UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993 Commission file number 1-1072
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Potomac Electric Power Company
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(Exact name of registrant as specified in its charter)
District of Columbia and Virginia 53-0127880
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 Pennsylvania Avenue, N. W.
Washington, D. C. 20068
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (202) 872-2456
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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First Mortgage Bonds, ) New York Stock Exchange, Inc.
9-3/4% Series due 2019 - )
due May 1, 2019 )
7% Convertible Debentures due 2018 - )
due January 15, 2018 )
5% Convertible Debentures due 2002 - )
due September 1, 2002 )
Continued
Name of each exchange on
Title of each class which registered
------------------- -----------------------------
Serial Preferred Stock, ) New York Stock Exchange, Inc.
$50 par value (entitled to )
cumulative dividends) )
$3.37 Series of 1987 )
$3.89 Series of 1991 )
$2.44 Convertible )
Series of 1966 )
Common Stock, $1 par value )
(The registrant's Common Stock is )
also listed on the Tokyo Stock )
Exchange) )
Securities registered pursuant to Section 12(g) of the Act:
None.
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 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. .
---
As of March 8, 1994, Potomac Electric Power Company had 117,915,691
shares of its $1 par value Common Stock outstanding, and the aggregate market
value of these common shares (based upon the closing price of these shares on
the New York Stock Exchange on that date) held by nonaffiliates was
approximately $2.7 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1993 Annual Report to shareholders are
incorporated by reference into Parts II and IV of this Form 10-K.
Portions of the Notice of Annual Meeting of Shareholders and Proxy
Statement, dated March 18, 1994, are incorporated by reference into Part III
of this Form 10-K.
2
POTOMAC ELECTRIC POWER COMPANY
Form 10-K - 1993
TABLE OF CONTENTS
PART I Page
Item 1 - Business ----
General ............................................................ 5
Sales .............................................................. 6
Capacity Planning .................................................. 7
Construction Program ............................................... 9
Fuel ............................................................... 11
Regulation ......................................................... 14
Rates .............................................................. 15
Environmental Matters .............................................. 19
Labor .............................................................. 23
Nonutility Subsidiary .............................................. 23
Item 2 - Properties .................................................. 25
Item 3 - Legal Proceedings ........................................... 26
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 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 ..................................... 31
Item 12 - Security Ownership of Certain Beneficial Owners and
Management................................................ 32
Item 13 - Certain Relationships and Related Transactions ............. 32
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on
Form 8-K ................................................. 32
Exhibit 11 - Computation of Earnings Per Common Share ........... 39
Exhibit 12 - Computation of Ratios .............................. 40
Exhibit 22 - Subsidiaries of the Registrant ..................... 42
Exhibit 24 - Consent of Independent Accountants ................. 43
Report of Independent Accountants on Consolidated Financial
Statement Schedules .............................................. 44
Schedule V - Property, Plant and Equipment ...................... 45
Schedule VI - Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment ................. 48
Schedule VIII - Valuation and Qualifying Accounts .................. 51
Schedule IX - Short-Term Borrowings .............................. 52
Signatures ........................................................... 53
PAGE LEFT BLANK
INTENTIONALLY
4
Part I
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Item 1 BUSINESS
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GENERAL
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Potomac Electric Power Company (Company), which was incorporated in the
District of Columbia in 1896 and in the Commonwealth of Virginia in 1949, is
engaged in the generation, transmission, distribution and sale of electric
energy in the Washington, D.C. metropolitan area. The Company's retail
service territory includes the District of Columbia and major portions of
Montgomery and Prince George's counties in suburban Maryland. The area served
at retail covers approximately 640 square miles and had a population of
approximately 1.9 million at the end of 1993 and 1992. The Company also sells
electricity, at wholesale, to Southern Maryland Electric Cooperative Inc.
(SMECO), which distributes electricity in Calvert, Charles, Prince George's
and St. Mary's counties in southern Maryland. During 1993, approximately 59%
of the Company's revenues were derived from Maryland sales (including
wholesale) and 41% from sales in the District of Columbia. About 30% of the
Company's revenues were derived from residential customers, 64% from sales to
commercial and government customers and 6% from sales at wholesale.
Approximately 14% and 3% of 1993 revenues were derived from sales to the U.S.
and D.C. governments, respectively.
The Company holds valid franchises, permits and other rights adequate
for its business in the territory it serves, and such franchises, permits and
other rights contain no unduly burdensome restrictions.
The Company is a member of the Pennsylvania-New Jersey-Maryland
Interconnection (PJM) pursuant to an agreement under which its generating and
transmission facilities are operated on an integrated basis with those of the
other PJM member utilities in Pennsylvania, New Jersey, Maryland, Delaware and
a small portion of Virginia. The purpose of PJM is to improve the operating
economy and reliability of the systems in the group and to provide capital
economies by permitting lower reserve requirements than would be required on a
system basis. The Company also has direct high voltage connections with the
Potomac Edison Company and Virginia Electric and Power Company, neither of
which is a member of PJM.
5
SALES
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The following data presents the Company's sales and revenue by class of
service and by customer type, including data as to sales to the United States
and District of Columbia governments.
1993 1992 1991
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Electric Energy Sales (Thousands of Kilowatt-hours)
---------------------
Kilowatt-hours Sold - Total 25,693,999 24,484,444 24,796,279
========== ========== ==========
By Class of Service -
Residential service 6,739,987 6,155,793 6,503,105
General service 10,860,437 10,491,222 10,418,003
Large power service 5,232,380 5,183,560 5,261,308
Street lighting 163,827 163,739 161,577
Rapid transit 370,428 360,432 343,470
Wholesale 2,326,940 2,129,698 2,108,816
By Type of Customer -
Residential 6,726,520 6,142,414 6,488,294
Commercial 11,750,542 11,391,337 11,321,344
U.S. Government 3,986,149 3,947,611 4,016,129
D.C. Government 903,848 873,384 861,696
Wholesale 2,326,940 2,129,698 2,108,816
Electric Revenue (Thousands of Dollars)
----------------
Sales of Electricity - Total* $1,696,435 $1,556,098 $1,542,571
========== ========== ==========
By Class of Service -
Residential service $ 506,096 $ 433,648 $ 451,048
General service 747,237 705,178 681,182
Large power service 297,228 286,645 280,307
Street lighting 13,605 12,363 12,424
Rapid transit 24,107 22,914 20,913
Wholesale 108,162 95,350 96,697
By Type of Customer -
Residential $ 505,173 $ 432,797 $ 450,103
Commercial 791,357 748,550 724,039
U.S. Government 238,192 229,586 223,723
D.C. Government 53,551 49,815 48,009
Wholesale 108,162 95,350 96,697
* Exclusive of Other Electric Revenues of $6,007 in 1993, $6,069 in 1992 and
$9,495 in 1991.
6
The Company's sales of electric energy are seasonal, and, accordingly,
rates have been designed to closely reflect the daily and seasonal variations
in the cost of producing electricity, in part by raising summer rates and
lowering winter rates. Mild weather during the summer billing months of June
through October, when base rates are high to encourage customer conservation
and peak load shifting, has an adverse effect on revenues and, conversely, hot
weather during these months has a favorable effect.
Effective January 1, 1992, the Company changed its method of revenue
recognition to provide for the accrual of revenue for service rendered but
unbilled as of the end of the month. This change in accounting method has no
significant effect on revenue over a 12-month period. It affects the timing
of revenue recognition within the year, principally increasing revenues in the
second quarter and decreasing revenues in the fourth quarter.
The Company includes in revenues the amounts received for sales to other
utilities related to pooling and interconnection agreements. Amounts received
for such interchange deliveries are a component of the Company's fuel rates.
CAPACITY PLANNING
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General
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During the period 1994 through 2003 the Company estimates that its peak
demand will grow at a compound annual rate of approximately 1%. Based upon
average weather conditions, the Company expects its compound annual growth in
kilowatt-hour sales to range between 1% and 2% over the next decade. The
Company's ongoing strategies to meet the increasing energy needs of its
customers include conservation and energy use management programs which are
designed to curb growth in peak demand. The need for new capacity has been
further reduced by programs to maintain older generating units to ensure their
continued efficiency over an extended life and the cost-effective purchase of
capacity and energy.
Conservation and Energy Use Management Programs
- -----------------------------------------------
Cost-effective conservation programs have been a major component of the
Company's success in limiting the need for new construction during the past
decade.
The Company's conservation and energy use management programs are
designed to curb growth in demand in order to defer the need for construction
of additional generating capacity and to cost-effectively increase the
efficiency of energy use. The Company offers an extensive array of
comprehensive conservation programs for its customers in the District of
Columbia and Maryland.
7
The Company's programs for residential customers include various types
of incentives to encourage the design of energy-efficient homes and the
purchase and installation of energy-efficiency measures. These incentives
include customer rebates for energy efficient appliances, bonuses to
contractors who build homes that meet high energy-efficiency standards,
coupons which offer significant discounts to customers who purchase energy-
efficient lights and water heater conservation measures and, commencing in
1993, a program to directly install, at no cost to the customer, lighting and
water heater tank wraps in single-family, apartment and condominium
residences. During 1993, the Company also initiated an appliance recycling
program for customers, by offering payments for inefficient, but still
functioning, refrigerators, air conditioners and freezers.
The Company's programs for commercial customers offer a variety of
approaches to encourage conservation, including design consultation and
technical assistance at no fee, equipment rebates to developers and designers,
cash incentives to customers who install energy-efficiency measures ranging
from lighting to efficient motors and equipment, and, for small commercial
customers, direct installation of efficient lighting and other measures at no-
cost to the customer. During 1993, as part of the Custom Rebate program, the
Company encouraged customers with older chillers to replace them with new high
efficiency chillers. Also, the Company began offering loans on a pilot basis
to commercial customers for efficiency improvements.
The Company continues to aggressively identify, design, and test
additional energy efficient conservation measures and technologies.
The Company receives rate recognition for the cost of its conservation
programs in its Maryland jurisdiction through a rate surcharge which permits
the Company to earn a return on its conservation investment while receiving
compensation for lost revenues. The cost recovery mechanism also allows the
Company to earn a performance bonus for exceeding established goals. The
surcharge is adjusted periodically to reflect the Company's growing
conservation commitment. The District of Columbia Public Service Commission
has established a framework which provides for a return on approved
conservation investments and incentives for achieving demand side management
goals within base rate cases.
During 1993, the Company also continued to operate and expand its energy
use management programs. In 1993, approximately 134,000 customers
participated in programs which cycle air conditioners and water heaters during
peak periods. In addition, the Company operates a commercial load program
which provides incentives to customers for reducing energy use during peak
periods. Time-of-use rates have been in effect since the early 1980s and
currently approximately 60% of the Company's revenues are based on time-of-use
rates.
8
It is estimated that peak load reductions of approximately 390 megawatts
have been achieved to date from conservation and energy use management
programs and that additional peak load reductions of over 500 megawatts will
be achieved in the next five years. The Company also estimates that energy
savings of more than 450 million kilowatt-hours have been realized through
operation of its conservation and energy use management programs through 1993.
During the next five years, the Company plans to expend an estimated $525
million to encourage the efficient use of electric energy and to reduce the
need to build new generating facilities.
Although the Company is expanding its conservation and energy use
management efforts, new sources of supply will be needed to assure the future
reliability of electric service to the Washington area. These new sources of
supply will be provided through the Company's plans for purchases of capacity
and energy and through its ongoing construction program.
Purchase of Capacity and Energy
- -------------------------------
Pursuant to the Company's 1987 long-term capacity purchase agreements
with Ohio Edison and Allegheny Power System, the Company is purchasing 450
megawatts of capacity and associated energy through the year 2005. In
addition, the Company has a 25-year agreement with SMECO, which began in 1990,
to purchase 84 megawatts of capacity supplied by a combustion turbine
installed and owned by SMECO at the Company's Chalk Point Generating Station.
The Company is responsible for all costs associated with operating and
maintaining the facility.
The Company has been exploring other cost-effective sources of energy
and has entered into contracts for two nonutility generation projects which
total 270 megawatts of capacity. In 1991, the Company signed an agreement
with Panda Energy Corporation for a 230-megawatt gas-fueled combined-cycle
cogeneration project in Prince George's County, Maryland, which is scheduled
for service in 1996. The project is currently before the Maryland Public
Service Commission for issuance of a certificate of convenience and necessity.
In addition, the Company has signed a contract for a 40-megawatt resource
recovery facility which is now under construction in Montgomery County,
Maryland. In November 1993, after failing to obtain final building permits
from the District of Columbia, Dominion Energy terminated its contract to
build a 56-megawatt combined-cycle cogeneration facility at Georgetown
University.
CONSTRUCTION PROGRAM
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The Company carries on a continuous construction program, the nature and
extent of which is determined by the Company's strategic planning process
which integrates supply-side and demand-side resource options.
9
From January 1, 1991 to December 31, 1993, the Company made property
additions, net of an Allowance for Funds Used During Construction (AFUDC), of
$1 billion (of which $300 million were made in 1993) and had property
retirements of $122 million (of which $40 million were made in 1993).
The Company's current construction program calls for estimated
expenditures, excluding AFUDC, of $290 million in 1994, $280 million in 1995,
$240 million in 1996, $210 million in 1997 and $245 million in 1998, an
aggregate of $1.3 billion for the five-year period. AFUDC is estimated to be
$24 million in 1994, $11 million in 1995, $14 million in 1996, $19 million in
1997 and $23 million in 1998. The 1994-1998 construction program includes
approximately $618 million for generating facilities (including $203 million
for Clean Air Act compliance), $66 million for transmission facilities, $558
million for distribution, service and other facilities, and $23 million
associated with the Company's energy use management programs. Making use of
the flexibilities in its long-term construction plan, the Company reduced
projected expenditures for the five years 1994 through 1998 by a total of $315
million from amounts previously planned. The construction reductions and
deferrals were associated with lower rates of projected growth in usage of
electricity resulting in large part from implementing economical conservation
programs. The Company plans to finance its construction program through funds
provided by operations and external financing.
The construction program includes amounts for the construction of
facilities that will not be completed until after 1998. Although the program
includes provision for escalation of construction costs, generally at an
annual rate of 4%, the aggregate budget for long lead time projects will
increase or decrease depending upon the actual rates of inflation in
construction costs. The program is reviewed continuously and revised as
appropriate to reflect changes in projections of demand, consumption patterns
and economic trends.
On June 1, 1993, the Company placed in service the second element of a
combined-cycle unit, consisting of a 139-megawatt combustion turbine
generating unit, at the Dickerson Generating Station located in Montgomery
County, Maryland. The first 139-megawatt combustion turbine generating unit
was placed in service on June 1, 1992. The total cost of the two combustion
turbine units currently in service was $162 million. These generating units
are primarily fueled by natural gas but can also burn No. 2 fuel oil. The
Dickerson project plan provides for two combined-cycle units with the
capability of adding a coal gasification facility, should future unit price
differentials among coal, oil and gas make gasification economically
attractive. The Company's construction schedule is flexible in order to
accommodate changes in future growth and the addition of nonutility
generation. Currently, no additional units are scheduled for the Dickerson
combined-cycle project until after the year 2003.
The Clean Air Act Amendments of 1990 (CAA) requires utilities to reduce
emissions of sulfur dioxide and nitrogen oxides in two phases, January 1995
(Phase I) and January 2000 (Phase II). The Company has developed plans for
complying with the CAA to achieve prescribed standards in Phases I and II.
10
The Company anticipates capital expenditures totaling $203 million over the
next five years pursuant to these plans. The plans call for replacement of
boiler burner equipment for nitrogen oxides emissions control, the use of
lower-sulfur fuel and cofiring with natural gas at selected baseload plants.
The CAA allows companies to achieve required emission levels by using a
market-based emission allowance trading system. If economical, emission
allowances may be purchased in lieu of burning lower-sulfur fuel.
The Company owns a 9.72% undivided interest in the Conemaugh Generating
Station located in western Pennsylvania. As a result of installing flue gas
scrubbing equipment to meet Phase I requirements of the CAA, this station will
receive additional allowances. The Company's share of these "bonus"
allowances may be used to reduce the need for lower-sulfur fuel at its other
plants. The Company's share of the construction cost for the flue gas
scrubbing equipment is approximately $38 million.
Installation of scrubbers is not contemplated for the Company's wholly
owned plants. Both the District of Columbia and Maryland commissions have
approved the Company's plans for meeting Phase I requirements including cost
recovery of investment and inclusion of emission allowance expenses in the
Company's fuel adjustment clause.
The Company is participating in the construction of the final segments
of a 500,000 volt transmission line providing further links in the
transmission systems of the Company, Baltimore Gas and Electric Company and
Virginia Electric and Power Company (Virginia Power). The Company's
construction schedule contemplates completion of the final segments in 1994.
FUEL
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For customer billing purposes, all of the Company's kilowatt-hour sales
are covered by separately stated fuel rates (see Item 8 - Note 2 of "Notes to
Consolidated Financial Statements").
11
The Company's generating units burn only fossil fuels. The principal
fuel is coal. The Company owns no nuclear generation facilities and none are
planned. The following table sets forth the quantities of each type of fuel
used by the Company in the years 1993, 1992 and 1991 and the contribution, on
the basis of Btus, of each fuel to energy generated.
1993 1992 1991
-------------- -------------- --------------
% of % of % of
Quantity Btu Quantity Btu Quantity Btu
-------- ----- -------- ----- -------- -----
Coal
(000s net tons) 6,010 79.4 5,926 82.9 6,471 81.7
Residual oil
(000s barrels) 4,835 15.9 3,294 11.4 3,895 12.2
Natural gas
(000s dekatherms) 6,090 3.2 8,200 4.5 9,933 4.9
No. 2 fuel oil
(000s barrels) 480 1.5 376 1.2 407 1.2
The following table sets forth the average cost of each type of fuel
burned, for the years shown.
1993 1992 1991
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Coal: per ton $43.69 $43.66 $45.37
per million Btu 1.72 1.72 1.78
Residual oil: per barrel 15.09 14.35 15.99
per million Btu 2.39 2.28 2.54
Natural gas: per dekatherm 2.88 2.32 2.18
per million Btu 2.88 2.32 2.18
No. 2 fuel oil: per barrel 24.98 26.70 29.07
per million Btu 4.30 4.60 5.01
The average cost of fuel burned per million Btu was $1.90 in 1993,
compared with $1.85 in 1992 and $1.93 in 1991. The increase of approximately
3% in the 1993 system average unit fuel cost compared with the 1992 system
average resulted from increased use of major cycling and peaking generation
units which burn higher cost fuels. The Company's major cycling and certain
peaking units can burn natural gas or oil, adding flexibility in selecting the
most cost-effective fuel mix.
Ten of the Company's sixteen steam-electric generating units can burn
only coal; two can burn only residual oil; two can burn either coal or
residual oil or a combination of both and two units can burn either residual
oil or natural gas. Those units capable of burning either coal or residual
oil normally burn coal as their primary fuel. The Company also has combustion
12
turbines, some of which can burn only No. 2 fuel oil, and others which can
burn natural gas or No. 2 fuel oil. During 1993, the new Dickerson combustion
turbine units resulted in the displacement of generation from older, less
cost-effective units. The following table provides details of the Company's
generating capability from the standpoint of plant configuration as well as
actual energy generation (see "Item 2 -Properties" for additional information
on type of fuel used in generating facilities).
Net Generating Net
Capability and Energy
Purchased Capacity Generated
------------------ ------------------
1993 1992 1991 1993 1992 1991
---- ---- ---- ---- ---- ----
Steam Generation
Dual fuel units, capable
of burning coal, residual
oil or a combination of
coal and residual oil.... 18% 18% 19% 29% 27% 29%
Units capable of burning
coal only................ 28% 29% 30% 45% 50% 47%
Units capable of burning
residual oil only........ 8% 9% 9% 1% - 1%
Units capable of burning
residual oil or natural
gas...................... 19% 19% 19% 10% 9% 10%
Combustion Turbines
Units capable of burning
No. 2 fuel oil only...... 9% 9% 9% )
Units capable of burning ) 2% 1% 1%
No. 2 fuel oil or natural )
gas...................... 11% 9% 7% )
Purchased capacity........... 7% 7% 7% 13%(a) 13%(a) 12%(a)
(a) Includes purchases under cogeneration agreements.
The Company's fuel mix objective is to obtain a minimum unit cost of
energy through the use of its generating facilities. The actual use of coal,
oil and natural gas is influenced by the availability of the generating units,
the relative cost of the fuels, energy and demand requirements of other
utilities with which the Company has interconnection arrangements, regulatory
requirements (for future units), weather conditions and fuel supply
constraints, if any.
13
The Company has several intermediate and long-term coal contracts with
various expiration dates through 2003 for aggregate annual deliveries of
approximately 4.3 million tons. Deliveries under these contracts are expected
to provide approximately 75% of the estimated system coal requirements in
1994. Approximately 25% of the estimated system coal requirements in 1994
will be purchased under shorter term agreements and on a spot basis from a
variety of suppliers. Prices under the Company's intermediate and long-term
coal contracts are generally determined by reference to base amounts adjusted
to reflect provisions for changes in suppliers' costs, which in turn are
determined by reference to published indices and limited by current market
prices.
Most of the coal currently used by the Company is surface mined in
Pennsylvania, West Virginia and Maryland. The Company believes that it will
be able to continue to obtain the quantities of coal needed to operate at its
current fuel mix objective. The costs of coal to the Company may be affected
by increases in the costs of production, including the costs of complying with
federal legislation (such as amendments to the CAA, discussed above, the costs
of surface mining reclamation and black lung benefits), the imposition of (or
changes in) state severance taxes and by modification of contracts with
Conrail, CSX Transportation and Norfolk Southern which cover all of the coal
movements to the Company's generating stations.
The Company purchases both domestically refined and imported residual
oil. Residual oil is being obtained under one two-year and one one-year
contract. Prices under the contracts are determined by reference to base
contract prices, as adjusted to reflect current market prices. Prior to
expiration of the contracts, the Company expects to solicit bids for new
contracts to supply its residual oil requirements. The Company also purchases
No. 2 fuel oil under two one-year contracts.
Certain units at the Company's Chalk Point Generating Station and the
new Dickerson combustion turbine units are capable of burning natural gas as
well as oil. The Company has a contract with Washington Gas Light Company for
Chalk Point extending through April, 1995. The Company has a one-year
contract with Consolidated Natural Gas for the Dickerson combustion turbine
units through March 31, 1994. Competitive proposals are currently under
review for a one year term contract to commence April 1, 1994. Both contracts
are for an interruptible supply of natural gas with provisions for price
review and adjustment each month. The actual use of natural gas for these
units will be dependent upon operational requirements, the relative costs of
natural gas and oil, and the availability of natural gas.
REGULATION
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The Company's utility operations are regulated by the Maryland and
District of Columbia public service commissions and, as to its wholesale
business, the Federal Energy Regulatory Commission (FERC). In addition, in
certain limited respects relating to its participation in the Conemaugh
Generating Station and related transmission lines, the Company is subject to
regulation by the Pennsylvania Public Utility Commission.
14
The Company's operations are subject to certain portions of the National
Energy Act designed to promote the conservation of energy and the development
and use of more plentiful domestic fuels through various regulatory and tax
provisions. The legislation, among other things, requires states to develop
residential energy conservation plans and requires utilities to enter into
cogeneration purchases with operators of qualified facilities. To date, this
legislation has fostered nonutility generation (cogeneration and solid waste
fired generation) supplying the Company with approximately 8 megawatts. As
noted above under "Purchase of capacity and energy," the Company is planning
additional cost-effective nonutility generation projects.
RATES
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General
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The Company's retail rates for electric service in Maryland and the
District of Columbia are based on allowed rates of return to the Company's
jurisdictional original cost rate base investments as determined in base rate
proceedings before the regulatory commissions by reference to the test periods
used in setting rates. Rate base in each of these jurisdictions generally has
included (1) the Company's full investments in Electric Plant in Service (net
of depreciation, certain pre-1981 investment tax credits and plant related
deferred income taxes), Electric Plant Held for Future Use and the pollution
control portion of Construction Work in Progress (CWIP), (2) inventories of
fuels and other materials and supplies and (3) an allowance for cash working
capital. The Company has employed, since 1978, Allowance for Funds Used
During Construction (AFUDC) accounting. In general, the Company capitalizes
AFUDC with respect to investments in CWIP with the exception of expenditures
required to comply with federal, state or local environmental regulations
(pollution control projects), which are included in rate base without
capitalization of AFUDC. In 1992, pursuant to orders from both the Maryland
and District of Columbia commissions, the Company commenced the accrual of a
capital cost recovery factor on the retail jurisdictional portion of certain
pollution control projects related to compliance with the CAA. The base for
calculating this return is the amount by which the retail jurisdictional CAA
expenditure balance exceeds the CAA balance included in rate base in the
Company's most recently completed base rate proceeding. The jurisdictional
AFUDC capitalization rates are determined on a gross basis pursuant to
formulas prescribed by the FERC. The effective capitalization rates were
approximately 8.7% in 1993 and 9.1% in 1992 and 1991, compounded semiannually.
15
Rate orders received by the Company during the past three years provided
for increases (decreases) in annual base rate revenues as shown in the table
below.
Rate
Increase
(Decrease) % Effective
Regulatory Jurisdiction ($000) Change Date
-------------------------- ---------- ---------- ---------------
District of Columbia $25,400 3.8% March/June 1994
Federal-Wholesale 2,600 2.3 January 1994
Maryland 27,000 3.0 November 1993
Federal-Wholesale 3,801 3.1 January 1993
Maryland 25,300 3.0 1992/1993 (a)
District of Columbia 30,380 4.6 July 1992
Federal-Wholesale 2,814 2.6 January 1992
District of Columbia 19,740 3.3 October 1991
Maryland 19,724 2.6 June 1991
Federal-Wholesale (502) (.5) January 1991
(a) See Maryland discussion below.
Fuel Rates
- ----------
The Company has separately stated fuel rates in each jurisdiction. Such
rates include the delivered cost of fuel and the applicable costs and/or
credits from the interchange of energy with other electric utilities, to the
extent not provided for in base rates (see Item 8 - Note 2 of "Notes to
Consolidated Financial Statements").
Maryland
- --------
In October 1993, pursuant to a settlement agreement, the Commission
authorized a $27 million, or 3%, increase in base rate revenues effective
November 1, 1993. The settlement included a new system composite depreciation
rate of approximately 3.1%, up from the 3% rate previously in effect. Prior
to the settlement, the Company had filed updated cost of service data which
demonstrated a need for a $49.9 million increase in Maryland base rate
revenue, based upon the requested return of 9.89% on average rate base
including a 12.75% return on common stock equity, 1993 federal tax legislation
and the completed separate depreciation case. In connection with the
settlement agreement, no determination was made with respect to rate of
return. The rate of return on common stock equity most recently determined
for the Company in a fully litigated rate case was 12.75% established by the
Commission in a June 1991 rate increase order.
In October 1992, pursuant to a settlement agreement, the Commission
authorized an increase in base rate revenues of approximately 3% with $18
million effective December 1, 1992, and $7.3 million effective June 1, 1993.
No determination with respect to rate of return was specified.
16
District of Columbia
- --------------------
On March 4, 1994, the Commission authorized a $25.4 million, or 3.8%,
increase in base rate revenues. Of the total increase, $23.2 million became
effective March 16, 1994. The remaining $2.2 million is scheduled to become
effective on June 5, 1994, contingent on the June 1, 1994 in-service date of
the final segment of a 500-kilovolt transmission line between the Company and
Baltimore Gas & Electric Company. The authorized rates are based on a 9.05%
rate of return on average rate base, including an 11% return on common stock
equity. The Commission approved the Company's proposal for including future
changes in purchased capacity costs in fuel adjustment clause billings. In
addition, the Commission reversed its longstanding practice of including
Electric Plant Held for Future Use in rate base and ordered the Company to
accrue AFUDC on plant held for future use. The order increased test period
revenues by $3 million, which reduced the Company's revenue requirement, to
reflect 20% of the cumulative effect of a 1992 accounting change related to
unbilled revenues applicable to the District of Columbia. The Commission
rejected the Company's proposed Demand Side Management (DSM) surcharge.
Consistent with prior decisions, the order included $5.3 million in base rates
to recognize DSM program costs without provision for lost revenues between
rate cases. In addition, the Commission found that the Company had not
adequately supported $5.5 million, or 25% of conservation expenditures during
the test year. Subsequent to the test period in the case, the Company has
expended approximately $20 million on conservation in the District of
Columbia. The Company is considering available alternatives, including
reconsideration of the decision. A Commission decision on reconsideration
would be expected by early May 1994.
The Company had been seeking a $55.4 million, or 8.2%, increase in base
rate revenue, based upon a return of 9.46% on average rate base including an
11.8% return on common stock equity. On June 4, 1993, the Company had filed a
base rate application requesting a $72.6 million increase in base rate revenue
based upon a requested return of 9.84% on average rate base including a 12.35%
return on common stock equity. The Company updated its initial June 1993 cost
of service data filing to reflect subsequent events such as final federal tax
legislation changes, the effects of a new three year labor agreement with its
union employees, the settlement of the United Mine Workers strike as it
related to the Company's coal inventory, cost of service revisions and an
updated cost of capital study. The requested increase in annual base rate
revenues was predicated on adoption by the Commission of the Company's
ratemaking proposal with respect to the demand side management program costs,
including treatment of lost revenues.
In June 1992, the Commission authorized a $30.4 million, or 4.6%,
increase in base rate revenues effective July 7, 1992. The authorized rates
are based on a 9.96% rate of return on average rate base, including a 12.35%
return on common stock equity. The Commission also approved a procedure for
deferring purchased capacity cost increases between rate cases, accruing a
return on the deferred amounts, and including such deferred amounts in
determining revenue requirements in future rate proceedings. In February
17
1993, the Commission adopted a surcharge mechanism, to become effective
following the Company's next base rate case discussed above, for recovery of
the capital cost carrying charges on CAA compliance costs between rate
proceedings. The Company is authorized to accrue a capital cost recovery
factor on applicable CAA costs while the surcharge rate is effective.
Wholesale
- ---------
The Company has a 10-year full service power supply contract with SMECO,
a wholesale customer. The contract period is to be extended for an additional
year on January 1 of each year, unless notice is given by either party of
termination of the contract at the end of the 10-year period. The full
service obligation can be reduced by SMECO by up to 20% of its annual
requirements with a five-year advance notice for each such reduction.
SMECO rates were increased by $3.8 million and $2.8 million effective
January 1, 1993 and 1992, respectively.
In November 1993, the Company amended its contract with SMECO to provide
for rate increases of $2.6 million, $2.3 million and $4.2 million effective
January 1, 1994, 1995 and 1996, respectively.
Interchange of Power
- --------------------
The Company's generating and transmission facilities are interconnected
with the other members of PJM and other utilities. The pricing of most PJM
internal economy energy transactions is based upon "split savings" so that the
price of such energy is halfway between the cost that the purchaser would
incur if the energy were supplied by its own sources and the cost of
production to the company actually supplying the energy.
The Company has interconnection agreements with Allegheny Power System
(APS) and Virginia Power. These agreements provide a mechanism and the
flexibility to purchase power from these parties or from others with whom they
are interconnected on an as-needed basis in amounts mutually agreed to from
time-to-time pursuant to negotiated rates, terms and conditions.
Pursuant to the Company's long-term capacity purchase agreements with
Ohio Edison and APS, the Company is purchasing 450 megawatts of capacity and
associated energy through the year 2005. The cost of capacity under these
agreements increased from $12,380 per megawatt, per month, in 1993 to $18,060
per megawatt, per month, effective January 1, 1994, plus an allocation of
fixed operating and maintenance expenses, with provision for escalation in
1999.
The Company began a 25-year purchase agreement in 1990 with SMECO for 84
megawatts of capacity supplied by a combustion turbine installed and owned by
SMECO at the Company's Chalk Point Generating Station. The Company is
responsible for all costs associated with operating and maintaining the
facility. The capacity payment to SMECO is approximately $462,000 per month.
18
ENVIRONMENTAL MATTERS
- ---------------------
General
- -------
The Company is subject to federal, state and local legislation and
regulation with respect to environmental matters, including air and water
quality and the handling of solid and hazardous waste. Air quality
requirements relate to both ambient air quality and emissions from facilities,
including particulate matter, sulfur dioxide, nitrogen oxides, carbon
monoxide, volatile organic compounds and visible emissions. Water quality
requirements relate to intake and discharge of water from facilities,
including water used for cooling purposes in electric generating facilities.
Waste requirements relate to the generation, treatment, storage,
transportation and disposal of specified wastes. Compliance with such
requirements may limit or prevent certain operations or substantially increase
the cost of construction and operation of the Company's existing and future
generating installations. The Company has expended approximately $462 million
through December 31, 1993, for the construction of pollution control
facilities. The $618 million 1994-1998 construction program for generating
facilities includes estimated provision for pollution control facilities,
including expenditures for CAA compliance, of $78 million for 1994, $67
million for 1995, $44 million for 1996, $45 million for 1997 and $56 million
for 1998. The Company is unable to predict the future course of environmental
regulations generally, the manner in which compliance with such regulations
will be required, the availability of technology to meet such regulations and
any budget amendments which may be required to recognize the costs which may
ultimately be associated with such compliance.
Air Quality
- -----------
Under authority of the Clean Air Act of 1970, as amended, the U.S.
Environmental Protection Agency (EPA) has issued national primary and
secondary standards for the following air pollutants: sulfur dioxide,
nitrogen dioxide, particulate matter, carbon monoxide, ozone and lead. EPA
has also enacted regulations designed to prevent significant deterioration of
air quality in areas where air quality levels are better than the secondary
ambient air quality standards. The appropriate agencies in Maryland, the
District of Columbia and Virginia have issued regulations designed to
implement EPA's standards and regulations.
In 1990, Congress enacted amendments to the CAA that require the
reduction of sulfur dioxide and nitrogen oxides emissions from electric
generating units. The Company cannot fully predict the financial and
operating effects of this new legislation until all of the related
implementing regulations are adopted by EPA and by appropriate agencies in
each of the jurisdictions where the Company's generating facilities are
located. However, the Company has developed cost-effective plans for
complying with the CAA to achieve prescribed standards in two phases.
19
The Company anticipates capital expenditures totaling $203 million over the
next five years. The plans call for replacement of boiler burner equipment
for nitrogen oxides emissions control, the use of lower-sulfur fuel and
cofiring with natural gas at selected baseload plants. The CAA allows
companies to achieve sulfur dioxide emission reduction requirements by using a
market-based emission allowance trading system. If economical, emission
allowances may be purchased in lieu of burning lower-sulfur fuel.
Maryland, the District of Columbia and Northern Virginia are members of
the Ozone Transport Commission, established by the CAA for the purpose of
developing a regional solution to attainment of the ambient ozone standard in
the northeastern United States. Those states are currently preparing rules
under Title I of the CAA which will require the retrofit of existing
generating units with Reasonably Available Control Technology (RACT) for
nitrogen oxides control by mid-1995. The Company has developed a plan whereby
the nitrogen oxides reductions already planned to be achieved by PEPCO under
Title IV of the CAA will also satisfy the states' requirements for RACT. This
plan will be undergoing regulatory review during 1994.
The Company is unaware in any respect in which its generating stations
are not presently in compliance with federal and state air quality
regulations, with the exception of visible emissions from the Dickerson
Station and Chalk Point Units 1, 2 and 4. The State of Maryland has adopted a
regulation which allows a case-by-case exception to visible emissions limits.
Recognizing that the specified units cannot continuously satisfy a standard
requiring no visible emissions, the Company is working with Maryland
regulators to establish revised visible emissions standards for the subject
units.
Water Quality
- -------------
The Company's generating stations operate under National Pollutant
Discharge Elimination System (NPDES) permits. NPDES renewal applications
submitted in March 1991 for the Morgantown station, December 1991 for the
Dickerson station, March 1992 for the Chalk Point station, April 1993 for the
Buzzard Point station, and July 1993 for the Benning station, are all pending.
An NPDES permit for the Potomac River Station was issued and effective as of
February 24, 1994.
The Maryland Department of the Environment promulgated regulations
effective April 16, 1990 that, among other things, set numeric criteria for
toxic substances in surface waters. These regulations are applicable to the
Company's Chalk Point, Morgantown and Dickerson generating stations. None of
the numeric criteria have been incorporated into the NPDES permits for these
stations at this time. While it is not known whether the criteria will be
included in the Company's permits in the future, or, if included, what the
economic impact will be, it has been preliminarily estimated that if the
regulations are interpreted in the manner most detrimental, the Company could
incur capital costs of as much as $810 million and annual operating and
20
maintenance expenses of $224 million in order to comply with these
regulations. The Company, in conjunction with other utilities, industrial
companies, and the Maryland Chamber of Commerce, filed a suit in May 1990 that
challenges the validity of the regulations. The suit is pending in the
Circuit Court for Baltimore City. The parties have reached settlement of the
suit contingent upon the outcome of subsequent rulemaking proceedings.
Revised regulations were adopted on May 6, 1993 in accordance with the
settlement agreement. EPA approval of the revised regulations is pending.
On March 18, 1993, the Company brought to the attention of state and
federal authorities information discovered in an internal Company
investigation to the effect that one of the Company's NPDES permits may have
been violated by the pumping of water from a settlement pond at a Company-
owned flyash storage facility. Further investigation both internally and by
the governmental authorities has continued, including issuance of, and
response by the Company to, a federal grand jury subpoena for documents
germane to the investigation and testimony of two Company employees before the
grand jury.
Toxic Substances
- ----------------
The Company was notified by the EPA on December 18, 1987, that it, along
with five other utilities and eight non-utilities, is a potentially
responsible party (PRP) under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (CERCLA or Superfund), in
connection with the polychlorinated biphenyl compounds (PCBs) contamination of
soil, ground water and surface water occurring at a Philadelphia, Pennsylvania
site owned by an unaffiliated company. Additional PRPs have since been
identified and the number is continuously subject to change. In the early
1970s, the Company sold scrap transformers, some of which may have contained
some level of PCBs, to a metal reclaimer operating at the site. The Company
and nine other PRPs executed an Administrative Order by Consent (ACO) with the
EPA and the performance of a Remedial Investigation/ Feasibility Study (RI/FS)
is in progress. Pursuant to an agreement among the participating PRPs, the
Company is responsible for 12% of the costs of the RI/FS. It is currently
estimated that the PRPs' cost of compliance with the ACO, including the RI/FS
and legal fees, will be approximately $6.5 million. The Company has paid
$548,000 to date. The Company cannot estimate the extent of the EPA's
administrative and oversight costs or the expense associated with a site
remedy ultimately acceptable to the EPA.
On September 19, 1989, an unaffiliated company, the Richmond,
Fredericksburg and Potomac Railroad (RF&P), requested the Company to
participate in the investigation and remediation of a 3-acre site in
Arlington, Virginia owned by RF&P at which it is alleged that soil and
groundwater have been contaminated by PCB compounds. Subsequently, the
Virginia Department of Waste Management requested information from the Company
related to transformers which may have been sold or sent to the site operator.
21
On December 7, 1990, a Summons and Complaint filed by RF&P in the United
States District Court for the Eastern District of Virginia against the Company
and seven other defendants was received. The Complaint alleges that the
defendant site operator released PCBs and other hazardous substances at the
site during the course of its operation, and that the sole source of PCBs and
other hazardous substances is from the defendant operator's operations and
from transformers and capacitors supplied by other defendants. Subsequently,
additional defendants were added to the Complaint. The Complaint seeks
contribution and other equitable remedies for remediation of the site. In
October 1993, the parties reached a settlement which was approved by the Court
on October 25, 1993 subject to confirmation by additional site testing that
remediation can be accomplished at or below, and that no regulatory authority
will require a remediation which exceeds, approximately $4 million.
During 1993, the Company participated with two other PRPs in a removal
action at a site in Harmony, West Virginia pursuant to an Administrative Order
(AO) issued by the EPA. Approximately $3 million (of which the Company has
paid one-third, subject to possible reallocation) was expended on the removal
action, which the EPA has stated is in compliance with the AO. Approximately
$1.9 million of this cost has now been recovered from third parties. EPA
oversight costs, which are not expected to be material, have not yet been
assessed. While compliance with the AO has been completed, the Company cannot
determine whether it will be subject to any future liability with respect to
the site.
In August 1993, the Company was served with Amended Complaints filed in
three jurisdictions (Prince George's County, Baltimore City, and Baltimore
County) in separate ongoing, consolidated proceedings each denominated "In re:
Personal Injury Asbestos Cases." The Company (and other defendants) were
brought into these cases on a theory of premises liability under which
plaintiffs argue that the Company was negligent in not providing a safe work
environment for employees of its contractors who allegedly were exposed to
asbestos while working on the Company's property. Initially, a total of
approximately four hundred and forty-eight (448) individual plaintiffs added
the Company to their Complaints. While the pleadings are not entirely clear,
it appears that each plaintiff seeks $2 million in compensatory damages and $4
million in punitive damages from each defendant. In a related proceeding in
the Baltimore City case, the Company was served, in September 1993, with a
third party complaint by Owens Corning Fiberglass, Inc. (Owens Corning)
alleging that Owens Corning was in the process of settling approximately 700
individual asbestos-related cases and seeking a judgment for contribution
against the Company on the same theory of alleged negligence set forth above
in the plaintiffs' case. Subsequently, Pittsburgh Corning Corp. (Pittsburgh
Corning) filed a third party complaint against the Company, seeking
contribution for the same plaintiffs involved in the Owens Corning third party
complaint. Since the filings, a number of the individual suits have been
disposed of without any payment by the Company. On March 14, 1994, the
Company and Pittsburgh Corning filed a Joint Stipulation of Dismissal of the
Pittsburgh Corning third party complaint, which dismissal would require no
payment by the Company. While the aggregate amount specified in the remaining
suits would exceed $1 billion, the Company believes the amounts are greatly
22
exaggerated as were the claims already disposed of. The amount of total
liability, if any, and any related insurance recovery cannot be precisely
determined at this time; however, based on information and relevant
circumstances known at this time, the Company does not believe these suits
will have a material adverse effect on its financial position.
Solid and Hazardous Waste
- -------------------------
The Resource Conservation and Recovery Act of 1976 (RCRA) provides
federal mandates and authority for dealing with the generation, treatment,
storage, transportation and disposal of solid or hazardous waste. The
principal utility wastes of fly ash, bottom ash and scrubber sludge are exempt
from EPA regulation as hazardous waste. The Company sends its wastes
designated as hazardous to appropriately licensed facilities for hazardous
waste treatment, storage and disposal. The current impact of regulations
under RCRA is not substantial. The only permit which will be required at this
time is for the Morgantown Generating Station, where the Company burns certain
amounts of PCB-contaminated mineral oil. Maryland regulations provide for a
special "limited facility permit" for this activity and the Company's
application for such permit is pending.
LABOR
- -----
A new three-year Agreement between the Company and Local 1900 of the
International Brotherhood of Electrical Workers (IBEW) was ratified on July
20, 1993 by Union members. The total package, including wage and benefit
changes, will increase costs by 6.1% over the three-year period. The
Agreement includes several changes that will reduce the Company's cost of its
post-retirement benefit obligations. At December 31, 1993, 2,940 of the
Company's 4,893 employees were represented by the IBEW.
NONUTILITY SUBSIDIARY
- ---------------------
Potomac Capital Investment Corporation (PCI), the Company's principal
wholly-owned subsidiary, was formed in late 1983 to provide a vehicle for
ongoing nonutility investment business. PCI's objective is to provide an
annual supplement to utility earnings and to build long-term shareholder
value.
At December 31, 1993, PCI's assets totaled $1.7 billion, including $924
million in finance and operating equipment leases and $466.2 million in
marketable securities, principally investment grade sinking fund preferred
stock. The Company's equity investment in PCI was $290.9 million, including
$145.2 million of subsidiary retained earnings. Additional financial
information concerning assets, income, expenses and net earnings is presented
in the consolidated financial statements incorporated by reference in Item 8.
23
PCI's equipment-leasing portfolio consists primarily of wide-body
commercial aircraft and satellite communications equipment. Income from
leasing activities includes rental and interest income, gains on asset sales
and service fees. Additional information concerning leasing activities is
presented in Management's Discussion and Analysis incorporated by reference in
Item 7.
PCI's real estate activity consists of real estate projects and holdings
in the Washington metropolitan area. PCI also owns leasehold interests in oil
and natural gas producing properties in Texas.
24
<TABLE>
Part I
- ------
Item 2 PROPERTIES
- ------ ----------
<CAPTION>
Megawatts of Net Capability
Steam --------------------------- Net Megawatt-
Generation Steam
Combustion Hours Generated Generating Station Location
Primary Fuel Generation Turbine<F1> in 1993 ----------
- -------- --------------------------------------- -------------- ------------
- ------------ ---------------
(Thousands)
<S> <C> <C>
<C> <C> <C> Benning Benning Road and
Anacostia River, N.E. No. 4 Oil 550 -
185 Washington, D.C.
Buzzard Point 1st and V Streets, S.W. -
- 256 4 Washington, D.C.
Potomac River Bashford Lane and Potomac River Coal
482 - 2,090 Alexandria,
Virginia
Dickerson Potomac River, South of Little Monocacy Coal
546 291 3,516 River, Dickerson,
Maryland
Chalk Point Patuxent River at Swanson Creek Coal/
1,907 516 <F3> 5,851 Aquasco, Maryland
Residual Oil/
Natural Gas
Morgantown Potomac River, South of Route 301 Coal/
1,164 248 6,443 Newburg, Maryland
Residual Oil
----------- ----------- -----------
Total - Wholly owned Units
4,649 1,311 18,089
Conemaugh Indiana County, Pennsylvania Coal
165 1 1,056
----------- ----------- ----------
- - Total - All Stations Operated
4,814 1,312 19,145
=========== Purchased Capacity <F2>
450 - 2,926
----------- -----------
=========== Total System
5,264 1,312
=========== ===========
<FN>
All of the above properties are held in fee, but as to Conemaugh, the
Company holds a 9.72% undivided interest as a tenant in common.
<F1>Combustion turbines burn No. 2 fuel oil and certain units can also
burn natural gas.
<F2>Generating capacity under long-term agreement with the Ohio Edison System.
<F3>Includes 84 megawatts supplied by a combustion turbine owned by SMECO
and operated by the Company.
25
</TABLE> The five steam-electric generating stations, together with
combustion turbines, had an aggregate net capability at December 31, 1993, of
5,960 megawatts (including the 84 megawatt combustion turbine owned by SMECO
at the Company's Chalk Point Generating Station), assuming all units are
available for service at the time and for the usual duration of the system
peak (which occurs in the summer). The Company also has 166 megawatts of net
capability available from its 9.72% undivided interest in a mine-mouth, steam-
electric generating station known as the Conemaugh Generating Station, located
in Indiana County, Pennsylvania, which it owns with eight other utilities as
tenants in common. The Company also receives generating capacity and
associated energy from Ohio Edison under its 1987 long-term agreements with
Ohio Edison and APS. The agreements, which provide for 450 megawatts of
capacity and associated energy, are expected to continue at that level through
the year 2005. The net 60-minute peak load in 1993 was 5,754 megawatts, which
occurred on July 9, 1993, and was .3% below the all-time summer peak demand of
5,769 megawatts. To meet the 1993 summer peak demand, the Company also had
201 megawatts available from its dispatchable energy use management programs.
For additional information regarding the Company's net generating capability,
see "Construction Program" and "Fuel" under Item 1 "Business."
The Company owns the transmission and distribution facilities serving
its customers. As stated above, the Company's interest in the Conemaugh
Generating Station and its associated transmission lines is that of a tenant
in common with eight other owners. Substantially all of such Conemaugh
transmission lines, substantially all of the Company's transmission and
distribution lines of less than 230,000 volts, small portions of its 230,000
volt transmission lines and certain of its substations are located on land
owned by others or in public streets and highways. Substantially all of the
Company's property and plant is subject to the mortgage which secures its
bonded indebtedness.
Item 3 LEGAL PROCEEDINGS
- ------ -----------------
For information regarding pending environmental legal proceedings, see
"Environmental Matters" under Item 1 "Business."
The Company was a defendant in employment discrimination litigation
which was pending in the United States District Court for the District of
Columbia. In February 1993, the parties to the case reached tentative
settlement of the claims and, in April 1993, the Company paid $38.26 million
into a trust fund pursuant to the terms of the agreement. The funds will be
disbursed from the trust fund to certain covered classes of current and former
employees and applicants for employment and to cover the plaintiffs' legal and
expert fees and costs. The Court approved the settlement agreement effective
July 1993. The Company received insurance payments of $13.5 million in
October 1993 and $24 million in January 1994, bringing the total recovered
from insurance companies to $37.5 million. At December 31, 1993,
approximately $.8 million was charged to non-operating expense.
26
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 following table presents the dividends per share of Common Stock and
the high and low of the daily Common Stock transaction prices as reported in
The Wall Street Journal during each period. The New York Stock Exchange is
the principal market on which the Company's Common Stock is traded. The
Company's Common Stock is also traded on the Tokyo Stock Exchange.
Dividends Price Range
Period Per Share High Low
--------------------- --------------- -------- ---------
1993:
First Quarter...... $.41 $26-1/2 $23-7/8
Second Quarter..... .41 27-3/8 25-5/8
Third Quarter...... .41 28-7/8 27-1/8
Fourth Quarter..... .41 $1.64 28-3/4 24-5/8
1992:
First Quarter...... $.40 $25-1/8 $22-3/4
Second Quarter..... .40 26 23
Third Quarter...... .40 27-1/2 25-1/8
Fourth Quarter..... .40 $1.60 26-3/4 22-5/8
The number of holders of Common Stock was 98,312 at March 8, 1994 and
98,892 at December 31, 1993.
There were 117,915,691 and 117,797,652 shares of the Company's $1 par
value Common Stock outstanding at March 8, 1994, and December 31, 1993,
respectively. A total of 200 million shares is authorized.
At its January 1994 meeting, the Company's Board of Directors declared a
quarterly dividend on Common Stock of 41 1/2 cents per share, an increase of
1/2 cent per share over the quarterly dividend of 41 cents paid during 1993.
The increased dividend is payable March 31, 1994, to shareholders of record on
February 25, 1994.
27
Item 6 SELECTED FINANCIAL DATA
- ------ -----------------------
The information required by Item 6 is incorporated herein by reference
to "Selected Consolidated Financial Data" in the Financial Information of the
Company's 1993 Annual Report to shareholders.
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by Item 7 is incorporated herein by reference
to the "Management's Discussion and Analysis of Consolidated Results of
Operations and Financial Condition" in the Financial Information section of
the Company's 1993 Annual Report to shareholders.
See "Rates" under Item 1 "Business" for an update to the discussion of
the Company's base rate proceeding in the District of Columbia.
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The consolidated financial statements, together with the report thereon
of Price Waterhouse dated January 21, 1994, and supplementary data from the
Company's 1993 Annual Report to shareholders are incorporated herein by
reference. With the exception of the aforementioned information and the
information incorporated in Items 5, 6, 7, 8 and 9, the 1993 Annual Report to
Shareholders is not deemed filed as part of this Form 10-K Annual Report.
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
28
Part III
- --------
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
The information required by Item 10 with regard to Directors of the
registrant is incorporated herein by reference to the Company's Notice of
Annual Meeting of Shareholders and Proxy Statement dated March 18, 1994.
Information with regard to the executive officers of the registrant as
of March 8, 1994, is as follows:
Served in
such position
Name Position Age since
- -------------------- -------------------------------- --- -------------
Edward F. Mitchell Chairman of the Board and Chief
Executive Officer 62 1992 (1)
John M. Derrick Jr. President and Chief Operating
Officer 53 1992 (2)
H. Lowell Davis Vice Chairman and Chief Financial
Officer and Director 61 1983
Paul Dragoumis Executive Vice President 59 1989 (3)
Dennis R. Wraase Senior Vice President -
Finance and Accounting 49 1992 (4)
Iraline G. Barnes Vice President - Corporate 46 1990 (5)
Relations
Earl K. Chism Vice President and Treasurer 58 1989 (6)
Susann D. Felton Vice President - Materials 45 1992 (7)
William R. Gee Jr. Vice President - System
Engineering 53 1991 (8)
Robert C. Grantley Vice President - Customer
Services 45 1989 (9)
Anthony S. Macerollo Vice President - Human
Resources 52 1989 (10)
Eddie R. Mayberry Vice President - Market
Planning and Policy 46 1993 (11)
John D. McCallum Vice President - Corporate Tax 44 1992 (12)
29
Served in
such position
Name Position Age since
- -------------------- -------------------------------- --- -------------
James S. Potts Vice President - Environment 48 1993 (13)
William J. Sim Vice President - Operations
and Construction 49 1991 (14)
William T. Torgerson Vice President and General
Counsel 49 1989 (15)
Andrew W. Williams Vice President - Energy Policy
and Development 44 1989 (16)
None of the above persons has a "family relationship" with any other officer
listed or with any director or nominee for director.
The term of office for each of the above persons is from April 28, 1993
to April 27, 1994.
(1) Mr. Mitchell was elected to the position of Chairman of the Board on
December 21, 1992. He was elected Chief Executive Officer effective
September 1, 1989. Prior to that time he held the position of
President and Chief Operating Officer, since 1983.
(2) Mr. Derrick was elected to the position of President on December 21,
1992. He was elected Executive Vice President and Chief Operating
Officer on July 27, 1989. Prior to that time he held the position of
Vice President - Customer Services, since 1981.
(3) Mr. Dragoumis was elected to his present position on July 27, 1989.
Prior to that time he held the position of Senior Vice President.
(4) Mr. Wraase was elected to his present position on April 22, 1992. He
was elected Senior Vice President and Comptroller on July 27, 1989.
Prior to that time he held the position of Vice President and
Comptroller, since 1985.
(5) Mrs. Barnes was elected to her present position effective April 1,
1990. Prior to that time she served as Associate Judge of the Superior
Court of the District of Columbia for ten years.
(6) Mr. Chism was elected to his present position on July 27, 1989. Prior
to that time he held the positions of Treasurer from 1988 to 1989, and
of Assistant Treasurer from 1987 to 1988.
(7) Ms. Felton was elected to her present position on April 22, 1992.
Prior to that time she held the position of Manager, Materials.
30
(8) Mr. Gee was elected to his present position on April 24, 1991. Prior to
that time he held the position of Vice President - Generating
Engineering and Construction, since 1989. Prior to 1989, he held the
position of Manager, Generating Engineering.
(9) Mr. Grantley was elected to his present position on July 27, 1989.
Prior to that time he held the position of Manager, Customer Services,
since 1987.
(10) Mr. Macerollo was elected to his present position on July 27, 1989.
Prior to that time he held the position of Manager, Human Resources,
since 1986.
(11) Dr. Mayberry was elected to his present position on April 28, 1993.
Prior to that time he held the position of Manager, Market Planning and
Policy, since 1989. Prior to 1989 he held the position of Manager,
Rate and Economic Analysis.
(12) Mr. McCallum was elected to his present position on April 22, 1992.
Prior to that time he held the position of Assistant Comptroller, since
1987.
(13) Mr. Potts was elected to his present position on April 28, 1993. Prior
to that time he held the position of Manager, Generating Strategic
Support since 1991. Prior to 1991 he held the position of Manager,
Production Performance.
(14) Mr. Sim was elected to his present position on April 24, 1991. Prior to
that time he was President of the American Energy division of the
Company's nonutility subsidiary, Potomac Capital Investment Corporation,
since 1988. Prior to 1988, he held the position of Manager, Generating
Construction.
(15) Mr. Torgerson was elected to his present position effective January 1,
1989. Prior to that time he held the position of Vice President and
Deputy General Counsel, since 1986.
(16) Mr. Williams was elected to his present position on July 27, 1989.
Prior to that time he held the position of Manager, Financial Planning
and Analysis, since 1985.
Item 11 EXECUTIVE COMPENSATION
- ------- ----------------------
The information required by Item 11 is incorporated herein by reference
to the Company's Notice of Annual Meeting of Shareholders and Proxy Statement
dated March 18, 1994.
31
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- --------------------------------------------------------------
The information required by Item 12 is incorporated herein by reference
to the Company's Notice of Annual Meeting of Shareholders and Proxy Statement
dated March 18, 1994.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
None.
Part IV
- -------
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------- ---------------------------------------------------------------
(a) Documents List
--------------
1. Financial Statements
The following documents are filed as part of this report as incorporated
herein by reference from the indicated pages of the Company's 1993 Annual
Report.
Reference (Page)
----------------
Form 10-K
Annual Report Annual Report
to Shareholders Exhibit 13
--------------- -------------
Consolidated Statements of Earnings -
for the years ended December 31, 1993,
1992 and 1991 15 24
Consolidated Balance Sheets -
December 31, 1993 and 1992 16-17 25-26
Consolidated Statements of Cash Flows -
for the years ended December 31, 1993,
1992 and 1991 18 27
Notes to Consolidated Financial
Statements 19-31 28-60
Report of Independent Accountants 14 23
32
2. Financial Statement Schedules
Unaudited supplementary data entitled "Quarterly Financial Summary
(Unaudited)" is incorporated herein by reference in Item 8 (included in "Notes
to Consolidated Financial Statements" as Note 15).
The following financial statement schedules are submitted under Item 14
(d):
Report of Independent Accountants on
Consolidated Financial Statement Schedules
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation,
Depletion and Amortization of Property,
Plant and Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-Term Borrowings
All other schedules are omitted because they are not applicable, or the
required information is presented in the financial statements.
3. Exhibits required by Securities and Exchange Commission Regulation
S-K (summarized below).
Exhibit
No. Description of Exhibit Reference*
- ------- ---------------------- ----------
3-A Charter of the Company.............. Filed herewith.
3-B By-Laws of the Company.............. Exh. 3-B to Form 10-K,
3/26/93.
4 Mortgage and Deed of Trust dated
July 1, 1936, of the Company to The
Riggs National Bank of Washington,
D.C., as Trustee, securing First
Mortgage Bonds of the Company, and
Supplemental Indenture dated
July 1, 1936........................ Exh. B-4 to First Amendment,
6/19/36, to Registration
Statement No. 2-2232.
33
Exhibit
No. Description of Exhibit Reference*
- ------- ---------------------- ----------
4 Supplemental Indentures, to the
(cont.) aforesaid Mortgage and Deed of
Trust, dated -
December 1, 1939 and December
10, 1939.......................... Exhs. A & B to Form 8-K,
1/3/40.
August 1, 1940...................... Exh. A to Form 8-K, 9/25/40.
July 15, 1942 and August 10,
1942................................ Exh. B-1 to Amendment No. 2,
8/24/42, and B-3 to Post-
Effective Amendment,
8/31/42, to Registration
Statement No. 2-5032.
August 1, 1942...................... Exh. B-4 to Form 8-A,
10/8/42.
October 15, 1942.................... Exh. A to Form 8-K, 12/7/42.
October 15, 1947.................... Exh. A to Form 8-K, 12/8/47.
January 1, 1948..................... Exh.7-B to Post-Effective
Amendment No. 2, 1/28/48,
to Registration Statement
No. 2-7349.
December 31, 1948................... Exh. A-2 to Form 10-K,
4/13/49.
May 1, 1949......................... Exh. 7-B to Post-Effective
Amendment No. 1,
5/10/49, to Registration
Statement No. 2-7948.
December 31, 1949................... Exh. (a)-1 to Form 8-K,
2/8/50.
May 1, 1950......................... Exh. 7-B to Amendment No. 2,
5/8/50, to Registration
Statement No. 2-8430.
February 15, 1951................... Exh. (a) to Form 8-K, 3/9/51.
March 1, 1952....................... Exh. 4-C to Post-Effective
Amendment No. 1, 3/12/52,
to Registration Statement
No. 2-9435.
February 16, 1953................... Exh. (a)-1 to Form 8-K,
3/5/53.
May 15, 1953........................ Exh. 4-C to Post-Effective
Amendment No. 1, 5/26/53,
to Registration Statement
No. 2-10246.
34
Exhibit
No. Description of Exhibit Reference*
- ------- ---------------------- ----------
4 March 15, 1954 and March 15,
(cont.) 1955................................ Exh. 4-B to Registration
Statement No. 2-11627,
5/2/55.
May 16, 1955........................ Exh. A to Form 8-K, 7/6/55.
March 15, 1956...................... Exh. C to Form 10-K, 4/4/56.
June 1, 1956........................ Exh. A to Form 8-K, 7/2/56.
April 1, 1957....................... Exh. 4-B to Registration
Statement No. 2-13884,
2/5/58.
May 1, 1958......................... Exh. 2-B to Registration
Statement No. 2-14518,
11/10/58.
December 1, 1958.................... Exh. A to Form 8-K, 1/2/59.
May 1, 1959......................... Exh. 4-B to Amendment No. 1,
5/13/59, to Registration
Statement No. 2-15027.
November 16, 1959................... Exh. A to Form 8-K, 1/4/60.
May 2, 1960......................... Exh. 2-B to Registration
Statement No. 2-17286,
11/9/60.
December 1, 1960 and April 3,
1961................................ Exh. A-1 to Form 10-K,
4/24/61.
May 1, 1962......................... Exh. 2-B to Registration
Statement No. 2-21037,
1/25/63.
February 15, 1963................... Exh. A to Form 8-K, 3/4/63.
May 1, 1963......................... Exh. 4-B to Registration
Statement No. 2-21961,
12/19/63.
April 23, 1964...................... Exh. 2-B to Registration
Statement No. 2-22344,
4/24/64.
May 15, 1964........................ Exh. A to Form 8-K, 6/2/64.
May 3, 1965......................... Exh. 2-B to Registration
Statement No. 2-24655,
3/16/66.
April 1, 1966....................... Exh. A to Form 10-K, 4/21/66.
June 1, 1966........................ Exh. 1 to Form 10-K, 4/11/67.
April 28, 1967...................... Exh. 2-B to Post-Effective
Amendment No. 1 to
Registration Statement No.
2-26356, 5/3/67.
May 1, 1967......................... Exh. A to Form 8-K, 6/1/67.
35
Exhibit
No. Description of Exhibit Reference*
- ------ ---------------------- ----------
4 July 3, 1967........................ Exh. 2-B to Registration
(cont.) Statement No. 2-28080,
1/25/68.
February 15, 1968................... Exh. II-I to Form 8-K, 3/7/68.
May 1, 1968......................... Exh. 2-B to Registration
Statement No. 2-31896,
2/28/69.
March 15, 1969...................... Exh. A-2 to Form 8-K, 4/8/69.
June 16, 1969....................... Exh. 2-B to Registration
Statement No. 2-36094,
1/27/70.
February 15, 1970................... Exh. A-2 to Form 8-K, 3/9/70.
May 15, 1970........................ Exh. 2-B to Registration
Statement No. 2-38038,
7/27/70.
August 15, 1970..................... Exh. 2-D to Registration
Statement No. 2-38038,
7/27/70.
September 1, 1971................... Exh. 2-C to Registration
Statement No. 2-45591, 9/1/72.
September 15, 1972.................. Exh. 2-E to Registration
Statement No. 2-45591, 9/1/72.
April 1, 1973....................... Exh. A to Form 8-K, 5/9/73.
January 2, 1974..................... Exh. 2-D to Registration
Statement No. 2-49803,
12/5/73.
August 15, 1974..................... Exhs. 2-G and 2-H to
Amendment No. 1 to
Registration Statement
No. 2-51698, 8/14/74.
June 15, 1977....................... Exh. 4-A to Form 10-K,
3/19/81.
July 1, 1979........................ Exh. 4-B to Form 10-K,
3/19/81.
June 16, 1981....................... Exh. 4-A to Form 10-K,
3/19/82.
June 17, 1981....................... Exh. 2 to Amendment No. 1,
6/18/81, to Form 8-A.
December 1, 1981.................... Exh. 4-C to Form 10-K,
3/19/82.
August 1, 1982...................... Exh. 4-C to Amendment No. 1
to Registration Statement
No. 2-78731, 8/17/82.
October 1, 1982..................... Exh. 4 to Form 8-K, 11/8/82.
April 15, 1983...................... Exh. 4 to Form 10-K, 3/23/84.
November 1, 1985.................... Exh. 2-B to Form 8-A, 11/1/85.
36
Exhibit
No. Description of Exhibit Reference*
- ------ ---------------------- ----------
4 March 1, 1986....................... Exh. 4 to Form 10-K, 3/28/86.
(cont.) November 1, 1986.................... Exh. 2-B to Form 8-A, 11/5/86.
March 1, 1987....................... Exh. 2-B to Form 8-A, 3/2/87.
September 16, 1987.................. Exh. 4-B to Registration
Statement No. 33-18229,
10/30/87.
May 1, 1989......................... Exh. 4-C to Registration
Statement No. 33-29382,
6/16/89.
August 1, 1989...................... Exh. 4 to Form 10-K, 3/23/90.
April 5, 1990....................... Exh. 4 to Form 10-K, 3/29/91.
May 21, 1991........................ Exh. 4 to Form 10-K, 3/27/92.
May 7, 1992......................... Exh. 4 to Form 10-K, 3/26/93.
September 1, 1992................... Exh. 4 to Form 10-K, 3/26/93.
November 1, 1992.................... Exh. 4 to Form 10-K, 3/26/93.
March 1, 1993....................... Exh. 4 to Form 10-K, 3/26/93.
March 2, 1993....................... Exh. 4 to Form 10-K, 3/26/93.
July 1, 1993........................ Exh. 4.4 to Registration
Statement No. 33-49973,
8/11/93.
August 20, 1993..................... Exh. 4.4 to Registration
Statement No. 33-50377,
9/23/93.
September 29, 1993.................. Filed herewith.
September 30, 1993.................. Filed herewith.
October 1, 1993..................... Filed herewith.
February 10, 1994................... Filed herewith.
February 11, 1994................... Filed herewith.
4-A Indenture, dated as of January 15,
1988, between the Company and
Centerre Trust Company of St. Louis
(now known as Boatmen's Trust
Company), Trustee for the Company's
$75,000,000 issue of 7% Convertible
Debentures due 2018 ................ Exh. 4-A to Form 10-K,
3/25/88.
4-B Indenture, dated as of July 28,
1989, between the Company and
The Bank of New York, Trustee,
with respect to the Company's
Medium-Term Note Program............ Exh. 4 to Form 8-K, 6/21/90.
37
Exhibit
No. Description of Exhibit Reference*
- ------ ---------------------- ----------
4C Indenture, dated as of August 15,
1992, between the Company and the
Bank of New York, Trustee, for the
Company's $115,000,000 issue of 5%
Convertible Debentures due 2002..... Exh. 4-C to Form 10-K,
3/26/93.
10 Agreement, effective July 23, 1993,
between the Company and the
International Brotherhood of
Electrical Workers (Local Union
#1900).............................. Exh. 10 to Form 10-Q, 7/30/93.
**11 Computation of Earnings Per
Common Share...................... Filed herewith.
**12 Computation of Ratios............... Filed herewith.
13 Financial Information Section of
Annual Report .................... Filed herewith.
**22 Subsidiaries of the Registrant...... Filed herewith.
**24 Consent of Independent Accountants.. Filed herewith.
* The exhibits referred to in this column by specific designations and
date have heretofore been filed with the Securities and Exchange
Commission under such designations and are hereby incorporated herein
by reference. The Forms 8-A, 8-K and 10-K referred to were filed by
the Company under the Commission's File No. 1-1072 and the
Registration Statements referred to are registration statements of
the Company.
** These exhibits are submitted under Item 14(c).
(b) Reports on Form 8-K
-------------------
None.
38
<TABLE>
POTOMAC ELECTRIC POWER COMPANY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
<CAPTION>
Col. A Col. B Col. C Col. D
Col. E Col. F
------ ------ ------ ------
------ ------
Other Balance
Balance at
changes at end
beginning Additions
add of
Description of period at cost<F3>
Retirements (deduct) period
- --------------------------------------- ---------- --------- ---------
- -- --------- ----------
(Thousands of
Dollars)
<S> <C> <C> <C>
<C> <C>
Electric Utility Plant:
Production plant (steam generation) $1,638,725 $ 61,645 $
19,828 $ - $1,680,542
Production plant (other generation) 371,671 54,814
131 - 426,354
Transmission plant 515,097 9,535
1,613 - 523,019
Distribution plant 2,171,213 129,785
12,999 - 2,287,999
General plant and other 317,575 8,110
5,618 14,755 <F1> 334,822
Construction work in progress 314,855 58,810
- - - 373,665
Electric plant held for future use 34,766 (1,122)
- - - 33,644
---------- --------- ---------
- -- --------- ----------
Total Electric Utility Plant 5,363,902 321,577
40,189 14,755 5,660,045
Nonoperating Property 3,722 1,374
- - - 5,096
---------- --------- ---------
- -- --------- ----------
Total Property and Plant $5,367,624 $ 322,951 $
40,189 $ 14,755 $5,665,141
========== =========
=========== ========= ==========
Nonutility Property
Operating lease equipment,
principally aircraft $ 620,982 $ 6,695 $
- - $ 23,068 <F2>$ 650,745
========== =========
=========== ========= ==========
<FN>
<F1>Reclassification of computer software costs from Deferred charges.
<F2>Purchase of remaining interest and subsequent consolidation of
airplane engine leasing subsidiary.
<F3>Additions to Electric Utility Plant include an Allowance for
Funds Used During Construction (AFUDC).
39
</TABLE>
<TABLE>
POTOMAC ELECTRIC POWER COMPANY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992
<CAPTION>
Col. A Col. B Col. C Col. D
Col. E Col. F
------ ------ ------ ------
------ ------
Other Balance
Balance at
changes at end
beginning Additions
add of
Description of period at cost<F2>
Retirements (deduct) period
- --------------------------------------- ---------- --------- ---------
- -- --------- ----------
(Thousands of
Dollars)
<S> <C> <C> <C>
<C> <C>
Electric Utility Plant:
Production plant (steam generation) $1,596,114 $ 59,745 $
17,134 $ - $1,638,725
Production plant (other generation) 229,825 142,068
222 - 371,671
Transmission plant 470,462 47,607
2,972 - 515,097
Distribution plant 2,067,047 116,215
12,049 - 2,171,213
General plant and other 310,658 12,769
5,852 - 317,575
Construction work in progress 349,239 (34,384)
- - - 314,855
Electric plant held for future use 21,995 12,771
- - - 34,766
---------- --------- ---------
- -- --------- ----------
Total Electric Utility Plant 5,045,340 356,791
38,229 - 5,363,902
Nonoperating Property 2,781 941
- - - 3,722
---------- --------- ---------
- -- --------- ----------
Total Property and Plant 5,048,121 $ 357,732 $
38,229 $ - $5,367,624
========== =========
=========== ========= ==========
Nonutility Property
Operating lease equipment,
principally aircraft $ 743,014 $ 29,911 $
- - $(151,943)<F1>$ 620,982
========== =========
=========== ========= ==========
<FN>
<F1>Sale of aircraft lease equipment and aircraft ($105,000,000)
transferred to finance leases.
<F2>Additions to Electric Utility Plant include an Allowance for
Funds Used During Construction (AFUDC).
40
</TABLE>
<TABLE>
POTOMAC ELECTRIC POWER COMPANY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991
<CAPTION>
Col. A Col. B Col. C Col. D
Col. E Col. F
------ ------ ------ ------
------ ------
Other Balance
Balance at
changes at end
beginning Additions
add of
Description of period at cost<F2>
Retirements (deduct) period
- --------------------------------------- ---------- --------- ---------
- -- --------- ----------
(Thousands of
Dollars)
<S> <C> <C> <C>
<C> <C>
Electric Utility Plant:
Production plant (steam generation) $1,558,842 $ 62,024 $
24,752 $ - $1,596,114
Production plant (other generation) 70,791 161,636
2,602 - 229,825
Transmission plant 445,663 25,519
720 - 470,462
Distribution plant 1,916,028 162,433
11,414 - 2,067,047
General plant and other 275,749 38,723
3,814 - 310,658
Construction work in progress 374,437 (25,198)
- - - 349,239
Electric plant held for future use 14,381 7,614
- - - 21,995
---------- --------- ---------
- -- --------- ----------
Total Electric Utility Plant 4,655,891 432,751
43,302 - 5,045,340
Nonoperating Property 3,389 (608)
- - - 2,781
---------- --------- ---------
- -- --------- ----------
Total Property and Plant $4,659,280 $ 432,143 $
43,302 $ - $5,048,121
========== =========
=========== ========= ==========
Nonutility Property
Operating lease equipment,
principally aircraft $ 438,177 $ 393,395 $
- - $ (88,558)<F1>$ 743,014
========== =========
=========== ========= ==========
<FN>
<F1>Sale of aircraft lease equipment and aircraft ($84,356,000)
transferred to partnership.
<F2>Additions to Electric Utility Plant include an Allowance for
Funds Used During Construction (AFUDC).
41
</TABLE>
<TABLE>
POTOMAC ELECTRIC POWER COMPANY
SCHEDULE VI - ACCUMULATED DEPRECIATION,
DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
<CAPTION>
Col. A Col. B Col. C Col.
D Col. E Col. F
------ ------ ------ ----
- -- ------ ------
Additions
Balance charged
Other Balance
at to costs
changes at end
beginning and
add of
Description of period expenses
Retirements<F3> (deduct) period
- --------------------------------------- ----------- ---------
- -------------- ---------- ----------
(Thousands
of Dollars)
<S> <C> <C> <C>
<C> <C>
Accumulated Depreciation:
- -------------------------
Electric Utility Plant:
Production plant (steam generation) $ 579,826 $ 52,060 <F1>$
30,060 $ - $ 601,826
Production plant (other generation) 66,174 16,666
346 - 82,494
Transmission plant 152,032 10,961
(363) - 163,356
Distribution plant 560,143 58,573
23,135 - 595,581
General plant and other 72,375 15,223 <F1>
4,473 - 83,125
----------- ---------
- -------------- ---------- ----------
1,430,550 153,483
57,651 - 1,526,382
Nonoperating Property 414 63 <F2>
- - 477
----------- ---------
- -------------- ---------- ----------
Total Accumulated Depreciation 1,430,964 153,546
57,651 - 1,526,859
----------- ---------
- -------------- ---------- ----------
Accumulated Amortization:
- -------------------------
Electric Utility Plant:
Production plant (other generation) 116 53
- - 169
General plant and other 5,287 482
- 1,202 <F4> 6,971
----------- ---------
- -------------- ---------- ----------
Total Accumulated Amortization 5,403 535
- 1,202 7,140
----------- ---------
- -------------- ---------- ----------
Total Accumulated Depreciation
and Amortization $ 1,436,367 $ 154,081 $
57,651 $ 1,202 $1,533,999
=========== =========
============== ========== ==========
Nonutility Accumulated Depreciation
- -----------------------------------
Operating lease equipment,
principally aircraft $ 55,981 $ 29,321 $
- $ - $ 85,302
=========== =========
============== ========== ==========
<FN>
<F1>Includes depreciation of "Production plant (steam generation)"
($501,000) and "General plant" ($4,079,000) charged to clearing
accounts and subsequently redistributed to appropriate operating
and construction accounts.
<F2>Charged to Other Income.
<F3>After deduction of net salvage.
<F4>Reclassification of computer software costs from Deferred charges.
42
</TABLE>
<TABLE>
POTOMAC ELECTRIC POWER COMPANY
SCHEDULE VI - ACCUMULATED DEPRECIATION,
DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT
YEAR ENDED DECEMBER 31, 1992
<CAPTION>
Col. A Col. B Col. C Col.
D Col. E Col. F
------ ------ ------ ----
- -- ------ ------
Additions
Balance charged
Other Balance
at to costs
changes at end
beginning and
add of
Description of period expenses
Retirements<F3> (deduct) period
- --------------------------------------- ----------- ---------
- -------------- ---------- ----------
(Thousands
of Dollars)
<S> <C> <C> <C>
<C> <C>
Accumulated Depreciation:
- -------------------------
Electric Utility Plant:
Production plant (steam generation) $ 553,037 $ 53,230 <F1>$
26,441 $ - $ 579,826
Production plant (other generation) 52,261 13,141
(772) - 66,174
Transmission plant 144,876 10,580
3,424 - 152,032
Distribution plant 522,104 51,939
13,900 - 560,143
General plant and other 63,746 14,457 <F1>
5,828 - 72,375
----------- ---------
- -------------- ---------- ----------
1,336,024 143,347
48,821 - 1,430,550
Nonoperating Property 351 63 <F2>
- - 414
----------- ---------
- -------------- ---------- ----------
Total Accumulated Depreciation 1,336,375 143,410
48,821 - 1,430,964
----------- ---------
- -------------- ---------- ----------
Accumulated Amortization:
- -------------------------
Electric Utility Plant:
Production plant (other generation) 63 53
- - 116
General plant and other 4,817 470
- - 5,287
----------- ---------
- -------------- ---------- ----------
Total Accumulated Amortization 4,880 523
- - 5,403
----------- ---------
- -------------- ---------- ----------
Total Accumulated Depreciation
and Amortization $ 1,341,255 $ 143,933 $
48,821 $ - $1,436,367
=========== =========
============== ========== ==========
Nonutility Accumulated Depreciation
- -----------------------------------
Operating lease equipment,
principally aircraft $ 36,018 $ 29,322 $
- $ (9,359)<F4>$ 55,981
=========== =========
============== ========== ==========
<FN>
<F1>Includes depreciation of "Production plant (steam generation)"
($527,000) and "General plant" ($4,253,000) charged to clearing
accounts and subsequently redistributed to appropriate operating
and construction accounts.
<F2>Charged to Other Income.
<F3>After deduction of net salvage.
<F4>Principally sale of aircraft lease equipment and
transfer of aircraft to finance leases.
43
</TABLE>
<TABLE>
POTOMAC ELECTRIC POWER COMPANY
SCHEDULE VI - ACCUMULATED DEPRECIATION,
DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT
YEAR ENDED DECEMBER 31, 1991
<CAPTION>
Col. A Col. B Col. C Col.
D Col. E Col. F
------ ------ ------ ----
- -- ------ ------
Additions
Balance charged
Other Balance
at to costs
changes at end
beginning and
add of
Description of period expenses
Retirements<F3> (deduct) period
- --------------------------------------- ----------- ---------
- -------------- ---------- ----------
(Thousands
of Dollars)
<S> <C> <C> <C>
<C> <C>
Accumulated Depreciation:
- -------------------------
Electric Utility Plant:
Production plant (steam generation) $ 533,535 $ 51,825 <F1>$
32,323 $ - $ 553,037
Production plant (other generation) 49,167 6,482
3,388 - 52,261
Transmission plant 135,977 9,827
928 - 144,876
Distribution plant 483,998 48,793
10,687 - 522,104
General plant and other 53,941 13,248 <F1>
3,443 - 63,746
----------- ---------
- -------------- ---------- ----------
1,256,618 130,175
50,769 - 1,336,024
Nonoperating Property 291 60 <F2>
- - 351
----------- ---------
- -------------- ---------- ----------
Total Accumulated Depreciation 1,256,909 130,235
50,769 - 1,336,375
----------- ---------
- -------------- ---------- ----------
Accumulated Amortization:
- -------------------------
Electric Utility Plant:
Production plant (other generation) 17 46
- - 63
General plant and other 4,362 455
- - 4,817
----------- ---------
- -------------- ---------- ----------
Total Accumulated Amortization 4,379 501
- - 4,880
----------- ---------
- -------------- ---------- ----------
Total Accumulated Depreciation
and Amortization $ 1,261,288 $ 130,736 $
50,769 $ - $1,341,255
=========== =========
============== ========== ==========
Nonutility Accumulated Depreciation
- -----------------------------------
Operating lease equipment,
principally aircraft $ 13,942 $ 23,647 $
- $ (1,571)<F4>$ 36,018
=========== =========
============== ========== ==========
<FN>
<F1>Includes depreciation of "Production plant (steam generation)"
($525,000) and "General plant" ($4,504,000) charged to clearing
accounts and subsequently redistributed to appropriate operating
and construction accounts.
<F2>Charged to Other Income.
<F3>After deduction of net salvage.
<F4>Principally transfer of aircraft lease equipment to partnership.
44
</TABLE>
<TABLE>
POTOMAC ELECTRIC POWER COMPANY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND
1991
<CAPTION>
Col. A Col. B Col. C
Col. D Col. E
------ ------ ------
------ ------
Additions
Balance
- ------------------------- Balance
at Charged to Charged
to at
Beginning Costs and
Other End
Description of Period Expenses
Accounts<F1> Deductions<F2> of Period
- ------------------------------------------- --------- ----------
- ----------- ------------- ---------
(Thousands of
Dollars)
<S> <C> <C> <C>
<C> <C>
Year Ended December 31, 1993
Allowance for uncollectible accounts -
customer and other accounts receivable $ 2,709 $ 6,451 $
658 $ (6,770) $ 3,048
Year Ended December 31, 1992
Allowance for uncollectible accounts -
customer and other accounts receivable $ 3,115 $ 5,753 $
836 $ (6,995) $ 2,709
Year Ended December 31, 1991
Allowance for uncollectible accounts -
customer and other accounts receivable $ 3,189 $ 4,861 $
663 $ (5,598) $ 3,115
<FN>
<F1>Collection of accounts previously written off.
<F2>Uncollectible accounts written off.
45
</TABLE>
<TABLE>
POTOMAC ELECTRIC POWER COMPANY
SCHEDULE IX - SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
Col. A Col. B Col. C Col. D
Col. E Col. F
------ ------ ------ ------ -
- ----- ------
Maximum
Average
Weighted Aggregate
Aggregate Weighted
Balance Average Face Amount
Face Amount Average
At End Effective Outstanding
Outstanding Effective
Category of Aggregate Of Interest During
During the Interest
Short-Term Borrowings Period Rate the Period
Period<F1> Rate<F1>
- ------------------------------ ---------- --------- ----------- ---
- -------- ---------
(000s) (000s)
(000s)
<S> <C> <C> <C> <C>
<C>
Year Ended December 31, 1993
Payable to Holders of
Commercial Paper $ 274,615 3.34 % $ 274,615 $
105,777 3.12 %
Payable to Banks $ 20,000 3.01 % $ 20,000 $
20,000 3.00 %
Year Ended December 31, 1992
Payable to Holders of
Commercial Paper $ 41,600 3.48 % $ 199,980 $
80,948 3.92 %
Payable to Banks $ 20,000 3.16 % $ 20,000 $
20,000 3.54 %
Year Ended December 31, 1991
Payable to Holders of
Commercial Paper $ 66,800 5.19 % $ 262,760 $
120,205 6.34 %
Payable to Banks $ 20,000 4.44 % $ 20,000 $
20,000 5.72 %
Non-Utility Subsidiary:
- -----------------------
Year Ended December 31, 1993
Payable to Holders of
Commercial Paper $ 126,250 3.53 % $ 339,900 $
156,400 3.26 %
Year Ended December 31, 1992
Payable to Holders of
Commercial Paper $ 263,515 3.62 % $ 342,000 $
255,000 3.76 %
Year Ended December 31, 1991
Payable to Holders of
Commercial Paper $ 270,905 5.20 % $ 349,300 $
303,381 5.96 %
<FN>
<F1>Calculation of average amounts have been weighted by the
dollar amounts of the notes outstanding.
46
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Washington, District of Columbia, on the 25th day of March, 1994.
POTOMAC ELECTRIC POWER COMPANY
(Registrant)
By /s/ E. F. Mitchell
--------------------------
(Edward F. Mitchell,
Chairman of the Board and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this 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
--------- ----- ----
(i) Principal Executive Officer
/s/ E. F. Mitchell
--------------------------- Chairman of the Board and
(Edward F. Mitchell) Chief Executive Officer
(ii) Principal Financial Officer
/s/ H. L. Davis
--------------------------- Vice Chairman and Chief
(H. Lowell Davis) Financial Officer and Director
(iii) Principal Accounting Officer
/s/ D. R. Wraase
--------------------------- Senior Vice President
(Dennis R. Wraase) Finance and Accounting
March 25, 1994
47
Signature Title Date
--------- ----- ----
(iv) Directors:
/s/ Roger R. Blunt
------------------------- Director
(Roger R. Blunt Sr.)
/s/ A. J. Clark
------------------------- Director
(A. James Clark)
/s/ Richard E. Marriott
------------------------- Director
(Richard E. Marriott)
/s/ David O. Maxwell
------------------------ Director
(David O. Maxwell)
/s/ Floretta D. McKenzie
------------------------- Director
(Floretta D. McKenzie)
/s/ Ann D. McLaughlin
------------------------- Director
(Ann D. McLaughlin)
/s/ Peter F. O'Malley
------------------------- Director
(Peter F. O'Malley)
/s/ Louis A. Simpson
------------------------- Director
(Louis A. Simpson)
/s/ W. Reid Thompson
------------------------- Director
(W. Reid Thompson)
48
Signature Title Date
--------- ----- ----
(iv) Directors:
/s/ Charls E. Walker
------------------------- Director
(Charls E. Walker)
March 25, 1994
49
RESTATED ARTICLES OF INCORPORATION
AND ARTICLES OF RESTATEMENT
OF
POTOMAC ELECTRIC POWER COMPANY
These Restated Articles of Incorporation and Articles of Restatement
were duly adopted on December 21, 1992 by the Board of Directors of Potomac
Electric Power Company (hereinafter sometimes called the "Company"), a
District of Columbia corporation and a domestic corporation of the
Commonwealth of Virginia, in accordance with the provisions of Section 58a of
the District of Columbia Business Corporation Act, D.C. Code Section 29-358.1,
and Chapter 522 of the Virginia State Corporation Act, Va. Code Section 13.1-711
(1989 Replacement Volume). The Company's Articles of Incorporation were
originally filed in the District of Columbia on April 28, 1896, and Articles of
Reincorporation of an Existing Domestic Corporation were filed in the District
of Columbia on January 20, 1957.
The Restated Articles of Incorporation and Articles of Restatement only
restate and integrate and do not further amend the provisions of the Company's
articles of incorporation as previously amended or supplemented, and there is
no discrepancy between those provisions and the provisions of these restated
articles.
The Restated Articles of Incorporation and Articles of Restatement of
the Company are as follows:
I. The name of the Company is
POTOMAC ELECTRIC POWER COMPANY.
II. The duration of the Company shall be perpetual.
III. The purposes for which the Company is organized are:
(A) To manufacture, produce, generate, buy, sell, lease, deal
in, transmit and distribute (i) power, light, energy and heat in the
form of electricity or otherwise, (ii) by-products thereof and (iii)
appliances, facilities and equipment for use in connection therewith;
(B) To acquire (by construction, purchase, condemnation, lease
or otherwise), use, maintain, operate, deal in and dispose of, power
plants, dams, substations, office buildings, service buildings,
transmission lines, distribution lines, and all other buildings,
machinery, property (real, personal or mixed) and facilities (including
water power and other sites), and all fixtures, equipments and
appliances, necessary, appropriate, incidental or convenient for its
corporate purposes; and
(C) To conduct business as a public service company, which
business is briefly described as the purchase, manufacture, generation,
transmission, distribution and sale, both at wholesale and at retail,
of electricity or other power or energy for light, heat and power
purposes in the District of Columbia, the Commonwealth of Virginia, the
State of Maryland and elsewhere.
IV. The aggregate number of shares which the Company shall have authority
to issue is 215,042,227 divided into three classes: the first consisting of
6,242,227 shares of the par value of $50 each; the second consisting of
8,800,000 shares of the par value of $25 each; and the third consisting of
200,000,000 shares of the par value of $1 each.
V. Said 6,242,227 shares of the par value of $50 each are designated as
Serial Preferred Stock; said 8,800,000 shares of the par value of $25 each
are designated as Preference Stock; and said 200,000,000 shares of the par
value of $1 each are designated as Common Stock. Such of said authorized
shares of Serial Preferred Stock, Preference Stock and Common Stock as are
unissued at any time may be issued, in whole or in part, at any time or from
time to time by action of the Board of Directors of the Company, subject to
the laws in force in the District of Columbia and the Commonwealth of Virginia
and the terms and conditions set forth in the Articles of Incorporation, as
amended, of the Company.
The preferences, qualifications, limitations, and restrictions, the
special or relative rights, and the voting power in respect of the shares of
each said class are as follows:
(A) SERIAL PREFERRED STOCK
(a) Subject to the provisions hereafter in this subdivision (A) set
forth, the Serial Preferred Stock may be divided into and issued, from time
to time, in one or more series as the Board of Directors may determine, and
the Board of Directors is hereby expressly authorized to adopt from time to
time resolutions, in respect of any unissued shares of Serial Preferred Stock,
to fix and determine:
(1) The division of such shares into series and the designation
and authorized number of the shares of the particular series;
(2) The rate of dividend for the particular series;
(3) The price or prices at and the terms and conditions on which
shares of the particular series may be redeemed;
(4) The amount payable upon shares of the particular series in
the event of voluntary liquidation;
(5) Sinking fund provisions (if any) for the redemption or
purchase of shares of the particular series; and
(6) The terms and conditions (if any) on which the shares of the
particular series may be converted into other classes of stock of the
Company;
All shares of Serial Preferred Stock shall be of equal rank with each other,
regardless of series, and all shares thereof shall be identical except as to
the above listed relative rights and preferences, in respect of any or all of
which there may be variations between different series as fixed and determined
by the Board of Directors in said resolutions. All shares of the Serial
Preferred Stock of any one series shall be identical with each other in all
respects.
(b) The following terms, as used in this subdivision (A), shall have
the following meanings:
(1) The term senior stock shall mean any class of stock ranking
in its claim to assets or dividends prior to the 1,600,000 shares of
Serial Preferred Stock created hereby;
(2) The term parity stock shall mean any class of stock ranking
in its claim to assets or dividends on a parity with the Serial
Preferred Stock, but shall not include any of the 1,600,000 shares of
Serial Preferred Stock created hereby, nor shall it include any increase
in the authorized amount of the Serial Preferred Stock; and
(3) The term junior stock shall mean the Common Stock and any
other class of stock ranking in its claim to assets or dividends junior
to the Serial Preferred Stock.
(c) The holders of the Serial Preferred Stock shall be entitled to
receive, but only when and as declared by the Board of Directors, cumulative
cash dividends in the case of each series at the annual rate for such series
theretofore fixed by the Board of Directors as hereinbefore provided, payable
quarter-yearly on the first days of March, June, September and December in
each year to stockholders of record on the respective dates fixed for the
purpose by the Board of Directors as dividends are declared.
No dividend shall be declared on any shares of the Serial
Preferred Stock unless there shall likewise be declared on all shares of the
Serial Preferred Stock at the time outstanding like dividends, ratably in
proportion to the respective annual dividend rates fixed therefor.
The dividends on shares of the Serial Preferred Stock shall be
cumulative from the quarter-yearly dividend payment date next preceding the
date of issue of such shares, unless such shares shall have been issued after
the record date and before the payment date for a particular dividend, in
which case the dividends shall be cumulative from the quarter-yearly dividend
payment date next ensuing after the date of issue of such shares. Unless
dividends on all outstanding shares of the Serial Preferred Stock, at the
annual dividend rate or rates fixed therefor, shall have been paid for all
past quarter-yearly dividend periods to which they are entitled, and the full
dividend thereon at said rate or rates for the quarter-yearly dividend period
current at the time shall have been paid or declared and set apart for
payment, but without interest on accumulated dividends, and unless all sinking
fund payments, if any, theretofore required to have been made shall have been
made or provided for, no dividends shall be declared and no other distribution
shall be made on any junior stock, and no junior stock shall be purchased,
retired or otherwise acquired for value by the Company. No dividend shall be
declared on any junior stock payable more than 120 days after the date of
declaration.
The holders of the Serial Preferred Stock shall not be entitled
to receive any dividends thereon other than the dividends referred to in this
subdivision (c).
(d) The Company, at the option of the Board of Directors or by the
operation of the sinking fund, if any, provided for the Serial Preferred Stock
of any series, may, from time to time, subject to such terms and conditions,
if any, as may be fixed by the Board of Directors with respect to any series
as hereinbefore provided, redeem the whole or any part of such series at any
time outstanding, by paying in cash the applicable redemption price therefor
theretofore fixed by the Board of Directors as hereinbefore provided.
Notice of every such redemption shall be given by publication at
least once in each of two calendar weeks in each of two daily newspapers
printed in the English language, one published and of general circulation in
the City of Washington, District of Columbia, and the other in the Borough of
Manhattan, The City of New York, the first publication to be at least thirty
days and not more than sixty days prior to the date fixed for such redemption.
At least thirty days' and not more than sixty days' previous notice of every
such redemption shall also be mailed to the holders of record of the shares
so to be redeemed, at their respective addresses as the same shall appear on
the books of the Company; but failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
proceedings for the redemption of any shares so to be redeemed.
In case of the redemption of a part only of any series of the
Serial Preferred Stock at the time outstanding, the Company or its duly
authorized agent shall select by lot the shares so to be redeemed. The Board
of Directors shall have full power and authority, subject to the limitations
and provisions herein contained, to prescribe the manner in which the drawings
by lot shall be conducted and the terms and conditions upon which the Serial
Preferred Stock shall be redeemed from time to time.
If such notice of redemption shall have been duly given by
publication, and if on or before the redemption date specified therein the
funds necessary for such redemption shall have been set aside by the Company,
separate and apart from its other funds, in trust for the account of the
holders of the shares so called for redemption, so as to be and continue to
be available therefor, then, notwithstanding that any certificate for shares
so called for redemption shall not have been surrendered for cancellation, the
shares represented thereby shall no longer be deemed to be outstanding on and
after such redemption date, and all rights with respect to such shares shall
forthwith on such redemption date cease and terminate, except only the right
of the holders thereof to receive the amount payable upon redemption thereof,
without interest.
Provided, however, in the alternative, that, after giving notice
by publication of any such redemption as hereinbefore provided or after giving
to the bank or trust company referred to below irrevocable authorization to
give or complete such notice by publication, and prior to the redemption date
specified in such notice, the Company may deposit in trust, for the account
of the holders of the shares of Serial Preferred Stock so to be redeemed, the
funds necessary for such redemption with a bank or trust company in good
standing, organized and doing business under the laws of the United States or
of any state or territory or of the District of Columbia and having its
principal office in the City of Washington, District of Columbia, or in the
Borough of Manhattan, The City of New York, having capital, surplus and
undivided profits aggregating at least Ten Million Dollars, designated in such
notice of redemption, and thereupon all shares of the Serial Preferred Stock
with respect to which such deposit shall have been made shall no longer be
deemed to be outstanding, and all rights with respect to such shares of Serial
Preferred Stock shall forthwith upon such deposit in trust cease and
terminate, except only the right of the holders thereof to receive from such
bank or trust company at any time after the time of such deposit the funds so
deposited, without interest and the right to exercise, on or before such
redemption date privileges of conversion or exchange, if any, not theretofore
expiring.
Shares of Serial Preferred Stock purchased or redeemed pursuant
to any obligation of the Company to purchase or redeem shares for a sinking
fund, shares redeemed pursuant to the provisions hereof or purchased and for
which credit shall have been taken against any sinking fund obligation, and
shares surrendered pursuant to any conversion right, shall not be reissued or
otherwise disposed of and shall be canceled. Any other shares of Serial
Preferred Stock redeemed or otherwise acquired by the Company shall continue
to be part of the authorized capital stock of the Company and may thereafter,
in the discretion of the Board of Directors and to the extent permitted by
law, be sold or reissued from time to time, as part of the same or another
series, subject to the terms and conditions herein set forth.
If and so long as the Company shall be in default in the payment
of any quarter-yearly dividend on shares of any series of the Serial Preferred
Stock, or shall be in default in the payment of funds into or the setting
aside of funds for any sinking fund created for any series of the Serial
Preferred Stock, the Company may not (other than by the use of unapplied
funds, if any, paid into or set aside for a sinking fund or funds prior to
such default) (i) redeem any shares of the Serial Preferred Stock unless all
shares thereof are redeemed, or (ii) purchase or otherwise acquire for a
consideration any shares of the Serial Preferred Stock, except pursuant to
offers of sale made by holders of the Serial Preferred Stock in response to
an invitation for tenders given simultaneously by the Company by mail to the
holders of record of all shares of the Serial Preferred Stock then
outstanding.
(e) In the event of any voluntary liquidation, dissolution or winding
up of the Company, then, before any distribution or payment shall be made to
the holders of any junior stock, the holder of each share of the Serial
Preferred Stock shall be entitled to be paid in full in cash the amount fixed
with respect to such share by the Board of Directors as hereinbefore provided,
together with an amount computed at the annual dividend rate therefor from the
date upon which dividends thereon became cumulative to the date fixed for the
payment thereof, less the aggregate of the dividends theretofore paid thereon.
If such payments shall have been made in full to the holders of the Serial
Preferred Stock, the remaining assets and funds of the Company shall be
distributed among the holders of the Common Stock and any other junior stock
according to their respective rights, preferences, restrictions,
qualifications and shares.
In the event of any involuntary liquidation, dissolution or
winding up of the Company, then, before any distribution or payment shall be
made to the holders of any junior stock, the holder of each share of the
Serial Preferred Stock shall be entitled to be paid in full the par value
thereof in cash, together with an amount computed at the annual dividend rate
therefor from the date upon which dividends thereon became cumulative to the
date fixed for the payment thereof, less the aggregate of the dividends
theretofore paid thereon. If such payments shall have been made in full to
the holders of the Serial Preferred Stock, the remaining assets and funds of
the Company shall be distributed among the holders of the Common Stock and any
other junior stock according to their respective rights, preferences,
restrictions, qualifications and shares.
With respect to the payments to be made in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Company, all
series of the Serial Preferred Stock shall rank ratably according to their
respective interests without preference of any series thereof over any other
series.
(f) Subject to the limitations hereinafter specified, whenever the
full dividends on the Serial Preferred Stock at the time outstanding for all
past quarter-yearly dividend periods shall have been paid and the full
dividend thereon for the quarter-yearly dividend period then current shall
have been paid or declared and a sum sufficient for the payment thereof set
apart, then such dividends (payable in cash, stock or otherwise) as may be
determined by the Board of Directors may be declared on the Common Stock and
any other junior stock, and the Serial Preferred Stock shall not be entitled
to participate in any such dividends.
(g) So long as any shares of the Serial Preferred Stock are
outstanding, no amendment to the Articles of Incorporation of the Company
which would (i) create, change any junior stock into, or increase the rights
and preferences of, any senior or parity stock, (ii) increase the authorized
amount of the Serial Preferred Stock in excess of the 1,600,000 shares created
hereby or the authorized amount of any senior or parity stock, or (iii) change
the express terms of the outstanding shares of Serial Preferred Stock in any
manner substantially prejudicial to the holders thereof, shall be made without
the affirmative consent (given in writing without a meeting or by a vote at
a meeting duly called for the purpose) of the holders of more than two thirds
of the aggregate number of shares of the Serial Preferred Stock then
outstanding; but any such amendment may be made with such affirmative consent,
together with such additional vote or consent of stockholders as from time to
time may be required by law; provided, however, that if any such amendment
would change the express terms of the outstanding shares of Serial Preferred
Stock of any particular series in any manner substantially prejudicial to the
holders thereof without correspondingly affecting the holders of the
outstanding shares of Serial Preferred Stock of all series, then, in lieu of
such consent of the holders of Serial Preferred Stock (or, if such consent of
the holders of the outstanding shares of Serial Preferred Stock is required
by law, in addition thereto), a like affirmative consent of the holders of
more than two thirds of the Serial Preferred Stock of the affected series at
the time outstanding shall be necessary for making such amendment.
(h) So long as any shares of the Serial Preferred Stock are
outstanding, the Company shall not, without the affirmative consent (given in
writing without a meeting or by a vote at a meeting duly called for the
purpose) of the holders of at least a majority of the aggregate number of
shares of the Serial Preferred Stock then outstanding:
(1) issue any shares of the Serial Preferred Stock, in excess
of 300,000 shares thereof at any one time outstanding, or issue any
shares of senior or parity stock (either directly or by
reclassification), unless for a period of twelve consecutive calendar
months within the fifteen calendar months next preceding the date on
which such shares are to be issued net earnings (after depreciation and
taxes but before deducting interest) have been at least one and one-half
times the annual interest charges and dividend requirements on all
indebtedness of the Company and on all shares of Serial Preferred Stock
and senior and parity stock which shall then be outstanding; for the
purpose of such computation, the shares and any indebtedness proposed
to be issued in connection with such issue shall be included, but any
indebtedness or shares proposed to be retired in connection with such
issue shall be excluded, and in determining such net earnings, the Board
of Directors of the Company shall make such adjustments, by way of
increase or decrease in such net earnings, as shall in their opinion be
necessary to give effect, for the entire twelve months for which such
net earnings are determined, to any acquisition or disposition of
property the earnings of which can be separately ascertained, and to any
issue, sale, assumption or retirement of securities, which shall have
occurred after the commencement of such twelve months' period and prior
to or in connection with the issue of the shares of the Serial Preferred
Stock or senior or parity stock; or
(2) issue any shares of the Serial Preferred Stock, in excess
of 300,000 shares thereof at any one time outstanding, or issue any
shares of senior or parity stock (either directly or by
reclassification), unless immediately after such proposed issue the
aggregate of (i) the capital of the Company applicable to its stock
ranking junior as to assets and dividends and (ii) the surplus of the
Company shall be not less than the aggregate amount payable upon
involuntary liquidation to the holders of the Serial Preferred Stock and
of senior and parity stock then to be outstanding, excluding from such
computation all stock to be retired through such proposed issue; or
(3) issue any unsecured notes, debentures or other securities
representing unsecured indebtedness, or assume or guarantee any such
unsecured securities, other than for the extension, renewal or refunding
of outstanding debt securities theretofore issued or assumed, or for the
redemption or retirement of shares of the Serial Preferred Stock or of
any senior or parity stock, if immediately after such issue or
assumption the total principal amount of such unsecured securities then
outstanding would exceed twenty-five per cent of the aggregate of (i)
the total principal amount of all bonds or other securities representing
secured indebtedness issued, assumed or guaranteed by the Company and
then to be outstanding and (ii) the capital and surplus of the Company
as then stated on its books less any known excess of book value of the
Company's physical property which is devoted to public use over (I) the
actual cost thereof to the Company and (II) as to such property as was
not acquired as the result of arm's length negotiations, the actual cost
thereof to the one first devoting the same to public use; or
(4) merge or consolidate with or into any other corporation or
corporations or sell or lease all or substantially all of its assets,
unless such merger, consolidation, sale or lease, or the issue and
assumption of all securities to be issued or assumed in connection with
any such merger, consolidation, sale or lease shall have been ordered,
approved or permitted by the regulatory authority or authorities having
jurisdiction in the premises; provided that the provisions of this
clause (4) shall not apply to a purchase, lease or other acquisition by
the Company of the franchises or assets of another corporation, or
otherwise apply in any manner which does not involve a merger or
consolidation or sale or lease by the Company of all or substantially
all of its assets.
(i) So long as any shares of the Serial Preferred Stock are
outstanding, the Company shall not pay any dividends on its Common Stock
(other than dividends payable in Common Stock) or make any distribution on,
or purchase or otherwise acquire for value, any of its Common Stock (each such
payment, distribution, purchase and/or acquisition being herein referred to
as a "Common Stock dividend"), except to the extent permitted by the following
provisions:
(1) No Common Stock dividend shall be declared or paid in an
amount which, together with all other Common Stock dividends declared
in the year ending on (and including) the date of the declaration of
such Common Stock dividend, would in the aggregate exceed 50% of the net
earnings of the Company for the period consisting of the twelve
consecutive calendar months ending on the last day of the calendar month
next preceding the declaration of such Common Stock dividend, after
deducting from such net earnings dividends accruing on any stock other
than Common Stock of the Company during such period, if at the end of
such period, the ratio (herein referred to as the "capitalization
ratio") of the sum of (i) the capital represented by the Common Stock
(including premiums on Common Stock) and (ii) the surplus accounts of
the Company, to the sum of (I) the total capital and (II) the surplus
accounts of the Company (after adjustment in each case of the surplus
accounts to reflect payment of such Common Stock dividend) would be less
than 20%.
(2) If such capitalization ratio, determined as aforesaid, shall
be 20% or more, but less than 25%, no Common Stock dividend shall be
declared or paid in an amount which, together with all other Common
Stock dividends declared in the year ending on (and including) the date
of the declaration of such Common Stock dividend, would in the aggregate
exceed 75% of the net earnings of the Company for the period consisting
of the twelve consecutive calendar months ending on the last day of the
calendar month next preceding the declaration of such Common Stock
dividend after deducting from such net earnings dividends accruing on
any stock other than the Common Stock of the Company during such period;
and
(3) If such capitalization ratio, determined as aforesaid, shall
be in excess of 25%, no Common Stock dividend shall be declared or paid
which would reduce such capitalization ratio to less than 25% except to
the extent permitted by the next preceding subparagraphs (1) and (2).
For the purposes of this subdivision (i) the total capital of the
Company shall be deemed to consist of the aggregate of (x) the principal
amount of all outstanding indebtedness of the Company represented by bonds,
notes or other evidences of indebtedness maturing by their terms one year or
more after the date of the issue thereof and (y) the par or stated value of
all outstanding capital stock (including premiums on capital stock) of all
classes of the Company. All indebtedness and shares of stock of the Company
acquired by the Company and held in its treasury shall be excluded in
determining total capital.
Purchases or other acquisitions of Common Stock shall be deemed, for the
purposes of the foregoing provisions of this subdivision (i), to have been
declared as dividends as of the date on which such purchases or acquisitions
are consummated.
(j) No holder of Serial Preferred Stock shall be entitled as such as
a matter of right to subscribe for or purchase any part of any new or
additional issue of stock, or securities convertible into, or carrying or
evidencing any right to purchase, stock, of any class whatever, whether now
or hereafter authorized, and whether issued for cash, property, services or
otherwise.
(k) Except as otherwise in subdivisions (g) and (h) of this
subdivision (A) or by statute specifically provided, the Serial Preferred
Stock shall have no voting power unless and until dividends payable thereon
are in default in an amount equivalent to four full quarter-yearly dividends
on the Serial Preferred Stock at the time outstanding. In such event and
until such default shall have been remedied as hereinafter provided, the
holders of Serial Preferred Stock, voting separately, shall become entitled
to elect twenty-five percent of the Board of Directors, or the smallest number
of directors that exceeds twenty-five percent of the Board, but in no event
less than two directors, and the other stockholders then entitled to vote for
the election of directors, voting separately by classes if so required by the
provisions applicable to such classes, shall be entitled to elect the
remaining directors of the Company. Upon the accrual of such special right
to the holders of Serial Preferred Stock a meeting of the stockholders then
entitled to vote for the election of directors shall be held upon notice
promptly given, as provided in the By-Laws for a special meeting, by the
President or the Chairman of the Board of the Company. If within fifteen days
after the accrual of such special right to the holders of Serial Preferred
Stock, the President and the Chairman of the Board of the Company shall fail
to call such meeting, then such meeting shall be held upon notice, as provided
in the By-Laws for a special meeting, given by the holders of not less than
five hundred shares of Serial Preferred Stock after filing with the Company
notice of their intention so to do. The terms of office of all persons who
may be directors of the Company at the time shall terminate upon the election
of directors by the holders of Serial Preferred Stock, whether or not at the
time of such termination the remaining directors of the Company shall have
been elected; and thereafter and during the continuance of such special right
of the holders of Serial Preferred Stock, the Board of Directors shall be
divided into two or more classes, one class consisting of the directors to be
elected by the holders of Serial Preferred Stock and the other class or
classes consisting of the directors to be elected by the other stockholders
entitled to vote for the election of directors, and the directors of each such
class elected at such meeting, or at any adjournment thereof, and the
directors of each such class elected at any subsequent annual meeting for the
election of directors, held during the continuance of such special right,
shall hold office until the next succeeding annual election and until their
respective successors by classes are elected and qualified.
However, if and when all dividends then in default on the Serial
Preferred Stock shall be paid (and such dividends shall be declared and paid
as soon as reasonably practicable out of surplus or net profits, but without
diminishing the amount of capital of the Company), the holders of Serial
Preferred Stock shall be divested of such special right, but subject always
to the same provisions for the revesting of such special right in the holders
of Serial Preferred Stock in the case of any similar future default or
defaults. Whenever the holders of Serial Preferred Stock shall be so divested
of such special right, the method of election of the Board of Directors by the
vote of the other stockholders entitled to vote for the election of directors
exclusively shall be restored, and the election of directors shall take place
at the next succeeding annual meeting for the election of directors, or at any
adjournment thereof.
(l) Except as hereinafter provided, during the continuance of the
special right of the holders of Serial Preferred Stock to elect directors as
provided in subdivision (k) of this subdivision (A), at all meetings for the
election of directors the presence in person or by proxy of the holders of
record of a majority of the outstanding shares of Serial Preferred Stock shall
be necessary to constitute a quorum for the election of directors whom the
holders of Serial Preferred Stock are entitled to elect, and the presence in
person or by proxy of the holders of record of a majority of the outstanding
shares of each other class of stock then entitled to vote for the election of
directors shall be necessary to constitute a quorum for the election of the
directors whom the holders of such class of stock are entitled to elect. In
the absence of such a quorum of the holders of stock of any particular class
then entitled to vote for the election of directors, the holders of a majority
of the shares of the stock of such class so present in person or represented
by proxy may adjourn from time to time the meeting for the election of
directors to be elected by such stock, without notice other than announcement
at the meeting, until the requisite quorum of holders of such stock shall be
obtained. However, at the first meeting for the election of directors after
any accrual of the special right of the holders of Serial Preferred Stock, and
at any subsequent annual meeting for the election of directors held during the
continuance of such special right, if there shall not be such a quorum of the
holders of Serial Preferred Stock the meeting shall be adjourned from time to
time as above provided until such quorum shall have been obtained; provided
that, if such quorum shall not have been obtained within ninety days from the
date of such meeting as originally called (or, in the case of any annual
meeting held during the continuance of such special right, from the date fixed
for such annual meeting), the presence in person or by proxy of the holders
of record of one third of the outstanding shares of Serial Preferred Stock
shall then be sufficient to constitute a quorum for the election of the
directors whom the holders of Serial Preferred Stock are then entitled to
elect. The absence of a quorum of the holders of any class of stock then
entitled to vote for the election of directors shall not, except as
hereinafter provided, prevent or invalidate the election by the other class
or classes of stockholders of the directors which they are entitled to elect,
if the necessary quorum of stockholders of such other class or classes is
present in person or represented by proxy at any such meeting or any
adjournment thereof. However, at the first meeting for the election of
directors after any accrual of the special right of the holders of Serial
Preferred Stock to elect directors as provided in subdivision (k) of this
subdivision (A), the absence of a quorum of the holders of Serial Preferred
Stock shall prevent the election of directors by the holders of Common Stock
until the election of directors by the holders of Serial Preferred Stock after
a quorum of the holders of Serial Preferred Stock shall have been obtained.
(B) PREFERENCE STOCK
(a) Subject to the provisions hereafter in this subdivision (B) set
forth, the Preference Stock may be divided into and issued, from time to time,
in one or more series as the Board of Directors may determine, and the Board
of Directors is hereby expressly authorized to adopt from time to time
resolutions, in respect of any unissued shares of Preference Stock, to fix and
determine:
(1) The division of such shares into series and the designation
and authorized number of shares of the particular series;
(2) The rate of dividend and the time of payment for the
particular series and the dates from which dividends on all shares of
such series issued prior to the record date for the first dividend on
shares of such series shall be cumulative;
(3) The price or prices at and the terms and conditions on which
shares of the particular series may be redeemed;
(4) The amount payable upon shares of the particular series in
the event of voluntary liquidation;
(5) Sinking fund provisions (if any) for the redemption or
purchase of shares of the particular series; and
(6) The terms and conditions (if any) on which the shares of the
particular series may be converted into other classes of stock of the
Company.
All shares of Preference Stock shall be of equal rank with each other,
regardless of series, and all shares thereof shall be identical except as to
the above listed relative rights and preferences, in respect of any or all of
which there may be variations between different series as fixed and determined
by the Board of Directors in said resolutions. All shares of the Preference
Stock of any one series shall be identical with each other in all respects.
All shares of the Preference Stock shall be subject to the prior rights and
preferences of the Serial Preferred Stock as defined in subdivision (A) above
and any other senior stock as defined in subdivision (b) (1) below hereafter
authorized.
(b) The following terms, as used in this subdivision (B), shall have
the following meanings:
(1) The term senior stock as used in this subdivision (B) shall
mean the Serial Preferred Stock and any other class of stock ranking in
its claim to assets or dividends prior to the 5,000,000 shares of
Preference Stock created hereby;
(2) The term parity stock as used in this subdivision (B) shall
mean any class of stock ranking in its claim to assets or dividends on
a parity with the Preference Stock, but shall not include any of the
8,800,000 shares of Preference Stock provided for hereby, nor shall it
include any increase in the authorized amount of the Preference Stock;
and
(3) The term junior stock as used in this subdivision (B) shall
mean the Common Stock and any other class of stock ranking in its claim
to assets or dividends junior to the Preference Stock.
(c) The holders of the Preference Stock shall be entitled, subject to
the prior rights and preferences of senior stock, to receive, but only when
and as declared by the Board of Directors, cumulative cash dividends in the
case of each series at the annual rate for such series theretofore fixed by
the Board of Directors as hereinbefore provided, payable quarter-yearly on the
first days of March, June, September and December (or such other quarter-
yearly dates for a particular series as the Board of Directors may determine
prior to the issue thereof as hereinbefore provided) in each year to
stockholders of record on the respective dates fixed for the purpose by the
Board of Directors as dividends are declared.
No dividend shall be declared on any shares of Preference Stock
of any series for any particular dividend period unless dividends in full have
been paid or declared and set apart for payment or are contemporaneously
declared and set apart for payment on the Preference Stock of all series then
outstanding for all dividend periods terminating at or before the end of the
particular dividend period. When dividends at the respective annual dividend
rates are not paid in full on any shares of Preference Stock, the shares of
all series of Preference Stock shall share ratably in the payment of dividends
including accumulations, if any, in accordance with the sums which would be
payable on such shares if all dividends were declared and paid in full.
The dividends on shares of Preference Stock shall be cumulative
in the case of all shares of each particular series (a) if issued prior to the
record date for the first dividend on shares of such series, then from the
date theretofore fixed for the purpose by the Board of Directors as
hereinbefore provided, or, if no such date is so fixed, then from the date on
which the shares of such series shall have been originally issued, (b) if
issued after the record date for a dividend on shares of such series and
before the payment date for such dividend then from such dividend payment
date; and (c) otherwise from the quarterly dividend payment date next
preceding the date of issue of such shares. Unless dividends on all
outstanding shares of the Preference Stock, at the annual dividend rate or
rates fixed therefor, shall have been paid for all past quarter-yearly
dividend periods to which they are entitled, and the full dividend thereon at
said rate or rates for the quarter-yearly dividend periods current at the time
shall have been paid or declared and set apart for payment, but without
interest on accumulated dividends, and unless all sinking fund payments, if
any, theretofore required to have been made shall have been made or provided
for, no dividends shall be declared and no other distribution shall be made
on any junior stock, and no junior stock shall be purchased, retired or
otherwise acquired for value by the Company. No dividend shall be declared
on any junior stock payable more than 120 days after the date of declaration.
The holders of the Preference Stock shall not be entitled to
receive any dividends thereon other than the dividends referred to in this
subdivision (c).
(d) The Company, at the option of the Board of Directors or by the
operation of the sinking fund, if any, provided for the Preference Stock of
any series, may, from time to time, subject to such terms and conditions, if
any, as may be fixed by the Board of Directors with respect to any series as
hereinbefore provided, and subject to the prior rights and preferences of
senior stock, redeem the whole or any part of such series at any time
outstanding, by paying in cash the applicable redemption price theretofore
fixed by the Board of Directors as hereinbefore provided.
Notice of every such redemption shall be given by publication at
least once in each of two calendar weeks in each of two daily newspapers
printed in the English language, one published and of general circulation in
the City of Washington, District of Columbia, and the other in the Borough of
Manhattan, The City of New York, the first publication to be at least thirty
days and not more than sixty days prior to the date fixed for such redemption.
At least thirty days' and not more than sixty days' previous notice of every
such redemption shall also be mailed to the holders of record of the shares
so to be redeemed, at their respective addresses as the same shall appear on
the books of the Company; but failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
proceedings for the redemption of any shares so to be redeemed.
In case of the redemption of a part only of any series of the
Preference Stock at the time outstanding, the Company or its duly authorized
agent shall select by lot the shares so to be redeemed. The Board of
Directors shall have full power and authority, subject to the limitations and
provisions herein contained, to prescribe the manner in which the drawings by
lot shall be conducted and the terms and conditions upon which the Preference
Stock shall be redeemed from time to time.
If such notice of redemption shall have been duly given by
publication, and if on or before the redemption date specified therein the
funds necessary for such redemption shall have been set aside by the Company,
separate and apart from its other funds, in trust for the account of the
holders of the shares so called for redemption so as to be and continue to be
available therefor, then, notwithstanding that any certificate for shares so
called for redemption shall not have been surrendered for cancellation, the
shares represented thereby shall no longer be deemed to be outstanding on and
after such redemption date, and all rights with respect to such shares shall
forthwith on such redemption date cease and terminate, except only the right
of the holders thereof to receive the amount payable upon redemption thereof,
without interest.
Provided, however, in the alternative, that after giving notice
by publication of any such redemption as hereinbefore provided or after giving
to the bank or trust company referred to below irrevocable authorization to
give or complete such notice by publication, and prior to the redemption date
specified in such notice, the Company may deposit in trust, for the account
of the holders of the shares of Preference Stock so to be redeemed, the funds
necessary for such redemption with a bank or trust company in good standing,
organized and doing business under the laws of the United States or of any
state or territory or of the District of Columbia and having its principal
office in the City of Washington, District of Columbia, or in the Borough of
Manhattan, The City of New York, having capital, surplus and undivided profits
aggregating at least Ten Million Dollars, designated in such notice of
redemption, and thereupon all shares of the Preference Stock with respect to
which such deposit shall have been made shall no longer be deemed to be
outstanding, and all rights with respect to such shares of Preference Stock
shall forthwith upon such deposit in trust cease and terminate, except only
the right of the holders thereof to receive from such bank or trust company
at any time after the time of such deposit the funds so deposited, without
interest and the right to exercise, on or before such redemption date
privileges of conversion or exchange, if any, not theretofore expiring.
Shares of Preference Stock purchased or redeemed pursuant to any
obligation of the Company to purchase or redeem shares for a sinking fund,
shares redeemed pursuant to the provisions hereof or purchased and for which
credit shall have been taken against any sinking fund obligation, and shares
surrendered pursuant to any conversion right, shall not be reissued or
otherwise disposed of and shall be cancelled. Any other shares of Preference
Stock redeemed or otherwise acquired by the Company shall continue to be part
of the authorized capital stock of the Company and may thereafter, in the
discretion of the Board of Directors and to the extent permitted by law, be
sold or reissued from time to time, as part of the same or another series,
subject to the terms and conditions herein set forth.
If and so long as the Company shall be in default in the payment
of any quarter-yearly dividend on shares of any series of the Preference
Stock, or shall be in default in the payment of funds into or the setting
aside of funds for any sinking fund created for any series of the Preference
Stock, the Company may not (other than by the use of unapplied funds, if any,
paid into or set aside for a sinking fund or funds prior to such default) (i)
redeem any shares of the Preference Stock unless all shares thereof are
redeemed, or (ii) purchase or otherwise acquire for a consideration any shares
of the Preference Stock, except pursuant to offers of sale made by holders of
the Preference Stock in response to an invitation for tenders given
simultaneously by the Company by mail to the holders of record of all shares
of the Preference Stock then outstanding.
(e) In the event of any voluntary liquidation, dissolution or winding
up of the Company, then, before any distribution or payment shall be made to
the holders of any junior stock, the holder of each share of the Preference
Stock shall be entitled, subject to the prior rights and preferences of senior
stock, to be paid in full in cash the amount fixed with respect to such share
by the Board of Directors as hereinbefore provided, together with an amount
computed at the annual dividend rate therefor from the date upon which
dividends thereon became cumulative to the date fixed for the payment thereof,
less the aggregate of the dividends theretofore paid thereon. If such
payments shall have been made in full to the holders of the Preference Stock,
the remaining assets and funds of the Company shall be distributed among the
holders of the Common Stock and any other junior stock according to their
respective rights, preferences, restrictions, qualifications and shares.
In the event of any involuntary liquidation, dissolution or
winding up of the Company, then, before any distribution or payment shall be
made to the holders of any junior stock, the holder of each share of the
Preference Stock shall be entitled, subject to the prior rights and
preferences of senior stock, to be paid in full the par value thereof in cash,
together with an amount computed at the annual dividend rate therefor from the
date upon which dividends thereon became cumulative to the date fixed for the
payment thereof, less the aggregate of the dividends theretofore paid thereon.
If such payments shall have been made in full to the holders of the Preference
Stock, the remaining assets and funds of the Company shall be distributed
among the holders of the Common Stock and any other junior stock according to
their respective rights, preferences, restrictions, qualifications and shares.
With respect to the payments to be made in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Company, all
series of the Preference Stock shall rank ratably according to their
respective interests without preference of any series thereof over any other
series.
(f) Whenever the full dividends on the Preference Stock at the time
outstanding for all past quarter-yearly dividend periods shall have been paid
and the full dividend thereon for the quarter-yearly dividend period then
current shall have been paid or declared and a sum sufficient for the payment
thereof set apart, then such dividends (payable in cash, stock or otherwise)
as may be determined by the Board of Directors may be declared on the Common
Stock and any other junior stock, and the Preference Stock shall not be
entitled to participate in any such dividends.
(g) So long as any shares of the Preference Stock are outstanding, no
amendment to the Articles of Incorporation of the Company which would (i)
create, change any junior stock into, or increase the rights and preferences
of, any senior or parity stock, (ii) increase the authorized amount of the
Preference Stock in excess of the 5,000,000 shares created hereby or the
authorized amount of any senior or parity stock, or (iii) change the express
terms of the outstanding shares of Preference Stock in any manner
substantially prejudicial to the holders thereof, shall be made without the
affirmative consent (given in writing without a meeting or by a vote at a
meeting duly called for the purpose) of the holders of more than two thirds
of the aggregate number of shares of the Preference Stock then outstanding;
but any such amendment may be made with such affirmative consent, together
with such additional vote or consent of stockholders as from time to time may
be required by law; provided, however, that if any such amendment would change
the express terms of the outstanding shares of Preference Stock of any
particular series in any manner substantially prejudicial to the holders
thereof without correspondingly affecting the holders of the outstanding
shares of Preference Stock of all series, then, in lieu of such consent of the
holders of Preference Stock (or, if such consent of the holders of the
outstanding shares of Preference Stock is required by law, in addition
thereto), a like affirmative consent of the holders of more than two thirds
of the Preference Stock of the affected series at the time outstanding shall
be necessary for making such amendment.
(h) So long as any shares of the Preference Stock are outstanding, the
Company shall not, without the affirmative consent (given in writing without
a meeting or by a vote at a meeting duly called for the purpose) of the
holders of at least a majority of the aggregate number of shares of the
Preference Stock then outstanding, merge or consolidate with or into any other
corporation or corporations or sell or lease all or substantially all of its
assets, unless such merger, consolidation, sale or lease, or the issue and
assumption of all securities to be issued or assumed in connection with any
such merger, consolidation, sale or lease shall have been ordered, approved
or permitted by the regulatory authority or authorities having jurisdiction
in the premises; provided that the provisions of this subdivision (h) shall
not apply to a purchase, lease or other acquisition by the Company of the
franchises or assets of another corporation, or otherwise apply in any manner
which does not involve a merger or consolidation or sale or lease by the
Company of all or substantially all of its assets.
(i) No holder of Preference Stock shall be entitled as such as a
matter of right to subscribe for or purchase any part of any new or additional
issue of stock, or securities convertible into, or carrying or evidencing any
right to purchase, stock, of any class whatever, whether now or hereafter
authorized, and whether issued for cash, property, services or otherwise.
(j) Except as otherwise in subdivisions (g) and (h) of this
subdivision (B) or by statute specifically provided, the Preference Stock
shall have no voting power unless and until dividends payable thereon are in
default in an amount equivalent to six full quarter-yearly dividends on the
Preference Stock at the time outstanding. In such event and until such
default shall have been remedied as hereinafter provided, the holders of
Preference Stock, voting separately, shall become entitled to elect two
directors of the Company at the next meeting of stockholders for the election
of directors (unless all dividends then in default on the Preference Stock
shall have been paid), and the other stockholders then entitled to vote for
the election of directors, voting separately by classes if so required by the
provisions applicable to such classes, shall be entitled to elect the
remaining directors of the Company. During the continuance of such special
right of the holders of Preference Stock, the Board of Directors shall be
divided into two or more classes, one consisting of the directors to be
elected by the holders of Preference Stock and the other class or classes
consisting of the directors to be elected by the other stockholders entitled
to vote for the election of directors, and the directors of each such class
elected at any meeting for the election of directors, held during the
continuance of such special right, shall hold office, subject to the rights
of any senior stock, until the next succeeding annual election and until their
respective successors by classes are elected and qualified.
However, if and when all dividends then in default on the
Preference Stock shall be paid (and such dividends shall be declared and paid
as soon as reasonably practicable out of surplus or net profits, but without
diminishing the amount of capital of the Company), the holders of Preference
Stock shall be divested of such special right, but subject always to the same
provisions for the revesting of such special right in the holders of
Preference Stock in the case of any similar future default or defaults.
Whenever the holders of Preference Stock shall be so divested of such special
right, the method of election of the Board of Directors by the vote of the
other stockholders entitled to vote for the election of directors exclusively
shall be restored and the election of directors shall take place at the next
succeeding annual meeting for the election of directors, or at any adjournment
thereof.
(k) Except as hereinafter provided, during the continuance of the
special right of the holders of Preference Stock to elect directors as
provided in subdivision (j) of this subdivision (B), at all meetings for the
election of directors the presence in person or by proxy of the holders of
record of a majority of the outstanding shares of Preference Stock shall be
necessary to constitute a quorum for the election of directors whom the
holders of Preference Stock are entitled to elect, and the presence in person
or by proxy of the holders of record of a majority of the outstanding shares
of each other class of stock then entitled to vote for the election of
directors shall, except as otherwise provided in subdivision (1) of
subdivision (A), be necessary to constitute a quorum for the election of the
directors whom the holders of such class of stock are entitled to elect. In
the absence of such a quorum of the holders of stock of any particular class
then entitled to vote for the election of directors, the holders of a majority
of the shares of the stock of such class so present in person or represented
by proxy may adjourn from time to time the meeting for the election of
directors to be elected by such stock, without notice other than announcement
at the meeting, until the requisite quorum of holders of such stock shall be
obtained. The absence of a quorum of the holders of any class of stock then
entitled to vote for the election of directors shall not, except as
hereinbefore provided, prevent or invalidate the election by the other class
or classes of stockholders of the directors which they are entitled to elect,
if the necessary quorum of stockholders of such other class or classes is
present in person or represented by proxy at any such meeting or any
adjournment thereof.
(C) COMMON STOCK
(a) No holder of Common Stock shall be entitled as such as a matter
of right to subscribe for or purchase any part of any new or additional issue
of stock, or securities convertible into, or carrying or evidencing any right
to purchase, stock, of any class whatever, whether now or hereafter
authorized, and whether issued for cash, property, services or otherwise.
(b) Except as otherwise provided by statute or by this Article V,
voting rights for all purposes shall be vested exclusively in the holders of
the Common Stock, who shall have one vote for each share held by them.
VI. The following provisions are set forth herein for the regulation of the
internal affairs of the Company:
At the date hereof, the Company has issued and outstanding
$120,000,000 aggregate principal amount of First Mortgage Bonds issued
under and secured by the lien of the Company's Mortgage and Deed of
Trust dated July 1, 1936, as amended and supplemented, heretofore made
by the Company to The Riggs National Bank of Washington, D.C., as
Trustee, which Mortgage and Deed of Trust, as amended and supplemented,
constitutes a lien on substantially all the properties and franchises
of the Company, other than cash, accounts receivable and other liquid
assets, securities, leases by the Company as lessor, equipment and
materials not installed as part of the fixed property, and electric
energy and other materials, merchandise or supplies produced or
purchased by the Company for sale, distribution or use. The Board of
Directors of the Company may from time to time cause to be issued
additional First Mortgage Bonds to be secured by said Mortgage and Deed
of Trust, as heretofore or hereafter amended and supplemented, without
limitation as to principal amount and without action by or approval of
the Company's shareholders, and in connection therewith may cause to be
executed and delivered by the Company such supplemental indentures,
containing such additional covenants, as the Board may approve.
Without the assent of the shareholders of any class the stated
capital of the Company may, from time to time, be reduced in respect of
shares of its Serial Preferred Stock reacquired in conversion and
cancelled.
VII. The address of the Company's registered office in the District of
Columbia is 1900 Pennsylvania Avenue, N. W.; and the name of its registered
agent at such address is Jack E. Strausman.
The address of the Company's registered office in Virginia is 8280
Greensboro Drive, #900, P.O. Box 9346, Tyson's Corner, McLean, Virginia 22102;
and the name of its registered agent at such address is John S. Stump, who is
a resident of Virginia and a member of the Virginia State Bar.
VIII. Unless otherwise provided in the By-Laws, the number of directors of the
Company shall be twelve (12).
IX. The business and affairs of the Company shall be managed by or under the
direction of the Board of Directors. The number of directors shall be
determined in accordance with the provisions of Article VIII. The directors
shall be divided into three classes, designated Class I, Class II and Class
III. Each class shall consist, as nearly as may be possible, of one-third of
the total number of directors constituting the entire Board of Directors. At
the 1987 annual meeting of shareholders, Class I directors shall be elected
for a one-year term, Class II directors for a two-year term, and Class III
directors for a three-year term. At each succeeding annual meeting of
shareholders beginning in 1988, successors to the class of directors whose
term expires at that annual meeting shall be elected for a three-year term.
If the number of directors is changed in accordance with the provisions of
Article VIII, any increase or decrease shall be apportioned among the classes
so as to maintain the number of directors in each class as nearly equal as
possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that
shall coincide with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year
in which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement, age and
service limitations as may be set forth in the By-Laws, disqualification or
removal from office. Any vacancy on the Board of Directors that results from
other than an increase in the number of directors may be filled by a majority
of the Board of Directors then in office even if less than a quorum, or by a
sole remaining director. The term of any director elected by the Board of
Directors to fill a vacancy not resulting from an increase in the number of
directors shall expire at the next shareholders' meeting at which directors
are elected, and the remainder of such term, if any, shall be filled by a
director elected at such meeting.
Notwithstanding the foregoing, whenever the holders of any class of
stock issued by the Company shall have the right, voting separately by class
or series, to elect directors at an annual or special meeting of shareholders,
the election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of the Articles of Incorporation
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Article IX unless expressly provided by such terms.
Subject to the provisions of the preceding paragraphs, directors elected
pursuant to this Article IX may be removed only for cause.
X. In addition to any other vote that may be required by law or these
Articles of Incorporation or the By-Laws of the Company, the affirmative vote
of the holders of four-fifths of all the capital stock entitled to vote shall
be required to amend, alter, or repeal Articles IX and X of these Articles of
Incorporation, and Article I, Section 1, the second through the fourth
paragraphs, Article I, Section 2, and Article II, Section 1 of the By-Laws of
the Company; provided, however, that the power of the Board of Directors to
amend, alter, or repeal the By-Laws shall not be affected by this Article X.
XI. (A) In addition to any affirmative vote required by law or these
Articles of Incorporation or the By-Laws of the Company, and except as
otherwise expressly provided in Paragraph (B) of this Article XI, a Business
Combination (as hereinafter defined) shall require the affirmative vote of not
less than sixty-six and two-thirds percent (66-2/3%) of the votes entitled to
be cast by the holders of all the then outstanding shares of Voting Stock (as
hereinafter defined), voting together as a single class, excluding Voting
Stock beneficially owned by any Interested Shareholder (as hereinafter
defined). Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage or separate class
vote may be specified, by law or in any agreement with any national securities
exchange or otherwise.
(B) The provisions of the preceding Paragraph (A) shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is required
by law or by any other provision of these Articles of Incorporation or the By-
Laws of the Company, or any agreement with any national securities exchange,
if all of the conditions specified in either of the following Paragraphs (1)
or (2) are met or, in the case of a Business Combination not involving the
payment of consideration to the holders of the Company's outstanding Capital
Stock (as hereinafter defined), if the condition specified in the following
Paragraph (1) is met:
(1) The Business Combination shall have been approved by a
majority (whether such approval is made prior to or subsequent to the
acquisition of beneficial ownership of the Voting Stock that caused the
Interested Shareholder to become an Interested Shareholder) of the
Continuing Directors (as hereinafter defined).
(2) All of the following conditions shall have been met with
respect to every class or series of outstanding Capital Stock, whether
or not the Interested Shareholder has previously acquired beneficial
ownership of any shares of a particular class or series of Capital
Stock:
(a) The aggregate amount of cash and the Fair Market Value
(as hereinafter defined), as of the date of the consummation of
the Business Combination, of consideration other than cash to be
received per share by holders of Common Stock in such Business
Combination shall be at least equal to the highest amount
determined under clauses (i), (ii), (iii), and (iv) below:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Shareholder for any share of Common Stock in
connection with the acquisition by the Interested
Shareholder of beneficial ownership of shares of Common
Stock (x) within the two-year period immediately prior to
the first public announcement of the proposed Business
Combination (the "Announcement Date") or (y) in the
transaction in which it became an Interested Shareholder,
whichever is higher, in either case as adjusted for any
subsequent stock split, stock dividend, subdivision or
reclassification with respect to Common Stock;
(ii) the Fair Market Value per share of Common Stock
on the Announcement Date or on the date on which the
Interested Shareholder became an Interested Shareholder
(the "Determination Date"), whichever is higher, as
adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to Common
Stock;
(iii) (if applicable) the price per share equal to
the Fair Market Value per share of Common Stock determined
pursuant to the immediately preceding clause (ii),
multiplied by the ratio of (x) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Shareholder for any share of Common Stock in
connection with the acquisition by the Interested
Shareholder of beneficial ownership of shares of Common
Stock within the two-year period immediately prior to the
Announcement Date, as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification with
respect to Common Stock to (y) the Fair Market Value per
share of Common Stock on the first day in such two-year
period on which the Interested Shareholder acquired
beneficial ownership of any share of Common Stock, as
adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to Common
Stock; and
(iv) the Company's net income per share of Common
Stock for the four full consecutive fiscal quarters
immediately preceding the Announcement Date, multiplied by
the higher of the then price/earnings multiple (if any) of
such Interested Shareholder or the highest price/earnings
multiple of the Company within the two-year period
immediately preceding the Announcement Date (such
price/earnings multiples being determined by dividing the
highest price per share during a day as reported in the
Wall Street Journal from the Composite Tape for the New
York Stock Exchange by the immediately preceding publicly
reported twelve-months earnings per share).
(b) The aggregate amount of cash and the Fair Market Value, as
of the date of the consummation of the Business Combination, of
consideration other than cash to be received per share by holders
of shares of any class or series of outstanding Capital Stock,
other than Common Stock, shall be at least equal to the highest
amount determined under clauses (i), (ii), (iii), and (iv) below:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Shareholder for any share of such class or
series of Capital Stock in connection with the acquisition
by the Interested Shareholder of beneficial ownership of
shares of such class or series of Capital Stock (x) within
the two-year period immediately prior to the Announcement
Date or (y) in the transaction in which it became an
Interested Shareholder, whichever is higher, in either case
as adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to such class
or series of Capital Stock;
(ii) the Fair Market Value per share of such class
or series of Capital Stock on the Announcement Date or on
the Determination Date, whichever is higher, as adjusted
for any subsequent stock split, stock dividend, subdivision
or reclassification with respect to such class or series of
Capital Stock;
(iii) (if applicable) the price per share equal to
the Fair Market Value per share of such class or series of
Capital Stock determined pursuant to the immediately
preceding clause (ii), multiplied by the ratio of (x) the
highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees)
paid by or on behalf of the Interested Shareholder for any
share of such class or series of Capital Stock in
connection with the acquisition by the Interested
Shareholder of beneficial ownership of shares of such class
or series of Capital Stock within the two-year period
immediately prior to the Announcement Date, as adjusted for
any subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of
Capital Stock to (y) the Fair Market Value per share of
such class or series of Capital Stock on the first day in
such two-year period on which the Interested Shareholder
acquired beneficial ownership of any share of such class or
series of Capital Stock, as adjusted for any subsequent
stock split, stock dividend, subdivision or
reclassification with respect to such class or series of
Capital Stock; and
(iv) (if applicable) the highest preferential amount
per share to which the holders of shares of such class or
series of Capital Stock would be entitled in the event of
any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company regardless of
whether the Business Combination to be consummated
constitutes such an event.
(c) The consideration to be received by holders of a
particular class or series of outstanding Capital Stock shall be
in cash or in the same form as previously has been paid by or on
behalf of the Interested Shareholder in connection with its direct
or indirect acquisition of beneficial ownership of shares of such
class or series of Capital Stock. If the consideration previously
paid by the Interested Shareholder to acquire shares of any class
or series of Capital Stock varied among the recipients thereof as
to form, the form of consideration to be paid for such class or
series of Capital Stock in connection with the Business
Combination shall be either cash or the form used to acquire
beneficial ownership of the largest number of shares of such class
or series of Capital Stock previously acquired by the Interested
Shareholder.
(d) After the Determination Date and prior to the
consummation of such Business Combination: (i) except as approved
by a majority of the Continuing Directors, there shall have been
no failure to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative) payable in
accordance with the terms of any outstanding Capital Stock; (ii)
there shall have been no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary to reflect any stock
split, stock dividend or subdivision of the Common Stock), except
as approved by a majority of the Continuing Directors; (iii) there
shall have been an increase in the annual rate of dividends paid
on the Common Stock as necessary to reflect any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction that has the effect of
reducing the number of outstanding shares of Common Stock, unless
the failure so to increase such annual rate is approved by a
majority of the Continuing Directors; and (iv) such Interested
Shareholder shall not have become the beneficial owner of any
additional shares of Capital Stock except as part of the
transaction that results in such Interested Shareholder becoming
an Interested Shareholder and except in a transaction that, after
giving effect thereto, would not result in any increase in the
Interested Shareholder's percentage of beneficial ownership of any
class or series of Capital Stock.
(e) After the Determination Date, such Interested
Shareholder shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder of the
Company), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Company, whether in anticipation of or in
connection with such Business Combination or otherwise.
(f) A proxy or information statement describing the
proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder (the "Act") (or any subsequent
provisions replacing such Act, rules or regulations) shall be
mailed to all shareholders of the Company at least 30 days prior
to the consummation of such Business Combination (whether or not
such proxy or information statement is required to be mailed
pursuant to such Act or subsequent provisions). The proxy or
information statement shall contain on the first page thereof, in
a prominent place, any statement as to the advisability (or
inadvisability) of the Business Combination that the Continuing
Directors, or any of them, may choose to make and, if deemed
advisable by a majority of the Continuing Directors, the opinion
of an investment banking firm selected by a majority of the
Continuing Directors as to the fairness (or not) of the terms of
the Business Combination from a financial point of view to the
holders of the outstanding shares of Capital Stock other than the
Interested Shareholder and its Affiliates or Associates (as
hereinafter defined), such investment banking firm to be paid a
reasonable fee for its services by the Company.
(g) Such Interested Shareholder shall not have made any
major change in the Company's business or equity capital structure
without the approval of a majority of the Continuing Directors.
(C) The following definitions shall apply with respect to this
Article XI:
(1) The term "Business Combination" shall mean:
(a) any merger or consolidation of the Company or any
Subsidiary (as hereinafter defined) with (i) any Interested
Shareholder or (ii) any other company (whether or not itself an
Interested Shareholder) which is or after such merger or
consolidation would be an Affiliate or Associate of an Interested
Shareholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition or security arrangement, investment, loan,
advance, guarantee, agreement to purchase, agreement to pay,
extension of credit, joint venture participation or other
arrangement (in one transaction or a series of transactions) with
or for the benefit of any Interested Shareholder or any Affiliate
or Associate of any Interested Shareholder involving any assets,
securities or commitments of the Company or any Subsidiary having
an aggregate Fair Market Value and/or involving aggregate
commitments of $10,000,000 or more or constituting more than 5
percent of the book value of the total assets (in the case of
transactions involving assets or commitments other than Capital
Stock) or 5 percent of the shareholders' equity (in the case of
transactions in Capital Stock) of the entity in question (the
"Substantial Part"), as reflected in the most recent fiscal year-
end consolidated balance sheet of such entity existing at the time
the shareholders of the Company would be required, pursuant to
Paragraph A of this Article XI, to approve or authorize the
Business Combination involving the assets, securities and/or
commitments constituting any Substantial Part; or
(c) the adoption of any plan or proposal for the
liquidation or dissolution of the Company which is voted for or
consented to by any Interested Shareholder or any Affiliate or
Associate thereof; or
(d) any reclassification of securities (including any
reverse stock split), or recapitalization of the Company, or any
merger or consolidation of the Company with any of its
Subsidiaries or any other transaction (whether or not with or
otherwise involving an Interested Shareholder) that has the
effect, directly or indirectly, of increasing the proportionate
share of any class or series of Capital Stock, or any securities
convertible into Capital Stock or into equity securities of any
Subsidiary, that is beneficially owned by any Interested
Shareholder or any Affiliate or Associate of any Interested
Shareholder; or
(e) any agreement, contract or other arrangement providing
for any one or more of the actions specified in the foregoing
clauses (a) to (d).
(2) The term "Capital Stock" shall mean all capital stock of the
Company authorized to be issued from time to time under Article IV of
these Articles of Incorporation, and the term "Voting Stock" shall mean
all Capital Stock that by its terms may be voted on all matters
submitted to shareholders of the Company generally.
(3) The term "person" shall mean any individual, firm, company
or other entity and shall include any group comprised of any person and
any other person with whom such person or any Affiliate or Associate of
such person has any agreement, arrangement or understanding, directly
or indirectly, for the purpose of acquiring, holding, voting or
disposing of Capital Stock.
(4) The term "Interested Shareholder" shall mean any person
(other than the Company or any Subsidiary and other than any profit-
sharing, employee stock ownership or other employee benefit plan of the
Company or any Subsidiary or any trustee of or fiduciary with respect
to any such plan when acting in such capacity) who (a) is the beneficial
owner of Voting Stock representing ten percent (10%) or more of the
votes entitled to be cast by the holders of all then outstanding shares
of Voting Stock; or (b) is an Affiliate or Associate of the Company and
at any time within the two-year period immediately prior to the
Announcement Date was the beneficial owner of Voting Stock representing
ten percent (10%) or more of the votes entitled to be cast by the
holders of all then outstanding shares of Voting Stock.
(5) A person shall be a "beneficial owner" of any Capital Stock
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; (b) which such person or any
of its Affiliates or Associates has, directly or indirectly, (i) the
right to acquire (whether such right is exercisable immediately or
subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (ii) the right
to vote pursuant to any agreement, arrangement or understanding; or (c)
which is beneficially owned, directly or indirectly, by any other person
with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Capital Stock. For
purposes of determining whether a person is an Interested Shareholder
pursuant to Paragraph (4) of this Section (C), the number of shares of
Capital Stock deemed to be outstanding shall include shares deemed
beneficially owned by such person through application of this Paragraph
(5) of Section (C), but shall not include any other shares of Capital
Stock that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
(6) The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 under the Act
as in effect on the date that Article XI is approved by the Board (the
term "registrant" in said Rule 12b-2 meaning in this case the Company).
(7) The term "Subsidiary" means any company of which a majority
of any class of equity security is beneficially owned by the Company;
provided, however, that for the purposes of the definition of Interested
Shareholder set forth in Paragraph (4) of this Section (C), the term
"Subsidiary" shall mean only a company of which a majority of each class
of equity security is beneficially owned by the Company.
(8) The term "Continuing Director" means any member of the Board
of Directors of the Company (the "Board of Directors"), while such
person is a member of the Board of Directors, who is not an Affiliate
or Associate or representative of the Interested Shareholder and was a
member of the Board of Directors prior to the time that the Interested
Shareholder became an Interested Shareholder, and any successor of a
Continuing Director while such successor is a member of the Board of
Directors, who is not an Affiliate or Associate or representative of the
Interested Shareholder and is recommended or elected to succeed the
Continuing Director by a majority of Continuing Directors.
(9) The term "Fair Market Value" means (a) in the case of cash,
the amount of such cash; (b) in the case of stock, the highest closing
sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities
exchange registered under the Act on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such stock during the 30-day period
preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any similar system then in
use, or if no such quotations are available, the fair market value on
the date in question of a share of such stock as determined by a
majority of the Continuing Directors in good faith; and (c) in the case
of property other than cash or stock, the fair market value of such
property on the date in question as determined in good faith by a
majority of the Continuing Directors.
(10) In the event of any Business Combination in which the
Company survives, the phrase "consideration other than cash to be
received" as used in Paragraphs (2)(a) and (2)(b) of Section (B) of this
Article XI shall include the shares of Common Stock and/or the shares
of any other class or series of Capital Stock retained by the holders
of such shares.
(D) A majority of the Continuing Directors shall have the power and
duty to determine for the purposes of this Article XI, on the basis of
information known to them after reasonable inquiry, (a) whether a person is
an Interested Shareholder, (b) the number of shares of Capital Stock or other
securities beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, (d) whether the assets that are the subject
of any Business Combination have, or the consideration to be received for the
issuance or transfer of securities by the Company or any Subsidiary in any
Business Combination has, an aggregate Fair Market Value of $10,000,000 or
more, and (e) whether the assets or securities that are the subject of any
Business Combination constitute a Substantial Part. Any such determination
made in good faith shall be binding and conclusive on all parties.
(E) Nothing contained in this Article XI shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
(F) The fact that any Business Combination complies with the
provisions of Section (B) of this Article XI shall not be construed to impose
any fiduciary duty, obligation or responsibility on the Board of Directors,
or any member thereof, to approve such Business Combination or recommend its
adoption or approval to the shareholders of the Company, nor shall such
compliance limit, prohibit or otherwise restrict in any manner the Board of
Directors, or any member thereof, with respect to evaluations of or actions
and responses taken with respect to such Business Combination.
(G) Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Company (and notwithstanding the fact that
a lesser percentage or separate class vote may be specified by law, these
Articles of Incorporation or the By-Laws of the Company), the affirmative vote
of the holders of not less than four-fifths of the votes entitled to be cast
by the holders of all the then outstanding shares of Voting Stock, voting
together as a single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with, this Article XI; provided, however, that this
Section (G) shall not apply to, and such four-fifths vote shall not be
required for, any amendment, repeal or adoption unanimously recommended by the
Board of Directors if all of such directors are persons who would be eligible
to serve as Continuing Directors within the meaning of Section (C), Paragraph
(8) of this Article XI.
IN WITNESS WHEREOF, Potomac Electric Power Company has duly caused these
Restated Articles of Incorporation to be duly executed (in duplicate) in its
name by Dennis R. Wraase, one of its Senior Vice Presidents, and by Betty K.
Cauley, its Secretary, and its corporate seal to be hereunto affixed and duly
attested by Betty K. Cauley, its Secretary, all as of the 22nd day of
December, 1992.
POTOMAC ELECTRIC POWER COMPANY
[Corporate Seal]
Attest: By /s/ D. R. WRAASE
Dennis R. Wraase
Senior Vice President
/s/ BETTY K. CAULEY By /s/ BETTY K. CAULEY
Betty K. Cauley Betty K. Cauley
Secretary Secretary
DISTRICT OF COLUMBIA, ss.:
I, Indiana C. Shepp, a notary public, do hereby certify that on this
22nd day of December, 1992, personally appeared before me Dennis R. Wraase,
who, being by me first duly sworn, declared that he is a Senior Vice President
of Potomac Electric Power Company, that he signed the foregoing document as
Senior Vice President of the corporation, and that the statements therein
contained are true.
/s/ INDIANA C. SHEPP
[NOTARIAL SEAL] Notary Public, D. C.
My commission expires: June 14, 1994.
CERTIFICATE OF
POTOMAC ELECTRIC POWER COMPANY
Pursuant to Virginia Code Section 13.1-711 D., Potomac Electric Power
Company, through Betty K. Cauley, its Secretary and Associate General Counsel,
hereby certifies that the accompanying Restated Articles of Incorporation and
Articles of Restatement do not contain an amendment to the Articles of
Incorporation requiring shareholder approval and were duly adopted by teh
Board of Directors of the Company on December 21, 1992.
WHEREFORE, this Certificate has been duly executed this 22nd day of
December, 1992.
POTOMAC ELECTRIC POWER COMPANY
By: /s/ BETTY K. CAULEY
Betty K. Cauley
Secretary and Associate General Counsel
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
POTOMAC ELECTRIC POWER COMPANY
Pursuant to the provisions of Section 29-356 of Title 29 of the
District of Columbia Code (Section 56 of the District of Columbia Business
Corporation Act, as amended) and Section 13.1-710 of the Code of Virginia
(chapter 522 of the Virginia Stock Corporation Act), the undersigned
corporation adopts these Articles of Amendment to its Articles of
Incorporation.
FIRST:
The name of the Company is Potomac Electric Power Company.
SECOND:
The following amendment to the Articles of Incorporation was adopted
by the shareholders of the corporation in the manner prescribed by the
District of Columbia Business Corporation Act and the Virginia State
Corporation Act:
Article IV of the Articles of Incorporation is hereby amended to read
as follows:
IV. The aggregate number of shares which the Company shall have
authority to issue is 220,042,227 divided into three classes: the
first consisting of 11,242,227 shares of the par value of $50 each; the
second consisting of 8,800,000 shares of the par value of $25 each; and
the third consisting of 200,000,000 shares of the par value of $1 each.
The first paragraph of Article V of the Articles of Incorporation is
hereby amended to read as follows:
V. Said 11,242,227 shares of the par value of $50 each are
designated as Serial Preferred Stock; said 8,800,000 shares of the par
value of $25 each are designated as Preference Stock; and said
200,000,000 shares of the par value of $1 each are designated as Common
Stock. Such of said authorized shares of Serial Preferred Stock,
Preference Stock and Common Stock as are unissued at any time may be
issued, in whole or in part, at such time, or from time to time, by
action of the Board of Directors of the Company, subject to the laws
in force in the District of Columbia and the Commonwealth of Virginia
and the terms and conditions set forth in the Articles of
Incorporation, as amended of the Company.
The number of shares of Serial Preferred Stock appearing in Article V,
Section (A), subparagraphs (b)(1) and (2) and (g) is hereby amended to read
11,242,227.
THIRD:
The amendment to increase by 5,000,000 shares the authorized number of
shares of Serial Preferred Stock was proposed and recommended by the Board
of Directors of the corporation and submitted to and approved by its
shareholders in accordance with the corporation's Articles of Incorporation
and applicable law.
FOURTH:
The amendment was adopted by the shareholders on May 20, 1993. The
number of shares of the corporation outstanding at the time of such adoption
was 120,430,936. The number of shares entitled to vote at such time on the
amendment was 119,962,841, the designation and number of which shares of each
class were as follows:
Class Number of Shares
Common Stock 114,471,011
Serial Preferred Stock 5,491,830
The number of shares of each class entitled to vote on the amendment that
were voted for and against the amendment were:
Number of Shares Voted
Class For Against
Common Stock 78,854,276 7,415,274
Serial Preferred Stock 4,263,996 234,178
FIFTH:
The amendment does not provide for an exchange, reclassification, or
cancellation of issued shares.
SIXTH:
The amendment does not effect a change in the amount of stated capital,
or paid-in surplus, or both, of the corporation.
IN WITNESS WHEREOF, the Potomac Electric Power Company has caused these
Articles of Amendment to be duly executed (in duplicate) in its name by
William T. Torgerson, one of its Vice Presidents, and by Mary T. Howard, one
of its Assistant Secretaries, and its corporate seal to be hereunto affixed
and duly attested by Mary T. Howard, one of its Assistant Secretaries, all
as of the 20th day of May, 1993.
POTOMAC ELECTRIC POWER COMPANY
(Corporate Seal)
By: /s/ WILLIAM T. TORGERSON
Vice President
ATTEST:
/s/ M. T. HOWARD By: /s/ M. T. HOWARD
Assistant Secretary Assistant Secretary
DISTRICT OF COLUMBIA, ss.:
I, Indiana C. Shepp, a notary public, do hereby certify that on this
20th day of May, 1993, personally appeared before me William T. Torgerson,
who, being by me first duly sworn, declared that he is a Vice President of
Potomac Electric Power Company, that he signed the foregoing document as Vice
President of the corporation, and that the statements therein are true.
/s/ INDIANA C. SHEPP
Notary Public, D. C.
[NOTARIAL SEAL]
My commission expires: June 14, 1995
DISTRICT OF COLUMBIA
STATEMENT OF
CANCELLATION OF REDEEMABLE SHARES
OF
POTOMAC ELECTRIC POWER COMPANY
Under the provisions of Section 29-359 of Chapter 3 of Title 29 of the
District of Columbia Code, 1981 Edition (Section 59 of the District of Columbia
Business Corporation Act, as amended), the undersigned corporation submits this
statement of cancellation, pursuant to the provisions of its articles of
incorporation, of redeemable shares of the corporation reacquired by it
subsequent to the close of business on December 17, 1992, and prior to the close
of business on December 16, 1993, through their conversion, in accordance with
their terms, into shares of its common stock, and through redemption subsequent
to the close of business on December 17, 1992, and prior to the close of
business on December 16, 1993 of 30,000 shares of Serial Preferred Stock,
$3.37 Series of 1987:
FIRST: The name of the corporation is Potomac Electric Power Company.
SECOND: The aggregate number of shares which the corporation had authority to
issue is 220,042,227, itemized as follows:
CLASS SERIES NUMBER OF SHARES
Common Stock - 200,000,000
Preference Stock Undesignated as to series 8,800,000
Serial Preferred
Stock $2.44 Series of 1957 300,000
$2.46 Series of 1958 300,000
$2.28 Series of 1965 400,000
$2.44 Convertible Series of 1966 10,027
$3.82 Series of 1969 500,000
$3.37 Series of 1987 982,200
Auction Series A 1,000,000
$3.89 Series of 1991 1,000,000
$3.40 Series of 1992 1,000,000
Undesignated as to series 5,750,000
THIRD: The number of shares of the corporation so cancelled is 31,183
itemized as follows:
CLASS SERIES NUMBER OF SHARES
Serial Preferred
Stock $2.44 Convertible Series of 1966 1,183
$3.37 Series of 1987 30,000
FOURTH: The number of shares which the corporation has authority to issue
after giving effect to such cancellation is 220,011,044, itemized as
follows:
CLASS SERIES NUMBER OF SHARES
Common Stock - 200,000,000
Preference Stock Undesignated as to series 8,800,000
Serial Preferred
Stock $2.44 Series of 1957 300,000
$2.46 Series of 1958 300,000
$2.28 Series of 1965 400,000
$2.44 Convertible Series of 1966 8,844
$3.82 Series of 1969 500,000
$3.37 Series of 1987 952,200
Auction Series A 1,000,000
$3.89 Series of 1991 1,000,000
$3.40 Series of 1992 1,000,000
Undesignated as to series 5,750,000
FIFTH: The aggregate number of issued shares of the corporation after giving
effect to such cancellation is 122,926,152 itemized as follows:
CLASS SERIES NUMBER OF SHARES
Common Stock - 117,465,108
Preference Stock - NONE
Serial Preferred
Stock $2.44 Series of 1957 300,000
$2.46 Series of 1958 300,000
$2.28 Series of 1965 400,000
$2.44 Convertible Series of 1966 8,844
$3.82 Series of 1969 500,000
$3.37 Series of 1987 952,200
Auction Series A 1,000,000
$3.89 Series of 1991 1,000,000
$3.40 Series of 1992 1,000,000
SIXTH: After giving effect to such cancellation, the amounts of the stated
capital and paid-in surplus of the corporation, computed in accordance
with the provisions of the District of Columbia Business Corporation
Act, as amended, are $390,517,308 and $989,419,430.89, respectively.
DATED: December 21, 1993
POTOMAC ELECTRIC POWER COMPANY
By /s/ H. L. DAVIS
H. Lowell Davis
Vice Chairman and
Chief Financial Officer
[Corporate Seal]
Attest:
/s/ M. T. HOWARD
M. T. Howard
Assistant Secretary
DISTRICT OF COLUMBIA, ss.:
I, Lisa A. Poole, a Notary Public, do hereby certify that on this 21st day
of December, 1993, personally appeared before me H. Lowell Davis, who, being by
me first duly sworn, declared that he is Vice Chairman and Chief Financial
Officer of Potomac Electric Power Company, that he signed the foregoing document
as Vice Chairman and Chief Financial Officer of the corporation, and that the
statements therein contained are true.
/s/ LISA A. POOLE
Notary Public, D. C.
ARTICLES OF AMENDMENT
OF
POTOMAC ELECTRIC POWER COMPANY
Under the provisions of Section 13.1-652 of the Code of Virginia, as
amended, the undersigned corporation submits these Articles of Amendment.
FIRST: The name of the corporation is Potomac Electric Power Company.
SECOND: The reduction in the number of authorized shares of the corporation
is 31,183, itemized as follows:
CLASS SERIES NUMBER OF SHARES
Serial Preferred
Stock $2.44 Convertible Series of 1966 1,183
$3.37 Series of 1987 30,000
THIRD: The total number of authorized shares of the corporation remaining
after giving effect to such reduction is 220,011,044, itemized as
follows:
CLASS SERIES NUMBER OF SHARES
Common Stock - 200,000,000
Preference Stock Undesignated as to series 8,800,000
Serial Preferred
Stock $2.44 Series of 1957 300,000
$2.46 Series of 1958 300,000
$2.28 Series of 1965 400,000
$2.44 Convertible Series of 1966 8,844
$3.82 Series of 1969 500,000
$3.37 Series of 1987 952,200
Auction Series A 1,000,000
$3.89 Series of 1991 1,000,000
$3.40 Series of 1992 1,000,000
Undesignated as to series 5,750,000
The Articles of Incorporation prohibit the reissuance of acquired
shares.
FOURTH: The reduction in the number of authorized shares was duly authorized
by the Board of Directors on December 20, 1993.
DATED: December 21, 1993
POTOMAC ELECTRIC POWER COMPANY
By /s/ H. L. DAVIS
H. Lowell Davis
Vice Chairman and
Chief Financial Officer
[Corporate Seal]
Attest:
/s/ M. T. HOWARD
M. T. Howard
Assistant Secretary
================================================================================
POTOMAC ELECTRIC POWER COMPANY
1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C.
TO
THE RIGGS NATIONAL BANK
OF WASHINGTON, D.C.
800-17TH STREET, N.W., WASHINGTON, D.C.
AS TRUSTEE
------------------
Supplemental Indenture
DATED AS OF SEPTEMBER 29, 1993
------------------
SUPPLEMENTAL TO MORTGAGE AND DEED OF TRUST
DATED JULY 1, 1936
------------------
FIRST MORTGAGE BONDS, 5 5/8% SERIES DUE 2003
================================================================================
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
SUPPLEMENTAL INDENTURE DATED AS OF SEPTEMBER 29, 1993
TABLE OF CONTENTS*
------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Parties.................................................................. 1
Recitals................................................................. 1
<CAPTION>
PART I
Description of Bonds
<S> <C> <C>
Section 1. General description of Bonds of 2003 Series.................. 5
Section 2. Form of face of Bond of 2003 Series.......................... 7
Form of Trustee's certificate................................ 9
Text appearing on reverse side of Bond of 2003 Series........ 9
Section 3. Denominations of Bonds of 2003 Series........................ 11
Section 4. Execution and form of temporary Bonds........................ 12
<CAPTION>
PART II
Issue of Bonds
<S> <C> <C>
Section 1. Limitation as to principal amount............................ 12
Section 2. Issue of Bonds............................................... 12
<CAPTION>
PART III
Redemption
<S> <C>
Bonds of 2003 Series not redeemable prior to maturity ................... 13
<CAPTION>
PART IV
Additional Particular Covenants of the Company
<S> <C> <C>
Section 1. Company not to withdraw moneys pursuant to Section 2 of
Article VIII in excess of an amount equal to principal
amount of issued refundable bonds........................... 13
Section 2. No property additions made on or prior to December 31, 1946
to be used for any purpose under the Indenture.............. 13
</TABLE>
- ---------
* The Table of Contents is not part of the Supplemental Indenture and should
not be considered as such. It is included herein only for purposes of
convenient reference.
<PAGE>
ii
<TABLE>
<CAPTION>
PART V
PAGE
<S> <C>
Amendment of Indenture to Permit Qualification Under Trust Indenture Act
of 1939................................................................. 13
<CAPTION>
PART VI
<S> <C>
Amendment of Original Indenture.......................................... 14
<CAPTION>
PART VII
The Trustee
<S> <C>
Acceptance of trusts by the Trustee...................................... 14
Trustee not responsible for validity of the Supplemental Indenture....... 14
<CAPTION>
PART VIII
Miscellaneous Provisions
<S> <C>
Execution of Supplemental Indenture in counterparts...................... 15
Appointment of attorneys-in-fact by parties.............................. 15
Testimonium.............................................................. 15
Execution................................................................ 16
Company's Acknowledgments................................................ 17
Trustee's Acknowledgments................................................ 19
</TABLE>
<PAGE>
SUPPLEMENTAL INDENTURE, dated as of the twenty-ninth day of September, nine-
teen hundred and ninety-three (1993), made by and between Potomac Electric
Power Company, a corporation organized and existing under the laws of the Dis-
trict of Columbia and a domestic corporation of the Commonwealth of Virginia
(hereinafter sometimes called the "Company"), party of the first part, and The
Riggs National Bank of Washington, D.C., a national banking association orga-
nized and existing under the laws of the United States of America (hereinafter
sometimes called the "Trustee"), as Trustee under the Mortgage and Deed of
Trust dated July 1, 1936, hereinafter mentioned, party of the second part;
Whereas, The Company has heretofore executed and delivered its Mortgage and
Deed of Trust, dated July 1, 1936 (hereinafter sometimes referred to as the
"Original Indenture"), to the Trustee, to secure an issue of First Mortgage
Bonds of the Company, issuable in series; and
Whereas, pursuant to the terms and provisions of the Original Indenture, in-
dentures supplemental thereto dated as of July 1, 1936, December 1, 1939, Au-
gust 1, 1940, August 1, 1942, January 1, 1948, May 1, 1949, May 1, 1950, March
1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, December 1, 1958, November
16, 1959, December 1, 1960, February 15, 1963, May 15, 1964, April 1, 1966,
May 1, 1967, February 15, 1968, March 15, 1969, February 15, 1970, August 15,
1970, September 15, 1972, April 1, 1973, January 2, 1974, August 15, 1974, Au-
gust 15, 1974, June 15, 1977, July 1, 1979, June 16, 1981, June 17, 1981, De-
cember 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1,
1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May
1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September
1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993 and Au-
gust 20, 1993, have been heretofore entered into between the Company and the
Trustee to provide, respectively, for the creation of the first through the
fifty-third series of Bonds thereunder and, in the case of the supplemental
indentures dated January 1, 1948, March 1, 1952, May 15, 1953, May 16, 1955,
June 1, 1956, September 15, 1972, July 1, 1979, June 17, 1981, November 1,
1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992, July 1, 1993
and one of the supplemental indentures dated August 15, 1974, to convey addi-
tional property; and
<PAGE>
2
Whereas, $20,000,000 principal amount of Bonds of the 3 1/4% Series due 1966
(the first series), $5,000,000 principal amount of Bonds of the 3 1/4 Series
due 1974 (the second series), $10,000,000 principal amount of Bonds of the 3
1/4% Series due 1975 (the third series), $5,000,000 principal amount of Bonds
of the 3 1/4% Series due 1977 (the fourth series), $15,000,000 principal
amount of Bonds of the 3% Series due 1983 (the fifth series), $10,000,000
principal amount of Bonds of the 2 7/8% Series due 1984 (the sixth series),
$30,000,000 principal amount of Bonds of the 2 3/4% Series due 1985 (the sev-
enth series), $15,000,000 principal amount of Bonds of the 3 1/4% Series due
1987 (the eighth series), $10,000,000 principal amount of Bonds of the 3 7/8%
Series due 1988 (the ninth series), $10,000,000 principal amount of Bonds of
the 3 3/8% Series due 1990 (the tenth series), $10,000,000 principal amount of
Bonds of the 3 5/8% Series due 1991 (the eleventh series), $35,000,000 princi-
pal amount of Bonds of the 8.85% Series due 2005 (the twenty-first series),
$70,000,000 principal amount of Bonds of the 9 1/2% Series due August 15, 2005
(the twenty-second series), $100,000,000 principal amount of Bonds of the 8
3/8% Series due 2009 (the twenty-fifth series), $50,000,000 principal amount
of Bonds of the 10 1/4% Series due 1981 (the twenty-sixth series), $50,000,000
principal amount of Bonds of the 10 3/4% Series due 2004 (the twenty-seventh
series), $30,000,000 principal amount of Bonds of the Floating Rate Series due
2010 (the thirty-second series), $50,000,000 principal amount of Bonds of the
14 1/2% Series due 1991 (the thirty-third series), $60,000,000 principal
amount of Bonds of the 14 1/4% Series due 1992 (the thirty-fifth series),
$50,000,000 principal amount of Bonds of the 11 7/8% Series due 1989 (the
thirty-sixth series), $37,000,000 principal amount of Bonds of the 8 3/4% Se-
ries due 2010 (the thirty-seventh series), $75,000,000 principal amount of
Bonds of the 11 1/4% Series due 2015 (the thirty-eighth series), $75,000,000
principal amount of Bonds of the 9 1/4% Series due 2016 (the thirty-ninth se-
ries), $75,000,000 principal amount of Bonds of the 8 3/4% Series due 2016
(the fortieth series) and $75,000,000 principal amount of Bonds of the 9% Se-
ries due 1990 (the forty-second series) have been heretofore redeemed and re-
tired and there are now issued and outstanding under the Original Indenture
and under the supplemental indentures referred to above: $25,000,000 principal
amount of Bonds of the 4 5/8% Series due 1993 (the twelfth series);
$15,000,000 principal amount of Bonds of the 5 1/4% Series due 1994 (the thir-
teenth series); $40,000,000
<PAGE>
3
principal amount of Bonds of the 5% Series due 1995 (the fourteenth series);
$50,000,000 principal amount of Bonds of the 4 3/8% Series due 1998 (the fif-
teenth series); $45,000,000 principal amount of Bonds of the 4 1/2% Series due
1999 (the sixteenth series); $15,000,000 principal amount of Bonds of the 5
1/8% Series due 2001 (the seventeenth series); $35,000,000 principal amount of
Bonds of the 5 7/8% Series due 2002 (the eighteenth series); $40,000,000 prin-
cipal amount of Bonds of the 6 5/8% Series due 2003 (the nineteenth series);
$45,000,000 principal amount of Bonds of the 7 3/4% Series due 2004 (the twen-
tieth series); $50,000,000 principal amount of Bonds of the 7 3/4% Series due
2007 (the twenty-third series); $19,000,000 principal amount of Bonds of the 5
5/8% Series due 1997 (the twenty-fourth series); $38,300,000 principal amount
of Bonds of the 6 1/8% Series due 2007 (the twenty-eighth series); $15,000,000
principal amount of Bonds of the 6 1/2% Series due 2004 (the twenty-ninth se-
ries); $20,000,000 principal amount of Bonds of the 6 1/2% Series due 2007
(the thirtieth series); $7,500,000 principal amount of Bonds of the 6 5/8% Se-
ries due 2009 (the thirty-first series); $50,000,000 principal amount of Bonds
of the Adjustable Rate Series due 2001 (the thirty-fourth series); $75,000,000
principal amount of Bonds of the 8 1/4% Series due 2017 (the forty-first se-
ries); $75,000,000 principal amount of Bonds of the 9 3/4% Series due 2019
(the forty-third series); $75,000,000 principal amount of Bonds of the 8 5/8%
Series due 2019 (the forty-fourth series); $100,000,000 principal amount of
Bonds of the 9% Series due 2000 (the forty-fifth series); $100,000,000 princi-
pal amount of Bonds of the 9% Series due 2021 (the forty-sixth series);
$75,000,000 principal amount of Bonds of the 8 1/2% Series due 2027 (the for-
ty-seventh series); $30,000,000 principal amount of Bonds of the 6% Series due
2022 (the forty-eighth series); $37,000,000 principal amount of Bonds of the 6
3/8% Series due 2023 (the forty-ninth series); $78,000,000 principal amount of
Bonds of the 6 1/2% Series due 2008 (the fiftieth series); $40,000,000 princi-
pal amount of Bonds of the 7 1/2% Series due 2028 (the fifty-first series);
$100,000,000 principal amount of Bonds of the 7 1/4% Series due 2023 (the fif-
ty-second series); and $100,000,000 principal amount of Bonds of the 6 7/8%
Series due 2023 (the fifty-third series); and
Whereas, for the purpose of conforming the Original Indenture to the stan-
dards prescribed by the Trust Indenture Act of 1939 or otherwise modifying
certain of the provisions of the Original Indenture, indentures
<PAGE>
4
supplemental thereto dated December 10, 1939, August 10, 1942, October 15,
1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1,
1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, Novem-
ber 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989,
April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992,
March 1, 1993, March 2, 1993, July 1, 1993 and August 20, 1993 have been here-
tofore entered into between the Company and the Trustee, and for the purpose
of conveying additional property, indentures supplemental thereto dated July
15, 1942, October 15, 1947, December 31, 1948, December 31, 1949, February 15,
1951, February 16, 1953, March 15, 1954, March 15, 1955, March 15, 1956, April
1, 1957, May 1, 1958, May 1, 1959, May 2, 1960, April 3, 1961, May 1, 1962,
May 1, 1963, April 23, 1964, May 3, 1965, June 1, 1966, April 28, 1967, July
3, 1967, May 1, 1968, June 16, 1969, May 15, 1970, September 1, 1971, June 17,
1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7,
1992 and July 1, 1993 have been heretofore entered into between the Company
and the Trustee, and for the purpose of better securing and protecting the
Bonds then or thereafter issued and confirming the lien of the Original Inden-
ture, an indenture dated October 15, 1942 supplemental thereto has been here-
tofore entered into between the Company and the Trustee; the Original Inden-
ture as heretofore amended and supplemented being hereinafter referred to as
the "Original Indenture as amended"; and
Whereas, the Company is entitled to have authenticated and delivered addi-
tional Bonds on the basis of the net bondable value of property additions,
upon compliance with the provisions of Section 4 of Article III of the Origi-
nal Indenture as amended; and
Whereas, the Company has determined to issue a fifty-fourth series of Bonds
under the Original Indenture as amended in the principal amount of
$50,000,000, to be known as First Mortgage Bonds, 5 5/8% Series due 2003
(hereinafter called "Bonds of 2003 Series"); and
Whereas, the Original Indenture as amended provides that certain terms and
provisions, as determined by the Board of Directors of the Company, of the
Bonds of any particular series may be expressed in and provided by the execu-
tion of an appropriate supplemental indenture; and
<PAGE>
5
Whereas, the Original Indenture as amended provides that the Company and the
Trustee may enter into indentures supplemental thereto to add to the covenants
and agreements of the Company contained therein other covenants and agreements
thereafter to be observed; and to surrender any right or power reserved to or
conferred upon the Company in the Original Indenture as amended; and
Whereas, the Company, in the exercise of the powers and authority conferred
upon and reserved to it under the provisions of the Original Indenture as
amended and pursuant to appropriate resolutions of its Board of Directors, has
duly resolved and determined to make, execute and deliver to the Trustee a
Supplemental Indenture in the form hereof for the purposes herein provided;
and
Whereas, all conditions and requirements necessary to make this Supplemental
Indenture a valid, binding and legal instrument have been done, performed and
fulfilled, and the execution and delivery hereof have been in all respects
duly authorized;
Now, Therefore, This Indenture Witnesseth:
That Potomac Electric Power Company, in consideration of the premises and of
One Dollar to it duly paid by the Trustee at or before the ensealing and de-
livery of these presents, and for other valuable considerations, the receipt
whereof is hereby acknowledged, hereby covenants, declares and agrees with the
Trustee and its successors in the trust under the Original Indenture as amend-
ed, for the benefit of those who hold the Bonds and coupons, or any of them,
issued or to be issued hereunder or under the Original Indenture as amended,
as follows:
PART I.
Description of Bonds.
Section 1. The Bonds of 2003 Series shall, subject to the provisions of Sec-
tion 1 of Article II of the Original Indenture as amended, be designated as
"First Mortgage Bonds, 5 5/8% Series due 2003" of the Company. The Bonds of
2003 Series shall be executed, authenticated and delivered in accordance with
the provisions of, and shall in all respects be
<PAGE>
6
subject to, all of the terms, conditions and covenants of the Original Inden-
ture as amended, except in so far as the terms and provisions of the Original
Indenture as amended are amended or modified by this Supplemental Indenture.
The Bonds of 2003 Series shall mature October 15, 2003, and shall bear inter-
est at the rate of five and five-eighths per cent (5 5/8%) per annum, payable
semiannually, commencing April 15, 1994, on the fifteenth day of April and the
fifteenth day of October in each year (each such April 15 and October 15 being
hereinafter called an "interest payment date"). The Bonds of 2003 Series shall
be payable as to principal and interest in lawful money of the United States
of America, and shall be payable (as well the interest as the principal there-
of) at the Agency of the Company in the City of Washington, D.C., or at the
Agency of the Company in the Borough of Manhattan, The City of New York.
The interest so payable on any interest payment date shall be paid to the
persons in whose names the Bonds of 2003 Series are registered at the close of
business on the last business day (hereinafter called the "record date") which
is more than ten days prior to such interest payment date, a "business day"
being any day that is not a day on which banks in the City of Washington,
D.C., are authorized by law to close; except that if the Company shall default
in the payment of any interest due on such interest payment date, such de-
faulted interest shall be paid to the persons in whose names the Bonds of 2003
Series are registered on the date of payment of such defaulted interest, or in
accordance with the regulations of any securities exchange on which the Bonds
of 2003 Series are listed.
Except as provided hereinafter, every Bond of 2003 Series shall be dated as
of the date of its authentication and delivery, or if that is an interest pay-
ment date, the next day, and shall bear interest from the interest payment
date next preceding its date or October 13, 1993, whichever is later. Notwith-
standing Section 6 of Article II of the Original Indenture, any Bond of 2003
Series authenticated and delivered by the Trustee after the close of business
on the record date with respect to any interest payment date and prior to such
interest payment date shall be dated as of the date next following such inter-
est payment date and
<PAGE>
7
shall bear interest from such interest payment date; except that if the Com-
pany shall default in the payment of any interest due on such interest payment
date, such Bond shall bear interest from the next preceding interest payment
date or October 13, 1993, whichever is later.
Section 2. The Bonds of 2003 Series, and the Trustee's certificate to be en-
dorsed on the Bonds of 2003 Series, shall be substantially in the following
forms, respectively:
[FORM OF FACE OF BOND OF 2003 SERIES]
POTOMAC ELECTRIC POWER COMPANY
(A District of Columbia and Virginia corporation)
First Mortgage Bond, 5 5/8% Series Due 2003
No. $
Potomac Electric Power Company, a corporation organized and existing under
the laws of the District of Columbia and a domestic corporation of the Com-
monwealth of Virginia (hereinafter called the "Company", which term shall in-
clude any successor corporation as defined in the Amended Indenture hereinaf-
ter referred to), for value received, hereby promises to pay to
................... or registered assigns, the sum of .................. dol-
lars, on the fifteenth day of October 2003, in lawful money of the United
States of America, and to pay interest thereon in like money from the later of
October 13, 1993 or the interest payment date April 15 or October 15 next pre-
ceding the date of this Bond, or if the Company shall default in the payment
of interest due on such interest payment date, then from the next preceding
interest payment date or October 13, 1993, whichever is later, at the rate of
five and five-eighths percent (5 5/8%) per annum, payable semiannually, com-
mencing April 15, 1994, on the fifteenth day of April and October in each year
until maturity, or, if the Company shall default in the payment of the princi-
pal hereof, until the Company's obligation with respect to the payment of such
principal shall be discharged as provided in the Amended Indenture. The inter-
est so payable on any April 15 or October 15 will, subject to certain excep-
tions provided in the indenture dated as
<PAGE>
8
of September 29, 1993 supplemental to the Amended Indenture, be paid to the
person in whose name this Bond is registered at the close of business on the
last business day which is more than ten days prior to such April 15 or Octo-
ber 15. Both principal of, and interest on, this Bond are payable at the
agency of the Company in the City of Washington, D.C., or, at the option of
the holder, at the agency of the Company in the Borough of Manhattan, The City
of New York.
Reference is made to the further provisions of this Bond set forth on the re-
verse hereof, and such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
This Bond shall not be entitled to any benefit under the Amended Indenture or
any indenture supplemental thereto, or become valid or
obligatory for any purpose, until The Riggs National Bank of Washington, D.C.,
the Trustee under the Amended Indenture, or a successor trustee thereto under
the Amended Indenture, shall have signed the form of certificate endorsed
hereon.
In Witness Whereof, Potomac Electric Power Company has caused this Bond to be
signed in its name by the signature (or a facsimile thereof) of its President
or a Vice President, and its corporate seal (or a facsimile thereof) to be
hereto affixed and attested by the facsimile signature of its Secretary or an
Assistant Secretary.
Dated,
Potomac Electric Power Company
By......................................
Vice President
Attest:
...................................
Secretary
<PAGE>
9
[FORM OF TRUSTEE'S CERTIFICATE]
This Bond is one of the Bonds, of the series designated therein, described in
the within-mentioned Amended Indenture and the Supplemental Indenture dated as
of September 29, 1993.
The Riggs National Bank of Washington, D.C.
Trustee.
By...................................
Authorized Officer
[TEXT APPEARING ON REVERSE SIDE OF BOND OF 2003 SERIES]
This Bond is one of a duly authorized issue of Bonds of the Company (herein-
after called the "Bonds") in unlimited aggregate principal amount, of the se-
ries hereinafter specified, all issued and to be issued under and equally se-
cured (except in so far as any purchase or sinking fund or analogous provi-
sions for any particular series of Bonds, established by any indenture supple-
mental to the Amended Indenture hereinafter mentioned, may afford additional
security for such Bonds) by a mortgage and deed of trust, dated July 1, 1936,
executed by the Company to The Riggs National Bank of Washington, D.C. (herein
called the "Trustee"), as trustee, as amended by indentures supplemental
thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1,
1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October
1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986,
March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990,
May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993,
March 2, 1993, July 1, 1993 and August 20, 1993 (said mortgage and deed of
trust, as so amended, being herein called the "Amended Indenture") and all in-
dentures supplemental thereto, to which Amended Indenture and supplemental in-
dentures reference is hereby made for a description of the properties mort-
gaged and pledged, the nature and extent of the security, the rights of the
owners of the Bonds and of the Trustee in respect thereto, and the terms and
<PAGE>
10
conditions upon which the Bonds are, and are to be, secured. To the extent
permitted by, and as provided in, the Amended Indenture, modifications or al-
terations of the Amended Indenture, or of any indenture supplemental thereto,
and of the rights and obligations of the Company and of the holders of the
Bonds may be made with the consent of the Company by an affirmative vote of
not less than 80% in amount of the Bonds entitled to vote then outstanding, at
a meeting of Bondholders called and held as provided in the Amended Indenture,
and by an affirmative vote of not less than 80% in amount of the Bonds of any
series entitled to vote then outstanding and affected by such modification or
alteration, in case one or more but less than all of the series of Bonds then
outstanding under the Amended Indenture are so affected; provided, however,
that no such modification or alteration shall be made which will affect the
terms of payment of the principal of, or interest on, this Bond, which are un-
conditional, or which reduces the percentage of Bonds the affirmative vote of
which is required for the making of such modifications or alterations. The
Company is proposing an amendment to the Amended Indenture which would replace
"80%" with "60%" in the preceding sentence, which amendment will become effec-
tive upon the consent or agreement thereto of the holders of all the outstand-
ing Bonds. The holder of this Bond will be deemed to have approved such amend-
ment. The Bonds may be issued in series, for various principal sums, may ma-
ture at different times, may bear interest at different rates and may other-
wise vary as in the Amended Indenture provided.
This Bond is one of a series designated as the "First Mortgage Bonds, 5 5/8%
Series due 2003" (herein called the "Bonds of 2003 Series") of the Company,
issued under and secured by the Amended Indenture and all indentures supple-
mental thereto and described in the indenture (herein called the "New Supple-
mental Indenture"), dated as of September 29, 1993, between the Company and
the Trustee, supplemental to the Amended Indenture.
The Bonds of 2003 Series are not subject to redemption prior to maturity.
In case an event of default, as defined in the Amended Indenture, shall oc-
cur, the principal of all the Bonds at any such time outstanding under
<PAGE>
11
the Amended Indenture may be declared or may become due and payable, upon the
conditions and in the manner and with the effect provided in the Amended In-
denture. The Amended Indenture provides that such declaration may in certain
events be waived by the holders of a majority in principal amount of the Bonds
entitled to vote then outstanding.
This Bond is transferable by the registered owner hereof, in person or by
duly authorized attorney, on the books of the Company to be kept for that pur-
pose at the agency of the Company in the City of Washington, D.C., or at the
agency of the Company in the Borough of Manhattan, The City of New York, upon
surrender and cancellation of this Bond and on presentation of a duly executed
written instrument of transfer, and thereupon a new Bond or Bonds of the same
series, of the same aggregate principal amount and in authorized denominations
will be issued to the transferee or transferees in exchange therefor; and this
Bond, with or without others of the same series, may in like manner be ex-
changed for one or more new Bonds of the same series of other authorized de-
nominations but of the same aggregate principal amount; all subject to the
terms and conditions set forth in the Amended Indenture.
No recourse shall be had for the payment of the principal of, or the interest
on, this Bond, or for any claim based hereon or otherwise in respect hereof or
of the Amended Indenture or any indenture supplemental thereto, against any
incorporator, or against any stockholder, director or officer, past, present
or future, of the Company or of any predecessor or successor corporation, ei-
ther directly or through the Company or any such predecessor or successor cor-
poration, whether for amounts unpaid on stock subscriptions or by virtue of
any constitution, statute or rule of law, or by the enforcement of any assess-
ment or penalty or otherwise, all such liability, whether at common law, in
equity, by any constitution, statute or otherwise, of incorporators, stock-
holders, directors or officers being released by every owner hereof by the ac-
ceptance of this Bond and as part of the consideration for the issue hereof,
and being likewise released by the terms of the Amended Indenture.
Section 3. The Bonds of 2003 Series shall be registered Bonds without coupons
in denominations of any multiple of $1,000, numbered consecutively upwards
from R1.
<PAGE>
12
Section 4. Until Bonds of 2003 Series in definitive form are ready for deliv-
ery, the Company may execute, and upon its request in writing the Trustee
shall authenticate and deliver, in lieu thereof, Bonds for such series in tem-
porary form, as provided in Section 9 of Article II of the Original Indenture
as amended.
PART II.
Issue of Bonds.
Section 1. Except for Bonds of 2003 Series issued pursuant to Section 13 of
Article II of the Original Indenture as amended, the principal amount of Bonds
of 2003 Series which may be authenticated and delivered hereunder is limited
to $50,000,000 aggregate principal amount.
Section 2. Bonds of 2003 Series in the aggregate principal amount permitted
in Section 1 of this Part II, may at any time subsequent to the execution
hereof be executed by the Company and delivered to the Trustee and shall be
authenticated by the Trustee and delivered (either before or after the record-
ing hereof) to or upon the order of the Company evidenced by a writing or
writings, signed by its President or one of its Vice Presidents and its Trea-
surer or one of its Assistant Treasurers, at such time or times as may be re-
quested by the Company subsequent to the receipt by the Trustee of
(1) the certified resolution and the officers' certificate required by Sec-
tion 3(a) and Section 3(b) of Article III of the Original Indenture as
amended;
(2) the opinion of counsel required by Section 3(c) of Article III of the
Original Indenture as amended;
(3) cash, if any, in the amount required to be deposited by Section 3(d) of
Article III of the Original Indenture as amended, which shall be held and
applied by the Trustee as provided in said Section 3(d);
(4) the certificates, instruments, opinions of counsel, prior lien bonds
and cash, if any, required by Section 4 of Article III of the Original In-
denture as amended, except that, as required by Part IV of this Supplemental
Indenture, property additions purchased, constructed or otherwise acquired
on or before December 31, 1946 shall
<PAGE>
13
not be made the basis for the authentication and delivery of Bonds of 2003
Series; and
(5) the certificates and opinions required by Article XVIII of the Original
Indenture as amended.
PART III.
Redemption.
The Bonds of 2003 Series shall not be redeemable prior to maturity.
PART IV.
Additional Particular Covenants of the Company.
The Company hereby covenants, warrants and agrees that so long as any Bonds
of 2003 Series are outstanding:
Section 1. The Company will not withdraw, pursuant to the provisions of Sec-
tion 2 of Article VIII of the Original Indenture as amended, any moneys held
by the Trustee as part of the trust estate in excess of an amount equal to the
aggregate principal amount of such of the refundable Bonds as were theretofore
issued by the Company; and that upon any such withdrawal by the Company re-
fundable Bonds equal in aggregate principal amount to the amount so withdrawn
shall be deemed to have been made the basis of such withdrawal.
Section 2. Property additions purchased, constructed or otherwise acquired on
or before December 31, 1946 shall not be made the basis for the authentication
and delivery of Bonds, or the withdrawal of cash, or the reduction of the
amount of cash required to be paid to the Trustee under any provision of the
Indenture.
PART V.
Amendment of Indenture to Permit Qualification
Under Trust Indenture Act of 1939.
The Company and the Trustee, from time to time and at any time, without any
vote or consent of the holders of the Bonds of 2003 Series,
<PAGE>
14
may enter into such indentures supplemental to the Original Indenture as may
or shall by them be deemed necessary or desirable to add to or modify or amend
any of the provisions of the Original Indenture so as to permit the qualifica-
tion of the Original Indenture under the Trust Indenture Act of 1939.
Except to the extent specifically provided herein, no provision of this Sup-
plemental Indenture is intended to modify, and the parties hereto do hereby
adopt and confirm, the provisions of Section 318(c) of the Trust Indenture Act
of 1939 which amend and supersede provisions of the Original Indenture, as
supplemented, in effect prior to November 15, 1990.
PART VI.
Amendment of Original Indenture.
Notwithstanding any other provisions of the Original Indenture as amended,
the holders of the Bonds of 2003 Series, by their holding of such Bonds, are
deemed to have approved the following amendment to the Original Indenture as
amended and to have authorized the Trustee to take any action necessary to ev-
idence or effectuate such approval:
Sections 5 and 6 of Article XV of the Original Indenture as amended are
hereby amended by changing the words and figures "eighty percent. (80%)" to
the words and figures "sixty percent. (60%)" wherever in such Sections such
words and figures occur.
PART VII.
The Trustee.
The Trustee hereby accepts the trusts hereby declared and provided and agrees
to perform the same upon the terms and conditions in the Original Indenture as
amended set forth and upon the following terms and conditions:
The Trustee shall not be responsible in any manner whatsoever for or in re-
spect of the validity or sufficiency of this Supplemental Indenture
<PAGE>
15
or the due execution hereof by the Company or for or in respect of the recit-
als contained herein, all of which recitals are made by the Company solely. In
general, each and every term and condition contained in Article XIII of the
Original Indenture as amended shall apply to this Supplemental Indenture with
the same force and effect as if the same were herein set forth in full, with
such omissions, variations and modifications thereof as may be appropriate to
make the same conform to this Supplemental Indenture.
PART VIII.
Miscellaneous Provisions.
This Supplemental Indenture may be simultaneously executed in any number of
counterparts, each of which when so executed shall be deemed to be an origi-
nal; but such counterparts shall together constitute but one and the same in-
strument.
Potomac Electric Power Company hereby constitutes and appoints William R.
Gee, Jr., one of its Vice Presidents, to be its true and lawful attorney-in-
fact, for it and in its name to appear before any officer authorized by law to
take and certify acknowledgments of deeds to be recorded in the District of
Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in
the Commonwealth of Pennsylvania and to acknowledge and deliver these presents
as the act and deed of said Potomac Electric Power Company.
The Riggs National Bank of Washington, D.C., hereby constitutes and appoints
Alexander C. Baker, one of its Senior Vice Presidents, to be its true and law-
ful attorney-in-fact, for it and in its name to appear before any officer au-
thorized by law to take and certify acknowledgments of deeds to be recorded in
the District of Columbia, in the State of Maryland, in the Commonwealth of
Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and de-
liver these presents as the act and deed of said The Riggs National Bank of
Washington, D.C.
<PAGE>
16
In Witness Whereof, said Potomac Electric Power Company has caused this Sup-
plemental Indenture to be executed on its behalf by its President or one of
its Vice Presidents and its corporate seal to be hereto affixed and said seal
and this Supplemental Indenture to be attested by its Secretary or one of its
Assistant Secretaries; and said The Riggs National Bank of Washington, D.C.,
in evidence of its acceptance of the trust hereby created, has caused this
Supplemental Indenture to be executed on its behalf by its President or one of
its Senior Vice Presidents, and its corporate seal to be hereto affixed and
said seal and this Supplemental Indenture to be attested by one of its Corpo-
rate Trust Officers, all as of the 29th day of September, One thousand nine
hundred and ninety-three.
Potomac Electric Power Company
(Corporate Seal)
By...................................
WILLIAM R. GEE, JR.,
Vice President
Attested:
...................................
MARY T. HOWARD,
Assistant Secretary
Signed, sealed and delivered by
Potomac Electric Power Company
in the presence of:
...................................
...................................
As Witnesses
The Riggs National Bank of
Washington, D.C.
(Corporate Seal)
By...................................
ALEXANDER C. BAKER,
Senior Vice President
Attested:
...................................
BEVERLY MOFFETT,
Senior Corporate Trust Officer
Signed, sealed and delivered by
The Riggs National Bank of Wash-
ington, D.C. in the presence of:
...................................
...................................
As Witnesses
<PAGE>
17
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, whose commission as such will expire , do hereby certify
that William R. Gee, Jr. and Mary T. Howard, whose names as Vice President and
Assistant Secretary, respectively, of Potomac Electric Power Company, a corpo-
ration, are signed to the foregoing and hereto attached deed, bearing date as
of the 29th day of September, 1993, personally appeared this day before me in
my District aforesaid and acknowledged themselves to be, respectively, a Vice
President and an Assistant Secretary of Potomac Electric Power Company, and
that they as such, being authorized so to do, executed the said deed by sign-
ing the name of Potomac Electric Power Company by William R. Gee, Jr., as Vice
President, and attested by Mary T. Howard, as Assistant Secretary, and ac-
knowledged the same before me in my District aforesaid and acknowledged the
foregoing instrument to be the act and deed of Potomac Electric Power Company.
Given under my hand and official seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
<PAGE>
18
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that William R. Gee, Jr., a Vice Presi-
dent of Potomac Electric Power Company, a corporation, one of the parties to
the foregoing instrument bearing date as of the 29th day of September, 1993,
and hereto annexed, this day personally appeared before me in the City of
Washington, the said William R. Gee, Jr. being personally well known to me as
the person who executed the said instrument as a Vice President of and on be-
half of said Potomac Electric Power Company and known to me to be the attor-
ney-in-fact duly appointed therein to acknowledge and deliver said instrument
on behalf of said corporation, and, as such attorney-in-fact, he acknowledged
said instrument to be the act and deed of said Potomac Electric Power Company,
and delivered the same as such. I further certify that the said William R.
Gee, Jr., being by me duly sworn, did depose and say that he knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal and was so affixed by order of the Board of Directors of said corpora-
tion; and that he signed his name thereto by like order. My commission expires
Given under my hand and official seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
<PAGE>
19
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United States
of America, do hereby certify that Alexander C. Baker and Beverly Moffett,
whose names as Senior Vice President and Senior Corporate Trust Officer, re-
spectively, of The Riggs National Bank of Washington, D.C., a corporation, are
signed to the foregoing and hereto attached deed, bearing date as of the 29th
day of September, 1993, personally appeared before me this day in my District
aforesaid and acknowledged themselves to be, respectively, a Senior Vice Pres-
ident and a Senior Corporate Trust Officer of The Riggs National Bank of Wash-
ington, D.C., and that they as such, being authorized so to do, executed the
said deed by signing the name of The Riggs National Bank of Washington, D.C.,
by Alexander C. Baker as Senior Vice President, and attested by Beverly
Moffett, as Senior Corporate Trust Officer, and acknowledged the same before
me in my District aforesaid and acknowledged the foregoing instrument to be
the act and deed of The Riggs National Bank of Washington, D.C., as therein
set forth.
Given under my hand and notarial seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
My Commission Expires .
<PAGE>
20
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
Alexander C. Baker, of full age, being sworn according to law, on his oath
deposes and says that he is a Senior Vice President of The Riggs National Bank
of Washington, D.C., the Trustee named in the foregoing Supplemental Inden-
ture, dated as of the 29th day of September, 1993, that he is the agent of
said Trustee for the purpose of perfecting such Supplemental Indenture and
that the consideration in the Original Indenture referred to therein and in
all indentures supplemental to said Original Indenture, including the forego-
ing Supplemental Indenture, is true and bona fide as therein set forth.
............................................
Alexander C. Baker
Subscribed and sworn to before me
this day of October, 1993.
...................................
Notary Public
District of Columbia
My Commission Expires
(Notarial Seal)
<PAGE>
21
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that Alexander C. Baker a Senior Vice
President of The Riggs National Bank of Washington, D.C., a corporation, one
of the parties to the foregoing instrument bearing date as of the 29th day of
September, 1993, and hereto annexed, this day personally appeared before me in
the City of Washington, the said Alexander C. Baker, being personally well
known to me as the person who executed the said instrument as a Senior Vice
President of and on behalf of said The Riggs National Bank of Washington,
D.C., and known to me to be the attorney-in-fact duly appointed therein to ac-
knowledge and deliver said instrument on behalf of said corporation, and, as
such attorney-in-fact, he acknowledged said instrument to be the act and deed
of said The Riggs National Bank of Washington, D.C., and delivered the same as
such. I further certify that the said Alexander C. Baker, being by me duly
sworn, did depose and say that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal and was so affixed by
order of the Board of Directors of said corporation; and that he signed his
name thereto by like order.
Given under my hand and official seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
My Commission Expires
<PAGE>
22
CERTIFICATE OF RESIDENCE
The Riggs National Bank of Washington, D.C., Mortgagee and Trustee within
named, hereby certifies that its precise residence is 800-17th Street, N.W.,
Washington, D.C. 20006.
The Riggs National Bank of Washington, D.C.
By..........................................
Alexander C. Baker,
Senior Vice President
================================================================================
POTOMAC ELECTRIC POWER COMPANY
1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C.
TO
THE RIGGS NATIONAL BANK
OF WASHINGTON, D.C.
800-17TH STREET, N.W., WASHINGTON, D.C.
AS TRUSTEE
------------------
Supplemental Indenture
DATED AS OF SEPTEMBER 30, 1993
------------------
SUPPLEMENTAL TO MORTGAGE AND DEED OF TRUST
DATED JULY 1, 1936
------------------
FIRST MORTGAGE BONDS, 5 7/8% SERIES DUE 2008
================================================================================
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
SUPPLEMENTAL INDENTURE DATED AS OF SEPTEMBER 30, 1993
TABLE OF CONTENTS*
------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Parties.................................................................. 1
Recitals................................................................. 1
<CAPTION>
PART I
Description of Bonds
<S> <C> <C>
Section 1. General description of Bonds of 2008 Series.................. 5
Section 2. Form of face of Bond of 2008 Series.......................... 7
Form of Trustee's certificate................................ 9
Text appearing on reverse side of Bond of 2008 Series........ 9
Section 3. Denominations of Bonds of 2008 Series........................ 11
Section 4. Execution and form of temporary Bonds........................ 12
<CAPTION>
PART II
Issue of Bonds
<S> <C> <C>
Section 1. Limitation as to principal amount............................ 12
Section 2. Issue of Bonds............................................... 12
<CAPTION>
PART III
Redemption
<S> <C>
Bonds of 2008 Series are not redeemable prior to maturity................ 13
<CAPTION>
PART IV
Additional Particular Covenants of the Company
<S> <C> <C>
Section 1. Company not to withdraw moneys pursuant to Section 2 of
Article VIII in excess of an amount equal to principal
amount of issued refundable bonds........................... 13
Section 2. No property additions made on or prior to December 31, 1946
to be used for any purpose under the Indenture.............. 13
</TABLE>
- ---------
* The Table of Contents is not part of the Supplemental Indenture and should
not be considered as such. It is included herein only for purposes of
convenient reference.
<PAGE>
ii
<TABLE>
<CAPTION>
PART V
PAGE
<S> <C>
Amendment of Indenture to Permit Qualification Under Trust Indenture
Act of 1939............................................................. 13
<CAPTION>
PART VI
<S> <C>
Amendment of Original Indenture.......................................... 14
<CAPTION>
PART VII
The Trustee
<S> <C>
Acceptance of trusts by the Trustee...................................... 14
Trustee not responsible for validity of the Supplemental Indenture....... 14
<CAPTION>
PART VIII
Miscellaneous Provisions
<S> <C>
Execution of Supplemental Indenture in counterparts...................... 15
Appointment of attorneys-in-fact by parties.............................. 15
Testimonium.............................................................. 15
Execution................................................................ 16
Company's Acknowledgments................................................ 17
Trustee's Acknowledgments................................................ 19
</TABLE>
<PAGE>
SUPPLEMENTAL INDENTURE, dated as of the thirtieth day of September, nineteen
hundred and ninety-three (1993), made by and between Potomac Electric Power
Company, a corporation organized and existing under the laws of the District
of Columbia and a domestic corporation of the Commonwealth of Virginia (here-
inafter sometimes called the "Company"), party of the first part, and The
Riggs National Bank of Washington, D.C., a national banking association orga-
nized and existing under the laws of the United States of America (hereinafter
sometimes called the "Trustee"), as Trustee under the Mortgage and Deed of
Trust dated July 1, 1936, hereinafter mentioned, party of the second part;
Whereas, The Company has heretofore executed and delivered its Mortgage and
Deed of Trust, dated July 1, 1936 (hereinafter sometimes referred to as the
"Original Indenture"), to the Trustee, to secure an issue of First Mortgage
Bonds of the Company, issuable in series; and
Whereas, pursuant to the terms and provisions of the Original Indenture, in-
dentures supplemental thereto dated as of July 1, 1936, December 1, 1939, Au-
gust 1, 1940, August 1, 1942, January 1, 1948, May 1, 1949, May 1, 1950, March
1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, December 1, 1958, November
16, 1959, December 1, 1960, February 15, 1963, May 15, 1964, April 1, 1966,
May 1, 1967, February 15, 1968, March 15, 1969, February 15, 1970, August 15,
1970, September 15, 1972, April 1, 1973, January 2, 1974, August 15, 1974, Au-
gust 15, 1974, June 15, 1977, July 1, 1979, June 16, 1981, June 17, 1981, De-
cember 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1,
1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May
1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September
1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August
20, 1993 and September 29, 1993 have been heretofore entered into between the
Company and the Trustee to provide, respectively, for the creation of the
first through the fifty-fourth series of Bonds thereunder and, in the case of
the supplemental indentures dated January 1, 1948, March 1, 1952, May 15,
1953, May 16, 1955, June 1, 1956, September 15, 1972, July 1, 1979, June 17,
1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7,
1992, July 1, 1993 and one of the supplemental indentures dated August 15,
1974, to convey additional property; and
<PAGE>
2
Whereas, $20,000,000 principal amount of Bonds of the 3 1/4% Series due 1966
(the first series), $5,000,000 principal amount of Bonds of the 3 1/4 Series
due 1974 (the second series), $10,000,000 principal amount of Bonds of the 3
1/4% Series due 1975 (the third series), $5,000,000 principal amount of Bonds
of the 3 1/4% Series due 1977 (the fourth series), $15,000,000 principal
amount of Bonds of the 3% Series due 1983 (the fifth series), $10,000,000
principal amount of Bonds of the 2 7/8% Series due 1984 (the sixth series),
$30,000,000 principal amount of Bonds of the 2 3/4% Series due 1985 (the sev-
enth series), $15,000,000 principal amount of Bonds of the 3 1/4% Series due
1987 (the eighth series), $10,000,000 principal amount of Bonds of the 3 7/8%
Series due 1988 (the ninth series), $10,000,000 principal amount of Bonds of
the 3 3/8% Series due 1990 (the tenth series), $10,000,000 principal amount of
Bonds of the 3 5/8% Series due 1991 (the eleventh series), $35,000,000 princi-
pal amount of Bonds of the 8.85% Series due 2005 (the twenty-first series),
$70,000,000 principal amount of Bonds of the 9 1/2% Series due August 15, 2005
(the twenty-second series), $100,000,000 principal amount of Bonds of the 8
3/8% Series due 2009 (the twenty-fifth series), $50,000,000 principal amount
of Bonds of the 10 1/4% Series due 1981 (the twenty-sixth series), $50,000,000
principal amount of Bonds of the 10 3/4% Series due 2004 (the twenty-seventh
series), $30,000,000 principal amount of Bonds of the Floating Rate Series due
2010 (the thirty-second series), $50,000,000 principal amount of Bonds of the
14 1/2% Series due 1991 (the thirty-third series), $60,000,000 principal
amount of Bonds of the 14 1/4% Series due 1992 (the thirty-fifth series),
$50,000,000 principal amount of Bonds of the 11 7/8% Series due 1989 (the
thirty-sixth series), $37,000,000 principal amount of Bonds of the 8 3/4% Se-
ries due 2010 (the thirty-seventh series), $75,000,000 principal amount of
Bonds of the 11 1/4% Series due 2015 (the thirty-eighth series), $75,000,000
principal amount of Bonds of the 9 1/4% Series due 2016 (the thirty-ninth se-
ries), $75,000,000 principal amount of Bonds of the 8 3/4% Series due 2016
(the fortieth series) and $75,000,000 principal amount of Bonds of the 9% Se-
ries due 1990 (the forty-second series) have been heretofore redeemed and re-
tired and there are now issued and outstanding under the Original Indenture
and under the supplemental indentures referred to above: $25,000,000 principal
amount of Bonds of the 4 5/8% Series due 1993 (the twelfth series);
$15,000,000 principal amount of Bonds of the 5 1/4% Series due 1994 (the thir-
teenth series); $40,000,000
<PAGE>
3
principal amount of Bonds of the 5% Series due 1995 (the fourteenth series);
$50,000,000 principal amount of Bonds of the 4 3/8% Series due 1998 (the fif-
teenth series); $45,000,000 principal amount of Bonds of the 4 1/2% Series due
1999 (the sixteenth series); $15,000,000 principal amount of Bonds of the 5
1/8% Series due 2001 (the seventeenth series); $35,000,000 principal amount of
Bonds of the 5 7/8% Series due 2002 (the eighteenth series); $40,000,000 prin-
cipal amount of Bonds of the 6 5/8% Series due 2003 (the nineteenth series);
$45,000,000 principal amount of Bonds of the 7 3/4% Series due 2004 (the twen-
tieth series); $50,000,000 principal amount of Bonds of the 7 3/4% Series due
2007 (the twenty-third series); $19,000,000 principal amount of Bonds of the 5
5/8% Series due 1997 (the twenty-fourth series); $38,300,000 principal amount
of Bonds of the 6 1/8% Series due 2007 (the twenty-eighth series); $15,000,000
principal amount of Bonds of the 6 1/2% Series due 2004 (the twenty-ninth se-
ries); $20,000,000 principal amount of Bonds of the 6 1/2% Series due 2007
(the thirtieth series); $7,500,000 principal amount of Bonds of the 6 5/8% Se-
ries due 2009 (the thirty-first series); $50,000,000 principal amount of Bonds
of the Adjustable Rate Series due 2001 (the thirty-fourth series); $75,000,000
principal amount of Bonds of the 8 1/4% Series due 2017 (the forty-first se-
ries); $75,000,000 principal amount of Bonds of the 9 3/4% Series due 2019
(the forty-third series); $75,000,000 principal amount of Bonds of the 8 5/8%
Series due 2019 (the forty-fourth series); $100,000,000 principal amount of
Bonds of the 9% Series due 2000 (the forty-fifth series); $100,000,000 princi-
pal amount of Bonds of the 9% Series due 2021 (the forty-sixth series);
$75,000,000 principal amount of Bonds of the 8 1/2% Series due 2027 (the for-
ty-seventh series); $30,000,000 principal amount of Bonds of the 6% Series due
2022 (the forty-eighth series); $37,000,000 principal amount of Bonds of the 6
3/8% Series due 2023 (the forty-ninth series); $78,000,000 principal amount of
Bonds of the 6 1/2% Series due 2008 (the fiftieth series); $40,000,000 princi-
pal amount of Bonds of the 7 1/2% Series due 2028 (the fifty-first series);
$100,000,000 principal amount of Bonds of the 7 1/4% Series due 2023 (the fif-
ty-second series); $100,000,000 principal amount of Bonds of the 6 7/8% Series
due 2023 (the fifty-third series); and $50,000,000 principal amount of Bonds
of the 5 5/8% Series due 2003 (the fifty-fourth series); and
Whereas, for the purpose of conforming the Original Indenture to the stan-
dards prescribed by the Trust Indenture Act of 1939 or otherwise
<PAGE>
4
modifying certain of the provisions of the Original Indenture, indentures sup-
plemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942,
April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982,
October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1,
1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5,
1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1,
1993, March 2, 1993, July 1, 1993, August 20, 1993 and September 29, 1993 have
been heretofore entered into between the Company and the Trustee, and for the
purpose of conveying additional property, indentures supplemental thereto
dated July 15, 1942, October 15, 1947, December 31, 1948, December 31, 1949,
February 15, 1951, February 16, 1953, March 15, 1954, March 15, 1955, March
15, 1956, April 1, 1957, May 1, 1958, May 1, 1959, May 2, 1960, April 3, 1961,
May 1, 1962, May 1, 1963, April 23, 1964, May 3, 1965, June 1, 1966, April 28,
1967, July 3, 1967, May 1, 1968, June 16, 1969, May 15, 1970, September 1,
1971, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May
21, 1991, May 7, 1992 and July 1, 1993 have been heretofore entered into be-
tween the Company and the Trustee, and for the purpose of better securing and
protecting the Bonds then or thereafter issued and confirming the lien of the
Original Indenture, an indenture dated October 15, 1942 supplemental thereto
has been heretofore entered into between the Company and the Trustee; the
Original Indenture as heretofore amended and supplemented being hereinafter
referred to as the "Original Indenture as amended"; and
Whereas, the Company is entitled to have authenticated and delivered addi-
tional Bonds on the basis of the net bondable value of property additions,
upon compliance with the provisions of Section 4 of Article III of the Origi-
nal Indenture as amended; and
Whereas, the Company has determined to issue a fifty-fifth series of Bonds
under the Original Indenture as amended in the principal amount of
$50,000,000, to be known as First Mortgage Bonds, 5 7/8% Series due 2008
(hereinafter called "Bonds of 2008 Series"); and
Whereas, the Original Indenture as amended provides that certain terms and
provisions, as determined by the Board of Directors of the Company, of the
Bonds of any particular series may be expressed in and provided by the execu-
tion of an appropriate supplemental indenture; and
<PAGE>
5
Whereas, the Original Indenture as amended provides that the Company and the
Trustee may enter into indentures supplemental thereto to add to the covenants
and agreements of the Company contained therein other covenants and agreements
thereafter to be observed; and to surrender any right or power reserved to or
conferred upon the Company in the Original Indenture as amended; and
Whereas, the Company, in the exercise of the powers and authority conferred
upon and reserved to it under the provisions of the Original Indenture as
amended and pursuant to appropriate resolutions of its Board of Directors, has
duly resolved and determined to make, execute and deliver to the Trustee a
Supplemental Indenture in the form hereof for the purposes herein provided;
and
Whereas, all conditions and requirements necessary to make this Supplemental
Indenture a valid, binding and legal instrument have been done, performed and
fulfilled, and the execution and delivery hereof have been in all respects
duly authorized;
Now, Therefore, This Indenture Witnesseth:
That Potomac Electric Power Company, in consideration of the premises and of
One Dollar to it duly paid by the Trustee at or before the ensealing and de-
livery of these presents, and for other valuable considerations, the receipt
whereof is hereby acknowledged, hereby covenants, declares and agrees with the
Trustee and its successors in the trust under the Original Indenture as amend-
ed, for the benefit of those who hold the Bonds and coupons, or any of them,
issued or to be issued hereunder or under the Original Indenture as amended,
as follows:
PART I.
Description of Bonds.
Section 1. The Bonds of 2008 Series shall, subject to the provisions of Sec-
tion 1 of Article II of the Original Indenture as amended, be designated as
"First Mortgage Bonds, 5 7/8% Series due 2008" of the Company. The Bonds of
2008 Series shall be executed, authenticated and delivered in accordance with
the provisions of, and shall in all respects be
<PAGE>
6
subject to, all of the terms, conditions and covenants of the Original Inden-
ture as amended, except in so far as the terms and provisions of the Original
Indenture as amended are amended or modified by this Supplemental Indenture.
The Bonds of 2008 Series shall mature October 15, 2008, and shall bear inter-
est at the rate of five and seven-eighths per cent (5 7/8%) per annum, payable
semiannually, commencing April 15, 1994, on the fifteenth day of April and the
fifteenth day of October in each year (each such April 15 and October 15 being
hereinafter called an "interest payment date"). The Bonds of 2008 Series shall
be payable as to principal and interest in lawful money of the United States
of America, and shall be payable (as well the interest as the principal there-
of) at the Agency of the Company in the City of Washington, D.C., or at the
Agency of the Company in the Borough of Manhattan, The City of New York.
The interest so payable on any interest payment date shall be paid to the
persons in whose names the Bonds of 2008 Series are registered at the close of
business on the last business day (hereinafter called the "record date") which
is more than ten days prior to such interest payment date, a "business day"
being any day that is not a day on which banks in the City of Washington,
D.C., are authorized by law to close; except that if the Company shall default
in the payment of any interest due on such interest payment date, such de-
faulted interest shall be paid to the persons in whose names the Bonds of 2008
Series are registered on the date of payment of such defaulted interest, or in
accordance with the regulations of any securities exchange on which the Bonds
of 2008 Series are listed.
Except as provided hereinafter, every Bond of 2008 Series shall be dated as
of the date of its authentication and delivery, or if that is an interest pay-
ment date, the next day, and shall bear interest from the interest payment
date next preceding its date or the date of delivery of the initial Bonds of
2008 Series, whichever is later. Notwithstanding Section 6 of Article II of
the Original Indenture, any Bond of 2008 Series authenticated and delivered by
the Trustee after the close of business on the record date with respect to any
interest payment date and prior to such interest payment date shall be dated
as of the date next follow-
<PAGE>
7
ing such interest payment date and shall bear interest from such interest pay-
ment date; except that if the Company shall default in the payment of any in-
terest due on such interest payment date, such Bond shall bear interest from
the next preceding interest payment date or the date of delivery of the ini-
tial Bonds of 2008 Series, whichever is later.
Section 2. The Bonds of 2008 Series, and the Trustee's certificate to be en-
dorsed on the Bonds of 2008 Series, shall be substantially in the following
forms, respectively:
[FORM OF FACE OF BOND OF 2008 SERIES]
POTOMAC ELECTRIC POWER COMPANY
(A District of Columbia and Virginia corporation)
First Mortgage Bond, 5 7/8% Series Due 2008
No. $
Potomac Electric Power Company, a corporation organized and existing under
the laws of the District of Columbia and a domestic cor- poration of the Com-
monwealth of Virginia (hereinafter called the "Company", which term shall in-
clude any successor corporation as defined in the Amended Indenture hereinaf-
ter referred to), for value received, hereby promises to pay to
................... or registered assigns, the sum of .................. dol-
lars, on the fifteenth day of October 2008, in lawful money of the United
States of America, and to pay interest thereon in like money from the later of
the date of delivery of the initial Bonds of 2008 Series or the interest pay-
ment date April 15 or October 15 next preceding the date of this Bond, or if
the Company shall default in the payment of interest due on such interest pay-
ment date, then from the next preceding interest payment date or the date of
delivery of the initial Bonds of 2008 Series, whichever is later, at the rate
of five and seven-eighths percent (5 7/8%) per annum, payable semiannually,
commencing April 15, 1994, on the fifteenth day of April and October in each
year until maturity, or, if the Company shall default in the payment of the
principal hereof, until the Company's obligation with respect to the payment
of such principal shall be discharged as provided in the
<PAGE>
8
Amended Indenture. The interest so payable on any April 15 or October 15 will,
subject to certain exceptions provided in the indenture dated as of September
30, 1993 supplemental to the Amended Indenture, be paid to the person in whose
name this Bond is registered at the close of business on the last business day
which is more than ten days prior to such April 15 or October 15. Both princi-
pal of, and interest on, this Bond are payable at the agency of the Company in
the City of Washington, D.C., or, at the option of the holder, at the agency
of the Company in the Borough of Manhattan, The City of New York.
Reference is made to the further provisions of this Bond set forth on the re-
verse hereof, and such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
This Bond shall not be entitled to any benefit under the Amended Indenture or
any indenture supplemental thereto, or become valid or
obligatory for any purpose, until The Riggs National Bank of Washington, D.C.,
the Trustee under the Amended Indenture, or a successor trustee thereto under
the Amended Indenture, shall have signed the form of certificate endorsed
hereon.
In Witness Whereof, Potomac Electric Power Company has caused this Bond to be
signed in its name by the signature (or a facsimile thereof) of its President
or a Vice President, and its corporate seal (or a facsimile thereof) to be
hereto affixed and attested by the facsimile signature of its Secretary or an
Assistant Secretary.
Dated,
Potomac Electric Power Company
By......................................
Vice President
Attest:
...................................
Secretary
<PAGE>
9
[FORM OF TRUSTEE'S CERTIFICATE]
This Bond is one of the Bonds, of the series designated therein, described in
the within-mentioned Amended Indenture and the Supplemental Indenture dated as
of September 30, 1993.
The Riggs National Bank of Washington, D.C.
Trustee.
By..........................................
Authorized Officer
[TEXT APPEARING ON REVERSE SIDE OF BOND OF 2008 SERIES]
This Bond is one of a duly authorized issue of Bonds of the Company (herein-
after called the "Bonds") in unlimited aggregate principal amount, of the se-
ries hereinafter specified, all issued and to be issued under and equally se-
cured (except in so far as any purchase or sinking fund or analogous provi-
sions for any particular series of Bonds, established by any indenture supple-
mental to the Amended Indenture hereinafter mentioned, may afford additional
security for such Bonds) by a mortgage and deed of trust, dated July 1, 1936,
executed by the Company to The Riggs National Bank of Washington, D.C. (herein
called the "Trustee"), as trustee, as amended by indentures supplemental
thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1,
1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October
1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986,
March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990,
May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993,
March 2, 1993, July 1, 1993, August 20, 1993 and September 29, 1993 (said
mortgage and deed of trust, as so amended, being herein called the "Amended
Indenture") and all indentures supplemental thereto, to which Amended Inden-
ture and supplemental indentures reference is hereby made for a description of
the properties mortgaged and pledged, the nature and extent of the security,
the rights of the owners of the Bonds and of the Trustee in respect thereto,
and the terms and conditions upon which the Bonds are, and are
<PAGE>
10
to be, secured. To the extent permitted by, and as provided in, the Amended
Indenture, modifications or alterations of the Amended Indenture, or of any
indenture supplemental thereto, and of the rights and obligations of the Com-
pany and of the holders of the Bonds may be made with the consent of the Com-
pany by an affirmative vote of not less than 80% in amount of the Bonds enti-
tled to vote then outstanding, at a meeting of Bondholders called and held as
provided in the Amended Indenture, and by an affirmative vote of not less than
80% in amount of the Bonds of any series entitled to vote then outstanding and
affected by such modification or alteration, in case one or more but less than
all of the series of Bonds then outstanding under the Amended Indenture are so
affected; provided, however, that no such modification or alteration shall be
made which will affect the terms of payment of the principal of, or interest
on, this Bond, which are unconditional, or which reduces the percentage of
Bonds the affirmative vote of which is required for the making of such modifi-
cations or alterations. The Company is proposing an amendment to the Amended
Indenture which would replace "80%" with "60%" in the preceding sentence,
which amendment will become effective upon the consent or agreement thereto of
the holders of all the outstanding Bonds. The holder of this Bond will be
deemed to have approved such amendment. The Bonds may be issued in series, for
various principal sums, may mature at different times, may bear interest at
different rates and may otherwise vary as in the Amended Indenture provided.
This Bond is one of a series designated as the "First Mortgage Bonds, 5 7/8%
Series due 2008" (herein called the "Bonds of 2008 Series") of the Company,
issued under and secured by the Amended Indenture and all indentures supple-
mental thereto and described in the indenture (herein called the "New Supple-
mental Indenture"), dated as of September 30, 1993, between the Company and
the Trustee, supplemental to the Amended Indenture.
The Bonds of 2008 Series are not subject to redemption prior to maturity.
In case an event of default, as defined in the Amended Indenture, shall oc-
cur, the principal of all the Bonds at any such time outstanding under
<PAGE>
11
the Amended Indenture may be declared or may become due and payable, upon the
conditions and in the manner and with the effect provided in the Amended In-
denture. The Amended Indenture provides that such declaration may in certain
events be waived by the holders of a majority in principal amount of the Bonds
entitled to vote then outstanding.
This Bond is transferable by the registered owner hereof, in person or by
duly authorized attorney, on the books of the Company to be kept for that pur-
pose at the agency of the Company in the City of Washington, D.C., or at the
agency of the Company in the Borough of Manhattan, The City of New York, upon
surrender and cancellation of this Bond and on presentation of a duly executed
written instrument of transfer, and thereupon a new Bond or Bonds of the same
series, of the same aggregate principal amount and in authorized denominations
will be issued to the transferee or transferees in exchange therefor; and this
Bond, with or without others of the same series, may in like manner be ex-
changed for one or more new Bonds of the same series of other authorized de-
nominations but of the same aggregate principal amount; all subject to the
terms and conditions set forth in the Amended Indenture.
No recourse shall be had for the payment of the principal of, or the interest
on, this Bond, or for any claim based hereon or otherwise in respect hereof or
of the Amended Indenture or any indenture supplemental thereto, against any
incorporator, or against any stockholder, director or officer, past, present
or future, of the Company or of any predecessor or successor corporation, ei-
ther directly or through the Company or any such predecessor or successor cor-
poration, whether for amounts unpaid on stock subscriptions or by virtue of
any constitution, statute or rule of law, or by the enforcement of any assess-
ment or penalty or otherwise, all such liability, whether at common law, in
equity, by any constitution, statute or otherwise, of incorporators, stock-
holders, directors or officers being released by every owner hereof by the ac-
ceptance of this Bond and as part of the consideration for the issue hereof,
and being likewise released by the terms of the Amended Indenture.
Section 3. The Bonds of 2008 Series shall be registered Bonds without coupons
in denominations of any multiple of $1,000, numbered consecutively upwards
from R1.
<PAGE>
12
Section 4. Until Bonds of 2008 Series in definitive form are ready for deliv-
ery, the Company may execute, and upon its request in writing the Trustee
shall authenticate and deliver, in lieu thereof, Bonds for such series in tem-
porary form, as provided in Section 9 of Article II of the Original Indenture
as amended.
PART II.
Issue of Bonds.
Section 1. Except for Bonds of 2008 Series issued pursuant to Section 13 of
Article II of the Original Indenture as amended, the principal amount of Bonds
of 2008 Series which may be authenticated and delivered hereunder is limited
to $50,000,000 aggregate principal amount.
Section 2. Bonds of 2008 Series in the aggregate principal amount permitted
in Section 1 of this Part II, may at any time subsequent to the execution
hereof be executed by the Company and delivered to the Trustee and shall be
authenticated by the Trustee and delivered (either before or after the record-
ing hereof) to or upon the order of the Company evidenced by a writing or
writings, signed by its President or one of its Vice Presidents and its Trea-
surer or one of its Assistant Treasurers, at such time or times as may be re-
quested by the Company subsequent to the receipt by the Trustee of
(1) the certified resolution and the officers' certificate required by Sec-
tion 3(a) and Section 3(b) of Article III of the Original Indenture as
amended;
(2) the opinion of counsel required by Section 3(c) of Article III of the
Original Indenture as amended;
(3) cash, if any, in the amount required to be deposited by Section 3(d) of
Article III of the Original Indenture as amended, which shall be held and
applied by the Trustee as provided in said Section 3(d);
(4) the certificates, instruments, opinions of counsel, prior lien bonds
and cash, if any, required by Section 4 of Article III of the Original In-
denture as amended, except that, as required by Part IV of this Supplemental
Indenture, property additions purchased, constructed or otherwise acquired
on or before December 31, 1946 shall
<PAGE>
13
not be made the basis for the authentication and delivery of Bonds of 2008
Series; and
(5) the certificates and opinions required by Article XVIII of the Original
Indenture as amended.
PART III.
Redemption.
The Bonds of 2008 Series shall not be redeemable prior to maturity.
PART IV.
Additional Particular Covenants of the Company.
The Company hereby covenants, warrants and agrees that so long as any Bonds
of 2008 Series are outstanding:
Section 1. The Company will not withdraw, pursuant to the provisions of Sec-
tion 2 of Article VIII of the Original Indenture as amended, any moneys held
by the Trustee as part of the trust estate in excess of an amount equal to the
aggregate principal amount of such of the refundable Bonds as were theretofore
issued by the Company; and that upon any such withdrawal by the Company re-
fundable Bonds equal in aggregate principal amount to the amount so withdrawn
shall be deemed to have been made the basis of such withdrawal.
Section 2. Property additions purchased, constructed or otherwise acquired on
or before December 31, 1946 shall not be made the basis for the authentication
and delivery of Bonds, or the withdrawal of cash, or the reduction of the
amount of cash required to be paid to the Trustee under any provision of the
Indenture.
PART V.
Amendment of Indenture to Permit Qualification
Under Trust Indenture Act of 1939.
The Company and the Trustee, from time to time and at any time, without any
vote or consent of the holders of the Bonds of 2008 Series,
<PAGE>
14
may enter into such indentures supplemental to the Original Indenture as may
or shall by them be deemed necessary or desirable to add to or modify or amend
any of the provisions of the Original Indenture so as to permit the qualifica-
tion of the Original Indenture under the Trust Indenture Act of 1939.
Except to the extent specifically provided herein, no provision of this Sup-
plemental Indenture is intended to modify, and the parties hereto do hereby
adopt and confirm, the provisions of Section 318(c) of the Trust Indenture Act
of 1939 which amend and supersede provisions of the Original Indenture, as
supplemented, in effect prior to November 15, 1990.
PART VI.
Amendment of Original Indenture.
Notwithstanding any other provisions of the Original Indenture as amended,
the holders of the Bonds of 2008 Series, by their holding of such Bonds, are
deemed to have approved the following amendment to the Original Indenture as
amended and to have authorized the Trustee to take any action necessary to ev-
idence or effectuate such approval:
Sections 5 and 6 of Article XV of the Original Indenture as amended are
hereby amended by changing the words and figures "eighty percent. (80%)" to
the words and figures "sixty percent. (60%)" wherever in such Sections such
words and figures occur.
PART VII.
The Trustee.
The Trustee hereby accepts the trusts hereby declared and provided and agrees
to perform the same upon the terms and conditions in the Original Indenture as
amended set forth and upon the following terms and conditions:
The Trustee shall not be responsible in any manner whatsoever for or in re-
spect of the validity or sufficiency of this Supplemental Indenture
<PAGE>
15
or the due execution hereof by the Company or for or in respect of the recit-
als contained herein, all of which recitals are made by the Company solely. In
general, each and every term and condition contained in Article XIII of the
Original Indenture as amended shall apply to this Supplemental Indenture with
the same force and effect as if the same were herein set forth in full, with
such omissions, variations and modifications thereof as may be appropriate to
make the same conform to this Supplemental Indenture.
PART VIII.
Miscellaneous Provisions.
This Supplemental Indenture may be simultaneously executed in any number of
counterparts, each of which when so executed shall be deemed to be an origi-
nal; but such counterparts shall together constitute but one and the same in-
strument.
Potomac Electric Power Company hereby constitutes and appoints William R.
Gee, Jr., one of its Vice Presidents, to be its true and lawful attorney-in-
fact, for it and in its name to appear before any officer authorized by law to
take and certify acknowledgments of deeds to be recorded in the District of
Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in
the Commonwealth of Pennsylvania and to acknowledge and deliver these presents
as the act and deed of said Potomac Electric Power Company.
The Riggs National Bank of Washington, D.C., hereby constitutes and appoints
Alexander C. Baker, one of its Senior Vice Presidents, to be its true and law-
ful attorney-in-fact, for it and in its name to appear before any officer au-
thorized by law to take and certify acknowledgments of deeds to be recorded in
the District of Columbia, in the State of Maryland, in the Commonwealth of
Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and de-
liver these presents as the act and deed of said The Riggs National Bank of
Washington, D.C.
<PAGE>
16
In Witness Whereof, said Potomac Electric Power Company has caused this Sup-
plemental Indenture to be executed on its behalf by its President or one of
its Vice Presidents and its corporate seal to be hereto affixed and said seal
and this Supplemental Indenture to be attested by its Secretary or one of its
Assistant Secretaries; and said The Riggs National Bank of Washington, D.C.,
in evidence of its acceptance of the trust hereby created, has caused this
Supplemental Indenture to be executed on its behalf by its President or one of
its Senior Vice Presidents, and its corporate seal to be hereto affixed and
said seal and this Supplemental Indenture to be attested by one of its Corpo-
rate Trust Officers, all as of the 30th day of September, One thousand nine
hundred and ninety-three.
Potomac Electric Power Company
(Corporate Seal)
By.........................................
WILLIAM R. GEE, JR.,
Vice President
Attested:
...................................
MARY T. HOWARD,
Assistant Secretary
Signed, sealed and delivered by
Potomac Electric Power Company
in the presence of:
...................................
...................................
As Witnesses
The Riggs National Bank of
Washington, D.C.
(Corporate Seal)
By..........................................
ALEXANDER C. BAKER,
Senior Vice President
Attested:
...................................
BEVERLY MOFFETT,
Senior Corporate Trust Officer
Signed, sealed and delivered by
The Riggs National Bank of Wash-
ington, D.C. in the presence of:
...................................
...................................
As Witnesses
<PAGE>
17
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, whose commission as such will expire , do hereby certify
that William R. Gee, Jr. and Mary T. Howard, whose names as Vice President and
Assistant Secretary, respectively, of Potomac Electric Power Company, a corpo-
ration, are signed to the foregoing and hereto attached deed, bearing date as
of the 30th day of September, 1993, personally appeared this day before me in
my District aforesaid and acknowledged themselves to be, respectively, a Vice
President and an Assistant Secretary of Potomac Electric Power Company, and
that they as such, being authorized so to do, executed the said deed by sign-
ing the name of Potomac Electric Power Company by William R. Gee, Jr., as Vice
President, and attested by Mary T. Howard, as Assistant Secretary, and ac-
knowledged the same before me in my District aforesaid and acknowledged the
foregoing instrument to be the act and deed of Potomac Electric Power Company.
Given under my hand and official seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
<PAGE>
18
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that William R. Gee, Jr., a Vice Presi-
dent of Potomac Electric Power Company, a corporation, one of the parties to
the foregoing instrument bearing date as of the 30th day of September, 1993,
and hereto annexed, this day personally appeared before me in the City of
Washington, the said William R. Gee, Jr., being personally well known to me as
the person who executed the said instrument as a Vice President of and on be-
half of said Potomac Electric Power Company and known to me to be the attor-
ney-in-fact duly appointed therein to acknowledge and deliver said instrument
on behalf of said corporation, and, as such attorney-in-fact, he acknowledged
said instrument to be the act and deed of said Potomac Electric Power Company,
and delivered the same as such. I further certify that the said William R.
Gee, Jr., being by me duly sworn, did depose and say that he knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal and was so affixed by order of the Board of Directors of said corpora-
tion; and that he signed his name thereto by like order. My commission expires
Given under my hand and official seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
<PAGE>
19
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United States
of America, do hereby certify that Alexander C. Baker and Beverly Moffett,
whose names as Senior Vice President and Senior Corporate Trust Officer, re-
spectively, of The Riggs National Bank of Washington, D.C., a corporation, are
signed to the foregoing and hereto attached deed, bearing date as of the 30th
day of September, 1993, personally appeared before me this day in my District
aforesaid and acknowledged themselves to be, respectively, a Senior Vice Pres-
ident and a Senior Corporate Trust Officer of The Riggs National Bank of Wash-
ington, D.C., and that they as such, being authorized so to do, executed the
said deed by signing the name of The Riggs National Bank of Washington, D.C.,
by Alexander C. Baker as Senior Vice President, and attested by Beverly
Moffett, as Senior Corporate Trust Officer, and acknowledged the same before
me in my District aforesaid and acknowledged the foregoing instrument to be
the act and deed of The Riggs National Bank of Washington, D.C., as therein
set forth.
Given under my hand and notarial seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
My Commission Expires .
<PAGE>
20
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
Alexander C. Baker, of full age, being sworn according to law, on his oath
deposes and says that he is a Senior Vice President of The Riggs National Bank
of Washington, D.C., the Trustee named in the foregoing Supplemental Inden-
ture, dated as of the 30th day of September, 1993, that he is the agent of
said Trustee for the purpose of perfecting such Supplemental Indenture and
that the consideration in the Original Indenture referred to therein and in
all indentures supplemental to said Original Indenture, including the forego-
ing Supplemental Indenture, is true and bona fide as therein set forth.
............................................
Alexander C. Baker
Subscribed and sworn to before me
this day of October, 1993.
...................................
Notary Public
District of Columbia
My Commission Expires
(Notarial Seal)
<PAGE>
21
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that Alexander C. Baker a Senior Vice
President of The Riggs National Bank of Washington, D.C., a corporation, one
of the parties to the foregoing instrument bearing date as of the 30th day of
September, 1993, and hereto annexed, this day personally appeared before me in
the City of Washington, the said Alexander C. Baker, being personally well
known to me as the person who executed the said instrument as a Senior Vice
President of and on behalf of said The Riggs National Bank of Washington,
D.C., and known to me to be the attorney-in-fact duly appointed therein to ac-
knowledge and deliver said instrument on behalf of said corporation, and, as
such attorney-in-fact, he acknowledged said instrument to be the act and deed
of said The Riggs National Bank of Washington, D.C., and delivered the same as
such. I further certify that the said Alexander C. Baker, being by me duly
sworn, did depose and say that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal and was so affixed by
order of the Board of Directors of said corporation; and that he signed his
name thereto by like order.
Given under my hand and official seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
My Commission Expires
<PAGE>
22
CERTIFICATE OF RESIDENCE
The Riggs National Bank of Washington, D.C., Mortgagee and Trustee within
named, hereby certifies that its precise residence is 800-17th Street, N.W.,
Washington, D.C. 20006.
The Riggs National Bank of Washington, D.C.
By..........................................
Alexander C. Baker,
Senior Vice President
================================================================================
POTOMAC ELECTRIC POWER COMPANY
1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C.
TO
THE RIGGS NATIONAL BANK
OF WASHINGTON, D.C.
800-17TH STREET, N.W., WASHINGTON, D.C.
AS TRUSTEE
------------------
Supplemental Indenture
DATED AS OF OCTOBER 1, 1993
------------------
SUPPLEMENTAL TO MORTGAGE AND DEED OF TRUST
DATED JULY 1, 1936
------------------
FIRST MORTGAGE BONDS, 6 7/8% SERIES DUE 2024
================================================================================
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
SUPPLEMENTAL INDENTURE DATED AS OF OCTOBER 1, 1993
TABLE OF CONTENTS*
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<TABLE>
<CAPTION>
PAGE
<S> <C>
Parties.................................................................. 1
Recitals................................................................. 1
<CAPTION>
PART I
Description of Bonds
<S> <C> <C>
Section 1. General description of Bonds of 2024 Series.................. 5
Section 2. Form of face of Bond of 2024 Series.......................... 7
Form of Trustee's certificate................................ 9
Text appearing on reverse side of Bond of 2024 Series........ 9
Section 3. Denominations of Bonds of 2024 Series........................ 12
Section 4. Execution and form of temporary Bonds........................ 12
<CAPTION>
PART II
Issue of Bonds
<S> <C>
Section 1. Limitation as to principal amount............................ 12
Section 2. Issue of Bonds............................................... 13
<CAPTION>
PART III
Redemption
<S> <C>
Section 1. Bonds of 2024 Series redeemable ............................. 13
Section 2. Notice of Redemption, etc. .................................. 14
<CAPTION>
PART IV
Additional Particular Covenants of the Company
<S> <C>
Section 1. Company not to withdraw moneys pursuant to Section 2 of
Article VIII in excess of an amount equal to principal
amount of issued refundable bonds........................... 14
Section 2. No property additions made on or prior to December 31, 1946
to be used for any purpose under the Indenture.............. 14
</TABLE>
- ---------
* The Table of Contents is not part of the Supplemental Indenture and should
not be considered as such. It is included herein only for purposes of
convenient reference.
<PAGE>
ii
<TABLE>
<CAPTION>
PART V
PAGE
<S> <C>
Amendment of Indenture to Permit Qualification Under Trust Indenture
Act of 1939............................................................. 15
<CAPTION>
PART VI
<S> <C>
Amendment of Original Indenture.......................................... 15
<CAPTION>
PART VII
The Trustee
<S> <C>
Acceptance of trusts by the Trustee...................................... 15
Trustee not responsible for validity of the Supplemental Indenture....... 16
<CAPTION>
PART VIII
Miscellaneous Provisions
<S> <C>
Execution of Supplemental Indenture in counterparts...................... 16
Appointment of attorneys-in-fact by parties.............................. 16
Testimonium.............................................................. 16
Execution................................................................ 17
Company's Acknowledgments................................................ 18
Trustee's Acknowledgments................................................ 20
</TABLE>
<PAGE>
SUPPLEMENTAL INDENTURE, dated as of the first day of October, nineteen hun-
dred and ninety-three (1993), made by and between Potomac Electric Power Com-
pany, a corporation organized and existing under the laws of the District of
Columbia and a domestic corporation of the Commonwealth of Virginia (hereinaf-
ter sometimes called the "Company"), party of the first part, and The Riggs
National Bank of Washington, D.C., a national banking association organized
and existing under the laws of the United States of America (hereinafter some-
times called the "Trustee"), as Trustee under the Mortgage and Deed of Trust
dated July 1, 1936, hereinafter mentioned, party of the second part;
Whereas, The Company has heretofore executed and delivered its Mortgage and
Deed of Trust, dated July 1, 1936 (hereinafter sometimes referred to as the
"Original Indenture"), to the Trustee, to secure an issue of First Mortgage
Bonds of the Company, issuable in series; and
Whereas, pursuant to the terms and provisions of the Original Indenture, in-
dentures supplemental thereto dated as of July 1, 1936, December 1, 1939, Au-
gust 1, 1940, August 1, 1942, January 1, 1948, May 1, 1949, May 1, 1950, March
1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, December 1, 1958, November
16, 1959, December 1, 1960, February 15, 1963, May 15, 1964, April 1, 1966,
May 1, 1967, February 15, 1968, March 15, 1969, February 15, 1970, August 15,
1970, September 15, 1972, April 1, 1973, January 2, 1974, August 15, 1974, Au-
gust 15, 1974, June 15, 1977, July 1, 1979, June 16, 1981, June 17, 1981, De-
cember 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1,
1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May
1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September
1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August
20, 1993, September 29, 1993 and September 30, 1993 have been heretofore en-
tered into between the Company and the Trustee to provide, respectively, for
the creation of the first through the fifty-fifth series of Bonds thereunder
and, in the case of the supplemental indentures dated January 1, 1948, March
1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, September 15, 1972, July 1,
1979, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May
21, 1991, May 7, 1992, July 1, 1993 and one of the supplemental indentures
dated August 15, 1974, to convey additional property; and
<PAGE>
2
Whereas, $20,000,000 principal amount of Bonds of the 3 1/4% Series due 1966
(the first series), $5,000,000 principal amount of Bonds of the 3 1/4 Series
due 1974 (the second series), $10,000,000 principal amount of Bonds of the 3
1/4% Series due 1975 (the third series), $5,000,000 principal amount of Bonds
of the 3 1/4% Series due 1977 (the fourth series), $15,000,000 principal
amount of Bonds of the 3% Series due 1983 (the fifth series), $10,000,000
principal amount of Bonds of the 2 7/8% Series due 1984 (the sixth series),
$30,000,000 principal amount of Bonds of the 2 3/4% Series due 1985 (the sev-
enth series), $15,000,000 principal amount of Bonds of the 3 1/4% Series due
1987 (the eighth series), $10,000,000 principal amount of Bonds of the 3 7/8%
Series due 1988 (the ninth series), $10,000,000 principal amount of Bonds of
the 3 3/8% Series due 1990 (the tenth series), $10,000,000 principal amount of
Bonds of the 3 5/8% Series due 1991 (the eleventh series), $35,000,000 princi-
pal amount of Bonds of the 8.85% Series due 2005 (the twenty-first series),
$70,000,000 principal amount of Bonds of the 9 1/2% Series due August 15, 2005
(the twenty-second series), $100,000,000 principal amount of Bonds of the 8
3/8% Series due 2009 (the twenty-fifth series), $50,000,000 principal amount
of Bonds of the 10 1/4% Series due 1981 (the twenty-sixth series), $50,000,000
principal amount of Bonds of the 10 3/4% Series due 2004 (the twenty-seventh
series), $30,000,000 principal amount of Bonds of the Floating Rate Series due
2010 (the thirty-second series), $50,000,000 principal amount of Bonds of the
14 1/2% Series due 1991 (the thirty-third series), $60,000,000 principal
amount of Bonds of the 14 1/4% Series due 1992 (the thirty-fifth series),
$50,000,000 principal amount of Bonds of the 11 7/8% Series due 1989 (the
thirty-sixth series), $37,000,000 principal amount of Bonds of the 8 3/4% Se-
ries due 2010 (the thirty-seventh series), $75,000,000 principal amount of
Bonds of the 11 1/4% Series due 2015 (the thirty-eighth series), $75,000,000
principal amount of Bonds of the 9 1/4% Series due 2016 (the thirty-ninth se-
ries), $75,000,000 principal amount of Bonds of the 8 3/4% Series due 2016
(the fortieth series) and $75,000,000 principal amount of Bonds of the 9% Se-
ries due 1990 (the forty-second series) have been heretofore redeemed and re-
tired and there are now issued and outstanding under the Original Indenture
and under the supplemental indentures referred to above: $25,000,000 principal
amount of Bonds of the 4 5/8% Series due 1993 (the twelfth series);
$15,000,000 principal amount of Bonds of the 5 1/4% Series due 1994 (the thir-
teenth series); $40,000,000
<PAGE>
3
principal amount of Bonds of the 5% Series due 1995 (the fourteenth series);
$50,000,000 principal amount of Bonds of the 4 3/8% Series due 1998 (the fif-
teenth series); $45,000,000 principal amount of Bonds of the 4 1/2% Series due
1999 (the sixteenth series); $15,000,000 principal amount of Bonds of the 5
1/8% Series due 2001 (the seventeenth series); $35,000,000 principal amount of
Bonds of the 5 7/8% Series due 2002 (the eighteenth series); $40,000,000 prin-
cipal amount of Bonds of the 6 5/8% Series due 2003 (the nineteenth series);
$45,000,000 principal amount of Bonds of the 7 3/4% Series due 2004 (the twen-
tieth series); $50,000,000 principal amount of Bonds of the 7 3/4% Series due
2007 (the twenty-third series); $19,000,000 principal amount of Bonds of the 5
5/8% Series due 1997 (the twenty-fourth series); $38,300,000 principal amount
of Bonds of the 6 1/8% Series due 2007 (the twenty-eighth series); $15,000,000
principal amount of Bonds of the 6 1/2% Series due 2004 (the twenty-ninth se-
ries); $20,000,000 principal amount of Bonds of the 6 1/2% Series due 2007
(the thirtieth series); $7,500,000 principal amount of Bonds of the 6 5/8% Se-
ries due 2009 (the thirty-first series); $50,000,000 principal amount of Bonds
of the Adjustable Rate Series due 2001 (the thirty-fourth series); $75,000,000
principal amount of Bonds of the 8 1/4% Series due 2017 (the forty-first se-
ries); $75,000,000 principal amount of Bonds of the 9 3/4% Series due 2019
(the forty-third series); $75,000,000 principal amount of Bonds of the 8 5/8%
Series due 2019 (the forty-fourth series); $100,000,000 principal amount of
Bonds of the 9% Series due 2000 (the forty-fifth series); $100,000,000 princi-
pal amount of Bonds of the 9% Series due 2021 (the forty-sixth series);
$75,000,000 principal amount of Bonds of the 8 1/2% Series due 2027 (the for-
ty-seventh series); $30,000,000 principal amount of Bonds of the 6% Series due
2022 (the forty-eighth series); $37,000,000 principal amount of Bonds of the 6
3/8% Series due 2023 (the forty-ninth series); $78,000,000 principal amount of
Bonds of the 6 1/2% Series due 2008 (the fiftieth series); $40,000,000 princi-
pal amount of Bonds of the 7 1/2% Series due 2028 (the fifty-first series);
$100,000,000 principal amount of Bonds of the 7 1/4% Series due 2023 (the fif-
ty-second series); $100,000,000 principal amount of Bonds of the 6 7/8% Series
due 2023 (the fifty-third series); $50,000,000 principal amount of Bonds of
the 5 5/8% Series due 2003 (the fifty-fourth series); and $50,000,000 princi-
pal amount of Bonds of the 5 7/8% Series due 2008 (the fifty-fifth series);
and
<PAGE>
4
Whereas, for the purpose of conforming the Original Indenture to the stan-
dards prescribed by the Trust Indenture Act of 1939 or otherwise modifying
certain of the provisions of the Original Indenture, indentures supplemental
thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1,
1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October
1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986,
March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990,
May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993,
March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993 and September
30, 1993 have been heretofore entered into between the Company and the
Trustee, and for the purpose of conveying additional property, indentures sup-
plemental thereto dated July 15, 1942, October 15, 1947, December 31, 1948,
December 31, 1949, February 15, 1951, February 16, 1953, March 15, 1954, March
15, 1955, March 15, 1956, April 1, 1957, May 1, 1958, May 1, 1959, May 2,
1960, April 3, 1961, May 1, 1962, May 1, 1963, April 23, 1964, May 3, 1965,
June 1, 1966, April 28, 1967, July 3, 1967, May 1, 1968, June 16, 1969, May
15, 1970, September 1, 1971, June 17, 1981, November 1, 1985, September 16,
1987, May 1, 1989, May 21, 1991, May 7, 1992 and July 1, 1993 have been here-
tofore entered into between the Company and the Trustee, and for the purpose
of better securing and protecting the Bonds then or thereafter issued and con-
firming the lien of the Original Indenture, an indenture dated October 15,
1942 supplemental thereto has been heretofore entered into between the Company
and the Trustee; the Original Indenture as heretofore amended and supplemented
being hereinafter referred to as the "Original Indenture as amended"; and
Whereas, the Company is entitled to have authenticated and delivered addi-
tional Bonds on the basis of the net bondable value of property additions,
upon compliance with the provisions of Section 4 of Article III of the Origi-
nal Indenture as amended; and
Whereas, the Company has determined to issue a fifty-sixth series of Bonds
under the Original Indenture as amended in the principal amount of
$75,000,000, to be known as First Mortgage Bonds, 6 7/8% Series due 2024
(hereinafter called "Bonds of 2024 Series"); and
Whereas, the Original Indenture as amended provides that certain terms and
provisions, as determined by the Board of Directors of the
<PAGE>
5
Company, of the Bonds of any particular series may be expressed in and pro-
vided by the execution of an appropriate supplemental indenture; and
Whereas, the Original Indenture as amended provides that the Company and the
Trustee may enter into indentures supplemental thereto to add to the covenants
and agreements of the Company contained therein other covenants and agreements
thereafter to be observed; and to surrender any right or power reserved to or
conferred upon the Company in the Original Indenture as amended; and
Whereas, the Company, in the exercise of the powers and authority conferred
upon and reserved to it under the provisions of the Original Indenture as
amended and pursuant to appropriate resolutions of its Board of Directors, has
duly resolved and determined to make, execute and deliver to the Trustee a
Supplemental Indenture in the form hereof for the purposes herein provided;
and
Whereas, all conditions and requirements necessary to make this Supplemental
Indenture a valid, binding and legal instrument have been done, performed and
fulfilled, and the execution and delivery hereof have been in all respects
duly authorized;
Now, Therefore, This Indenture Witnesseth:
That Potomac Electric Power Company, in consideration of the premises and of
One Dollar to it duly paid by the Trustee at or before the ensealing and de-
livery of these presents, and for other valuable considerations, the receipt
whereof is hereby acknowledged, hereby covenants, declares and agrees with the
Trustee and its successors in the trust under the Original Indenture as amend-
ed, for the benefit of those who hold the Bonds and coupons, or any of them,
issued or to be issued hereunder or under the Original Indenture as amended,
as follows:
PART I.
Description of Bonds.
Section 1. The Bonds of 2024 Series shall, subject to the provisions of Sec-
tion 1 of Article II of the Original Indenture as amended, be des-
<PAGE>
6
ignated as "First Mortgage Bonds, 6 7/8% Series due 2024" of the Company. The
Bonds of 2024 Series shall be executed, authenticated and delivered in accor-
dance with the provisions of, and shall in all respects be subject to, all of
the terms, conditions and covenants of the Original Indenture as amended, ex-
cept in so far as the terms and provisions of the Original Indenture as
amended are amended or modified by this Supplemental Indenture.
The Bonds of 2024 Series shall mature October 15, 2024, and shall bear inter-
est at the rate of six and seven-eighths per cent (6 7/8%) per annum, payable
semiannually, commencing April 15, 1994, on the fifteenth day of April and the
fifteenth day of October in each year (each such April 15 and October 15 being
hereinafter called an "interest payment date"). The Bonds of 2024 Series shall
be payable as to principal and interest in lawful money of the United States
of America, and shall be payable (as well the interest as the principal there-
of) at the Agency of the Company in the City of Washington, D.C., or at the
Agency of the Company in the Borough of Manhattan, The City of New York.
The interest so payable on any interest payment date shall be paid to the
persons in whose names the Bonds of 2024 Series are registered at the close of
business on the last business day (hereinafter called the "record date") which
is more than ten days prior to such interest payment date, a "business day"
being any day that is not a day on which banks in the City of Washington,
D.C., are authorized by law to close; except that if the Company shall default
in the payment of any interest due on such interest payment date, such de-
faulted interest shall be paid to the persons in whose names the Bonds of 2024
Series are registered on the date of payment of such defaulted interest, or in
accordance with the regulations of any securities exchange on which the Bonds
of 2024 Series are listed.
Except as provided hereinafter, every Bond of 2024 Series shall be dated as
of the date of its authentication and delivery, or if that is an interest pay-
ment date, the next day, and shall bear interest from the interest payment
date next preceding its date or the date of delivery of the initial Bonds of
2024 Series, whichever is later. Notwithstanding Section 6 of Article II of
the Original Indenture, any Bond of 2024 Series
<PAGE>
7
authenticated and delivered by the Trustee after the close of business on the
record date with respect to any interest payment date and prior to such inter-
est payment date shall be dated as of the date next following such interest
payment date and shall bear interest from such interest payment date; except
that if the Company shall default in the payment of any interest due on such
interest payment date, such Bond shall bear interest from the next preceding
interest payment date or the date of delivery of the initial Bonds of 2024 Se-
ries, whichever is later.
Section 2. The Bonds of 2024 Series, and the Trustee's certificate to be en-
dorsed on the Bonds of 2024 Series, shall be substantially in the following
forms, respectively:
[FORM OF FACE OF BOND OF 2024 SERIES]
POTOMAC ELECTRIC POWER COMPANY
(A District of Columbia and Virginia corporation)
First Mortgage Bond, 6 7/8% Series Due 2024
No. $
Potomac Electric Power Company, a corporation organized and existing under
the laws of the District of Columbia and a domestic cor- poration of the Com-
monwealth of Virginia (hereinafter called the "Company", which term shall in-
clude any successor corporation as defined in the Amended Indenture hereinaf-
ter referred to), for value received, hereby promises to pay to
................... or registered assigns, the sum of .................. dol-
lars, on the fifteenth day of October 2024, in lawful money of the United
States of America, and to pay interest thereon in like money from the later of
the date of delivery of the initial Bonds of 2024 Series or the interest pay-
ment date April 15 or October 15 next preceding the date of this Bond, or if
the Company shall default in the payment of interest due on such interest pay-
ment date, then from the next preceding interest payment date or the date of
delivery of the initial Bonds of 2024 Series, whichever is later, at the rate
of six and seven-eighths percent (6 7/8%) per annum, payable semiannually,
commencing April 15, 1994, on the fifteenth day of April and October in
<PAGE>
8
each year until maturity, or, if the Company shall default in the payment of
the principal hereof, until the Company's obligation with respect to the pay-
ment of such principal shall be discharged as provided in the Amended Inden-
ture. The interest so payable on any April 15 or October 15 will, subject to
certain exceptions provided in the indenture dated as of October 1, 1993 sup-
plemental to the Amended Indenture, be paid to the person in whose name this
Bond is registered at the close of business on the last business day which is
more than ten days prior to such April 15 or October 15. Both principal of,
and interest on, this Bond are payable at the agency of the Company in the
City of Washington, D.C., or, at the option of the holder, at the agency of
the Company in the Borough of Manhattan, The City of New York.
Reference is made to the further provisions of this Bond set forth on the re-
verse hereof, and such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
This Bond shall not be entitled to any benefit under the Amended Indenture or
any indenture supplemental thereto, or become valid or
obligatory for any purpose, until The Riggs National Bank of Washington, D.C.,
the Trustee under the Amended Indenture, or a successor trustee thereto under
the Amended Indenture, shall have signed the form of certificate endorsed
hereon.
In Witness Whereof, Potomac Electric Power Company has caused this Bond to be
signed in its name by the signature (or a facsimile thereof) of its President
or a Vice President, and its corporate seal (or a facsimile thereof) to be
hereto affixed and attested by the facsimile signature of its Secretary or an
Assistant Secretary.
Dated,
Potomac Electric Power Company
By......................................
Vice President
Attest:
...................................
Secretary
<PAGE>
9
[FORM OF TRUSTEE'S CERTIFICATE]
This Bond is one of the Bonds, of the series designated therein, described in
the within-mentioned Amended Indenture and the Supplemental Indenture dated as
of October 1, 1993.
The Riggs National Bank of Washington, D.C.
Trustee.
By..........................................
Authorized Officer
[TEXT APPEARING ON REVERSE SIDE OF BOND OF 2024 SERIES]
This Bond is one of a duly authorized issue of Bonds of the Company (herein-
after called the "Bonds") in unlimited aggregate principal amount, of the se-
ries hereinafter specified, all issued and to be issued under and equally se-
cured (except in so far as any purchase or sinking fund or analogous provi-
sions for any particular series of Bonds, established by any indenture supple-
mental to the Amended Indenture hereinafter mentioned, may afford additional
security for such Bonds) by a mortgage and deed of trust, dated July 1, 1936,
executed by the Company to The Riggs National Bank of Washington, D.C. (herein
called the "Trustee"), as trustee, as amended by indentures supplemental
thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1,
1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October
1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986,
March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990,
May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993,
March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993 and September
30, 1993 (said mortgage and deed of trust, as so amended, being herein called
the "Amended Indenture") and all indentures supplemental thereto, to which
Amended Indenture and supplemental indentures reference is hereby made for a
description of the properties mortgaged and pledged, the nature and extent of
the security, the rights of the owners of the Bonds and of the Trustee in re-
spect thereto, and the terms and conditions upon which the
<PAGE>
10
Bonds are, and are to be, secured. To the extent permitted by, and as provided
in, the Amended Indenture, modifications or alterations of the Amended Inden-
ture, or of any indenture supplemental thereto, and of the rights and obliga-
tions of the Company and of the holders of the Bonds may be made with the con-
sent of the Company by an affirmative vote of not less than 80% in amount of
the Bonds entitled to vote then outstanding, at a meeting of Bondholders
called and held as provided in the Amended Indenture, and by an affirmative
vote of not less than 80% in amount of the Bonds of any series entitled to
vote then outstanding and affected by such modification or alteration, in case
one or more but less than all of the series of Bonds then outstanding under
the Amended Indenture are so affected; provided, however, that no such modifi-
cation or alteration shall be made which will affect the terms of payment of
the principal of, or interest on, this Bond, which are unconditional, or which
reduces the percentage of Bonds the affirmative vote of which is required for
the making of such modifications or alterations. The Company is proposing an
amendment to the Amended Indenture which would replace "80%" with "60%" in the
preceding sentence, which amendment will become effective upon the consent or
agreement thereto of the holders of all the outstanding Bonds. The holder of
this Bond will be deemed to have approved such amendment. The Bonds may be is-
sued in series, for various principal sums, may mature at different times, may
bear interest at different rates and may otherwise vary as in the Amended In-
denture provided.
This Bond is one of a series designated as the "First Mortgage Bonds, 6 7/8%
Series due 2024" (herein called the "Bonds of 2024 Series") of the Company,
issued under and secured by the Amended Indenture and all indentures supple-
mental thereto and described in the indenture (herein called the "New Supple-
mental Indenture"), dated as of October 1, 1993, between the Company and the
Trustee, supplemental to the Amended Indenture.
The Bonds of 2024 Series are subject to redemption, at any time or from time
to time after October 14, 2003 and prior to maturity, at the option of the
Company, either as a whole or in part by lot, upon payment of the redemption
prices applicable to the respective period set forth below, together, in each
case, with accrued interest to the redemption
<PAGE>
11
date, all subject to the conditions and as more fully set forth in the Amended
Indenture and the New Supplemental Indenture:
<TABLE>
<CAPTION>
REDEMPTION PRICE
IF REDEEMED EXPRESSED AS
DURING THE PERCENTAGE OF
12 MONTH PERIOD THE PRINCIPAL
ENDING OCTOBER 14 AMOUNT OF BONDS
- ----------------- ----------------
<S> <C>
2004............. 103.10%
2005............. 102.79
2006............. 102.48
2007............. 102.17
2008............. 101.86
2009............. 101.55
</TABLE>
<TABLE>
<CAPTION>
REDEMPTION PRICE
IF REDEEMED EXPRESSED AS
DURING THE PERCENTAGE OF
12 MONTH PERIOD THE PRINCIPAL
ENDING OCTOBER 14 AMOUNT OF BONDS
----------------- ----------------
<S> <C>
2010.................... 101.24%
2011.................... 100.93
2012.................... 100.62
2013.................... 100.31
2014 and thereafter..... 100.00
</TABLE>
Notice of any redemption shall be sent by the Company through the mails,
postage prepaid, at least thirty days and not more than sixty days prior to
the redemption date, to the registered owners of any of the Bonds to be re-
deemed, at their addresses as the same shall appear on the transfer register
of the Company, all subject to the conditions and as more fully set forth in
the Amended Indenture and New Supplemental Indenture. Any notice so mailed
shall be conclusively presumed to have been duly given, whether or not the
owner receives it.
In case an event of default, as defined in the Amended Indenture, shall oc-
cur, the principal of all the Bonds at any such time outstanding under the
Amended Indenture may be declared or may become due and payable, upon the con-
ditions and in the manner and with the effect provided in the Amended Inden-
ture. The Amended Indenture provides that such declaration may in certain
events be waived by the holders of a majority in principal amount of the Bonds
entitled to vote then outstanding.
This Bond is transferable by the registered owner hereof, in person or by
duly authorized attorney, on the books of the Company to be kept for that pur-
pose at the agency of the Company in the City of Washington, D.C., or at the
agency of the Company in the Borough of Manhattan, The City of New York, upon
surrender and cancellation of this Bond and on presentation of a duly executed
written instrument of transfer, and thereupon a new Bond or Bonds of the same
series, of the same aggregate principal amount and in authorized denominations
will be issued to the transferee or transferees in exchange therefor; and this
Bond, with or without others of the same series, may in like manner be ex-
changed
<PAGE>
12
for one or more new Bonds of the same series of other authorized denominations
but of the same aggregate principal amount; all subject to the terms and con-
ditions set forth in the Amended Indenture.
No recourse shall be had for the payment of the principal of, or the interest
on, this Bond, or for any claim based hereon or otherwise in respect hereof or
of the Amended Indenture or any indenture supplemental thereto, against any
incorporator, or against any stockholder, director or officer, past, present
or future, of the Company or of any predecessor or successor corporation, ei-
ther directly or through the Company or any such predecessor or successor cor-
poration, whether for amounts unpaid on stock subscriptions or by virtue of
any constitution, statute or rule of law, or by the enforcement of any assess-
ment or penalty or otherwise, all such liability, whether at common law, in
equity, by any constitution, statute or otherwise, of incorporators, stock-
holders, directors or officers being released by every owner hereof by the ac-
ceptance of this Bond and as part of the consideration for the issue hereof,
and being likewise released by the terms of the Amended Indenture.
Section 3. The Bonds of 2024 Series shall be registered Bonds without coupons
in denominations of any multiple of $1,000, numbered consecutively upwards
from R1.
Section 4. Until Bonds of 2024 Series in definitive form are ready for deliv-
ery, the Company may execute, and upon its request in writing the Trustee
shall authenticate and deliver, in lieu thereof, Bonds for such series in tem-
porary form, as provided in Section 9 of Article II of the Original Indenture
as amended.
PART II.
Issue of Bonds.
Section 1. Except for Bonds of 2024 Series issued pursuant to Section 13 of
Article II of the Original Indenture as amended, the principal amount of Bonds
of 2024 Series which may be authenticated and delivered hereunder is limited
to $75,000,000 aggregate principal amount.
<PAGE>
13
Section 2. Bonds of 2024 Series in the aggregate principal amount permitted
in Section 1 of this Part II, may at any time subsequent to the execution
hereof be executed by the Company and delivered to the Trustee and shall be
authenticated by the Trustee and delivered (either before or after the record-
ing hereof) to or upon the order of the Company evidenced by a writing or
writings, signed by its President or one of its Vice Presidents and its Trea-
surer or one of its Assistant Treasurers, at such time or times as may be re-
quested by the Company subsequent to the receipt by the Trustee of
(1) the certified resolution and the officers' certificate required by Sec-
tion 3(a) and Section 3(b) of Article III of the Original Indenture as
amended;
(2) the opinion of counsel required by Section 3(c) of Article III of the
Original Indenture as amended;
(3) cash, if any, in the amount required to be deposited by Section 3(d) of
Article III of the Original Indenture as amended, which shall be held and
applied by the Trustee as provided in said Section 3(d);
(4) the certificates, instruments, opinions of counsel, prior lien bonds
and cash, if any, required by Section 4 of Article III of the Original In-
denture as amended, except that, as required by Part IV of this Supplemental
Indenture, property additions purchased, constructed or otherwise acquired
on or before December 31, 1946 shall not be made the basis for the authenti-
cation and delivery of Bonds of 2024 Series; and
(5) the certificates and opinions required by Article XVIII of the Original
Indenture as amended.
PART III.
Redemption.
Section 1. The Bonds of 2024 Series are not redeemable up to and including
October 14, 2003. The Bonds of 2024 Series shall, in accordance with the pro-
visions of Article V of the Original Indenture as amended, be redeemable, at
any time or from time to time after October 14, 2003 and prior to maturity, at
the option of the Board of Directors of the
<PAGE>
14
Company, either as a whole or in part by lot, upon payment of the redemption
prices applicable to the respective periods set forth in the form of Bond of
2024 Series contained in Section 2 of Part I hereof, together, in each case,
with accrued interest to the redemption date.
Section 2. In accordance with the provisions of Article V of the Original In-
denture as amended, notice of any redemption shall be sent by the Company
through the mails, postage prepaid, at least thirty days and not more than
sixty days prior to the date of redemption, to the registered owners of any of
the Bonds to be redeemed at their addresses as the same shall appear on the
transfer register of the Company. Any notice so mailed shall be conclusively
presumed to have been duly given, whether or not the owner receives it.
All Bonds delivered to or redeemed by the Trustee pursuant to the provisions
of this Part III shall forthwith be cancelled.
PART IV.
Additional Particular Covenants of the Company.
The Company hereby covenants, warrants and agrees that so long as any Bonds
of 2024 Series are outstanding:
Section 1. The Company will not withdraw, pursuant to the provisions of Sec-
tion 2 of Article VIII of the Original Indenture as amended, any moneys held
by the Trustee as part of the trust estate in excess of an amount equal to the
aggregate principal amount of such of the refundable Bonds as were theretofore
issued by the Company; and that upon any such withdrawal by the Company re-
fundable Bonds equal in aggregate principal amount to the amount so withdrawn
shall be deemed to have been made the basis of such withdrawal.
Section 2. Property additions purchased, constructed or otherwise acquired on
or before December 31, 1946 shall not be made the basis for the authentication
and delivery of Bonds, or the withdrawal of cash, or the reduction of the
amount of cash required to be paid to the Trustee under any provision of the
Indenture.
<PAGE>
15
PART V.
Amendment of Indenture to Permit Qualification
Under Trust Indenture Act of 1939.
The Company and the Trustee, from time to time and at any time, without any
vote or consent of the holders of the Bonds of 2024 Series, may enter into
such indentures supplemental to the Original Indenture as may or shall by them
be deemed necessary or desirable to add to or modify or amend any of the pro-
visions of the Original Indenture so as to permit the qualification of the
Original Indenture under the Trust Indenture Act of 1939.
Except to the extent specifically provided herein, no provision of this Sup-
plemental Indenture is intended to modify, and the parties hereto do hereby
adopt and confirm, the provisions of Section 318(c) of the Trust Indenture Act
of 1939 which amend and supersede provisions of the Original Indenture, as
supplemented, in effect prior to November 15, 1990.
PART VI.
Amendment of Original Indenture.
Notwithstanding any other provisions of the Original Indenture as amended,
the holders of the Bonds of 2024 Series, by their holding of such Bonds, are
deemed to have approved the following amendment to the Original Indenture as
amended and to have authorized the Trustee to take any action necessary to ev-
idence or effectuate such approval:
Sections 5 and 6 of Article XV of the Original Indenture as amended are
hereby amended by changing the words and figures "eighty percent. (80%)" to
the words and figures "sixty percent. (60%)" wherever in such Sections such
words and figures occur.
PART VII.
The Trustee.
The Trustee hereby accepts the trusts hereby declared and provided and agrees
to perform the same upon the terms and conditions in the
<PAGE>
16
Original Indenture as amended set forth and upon the following terms and con-
ditions:
The Trustee shall not be responsible in any manner whatsoever for or in re-
spect of the validity or sufficiency of this Supplemental Indenture or the due
execution hereof by the Company or for or in respect of the recitals contained
herein, all of which recitals are made by the Company solely. In general, each
and every term and condition contained in Article XIII of the Original Inden-
ture as amended shall apply to this Supplemental Indenture with the same force
and effect as if the same were herein set forth in full, with such omissions,
variations and modifications thereof as may be appropriate to make the same
conform to this Supplemental Indenture.
PART VIII.
Miscellaneous Provisions.
This Supplemental Indenture may be simultaneously executed in any number of
counterparts, each of which when so executed shall be deemed to be an origi-
nal; but such counterparts shall together constitute but one and the same in-
strument.
Potomac Electric Power Company hereby constitutes and appoints William R.
Gee, Jr., one of its Vice Presidents, to be its true and lawful attorney-in-
fact, for it and in its name to appear before any officer authorized by law to
take and certify acknowledgments of deeds to be recorded in the District of
Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in
the Commonwealth of Pennsylvania and to acknowledge and deliver these presents
as the act and deed of said Potomac Electric Power Company.
The Riggs National Bank of Washington, D.C., hereby constitutes and appoints
Alexander C. Baker, one of its Senior Vice Presidents, to be its true and law-
ful attorney-in-fact, for it and in its name to appear before any officer au-
thorized by law to take and certify acknowledgments of deeds to be recorded in
the District of Columbia, in the State of Maryland, in the Commonwealth of
Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and de-
liver these presents as the act and deed of said The Riggs National Bank of
Washington, D.C.
<PAGE>
17
In Witness Whereof, said Potomac Electric Power Company has caused this Sup-
plemental Indenture to be executed on its behalf by its President or one of
its Vice Presidents and its corporate seal to be hereto affixed and said seal
and this Supplemental Indenture to be attested by its Secretary or one of its
Assistant Secretaries; and said The Riggs National Bank of Washington, D.C.,
in evidence of its acceptance of the trust hereby created, has caused this
Supplemental Indenture to be executed on its behalf by its President or one of
its Senior Vice Presidents, and its corporate seal to be hereto affixed and
said seal and this Supplemental Indenture to be attested by one of its Corpo-
rate Trust Officers, all as of the 1st day of October, One thousand nine hun-
dred and ninety-three.
Potomac Electric Power Company
(Corporate Seal)
By.........................................
WILLIAM R. GEE, JR.,
Vice President
Attested:
...................................
MARY T. HOWARD,
Assistant Secretary
Signed, sealed and delivered by
Potomac Electric Power Company
in the presence of:
...................................
...................................
As Witnesses
The Riggs National Bank of
Washington, D.C.
(Corporate Seal)
By..........................................
ALEXANDER C. BAKER,
Senior Vice President
Attested:
...................................
BEVERLY MOFFETT,
Senior Corporate Trust Officer
Signed, sealed and delivered by
The Riggs National Bank of Wash-
ington, D.C. in the presence of:
...................................
...................................
As Witnesses
<PAGE>
18
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, whose commission as such will expire , do hereby certify
that William R. Gee, Jr. and Mary T. Howard, whose names as Vice President and
Assistant Secretary, respectively, of Potomac Electric Power Company, a corpo-
ration, are signed to the foregoing and hereto attached deed, bearing date as
of the 1st day of October, 1993, personally appeared this day before me in my
District aforesaid and acknowledged themselves to be, respectively, a Vice
President and an Assistant Secretary of Potomac Electric Power Company, and
that they as such, being authorized so to do, executed the said deed by sign-
ing the name of Potomac Electric Power Company by William R. Gee, Jr., as Vice
President, and attested by Mary T. Howard, as Assistant Secretary, and ac-
knowledged the same before me in my District aforesaid and acknowledged the
foregoing instrument to be the act and deed of Potomac Electric Power Company.
Given under my hand and official seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
<PAGE>
19
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that William R. Gee, Jr., a Vice Presi-
dent of Potomac Electric Power Company, a corporation, one of the parties to
the foregoing instrument bearing date as of the 1st day of October, 1993, and
hereto annexed, this day personally appeared before me in the City of Washing-
ton, the said William R. Gee, Jr. being personally well known to me as the
person who executed the said instrument as a Vice President of and on behalf
of said Potomac Electric Power Company and known to me to be the attorney-in-
fact duly appointed therein to acknowledge and deliver said instrument on be-
half of said corporation, and, as such attorney-in-fact, he acknowledged said
instrument to be the act and deed of said Potomac Electric Power Company, and
delivered the same as such. I further certify that the said William R. Gee,
Jr., being by me duly sworn, did depose and say that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal
and was so affixed by order of the Board of Directors of said corporation; and
that he signed his name thereto by like order. My commission expires
Given under my hand and official seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
<PAGE>
20
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United States
of America, do hereby certify that Alexander C. Baker and Beverly Moffett,
whose names as Senior Vice President and Senior Corporate Trust Officer, re-
spectively, of The Riggs National Bank of Washington, D.C., a corporation, are
signed to the foregoing and hereto attached deed, bearing date as of the 1st
day of October, 1993, personally appeared before me this day in my District
aforesaid and acknowledged themselves to be, respectively, a Senior Vice Pres-
ident and a Senior Corporate Trust Officer of The Riggs National Bank of Wash-
ington, D.C., and that they as such, being authorized so to do, executed the
said deed by signing the name of The Riggs National Bank of Washington, D.C.,
by Alexander C. Baker as Senior Vice President, and attested by Beverly
Moffett, as Senior Corporate Trust Officer, and acknowledged the same before
me in my District aforesaid and acknowledged the foregoing instrument to be
the act and deed of The Riggs National Bank of Washington, D.C., as therein
set forth.
Given under my hand and notarial seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
My Commission Expires .
<PAGE>
21
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
Alexander C. Baker, of full age, being sworn according to law, on his oath
deposes and says that he is a Senior Vice President of The Riggs National Bank
of Washington, D.C., the Trustee named in the foregoing Supplemental Inden-
ture, dated as of the 1st day of October, 1993, that he is the agent of said
Trustee for the purpose of perfecting such Supplemental Indenture and that the
consideration in the Original Indenture referred to therein and in all inden-
tures supplemental to said Original Indenture, including the foregoing Supple-
mental Indenture, is true and bona fide as therein set forth.
............................................
Alexander C. Baker
Subscribed and sworn to before me
this day of October, 1993.
...................................
Notary Public
District of Columbia
My Commission Expires
(Notarial Seal)
<PAGE>
22
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that Alexander C. Baker a Senior Vice
President of The Riggs National Bank of Washington, D.C., a corporation, one
of the parties to the foregoing instrument bearing date as of the 1st day of
October, 1993, and hereto annexed, this day personally appeared before me in
the City of Washington, the said Alexander C. Baker, being personally well
known to me as the person who executed the said instrument as a Senior Vice
President of and on behalf of said The Riggs National Bank of Washington,
D.C., and known to me to be the attorney-in-fact duly appointed therein to ac-
knowledge and deliver said instrument on behalf of said corporation, and, as
such attorney-in-fact, he acknowledged said instrument to be the act and deed
of said The Riggs National Bank of Washington, D.C., and delivered the same as
such. I further certify that the said Alexander C. Baker, being by me duly
sworn, did depose and say that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal and was so affixed by
order of the Board of Directors of said corporation; and that he signed his
name thereto by like order.
Given under my hand and official seal this day of October, 1993.
(Notarial Seal)
............................................
Notary Public
District of Columbia
My Commission Expires
<PAGE>
23
CERTIFICATE OF RESIDENCE
The Riggs National Bank of Washington, D.C., Mortgagee and Trustee within
named, hereby certifies that its precise residence is 800-17th Street, N.W.,
Washington, D.C. 20006.
The Riggs National Bank of
Washington, D.C.
By..........................................
Alexander C. Baker,
Senior Vice President
================================================================================
POTOMAC ELECTRIC POWER COMPANY
1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C.
TO
THE RIGGS NATIONAL BANK
OF WASHINGTON, D.C.
800-17TH STREET, N.W., WASHINGTON, D.C.
AS TRUSTEE
------------------
Supplemental Indenture
DATED AS OF FEBRUARY 10, 1994
------------------
SUPPLEMENTAL TO MORTGAGE AND DEED OF TRUST
DATED JULY 1, 1936
------------------
FIRST MORTGAGE BONDS, 5 3/8% SERIES DUE 2024
================================================================================
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
SUPPLEMENTAL INDENTURE DATED AS OF FEBRUARY 10, 1994
TABLE OF CONTENTS*
------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Parties.................................................................. 1
Recitals................................................................. 1
<CAPTION>
PART I
Definitions
<S> <C>
Facilities............................................................... 6
Loan Agreement........................................................... 6
Pollution Control Bond Indenture......................................... 6
Pollution Control Bonds.................................................. 7
Pollution Control Bond Trustee........................................... 7
<CAPTION>
PART II
Description of Bonds of 2024 Series
<S> <C>
Section 1. General description of Bonds of 2024 Series.................. 7
Section 2. Denominations of Bonds....................................... 8
Section 3. Form of Bond................................................. 8
Form of Trustee's Certificate................................ 16
<CAPTION>
PART III
Issue of Bonds of 2024 Series
<S> <C>
Section 1. Limitation as to principal amount............................ 17
Section 2. Issue of $42,500,000 principal amount of Bonds of
2024 Series................................................. 17
<CAPTION>
PART IV
Redemption
<S> <C> <C>
Section 1. Bonds of 2024 Series redeemable.............................. 18
Section 2. Bonds of 2024 Series redeemable in certain events............ 18
Section 3. Bonds of 2024 Series subject to mandatory redemption in cer-
tain events................................................. 18
Section 4. Notice of redemption......................................... 19
</TABLE>
- ---------
* The Table of Contents is not part of the Supplemental Indenture and should
not be considered as such. It is included herein only for purposes of
convenient reference.
<PAGE>
ii
<TABLE>
<CAPTION>
PAGE
----
PART V
<S> <C>
Amendment of Indenture to Permit Qualification under Trust Indenture Act
of 1939................................................................ 19
<CAPTION>
PART VI
<S> <C>
Amendment of Original Indenture.......................................... 20
<CAPTION>
PART VII
Additional Particular Covenants of the Company
<S> <C>
Section 1. Company not to withdraw money pursuant to Section 2 of Arti-
cle VIII in excess of an amount equal to principal amount
of issued refundable Bonds................................. 20
Section 2. No property additions made prior to December 31, 1946 to be
used for any purpose under the Indenture................... 20
<CAPTION>
PART VIII
The Trustee
<S> <C>
Acceptance of trusts by the Trustee...................................... 21
Trustee not responsible for validity of the Supplemental Indenture....... 21
<CAPTION>
PART IX
Miscellaneous Provisions
<S> <C>
Payments due on non-business days........................................ 21
Credits on First Mortgage Bonds.......................................... 21
Execution of Supplemental Indenture in counterparts...................... 22
Appointment of attorneys-in-fact by parties.............................. 22
Testimonium.............................................................. 22
Execution................................................................ 23
Company's Acknowledgments................................................ 24
Trustee's Acknowledgments................................................ 26
</TABLE>
<PAGE>
SUPPLEMENTAL INDENTURE, dated as of the tenth day of February, nineteen hun-
dred and ninety-four (1994), made by and between Potomac Electric Power Compa-
ny, a corporation organized and existing under the laws of the District of Co-
lumbia and a domestic corporation of the Commonwealth of Virginia (hereinafter
sometimes called the "Company"), party of the first part, and The Riggs Na-
tional Bank of Washington, D.C., a national banking association organized and
existing under the laws of the United States of America (hereinafter sometimes
called the "Trustee"), as Trustee under the Mortgage and Deed of Trust dated
July 1, 1936, hereinafter mentioned, party of the second part;
Whereas, The Company has heretofore executed and delivered its Mortgage and
Deed of Trust, dated July 1, 1936 (hereinafter sometimes referred to as the
"Original Indenture"), to the Trustee, to secure an issue of First Mortgage
Bonds of the Company, issuable in series; and
Whereas, pursuant to the terms and provisions of the Original Indenture, in-
dentures supplemental thereto dated as of July 1, 1936, December 1, 1939, Au-
gust 1, 1940, August 1, 1942, January 1, 1948, May 1, 1949, May 1, 1950, March
1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, December 1, 1958, November
16, 1959, December 1, 1960, February 15, 1963, May 15, 1964, April 1, 1966,
May 1, 1967, February 15, 1968, March 15, 1969, February 15, 1970, August 15,
1970, September 15, 1972, April 1, 1973, January 2, 1974, August 15, 1974, Au-
gust 15, 1974, June 15, 1977, July 1, 1979, June 16, 1981, June 17, 1981, De-
cember 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1,
1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May
1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September
1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August
20, 1993, September 29, 1993, September 30, 1993 and October 1, 1993 have been
heretofore entered into between the Company and the Trustee to provide, re-
spectively, for the creation of the first through the fifty-sixth series of
Bonds thereunder and, in the case of the supplemental indentures dated January
1, 1948, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, September
15, 1972, July 1, 1979, June 17, 1981, November 1, 1985, September 16, 1987,
May 1, 1989, May 21, 1991, May 7, 1992, July 1, 1993 and one of the supplemen-
tal indentures dated August 15, 1974, to convey additional property; and
<PAGE>
2
Whereas, $20,000,000 principal amount of Bonds of the 3 1/4% Series due 1966
(the first series), $5,000,000 principal amount of Bonds of the 3 1/4% Series
due 1974 (the second series), $10,000,000 principal amount of Bonds of the 3
1/4% Series due 1975 (the third series), $5,000,000 principal amount of Bonds
of the 3 1/4% Series due 1977 (the fourth series), $15,000,000 principal
amount of Bonds of the 3% Series due 1983 (the fifth series), $10,000,000
principal amount of Bonds of the 2 7/8% Series due 1984 (the sixth series),
$30,000,000 principal amount of Bonds of the 2 3/4% Series due 1985 (the sev-
enth series), $15,000,000 principal amount of Bonds of the 3 1/4% Series due
1987 (the eighth series), $10,000,000 principal amount of Bonds of the 3 7/8%
Series due 1988 (the ninth series), $10,000,000 principal amount of Bonds of
the 3 3/8% Series due 1990 (the tenth series), $10,000,000 principal amount of
Bonds of the 3 5/8% Series due 1991 (the eleventh series), $25,000,000 princi-
pal amount of Bonds of the 4 5/8% Series due 1993 (the twelfth series),
$45,000,000 principal amount of Bonds of the 7 3/4% Series due 2004 (the twen-
tieth series), $35,000,000 principal amount of Bonds of the 8.85% Series due
2005 (the twenty-first series), $70,000,000 principal amount of Bonds of the 9
1/2% Series due August 15, 2005 (the twenty-second series), $50,000,000 prin-
cipal amount of Bonds of the 7 3/4% Series due 2007 (the twenty-third series),
$7,000,000 principal amount of Bonds of the 5 5/8% Series due 1997 (the twen-
ty-fourth series), $100,000,000 principal amount of Bonds of the 8 3/8% Series
due 2009 (the twenty-fifth series), $50,000,000 principal amount of Bonds of
the 10 1/4% Series due 1981 (the twenty-sixth series), $50,000,000 principal
amount of Bonds of the 10 3/4% Series due 2004 (the twenty-seventh series),
$30,000,000 principal amount of Bonds of the Floating Rate Series due 2010
(the thirty-second series), $50,000,000 principal amount of Bonds of the 14
1/2% Series due 1991 (the thirty-third series), $60,000,000 principal amount
of Bonds of the 14 1/4% Series due 1992 (the thirty-fifth series), $50,000,000
principal amount of Bonds of the 11 7/8% Series due 1989 (the thirty-sixth se-
ries), $37,000,000 principal amount of Bonds of the 8 3/4% Series due 2010
(the thirty-seventh series), $75,000,000 principal amount of Bonds of the 11
1/4% Series due 2015 (the thirty-eighth series), $75,000,000 principal amount
of Bonds of the 9 1/4% Series due 2016 (the thirty-ninth series), $75,000,000
principal amount of Bonds of the 8 3/4% Series due 2016 (the fortieth series),
$75,000,000 principal amount of Bonds of the 8 1/4% Series due 2017 (the for-
ty-first
<PAGE>
3
series), $75,000,000 principal amount of Bonds of the 9% Series due 1990 (the
forty-second series), $32,000,000 principal amount of Bonds of the 9 3/4% Se-
ries due 2019 (the forty-third series) and $12,000,000 principal amount of
Bonds of the 8 5/8% Series due 2019 (the forty-fourth series) have been here-
tofore redeemed and retired and there are now issued and outstanding under the
Original Indenture and under the supplemental indentures referred to above:
$15,000,000 principal amount of Bonds of the 5 1/4% Series due 1994 (the thir-
teenth series); $40,000,000 principal amount of Bonds of the 5% Series due
1995 (the fourteenth series); $50,000,000 principal amount of Bonds of the 4
3/8% Series due 1998 (the fifteenth series); $45,000,000 principal amount of
Bonds of the 4 1/2% Series due 1999 (the sixteenth series); $15,000,000 prin-
cipal amount of Bonds of the 5 1/8% Series due 2001 (the seventeenth series);
$35,000,000 principal amount of Bonds of the 5 7/8% Series due 2002 (the eigh-
teenth series); $40,000,000 principal amount of Bonds of the 6 5/8% Series due
2003 (the nineteenth series); $18,000,000 principal amount of Bonds of the 5
5/8% Series due 1997 (the twenty-fourth series); $38,300,000 principal amount
of Bonds of the 6 1/8% Series due 2007 (the twenty-eighth series); $15,000,000
principal amount of Bonds of the 6 1/2% Series due 2004 (the twenty-ninth se-
ries); $20,000,000 principal amount of Bonds of the 6 1/2% Series due 2007
(the thirtieth series); $7,500,000 principal amount of Bonds of the 6 5/8% Se-
ries due 2009 (the thirty-first series); $50,000,000 principal amount of Bonds
of the Adjustable Rate Series due 2001 (the thirty-fourth series); $43,000,000
principal amount of Bonds of the 9 3/4% Series due 2019 (the forty-third se-
ries); $63,000,000 principal amount of Bonds of the 8 5/8% Series due 2019
(the forty-fourth series); $100,000,000 principal amount of Bonds of the 9%
Series due 2000 (the forty-fifth series); $100,000,000 principal amount of
Bonds of the 9% Series due 2021 (the forty-sixth series); $75,000,000 princi-
pal amount of Bonds of the 8 1/2% Series due 2027 (the forty-seventh series);
$30,000,000 principal amount of Bonds of the 6% Series due 2022 (the forty-
eighth series); $37,000,000 principal amount of Bonds of the 6 3/8% Series due
2023 (the forty-ninth series); $78,000,000 principal amount of Bonds of the 6
1/2% Series due 2008 (the fiftieth series); $40,000,000 principal amount of
Bonds of the 7 1/2% Series due 2028 (the fifty-first series); $100,000,000
principal amount of Bonds of the 7 1/4% Series due 2023 (the fifty-second se-
ries); $100,000,000 principal amount of Bonds of the 6 7/8% Series due
<PAGE>
4
2023 (the fifty-third series); $50,000,000 principal amount of Bonds of the 5
5/8% Series due 2003 (the fifty-fourth series); $50,000,000 principal amount
of Bonds of the 5 7/8% Series due 2008 (the fifty-fifth series); and
$75,000,000 principal amount of Bonds of the 6 7/8% Series due 2024 (the fif-
ty-sixth series); and
Whereas, for the purpose of conforming the Original Indenture to the stan-
dards prescribed by the Trust Indenture Act of 1939 or otherwise modifying
certain of the provisions of the Original Indenture, indentures supplemental
thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1,
1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October
1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986,
March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990,
May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993,
March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993, September
30, 1993 and October 1, 1993 have been heretofore entered into between the
Company and the Trustee, and for the purpose of conveying additional property,
indentures supplemental thereto dated July 15, 1942, October 15, 1947, Decem-
ber 31, 1948, December 31, 1949, February 15, 1951, February 16, 1953, March
15, 1954, March 15, 1955, March 15, 1956, April 1, 1957, May 1, 1958, May 1,
1959, May 2, 1960, April 3, 1961, May 1, 1962, May 1, 1963, April 23, 1964,
May 3, 1965, June 1, 1966, April 28, 1967, July 3, 1967, May 1, 1968, June 16,
1969, May 15, 1970, September 1, 1971, June 17, 1981, November 1, 1985, Sep-
tember 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992 and July 1, 1993 have
been heretofore entered into between the Company and the Trustee, and for the
purpose of better securing and protecting the Bonds then or thereafter issued
and confirming the lien of the Original Indenture, an indenture dated October
15, 1942 supplemental thereto has been heretofore entered into between the
Company and the Trustee; the Original Indenture as heretofore amended and sup-
plemented being hereinafter referred to as the "Original Indenture as amend-
ed"; and
Whereas, the Company proposes to enter into a Loan Agreement (hereinafter de-
fined) with Montgomery County, Maryland, a political subdivision of the State
of Maryland (hereinafter called the "County"), to refinance a portion of the
cost of the acquisition of the Facilities
<PAGE>
5
(hereinafter defined) at the Company's Dickerson Generating Station in Mary-
land (hereinafter called the "Plant"); and
Whereas, the County proposes to issue its Pollution Control Bonds (hereinaf-
ter defined) in the principal amount of $42,500,000; and
Whereas, the Company is entitled to have authenticated and delivered addi-
tional Bonds on the basis of the net bondable value of property additions,
upon compliance with the provisions of Section 4 of Article III of the Origi-
nal Indenture as amended; and
Whereas, the Company has determined to issue to the Pollution Control Bond
Trustee (hereinafter defined), as assignee of the County, pursuant to and as
security for the Loan Agreement, a fifty-seventh series of Bonds under the
Original Indenture as amended in the principal amount of $42,500,000, to be
known as First Mortgage Bonds, 5 3/8% Series due 2024 (hereinafter called
"Bonds of 2024 Series"); and
Whereas, the Original Indenture as amended provides that certain terms and
provisions, as determined by the Board of Directors of the Company, of the
Bonds of any particular series may be expressed in and provided by the execu-
tion of an appropriate supplemental indenture; and
Whereas, the Original Indenture as amended provides that the Company and the
Trustee may enter into indentures supplemental thereto to add to the covenants
and agreements of the Company contained therein other covenants and agreements
thereafter to be observed; and to surrender any right or power reserved to or
conferred upon the Company in the Original Indenture as amended; and
Whereas, the Company, in the exercise of the powers and authority conferred
upon and reserved to it under the provisions of the Original Indenture as
amended and pursuant to appropriate resolutions of its Board of Directors, has
duly resolved and determined to make, execute and deliver to the Trustee a
Supplemental Indenture in the form hereof for the purposes herein provided;
and
Whereas, all conditions and requirements necessary to make this Supplemental
Indenture a valid, binding and legal instrument have been done, performed and
fulfilled, and the execution and delivery hereof have been in all respects
duly authorized;
<PAGE>
6
Now, Therefore, This Indenture Witnesseth:
That Potomac Electric Power Company, in consideration of the premises and of
One Dollar to it duly paid by the Trustee at or before the ensealing and de-
livery of these presents, and for other valuable considerations, the receipt
whereof is hereby acknowledged, hereby covenants, declares and agrees with the
Trustee and its successors in the trust under the Original Indenture as amend-
ed, for the benefit of those who hold the Bonds, or any of them, issued or to
be issued hereunder or under the Original Indenture as amended, as follows:
PART I.
Definitions.
The terms defined in this Part I shall, for all purposes of this Supplemental
Indenture, have the meanings herein specified, unless the context otherwise
requires:
Facilities:
The term "Facilities" shall mean the pollution control project at the Plant,
described in Exhibit A to the Loan Agreement, and related improvements and any
substitutions therefor, acquired by the Company for operation by it as pollu-
tion control facilities.
The terms "acquisition" and "acquired," when used with regard to the Facili-
ties, shall include, without limitation, the construction, installation and
equipping of the Facilities.
Loan Agreement:
The term "Loan Agreement" shall mean the Loan Agreement dated as of February
15, 1994, entered into between the County and the Company, and any and all
modifications, alterations, amendments and supplements thereto.
Pollution Control Bond Indenture:
The term "Pollution Control Bond Indenture" shall mean the Indenture of
Trust, dated as of February 15, 1994, between the County and
<PAGE>
7
the Pollution Control Bond Trustee, pursuant to which the Pollution Control
Bonds are issued, and any indenture supplemental thereto.
Pollution Control Bonds:
The term "Pollution Control Bonds" shall mean the Pollution Control Revenue
Refunding Bonds (Potomac Electric Project), 1994 Series of the County authen-
ticated and delivered pursuant to the Pollution Control Bond Indenture. The
term "Pollution Control Bonds, 1994 Series" shall mean the series of Pollution
Control Revenue Refunding Bonds in the aggregate principal amount of
$42,500,000 delivered initially.
Pollution Control Bond Trustee:
The term "Pollution Control Bond Trustee" shall mean Security Trust Company,
N.A., a banking corporation organized under the laws of the State of Maryland,
or its successors, as Trustee under the Pollution Control Bond Indenture.
PART II.
Description of Bonds of 2024 Series.
Section 1. The fifty-seventh series of Bonds to be executed, authenticated
and delivered under and secured by the Original Indenture as amended shall be
Bonds of 2024 Series. The Bonds of 2024 Series shall, subject to the provi-
sions of Section 1 of Article II of the Original Indenture as amended, be des-
ignated as "First Mortgage Bonds, 5 3/8% Series due 2024" of the Company. The
Bonds of 2024 Series shall be executed, authenticated and delivered in accor-
dance with the provisions of, and shall in all respects be subject to, all of
the terms, conditions and covenants of the Original Indenture as amended, ex-
cept in so far as the terms and provisions of the Original Indenture as
amended are amended or modified by this Supplemental Indenture.
The Bonds of 2024 Series shall mature February 15, 2024 and shall bear inter-
est at the rate of five and three-eighths percent (5 3/8%) per annum, payable
semiannually on the fifteenth day of February and the fifteenth day of August
in each year (each such February 15 and
<PAGE>
8
August 15 being hereinafter called an "interest payment date"). The Bonds of
2024 Series shall be payable as to principal and interest in lawful money of
the United States of America in immediately available funds, and shall be pay-
able (the interest as well as the principal thereof) at the address of the
registered owner of such Bonds of 2024 Series appearing on the transfer regis-
ter of the Company.
Every Bond of 2024 Series shall be dated as of the date of its authentication
and delivery, or if that is an interest payment date, the next day, and shall
bear interest from the interest payment date next preceding its date or the
date of delivery of the initial Bonds of 2024 Series, whichever is later.
Section 2. The Bonds of 2024 Series shall be registered Bonds without coupons
of denominations of any integral multiple of $5,000, numbered consecutively
upwards from R1.
Section 3. The Bonds of 2024 Series, and the Trustee's certificate to be en-
dorsed on the Bonds of 2024 Series, shall be substantially in the following
forms, respectively:
[FORM OF BOND]
This Bond is not transferable except as provided in the Pollution Control
Bond Indenture, as defined herein.
POTOMAC ELECTRIC POWER COMPANY
(A District of Columbia and Virginia corporation)
First Mortgage Bond, 5 3/8% Series Due 2024
No. R- $
Potomac Electric Power Company, a corporation organized and existing under
the laws of the District of Columbia and a domestic corporation of the Common-
wealth of Virginia (hereinafter called the "Company", which term shall include
any successor corporation as defined in the Amended Indenture hereinafter re-
ferred to), for value received,
<PAGE>
9
hereby promises to pay to or registered assigns, the sum of
dollars, on the fifteenth day of February, 2024, or on such other date as may
be required herein, in lawful money of the United States of America in immedi-
ately available funds, and to pay interest thereon in like money from the
later of February 15, 1994 or the interest payment date (February 15 or August
15) next preceding the date of this Bond, or if the Company shall default in
the payment of interest due on such interest payment date, then from the next
preceding interest payment date to which interest has been paid or February
15, 1994, whichever is later, at the rate of five and three-eighths percent (5
3/8%) per annum, payable semiannually, on the fifteenth day of February and
the fifteenth day of August in each year until maturity, or, if this Bond
shall be duly called for redemption, until the redemption date, or, if the
Company shall default in the payment of the principal hereof, until the
Company's obligation with respect to the payment of such principal shall be
discharged as provided in the Amended Indenture. The principal of, premium, if
any, and interest on, this Bond are payable at the address of the registered
owner hereof appearing on the transfer register of the Company. To the extent
permitted by law, the Company shall pay interest on any overdue installment of
interest hereunder at the rate of five and three-eighths percent (5 3/8%) per
annum, or at such lesser maximum rate of interest as is permitted by law at
any such time.
This Bond is one of a duly authorized issue of Bonds of the Company (herein-
after called the "Bonds") in unlimited aggregate principal amount of the se-
ries hereinafter specified, all issued and to be issued under and equally se-
cured (except in so far as any purchase or sinking fund or analogous provi-
sions for any particular series of Bonds, established by any indenture supple-
mental to the Amended Indenture hereinafter mentioned, may afford additional
security for such Bonds) by a Mortgage and Deed of Trust, dated July 1, 1936,
executed by the Company to The Riggs National Bank of Washington, D.C. (herein
called the "Trustee"), as trustee, as amended by indentures supplemental
thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1,
1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October
1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986,
March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990,
May 21, 1991, May 7, 1992, September 1, 1992, No-
<PAGE>
10
vember 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993,
September 29, 1993, September 30, 1993 and October 1, 1993 (said Mortgage and
Deed of Trust, as so amended, being herein called the "Amended Indenture") and
all indentures supplemental thereto, to which Amended Indenture and supplemen-
tal indentures reference is hereby made for a description of the properties
mortgaged and pledged, the nature and extent of the security, the rights of
the owners of the Bonds and of the Trustee in respect thereto, and the terms
and conditions upon which the Bonds are, and are to be, secured. To the extent
permitted by, and as provided in, the Amended Indenture, modifications or al-
terations of the Amended Indenture, or of any indenture supplemental thereto,
and of the rights and obligations of the Company and of the holders of the
Bonds may be made with the consent of the Company by an affirmative vote of
not less than 80% in amount of the Bonds entitled to vote then outstanding, at
a meeting of Bondholders called and held as provided in the Amended Indenture,
and by an affirmative vote of not less than 80% in amount of the Bonds of any
series entitled to vote then outstanding and affected by such modification or
alteration, in case one or more but less than all of the series of Bonds then
outstanding under the Amended Indenture are so affected; provided, however,
that no such modification or alteration shall be made which will affect the
terms of payment of the principal of, or premium, if any, or interest on, this
Bond, which are unconditional, or which reduces the percentage of Bonds the
affirmative vote of which is required for the making of such modifications or
alterations. The Company is proposing an amendment to the Amended Indenture
which would replace "80%" with "60%" in the preceding sentence, which amend-
ment will become effective upon the consent or agreement thereto of the hold-
ers of all the outstanding Bonds. The holder of this Bond will be deemed to
have approved such amendment. The Bonds may be issued in series, for various
principal sums, may mature at different times, may bear interest at different
rates and may otherwise vary as in the Amended Indenture provided.
This Bond is one of a series designated as the "First Mortgage Bonds, 5 3/8%
Series due 2024" (herein called the "Bonds of 5 3/8% Series due 2024") of the
Company, limited in aggregate principal amount to $42,500,000, issued under
and secured by the Amended Indenture and all indentures supplemental thereto
and described in the indenture (herein
<PAGE>
11
called the "Supplemental Indenture of February 10, 1994") dated as of February
10, 1994, between the Company and the Trustee, supplemental to the Amended In-
denture. Unless otherwise defined herein, the terms used herein shall have the
same meanings as in the Supplemental Indenture of February 10, 1994.
The Bonds of 5 3/8% Series due 2024 may not be called for redemption by the
Company except as provided herein and in the Supplemental Indenture of Febru-
ary 10, 1994. The Bonds of 5 3/8% Series due 2024 are subject to redemption in
whole, but not in part, at any time, at the option of the Company upon payment
of a redemption price equal to 100% of the principal amount thereof plus ac-
crued interest to the redemption date, without premium, upon the occurrence of
any of the following events:
(a) damage or destruction to the Company's Dickerson Generating Station in
Maryland (the "Plant") or the pollution control project at the Plant (the
"Facilities") to such extent that in the opinion of both the Company's board
of directors (expressed in a resolution) and an architect or engineer ac-
ceptable to Security Trust Company, N.A. (the "Pollution Control Bond Trust-
ee"), as trustee under the Indenture of Trust, dated as of February 15, 1994
(the "Pollution Control Bond Indenture") between Montgomery County, Maryland
(the "County") and the Pollution Control Bond Trustee, both opinions filed
with the County and the Pollution Control Bond Trustee, (1) the Plant or the
Facilities, as the case may be, cannot be reasonably repaired, rebuilt or
restored within a period of six months to its condition immediately preced-
ing such damage or destruction, or (2) the Company is thereby prevented from
carrying on its normal operations at the Plant for a period of six months;
or
(b) loss of title to or use of a substantial part of the Plant or the Fa-
cilities as a result of the exercise of the power of eminent domain if, in
the opinion of both the Company's board of directors (expressed in a resolu-
tion) and an architect or engineer acceptable to the Pollution Control Bond
Trustee, both opinions filed with the County and the Pollution Control Bond
Trustee, the Company is thereby prevented or is likely to be prevented from
carrying on its normal operations therein for a period of six months; or
(c) a change in the Constitution of the State of Maryland or of the United
States of America or legislative or administrative action (whether local,
state or Federal) or a final decree, judgment or order of any court or ad-
ministrative body (whether local, state or Federal)
<PAGE>
12
which causes the Loan Agreement, dated as of February 15, 1994, between the
Company and the County (the "Loan Agreement"), to become void or unenforce-
able or impossible of performance in accordance with the intent and purpose
of the parties as expressed therein or unreasonable burdens or excessive li-
abilities to be imposed upon the County or the Company with respect to the
Plant or the Facilities or the operation thereof, including but not limited
to the imposition of Federal, state or other ad valorem property, income or
other taxes other than ad valorem taxes presently levied upon privately
owned property used for the same general purpose as the Facilities; or
(d) changes in the economic availability of raw materials, operating sup-
plies, energy sources or supplies, or facilities necessary for the operation
of the Facilities for the purposes of pollution control "facilities" as de-
fined in the Maryland Economic Development Revenue Bond Act or necessary for
the operation of the Plant occur or such technological or other changes
which the Company cannot reasonably overcome or control and which in the
reasonable judgment of the Company's board of directors (expressed in a res-
olution) render the Facilities or the Plant uneconomic or obsolete for such
purposes; or
(e) any court or administrative body shall enter a judgment, order or de-
cree, or shall take administrative action, requiring the Company to cease
all or any substantial part of its operation serviced by the Facilities to
the extent the Company is or will be prevented from carrying on its normal
operations at the Plant for a period of six months.
To exercise its option to redeem the Bonds under the foregoing circumstances,
the Company shall, as required under the Pollution Control Bond Indenture,
file the required resolutions and opinions or a certificate, as the case may
be, within nine months after the event permitting its exercise, giving notice
to the County and the Pollution Control Bond Trustee, and shall specify a date
not less than 45 nor more than 90 days thereafter for redemption.
The Bonds of 5 3/8% Series due 2024 are subject to mandatory redemption at
any time as a whole or, as hereinafter provided, in part at 100% of the prin-
cipal amount thereof plus accrued interest to the redemption date, without
premium, in the event that the Pollution Control Bond Trustee shall (a) de-
liver a notification to the Trustee and the Company that it has been finally
determined by the Internal Revenue Service or a court of competent jurisdic-
tion that, as a result of any fact, condition or event constituting a failure
by the Company to observe any covenant or
<PAGE>
13
agreement in the Loan Agreement or contravenes any representation in the Loan
Agreement, the interest payable on the Pollution Control Bonds issued pursuant
to the Pollution Control Bond Indenture is includable for Federal income tax
purposes in the gross income of any holder of a Pollution Control Bond, other
than a holder who is or was a "substantial user" of the Facilities or a "re-
lated person," as provided in Section 147(a) of the Internal Revenue Code of
1986 or any applicable predecessor statutory provisions and (b) in conjunction
therewith, make a demand for such redemption. No such determination will be
considered final for the purpose of any mandatory redemption pursuant to this
paragraph unless the Company shall have been given written notice as provided
in the Pollution Control Bond Indenture and, if it shall have so desired, been
afforded the opportunity to contest the same at its expense, either directly
or in the name of any holder of a Pollution Control Bond, and until conclusion
of any appellate review with respect thereto, if sought. Any such redemption
shall be on any date within 120 days from the time of such final determina-
tion. Upon the finality of such determination, the Bonds of 5 3/8% Series due
2024 shall be redeemed in whole unless, as a result of an opinion rendered by
Bond Counsel (as defined in the Pollution Control Bond Indenture) pursuant to
Section 2.05(c) of the Pollution Control Bond Indenture, the Pollution Control
Bonds shall be redeemed only in part, in which event an equal principal amount
of Bonds of 5 3/8% Series due 2024 shall also be redeemed. If such redemption
shall occur in accordance with the terms hereof, then such failure by the Com-
pany to observe such covenant, agreement or representation in the Loan Agree-
ment shall not in and of itself constitute an Event of Default under the Pol-
lution Control Bond Indenture, the Bonds of 5 3/8% Series due 2024, the
Amended Indenture or the Supplemental Indenture of February 10, 1994.
The Bonds of 5 3/8% Series due 2024 are also subject to mandatory redemption
at any time, as a whole, at 100% of the principal amount thereof plus accrued
interest to the redemption date, without premium, in the event the Trustee
shall receive a written demand (hereinafter called "Default Redemption De-
mand") from the Pollution Control Bond Trustee for redemption stating that the
principal of all Pollution Control Bonds then outstanding under the Pollution
Control Bond Indenture has been declared to be immediately due and payable
pursuant to the provi-
<PAGE>
14
sions of Section 9.01 thereof. The Trustee shall within 10 days of receiving
the Default Redemption Demand mail a copy to the Company stamped or otherwise
marked to show the date of receipt by the Trustee. The Company shall fix a re-
demption date and shall mail the Trustee notice of such selection at least 15
days prior to the date so selected. Such redemption date may be any day not
more than 60 days after the receipt of the Default Redemption Demand by the
Trustee. If the Trustee does not receive notice of such selection by the Com-
pany within 45 days after the Default Redemption Demand was received by the
Trustee, then the redemption date shall be the 60th day after such receipt.
The Trustee shall mail notice of the redemption date (hereinafter called the
"Default Redemption Notice") to the Pollution Control Bond Trustee not more
than 10 nor less than 5 days prior to the date fixed for redemption. The
Trustee shall not mail any Default Redemption Notice (and no such redemption
shall be made) if the Trustee receives a written cancellation of the Default
Redemption Demand from the Pollution Control Bond Trustee prior to the mailing
of the Default Redemption Notice. Notwithstanding any other provision con-
tained in this Bond, the Supplemental Indenture dated as of February 10, 1994,
or the Amended Indenture, the holder of this Bond by the acceptance of such
Bond hereby waives any longer notice of redemption.
The Bonds of 5 3/8% Series due 2024 are subject to redemption by the Company
prior to maturity in whole, or in part, at any time, on or after February 15,
2004, upon payment of the following redemption prices (expressed as a percent-
age of principal amount of Bonds to be redeemed) plus accrued interest to the
redemption date:
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION
(DATES INCLUSIVE) PRICE
----------------- ----------
<S> <C>
February 15, 2004 through February 14, 2005....................... 102%
February 15, 2005 through February 14, 2006....................... 101%
February 15, 2006 and thereafter.................................. 100%
</TABLE>
Any such redemption shall be subject to the conditions and as more fully set
forth in the Amended Indenture and Supplemental Indenture of February 10,
1994. Notice of any such redemption (other than a redemption in the event of a
Default Redemption Demand) shall be delivered at least forty-five days and not
more than sixty days prior to the redemption date, to the registered owner of
the Bonds, at its address as
<PAGE>
15
the same shall appear on the transfer register of the Company, all subject to
the conditions and as more fully set forth in the Amended Indenture and the
Supplemental Indenture of February 10, 1994; provided, however, that such
prior notice shall be deemed to have been duly given with respect to all or
any part of the Bonds whenever the Company shall have complied with all of its
obligations, as set forth in Article VII of the Pollution Control Bond Inden-
ture, with respect to redemption of all or such part of the Pollution Control
Bonds.
In case an event of default, as defined in the Amended Indenture, shall oc-
cur, the principal of all the Bonds at any such time outstanding under the
Amended Indenture may be declared or may become due and payable, upon the con-
ditions and in the manner and with the effect provided in the Amended Inden-
ture. The Amended Indenture provides that such declaration may in certain
events be waived by the holders of a majority in principal amount of the Bonds
entitled to vote then outstanding.
Subject to the restriction on transfer appearing hereon, this Bond is trans-
ferable by the registered owner hereof, in person or by duly authorized attor-
ney, on the books of the Company to be kept for that purpose at the agency of
the Company in the City of Washington, D.C., upon surrender and cancellation
of this Bond and on presentation of a duly executed written instrument of
transfer, and thereupon a new Bond or Bonds of the same series, of the same
aggregate principal amount and in authorized denominations will be issued to
the transferee in exchange therefor; and this Bond, with or without others of
the same series, may in like manner be exchanged for one or more new Bonds of
the same series of other authorized denominations but of the same aggregate
principal amount; all subject to the terms and conditions set forth in the
Amended Indenture.
No recourse shall be had for the payment of the principal of, premium, if
any, or the interest on, this Bond, or for any claim based hereon or otherwise
in respect hereof or of the Amended Indenture or any indenture supplemental
thereto, against any incorporator, or against any stockholder, director or of-
ficer, past, present or future, of the Company or of any predecessor or suc-
cessor corporation, either directly or through the Company or any such prede-
cessor or successor corporation, whether for amounts unpaid on stock
subscriptions or by virtue of any
<PAGE>
16
constitution, statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise, all such liability, whether at common law, in equity,
by any constitution, statute or otherwise, of incorporators, stockholders, di-
rectors or officers being released by every owner hereof by the acceptance of
this Bond and as part of the consideration for the issue hereof, and being
likewise released by the terms of the Amended Indenture.
This Bond shall not be entitled to any benefit under the Amended Indenture or
any indenture supplemental thereto, or become valid or obligatory for any pur-
pose, until The Riggs National Bank of Washington, D.C., the Trustee under the
Amended Indenture, or a successor trustee thereto under the Amended Indenture,
shall have signed the form of certificate endorsed hereon.
In Witness Whereof, Potomac Electric Power Company has caused this Bond to be
signed in its name by the signature (or a facsimile thereof) of its President
or a Vice President, and its corporate seal (or a facsimile thereof) to be
hereto affixed and attested by the facsimile signature of its Secretary or an
Assistant Secretary.
Dated,
Potomac Electric Power Company
By ............................................
Vice President
Attest:
...................................
Secretary
[FORM OF TRUSTEE'S CERTIFICATE]
This Bond is one of the Bonds, of the series designated therein, described in
the within-mentioned Amended Indenture and the Supplemental Indenture of Feb-
ruary 10, 1994.
The Riggs National Bank
of Washington, D.C.
Trustee
By ............................................
Authorized Officer
<PAGE>
17
PART III.
Issue of Bonds.
Section 1. Except for Bonds of 2024 Series issued pursuant to Section 13 of
Article II of the Original Indenture as amended, the principal amount of Bonds
of 2024 Series which may be authenticated and delivered hereunder is limited
to the aggregate principal amount of Forty-Two Million Five Hundred Thousand
Dollars ($42,500,000).
Section 2. Bonds of 2024 Series in the aggregate principal amount of Forty-
Two Million Five Hundred Thousand Dollars ($42,500,000) may at any time subse-
quent to the execution hereof be executed by the Company and delivered to the
Trustee and shall be authenticated by the Trustee and delivered (either before
or after the recording hereof) to or upon the order of the Company evidenced
by a writing or writings, signed by its President or one of its Vice Presi-
dents and its Treasurer or one of its Assistant Treasurers, at such time or
times as may be requested by the Company subsequent to the receipt by the
Trustee of
(1) the certified resolution and the officers' certificate required by Sec-
tion 3(a) and Section 3(b) of Article III of the Original Indenture as
amended;
(2) the opinion of counsel required by Section 3(c) of Article III of the
Original Indenture as amended;
(3) cash, if any, in the amount required to be deposited by Section 3(d) of
Article III of the Original Indenture as amended, which shall be held and
applied by the Trustee as provided in said Section 3(d);
(4) the certificates, instruments, opinions of counsel, prior lien bonds
and cash, if any, required by Section 4 of Article III of the Original In-
denture as amended, except that, as required by Part VII of this Supplemen-
tal Indenture, property additions purchased, constructed or otherwise ac-
quired on or before December 31, 1946 shall not be made the basis for the
authentication and delivery of Bonds of 2024 Series; and
(5) the certificates and opinions required by Article XVIII of the Original
Indenture as amended.
<PAGE>
18
PART IV.
Redemption
Section 1. The Bonds of 2024 Series may not be called for redemption by the
Company except as provided herein. The Bonds of 2024 Series shall, in accor-
dance with the provisions of Article V of the Original Indenture as amended,
be redeemable, prior to maturity on or after February 15, 2004, at the option
of the Board of Directors of the Company, either as a whole, or in part, at
any time upon payment of the redemption prices applicable to the respective
periods set forth in the form of Bond contained in Section 3 of Part II hereof
together, in each case, with accrued interest to the redemption date.
Section 2. Notwithstanding the provisions of Section 1 of this Part IV, in
the event of (a) damage or destruction of the Company's Plant or the Facili-
ties, (b) condemnation of the Company's Plant or the Facilities, (c) constitu-
tional, legislative, judicial or administrative action voiding the Loan Agree-
ment or imposing unreasonable burdens or excessive liabilities on the Company,
including the imposition of certain taxes, (d) changes in the economic or
technological status of the Plant or the Facilities rendering the Plant obso-
lete or uneconomic or (e) court or administrative action requiring the Company
to cease all or any substantial part of its operations serviced by the Facili-
ties for a period of six months, all as provided in the form of Bond contained
in Section 3 of Part II hereof, the Bonds of 2024 Series shall, in accordance
with the provisions of Article V of the Original Indenture as amended, be re-
deemable, as a whole at any time prior to maturity, in the manner and upon the
conditions provided in said form of Bond, upon payment of a redemption price
equal to 100% of the principal amount thereof together with accrued interest
to the redemption date, without premium.
Section 3. Notwithstanding the provisions of Section 1 of this Part IV, in
the event the Trustee shall receive from the Pollution Control Bond Trustee
either
(a) a notification that the Bonds are subject to mandatory redemption pur-
suant to Section 2.05(c) of the Pollution Control Bond Indenture; or
<PAGE>
19
(b) a Default Redemption Demand (as defined in the form of Bond contained
in Section 3 of Part II hereof);
the Bonds of 2024 Series shall be subject to mandatory redemption, as a whole
at any time prior to maturity, or, upon the occurrence of any of the events
referred to in clause (a) above, in part at any time, in each case in the man-
ner and upon the conditions provided in said form of Bond, at 100% of the
principal amount thereof together with accrued interest to the redemption
date, without premium.
Section 4. In accordance with the provisions of Article V of the Original In-
denture as amended, notice of redemption (other than in a redemption in the
event of a Default Redemption Demand) shall be delivered at least forty-five
days and not more than sixty days prior to the date of redemption, to the reg-
istered owner of the Bonds of 2024 Series at its address as the same shall ap-
pear on the transfer register of the Company; provided, however, that such
prior notice shall be deemed to have been duly given with respect to all or
any part of the Bonds whenever the Company shall have complied with all of its
obligations, as set forth in Article VII of the Pollution Control Bond Inden-
ture, with respect to redemption of all or such part of the Pollution Control
Bonds.
PART V.
Amendment of Indenture to Permit Qualification
Under Trust Indenture Act of 1939.
The Company and the Trustee, from time to time and at any time, without any
vote or consent of the holders of the Bonds of 2024 Series, may enter into
such indentures supplemental to the Original Indenture as amended as may or
shall by them be deemed necessary or desirable to add to or modify or amend
any of the provisions of the Original Indenture so as to permit the qualifica-
tion of the Original Indenture as amended under the Trust Indenture Act of
1939.
Except to the extent specifically provided herein, no provision of this Sup-
plemental Indenture is intended to modify, and the parties hereto do
<PAGE>
20
hereby adopt and confirm, the provisions of Section 318(c) of the Trust Inden-
ture Act of 1939 which amend and supersede provisions of the Original Inden-
ture, as supplemented, in effect prior to November 15, 1990.
PART VI.
Amendment of Original Indenture.
Notwithstanding any other provisions of the Original Indenture as amended,
the holders of the Bonds of 2024 Series, by their holding of such Bonds, are
deemed to have approved the following amendment to the Original Indenture as
amended and to have authorized the Trustee to take any action necessary to ev-
idence or effectuate such approval:
Sections 5 and 6 of Article XV of the Original Indenture as amended are
hereby amended by changing the words and figures "eighty percent. (80%)" to
the words and figures "sixty percent. (60%)" wherever in such Sections such
words and figures occur.
PART VII.
Additional Particular Covenants of the Company.
The Company hereby covenants, warrants and agrees that so long as any Bonds
of 2024 Series are outstanding:
Section 1. The Company will not withdraw, pursuant to the provisions of Sec-
tion 2 of Article VIII of the Original Indenture as amended, any moneys held
by the Trustee as part of the trust estate in excess of an amount equal to the
aggregate principal amount of such of the refundable Bonds as were theretofore
issued by the Company; and that upon any such withdrawal by the Company re-
fundable Bonds equal in aggregate principal amount to the amount so withdrawn
shall be deemed to have been made the basis for such withdrawal.
Section 2. Property additions purchased, constructed or otherwise acquired on
or before December 31, 1946 shall not be made the basis for the authentication
and delivery of Bonds, or the withdrawal of cash, or
<PAGE>
21
the reduction of the amount of cash required to be paid to the Trustee under
any provision of the Indenture.
PART VIII.
The Trustee.
The Trustee hereby accepts the trusts hereby declared and provided and agrees
to perform the same upon the terms and conditions in the Original Indenture as
amended set forth and upon the following terms and conditions:
The Trustee shall not be responsible in any manner whatsoever for or in re-
spect of the validity or sufficiency of this Supplemental Indenture or the due
execution hereof by the Company or for or in respect of the recitals contained
herein, all of which recitals are made by the Company solely. In general, each
and every term and condition contained in Article XIII of the Original Inden-
ture as amended shall apply to this Supplemental Indenture with the same force
and effect as if the same were herein set forth in full, with such omissions,
variations and modifications thereof as may be appropriate to make the same
conform to this Supplemental Indenture.
PART IX.
Miscellaneous Provisions.
If any payment of principal of, premium, if any, or installment of interest
on, the Bonds of 2024 Series shall be due and payable on any day which is not
a business day, such payment shall become due and payable on the next suc-
ceeding business day, a "business day" being any Monday, Tuesday, Wednesday,
Thursday, or Friday other than any such day that is a legal holiday or a day
on which commercial banking institutions in the State of Maryland are autho-
rized or obligated to close.
As provided in the Pollution Control Bond Indenture, any amounts of money
held in the Bond Fund provided in the Pollution Control Bond Indenture and
available for such purpose, which are at the request of the Company applied to
the payment of the principal of and premium, if any, and interest on the Pol-
lution Control Bonds on any payment or
<PAGE>
22
redemption date, shall be applied as a credit on amounts otherwise due under
the Bonds of 2024 Series and shall pro tanto discharge the Company's obliga-
tions to pay such amounts otherwise due; provided that the amount of such
credit shall be established by an officer's certificate (as defined in the
Original Indenture as amended), concurred in by the Pollution Control Bond
Trustee, which shall be delivered prior to the application of any such credit.
This Supplemental Indenture may be simultaneously executed in any number of
counterparts, each of which when so executed shall be deemed to be an origi-
nal; but such counterparts shall together constitute but one and the same in-
strument.
Potomac Electric Power Company hereby constitutes and appoints Dennis R.
Wraase, its Senior Vice President, to be its true and lawful attorney-in-fact,
for it and in its name to appear before any officer authorized by law to take
and certify acknowledgments of deeds to be recorded in the District of Colum-
bia, in the State of Maryland, in the Commonwealth of Virginia, and in the
Commonwealth of Pennsylvania and to acknowledge and deliver these presents as
the act and deed of said Potomac Electric Power Company.
The Riggs National Bank of Washington, D.C., hereby constitutes and appoints
Alexander C. Baker, one of its Senior Vice Presidents, to be its true and law-
ful attorney-in-fact, for it and in its name to appear before any officer au-
thorized by law to take and certify acknowledgements of deeds to be recorded
in the District of Columbia, in the State of Maryland, in the Commonwealth of
Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and de-
liver these presents as the act and deed of said The Riggs National Bank of
Washington, D.C.
In Witness Whereof, said Potomac Electric Power Company has caused this Sup-
plemental Indenture to be executed on its behalf by its President or one of
its Vice Presidents and its corporate seal to be hereto affixed and said seal
and this Supplemental Indenture to be attested by its Secretary or one of its
Assistant Secretaries; and said The Riggs National Bank of Washington, D.C.,
in evidence of its acceptance of the trust hereby created, has caused this
Supplemental Indenture to be executed on its behalf by its President or one of
its Senior Vice Presidents,
<PAGE>
23
and its corporate seal to be hereto affixed and said seal and this Supplemen-
tal Indenture to be attested by one of its Corporate Trust Officers, all as of
the 10th day of February, One thousand nine hundred and ninety-four.
Potomac Electric Power Company
(Corporate Seal)
By .........................................
DENNIS R. WRAASE,
Senior Vice President
Attested:
...................................
MARY T. HOWARD,
Assistant Secretary
Signed, sealed and delivered by
Potomac Electric Power Company
in the presence of:
...................................
...................................
As Witnesses
The Riggs National Bank
of Washington, D.C.
(Corporate Seal)
By .........................................
ALEXANDER C. BAKER,
Senior Vice President
Attested:
...................................
BEVERLY MOFFETT
Senior Corporate Trust Officer
Signed, sealed and delivered by The
Riggs National Bank of Washington,
D.C. in the presence of:
...................................
...................................
As Witnesses
<PAGE>
24
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, a Notary Public in and for the District of Columbia, United States
of America, whose commission as such will expire , do hereby certify
that Dennis R. Wraase and Mary T. Howard, whose names as Senior Vice President
and Assistant Secretary, respectively, of Potomac Electric Power Company, a
corporation, are signed to the foregoing and hereto attached deed, bearing
date as of the 10th day of February, 1994, personally appeared this day before
me in my District aforesaid and acknowledged themselves to be, respectively, a
Senior Vice President and an Assistant Secretary of Potomac Electric Power
Company, and that they as such, being authorized so to do, executed the said
deed by signing the name of Potomac Electric Power Company by Dennis R.
Wraase, as Senior Vice President, and attested by Mary T. Howard, as Assistant
Secretary, and acknowledged the same before me in my District aforesaid and
acknowledged the foregoing instrument to be the act and deed of Potomac Elec-
tric Power Company.
Given under my hand and official seal this day of February, 1994.
(Notarial Seal)
............................................
Notary Public
District of Columbia
<PAGE>
25
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that Dennis R. Wraase, Senior Vice Presi-
dent of Potomac Electric Power Company, a corporation, one of the parties to
the foregoing instrument bearing date as of the 10th day of February, 1994,
and hereto annexed, this day personally appeared before me in the City of
Washington, the said Dennis R. Wraase being personally well known to me as the
person who executed the said instrument as Senior Vice President of and on be-
half of said Potomac Electric Power Company and known to me to be the attor-
ney-in-fact duly appointed therein to acknowledge and deliver said instrument
on behalf of said corporation, and, as such attorney-in-fact, he acknowledged
said instrument to be the act and deed of said Potomac Electric Power Company,
and delivered the same as such. I further certify that the said Dennis R.
Wraase, being by me duly sworn, did depose and say that he knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal and was so affixed by order of the Board of Directors of said corpora-
tion; and that he signed his name thereto by like order. My commission expires
.
Given under my hand and official seal this day of February, 1994.
(Notarial Seal)
............................................
Notary Public
District of Columbia
<PAGE>
26
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that Alexander C. Baker and Beverly
Moffett, whose names as Senior Vice President and Senior Corporate Trust Offi-
cer, respectively, of The Riggs National Bank of Washington, D.C., a corpora-
tion, are signed to the foregoing and hereto attached deed, bearing date as of
the 10th day of February, 1994, personally appeared before me this day in my
District aforesaid and acknowledged themselves to be, respectively, a Senior
Vice President and a Senior Corporate Trust Officer of The Riggs National Bank
of Washington, D.C., and that they as such, being authorized so to do, exe-
cuted the said deed by signing the name of The Riggs National Bank of Washing-
ton, D.C. by Alexander C. Baker as Senior Vice President, and attested by Bev-
erly Moffett, as Senior Corporate Trust Officer, and acknowledged the same be-
fore me in my District aforesaid and acknowledged the foregoing instrument to
be the act and deed of The Riggs National Bank of Washington, D.C., as therein
set forth.
Given under my hand and notarial seal this day of February, 1994.
(Notarial Seal)
............................................
Notary Public
District of Columbia
My Commission Expires
<PAGE>
27
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
Alexander C. Baker, of full age, being sworn according to law, on his oath
deposes and says that he is a Senior Vice President of The Riggs National Bank
of Washington, D.C., the Trustee named in the foregoing Supplemental Inden-
ture, dated as of the 10th day of February, 1994, that he is the agent of said
Trustee for the purpose of perfecting such Supplemental Indenture and that the
consideration in the Original Indenture referred to therein and in all inden-
tures supplemental to said Original Indenture, including the foregoing Supple-
mental Indenture, is true and bona fide as therein set forth.
............................................
Alexander C. Baker
Subscribed and sworn to before me
this day of February, 1994.
...................................
Notary Public
District of Columbia
My Commission Expires
(Notarial Seal)
<PAGE>
28
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that Alexander C. Baker a Senior Vice
President of The Riggs National Bank of Washington, D.C., a corporation, one
of the parties to the foregoing instrument bearing date as of the 10th day of
February, 1994, and hereto annexed, this day personally appeared before me in
the City of Washington, the said Alexander C. Baker, being personally well
known to me as the person who executed the said instrument as a Senior Vice
President of and on behalf of said The Riggs National Bank of Washington,
D.C., and known to me to be the attorney-in-fact duly appointed therein to ac-
knowledge and deliver said instrument on behalf of said corporation, and, as
such attorney-in-fact, he acknowledged said instrument to be the act and deed
of said The Riggs National Bank of Washington, D.C., and delivered the same as
such. I further certify that the said Alexander C. Baker, being by me duly
sworn, did depose and say that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal and was so affixed by
order of the Board of Directors of said corporation; and that he signed his
name thereto by like order.
Given under my hand and official seal this day of February, 1994.
(Notarial Seal)
............................................
Notary Public
District of Columbia
My Commission Expires
<PAGE>
29
CERTIFICATE OF RESIDENCE
The Riggs National Bank of Washington, D.C., Mortgagee and Trustee within
named, hereby certifies that its precise residence is 800-17th Street, N.W.,
Washington, D.C. 20006.
The Riggs National Bank
of Washington, D.C.
By..........................................
Alexander C. Baker,
Senior Vice President
================================================================================
POTOMAC ELECTRIC POWER COMPANY
1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C.
TO
THE RIGGS NATIONAL BANK
OF WASHINGTON, D.C.
800-17TH STREET, N.W., WASHINGTON, D.C.
AS TRUSTEE
------------------
Supplemental Indenture
DATED AS OF FEBRUARY 11, 1994
------------------
SUPPLEMENTAL TO MORTGAGE AND DEED OF TRUST
DATED JULY 1, 1936
------------------
FIRST MORTGAGE BONDS, 5 3/8% SERIES DUE 2024
================================================================================
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
SUPPLEMENTAL INDENTURE DATED AS OF FEBRUARY 11, 1994
TABLE OF CONTENTS*
------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Parties.................................................................. 1
Recitals................................................................. 1
<CAPTION>
PART I
Definitions
<S> <C>
Facilities............................................................... 6
Loan Agreement........................................................... 6
Pollution Control Bond Indenture......................................... 6
Pollution Control Bonds.................................................. 7
Pollution Control Bond Trustee........................................... 7
<CAPTION>
PART II
Description of Bonds of 2024 Series
<S> <C> <C>
Section 1. General description of Bonds of 2024 Series.................. 7
Section 2. Denominations of Bonds....................................... 8
Section 3. Form of Bond................................................. 8
Form of Trustee's Certificate................................ 16
<CAPTION>
PART III
Issue of Bonds of 2024 Series
<S> <C> <C>
Section 1. Limitation as to principal amount............................ 17
Section 2. Issue of $38,300,000 principal amount of Bonds of
2024 Series................................................. 17
<CAPTION>
PART IV
Redemption
<S> <C> <C>
Section 1. Bonds of 2024 Series redeemable.............................. 18
Section 2. Bonds of 2024 Series redeemable in certain events............ 18
Section 3. Bonds of 2024 Series subject to mandatory redemption in cer-
tain events................................................. 18
Section 4. Notice of redemption......................................... 19
</TABLE>
- ---------
* The Table of Contents is not part of the Supplemental Indenture and should
not be considered as such. It is included herein only for purposes of
convenient reference.
<PAGE>
ii
<TABLE>
<CAPTION>
PAGE
----
PART V
<S> <C>
Amendment of Indenture to Permit Qualification under Trust Indenture Act
of 1939................................................................ 19
<CAPTION>
PART VI
<S> <C>
Amendment of Original Indenture.......................................... 20
<CAPTION>
PART VII
Additional Particular Covenants of the Company
<S> <C> <C>
Section 1. Company not to withdraw money pursuant to Section 2 of Arti-
cle VIII in excess of an amount equal to principal amount
of issued refundable Bonds................................. 20
Section 2. No property additions made prior to December 31, 1946 to be
used for any purpose under the Indenture................... 20
<CAPTION>
PART VIII
The Trustee
<S> <C>
Acceptance of trusts by the Trustee...................................... 21
Trustee not responsible for validity of the Supplemental Indenture....... 21
<CAPTION>
PART IX
Miscellaneous Provisions
<S> <C>
Payments due on non-business days........................................ 21
Credits on First Mortgage Bonds.......................................... 21
Execution of Supplemental Indenture in counterparts...................... 22
Appointment of attorneys-in-fact by parties.............................. 22
Testimonium.............................................................. 22
Execution................................................................ 23
Company's Acknowledgments................................................ 24
Trustee's Acknowledgments................................................ 26
</TABLE>
<PAGE>
SUPPLEMENTAL INDENTURE, dated as of the eleventh day of February, nineteen
hundred and ninety-four (1994), made by and between Potomac Electric Power
Company, a corporation organized and existing under the laws of the District
of Columbia and a domestic corporation of the Commonwealth of Virginia (here-
inafter sometimes called the "Company"), party of the first part, and The
Riggs National Bank of Washington, D.C., a national banking association orga-
nized and existing under the laws of the United States of America (hereinafter
sometimes called the "Trustee"), as Trustee under the Mortgage and Deed of
Trust dated July 1, 1936, hereinafter mentioned, party of the second part;
Whereas, The Company has heretofore executed and delivered its Mortgage and
Deed of Trust, dated July 1, 1936 (hereinafter sometimes referred to as the
"Original Indenture"), to the Trustee, to secure an issue of First Mortgage
Bonds of the Company, issuable in series; and
Whereas, pursuant to the terms and provisions of the Original Indenture, in-
dentures supplemental thereto dated as of July 1, 1936, December 1, 1939, Au-
gust 1, 1940, August 1, 1942, January 1, 1948, May 1, 1949, May 1, 1950, March
1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, December 1, 1958, November
16, 1959, December 1, 1960, February 15, 1963, May 15, 1964, April 1, 1966,
May 1, 1967, February 15, 1968, March 15, 1969, February 15, 1970, August 15,
1970, September 15, 1972, April 1, 1973, January 2, 1974, August 15, 1974, Au-
gust 15, 1974, June 15, 1977, July 1, 1979, June 16, 1981, June 17, 1981, De-
cember 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1,
1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May
1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September
1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August
20, 1993, September 29, 1993, September 30, 1993, October 1, 1993 and February
10, 1994 have been heretofore entered into between the Company and the Trustee
to provide, respectively, for the creation of the first through the fifty-sev-
enth series of Bonds thereunder and, in the case of the supplemental inden-
tures dated January 1, 1948, March 1, 1952, May 15, 1953, May 16, 1955, June
1, 1956, September 15, 1972, July 1, 1979, June 17, 1981, November 1, 1985,
September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992, July 1, 1993 and
one of the supplemental indentures dated August 15, 1974, to convey additional
property; and
<PAGE>
2
Whereas, $20,000,000 principal amount of Bonds of the 3 1/4% Series due 1966
(the first series), $5,000,000 principal amount of Bonds of the 3 1/4% Series
due 1974 (the second series), $10,000,000 principal amount of Bonds of the 3
1/4% Series due 1975 (the third series), $5,000,000 principal amount of Bonds
of the 3 1/4% Series due 1977 (the fourth series), $15,000,000 principal
amount of Bonds of the 3% Series due 1983 (the fifth series), $10,000,000
principal amount of Bonds of the 2 7/8% Series due 1984 (the sixth series),
$30,000,000 principal amount of Bonds of the 2 3/4% Series due 1985 (the sev-
enth series), $15,000,000 principal amount of Bonds of the 3 1/4% Series due
1987 (the eighth series), $10,000,000 principal amount of Bonds of the 3 7/8%
Series due 1988 (the ninth series), $10,000,000 principal amount of Bonds of
the 3 3/8% Series due 1990 (the tenth series), $10,000,000 principal amount of
Bonds of the 3 5/8% Series due 1991 (the eleventh series), $25,000,000 princi-
pal amount of Bonds of the 4 5/8% Series due 1993 (the twelfth series),
$45,000,000 principal amount of Bonds of the 7 3/4% Series due 2004 (the twen-
tieth series), $35,000,000 principal amount of Bonds of the 8.85% Series due
2005 (the twenty-first series), $70,000,000 principal amount of Bonds of the 9
1/2% Series due August 15, 2005 (the twenty-second series), $50,000,000 prin-
cipal amount of Bonds of the 7 3/4% Series due 2007 (the twenty-third series),
$7,000,000 principal amount of Bonds of the 5 5/8% Series due 1997 (the twen-
ty-fourth series), $100,000,000 principal amount of Bonds of the 8 3/8% Series
due 2009 (the twenty-fifth series), $50,000,000 principal amount of Bonds of
the 10 1/4% Series due 1981 (the twenty-sixth series), $50,000,000 principal
amount of Bonds of the 10 3/4% Series due 2004 (the twenty-seventh series),
$30,000,000 principal amount of Bonds of the Floating Rate Series due 2010
(the thirty-second series), $50,000,000 principal amount of Bonds of the 14
1/2% Series due 1991 (the thirty-third series), $60,000,000 principal amount
of Bonds of the 14 1/4% Series due 1992 (the thirty-fifth series), $50,000,000
principal amount of Bonds of the 11 7/8% Series due 1989 (the thirty-sixth se-
ries), $37,000,000 principal amount of Bonds of the 8 3/4% Series due 2010
(the thirty-seventh series), $75,000,000 principal amount of Bonds of the 11
1/4% Series due 2015 (the thirty-eighth series), $75,000,000 principal amount
of Bonds of the 9 1/4% Series due 2016 (the thirty-ninth series), $75,000,000
principal amount of Bonds of the 8 3/4% Series due 2016 (the fortieth series),
$75,000,000 principal amount of Bonds of the 8 1/4% Series due 2017 (the for-
ty-first series),
<PAGE>
3
$75,000,000 principal amount of Bonds of the 9% Series due 1990 (the forty-
second series), $32,000,000 principal amount of Bonds of the 9 3/4% Series due
2019 (the forty-third series) and $12,000,000 principal amount of Bonds of the
8 5/8% Series due 2019 (the forty-fourth series) have been heretofore redeemed
and retired and there are now issued and outstanding under the Original Inden-
ture and under the supplemental indentures referred to above: $15,000,000
principal amount of Bonds of the 5 1/4% Series due 1994 (the thirteenth se-
ries); $40,000,000 principal amount of Bonds of the 5% Series due 1995 (the
fourteenth series); $50,000,000 principal amount of Bonds of the 4 3/8% Series
due 1998 (the fifteenth series); $45,000,000 principal amount of Bonds of the
4 1/2% Series due 1999 (the sixteenth series); $15,000,000 principal amount of
Bonds of the 5 1/8% Series due 2001 (the seventeenth series); $35,000,000
principal amount of Bonds of the 5 7/8% Series due 2002 (the eighteenth se-
ries); $40,000,000 principal amount of Bonds of the 6 5/8% Series due 2003
(the nineteenth series); $18,000,000 principal amount of Bonds of the 5 5/8%
Series due 1997 (the twenty-fourth series); $38,300,000 principal amount of
Bonds of the 6 1/8% Series due 2007 (the twenty-eighth series); $15,000,000
principal amount of Bonds of the 6 1/2% Series due 2004 (the twenty-ninth se-
ries); $20,000,000 principal amount of Bonds of the 6 1/2% Series due 2007
(the thirtieth series); $7,500,000 principal amount of Bonds of the 6 5/8% Se-
ries due 2009 (the thirty-first series); $50,000,000 principal amount of Bonds
of the Adjustable Rate Series due 2001 (the thirty-fourth series); $43,000,000
principal amount of Bonds of the 9 3/4% Series due 2019 (the forty-third se-
ries); $63,000,000 principal amount of Bonds of the 8 5/8% Series due 2019
(the forty-fourth series); $100,000,000 principal amount of Bonds of the 9%
Series due 2000 (the forty-fifth series); $100,000,000 principal amount of
Bonds of the 9% Series due 2021 (the forty-sixth series); $75,000,000 princi-
pal amount of Bonds of the 8 1/2% Series due 2027 (the forty-seventh series);
$30,000,000 principal amount of Bonds of the 6% Series due 2022 (the forty-
eighth series); $37,000,000 principal amount of Bonds of the 6 3/8% Series due
2023 (the forty-ninth series); $78,000,000 principal amount of Bonds of the 6
1/2% Series due 2008 (the fiftieth series); $40,000,000 principal amount of
Bonds of the 7 1/2% Series due 2028 (the fifty-first series); $100,000,000
principal amount of Bonds of the 7 1/4% Series due 2023 (the fifty-second se-
ries); $100,000,000 principal amount of Bonds of the 6 7/8% Series due
<PAGE>
4
2023 (the fifty-third series); $50,000,000 principal amount of Bonds of the 5
5/8% Series due 2003 (the fifty-fourth series); $50,000,000 principal amount
of Bonds of the 5 7/8% Series due 2008 (the fifty-fifth series); $75,000,000
principal amount of Bonds of the 6 7/8% Series due 2024 (the fifty-sixth se-
ries); and $42,500,000 principal amount of Bonds of the 5 3/8% Series due 2024
(the fifty-seventh series); and
Whereas, for the purpose of conforming the Original Indenture to the stan-
dards prescribed by the Trust Indenture Act of 1939 or otherwise modifying
certain of the provisions of the Original Indenture, indentures supplemental
thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1,
1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October
1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986,
March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990,
May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993,
March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993, September
30, 1993, October 1, 1993 and February 10, 1994 have been heretofore entered
into between the Company and the Trustee, and for the purpose of conveying ad-
ditional property, indentures supplemental thereto dated July 15, 1942, Octo-
ber 15, 1947, December 31, 1948, December 31, 1949, February 15, 1951, Febru-
ary 16, 1953, March 15, 1954, March 15, 1955, March 15, 1956, April 1, 1957,
May 1, 1958, May 1, 1959, May 2, 1960, April 3, 1961, May 1, 1962, May 1,
1963, April 23, 1964, May 3, 1965, June 1, 1966, April 28, 1967, July 3, 1967,
May 1, 1968, June 16, 1969, May 15, 1970, September 1, 1971, June 17, 1981,
November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992
and July 1, 1993 have been heretofore entered into between the Company and the
Trustee, and for the purpose of better securing and protecting the Bonds then
or thereafter issued and confirming the lien of the Original Indenture, an in-
denture dated October 15, 1942 supplemental thereto has been heretofore en-
tered into between the Company and the Trustee; the Original Indenture as
heretofore amended and supplemented being hereinafter referred to as the
"Original Indenture as amended"; and
Whereas, the Company proposes to enter into a Loan Agreement (hereinafter de-
fined) with the Industrial Development Authority of the City of Alexandria,
Virginia, a political subdivision of the Common-
<PAGE>
5
wealth of Virginia (hereinafter called the "Authority"), to refinance a por-
tion of the cost of the acquisition of the Facilities (hereinafter defined) at
the Company's Potomac River Generating Station, Alexandria, Virginia (herein-
after called the "Plant"); and
Whereas, the Authority proposes to issue its Pollution Control Bonds (herein-
after defined) in the principal amount of $38,300,000; and
Whereas, the Company is entitled to have authenticated and delivered addi-
tional Bonds on the basis of the net bondable value of property additions,
upon compliance with the provisions of Section 4 of Article III of the Origi-
nal Indenture as amended; and
Whereas, the Company has determined to issue to the Pollution Control Bond
Trustee (hereinafter defined), as assignee of the Authority, pursuant to and
as security for the Loan Agreement, a fifty-eighth series of Bonds under the
Original Indenture as amended in the principal amount of $38,300,000, to be
known as First Mortgage Bonds, 5 3/8% Series due 2024 (hereinafter called
"Bonds of 2024 Series"); and
Whereas, the Original Indenture as amended provides that certain terms and
provisions, as determined by the Board of Directors of the Company, of the
Bonds of any particular series may be expressed in and provided by the execu-
tion of an appropriate supplemental indenture; and
Whereas, the Original Indenture as amended provides that the Company and the
Trustee may enter into indentures supplemental thereto to add to the covenants
and agreements of the Company contained therein other covenants and agreements
thereafter to be observed; and to surrender any right or power reserved to or
conferred upon the Company in the Original Indenture as amended; and
Whereas, the Company, in the exercise of the powers and authority conferred
upon and reserved to it under the provisions of the Original Indenture as
amended and pursuant to appropriate resolutions of its Board of Directors, has
duly resolved and determined to make, execute and deliver to the Trustee a
Supplemental Indenture in the form hereof for the purposes herein provided;
and
Whereas, all conditions and requirements necessary to make this Supplemental
Indenture a valid, binding and legal instrument have been done, performed and
fulfilled, and the execution and delivery hereof have been in all respects
duly authorized;
<PAGE>
6
Now, Therefore, This Indenture Witnesseth:
That Potomac Electric Power Company, in consideration of the premises and of
One Dollar to it duly paid by the Trustee at or before the ensealing and de-
livery of these presents, and for other valuable considerations, the receipt
whereof is hereby acknowledged, hereby covenants, declares and agrees with the
Trustee and its successors in the trust under the Original Indenture as amend-
ed, for the benefit of those who hold the Bonds, or any of them, issued or to
be issued hereunder or under the Original Indenture as amended, as follows:
PART I.
Definitions.
The terms defined in this Part I shall, for all purposes of this Supplemental
Indenture, have the meanings herein specified, unless the context otherwise
requires:
Facilities:
The term "Facilities" shall mean the pollution control project at the Plant,
described in Exhibit A to the Loan Agreement, and related improvements and any
substitutions therefor, acquired by the Company for operation by it as pollu-
tion control facilities.
The terms "acquisition" and "acquired," when used with regard to the Facili-
ties, shall include, without limitation, the construction, installation and
equipping of the Facilities.
Loan Agreement:
The term "Loan Agreement" shall mean the Loan Agreement dated as of February
15, 1994, entered into between the Authority and the Company, and any and all
modifications, alterations, amendments and supplements thereto.
Pollution Control Bond Indenture:
The term "Pollution Control Bond Indenture" shall mean the Indenture of
Trust, dated as of February 15, 1994, between the Authority and
<PAGE>
7
the Pollution Control Bond Trustee, pursuant to which the Pollution Control
Bonds are issued, and any indenture supplemental thereto.
Pollution Control Bonds:
The term "Pollution Control Bonds" shall mean the Pollution Control Revenue
Refunding Bonds (Potomac Electric Project), 1994 Series of the Authority au-
thenticated and delivered pursuant to the Pollution Control Bond Indenture.
The term "Pollution Control Bonds, 1994 Series" shall mean the series of Pol-
lution Control Revenue Refunding Bonds in the aggregate principal amount of
$38,300,000 delivered initially.
Pollution Control Bond Trustee:
The term "Pollution Control Bond Trustee" shall mean NationsBank of Virginia,
N.A., a national banking association organized under the laws of the United
States of America, or its successors, as Trustee under the Pollution Control
Bond Indenture.
PART II.
Description of Bonds of 2024 Series.
Section 1. The fifty-eighth series of Bonds to be executed, authenticated and
delivered under and secured by the Original Indenture as amended shall be
Bonds of 2024 Series. The Bonds of 2024 Series shall, subject to the provi-
sions of Section 1 of Article II of the Original Indenture as amended, be des-
ignated as "First Mortgage Bonds, 5 3/8% Series due 2024" of the Company. The
Bonds of 2024 Series shall be executed, authenticated and delivered in accor-
dance with the provisions of, and shall in all respects be subject to, all of
the terms, conditions and covenants of the Original Indenture as amended, ex-
cept in so far as the terms and provisions of the Original Indenture as
amended are amended or modified by this Supplemental Indenture.
The Bonds of 2024 Series shall mature February 15, 2024 and shall bear inter-
est at the rate of five and three-eighths percent (5 3/8%) per annum, payable
semiannually on the fifteenth day of February and the fifteenth day of August
in each year (each such February 15 and Au-
<PAGE>
8
gust 15 being hereinafter called an "interest payment date"). The Bonds of
2024 Series shall be payable as to principal and interest in lawful money of
the United States of America in immediately available funds, and shall be pay-
able (the interest as well as the principal thereof) at the address of the
registered owner of such Bonds of 2024 Series appearing on the transfer regis-
ter of the Company.
Every Bond of 2024 Series shall be dated as of the date of its authentication
and delivery, or if that is an interest payment date, the next day, and shall
bear interest from the interest payment date next preceding its date or the
date of delivery of the initial Bonds of 2024 Series, whichever is later.
Section 2. The Bonds of 2024 Series shall be registered Bonds without coupons
of denominations of any integral multiple of $5,000, numbered consecutively
upwards from R1.
Section 3. The Bonds of 2024 Series, and the Trustee's certificate to be en-
dorsed on the Bonds of 2024 Series, shall be substantially in the following
forms, respectively:
[FORM OF BOND]
This Bond is not transferable except as provided in the Pollution Control
Bond Indenture, as defined herein.
POTOMAC ELECTRIC POWER COMPANY
(A District of Columbia and Virginia corporation)
First Mortgage Bond, 5 3/8% Series Due 2024
No. R- $
Potomac Electric Power Company, a corporation organized and existing under
the laws of the District of Columbia and a domestic corporation of the Common-
wealth of Virginia (hereinafter called the "Company", which term shall include
any successor corporation as defined in the Amended Indenture hereinafter re-
ferred to), for value received,
<PAGE>
9
hereby promises to pay to or registered assigns, the sum of
dollars, on the fifteenth day of February, 2024, or on such other date as may
be required herein, in lawful money of the United States of America in immedi-
ately available funds, and to pay interest thereon in like money from the
later of February 15, 1994 or the interest payment date (February 15 or August
15) next preceding the date of this Bond, or if the Company shall default in
the payment of interest due on such interest payment date, then from the next
preceding interest payment date to which interest has been paid or February
15, 1994, whichever is later, at the rate of five and three-eighths percent (5
3/8%) per annum, payable semiannually, on the fifteenth day of February and
the fifteenth day of August in each year until maturity, or, if this Bond
shall be duly called for redemption, until the redemption date, or, if the
Company shall default in the payment of the principal hereof, until the
Company's obligation with respect to the payment of such principal shall be
discharged as provided in the Amended Indenture. The principal of, premium, if
any, and interest on, this Bond are payable at the address of the registered
owner hereof appearing on the transfer register of the Company. To the extent
permitted by law, the Company shall pay interest on any overdue installment of
interest hereunder at the rate of five and three-eighths percent (5 3/8%) per
annum, or at such lesser maximum rate of interest as is permitted by law at
any such time.
This Bond is one of a duly authorized issue of Bonds of the Company (herein-
after called the "Bonds") in unlimited aggregate principal amount of the se-
ries hereinafter specified, all issued and to be issued under and equally se-
cured (except in so far as any purchase or sinking fund or analogous provi-
sions for any particular series of Bonds, established by any indenture supple-
mental to the Amended Indenture hereinafter mentioned, may afford additional
security for such Bonds) by a Mortgage and Deed of Trust, dated July 1, 1936,
executed by the Company to The Riggs National Bank of Washington, D.C. (herein
called the "Trustee"), as trustee, as amended by indentures supplemental
thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1,
1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October
1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986,
March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990,
May 21, 1991, May 7, 1992, September 1, 1992, No-
<PAGE>
10
vember 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993,
September 29, 1993, September 30, 1993, October 1, 1993 and February 10, 1994
(said Mortgage and Deed of Trust, as so amended, being herein called the
"Amended Indenture") and all indentures supplemental thereto, to which Amended
Indenture and supplemental indentures reference is hereby made for a descrip-
tion of the properties mortgaged and pledged, the nature and extent of the se-
curity, the rights of the owners of the Bonds and of the Trustee in respect
thereto, and the terms and conditions upon which the Bonds are, and are to be,
secured. To the extent permitted by, and as provided in, the Amended Inden-
ture, modifications or alterations of the Amended Indenture, or of any inden-
ture supplemental thereto, and of the rights and obligations of the Company
and of the holders of the Bonds may be made with the consent of the Company by
an affirmative vote of not less than 80% in amount of the Bonds entitled to
vote then outstanding, at a meeting of Bondholders called and held as provided
in the Amended Indenture, and by an affirmative vote of not less than 80% in
amount of the Bonds of any series entitled to vote then outstanding and af-
fected by such modification or alteration, in case one or more but less than
all of the series of Bonds then outstanding under the Amended Indenture are so
affected; provided, however, that no such modification or alteration shall be
made which will affect the terms of payment of the principal of, or premium,
if any or interest on, this Bond, which are unconditional, or which reduces
the percentage of Bonds the affirmative vote of which is required for the mak-
ing of such modifications or alterations. The Company is proposing an amend-
ment to the Amended Indenture which would replace "80%" with "60%" in the pre-
ceding sentence, which amendment will become effective upon the consent or
agreement thereto of the holders of all the outstanding Bonds. The holder of
this Bond will be deemed to have approved such amendment. The Bonds may be is-
sued in series, for various principal sums, may mature at different times, may
bear interest at different rates and may otherwise vary as in the Amended In-
denture provided.
This Bond is one of a series designated as the "First Mortgage Bonds, 5 3/8%
Series due 2024" (herein called the "Bonds of 5 3/8% Series due 2024") of the
Company, limited in aggregate principal amount to $38,300,000, issued under
and secured by the Amended Indenture and all indentures supplemental thereto
and described in the indenture (herein
<PAGE>
11
called the "Supplemental Indenture of February 11, 1994") dated as of February
11, 1994, between the Company and the Trustee, supplemental to the Amended In-
denture. Unless otherwise defined herein, the terms used herein shall have the
same meanings as in the Supplemental Indenture of February 11, 1994.
The Bonds of 5 3/8% Series due 2024 may not be called for redemption by the
Company except as provided herein and in the Supplemental Indenture of Febru-
ary 11, 1994. The Bonds of 5 3/8% Series due 2024 are subject to redemption in
whole, but not in part, at any time, at the option of the Company upon payment
of a redemption price equal to 100% of the principal amount thereof plus ac-
crued interest to the redemption date, without premium, upon the occurrence of
any of the following events:
(a) damage or destruction to the Company's Potomac River Generating Station
in Alexandria, Virginia (the "Plant") or the pollution control project at
the Plant (the "Facilities") to such extent that in the opinion of both the
Company's board of directors (expressed in a resolution) and an architect or
engineer acceptable to NationsBank of Virginia, N.A. (the "Pollution Control
Bond Trustee"), as trustee under the Indenture of Trust, dated as of Febru-
ary 15, 1994 (the "Pollution Control Bond Indenture") between the Industrial
Development Authority of the City of Alexandria, Virginia (the "Authority")
and the Pollution Control Bond Trustee, both opinions filed with the Author-
ity and the Pollution Control Bond Trustee, (1) the Plant or the Facilities,
as the case may be, cannot be reasonably repaired, rebuilt or restored
within a period of six months to its condition immediately preceding such
damage or destruction, or (2) the Company is thereby prevented from carrying
on its normal operations at the Plant for a period of six months; or
(b) loss of title to or use of a substantial part of the Plant or the Fa-
cilities as a result of the exercise of the power of eminent domain if, in
the opinion of both the Company's board of directors (expressed in a resolu-
tion) and an architect or engineer acceptable to the Pollution Control Bond
Trustee, both opinions filed with the Authority and the Pollution Control
Bond Trustee, the Company is thereby prevented or is likely to be prevented
from carrying on its normal operations therein for a period of six months;
or
(c) a change in the Constitution of the Commonwealth of Virginia or of the
United States of America or legislative or administrative action (whether
local, state or Federal) or a final decree, judgment or
<PAGE>
12
order of any court or administrative body (whether local, state or Federal)
which causes the Loan Agreement, dated as of February 15, 1994, between the
Company and the Authority (the "Loan Agreement"), to become void or unen-
forceable or impossible of performance in accordance with the intent and
purpose of the parties as expressed therein or unreasonable burdens or ex-
cessive liabilities to be imposed upon the Authority or the Company with re-
spect to the Plant or the Facilities or the operation thereof, including but
not limited to the imposition of Federal, state or other ad valorem proper-
ty, income or other taxes other than ad valorem taxes presently levied upon
privately owned property used for the same general purpose as the Facili-
ties; or
(d) changes in the economic availability of raw materials, operating sup-
plies, energy sources or supplies, or facilities necessary for the operation
of the Facilities for the purposes of pollution control "facilities" as de-
fined in the Virginia Industrial Development and Revenue Bond Act or neces-
sary for the operation of the Plant occur or such technological or other
changes which the Company cannot reasonably overcome or control and which in
the reasonable judgment of the Company's board of directors (expressed in a
resolution) render the Facilities or the Plant uneconomic or obsolete for
such purposes; or
(e) any court or administrative body shall enter a judgment, order or de-
cree, or shall take administrative action, requiring the Company to cease
all or any substantial part of its operation serviced by the Facilities to
the extent the Company is or will be prevented from carrying on its normal
operations at the Plant for a period of six months.
To exercise its option to redeem the Bonds under the foregoing circumstances,
the Company shall, as required under the Pollution Control Bond Indenture,
file the required resolutions and opinions or a certificate, as the case may
be, within nine months after the event permitting its exercise, giving notice
to the Authority and the Pollution Control Bond Trustee, and shall specify a
date not less than 45 nor more than 90 days thereafter for redemption.
The Bonds of 5 3/8% Series due 2024 are subject to mandatory redemption at
any time as a whole or, as hereinafter provided, in part at 100% of the prin-
cipal amount thereof plus accrued interest to the redemption date, without
premium, in the event that the Pollution Control Bond Trustee shall (a) de-
liver a notification to the Trustee and the Company that it has been finally
determined by the Internal Revenue Service or a
<PAGE>
13
court of competent jurisdiction that, as a result of any fact, condition or
event constituting a failure by the Company to observe any covenant or agree-
ment in the Loan Agreement or contravenes any representation in the Loan
Agreement, the interest payable on the Pollution Control Bonds issued pursuant
to the Pollution Control Bond Indenture is includable for Federal income tax
purposes in the gross income of any holder of a Pollution Control Bond, other
than a holder who is or was a "substantial user" of the Facilities or a "re-
lated person," as provided in Section 147(a) of the Internal Revenue Code of
1986 or any applicable predecessor statutory provisions and (b) in conjunction
therewith, make a demand for such redemption. No such determination will be
considered final for the purpose of any mandatory redemption pursuant to this
paragraph unless the Company shall have been given written notice as provided
in the Pollution Control Bond Indenture and, if it shall have so desired, been
afforded the opportunity to contest the same at its expense, either directly
or in the name of any holder of a Pollution Control Bond, 1994 Series, and un-
til conclusion of any appellate review with respect thereto, if sought. Any
such redemption shall be on any date within 120 days from the time of such fi-
nal determination. Upon the finality of such determination, the Bonds of 5
3/8% Series due 2024 shall be redeemed in whole unless, as a result of an
opinion rendered by Bond Counsel (as defined in the Pollution Control Bond In-
denture) pursuant to Section 2.5(c) of the Pollution Control Bond Indenture,
the Pollution Control Bonds shall be redeemed only in part, in which event an
equal principal amount of Bonds of 5 3/8% Series due 2024 shall also be re-
deemed. If such redemption shall occur in accordance with the terms hereof,
then such failure by the Company to observe such covenant, agreement or repre-
sentation in the Loan Agreement shall not in and of itself constitute an Event
of Default under the Pollution Control Bond Indenture, the Bonds of 5 3/8% Se-
ries due 2024, the Amended Indenture or the Supplemental Indenture of February
11, 1994.
The Bonds of 5 3/8% Series due 2024 are also subject to mandatory redemption
at any time, as a whole, at 100% of the principal amount thereof plus accrued
interest to the redemption date, without premium, in the event the Trustee
shall receive a written demand (hereinafter called "Default Redemption De-
mand") from the Pollution Control Bond Trustee for redemption stating that the
principal of all Pollution Control
<PAGE>
14
Bonds then outstanding under the Pollution Control Bond Indenture has been de-
clared to be immediately due and payable pursuant to the provisions of Section
9.1 thereof. The Trustee shall within 10 days of receiving the Default Redemp-
tion Demand mail a copy to the Company stamped or otherwise marked to show the
date of receipt by the Trustee. The Company shall fix a redemption date and
shall mail the Trustee notice of such selection at least 15 days prior to the
date so selected. Such redemption date may be any day not more than 60 days
after the receipt of the Default Redemption Demand by the Trustee. If the
Trustee does not receive notice of such selection by the Company within 45
days after the Default Redemption Demand was received by the Trustee, then the
redemption date shall be the 60th day after such receipt. The Trustee shall
mail notice of the redemption date (hereinafter called the "Default Redemption
Notice") to the Pollution Control Bond Trustee not more than 10 nor less than
5 days prior to the date fixed for redemption. The Trustee shall not mail any
Default Redemption Notice (and no such redemption shall be made) if the
Trustee receives a written cancellation of the Default Redemption Demand from
the Pollution Control Bond Trustee prior to the mailing of the Default Redemp-
tion Notice. Notwithstanding any other provision contained in this Bond, the
Supplemental Indenture dated as of February 11, 1994, or the Amended Inden-
ture, the holder of this Bond by the acceptance of such Bond hereby waives any
longer notice of redemption.
The Bonds of 5 3/8% Series due 2024 are subject to redemption by the Company
prior to maturity in whole, or in part, at any time, on or after February 15,
2004, upon payment of the following redemption prices (expressed as a percent-
age of principal amount of Bonds to be redeemed) plus accrued interest to the
redemption date:
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION
(DATES INCLUSIVE) PRICE
----------------- ----------
<S> <C>
February 15, 2004 through February 14, 2005....................... 102%
February 15, 2005 through February 14, 2006....................... 101%
February 15, 2006 and thereafter.................................. 100%
</TABLE>
Any such redemption shall be subject to the conditions and as more fully set
forth in the Amended Indenture and Supplemental Indenture of February 11,
1994. Notice of any such redemption (other than a redemption in the event of a
Default Redemption Demand) shall be deliv-
<PAGE>
15
ered at least forty-five days and not more than sixty days prior to the re-
demption date, to the registered owner of the Bonds, at its address as the
same shall appear on the transfer register of the Company, all subject to the
conditions and as more fully set forth in the Amended Indenture and the Sup-
plemental Indenture of February 11, 1994; provided, however, that such prior
notice shall be deemed to have been duly given with respect to all or any part
of the Bonds whenever the Company shall have complied with all of its obliga-
tions, as set forth in Article VII of the Pollution Control Bond Indenture,
with respect to redemption of all or such part of the Pollution Control Bonds.
In case an event of default, as defined in the Amended Indenture, shall oc-
cur, the principal of all the Bonds at any such time outstanding under the
Amended Indenture may be declared or may become due and payable, upon the con-
ditions and in the manner and with the effect provided in the Amended Inden-
ture. The Amended Indenture provides that such declaration may in certain
events be waived by the holders of a majority in principal amount of the Bonds
entitled to vote then outstanding.
Subject to the restriction on transfer appearing hereon, this Bond is trans-
ferable by the registered owner hereof, in person or by duly authorized attor-
ney, on the books of the Company to be kept for that purpose at the agency of
the Company in the City of Washington, D.C., upon surrender and cancellation
of this Bond and on presentation of a duly executed written instrument of
transfer, and thereupon a new Bond or Bonds of the same series, of the same
aggregate principal amount and in authorized denominations will be issued to
the transferee in exchange therefor; and this Bond, with or without others of
the same series, may in like manner be exchanged for one or more new Bonds of
the same series of other authorized denominations but of the same aggregate
principal amount; all subject to the terms and conditions set forth in the
Amended Indenture.
No recourse shall be had for the payment of the principal of, premium, if
any, or the interest on, this Bond, or for any claim based hereon or otherwise
in respect hereof or of the Amended Indenture or any indenture supplemental
thereto, against any incorporator, or against any stockholder, director or of-
ficer, past, present or future, of the Company or of any predecessor or suc-
cessor corporation, either directly or
<PAGE>
16
through the Company or any such predecessor or successor corporation, whether
for amounts unpaid on stock subscriptions or by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability, whether at common law, in equity, by any con-
stitution, statute or otherwise, of incorporators, stockholders, directors or
officers being released by every owner hereof by the acceptance of this Bond
and as part of the consideration for the issue hereof, and being likewise re-
leased by the terms of the Amended Indenture.
This Bond shall not be entitled to any benefit under the Amended Indenture or
any indenture supplemental thereto, or become valid or obligatory for any pur-
pose, until The Riggs National Bank of Washington, D.C., the Trustee under the
Amended Indenture, or a successor trustee thereto under the Amended Indenture,
shall have signed the form of certificate endorsed hereon.
In Witness Whereof, Potomac Electric Power Company has caused this Bond to be
signed in its name by the signature (or a facsimile thereof) of its President
or a Vice President, and its corporate seal (or a facsimile thereof) to be
hereto affixed and attested by the facsimile signature of its Secretary or an
Assistant Secretary.
Dated,
Potomac Electric Power Company
By ............................................
Vice President
Attest:
...................................
Secretary
[form of trustee's certificate]
This Bond is one of the Bonds, of the series designated therein, described in
the within-mentioned Amended Indenture and the Supplemental Indenture of Feb-
ruary 11, 1994.
The Riggs National Bank
of Washington, D.C.
Trustee
By ............................................
Authorized Officer
<PAGE>
17
PART III.
Issue of Bonds.
Section 1. Except for Bonds of 2024 Series issued pursuant to Section 13 of
Article II of the Original Indenture as amended, the principal amount of Bonds
of 2024 Series which may be authenticated and delivered hereunder is limited
to the aggregate principal amount of Thirty-Eight Million Three Hundred Thou-
sand Dollars ($38,300,000).
Section 2. Bonds of 2024 Series in the aggregate principal amount of Thirty-
Eight Million Three Hundred Thousand Dollars ($38,300,000) may at any time
subsequent to the execution hereof be executed by the Company and delivered to
the Trustee and shall be authenticated by the Trustee and delivered (either
before or after the recording hereof) to or upon the order of the Company evi-
denced by a writing or writings, signed by its President or one of its Vice
Presidents and its Treasurer or one of its Assistant Treasurers, at such time
or times as may be requested by the Company subsequent to the receipt by the
Trustee of
(1) the certified resolution and the officers' certificate required by Sec-
tion 3(a) and Section 3(b) of Article III of the Original Indenture as
amended;
(2) the opinion of counsel required by Section 3(c) of Article III of the
Original Indenture as amended;
(3) cash, if any, in the amount required to be deposited by Section 3(d) of
Article III of the Original Indenture as amended, which shall be held and
applied by the Trustee as provided in said Section 3(d);
(4) the certificates, instruments, opinions of counsel, prior lien bonds
and cash, if any, required by Section 4 of Article III of the Original In-
denture as amended, except that, as required by Part VII of this Supplemen-
tal Indenture, property additions purchased, constructed or otherwise ac-
quired on or before December 31, 1946 shall not be made the basis for the
authentication and delivery of Bonds of 2024 Series; and
(5) the certificates and opinions required by Article XVIII of the Original
Indenture as amended.
<PAGE>
18
PART IV.
Redemption
Section 1. The Bonds of 2024 Series may not be called for redemption by the
Company except as provided herein. The Bonds of 2024 Series shall, in accor-
dance with the provisions of Article V of the Original Indenture as amended,
be redeemable, prior to maturity on or after February 15, 2004, at the option
of the Board of Directors of the Company, either as a whole, or in part, at
any time upon payment of the redemption prices applicable to the respective
periods set forth in the form of Bond contained in Section 3 of Part II hereof
together, in each case, with accrued interest to the redemption date.
Section 2. Notwithstanding the provisions of Section 1 of this Part IV, in
the event of (a) damage or destruction of the Company's Plant or the Facili-
ties, (b) condemnation of the Company's Plant or the Facilities, (c) constitu-
tional, legislative, judicial or administrative action voiding the Loan Agree-
ment or imposing unreasonable burdens or excessive liabilities on the Company,
including the imposition of certain taxes, (d) changes in the economic or
technological status of the Plant or the Facilities rendering the Plant obso-
lete or uneconomic or (e) court or administrative action requiring the Company
to cease all or any substantial part of its operations serviced by the Facili-
ties for a period of six months, all as provided in the form of Bond contained
in Section 3 of Part II hereof, the Bonds of 2024 Series shall, in accordance
with the provisions of Article V of the Original Indenture as amended, be re-
deemable, as a whole at any time prior to maturity, in the manner and upon the
conditions provided in said form of Bond, upon payment of a redemption price
equal to 100% of the principal amount thereof together with accrued interest
to the redemption date, without premium.
Section 3. Notwithstanding the provisions of Section 1 of this Part IV, in
the event the Trustee shall receive from the Pollution Control Bond Trustee
either
(a) a notification that the Bonds are subject to mandatory redemption pur-
suant to Section 2.5(c) of the Pollution Control Bond Indenture; or
<PAGE>
19
(b) a Default Redemption Demand (as defined in the form of Bond contained
in Section 3 of Part II hereof);
the Bonds of 2024 Series shall be subject to mandatory redemption, as a whole
at any time prior to maturity, or, upon the occurrence of any of the events
referred to in clause (a) above, in part at any time, in each case in the man-
ner and upon the conditions provided in said form of Bond, at 100% of the
principal amount thereof together with accrued interest to the redemption
date, without premium.
Section 4. In accordance with the provisions of Article V of the Original In-
denture as amended, notice of redemption (other than in a redemption in the
event of a Default Redemption Demand) shall be delivered at least forty-five
days and not more than sixty days prior to the date of redemption, to the reg-
istered owner of the Bonds of 2024 Series at its address as the same shall ap-
pear on the transfer register of the Company; provided, however, that such
prior notice shall be deemed to have been duly given with respect to all or
any part of the Bonds whenever the Company shall have complied with all of its
obligations, as set forth in Article VII of the Pollution Control Bond Inden-
ture, with respect to redemption of all or such part of the Pollution Control
Bonds.
PART V.
Amendment of Indenture to Permit Qualification
Under Trust Indenture Act of 1939.
The Company and the Trustee, from time to time and at any time, without any
vote or consent of the holders of the Bonds of 2024 Series, may enter into
such indentures supplemental to the Original Indenture as amended as may or
shall by them be deemed necessary or desirable to add to or modify or amend
any of the provisions of the Original Indenture so as to permit the qualifica-
tion of the Original Indenture as amended under the Trust Indenture Act of
1939.
Except to the extent specifically provided herein, no provision of this Sup-
plemental Indenture is intended to modify, and the parties hereto do
<PAGE>
20
hereby adopt and confirm, the provisions of Section 318(c) of the Trust Inden-
ture Act of 1939 which amend and supersede provisions of the Original Inden-
ture, as supplemented, in effect prior to November 15, 1990.
PART VI.
Amendment of Original Indenture.
Notwithstanding any other provisions of the Original Indenture as amended,
the holders of the Bonds of 2024 Series, by their holding of such Bonds, are
deemed to have approved the following amendment to the Original Indenture as
amended and to have authorized the Trustee to take any action necessary to ev-
idence or effectuate such approval:
Sections 5 and 6 of Article XV of the Original Indenture as amended are
hereby amended by changing the words and figures "eighty percent. (80%)" to
the words and figures "sixty percent. (60%)" wherever in such Sections such
words and figures occur.
PART VII.
Additional Particular Covenants of the Company.
The Company hereby covenants, warrants and agrees that so long as any Bonds
of 2024 Series are outstanding:
Section 1. The Company will not withdraw, pursuant to the provisions of Sec-
tion 2 of Article VIII of the Original Indenture as amended, any moneys held
by the Trustee as part of the trust estate in excess of an amount equal to the
aggregate principal amount of such of the refundable Bonds as were theretofore
issued by the Company; and that upon any such withdrawal by the Company re-
fundable Bonds equal in aggregate principal amount to the amount so withdrawn
shall be deemed to have been made the basis for such withdrawal.
Section 2. Property additions purchased, constructed or otherwise acquired on
or before December 31, 1946 shall not be made the basis for the authentication
and delivery of Bonds, or the withdrawal of cash, or
<PAGE>
21
the reduction of the amount of cash required to be paid to the Trustee under
any provision of the Indenture.
PART VIII.
The Trustee.
The Trustee hereby accepts the trusts hereby declared and provided and agrees
to perform the same upon the terms and conditions in the Original Indenture as
amended set forth and upon the following terms and conditions:
The Trustee shall not be responsible in any manner whatsoever for or in re-
spect of the validity or sufficiency of this Supplemental Indenture or the due
execution hereof by the Company or for or in respect of the recitals contained
herein, all of which recitals are made by the Company solely. In general, each
and every term and condition contained in Article XIII of the Original Inden-
ture as amended shall apply to this Supplemental Indenture with the same force
and effect as if the same were herein set forth in full, with such omissions,
variations and modifications thereof as may be appropriate to make the same
conform to this Supplemental Indenture.
PART IX.
Miscellaneous Provisions.
If any payment of principal of, premium, if any, or installment of interest
on, the Bonds of 2024 Series shall be due and payable on any day which is not
a business day, such payment shall become due and payable on the next suc-
ceeding business day, a "business day" being any Monday, Tuesday, Wednesday,
Thursday, or Friday other than any such day that is a legal holiday or a day
on which commercial banking institutions in the Commonwealth of Virginia are
authorized or obligated to close.
As provided in the Pollution Control Bond Indenture, any amounts of money
held in the Bond Fund provided in the Pollution Control Bond Indenture and
available for such purpose, which are at the request of the Company applied to
the payment of the principal of and premium, if any, and interest on the Pol-
lution Control Bonds on any payment or
<PAGE>
22
redemption date, shall be applied as a credit on amounts otherwise due under
the Bonds of 2024 Series and shall pro tanto discharge the Company's obliga-
tions to pay such amounts otherwise due; provided that the amount of such
credit shall be established by an officer's certificate (as defined in the
Original Indenture as amended), concurred in by the Pollution Control Bond
Trustee, which shall be delivered prior to the application of any such credit.
This Supplemental Indenture may be simultaneously executed in any number of
counterparts, each of which when so executed shall be deemed to be an origi-
nal; but such counterparts shall together constitute but one and the same in-
strument.
Potomac Electric Power Company hereby constitutes and appoints Dennis R.
Wraase, its Senior Vice President, to be its true and lawful attorney-in-fact,
for it and in its name to appear before any officer authorized by law to take
and certify acknowledgments of deeds to be recorded in the District of Colum-
bia, in the State of Maryland, in the Commonwealth of Virginia, and in the
Commonwealth of Pennsylvania and to acknowledge and deliver these presents as
the act and deed of said Potomac Electric Power Company.
The Riggs National Bank of Washington, D.C., hereby constitutes and appoints
Alexander C. Baker, one of its Senior Vice Presidents, to be its true and law-
ful attorney-in-fact, for it and in its name to appear before any officer au-
thorized by law to take and certify acknowledgements of deeds to be recorded
in the District of Columbia, in the State of Maryland, in the Commonwealth of
Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and de-
liver these presents as the act and deed of said The Riggs National Bank of
Washington, D.C.
In Witness Whereof, said Potomac Electric Power Company has caused this Sup-
plemental Indenture to be executed on its behalf by its President or one of
its Vice Presidents and its corporate seal to be hereto affixed and said seal
and this Supplemental Indenture to be attested by its Secretary or one of its
Assistant Secretaries; and said The Riggs National Bank of Washington, D.C.,
in evidence of its acceptance of the trust hereby created, has caused this
Supplemental Indenture to be executed on its behalf by its President or one of
its Senior Vice Presidents,
<PAGE>
23
and its corporate seal to be hereto affixed and said seal and this Supplemen-
tal Indenture to be attested by one of its Corporate Trust Officers, all as of
the 11th day of February, One thousand nine hundred and ninety-four.
Potomac Electric Power Company
(Corporate Seal)
By .........................................
DENNIS R. WRAASE,
Senior Vice President
Attested:
...................................
MARY T. HOWARD,
Assistant Secretary
Signed, sealed and delivered by
Potomac Electric Power Company
in the .presence of:
...................................
...................................
As Witnesses
The Riggs National Bank
of Washington, D.C.
(Corporate Seal)
By .........................................
ALEXANDER C. BAKER,
Senior Vice President
Attested:
...................................
BEVERLY MOFFETT
Senior Corporate Trust Officer
Signed, sealed and delivered by The
Riggs National Bank of Washington,
D.C. in the presence of:
...................................
...................................
As Witnesses
<PAGE>
24
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, a Notary Public in and for the District of Columbia, United States
of America, whose commission as such will expire , do hereby certify
that Dennis R. Wraase and Mary T. Howard, whose names as Senior Vice President
and Assistant Secretary, respectively, of Potomac Electric Power Company, a
corporation, are signed to the foregoing and hereto attached deed, bearing
date as of the 11th day of February, 1994, personally appeared this day before
me in my District aforesaid and acknowledged themselves to be, respectively, a
Senior Vice President and an Assistant Secretary of Potomac Electric Power
Company, and that they as such, being authorized so to do, executed the said
deed by signing the name of Potomac Electric Power Company by Dennis R.
Wraase, as Senior Vice President, and attested by Mary T. Howard, as Assistant
Secretary, and acknowledged the same before me in my District aforesaid and
acknowledged the foregoing instrument to be the act and deed of Potomac Elec-
tric Power Company.
Given under my hand and official seal this day of February, 1994.
(Notarial Seal)
............................................
Notary Public
District of Columbia
<PAGE>
25
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that Dennis R. Wraase, Senior Vice Presi-
dent of Potomac Electric Power Company, a corporation, one of the parties to
the foregoing instrument bearing date as of the 11th day of February, 1994,
and hereto annexed, this day personally appeared before me in the City of
Washington, the said Dennis R. Wraase being personally well known to me as the
person who executed the said instrument as Senior Vice President of and on be-
half of said Potomac Electric Power Company and known to me to be the attor-
ney-in-fact duly appointed therein to acknowledge and deliver said instrument
on behalf of said corporation, and, as such attorney-in-fact, he acknowledged
said instrument to be the act and deed of said Potomac Electric Power Company,
and delivered the same as such. I further certify that the said Dennis R.
Wraase, being by me duly sworn, did depose and say that he knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal and was so affixed by order of the Board of Directors of said corpora-
tion; and that he signed his name thereto by like order. My commission expires
.
Given under my hand and official seal this day of February, 1994.
(Notarial Seal)
............................................
Notary Public
District of Columbia
<PAGE>
26
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that Alexander C. Baker and Beverly
Moffett, whose names as Senior Vice President and Senior Corporate Trust Offi-
cer, respectively, of The Riggs National Bank of Washington, D.C., a corpora-
tion, are signed to the foregoing and hereto attached deed, bearing date as of
the 11th day of February, 1994, personally appeared before me this day in my
District aforesaid and acknowledged themselves to be, respectively, a Senior
Vice President and a Senior Corporate Trust Officer of The Riggs National Bank
of Washington, D.C., and that they as such, being authorized so to do, exe-
cuted the said deed by signing the name of The Riggs National Bank of Washing-
ton, D.C. by Alexander C. Baker as Senior Vice President, and attested by Bev-
erly Moffett, as Senior Corporate Trust Officer, and acknowledged the same be-
fore me in my District aforesaid and acknowledged the foregoing instrument to
be the act and deed of The Riggs National Bank of Washington, D.C., as therein
set forth.
Given under my hand and notarial seal this day of February, 1994.
(Notarial Seal)
............................................
Notary Public
District of Columbia
My Commission Expires
<PAGE>
27
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
Alexander C. Baker, of full age, being sworn according to law, on his oath
deposes and says that he is a Senior Vice President of The Riggs National Bank
of Washington, D.C., the Trustee named in the foregoing Supplemental Inden-
ture, dated as of the 11th day of February, 1994, that he is the agent of said
Trustee for the purpose of perfecting such Supplemental Indenture and that the
consideration in the Original Indenture referred to therein and in all inden-
tures supplemental to said Original Indenture, including the foregoing Supple-
mental Indenture, is true and bona fide as therein set forth.
............................................
Alexander C. Baker
Subscribed and sworn to before me
this day of February, 1994.
...................................
Notary Public
District of Columbia
My Commission Expires
(Notarial Seal)
<PAGE>
28
++
City of Washington, +
District of Columbia, ++ ss.:
+
++
I, , a Notary Public in and for the District of Columbia, United
States of America, do hereby certify that Alexander C. Baker a Senior Vice
President of The Riggs National Bank of Washington, D.C., a corporation, one
of the parties to the foregoing instrument bearing date as of the 11th day of
February, 1994, and hereto annexed, this day personally appeared before me in
the City of Washington, the said Alexander C. Baker, being personally well
known to me as the person who executed the said instrument as a Senior Vice
President of and on behalf of said The Riggs National Bank of Washington,
D.C., and known to me to be the attorney-in-fact duly appointed therein to ac-
knowledge and deliver said instrument on behalf of said corporation, and, as
such attorney-in-fact, he acknowledged said instrument to be the act and deed
of said The Riggs National Bank of Washington, D.C., and delivered the same as
such. I further certify that the said Alexander C. Baker, being by me duly
sworn, did depose and say that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal and was so affixed by
order of the Board of Directors of said corporation; and that he signed his
name thereto by like order.
Given under my hand and official seal this day of February, 1994.
(Notarial Seal)
............................................
Notary Public
District of Columbia
My Commission Expires
<PAGE>
29
CERTIFICATE OF RESIDENCE
The Riggs National Bank of Washington, D.C., Mortgagee and Trustee within
named, hereby certifies that its precise residence is 800-17th Street, N.W.,
Washington, D.C. 20006.
The Riggs National Bank
of Washington, D.C.
By..........................................
Alexander C. Baker,
Senior Vice President
<TABLE>
Exhibit 11 Computations of Earnings Per Common Share <F1>
- ---------- ------------------------------------------
The following is the basis for the computation of primary and
fully
diluted earnings per common share for each of the years 1993, 1992
and 1991:
<CAPTION>
1993 1992
1991
------------
- ------------ ------------
<S> <C> <C>
<C>
Average shares outstanding for
computation of primary earnings
per common share 115,639,668
112,389,698 105,911,450
============
============ ============
Average shares outstanding for
fully diluted computation:
Average shares outstanding 115,639,668
112,389,698 105,911,450
Additional shares resulting from:
Conversion of Serial Preferred
Stock, $2.44 Convertible Series
of 1966 (the "Convertible
Preferred Stock") 51,967
57,542 80,044
Conversion of 7% Convertible
Debentures 2,546,858
2,603,912 2,657,451
Conversion of 5% Convertible
Debentures 3,392,500
1,130,833 -
------------
- ------------ ------------
Average shares outstanding for
computation of fully diluted
earnings per common share 121,630,993
116,181,985 108,648,945
============
============ ============
Earnings applicable to common
stock, before cumulative effect
of accounting change $225,324,000
$186,368,000 $197,866,000
Cumulative effect of accounting
change, net of income taxes -
16,022,000 -
------------
- ------------ ------------
Earnings applicable to common stock,
as reported 225,324,000
202,390,000 197,866,000
Add: Dividends paid or accrued on
Convertible Preferred Stock 22,000
24,000 35,000
Interest paid or accrued on
Convertible Debentures,
net of related taxes 6,548,000
4,303,000 3,163,000
------------
- ------------ ------------
Earnings applicable to common stock,
including cumulative effect of
accounting change and assuming
conversion of convertible securities $231,894,000
$206,717,000 $201,064,000
============
============ ============
Primary earnings per common share
Before cumulative effect $1.95
$1.66 $1.87
Cumulative effect -
0.14 -
-----
- ----- -----
Total $1.95
$1.80 $1.87
=====
===== =====
Fully diluted earnings per common share
Before cumulative effect $1.91
$1.64 $1.85
Cumulative effect -
0.14 -
-----
- ----- -----
Total $1.91
$1.78 $1.85
=====
===== =====
</TABLE>
<F1> This calculation is submitted in accordance with Regulation
S-K
item 601 (b) (11) although not required by footnote 2 to
paragraph 14
of APB No. 15 because it results in dilution of less than 3%.
<TABLE>
Exhibit 12 Computation of Ratios
- ---------- ---------------------
The computations of the coverage of fixed charges, excluding
the
cumulative effect of the 1992 accounting change, before income
taxes, and the
coverage of combined fixed charges and preferred dividends for each
of the
years 1993 through 1989 on the basis of parent company operations
only, are as
follows.
<CAPTION>
For the
Year Ended December 31,
- -----------------------------------------------------
1993 1992
1991 1990 1989
--------- ---------
- --------- --------- ---------
(Thousands of Dollars)
<S> <C> <C>
<C> <C> <C>
Net income before cumulative effect
of accounting change $216,478 $172,599
$186,813 $165,199 $183,487
Taxes based on income 107,223 76,965
80,988 70,962 92,593
-------- --------
-------- -------- --------
Income before taxes and cumulative effect
of accounting change 323,701 249,564
267,801 236,161 276,080
-------- --------
-------- -------- --------
Fixed charges:
Interest charges 141,393 138,097
138,512 127,386 113,305
Interest factor in rentals 5,859 6,140
5,690 4,237 4,338
-------- --------
-------- -------- --------
Total fixed charges 147,252 144,237
144,202 131,623 117,643
-------- --------
-------- -------- --------
Income before income taxes, cumulative
effect of accounting change and
fixed charges $470,953 $393,801
$412,003 $367,784 $393,723
======== ========
======== ======== ========
Coverage of fixed charges 3.20 2.73
2.86 2.79 3.35
==== ====
==== ==== ====
Preferred dividend requirements $16,255 $14,392
$12,298 $10,598 $9,235
-------- --------
-------- -------- --------
Ratio of pre-tax income to net income 1.50 1.45
1.43 1.43 1.50
---- ----
---- ---- ----
Preferred dividend factor $24,383 $20,868
$17,586 $15,155 $13,853
-------- --------
-------- -------- --------
Total fixed charges and preferred dividends $171,635 $165,105
$161,788 $146,778 $131,496
======== ========
======== ======== ========
Coverage of combined fixed charges
and preferred dividends 2.74 2.39
2.55 2.51 2.99
==== ====
==== ==== ====
</TABLE>
<TABLE>
Exhibit 12 Computation of Ratios
- ---------- ---------------------
The computations of the coverage of fixed charges, excluding
the
cumulative effect of the 1992 accounting change, before income
taxes, and the
coverage of combined fixed charges and preferred dividends for each
of the
years 1993 through 1989 on a fully consolidated basis are as
follows.
<CAPTION>
For the
Year Ended December 31,
- -----------------------------------------------------
1993 1992
1991 1990 1989
--------- ---------
- --------- --------- ---------
(Thousands of Dollars)
<S> <C> <C>
<C> <C> <C>
Net income before cumulative effect
of accounting change $241,579 $200,760
$210,164 $170,234 $214,587
Taxes based on income 62,145 79,481
80,737 63,360 99,766
-------- --------
-------- -------- --------
Income before taxes and cumulative effect
of accounting change 303,724 280,241
290,901 233,594 314,353
-------- --------
-------- -------- --------
Fixed charges:
Interest charges 221,312 226,453
225,323 199,469 165,709
Interest factor in rentals 9,257 6,599
6,080 4,559 4,705
-------- --------
-------- -------- --------
Total fixed charges 230,569 233,052
231,403 204,028 170,414
-------- --------
-------- -------- --------
Nonutility subsidiary capitalized interest (2,059) (2,200)
(6,542) - -
-------- --------
-------- -------- --------
Income before income taxes, cumulative
effect of accounting change and
fixed charges $532,234 $511,093
$515,762 $437,622 $484,767
======== ========
======== ======== ========
Coverage of fixed charges 2.31 2.19
2.23 2.14 2.84
==== ====
==== ==== ====
Preferred dividend requirements $16,255 $14,392
$12,298 $10,598 $9,235
-------- --------
-------- -------- --------
Ratio of pre-tax income to net income 1.26 1.40
1.38 1.37 1.46
---- ----
---- ---- ----
Preferred dividend factor $20,481 $20,149
$16,971 $14,519 $13,483
-------- --------
-------- -------- --------
Total fixed charges and preferred dividends $251,050 $253,201
$248,374 $218,547 $183,897
======== ========
======== ======== ========
Coverage of combined fixed charges
and preferred dividends 2.12 2.02
2.08 2.00 2.64
==== ====
==== ==== ====
</TABLE>
Exhibit 13
Financial Information
- ---------------------
Potomac Electric Power Company and Subsidiaries
Contents
- --------
Management's Discussion and Analysis of
Consolidated Results of Operations and
Financial Condition...................................... 2
Management's Report on the Consolidated Financial
Statements............................................... 22
Report of Independent Accountants.......................... 23
Consolidated Statements of Earnings........................ 24
Consolidated Balance Sheets................................ 25
Consolidated Statements of Cash Flows...................... 27
Notes to Consolidated Financial Statements................. 28
Selected Consolidated Financial Data....................... 61
Explanation of Graphic Material.................... Appendix A
1
Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition
- ----------------------------------------------------
GENERAL
- -------
As an investor-owned electric utility, Potomac Electric Power
Company (the Company, PEPCO) is capital intensive, with a gross
investment in property and plant of approximately $3 for each $1
of annual total revenue. The costs associated with property and
plant investment amounted to 48% of the Company's total revenue
in 1993. Fuel and purchased energy, capacity purchase payments
and other operating expenses were 52% of total revenue. The
Company's principal wholly-owned subsidiary, Potomac Capital
Investment Corporation (PCI), conducts nonutility investment
programs with the objective of supplementing current utility
earnings and building long-term shareholder value.
The information set forth below discusses the results of
operations, capital resources and liquidity during the period
1991 through 1993 for the Company and PCI.
The Company's earnings for common stock during 1993 totaled
$225.3 million, as compared to $202.4 million in 1992. The 1992
earnings for common stock included the $16 million cumulative
effect of the accounting change for unbilled revenues. See the
discussion included in Note (1) of the Notes to Consolidated
Financial Statements, Summary of Significant Accounting Policies.
With a 1993 increase of 3.3 million in the average number of
common shares outstanding, earnings per share for common stock
increased from $1.80 in 1992 (including $.14 for the accounting
change) to $1.95 for 1993. Earnings for 1993 reflect the effect
on electricity sales and revenues of warmer than average weather
during the 1993 summer cooling season, and the effects of the
1992 and 1993 base rate increases in Maryland and the 1992 base
rate increase in the District of Columbia.
2
UTILITY
- -------
Results of Operations
- ---------------------
Total Revenue
- -------------
The changes in total revenue are shown in the following table.
- -----------------------------------------------------------------
Increase (Decrease)
from Prior Year
1993 1992 1991
- -----------------------------------------------------------------
(Millions of Dollars)
Change in kilowatt-hour sales $ 87.0 $(39.1) $ 61.1
Change in base rate revenues 45.4 71.8 51.2
Change in fuel adjustment clause
billings to cover cost of
fuel and interchange 8.0 (19.2) 22.5
Change in other revenue (.1) (3.4) 5.6
------ ----- -----
Change in Operating Revenue 140.3 10.1 140.4
------ ------ ------
Change in interchange deliveries (16.7) (27.9) (22.8)
------ ------ ------
Change in Total Revenue $123.6 $(17.8) $117.6
====== ====== ======
- -----------------------------------------------------------------
The $45.4 million change in 1993 base rate revenues compared
to 1992 reflects the effects of Maryland rate increases of $7.3
million (effective June 1993) and $27 million (effective November
1993) and the continued effect of 1992 rate increases in both of
the Company's retail jurisdictions. Also, 1993 revenues reflect
warmer than average weather during the summer billing months of
June through October, when base rates are high to encourage
customer conservation and peak load shifting. Base rate revenues
for 1992 compared to 1991 were increased by approximately $9
million from a gross receipts tax rate increase implemented in
the District of Columbia in July 1991, and in effect throughout
1992, and approximately $14 million from higher fuel and energy
taxes in Montgomery County, Maryland; also by a $30.4 million
District of Columbia rate increase (effective July 1992) and a
$25.3 million Maryland rate increase, of which $18 million became
effective in December 1992. Mild weather during the peak period
summer billing months June through October had an adverse effect
3
on 1992 revenues. Base rate revenues for 1991 compared to 1990
were increased by approximately $11 million as the result of a
higher gross receipts tax rate in the District of Columbia and
$12 million from higher fuel and energy taxes in Montgomery
County, Maryland; also by a $19.7 million Maryland rate increase
(effective June 1991) and by a $19.7 million District of Columbia
rate increase (effective October 1991). Decreases in revenue from
interchange deliveries for 1993, 1992 and 1991 reflect a decline
in energy delivered to the Pennsylvania-New Jersey-Maryland (PJM)
Interconnection. Interchange deliveries continue to be a
component of the Company's fuel rates.
(Graphic Material - 1993 Use of Revenue presented in pie chart
format - See Appendix A 1.)
Kilowatt-hour Sales
- -------------------
- -----------------------------------------------------------------
1993 1992
over over
1993 1992 1991 1992 1991
- -----------------------------------------------------------------
(Millions of Kilowatt-hours)
By Customer Type
Residential 6,727 6,142 6,488 9.5% (5.3)%
Commercial 11,751 11,391 11,321 3.2 .6
U.S. Government 3,986 3,948 4,016 1.0 (1.7)
D.C. Government 903 873 862 3.4 1.3
Wholesale 2,327 2,130 2,109 9.2 1.0
------ ------ ------
Total energy sales 25,694 24,484 24,796 4.9 (1.3)
====== ====== ======
Interchange
Energy deliveries 483 771 1,773 (37.4) (56.5)
====== ====== ======
By Geographic Area
Maryland, including
wholesale 15,319 14,441 14,601 6.1 (1.1)
District of Columbia 10,375 10,043 10,195 3.3 (1.5)
------ ------ ------
Total energy sales 25,694 24,484 24,796 4.9 (1.3)
====== ====== ======
- -----------------------------------------------------------------
The increase in kilowatt-hour sales in 1993 reflects
increased customer usage during the summer cooling season due to
warmer than average weather. Cooling degree hours during 1993
were 97% above those in 1992 and 22% above the 20-year average.
The decrease in kilowatt-hour sales in 1992, the first decline in
sales since 1974, was primarily due to decreased customer usage,
especially by residential customers, during the summer cooling
4
season due to cooler than average weather. Cooling degree hours
during the 1992 summer billing months (June through October) were
41% below the corresponding period in 1991 and 35% below the
20-year average weather for this period.
Assuming future weather conditions approximate historical
averages, the Company expects its compound annual growth in
kilowatt-hour sales to range between 1% and 2% over the next
decade. The sales growth over the last three years is below the
previous rates of growth due to the effects of the recession on
the Company's service territory and the operation of the
Company's conservation and energy use management programs.
The Company's 1993 summer peak demand was 5,754 megawatts,
3.8% higher than the 1992 peak demand of 5,546 megawatts and .3%
below the all-time summer peak demand of 5,769 megawatts which
occurred in July 1991. The Company's present generation
capability, including capacity purchase contracts, is 6,576
megawatts. To meet the 1993 summer peak demand, the Company had
201 megawatts available from its dispatchable energy use
management programs. Based on average weather conditions, the
Company estimates that its peak demand will grow at a compound
annual rate of approximately 1%, reflecting continuing emphasis
on conservation and energy use management programs and
anticipated service area growth trends. A new winter peak demand
of 5,010 megawatts was established in January 1994, which was
11.1% above the previous all-time winter peak demand of 4,511
megawatts which occurred in December 1989.
Operating Expenses
- ------------------
Fuel, Purchased Energy and Capacity Purchase Payments
- -----------------------------------------------------
1993 1992 1991
- -----------------------------------------------------------------
(Millions of Dollars)
Fuel expense $354.3 $345.5 $387.1
------ ------ ------
Purchased energy
PJM receipts 108.9 94.6 62.9
Other purchases 64.5 72.0 113.6
------ ------ ------
Total purchased energy 173.4 166.6 176.5
------ ------ ------
Fuel and purchased energy $527.7 $512.1 $563.6
====== ====== ======
Capacity purchase payments $ 96.3 $ 95.5 $ 94.8
====== ====== ======
- -----------------------------------------------------------------
5
Net System Generation and Purchased Energy were as follows.
- -----------------------------------------------------------------
1993 1992 1991
- -----------------------------------------------------------------
(Millions of Kilowatt-hours)
Net system generation 19,145 18,274 20,296
====== ====== ======
Purchased energy 8,448 8,251 7,856
====== ====== ======
- -----------------------------------------------------------------
(Graphic Material - Cooling Degree Hours presented in bar chart
format - See Appendix A 2.)
The 1993 increase in fuel expense primarily reflects a 4.8%
increase in net generation resulting from the increase in
kilowatt-hour sales. The Company's ability to purchase low-cost
economy energy from PJM helped keep the increase in fuel expense
to a minimum. The 1992 and 1991 decreases in fuel expense
primarily reflect decreases in net generation and increased
purchases of low-cost economy energy from PJM.
The Company's unit costs of fuel burned and the percentages
of system fuel requirements obtained from coal, oil and natural
gas were as shown in the following table.
- -----------------------------------------------------------------
Percent of Unit Cost
Fuel Burned of Fuel Burned
------------------- --------------------------------
System
Coal Oil Gas Coal Oil Gas Average
- -----------------------------------------------------------------
(Per Million Btu)
1993 79.4 17.4 3.2 $1.72 $2.55 $2.88 $1.90
1992 82.9 12.6 4.5 1.72 2.50 2.32 1.85
1991 81.7 13.4 4.9 1.78 2.76 2.18 1.93
- -----------------------------------------------------------------
The system average unit fuel costs continued a generally
downward trend over the 1991-1993 period. The increase of
approximately 3% in the 1993 system average unit fuel cost
compared with the 1992 system average resulted from increased use
of major cycling and peaking generation units which burn higher
cost fuels. The Company's major cycling and certain peaking
units can burn natural gas or oil, adding flexibility in
selecting the most cost-effective fuel mix. In addition, the new
Dickerson combustion turbine units resulted in the displacement
of generation from older, less cost-effective units.
6
The Company's generating and transmission facilities are
interconnected with the other members of PJM and other utilities.
The pricing of most PJM internal economy energy transactions is
based upon "split savings" so that the price of such energy is
halfway between the cost that the purchaser would incur if the
energy were supplied by its own sources and the cost of
production to the company actually supplying the energy.
In addition to PJM interchange activity, the Company has
interconnection agreements with Allegheny Power System (APS) and
Virginia Power. These agreements provide a mechanism and the
flexibility to purchase power from these parties or from others
with whom they are interconnected on an as-needed basis in
amounts mutually agreed to from time-to-time pursuant to
negotiated rates, terms and conditions. "Other Purchases" above
includes the cost of this energy together with purchases of
energy from Ohio Edison under the Company's 1987 long-term
capacity purchase agreements with Ohio Edison and APS.
The capacity purchase payments referred to in the table
above include capacity costs incurred under agreements with Ohio
Edison and Southern Maryland Electric Cooperative, Inc. (SMECO),
which compare favorably with other long-term capacity and energy
alternatives.
Pursuant to the Company's long-term capacity purchase
agreements with Ohio Edison and APS, the Company is purchasing
450 megawatts of capacity and associated energy through the year
2005. The cost of capacity under these agreements increased from
$12,380 per megawatt, per month, in 1993 to $18,060 per megawatt,
per month, effective January 1, 1994, plus an allocation of fixed
operating and maintenance expenses, with provision for escalation
in 1999.
(Graphic Material - System Fuel Costs presented in line chart
format - See Appendix A 3.)
The Company began a 25-year purchase agreement in 1990 with
SMECO for 84 megawatts of capacity supplied by a combustion
turbine installed and owned by SMECO at the Company's Chalk Point
Generating Station. The Company is responsible for all costs
associated with operating and maintaining the facility. The
capacity payment to SMECO is approximately $462,000 per month.
Other Operation and Maintenance Expenses
- ----------------------------------------
Other operation and maintenance expenses totaled $301.5 million
for 1993. These expenses increased by $6.2 million (2.1%), $8.1
million (2.8%) and $11.8 million (4.3%) in 1993, 1992 and 1991,
respectively. The relative stability in other operation and
maintenance expense was achieved through the Company's budget and
7
cost control disciplines, which have resulted in a decline in the
number of Company employees and other programs to curb increases
in expenses. For 1993, other operation expense included $9.3
million for the accrual of postretirement expenses other than
pensions, pursuant to Statement of Financial Accounting Standards
(SFAS) No. 106. See the discussion of New Accounting Standards
below.
Depreciation and Amortization Expense, Income Taxes and
Other Taxes
- -------------------------------------------------------
Depreciation and amortization expense increased by $13.8 million
(9.2%), $15.4 million (11.5%) and $10.5 million (8.5%) in 1993,
1992 and 1991, respectively, due to additional investment in
property and plant and amortization of increased amounts of
conservation program costs. Income taxes increased due to the
higher federal income tax rate which became effective in 1993 and
higher taxable income. Other taxes increased by $7.1 million
(3.6%), $27.7 million (16.6%) and $32.6 million (24.4%) in 1993,
1992 and 1991, respectively. The increases reflect changes in
the levels of operating revenues and plant investment upon which
taxes are based. The substantial 1992 and 1991 increases
resulted from increases in gross receipts and fuel and energy tax
rates.
Other Income, Net Utility Interest Charges and Allowance
for Funds Used During Construction
- --------------------------------------------------------
Other income reflects the net earnings from the Company's
nonutility subsidiary of $25.1 million in 1993, $28.2 million in
1992 and $23.4 million in 1991. See the Nonutility Subsidiary
discussion below and the discussion included in Note (14) of the
Notes to Consolidated Financial Statements, Selected Nonutility
Subsidiary Financial Information. Other income also reflects
accrued capital cost recovery factor amounts in "Other, net" of
$8 million and $2.9 million in 1993 and 1992, respectively, and
$2.8 million in 1993 from the adoption of SFAS No. 109. See the
discussion of New Accounting Standards below.
Net utility interest charges were relatively stable during
the three-year period 1991 through 1993, notwithstanding
increased levels of borrowing. Short-term borrowing costs have
remained relatively low and, with the refinancing of higher cost
issues, the average cost of outstanding long-term utility debt
declined from 8.24% at the beginning of 1991 to 7.68% at the end
of 1993. Allowance For Funds Used During Construction (AFUDC)
credits, which decreased in 1993 and 1992, and increased in 1991,
relate to portions of the Company's Construction Work In Progress
investment. See the Construction and Capacity Additions
discussion below.
8
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
The Company's total investment in property and plant, at original
cost, was $5.7 billion at year-end 1993. Investment in property
and plant construction, net of AFUDC, was $1 billion for the
period 1991 through 1993.
Internally generated cash from utility operations, after
dividends, totaled $287.8 million for the period 1991 through
1993. Sales of First Mortgage Bonds, Medium-Term Notes,
Convertible Debentures, Serial Preferred Stock and Common Stock
during the period 1991 through 1993 provided a total of $1.4
billion. During the years 1991 through 1993, the Company retired
$779.9 million in outstanding long-term securities, including
refinancings, scheduled debt maturities and sinking fund
retirements. Interim financing was provided principally through
the issuance of short-term commercial promissory notes. During
the three-year period 1994 through 1996, capital resources of $71
million will be required to meet scheduled debt maturities and
sinking fund requirements, and additional amounts will be
required for working capital and other needs. Approximately $735
million is expected to be available from depreciation and
amortization charges and income tax deferrals over the three-year
period.
During 1993, the Company sold $530 million principal amount
of First Mortgage Bonds, $96 million of Common Stock and short-
term borrowings increased by $233 million. Proceeds were used to
meet construction requirements of $300 million and scheduled debt
maturities, sinking fund requirements and the refinancing of
higher cost debt totaling $628.4 million. On January 12, 1994,
the Company sold, at par, $50 million of 6-1/4% Medium-Term Notes
due in 2009 and, at 98.494%, $50 million of 7% Medium-Term Notes
due in 2024. See the discussion included in Notes (7) and (10)
of the Notes to Consolidated Financial Statements, Common Equity
and Long-Term Debt, respectively, for details of these securities
transactions.
Reflecting the refinancings of debt and the respective
principal amounts outstanding, total annualized interest costs
for all utility long-term debt outstanding at December 31, 1993
was $114 million, compared with $131.9 million and $126.4 million
at December 31, 1992 and 1991, respectively.
Dividends on preferred stock were $16.3 million in 1993,
$14.4 million in 1992 and $12.3 million in 1991. The embedded
cost of preferred stock declined from 6.53% at December 31, 1990,
to 6.2% at December 31, 1993.
9
The Company's capitalization ratios (excluding nonutility
subsidiary debt), at December 31, 1993, are presented below.
- -----------------------------------------------------------------
Excluding Including
Amounts Due Amounts Due
In One Year In One Year
- -----------------------------------------------------------------
Long-term debt 41.7% 38.5%
Redeemable serial preferred stock 3.8 3.6
Serial preferred stock 3.3 3.0
Common equity 51.2 47.3
Short-term debt and amounts due in
one year - 7.6
----- -----
Total capitalization 100.0% 100.0%
===== =====
- -----------------------------------------------------------------
Year-end 1993 outstanding utility short-term indebtedness
totaled $294.6 million compared with $61.6 million and $86.8
million at the end of 1992 and 1991, respectively. At year-end
1993, the formula adopted by the Securities and Exchange
Commission would have permitted the Company to issue, without
registration, a total of $426 million in commercial promissory
notes.
The Company has, with respect to its utility operations, $90
million in revolving credit agreements with 11 banks and
conventional bank line of credit agreements of $215.5 million
with 21 banks. There were no outstanding borrowings under these
arrangements during 1993, 1992 and 1991.
Construction and Capacity Additions
- -----------------------------------
Construction expenditures, excluding AFUDC, are projected to
total $1.3 billion for the five-year period 1994 through 1998,
which includes $203 million of estimated Clean Air Act
expenditures. Making use of the flexibilities in its long-term
construction plan, the Company reduced projected expenditures for
the five years 1994 through 1998 by a total of $315 million from
amounts previously planned. The construction reductions and
deferrals were associated with lower rates of projected growth in
usage of electricity resulting in large part from implementing
economical conservation programs. The Company plans to finance
its construction program through funds provided by operations and
external financing.
10
On June 1, 1993, the Company placed in service the second
element of a combined-cycle unit, consisting of a 139-megawatt
combustion turbine generating unit, at the Dickerson Generating
Station located in Montgomery County, Maryland. The first 139-
megawatt combustion turbine generating unit was placed in service
on June 1, 1992. The total cost of the two combustion turbine
units currently in service was $162 million. These generating
units are primarily fueled by natural gas but can also burn No. 2
fuel oil. The Dickerson project plan provides for two
combined-cycle units with the capability of adding a coal
gasification facility, should future unit price differentials
among coal, oil and gas make gasification economically
attractive. The Company's construction schedule is flexible in
order to accommodate changes in future growth and the addition of
nonutility generation. Currently, no additional units are
scheduled for the Dickerson combined-cycle project until after
the year 2003.
In 1991, the Company signed an agreement with Panda Energy
Corporation for a 230-megawatt gas-fueled combined-cycle
cogeneration project in Prince George's County, Maryland, which
is scheduled for service in 1996. The project is currently
before the Maryland Public Service Commission for issuance of a
certificate of convenience and necessity. In addition, the
Company has signed a contract for a 40-megawatt resource recovery
facility which is now under construction in Montgomery County,
Maryland. In November 1993, after failing to obtain final
building permits from the District of Columbia, Dominion Energy
terminated its contract to build a 56-megawatt combined-cycle
cogeneration facility at Georgetown University. The Company
currently projects that contracted nonutility generation and the
Company's commitment to conservation and energy use management
will provide adequate reserve margins to meet customers' needs
for the next decade.
Although it is not possible to forecast specific impacts of
the National Energy Act legislation enacted during 1992, the
Company has substantial flexibility to anticipate and deal with
changing conditions and increased competition in the generation
and transmission of electricity. Since the early 1980s, the
Company has pursued strategies which achieve flexibility through
conservation and energy use management, extension of the useful
life of generating equipment, cost-effective purchase of capacity
and energy and preservation of scheduling flexibility to add new
generating capacity in relatively small increments to meet
changing requirements. The Company is a low-cost energy producer
with customer prices which compare favorably with regional and
national averages.
(Graphics Material - Construction Expenditures presented in bar
chart format - See Appendix A 4.)
11
Conservation and Energy Use Management
- --------------------------------------
The Company's conservation and energy use management programs are
designed to curb growth in demand in order to defer the need for
construction of additional generating capacity and to
cost-effectively increase the efficiency of energy use. The
Company offers an extensive array of comprehensive conservation
programs for its customers in the District of Columbia and
Maryland.
The Company's programs for residential customers include
various types of incentives to encourage the design of
energy-efficient homes and the purchase and installation of
energy-efficiency measures. These incentives include customer
rebates for energy efficient appliances, bonuses to contractors
who build homes that meet high energy-efficiency standards,
coupons which offer significant discounts to customers who
purchase energy-efficient lights and water heater conservation
measures and, commencing in 1993, a program to directly install,
at no cost to the customer, lighting and water heater tank wraps
in single-family, apartment and condominium residences. During
1993, the Company also initiated an appliance recycling program
for customers, by offering payments for inefficient, but still
functioning, refrigerators, air conditioners and freezers.
The Company's programs for commercial customers offer a
variety of approaches to encourage conservation, including design
consultation and technical assistance at no fee, equipment
rebates to developers and designers, cash incentives to customers
who install energy-efficiency measures ranging from lighting to
efficient motors and equipment, and, for small commercial
customers, direct installation of efficient lighting and other
measures at no-cost to the customer. During 1993, as part of the
Custom Rebate program, the Company encouraged customers with
older chillers to replace them with new high efficiency chillers.
Also, the Company began offering loans on a pilot basis to
commercial customers for efficiency improvements.
The Company continues to aggressively identify, design, and
test additional energy efficient conservation measures and
technologies.
The Company receives rate recognition for the cost of its
conservation programs in its Maryland jurisdiction through a rate
surcharge which permits the Company to earn a return on its
conservation investment while receiving compensation for lost
revenues. The cost recovery mechanism also allows the Company to
earn a performance bonus for exceeding established goals. The
surcharge is adjusted periodically to reflect the Company's
growing conservation commitment.
12
The District of Columbia Public Service Commission has
established a comprehensive framework which provides for a return
on conservation investments, the receipt of compensation for lost
revenues and incentives for achieving demand side management
goals. The Company has proposed, in connection with its pending
District of Columbia rate case, a surcharge mechanism similar to
the Maryland surcharge and, with respect to future lost revenues,
an adjustment mechanism which reconciles or decouples sales and
revenues.
During 1993, the Company also continued to operate and
expand its energy use management programs. In 1993,
approximately 134,000 customers participated in programs which
cycle air conditioners and water heaters during peak periods. In
addition, the Company operates a commercial load program which
provides incentives to customers for reducing energy use during
peak periods. Time-of-use rates have been in effect since the
early 1980s and currently approximately 60% of the Company's
revenues are based on time-of-use rates.
It is estimated that peak load reductions of approximately
390 megawatts have been achieved to date from conservation and
energy use management programs and that additional peak load
reductions of over 500 megawatts will be achieved in the next
five years. The Company also estimates that energy savings of
more than 450 million kilowatt-hours have been realized through
operation of its conservation and energy use management programs
through 1993. During the next five years, the Company plans to
expend an estimated $525 million to encourage the efficient use
of electric energy and to reduce the need to build new generating
facilities.
CLEAN AIR ACT
- -------------
The Company has developed cost-effective plans for complying with
the Clean Air Act (CAA) which requires the reduction of sulfur
dioxide and nitrogen oxides emissions in two phases to achieve
prescribed standards. The Company anticipates CAA related
capital expenditures totaling $203 million over the next five
years. The plans call for replacement of boiler burner equipment
for nitrogen oxides emissions control, the use of lower-sulfur
fuel and cofiring with natural gas at selected baseload plants.
The CAA allows companies to achieve required emission levels by
using a market-based emission allowance trading system. If
economical, emission allowances may be purchased in lieu of
burning lower-sulfur fuel.
13
The Company owns a 9.72% undivided interest in the Conemaugh
Generating Station located in western Pennsylvania. As a result
of installing flue gas scrubbing equipment to meet Phase I
requirements of the CAA, this station will receive additional
allowances. The Company's share of these "bonus" allowances may
be used to reduce the need for lower-sulfur fuel at its other
plants. The Company's share of the construction cost for the
flue gas scrubbing equipment is approximately $38 million.
Installation of scrubbers is not contemplated for the
Company's wholly-owned plants. Both the District of Columbia and
Maryland commissions have approved the Company's plans for
meeting Phase I requirements including cost recovery of
investment and inclusion of emission allowance expenses in the
Company's fuel adjustment clause.
BASE RATE PROCEEDINGS
- ---------------------
The Company is subject to utility rate regulation based upon the
historical costs of plant investment, using recent test years to
measure the cost of providing service. The rate-making process
does not give recognition to the current cost of replacing plant;
however, the regulatory commissions are required by law to
provide a reasonable opportunity to earn a fair rate of return on
new plant investments which are required to replace existing
plant at the time replacement of facilities actually occurs. The
regulatory commissions have authorized fuel rates which provide
for billing customers for the actual cost of fuel and interchange
on a timely basis. The impact of inflation on the Company's
future results of operations cannot be projected since it will be
dependent, in part, on the timeliness of rate decisions and the
extent to which rate changes are based upon current costs of
providing service.
Annual base rate increases and decreases which became
effective during the period 1991 through 1993 are shown below.
- -----------------------------------------------------------------
District
of
Year Total Maryland Columbia Wholesale
- -----------------------------------------------------------------
(Millions of Dollars)
1993 $ 38.1 $34.3 $ - $3.8
1992 51.2 18.0 30.4 2.8
1991 38.9 19.7 19.7 (.5)
------ ----- ----- ----
$128.2 $72.0 $50.1 $6.1
====== ===== ===== ====
- -----------------------------------------------------------------
14
Maryland
- --------
In October 1993, pursuant to a settlement agreement, the
Commission authorized a $27 million, or 3%, increase in base rate
revenues effective November 1, 1993. The settlement included a
new system composite depreciation rate of approximately 3.1%, up
from the 3% rate previously in effect. Prior to the settlement,
the Company had filed updated cost of service data which
demonstrated a need for a $49.9 million increase in Maryland base
rate revenue, based upon the requested return of 9.89% on average
rate base including a 12.75% return on common stock equity, 1993
federal tax legislation and the completed separate depreciation
case. In connection with the settlement agreement, no
determination was made with respect to rate of return. The rate
of return on common stock equity most recently determined for the
Company in a fully litigated rate case was 12.75% established by
the Commission in a June 1991 rate increase order.
In October 1992, pursuant to a settlement agreement, the
Commission authorized an increase in base rate revenues of
approximately 3% with $18 million effective December 1, 1992, and
$7.3 million effective June 1, 1993. No determination with
respect to rate of return was specified.
District of Columbia
- --------------------
In its pending base rate proceeding, the Company is currently
seeking a $55.4 million, or 8.2%, increase in base rate revenue,
based upon a return of 9.46% on average rate base including an
11.8% return on common stock equity. On June 4, 1993, the
Company had filed a base rate application requesting a $72.6
million increase in base rate revenue based upon a requested
return of 9.84% on average rate base including a 12.35% return on
common stock equity. The Company updated its initial June 1993
cost of service data filing to reflect subsequent events such as
final federal tax legislation changes, the effects of a new three
year labor agreement with its union employees, the settlement of
the United Mine Workers strike as it related to the Company's
coal inventory, cost of service revisions and an updated cost of
capital study. The requested increase in annual base rate
revenues is predicated on adoption by the Commission of the
Company's ratemaking proposal with respect to the demand side
management program costs, including treatment of lost revenues.
If the Commission concludes that this item should also be
recovered in base rates, an additional $22.2 million must be
added to the base rate revenue requirement for a total requested
increase in base rate revenues of $77.6 million. Hearings have
been completed, final briefs have been filed and the case is
before the Commission for its decision, which is expected to be
issued in early March 1994.
15
In June 1992, the Commission authorized a $30.4 million, or
4.6%, increase in base rate revenues effective July 7, 1992. The
authorized rates were based on a 9.96% rate of return on average
rate base, including a 12.35% return on common stock equity.
The Commission also approved a procedure for deferring purchased
capacity cost increases between rate cases, accruing a return on
the deferred amounts, and including such deferred amounts in
determining revenue requirements in future rate proceedings. In
February 1993, the Commission adopted a surcharge mechanism, to
become effective following the Company's next base rate case
discussed above, for recovery of the capital cost carrying
charges on CAA compliance costs between rate proceedings. The
Company is authorized to accrue a capital cost recovery factor on
applicable CAA costs while the surcharge rate is effective.
Wholesale
- ---------
The Company has a 10-year full service power supply contract with
SMECO, a wholesale customer. The contract period is to be
extended for an additional year on January 1 of each year, unless
notice is given by either party of termination of the contract at
the end of the 10-year period. The full service obligation can
be reduced by SMECO by up to 20% of its annual requirements with
a five-year advance notice for each such reduction.
SMECO rates were increased by $3.8 million and $2.8 million
effective January 1, 1993 and 1992, respectively.
In November 1993, the Company amended its contract with
SMECO, pending federal regulatory approval, to provide for rate
increases of $2.6 million, $2.3 million and $4.2 million
effective January 1, 1994, 1995 and 1996, respectively.
THE COVE POINT JOINT VENTURE
- ----------------------------
Subsidiaries of the Company and the Columbia Gas System, Inc.,
have formed a joint venture partnership to own and operate
natural gas storage and terminaling facilities at Cove Point,
Maryland, and an 87-mile natural gas pipeline that extends from
Cove Point to Loudoun, Virginia. These facilities are currently
owned by Columbia LNG Corporation, a Columbia Gas subsidiary.
In November 1993, the partnership filed a request with the
Federal Energy Regulatory Commission (FERC) for approval of
proposed natural gas peak-shaving services to local gas
distribution companies and other natural gas users beginning with
the winter heating season of 1995-96. With the recent
16
restructuring of the natural gas industry under FERC Order 636,
this price-competitive service will provide supply security and
operating flexibility to local distribution companies in meeting
their customers' service obligations.
One of the Company's principal strategic interests in the
Cove Point project is to secure a reliable and cost-effective
source of transportation for gas to fuel the generators at its
Chalk Point Generating Station. The Cove Point pipeline is the
sole means of delivering natural gas to southern Maryland where
Chalk Point is located. The Company is currently expanding Chalk
Point's fuel flexibility to burn increased amounts of gas to
comply with the CAA and minimize customer costs.
Under the agreement, Columbia LNG Corp. will contribute its
Cove Point terminal and pipeline assets in exchange for an equity
interest in the partnership, and the Company's subsidiaries will
invest up to $25 million in the form of equity and debt. This
investment will be used by the partnership to recommission
certain existing facilities at the terminal and construct a new
liquefaction unit that will be used in the peaking service. The
transaction is subject to Columbia's receipt of regulatory and
other approvals.
NEW ACCOUNTING STANDARDS
- ------------------------
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109 entitled
"Accounting for Income Taxes," and SFAS No. 106 entitled
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." See the discussion included in Notes (1), (3) and (4)
of the Notes to Consolidated Financial Statements, Summary of
Significant Accounting Policies, Pensions and Other
Postretirement Benefits and Income Taxes, respectively.
In November 1992, the Financial Accounting Standards Board
(FASB) issued SFAS No. 112 entitled "Employers' Accounting for
Postemployment Benefits," which will become effective for the
Company's 1994 consolidated financial statements. See the
discussion included in Note (3) of the Notes to Consolidated
Financial Statements, Pensions and Other Postretirement Benefits,
for additional information.
In May 1993, the FASB issued SFAS No. 115 entitled
"Accounting for Certain Investments in Debt and Equity
Securities," which will also become effective for the Company's
1994 consolidated financial statements. See the discussion
included in Note (14) of the Notes to Consolidated Financial
Statements, Selected Nonutility Subsidiary Financial Information.
17
ENVIRONMENTAL MATTERS
- ---------------------
The Company is subject to federal, state and local
legislation and regulation with respect to environmental matters,
including air and water quality and the handling of solid and
hazardous waste. As a result, the Company is subject to
environmental contingencies, principally related to possible
obligations to remove or mitigate the effects on the environment
of the disposal, effected in accordance with applicable laws at
the time, of certain substances at various sites. During 1993,
the Company was participating in environmental assessments and
cleanups under these laws at two federal Superfund sites and a
state site. While the total cost of remediation at these sites
may be substantial, the Company shares liability with other
potentially responsible parties. Based on the information known
to the Company at this time, management is of the opinion that
resolution of these matters will not have a material effect on
the results of operations or financial position of the Company.
In August 1993, the Company was served with Amended
Complaints filed in three jurisdictions (Prince George's County,
Baltimore City and Baltimore County) in separate ongoing,
consolidated proceedings each denominated "In re: Personal Injury
Asbestos Cases." The Company (and other defendants) were brought
into these cases on a theory of premises liability under which
plaintiffs argue that the Company was negligent in not providing
a safe work environment for employees of its contractors who
allegedly were exposed to asbestos while working on the Company's
property. Since the filings, a number of the individual suits
have been disposed of without any payment by the Company. While
the aggregate amount specified in the remaining suits would
exceed $1 billion, the Company believes the amounts are greatly
exaggerated as were the claims already disposed of. The amount
of total liability, if any, and any related insurance recovery
cannot be precisely determined at this time; however, based on
information and relevant circumstances known at this time, the
Company does not believe these suits will have a material adverse
effect on its financial position.
See the discussion included in Note (12) of the Notes to
Consolidated Financial Statements, Commitments and Contingencies,
for additional information.
18
NONUTILITY SUBSIDIARY
- ---------------------
RESULTS OF OPERATIONS
- ---------------------
PCI's net earnings totaled $25.1 million in 1993 compared with
$28.2 million in 1992 and $23.4 million in 1991. In 1993, PCI
contributed $.22 per share to PEPCO's consolidated earnings of
$1.95 per share. PCI contributed $.25, and $.22 per share to
PEPCO's 1992 and 1991 consolidated earnings per share,
respectively.
PCI generates income primarily from its leasing activities
and securities investments. Revenue from leasing activities,
which includes rental income, gains on asset sales, interest
income and fees, totaled $114.2 million in 1993 compared with
$122.1 million and $128.7 million in 1992 and 1991, respectively.
The decrease in income from leasing activities in 1993 as
compared to 1992 was due to decreased rental income from
operating leases which replaced leases for certain aircraft
returned by three lessees. The decrease in operating lease
rentals was partially offset by pre-tax gains from asset sales
totaling $7.3 million in 1993 compared to $4 million and $17.7
million in 1992 and 1991, respectively. Fee income in 1993
totaled $13.2 million compared with $4 million and $5.1 million
in 1992 and 1991, respectively.
PCI's marketable securities portfolio contributed pre-tax
income of $38.4 million in 1993 compared with $37.1 million and
$21.1 million in 1992 and 1991, respectively, which results
included net realized gains of $7 million in 1993 compared with
$7.5 million in 1992 and net losses of $7.7 million in 1991.
Other activities during 1993 resulted in a pre-tax loss of
$13.3 million which was primarily the result of a writedown of
approximately $13.5 million related to the termination of
obligations with respect to a real estate limited partnership
interest.
The decrease in 1993 earnings from this writedown and from
reduced operating lease income was partially offset by the
completion of a partnership transaction, whereby PCI contributed
aircraft, subject to direct finance leases, to a majority owned
partnership resulting in future cash savings of $37.4 million.
As a result of this transaction, PCI's obligation for previously
accrued deferred taxes was reduced, resulting in after tax
earnings of $21.3 million, after provision for all costs of the
transaction. The excess deferred taxes were recognized as a
reduction in income tax expense.
19
Expenses, before income taxes, which include interest,
depreciation and operating, and administrative and general
expenses totaled $159.3 million, $130.5 million and $122 million
for the years ended December 31, 1993, 1992 and 1991,
respectively. Of these expenses, interest was the largest single
component, amounting to $77.9 million, $86.2 million and $80.3
million in 1993, 1992 and 1991, respectively. Depreciation and
operating expenses totaled $66.8 million in 1993 as compared to
$34.6 million and $27.7 million in 1992 and 1991, respectively.
The increased 1993 expenses resulted from costs related to the
partnership transaction referred to above, the annualization of
depreciation on increased operating lease investment, and
increased operating expenses incurred for aircraft under usage
based leases or which were not under lease during part of the
year. The 1993 reduction in deferred taxes resulting from the
partnership transaction was partially offset by an August 1993
charge to earnings of $5.1 million to adjust PCI's deferred taxes
for the higher rate contained in the Omnibus Budget
Reconciliation Act of 1993.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Investments in leased equipment of $32.4 million in 1993 reflect
the purchase of a new MD-11 aircraft which was placed on long-
term leveraged lease at the same time older equipment under lease
by the same carrier was sold for proceeds of $108.1 million and a
pre-tax gain of $6.2 million. The remaining investment was
related to the refurbishment and modification of other aircraft
under lease. At the end of 1993, PCI had no commitments for the
purchase of additional aircraft or other equipment leasing
assets.
At December 31, 1993, PCI had two aircraft on lease to
Hawaiian Airlines (Hawaiian) which, on September 21, 1993, filed
for bankruptcy protection under Chapter 11 of the Bankruptcy
Code. To date, Hawaiian has made all of its scheduled monthly
rent payments.
PCI's outstanding short-term debt totaled $126.2 million at
December 31, 1993, a decrease of $137.3 million from the $263.5
million outstanding at December 31, 1992. During 1993, PCI
issued $363.7 million in long-term debt, including non-recourse
debt, and debt repayments totaled $247.1 million. PCI assumed
$22.6 million in debt as a result of the purchase of minority
interests and subsequent consolidation of two entities previously
accounted for under the equity method.
20
PCI paid PEPCO a $14 million dividend in February 1993 and a
$12 million dividend in January 1992. In January 1994, PCI
declared and paid a $15 million dividend to PEPCO. PCI remains
adequately capitalized to support future business plans, which
are designed to supplement utility earnings and build long-term
value. In addition to its investments in equipment leasing and
securities, PCI has limited investments in Washington
metropolitan area real estate and other business activities.
21
Management's Report
on the Consolidated Financial Statements
- ----------------------------------------
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles and, with respect to its utility operations, the
Uniform System of Accounts promulgated by the Federal Energy
Regulatory Commission.
The consolidated financial statements are the responsibility of
management. The Company has established a system of internal
accounting controls to provide reasonable, but not absolute,
assurance as to the integrity of the consolidated financial
statements. The system of internal controls is examined by
management on a continuing basis for effectiveness and cost
efficiency. The system is also reviewed on a regular basis by an
internal audit staff which reports directly to the Chairman of
the Board. The Company's independent accountants, Price
Waterhouse, regularly evaluate the system of internal accounting
controls and perform such tests and other procedures as it deems
necessary to express an opinion on the fairness of the financial
statements.
The report of Price Waterhouse on its audits of the
accompanying consolidated financial statements appears on this
page. The report includes the accountants' opinion that the
consolidated financial statements present fairly, in all material
respects, the financial position of the Company and its
subsidiaries at December 31, 1993 and 1992, and the results of
operations and cash flows for each of the three years in the
period ended December 31, 1993.
The consolidated financial statements have been reviewed by the
Board of Directors of the Company. In addition, the Audit
Committee of the Board of Directors, consisting of five outside
directors, discusses accounting, auditing and financial reporting
matters with management and Price Waterhouse on a regular basis
and reviews the program of audit work performed by the internal
audit staff. To ensure the auditors' independence, both Price
Waterhouse and the internal audit staff have direct access to the
Audit Committee.
/s/ H. Lowell Davis
Vice Chairman and
Chief Financial Officer
January 21, 1994
22
Report of Independent Accountants
To the Shareholders and
Board of Directors of
Potomac Electric Power Company
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of earnings and of cash flows
present fairly, in all material respects, the financial position
of Potomac Electric Power Company and its subsidiaries at
December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which
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, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
As discussed in Notes 1 and 3 of the Notes to Consolidated
Financial Statements, respectively, the Company changed its
methods of accounting for income taxes and other postretirement
benefits in 1993. As also discussed in Note 1, the Company
changed its method of accounting for unbilled revenues in 1992.
/s/ Price Waterhouse
Washington, D.C.
January 21, 1994
23
<TABLE>
Consolidated Statements of Earnings
Potomac Electric Power Company and Subsidiaries
<CAPTION>
- -------------------------------------------------------------------
- -------------------------------
For the year ended December 31,
1993
1992 1991 ----------------------------------------------
- ----------------------------------------------------
(Thousands of
Dollars) <S>
<C> <C> <C> Revenue (Note 2)
Operating revenue
$1,702,442 $1,562,167 $1,552,066 Interchange deliveries
22,763 39,391 67,249
-------
- --- ---------- ---------- Total Revenue
1,725,205 1,601,558 1,619,315
----------
- ---------- ----------
Operating Expenses
Fuel
354,282 345,549 387,061 Purchased energy
173,456 166,601 176,583
--------
- -- ---------- ---------- Fuel and purchased energy
527,738 512,150 563,644
Capacity purchase payments (Note 12)
96,288 95,481 94,798 Other operation
207,814 204,481 196,760
Maintenance
93,668 90,756 90,385 Depreciation and amortization
163,607 149,785 134,340
Income taxes (Note 4)
110,176 75,272 82,681 Other taxes (Note 5)
201,252 194,180 166,476
--------
- -- ---------- ---------- Total Operating Expenses
1,400,543 1,322,105 1,329,084
----------
- -
- --------- ----------Operating Income
324,662 279,453 290,231
---------- -------
- --- ----------
Other Income
Nonutility subsidiary (Note 14)
Income
139,341 161,154 145,057 Expenses, including interest
and income taxes (114,240) (132,993) (121,706)
-------
- --- ---------- ---------- Net earnings from nonutility
subsidiary 25,101 28,161 23,351
Allowance for other funds used during construction
13,242 16,089 13,514 Other, net
10,221 1,506 2,153
---------
- - ---------- ---------- Total Other Income
48,564 45,756 39,018
---------- --
- -------- ----------Income Before Utility Interest Charges
373,226 325,209 329,249
---------- --------
- -- ----------
Utility Interest Charges
Interest on debt
141,393 138,097 138,512 Allowance for borrowed funds
used during construction (9,746) (13,648) (19,427)
-------
- --- ---------- ---------- Net Utility Interest Charges
131,647 124,449 119,085
----------
- ---------- ----------
Income Before Cumulative Effect of Accounting Change
241,579 200,760 210,164
Cumulative Effect of Accounting Change for Unbilled
Revenues (Net of Income Taxes of $9,458) (Note 1)
- 16,022 -
---------- ---------- ----------Net
Income 241,579
216,782 210,164 Dividends on Preferred Stock
16,255 14,392 12,298
---------- ----
- ------ ----------Earnings for Common Stock
$ 225,324 $ 202,390 $ 197,866
========== ==========
==========
Average Common Shares Outstanding (000s)
115,640 112,390 105,911
Earnings Per Common Share <F1>
Before cumulative effect of accounting change
$1.95 $1.66 $1.87 Cumulative effect of accounting
change for unbilled
revenues
- .14 -
----- ----- -----
Total $1.95
$1.80 $1.87
===== ===== =====
Cash Dividends Per Common Share
$1.64 $1.60 $1.56
</TABLE>
<F1> No material dilution would occur if all of the convertible
preferred stock and debentures were converted into common
stock.
24
<TABLE>
Consolidated Balance Sheets
Potomac Electric Power Company and Subsidiaries
<CAPTION>
- -------------------------------------------------------------------
- --------------------------
December 31, Assets
1993 1992
- -------------------------------------------------------------------
- --------------------------
(Thousands of Dollars) <S>
<C>
<C> Property and Plant - at original cost (Notes 6 and 10)
Electric plant in service
$ 5,252,736 $ 5,014,281 Construction work in progress
373,665 314,855 Electric
plant held for future use 33,644
34,766 Nonoperating property
5,096 3,722
----------- -----------
5,665,141 5,367,624 Accumulated depreciation
(1,533,999) (1,436,367)
----------- --
- --------- Net Property and Plant
4,131,142 3,931,257
----------- -----------
Current Assets
Cash and cash equivalents
7,439 4,875 Customer accounts receivable, less
allowance for uncollectible accounts of $2,748 and $2,409
100,973 86,857 Other
accounts receivable, less allowance for uncollectible accounts
of $300 53,454
37,040 Accrued unbilled revenues (Note 1)
71,497 66,628 Prepaid taxes
30,531 26,898
Other prepaid expenses
6,053 5,391 Material and supplies - at average cost
Fuel
61,973 99,655 Construction and maintenance
70,262 77,089
-----------
- -
- ---------- Total Current Assets
402,182 404,433
----------- -----------
Deferred Charges
Income taxes recoverable through future rates, net (Note 1)
233,431 - Other
233,573 143,072
----------- --
- --------- Total Deferred Charges
467,004 143,072
----------- -----------
Nonutility Subsidiary Assets
Cash and cash equivalents
2,625 2,574 Marketable securities (Note 14)
466,153 397,183 Investment in
finance leases (Note 14) 358,524
456,678 Operating lease equipment, net of accumulated
depreciation of $85,302 and $55,981 (Note 14)
565,443 565,001 Receivables
84,726 74,151
Other investments
163,911 132,472 Other assets
23,750 35,449
----------- ---
- -------- Total Nonutility Subsidiary Assets
1,665,132 1,663,508
----------- -----------
Total Assets $
6,665,460 $ 6,142,270
=========== ===========
25
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
- --------------------------
December 31, Capitalization and
Liabilities 1993
1992 --------------------------------------------------------------
- -------------------------------
(Thousands of Dollars) <S>
<C>
<C> Capitalization
Common equity (Note 7)
Common stock, $1 par value - authorized 200,000,000 shares,
issued 117,797,652 and 114,296,443 shares $
117,798 $ 114,296 Premium on stock and other capital
contributions 1,011,778 919,089 Capital
stock expense (13,800)
(13,267) Retained income
839,433 802,774
----------- -----------
Total Common Equity
1,955,209 1,822,892
Preference stock, cumulative, $25 par value -
authorized 8,800,000 shares, no shares issued or outstanding
- -Serial preferred stock (Note 8)
125,442 125,489 Redeemable
serial preferred stock (Note 9) 147,000
148,500 Long-term debt (Note 10)
1,589,621 1,579,109
----------- -----------
Total Capitalization
3,817,272 3,675,990
----------- -----------
Current Liabilities
Long-term debt and preferred stock redemption
due within one year
17,977 128,058 Short-term debt (Note 11)
294,615 61,600 Accounts
payable and accrued payroll 137,321
130,034 Taxes accrued
25,840 27,342 Interest accrued
32,476 37,262
Customer deposits
22,296 21,832 Other
60,542 44,782
----------- ---
- -------- Total Current Liabilities
591,067 450,910
----------- -----------
Deferred Credits
Income taxes (Notes 1 and 4)
780,723 524,407 Investment tax credits (Note 4)
71,906 75,375 Other
28,916
28,814
----------- ----------- Total Deferred Credits
881,545 628,596
-----
- ------ -----------
Nonutility Subsidiary Liabilities
Long-term debt (Note 10)
1,027,705 888,526 Short-term notes payable (Note 11)
126,250 263,515 Deferred
taxes and other (Note 4) 221,621
234,733
----------- ----------- Total Nonutility
Subsidiary Liabilities 1,375,576
1,386,774
----------- -----------
Commitments and Contingencies (Note 12)
Total Capitalization and Liabilities
$ 6,665,460 $ 6,142,270
=========== ===========
26
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
Potomac Electric Power Company and Subsidiaries
<CAPTION>
- -------------------------------------------------------------------
- -------------------------------------
For the year ended
December 31,
1993 1992 1991 ------------------
- -------------------------------------------------------------------
- -------------------
(Thousands of Dollars) <S>
<C>
<C> <C> Operating Activities
Income from utility operations
$ 216,478 $ 188,621 $ 186,813 Adjustments to reconcile
income to net cash
from operating activities:
Depreciation and amortization
163,607 149,785 134,340 Deferred income taxes and
investment tax credits 27,711 43,414
15,170 Allowance for funds used during construction
(22,988) (29,737) (32,941) Changes in
materials and supplies 44,509
(11,144) 18,060 Changes in accounts receivable and
accrued unbilled revenues (35,399) (46,483) (19,729)
Changes in accounts payable
(441) (5,716) (4,287) Changes in other current
assets and liabilities 4,317 6,325
8,305 Changes in deferred conservation and energy use
management costs (57,714) (26,421) (9,680) Net other
operating activities (39,046)
7,872 (6,278) Nonutility subsidiary:
Net earnings
25,101 28,161 23,351 Deferred income taxes
(32,814) 1,055
13,778 Changes in other assets and net other operating
activities 56,897 7,037 36,691
---------
- --------- ---------Net Cash From Operating Activities
350,218 312,769 363,593
------
- --- --------- ---------
Investing Activities
Total investment in property and plant
(322,951) (357,732) (432,143) Allowance for funds used
during construction 22,988 29,737
32,941
--------- --------- --------- Net investment in
property and plant (299,963)
(327,995) (399,202) Nonutility subsidiary:
Purchase of marketable securities
(254,213) (266,696) (112,426) Proceeds from sale or
redemption of marketable securities 194,295 195,752
130,609 Investment in leased equipment
(32,360) (30,811) (538,291) Proceeds from
sale or disposition of leased equipment 120,529
48,968 200,951 Purchase of other investments
(44,628) (7,143) (17,928)
Proceeds from sale or distribution of other investments
- 42,513 8,222 Investment in promissory notes
(1,628) -
- -
Proceeds from promissory notes
3,013 27,411 8,313
--------- --------- ---
- ------Net Cash Used by Investing Activities
(314,955) (318,001) (719,752)
--------- --------
- - ---------
Financing Activities
Dividends on common stock
(189,837) (179,823) (166,933) Dividends on preferred
stock (16,255) (14,392)
(12,298) Issuance of common stock
96,001 80,396 245,098 Issuance of
preferred stock -
50,000 50,000 Redemption of preferred stock
(1,500) (890) -
Issuance of long-term debt
521,264 277,463 97,744 Reacquisition and retirement
of long-term debt (628,448) (137,387)
(11,651) Short-term debt, net
233,015 (25,200) (90,400) Other financing
activities (26,199)
(5,946) (1,709) Nonutility subsidiary:
Issuance of long-term debt
363,653 242,637 399,127 Repayment of long-term
debt (247,077) (274,991)
(129,629) Short-term debt, net
(137,265) (7,390) (22,495)
--------- ---
- ------ ---------Net Cash (Used by) From Financing Activities
(32,648) 4,477 356,854
---------
--------- ---------Net Increase (Decrease) In Cash and Cash
Equivalents 2,615 (755) 695 Cash
and Cash Equivalents at Beginning of Year
7,449 8,204 7,509
--------- --------- --------
- -Cash and Cash Equivalents at End of Year (Note 13)
$ 10,064 $ 7,449 $ 8,204
========= =========
=========
27
</TABLE>
Notes to Consolidated Financial Statements
- ------------------------------------------
(1) Summary of Significant Accounting Policies
------------------------------------------
The Company's utility operations are regulated by the Maryland
and District of Columbia public service commissions and, as to
its wholesale business, the Federal Energy Regulatory Commission
(FERC). The Company complies with the Uniform System of Accounts
prescribed by the FERC and adopted by the Maryland and District
of Columbia regulatory commissions. In conformity with generally
accepted accounting principles, the accounting policies and
practices applied by the regulatory commissions in the
determination of rates for utility operations are also employed
for financial reporting purposes.
A description of significant accounting policies follows.
Principles of Consolidation
- ---------------------------
The consolidated financial statements combine the financial
results of the Company and all majority-owned subsidiaries. The
Company's principal subsidiary is Potomac Capital Investment
Corporation (PCI). All material intercompany balances and
transactions have been eliminated.
Total Revenue
- -------------
Effective January 1, 1992, the Company changed its method of
revenue recognition to provide for the accrual of revenue for
service rendered but unbilled as of the end of each month. Prior
to 1992, revenues were recognized using the meters read method of
accounting whereby annual revenues reflected 12 monthly meter
readings for each customer. The new method was adopted to
provide a better matching of revenues and expenses and to conform
with the predominant practice within the utility industry. This
change in the method of revenue recognition resulted in an
increase in 1992 of approximately $16 million in net income or
$.14 per common share. If the new accounting method had been in
effect in 1991, net income would not have been materially
different from that shown in the accompanying consolidated
financial statements. This change in accounting method, which
has no significant effect on revenue over a 12-month period,
affects the timing of revenue recognition within the year,
principally increasing revenues in the second quarter and
decreasing revenues in the fourth quarter.
28
The Company includes in revenues the amounts received for sales
to other utilities related to pooling and interconnection
agreements. Amounts received for such interchange deliveries are
a component of the Company's fuel rates.
In each jurisdiction, the Company's rate schedules include fuel
rates. The fuel rate provisions are designed to provide for
separately stated fuel billings which cover applicable net fuel
and interchange costs or changes in applicable net fuel and
interchange costs from levels incorporated in base rates.
Differences between applicable net fuel and interchange costs
incurred and fuel rate revenues billed in any given period are
accounted for as other current assets or other current
liabilities in those cases where specific provision has been made
by the appropriate regulatory commission for the resolution of
such differences within one year. Where no such provision has
been made, the differences are accounted for as other deferred
charges or other deferred credits pending regulatory
determination.
Leasing Transactions
- --------------------
Income from PCI investments in direct finance and leveraged lease
transactions, in which PCI is an equity participant, is reported
using the financing method. In accordance with the financing
method, investments in leased property are recorded as a
receivable from the lessee to be recovered through the collection
of future rentals. For direct finance leases, unearned income is
amortized to income over the lease term at a constant rate of
return on the net investment. Income, including investment tax
credits on leveraged equipment leases, is recognized over the
life of the lease at a level rate of return on the positive net
investment.
PCI investments in equipment under operating leases are stated
at cost less accumulated depreciation. Depreciation is recorded
on a straight line basis over the equipment's estimated useful
life.
Property and Plant
- ------------------
The cost of additions to, and replacements or betterments of,
retirement units of property and plant is capitalized. Such cost
includes material, labor, the capitalization of an Allowance for
Funds Used During Construction (AFUDC) and applicable indirect
costs, including engineering, supervision, payroll taxes and
employee benefits. The original cost of depreciable units of
plant retired, together with the cost of removal, net of salvage,
is charged to accumulated depreciation. Routine repairs and
maintenance are charged to operating expenses as incurred.
29
The Company uses separate depreciation rates for each electric
plant account. The rates, which vary from jurisdiction to
jurisdiction, were equivalent to a system-wide composite
depreciation rate of approximately 3.1% for 1993 and 3% for 1992
and 1991.
Conservation and Energy Use Management
- --------------------------------------
In general, the Company accounts for energy conservation
expenditures as a deferred charge, and amortizes the costs over
five to ten years. District of Columbia conservation costs
receive rate base treatment, with a capital cost recovery factor
accrued on the unamortized balance in excess of amounts included
in rate base. In Maryland, conservation costs are recovered
currently through a surcharge included in base rates.
Allowance for Funds Used During Construction
- --------------------------------------------
In general, the Company capitalizes AFUDC with respect to
investments in Construction Work in Progress with the exception
of expenditures required to comply with federal, state or local
environmental regulations (pollution control projects), which are
included in rate base without capitalization of AFUDC. In 1992,
pursuant to orders from both the Maryland and District of
Columbia commissions, the Company commenced the accrual of a
capital cost recovery factor on the retail jurisdictional portion
of certain pollution control projects related to compliance with
the Clean Air Act (CAA). The base for calculating this return is
the amount by which the retail jurisdictional CAA expenditure
balance exceeds the CAA balance included in rate base in the
Company's most recently completed base rate proceeding.
The jurisdictional AFUDC capitalization rates are determined as
prescribed by the FERC. The effective capitalization rates were
approximately 8.7% in 1993 and 9.1% in 1992 and 1991, compounded
semiannually.
Nonutility Subsidiary Receivables
- ---------------------------------
The Company's nonutility subsidiary uses the direct write-off
method of accounting when a receivable is deemed to be
uncollectible in lieu of an allowance for doubtful accounts. The
amounts were not material.
30
Income Taxes
- ------------
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109 entitled
"Accounting for Income Taxes" which, among other things,
prohibits the use of net-of-tax accounting and requires the use
of an asset and liability approach for financial reporting and
accounting for deferred income taxes. Deferred taxes are being
recorded for all temporary differences based upon currently
enacted tax rates.
The Company's utility net deferred tax liabilities totaled $789
million at December 31, 1993, of which $8.3 million was
classified as a current liability. At December 31, 1993, the
Company's nonutility subsidiary net deferred tax liability
totaled $142.6 million. The adoption of SFAS No. 109 increased
net income for the twelve months ended December 31, 1993 by $2.8
million which is reflected on the Consolidated Statements of
Earnings in "Other, net."
Certain provisions of SFAS No. 109 allow regulated enterprises
to recognize regulatory assets and liabilities for income taxes
to be recovered from or returned to customers in future rates.
Accordingly, as of December 31, 1993, the Company has recorded
additional deferred income taxes and a net regulatory asset of
$233.4 million. No valuation allowance for deferred tax assets
was required or recorded at December 31, 1993.
31
(2) Total Revenue
-------------
The Company's retail service area includes all of the District of
Columbia and major portions of Montgomery and Prince George's
counties in suburban Maryland. The Company supplies electricity,
at wholesale, under a contract with Southern Maryland Electric
Cooperative, Inc. (SMECO), and also delivers economy energy to
the Pennsylvania-New Jersey-Maryland Interconnection (PJM) of
which the Company is a member. PJM is composed of eleven
electric utilities which operate on a fully integrated basis.
Total revenue for each year was comprised as shown below.
- -----------------------------------------------------------------
1993 1992 1991
-------------------------------------------------
Amount % Amount % Amount %
- -----------------------------------------------------------------
(Thousands of Dollars)
Residential $ 505,173 29.8 $ 432,797 27.8 $ 450,103 29.2
Commercial 791,357 46.6 748,550 48.1 724,039 46.9
U.S. Government 238,192 14.0 229,586 14.8 223,723 14.5
D.C. Government 53,551 3.2 49,815 3.2 48,009 3.1
Wholesale 108,162 6.4 95,350 6.1 96,697 6.3
---------- ----- --------- ----- ---------- -----
Sales of
electricity 1,696,435 100.0 1,556,098 100.0 1,542,571 100.0
===== ===== =====
Other electric
revenues 6,007 6,069 9,495
---------- ---------- ----------
Operating
revenue 1,702,442 1,562,167 1,552,066
Interchange
deliveries 22,763 39,391 67,249
---------- ---------- ----------
Total Revenue $1,725,205 $1,601,558 $1,619,315
========== ========== ==========
- -----------------------------------------------------------------
Sales of electricity include base rate revenues and fuel rate
revenues. Fuel rate revenues were $487.9 million in 1993, $456.4
million in 1992 and $481.1 million in 1991.
The Company's Maryland fuel rate is based on historical net
fuel and interchange costs. The zero-based rate may not be
changed without prior approval of the Maryland Public Service
Commission. Application to the Commission for an increase in the
rate may only be made when the currently calculated fuel rate,
based on the most recent actual net fuel and interchange costs,
32
exceeds the currently effective fuel rate by more than 5%. If
the currently calculated fuel rate is more than 5% below the
currently effective fuel rate, the Company must apply to the
Commission for a fuel rate reduction.
The District of Columbia fuel rate is based upon an average of
historical and projected net fuel and interchange costs and is
adjusted monthly to reflect changes in such costs.
Rates for service, at wholesale, to SMECO include a fuel
adjustment charge based upon estimated applicable fuel and
interchange costs for each billing month. The difference between
the estimated costs and the actual applicable fuel and
interchange costs incurred each month is reflected as an
adjustment to the fuel rate in the succeeding month.
Amounts received for interchange deliveries are a component of
the Company's fuel rates.
33
(3) Pensions and Other Postretirement Benefits
------------------------------------------
The Company's General Retirement Program (Program), a
noncontributory defined benefit program, covers substantially all
full-time employees of the Company and its subsidiaries. The
Program provides for benefits to be paid to eligible employees at
retirement based primarily upon years of service with the Company
and their compensation rates for the three years preceding
retirement. Annual provisions for accrued pension cost are based
upon independent actuarial valuations. The Company's policy is
to fund accrued pension costs.
Pension expense included in net income was $13.7 million in
1993, $10.5 million in 1992 and $10.7 million in 1991. The net
periodic pension cost was computed as follows.
- -----------------------------------------------------------------
1993 1992 1991
- -----------------------------------------------------------------
(Thousands of Dollars)
Service cost-benefits earned $10,300 $ 9,100 $ 8,500
Interest cost on projected
benefit obligation 25,100 23,500 22,000
Actual return on Program assets (24,300) (13,400) (28,500)
Differences between actual
and expected return on
Program assets and net
amortization 2,600 (8,700) 8,700
------- ------- -------
Pension cost $13,700 $10,500 $10,700
======= ======= =======
- -----------------------------------------------------------------
34
Program assets are stated at fair value and were comprised of
approximately 68% and 70% of cash equivalents and fixed income
investments and the balance in equity investments at December 31,
1993 and 1992, respectively. The following table sets forth the
Program's funded status and amounts recognized on the
Consolidated Balance Sheets.
- -----------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------
(Thousands of Dollars)
Actuarial present value of benefit obligations:
Program benefits:
Vested benefits $(249,600) $(211,100)
Nonvested benefits (35,300) (27,200)
--------- ---------
Accumulated benefit obligation $(284,900) $(238,300)
========= =========
Actuarial present value of projected
benefit obligation $(358,600) $(293,000)
Program assets at fair value 282,600 261,500
--------- ---------
Projected benefit obligation in excess of
Program assets (76,000) (31,500)
Unrecognized actuarial loss 58,500 23,200
Unrecognized prior service cost 12,900 3,800
Unrecognized net obligation at
January 1, 1987, being recognized
over 18 years 400 400
--------- ---------
Accrued pension liability $ (4,200) $ (4,100)
========= =========
- -----------------------------------------------------------------
The assumed weighted average discount rate and weighted average
rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit
obligation were 7.75% and 5% in 1993 and 8.75% and 5% in 1992,
respectively. The assumed long-term rate of return on Program
assets was 9% in 1993 and 1992.
In addition to providing pension benefits, the Company provides
certain health care and life insurance benefits for retired
employees and inactive employees covered by disability plans.
The health care plan pays stated percentages of most necessary
medical expenses incurred by these employees, after subtracting
payments by Medicare or other providers and after a stated
deductible has been met. The life insurance plan pays benefits
based on base salary at the time of retirement and age at the
date of death. Participants become eligible for the benefits of
these plans if they retire under the provisions of the Company's
General Retirement Program with ten years of service or become
inactive employees under the Company's disability plans.
35
Effective January 1, 1993, the Company adopted SFAS No. 106,
entitled "Employers' Accounting for Postretirement Benefits Other
Than Pensions" which requires "accrual basis" instead of "cash
basis" accounting for postretirement health care and life
insurance. The effect of this change in accounting was to
decrease 1993 pre-tax income by $2.2 million. The Company is
amortizing the unrecognized transition obligation measured at
January 1, 1993 over a 20-year period.
Postretirement benefit expense included in net income was $9.3
million in 1993. The cost of such benefits, recognized as an
operating expense when paid, was $5 million in 1992 and $5.2
million in 1991. The 1993 postretirement expense includes the
following components.
(Thousands of Dollars)
Service cost-benefits attributable
to service during 1993 $ 2,500
Interest cost on accumulated
postretirement benefit obligation 4,400
Actual return on Plan Assets (400)
Amortization of transition
obligation 2,800
-----------
Net postretirement benefit cost $ 9,300
===========
The accumulated postretirement benefit obligation is reconciled
to the amount recognized in the Company's December 31, 1993
statement of financial position as follows.
(Thousands of Dollars)
Accumulated postretirement
benefit obligation to
Retirees and dependents $(29,700)
Active employees fully eligible (10,300)
Active employees not fully
eligible (14,800)
--------
Total accumulated postretirement
benefit obligation (54,800)
Plan assets at fair value 4,300
--------
Accumulated postretirement benefit
obligation in excess of plan assets (50,500)
Unrecognized transition obligation 47,700
Unrecognized actuarial loss 2,800
--------
Accrued postretirement benefit cost
as of December 31, 1993 $ -
========
36
The Company's SFAS No. 106 obligation at December 31, 1993 is
based on a discount rate of 7.75% and a current health-care cost
trend rate of 8.5% which declines to 5.5% after a six-year
period. A one percentage point increase in the health-care cost
trend rate would increase the Accumulated Postretirement Benefit
Obligation by $2.3 million to approximately $57.1 million and
postretirement expense by approximately $.4 million.
In January 1993, the Company funded the 1993 portion of its
estimated liability for post-retirement medical and life
insurance costs through the use of an Internal Revenue Code (IRC)
401 (h) account, within the Company's pension plan, and an IRC
501 (c)(9) Voluntary Employee Beneficiary Association (VEBA).
The Company plans to fund the 401(h) account and the VEBA
annually. Assets were comprised of cash equivalents, fixed
income investments and equity investments and the assumed return
on plan assets is 9%.
In July 1993, a new three-year Agreement between the Company
and Local 1900 of the International Brotherhood of Electrical
Workers was ratified by Union members. As a result of this
Agreement, the Company will reduce the costs of its
postretirement benefits by requiring all eligible employees who
retire on or after January 1, 1994, to share in the cost of these
benefits. These amendments have been reflected in 1993.
The Company treats postretirement benefit costs as an operating
expense and has not recorded a regulatory asset associated with
these costs. The Company's Maryland tariff includes the cost of
postretirement benefits. The District of Columbia Public Service
Commission's decision is expected in February 1994.
In November 1992, the Financial Accounting Standards Board
(FASB) issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective for fiscal years beginning
after December 15, 1993. SFAS No. 112 requires the accrual of
the expected cost of providing benefits to former or inactive
employees after employment but before retirement. The Company is
evaluating the effects of applying SFAS No. 112 and does not
expect the statement to have a material effect on the Company's
financial position or results of operation.
37
<TABLE>
(4) Income Taxes
------------
The provision for income taxes charged to continuing operations,
reconciliation of consolidated income tax expense and components of
consolidated deferred tax liabilities (assets) are set forth below.
Provisions for Income Taxes Charged to Continuing Operations ------
- ------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------
- --------------------------------
1993 1992 1991 ----
- -------------------------------------------------------------------
- ----------------------------
(Thousands of Dollars) <S>
<C>
<C> <C> Utility current tax expense
Federal $
69,007 $ 50,900 $ 57,093 State and local
9,801 7,571 8,725
------
- --- --------- ---------Total utility current tax expense
78,808 58,471 65,818
---------
--------- ---------Utility deferred tax expense
Federal
26,784 26,584 15,046 State and local
5,100 4,682 3,375
Investment tax credits
(3,469) (3,314) (3,251)
--------- --------- ---------
Total utility deferred tax expense
28,415 27,952 15,170
--------- --------- ---------
Total utility income tax expense
107,223 86,423 80,988
--------- --------- ---------
Nonutility subsidiary current tax expense
Federal
(13,022) 1,461 (14,029)
--------- --------- ---------
Nonutility subsidiary deferred tax expense
Federal
(31,360) 1,055 13,778 State and local
(696) - -
------
- --- --------- ---------Total nonutility subsidiary deferred tax
expense (32,056) 1,055 13,778
---------
--------- ---------
Total nonutility subsidiary income tax expense
(45,078) 2,516 (251)
--------- --------- ---------
Total consolidated income tax expense
62,145 88,939 80,737 Income taxes included in other
income (48,031) 4,209
(1,944) Income taxes included in cumulative effect of accounting
change - 9,458 -
--------- --------- ----
- -----Income taxes included in utility operating expenses
$ 110,176 $ 75,272 $ 82,681
========= =========
=========
38
</TABLE>
<TABLE>
Reconciliation of Consolidated Income Tax Expense
- -------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------
- --------------------------------
1993 1992 1991 ----
- -------------------------------------------------------------------
- ----------------------------
(Thousands of Dollars) <S>
<C>
<C> <C> Income before income taxes (including cumulative
effect
of accounting change) $
303,724 $ 305,721 $ 290,901
========= ========= =========
Utility income tax at federal statutory rate $
113,295 $ 93,515 $ 91,052 Increases (decreases) resulting
from
Depreciation
5,096 4,204 3,971 Removal costs
(4,385) (5,109) (6,315)
Allowance for funds used during construction
(3,852) (4,854) (4,127) Other
(6,477) (5,888) (7,954)
State income taxes, net of federal effect
9,686 8,213 7,986 Tax credits
(3,873) (3,658) (3,625)
Cumulative effect of tax rate change
(2,267) - -
--------- --------- ---------Total
utility income tax expense
107,223 86,423 80,988
--------- --------- ---------
Nonutility subsidiary income tax at federal statutory rate
(6,992) 10,430 7,854 Increases (decreases) resulting
from
Dividends received deduction
(7,672) (6,750) (6,135) Reversal of previously accrued
deferred taxes (35,904) - -
Other
(408) (1,164) (1,970) State income taxes, net of
federal effect (696) -
- -
Cumulative effect of tax rate change
6,594 - -
--------- --------- ---------Total
nonutility subsidiary income tax expense
(45,078) 2,516 (251)
--------- --------- ---------
Total consolidated income tax expense
62,145 88,939 80,737 Income taxes included in other
income (48,031) 4,209
(1,944) Income taxes included in cumulative effect of accounting
change - 9,458 -
--------- --------- ----
- -----Income taxes included in utility operating expenses
$ 110,176 $ 75,272 $ 82,681
========= =========
=========
</TABLE>
<TABLE>
Components of Consolidated Deferred Tax Liabilities (Assets) ------
- ------------------------------------------------------ at December
31, 1993 (Thousands of Dollars)
--------------------
<CAPTION>
<S>
<C> Utility deferred tax liabilities (assets)
Depreciation and other book to tax basis differences $
672,625 Rapid amortization of certified pollution control
facilities
31,090 Deferred taxes on amounts to be collected through
future rates
88,787 Property taxes
10,218 Deferred fuel
4,644 Prepayment premium on debt retirement
11,215 Deferred ITC
(27,435) Contributions in aid of
construction (23,951) Other
21,825
---------
Total utility deferred tax liabilities (net)
789,018 Current portion of utility deferred tax liabilities
(included in Other Current Liabilites)
8,295
---------Total utility deferred tax liabilities (net) -
noncurrent $ 780,723
=========
Nonutility subsidiary deferred tax liabilities (assets)
Finance leases $
130,833 Operating lease depreciation
114,134 Reversal of previously accrued taxes related
to partnerships
(16,969) Alternative minimum tax
(75,610) Other
(9,789)
---------Total nonutility subsidiary
deferred tax liabilities (net), (included in Deferred taxes and
other) $ 142,599
=========
39
</TABLE>
The Omnibus Budget Reconciliation Act of 1993, which was
enacted on August 10, 1993, increased the federal corporate
income tax rate from 34% to 35% for the periods beginning after
December 31, 1992.
The Tax Reform Act of 1986 repealed the Investment Tax Credit
(ITC) for property placed in service after December 31, 1985,
except for certain transition property. ITC previously earned on
utility property continues to be normalized over the remaining
service lives of the related assets.
The Company and its subsidiaries file a consolidated federal
income tax return. The Company's federal income tax liabilities
for all years through 1991 have been finally determined. The
Company is of the opinion that the final settlement of its
federal income tax liabilities for subsequent years will not have
a material adverse effect on its financial position.
40
(5) Other Taxes
-----------
Taxes, other than income taxes, charged to utility operating
expenses for each period are shown below.
- ----------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------
(Thousands of Dollars)
Gross receipts $ 88,044 $ 81,266 $ 71,953
Property 58,193 55,965 52,938
Payroll 10,534 10,582 9,967
County fuel-energy 34,614 37,283 23,180
Environmental, use and
other 9,867 9,084 8,438
-------- -------- --------
$201,252 $194,180 $166,476
======== ======== ========
- -----------------------------------------------------------------
41
(6) Jointly Owned Generating Facilities
-----------------------------------
The Company owns a 9.72% undivided interest in the Conemaugh
Generating Station located near Johnstown, Pennsylvania,
consisting of two baseload units totaling 1,700 megawatts. The
Company and other utilities own the station as tenants in common
and share costs and output in proportion to their ownership
shares. Each owner has arranged its own financing relating to
its share of the facility. The Company's share of the operating
expenses of the station is included in the Consolidated
Statements of Earnings. The Company's investment in the
Conemaugh facility of $67.1 million at December 31, 1993 and
$51.8 million at December 31, 1992, includes $23.4 million and
$11.6 million of Construction Work in Progress, respectively.
The Conemaugh Generating Station is required to comply with
certain provisions of the Clean Air Act by January 1, 1995. The
construction of flue gas desulfurization equipment for both units
began in 1992. The Company's share of the construction cost is
approximately $38 million.
42
<TABLE>
(7) Common Equity
Changes in common stock, premium on stock and retained income are
summarized below.
<CAPTION>
- -------------------------------------------------------------------
- --------------------
Common Stock Premium Retained
Shares Par Value on Stock Income ----
- -------------------------------------------------------------------
- ----------------
(Thousands of Dollars) <S>
<C> <C> <C> <C> Balance, December 31,
1990 99,714,471 $ 99,714 $ 607,775 $ 739,236
Net income before net earnings
from nonutility subsidiary - -
- 186,813 Nonutility subsidiary:
Net earnings - -
- 23,351 Marketable equity securities
valuation allowance, net of tax - -
- 5,971 Dividends:
Preferred stock - -
- (12,298) Common stock
- - - (166,933) Conversion of
convertible
debentures 370 -
10 - Conversion of preferred stock
10,581 11 81 - Sale of common stock
through
Shareholder Dividend
Reinvestment Plan 1,571,880 1,572
33,285 - Issuance of common stock to
Employee Savings Plans 382,595 383
7,903 - Sale of common stock through
public offerings 9,425,900 9,426
192,529 - ----------
- - ---------- ---------- ----------Balance, December 31, 1991
111,105,797 111,106 841,583 776,140
Net income before net earnings
from nonutility subsidiary - -
- 188,621 Nonutility subsidiary:
Net earnings - -
- 28,161 Marketable equity securities
valuation allowance, net of tax - -
- 4,067 Dividends:
Preferred stock - -
- (14,392) Common stock
- - - (179,823) Conversion of
convertible
debentures 2,220 2
58 - Conversion of preferred stock
22,318 22 169 - Gain on acquisition
of preferred
stock - -
24 - Other capital contributions
- - - 25 - Sale of common stock
through
Shareholder Dividend
Reinvestment Plan 1,787,724 1,788
42,414 - Issuance of common stock to
Employee Savings Plans 378,384 378
9,028 - Sale of common stock through
public offerings 1,000,000 1,000
25,788 - ----------
- - ---------- ---------- ----------Balance, December 31, 1992
114,296,443 114,296 919,089 802,774
Net income before net earnings
from nonutility subsidiary - -
- 216,478 Nonutility subsidiary:
Net earnings - -
- 25,101 Marketable equity securities
valuation allowance, net of tax - -
- 1,172 Dividends:
Preferred stock - -
- (16,255) Common stock
- - - (189,837) Conversion of
convertible
debentures 3,480 4
93 - Conversion of preferred stock
5,534 6 42 - Loss on acquisition
of preferred
stock - -
(24) - Other capital contributions
- - - 69 - Sale of common stock
through
Shareholder Dividend
Reinvestment Plan 1,638,227 1,638
42,655 - Issuance of common stock to
Employee Savings Plans 362,468 362
9,277 - Sale of common stock through
public offerings 1,491,500 1,492
40,577 - ----------
- - ---------- ---------- ----------Balance, December 31, 1993
117,797,652 $ 117,798 $1,011,778 $ 839,433
=========== ========== ==========
==========
43
</TABLE>
During the period of July through October 1993, the Company
sold 1,491,500 shares of Common Stock at an average price of
$28.21 per share through a Continuous Offering Stock Program
pursuant to a "shelf" registration statement filed with the
Securities and Exchange Commission in June 1992.
The Company's Shareholder Dividend Reinvestment Plan (DRP)
provides that shares of common stock purchased through the plan
may be original issue shares or, at the option of the Company,
shares purchased in the open market. The DRP permits additional
cash investments by plan participants limited to one investment
per month of not less than $25 and not more than $5,000.
As of December 31, 1993, 52,714 shares of common stock were
reserved for issuance upon the conversion of convertible
preferred stock, 2,771,633 shares for issuance upon the
conversion of the 7% convertible debentures, 3,392,500 shares for
issuance upon the conversion of the 5% convertible debentures,
2,838,420 shares for issuance under the DRP and 191,275 shares
for issuance under the Employee Savings Plans.
Certain provisions of the Company's corporate charter, relating
to preferred and preference stock, would impose restrictions on
the payment of dividends under certain circumstances. No portion
of retained income was so restricted at December 31, 1993.
44
(8) Serial Preferred Stock
----------------------
The Company has authorized 11,211,044 shares of cumulative $50
par value Serial Preferred Stock. At December 31, 1993 and 1992,
there were outstanding 5,461,038 shares and 5,491,986 shares,
respectively. The various series of Serial Preferred Stock
outstanding (excluding 2,952,200 shares of Redeemable Serial
Preferred Stock - See Note 9) and the per share redemption price
at which each series may be called by the Company are as follows.
- -----------------------------------------------------------------
Redemption December 31,
Price 1993 1992
- -----------------------------------------------------------------
(Thousands of
Dollars)
$2.44 Series of 1957, 300,000 shares $51.00 $15,000 $15,000
$2.46 Series of 1958, 300,000 shares $51.00 15,000 15,000
$2.28 Series of 1965, 400,000 shares $51.00 20,000 20,000
$3.82 Series of 1969, 500,000 shares $51.00 25,000 25,000
$2.44 Convertible Series of 1966,
8,838 and 9,786 shares,
respectively $50.00 442 489
Auction Series A, 1,000,000 shares $50.00 50,000 50,000
-------- --------
$125,442 $125,489
======== ========
- -----------------------------------------------------------------
The $2.44 Convertible Series of 1966 is convertible into common
stock of the Company at a price based upon a formula that is
subject to adjustment in certain events. At December 31, 1993,
5.88 shares of common stock could be obtained upon the conversion
of each share of convertible preferred stock at the then
effective conversion price of $8.51 per share of common stock.
The number of shares of this series converted into common stock
was 948 shares in 1993, 3,827 shares in 1992 and 1,804 shares in
1991. The estimated fair value of this series, based on quoted
market prices was $1.4 million at December 31, 1993 and 1992.
Dividends on the Serial Preferred Stock, Auction Series A, are
cumulative and are based on the rate determined by auction
procedures prior to each dividend period. The maximum rate can
range from 110% to 200% of the applicable "AA" Composite
Commercial Paper Rate. The annual dividend rate is 3.02% ($1.51)
for the period December 1, 1993 through February 28, 1994. The
average annual dividend rates were 2.8% ($1.40) in 1993 and
3.412% ($1.706) in 1992. The estimated fair value of this series
at December 31, 1993 and 1992, was the carrying amount.
45
The estimated fair value at December 31, 1993 and 1992, for the
remaining serial preferred stock (excluding the Redeemable Serial
Preferred Stock) was $59.5 million and $55.7 million,
respectively, based on current redemption prices and discounted
cash flows using current rates for preferred stock with similar
terms.
(9) Redeemable Serial Preferred Stock
---------------------------------
The outstanding series of $50 par value Redeemable Serial
Preferred Stock are shown below.
- -----------------------------------------------------------------
December 31,
1993 1992
- -----------------------------------------------------------------
(Thousands of Dollars)
$3.37 Series of 1987, 952,200 and
982,200 shares, respectively $ 47,610 $ 49,110
$3.89 Series of 1991, 1,000,000 shares 50,000 50,000
$3.40 Series of 1992, 1,000,000 shares 50,000 50,000
-------- --------
147,610 149,110
Redemption requirement due within one year (610) (610)
-------- --------
$147,000 $148,500
======== ========
- ----------------------------------------------------------------
The shares of the $3.37 (6.74%) Series are subject to mandatory
redemption, at par, through the operation of a sinking fund.
Beginning June 1993, not less than 30,000 nor more than 60,000
shares will be redeemed annually. The option to redeem in excess
of 30,000 shares annually is not cumulative; however, shares
which are acquired or redeemed by the Company other than through
the operation of the sinking fund may, at the option of the
Company, be applied toward the satisfaction of sinking fund
requirements. Presently, the shares are callable for redemption
at a per share price of $52.25, which is reduced in succeeding
years, equaling par value beginning June 1, 2002.
The shares of the $3.89 (7.78%) Series are subject to mandatory
redemption, at par, through the operation of a sinking fund which
will redeem not less than 165,000 nor more than 330,000 shares
annually, beginning June 1, 2001 and 175,000 shares on June 1,
2006. The option to redeem in excess of 165,000 shares annually
is not cumulative. The shares may be called for redemption at
any time at a per share price of $53.89; however, the shares are
not redeemable prior to June 1, 1996, through certain refunding
operations. The redemption price is reduced in succeeding years,
equaling $50.98 beginning June 1, 2003.
46
The shares of the $3.40 (6.80%) Series are subject to mandatory
redemption, at par, through the operation of a sinking fund which
will redeem 50,000 shares annually, beginning September 1, 2002
with the remaining shares redeemed on September 1, 2007. The
shares are not redeemable prior to September 1, 2002; thereafter,
the shares are redeemable at par.
In the event of default with respect to dividends, or sinking
fund or other redemption requirements relating to the serial
preferred stock, no dividends may be paid, nor any other
distribution made, on common stock. Payments of dividends on all
series of serial preferred or preference stock, including series
which are redeemable, must be made concurrently.
The sinking fund requirements through 1998 with respect to the
Redeemable Serial Preferred Stock are $.6 million in 1994 and
$1.5 million annually thereafter.
The estimated fair value of the Company's Redeemable Serial
Preferred Stock was $164.1 million and $153.5 million based on
quoted market prices at December 31, 1993 and 1992, respectively.
47
<TABLE>
(10) Long-Term Debt
Details of long-term debt are shown below.
<CAPTION>
- -------------------------------------------------------------------
- -----------------------------------Interest
December 31,
Rate Maturity
1993 1992 -----------------------------------
- -------------------------------------------------------------------
(Thousands of Dollars) <S>
<C> <C> <C> First
Mortgage Bonds
Fixed Rate Series:
4-5/8% December 1, 1993
$ - $ 25,000 5-1/4%
December 1, 1994 15,000
15,000 5% December 15, 1995
40,000 40,000 5-5/8%
December 31, 1997 18,000
19,000 4-3/8% February 15, 1998
50,000 50,000 4-1/2%
May 15, 1999 45,000
45,000 9% April 15, 2000
100,000 100,000 5-1/8%
April 1, 2001
15,000 15,000 5-7/8% May 1,
2002 35,000 35,000 6-5/8%
February 15, 2003
40,000 40,000 5-5/8%
October 15, 2003 50,000 -
7-3/4% March 15, 2004
- 45,000 6-1/2%
July 1, 2004 15,000
15,000 6-1/8% July 1, 2007
38,300 38,300 6-1/2%
July 1, 2007 20,000
20,000 7-3/4% October 1, 2007
- 50,000 6-1/2%
March 15, 2008 78,000
-5-7/8% October 15, 2008
50,000 -6-5/8%
January 1, 2009 7,500
7,500 8-3/8% January 15, 2009
- 100,000 8-3/4%
April 15, 2010
- - 37,000 9-1/4% March 1, 2016
- 75,000 8-3/4%
November 15, 2016
- 75,000 8-1/4% March 1,
2017 - 75,000 9-3/4%
May 1, 2019
43,000 75,000 8-5/8% August
15, 2019 63,000 75,000 9%
June 1, 2021
100,000 100,000 6%
September 1, 2022 30,000 30,000
6-3/8% January 15, 2023
37,000 -7-1/4%
July 1, 2023 100,000
- -6-7/8% September 1, 2023
100,000 -6-7/8%
October 15, 2024 75,000
-8-1/2% May 15, 2027
75,000 75,000 7-1/2%
March 15, 2028 40,000
-Variable Rate Series:
Adjustable rate December 1, 2001
50,000 50,000
---------- --------
- -- Total First Mortgage Bonds
1,329,800 1,326,800
Convertible Debentures
5% September 1, 2002
115,000 115,000 7%
January 15, 2018 68,834
70,376
Medium-Term Notes
8.61% to 8.72% October 15, 1993
- 100,000 9.08%
July and August 1997 50,000
50,000 7.46% to 7.60% January 2002
40,000 40,000 7.64%
January 17, 2007 35,000
35,000
---------- ---------- Total Utility Long-
Term Debt 1,638,634
1,737,176 Net unamortized discount
(31,646) (30,619) Current portion
(17,367) (127,448)
---------- ---------- Net
Utility Long-Term Debt
$1,589,621 $1,579,109
========== ==========
Nonutility Subsidiary Long-term Debt
Varying rates through 2011
$1,027,705 $ 888,526
==========
==========
48
</TABLE>
Utility Long-Term Debt
- ----------------------
The outstanding First Mortgage Bonds (bonds) are secured by a
lien on substantially all of the Company's property and plant.
Additional bonds may be issued under the mortgage as amended and
supplemented in compliance with the provisions of the indenture.
In January 1993, the Company issued $37 million of 6-3/8% First
Mortgage Bonds due 2023, in conjunction with the sale at 99% by
Prince George's County, Maryland, of a like amount of the
County's Pollution Control Revenue Refunding Bonds. Proceeds
were applied toward the redemption of the Company's $37 million
8-3/4% First Mortgage Bonds due 2010, at 102% of principal amount
plus accrued interest, and a like amount of the County's
Pollution Control Revenue Bonds.
In February 1993, the Company sold, at 98.403%, $78 million of
6-1/2% First Mortgage Bonds due in 2008, and, at 99.385%, $40
million of 7-1/2% First Mortgage Bonds due in 2028. Proceeds
from the sales were applied toward the March 1993 redemption, at
106.02% of principal amount plus accrued interest, of $75 million
of 9-1/4% First Mortgage Bonds due in 2016.
In June 1993, the Company sold, at 98.711%, $100 million of
7-1/4% First Mortgage Bonds due in 2023. A portion of the
proceeds from the sale were applied to the August 1993
redemption, at 104.9% of principal amount plus accrued interest,
of $75 million of 8-3/4% First Mortgage Bonds due in 2016.
In August 1993, the Company sold, at 98.44%, $100 million of
6-7/8% First Mortgage Bonds due in 2023. Proceeds from the sale
were applied to the September 1993 redemption, at 103.21% of
principal amount plus accrued interest, of $100 million of 8-3/8%
First Mortgage Bonds due in 2009.
In September 1993, the Company sold, at 99.223%, $50 million of
5-5/8% First Mortgage Bonds due in 2003; at 98.968%, $50 million
of 5-7/8% First Mortgage Bonds due in 2008; and, at 99.32%, $75
million of 6-7/8% First Mortgage Bonds due in 2024. Proceeds
were applied to the November 1993 redemptions of $45 million of
7-3/4% First Mortgage Bonds due in 2004 at 102.1% of principal
amount plus accrued interest, $50 million of 7-3/4% First
Mortgage Bonds due in 2007 at 103.06% of principal amount plus
accrued interest, and $75 million of 8-1/4% First Mortgage Bonds
due in 2017 at 104.38% of principal amount plus accrued interest.
On January 12, 1994, the Company sold, at par, $50 million of
6-1/4% Medium-Term Notes due in 2009 and, at 98.494%, $50 million
of 7% Medium-Term Notes due in 2024. The notes were sold
pursuant to a "shelf" registration statement filed with the
Securities and Exchange Commission during September 1993, of
which $225 million remains available.
The interest rate on the $50 million Adjustable Rate series
First Mortgage Bonds is adjusted annually on December 1, based
upon 116% of the 10-year "constant maturity" United States
Treasury bond rate for the preceding three-month period ended
October 31. Effective December 1, 1993, the applicable interest
rate is 6.657%. The applicable interest rate was 7.733% at
49
December 1, 1992 and 8.924% at December 1, 1991. The Bonds are
nonredeemable prior to December 1, 1994. The estimated fair
value of this bond series at December 31, 1993, based on the
current market price was $54 million. The carrying value was
considered to be the estimated fair value of this bond series at
December 31, 1992.
The 7% Convertible Debentures are convertible into shares of
common stock at a conversion price of $27 per share.
The 5% Convertible Debentures are convertible into shares of
common stock at a conversion rate of 29-1/2 shares for each
$1,000 principal amount.
The aggregate amounts of maturities and sinking fund
requirements for the Company's long-term debt outstanding at
December 31, 1993 are $17.4 million in 1994, $44 million in 1995,
$6 million in 1996, $56 million in 1997 and $50 million in 1998.
The estimated fair value of the fixed rate First Mortgage
Bonds, excluding amounts due within one year, in the aggregate,
was $1.3 billion at December 31, 1993 and 1992; and the
Convertible Debentures, excluding amounts due within one year, in
the aggregate, was $177 million and $166 million, respectively.
The estimated fair value at December 31, 1993 and 1992, was based
on the current market price or for issues with no market price
available, was based on discounted cash flows using current rates
for bonds with similar terms and remaining maturities.
At December 31, 1993 and 1992, the estimated fair value of the
Medium-Term Notes, excluding amounts due within one year, in the
aggregate, was $139 million and $132 million, respectively, based
on discounted cash flows using current rates for notes with
similar terms and remaining maturities.
Nonutility Subsidiary Long-Term Debt
- ------------------------------------
Long-term debt at December 31, 1993 consisted of $947.9 million
of unsecured borrowings from institutional lenders maturing at
various dates between January 1994 and July 2003. The interest
rates of such borrowings ranged from 3.64% to 10.65%. The
weighted average interest rate was 7.45% at December 31, 1993,
8.13% at December 31, 1992 and 8.9% at December 31, 1991. Annual
aggregate principal repayments are $160.8 million in 1994, $181.8
million in 1995, $173.2 million in 1996, $103.8 million in 1997,
$92.3 million in 1998 and $236 million thereafter.
The remaining $79.8 million was non-recourse debt, $54.7
million of which was secured by aircraft currently under
operating lease. The debt is payable in monthly installments at
rates of LIBOR (London Interbank Offered Rate) plus 1.25% and
LIBOR plus 1.375% with final maturity on March 15, 2002. The
remaining non-recourse debt of $25.1 million is related to PCI's
majority owned real estate partnerships of which $16.5 million is
50
due in consecutive monthly installments with maturity on February
28, 1994, at a floating rate of interest based on LIBOR plus 2%.
The remaining non-recourse real estate debt consists of $8.6
million payable in monthly installments at a fixed rate of
interest of 9.66% with final maturity on October 1, 2011.
The estimated fair value of PCI's long-term debt, including
non-recourse debt, was $1.1 billion and $925 million at December
31, 1993 and 1992, respectively, based on current rates offered
to similar companies for debt with similar remaining maturities.
51
(11) Short-Term Debt
---------------
The Company's short-term financing requirements have been
satisfied principally through the sale of commercial promissory
notes.
The Company has $90 million in revolving credit agreements with
a group of 11 banks and conventional bank line of credit
agreements of $215.5 million with 21 banks to support its utility
operations, all of which were unused during 1993, 1992 and 1991.
Nonutility Subsidiary Short-Term Notes Payable
- ----------------------------------------------
The nonutility subsidiary's short-term financing requirements
have been satisfied principally through the sale of commercial
promissory notes.
The nonutility subsidiary maintains a minimum 100% line of
credit back-up for its outstanding commercial promissory notes,
all of which were unused during 1993, 1992 and 1991.
52
(12) Commitments and Contingencies
-----------------------------
The Company leases its general office building and certain data
processing and duplicating equipment, motor vehicles,
communication system and construction equipment under long-term
lease agreements. The lease of the general office building
expires in 2002 and leases of equipment extend for periods of up
to 6 years. Charges under such leases are accounted for as
operating expenses or construction expenditures, as appropriate.
Rents, including property taxes and insurance, net of rental
income from subleases, aggregated approximately $13.6 million in
1993, $12.6 million in 1992 and $11.4 million in 1991. The
approximate annual commitments under all leases, reduced by
rentals to be received under subleases are $11.3 million in 1994,
$8.8 million in 1995, $7 million in 1996, $4.7 million in 1997,
$4.6 million in 1998 and a total of $19.5 million in the years
thereafter.
The Company's long-term capacity purchase agreements with Ohio
Edison and APS commenced June 1, 1987 and are expected to
continue at the 450 megawatt level through 2005. Under the terms
of the agreement with Ohio Edison, the Company is required to
make capacity payments, subject to certain contingencies, which
include a share of Ohio Edison's fixed operating and maintenance
cost. The approximate monthly capacity commitment under this
agreement, excluding fixed operating and maintenance cost, was
$12,380 per megawatt, per month, through 1993; increasing to
$18,060 per megawatt, per month, effective January 1994 through
1998; and increasing to $25,620 per megawatt, per month, in 1999
through 2005.
The Company began a 25-year purchase agreement in June 1990
with SMECO for 84 megawatts of capacity supplied by a combustion
turbine installed and owned by SMECO at the Company's Chalk Point
Generating Station. The Company is responsible for all costs
associated with operating and maintaining the facility. The
capacity payment to SMECO is approximately $462,000 per month.
The Company was a defendant in employment discrimination
litigation which was pending in the United States District Court
for the District of Columbia. In February 1993, the parties to
the case reached tentative settlement of the claims and, in April
1993, the Company paid $38.26 million into a trust fund pursuant
to the terms of the agreement. The funds will be disbursed from
the trust fund to certain covered classes of current and former
employees and applicants for employment and to cover the
plaintiffs' legal and expert fees and costs. The Court approved
the settlement agreement effective July 1993. The Company
received insurance payments of $13.5 million in October 1993 and
$24 million in January 1994, bringing the total recovered from
insurance companies to $37.5 million. At December 31, 1993,
approximately $.8 million was charged to non-operating expense.
53
In August 1993, the Company was served with Amended Complaints
filed in three jurisdictions (Prince George's County, Baltimore
City, and Baltimore County), in separate ongoing, consolidated
proceedings each denominated "In re: Personal Injury Asbestos
Cases." The Company (and other defendants) were brought into
these cases on a theory of premises liability under which
plaintiffs argue that the Company was negligent in not providing
a safe work environment for employees of its contractors who
allegedly were exposed to asbestos while working on the Company's
property. Initially, a total of approximately four hundred and
forty-eight (448) individual plaintiffs added the Company to
their Complaints. While the pleadings are not entirely clear, it
appears that each plaintiff seeks $2 million in compensatory
damages and $4 million in punitive damages from each defendant.
In a related proceeding in the Baltimore City case, the Company
was served, in September 1993, with a third party complaint by
Owens Corning Fiberglass, Inc. (Owens Corning) alleging that
Owens Corning was in the process of settling approximately 700
individual asbestos-related cases and seeking a judgment for
contribution against the Company on the same theory of alleged
negligence set forth above in the plaintiffs' case.
Subsequently, Pittsburgh Corning Corp. (Pittsburgh Corning) filed
a third party complaint against the Company, seeking contribution
for the same plaintiffs involved in the Owens Corning third party
complaint. Since the filings, a number of the individual suits
have been disposed of without any payment by the Company. While
the aggregate amount specified in the remaining suits would
exceed $1 billion, the Company believes the amounts are greatly
exaggerated as were the claims already disposed of. The amount
of total liability, if any, and any related insurance recovery
cannot be precisely determined at this time; however, based on
information and relevant circumstances known at this time, the
Company does not believe these suits will have a material adverse
effect on its financial position.
The Company is subject to contingencies associated with
environmental matters, principally related to possible
obligations to remove or mitigate the effects on the environment
of the disposal of certain substances at the sites discussed
below.
During 1993, the Company participated with two other
potentially responsible parties (PRPs) in a removal action at a
site in Harmony, West Virginia pursuant to an Administrative
Order (AO) issued by the Environmental Protection Agency (EPA).
Approximately $3 million (of which the Company has paid one-
third, subject to possible reallocation) was expended on the
removal action, which the EPA has stated is in compliance with
the AO. Approximately $1.9 million of this cost has now been
recovered from third parties. EPA oversight costs, which are not
expected to be material, have not yet been assessed. While
compliance with the AO has been completed, the Company cannot
determine whether it will be subject to any future liability with
respect to this site.
54
The Company is currently participating with certain other PRPs
in a Remedial Investigation/Feasibility Study (RI/FS) with
respect to a site in Philadelphia, Pennsylvania. Pursuant to an
agreement among the participating PRPs, the Company is
responsible for 12% of the costs of the RI/FS. Total costs of
the RI/FS, including legal fees, are currently estimated to be
$6.5 million. The Company has paid $548,000 to date. The
Company cannot estimate the extent of the EPA's administrative
and oversight costs or the expense associated with a remedy
ultimately acceptable to the EPA with respect to this site.
The Company is involved in other legal and administrative
(including environmental) proceedings before various courts and
agencies with respect to matters arising in the ordinary course
of business. Management is of the opinion that the final
disposition of these proceedings will not have a material adverse
effect on the Company's financial position or results of
operations.
55
(13) Supplemental Cash Flow Information
----------------------------------
Listed below is supplemental disclosure of cash flow information.
- -----------------------------------------------------------------
1993 1992 1991
- -----------------------------------------------------------------
(Thousands of Dollars)
Cash paid for:
Interest, net of capitalized
interest (including nonutility
subsidiary interest of $76,556,
$86,917 and $71,636) $206,955 204,657 181,311
Income taxes $ 67,741 52,764 59,318
Nonutility subsidiary noncash
transactions:
Promissory note received in
exchange for equipment $ - 10,000 -
Property transferred to
partnership $ - - 84,356
Consolidation of majority-owned
subsidiaries $ 35,320 - -
- -----------------------------------------------------------------
For purposes of the consolidated financial statements, cash and
cash equivalents include cash on hand, money market funds and
commercial paper with maturities of three months or less.
56
(14) Selected Nonutility Subsidiary Financial Information
----------------------------------------------------
Selected financial information of the Company's principal
consolidated nonutility investment subsidiary, Potomac Capital
Investment Corporation (PCI) and its subsidiaries, is presented
below. The Company's equity investment in PCI, which was reduced
by a $14 million dividend in 1993 and a $12 million dividend in
1992, was $290.9 million and $278.6 million at December 31, 1993
and 1992, respectively.
- -----------------------------------------------------------------
For the year ended
December 31,
1993 1992 1991
- -----------------------------------------------------------------
(Thousands of Dollars)
Income
Leasing activities $114,226 $122,087 $128,714
Marketable securities 38,417 37,062 21,095
Other (13,302) 2,005 (4,752)
-------- -------- --------
139,341 161,154 145,057
-------- -------- --------
Expenses
Interest 77,861 86,156 80,269
Administrative and general 14,640 9,762 14,021
Depreciation and operating 66,817 34,559 27,667
Income tax expense (45,078) 2,516 (251)
-------- -------- --------
114,240 132,993 121,706
-------- -------- --------
Net earnings from nonutility
subsidiary $ 25,101 $ 28,161 $ 23,351
======== ======== ========
57
Marketable Securities
- ---------------------
At December 31, 1993, marketable securities consist primarily of
preferred stocks with mandatory redemption features and corporate
debt securities. Preferred stocks with mandatory redemption
features and corporate debt securities are generally carried at
cost and amortized cost, respectively. PCI has both the ability
and intent to hold these securities until maturity. Certain of
these securities which PCI believes have been permanently
impaired have been carried at estimated net realizable value.
Equity securities have been carried at the lower of cost or
market and any unrealized losses thereon are recognized, net of
tax, in common equity. At December 31, 1992, the cost of equity
securities exceeded the carrying value by approximately $1.8
million.
- -----------------------------------------------------------------
December 31,
1993 1992
- -----------------------------------------------------------------
(Thousands of Dollars)
Carrying Market Carrying Market
Value Value Value Value
--------- -------- -------- --------
Mandatory redeemable
preferred stock $465,034 $472,633 $365,029 $374,428
Debt securities 1,116 518 3,223 1,622
Equity securities 3 - 28,931 28,931
-------- -------- -------- --------
Total $466,153 $473,151 $397,183 $404,981
======== ======== ======== ========
- -----------------------------------------------------------------
Net recognized gains or losses from marketable securities
amounted to gains of $7 million and $7.5 million in 1993 and
1992, respectively, and a loss of $7.7 million in 1991.
In May 1993, the FASB issued SFAS No. 115 entitled "Accounting
for Certain Investments in Debt and Equity Securities," which
will become effective for fiscal years beginning after December
15, 1993. The Company is evaluating the effects of applying SFAS
No. 115 and does not expect implementation to have a material
impact on the results of operations.
58
Investment in Finance Leases
- ----------------------------
PCI's net investment in finance leases consists primarily of
direct finance leases and are summarized below.
- -----------------------------------------------------------------
December 31,
1993 1992
- -----------------------------------------------------------------
(Thousands of Dollars)
Rents receivable $419,284 $601,084
Estimated residual values 155,187 162,646
Less: Unearned and deferred income (215,947) (307,052)
-------- --------
Investment in finance leases 358,524 456,678
Less: Deferred taxes arising from
finance leases (130,833) (167,555)
-------- --------
Net investment in finance leases $227,691 $289,123
======== ========
- -----------------------------------------------------------------
Minimum lease payments receivable from finance leases,
primarily aircraft, for each of the years 1994 through 1998 are
$29.5 million, $30.6 million, $29.4 million, $27.1 million and
$31.2 million, respectively. Net income from leveraged leases
was $1.1 million in 1993, $7.1 million in 1992 and $2.5 million
in 1991.
Operating Lease Equipment
- -------------------------
Rent payments receivable from aircraft equipment operating leases
for each of the years 1994 through 1998 are $51.8 million in
1994, $48.1 million in 1995, $46.6 million in 1996, $43.9 million
in 1997 and $34.7 million in 1998.
59
<TABLE>
(15) Quarterly Financial Summary (Unaudited)
<CAPTION>
- -------------------------------------------------------------------
- --------------------------------------------------
1st 2nd
3rd 4th
Quarter Quarter Quarter Quarter Total --
- -------------------------------------------------------------------
- ------------------------------------------------
(Thousands of Dollars
except Per Share Data) <S>
<C> <C> <C> <C> <C>
1993
Operating Revenue $ 331,236
416,152 610,540 344,514 1,702,442 Total Revenue
$ 339,455 419,693
614,261 351,796 1,725,205 Operating Expenses
$ 302,833 332,796 442,306
322,608 1,400,543 Operating Income
$ 36,622 86,897 171,955 29,188
324,662 Net Income $
13,044 77,022 144,671 6,842 241,579 Earnings
for Common Stock $ 8,931
72,974 140,631 2,788 225,324 Earnings Per Common
Share $ .08 .63
1.21 0.02 1.95 Dividends Per Share
$ .41 .41 .41 .41
1.64
1992
Operating Revenue $ 321,119
381,294 544,753 315,001 1,562,167 Total Revenue
$ 325,946 390,536
553,631 331,445 1,601,558 Operating Expenses
$ 296,616 320,874 405,903
298,712 1,322,105 Operating Income
$ 29,330 69,662 147,728 32,733
279,453 Income Before Cumulative Effect of Accounting Change $
8,049 49,159 122,804 20,748 200,760
Cumulative Effect of Accounting Change,
Net of Income Taxes $ 16,022
- - - 16,022 Net Income
$ 24,071 49,159
122,804 20,748 216,782 Earnings for Common Stock
$ 20,667 45,839 119,243
16,641 202,390 Earnings Per Common Share
Before Cumulative Effect of Accounting Change $ .04
.41 1.06 .15 1.66 Cumulative
Effect of Accounting Change $ .14 -
- - .14 Total
$ .18 .41 1.06
.15 1.80 Dividends Per Share
$ .40 .40 .40 .40
1.60
1991
Operating Revenue $ 289,522
361,063 562,710 338,771 1,552,066 Total Revenue
$ 311,342 374,466
572,317 361,190 1,619,315 Operating Expenses
$ 285,775 308,992 418,973
315,344 1,329,084 Operating Income
$ 25,567 65,474 153,344 45,846
290,231 Net Income $
6,943 42,755 132,923 27,543 210,164 Earnings
for Common Stock $ 4,253
40,047 129,463 24,103 197,866 Earnings Per Common
Share $ .04 .38
1.21 .22 1.87 Dividends Per Share
$ .39 .39 .39 .39
1.56
</TABLE>
The Company's sales of electric energy are seasonal and,
accordingly, comparisons by quarter within a year are not
meaningful.
The total of the four quarterly earnings per share may not equal
the earnings per share for the year due to changes in the number of
common shares outstanding during the year.
60
<TABLE>
Stock Market Information
<CAPTION>
- -------------------------------------------------------------------
- ----------------------------------------------------------1993
High Low 1992
High Low ----------------------
- -------------------------------------------------------------------
- ------------------------------------<S>
<C> <C> <C>
<C> <C> 2nd Quarter $27-3/8
$25-5/8 2nd Quarter $26
$23 3rd Quarter $28-7/8 $27-1/8
3rd Quarter $27-1/2 $25-1/8 4th
Quarter $28-3/4 $24-5/8 4th
Quarter $26-3/4 $22-5/8 (Close
$26-3/4) (Close
$23-7/8) Shareholders at December 31, 1993: 98,892
- -------------------------------------------------------------------
- ----------------------------------------------------------</TABLE>
<TABLE>
Selected Consolidated Financial Data
<CAPTION>
- -------------------------------------------------------------------
- ----------------------------------------------------------
1993 1992 1991
1990 1989 1988 1983 --------------------
- -------------------------------------------------------------------
- --------------------------------------
(Thousands except Per Share Data)
<S> <C> <C> <C>
<C> <C> <C> <C> Operating
Revenue $1,702,442 1,562,167 1,552,066
1,411,713 1,394,909 1,349,811 1,169,729
Total Revenue $1,725,205 1,601,558
1,619,315 1,501,728 1,531,024 1,411,630 1,308,735
Operating Expenses $1,400,543 1,322,105
1,329,084 1,245,579 1,256,553 1,138,667 1,091,617
Net Earnings from Nonutility
Subsidiary $ 25,101 28,161
23,351 5,035 31,100 27,938 181
Income Before Cumulative Effect of
Accounting Change $ 241,579 200,760
210,164 170,234 214,587 211,073 140,051
Cumulative Effect of Accounting
Change, Net of Income Taxes $ - 16,022
- - - - -
Net Income $ 241,579 216,782
210,164 170,234 214,587 211,073 140,051
Earnings for Common Stock $ 225,324 202,390
197,866 159,636 205,352 201,832 123,805
Average Common Shares Outstanding 115,640 112,390
105,911 98,621 95,203 94,450 93,135
Earnings Per Common Share
Before Cumulative Effect of
Accounting Change $ 1.95 1.66
1.87 1.62 2.16 2.14 1.33
Cumulative Effect of Accounting
Change $ - .14
- - - - -
Total $ 1.95 1.80 1.87
1.62 2.16 2.14 1.33
Cash Dividends Per Common Share $ 1.64 1.60
1.56 1.52 1.46 1.38 0.89
Investment in Property
and Plant $5,665,141 5,367,624
5,048,121 4,659,280 4,270,718 3,945,739 3,043,236
Net Investment in Property
and Plant $4,131,142 3,931,257
3,706,866 3,397,992 3,097,532 2,857,006 2,282,748
Utility Assets $5,000,328 4,478,762
4,174,713 3,852,415 3,528,883 3,267,465 2,732,394
Nonutility Subsidiary Assets $1,665,132 1,663,508
1,679,079 1,387,247 1,113,827 878,990 30,195
Total Assets $6,665,460 6,142,270
5,853,792 5,239,662 4,642,710 4,146,455 2,762,589
Long-Term Utility Obligations
(including redeemable preferred
and preference stock) $1,736,621 1,727,609
1,662,157 1,516,073 1,286,429 1,243,490 1,133,621
- -------------------------------------------------------------------
- ----------------------------------------------------------
61
</TABLE>
Appendix A
1. The 1993 Use of Revenue pie chart presents the following
information.
Fuel and Purchased Energy 31%
Wages and Benefits 10
Materials and Services 5
Capacity Purchase Payments 6
Taxes 17*
Depreciation and Amortization 9*
Interest 8*
Preferred Stock Dividends 1*
Common Stock Dividends 11*
Retained Income 2*
---
100%
===
*Plant-Related Costs
Appendix A
2. The Cooling Degree Hours bar chart presents the following
information.
% of
20-Year
Average
-------
1989 94%
1990 85%
1991 123%
1992 62%
1993 122%
Appendix A
3. The System Fuel Costs line chart presents the following
information.
Year Coal Oil Gas System
---- ------ ----- ----- ------
1984 $1.85 $4.88 - $2.21
1985 $1.83 $4.50 - $2.22
1986 $1.74 $3.07 $2.76 $1.92
1987 $1.64 $2.97 $2.69 $1.81
1988 $1.67 $2.74 $2.32 $1.84
1989 $1.69 $2.78 $2.52 $1.95
1990 $1.77 $3.00 $2.34 $1.94
1991 $1.78 $2.76 $2.18 $1.93
1992 $1.72 $2.50 $2.32 $1.85
1993 $1.72 $2.55 $2.88 $1.90
Appendix A
4. The Construction Expenditures bar chart presents the
following information.
Construction
Expenditures Total Construction
(excluding AFUDC and Clean Air Act Expenditures
Clean Air Act) Expenditures (excluding AFUDC)
-------------------- ------------- ------------------
Actual:
1989 $329 - $329
1990 393 - 393
1991 391 $ 8 399
1992 298 30 328
1993 237 63 300
Forecast:
1994 226 64 290
1995 244 36 280
1996 215 25 240
1997 177 33 210
1998 200 45 245
Exhibit 21 Subsidiaries of the Registrant
- ---------- ------------------------------
The Company has two wholly owned nonutility investment subsidiary
companies, Potomac Capital Investment Corporation and PEPCO Enterprises, Inc.,
(PEI) both of which were incorporated in Delaware in 1983. Subsidiaries of
PEI and Columbia Gas System, Inc. have formed the Cove Point joint venture
partnership discussed in Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Exhibit 23 Consent of Independent Accountants
- ---------- ----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Number 33-36798) and to the incorporation by reference
in the Prospectuses constituting part of the Registration Statements on Forms
S-3 (Numbers 33-48524, 33-58810, and 33-50377) of Potomac Electric
Power Company of our report dated January 21, 1994 appearing in the Annual
Report to shareholders which is also incorporated by reference in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report on the Consolidated Financial Statement Schedules, which appears under
Item 14 (d) of this Form 10-K.
/s/ Price Waterhouse
Washington, D.C.
March 25, 1994
Report of Independent Accountants on Consolidated
- -------------------------------------------------
Financial Statement Schedules
- -----------------------------
January 21, 1994
To the Board of Directors of
Potomac Electric Power Company
Our audits of the consolidated financial statements referred to in our report
dated January 21, 1994 appearing in the 1993 Annual Report to shareholders of
Potomac Electric Power Company (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the consolidated financial statement schedules
listed in Item 14(a) of this Form 10-K. In our opinion, these consolidated
financial statement schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ Price Waterhouse
Washington, D.C.
