets (Continued)
<TABLE>
<CAPTION>
At December 31, 1997 1996
Thousands of Dollars
<S> <C> <C>
Capitalization and Liabilities
Capitalization
Common Shareholders' Equity
Common Stock $ 3,517,731 $ 3,517,614
Other Paid-In Capital 1,239 1,326
Retained (Deficit) Earnings (792,239) 1,127,041
------------ ------------
2,726,731 4,645,981
Preferred and Preference Stock
Without Mandatory Redemption 137,472 199,367
With Mandatory Redemption 92,700 92,700
Company Obligated Mandatorily Redeemable Preferred
Securities of a Partnership, which holds Solely
Subordinated Debentures of the Company 352,085 302,182
Long-Term Debt 3,853,141 3,935,514
------------ ------------
Total Capitalization 7,162,129 9,175,744
------------ ------------
Current Liabilities
Notes Payable, Bank 401,500 287,500
Long-Term Debt Due Within One Year 247,087 283,303
Capital Lease Obligations Due Within One Year 55,808 49,347
Accounts Payable 306,847 212,966
Taxes Accrued 66,397 71,482
Interest Accrued 77,911 82,006
Dividends Payable 16,969 22,407
Deferred Income Taxes 185,696 2,745
Other 260,457 91,608
------------ ------------
Total Current Liabilities 1,618,672 1,103,364
------------ ------------
Deferred Credits and Other Liabilities
Capital Lease Obligations 120,125 132,741
Deferred Income Taxes 2,297,042 3,745,242
Unamortized Investment Tax Credits 318,065 336,132
Pension Obligation 211,596 224,454
Non-Pension Postretirement Benefits Obligation 324,850 315,058
Other 304,089 227,884
------------ ------------
Total Deferred Credits and Other Liabilities 3,575,767 4,981,511
------------ ------------
Commitments and Contingencies (Notes 3, 4 and 5)
Total Capitalization and Liabilities $ 12,356,568 $ 15,260,619
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
26
Consolidated Statements of Changes in Common Shareholders' Equity and Preferred
Stock
<TABLE>
<CAPTION>
Other Retained
Common Stock Paid-In Earnings Preferred Stock
All Amounts in Thousands Shares Amount Capital (Deficit) Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 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
Net Income 517,205
Cash Dividends Declared
Preferred Stock
(at specified annual rates) (21,042)
Common Stock ($1.755 per share) (390,527)
Expenses of Capital Stock Activity (275)
Capital Stock Activity
Long-Term Incentive Plan Issuances 370 11,301 (2,028)
------- ---------- ------ ---------- ----- --------
Balance at December 31, 1996 222,542 3,517,614 1,326 1,127,041 2,921 292,067
Net Loss (1,497,106)
Cash Dividends Declared
Preferred Stock
(at specified annual rates) (16,805)
Common Stock ($1.80 per share) (400,578)
Expenses of Capital Stock Activity 98
Interest on Stock Repurchase
Forward Contract (4,889)
Capital Stock Activity
Long-Term Incentive Plan Issuances 5 117
Preferred Stock Redemptions (87) (619) (61,895)
------- ---------- ------ ---------- ----- --------
Balance at December 31, 1997 222,547 $3,517,731 $1,239 $(792,239) 2,302 $230,172
======= ========== ====== ========= ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
27
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
General
The consolidated financial statements of PECO Energy 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 non-utility subsidiaries which are not material. The
unconsolidated subsidiaries are accounted for under the equity method.
Use of Estimates
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.
Estimates are used in the Company's accounting for unbilled revenue, the
allowance for uncollectible accounts, fuel adjustment clause, depreciation and
amortization, taxes, reserves for contingencies, employee benefits, certain fair
value and recoverability determinations, and nuclear outage costs, among others.
Accounting for the Effects of Regulation
The Company accounts for all of its regulated operations in accordance with
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the
Effects of Certain Types of Regulation," requiring the Company to record the
financial statement effects of the rate regulation to which the Company is
currently subject. If a separable portion of the Company's business no longer
meets the provisions of SFAS No. 71, the Company is required to eliminate the
financial statement effects of regulation for that portion. Effective December
31, 1997, the Company determined that the electric generation portion of its
business no longer met the criteria of SFAS No. 71 and, accordingly, implemented
SFAS No. 101, "Regulated Enterprises - Accounting for the Discontinuation of
FASB Statement No. 71," for that portion of its business (see note 4).
Revenues
Electric and gas revenues are recorded as service is rendered or energy is
delivered to customers. At the end of each month, the Company accrues an
estimate for the unbilled amount of energy delivered or services provided to
customers (see note 8).
Energy and Purchased Gas Cost Adjustment Clause
The Company's gas rates are subject to a fuel adjustment clause designed to
recover or refund the difference between the actual cost of purchased gas and
the amount 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. Such
rates are adjusted quarterly.
Prior to December 31, 1996, the Company's retail electric rates were
subject to an Energy Cost Adjustment (ECA) clause designed to recover or refund
the difference between the actual cost of fuel, energy interchange or purchased
power and the amount of such costs included in base rates. Effective December
31, 1996, the PUC approved the roll-in of electric energy costs into the base
rates charged to the Company's retail electric customers and such rates are no
longer subject to the ECA.
Utility Plant
Effective December 31, 1997, electric generation plant is valued at the lower of
original cost or market pursuant to SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." All other
utility plant continues to be valued at original cost (see note 4).
Nuclear Fuel
The cost of 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
Depreciation is provided over the estimated service lives of plant on the
straight-line method. The Company is currently reviewing the useful lives of its
electric generation assets. Annual depreciation provisions for financial
reporting purposes, expressed as a percentage of average depreciable utility
plant in service, were approximately 3.3% in 1997, 2.9% in 1996 and 2.8% in
1995. See note 3 for information concerning the change in 1996 to depreciation
and amortization.
The Company's current estimate of the costs for decommissioning its
ownership share of its nuclear generating stations is currently included in
electric base rates and is 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
realized investment earnings thereon, are credited to accumulated depreciation.
The Company believes that the amounts being recovered from customers through
electric rates will be sufficient to fully fund the unrecorded portion of its
decommissioning obligation (see note 5).
<PAGE>
28
Income Taxes
The Company uses an asset and liability approach for financial accounting and
reporting of income taxes. Investment tax credits are deferred and amortized to
income over the estimated useful life of the related property (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 as a credit to Other Income and Deductions.
The rates used for capitalizing AFUDC, which averaged 8.88% in 1997, 9.38% in
1996 and 9.88% in 1995, 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.
Effective January 1, 1998, the Company ceased accruing AFUDC for electric
generation-related construction projects and will use SFAS No. 34, "Capitalizing
Interest Costs," to calculate the costs during the period of construction of
debt funds used to finance its electric generation-related construction
projects.
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, 1997
and 1996, capitalized software costs totaled $86 and $78 million (net of $29
million accumulated amortization in each year), 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
Prior to December 31, 1997, gains and losses on reacquired debt were deferred
and amortized to interest expense over the period approved for ratemaking
purposes. Effective January 1, 1998, gains and losses on reacquired debt
associated with the electric generation portion of the Company's operations will
be expensed as incurred. Gains and losses on reacquired debt associated with the
Company's regulated operations will continue to be deferred and amortized to
interest expense over the period approved for ratemaking purposes.
Reclassifications
Certain prior-year amounts have been reclassified for comparative purposes.
These reclassifications had no effect on net income or common shareholders'
equity.
2. Nature of Operations and Segment Information
The Company provides retail electric and natural gas service to the public in
southeastern Pennsylvania and, in pilot programs, natural gas service to areas
in Maryland and New Jersey. The Company also engages in the wholesale marketing
of electricity on a national basis. The Company participates in joint ventures
which provide telecommunications services in the Philadelphia area. The
Company's traditional retail service territory covers 2,107 square miles.
Electric service is furnished to an area of 1,972 square miles with a population
of 3.6 million, including 1.6 million in the City of Philadelphia. Approximately
94% of the retail electric service area and 64% of retail kilowatthour (kWh)
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 in 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, 1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Electric Operations
Operating revenues:
Residential $ 1,357,449 $ 1,370,158 $ 1,379,046
Small commercial and industrial 778,743 748,561 730,220
Large commercial and industrial 1,077,374 1,098,307 1,135,550
Other 147,523 140,133 136,988
Unbilled 19,130 (25,950) 42,580
----------- ----------- -----------
Service territory 3,380,219 3,331,209 3,424,384
Interchange sales 58,614 25,991 17,488
Sales to other utilities 727,836 497,636 333,454
----------- ----------- -----------
Total operating revenues 4,166,669 3,854,836 3,775,326
----------- ----------- -----------
Operating expenses, excluding depreciation 2,697,877 2,243,094 2,026,112
Depreciation 552,667 462,315 430,993
----------- ----------- -----------
Operating income $ 916,125 $ 1,149,427 $ 1,318,221
=========== =========== ===========
Utility plant additions $ 382,157 $ 447,105 $ 435,400
=========== =========== ===========
</TABLE>
<PAGE>
29
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Gas Operations
Operating revenues:
Residential $ 16,852 $ 15,716 $ 15,482
House heating 265,299 249,507 235,456
Commercial and industrial 144,801 132,822 125,631
Other 3,228 11,462 5,382
Unbilled (969) (4,250) 6,540
------------ ------------ ------------
Subtotal 429,211 405,257 388,491
------------ ------------ ------------
Other revenues (including transported
for customers) 22,021 23,557 22,339
------------ ------------ ------------
Total operating revenues 451,232 428,814 410,830
------------ ------------ ------------
Operating expenses, excluding depreciation 333,798 303,054 301,994
Depreciation 27,928 26,686 26,261
------------ ------------ ------------
Operating income $ 89,506 $ 99,074 $ 82,575
============ ============ ============
Utility plant additions $ 85,212 $ 68,394 $ 63,192
============ ============ ============
Identifiable Assets* at December 31,
Electric $ 9,610,984 $ 10,287,444 $ 10,408,105
Gas 966,685 858,471 785,881
Nonallocable assets 1,778,899 4,114,704 4,114,519
------------ ------------ ------------
Total assets $ 12,356,568 $ 15,260,619 $ 15,308,505
============ ============ ============
</TABLE>
* Includes utility plant less accumulated depreciation, inventories,
segment-specific regulatory assets and allocated common utility property.
3. Rate Matters
Competition Act
The Electricity Generation Customer Choice and Competition Act (Competition Act)
was enacted in December 1996, providing for the restructuring of the electric
utility industry in Pennsylvania, including retail competition for generation
beginning in 1999. The Competition Act requires the unbundling of electric
services into separate generation, transmission and distribution services with
open retail competition for generation. Electric distribution and transmission
services will remain regulated by the PUC. The Competition Act requires
utilities to submit to the PUC restructuring plans, including quantification of
their stranded costs (the loss in value of the Company's electric
generation-related assets, which will result from competition). The Competition
Act authorizes the recovery of stranded costs through charges to distribution
customers for up to nine years (or for an alternative period determined by the
PUC for good cause shown). During that period, the utility is subject to a rate
cap which provides that total charges to customers cannot exceed rates in place
as of December 31, 1996, subject to certain exceptions. The Competition Act also
caps transmission and distribution rates from December 31, 1996 through June 30,
2001, subject to certain exceptions.
Pursuant to the Competition Act, in April 1997, the Company filed with the
PUC a comprehensive restructuring plan detailing its proposal to implement full
customer choice of electric generation supplier. The Company's restructuring
plan identified $7.5 billion of stranded costs. In August 1997, the Company and
various intervenors in the Company's restructuring proceeding filed with the PUC
a Joint Petition for Partial Settlement (Pennsylvania Plan).
In December 1997, the PUC rejected the Pennsylvania Plan and entered an
Opinion and Order, revised in January 1998 (PUC Restructuring Order), that
deregulates the Company's electric generation operations. The PUC Restructuring
Order allows the Company to recover $4.9 billion on a discounted basis, or $5.3
billion on a book value basis, over 8-1/2 years beginning in 1999. Recovery of
allowed stranded costs will be through a separate charge to be levelized over
the recovery period using a 7.47% cost of capital. Other major provisions of the
PUC Restructuring Order include capping customer bills at the year-end 1996
system-wide average of 9.95 cents per kWh; beginning January 1, 1999, unbundling
rates into a transmission and distribution component, the charge for recovery of
stranded costs and a "shopping credit" for generation; and phasing-in customer
choice of electric generation supplier for all customers in three steps:
one-third of the peak load of each customer class on January 1, 1999, one-third
on January 2, 1999 (one day later) and the remainder on January 2, 2000. To
encourage competition, the PUC established the "shopping credit" for generation
in excess of current market prices.
On January 21, 1998, the Company filed a complaint in the U.S. District
Court for the Eastern District of Pennsylvania seeking injunctive and monetary
relief on the grounds that the Competition Act and the PUC Restructuring Order:
(1) are preempted by Section 201(b) of the Federal Power Act; (2) effect a
taking of private property without just compensation in violation of the Fifth
and Fourteenth Amendments to the U.S. Constitution; (3) violate the Due Process
Clause, the Contract Clause and the First Amendment of the U.S. Constitution;
and (4) deprive the Company of certain other federally protected rights.
<PAGE>
30
On January 22, 1998, the Company filed two Petitions for Review in the
Commonwealth Court of Pennsylvania, appealing the PUC Restructuring Order. The
petitions state that the PUC Restructuring Order must be set aside because it is
based upon errors of law, is not supported by substantial evidence, constitutes
an arbitrary and capricious abuse of administrative discretion and deprives the
Company of the due process of law, to which it is entitled under Article I of
the Pennsylvania Constitution.
Limerick
Under its electric tariffs through December 31, 1997, the Company was recovering
$285 million of deferred Limerick costs representing carrying charges and
depreciation associated with 50% of Limerick common facilities. The Company also
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. These costs were included in base rates and were
being recovered over a nine-year period beginning October 1, 1996. The Company
was also recovering $137 million of Limerick Unit No. 1 costs over a ten-year
period without a return on investment. At December 31, 1997, the unamortized
portion of these regulatory assets were included as part of electric
generation-related regulatory assets (see note 4).
Under its electric tariffs and ECA, the Company was 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 and to
share in the benefits which resulted from the operation of both Limerick Units
No. 1 and No. 2. The Company's ECA was discontinued at December 31, 1996. During
1996 and 1995, the Company recorded as revenue net of fuel costs $82 and $79
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.
Declaratory Accounting Order
Pursuant to a PUC Declaratory Order, effective October 1, 1996, the Company
increased depreciation and amortization on assets associated with Limerick by
$100 million per year and decreased depreciation and amortization on other
Company assets by $10 million per year, for a net increase in depreciation and
amortization of $90 million per year. Effective December 31, 1997, the Company
ceased this increased depreciation since this Declaratory Order has been
superseded by the PUC Restructuring Order. At December 31, 1997, the $90 million
of depreciation and amortization that would have been recognized in 1998 was
deferred as a regulatory asset, since the Company's rates will continue to be
cost-based until January 1, 1999, and will be amortized and recovered in 1998.
Recovery of Non-Pension Postretirement Benefits Costs
Effective January 1995, 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 SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," (see note 7). During 1997 and
1996, the Company deposited $26 and $47 million, respectively, in trust accounts
to fund its retail electric non-pension postretirement benefits costs. These
costs include amounts charged to operating expense or capitalized during 1997
and 1996. At December 31, 1997, $121 million of the previously recorded
transition obligation was included as part of electric generation-related
regulatory assets (see note 4).
The Company recognizes $2.8 million in non-pension postretirement benefits
costs annually associated with gas utility operations. During 1997 and 1996, the
Company deposited $2.8 and $2.9 million, respectively, in trust accounts to fund
its gas non-pension postretirement benefits costs.
Energy Cost Adjustment
Through December 31, 1996, the Company was subject to a PUC-established electric
ECA which, in addition to reconciling fuel costs and revenues, incorporated a
nuclear performance standard which allowed for financial bonuses or penalties
depending on whether the Company's system nuclear capacity factor exceeded or
fell below a specified range. For the years ended December 31, 1996 and 1995,
the Company recorded bonuses of $22 and $13 million, respectively.
4. Accounting Changes
The Company accounts for all of its regulated operations in accordance with SFAS
No. 71 which allows the Company to record the financial statement effects of the
rate regulation to which the Company is subject. Use of SFAS No. 71 is
applicable to the utility operations of the Company which meet the following
criteria: (1) third-party regulation of rates; (2) cost-based rates; and (3) a
reasonable assumption that all costs will be recoverable from customers through
rates.
In 1997, the Financial Accounting Standards Board (FASB) through its
Emerging Issues Task Force (EITF) issued EITF No. 97-4, "Deregulation of the
Pricing of Electricity - Issues Related to the Application of FASB Statements
No. 71, Accounting for the Effects of Certain Types of Regulation, and No. 101,
Regulated Enterprises - Accounting for the Discontinuation of Application of
FASB Statement No. 71." The EITF agreed that: a) an entity should cease to apply
SFAS No. 71 no later than the date the specific deregulation plan is enacted and
the details of that plan are known, and b) both stranded costs and regulated
assets and liabilities should continue to be recognized to the extent that the
transition plan provides for their recovery through the regulated transmission
and distribution portion of the business.
The Company believes that the PUC Restructuring Order provides sufficient
details regarding the deregulation of the Company's electric generation
operations to require the Company to discontinue the application of SFAS No. 71
for those operations. Effective December 31, 1997, the Company adopted the
provisions of SFAS No. 101 for its electric generation operations. SFAS No. 101
requires a determination of impairment of plant assets under SFAS No. 121, and
the elimination of all effects of rate regulation that have been recognized as
assets and liabilities pursuant to SFAS No. 71.
<PAGE>
31
At December 31, 1997, the Company performed an impairment test of its
electric generation assets pursuant to SFAS No. 121 on a plant specific basis
and determined that $6.1 billion of its $7.1 billion of electric generation
assets would be impaired as of December 31, 1998. The Company estimated the fair
value for each of its electric generating units by determining its estimated
future operating cash inflows and outflows. The net future cash flows for each
electric generating plant were then compared to its net book value. For any
electric generating plant with future undiscounted cash flows less than its book
value, net cash flows were discounted using a discount rate commensurate with
the risk of each electric generating plant. Since the Company's retail electric
rates will continue to be cost-based until January 1, 1999, $0.3 billion
representing depreciation expense on electric generation-related assets in 1998
has been reclassified to a regulatory asset and will be amortized and recovered
in 1998.
At December 31, 1997, the Company had $2.7 billion of electric
generation-related regulatory assets, of which $0.1 billion will be amortized
and recovered through cost-based rates in 1998.
At December 31, 1997, the Company had total electric generation-related
stranded costs of $8.4 billion, representing $5.8 billion of net stranded
electric generation plant and $2.6 billion of electric generation-related
regulatory assets. The PUC Restructuring Order allows the Company to recover
$4.9 billion on a discounted basis, or $5.3 billion on a book-value basis, of
its generation-related stranded costs from customers. This results in a net
unrecoverable amount of $3.1 billion.
Although the Company is appealing the PUC Restructuring Order, Management
believes that EITF No. 97-4 required it to write off all electric
generation-related stranded costs for which recovery through rates has not been
provided. Accordingly, the Company recorded an extraordinary charge at December
31, 1997 of $3.1 billion ($1.8 billion net of taxes) of electric
generation-related stranded costs that will not be recovered from customers.
A summary, as of December 31, 1997, of the electric generation-related
stranded costs and the amount of such stranded costs written-off by the Company
is shown in the following table:
(Thousands of Dollars)
Electric generation-related asset impairment determined
pursuant to SFAS No. 121
Net book value of electric
generation-related assets
before write-down $7,115,155
December 31, 1998 market value of
electric generation-related assets
pursuant to SFAS No. 121 (990,376)
Expected 1998 change in net plant
recognized for recovery until
cost-based rates cease at
December 31, 1998 (303,800)
----------
Electric generation-related asset impairment 5,820,979
Electric generation-related regulatory assets
Recoverable Deferred Income Taxes 1,762,946
Deferred Limerick Costs 321,420
Deferred Non-Pension Postretirement
Benefits Other Than Pensions 120,899
Deferred Energy Costs - Electric 92,021
Loss on Reacquired Debt 177,183
Additional assets written-off pursuant to
discontinuance of SFAS No. 71 104,818
Other 90,480
Regulatory asset recognized for
recovery until cost-based
rates cease at December 31, 1998 (91,497)
----------
Total electric generation-related regulatory assets 2,578,270
----------
Total electric generation-related stranded costs 8,399,249
Amounts approved for collection
from customers (regulatory asset
pursuant to EITF No. 97-4) (5,274,624)
----------
Total Extraordinary Item $ 3,124,625
==========
Due to the market-based pricing of electric generation provisions of the
PJM Interconnection, L.L.C. restructuring order approved by the FERC in November
1997, the Company believes that its wholesale energy sales operations are no
longer subject to the provisions of SFAS No. 71. Based on projections of the
Company's retail load growth, the Company believes all of its owned generation
capacity is necessary to meet its electric retail load. As a result, the
discontinuance of SFAS No. 71 for its wholesale energy sales operations has not
resulted in an additional charge against income.
The Company believes that its electric transmission and distribution system
and gas operations continue to meet the provisions of SFAS No. 71. The Company
believes that it is probable that regulatory assets associated with these
operations will be recovered.
<PAGE>
32
The Company has adopted SFAS No. 128, "Earnings Per Share," which is
designed to simplify the existing computational guidelines for the earnings per
share (EPS) information provided in financial statements, to revise the
disclosure requirements and to increase the comparability of EPS data on an
international basis. Pursuant to SFAS No. 128, the Company reflected on its
Consolidated Statements of Income basic EPS and dilutive EPS for the years ended
December 31, 1997, 1996 and 1995. Adoption of SFAS No. 128 did not impact the
amount of EPS reported and there is no difference in the amounts calculated as
basic EPS and dilutive EPS.
5. Commitments and Contingencies
Capital Commitments
Total capital expenditures, primarily for utility plant, are estimated to be
$600 million in 1998. Due to the expected adverse impact of the PUC
Restructuring Order and competition for electric generating services on its
future capital resources, the Company is currently evaluating its capital
commitments for 1999 and beyond. Certain facilities under construction and to be
constructed may require permits and licenses which the Company has no assurance
will be granted. The Company has undertaken a number of new ventures,
principally through its Telecommunications Group, some of which require
significant cash commitments. For 1998, the Company's expected capital
expenditures include approximately $150 million in such ventures.
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 currently limits the liability of nuclear reactor owners
to $8.9 billion for claims that could arise from a single incident. The limit is
subject to change to account for the effects of inflation and changes in the
number of licensed reactors. The Company carries the maximum available
commercial insurance of $200 million and the remaining $8.7 billion is provided
through 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.
The Company carries property damage, decontamination and premature
decommissioning insurance in the amount of its $2.75 billion proportionate share
for each station loss resulting from damage to its nuclear plants. 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 Nuclear Regulatory Commission (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 $26 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. Such losses 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 $13 million per year.
Nuclear Decommissioning and Spent Fuel Storage
The Company's current estimate of its nuclear facilities' decommissioning cost
of $1.5 billion in 1997 dollars is being collected through electric rates over
the life of each generating unit. Beginning in 1999, these amounts will be
recoverable through transmission and distribution rates. Under current rates,
the Company collects and expenses approximately $20 million annually from
customers. The expense is accounted for as a component of depreciation expense
and accumulated depreciation. At December 31, 1997 and 1996, $294 and $256
million, respectively, was included in accumulated depreciation. In order to
fund future decommissioning costs, at December 31, 1997 and 1996, the Company
held $320 and $266 million, respectively, in trust accounts which are included
as an Investment in the Company's Consolidated Balance Sheet and include both
net unrealized and realized gains. Net unrealized gains of $43 and $26 million
were recognized as a Deferred Credit in the Company's Consolidated Balance Sheet
at December 31, 1997 and 1996, respectively. The Company recognized net realized
gains of $11, $10 and $9 million as Other Income in the Company's Consolidated
Statement of Income for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company believes that the amounts being recovered from
customers through electric rates will be sufficient to fully fund the unrecorded
portion of its decommissioning obligation.
In an Exposure Draft issued in 1996, the FASB proposed changes in the
accounting for closure and removal costs of production facilities, including the
recognition, measurement and classification of decommissioning costs for nuclear
generating stations. The FASB has expanded the scope of the Exposure Draft to
include closure or removal liabilities that are incurred at any time during the
operating life of the related long-lived asset. The FASB has decided that it
should proceed toward either a final Statement or a revised Exposure Draft. The
timing of this project is still to be determined. 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 a related regulatory 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. Based on recent public pronouncements, it is not
<PAGE>
33
likely that a permanent disposal site will be available for the industry before
2015, at the earliest. In reaction to statements from the DOE that it was not
legally obligated to begin to accept spent fuel in 1998, a group of utilities
and state government agencies filed a lawsuit against the DOE which resulted in
a decision by the U.S. Court of Appeals for the District of Columbia (D.C. Court
of Appeals) in July 1996 that the DOE had an unequivocal obligation to begin to
accept spent fuel in 1998. In accordance with the NWPA, the Company pays the DOE
one mill ($.001) per kilowatthour of net nuclear generation for the cost of
nuclear fuel disposal. This fee may be adjusted prospectively in order to ensure
full cost recovery. Because of inaction by the DOE following the D.C. Court of
Appeals finding of the DOE's obligation to begin receiving spent fuel in 1998, a
group of forty-two utility companies, including the Company, and forty-six state
agencies, filed suit against the DOE seeking authorization to suspend further
payments to the U.S. government under the NWPA and to deposit such payments into
an escrow account until such time as the DOE takes effective action to meet its
1998 obligations. In November 1997, the D.C. Court of Appeals issued a decision
in which it held that the DOE had not abided by its prior determination that the
DOE has an unconditional obligation to begin disposal of spent nuclear fuel by
January 31, 1998. The D.C. Court of Appeals also precluded the DOE from
asserting that it was not required to begin receiving spent nuclear fuel because
it had not yet prepared a permanent repository or an interim storage facility.
The DOE and one of the utility companies have filed a Petition for
Reconsideration of the decision. The U.S. House of Representatives and the U.S.
Senate passed separate bills in 1997 authorizing construction of a temporary
storage facility which could accept spent nuclear fuel from utilities in 2003.
In addition, the DOE is exploring other options to address delays in the waste
acceptance schedule.
Peach Bottom has on-site facilities with capacity to store spent nuclear
fuel discharged from the units through 2000 for Unit No. 2 and 2001 for Unit No.
3. Life-of-plant storage capacity will be provided by on-site dry cask storage
facilities, the construction of which will begin in 1998. Limerick has on-site
facilities with capacity to store spent nuclear fuel to 2007. Salem has on-site
facilities with spent fuel storage capacity through 2008 for Unit No. 1 and 2012
for Unit No. 2. Public Service Electric and Gas Company (PSE&G) is the operator
of Salem, which is 42.59% owned by the Company.
Energy Commitments
The Company's electric utility operations include the wholesale marketing of
electricity. At December 31,1997, the Company had long-term commitments relating
to the purchase from unaffiliated utilities and others energy associated with
1,330 MW of capacity in 1998, with 2,540 MW of capacity during the period 1999
through 2002 and with 2,430 MW of capacity thereafter. During 1997, purchases
under long-term commitments resulted in expenditures of $311 million. As of
December 31, 1997, these purchases result in commitments of approximately $240
million for 1998, $620 million for 1999 through 2002 and $830 million
thereafter. These purchases will be utilized through a combination of sales to
jurisdictional customers, long-term sales to other utilities and open market
sales. Under some of these contracts, the Company may purchase, at its option,
additional power as needed.
In the wholesale market, the Company has increased its sales to other
utilities, but increased competition has reduced the Company's profit margins on
these sales. At December 31, 1997, the Company had entered into long-term
agreements with unaffiliated utilities to sell energy associated with 4,280 MW
of capacity, of which 540 MW of these agreements are for 1998, 1,700 MW are for
1999 through 2002 and the remaining 2,040 MW extend through 2022.
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 27 sites where former manufactured gas plant
(MGP) activities have or may 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. The Pennsylvania Department of Environmental Protection has
approved the Company's clean-up of two sites. Six other sites are currently
under some degree of active study and/or remediation.
As of December 31, 1997 and 1996, the Company had accrued $63 and $28
million, respectively, for environmental investigation and remediation costs,
including $35 and $16 million, respectively, for MGP investigation and
remediation, that currently can be reasonably estimated. The Company cannot
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 such costs will be
recoverable from third parties.
Shutdown of Salem Generating Station
PSE&G removed Salem Units No. 1 and No. 2 from service in the second quarter of
1995 and 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. Unit No. 2 returned to service on August 30, 1997, and PSE&G estimates
the restart of Unit No. 1 to occur late in the first quarter of 1998. For the
years ended December 31, 1997, 1996 and 1995, the Company incurred and expensed
approximately $152, $149 and $50 million of shutdown-related replacement power
and maintenance costs, respectively (see note 21).
<PAGE>
34
Telecommunications
The Company periodically reviews its investments to determine that they are
properly valued in its financial statements. Due to circumstances involved in
the Federal Communication Commission's auctioning of the personal communications
systems "C-block" licenses, the Company has determined that $20 million of its
telecommunications investments were impaired at December 31, 1997. Accordingly,
at December 31, 1997, the Company incurred a $20 million charge against Other
Income and Deductions to write off this telecommunications investment.
Litigation
The Company is involved in various other litigation matters. The ultimate
outcome of such matters, while uncertain, is not expected to have a material
adverse effect on the Company's financial condition or results of operations.
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
89%, 80% and 74% of pension costs were charged to operations in 1997, 1996 and
1995, respectively, and the remainder, associated with construction labor, to
the cost of new utility plant.
Pension costs for 1997, 1996 and 1995 included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Service cost benefits earned during the period $ 25,368 $ 27,627 $ 19,710
Interest cost on projected benefit obligation 150,057 145,570 147,261
Actual return on plan assets (377,803) (320,247) (456,057)
Amortization of transition asset (4,538) (4,538) (4,538)
Amortization and deferral 197,480 154,402 300,214
--------- --------- ---------
Net pension cost $ (9,436) $ 2,814 $ 6,590
========= ========= =========
</TABLE>
The changes in net periodic pension costs in 1997, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Change in number, characteristics and salary
levels of participants and net actuarial gain $ (7,839) $(12,893) $ 1,486
Change in plan provisions 3,118 -- (8,305)
Change in actuarial assumptions (7,529) 9,117 (3,136)
-------- -------- --------
Net change $(12,250) $ (3,776) $ (9,955)
======== ======== ========
</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 1997, 1996 and 1995.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.25% at December 31,
1997, 7.75% at December 31, 1996 and 7.25% at December 31, 1995. The average
rate of increase in future compensation levels ranged from 4% to 6% at December
31, 1997, 1996 and 1995.
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.
<PAGE>
35
The funded status of the plan at December 31, 1997 and 1996 is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
Thousands of Dollars
<S> <C> <C>
Actuarial present value of accumulated plan benefit obligations:
Vested benefit obligation $ 1,794,222 $ 1,657,098
Accumulated benefit obligation 1,890,848 1,742,116
Projected benefit obligation for services rendered to date $ 2,141,040 $ 1,982,915
Plan assets at fair value (2,538,039) (2,302,935)
----------- -----------
Funded status (396,999) (320,020)
Unrecognized transition asset 35,713 40,251
Unrecognized prior service costs (83,188) (92,682)
Unrecognized net gain 649,903 588,013
----------- -----------
Pension obligation recognized on the balance sheet $ 205,429 $ 215,562
=========== ===========
</TABLE>
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, which represents the previously unrecognized
accumulated non-pension postretirement benefit obligation, is being amortized on
a straight-line basis over an allowed 20-year period. At December 31, 1997, the
Company accelerated recognition of $121 million of its non-pension
postretirement benefits obligation related to its electric generation operations
and included this regulatory asset as part of electric generation-related
regulatory assets (see note 4).
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 7% in 1998 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 $85 million
and the annual service and interest costs by $10 million.
Total costs for all plans were $73 million in 1997 and $71 million in 1996
and 1995.
The net periodic benefits costs for 1997, 1996 and 1995 included the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Service cost benefits earned during the period $ 14,401 $ 11,855 $ 8,681
Interest cost on projected benefit obligation 54,149 48,524 48,641
Amortization of transition asset 14,882 14,882 14,882
Actual return on plan assets (22,691) (13,257) (2,075)
Deferred asset gain 12,707 9,320 1,359
-------- -------- --------
Net postretirement benefits costs $ 73,448 $ 71,324 $ 71,488
======== ======== ========
</TABLE>
Plan assets consist principally of common stock, U.S. government obligations and
other fixed income instruments. In determining non-pension postretirement
benefits costs, the assumed long-term rate of return on assets was 8% for 1997,
1996 and 1995.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.75% as of January 1,
1997, 7.50% as of January 1, 1996 and 8.50% at January 1, 1995. The average rate
of increase in future compensation levels ranged from 4% to 6% at December 31,
1997, 1996 and 1995.
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.
<PAGE>
The funded status of the plan at December 31, 1997 and 1996 is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
Thousands of Dollars
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 697,084 $ 609,206
Fully eligible active plan participants 8,875 4,509
Other active plan participants 73,272 48,986
--------- ---------
Total 779,231 662,701
Plan assets at fair value (178,045) (126,661)
--------- ---------
Accumulated postretirement benefit obligation
in excess of plan assets 601,186 536,040
Unrecognized transition obligation (223,226) (238,108)
Unrecognized net gain (53,110) 17,126
--------- ---------
Accrued postretirement benefits obligation
recognized on the balance sheet $ 324,850 $ 315,058
========= =========
</TABLE>
Measurement of the accumulated postretirement benefits obligation was based on a
7.25% and 7.75% assumed discount rate as of December 31, 1997 and 1996,
respectively.
8. Accounts Receivable
Accounts receivable at December 31, 1997 and 1996 included unbilled operating
revenues of $135 and $117 million, respectively. Accounts receivable at December
31, 1997 and 1996 were net of an allowance for uncollectible accounts of $32 and
$24 million, respectively.
The Company has adopted SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
provides a standard for distinguishing between transfers of financial assets
that are accounted for as sales from those that are accounted for as secured
borrowings.
The Company is party to an agreement with a financial institution under
which it can sell or finance with limited recourse an undivided interest,
adjusted daily, in up to $425 million of designated accounts receivable until
November 2000. At December 31, 1997, the Company had sold a $425 million
interest in accounts receivable, consisting of a $296 million interest in
accounts receivable which the Company accounts for as a sale under SFAS No. 125
and a $129 million interest in special agreement accounts receivable which were
accounted for as a long-term note payable (see note 12). The Company retains the
servicing responsibility for these receivables.
9. Common Stock
At December 31, 1997 and 1996, common stock without par value consisted of
500,000,000 shares authorized and 222,546,562 and 222,542,087 shares
outstanding, respectively. At December 31, 1997, there were 5,800,841 shares
reserved for issuance under the Company's Dividend Reinvestment and Stock
Purchase Plan.
Stock Repurchase
During 1997, the Company's Board of Directors authorized the repurchase of up to
25 million shares of its common stock from time to time through open-market,
privately negotiated and/or other types of transactions in conformity with the
rules of the Securities and Exchange Commission.
Pursuant to these authorizations, the Company has entered into forward
purchase agreements to be settled from time to time, at the Company's election,
on either a physical, net share or net cash basis. The amount at which these
agreements can be settled is dependent principally upon the market price of the
Company's common stock as compared to the forward purchase price per share and
the number of shares to be settled. If these agreements had been settled on a
net share basis at December 31, 1997, based on the closing price of the
Company's common stock on that date, the Company would have received
approximately 1,160,000 shares of Company common stock.
Long-Term Incentive Plan (LTIP)
The Company maintains an LTIP for certain full-time salaried employees of the
Company. The types of long-term incentive awards which have been 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. The Company
uses the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
<PAGE>
37
If the Company elected to account for the LTIP based on SFAS No. 123, earnings
applicable to common stock and earnings per average common share would have been
changed to the pro forma amounts as follows:
<TABLE>
<CAPTION>
1997 1996
Thousands of Dollars
<S> <C> <C> <C>
Earnings applicable to common stock As reported $(1,513,910) $499,169
Pro forma $(1,515,895) $497,887
Earnings per average common share (Dollars) As reported $ (6.80) $ 2.24
Pro forma $ (6.81) $ 2.24
</TABLE>
Options granted under the LTIP become exercisable one year after the date of
grant and all options expire 10 years from the date of the grant. Information
with respect to the LTIP at December 31, 1997 and changes for the three years
then ended, is as follows:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Shares (per share) Shares (per share) Shares (per share)
1997 1997 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 2,961,194 $ 26.68 2,591,765 $ 26.16 2,651,397 $ 26.73
Options granted 1,139,000 22.49 786,500 28.12 850,700 26.46
Options exercised -- -- (369,871) 25.07 (561,232) 23.91
Options cancelled (283,400) 24.96 (47,200) 29.36 (349,100) 35.57
--------- --------- ---------
Balance at December 31 3,816,794 26.14 2,961,194 26.68 2,591,765 26.16
--------- --------- ---------
Exercisable at
December 31 2,800,794 26.65 2,192,694 26.17 1,813,565 25.91
Weighted average fair
value of options granted
during year $ 2.97 $ 2.78 $ 2.91
</TABLE>
The fair value of each option is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995, respectively:
1997 1996 1995
Dividend yield 6.2% 6.2% 6.2%
Expected volatility 19.5% 16.6% 15.3%
Risk-free interest rate 6.4% 5.5% 6.9%
Expected life (years) 5 5 5
At December 31, 1997, the option groups outstanding based on ranges of exercise
prices is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-
Average Weighted Weighted-
Remaining Average Average
Number Contractual Life Exercise Number Exercise
Range of Exercise Prices Outstanding (Years) Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$15.75 - $20.00 156,094 4.47 $ 18.65 117,594 $ 18.43
$20.01 - $25.00 863,500 8.23 22.35 153,000 22.66
$25.01 - $30.00 2,607,000 6.72 27.32 2,518,000 27.22
$30.01 - $50.00 190,200 9.58 33.27 12,200 37.18
--------- ---------
Total 3,816,794 2,800,794
========= =========
</TABLE>
<PAGE>
38
10. Preferred and Preference Stock
At December 31, 1997 and 1996, Series Preference Stock consisted of 100,000,000
shares authorized, of which no shares were outstanding. At December 31, 1997 and
1996, 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) 1997 1996 1997 1996
Series (without mandatory
redemption)
<S> <C> <C> <C> <C> <C>
$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 -- -- 618,954 -- 61,895
$7.48 (b) 500,000 500,000 50,000 50,000
----------- --------- ---------- ----------
1,374,720 1,993,674 137,472 199,367
Series (with mandatory
redemption)
$6.12 (c) 927,000 927,000 92,700 92,700
----------- --------- ---------- ----------
Total preferred stock $ 2,301,720 2,920,674 $ 230,172 $ 292,067
=========== ========= ========== ==========
<FN>
(a) Redeemable, at the option of the Company, at the indicated dollar amounts
per share, plus accrued dividends.
(b) None of the shares of this series are subject to redemption prior to April
1, 2003.
(c) There are no annual sinking fund requirements in 1998. Annual sinking fund
requirements in 1999 - 2003 are $18,540,000. 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, 1997 and 1996, 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 three and two series, respectively,
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 Other Income and Deductions in the Consolidated
Statements of Income and is deductible for income tax purposes.
<TABLE>
<CAPTION>
Mandatory Trust Receipts Amount
Redemption Distribution Outstanding Thousands of Dollars
At December 31, Date Rate 1997 1996 1997 1996
Series
<S> <C> <C> <C> <C> <C> <C>
A 2043 9.00% 8,850,000 8,850,000 $ 221,250 $ 221,250
B (a) 2025 8.72% 3,124,183 3,124,183 80,835 80,932
C (b) 2037 8.00% 2,000,000 -- 50,000 --
---------- ---------- --------- ---------
Total 13,974,183 11,974,183 $ 352,085 $ 302,182
========== ========== ========= =========
<FN>
(a) Ownership of this series is evidenced by Trust Receipts, each representing
an 8.72% COMRPS, Series B, representing limited partnership interests. 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.
(b) Ownership of this series is evidenced by Trust Receipts, each representing
an 8.00% COMRPS, Series C, representing limited partnership interests. The
Trust Receipts were issued by PECO Energy Capital Trust II, the sole assets
of which are 8.00% COMRPS, Series C. Each holder of Trust Receipts is
entitled to withdraw the corresponding number of 8.00% COMRPS, Series C
from the Trust in exchange for the Trust Receipts so held.
</FN>
</TABLE>
<PAGE>
39
<TABLE>
<CAPTION>
12. Long-Term Debt
At December 31, Series Due 1997 1996
Thousands of Dollars
<S> <C> <C> <C> <C>
First and refunding mortgage bonds (a) 6 1/8% 1997 $ -- $ 75,000
5 3/8% 1998 225,000 225,000
7 1/2%-9 1/4% 1999 325,000 325,000
5 5/8%-7 3/8% 2001 330,000 330,000
7 1/8%-8% 2002 500,000 500,000
6 3/8%-10 1/4% 2003-2007 565,625 569,688
(b) 2008-2012 154,200 154,200
6 5/8%-8 3/4% 2018-2022 832,130 832,130
7 1/8%-7 3/4% 2023-2024 775,000 775,000
----------- -----------
Total first and refunding mortgage bonds 3,706,955 3,786,018
Notes payable 15,574 --
Term loan agreements (c) 1997 -- 175,000
Pollution control notes (d) 2016-2034 212,705 212,705
Medium-term notes (e) 1998-2005 62,400 74,400
Note Payable - accounts receivable agreement (f) 2000 128,999 --
Unamortized debt discount and premium, net (26,405) (29,306)
----------- -----------
Total long-term debt 4,100,228 4,218,817
Due within one year (g) 247,087 283,303
----------- -----------
Long-term debt included in capitalization (h) $ 3,853,141 $ 3,935,514
=========== ===========
<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 3.725% at
December 31, 1997.
(c) The Company has a $900 million unsecured revolving credit facility with a
group of banks. The credit facility is composed of a $450 million 364-day
credit agreement and a $450 million three-year credit agreement. The
Company uses the credit facility principally to support the Company's
commercial paper program, which was expanded from $300 million to $600
million in 1997. There was no debt outstanding under this credit facility
at December 31, 1997.
(d) Floating rates, which were an average annual interest rate of 3.75% at
December 31, 1997.
(e) Medium-term notes collateralized by mortgage bonds. The average annual
interest rate was 8.75% at December 31, 1997.
(f) See note 8.
(g) Long-term debt maturities, including mandatory sinking fund requirements,
in the period 1998-2002 are as follows: 1998 - $247,087,409; 1999 -
$361,945,982; 2000 - $137,129,159; 2001 - $338,433,453; 2002 -
$508,759,067.
(h) The annualized interest on long-term debt at December 31, 1997, was $286
million, of which $269 million was associated with mortgage bonds and $17
million was associated with other long-term debt.
</FN>
</TABLE>
13. Short-Term Debt
<TABLE>
<CAPTION>
1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Average borrowings $ 248,111 $ 198,090 $ 17,560
Average interest rates, computed on daily basis 5.83% 5.64% 6.25%
Maximum borrowings outstanding $ 464,500 $369,500 $ 182,000
Average interest rates, at December 31 6.74% 6.90% --
</TABLE>
The Company has a $600 million commercial paper program which is supported by
the $900 million revolving credit facility (see note 12). At December 31, 1997,
$314 million of commercial paper was outstanding. At December 31, 1997, the
Company had formal and informal lines of credit with banks aggregating $75
million. At December 31, 1997, no short-term debt was outstanding under these
lines.
<PAGE>
40
14. Income Taxes
Income tax expense (benefit) is comprised of the following components:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the Years Ended December 31, 1997 1996 1995
Thousands of Dollars
Included in operations:
Federal
Current $ 251,509 $ 126,471 $ 190,796
Deferred (11,378) 154,564 167,526
Investment tax credit, net (18,201) (15,979) (21,679)
State
Current 76,689 62,839 79,086
Deferred (5,850) 12,206 15,988
---------- --------- ---------
292,769 340,101 431,717
========== ========= =========
Included in extraordinary item:
Federal
Current (123) - -
Deferred (987,234) - -
State
Current (29) - -
Deferred (303,575) - -
---------- --------- ---------
(1,290,961) - -
---------- --------- ---------
Total $ (998,192) $ 340,101 $ 431,717
========== ========= =========
</TABLE>
The total income tax provisions, excluding the extraordinary item, differed from
amounts computed by applying the federal statutory tax rate to income as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Net Income $ 336,558 $ 517,205 $ 609,732
Total income tax provisions 292,769 340,101 431,717
---------- ---------- ----------
Income before income taxes $ 629,327 $ 857,306 $1,041,449
========== ========== ==========
Income taxes on above at federal statutory rate
of 35% $ 220,264 $ 300,057 $ 364,507
Increase (decrease) due to:
Property basis differences 40,828 9,903 11,196
State income taxes, net of federal income tax benefit 46,046 48,779 61,799
Amortization of investment tax credit (18,201) (15,979) (13,604)
Prior period income taxes (2,985) (1,707) 1,791
Other, net 6,817 (952) 6,028
---------- ---------- ----------
Total income tax provisions $ 292,769 $ 340,101 $ 431,717
========== ========== ==========
Effective income tax rate 46.5% 39.7% 41.5%
</TABLE>
<PAGE>
41
Provisions for deferred income taxes consist of the tax effects of the following
temporary differences:
<TABLE>
<CAPTION>
1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Depreciation and amortization $ 57,530 $ 42,385 $ 32,287
Deferred energy costs 2,256 27,374 30,073
Retirement and separation programs (12,734) 19,746 15,733
Incremental nuclear outage costs (981) 2,440 8,079
Uncollectible accounts (1,710) (2,805) (1,991)
Reacquired debt (8,607) (9,578) (3,266)
Unbilled revenue (5,110) 3,910 (5)
Environmental clean-up costs (15,121) (714) 2,433
Obsolete inventory (7,074) 5,829 6,362
Limerick plant disallowances and phase-in plan (747) (747) 2,507
AMT credits - 83,010 91,399
Other nuclear operating costs (9,892) - -
Other (15,038) (4,080) (97)
----------- -------- --------
Subtotal (17,228) 166,770 183,514
Extraordinary item (1,290,809) - -
----------- -------- --------
Total $(1,308,037) $166,770 $183,514
=========== ======== ========
</TABLE>
The tax effect of temporary differences giving rise to the Company's net
deferred tax liability as of December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Liability or (Asset)
1997 1996
Thousands of Dollars
<S> <C> <C>
Nature of temporary difference:
Plant basis difference $ 2,620,254 $ 3,795,786
Deferred investment tax credit 318,065 336,132
Deferred debt refinancing costs 111,651 120,031
Other, net (249,167) (167,830)
----------- -----------
Deferred income taxes (net) on the balance sheet $ 2,800,803 $ 4,084,119
=========== ===========
</TABLE>
The net deferred tax liability shown above as of December 31, 1997 and 1996 is
comprised of $3,153 and $4,347 million of deferred tax liabilities, and $352 and
$263 million of deferred tax assets, respectively.
In accordance with SFAS No. 71, the Company recorded a recoverable deferred
income tax asset of $586 and $2,322 million at December 31,1997 and 1996,
respectively. The December 31, 1997 balance was applicable only to non-electric
generation assets, due to the discontinuance of SFAS No. 71 for the Company's
electric generation operations. These recoverable deferred income taxes include
the deferred tax effects associated principally with liberalized depreciation
accounted for in accordance with the ratemaking policies of the PUC, as well as
the revenue impacts thereon, and assume recovery of these costs in future rates.
At December 31, 1997, $1,763 million of electric generation-related recoverable
deferred income taxes were included as part of electric generation-related
regulatory assets (see note 4).
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 Company and
the IRS have reached a tentative settlement which would not result in an adverse
impact on the Company. The years 1991 through 1993 are currently being examined
by the IRS.
The AMT credit was fully utilized for tax purposes at December 31, 1997,
and reduced federal income taxes currently payable by $6 million in 1997.
<PAGE>
42
15. Taxes, Other Than Income - Operating
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Gross receipts $163,552 $160,246 $165,172
Capital stock 48,085 41,972 42,444
Real estate 69,597 69,185 71,600
Payroll 25,976 27,585 30,109
Other 2,881 558 4,746
-------- -------- --------
Total $310,091 $299,546 $314,071
======== ======== ========
</TABLE>
16. Leases
Leased property included in utility plant was as follows:
<TABLE>
<CAPTION>
At December 31, 1997 1996
Thousands of Dollars
<S> <C> <C>
Nuclear fuel $ 521,921 $ 527,116
Electric plant 2,321 2,069
--------- ---------
Gross leased property 524,242 529,185
Accumulated amortization (348,309) (347,097)
--------- ---------
Net leased property $ 175,933 $ 182,088
========= =========
</TABLE>
Nuclear fuel is amortized as the fuel is consumed. Amortization of leased
property totaled $39, $31 and $43 million for the years ended December 31, 1997,
1996 and 1995, respectively. Other operating expenses included interest on
capital lease obligations of $9 million in 1997 and 1996, and $10 million in
1995.
Minimum future lease payments as of December 31, 1997 were:
<TABLE>
<CAPTION>
For the Years Ending December 31, Capital Leases Operating Leases Total
Thousands of Dollars
<S> <C> <C> <C>
1998 $ 69,820 $ 50,584 $ 120,404
1999 68,530 49,370 117,900
2000 43,827 45,923 89,750
2001 10,892 43,219 54,111
2002 92 42,327 42,419
Remaining years 806 537,645 538,451
---------- ----------- ----------
Total minimum future lease payments $ 193,967 $ 769,068 $ 963,035
=========== ==========
Imputed interest (rates ranging from 6.5% to 17.0%) (18,034)
----------
Present value of net minimum future lease payments $ 175,933
==========
</TABLE>
Rental expense under operating leases totaled $74 million in 1997 and 1996, and
$115 million in 1995.
<PAGE>
43
17. Jointly Owned Electric Utility Plant
The Company's ownership interests in jointly owned electric utility plant at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Transmission
Production Plants and Other Plant
Peach Bottom Salem Keystone Conemaugh
Public Service GPU GPU
PECO Energy Electric and Generating Generating Various
Operator Company Gas Company Corp. Corp. 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 $ 307,029 $ 18,331 $ 110,661 $ 184,037 $ 81,072
Accumulated depreciation 175,304 11,134 66,487 78,605 31,273
Construction work in progress 50,028 713 10,067 9,100 1,943
</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>
1997 1996 1995
Thousands of Dollars
<S> <C> <C> <C>
Cash paid during the year:
Interest (net of amount capitalized) $405,838 $415,063 $449,664
Income taxes (net of refunds) 345,232 251,554 257,677
Noncash investing and financing:
Capital lease obligations incurred 32,909 33,063 48,760
</TABLE>
19. Investments
<TABLE>
<CAPTION>
At December 31, 1997 1996
Thousands of Dollars
<S> <C> <C>
Trust accounts for decommissioning nuclear plants $320,442 $266,270
Telecommunications ventures 85,601 79,833
Energy services and other ventures 65,578 44,023
Nonutility property 24,697 26,349
Other 19,517 16,099
-------- --------
Total $515,835 $432,574
======== ========
</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, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
Thousands of Dollars 1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and temporary cash investments $33,404 $33,404 $29,235 $29,235
Long-term debt (including amounts due within one year) 4,100,228 4,210,885 4,218,817 4,239,357
Trust accounts for decommissioning nuclear plants 320,442 320,442 266,270 266,270
</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.
<PAGE>
44
21. Other Income
Settlement of Salem Litigation
On December 31, 1997, the Company received $70 million pursuant to the May 1997
settlement agreement with PSE&G resolving a suit filed by the Company concerning
the shutdown of Salem. The agreement also provides that if the outage exceeds 64
reactor unit months, PSE&G will pay the Company $1 million per reactor unit
month. As of December 31, 1997, the shutdown of Salem totaled 58 reactor unit
months. During the second quarter of 1997, the Company recorded $70 million ($41
million net of income taxes) as Other Income.
Sale of Subsidiary
In June 1995, the Company completed the sale of Conowingo Power Company 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 of $59 million ($27 million net of taxes) on the sale was
recorded in the second quarter of 1995.
22. Regulatory Assets and Liabilities
At December 31, 1997 and 1996, the Company had deferred the following regulatory
assets on the Consolidated Balance Sheet:
<TABLE>
<CAPTION>
1997 1996
Thousands of Dollars
<S> <C> <C> <C>
Competitive transition charge (see note 4) $5,274,624 $ -
Recoverable deferred income taxes (see note 14) 585,661 2,321,692
Deferred generation costs recoverable in current
rates (see note 4) 424,497 -
Deferred Limerick costs (see note 3) - 361,762
Loss on reacquired debt 83,918 283,853
Compensated absences 3,881 37,727
Deferred energy costs (see note 3) 35,665 122,034
Non-pension postretirement benefits (see note 3) 97,409 233,492
---------- ----------
Total $6,505,655 $3,360,560
========== ==========
</TABLE>
23. 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 (Loss)
Millions of Dollars 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Quarter ended
March 31 $1,163 $1,171 $ 302 $ 357 $ 113 $ 150
June 30 1,032 989 250 267 123 99
September 30 1,278 1,110 388 347 158 150
December 31 1,144 1,014 66 278 (1,891) 118
</TABLE>
<TABLE>
<CAPTION>
Earnings Applicable Average Shares Earnings
to Common Stock Outstanding Per Average Share
Millions of Dollars 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Quarter ended
March 31 $109 $146 222.5 222.4 $ 0.49 $ 0.65
June 30 118 94 222.5 222.5 0.53 0.43
September 30 154 145 222.5 222.5 0.69 0.65
December 31 (1,895) 114 222.5 222.5 (8.51) 0.51
</TABLE>
The decrease in 1997 first quarter results was primarily due to increased fuel
and energy interchange expense resulting primarily from additional purchases
needed for increased sales to other utilities and higher replacement power costs
due to the Salem outage, milder weather and increased depreciation of assets
associated with Limerick.
The increase in 1997 second quarter results was primarily due to the
recognition of the settlement of litigation arising from the Salem outage.
Offsetting this increase was higher depreciation of assets associated with
Limerick.
The decrease in 1997 fourth quarter results was primarily due to the
extraordinary charge of $8.24 per share resulting from the effects of the PUC
Restructuring Order and deregulation of the Company's electric generation
operations; several one-time adjustments for changes in employee benefits,
write-offs of information systems development charges reflecting clarification
of accounting guidelines and additional reserves to revise estimates for
accruals; higher income tax adjustments; and higher losses from the Company's
non-utility ventures.
<PAGE>
45
Financial Statistics
Summary of Earnings and Financial Condition
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995 1994 1993 1992
Millions of Dollars
<S> <C> <C> <C> <C> <C> <C>
Income Data
Operating Revenues $4,618 $ 4,284 $ 4,186 $ 4,041 $ 3,988 $ 3,963
Operating Income 1,006 1,249 1,401 1,064 1,390 1,298
Income before Extraordinary Item 337 517 610 427 591 479
Extraordinary Item (net of income taxes) (1,834) - - - - -
Net Income (1,497) 517 610 427 591 479
Earnings Applicable to Common
Stock Before Extraordinary Item (1,514) 499 587 389 542 418
Earnings per Average Common Share
Before Extraordinary Item (Dollars) 1.44 2.24 2.64 1.76 2.45 1.90
Extraordinary Item (Per Share) (8.24) - - - - -
Earnings per Average Common Share (6.80) 2.24 2.64 1.76 2.45 1.90
Dividends per Common Share (Dollars) 1.80 1.755 1.65 1.545 1.43 1.325
Common Stock Equity (Per Share) 12.25 20.88 20.40 19.41 19.25 18.24
Average Shares of Common Stock
Outstanding (Millions) 222.5 222.5 221.9 221.6 221.1 220.2
At December 31,
Balance Sheet Data
Net Utility Plant $4,495 $10,760 $10,758 $10,829 $10,763 $10,691
Leased Property, net 176 182 181 174 194 210
Total Current Assets 1,003 420 426 427 515 550
Total Deferred Debits and
Other Assets 6,683 3,899 3,944 3,992 3,905 1,127
------- ------- ------- ------- ------- -------
Total Assets $12,357 $15,261 $15,309 $15,422 $15,377 $12,578
======= ======= ======= ======= ======= =======
Common Shareholders' Equity $ 2,727 $ 4,646 $ 4,531 $ 4,303 $ 4,263 $ 4,022
Preferred and Preference Stock
Without Mandatory Redemption 137 199 199 277 423 423
With Mandatory Redemption 93 93 93 93 187 231
Company Obligated Mandatorily
Redeemable Preferred
Securities of a Partnership 352 302 302 221 -- --
Long-term Debt 3,853 3,936 4,199 4,786 4,884 5,204
------- ------- ------- ------- ------- -------
Total Capitalization 7,162 9,176 9,324 9,680 9,757 9,880
Total Current Liabilities 1,619 1,103 1,052 850 954 830
Total Deferred Credits and
Other Liabilities 3,576 4,982 4,933 4,892 4,666 1,868
------- ------- ------- ------- ------- -------
Total Capitalization and
Liabilities $12,357 $15,261 $15,309 $15,422 $15,377 $12,578
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
46
Operating Statistics
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995 1994 1993 1992
Electric Operations
<S> <C> <C> <C> <C> <C> <C>
Output (Millions of Kilowatthours)
Fossil 9,659 10,856 10,792 11,239 10,352 8,082
Nuclear 25,853 24,373 25,499 28,195 27,026 24,428
Hydro 1,558 2,404 1,425 1,970 1,699 1,803
Pumped storage output 1,403 1,540 1,741 1,596 1,478 1,597
Pumped storage input (1,924) (2,230) (2,507) (2,256) (2,192) (2,217)
Purchase and interchange 29,615 19,539 13,945 6,164 6,447 8,675
Internal combustion 144 179 175 106 56 29
--------- --------- --------- --------- --------- ---------
Total electric output 66,308 56,661 51,070 47,014 44,866 42,397
========= ========= ========= ========= ========= =========
Sales (Millions of Kilowatthours)
Residential 10,407 10,671 10,636 10,859 10,609 9,965
Small commercial and industrial 6,685 6,491 6,200 6,150 5,769 5,396
Large commercial and industrial 15,034 15,208 15,763 15,968 15,956 15,829
Other 841 902 860 791 771 962
Unbilled 70 (327) 535 (205) 31 (159)
--------- --------- --------- --------- --------- ---------
Service territory 33,037 32,945 33,994 33,563 33,136 31,993
Interchange sales 1,927 935 496 768 457 1,231
Sales to other utilities 28,893 20,243 14,041 10,039 8,670 6,699
--------- --------- --------- --------- --------- ---------
Total electric sales 63,857 54,123 48,531 44,370 42,263 39,923
========= ========= ========= ========= ========= =========
Number of Customers, December 31,
Residential 1,333,861 1,324,448 1,321,379 1,350,210 1,341,873 1,333,926
Small commercial and industrial 144,142 142,431 141,653 143,605 142,363 141,253
Large commercial and industrial 3,308 3,299 3,394 3,603 3,742 3,972
Other 1,094 1,051 959 944 888 857
--------- --------- --------- --------- --------- ---------
Total electric customers 1,482,405 1,471,229 1,467,385 1,498,362 1,488,866 1,480,008
========= ========= ========= ========= ========= =========
Operating Revenues (Millions of Dollars)
Residential $ 1,357 $ 1,370 $ 1,379 $ 1,371 $ 1,351 $ 1,308
Small commercial and industrial 779 749 730 710 679 672
Large commercial and industrial 1,077 1,098 1,135 1,149 1,168 1,225
Other 148 140 137 136 161 168
Unbilled 19 (26) 43 (11) (1) (7)
--------- --------- --------- --------- --------- ---------
Service territory 3,380 3,331 3,424 3,355 3,358 3,366
Interchange sales 59 26 17 23 14 32
Sales to other utilities 728 498 334 247 233 199
--------- --------- --------- --------- --------- ---------
Total electric revenues 4,167 3,855 3,775 3,625 3,605 3,597
--------- --------- --------- --------- --------- ---------
Operating Expenses
Operating expenses,
excluding depreciation 2,698 2,244 2,026 2,209 1,894 1,990
Depreciation 553 462 431 416 401 391
--------- --------- --------- --------- --------- ---------
Total operating expenses 3,251 2,706 2,457 2,625 2,295 2,381
--------- --------- --------- --------- --------- ---------
Electric Operating Income $ 916 $ 1,149 $ 1,318 $ 1,000 $ 1,310 $ 1,216
========= ========= ========= ========= ========= =========
Average Use per Residential
Customer (Kilowatthours)
Without electric heating 6,695 6,771 6,908 6,736 6,727 6,259
With electric heating 16,400 17,946 17,189 17,527 17,096 16,298
Total 7,830 8,074 8,130 8,041 7,970 7,443
Electric Peak Load, Demand
(Thousands of Kilowatts) 7,390 6,509 7,244 7,227 7,100 6,617
Net Electric Generating Capacity-
Year-end Summer Rating
(Thousands of Kilowatts) 9,204 9,201 9,078 8,956 8,877 8,836
Cost of Fuel per Million BTU $ 0.84 $ 0.93 $ 0.87 $ 0.89 $ 0.90 $ 0.82
BTU per Net Kilowatthour Generated 10,737 10,682 10,705 11,617 10,675 10,657
</TABLE>
<PAGE>
47
Operating Statistics (continued)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995 1994 1993 1992
Gas Operations
<S> <C> <C> <C> <C> <C> <C>
Sales (Millions of Cubic Feet)
Residential 1,614 1,681 1,516 1,636 1,637 1,819
House heating 32,666 35,471 30,698 32,246 30,242 30,218
Commercial and industrial 19,830 20,999 18,464 19,762 18,635 19,026
Other 673 2,571 1,582 7,039 9,733 4,885
Unbilled 212 (1,306) 1,710 (474) 676 (736)
------- ------- ------- ------- ------- -------
Total gas sales 54,995 59,416 53,970 60,209 60,923 55,212
Gas transported for customers 30,412 27,891 48,531 29,801 22,946 22,060
------- ------- ------- ------- ------- -------
Total gas sales and
gas transported 85,407 87,307 102,501 90,010 83,869 77,272
======= ======= ======= ======= ======= =======
Number of Customers
Residential 55,592 56,003 56,533 57,122 59,573 59,859
House heating 314,335 303,996 295,481 287,481 277,500 269,577
Commercial and industrial 35,215 34,182 33,308 32,292 31,573 30,956
------- ------- ------- ------- ------- -------
Total gas customers 405,142 394,181 385,322 376,895 368,646 360,392
======= ======= ======= ======= ======= =======
Operating Revenues (Millions of Dollars)
Residential $ 17 $ 16 $ 15 $ 16 $ 15 $ 16
House heating 265 249 236 238 202 203
Commercial and industrial 145 133 126 128 110 113
Other 3 11 5 20 28 12
Unbilled (1) (4) 7 (3) 5 (1)
------- ------- ------- ------- ------- -------
Subtotal 429 405 389 399 360 343
Other revenues (including
transported for customers) 22 24 22 17 23 23
------- ------- ------- ------- ------- -------
Total gas revenues 451 429 411 416 383 366
------- ------- ------- ------- ------- -------
Operating Expenses
Operating expenses,
excluding depreciation 333 302 302 326 279 261
Depreciation 28 27 26 26 24 23
------- ------- ------- ------- ------- -------
Total operating expenses 361 329 328 352 303 284
------- ------- ------- ------- ------- -------
Gas Operating Income $ 90 $ 100 $ 83 $ 64 $ 80 $ 82
======= ======= ======= ======= ======= =======
</TABLE>
Securities Statistics
Ratings on PECO Energy Company's securities
<TABLE>
<CAPTION>
Mortgage Bonds Preferred Stock
Date Date
Agency Rating Established Rating Established
<S> <C> <C> <C> <C>
Duff and Phelps, Inc. BBB+ 4/92 BBB- 8/91
Fitch Investors Service, Inc. A- 9/92 BBB+ 9/92
Moody's Investors Service Baa1 4/92 baa2 4/92
Standard & Poor's Corporation BBB+ 4/92 BBB 4/92
</TABLE>
NYSE-Composite Common Stock Prices, Earnings and Dividends by Quarter (Per
Share)
<TABLE>
<CAPTION>
1997 1996
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C>
High price $25-1/8 $24-5/16 $21-1/8 $26-3/8 $27-3/8 $26-1/4 $26-7/8 $32-1/2
Low price $21-7/16 $20-3/4 $18-3/4 $20 $23-7/8 $23 $22-1/2 $26-1/4
Close $24-1/4 $23-7/16 $21 $20-3/8 $25-1/4 $23-3/4 $26 $26-5/8
Earnings ($8.51) 69(cent) 53(cent) 49(cent) 51(cent) 65(cent) 43(cent) 65(cent)
Dividends 45(cent) 45(cent) 45(cent) 45(cent) 45(cent) 43.5(cent) 43.5(cent) 43.5(cent)
</TABLE>
<PAGE>
48
Board of Directors
Susan W. Catherwood (54)
Chairman, Trustee Board,
The University of Pennsylvania Medical Center and Health System
Daniel L. Cooper (62)(2)
Former Vice President and General Manager,
Nuclear Services Division
Gilbert/Commonwealth, Inc.
M. Walter D'Alessio (64)
President and Chief Executive Officer,
Legg Mason Real Estate Services (Commercial mortgage banking
and pension fund advisors)
G. Fred DiBona, Jr. (46)
President and Chief Executive Officer,
Independence Blue Cross
R. Keith Elliott (55)
Chairman, President and Chief Executive Officer,
Hercules, Inc.
Richard G. Gilmore (70)(1)
Former Senior Vice President,
Finance and Chief Financial Officer of the Company
Richard H. Glanton, Esquire (51)(1)
Partner of the law firm Reed Smith Shaw and McClay
James A. Hagen (65)
Former Chairman, Conrail, Inc.
Admiral Kinnaird R. McKee (68)
Director Emeritus,
U.S. Navy Nuclear Propulsion
Joseph J. McLaughlin (69)(1)
Former President and Chief Executive Officer,
Beneficial Mutual Savings Bank
Corbin A. McNeill, Jr. (58)(1)
Chairman of the Board
President and Chief Executive Officer of the Company
John M. Palms, PhD. (62)
President,
University of South Carolina
Joseph F. Paquette, Jr. (63)(1)
Former Chairman of the Board of Directors of the Company
Ronald Rubin (66)(1)
Chief Executive Officer,
The Rubin Organization, Inc. (Real estate development and management)
Robert Subin (59)
Senior Vice President,
Campbell Soup Company
Officers
Corbin A. McNeill, Jr. (58)
Chairman of the Board of Directors
President and Chief Executive Officer
Dickinson M. Smith (64)
President, PECO Nuclear
and Chief Nuclear Officer
Gregory A. Cucchi (48)(3)
Senior Vice President
Ventures
James W. Durham (60)
Senior Vice President, Legal
and General Counsel
Michael J. Egan (43)(4)
Senior Vice President, Finance
and Chief Financial Officer
William J. Kaschub (55)
Senior Vice President,
Human Resources
Kenneth G. Lawrence (50)(4)
Senior Vice President,
Local Distribution Company
John M. Madara, Jr. (54)
Senior Vice President,
Power Generation Group
William H. Smith, III (49)(5)
Senior Vice President,
Business Services Group
Alvin J. Weigand (59)
Senior Vice President
Gerald R. Rainey (48)
Senior Vice President,
Nuclear Operations
Nancy J. Bessey (44)
Vice President,
Power Transactions
John B. Cotton (53)(6)
Vice President,
Station Support
John Doering, Jr. (54)
Vice President, Operations
Power Generation Group
Gregory P. Dudkin (40)(3)
Vice President,
Power Delivery
Drew B. Fetters (46)
Vice President,
Nuclear Planning and Development
Thomas P. Hill, Jr. (49)
Vice President and Controller
Cassandra A. Matthews (47)(7)
Vice President,
Information Systems
John P. McElwain (47)(6)
Vice President,
Nuclear Projects, PECO Nuclear
J. Barry Mitchell (50)
Vice President,
Finance and Treasurer
Thomas N. Mitchell (42)
Vice President,
Peach Bottom Atomic Power Station
William E. Powell, Jr. (61)
Vice President,
Support Services
James D. von Suskil (51)(8)
Vice President,
Limerick Generating Station
Katherine K. Combs (47)
Corporate Secretary
Edward J. Cullen, Jr. (50)
Assistant Corporate Secretary
Todd D. Cutler (37)
Assistant Corporate Secretary
Diana Moy Kelly (43)
Assistant Treasurer
George R. Shicora (51)
Assistant Treasurer
(1) Member of the Executive Committee of the Board of Directors
(2) Elected June 23, 1997
(3) Effective June 1, 1997
(4) Effective October 13, 1997
(5) Effective November 7, 1997
(6) Effective April 9, 1997
(7) Effective July 28, 1997
(8) Effective January 26, 1998
PECO Energy Company
Subsidiaries
PECO Energy Power Company
Susquehanna Power Company
The Proprietors of the Susquehanna Canal (inactive)
Susquehanna Electric Company
Eastern Pennsylvania Development Company
Adwin Equipment Company
Adwin (Schuylkill) Cogeneration, Inc.
Adwin Realty Company
Eastern Pennsylvania Exploration Company
Energy Performance Services, Inc.
PECO Energy Capital LP
PECO Energy Capital Corp
Horizon Energy Company (formerly known as PECO Gas Supply Company)
PECO Wireless, LLC
Exelon Corporation
Energy Trading Company
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, 33-54935, 333-27721), Form S-4 (File Nos. 33-53785, 33-53785-01,
33-60859, and 33-60859-01), and Form S-8 (File No. 33-30317) of our report dated
February 2, 1998, on our audits of the consolidated financial statements and
financial statement schedules of PECO Energy Company and Subsidiary Companies as
of December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997, which report is included (or incorporated by reference)
in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 9, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Susan W. Catherwood of Bryn Mawr, PA, do
hereby appoint C. A. MC NEILL, JR. 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 1997 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.
/S/ Susan W. Catherwood
----------------------------------------
DATE: 1/26/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, M. Walter D'Alessio of Philadelphia, PA,
do hereby appoint C. A. MC NEILL, JR. 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 1997 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.
/S/ M. Walter D'Alessio
----------------------------------------
DATE: 1/26/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Richard G. Gilmore of Bradenton, FL, do
hereby appoint C. A. MC NEILL, JR. 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 1997 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.
/S/ Richard G. Gilmore
----------------------------------------
DATE: 1/26/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Richard H. Glanton of Philadelphia, PA,
do hereby appoint C. A. MC NEILL, JR. 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 1997 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.
/S/ Richard H. Glanton
----------------------------------------
DATE: 1/26/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, James A. Hagen of Wilmington, North
Carolina, do hereby appoint C. A. MC NEILL, JR. 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 1997 of PECO Energy, 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.
/S/ James A. Hagen
----------------------------------------
DATE: 1/26/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Kinnaird R. McKee of Oxford, MD, do
hereby appoint C. A. MC NEILL, JR. 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 1997 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.
/S/ Kinnaird R. McKee
----------------------------------------
DATE: 2/3/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Joseph J. McLaughlin of Rosemont, PA, do
hereby appoint C. A. MC NEILL, JR. 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 1997 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.
/S/ Joseph J. McLaughlin
----------------------------------------
DATE: 1/26/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Dr. John M. Palms of Columbia, SC, do
hereby appoint C. A. MC NEILL, JR. 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 1997 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.
/S/ Dr. John M. Palms
----------------------------------------
DATE: 1/26/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Joseph F. Paquette, Jr. of Gladwyne, PA,
do hereby appoint C. A. MC NEILL, JR. 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 1997 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.
/S/ Joseph F. Paquette, Jr.
----------------------------------------
DATE: 1/26/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Ronald Rubin of Narberth, PA, do hereby
appoint C. A. MC NEILL, JR. 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 1997
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.
/S/ Ronald Rubin
----------------------------------------
DATE: 1/30/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Robert Subin of Blue Bell, PA, do hereby
appoint C. A. MC NEILL, JR. 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 1997
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.
/S/ Robert Subin
----------------------------------------
DATE: 1/26/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, R. Keith Elliott of Mendenhall, PA, do
hereby appoint C. A. MC NEILL, JR. 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 1997 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.
/S/ R. Keith Elliott
----------------------------------------
DATE: 1/26/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, G. Fred DiBona, Jr. of Bryn Mawr, PA, do
hereby appoint C. A. MC NEILL, JR. 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 1997 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.
/S/ G. Fred DiBona, Jr.
----------------------------------------
DATE: 2/3/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Daniel L. Cooper of Wyomissing, PA, do
hereby appoint C. A. MC NEILL, JR. 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 1997 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.
/S/ Daniel L. Cooper
----------------------------------------
DATE: 1/26/98
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4671
<OTHER-PROPERTY-AND-INVEST> 516
<TOTAL-CURRENT-ASSETS> 1003
<TOTAL-DEFERRED-CHARGES> 5962
<OTHER-ASSETS> 205
<TOTAL-ASSETS> 12357
<COMMON> 3518
<CAPITAL-SURPLUS-PAID-IN> 1
<RETAINED-EARNINGS> (792)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2727
93
138
<LONG-TERM-DEBT-NET> 3853
<SHORT-TERM-NOTES> 402
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 314
<LONG-TERM-DEBT-CURRENT-PORT> 247
0
<CAPITAL-LEASE-OBLIGATIONS> 120
<LEASES-CURRENT> 56
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4722
<TOT-CAPITALIZATION-AND-LIAB> 12357
<GROSS-OPERATING-REVENUE> 4618
<INCOME-TAX-EXPENSE> 293
<OTHER-OPERATING-EXPENSES> 3612
<TOTAL-OPERATING-EXPENSES> 3905
<OPERATING-INCOME-LOSS> 713
<OTHER-INCOME-NET> 25
<INCOME-BEFORE-INTEREST-EXPEN> 738
<TOTAL-INTEREST-EXPENSE> 402
<NET-INCOME> (1497)<F1>
17
<EARNINGS-AVAILABLE-FOR-COMM> (1514)
<COMMON-STOCK-DIVIDENDS> 401
<TOTAL-INTEREST-ON-BONDS> 373
<CASH-FLOW-OPERATIONS> 1038
<EPS-PRIMARY> (6.80)
<EPS-DILUTED> (6.80)
<FN>
<F1>Net income includes an extraordinary item of $3,125 million ($1,834 million
net of $1,291 million of income taxes) reflecting the effects of a Pennsylvania
Public Utility Commission Restructuring Order and deregulation of the Company's
electric generation operations.
</FN>
</TABLE>
