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, 1998 Commission file number 1-1072
----------------- ------
Potomac Electric Power Company
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
District of Columbia and Virginia 53-0127880
- --------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 Pennsylvania Avenue, N.W.
Washington, D. C. 20068
- --------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (202) 872-2000
-------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -----------------------------
7% Convertible Debentures due 2018 - ) New York Stock Exchange, Inc.
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
------------------- -----------------------------
Common Stock, $1 par value ) New York Stock Exchange, Inc.
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. X .
---
As of March 9, 1999, Potomac Electric Power Company had 118,527,287
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 $3 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1998 Annual Report to shareholders are
incorporated by reference into Parts I, II, and IV of this Form 10-K.
Portions of the Notice of Annual Meeting of Shareholders and Proxy
Statement, dated March 10, 1999, are incorporated by reference into Part III
of this Form 10-K.
2
POTOMAC ELECTRIC POWER COMPANY
Form 10-K - 1998
TABLE OF CONTENTS
PART I Page
Item 1. - Business ----
Sales .............................................................. 5
Fuel ............................................................... 7
Rates .............................................................. 11
Item 2. - Properties ................................................. 12
Item 3. - Legal Proceedings .......................................... 13
Item 4. - Submission of Matters to a Vote of Security Holders ........ 13
PART II
Item 5. - Market for the Registrant's Common Equity and Related
Stockholder Matters ....................................... 14
Item 6. - Selected Financial Data .................................... 14
Item 7. - Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 15
Item 7A.- Quantitative and Qualitative Disclosures about Market Risk.. 21
Item 8. - Financial Statements and Supplementary Data ................ 22
Item 9. - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .................................. 22
PART III
Item 10. - Directors and Executive Officers of the Registrant ........ 22
Item 11. - Executive Compensation .................................... 24
Item 12. - Security Ownership of Certain Beneficial Owners and
Management................................................ 24
Item 13. - Certain Relationships and Related Transactions ............ 24
PART IV
Item 14. - Exhibits, Financial Statement Schedule and Reports on
Form 8-K ................................................. 25
Schedule II - Valuation and Qualifying Accounts .................... 33
Exhibit 11 - Statements Re. Computation of Earnings Per Common
Share ................................................ 34
Exhibit 12 - Statements Re. Computation of Ratios .................. 35
Exhibit 21 - Subsidiaries of the Registrant ........................ 37
Exhibit 23 - Consent of Independent Accountants .................... 38
Report of Independent Accountants on Consolidated Financial
Statement Schedule ............................................... 39
Signatures ........................................................... 40
3
PAGE LEFT BLANK
INTENTIONALLY
4
Part I
- ------
Item 1. BUSINESS
- ------- --------
The information required in this section, unless disclosed below or in
Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations Subsequent Events," is incorporated herein by
reference from the "Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition" section and the "Notes to
Consolidated Financial Statements" of the Company's 1998 Annual Report to
shareholders.
SALES
- -----
The Company's kilowatt-hour sales and revenue by class of service and by
customer type for the period 1996 through 1998 are presented below.
1998 1997 1996
---------- ---------- ----------
Electric Energy Sales (Millions of Kilowatt-hours)
---------------------
Kilowatt-hours Sold - Total 26,298 25,708 25,900
====== ====== ======
By Class of Service -
Residential service 6,757 6,564 6,882
General service 15,591 15,307 15,185
Large power service (a) 686 698 687
Street lighting 164 166 164
Rapid transit 422 412 412
Wholesale (Primarily SMECO) 2,678 2,561 2,570
By Type of Customer -
Residential 6,745 6,552 6,869
Commercial 12,049 11,811 11,712
U.S. Government 3,968 3,934 3,902
D.C. Government 858 850 847
Wholesale (Primarily SMECO) 2,678 2,561 2,570
(a) Large power service customers are served at a voltage of 66KV or
higher.
5
1998 1997 1996
---------- ---------- ----------
Electric Revenue (Millions of Dollars)
----------------
Sales of Electricity - Total (b) $1,872.7 $1,799.8 $1,824.8
======== ======== ========
By Class of Service -
Residential service $ 567.7 $ 525.6 $ 549.1
General service 1,102.9 1,073.6 1,076.6
Large power service (a) 35.0 35.5 35.7
Street lighting 13.2 12.9 12.5
Rapid transit 29.7 28.9 28.7
Wholesale (Primarily SMECO) 124.2 123.3 122.2
By Type of Customer -
Residential $ 566.8 $ 524.7 $ 548.1
Commercial 876.7 851.4 852.5
U.S. Government 253.5 249.3 250.4
D.C. Government 51.5 51.1 51.6
Wholesale (Primarily SMECO) 124.2 123.3 122.2
(a) Large power service customers are served at a voltage of 66KV or
higher.
(b) Exclusive of Other Electric Revenue of $13.4 million in 1998,
$11 million in 1997 and $10 million in 1996.
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 higher to encourage customer conservation
and peak load shifting, has an adverse effect on revenue and net income and,
conversely, hot weather during these months has a favorable effect.
The Company includes in revenue 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.
6
FUEL
- ----
For customer billing purposes, all of the Company's kilowatt-hour sales,
through December 31, 1998, are covered by separately stated fuel rates.
Pursuant to a new full-requirements contract with the Southern Maryland
Electric Cooperative (SMECO), effective January 1, 1999, the rate for
electricity includes a non-varying fuel component. Refer to Item 7.
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" for additional information regarding SMECO. The ages of the
Company's generating units, all of which are in operation, are presented in
the table below.
Generating Number Age
Station of Units (a) (Years) Service Type
-------------- ------------ ------- --------------------
Benning 2 26-30 Cycling
Buzzard Point 16 30 Peaking
Potomac River 2/3 41-49 Cycling/Base
Dickerson 3/3 5-39 Base/Peaking
Chalk Point 2/2/7(b) 7-34 Base/Cycling/Peaking
Morgantown 2/6 25-28 Base/Peaking
(a) By service type.
(b) Includes a combustion turbine unit owned by SMECO and operated by
the Company.
Since the 1970s, the Company has conducted continuing programs to extend the
useful lives of generating units and to ensure their continued availability
and efficiency. The Company's generating units burn only fossil fuels. The
principal fuel is coal. The Company owns no nuclear generation facilities.
The following table sets forth the quantities of each type of fuel used by the
Company in the years 1998, 1997 and 1996 and the contribution, on the basis of
Btus, of each fuel to energy generated.
1998 1997 1996
-------------- -------------- --------------
% of % of % of
Quantity Btu Quantity Btu Quantity Btu
-------- ----- -------- ----- -------- -----
Coal
(000s net tons) 6,999 84.5 6,318 89.1 6,224 89.7
Residual oil
(000s barrels) 3,823 11.1 1,350 4.6 1,365 4.8
Natural gas
(000s dekatherms) 6,062 2.8 8,318 4.5 6,111 3.4
No. 2 fuel oil
(000s barrels) 590 1.6 564 1.8 657 2.1
7
The following table sets forth the average cost of each type of fuel
burned, for the years shown.
1998 1997 1996
------ ------ ------
Coal: per ton $40.27 $42.82 $42.17
per million Btu 1.55 1.65 1.62
Residual oil: per barrel 16.17 20.95 20.04
per million Btu 2.57 3.49 3.19
Natural gas: per dekatherm 2.63 2.87 2.92
per million Btu 2.63 2.87 2.92
No. 2 fuel oil: per barrel 21.21 26.96 25.34
per million Btu 3.63 4.63 4.34
The system average cost of fuel burned per million Btu was $1.72 in 1998
compared with $1.84 in 1997 and $1.80 in 1996. The decrease of 6.5% in the
1998 system average unit fuel cost compared with the 1997 system average is
attributed primarily to the decreased unit costs of coal, residual oil and
gas. The increase of approximately 2% in the 1997 system average unit fuel
cost compared with the 1996 system average is attributed primarily to the
increased unit cost of coal resulting principally from an increased cost of
railroad transportation. The increase in the percent of residual oil burned
in 1998 reflects the decline in the price of residual oil and an increase in
wholesale energy sales. The decrease in the percent of oil burned in 1997
reflects the increase in the price of oil and the increased usage of lower-
cost gas. The Company's major cycling and certain peaking units can burn
either natural gas or oil, adding flexibility in selecting the most cost-
effective fuel mix.
8
Eight of the Company's 16 steam-electric generating units can burn only
coal; two units can burn only residual oil; two units can burn either coal or
residual oil or a combination of both; two units can burn either coal or
natural gas 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 and those units capable of burning either coal or natural gas normally
burn coal as their primary fuel. The Company also has combustion turbines,
some of which can burn only No. 2 fuel oil, and others which can burn either
natural gas or No. 2 fuel oil. 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 types of fuel used in generating facilities).
Net Generating Net
Capability and Energy
Purchased Capacity Generated
------------------ ------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Steam generation
Dual fuel units, capable
of burning coal, residual
oil or a combination of
coal and residual oil.... 17% 17% 17% 31% 31% 33%
Dual fuel units, capable
of burning coal, natural
gas,or a combination of
coal and natural gas..... 10% 10% - 16% 16% -
Units capable of burning
coal only................ 17% 18% 28% 29% 29% 45%
Units capable of burning
residual oil only........ 8% 8% 8% 1% - 1%
Units capable of burning
residual oil or natural
gas...................... 18% 18% 18% 8% 4% 4%
Combustion turbines
Units capable of burning
No. 2 fuel oil only...... 8% 8% 8% )
Units capable of burning ) 2% 2% 1%
No. 2 fuel oil or natural )
gas...................... 11% 11% 11% )
Purchased capacity........... 11% 10% 10% 13%(a) 18%(a) 16%(a)
(a) Includes purchases under cogeneration agreements.
9
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), environmental constraints, weather conditions
and fuel supply constraints, if any.
The Company has numerous coal contracts, with various expiration dates
through 2001, for aggregate annual deliveries of approximately 4.1 million
tons. Deliveries under these contracts are expected to provide approximately
61% of the estimated system coal requirements in 1999. The balance of the
Company's coal requirements will be purchased under shorter-term agreements
and on a spot basis from a variety of suppliers. Each of the Company's coal
contracts, which are not fixed price contracts, contains price escalation/de-
escalation provisions whereby the adjusted base price to-be-paid to the
supplier for coal received by the Company is adjusted on a quarterly basis.
Contract price adjustments are calculated according to changes in the
contract-specified published indices and are limited by current spot market
prices. The Company plans to replace the contracts when they expire with
either short-term or spot agreements at comparable prices.
Most of the coal currently used by the Company is deep 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 Clean Air Act, the costs of
surface mining reclamation and black lung benefits), the imposition of (or
changes in) state severance taxes and by 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 purchased under one two-year and two one-year contracts.
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 and Dickerson Generating
Stations are capable of burning natural gas as well as oil. The Company has
the option to purchase natural gas under an agreement for Chalk Point through
December 1999. This contract is for an interruptible supply of natural gas
with provisions for price review and monthly adjustment. No term agreement
exists to purchase natural gas for the Dickerson Generating Station. The
Company actively pursues spot market purchases of natural gas on a short-term
basis for its Chalk Point and Dickerson stations. 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.
10
RATES
- -----
Rate orders received by the Company during the past three years provided
for changes in annual base rate revenue as shown in the table below. At
December 31, 1998, there were no base rate proceedings filed nor pending
approval before the Company's retail regulatory commissions. The Company has
a new full-requirements agreement with SMECO, effective January 1, 1999.
Refer to Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for additional information regarding SMECO.
Rate
Increase
(Decrease) % Effective
Regulatory Jurisdiction ($000) Change Date
----------------------- ---------- --------- ---------------
Maryland $19,000 2.0 December 1998
Federal-Wholesale (2,500) (1.8) January 1998
Maryland 24,000 2.6 November 1997
Federal-Wholesale (2,000) (1.7) January 1996
11
<TABLE>
Part I
- ------
Item 2. PROPERTIES
- ------ ----------
On February 3, 1999, the Company, together with several other parties, filed an Agreement of Stipulation and Settlement
concerning the Company's Maryland stranded cost adjudication proceedings that outlines the Company's plan to voluntarily
divest its generating assets at auction as a method to recover 100% of its stranded costs. Refer to Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of Operations - Subsequent Events" for
additional information about the proposed sale of the generating assets.
<CAPTION>
Megawatts of Net Capability Net Megawatt-
Steam --------------------------- Hours Generated
Generation Steam Combustion in 1998
Generating Station Location Primary Fuel Generation Turbine <F1> (Thousands)
- ------------------ --------------------------------------- -------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Benning Benning Road and Anacostia River, N.E. No. 4 Oil 550 - 213
Washington, D.C.
Buzzard Point 1st and V Streets, S.W. - - 256 31
Washington, D.C.
Potomac River Bashford Lane and Potomac River Coal 482 - 2,191
Alexandria, Virginia
Dickerson Potomac River, South of Little Monocacy Coal 546 291 3,835
River, Dickerson, Maryland
Chalk Point Patuxent River at Swanson Creek Coal/ 1,907 516 <F2> 6,314
Aquasco, Maryland Residual Oil/
Natural Gas
Morgantown Potomac River, South of Route 301 Coal/ 1,164 248 7,853
Newburg, Maryland Residual Oil
------------ ------------ -----------
Total - Wholly owned Units 4,649 1,311 20,437
Conemaugh Indiana County, Pennsylvania Coal 165 1 1,278
------------ ------------ -----------
Total - All Stations Operated 4,814 1,312 21,715
------------ ===========
Cogeneration - - 281
===========
Purchased Capacity
FirstEnergy <F3> 450 - 2,670
Panda-Brandywine <F4> 230 - 411
------------ -----------
680 - 3,081
------------ ===========
Total System, excluding Short-
term Capacity Transactions 5,494 1,312
------------ ------------
Short-term Capacity Transactions, net (207) -
------------ ------------
Total System 5,287 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>Includes 84 megawatts supplied by a combustion turbine owned by SMECO and
operated by the Company.
<F3>Generating capacity under long-term agreements with FirstEnergy and AEI.
<F4>Generating capacity under long-term agreement with Panda-Brandywine L.P.
12
</FN>
</TABLE>
The five steam-electric generating stations, together with combustion
turbines, had an aggregate net capability at December 31, 1998, 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 coal fired, 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 FirstEnergy under long-term agreements with FirstEnergy
and AEI. The agreements, which provide for 450 megawatts of capacity and
associated energy, are expected to continue at that level through the year
2005. In addition, the Company has a 25-year agreement with Panda for a 230-
megawatt gas-fueled combined-cycle cogeneration project in Prince George's
County, Maryland. On June 26, 1998, the Company established an all-time
summer peak demand of 5,807 megawatts. At the time of the 1998 summer peak
demand, the Company's Energy Use Management programs had the capability of
reducing system demand by an additional 242 megawatts.
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
- ------- -----------------
The information required in this section is incorporated herein by
reference from Note 13. to the "Notes to Consolidated Financial Statements" of
the Company's 1998 Annual Report to shareholders.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None.
13
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.
Dividends Price Range
Period Per Share High Low
--------------------- --------------- --------- --------
1998:
First Quarter...... $.415 $25-11/16 $23-7/16
Second Quarter..... .415 25-7/16 23-1/16
Third Quarter...... .415 26-5/8 23-1/8
Fourth Quarter..... .415 $1.66 27-13/16 24-7/8
1997:
First Quarter...... $.415 $26 $23-7/8
Second Quarter..... .415 24-7/8 21-1/8
Third Quarter...... .415 23-3/4 21
Fourth Quarter..... .415 $1.66 26 21
The number of holders of Common Stock was 71,375 at March 9, 1999, and
72,607 at December 31, 1998.
There were 118,527,287 shares of the Company's $1 par value Common Stock
outstanding at March 9, 1999, and December 31, 1998. A total of 200 million
shares is authorized.
In January 1999, a dividend of 41-1/2 cents per share was declared
payable March 31, 1999, to holders of record of the Company's common stock on
March 10, 1999. The Company's current annual dividend on common stock is
$1.66 per share. The dividend rate is determined by the Company's Board of
Directors and takes into consideration, among other factors, current and
possible future developments which may affect the Company's income and cash
flow levels. The Company has no current plans to change the dividend;
however, there can be no assurance that the $1.66 dividend rate will be in
effect in the future.
Item 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The information required in this section is incorporated herein by
reference from the "Selected Consolidated Financial Data" section of the
Company's 1998 Annual Report to shareholders.
14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by this section is incorporated herein by
reference from the "Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition" section of the Company's 1998
Annual Report to shareholders.
The "Management's Discussion and Analysis of Consolidated Results of
Operations and Financial Condition" section is located on pages 10-21 in the
Company's 1998 Annual Report to shareholders and pages 3-38 in Exhibit 13
included herein.
SUBSEQUENT EVENTS
- -----------------
SMECO Agreement
- ---------------
On February 9, 1999, the new full-requirements agreement between the
Company and SMECO was accepted by the Federal Energy Regulatory Commission
without change or modification. During the first quarter of 1999, the Company
will record pre-tax income of $23.2 million, which represents the present
value of the $26 million termination payment from SMECO that will be received
in January 2001.
Proposed Sale of Generating Assets
- ----------------------------------
The Company currently owns more than 6,000 megawatts of generating
capacity, which is provided by six Company-owned, fossil-fueled power plants
(of which two are located in Washington, D.C., three are located in Maryland
and one is located in Virginia). The Company also has purchased capacity
totaling 764 megawatts under long-term contracts. On February 3, 1999, the
Company together with several other parties (the Staff of the Maryland
Commission, the Maryland People's Counsel, the Maryland Energy Administration,
the U.S. General Services Administration, the Washington Metropolitan Area
Transit Authority, and the Mid-Atlantic Power Supply Association and a number
of other parties) filed an Agreement of Stipulation and Settlement (the
Agreement) concerning the Company's Maryland stranded cost adjudication
proceeding, an element of the transition to electricity competition in
Maryland. Under the Agreement, if approved by the Maryland Public Service
Commission (the Maryland Commission) and if all other conditions to the
Agreement are satisfied, the Company will sell all of its plants, facilities
and equipment used in the generation of electricity and its other rate-based
assets that are not required for the provision of electric transmission and
distribution services located both in Maryland and elsewhere (collectively,
the "generation assets"). The Agreement also provides for the recovery by the
Company of its stranded costs allocated to Maryland and the Maryland-related
expenses incurred by the Company in preparation for the implementation of
retail competition.
15
The conditions to the Agreement, in addition to the approval, without
change, of all of the provisions of the Agreement by the Maryland Commission,
include (i) passage by the Maryland General Assembly of legislation enabling
competition and customer choice, including legislation that modifies the
taxation of Maryland utilities, and (ii) approval by the District of Columbia
Public Service Commission (D.C. Commission) of the sale by the Company of its
generation assets.
Under the Agreement, if it is approved by the Maryland Commission and
all other required regulatory approvals are obtained, the Company has agreed
to sell its generation assets through an auction process. The generation
assets to be sold will include the Company's purchase power contracts, unless
the inclusion of such assets in the sale will result in the total value
received being significantly less or unless the Company is not legally free to
sell such assets. Any power purchase contract not included in the sale of
generation assets would become a distribution asset of the Company.
The Company has agreed to endeavor to obtain D.C. Commission approval
for the sale of its generation assets by March 31, 1999 (see the "D.C.
Commission Filings" section), and to obtain all other required regulatory
approvals in a timely fashion. If D.C. Commission approval is obtained by
March 31, 1999, the solicitation of bidders is targeted to begin by July 1,
1999. The Company is obligated to make a good faith effort to close the sale
of the generation assets by July 1, 2000. If all required regulatory
approvals are not obtained by January 1, 2000, the Agreement will terminate.
If the sale is completed, the generation assets sold would no longer be
subject to cost of service regulation by the Maryland Commission.
If the pre-tax net proceeds from the sale of the generation assets are
less than the then-current net book value of the generation assets ("book
value"), a non-bypassable Competitive Transition Charge (CTC) to Maryland
customers would be established to enable the Company to recover (i) the
portion allocable to Maryland of the amount by which such proceeds are less
than book value, plus (ii) the portion allocable to Maryland of certain
generation-related regulatory assets (together, "stranded costs") and the
additional expenses incurred by the Company in the preparation for and
implementation of retail access that the PSC authorizes the Company to recover
from its Maryland customers and which are incurred or reasonably estimated to
be incurred prior to July 1, 2003 ("transition costs").
If the pre-tax net proceeds from the sale of the generation assets
exceed the book value, the excess that is allocable to Maryland would be
applied to offset any remaining Maryland-related stranded costs and transition
costs. If such excess is not sufficient to recover fully such costs, the
shortfall allocable to Maryland will be recoverable through a non-bypassable
CTC to Maryland customers.
16
If the pre-tax net proceeds from the sale of the generation assets both
exceed book value and are sufficient to cover any remaining stranded costs and
transition costs, the portion of the remaining proceeds that are allocable to
Maryland would be distributed to the Company's Maryland customers by means of
a Competitive Transition Credit applied to the Company's Maryland retail
service rates as follows:
Percentage of Maryland Allocation
Excess Pre-Tax Net Proceeds Distributed to Maryland Customers
--------------------------- ---------------------------------
$100 million or less 70%
Next $100 million 60%
Any amount over $200
million 50%
The period of time over which the CTC or the Competitive Transition
Credit would be applied has not yet been determined.
Contingent upon the enactment of the necessary tax and enabling
legislation by the Maryland General Assembly, the parties to the Agreement
have targeted July 1, 2000, as the date on which retail access to a
competitive market for generation services will be made available to all of
the Company's Maryland customers. The unbundling of delivery rates for
customers who choose a generation supplier other than the Company would be
accomplished in a revenue neutral manner effective July 1, 2000.
Under the Agreement, the Company's Maryland customers who are unable to
receive generation services from another supplier, or who do not select
another supplier, will be entitled to receive services ("default services")
from the Company until July 1, 2003, at a rate for the applicable customer
class that is no higher than the bundled rate in effect on June 30, 2000, but
subject to adjustment for tax law changes enacted by the Maryland General
Assembly relating to its authorization of electric industry restructuring.
Thereafter, the Company would provide default services using power obtained
through a competitive bidding process at regulated tariff rates determined on
a pass-through basis and including an allowance for the costs incurred by the
Company in providing the services.
D.C. Commission Filings
- -----------------------
Stranded Cost Study and Unbundled Rates
- ---------------------------------------
On February 1, 1999, the Company filed with the D.C. Commission a
quantification of its District of Columbia jurisdictional generating,
purchased power and other costs that the Company projects would be stranded in
a competitive market for generating services; a proposed method for recovering
such stranded costs through a non-bypassable CTC; proposed unbundled rates for
retail service; and a proposal to freeze retail rates from the time
17
competition begins until January 2005 (the "Filing"). The Filing was made in
compliance with an order issued by the D.C. Commission on December 30, 1998
that required that the Company file a stranded cost study and unbundled rates
for the District of Columbia by February 1, 1999. The D.C. Commission order
also sought comments on various industry restructuring issues including
whether retail competition in the District of Columbia is in the public
interest.
The Company's "unbundled rates" proposal breaks down its electricity
prices into separate rates for generation supply (i.e., the cost of producing
power or buying it from third parties) and for electricity delivery (i.e., the
cost of transmission and distribution of electricity to consumers). In the
Filing, the Company's anticipated 1999 average price of 7.79 cents per
kilowatt-hour breaks down into a supply charge of 4.92 cents and a delivery
charge of 2.87 cents.
As part of the Filing, the Company proposes that effective with the
beginning of competition in the District of Columbia, both the supply and
delivery components of the Company's retail prices will be frozen at then-
existing levels until January 1, 2005. The Company also proposes to eliminate
its fuel adjustment clause when competition begins and assume the risk of fuel
cost increases after implementation of the restructuring plan until January 1,
2005 when the Company no longer has the obligation to supply electricity at
the frozen rate. The only exceptions to the rate freeze would be for
unexpected increases in taxes or new environmental requirements. After
January 1, 2005, supply prices would be set by the competitive marketplace and
delivery prices would be determined by regulators.
For retail customers who do not wish to buy the supply portion of their
electric service from a source other than the Company once they are free to do
so, the Company proposes to provide both supply and delivery service at the
frozen rates until January 1, 2005. For customers who enter the competitive
supply market, the Company proposes to provide them with a "shopping credit"
based on the estimated market price for electricity (currently expected to
start at 4.03 cents/kWh in 2001). The shopping credit would terminate on
January 1, 2005.
Under the Company's proposal, the transition to customer choice,
including recovery of stranded costs, would be made without any increase in
prices to customers. Initially, prices would be held at the levels in effect
when competition begins for customers who choose to buy both supply and
delivery from the Company. During the freeze, a non-bypassable CTC will be
included in the frozen rate. After the end of the freeze in January 2005, all
customers would pay, as part of their delivery charge, an explicit CTC which
would initially be .89 cents per kWh, but would decrease to .121 cents per kWh
in 2011, and decrease again to .12 cents in 2016. The CTC will end in 2021
when the last of the Company's pre-competition power purchase contract ends.
In the Filing, the Company identifies stranded costs (the total economic
value of previously expected regulatory earnings that will not be recovered in
a deregulated energy market) having a net after-tax present value of $500.8
million, some of which it will propose be securitized and recovered over the
period from 2001 to 2011. The $500.8 million is composed of $210.1 million
relating to generation assets, $151.2 million relating to power purchase
18
contracts, $114.9 million in unrecovered conservation costs and $24.6 million
in other stranded costs. The present value of the pre-tax CTC revenues
necessary to recover these amounts over the 10-year period is $851.9 million.
The Company proposes to recover additional stranded costs associated with its
long-term Panda and SMECO power purchase contracts, having a net after-tax
present value of $55.2 million, over the period 2011 to 2021, which it does
not propose be securitized. All stranded cost recovery would be accomplished
through the non-bypassable CTC discussed above. The Company has also proposed
a "true up" mechanism which would update prospectively in 2005 its stranded
cost estimates, taking into account changes in market prices and other
factors.
The stranded costs in the Company's case relate to costs which are
already included in the Company's rates. They have been approved by
regulators as being appropriate to recover because they were found to have
been prudently incurred to meet the Company's regulatory-era obligation to
provide reliable service to everyone who wants it. As part of its plan, the
Company proposes to securitize a portion of its stranded cost recovery and
thereby achieve savings through a reduction in capital costs.
On March 1, 1999, the Company filed comments in response to the several
additional industry restructuring issues set forth by the D.C. Commission in
its December 30, 1998 order. In its March 1, 1999 filing, the Company
supports the introduction of retail competition for generation services on a
phased-in basis to begin on January 1, 2001, and to be completed by January 1,
2003. Among other things, the Company recommends the enactment of tax
legislation which would create a level playing field for all competitive
sellers of generation in the District of Columbia, as well as clarifying and
substantive changes to the 86 year old public utility statute in the District
of Columbia in order to permit retail competition for generation services at
market prices, provide various consumer protections in a new era of
competition and allow for greater flexibility in the price regulation of
delivery service by the Company.
If a competitive market for generation supply is implemented in the
District of Columbia, the Company believes that the Commission will follow
through on its commitment to provide a fair opportunity for the Company to
recover its prudently incurred stranded costs, and that the stranded costs
identified by the Company in the filing will be determined to have been
prudently incurred. The inability of the Company to fully recover its
stranded costs could have a material adverse impact on the future earnings and
cash flows of the Company, and may result in consequences including, but not
limited to, increases in the cost of capital, increases in rates for
transmission and distribution services, exposure to downgrades in credit
ratings and involuntary layoffs of employees.
Request for D.C. Commission Approval of Proposed Sale of Generating Assets
- --------------------------------------------------------------------------
On March 16, 1999, the Company filed an application with the D.C.
Commission requesting D.C. Commission approval for the Company to sell its
generating assets through an auction process.
19
Approval by the D.C. Commission of the sale of the generation assets is
a condition to the Agreement concerning the Company's Maryland stranded cost
adjudication proceeding, an element of the transition to electricity
competition in Maryland. In its filing before the D.C. Commission, the
Company requests approval to sell the generation assets, irrespective of
whether the D.C. Commission orders retail electric competition in the District
of Columbia.
The generation assets to be sold will include the Company's purchase
power contracts, unless the inclusion of such assets in the sale will result
in the total value received being significantly less or unless the Company is
not legally free to sell such assets. Any power purchase contract not
included in the sale of generation assets would become a distribution asset of
the Company.
The Company has requested that the D.C. Commission grant expedited
consideration of its request to sell the generation assets. The Company has
committed to initiate the auction process ninety days after receiving
Commission approval for the sale.
As part of the application, the Company proposes that following the
closing of the sale of its generation assets and the application of the
proceeds from the sale, both the supply and delivery components of the
Company's retail prices in the District of Columbia will be frozen at then-
existing levels and the fuel adjustment clause will be eliminated for four
years. After four years from the sale of the assets, the Company will no
longer have the obligation to supply electricity at the frozen rate. Supply
prices would then be set by the competitive marketplace and delivery prices
would be determined by regulators. If the Commission implements customer
choice subsequent to the sale of the assets, the rate freeze will still
terminate four years after the asset sale.
If the pre-tax net proceeds allocable to the District of Columbia from
the sale of the generation assets are less than the book value, the Company
proposes that the unretired balance plus generation-related regulatory assets
will be amortized and collected from District of Columbia customers through a
charge on customers receiving distribution services from the Company such that
rates will not increase.
If the pre-tax net proceeds from the sale of the generation assets
exceed both the book value plus the value of the regulatory assets and, if not
sold, the purchased power commitments, the portion of the remaining proceeds
that are allocable to the District of Columbia would be distributed to the
Company's District of Columbia customers in the form of a credit on their
charges for delivery service using the same formula that is included in the
Agreement.
20
Percentage of District of Columbia
Allocation Distributed to
Excess Pre-Tax Net Proceeds District of Columbia Customers
--------------------------- ----------------------------------
$100 million or less 70%
Next $100 million 60%
Any amount over $200
million 50%
The period of time over which the charge or the credit would be applied
has not yet been determined.
Sale of First Mortgage Bonds
- ----------------------------
On March 17, 1999, the Company sold $270 million of 6% First Mortgage
Bonds maturing April 1, 2004. The proceeds from the offering will be used as
follows: to pay at maturity $45 million in aggregate principal amount of the
Company's First Mortgage Bonds, 4-1/2% Series due 1999, which mature May 15,
1999; to redeem $100 million in outstanding principal amount of the Company's
First Mortgage Bonds, 9% Series due 2000 (which will be called for redemption
on April 28, 1999); to redeem at 101% of par the entire $62.6 million
outstanding principal amount of the Company's 7% Convertible Debentures due
2018 (which will be called for redemption on April 19, 1999); and to refund a
portion of the short-term debt that the Company has incurred primarily to
finance, on a temporary basis, its ongoing utility construction program and
operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------- ----------------------------------------------------------
Market Risk
- -----------
Market risk represents the potential loss arising from adverse changes
in market rates and prices. Certain of the Company's financial instruments
are exposed to market risk in the form of interest rate risk and equity price
risk. These financial instruments were not entered into by the Company for
trading purposes. The Company manages its market risk in accordance with
established policies.
Interest Rate Risk
- ------------------
The carrying value of the Company's long-term debt, which consists of
first mortgage bonds, medium-term notes, and convertible debentures, was
$1,859 million at December 31, 1998. The fair value of this long-term debt,
based mainly on current market prices or discounted cash flows using current
rates for similar issues with similar terms and remaining maturities, was
21
$1,969.2 million at December 31, 1998. The interest rate risk related to this
debt was estimated as the potential $100.1 million increase in fair value at
December 31, 1998 that resulted from a hypothetical 10% decrease in the
prevailing interest rates.
The carrying value of PCI's long-term debt, which consists primarily of
recourse debt from institutional lenders and certain other non-recourse debt,
was $716.9 million at December 31, 1998. The fair value of this long-term
debt, based on current rates offered to similar companies for debt with
similar maturities, was $729.2 million at December 31, 1998. The interest
rate risk related to this debt was estimated as the potential $11.5 million
increase in fair value at December 31, 1998 that resulted from a hypothetical
10% decrease in the prevailing interest rates.
Equity Price Risk
- -----------------
The carrying value of PCI's marketable securities, which consist
primarily of preferred stocks with mandatory redemption features, was $231.1
million (including net unrealized gains of $12 million) at December 31, 1998.
The fair value of these marketable securities, based on quoted market prices,
was equivalent to its carrying value at December 31, 1998. The equity price
risk related to these securities was estimated as the potential decrease in
fair value of $23.1 million at December 31, 1998 that resulted from a
hypothetical 10% decrease in the quoted market prices.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The consolidated financial statements, together with the report thereon
of PricewaterhouseCoopers LLP dated January 25, 1999, and supplementary data
from the Company's 1998 Annual Report to shareholders are incorporated herein
by reference. With the exception of the aforementioned information and the
information incorporated in Items 1., 3., 6., 7., and 8., the 1998 Annual
Report to shareholders is not deemed filed as part of this Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
Part III
- --------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The information required by Item 10. consisting of information required
by Item 401 of Regulation S-K with regard to Directors of the registrant and
the information required by Item 405 of Regulation S-K is incorporated herein
by reference to the Company's Notice of Annual Meeting of shareholders and
Proxy Statement dated March 10, 1999.
22
Information with regard to the executive officers of the registrant as
of March 9, 1999, is as follows:
Executive Officers
- ------------------
Served in
such position
Name Position Age since
- -------------------- -------------------------------- --- -------------
John M. Derrick, Jr. President and Chief Executive
Officer and Director 58 1997 (1)
Dennis R. Wraase Senior Vice President and
Chief Financial Officer
and Director 54 1997 (2)
William T. Torgerson Senior Vice President External
Affairs and General Counsel 54 1994 (3)
Robert C. Grantley Group Vice President -
Customer Service and Power
Distribution 50 1989
Anthony S. Macerollo Group Vice President -
Corporate Services 57 1989
William J. Sim Group Vice President -
Generation 54 1991
Andrew W. Williams Group Vice President -
Transmission and Marketing 49 1989
Earl K. Chism Vice President and Comptroller 63 1994 (4)
Kirk J. Emge Vice President - Legal Services 49 1994 (5)
Susann D. Felton Vice President - Generation
Fuels and Business Planning 50 1992
William R. Gee, Jr. Vice President - Resource
Planning 58 1991
Anthony J. Kamerick Vice President and Treasurer 51 1994 (6)
James S. Potts Vice President - Environment 53 1993 (7)
Mary M. Sharpe-Hayes Vice President - Strategic
Planning 45 1998 (8)
None of the above persons has a "family relationship" with any other officer
listed or with any director.
23
The term of office for each of the above persons is from April 22, 1998,
until the next succeeding Annual Meeting and until their successors have been
elected and qualified.
(1) Mr. Derrick was elected to the position of Chief Executive Officer on
October 23, 1997 and President on December 21, 1992.
(2) Mr. Wraase was elected to his present position on April 24, 1996. Prior
to that time, from April 22, 1992, he served as Senior Vice President,
Finance and Accounting.
(3) Mr. Torgerson was elected Senior Vice President and General Counsel on
April 27, 1994. He served as Secretary from August 22, 1994 to April
24, 1996. Prior to 1994 he held the position of Vice President and
General Counsel.
(4) Mr. Chism was elected to his present position on April 27, 1994.
Prior to that time he held the position of Vice President and Treasurer
since July 1989.
(5) Mr. Emge was elected to his present position on April 27, 1994. Prior
to that time he held the position of Deputy General Counsel.
(6) Mr. Kamerick was elected to his present position on April 27, 1994.
Prior to that time he held the position of Comptroller from 1992 to
1994.
(7) 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.
(8) Ms. Sharpe-Hayes was elected to her position on June 29, 1998.
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 10, 1999.
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 10, 1999.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
None.
24
Part IV
- -------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE 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 1998 Annual
Report.
Reference (Page)
----------------
1998 Form 10-K
Annual Report Annual Report
to Shareholders Exhibit 13
--------------- -------------
Consolidated Balance Sheets -
December 31, 1998 and 1997 22-23 39-40
Consolidated Statements of
Earnings - for the years
ended December 31, 1998,
1997 and 1996 24 41
Consolidated Statements of
Cash Flows - for the years
ended December 31, 1998,
1997 and 1996 25 42
Consolidated Statements of
Comprehensive Income - for
the years ended December 31,
1998, 1997 and 1996 26 43
Notes to Consolidated Financial
Statements 27-43 44-90
Report of Independent Accountants 44 38
2. Financial Statement Schedule
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 16).
Schedule II (Valuation and Qualifying Accounts) and the Report of
Independent Accountants on Consolidated Financial Statement Schedule are
submitted pursuant to Item 14(d).
25
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*
- ------- ---------------------- ----------
3.1 Charter of the Company.............. Filed herewith.
3.2 By-Laws of the Company.............. Filed herewith.
4 Mortgage and Deed of Trust dated
July 1, 1936, of the Company to
The Bank of New York as Successor
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.
Supplemental Indentures, to the
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.
26
Exhibit
No. Description of Exhibit Reference*
- ------- ---------------------- ----------
4 May 1, 1949......................... Exh. 7-B to Post-Effective
(cont.) 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.
March 15, 1954 and March 15,
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.
27
Exhibit
No. Description of Exhibit Reference*
- ------- ---------------------- ----------
4 May 1, 1962......................... Exh. 2-B to Registration
(cont.) 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.
July 3, 1967........................ Exh. 2-B to Registration
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
28
Exhibit
No. Description of Exhibit Reference*
- ------- ---------------------- ----------
4 April 1, 1973....................... Exh. A to Form 8-K, 5/9/73.
(cont.) 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.
March 1, 1986....................... Exh. 4 to Form 10-K, 3/28/86.
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.
29
Exhibit
No. Description of Exhibit Reference*
- ------- ---------------------- ----------
4 March 2, 1993....................... Exh. 4 to Form 10-K, 3/26/93.
(cont.) 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.................. Exh. 4 to Form 10-K, 3/25/94.
September 30, 1993.................. Exh. 4 to Form 10-K, 3/25/94.
October 1, 1993..................... Exh. 4 to Form 10-K, 3/25/94.
February 10, 1994................... Exh. 4 to Form 10-K, 3/25/94.
February 11, 1994................... Exh. 4 to Form 10-K, 3/25/94.
March 10, 1995...................... Exh. 4.3 to Registration
Statement No. 61379, 7/28/95.
September 6, 1995................... Exh. 4 to Form 10-K, 4/1/96.
September 7, 1995................... Exh. 4 to Form 10-K, 4/1/96.
October 2, 1997..................... Exh. 4 to Form 10-K, 3/26/98.
4-A Indenture, dated as of January 15,
1988, between the Company and
The Bank of New York, Successor
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.
4-C 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 December 8, 1998,
between the Company and the
International Brotherhood of
Electrical Workers (Local Union
No. 1900)........................... Filed herewith.
Employment Agreement**.............. Exh. 10.1 to Form 10-Q,
10/30/95.
30
Exhibit
No. Description of Exhibit Reference*
- ------- ---------------------- ----------
10 Employment Agreement**.............. Exh. 10.3 to Form 10-Q,
(cont.) 10/30/95.
Employment Agreement**.............. Exh. 10.4 to Form 10-Q,
10/30/95.
Amendment to Employment Agreement**. Exh. 10.5 to Form 10-Q,
10/30/95.
Severance Agreement**............... Exh. 10.6 to Form 10-Q,
10/30/95.
Severance Agreement**............... Exh. 10.7 to Form 10-Q,
10/30/95.
Severance Agreement**............... Exh. 10.8 to Form 10-Q,
10/30/95.
Severance Agreement**............... Exh. 10.9 to Form 10-Q,
10/30/95.
Amendment to Employment Agreement**. Exh. 10.1 to Form 10-K,
4/1/96.
Amendment to Employment Agreement**. Exh. 10.2 to Form 10-K,
4/1/96.
Amendment to Employment Agreement**. Exh. 10.3 to Form 10-K,
4/1/96.
Severance Agreement**............... Exh. 10.5 to Form 10-K,
4/1/96.
Severance Agreement**............... Exh. 10.6 to Form 10-K,
4/1/96.
Severance Agreement**............... Exh. 10.7 to Form 10-K,
4/1/96.
Severance Agreement**............... Exh. 10.8 to Form 10-K,
4/1/96.
Severance Agreement**............... Exh. 10.9 to Form 10-K,
4/1/96.
Severance Agreement**............... Exh. 10.10 to Form 10-K,
4/1/96.
Severance Agreement**............... Exh. 10.11 to Form 10-K,
4/1/96.
Severance Agreement**............... Exh. 10.12 to Form 10-K,
4/1/96.
10.1 Amendment to Employment Agreement... Exh. 10.1 to Form 10-K,
3/26/98.
10.2 1999 General Memorandum of
Understanding, dated December 8,
1998 between the Company and the
International Brotherhood of
Electrical Workers (Local Union
No. 1900)........................... Filed herewith.
31
Exhibit
No. Description of Exhibit Reference*
- ------- ---------------------- ----------
11 Statements Re. Computation of
Earnings Per Common Share......... Filed herewith.
12 Statements Re. Computation of
Ratios............................ Filed herewith.
13 Financial Information Section of
Annual Report..................... Filed herewith.
21 Subsidiaries of the Registrant...... Filed herewith.
23 Consent of Independent Accountants.. Filed herewith.
27 Financial Data Schedule............. 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 pursuant to Item 14(c).
(b) Reports on Form 8-K
-------------------
None.
32
<TABLE>
Schedule II Valuation and Qualifying Accounts
----------- ---------------------------------
<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
- ------------------------------------------- --------- ---------- ----------- ------------- ---------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998
Allowance for uncollectible accounts -
customer and other accounts receivable
Utility operations $ 2.4 $ 8.0 $ 1.0 $ (8.7) $ 2.7
Nonutility subsidiary $ 6.0 $ - $ (1.0) $ - $ 5.0
Year Ended December 31, 1997
Allowance for uncollectible accounts -
customer and other accounts receivable
Utility operations $ 1.6 $ 9.8 $ 1.0 $ (10.0) $ 2.4
Nonutility subsidiary $ 6.0 $ - $ - $ - $ 6.0
Year Ended December 31, 1996
Allowance for uncollectible accounts -
customer and other accounts receivable
Utility operations $ 2.0 $ 8.5 $ 1.2 $ (10.1) $ 1.6
Nonutility subsidiary $ 6.0 $ - $ - $ - $ 6.0
<FN>
<F1> Collection of accounts previously written off.
<F2> Uncollectible accounts written off.
</FN>
33
(c) Exhibit 11 Statements Re. Computation of Earnings Per Common Share
---------- -------------------------------------------------------
The information required by Exhibit 11 is incorporated herein by
reference to Note 7 of the "Notes to Consolidated Financial Statements" on
page 34 of the Company's Annual Report to shareholders.
34
</TABLE>
<TABLE>
Exhibit 12 Statements Re. Computation of Ratios
- ---------- ------------------------------------
The computations of the coverage of fixed charges, before income taxes, and
the coverage of combined fixed charges and preferred dividends for each of the
years 1998 through 1994 on the basis of parent company operations only, are as
follows.
<CAPTION>
For The Year Ended December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C>
Net income $211.2 $164.7 $220.1 $218.8 $208.1
Taxes based on income 131.0 97.5 135.0 129.4 116.6
--------- --------- --------- --------- ---------
Income before taxes 342.2 262.2 355.1 348.2 324.7
--------- --------- --------- --------- ---------
Fixed charges:
Interest charges 151.8 146.7 146.9 146.6 139.2
Interest factor in rentals 23.8 23.6 23.6 23.4 6.3
--------- --------- --------- --------- ---------
Total fixed charges 175.6 170.3 170.5 170.0 145.5
--------- --------- --------- --------- ---------
Income before income taxes and fixed charges $517.8 $432.5 $525.6 $518.2 $470.2
========= ========= ========= ========= =========
Coverage of fixed charges 2.95 2.54 3.08 3.05 3.23
==== ==== ==== ==== ====
Preferred dividend requirements $18.0 $16.5 $16.6 $16.9 $16.5
--------- --------- --------- --------- ---------
Ratio of pre-tax income to net income 1.62 1.59 1.61 1.59 1.56
--------- --------- --------- --------- ---------
Preferred dividend factor $29.2 $26.2 $26.7 $26.9 $25.7
--------- --------- --------- --------- ---------
Total fixed charges and preferred dividends $204.8 $196.5 $197.2 $196.9 $171.2
========= ========= ========= ========= =========
Coverage of combined fixed charges
and preferred dividends 2.53 2.20 2.66 2.63 2.75
==== ==== ==== ==== ====
35
</TABLE>
<TABLE>
Exhibit 12 Statements Re. Computation of Ratios
- ---------- ------------------------------------
The computations of the coverage of fixed charges, before income taxes, and
the coverage of combined fixed charges and preferred dividends for each of the
years 1998 through 1994 on a fully consolidated basis are as follows.
<CAPTION>
For The Year Ended December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C>
Net income $226.3 $181.8 $237.0 $94.4 $227.2
Taxes based on income 122.3 65.6 80.4 43.7 94.0
--------- --------- --------- --------- ---------
Income before taxes 348.6 247.4 317.4 138.1 321.2
--------- --------- --------- --------- ---------
Fixed charges:
Interest charges 208.6 216.1 231.1 238.7 224.5
Interest factor in rentals 24.0 23.7 23.9 26.7 9.9
--------- --------- --------- --------- ---------
Total fixed charges 232.6 239.8 255.0 265.4 234.4
--------- --------- --------- --------- ---------
Nonutility subsidiary capitalized interest (0.6) (0.5) (0.7) (0.5) (0.5)
--------- --------- --------- --------- ---------
Income before income taxes and fixed charges $580.6 $486.7 $571.7 $403.0 $555.1
========= ========= ========= ========= =========
Coverage of fixed charges 2.50 2.03 2.24 1.52 2.37
==== ==== ==== ==== ====
Preferred dividend requirements $18.0 $16.5 $16.6 $16.9 $16.5
--------- --------- --------- --------- ---------
Ratio of pre-tax income to net income 1.54 1.36 1.34 1.46 1.41
--------- --------- --------- --------- ---------
Preferred dividend factor $27.7 $22.4 $22.2 $24.7 $23.3
--------- --------- --------- --------- ---------
Total fixed charges and preferred dividends $260.3 $262.2 $277.2 $290.1 $257.7
========= ========= ========= ========= =========
Coverage of combined fixed charges
and preferred dividends 2.23 1.86 2.06 1.39 2.15
==== ==== ==== ==== ====
36
</TABLE>
Exhibit 21 Subsidiaries of the Registrant
- ---------- ------------------------------
Potomac Capital Investment Corporation (PCI), a wholly owned nonutility
subsidiary company, was incorporated in Delaware in 1983.
Potomac Electric Power Company Trust I, a wholly owned business trust
and subsidiary, was established in April 1998 for the purposes of issuing
Trust Securities representing undivided beneficial interests in the assets of
the Trust, and investing the gross proceeds from the sale of the Trust
Securities in Junior Subordinated Debentures of the Company.
37
Exhibit 23 Consent of Independent Accountants
- ---------- ----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (Numbers 33-36798, 33-53685 and 33-54197) and to the
incorporation by reference in the Prospectuses constituting part of the
Registration Statements on Forms S-3 (Numbers 33-58810, 33-61379, 333-33495
and 333-66127) of Potomac Electric Power Company of our report dated January
25, 1999 appearing in the Annual Report to shareholders which is incorporated
in this Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report on the Consolidated Financial Statement Schedule,
which appears under Item 14(a) of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Washington, D.C.
March 25, 1999
38
Report of Independent Accountants on Consolidated
- -------------------------------------------------
Financial Statement Schedule
- ----------------------------
January 25, 1999
To the Board of Directors of
Potomac Electric Power Company
Our audits of the consolidated financial statements referred to in our report
dated January 25, 1999 appearing in the 1998 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 schedule
listed in Item 14(a) of this Form 10-K. In our opinion, this consolidated
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Washington, D.C.
39
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, 1999.
POTOMAC ELECTRIC POWER COMPANY
(Registrant)
By /s/ John M. Derrick, Jr.
--------------------------
(John M. Derrick, Jr.,
President, Chief Executive
Officer and Director)
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/ John M. Derrick, Jr.
--------------------------- President, Chief Executive
(John M. Derrick, Jr.) Officer and Director
(ii), Principal Financial Officer
(iii) Principal Accounting Officer
/s/ Dennis R. Wraase
--------------------------- Senior Vice President and
(Dennis R. Wraase) Chief Financial Officer
and Director
(iv) Directors:
/s/ Edward F. Mitchell
--------------------------- Chairman of the Board
(Edward F. Mitchell)
/s/ Roger R. Blunt, Sr.
--------------------------- Director
(Roger R. Blunt, Sr.)
March 25, 1999
40
Signature Title Date
--------- ----- ----
(iv) Directors (cont.):
/s/ Edmund B. Cronin, Jr.
--------------------------- Director
(Edmund B. Cronin, Jr.)
/s/ Terence C. Golden
--------------------------- Director
(Terence C. Golden)
--------------------------- Director
(David O. Maxwell)
--------------------------- Director
(Judith A. McHale)
/s/ Floretta D. McKenzie
--------------------------- Director
(Floretta D. McKenzie)
/s/ Peter F. O'Malley
--------------------------- Director
(Peter F. O'Malley)
/s/ Louis A. Simpson
--------------------------- Director
(Louis A. Simpson)
/s/ A. Thomas Young
--------------------------- Director
(A. Thomas Young)
March 25, 1999
41
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
Report of Independent Accountants.......................... 38
Consolidated Balance Sheets................................ 39
Consolidated Statements of Earnings........................ 41
Consolidated Statements of Cash Flows...................... 42
Consolidated Statements of Comprehensive Income............ 43
Notes to Consolidated Financial Statements................. 44
Selected Consolidated Financial Data....................... 90
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, the Company 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 46% of
the Company's total revenue in 1998. Fuel and purchased energy,
capacity purchase payments and other operating expenses were 54%
of total revenue.
Potomac Capital Investment Corporation (PCI), a wholly owned
subsidiary of the Company, conducts nonutility investment
programs and businesses with the objective of supplementing
current utility earnings and building long-term shareholder
value. Potomac Electric Power Company Trust I (Trust), the
Company's wholly owned business trust and subsidiary, was
established in April 1998 for the purposes of issuing Trust
Securities representing undivided beneficial interests in the
assets of the Trust, and investing the gross proceeds from the
sale of the Trust Securities in Junior Subordinated Debentures of
the Company.
The Company has two segments, consisting of its utility and
nonutility operations. The utility segment derives its revenue
from the generation, transmission, distribution and sale of
electric energy, while the nonutility segment, which primarily
consists of the operations of PCI, derives its revenue from
investment programs, energy-related businesses, and
telecommunication services. See the discussion included in Notes
(1) and (15) of the Notes to Consolidated Financial Statements,
Organization and Summary of Significant Accounting Policies - New
Accounting Standards, and Segment Information, respectively, for
additional information.
The information set forth below discusses the results of
operations, capital resources and liquidity during the period
1996 through 1998 for the Company and its subsidiaries.
2
The Company's earnings for common stock during 1998 totaled
$208.3 million, as compared to $165.3 million in 1997. As set
forth below, utility basic earnings per common share from
operations increased from $1.53 in 1997 to $1.63 in 1998,
excluding the December 1997 write-off of 28 cents per share
related to the cancellation of the proposed merger with Baltimore
Gas and Electric Company (BGE). Consolidated basic earnings per
common share increased from $1.39 in 1997 to $1.76 in 1998.
- -----------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------
Utility Operations $1.63 $1.53 $1.72
Merger Costs - (.28) -
Nonutility Subsidiary .13 .14 .14
----- ----- -----
Consolidated $1.76 $1.39 $1.86
===== ===== =====
- -----------------------------------------------------------------
The average number of common shares outstanding at December 31,
1998, was relatively unchanged from December 31, 1997.
FORWARD LOOKING STATEMENTS
- --------------------------
This Management's Discussion and Analysis of Consolidated Results
of Operations and Financial Condition contains forward looking
statements, as defined by the Private Securities Litigation Act
of 1995, with regard to matters that could have an impact on the
future operations, financial results or financial condition of
the Company. These statements are based on the current
expectations, estimates or projections of management and are not
guarantees of future performance. Actual results may differ
materially from those anticipated by the forward looking
statements, depending on the occurrence or nonoccurrence of
future events or conditions that are difficult to predict and
generally are beyond the control of the Company. All such
forward looking statements relating to the following matters are
qualified by the cautionary statements below and contained
elsewhere herein.
Growth in Demand, Sales and Capacity to Fulfill Demand
------------------------------------------------------
The actual growth in demand for and sales of electricity
within the Company's service territory may vary from the
statements made concerning the anticipated growth in demand
and sales, depending upon a number of factors, including
weather conditions, the competitive environment, general
economic conditions and the demographics of the Company's
service territory. Future construction expenditures
3
(including the need to construct additional generation
capacity) may vary from the projections, depending on the
accuracy of management's expectations regarding growth in
demand for and sales of electricity, regulatory developments
including potential changes in environmental regulations,
and the evolution of the competitive marketplace for
electricity.
Competition
-----------
Increased competition will have an impact on future results
of operations, which may be adverse, and will depend, among
other factors, upon governmental policies and regulatory
actions, including those of the Federal Energy Regulatory
Commission (FERC) and the Maryland and District of Columbia
public service commissions, future economic conditions and
the influence exerted by emerging market forces over the
structure of the electric industry.
Year 2000 Readiness Disclosure
------------------------------
The Company has implemented a four-pronged approach to
address compliance with the Year 2000 processing
requirements of its computer systems. The phases being
addressed are: Corporate Applications Readiness, which
includes all large core business systems; Embedded Systems,
which include all operating and control systems; End-User
Computing Systems, which are all systems that are not
considered core business systems but contain date
calculations; and Business Partners' Systems and Vendor
Supply-Chain Verification, which is intended to monitor
suppliers' compliance with Year 2000 processing. A database
has been developed to identify and track the progress of
work on each phase. The preliminary target date for
completion of these phases is mid-1999. The cost or
consequences of a material incomplete or untimely resolution
of the Year 2000 problem could adversely affect future
operations, financial results or financial condition of the
Company.
4
UTILITY
- -------
RESULTS OF OPERATIONS
- ---------------------
Total Revenue
- -------------
The changes in total revenue are shown in the following table.
- -----------------------------------------------------------------
Increase (Decrease)
from Prior Year
1998 1997 1996
- -----------------------------------------------------------------
(Millions of Dollars)
Change in kilowatt-hour sales $ 51.8 $ (8.6) $(11.5)
Change in base rate revenue 24.0 (7.2) 27.0
Change in fuel adjustment clause
billings to cover cost of
fuel and interchange and
capacity purchase payments (2.9) (9.2) (4.5)
Change in other revenue 2.4 1.0 1.4
------- ------- ------
Change in operating revenue 75.3 (24.0) 12.4
------- ------- ------
Change in interchange deliveries 125.1 (122.8) 121.8
------- ------- ------
Change in total revenue $ 200.4 $(146.8) $134.2
======= ======= ======
- -----------------------------------------------------------------
The increase in 1998 base rate revenue compared to 1997
primarily reflects the effects of increases in Maryland base
rates of $24 million and $19 million (effective November 1997 and
December 1998, respectively) and an increase in the District of
Columbia Demand Side Management (DSM) surcharge tariff of $9
million (effective September 1998); partially offset by
reductions of $3.2 million and $17 million in the Maryland DSM
surcharge tariff (effective September 1998 and June 1997,
respectively) and a $2.5 million reduction (effective January
1998) in rates for wholesale service to the Southern Maryland
Electric Cooperative (SMECO).
The decrease in 1997 base rate revenue compared to 1996
primarily reflects the June 1997 decrease in the Maryland DSM
surcharge (which includes a $7.3 million reduction in the
conservation incentive provision of the tariff). The increase in
base rate revenue in 1996 as compared to 1995 reflects the
effects of a District of Columbia base rate increase of $27.9
5
million (effective July 1995) and an increase of $17.7 million
(effective August 1996) associated with the Company's Maryland
DSM surcharge.
Fluctuations in interchange delivery transactions throughout
1998 resulted in three revisions to the Company's Maryland fuel
rate. The Company increased its Maryland fuel rate by 10.5%
effective March 1, 1998. Subsequently, on August 14, 1998, the
Company filed for a 5.3% decrease in the Maryland fuel rate,
which became effective beginning the billing month of September
1998. Also, on October 19, 1998, the Company filed for an
additional 6.3% decrease in the Maryland fuel rate, which became
effective beginning the billing month of November 1998. In
September 1997, the Company had reduced its Maryland fuel rate by
9.5%; included in this reduction was an adjustment for a deferred
fuel amortization credit to refund over a 12-month period
approximately $20.7 million of previously overrecovered fuel
costs incurred through June 30, 1997.
The increase in 1998 in revenue from interchange deliveries
reflects changes in prices and levels of energy delivered to the
Pennsylvania-New Jersey-Maryland Interconnection LLC (PJM) and
changes in prices and levels of bilateral energy sales under the
Company's wholesale power sales tariff. Interchange transactions
are subject to cost-based ratemaking regulations based on
formulas prescribed by the FERC.
The decrease in 1997 in revenue from interchange deliveries
reflects the termination of purchase-for-resale agreements under
the Company's wholesale power sales tariff, whereby the Company
purchased energy from one party (recording a corresponding
expense within Purchased energy) for the purpose of selling that
energy to a third party (and recording corresponding revenue
within Interchange deliveries). In early 1997, pursuant to
FERC's Order No. 888, the Company implemented an open access
transmission tariff (OATT) for wheeling transactions and
terminated purchase-for-resale agreements. In April 1997, PJM
implemented an OATT on behalf of its transmission owners,
replacing the Company's OATT.
The increase in 1996 in revenue from interchange deliveries
reflects the growth in the number of companies involved in power
sales tariff interchange transactions, and changes in levels and
prices of energy delivered to PJM.
Interchange deliveries also include revenue from sales of
short-term generating capacity. Revenues from capacity
transactions totaled approximately $4.4 million, $2.9 million and
$.6 million in 1998, 1997 and 1996, respectively. Presently, the
Company has agreements for installed capacity sales through May
31, 1999, totaling 232 megawatts. The benefits derived from
interchange deliveries, the allocated amounts of capacity sales
6
in the District of Columbia (approximately 40%) and revenue under
the OATT are passed through to the Company's customers through
fuel adjustment clauses.
Kilowatt-hour Sales
- -------------------
- -----------------------------------------------------------------
1998 1997
vs. vs.
1998 1997 1996 1997 1996
- -----------------------------------------------------------------
(Millions of Kilowatt-hours)
By Customer Type
Residential 6,745 6,552 6,869 2.9% (4.6)%
Commercial 12,049 11,811 11,712 2.0 .8
U.S. Government 3,968 3,934 3,902 .9 .8
D.C. Government 858 850 847 .9 .4
Wholesale (primarily
SMECO) 2,678 2,561 2,570 4.6 (.4)
------ ------ ------
Total energy sales 26,298 25,708 25,900 2.3 (.7)
====== ====== ======
Interchange
Energy deliveries 2,246 822 7,063 100.0+ (88.4)
====== ====== ======
By Geographic Area
Maryland, including
wholesale 16,017 15,601 15,763 2.7 (1.0)
District of Columbia 10,281 10,107 10,137 1.7 (.3)
------ ------ ------
Total energy sales 26,298 25,708 25,900 2.3 (.7)
====== ====== ======
- -----------------------------------------------------------------
Kilowatt-hour sales increased in 1998 resulting from an
increase in cooling degree hours of 15% from 1997. Cooling
degree hours, however, were approximately 7% less than the 20-
year average. In addition, a .8% increase in customers produced
a favorable impact on kilowatt-hour sales. Kilowatt-hour sales
decreased .7% in 1997 resulting from decreases in cooling degree
hours of 5% and 21% from the 1996 and 20-year average,
respectively, partially offset by a .8% increase in customers.
Assuming future weather conditions approximate historical
averages, the Company expects its compound annual growth in
retail kilowatt-hour sales to be approximately 2% over the next
decade.
7
On June 26, 1998, the Company established an all-time summer
peak demand of 5,807 megawatts. This compares with the 1997
summer peak demand of 5,689 megawatts, and the prior all-time
summer peak demand of 5,769 megawatts, which occurred in July
1991. The Company's present generation capability, excluding
short-term capacity transactions, is 6,806 megawatts. At the
time of the 1998 summer peak demand, the Company's energy use
management (EUM) programs had the capability of reducing system
demand by an additional 242 megawatts. Based on average weather
conditions, the Company estimates that its retail peak demand
will grow at a compound annual rate of approximately 2%,
reflecting anticipated service area growth trends. The 1997-1998
winter season peak demand of 4,076 megawatts was 18.6% below the
all-time winter peak demand of 5,010 megawatts that was
established in January 1994.
Operating Expenses
- ------------------
Fuel, Purchased Energy and Capacity Purchase Payments
- -----------------------------------------------------
- -----------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------
(Millions of Dollars)
Fuel expense $380.2 $319.6 $327.8
------ ------ ------
Purchased energy
PJM 146.3 86.6 114.6
Other 123.5 114.0 221.4
------ ------ ------
Total purchased energy 269.8 200.6 336.0
------ ------ ------
Fuel and purchased energy $650.0 $520.2 $663.8
====== ====== ======
Capacity purchase payments $155.7 $150.9 $125.8
====== ====== ======
- -----------------------------------------------------------------
Net System Generation and Purchased Energy were as follows.
- -----------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------
(Millions of Kilowatt-hours)
Net system generation 21,715 18,322 18,041
====== ====== ======
Purchased energy 8,204 9,371 16,157
====== ====== ======
- -----------------------------------------------------------------
8
The 1998 increase in fuel expense compared to 1997 reflects
an increase of 18.5% in net generation, partially offset by a
decrease in the system average unit fuel cost. Although net
generation increased 1.6% in 1997 compared to 1996, fuel expense
decreased due to the timing of fuel billed to customers through
the Company's fuel rates.
The Company's unit costs of fuel burned and the percentages
of system fuel requirements obtained from coal, oil and natural
gas are 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)
1998 84.5 12.7 2.8 $1.55 $2.71 $2.63 $1.72
1997 89.1 6.4 4.5 1.65 3.80 2.87 1.84
1996 89.7 6.9 3.4 1.62 3.55 2.92 1.80
- -----------------------------------------------------------------
The 1998 system average unit fuel cost decreased by 6.5% due
to decreases in the costs of coal, residual oil and gas. The
increase of approximately 2% in the 1997 system average unit fuel
cost compared with the 1996 system average resulted primarily
from an increased unit cost of coal. The increase in the percent
of oil burned in 1998 reflects a decline in the price of oil.
The decrease in the percent of oil burned in 1997 reflects the
increase in the price of oil and the increased usage of lower-
cost gas. The Company's major cycling and certain peaking units
can burn either natural gas or oil, which provides protection
against possible supply disruptions, and adds flexibility in
selecting the most cost-effective fuel mix. The use of coal, oil
and natural gas also depends upon the availability of generating
units, energy and demand requirements of interconnected
utilities, regulatory requirements, weather conditions, and fuel
supply constraints, if any. The Company seeks to maintain a
minimum unit cost of energy through the economic dispatch of its
generating facilities, active participation in the bulk power
market and purchases of generating capacity.
The Company's generating and transmission facilities are
interconnected with those of other transmission owners in the PJM
power pool and other utilities, providing economic energy and
reliability benefits by facilitating the Company's participation
in the federally regulated wholesale energy market. This market
9
has enabled the Company to purchase energy at costs lower than
those required to self-generate, and to sell energy at favorable
prices to other market participants.
Energy transactions within the PJM power pool are priced at
rates that are approved by the FERC and are based on each power
pool participant's marginal cost. In April 1997, PJM implemented
a competitive "bid-based" energy marketplace, where companies
offered energy at prices not exceeding their cost of producing
the energy, and transactions occurred at the market's marginal
clearing price. In November 1997, the FERC conditionally
approved a PJM restructuring plan which, among other things,
established an independent system operator (ISO) having
responsibility for system operations and regional transmission
planning. The Commission authorized the independent body that
operates the ISO to also operate the PJM power exchange. On
April 1, 1998, the unconstrained market clearing pricing system
for purchased energy was replaced by a "locational marginal
pricing" system designed to economically control transmission
system congestion. Because of the Company's generation
availability and peak load characteristics, the Company generally
is able to sell into the PJM market during high price peak load
periods and buy from the market during low price periods. (Also
see the Restructuring of the Bulk Power Market discussion below).
In addition to interchange within PJM, the Company is
actively participating in the bilateral energy sales marketplace.
The Company's FERC-approved wholesale power sales tariff allows
both sales from Company-owned generation and sales of energy
purchased by the Company from other market participants.
Numerous utilities and marketers have executed service agreements
allowing them to arrange purchases under this tariff, and the
Company has executed service agreements allowing it to purchase
energy under other market participants' power sales tariffs.
The Company continues to purchase energy from FirstEnergy
Corp. (FirstEnergy, formerly Ohio Edison) under the Company's
1987 long-term capacity purchase agreement with FirstEnergy and
Allegheny Energy, Inc. (AEI). Pursuant to this agreement, the
Company is purchasing 450 megawatts of capacity and associated
energy through the year 2005. The Company purchases energy from
the Panda-Brandywine, L.P. (Panda) facility pursuant to a 25-year
power purchase agreement for 230 megawatts of capacity supplied
by a gas-fueled combined-cycle cogenerator; capacity payments
under this agreement commenced in January 1997. The Company is
also purchasing 50 megawatts of capacity and related energy from
the Northeast Maryland Waste Disposal Authority under a short-
term avoided cost-based purchase agreement. The capacity expense
under these agreements, including an allocation of a portion of
FirstEnergy's fixed operating and maintenance costs, was $149.8
million for 1998, $145.2 million for 1997 and $120 million for
10
1996. Commitments under these agreements are estimated at $203
million for 1999, $204 million for 2000, $209 million for 2001,
and $210 million for 2002 and 2003.
The Company also has a purchase agreement with SMECO,
through 2015, 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 $5.5 million per
year.
The Company's customers are charged separate rates designed
to recover the actual cost of fuel used to generate electricity,
including the net cost of purchased energy less interchange
deliveries. Differences between actual costs of fuel and energy,
and fuel revenues collected are deferred on the Consolidated
Balance Sheets. The Company earns no return on costs eligible
for recovery within these fuel rates. The District of Columbia
fuel rate includes a provision for the current recovery of
purchased capacity costs as well as a provision for the credit
for capacity sales. In Maryland, purchased capacity costs are
recovered in base rates.
As electricity becomes more actively traded as a commodity,
the bulk power market is developing methods for traders to hedge
against price volatility. Both the New York Mercantile Exchange
(NYMEX) and the Chicago Board of Trade (CBOT) have introduced
futures contracts for electricity for various delivery points
across the country. NYMEX's recently introduced "Into Cinergy"
contract has outpaced the others in liquidity. NYMEX is planning
to refile its PJM futures contract with the Commodity Futures
Trading Commission to reflect a Western Hub delivery point, and
the CBOT has announced its intention to introduce a PJM contract.
In addition, some market participants are using customized
instruments to hedge prices for both capacity and energy. Such
instruments include forward contracts to fix prices, options to
set ceilings or floors on prices and swaps to exchange variable
prices for a fixed price. The mid-Atlantic energy market is
expected to feature a secondary market in transmission congestion
hedging. The Company's current activity in these markets is
insignificant, and all activity is passed on to customers through
the Company's fuel adjustment clause mechanism. However, in the
future, the Company expects to increase its participation in the
hedging markets as part of its strategy to control costs and
avoid unreasonable risks. In some instances, as part of its
overall bulk power marketing activity, the Company may offer to
sell hedging instruments.
11
Other Operation and Maintenance Expenses
- ----------------------------------------
Other operation and maintenance expenses totaled $329.2 million
for 1998. These expenses increased by $13.6 million (4.3%) in
1998, principally due to nonrecurring charges of $8.2 million for
operating costs associated with the Company's Targeted Severance
Plan (the Plan). The Plan offers severance pay and subsidized
health and dental benefits, at amounts dependent upon years of
service, to employees who lose employment due to corporate
restructuring and/or job consolidations. Under the Plan, no
changes were made to eligible pensions or benefits under the
retirement program. During 1998, 177 employees participated in
the Plan. Increases in other operation and maintenance expenses
in 1998 were also due to $5.7 million in expenditures associated
with the Company's efforts to accommodate the Year 2000. The
Company's approach to testing and remediating Year 2000-related
issues and developing business continuation and contingency plans
is discussed in detail below. Other operation and maintenance
expenses increased by $.8 million (.2%) in 1997, principally due
to increases in electric plant maintenance expense, partially
offset by reduced labor and benefits costs. The Company's budget
and cost control disciplines have resulted in a 17% decline in
the number of Company employees since 1995.
Year 2000 Readiness Disclosure
------------------------------
The Company has implemented a four-pronged approach to
accommodate the Year 2000. All phases are coordinated through a
Corporate Year 2000 Task Force composed of representatives from
each Business Unit. The phases being addressed are as follows:
1. Corporate Applications (Information Technology, [IT])
Readiness: Corporate Applications are large core
systems, such as Customer Information, Human Resources
and General Ledger, for which the Company's Computer
Services Group (CSG) has responsibility. Year 2000
modifications to these systems are being
programmed and tested by CSG.
2. Embedded Systems (Non-Information Technology
Processes): These systems include items such as
meters, power plant operating and control systems,
telecommunications systems and facilities-based
equipment (e.g. elevators). These products are being
evaluated and modified as required by the appropriate
internal end-user, in coordination with the systems'
vendors.
12
3. End-User Computing Systems (Non-Core [Departmental]
Business Systems): Corporate areas other than CSG
have developed systems, databases, spreadsheets, etc.
that contain date calculations. These products are
being evaluated and modified as required by the
appropriate end-user.
4. Business Partners' Systems and Vendor Supply-Chain
Verification: The Company is seeking to obtain Year
2000 assurances from numerous vendors who provide
products and services to the Company. This effort is
being jointly undertaken by the Company's Materials
Group and appropriate end-users.
The Task Force meets regularly to monitor the status of the
efforts of the Company's assigned staff, contractors and vendors
in testing and remediating Year 2000-related issues. Task Force
Subcommittees are addressing additional Year 2000-related issues
including, but not limited to, customer communications, testing
procedures and business continuation and other contingency
planning.
As of December 31, 1998, approximately 99% of the changes
required to the 110 corporate IT systems have been made and
regression tested. The Company's mainframe computer system has
been partitioned so that a portion is isolated from the
production environment and used for Year 2000 full-cycle, or
"time machine," testing. This testing encompasses not only the
date change from 12/31/1999 to 1/1/2000, but also many of the
other potentially troublesome dates, including 2/29/2000. A total
of 80% of corporate IT systems have been tested in the time
machine. Among the major applications successfully tested are
the Customer Information, Accounts Payable, Materials Management,
and Construction Management systems. End-user computing testing
in the time machine will begin in January 1999. A parallel LAN
(local area network) Year 2000 testing facility has been
established. All standard LAN office automation and operating
systems applications supported by Computer Services have been
tested successfully. The first series of LAN business
applications supported by Computer Services is currently in
testing. The LAN test lab will be available for business units
to test their applications beginning in January 1999.
Assessments of critical operational systems containing
embedded systems were completed in October 1998 by teams of
vendors, contractors and Company personnel. Year 2000 upgrades
to the distributed control systems of Potomac River Units 1, 2,
3, 4 and 5 and Chalk Point Units 2 and 4 have been completed and
tested. Remediation efforts are in process at other plants and
areas of the electric system. A total of 95% of mission-critical
substation, system protection and distribution controls are
13
expected to be Year 2000 ready by January 1999. The Energy
Management System (EMS) is critical to the operation of the
electric system. Factory acceptance testing for the Year 2000
mitigation software has successfully been completed and the new
software will be installed, tested, and operational by June 1,
1999. In total, 65% of EMS/Substation Control and Data
Acquisition facilities will be Year 2000 ready by January 1999.
In addition to including Year 2000 remediation and testing as
part of regularly scheduled plant outages, special Year 2000
outages have been scheduled in the winter of 1998-99 and spring
of 1999. Test scheduling is more complex for embedded systems
because of the difficulty inherent in scheduling power plant
outages to accommodate the testing. In addition, some vendors
are requesting that their customers refrain from testing certain
components because of the potential difficulties in recovering
from such tests. These vendors have either advised that their
product is Year 2000 ready or have invited Company
representatives to participate in testing at their facilities.
As of December 31, 1998, all affected plant units have outages
planned for Year 2000 testing. This differs from the original
plan to test one typical unit of each type. To accommodate this
change of scope, the completion date for all Year 2000 testing of
critical and high priority components has been revised from March
31, 1999, to June 30, 1999. This target date may be impacted by
the integration testing plans and scheduled generation/electric
systems outage decisions inherent in embedded systems processing.
As of December 31, 1998, based upon the Company's evaluation to
date, it appears that all identified Year 2000-impacted
processing components can be upgraded, modified or otherwise made
Year 2000 ready within acceptable time frames.
End-user computing systems comprise a relatively small
percentage of the required modifications both in terms of number
and criticality. All activities remain on schedule to be
completed by mid-1999.
The Company is participating in an Electric Power Research
Institute sponsored consortium of approximately 100 organizations
and investor-owned utilities to coordinate vendor contacts and
product evaluation. Since many embedded systems are similar
across utilities, this cooperative effort should help to reduce
total time expended in this area and help ensure that the
Company's efforts are consistent with the efforts and practices
of other investor-owned utilities.
The United States Department of Energy requested that the
North American Electric Reliability Council (NERC) prepare a
comprehensive report outlining the efforts of electric power
supply and delivery systems to prepare for Year 2000. NERC
collected data from utilities on a voluntary basis and issued
reports in September 1998 and January 1999. In the last update
14
provided to NERC, the Company reported 100% completion for both
the inventory and assessment phases of Year 2000, and 60%
completion in the remediation phase.
Major challenges remain in several areas: maintaining
sufficient human resources to complete Year 2000 tasks;
evaluating integrated testing requirements for many embedded
systems, taking into account planned outages and operational
needs; and completing contingency planning for the variety of
scenarios that might occur. There are two potential areas of
resource constraints. First, as the Company continues to
reorganize to prepare for industry deregulation, there is a risk
of losing technically and functionally knowledgeable people to
remediate and test systems. However, operating areas have been
instructed to give increased attention to Year 2000 staffing
needs when making reorganization decisions. Second, the
availability of vendor resources to complete embedded system
assessments and produce in volume any required component upgrades
will be a concern.
Integration testing also presents a challenge because of
scheduling constraints and admonitions from some vendors
regarding the risks of testing. A careful evaluation of testing
options and vendor testing documentation must be made on a
component-by-component basis in order to determine the most
appropriate method for obtaining Year 2000 readiness.
Business continuation and contingency planning efforts are
in progress. Business Units responsible for critical components
and systems are preparing plans in case of potential failures of
individual components or systems. These plans are referenced in
the Year 2000 tracking database and will be incorporated into the
Company's Year 2000 Business Continuity Plan.
In order to ensure adequate staffing for contingencies that
may arise, Company employees have been informed that vacation,
floating holidays and other discretionary leave may not be
scheduled between December 26, 1999 and January 8, 2000.
Recognizing that all contingency plans should support
business continuity, the Company has formed a Business Continuity
Plan Team to integrate contingency plans. The Company's business
continuity planning will go beyond contingency planning to
document actions to be taken, resources required and procedures
to be followed to ensure the continued availability of essential
services, programs and operations in the event of unexpected
interruptions.
15
The following steps will be used for business continuity
planning:
1. Identification of Year 2000 Operating Risks - Identify
sources of risk, both internal and external, which may
impact the Company's ability to sustain reliable
operations into the Year 2000 and beyond.
2. Review of Existing Operating Plans - Review existing
procedures to determine if a Year 2000-specific plan
should be incorporated.
3. Develop Risk Management Strategies - Perform an analysis
of, and make recommendations for, alternative methods of
continuing critical business functions.
4. Develop Year 2000 Emergency Plan and Enhance Existing
Plans - A separate Year 2000 plan will be developed
that will interface with the Company's Corporate
Emergency Response Plan (ERP). Modification and
enhancements to existing plans will include the
following: (a) Procedures to be followed before,
during and after a disaster; (b) Inventories of
information needs in a disaster, such as emergency
personnel lists, supplier lists, etc.; (c) Vital records
risk level; (d) Analysis of means to mitigate risk; and
(e) Integration of Year 2000 into the ERP.
5. Validation Process - Tests will be conducted by the
Business Continuity Planning Team to include tabletop
exercises and drills on likely Year 2000 scenarios.
The Company's planning process includes a review of
emergency coordination interfaces with the community. For
example, a key facet of business continuity is the Company's
interface with various emergency management agencies. The
Company is participating with the Metropolitan Washington Council
of Governments, which is looking at public safety issues on a
regional basis using existing regional public safety and
emergency management organizations. The Company presented a
planning status report to the Council of Governments in November
1998 and is also actively participating with emergency management
agencies in Year 2000 planning and drills. In December 1998, the
Company participated with the Montgomery County Office of
Emergency Preparedness in a countywide drill, as well as in a PJM
Interconnection drill. In January 1999, the Company participated
in a Maryland Emergency Management Agency drill. The Company
will participate in the next PJM drill in March 1999.
To assist in review and testing of business continuity
planning, the Company has contracted with Binominal
International. Binominal International, known for its
contingency planning and disaster recovery expertise, is
16
assisting in the review and testing of business continuity
planning, which will incorporate Year 2000 components.
The first draft of the Company's Business Continuity Plan
was completed in December 1998.
The Company is working through the PJM Interconnection to
address risks related to the regional electric transmission
system. Such interconnected systems are critical to the
reliability of each interconnected electric service provider, as
the failure of one such interconnected provider to achieve Year
2000 readiness could disrupt others from providing electric
service. Should the regional electric transmission grid become
unstable, power outages could occur. The Company's existing
emergency system restoration plan is being reviewed for use in
the event of such Year 2000 system disruptions.
NERC has responsibility for overseeing the efforts of the
industry in the United States and is coordinating Year 2000
efforts and contingency planning within and between the 10
electric reliability councils throughout the United States.
Coordination in the Company's region is through PJM. The Company
provides reports of its Year 2000 activities to NERC on a monthly
basis. Results show that the Company is on schedule to meet the
NERC target dates for Year 2000 readiness. The Company will
participate in NERC's planned drills in April and September 1999.
The availability of telecommunications services is a major
concern to the Company. Telecommunications are integral to
maintaining electric system operations internally, within PJM,
and throughout the Northern American grid. Contingency planning
for various loss of telecommunications scenarios is under way.
The Company agrees with NERC's September 1998 report to the
United States Department of Energy regarding the various Year
2000 scenarios that could occur. NERC has divided these into
"more probable scenario types," such as loss or unavailability of
a portion of generation, loss of a portion of system monitoring
and control functions, loss of voice communications, loss of a
portion of load, or uncharacteristic load; and "credible worst-
case scenarios," such as loss of a portion of transmission
facilities, underfrequency load shedding, and loss of intra- or
interregional communications. The Company's Business Continuity
Planning Team will be evaluating scenarios such as these and
developing appropriate response plans.
The Company has established a range of communications to
keep customers and suppliers informed of Year 2000 efforts.
During September 1998, Year 2000 briefing seminars were held for
many large customers. Individual meetings with several large
customers have also been held. A bill insert has been used to
advise customers of Year 2000 activities; future bill inserts
will be used as needed. A brochure for customers inquiring about
17
the Company's Year 2000 efforts is available and being
distributed. The brochure will be posted on the Company's web
page on the Internet, and the web page will be updated
periodically with the latest Year 2000 status information. An
updated telephone script has been developed for customer service
representatives answering Year 2000-related telephone inquiries
from customers.
The Company has contacted over 6,000 suppliers and vendors
to seek assurance that they will continue to provide goods and
services after December 1999. Follow-up contacts continue.
Identified essential suppliers will be defined as critical
dependencies in the draft Business Continuity Plan.
The cost or consequences of a material incomplete or
untimely resolution of the Year 2000 problem could adversely
affect future operations, financial results or financial
condition of the Company.
The cost of expected modifications will be approximately $14
million and will be charged to expense as incurred. This
estimate may change as additional evaluations are completed and
remediation and testing progresses. Through December 31, 1998,
$7 million has been charged to expense; the remaining costs will
be expensed in 1999. Approximately $5.7 million, or 40% of the
total cost, was expensed in the 12 months ended December 31,
1998.
Depreciation and Amortization Expense, Income Taxes and
Other Taxes
- -------------------------------------------------------
Depreciation and amortization expense increased by $7.8 million
(3.4%) in 1998, and by $9 million (4%) in 1997, due to additional
investment in property and plant. Changes in income taxes in
1998 and 1997 reflect changes in the levels of taxable operating
income. Other taxes increased by $2.7 million (1.3%) in 1998,
reflecting increases in the levels of plant investment and
operating revenue, upon which taxes are based. Other taxes
increased by $1.3 million (.6%) in 1997, reflecting increases and
partially offsetting decreases in the levels of plant investment
and operating revenue, respectively.
Other Income, including Allowance for Funds Used During
Construction and Capital Cost Recovery Factor
- -------------------------------------------------------
Other income reflects net earnings from PCI of $15.1 million in
1998, $17.1 million in 1997 and $16.9 million in 1996. 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 decreases in accruals for the equity
18
component of the Allowance for Funds Used During Construction
(AFUDC) resulting from declining amounts of Construction Work In
Progress expenditures not in rate base; and decreases in the
equity component of the Capital Cost Recovery Factor (CCRF)
accrued on declining amounts of pollution control expenditures
related to Clean Air Act (CAA) compliance. AFUDC equity totaled
$.9 million in 1998, $1 million in 1997 and $1.4 million in 1996;
CCRF equity totaled $.4 million in 1998, $5.7 million in 1997 and
$5.2 million in 1996. Other income for 1997 reflects a reduction
of $52.5 million resulting from the write-off of costs related to
cancellation of the proposed merger with BGE; credits of $19.9
million for income taxes associated with this write-off are
reflected in Other, net. CCRF accruals on unamortized District
of Columbia DSM costs not in rate base, totaling $3.7 million in
1998, $5.4 million in 1997 and $4.1 million in 1996, are also
reflected in Other, net.
Utility Interest Charges
- ------------------------
Utility interest charges were relatively stable during the
three-year period 1996 through 1998, notwithstanding changes in
the levels of borrowing. Short-term borrowing costs have
remained relatively low. The average cost of outstanding long-
term utility debt declined from 7.51% at the beginning of 1996 to
7.37% at the end of 1998. Distributions on preferred securities
of the Trust totaled $5.7 million in 1998. Utility interest
charges are offset by both the debt component of AFUDC, which
totaled $3.9 million in 1998, $3.8 million in 1997 and $3.9
million in 1996; and by the debt component of Clean Air Act CCRF,
which totaled $.3 million in 1998, $4 million in 1997 and $3.6
million in 1996.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
The Company's total investment in property and plant, at original
cost, was $6.7 billion at year-end 1998. Investment in property
and plant construction, net of AFUDC and CCRF, was $603.3 million
for the period 1996 through 1998.
Internally generated cash from utility operations, after
dividends, totaled $646.7 million for the period 1996 through
1998. Sales of first mortgage bonds, medium-term notes and trust
originated preferred securities (TOPrS) during the period 1996
through 1998 provided a total of $406.8 million. During the
years 1996 through 1998, the Company retired $354.1 million in
outstanding long-term securities, including refinancings,
scheduled debt maturities, preferred stock redemptions and
sinking fund retirements. Interim financing was provided
principally through the issuance of short-term commercial
promissory notes. During the three-year period 1999 through
2001, capital resources of $314 million ($45.2 million in 1999)
19
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 $759 million is
expected to be available from depreciation and amortization
charges and income tax deferrals over the three-year period of
which approximately $265 million is the 1999 portion.
Dividends on common stock were $196.6 million in 1998,
$196.7 million in 1997 and $196.6 million in 1996. The Company's
current annual dividend on common stock is $1.66 per share. The
dividend rate is determined by the Company's Board of Directors
and takes into consideration, among other factors, current and
possible future developments that may affect the Company's income
and cash flow levels. The Company has no current plans to change
the dividend; however, there can be no assurance that the $1.66
dividend rate will be in effect in the future.
Dividends on preferred stock were $11.4 million in 1998,
$16.5 million in 1997 and $16.6 million in 1996. The embedded
cost of preferred stock was 5.74% at December 31, 1998, 6.44% at
December 31, 1997, and 6.41% at December 31, 1996.
In June 1998, the Company redeemed 60,000 shares of Serial
Preferred Stock, $3.37 series of 1987, at $50 per share for
sinking fund purposes. The Company also redeemed, in accordance
with their terms, all of the 779,696 shares remaining after the
sinking fund redemption of Serial Preferred Stock, $3.37 series
of 1987, at $51.13 per share; all of the 500,000 shares of Serial
Preferred Stock, $3.82 series of 1969, at $51 per share; and all
of the 1,000,000 shares of Serial Preferred Stock, $3.89 series
of 1991, at $53.89 per share. The redemption totaled $123.7
million and includes $6.6 million in premiums.
In May 1998, the Company's wholly owned Trust issued $125
million of 7-3/8% TOPrS. The proceeds from the sale of the TOPrS
and from the common securities of the Trust to the Company were
used by the Trust to purchase from the Company $128.9 million of
7- 3/8% Junior Subordinated Deferrable Interest Debentures, due
June 1, 2038. The sole assets of the Trust are the Subordinated
Debentures. The Trust will use interest payments received from
the Company on the Subordinated Debentures to make quarterly cash
distributions on the TOPrS. Proceeds from the sale of the
Subordinated Debentures to the Trust were used by the Company to
redeem the three series of serial preferred stock in June 1998.
The Company's obligation under the declaration, including its
obligation to pay costs, expenses, debt and liabilities of the
Trust, provides a full and unconditional guarantee on a
subordinated basis of amounts payable on the TOPrS. See the
discussion included in Note (9) of the Notes to Consolidated
Financial Statements, Redeemable Serial Preferred Stock and
Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust, for additional information.
20
Total annualized interest cost for all utility outstanding
long-term debt and preferred securities of the Trust at December
31, 1998, was $139 million, compared with $132.6 million and $133
million at December 31, 1997 and 1996, respectively.
Year-end 1998 outstanding utility short-term indebtedness
totaled $191.7 million compared with $131.4 million at the end of
1997 and 1996.
The Company's capitalization ratios (excluding nonutility
subsidiary debt), at December 31, 1998, are presented below.
- -----------------------------------------------------------------
Excluding Including
Amounts Due Amounts Due
In One Year In One Year
- -----------------------------------------------------------------
Long-term debt 46.4% 43.8%
Redeemable serial preferred stock 1.2 1.2
Serial preferred stock 2.5 2.3
Company obligated mandatorily
redeemable preferred securities
of subsidiary trust which holds
solely parent junior subordinated
debentures 3.1 2.9
Common equity 46.8 44.2
Short-term debt and amounts due in
one year - 5.6
----- -----
Total capitalization 100.0% 100.0%
===== =====
- -----------------------------------------------------------------
The Company maintains 100% line of credit back-up in the
amount of $200 million, for its outstanding commercial promissory
notes, which was unused during 1998, 1997 and 1996.
Conservation
- ------------
The Company's DSM and EUM programs have increased the efficiency
of energy usage while successfully deferring the need for the
acquisition of additional generating capacity. To reduce the
near-term upward pressure on customer rates and bills, the
Company is continuing to reduce its conservation offerings and
limit conservation spending. This strategy recognizes the
transformation of the market to generally higher levels of energy
efficiency for residential and nonresidential equipment.
Effective March 25, 1998, the Maryland Public Service Commission
approved a proposal supported by the Company to discontinue
operation of all but one DSM program in Maryland. The Company
received permission to substantially reduce rebates paid to
program participants for the single remaining program. A
21
proposal by the Company to eliminate DSM programs operated within
the District of Columbia was filed with the District of Columbia
Public Service Commission in March 1998, and is pending. The
effects of retail competition and updated research information on
the programs' net benefits support the discontinuance of these
programs.
The Company recovers the costs of Maryland DSM programs
through a base rate surcharge that includes a provision for the
recovery of program cost amortization and permits the Company to
earn a return on its DSM investment while receiving compensation
for lost revenue. In addition, when energy savings have exceeded
annual goals, the Company has earned a bonus. The Company was
awarded a bonus of $1.3 million in 1998, based on 1997
performance, which followed bonuses of $1.6 million in 1997,
based on 1996 performance, and $8.9 million in 1996, based on
1995 performance. Maryland DSM program goals have been
successively reduced to reflect declining DSM expenditures. On
September 16, 1998, the Company received permission from the
Maryland Commission to decrease the DSM surcharge tariff
effective with bills rendered on and after September 21, 1998,
which will reduce annual revenue by approximately $3 million.
The reduction in the surcharge rate reflects the decline in the
costs and scale of Maryland DSM programs. Beginning with the
September 1998 surcharge update, the program cost amortization
period of five years will be successively reduced to reflect the
following: 1998 program costs will be amortized over four years;
1999 program costs will be amortized over three years; 2000
program costs will be amortized over two years; and 2001 and
subsequent program costs will be amortized over one year. In
addition, the performance bonus provision of the surcharge
relative to future energy saving goals will no longer apply.
Investment in Maryland DSM programs totaled $15.4 million in
1998, $24 million in 1997 and $27.4 million in 1996.
In June 1995, the District of Columbia Commission adopted a
base rate surcharge mechanism that amortizes over a 10-year
period actual DSM costs prudently incurred since June 30, 1993;
prior to this decision, DSM costs had been considered in base
rate cases. The Environmental Cost Recovery Rider (ECRR)
includes both a DSM expenditure component and a component for
recovering certain expenditures associated with complying with
the CAA Amendments of 1990. Also within its June 1995 order, the
Commission adopted a DSM spending cap for the four-year period
1995 through 1998. The Company has successfully managed its
portfolio of DSM programs to ensure that the costs of these
programs are within the spending limit. In June 1997, the
Company filed an Application for Authority with the Commission to
update the ECRR surcharge tariff to recover actual DSM
expenditures incurred during the period January 1995 through
December 1996. In a June 1998 filing, the Company requested that
recovery of year 1997 DSM expenditures also be reflected within
the ECRR. On September 3, 1998, the Commission approved the
22
Company's June 1997 request for recovery of the January 1995
through December 1996 DSM expenditures, increasing annual revenue
by approximately $9 million. On October 30, 1998, the Company
updated its June 1998 request for 1997 DSM expenditures to
incorporate provisions of the Commission's September 3, 1998
decision, which would increase annual revenue by approximately $3
million. Investment in District of Columbia programs totaled
$5.2 million in 1998, $5.1 million in 1997 and $17.9 million in
1996.
In 1998, approximately 160,000 customers participated in
continuing EUM programs that cycle air conditioners and water
heaters during peak periods. In addition, the Company operates a
commercial load curtailment program that provides incentives to
customers for reducing energy usage during peak periods. Time-
of-use rates have been in effect since the early 1980s, and
currently approximately 60% of the Company's revenue is derived
from time-of-use rates.
It is estimated that peak load reductions of approximately
730 megawatts have been achieved to date from DSM and EUM
programs and that additional peak load reductions of
approximately 50 megawatts will be achieved over the next five
years. The Company also estimates that, in 1998, energy
reductions of approximately 1.7 billion kilowatt-hours have been
realized through operation of its DSM and EUM programs. During
the next five years, the Company's projected costs for
conservation programs total $19 million ($16 million in 1999).
Construction and Generating Capacity
- ------------------------------------
Construction expenditures, excluding AFUDC and CCRF, totaled $206
million in 1998 ($66 million related to Generation) and are
projected to total $865 million ($389 million related to
Generation) for the five-year period 1999 through 2003, which
includes approximately $132 million of CAA expenditures. In
1999, construction expenditures are projected to total $185
million ($79 million related to Generation), which includes $22
million of estimated CAA expenditures. The Company plans to
finance its construction program primarily through funds provided
by operations.
The Company's present generation resource mix consists of
4,815 megawatts of steam generating capacity and 1,227 megawatts
from 31 combustion turbine units owned by the Company, including
166 megawatts of capacity from the Company's 9.72% undivided
interest in the Conemaugh Generating Station located in western
Pennsylvania. In addition, the Company has a purchase agreement
with SMECO, through 2015, for 84 megawatts of generating capacity
supplied by a combustion turbine installed and owned by SMECO at
the Company's Chalk Point Generating Station. A network of
23
transmission and distribution facilities delivers power from
these generation resources to customers and provides for system
reliability. On December 31, 1998, the Company and SMECO entered
into a new full-requirements agreement that supersedes the
existing rolling-10-year full service power supply requirements
contract. The agreement will be effective as of January 1, 1999,
if accepted by FERC without change or modification. As a result
of the agreement, approximately 600 megawatts of additional
capacity will become available by December 31, 2001, or, at
SMECO's option, December 31, 2000. See the discussion included
in Note (13) of the Notes to Consolidated Financial Statements,
Commitments and Contingencies, for additional information. The
Company projects that existing contracts for nonutility
generation and the emerging wholesale market for generation
resources will provide adequate reserve margins to meet
customers' needs beyond the year 2000.
The Company continues to purchase 450 megawatts of
generating capacity and associated energy from FirstEnergy under
a 1987 long-term capacity purchase agreement with FirstEnergy and
AEI. The Company also has a 25-year capacity purchase agreement
with Panda for 230 megawatts of capacity from a gas-fueled
combined-cycle cogenerator in Prince George's County, Maryland.
Pursuant to the terms of an October 1997 amendment to this
agreement, Panda is permitted to broker sales of certain amounts
of the Company's system capacity from January 1998 through May
2000, and to broker or sell energy from the Panda facility.
Panda will pay the Company for the right to broker capacity
sales, as well as a fee based on actual energy sales.
CLEAN AIR ACT
- -------------
The Company has complied with Phase I of the Acid Rain portion of
the CAA. Phase II of the CAA, effective January 1, 2000,
requires further reductions in nitrogen oxides (NOx) emissions
and sulfur dioxide (SO2) emissions (or the acquisition of
additional SO2 allowances) from the Company's generating units.
NOx emissions reductions are being achieved by installing new
boiler burner controls and equipment at the Company's Dickerson
Generating Station. Obligations for SO2 emissions reductions
will be met by continued use of lower sulfur coal, supplemented
by SO2 allowance purchases as necessary. Anticipated capital
expenditures for complying with the second phase of the CAA total
approximately $34 million. In addition to the Acid Rain portion
of the CAA, the State of Maryland and District of Columbia are
required, by Title I of the CAA, to achieve compliance with
ambient air quality standards for ground level ozone.
On May 22, 1998, the State of Maryland issued final
regulations entitled "Post RACT Requirements for Nitrogen Oxides
(NOx) Sources (NOx Budget Proposal)," requiring a 65% reduction
in NOx emissions at the Company's Maryland generating units by
24
May 1, 1999. The regulations allow the purchase or trade of NOx
emission allowances to fulfill this obligation. The Company
appealed this regulation to the Circuit Court for Charles County,
Maryland on June 19, 1998, on the basis that the regulation does
not provide adequate time for the installation of NOx emission
reduction technology and that there is no functioning NOx
allowance market. On July 17, 1998, the case was moved to the
Circuit Court for Baltimore City and consolidated with a similar
appeal filed by BGE. The Company believes it is unlikely that a
market in NOx allowances sufficient to ensure compliance will be
functioning by May 1999; presently, eight states have enacted the
rules necessary to create such a market. A preliminary plan for
installing the best available removal technology on the Company's
largest coal-fired units would require capital expenditures of
approximately $170 million and would yield NOx reductions of
nearly 85% beginning in year 2004. The Company cannot predict
the outcome of this litigation and is evaluating its options in
the event of an adverse decision. Also, on September 24, 1998,
the EPA issued rules for reducing interstate transport of ozone.
The Company's preliminary plan for NOx reductions of 85% by 2004
appears to be consistent with the EPA rules.
The Company owns a 9.72% undivided interest in the Conemaugh
Generating Station located in western Pennsylvania. NOx
emissions reduction equipment and flue gas desulfurization
equipment were installed at the station in 1994 for compliance
with Phases I and II of the CAA. The Company's share of
construction costs for this equipment was $36.2 million. As a
result of installing the flue gas desulfurization equipment, the
station has received additional SO2 emission allowances. The
Company's share of these bonus allowances is being used to reduce
the need for lower-sulfur fuel at its other plants.
In December 1997, U.S. representatives at the climate change
negotiations in Kyoto, Japan, agreed to the reduction of
greenhouse gas emissions in certain portions of the developed
world. The Kyoto protocol is subject to conditions that may not
occur, and is also subject to ratification by the United States
Senate, which has indicated that it will not ratify an agreement
unless certain conditions, not currently provided for in the
Kyoto protocol, are met. At present, it is not possible to
predict whether the Kyoto protocol will attain the force of law
in the United States or what its impact would be on the Company.
Further developments in connection with the Kyoto process could
adversely affect future operations, financial results or
financial condition of the Company.
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
25
does not give recognition to the current cost of replacing plant
and the impact of inflation. Changes in industry structure and
regulation may affect the extent to which future rates are based
upon current costs of providing service. The regulatory
commissions have authorized fuel rates, which provide for billing
customers on a timely basis for the actual cost of fuel and
interchange and for emission allowance costs and, in the District
of Columbia, for purchased capacity.
Annual base rate increases (decreases) that became effective
during the period 1996 through 1998 are shown below.
- -----------------------------------------------------------------
District
of
Year Total Maryland Columbia Wholesale
- -----------------------------------------------------------------
(Millions of Dollars)
1998 $16.5 $19.0 $ - $(2.5)
1997 24.0 24.0 - -
1996 (2.0) - - (2.0)
----- ----- ----- -----
$38.5 $43.0 $ - $(4.5)
===== ===== ===== =====
- -----------------------------------------------------------------
Maryland
- --------
On November 28, 1998, pursuant to a settlement agreement, the
Maryland Public Service Commission authorized a $19 million, or
2%, increase in base rate revenue effective with service rendered
on and after December 1, 1998. In June 1998, the Company had
filed a request to increase its base rates to recover contractual
escalations in existing Commission-approved purchased capacity
contracts, costs related to the 1998 Targeted Severance Plan,
Year 2000 compliance costs, tax normalization of pre-1981 plant
removal costs, and certain other costs associated with prior
rate-making determinations. The settlement's rate increase was
distributed among rate classes in a manner that will continue
movement toward equalized rates of return among rate classes, and
provided for a lessening of the Company's summer-winter rate
differential. The settlement was comprehensive and does not
include specific determinations regarding an authorized rate of
return; however, a rate of return of 8.80% will be used by the
Company, beginning in December 1998, for purposes of calculating
AFUDC and CCRF. Previously, pursuant to a November 1997
settlement agreement, the Commission authorized a $24 million, or
2.6%, increase in base rate revenue effective with bills rendered
on and after November 30, 1997.
26
District of Columbia
- --------------------
In July 1995, the District of Columbia Public Service Commission
authorized rates that are based on a 9.09% rate of return on
average rate base, including an 11.1% return on common stock
equity and a capital structure that excludes short-term debt.
Wholesale
- ---------
The Company has a full service power supply requirements contract
with SMECO, the Company's principal wholesale customer with a
peak load of approximately 600 megawatts, which represents
approximately 10% of the Company's total kilowatt-hour sales.
See the discussion included in Note (13) of the Notes to
Consolidated Financial Statements, Commitments and Contingencies,
for additional information.
COMPETITION
- -----------
Since the early 1980s, the Company has pursued strategies that
achieve financial flexibility through conservation and EUM
programs, extension of the useful life of generating equipment,
cost-effective purchases of capacity and energy, and preservation
of scheduling flexibility to add new generating capacity in
relatively small increments. The Company serves a unique and
stable service territory and is a low-cost energy producer, with
customer prices that compare favorably with regional and national
averages.
In response to the electric utility industry's transition
from regulation to a more competitive market, the Company during
1997 began to make fundamental changes in the shape and direction
of its organizational units. Utility operations were
reconfigured into three primary business units: generation,
distribution and transmission. The structures of these
organizational units continued to unfold in 1998 and are expected
to offer the focus and flexibility necessary to maneuver in
whatever competitive form the industry finally takes. Such
reorganization allows the Company to make the best use of its
assets while concentrating the efforts of employees on making
each business unit profitable.
27
In reconfiguring utility operations into generation,
distribution and transmission business units, the Company has
decided not to seek to become a larger generation company. The
net book value of the Company's generating assets at December 31,
1998, is $1.8 billion. The Company's generating assets are
relatively small in comparison to other major utilities, and it
is expected that through future consolidations, there will remain
only a few large generating companies in the country. The
Company's immediate focus will be on increasing the performance
and profitability of its existing generation in the deregulated
wholesale market. The Company intends to explore whether it
should establish joint partnerships with other utilities'
generating business units, create strategic alliances, divest its
generating assets or continue its present course. In the area of
transmission, which remains under federal regulation, the Company
believes it has certain strengths and skills. The Company
intends to continue to evaluate the cost effectiveness of its
transmission system with a view to expanding profit potential,
including the possibility of adding to the Company's transmission
assets. In the area of distribution, which continues to be
regulated at the local level, the Company believes it has
valuable assets and skills and intends to continue to enhance its
profitability locally and leverage its skills elsewhere.
The Company is currently engaged in regulatory proceedings
in Maryland, where the Public Service Commission has outlined
steps and established dates for the phased-in implementation of
competition. In the District of Columbia, the Public Service
Commission is considering various issues regarding electric
industry structure and competition. The Company reaffirms its
full support for customer choice for its electric customers and
has provided key principles to be used as guidelines for its
introduction. These principles include the concept that present
suppliers should not be put at a competitive disadvantage by
customer choice, that competition should not be regulated and
that the benefits of customer choice should not be oversold.
Increased competition will have an impact on future results of
operations, which may potentially be adverse. The nature of this
competition will depend upon the actions of governmental and
regulatory agencies, future regional economic conditions and
influences exerted by emerging market forces over the structure
of the electric industry. See the discussion included in Note
(13) of the Notes to Consolidated Financial Statements,
Commitments and Contingencies, for additional information.
28
RESTRUCTURING OF THE BULK POWER MARKET
- --------------------------------------
The FERC issued its Final Rulemaking Orders No. 888 and No. 889
in April 1996 to further its goal of achieving greater
competition in the wholesale energy market. Order No. 888
required utilities to file open access transmission tariffs and
separately price generation, transmission and ancillary services.
Order No. 889 directed utilities to establish or participate in
an Open Access Same-time Information System (OASIS), where
transmission owners post certain transmission availability,
pricing and service information on an open-access communications
medium such as the Internet. Order No. 889 also required the
separation of utilities' transmission system operations and
wholesale marketing functions.
In November 1997, FERC issued an Order approving the
establishment of PJM as an ISO to administer transmission service
under a poolwide transmission tariff and provide open access
transmission service on a poolwide basis. The ISO, which began
operation on January 1, 1998, is now responsible for system
operations and regional transmission planning. In addition, the
Commission decided that the independent body that operates the
ISO may also operate the PJM power exchange. The Commission
approved the power pool's use of single, non-pancaked
transmission rates to access the eight transmission systems that
make up PJM. Each transmission owner within PJM has its own
transmission rate, whereby the transmission customer will pay a
single rate based on the cost of the transmission system where
the generating capacity is delivered. This PJM rate design has
been in effect since April 1997. The Commission also approved,
effective April 1, 1998, locational marginal pricing for
allocating scarce transmission capability. This method is based
on price differences in energy at the various locations on the
transmission system.
PJM has many years of experience in providing economically
efficient transmission and generation services throughout the
mid-Atlantic region, and has achieved for its members, including
the Company, significant cost savings through shared generating
reserves and integrated operations. The PJM members have
transformed the previous coordinated cost-based pool dispatch
into a bid-based regional energy market operating under a
standard of transmission service comparability. Benefits and/or
costs derived from the PJM market are passed through to the
Company's customers through fuel adjustment clauses and,
accordingly, will not have a material effect on the operating
results of the Company.
29
NEW ACCOUNTING STANDARDS
- ------------------------
See the discussion included in Note (1) of the Notes to
Consolidated Financial Statements, Organization and Summary of
Significant Accounting Policies.
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 1998, the
Company participated in environmental assessments and cleanups
under these laws at four federal Superfund sites and a private
party site as a result of litigation. 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. See the discussion included in Note
(13) of the Notes to Consolidated Financial Statements,
Commitments and Contingencies, for additional information.
30
NONUTILITY SUBSIDIARY
- ---------------------
RESULTS OF OPERATIONS
- ---------------------
Over the past several years, the focus of PCI and its
subsidiaries has shifted from financial investments in aircraft,
leases and securities to that of a provider of energy,
telecommunications and related products and services in the
Northern Virginia/Washington, D.C./Baltimore metropolitan area.
PCI is seeking to shift this focus by installing and employing
leading-edge technologies; by attempting to realize significant
economies of scale from multi-product marketing and the use of
common facilities and support services, wherever appropriate; and
by endeavoring to deliver high-quality, convenient and reliable
services at competitive prices.
PCI's businesses consist of four separate components: Mass
Market, Commercial Market, Utility-Related Market, and Financial
Investments.
During 1998, PCI expanded its customer service and product
offerings through strategic partnerships and with acquisitions of
energy and telecommunications businesses.
Mass Market
-----------
In December 1997, wholly owned affiliates of PCI and RCN
Corporation entered into a 50/50 joint venture to create
Starpower Communications (Starpower). In 1998, Starpower became
the first company to begin offering a complete single-source
package of local and long-distance telephone and Internet
services to customers throughout the Washington, D.C.
metropolitan area. With planned initial investments of $150
million from each partner over a three-year period (1998-2000),
Starpower has begun building a 6,000-mile fiber optic network to
ultimately serve homes and businesses in a geographic area that
extends from Northern Virginia to Baltimore. High population
density areas have been targeted for the initial build-out of the
fiber optics system, and Starpower will begin supplying cable
television to residential customers in portions of the District
of Columbia and Maryland during 1999. As of December 31, 1998,
PCI has invested $20 million of its total $150 million commitment
to Starpower.
PCI's portion of Starpower's pre-tax loss for 1998 is $10.6
million. PCI expects that the joint venture will continue to
incur losses in 1999 and 2000 as it develops and expands its
network and customer base. During the first quarter of 1998, RCN
31
acquired Erols Internet. The majority of Erols customers
(approximately 197,000 out of a total 316,000 in February 1998)
are located in Starpower's target market. These customer
accounts, as well as certain associated network assets and
related liabilities, have been contributed by RCN to Starpower.
Starpower has agreed to pay $51.9 million ($78.6 million in
assets, primarily goodwill, net of $26.7 million of unearned
revenue) through a ratable reduction to RCN's committed future
capital contributions. As a result of this transaction,
Starpower is amortizing the acquisition premium over a three- to
five-year period commencing February 1998.
Starpower has recently signed agreements with the City of
Gaithersburg and the District of Columbia to provide video
programming to local residents as well as local and long-distance
telephone service and high-speed Internet access. A 142-channel
cable television service through an advanced fiber optic network
is being rolled out to these jurisdictions during 1999. The
commercial success of Starpower will depend upon the ability of
Starpower to achieve its commercial objectives subject to a
number of uncertainties and risks, including the pace of entry
into new markets; the time and expense required for building out
the planned network; success in marketing services; the intensity
of competition; the effect of regulatory developments; and the
possible development of alternative technologies. Statements
concerning the activities of Starpower that constitute forward-
looking statements are subject to the foregoing risks and
uncertainties.
Commercial Market
-----------------
In September 1998, a wholly owned subsidiary of PCI purchased the
net assets and operations of Gaslantic Corporation (Gaslantic), a
Maryland-based natural gas retail marketing and advisory services
company doing business principally in the mid-Atlantic region.
Gaslantic focuses on providing advisory services to commercial,
industrial and institutional end-users regarding the management
of the risks and costs of natural gas procurement, and on making
retail sales of natural gas to such customers. It recommends
purchasing strategies, negotiates supply and pipeline
transportation agreements and, if requested, purchases natural
gas on behalf of its clients. Gaslantic is a fee-based adviser
and retail marketer rather than a gas trader. Typical of gas
marketing operations, Gaslantic's purchase of energy to fulfill
client contract requirements is a high-volume and relatively low-
margin business. Through December 31, 1998, revenues recorded
related to this business since its acquisition on September 10,
1998, totaled $13.3 million. With the acquisition of Gaslantic,
PCI added fuel supply management and retail sales of natural gas
to its inventory of integrated energy products and services,
which also includes energy use assessments, facilities operation
32
and management, performance-based energy efficiency contracting,
and the sale of electricity in markets open to retail
competition.
A wholly owned PCI subsidiary became licensed as a retail
power marketer during 1998 and began selling electricity to
commercial and residential customers in Pennsylvania in the
fourth quarter of 1998. Through December 31, 1998, the
subsidiary has signed agreements to supply a total of 10 MW of
electric load to various residential and business customers in
Pennsylvania, with the first deliveries of electricity scheduled
to begin in February 1999. As retail competition in the sale of
energy in the Washington, D.C. metropolitan region is phased in
by regulators over the next several years, PCI will use the
experience gained in Pennsylvania and other mid-Atlantic markets
to compete in these newly opening markets.
On January 25, 1999, a wholly owned unregulated subsidiary
of PCI signed a contract with SMECO to supply SMECO's full
requirements for power (approximately 600 MW of peak load) during
the four-year period starting January 1, 2001. See the
discussion included in Note (13) of the Notes to Consolidated
Financial Statements, Commitments and Contingencies, for
additional information.
In late 1998, a wholly owned subsidiary of PCI acquired the
net assets and operations of MET Electrical Testing, Inc. (MET
Testing). MET Testing is an electrical testing and engineering
company based in Columbia, Maryland, with specialized experience
in testing, inspecting, repairing, upgrading and maintaining
industrial and commercial-type electrical installations and
equipment. MET Testing's business is primarily in the mid-
Atlantic states, with clients that include major corporations,
healthcare facilities, property managers and government agencies.
MET Testing's annual revenues for 1998 were approximately $4.6
million. PCI expects to use MET Testing as a platform to build
additional commercial services such as the operation and
maintenance of commercial energy equipment.
The commercial success of PCI in these markets is subject to
a number of risks, including regulatory developments and the pace
of deregulation; success in marketing services; the intensity of
competition; and the ability to secure electric supply to fulfill
sales commitments at favorable prices. Statements concerning the
activities of PCI in these markets that constitute forward-
looking statements are subject to the foregoing risks and
uncertainties.
33
Utility-Related Market
----------------------
A wholly owned subsidiary of PCI continues to own and
operate W. A. Chester, a utility contractor specializing in
underground transmission and cable distribution systems, and, in
partnership with Columbia Energy Group, a natural gas pipeline,
liquefied natural gas (LNG) storage and terminal facility, both
of which are providing services to the utility industry and other
customers.
Financial Investments
---------------------
PCI manages a portfolio of financial investments, including
securities, aircraft and electric power plant leases, real estate
and structured finance transactions. Its remaining aircraft
portfolio is being managed with the objective of identifying
future opportunities for its sale or other disposition on
economic terms. PCI will continue to make new financial
investments that contribute to current and future earnings.
Consolidated Results
--------------------
PCI's consolidated net earnings in 1998 were $15.1 million ($.13
per share), compared with consolidated net earnings of $17.1
million ($.14 per share) and $16.9 million ($.14 per share), in
1997 and 1996, respectively. During 1998, PCI recorded pre-tax
gains of $12.2 million ($7.9 million after-tax) from the sale of
real estate and pre-tax gains of $7.8 million ($4.6 million
after-tax) from the sale of aircraft and related equipment.
PCI's earnings in 1998 also include capital gains totaling $1.4
million, net of tax, related primarily to tender offers accepted
by PCI, which reduced dividend income and the cost basis of PCI's
preferred stock portfolio by $74.4 million since year-end 1997.
Proceeds from asset sales were used to pay down debt, which
resulted in a decrease in interest expense from 1997. PCI's 1998
consolidated net earnings included after-tax losses of $8.4
million and $1.2 million, related to its telecommunications and
energy services businesses, respectively. In January 1999, PCI
received cash of $6.2 million and other assets with a value of
$3.3 million in an early liquidation of a partnership interest
and will record approximately $6 million in after-tax earnings in
1999.
In 1998, PCI generated income primarily from its leasing
activities and operating businesses. Income from leasing
activities, which includes rental income, gains on asset sales,
interest income and fees, totaled $73.3 million in 1998, compared
to $75.6 million in 1997 and $91.7 million in 1996. The decrease
in income from leasing activities during 1998 was primarily due
to less rental income earned in 1998 as a result of asset sales
34
earlier in the year offset by the pre-tax gains on sales of
aircraft equipment. The decrease in income from leasing
activities in 1997 compared to 1996 was primarily due to asset
sales, resulting in lower rental income.
PCI's marketable securities portfolio contributed pre-tax
income of $19.3 million in 1998, $28.6 million in 1997 and $33.7
million in 1996. The decreases in income from marketable
securities were primarily due to decreases in dividend income as
a result of reductions in the preferred stock portfolio since
1996. Income from marketable securities included net realized
gains of $2.2 million in 1998, $6.9 million in 1997 and $3.6
million in 1996.
Income from energy and utility industry services increased
over the prior years primarily due to 1998 acquisitions and
growth in contract revenue.
Other income totaled $8.4 million in 1998, compared with a
loss of $1.6 million in 1997 and a loss of $11.5 million in 1996.
The increase in other income for 1998 was primarily the result of
$12.2 million in pre-tax gains from the sales of real estate and
the 1997 pre-tax writedown of $10 million related to a real
estate property. The increase in other income during 1998 was
partially offset by pre-tax equity losses of $11.4 million
related to PCI's 50% equity investment in Starpower and the
write-off of $3.2 million pre-tax ($2.1 million after-tax) of
PCI's remaining investment in oil and natural gas. Other income
increased in 1997 over 1996 as a result of pre-tax writedowns of
$29 million ($18.8 million after-tax) recorded in 1996 related to
PCI's investments in solar energy projects, real estate and oil
and natural gas, compared to a pre-tax writedown of $10 million
($6.5 million after-tax) recorded in 1997 related to a real
estate property.
Expenses before income taxes, which include interest,
depreciation, operating and other expenses totaled $137.1
million, $139.8 million and $159.3 million for the years ended
1998, 1997 and 1996, respectively. The decreases in expenses
before income taxes in 1998 compared to 1997 and 1996 were
primarily due to decreased interest expense over the three-year
period as a result of reduced debt outstanding, as proceeds from
sales of aircraft, marketable securities and other investments
were used to pay down debt. The decreases in expenses before
income taxes over the last two years were also due to reductions
in depreciation resulting from the sales of aircraft.
PCI had income tax credits of $8.7 million in 1998, $31.8
million in 1997 and $54.6 million in 1996. As a result of joint
venture operations and other activity, including the finalization
in 1998 of the Internal Revenue Service's examinations through
the 1995 tax year, PCI's obligation for previously accrued
35
deferred taxes was reduced, resulting in a net reduction in
income tax expense during the years ended December 31, 1998,
December 31, 1997, and December 31, 1996, of $1.5 million, $13.3
million and $34.9 million, respectively.
Year 2000 Readiness Disclosure
------------------------------
In connection with Year 2000 compliance efforts, a PCI
representative is a member of the Corporate Year 2000 Task Force.
PCI is following the utility's approach, as discussed previously,
for monitoring its in-house systems, and PCI's systems have been
included in the overall Year 2000 Corporate Data Base. All PCI
in-house business systems remain on schedule to become Year 2000
compliant by June 30, 1999. Costs for these remediation efforts
are currently estimated at less than $50,000. In addition, PCI
is addressing potential Year 2000 issues with the operations of
businesses in which PCI has investment or operating interests.
The Corporate Year 2000 Task Force will be assisting PCI with its
examination and monitoring of Year 2000 issues involving these
strategic business interests. Issues include ascertaining
responsibility for and monitoring progress of any Year 2000
remediation efforts required for investment-based business and
embedded systems. Plans and progress reports have been received
for most such systems. Due to the significant nature of PCI's
planned investment in Starpower, PCI has instituted a Starpower
specific Year 2000 Program. Starpower receives significant
support services from RCN, which completed development of its
formal Year 2000 Plan in November 1998. PCI is working with
Starpower and RCN toward readiness of RCN-supplied support
systems, and other Starpower systems and operations with Year
2000 requirements. A contingency plan is being developed in the
event that remediation efforts are not successfully completed in
a timely fashion. The cost or consequences of a material
incomplete or untimely resolution of the Year 2000 problem could
adversely affect PCI's future operations, financial results or
financial condition.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
PCI has the capital resources necessary to carry out its business
plans. PCI will supply or arrange for the capital resources
needed to support the business activities of its growing
operating business units. PCI issues short-term and medium-term
notes under its own, separately rated commercial paper and
Medium-Term Note programs. PCI's $231.1 million securities
portfolio, consisting primarily of fixed-rate electric utility
preferred stocks provides additional liquidity and investment
flexibility. During 1998, PCI reduced the cost basis of its
marketable securities portfolio by $73.4 million, primarily as
the result of calls and acceptance of tender offers of
36
approximately $74.4 million, offset by purchases of $1 million.
The reduced size of the preferred stock portfolio lessens the
impact of future fluctuations in interest rates. Proceeds from
securities activity and sales of assets during 1998 were used to
pay down debt.
PCI had no short-term debt outstanding at December 31, 1998,
compared to $7.7 million at December 31, 1997. During 1998, PCI
issued $220.2 million in long-term debt, including non-recourse
debt, and debt payments totaled $333.7 million. PCI had cash and
cash equivalents of $79.6 million available at December 31, 1998,
in order to satisfy debt service requirements in early 1999. At
December 31, 1998, PCI had $503 million available under its
Medium-Term Note Program and $400 million of unused bank credit
lines.
37
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 comprehensive
income, and of cash flows present fairly, in all material
respects, the financial position of Potomac Electric Power
Company and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, 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.
/s/ PricewaterhouseCoopers LLP
Washington, D.C.
January 25, 1999
38
<TABLE>
Consolidated Balance Sheets
Potomac Electric Power Company and Subsidiaries
<CAPTION>
- ----------------------------------------------------------------------------------------
December 31,
Assets 1998 1997
- ----------------------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C>
Property and Plant - at original cost (Notes 6 and 10)
Electric plant in service $ 6,539.9 $ 6,392.8
Construction work in progress 73.2 94.3
Electric plant held for future use 4.3 4.2
Nonoperating property 40.4 22.8
--------- ---------
6,657.8 6,514.1
Accumulated depreciation (2,136.6) (2,027.8)
--------- ---------
Net Property and Plant 4,521.2 4,486.3
--------- ---------
Current Assets
Cash and cash equivalents 6.4 5.6
Customer accounts receivable, less allowance for uncollectible
accounts of $2.4 and $2.1 114.9 116.6
Other accounts receivable, less allowance for uncollectible
accounts of $.3 44.8 32.3
Accrued unbilled revenue (Note 1) 65.6 69.3
Prepaid taxes 34.7 33.7
Other prepaid expenses 3.3 7.6
Material and supplies - at average cost
Fuel 53.3 59.4
Construction and maintenance 68.7 68.1
--------- ---------
Total Current Assets 391.7 392.6
--------- ---------
Deferred Charges
Income taxes recoverable through future rates, net (Note 4) 232.5 238.1
Conservation costs, net 197.5 221.5
Unamortized debt reacquisition costs 49.9 52.7
Other 175.6 149.0
--------- ---------
Total Deferred Charges 655.5 661.3
--------- ---------
Nonutility Subsidiary Assets (Note 14)
Cash and cash equivalents 79.6 0.4
Marketable securities (Note 11) 231.1 302.5
Investment in finance leases 399.2 463.6
Operating lease equipment, net of accumulated depreciation
of $120.1 and $153.5 122.6 163.3
Receivables, less allowance for uncollectible
accounts of $5.0 and $6.0 48.4 64.2
Other investments 120.6 162.9
Other assets 23.1 10.5
Deferred income taxes (Note 4) 61.8 -
--------- ---------
Total Nonutility Subsidiary Assets 1,086.4 1,167.4
--------- ---------
Total Assets $ 6,654.8 $ 6,707.6
========= =========
39
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
December 31,
Capitalization and Liabilities 1998 1997
- ----------------------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C>
Capitalization
Common equity (Note 7)
Common stock, $1 par value - authorized 200,000,000 shares,
issued 118,527,287 and 118,500,891 shares $ 118.5 $ 118.5
Premium on stock and other capital contributions 1,025.3 1,025.2
Capital stock expense (13.7) (15.0)
Accumulated other comprehensive income 7.8 6.5
Retained income 739.5 727.8
--------- ---------
Total Common Equity 1,877.4 1,863.0
Preference stock, cumulative, $25 par value -
authorized 8,800,000 shares, no shares issued or outstanding - -
Serial preferred stock (Notes 8 and 11) 100.0 125.3
Redeemable serial preferred stock (Notes 9 and 11) 50.0 141.0
Company obligated mandatorily redeemable preferred securities
of subsidiary trust which holds solely parent junior
subordinated debentures (Notes 9 and 11) 125.0 -
Long-term debt (Notes 10 and 11) 1,859.0 1,901.5
--------- ---------
Total Capitalization 4,011.4 4,030.8
--------- ---------
Other Non-Current Liabilities
Capital lease obligations (Note 13) 157.6 160.4
--------- ---------
Current Liabilities
Long-term debt and preferred stock redemption 45.2 52.1
Short-term debt (Note 12) 191.7 131.4
Accounts payable and accrued payroll 104.5 118.4
Capital lease obligations due within one year 20.8 20.8
Taxes accrued 50.7 29.2
Interest accrued 38.0 38.3
Customer deposits 26.9 24.8
Other 68.9 67.4
--------- ---------
Total Current Liabilities 546.7 482.4
--------- ---------
Deferred Credits
Income taxes (Note 4) 1,049.2 1,029.3
Investment tax credits (Note 4) 53.7 57.3
Other 24.6 19.1
--------- ---------
Total Deferred Credits 1,127.5 1,105.7
--------- ---------
Nonutility Subsidiary Liabilities
Long-term debt (Notes 10 and 11) 716.9 830.5
Short-term notes payable (Note 12) - 7.7
Deferred taxes and other (Note 4) 94.7 90.1
--------- ---------
Total Nonutility Subsidiary Liabilities 811.6 928.3
--------- ---------
Commitments and Contingencies (Note 13)
Total Capitalization and Liabilities $ 6,654.8 $ 6,707.6
========= =========
40
</TABLE>
<TABLE>
Consolidated Statements of Earnings
Potomac Electric Power Company and Subsidiaries
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the year ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------------------------
(Millions of Dollars,
<S> <C> <C> <C>
except Per Share Data)
Revenue (Note 2)
Operating revenue $ 1,886.1 $ 1,810.8 $ 1,834.8
Interchange deliveries 177.8 52.7 175.5
--------- --------- ---------
Total Revenue 2,063.9 1,863.5 2,010.3
--------- --------- ---------
Operating Expenses
Fuel 380.2 319.6 327.8
Purchased energy 269.8 200.6 336.0
Capacity purchase payments (Note 13) 155.7 150.9 125.8
Other operation 237.7 220.3 223.3
Maintenance 91.5 95.3 91.5
--------- --------- ---------
Total Operation and Maintenance 1,134.9 986.7 1,104.4
Depreciation and amortization 239.8 232.0 223.0
Income taxes (Note 4) 130.5 117.7 134.1
Other taxes (Note 5) 204.4 201.7 200.4
--------- --------- ---------
Total Operating Expenses 1,709.6 1,538.1 1,661.9
--------- --------- ---------
Operating Income 354.3 325.4 348.4
--------- --------- ---------
Other Income (Loss)
Nonutility subsidiary (Note 14)
Income 143.5 125.1 121.6
Expenses, including interest and income taxes (128.4) (108.0) (104.7)
--------- --------- ---------
Net earnings from nonutility subsidiary 15.1 17.1 16.9
Allowance for other funds used during construction
and capital cost recovery factor 1.3 6.7 6.6
Write-off of merger costs (Note 13) - (52.5) -
Other, net 3.2 24.0 4.5
--------- --------- ---------
Total Other Income (Loss) 19.6 (4.7) 28.0
--------- --------- ---------
Income Before Utility Interest Charges 373.9 320.7 376.4
--------- --------- ---------
Utility Interest Charges
Interest on debt 146.1 146.7 146.9
Distributions on preferred securities of
subsidiary company (Note 9) 5.7 - -
Allowance for borrowed funds used during construction
and capital cost recovery factor (4.2) (7.8) (7.5)
--------- --------- ---------
Net Utility Interest Charges 147.6 138.9 139.4
--------- --------- ---------
Net Income 226.3 181.8 237.0
Dividends on Preferred Stock (Notes 8 and 9) 11.4 16.5 16.6
Redemption Premium on Preferred Stock 6.6 - -
--------- --------- ---------
Earnings for Common Stock $ 208.3 $ 165.3 $ 220.4
========= ========= =========
Basic Earnings Per Common Share (Note 7) $1.76 $1.39 $1.86
Diluted Earnings Per Common Share (Note 7) $1.73 $1.38 $1.82
Cash Dividends Per Common Share $1.66 $1.66 $1.66
41
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
Potomac Electric Power Company and Subsidiaries
<CAPTION>
- ----------------------------------------------------------------------------------------------------
For the year ended December 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C> <C>
Operating Activities
Income from utility operations $ 211.2 $ 164.7 $ 220.1
Adjustments to reconcile income to net cash
from operating activities:
Depreciation and amortization 239.8 232.0 223.0
Deferred income taxes and investment tax credits 23.1 60.5 81.5
Deferred conservation costs (24.3) (34.5) (49.4)
Allowance for funds used during construction
and capital cost recovery factor (5.5) (14.5) (14.1)
Changes in materials and supplies 5.6 10.2 (4.1)
Changes in accounts receivable and accrued unbilled revenue (7.3) 19.2 10.5
Changes in accounts payable (12.6) 6.4 13.6
Changes in other current assets and liabilities 25.8 (2.5) 5.9
Changes in deferred merger costs - 29.0 (24.2)
Net other operating activities (28.9) (54.7) (24.4)
Nonutility subsidiary:
Net earnings 15.1 17.1 16.9
Deferred income taxes (62.7) (63.8) (36.4)
Changes in other assets and net other operating activities 37.9 65.7 49.0
--------- --------- ---------
Net Cash From Operating Activities 417.2 434.8 467.9
--------- --------- ---------
Investing Activities
Total investment in property and plant (211.7) (231.7) (194.0)
Allowance for funds used during construction
and capital cost recovery factor 5.5 14.5 14.1
--------- --------- ---------
Net investment in property and plant (206.2) (217.2) (179.9)
Nonutility subsidiary:
Purchase of marketable securities (1.0) (35.1) (19.7)
Proceeds from sale or redemption of marketable securities 76.6 125.0 167.5
Investment in leased equipment - (7.5) (3.1)
Proceeds from sale or disposition of leased equipment 105.9 28.5 3.7
Proceeds from sale of assets - 7.3 34.2
Purchase of other investments (25.0) (20.6) (23.0)
Proceeds from sale or distribution of other investments 34.3 18.7 33.9
Proceeds from promissory notes, net - 64.1 12.4
--------- --------- ---------
Net Cash (Used by) From Investing Activities (15.4) (36.8) 26.0
--------- --------- ---------
Financing Activities
Dividends on common stock (196.6) (196.7) (196.6)
Dividends on preferred stock (11.4) (16.5) (16.6)
Redemption of preferred stock (123.7) (1.5) -
Issuance of manditorily redeemable preferred securities 125.0 - -
Issuance of long-term debt - 182.3 99.5
Reacquisition and retirement of long-term debt (51.1) (151.5) (26.3)
Short-term debt, net 60.3 - (127.1)
Other financing activities (3.1) (1.3) (5.4)
Nonutility subsidiary:
Issuance of long-term debt 220.2 40.0 183.0
Repayment of long-term debt (333.7) (205.8) (237.1)
Short-term debt, net (7.7) (44.0) (171.7)
--------- --------- ---------
Net Cash Used by Financing Activities (321.8) (395.0) (498.3)
--------- --------- ---------
Net Increase (Decrease) In Cash and Cash Equivalents 80.0 3.0 (4.4)
Cash and Cash Equivalents at Beginning of Year 6.0 3.0 7.4
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 86.0 $ 6.0 $ 3.0
========= ========= =========
Cash paid for interest (net of capitalized interest of
$.7, $.5 and $.6) and income taxes:
Interest (including nonutility subsidiary interest
of $58.4, $71.5 and $83.4) $ 198.6 $ 202.8 $ 217.0
Income taxes (including nonutility subsidiary) $ 68.9 $ 53.1 $ 28.6
42
</TABLE>
<TABLE>
Consolidated Statements of Comprehensive Income
Potomac Electric Power Company and Subsidiaries
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the year ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C> <C>
Net Income $ 226.3 $ 181.8 $ 237.0
--------- --------- ---------
Other Comprehensive Income (Loss):
Unrealized gain (loss) on marketable securities 5.4 18.9 (3.3)
Less: Reclassification adjustment for gain included in
net income 3.4 10.6 5.6
--------- --------- ---------
Other Comprehensive Income (Loss), Before Tax 2.0 8.3 (8.9)
Income Tax Expense (Benefit) 0.7 2.9 (3.1)
--------- --------- ---------
Total Other Comprehensive Income (Loss), Net of Tax 1.3 5.4 (5.8)
--------- --------- ---------
Total Comprehensive Income $ 227.6 $ 187.2 $ 231.2
========= ========= =========
43
</TABLE>
Notes to Consolidated Financial Statements
- ------------------------------------------
(1) Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
Potomac Electric Power Company (the Company) 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 all of the District of Columbia
and major portions of Montgomery and Prince George's counties in
suburban Maryland. In addition, the Company supplies
electricity, at wholesale, under a full-requirements agreement
with Southern Maryland Electric Cooperative, Inc. (SMECO). See
Note (13) Commitments and Contingencies for a further discussion.
The Company also delivers economy energy to the Pennsylvania-New
Jersey-Maryland Interconnection LLC (PJM) of which the Company is
a member. PJM is composed of more than 100 electric utilities,
independent power producers, power marketers, cooperatives and
municipals that operate on a fully integrated basis.
Potomac Capital Investment Corporation (PCI), a wholly owned
subsidiary of the Company, was formed in 1983 to provide a
vehicle to conduct the Company's ongoing nonutility investment
programs and operating businesses. During 1998, PCI's principal
new business activity has been the development and expansion of
operating businesses in the competitive markets for energy and
telecommunications products and services. PCI's principal
financial investments are in aircraft and power generation
equipment, equipment leasing and marketable securities, primarily
preferred stock with mandatory redemption features. In addition,
PCI has investments in real estate properties in the Washington,
D.C. metropolitan area.
Potomac Electric Power Company Trust I (Trust), a Delaware
statutory business trust and a wholly owned subsidiary of the
Company, was established in April 1998. The Trust exists for the
exclusive purposes of (i) issuing Trust securities representing
undivided beneficial interests in the assets of the Trust, (ii)
investing the gross proceeds from the sale of the Trust
Securities in Junior Subordinated Deferrable Interest Debentures
issued by the Company, and (iii) engaging only in other
activities as necessary or incidental to the foregoing. See Note
(9) Redeemable Serial Preferred Stock and Company Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trust
for a further discussion.
The Company's utility operations are regulated by the
Maryland and District of Columbia public service commissions and
its wholesale business by 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.
44
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates and
assumptions.
Certain prior year amounts have been reclassified to conform
to the current year presentation.
A summary of the Company's significant accounting policies
is as follows.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the financial
results of the Company and its wholly owned subsidiaries. All
material intercompany balances and transactions have been
eliminated.
Total Revenue
- -------------
Revenue is accrued for service rendered but unbilled as of the
end of each month. The Company includes in revenue the amounts
received for sales of energy, and resales of purchased energy, to
other utilities and to power marketers. 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, purchased capacity in the District of
Columbia, and emission allowance costs in the Company's retail
jurisdictions, or changes in the applicable costs from levels
incorporated in base rates. Differences between applicable net
costs incurred and fuel rate revenue 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.
45
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.
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 1998, 1997 and 1996.
Conservation
- ------------
In general, the Company accounts for conservation expenditures in
connection with its DSM program as a deferred charge. These
program costs are amortized as they are included in rates charged
to customers.
In the District of Columbia, these costs are amortized over
10 years with an accrued return on unamortized costs. In
Maryland, program costs have been amortized over a five-year
period. Future DSM expenditures in Maryland will be recovered
over progressively shorter periods so that all expenditures will
be fully recovered by December 31, 2002. Unamortized
46
conservation costs totaled $59.8 million in Maryland and $137.7
million in the District of Columbia at December 31, 1998, and
$81.9 million in Maryland and $139.6 million in the District of
Columbia at December 31, 1997.
Allowance for Funds Used During Construction and Capital
Cost Recovery Factor
- --------------------------------------------------------
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. The
jurisdictional AFUDC capitalization rates are determined as
prescribed by the FERC. The effective capitalization rates were
approximately 7.5% in 1998, 7.6% in 1997 and 7.4% in 1996,
compounded semiannually.
In Maryland, the Company accrues a CCRF on the retail
jurisdictional portion of certain pollution control expenditures
related to compliance with the CAA. The base for calculating
this return is the amount by which the Maryland jurisdictional
CAA expenditure balance exceeds the CAA balance being recovered
in base rates. The CCRF rate for Maryland is 8.8%. In the
District of Columbia, the carrying costs of CAA expenditures not
in rate base are recovered through a base rate surcharge.
Amortization of Debt Issuance and Reacquisition Costs
- -----------------------------------------------------
The Company defers and amortizes expenses incurred in connection
with the issuance of long-term debt, including premiums and
discounts associated with such debt, over the lives of the
respective issues. Costs associated with the reacquisition of
debt are also deferred and amortized over the lives of the new
issues.
Nonutility Subsidiary Receivables
- ---------------------------------
PCI continuously monitors its receivables and establishes an
allowance for doubtful accounts against its notes receivable,
when deemed appropriate, on a specific identification basis. The
direct write-off method is used when trade receivables are deemed
uncollectible.
47
Cash and Cash Equivalents
- -------------------------
For purposes of the consolidated financial statements, cash and
cash equivalents include cash on hand, money market funds and
commercial paper with original maturities of three months or
less.
New Accounting Standards
- ------------------------
In 1998, the Company implemented Statement of Financial
Accounting Standards (SFAS) No. 130 entitled "Reporting
Comprehensive Income," SFAS No. 131 entitled "Disclosures about
Segments of an Enterprise and Related Information," and SFAS No.
132 entitled "Employers Disclosures about Pensions and Other
Postretirement Benefits."
In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133 entitled, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
The statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. Additionally,
the Emerging Issues Task Force has issued Issue 98-10 "Accounting
for Energy Trading and Risk Management Activities." Presently,
the Company's use of derivatives and hedging activities is not
significant. The Company believes that the adoption of SFAS No.
133 will not have a material impact on the Company's financial
position or results of operations.
In March 1998, the Accounting Standards Executive Committee
of the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1 entitled "Accounting for the
Costs of Computer Software Developed or Obtained for Internal
Use." This pronouncement will become effective January 1, 1999.
The Company does not believe that the SOP will have a material
impact on the Company's financial position or results of
operations.
48
(2) Total Revenue
-------------
Total revenue for each year ended December 31, was comprised as
shown below.
- -----------------------------------------------------------------
1998 1997 1996
--------------------------------------------------
Amount % Amount % Amount %
- -----------------------------------------------------------------
(Millions of Dollars)
Sales of
Electricity
Residential $ 566.8 30.3 $ 524.7 29.2 $ 548.1 30.1
Commercial 876.7 46.8 851.4 47.3 852.5 46.7
U.S.
Government 253.5 13.5 249.3 13.9 250.4 13.7
D.C.
Government 51.5 2.8 51.1 2.8 51.6 2.8
Wholesale
(primarily
SMECO) 124.2 6.6 123.3 6.8 122.2 6.7
-------- ----- -------- ----- -------- -----
Total 1,872.7 100.0 1,799.8 100.0 1,824.8 100.0
===== ===== =====
Other electric
revenue 13.4 11.0 10.0
--------- -------- --------
Operating
revenue 1,886.1 1,810.8 1,834.8
Interchange
deliveries 177.8 52.7 175.5
--------- -------- --------
Total Revenue $2,063.9 $1,863.5 $2,010.3
========= ======== ========
- -----------------------------------------------------------------
Sales of electricity include base rate revenue and fuel rate
revenue. Fuel rate revenue was $518.1 million in 1998, $509.1
million in 1997 and $521.9 million in 1996.
The Company's Maryland fuel rate is based on historical net
fuel, interchange and emission allowance costs and does not
include capacity costs associated with power purchases. 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
49
net fuel, interchange and emission allowance costs, 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, net interchange, emission
allowance costs and purchased capacity net of capacity sales, and
is adjusted monthly to reflect changes in such costs.
Interchange deliveries include transactions in the bilateral
energy sales marketplace, where the Company's wholesale power
sales tariff allows both sales from Company-owned generation and
sales of energy purchased by the Company from other market
participants. The benefits derived from interchange deliveries
are passed back to customers as a component of the Company's fuel
rates.
(3) Pensions and Other Postretirement and Postemployment
Benefits
----------------------------------------------------
The Company's General Retirement Program (Program), a
noncontributory defined benefit program, covers substantially all
full-time employees of the Company and PCI. 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.
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. Health maintenance organization arrangements are
available, or a 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 Program with 10 years of service or become inactive
employees under the Company's disability plans. The Company is
amortizing the unrecognized transition obligation measured at
January 1, 1993, over a 20-year period.
50
Pension expense included in net income was $9.3 million in
1998, $11.6 million in 1997 and $14.2 million in 1996.
Postretirement benefit expense included in net income was $12.6
million, $11.1 million and $10.9 million in 1998, 1997 and 1996,
respectively. The components of net periodic benefit cost were
computed as follows.
- -----------------------------------------------------------------
Pension Benefits
1998 1997 1996
- -----------------------------------------------------------------
(Millions of Dollars)
Components of net periodic
benefit cost
Service cost $13.0 $ 11.4 $ 11.4
Interest cost 33.9 32.4 30.6
Expected return on plan assets (41.2) (35.8) (31.7)
Amortization of prior service
cost 1.4 1.4 1.4
Recognized actuarial loss 2.2 2.2 2.5
------ ------ ------
Net period benefit cost $ 9.3 $ 11.6 $ 14.2
====== ====== ======
- -----------------------------------------------------------------
Other Benefits
1998 1997 1996
- -----------------------------------------------------------------
(Millions of Dollars)
Components of net periodic
benefit cost
Service cost $ 4.0 $ 3.6 $ 2.8
Interest cost 5.8 5.3 5.3
Expected return on plan assets (1.5) (1.4) (1.0)
Recognized actuarial loss 4.3 3.6 3.8
------ ------ ------
Net period benefit cost $ 12.6 $ 11.1 $ 10.9
====== ====== ======
51
Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plans. The
assumed health care cost trend rate used to measure the expected
cost benefits covered by the plan is 6.5%. This rate is expected
to decline to 5.5% over the next two-year period. A one
percentage point change in the assumed health care cost trend
rates would have the following effects for fiscal year 1998.
- -----------------------------------------------------------------
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
(Millions of Dollars)
Effect on total of service
and interest cost components $ .8 $ (.7)
Effect on postretirement
benefit obligation $5.0 $(4.4)
- -----------------------------------------------------------------
52
Pension program assets are stated at fair value and were
composed of approximately 43% and 47% of cash equivalents and
fixed income investments and the balance in equity investments at
December 31, 1998 and 1997, respectively.
The following table sets forth the Program's funded status
and amounts included in Deferred Charges - Other on the
Consolidated Balance Sheets.
- -----------------------------------------------------------------
Pension Benefits
1998 1997
- -----------------------------------------------------------------
(Millions of Dollars)
Funded status $(31.4) $(26.8)
Unrecognized actuarial loss 95.1 77.7
Unrecognized prior service cost 12.1 13.5
------ ------
Prepaid benefit cost $ 75.8 $ 64.4
====== ======
Weighted average assumptions as
of December 31
Discount rate 6.5% 7.0%
Expected return on plan assets 9.0% 9.0%
Rate of compensation increase 3.75% 4.0%
- -----------------------------------------------------------------
Other Benefits
1998 1997
- -----------------------------------------------------------------
(Millions of Dollars)
Funded status $(77.8) $(68.4)
Unrecognized actuarial loss 44.2 36.7
Unrecognized prior service cost 29.5 31.6
------ ------
Accrued benefit cost $ (4.1) $ (.1)
====== ======
Weighted average assumptions as
of December 31
Discount rate 6.5% 7.0%
Expected return on plan assets 9.0% 9.0%
Rate of compensation increase 3.75% 4.0%
- -----------------------------------------------------------------
53
The changes in benefit obligation and fair value of plan
assets are presented in the following table.
- -----------------------------------------------------------------
Pension Benefits
1998 1997
- -----------------------------------------------------------------
(Millions of Dollars)
Change in benefit obligation
Benefit obligation at beginning
of year $ 495.6 $ 438.1
Service cost 13.0 11.4
Interest cost 33.9 32.4
Actuarial loss 25.1 39.1
Benefits paid (26.0) (25.4)
------- -------
Benefit obligation at end of year $ 541.6 $ 495.6
======= =======
Accumulated benefit obligation
at December 31 $ 467.4 $ 413.5
======= =======
Change in fair value of plan assets
Fair value of plan assets at
beginning of year $ 468.8 $ 402.5
Actual return on plan assets 49.1 64.2
Company contributions 20.0 27.5
Benefits paid (27.7) (25.4)
------- -------
Fair value of plan assets at end
of year $ 510.2 $ 468.8
======= =======
- -----------------------------------------------------------------
54
- -----------------------------------------------------------------
Other Benefits
1998 1997
- -----------------------------------------------------------------
(Millions of Dollars)
Change in benefit obligation
Benefit obligation at beginning
of year $ 82.0 $ 73.1
Service cost 4.0 3.6
Interest cost 5.8 5.3
Actuarial loss 7.9 5.4
Benefits paid (6.3) (5.4)
------ ------
Benefit obligation at end of year $ 93.4 $ 82.0
====== ======
Change in fair value of plan assets
Fair value of plan assets at
beginning of year $ 13.6 $ 9.8
Actual return on plan assets 1.7 2.7
Company contributions 4.7 3.6
Benefits paid (4.4) (2.5)
------ ------
Fair value of plan assets at end
of year $ 15.6 $ 13.6
====== ======
- -----------------------------------------------------------------
The Company also sponsors defined contribution savings plans
covering all eligible employees. Under these plans, the Company
makes contributions on behalf of participants. Company
contributions to the plans totaled $5.8 million in 1998 and $6
million in 1997 and 1996.
In January 1998 and 1997, the Company funded the 1998 and
1997 portions of its estimated liability for postretirement
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. In January 1999, the 1999 portion of the
Company's estimated liability will be funded. Assets were
composed of cash equivalents, fixed income investments and equity
investments.
55
<TABLE>
(4) Income Taxes
------------
The provisions for income taxes, reconciliation of consolidated income tax expense
and components of consolidated deferred tax liabilities (assets) are set forth below.
<CAPTION>
Provisions for Income Taxes
- ---------------------------
- -----------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C> <C>
Utility current tax expense
Federal $ 95.8 $ 32.2 $ 47.2
State and local 12.1 4.7 6.3
-------- -------- -------
Total utility current tax expense 107.9 36.9 53.5
-------- -------- -------
Utility deferred tax expense
Federal 22.4 56.3 74.7
State and local 4.3 7.9 10.4
Investment tax credits (3.6) (3.6) (3.6)
-------- -------- -------
Total utility deferred tax expense 23.1 60.6 81.5
-------- -------- -------
Total utility income tax expense 131.0 97.5 135.0
-------- -------- -------
Nonutility subsidiary current tax expense
Federal 15.4 30.4 (18.2)
Nonutility subsidiary deferred tax expense
Federal (24.1) (62.3) (36.4)
-------- -------- -------
Total nonutility subsidiary income tax expense (8.7) (31.9) (54.6)
-------- -------- -------
Total consolidated income tax expense 122.3 65.6 80.4
Income taxes included in other income (8.2) (52.1) (53.7)
-------- -------- --------
Income taxes included in utility operating expenses $ 130.5 $ 117.7 $ 134.1
======== ======== ========
56
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Consolidated Income Tax Expense
- -------------------------------------------------
- -----------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C> <C>
Income before income taxes $ 348.6 $ 247.4 $ 317.4
======== ======== =======
Utility income tax at federal statutory rate $ 119.8 $ 91.8 $ 124.3
Increases (decreases) resulting from
Depreciation 10.9 10.9 9.9
Removal costs (6.0) (5.9) (3.6)
Allowance for funds used during construction 0.5 0.9 0.7
Other (0.9) (4.5) (3.1)
State income taxes, net of federal effect 10.7 8.2 10.7
Tax credits (4.0) (3.9) (3.9)
-------- -------- -------
Total utility income tax expense 131.0 97.5 135.0
-------- -------- -------
Nonutility subsidiary income tax at federal statutory rate 2.2 (5.2) (13.2)
Increases (decreases) resulting from
Dividends received deduction (4.4) (5.4) (7.1)
Reversal of previously accrued deferred taxes (1.0) (10.1) (30.8)
Other (5.5) (11.2) (3.5)
-------- -------- -------
Total nonutility subsidiary income tax expense (8.7) (31.9) (54.6)
-------- -------- -------
Total consolidated income tax expense 122.3 65.6 80.4
Income taxes included in other income (8.2) (52.1) (53.7)
-------- -------- -------
Income taxes included in utility operating expenses $ 130.5 $ 117.7 $ 134.1
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Components of Consolidated Deferred Tax Liabilities (Assets)
- ------------------------------------------------------------
At December 31,
--------------------
1998 1997
--------------------
(Millions of Dollars)
<S> <C> <C>
Utility deferred tax liabilities (assets)
Depreciation and other book to tax basis differences $ 891.6 $ 869.3
Rapid amortization of certified pollution control
facilities 27.2 25.4
Deferred taxes on amounts to be collected through
future rates 88.0 90.2
Property taxes 12.9 13.5
Deferred fuel (9.7) (7.4)
Prepayment premium on debt retirement 18.9 20.0
Deferred investment tax credit (20.3) (21.7)
Contributions in aid of construction (32.0) (30.1)
Contributions to pension plan 22.1 18.2
Conservation costs (demand side management) 49.4 48.0
Other 19.7 21.8
-------- --------
Total utility deferred tax liabilities, net 1,067.8 1,047.2
Current portion of utility deferred tax liabilities
(included in Other Current Liabilities) 18.6 17.9
-------- --------
Total utility deferred tax liabilities, net - non-current $1,049.2 $1,029.3
======== ========
Nonutility subsidiary deferred tax (assets) liabilities
Finance leases $ 134.3 $ 119.4
Operating leases 5.0 28.8
Alternative minimum tax (79.9) (97.1)
Assets with a tax basis greater than book basis (46.0) -
Other (75.2) (50.9)
-------- --------
Total nonutility subsidiary deferred tax (assets)
liabilities, net $ (61.8) $ 0.2
======== ========
57
</TABLE>
The utility net deferred tax liability represents the tax
effect, at presently enacted tax rates, of temporary differences
between the financial statement and tax bases of assets and
liabilities. The portion of the utility net deferred tax
liability applicable to utility operations, which has not been
reflected in current service rates, represents income taxes
recoverable through future rates, net and is recorded as a
Deferred Charge on the balance sheet. No valuation allowance for
deferred tax assets was required or recorded at December 31, 1998
and 1997.
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 PCI file a consolidated federal income tax
return. The Company's federal income tax liabilities for all
years through 1995 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 or results of operation.
(5) Other Taxes
-----------
Taxes, other than income taxes, charged to utility operating
expenses for each period are shown below.
- -----------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------
(Millions of Dollars)
Gross receipts $ 98.4 $ 95.8 $ 96.1
Property 71.0 71.4 69.2
Payroll 10.9 10.5 10.7
County fuel-energy 15.8 15.4 15.4
Environmental, use and
other 8.3 8.6 9.0
------ ------ ------
$204.4 $201.7 $200.4
====== ====== ======
- -----------------------------------------------------------------
58
(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. In 1997, the owners collectively
arranged for long-term tax-exempt financing, pursuant to an
agreement with the Indiana County Industrial Development
Authority relating to certain pollution control facilities
constructed at the Conemaugh Station. The Company's share of
this financing totaled $8.1 million. 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 $90.6 million at December 31, 1998, and
$89.9 million at December 31, 1997, includes $.3 million of
Construction Work in Progress.
59
<TABLE>
(7) Common Equity
Changes in common stock, premium on stock, accumulated other comprehensive income and
retained income are summarized below.
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Accumulated
Other
Common Stock Premium Comprehensive Retained
Shares Par Value on Stock Income <F1> Income
- -----------------------------------------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 118,494,577 $ 118.5 $ 1,025.1 $ 6.9 $ 735.4
Net income before net earnings
from nonutility subsidiary - - - - 220.1
Nonutility subsidiary:
Net earnings - - - - 16.9
Other comprehensive loss - - - (5.8) -
Dividends:
Preferred stock - - - - (16.6)
Common stock - - - - (196.6)
Conversion of preferred stock 3,239 - - - -
Conversion of debentures 2,221 - 0.1 - -
----------- ---------- ---------- -------------- -----------
Balance, December 31, 1996 118,500,037 118.5 1,025.2 1.1 759.2
Net income before net earnings
from nonutility subsidiary - - - - 164.7
Nonutility subsidiary:
Net earnings - - - - 17.1
Other comprehensive income - - - 5.4 -
Dividends:
Preferred stock - - - - (16.5)
Common stock - - - - (196.7)
Conversion of preferred stock 854 - - - -
----------- ---------- ---------- -------------- -----------
Balance, December 31, 1997 118,500,891 118.5 1,025.2 6.5 727.8
Net income before net earnings
from nonutility subsidiary - - - - 211.2
Nonutility subsidiary:
Net earnings - - - - 15.1
Other comprehensive income - - - 1.3 -
Dividends:
Preferred stock - - - - (11.4)
Common stock - - - - (196.6)
Conversion of preferred stock 26,396 - 0.1 - -
Redemption premium on preferred stock - - - - (6.6)
----------- ---------- ---------- -------------- -----------
Balance, December 31, 1998 118,527,287 $ 118.5 $ 1,025.3 $ 7.8 $ 739.5
=========== ========== ========== ============== ===========
<FN>
<F1>Represents unrealized gains (losses) on marketable securities of nonutility subsidiary.
</FN>
60
</TABLE>
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, 1998, 2,769,412 and 3,392,500 shares of
common stock were reserved for issuance upon the conversion of
the 7% and 5% convertible debentures, respectively, 2,324,721
shares were reserved for issuance under the DRP and 1,221,624
shares were reserved 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, 1998.
61
<TABLE>
Calculations of Earnings Per Common Share
- -----------------------------------------
Reconciliations of the numerator and denominator for basic and diluted earnings
per common share are shown below.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
For the year ended December 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Millions, except Per Share Data)
Income (Numerator):
Earnings applicable to common stock $ 208.3 $ 165.3 $ 220.4
Interest paid or accrued on Convertible Debentures, net of
related taxes 6.3 6.3 6.4
---------- ---------- ----------
Earnings applicable to common stock, assuming conversion of
convertible securities $ 214.6 $ 171.6 $ 226.8
========== ========== ==========
Shares (Denominator):
Average shares outstanding for computation of basic earnings
per common share 118.5 118.5 118.5
========== ========== ==========
Average shares outstanding for diluted computation:
Average shares outstanding 118.5 118.5 118.5
Additional shares resulting from:
Conversion of Convertible Debentures 5.7 5.8 5.8
---------- ---------- ----------
Average shares outstanding for computation of diluted earnings
per common share 124.2 124.3 124.3
========== ========== ==========
Basic earnings per common share $1.76 $1.39 $1.86
Diluted earnings per common share $1.73 $1.38 $1.82
62
</TABLE>
(8) Serial Preferred Stock
----------------------
The Company has authorized 8,750,000 shares of cumulative $50 par
value Serial Preferred Stock. At December 31, 1998 and 1997,
there were outstanding 3,000,000 shares and 5,345,499 shares,
respectively. The various series of Serial Preferred Stock
outstanding [excluding 1,000,000 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 1998 1997
- -----------------------------------------------------------------
(Millions of
Dollars)
$2.44 Series of 1957, 300,000 shares $51.00 $ 15.0 $ 15.0
$2.46 Series of 1958, 300,000 shares $51.00 15.0 15.0
$2.28 Series of 1965, 400,000 shares $51.00 20.0 20.0
$3.82 Series of 1969, none and
500,000 shares, respectively $51.00 - 25.0
$2.44 Convertible Series of 1966,
none and 5,803 shares, respectively $50.00 - .3
Auction Series A, 1,000,000 shares $50.00 50.0 50.0
------ ------
$100.0 $125.3
====== ======
- -----------------------------------------------------------------
The Company on March 1, 1998, redeemed all remaining shares
of Serial Preferred Stock, $2.44 Convertible Series of 1966.
Prior to the redemption, the $2.44 Convertible Series was
convertible into common stock of the Company. The number of
shares of this series converted into common stock was 4,525
shares in 1998, 147 shares in 1997 and 556 shares in 1996. In
addition, on June 1, 1998, the Company redeemed all of the
500,000 shares of Serial Preferred Stock, $3.82 Series of 1969.
Dividends on the Serial Preferred Stock, Auction Series A,
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 4.2% ($2.10) for the period December 1,
1998 through February 28, 1999. The average annual dividend
rates were 4.136% ($2.068) in 1998 and 4.221% ($2.1105) in 1997.
63
(9) Redeemable Serial Preferred Stock and Company Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary
Trust
---------------------------------------------------------
The outstanding series of $50 par value Redeemable Serial
Preferred Stock are shown below.
- -----------------------------------------------------------------
December 31,
1998 1997
- -----------------------------------------------------------------
(Millions of Dollars)
$3.37 Series of 1987, none and
839,696 shares, respectively $ - $ 42.0
$3.89 Series of 1991, none and
1,000,000 shares, respectively - 50.0
$3.40 Series of 1992, 1,000,000 shares 50.0 50.0
------ ------
50.0 142.0
Redemption Requirement due within one
year - (1.0)
------ ------
$ 50.0 $141.0
====== ======
- ----------------------------------------------------------------
On May 19, 1998, Potomac Electric Power Company Trust I (see
Note (1) Organization and Summary of Significant Accounting
Policies) issued $125 million of 7-3/8% Trust Originated
Preferred Securities (TOPrS). The proceeds from the sale of the
TOPrS to the public and from the sale of the common securities of
the Trust to the Company were used by the Trust to purchase from
the Company $128.9 million of 7-3/8% Junior Subordinated
Deferrable Interest Debentures, due June 1, 2038 (Junior
Subordinated Debentures). The sole assets of the Trust are the
Junior Subordinated Debentures. The Trust will use interest
payments received on the Junior Subordinated Debentures to make
quarterly cash distributions on the TOPrS. Accrued and unpaid
distributions on the TOPrS, as well as payment of the redemption
price upon the redemption and of the liquidation amount upon the
voluntary or involuntary dissolution, winding up or termination
of the Trust, to the extent such funds are held by the Trust, are
guaranteed by the Company (Guarantee). The Guarantee, when taken
together with the Company's obligation under the Junior
Subordinated Debentures and the Indenture for the Junior
Subordinated Debentures, and the Company's obligations under the
declaration of Trust for the TOPrS, including its obligations to
pay costs, expenses, debts and liabilities of the Trust, provides
a full and unconditional guarantee by the Company on a
subordinated basis of the Trust obligations. Proceeds from the
64
sale of the Junior Subordinated Debentures to the Trust were used
by the Company to redeem the Serial Preferred Stock, $3.82 Series
of 1969, $3.37 Series of 1987 and $3.89 Series of 1991 on June 1,
1998.
The shares of the $3.40 (6.80%) Series are subject to
mandatory redemption, at par, through the operation of a sinking
fund that 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
that are redeemable, must be made concurrently.
The sinking fund requirements through 2003 with respect to
the Redeemable Serial Preferred Stock are $2.5 million in 2002
and 2003.
65
<TABLE>
(10) Long-Term Debt
<CAPTION>
Details of long-term debt are shown below.
- ----------------------------------------------------------------------------------------------------
Interest December 31,
Rate Maturity 1998 1997
- ----------------------------------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C> <C>
First Mortgage Bonds
Fixed Rate Series:
4-3/8% February 15, 1998 $ - $ 50.0
4-1/2% May 15, 1999 45.0 45.0
9% April 15, 2000 100.0 100.0
5-1/8% April 1, 2001 15.0 15.0
5-7/8% May 1, 2002 35.0 35.0
6-5/8% February 15, 2003 40.0 40.0
5-5/8% October 15, 2003 50.0 50.0
6-1/2% September 15, 2005 100.0 100.0
6-1/4% October 15, 2007;
PUT date
October 15, 2004 175.0 175.0
6-1/2% March 15, 2008 78.0 78.0
5-7/8% October 15, 2008 50.0 50.0
5-3/4% March 15, 2010 16.0 16.0
9% June 1, 2021 100.0 100.0
6% September 1, 2022 30.0 30.0
6-3/8% January 15, 2023 37.0 37.0
7-1/4% July 1, 2023 100.0 100.0
6-7/8% September 1, 2023 100.0 100.0
5-3/8% February 15, 2024 42.5 42.5
5-3/8% February 15, 2024 38.3 38.3
6-7/8% October 15, 2024 75.0 75.0
7-3/8% September 15, 2025 75.0 75.0
8-1/2% May 15, 2027 75.0 75.0
7-1/2% March 15, 2028 40.0 40.0
Variable Rate Series:
Adjustable rate December 1, 2001 50.0 50.0
--------- ---------
Total First Mortgage Bonds 1,466.8 1,516.8
Convertible Debentures
5% September 1, 2002 115.0 115.0
7% January 15, 2018 62.8 63.9
Medium-Term Notes
Fixed Rate Series:
6.53% December 17, 2001 100.0 100.0
7.46% to 7.60% January 2002 40.0 40.0
7.64% January 17, 2007 35.0 35.0
6.25% January 20, 2009 50.0 50.0
7% January 15, 2024 50.0 50.0
Variable Rate Series:
Adjustable rate June 1, 2027 8.1 8.1
--------- ---------
Total Utility Long-Term Debt 1,927.7 1,978.8
Net unamortized discount (23.5) (26.2)
Current portion (45.2) (51.1)
--------- ---------
Net Utility Long-Term Debt $ 1,859.0 $ 1,901.5
========= =========
Nonutility Subsidiary Long-Term Debt
Varying rates through 2018 $ 716.9 $ 830.5
========= =========
</TABLE>
66
Utility Long-Term Debt
- ----------------------
The outstanding First Mortgage 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 February 1998, the Company redeemed, at maturity, $50
million of 4-3/8% First Mortgage Bonds.
The interest rate on the $50 million Adjustable Rate series
First Mortgage Bonds is adjusted annually on December 1, based
upon the 10-year "constant maturity" United States Treasury bond
rate for the preceding three-month period ended October 31, plus
a market-based adjustment factor. Effective December 1, 1998,
the applicable interest rate is 6.093%. The applicable interest
rate was 7.38% at December 1, 1997, and 7.867% at December 1,
1996.
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 for the Company's long-
term debt outstanding at December 31, 1998, are $45.2 million in
1999, $100 million in 2000, $165 million in 2001, $190 million in
2002 and $90 million in 2003.
Nonutility Subsidiary Long-Term Debt
- ------------------------------------
Long-term debt at December 31, 1998, consisted primarily of
$697.6 million of recourse debt from institutional lenders
maturing at various dates between 1999 and 2018. The interest
rates of such borrowings ranged from 5% to 10.1%. The weighted
average interest rate was 7.35% at December 31, 1998, 7.48% at
December 31, 1997, and 7.44% at December 31, 1996. Annual
aggregate principal repayments are $170 million in 1999, $147.5
million in 2000, $88.5 million in 2001, $93 million in 2002, and
$134.5 million in 2003.
67
Long-term debt also includes $19.2 million of non-recourse
debt, $11.7 million of which is 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% with final maturity on March 15, 2002. Non-recourse
debt of $7.5 million is related to PCI's majority-owned real
estate partnerships and is based on a 30-year amortization period
at a fixed rate of interest of 9.66%, with final maturity on
October 1, 2011.
68
<TABLE>
(11) Fair Value of Financial Instruments
- ----------------------------------------
The estimated fair values of the Company's financial instruments at December 31, 1998,
and 1997 are shown below.
<CAPTION>
- ------------------------------------------------------------------------------------------------------
December 31,
1998 1997
- ------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Utility
Capitalization and Liabilities
Serial preferred stock $ 100.0 95.4 125.3 127.3
Redeemable serial preferred stock $ 50.0 53.6 141.0 142.6
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
which holds solely parent junior
subordinated debentures $ 125.0 128.7 - -
Long-term debt
First mortgage bonds $1,408.4 1,489.5 1,452.4 1,507.5
Medium-term notes $ 281.3 304.5 281.2 289.9
Convertible debentures $ 169.3 175.2 167.9 172.4
Nonutility Subsidiary
Assets
Marketable securities $ 231.1 231.1 302.5 302.5
Notes receivable $ 25.5 22.4 23.1 19.5
Liabilities
Long-term debt $ 716.9 729.2 830.5 841.0
- ------------------------------------------------------------------------------------------------------
69
</TABLE>
The methods and assumptions below were used to estimate, at
December 31, 1998 and 1997, the fair value of each class of
financial instruments shown above for which it is practicable to
estimate that value.
The fair value of the Company's Serial Preferred Stock,
Redeemable Serial Preferred Stock and Company Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trust,
excluding amounts due within one year, was based on quoted market
prices or discounted cash flows using current rates of preferred
stock with similar terms.
The fair value of the Company's Long-term Debt, which
includes First Mortgage Bonds, Medium-Term Notes and Convertible
Debentures, excluding amounts due within one year, 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 similar issues with similar terms and remaining maturities.
The fair value of PCI's Marketable Securities was based on
quoted market prices.
The fair value of PCI's Notes Receivable was based on
discounted future cash flows using current rates and similar
terms.
The fair value of PCI's Long-term Debt, including non-
recourse debt, was based on current rates offered to similar
companies for debt with similar remaining maturities.
The carrying amounts of all other financial instruments
approximate fair value.
(12) Short-Term Debt
---------------
The Company's short-term financing requirements have been
satisfied principally through the sale of commercial promissory
notes. Interest rates for the Company's short-term financing
during the year ranged from 4.6% to 6.3%.
The Company maintains a minimum 100% line of credit back-up
for its outstanding commercial promissory notes, which was unused
during 1998, 1997 and 1996.
70
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, in the amount of $400 million, for its
outstanding commercial promissory notes, which was unused during
1998, 1997 and 1996.
(13) Commitments and Contingencies
-----------------------------
Competition
- -----------
The electric utility industry continues to be subjected to
increasing competitive pressures, stemming from a combination of
increasing independent power production and regulatory and
legislative initiatives intended to increase bulk power
competition, including the Energy Policy Act of 1992.
Based on the regulatory framework in which it operates, the
Company continues to apply the provisions of SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation," in
accounting for its retail utility operations. SFAS No. 71 allows
regulated entities, in appropriate circumstances, to establish
regulatory assets and to defer the income statement impact of
certain costs that are expected to be recovered in future rates.
Deregulation of portions of the Company's business could, in the
future, result in not meeting the rate recovery criteria for
application of SFAS No. 71 for part or all of the business. If
this were to occur in the transition to a more competitive
industry, accounting standards of enterprises in general would
apply, which would entail the write-off of any previously
deferred costs to results of operations. Regulatory assets
include deferred income taxes, unamortized conservation costs and
unamortized debt reacquisition costs recoverable through future
rates. In addition, electric plant in service includes a
regulatory asset related to capital leases, which are treated as
operating leases for rate-making purposes, of approximately $37
million and $29 million at December 31, 1998 and 1997,
respectively.
Under traditional regulation, utilities are provided an
opportunity to earn a fair return on invested capital in exchange
for a commitment to serve all customers within a designated
service territory. To further the goal of providing universal
access to safe and reliable electric service within this
71
regulated environment, regulatory decisions led to costs and
commitments by utilities that may not be entirely recovered
through market-based revenues in a competitive environment.
Recovery and measurement of above-market, or "stranded," costs in
a future competitive environment will be subject to regulatory
proceedings. Potential above-market costs include, but are not
limited to, costs associated with generation facilities that are
fixed and unavoidable, including future costs related to plant
removal; above-market costs associated with purchased power
obligations; and regulatory assets and obligations incurred in
accordance with SFAS No. 71. The inability of the Company to
recover its stranded costs fully could have a material adverse
impact on the future earnings and cash flows of the Company, and
may result in consequences including, but not limited to,
increases in the cost of capital, increases in rates for
transmission and distribution services, exposure to downgrades in
credit ratings and involuntary layoffs of employees. The Company
expects to be provided an opportunity to recover its stranded
costs.
Maryland
- --------
In December 1997, the Maryland Public Service Commission issued
orders that outlined steps toward a competitive electric
generation market and established dates for the phased-in
implementation of competition. Pursuant to the orders,
competition will be phased in over a two-year period beginning
July 1, 2000. Customers representing one-third of the electric
load in a particular customer class will be able to choose their
electric generation supplier at that time. On July 1, 2001, the
eligible group increases to two-thirds in any one customer class,
and all customers will then become eligible one year later. The
Commission affirmed that Maryland utilities will be given the
opportunity to recover verifiable and prudently incurred stranded
costs, which cannot be mitigated or reduced; proposals to
establish a Competitive Transition Charge (CTC) for stranded cost
recovery will be addressed in future proceedings. The Commission
recommended that the Maryland legislature enact legislation to
allow securitization of stranded costs, where it can be shown
that this financing procedure will reduce costs for customers.
The Commission ordered no mandatory rate reductions during the
transition to competition, and applied the designation of default
provider to the consumer's current utility. In addition, the
Commission recognized the need for tax reform to "level the
playing field" for Maryland utilities, and requested the Maryland
legislature to enact the necessary legislation. Also, the
Commission stated that fuel adjustment clauses are incompatible
with the workings of a competitive generation market, and
requested that legislation be enacted to discontinue use of fuel
adjustment clauses in the future. Additionally, the Commission
requested that legislation be enacted to permit price cap
72
regulation and materially depart from cost of service regulation
with respect to the purchase and generation of electricity. The
Commission proposed the establishment of statewide roundtables to
address issues such as provision of metering and billing
services, consumer protection and DSM, but did not propose any
changes to the form of regulation currently applicable to the
recovery of costs associated with the distribution of
electricity. Moreover, the Commission did not order the
divestiture or corporate unbundling of generating assets, but
indicated it will consider these options as part of its review of
future market power studies required to be filed by Maryland
electric utilities.
In compliance with Commission orders, the Company filed on
July 1, 1998, a quantification of its Maryland jurisdictional
generating, purchased power and other costs that the Company
projects would be stranded in a competitive market for generating
services; a proposed method for recovering such stranded costs
through a non-bypassable CTC; proposed unbundled rates for retail
service; and a proposal to freeze retail rates from the time
competition begins until January 2004 (collectively, the Filing).
The Company made numerous assumptions in the Filing, including
assumptions as to the outcome of the recently-concluded 1998 base
rate case, the future price of electricity including fuel
charges, future revenues, the costs of transmission and
distribution, and service territory demographics, some or all of
which may prove not to have been accurate. The Filing will be
the subject of an adjudicatory proceeding that, in accordance
with the terms of the Commission's orders, is expected to
conclude in October 1999. As is its normal practice and
consistent with the Commission's procedural orders, the Company
is also pursuing discussions with the other parties to the
adjudicatory proceedings as to whether settlement of the issues
is possible. Any such settlement would require the Commission's
approval.
The Commission's implementation process provides for a
15-month period to study the Filing. After that period, the
Company will be required to file a restructuring plan in November
1999 that would take into account any restructuring legislation
enacted by the General Assembly, as well as the outcome of the
adjudicatory proceeding initiated by the Commission with respect
to the Filing. Accordingly, the Filing does not constitute the
Company's final restructuring plan. In connection with the
Filing, the Company reiterated its position that, absent
appropriate enabling legislation by the Maryland General Assembly
(which has yet to be enacted), the Commission lacks the legal
authority to implement the plan filed by the Company, or any
other restructuring plan providing for retail competition.
73
The Company has proposed separate unbundled rates for
generation supply (i.e., the cost of producing power or buying it
from third parties) and for electricity delivery (i.e., the cost
of transmission and distribution of electricity to consumers).
In the Filing, the Company's anticipated 1999 average price of
7.78 cents per kilowatt-hour breaks down into a supply charge of
4.60 cents and a delivery charge of 3.18 cents, which exceed the
rates approved within the Company's recent Maryland base rate
settlement agreement.
As part of the Filing, the Company proposes that, effective
with the initial phase of competition, which is currently
scheduled to commence July 1, 2000, both the supply and delivery
components of the Company's retail prices will be frozen at
then-existing levels until January 1, 2004. The Company also
proposes to eliminate its fuel rate on July 1, 2000, and assume
the risk of fuel cost increases after implementation of the
restructuring plan until January 1, 2004, when the Company no
longer has the obligation to supply electricity at the frozen
rate. The only exceptions to the rate freeze would be for
unexpected increases in taxes or new environmental requirements.
After January 1, 2004, supply prices would be set by the
competitive marketplace and delivery prices would be determined
by regulators.
For retail customers who do not wish to buy the supply
portion of their electric service from a source other than the
Company once they are free to do so, the Company proposes to
provide both supply and delivery service at the frozen rates
until January 1, 2004. For customers who enter the competitive
supply market, the Company proposes to provide them with a
"shopping credit" equal to the estimated market price for
electricity. The shopping credit would terminate on January 1,
2004.
Under the Company's proposal, the transition to customer
choice, including recovery of stranded costs, would be made
without any increase in prices to customers. Initially, prices
would be held at the levels in effect when competition begins for
customers who choose to buy both supply and delivery from the
Company. During the freeze, an implicit non-bypassable CTC will
be included in the frozen rate. After the end of the freeze in
January 2004, all customers would pay, as part of their delivery
charge, an explicit CTC that would successively decrease until
2021, when the last of the Company's pre-competition power
purchase contracts ends. The proposed CTC will allow the Company
the opportunity for full recovery of its prudent, non-mitigated
stranded costs, as contemplated by the Commission in its December
1997 orders, without causing an increase in rates.
In the Filing, the Company identifies stranded costs (the
total economic value of previously expected regulatory earnings
that will not be recovered in a deregulated energy market) having
74
a net after-tax present value of $600.4 million, which it
proposes be securitized and recovered over the period 2000
through 2010. The $600.4 million comprise $319.8 million
relating to generation assets, $242.6 million relating to power
purchase contracts and $38 million in other stranded costs. The
Company proposes to recover additional stranded costs associated
with its long-term Panda Brandywine, L.P. (Panda) and SMECO power
purchase contracts, having a present value of $42 million, over
the period 2011 to 2021, which it does not propose be
securitized. All stranded cost recovery would be accomplished
through the non-bypassable CTC. The Company has also proposed a
"true up" mechanism to update prospectively in July 2004 its
stranded cost estimates, taking into account changes in market
price or other factors. The stranded costs in the Filing
predominately relate to costs that are already included in the
Company's rates. They have been approved by regulators as being
appropriate to recover because they were found to have been
prudently incurred to meet the Company's regulatory-era
obligation to provide reliable service to everyone who wants it.
The Company anticipates that these costs would be amortized to
match the revenues collected by the CTC. As part of its plan,
the Company proposes to securitize a portion of its stranded cost
recovery and thereby achieve savings through a reduction in
capital costs.
If a competitive market for generation supply is implemented
in Maryland, the Company believes that the Commission will follow
through on its commitment to provide a fair opportunity for the
Company to recover its prudently incurred stranded costs, and
that the stranded costs identified by the Company in the filing
will be determined to have been prudently incurred. The
inability of the Company to recover fully its stranded costs
could have a material adverse impact on the future earnings and
cash flows of the Company, and may result in consequences
including, but not limited to, increases in the cost of capital,
increases in rates for transmission and distribution services,
exposure to downgrades in credit ratings and involuntary layoffs
of employees.
On October 9, 1998, the Company and four other electric
utilities operating in Maryland - Allegheny Power, Choptank
Electric Cooperative, Inc., Conectiv and SMECO - filed separate
appeals in Baltimore City Circuit Court seeking a judicial review
of recent decisions by the Maryland Commission in which the
Commission asserted its authority to restructure the electric
utility industry without authorization from the Maryland State
Legislature. The Company believes that the proper way to ensure
progress is for the legislature, in its 1999 session, to grant
the Commission authority to proceed. Accordingly, the utilities
asked the court to defer action on the appeal until after
completion of the 1999 legislative session, which began in
January 1999. On December 18, 1998, the Company filed a motion
for voluntary dismissal of its appeal without prejudice. The
75
Company's motion was filed pursuant to an agreement among
Conectiv, Allegheny Power, SMECO, Choptank Electric Cooperative
and the Maryland Public Service Commission that the Commission's
restructuring orders were not "final orders" within the meaning
of the law governing the powers of the Commission, and, further,
that the appeals challenging the Commission's authority to
implement retail choice without enabling legislation could be
filed after the Commission issues its order on the pending
applications for rehearing filed by the Company and several other
parties. All of the other utility appellants either have filed
or will file similar motions to dismiss their appeals.
District of Columbia
- --------------------
In September 1996, the District of Columbia Public Service
Commission issued an order designating the issues to be examined
regarding electric industry structure and competition. The
Company filed comments on the designated issues in early 1997,
and on August 31, 1998, the Commission Staff issued its proposal
for bringing choice of electric suppliers to District of Columbia
customers. The Staff's proposal is currently under the review of
the full Commission, which may ultimately reach different
conclusions. Pursuant to the Staff's recommendation, competition
would be phased in over a two-year period beginning January 1,
2001. Customers representing one-fifth of the electric load in a
particular customer class would be able to choose their electric
generation supplier at that time. On January 1, 2002, the
eligible group increases to one-half of any one customer class,
and all customers will then become eligible one year later. The
Staff proposed the establishment of working groups to address
issues such as conservation, environmental compliance, consumer
protection, provision of universal service, supplier
certification and the need for legislation to pave the way for
choice. More difficult issues such as the design of unbundled
rates and stranded cost estimation and recovery would be
addressed in future adjudicatory proceedings. An order was
issued by the full Commission on December 30, 1998, in response
to the Staff report. The order requires that the Company file a
stranded cost study and unbundled rates for the District of
Columbia by February 1, 1999.
SMECO Agreement
- ---------------
The Company has had a rolling 10-year full service power supply
requirements contract with the SMECO, the Company's principal
wholesale customer, with a peak load of approximately 600
megawatts. The wholesale portion currently represents
approximately 10% of the Company's total kilowatt-hour sales.
76
The contract, by its terms, is 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 contract allows SMECO to reduce by up to 20% each year the
percentage of the annual requirements it is obligated to purchase
under the contract, with a five-year advance notice for each such
reduction.
On December 31, 1998, the Company and SMECO entered into a
new full-requirements agreement that supersedes their existing
rolling 10-year power supply contract. The agreement will
continue the current total rate for electricity, but with a non-
varying fuel component, and will become effective as of January
1, 1999, if accepted by FERC without change or modification. The
agreement will expire on December 31, 2001, following which SMECO
will make a one-time termination payment to the Company of $19
million, which compensates the Company for future earnings it
would otherwise have received under the 10-year contract. SMECO
may elect by January 15, 2000, however, to advance the
termination date to December 31, 2000, in which case the
termination payment would be $26 million. The Company filed the
agreement with FERC for acceptance on December 31, 1998, and
expects a decision during the first quarter of 1999. In light of
the information contained in the following paragraph, it
currently is anticipated that SMECO will elect a December 31,
2000, termination date. The Company will record the applicable
termination payment as income upon acceptance of the agreement by
FERC. After the termination date, capacity previously used to
supply SMECO would be used to serve the Company's retail
customers. To the extent the Company makes sales of such
capacity in the competitive marketplace, such sales would be used
to offset costs otherwise charged to retail customers.
Accordingly, applicable costs are expected to be fully recovered
in rates charged to retail customers under historical rate-making
principles.
On January 25, 1999, a wholly owned unregulated subsidiary
of PCI signed a contract with SMECO to supply SMECO's full-
requirements for power (approximately 600 MW of peak load) during
the four-year period starting January 1, 2001. This contract is
subject to acceptance by FERC of the agreement outlined in the
preceding paragraph. The subsidiary was the winning bidder in
response to SMECO's Summer 1998 call for proposals for a full-
requirements provider of electricity. A firm commitment has been
secured from a third party for the delivery of power sufficient
to serve SMECO's full requirements. Both the sales commitment to
SMECO and the third-party purchase agreement are at fixed prices
that do not vary with future changes in market conditions. The
subsidiary sells electricity and natural gas and also provides
energy services to commercial and industrial customers primarily
in the mid-Atlantic region. The new SMECO contract represents
the first wholesale electric power contract the subsidiary has
secured.
77
Leases
- ------
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 six 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 $18.4 million in
1998, $17.1 million in 1997 and $16.2 million in 1996. The
approximate annual commitments under all operating leases,
reduced by rentals to be received under subleases, are $10.8
million in 1999, $7.9 million in 2000, $5.1 million in 2001, $1.6
million in 2002, $.6 million in 2003 and a total of $4.8 million
in the years thereafter.
The Company leases its consolidated control center, an
integrated energy management system used by the Company's power
dispatchers to centrally control the operation of the Company's
generating units, transmission system and distribution system.
The lease is accounted for as a capital lease and was recorded at
the present value of future lease payments, which totaled $152
million. The lease requires semi-annual payments of $7.6 million
over a 25-year period and provides for transfer of ownership of
the system to the Company for $1 at the end of the lease term.
Under SFAS No. 71, the amortization of leased assets is modified
so that the total of interest on the obligation and amortization
of the leased asset is equal to the rental expense allowed for
rate-making purposes. This lease has been treated as an
operating lease for rate-making purposes. Accordingly, electric
plant in service includes a regulatory asset of approximately $28
million and $21 million at December 31, 1998 and 1997,
respectively.
Fuel Contracts
- --------------
The Company has numerous coal contracts for aggregate annual
deliveries of approximately three million tons, all of which
expire by May 31, 1999. Deliveries under these contracts and the
replacement contracts are expected to provide approximately 75%
of the estimated system coal requirements in 1999. The Company
will purchase the balance of its coal requirements on a spot
basis from a variety of suppliers. Prices under the Company's
current 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.
78
Capacity Purchase Agreements
- ----------------------------
The Company's long-term capacity purchase agreements with
FirstEnergy Corp. (FirstEnergy, formerly Ohio Edison) and
Allegheny Energy, Inc. (AEI) commenced June 1, 1987, and are
expected to continue at the 450-megawatt level through 2005.
Under the terms of the agreements with FirstEnergy and AEI, the
Company is required to make capacity payments, subject to certain
contingencies, that include a share of FirstEnergy's fixed
operating and maintenance cost. The Company also has a 25-year
agreement with Panda for a 230-megawatt gas-fueled combined-cycle
cogenerator project in Prince George's County, Maryland. In
addition, the Company continues to purchase capacity and
associated energy from a municipally financed resource recovery
facility in Montgomery County, Maryland. The capacity expense
under these agreements, including an allocation of a portion of
FirstEnergy's fixed operating and maintenance costs, was $149.8
million, $145.2 million and $120 million in 1998, 1997 and 1996,
respectively. Commitments under these agreements are estimated
at $203 million in 1999, $204 million in 2000, $209 million in
2001, $210 million in 2002 and 2003 and $1.2 billion in the years
thereafter.
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
Company is accounting for this agreement as a capital lease,
recorded at fair market value, which totaled $37.1 million at the
date construction was completed. The capacity payment to SMECO
is approximately $5.5 million per year. Under SFAS No. 71,
amortization of leased assets is modified so that the total of
interest on the obligation and amortization of the leased asset
is equal to rental expense allowed for rate-making purposes.
This agreement has been treated as an operating lease for rate-
making purposes. Accordingly, electric plant in service includes
a regulatory asset of approximately $9 million and $8 million at
December 31, 1998 and 1997, respectively.
Environmental Contingencies
- ---------------------------
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.
On May 22, 1998, the State of Maryland issued final
regulations entitled "Post RACT Requirements for Nitrogen Oxides
(NOx) Sources (NOx Budget Proposal)," requiring a 65% reduction
79
in NOx emissions at the Company's Maryland generating units by
May 1, 1999. The regulations allow the purchase or trade of NOx
emission allowances to fulfill this obligation. The Company
appealed this regulation to the Circuit Court for Charles County,
Maryland, on June 19, 1998, on the basis that the regulation does
not provide adequate time for the installation of NOx emission
reduction technology and that there is no functioning NOx
allowance market. On July 17, 1998, the case was moved to the
Circuit Court for Baltimore City and consolidated with a similar
appeal filed by Baltimore Gas and Electric Company. The Company
believes it is unlikely that a market containing NOx allowances
sufficient to ensure compliance will be functioning by May 1999;
presently, eight states have enacted the rules necessary to
create such a market. A preliminary plan for installing the best
available removal technology on the Company's largest coal-fired
units would require capital expenditures of approximately $170
million and would yield NOx reductions of nearly 85% beginning in
year 2004. The Company cannot predict the outcome of this
litigation and is evaluating its options in the event of an
adverse decision. Also, on September 24, 1998, the EPA issued
rules for reducing interstate transport of ozone. The Company's
preliminary plan for NOx reductions of 85% by 2004 appears to be
consistent with the EPA rules.
The Company's generating stations operate under National
Pollutant Discharge Eliminating System (NPDES) permits. A NPDES
renewal application submitted in July 1993 for the Benning
station is pending. NPDES permits were issued for the Potomac
River station in February 1994, the Morgantown station in
February 1995, the Dickerson station in August 1996 and the Chalk
Point station in September 1996. An NPDES renewal application
was submitted for the Potomac River station in August 1998.
In October 1997, the Company received notice from the EPA
that it, along with 68 other parties, may be a Potentially
Responsible Party (PRP) under the Comprehensive Environmental
Response Compensation and Liability Act (CERCLA or Superfund) at
the Butler Mine Tunnel Superfund site in Pittstown Township,
Luzerne County, Pennsylvania. The site is a mine drainage tunnel
with an outfall on the Susquehanna River where oil waste was
disposed of via a borehole in the tunnel. The letter notifying
the Company of its potential liability also contained a request
for a reimbursement of approximately $.8 million for response
costs incurred by EPA at the site. The letter requested that the
Company submit a good faith proposal to conduct or finance the
remedial action contained in a July 1996 Record of Decision
(ROD). The EPA estimates the present cost of the remedial action
to be $3.7 million. While the Company cannot predict its
liability at this site, the Company believes that it will not
have a material adverse effect on its financial position or
results of operations.
80
In December 1995, the Company received notice from the EPA
that it is a PRP with respect to the release or threatened
release of radioactive and mixed radioactive and hazardous wastes
at a site in Denver, Colorado, operated by RAMP Industries, Inc.
Evidence indicates that the Company's connection to the site
arises from an agreement with a vendor to package, transport and
dispose of two laboratory instruments containing small amounts of
radioactive material at a Nevada facility. While the Company
cannot predict its liability at this site, the Company believes
that it will not have a material adverse effect on its financial
position or results of operations.
In October 1995, the Company received notice from the EPA
that it, along with several hundred other companies, may be a PRP
in connection with the Spectron Superfund Site located in Elkton,
Maryland. The site was operated as a hazardous waste disposal,
recycling, and processing facility from 1961 to 1988. A group of
PRPs allege, based on records they have collected, that the
Company's share of liability at this site is .0042%. The EPA has
also indicated that a de minimis settlement is likely to be
appropriate for this site. While the outcome of negotiations and
the ultimate liability with respect to this site cannot be
predicted, the Company believes that its liability at this site
will not have a material adverse effect on its financial position
or results of operations.
In December 1987, the Company was notified by the EPA that
it, along with several other utilities and nonutilities, is a PRP
in connection with the polychlorinated biphenyl compounds (PCBs)
contamination of a Philadelphia, Pennsylvania, site owned by a
nonaffiliated company. 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. In October
1994, a Remedial Investigation/Feasibility Study (RI/FS)
including a number of possible remedies was submitted to the EPA.
In December 1997, the EPA signed a ROD that set forth a selected
remedial action plan with estimated implementation costs of
approximately $17 million. On June 26, 1998, the EPA issued a
unilateral Administrative Order to the Company and 12 other PRPs
to conduct the design and actions called for in the ROD. To
date, the Company has accrued $1.7 million for its share of these
costs.
Litigation
- ----------
During 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
Case." 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
81
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 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 initial
filings in 1993, approximately 65 additional individual suits
have been filed against the Company. The third-party complaints
involving Pittsburgh Corning and Owens Corning were dismissed by
the Baltimore City Court during 1994 without any payment by the
Company. Through December 31, 1998, approximately 400 of the
individual plaintiffs have dismissed their claims against the
Company. No payments were made by the Company in connection with
the dismissals. While the aggregate amount specified in the
remaining suits would exceed $400 million, 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.
However, an unfavorable decision rendered against the Company
could have a material adverse effect on results of operations in
the year in which a decision is rendered.
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.
Labor Agreement
- ---------------
A new four-year Agreement between the Company and Local 1900 of
the International Brotherhood of Electrical Workers (IBEW) was
ratified on December 18, 1998, by Union members. The Agreement
provides for a general wage increase of 3% each year in 1999,
2000 and 2001, beginning February 14, 1999, and a 3% increase in
wages in the fourth year of the contract (2002) unless either
82
party elects to reopen the Agreement. The Company also agreed to
a 3% lump-sum payment for the period of January 3, 1999, to
February 14, 1999. In addition, the Agreement resolves important
issues that would arise in the event of a divestiture of the
Company's generating assets and establishes a framework for
ongoing progress towards improving management and union relations
with joint committees. At December 31, 1998, 2,286 of the
Company's 3,716 employees were represented by the IBEW.
Termination of Proposed Merger
- ------------------------------
In December 1997, the Company and Baltimore Gas and Electric
Company announced the cancellation of their proposed merger to
create Constellation Energy Corporation. As a result, the
Company recorded a $52.5 million nonoperating charge ($32.6
million net of income tax or 28 cents per share) to write off its
cumulative deferred merger-related costs.
83
(14) Selected Nonutility Subsidiary Financial Information
----------------------------------------------------
Selected financial information of PCI is presented below.
Subsidiary equity at December 31, 1998, and December 31, 1997,
was $243.4 million and $227 million, respectively. These amounts
include $7.8 million and $6.5 million of unrealized appreciation,
at December 31, 1998 and 1997, respectively, relating to the
marketable securities portfolio on an after-tax basis.
- -----------------------------------------------------------------
For the year ended
December 31,
1998 1997 1996
- -----------------------------------------------------------------
(Millions of Dollars)
Income
Leasing activities $ 73.3 $ 75.6 $ 91.7
Marketable securities 19.3 28.6 33.7
Energy services 28.0 6.3 -
Utility-related services 14.5 16.2 7.7
Other 8.4 (1.6) (11.5)
------- ------- -------
143.5 125.1 121.6
------- ------- -------
Expenses
Interest 56.2 69.0 83.4
Operating and other 57.4 35.2 34.6
Depreciation 23.5 35.6 41.3
Income tax credit (8.7) (31.8) (54.6)
------- ------- -------
128.4 108.0 104.7
------- ------- -------
Net earnings from
nonutility subsidiary $ 15.1 $ 17.1 $ 16.9
======= ======= =======
84
Marketable Securities
- ---------------------
PCI's marketable securities, primarily preferred stocks with
mandatory redemption features, are classified as available for
sale for financial reporting purposes. Net unrealized gains or
losses on such securities are reflected, net of tax, in
stockholder's equity. The net unrealized gains on marketable
securities, which relate primarily to mandatory redeemable
preferred stock, are shown below:
- -----------------------------------------------------------------
December 31,
1998 1997 1996
- -----------------------------------------------------------------
(Millions of Dollars)
Market Value $ 231.1 $ 302.5 $ 377.2
Cost 219.1 292.6 375.6
------- ------- -------
Net unrealized gain $ 12.0 $ 9.9 $ 1.6
======= ======= =======
- -----------------------------------------------------------------
Included in net unrealized gains and losses are gross
unrealized gains of $12.4 million and gross unrealized losses of
$.4 million at December 31, 1998, gross unrealized gains of $13.9
million and gross unrealized losses of $4 million at December 31,
1997, and gross unrealized gains of $9.9 million and gross
unrealized losses of $8.3 million at December 31, 1996.
In determining gross realized gains and losses on sales or
maturities of securities, specific identification is used. Gross
realized gains were $4.7 million, $7.5 million and $4.7 million
in 1998, 1997 and 1996, respectively. Gross realized losses were
$2.5 million, $.6 million and $1.1 million in 1998, 1997 and
1996, respectively.
At December 31, 1998, the contractual maturities for
mandatorily redeemable preferred stock are $12.9 million within
one year, $91.8 million from one to five years, $76.2 million
from five to 10 years and $37.3 million for over 10 years.
85
Leasing Activities
- ------------------
PCI's net investment in finance leases is summarized below.
- -----------------------------------------------------------------
December 31,
1998 1997
- -----------------------------------------------------------------
(Millions of Dollars)
Rents receivable $ 555.1 $ 664.2
Estimated residual values 69.7 88.0
Less: Unearned and deferred income (225.6) (288.6)
------- -------
Investment in finance leases 399.2 463.6
Less: Deferred taxes arising from
finance leases (134.3) (119.5)
------- -------
Net investment in finance leases $ 264.9 $ 344.1
======= =======
- -----------------------------------------------------------------
Minimum lease payments receivable from finance leases,
primarily aircraft, for each of the years 1999 through 2003 are
$26.7 million, $29.5 million, $29 million, $19.3 million and
$19.4 million, respectively. Net income from leveraged leases
was $14.7 million in 1998, $16.4 million in 1997 and $22.5
million in 1996.
Rent payments receivable from aircraft operating leases for
each of the years 1999 through 2003 are $31.2 million in 1999,
$27.7 million in 2000, $21.5 million in 2001, $2.6 million in
2002 and zero in 2003.
86
(15) Segment Information
The Company has identified the utility and nonutility business
operations as its two segments. The factors used to identify
these segments are that the Company organizes its business around
differences in products, services and regulatory environments and
that the operating results for each segment are regularly
reviewed by the Company's chief operating decision-maker in order
to make decisions about resources and assess performance.
Revenues for the utility segment are derived from the
generation, transmission, distribution and sale of electric
energy. The nonutility segment, which primarily consists of the
operations of the Company's wholly owned subsidiary, PCI, derives
its revenue from investment programs, energy-related businesses
and telecommunication services.
The following table presents information about the Company's
reportable segments for the years ended December 31, 1998, 1997
and 1996:
87
<TABLE>
General Segment Information
- ---------------------------
(Millions of Dollars)
<CAPTION>
Segment
1998 Utility Nonutility Totals
---- ---------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 2,063.9 $ 143.5 $ 2,207.4
---------- ---------- ----------
Operating expenses and other 1,334.8 57.4 1,392.2
Depreciation and amortization 239.8 23.5 263.3
Income tax expense (credit) 130.5 (8.7) 121.8
---------- ---------- ----------
Operating Income 358.8 71.3 430.1
Interest Expense 147.6 56.2 203.8
---------- ---------- ----------
Net Income $ 211.2 $ 15.1 $ 226.3
========== ========== ==========
Total Assets $ 5,843.2 $ 1,086.4 $ 6,929.6
Expenditures for Assets $ 206.2 $ - $ 206.2
Segment
1997 Utility Nonutility Totals
---- ---------- ---------- ----------
Revenues $ 1,863.5 $ 125.1 $ 1,988.6
---------- ---------- ----------
Operating expenses and other 1,210.2 35.2 1,245.4
Depreciation and amortization 232.0 35.6 267.6
Income tax expense (credit) 117.7 (31.8) 85.9
---------- ---------- ----------
Operating Income 303.6 86.1 389.7
Interest Expense 138.9 69.0 207.9
---------- ---------- ----------
Net Income $ 164.7 $ 17.1 $ 181.8
========== ========== ==========
Total Assets $ 5,779.3 $ 1,167.3 $ 6,946.6
Expenditures for Assets $ 217.2 $ - $ 217.2
Segment
1996 Utility Nonutility Totals
---- ---------- ---------- ----------
Revenues $ 2,010.3 $ 121.6 $ 2,131.9
---------- ---------- ----------
Operating expenses and other 1,293.7 34.6 1,328.3
Depreciation and amortization 223.0 41.3 264.3
Income tax expense (credit) 134.1 (54.6) 79.5
---------- ---------- ----------
Operating Income 359.5 100.3 459.8
Interest Expense 139.4 83.4 222.8
---------- ---------- ----------
Net Income $ 220.1 $ 16.9 $ 237.0
========== ========== ==========
Total Assets $ 5,724.8 $ 1,363.8 $ 7,088.6
Expenditures for Assets $ 179.9 $ - $ 179.9
The Company's revenues from external customers are earned primarily within the United States
and principally all of the Company's long-lived assets are held in the United States.
In addition, there were no material transactions between segments.
Total segment assets of $6,929.6 million, $6,946.6 million and $7,088.6 million as of
December 31, 1998, 1997 and 1996, respectively, include $243.4 million, $227 million
and $196.3 million, representing the utility segment's investment in the nonutility
subsidiary and $31.4 million, $12 million and $.4 million of intersegment net receivables.
As of December 31, 1998, 1997 and 1996, respectively, these amounts are eliminated in
consolidation and therefore not reflected in the Company's total assets as recorded
on the Consolidated Balance Sheets.
88
</TABLE>
<TABLE>
(16) Quarterly Financial Summary (Unaudited)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
- -------------------------------------------------------------------------------------------------------
(Millions of Dollars, except Per Share Data)
<S> <C> <C> <C> <C> <C>
1998
Operating Revenue $ 369.8 479.4 670.2 366.7 1,886.1
Total Revenue $ 380.4 528.5 750.8 404.2 2,063.9
Operating Expenses $ 344.5 432.8 564.8 367.5 1,709.6
Operating Income $ 35.9 95.7 186.0 36.7 354.3
Net Income (Loss) $ 7.5 66.0 153.1 (.3) 226.3
Earnings (Loss) for Common Stock $ 3.4 56.0 151.1 (2.2) 208.3
Basic Earnings (Loss) per Common Share $ .03 .47 1.27 (.02) 1.76
Diluted Earnings (Loss) per Common Share $ .03 .46 1.23 (.02) 1.73
Dividends per Share $ .415 .415 .415 .415 1.66
1997
Operating Revenue $ 374.5 439.5 618.2 378.6 1,810.8
Total Revenue $ 389.1 451.0 633.0 390.4 1,863.5
Operating Expenses $ 346.8 370.4 466.5 354.4 1,538.1
Operating Income $ 42.3 80.6 166.5 36.0 325.4
Net Income (Loss) $ 23.0 50.1 136.0 (27.3) 181.8
Earnings (Loss) for Common Stock $ 18.9 46.0 131.8 (31.4) 165.3
Basic Earnings (Loss) per Common Share $ .16 .39 1.11 (.27) 1.39
Diluted Earnings (Loss) per Common Share $ .16 .38 1.07 (.27) 1.38
Dividends per Share $ .415 .415 .415 .415 1.66
1996
Operating Revenue $ 385.3 462.7 614.3 372.5 1,834.8
Total Revenue $ 436.6 501.8 658.2 413.7 2,010.3
Operating Expenses $ 392.6 406.5 491.9 370.9 1,661.9
Operating Income $ 44.0 95.3 166.3 42.8 348.4
Net Income $ 14.7 72.3 138.7 11.3 237.0
Earnings for Common Stock $ 10.6 68.1 134.6 7.1 220.4
Basic Earnings per Common Share $ .09 .57 1.14 .06 1.86
Diluted Earnings per Common Share $ .09 .56 1.09 .06 1.82
Dividends per Share $ .415 .415 .415 .415 1.66
The Company's sales of electric energy are seasonal and, accordingly,
comparisons by quarter within a year are not meaningful.
The totals of the four quarterly basic earnings per common share and diluted
earnings per common share may not equal the basic earnings per common share and
diluted earnings per common share for the year due to changes in the number of
common shares outstanding during the year and, with respect to the diluted
earnings per common share, changes in the amount of dilutive securities.
89
</TABLE>
<TABLE>
Stock Market Information
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 High Low 1997 High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1st Quarter $25-11/16 $23-7/16 1st Quarter $26 $23-7/8
2nd Quarter $25-7/16 $23-1/16 2nd Quarter $24-7/8 $21-1/8
3rd Quarter $26-5/8 $23-1/8 3rd Quarter $23-3/4 $21
4th Quarter $27-13/16 $24-7/8 4th Quarter $26 $21
(Close $26-5/16) (Close $25-13/16)
Shareholders at December 31, 1998: 72,607
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Selected Consolidated Financial Data
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1988
- ------------------------------------------------------------------------------------------------------------------------------------
(Millions, except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 1,886.1 1,810.8 1,834.8 1,822.4 1,790.6 1,702.4 1,349.8
Total Revenue $ 2,063.9 1,863.5 2,010.3 1,876.1 1,823.1 1,725.2 1,411.6
Operating Expenses $ 1,709.6 1,538.1 1,661.9 1,528.4 1,498.6 1,400.5 1,138.6
Net Earnings (Loss) from
Nonutility Subsidiary $ 15.1 17.1 16.9 (124.4) 19.1 25.1 27.9
Net Income $ 226.3 181.8 237.0 94.4 227.2 241.6 211.1
Earnings for Common Stock $ 208.3 165.3 220.4 77.5 210.7 225.3 201.8
Basic Common Shares Outstanding (Average) 118.5 118.5 118.5 118.4 118.0 115.6 94.4
Diluted Common Shares Outstanding (Average) 124.2 124.3 124.3 118.5 124.0 121.6 97.3
Basic Earnings (Loss) Per Common Share
Utility Operations $ 1.63 1.25 <F1 1.72 1.70 1.63 1.73 1.84
Nonutility Subsidiary $ .13 .14 .14 (1.05) .16 .22 .30
Consolidated $ 1.76 1.39 <F1 1.86 .65 1.79 1.95 2.14
Diluted Earnings (Loss)
Per Common Share
Utility Operations $ 1.61 1.24 <F1 1.69 1.70 1.60 1.70 1.82
Nonutility Subsidiary $ .12 .14 .13 (1.05) .15 .21 .29
Consolidated $ 1.73 1.38 <F1 1.82 .65 1.75 1.91 2.11
Cash Dividends Per Common Share $ 1.66 1.66 1.66 1.66 1.66 1.64 1.38
Investment in Property and Plant $ 6,657.8 6,514.1 6,321.6 6,161.1 5,974.2 5,701.5 3,945.7
Net Investment in Property
and Plant $ 4,521.2 4,486.3 4,423.2 4,400.3 4,334.4 4,167.6 2,857.0
Utility Assets $ 5,568.4 5,540.2 5,526.3 5,503.1 5,327.6 5,036.8 3,267.5
Nonutility Subsidiary Assets $ 1,086.4 1,167.4 1,365.6 1,615.0 1,674.3 1,665.1 879.0
Total Assets $ 6,654.8 6,707.6 6,891.9 7,118.1 7,001.9 6,701.9 4,146.5
Long-Term Utility Obligations
(including redeemable preferred
stock) $ 2,034.0 2,042.5 1,910.1 1,960.6 1,867.0 1,736.6 1,243.5
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1>Includes ($.28) as the net effect of the write-off of merger-related costs.
</FN>
90
</TABLE>
Appendix A
1. The Use of Revenue pie chart presents the following
information.
(Thousands of Dollars)
1998 Use of Revenue
-------------------
Fuel and Purchased Energy $ 649,998 31%
Wages and Benefits 167,798 8
Materials and Services 140,923 7
Capacity Purchase Payments 155,693 8
Taxes 335,757 16*
Depreciation and Amortization 239,824 12*
Interest 147,588 7*
Common Stock Dividends 196,648 9*
Preferred Stock Dividends 18,080 1*
Retained Income 11,619 1*
---------- ---
$2,063,928 100%
========== ===
*Plant-Related Costs
Appendix A
2. The Cooling Degree Hours bar chart presents the following
information.
% of
20-Year
Year Average
---- -------
1994 103%
1995 103%
1996 83%
1997 79%
1998 93%
Appendix A
3. The System Fuel Costs line chart presents the following
information.
Year Coal Oil Gas System
---- ---- --- --- ------
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
1994 1.73 2.70 2.49 1.95
1995 1.60 3.22 2.10 1.74
1996 1.62 3.55 2.92 1.80
1997 1.65 3.80 2.87 1.84
1998 1.55 2.71 2.63 1.72
Appendix A
4. The Construction Expenditures bar chart presents the
following information.
Construction Total
Expenditures Construction
(excluding Clean Air Expenditures
AFUDC, CCRF & Act (excluding
Year Clean Air Act) Expenditures AFUDC & CCRF)
---- --------------- ------------ -------------
Actual: 1994 $234 $58 $292
1995 187 27 214
1996 176 4 180
1997 203 14 217
1998 195 11 206
Forecast: 1999 163 22 185
2000 158 17 175
2001 135 30 165
2002 132 33 165
2003 145 30 175
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
<PAGE>
(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;
2
<PAGE>
(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
3
<PAGE>
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.
4
<PAGE>
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
5
<PAGE>
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
6
<PAGE>
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
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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
8
<PAGE>
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
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<PAGE>
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
10
<PAGE>
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
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<PAGE>
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.
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<PAGE>
(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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
(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
18
<PAGE>
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.
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(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
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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
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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
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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
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<PAGE>
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
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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
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<PAGE>
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
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<PAGE>
an Interested Shareholder and except in a transaction that,
after giving effect thereto, would not result in an
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
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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).
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<PAGE>
(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
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<PAGE>
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.
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(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.
31
<PAGE>
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, 1992.
32
<PAGE>
CERTIFICATE OF
POTOMAC ELECTRIC POWER COMPANY
Pursuant to Virginia Code Section 13.1-711 D., Potomac
Electric Power Company, through Betty K. Cauley, it 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 the 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
<PAGE>
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.
<PAGE>
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.
-2-
<PAGE>
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
-3-
<PAGE>
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
_____________________
*Includes additional shares authorized in Articles of Amendment
to the Articles of Incorporation dated May 20, 1993.
<PAGE>
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
2
<PAGE>
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.
[Notarial Seal]
3
<PAGE>
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.
<PAGE>
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
2
<PAGE>
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 16, 1993, and prior to the close
of business on December 12, 1994, 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 16, 1993, and prior to the close of business on
December 12, 1994 of 50,949 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 220,011,044, 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
<PAGE>
THIRD: The number of shares of the corporation so cancelled is
51,610 itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Serial Preferred
Stock $2.44 Convertible Series of 1966 661
$3.37 Series of 1987 50,949
FOURTH: The number of shares which the corporation has
authority to issue after giving effect to such
cancellation is 219,959,434, 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 8,183
$3.82 Series of 1969 500,000
$3.37 Series of 1987 901,251
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 123,557,532 itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Common Stock - 118,148,098
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 8,183
$3.82 Series of 1969 500,000
$3.37 Series of 1987 901,251
Auction Series A 1,000,000
$3.89 Series of 1991 1,000,000
$3.40 Series of 1992 1,000,000
2
<PAGE>
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 $388,619,798 and $1,004,683,941.72,
respectively.
DATED: December 16, 1994
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, Indiana C. Shepp, a Notary Public, do hereby certify that
on this 16th day of December, 1994, 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/ INDIANA C. SHEPP
Notary Public, D. C.
[Notarial Seal] My commission expires: June 14, 1995
3
<PAGE>
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 51,610, itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Serial Preferred
Stock $2.44 Convertible Series of 1966 661
$3.37 Series of 1987 50,949
THIRD: The total number of authorized shares of the
corporation remaining after giving effect to such
reduction is 219,959,434, 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 8,183
$3.82 Series of 1969 500,000
$3.37 Series of 1987 901,251
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.
<PAGE>
FOURTH: The reduction in the number of authorized shares was
duly authorized by the Board of Directors on December 15,
1994.
DATED: December 16, 1994
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
2
<PAGE>
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 12, 1994, and prior to the close
of business on December 14, 1995, 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
12, 1994, and prior to the close of business on December 14, 1995
of 31,555 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 219,959,434 itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- ----------------------------- ----------------
Common Stock - 200,000,000
Preference 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 8,183
$3.82 Series of 1969 500,000
$3.37 Series of 1987 901,251
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
33,212 itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Serial Preferred
Stock $2.44 Convertible Series of 1966 1,657
$3.37 Series of 1987 31,555
<PAGE>
FOURTH: The number of shares which the corporation has
authority to issue after giving effect to such
cancellation is 219,926,222, 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 6,526
$3.82 Series of 1969 500,000
$3.37 Series of 1987 869,696
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 of such cancellation
is 123,870,682 itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Common Stock - 118,494,460
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 6,526
$3.82 Series of 1969 500,000
$3.37 Series of 1987 869,696
Auction Series A 1,000,000
$3.89 Series of 1991 1,000,000
$3.40 Series of 1992 1,000,000
- 2 -
<PAGE>
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 $387,305,560 and $1,010,531,171.08,
respectively.
DATED: December 20, 1995
POTOMAC ELECTRIC POWER COMPANY
By /s/ H. L. DAVIS
H. Lowell Davis
Vice Chairman and
Chief Financial Officer
[Corporate Seal]
Attest:
/s/ ELLEN SHERIFF ROGERS
Ellen Sheriff Rogers
Assistant Secretary
DISTRICT OF COLUMBIA, ss.:
I, Michelle T. Brown, a Notary Public, do hereby certify that
on this 20th day of December, 1995, personally appeared before me
H. Lowell Davis, who, being by 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/ MICHELLE T. BROWN
Notary Public, D. C.
[Notarial Seal] My commission expires: 11-14-97
- 3 -
<PAGE>
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 33,212, itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------- ----------------
Serial Preferred
Stock $2.44 Convertible
Series of 1966 1,657
$3.37 Series of 1987 31,555
THIRD: The total number of authorized shares of the
corporation remaining after giving effect to such
reduction is 219,926,222, 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 6,526
$3.82 Series of 1969 500,000
$3.37 Series of 1987 869,696
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.
<PAGE>
FOURTH: The reduction in the number of authorized shares was
duly authorized by the Board of Directors on
December 18, 1995.
DATED: December 20, 1995
POTOMAC ELECTRIC POWER COMPANY
By /s/ H. LOWELL DAVIS
H. Lowell Davis
Vice Chairman and
Chief Financial Officer
[Corporate Seal]
Attest:
/s/ ELLEN SHERIFF ROGERS
Ellen Sheriff Rogers
Assistant Secretary
<PAGE>
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 14, 1995, and prior to the close
of business on December 12, 1996, through their conversion, in
accordance with their terms, into shares of its common stock:
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 219,926,222 itemized as
follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Common Stock - 200,000,000
Preference 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 6,526
$3.82 Series of 1969 500,000
$3.37 Series of 1987 869,696
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
573 itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- ----------------- ----------------
Serial Preferred
Stock $2.44 Convertible
Series of 1966 573
<PAGE>
FOURTH: The number of shares which the corporation has
authority to issue after giving effect to such
cancellation is 219,925,649, 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 5,953
$3.82 Series of 1969 500,000
$3.37 Series of 1987 869,696
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 of such cancellation
is 123,875,670 itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Common Stock - 118,500,021
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 5,953
$3.82 Series of 1969 500,000
$3.37 Series of 1987 869,696
Auction Series A 1,000,000
$3.89 Series of 1991 1,000,000
$3.40 Series of 1992 1,000,000
- 2 -
<PAGE>
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 $387,282,471 and $1,010,424,927.80,
respectively.
DATED: December 17, 1996
POTOMAC ELECTRIC POWER COMPANY
By /s/ D. R. WRAASE
Dennis R. Wraase
Senior Vice President and
Chief Financial Officer
[Corporate Seal]
Attest:
/s/ ELLEN SHERIFF ROGERS
Ellen Sheriff Rogers
Secretary
DISTRICT OF COLUMBIA, ss.:
I, Lisa A. Poole, a Notary Public, do hereby certify that on
this 17th day of December, 1996, personally appeared before me
Dennis R. Wraase, who, being by me first duly sworn, declared that
he is Senior Vice President and Chief Financial Officer of Potomac
Electric Power Company, that he signed the foregoing document as
Senior Vice President and Chief Financial Officer of the
corporation, and that the statements therein contained are true.
/s/ LISA A. POOLE
Notary Public, D. C.
[Notarial Seal] My commission expires: 7-31-97
- 3 -
<PAGE>
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 573, itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- ----------------- ----------------
Serial Preferred
Stock $2.44 Convertible
Series of 1966 573
THIRD: The total number of authorized shares of the
corporation remaining after giving effect to such
reduction is 219,925,649, 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 5,953
$3.82 Series of 1969 500,000
$3.37 Series of 1987 869,696
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.
<PAGE>
FOURTH: The reduction in the number of authorized shares was
duly authorized by the Board of Directors on
December 16, 1996.
DATED: December 17, 1996
POTOMAC ELECTRIC POWER COMPANY
By /s/ D. R. WRAASE
Dennis R. Wraase
Senior Vice President and
Chief Financial Officer
[Corporate Seal]
Attest:
/s/ ELLEN SHERIFF ROGERS
Ellen Sheriff Rogers
Secretary
<PAGE>
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 12, 1996, and prior to the close
of business on December 11, 1997, 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
12, 1996, and prior to the close of business on December 11, 1997
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 219,925,649 itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Common Stock - 200,000,000
Preference 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 5,953
$3.82 Series of 1969 500,000
$3.37 Series of 1987 869,696
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
30,148 itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Serial Preferred
Stock $2.44 Convertible Series of 1966 148
$3.37 Series of 1987 30,000
<PAGE>
FOURTH: The number of shares which the corporation has authority
to issue after giving effect to such cancellation is
219,895,501, 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 5,805
$3.82 Series of 1969 500,000
$3.37 Series of 1987 839,696
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 of such cancellation is 123,846,381
itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Common Stock - 118,500,880
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 5,805
$3.82 Series of 1969 500,000
$3.37 Series of 1987 839,696
Auction Series A 1,000,000
$3.89 Series of 1991 1,000,000
$3.40 Series of 1992 1,000,000
- 2 -
<PAGE>
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
$385,775,930 and $1,010,219,386.21, respectively.
DATED: December 17, 1997
POTOMAC ELECTRIC POWER COMPANY
By: /S/ D. R. WRAASE
Dennis R. Wraase
Senior Vice President and
Chief Financial Officer
[Corporate Seal]
Attest:
/S/ ELLEN SHERIFF ROGERS
Ellen Sheriff Rogers
Secretary
DISTRICT OF COLUMBIA, ss.:
I, Loretta S. Thompson, a Notary Public, do hereby certify
that on this 17th day of December, 1997, personally appeared before
me Dennis R. Wraase, who, being by me first duly sworn, declared
that he is Senior Vice President and Chief Financial Officer of
Potomac Electric Power Company, that he signed the foregoing
document as Senior Vice President and Chief Financial Officer of
the corporation, and that the statements therein contained are
true.
/S/ LORETTA S. THOMPSON
Notary Public, D. C.
[Notarial Seal] My commission expires: 12/31/2002
- 3 -
<PAGE>
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 30,148, itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Serial Preferred
Stock $2.44 Convertible Series of 1966 148
$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
219,895,501, 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 5,805
$3.82 Series of 1969 500,000
$3.37 Series of 1987 839,696
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 15, 1997.
DATED: December 17, 1997
[Corporate Seal] POTOMAC ELECTRIC POWER COMPANY
Attest:
/S/ ELLEN SHERIFF ROGERS /S/ D. R. WRAASE
Ellen Sheriff Rogers Dennis R. Wraase
Secretary Senior Vice President and
Chief Financial Officer
<PAGE>
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 12, 1997, and prior to the close of
business on December 11, 1998, 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 12, 1997,
and prior to the close of business on December 11, 1998 of 1,278
shares of Serial Preferred Stock, $2.44 Convertible Series of 1966,
500,000 shares of Serial Preferred Stock, $3.82 Series of 1969,
839,696 shares of Serial Preferred Stock, $3.37 Series of 1987 and
1,000,000 shares of Serial Preferred Stock, $3.89 Series of 1991.
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 219,895,501 itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Common Stock - 200,000,000
Preference 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 5,805
$3.82 Series of 1969 500,000
$3.37 Series of 1987 839,696
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
<PAGE>
THIRD: The number of shares of the corporation so cancelled is
2,345,501 itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Serial Preferred
Stock $2.44 Convertible Series of 1966 5,805
$3.82 Series of 1969 500,000
$3.37 Series of 1987 839,696
$3.89 Series of 1991 1,000,000
FOURTH: The number of shares which the corporation has authority
to issue after giving effect to such cancellation is
217,550,000, 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
Auction Series A 1,000,000
$3.40 Series of 1992 1,000,000
Undesignated as to series 5,750,000
- 2 -
<PAGE>
FIFTH: The aggregate number of issued shares of the corporation
after giving effect of such cancellation is 121,527,287
itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------- ----------------
Common Stock - 118,527,287
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
Auction Series A 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
$268,527,287 and $1,011,568,625.09, respectively.
DATED: December 16, 1998
(Corporate Seal) POTOMAC ELECTRIC POWER COMPANY
Attest:
/s/ ELLEN SHERIFF ROGERS /s/ D. R. WRAASE
__________________________ By __________________________
Ellen Sheriff Rogers Dennis R. Wraase
Secretary Senior Vice President and
Chief Financial Officer
- 3 -
<PAGE>
DISTRICT OF COLUMBIA, ss.:
I, Lisa A. Poole, a Notary Public, do hereby certify that on this
16th day of December, 1998 personally appeared before me Dennis R.
Wraase, who, being by me first duly sworn, declared that he is Senior
Vice President and Chief Financial Officer of Potomac Electric Power
Company, that he signed the foregoing document as Senior Vice
President and Chief Financial Officer of the corporation, and that the
statements therein contained are true.
/s/ LISA A. POOLE
Notary Public, D. C.
[Notarial Seal] My commission expires: 7-31-02
- 4 -
<PAGE>
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 2,345,501, itemized as follows:
CLASS SERIES NUMBER OF SHARES
- ---------------- -------------------------------- ----------------
Serial Preferred
Stock $2.44 Convertible Series of 1966 5,805
$3.82 Series of 1969 500,000
$3.37 Series of 1987 839,696
$3.89 Series of 1991 1,000,000
THIRD: The total number of authorized shares of the corporation
remaining after giving effect to such reduction is
217,550,000, 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
Auction Series A 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.
<PAGE>
FOURTH: The reduction in the number of authorized shares
was duly authorized by the Board of Directors on
December 14, 1998.
DATED: December 16, 1998
[Corporate Seal] POTOMAC ELECTRIC POWER COMPANY
Attest:
/s/ ELLEN SHERIFF ROGERS /s/ D. R. WRAASE
____________________________ By ___________________________
Ellen Sheriff Rogers Dennis R. Wraase
Secretary Senior Vice President and
Chief Financial Officer
<PAGE>
By-Laws
of
POTOMAC ELECTRIC POWER COMPANY
WASHINGTON, D. C.
As amended through
October 22, 1998
=================================================================
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
BY-LAWS
______
ARTICLE I
SECTION 1. The annual meeting of the stockholders of the
Company shall be held on such day, at such time and place within
or without the District of Columbia as the Board of Directors or
the Executive Committee shall designate for the purpose of
electing directors and of transacting such other business as may
properly be brought before the meeting.
At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting,
business must be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board,
otherwise properly brought before the meeting by or at the
direction of the Board, or otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of Potomac
Electric Power Company. To be timely, a stockholder's notice
must be received at the principal executive offices of the
Company not less than 60 days nor more than 85 days prior to the
meeting; provided, however, that in the event that less than 65
days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the
close of business on the fifteenth day following the day on which
such notice of the date of the annual meeting was mailed or such
public disclosure was made, whichever first occurs. A
stockholder's notice to the Secretary shall set forth (i) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at
the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number
of shares of the Company that are beneficially owned by the
stockholder, and (iv) any material interest of the stockholder in
such business.
Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Article I,
Section 1; provided, however, that nothing in this Article I,
Section 1 shall be deemed to preclude discussion by any
stockholder of any business properly brought before the annual
meeting in accordance with such procedures.
<PAGE>
2
The Chairman of an annual meeting shall, if the facts
warrant, determine that business was not properly brought before
the meeting in accordance with the provisions of this Article I,
Section 1, and if he should so determine, he shall so declare to
the meeting and any such business not properly brought before the
meeting shall not be transacted.
SECTION 2. Special meetings of the stockholders, when
called, shall be held at such time and place within or without
the District of Columbia and may be called by the Board of
Directors, or the Executive Committee, or the holders of record
of not less than one-fifth of all the outstanding shares entitled
to vote at the meeting, or, if the meeting is for the purpose of
enabling the holders of the Serial Preferred Stock of the Company
to elect directors upon the conditions set forth in the Articles
of Incorporation of the Company, such meeting shall be called as
therein provided.
SECTION 3. Written notice stating the place, day and hour
of each meeting of the stockholders and the purpose or purposes
for which the meeting is called shall be given not less than ten
days (or such longer period as may be prescribed by law) and not
more than fifty days before the date of the meeting to each
stockholder of record entitled to vote at the meeting, by
depositing such notice in the United States mail addressed to the
respective stockholders at their addresses as they appear on the
records of the Company, with postage thereon prepaid.
In connection with the first election of a portion of the
members of the Board of Directors by the holders of the Serial
Preferred Stock upon accrual of such right, as provided in the
Articles of Incorporation of the Company, the Company shall
prepare and mail to the holders of the Serial Preferred Stock
entitled to vote thereon such proxy forms, communications and
documents as may be deemed appropriate for the purpose of
soliciting proxies for the election of directors by the holders
of the Serial Preferred Stock.
The Secretary or an Assistant Secretary of the Company shall
cause to be made, at least ten days before each meeting of
stockholders, a complete list of the stockholders entitled to
vote at such meeting or any adjournment thereof, with the address
of and the number of shares held by each. Such list, for a
period of ten days prior to such meeting, shall be kept on file
at the principal place of business of the Company and shall be
subject to inspection for any proper purpose by any stockholder
at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and
shall be subject to the inspection for any proper purpose of any
stockholder during the whole time of the meeting.
SECTION 4. At each meeting of stockholders the holders of
record of a majority of the outstanding shares entitled to vote
at such meeting, represented in person or by proxy, shall
constitute a quorum, except as otherwise provided by law or by
the Articles of Incorporation of the Company. The affirmative
vote of the holders of a majority of the shares represented at a
duly organized meeting at which a quorum was present at the time
of organization, and entitled to vote on the subject matter,
shall be the act of the stockholders, unless the vote of the
holders of a greater
<PAGE>
3
number, or voting by classes, is required by law or by the
Articles of Incorporation of the Company and except that in
elections of directors those receiving the greatest numbers of
votes shall be deemed elected even though not receiving a
majority. If a meeting cannot be organized because a quorum has
not attended, the holders of a majority of the shares represented
at the meeting may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum
shall have been obtained, when any business may be transacted
which might have been transacted at the meeting as first convened
had there been a quorum.
SECTION 5. Meetings of the stockholders shall be presided
over by the Chairman of the Board or, if he is not present, by
the President or, if neither is present, by a Vice Chairman or,
if no such officer is present, by a chairman to be chosen at the
meeting. The Secretary of the Company or, if he is not present,
an Assistant Secretary of the Company or, if neither is present,
a secretary to be chosen at the meeting, shall act as Secretary
of the meeting.
SECTION 6. Each stockholder entitled to vote at any meeting
may so vote either in person or by proxy executed in writing by
the stockholder or by his duly authorized attorney-in-fact and
shall be entitled to one vote on each matter submitted to a vote
for each share of stock of the Company having voting power
thereon registered in his name at the date fixed for the
determination of the stockholders entitled to vote at the
meeting.
SECTION 7. At all elections of directors the voting shall
be by ballot. At all such elections, the Chairman of the meeting
shall appoint two inspectors of election, unless such appointment
shall be unanimously waived by the stockholders present in person
or represented by proxy at the meeting and entitled to vote for
the election of directors. No director or candidate for the
office of director shall be appointed as such inspector. The
inspectors, before entering upon the discharge of their duties,
shall take and subscribe an oath or affirmation faithfully to
execute the duties of inspector at such meeting with strict
impartiality and according to the best of their ability, and
shall take charge of the polls and after the balloting shall make
a certificate of the result of the vote taken.
SECTION 8. In order to determine who are stockholders of
the Company for any proper purpose, the Board of Directors either
may close the stock transfer books or, in lieu thereof, may fix
in advance a date as the record date for such determination, such
date in any case to be not more than fifty days (and, in the case
of a meeting of stockholders, not less than ten days or such
longer period as may be required by law) prior to the date on
which the particular action, requiring such determination, is to
be taken. When such a record date has been so fixed for the
determination of stockholders entitled to vote at a meeting, such
determination shall apply to any adjournment thereof.
<PAGE>
4
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. The Board of Directors of the Company shall
consist of twelve persons, each of whom shall be a stockholder of
the Company. The directors shall be divided into three classes,
designated Class I, Class II, and Class III. Each of the classes
shall have four directors. At the 1987 annual meeting of
stockholders, 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 stockholders beginning in 1988, successors to the
class of directors whose term expires at that annual meeting
shall be elected for a three-year term. Except as otherwise
provided in the Articles of Incorporation of the Company and in
these By-Laws, the directors shall hold office until the annual
meeting of the stockholders for the year in which their
respective terms expire and until their respective successors
shall have been elected and qualified. No person shall be
eligible for election as a director after he shall have attained
his seventieth birthday, and no person shall be eligible to serve
as a director beyond the next annual meeting after he shall have
attained his seventieth birthday. No director who is a full time
employee of the Company shall be eligible to serve as a director
beyond the next annual meeting after termination of his
employment with the Company, provided, that (a) this provision
shall not apply to a director who is serving or has served as
Chief Executive Officer and (b) a director serving at the time of
termination of employment as Vice Chairman shall be permitted to
continue as director until the expiration of his three-year term.
Seven members of the Board shall constitute a quorum for the
transaction of business, but if any meeting of the Board cannot
be organized because a quorum has not attended, a majority of
those present may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum
shall have been obtained, when any business may be transacted
which might have been transacted at the meeting as first convened
had there been a quorum. The acts of a majority of the directors
present at a meeting at which a quorum is present shall, except
as otherwise provided by law, by the Articles of Incorporation of
the Company, or by these By-Laws, be the acts of the Board of
Directors.
Only persons who are nominated in accordance with the
following procedures shall be eligible for election as Directors.
Nominations of persons for election to the Board of the Company
may be made at the annual meeting of stockholders by or at the
direction of the Board of Directors, by any nominating committee
or person appointed by the Board, or by any stockholder of the
Company entitled to vote for the election of Directors at the
meeting who complies with the notice procedures set forth in this
Article II, Section 1. Such nominations, other than those made
by or at the direction of the Board or by a nominating committee
or person appointed by the Board, shall be made pursuant to
timely notice in writing to the Secretary of Potomac Electric
Power Company. To be timely, a stockholder's notice shall be
received at the principal executive offices of the Company not
less than 60 days nor more than 85 days prior to the meeting;
provided, however, that in the event that less than 65 days'
notice or prior public disclosure of the date of the meeting is
given or
<PAGE>
5
made to stockholders, notice by the stockholder to be timely must
be so received not later than the close of business on the
fifteenth day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made,
whichever first occurs. Such stockholder's notice to the
Secretary shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a
Director, (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of
capital stock of the Company that are beneficially owned by the
person and (iv) any other information relating to the person that
is required to be disclosed in solicitations for proxies for
election of Directors pursuant to Section 14(a) of the Securities
Exchange Act of 1934, as amended; and (b) as to the stockholder
giving the notice (i) the name and record address of the
stockholder and (ii) the class and number of shares of capital
stock of the Company that are beneficially owned by the
stockholder. The Company may require any proposed nominee to
furnish such other information as may reasonably be required by
the Company to determine the eligibility of such proposed nominee
to serve as Director of the Company. No person shall be eligible
for election as a Director of the Company unless nominated in
accordance with the procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant,
determine that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be
disregarded.
The Board of Directors, as soon as is reasonably practicable
after the initial election of Directors by the stockholders in
each year, shall elect one of its number Chairman of the Board,
who may be, but is not required to be, an officer and employee of
the Company.
SECTION 2. Any vacancy, from any cause other than an
increase in the number of Directors, occurring among the
directors shall be filled without undue delay by a majority of
the remaining directors who were elected, or whose predecessors
in office were elected, by the same class of stockholders as that
which elected the last incumbent of the vacant directorship. The
term of any director elected by the remaining directors to fill a
vacancy (other than one caused by an increase in the number of
directors) shall expire at the next stockholders' meeting at
which directors are elected.
SECTION 3. Regular meetings of the Board of Directors shall
be held at the office of the Company in the District of Columbia
(unless otherwise fixed by resolution of the Board) at such time
as may from time to time be fixed by resolution of the Board.
Special meetings of the Board may be held upon call of the
Executive Committee, or the Chairman of the Board, or the
President, or a Vice Chairman, by oral, telegraphic or written
notice, setting forth the time and place (either within or
without the District of Columbia) of the meeting, duly served on
or sent or mailed to each director not less than two days before
the meeting. A meeting of the Board may be held without notice,
immediately after, and at the same place as, the annual meeting
of the stockholders. A waiver
<PAGE>
6
in writing of any notice, signed by a director, whether before or
after the time stated therein, shall be deemed equivalent to the
giving of such notice to such director. Neither the business to
be transacted at, nor the purpose of, any regular or special
meeting of the Board need be specified in any notice, or waiver
of notice, of such meeting.
SECTION 4. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board or, if he is not
present, by the President or, if neither is present, by a Vice
Chairman or, if no such officer is present, by a chairman to be
chosen at the meeting. The Secretary of the Company or, if he is
not present, an Assistant Secretary of the Company or, if neither
is present, a secretary to be chosen at the meeting, shall act as
secretary of the meeting.
SECTION 5. The Board of Directors may, by resolution or
resolutions adopted by not less than the number of directors
necessary to constitute a quorum of the Board, designate an
Executive Committee consisting of not less than three nor more
than seven directors. Except as otherwise provided by law, the
Executive Committee shall have and may exercise, when the Board
is not in session, all of the powers of the Board in the
management of the property, business and affairs of the Company;
but the Executive Committee shall not have power to fill
vacancies in the Board, or to change the membership of, or to
fill vacancies in, the Executive Committee, or to adopt, alter,
amend, or repeal by-laws of the Company. The Board shall have
the power at any time to fill vacancies in, to change the
membership of, or to dissolve, the Executive Committee. The
Executive Committee may make rules for the conduct of its
business and fix the time and place of its meetings, and may
appoint such committees and assistants as it shall from time to
time deem necessary. A majority of the members of the Executive
Committee shall constitute a quorum, and the acts of a majority
of the members of the Committee present at a meeting at which a
quorum is present shall be the acts of said Committee. All
action taken by the Executive Committee shall be reported to the
Board at its regular meeting next succeeding the taking of such
action.
SECTION 6. The Board of Directors may also, by resolution
or resolutions adopted by not less than the number of directors
necessary to constitute a quorum of the Board, designate one or
more other committees, each such committee to consist of such
number of directors as the Board may from time to time determine,
which, to the extent provided in said resolution or resolutions,
shall have and may exercise such limited authority as the Board
may authorize. Such committee or committees shall have such name
or names as the Board may from time to time determine. The Board
shall have the power at any time to fill vacancies in, to change
the membership of, or to dissolve, any such committee. A
majority, or such other number as the Board may designate, of the
members of any such committee shall constitute a quorum. Each
such committee may make rules for the conduct of its business and
fix the time and place of its meetings unless the Board shall
otherwise provide. All action taken by any such committee shall
be reported to the Board at its regular meeting next succeeding
the taking of such action, unless otherwise directed.
<PAGE>
7
SECTION 7. The Board of Directors shall fix the
compensation to be paid to each director who is not a salaried
employee of the Company for serving as a director and for
attendance at meetings of the Board and committees thereof, and
may authorize the payment to directors of expenses incurred in
attending any such meeting or otherwise incurred in connection
with the business of the Company. This By-Law shall not be
construed to preclude any Director from serving the Company in
any other capacity and receiving compensation therefor.
SECTION 8. At a special meeting called expressly for such
purpose (i) any director elected by the holders of the Serial
Preferred Stock, or elected by directors to fill a vacancy among
the directors elected by the holders of such stock, may be
removed, only for cause, by a vote of the holders of a majority
of the shares of Serial Preferred Stock, and the resulting
vacancy may be filled, for the unexpired term of the director so
removed, by a vote of the holders of such Stock; and (ii) any
director elected by the holders of the Common Stock, or elected
by directors to fill a vacancy among the directors elected by the
holders of such stock, may be removed, only for cause, by a vote
of the holders of a majority of the shares of Common Stock, and
the resulting vacancy may be filled, for the unexpired term of
the director so removed, by a vote of the holders of such Stock.
SECTION 9. With respect to a Company officer, director, or
employee, the Company shall indemnify, and with respect to any
other individual the Company may indemnify, any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (an "Action"),
whether civil, criminal, administrative, arbitrative or
investigative (including an Action by or in the right of the
Company) by reason of the fact that he is or was a director,
officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such Action;
except in relation to matters as to which he shall be finally
adjudged in such Action to have knowingly violated the criminal
law or be liable for willful misconduct in the performance of his
duty to the Company. The termination of any Action by judgment,
order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not of itself create a presumption that
the person was guilty of willful misconduct.
Any indemnification (unless ordered by a court) shall be
made by the Company only as authorized in the specific case upon
a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth above. In the
case of any director, such determination shall be made: (1) by
the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such Action; or (2) if such
a quorum is not obtainable, by majority vote of a committee duly
designated by the Board of Directors (in which designation
directors who are parties may participate) consisting solely of
two or more directors not at the time parties to the proceeding;
or (3) by special legal counsel selected by the Board of
Directors or its committee in the manner prescribed by clause
<PAGE>
8
(1) or (2) of this paragraph, or if such a quorum is not
obtainable and such a committee cannot be designated, by majority
vote of the Board of Directors, in which selection directors who
are parties may participate; or (4) by vote of the shareholders,
in which vote shares owned by or voted under the control of
directors, officers and employees who are at the time parties to
the Action may not be voted. In the case of any officer,
employee, or agent other than a director, such determination may
be made (i) by the Board of Directors or a committee thereof;
(ii) by the Chairman of the Board of the Company or, if the
Chairman is a party to such Action, the President of the Company,
or (iii) such other officer of the Company, not a party to such
Action, as such person specified in clause (i) or (ii) of this
paragraph may designate. Authorization of indemnification and
evaluation as to reasonableness of expenses shall be made in the
same manner as the determination that indemnification is
permissible, except that if the determination is made by special
legal counsel, authorization of indemnification and evaluation as
to reasonableness of expenses shall be made by those entitled
hereunder to select such legal counsel.
Expenses incurred in defending an Action for which
indemnification may be available hereunder shall be paid by the
Company in advance of the final disposition of such Action as
authorized in the manner provided in the preceding paragraph,
subject to execution by the person being indemnified of a written
undertaking to repay such amount if and to the extent that it
shall ultimately be determined by a court that such
indemnification by the Company is not permitted under applicable
law.
It is the intention of the Company that the indemnification
set forth in this Section 9 of Article II, shall be applied to no
less extent than the maximum indemnification permitted by law.
In the event that any right to indemnification or other right
hereunder may be deemed to be unenforceable or invalid, in whole
or in part, such unenforceability or invalidity shall not affect
any other right hereunder, or any right to the extent that it is
not deemed to be unenforceable. The indemnification provided
herein shall be in addition to, and not exclusive of, any other
rights to which those indemnified may be entitled under any
by-law, agreement, vote of stockholders, or otherwise, and shall
continue as to a person who has ceased to be a director, officer,
employee, or agent and inure to the benefit of such person's
heirs, executors, and administrators.
SECTION 10. The Board of Directors may, in its discretion,
at any time elect one or more persons to the position of Advisory
Director, to serve as such during the pleasure of the Board, but,
except for a director who has served as Chief Executive Officer,
no person shall be eligible to serve as an Advisory Director
beyond the next annual meeting after he shall have attained his
seventy-second birthday. Advisory Directors so elected by the
Board shall be entitled to attend, and take part in discussions
at, meetings of the Board of Directors, but shall not be
considered members of the Board for quorum or voting purposes.
Advisory Directors shall receive the same compensation as members
of the Board.
<PAGE>
9
SECTION 11. In any proceeding brought by a stockholder in
the right of the Company or brought by or on behalf of the
stockholders of the Company, no monetary damages shall be
assessed against an officer or director. The liability of an
officer or director shall not be limited as provided in this
section if the officer or director engaged in willful misconduct
or a knowing violation of the criminal law.
ARTICLE III
OFFICERS
SECTION 1. The Board of Directors, as soon as reasonably
practicable after the initial election of directors by
stockholders in each year, may elect a Chairman of the Board as
an officer of the Company, shall elect a President, may elect one
or more Vice Chairmen and shall elect one or more Vice Presidents
(who may be given such other descriptive titles as the Board may
specify), a Secretary, a Treasurer and a Comptroller, and from
time to time may elect such Assistant Secretaries, Assistant
Treasurers, Assistant Comptrollers and other officers, and
appoint such other agents, as it may deem desirable. Any two or
more offices may be held by the same person, except the offices
of President and Secretary. The Board of Directors shall elect
the Chairman of the Board or one of the above officers Chief
Executive Officer of the Company.
SECTION 2. The term of office of all officers shall be
until the next succeeding annual election of officers and until
their respective successors shall have been elected and
qualified; but any officer or agent elected or appointed by the
Board of Directors may be removed, with or without cause, by the
affirmative vote of a majority of the members of the Board
whenever in their judgment the best interests of the Company will
be served thereby. Such removal shall be without prejudice to
contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create
contract rights. Unless specifically authorized by resolution of
the Board of Directors, no agreement for the employment of any
officer for a period longer than one year shall be made.
SECTION 3. Subject to such limitations as the Board of
Directors or the Executive Committee may from time to time
prescribe, the officers of the Company shall each have such
authority and perform such duties in the management of the
property, business and affairs of the Company as by custom
generally pertain to their respective offices, as well as such
authority and duties as from time to time may be conferred by the
Board of Directors, the Executive Committee or the Chief
Executive Officer.
SECTION 4. The salaries of all officers, employees and
agents of the Company shall be determined and fixed by the Board
of Directors, or pursuant to such authority as the Board may from
time to time prescribe.
<PAGE>
10
ARTICLE IV
CERTIFICATES OF STOCK
SECTION 1. The shares of the capital stock of the Company
shall be represented by certificates, provided that the Board of
Directors of the Company may provide by resolution that some or
all of the shares of any or all of its classes or series of
capital stock may be uncertificated shares. Except as otherwise
expressly provided by law, the rights and obligations of the
holders of uncertificated shares and the rights and obligations
of the holders of certificates representing shares of the same
class and series shall be identical. Shares of the capital stock
of the Company that are evidenced by certificates shall be in
such form as the Board of Directors may from time to time
prescribe. Such certificates shall be signed by the President or
a Vice President and by the Secretary or an Assistant Secretary,
shall be sealed with the seal of the Company, or a facsimile
thereof, shall be countersigned and registered in such manner, if
any, as the Board may by resolution prescribe. Where such a
certificate is countersigned by a transfer agent (other than the
Company or an employee of the Company), or by a transfer clerk
and registered by a registrar, the signatures thereon of the
President or Vice President and the Secretary or Assistant
Secretary may be facsimiles. In case any officer who has signed
or whose facsimile signature has been placed upon any such
certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Company with the
same effect as if such officer had not ceased to hold such office
at the date of its issue.
SECTION 2. The shares of the capital stock of the Company
shall be transferable on the books of the Company by the holders
thereof in person or by duly authorized attorney, and, if
represented by certificates, upon surrender and cancellation of
the certificates evidencing such shares, with duly executed
assignment and power of transfer endorsed thereon or attached
thereto, and with such proof of the authenticity of the
signatures as the Company or its agents may reasonably require
and, if uncertificated, upon receipt of appropriate instructions.
SECTION 3. No certificate evidencing shares of the capital
stock of the Company shall be issued in place of any certificate
alleged to have been lost, stolen, or destroyed, except upon
production of such evidence of the loss, theft or destruction,
and upon such indemnification of the Company and its agents by
such person or persons and in such manner, as the Board of
Directors may from time to time prescribe.
ARTICLE V
CHECKS, NOTES, CONTRACTS, ETC.
All checks and drafts on the Company's bank accounts, bills
of exchange, promissory notes, acceptances, obligations, other
instruments for the payment of money, and endorsements other than
<PAGE>
11
for deposit in a bank account of the Company shall be signed by
the Treasurer or an Assistant Treasurer and shall be
countersigned by the Chief Executive Officer, the President, a
Vice Chairman or a Vice President, unless otherwise authorized by
the Board of Directors; provided that checks drawn on the
Company's dividend and/or special accounts may bear the manual
signature, or the facsimile signature, affixed thereto by a
mechanical device, of such officer or agent as the Board of
Directors shall authorize.
All contracts, bonds and other agreements and undertakings
of the Company shall be executed by the Chief Executive Officer,
the President, a Vice Chairman or a Vice President and by such
other officer or officers, if any, as may be designated, from
time to time, by the Board of Directors and, in the case of any
such document required to be under seal, the corporate seal shall
be affixed thereto and attested by the Secretary or an Assistant
Secretary.
Whenever any instrument is required by this Article to be
signed by more than one officer of the Company, no person shall
so sign in more than one capacity.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Company shall begin on the first day
of January in each year and shall end on the thirty-first day of
December following.
ARTICLE VII
OFFICES
The principal office of the Company shall be situated in the
District of Columbia. The registered office of the Company in
Virginia shall be situated in the County of Fairfax. The Company
may have such other offices at such places, within the District
of Columbia, the Commonwealth of Virginia, or elsewhere, as shall
be determined from time to time by the Board of Directors or by
the Chief Executive Officer.
ARTICLE VIII
AMENDMENTS
Except as otherwise provided by law, the Board of Directors
may alter, amend, or repeal the By-Laws of the Company, or adopt
new By-Laws, at any meeting of the Board, by the affirmative vote
of not less than the number of directors necessary to constitute
a quorum of the Board.
<PAGE>
PREAMBLE
THIS COLLECTIVE BARGAINING AGREEMENT IS MADE BY AND BETWEEN
POTOMAC ELECTRIC POWER COMPANY (HEREINAFTER REFERRED TO AS THE
"COMPANY") AND LOCAL UNION #1900 OF THE INTERNATIONAL BROTHERHOOD
OF ELECTRICAL WORKERS (HEREINAFTER REFERRED TO AS THE "UNION").
THE PARTIES DO HEREBY AGREE AS FOLLOWS:
ARTICLE 1
MANAGEMENT
Section 1.01. By reason of the nature of the business of the
Company it is essential, and is therefore agreed, that the
management of the Company, the supervision and control of all
operations and the direction of the working forces, including,
but not limited to, the right to hire, suspend, furlough,
discipline, discharge for cause, promote, demote, or transfer
employees, and the right to operate the Company, shall be vested
in, and reserved to, the Company, except as herein limited.
ARTICLE 2
BARGAINING UNIT
Section 2.01. The Union is recognized as the sole collective
bargaining agent for the bargaining unit, which is composed of
all employees of the Company at all work locations, regardless of
the method of pay, excluding only confidential employees,
property protection employees (guards), and professional,
supervisory and management employees.
Section 2.02. Regular employees are employees whose employment
is reasonably expected to be permanent at the time they are
employed, and it is contemplated that they will work in each
calendar week a normal workweek.
Section 2.03. Temporary employees are employees whose employment
is with the definite understanding that the employment is not of
a permanent nature, but it is contemplated that they will work a
normal workweek while employed. The Company will inform the Union
of the employment and assigned Department of such employees and
the expected duration of their employment.
Section 2.04. Whenever the terms "employee" or "employees" are
used in this Agreement, they shall refer only to employees in the
bargaining unit as identified herein unless specifically stated
otherwise.
<PAGE>
Section 2.05. Casual employees are employees who are employed to
work part-time of less than a normal workday or a normal
workweek. They may be assigned to bargaining unit work but are
not in the bargaining unit or subject to this Agreement. These
employees will not in any instance deprive qualified regular
employees of overtime work. The Company will inform the Union of
the employment and assigned Departments of such employees.
Section 2.06. Any existing bargaining unit job moved from
bargaining unit to non-bargaining unit will be negotiated with
the Union by the Company.
Section 2.07. The Union and the Company shall keep each other
informed as to the individuals authorized to act in Union-
Management relationships.
Section 2.08. It is the continuing policy of the Company and the
Union that the provisions of this Agreement shall be applied to
all employees without regard to race, color, religion, national
origin, age, sex, handicap, or status as a disabled veteran or
veteran of the Vietnam Era.
Section 2.09. The use of the masculine or feminine gender in
this Agreement shall be construed as including both genders and
not as sex limitations unless the Agreement clearly requires a
different construction.
ARTICLE 3
UNION MEMBERSHIP AND DUES DEDUCTION
Section 3.01. It is agreed that upon completion of one (1) month
of continuous service employees in bargaining unit positions
shall, as a condition of employment, arrange to either:
(a) Become a member of the Union and maintain membership in the
Union in good standing in accordance with its Constitution
and Bylaws; or
(b) In the case of an employee who is a member of and adheres to
established and traditional tenets or teachings of a bona
fide religion, body, or sect which has historically held
conscientious objections to joining or financially
supporting labor organizations, tender sums equal to the
dues and initiation fees of the Union to a non-religious
non-labor organization charitable fund exempt from taxation
under Section 5.01(c)(3) of Title 26 of the Internal Revenue
Code, chosen by such employee from the following three
funds:
Washington Hospital Center Regional Skin Bank
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<PAGE>
(IRS-ID#53-0239275)
American Cancer Society
(IRS-ID#52-0591532)
American Heart Association
(IRS-ID#53-0213318)
If such employee who holds conscientious objections pursuant
to this provision requests the Union to use the grievance-
arbitration procedure on his or her behalf, the Union has
the right, in accordance with Section 19 of the National
Labor Relations Act, as amended, to charge the employee for
the reasonable cost, which shall be determined by the Union,
for using such procedures.
(c) No provision of subparagraph (a) shall apply in any state to
the extent that it is prohibited by state law.
Section 3.02. The Union will, on such terms and conditions as
are generally applicable to other members accept into membership
all employees in the bargaining unit.
Section 3.03. All present, new and rehired employees who are in
bargaining unit positions, upon completion of the above stated
time period shall, as a condition of employment, tender the
initiation fees and standard dues uniformly required as a
condition of acquiring and retaining membership in the Union,
except as provided for in Section 3.01(b) above. It is agreed
that the Union shall notify the Company by certified mail when
any bargaining unit employee has become delinquent in tendering
either the standard dues or initiation fees uniformly required as
provided for in Section 3.01(a) above or the equivalent sums as
provided for in Section 3.01(b) above, and the Company shall
thereupon notify the employee that, unless he/she tenders to the
Union the delinquent dues or initiation fees or their equivalent
within 30 days, his/her employment by the Company shall be
terminated. The Union agrees that it will not require the
Company to discharge any such employee for any reason other than
failure of the employee to tender such fees and/or dues uniformly
required as a condition of acquiring or retaining membership in
the Union, or as required under Section 3.01(b) above.
Section 3.04. The Company agrees to deduct all such dues and
fees, or their equivalent from the pay of each employee from whom
it receives a lawful written authorization and will continue to
make such deductions while the authorization remains in effect.
Such deductions shall be made from the payroll for the month
following the month in which written authorization is received by
the Company. The sums so collected shall be paid by the Company
to the Financial Secretary of the Union. The Union shall notify
the Company in writing of any changes in said fees and/or dues,
3
<PAGE>
or their equivalent, but in no case shall the Company collect
and/or pay over to the Union any sums in excess of those
authorized.
Section 3.05. Notwithstanding anything to the contrary contained
herein or in any such written authorization, the Company may, in
its discretion, cease to deduct and pay over in accordance with
any such written authorization from and after the date on which
the grantor of such authorization ceases to occupy a position
included in the bargaining unit.
Section 3.06. All such written authorizations, and all
withdrawals, cancellations and modifications thereof, shall be
valid and effective, notwithstanding anything to the contrary
contained therein or herein, only if transmitted to the Company
through the Financial Secretary of the Union.
Section 3.07. The Union shall indemnify and save the Company
harmless against any and all claims, demands, lawsuits, or other
forms of liability that may arise out of or by reason of action
taken by the Company in making payroll deductions of Union
membership dues, and/or fees, or their equivalent, as herein
above defined or as a result of discharge of an employee for
failure to pay such dues and/or fees, or their equivalent.
Section 3.08. In order to facilitate voluntary contributions to
the IBEW Committee on Political Education (COPE), the Company
agrees to deduct a specified dollar amount from the pay of each
employee for whom it receives a lawful written authorization,
provided the salary, wages or sickness benefit payments due the
employee for a payroll period are sufficient to permit such
deduction. The Company will continue to make such deductions
while the authorization remains in effect or until the employee
ceases to occupy a position included in the bargaining unit.
(a) The sums so collected shall be paid by the Company to the
Financial Secretary of the Union. The Union shall notify
the Company in writing of any changes of the deduction
amounts authorized, but in no case shall the Company collect
and/or pay over to the Union any sums in excess of those
authorized.
(b) All written authorizations, and all withdrawals,
cancellations and modifications thereof, shall be valid and
effective, notwithstanding anything to the contrary
contained therein or herein, only if transmitted to the
Company through the Financial Secretary of the Union.
(c) As required by law, the Union shall reimburse the Company
for the full cost of implementation and continued
administration of the payroll deduction system for IBEW
COPE.
4
<PAGE>
(d) The Union shall indemnify and save the Company harmless
against any and all claims, demands, lawsuits, or other
forms of liability that may arise out of or by reason of
action taken by the Company in making payroll deductions of
IBEW COPE contributions.
ARTICLE 4
UNION BUSINESS
Section 4.01. Upon proper request as hereinafter set forth,
Union Officers, Chief Stewards, and Stewards shall be excused
from duty in order to attend to Union business.
(a) Request for time off for Union business shall be made to the
Department Head or Supervisor as early as possible in
advance and permission obtained before leaving. The
Supervisor will grant permission except in cases of
emergency when any one of the above named cannot be spared.
(b) Excused persons (named above) shall report back to their
supervisors immediately upon return to duty.
(c) Time off for the purpose of attending to Union business
shall be limited to short periods of time. Protracted
absences must be taken up specially in accordance with
Article 14, Section 14.10.
(d) Any other member of the Union whose services are required in
connection with Union business shall be excused from duty
for up to one day upon request of the President of the Union
(or his/her designated representative) to the member's
Supervisor or Department Head under the same conditions as
listed above.
Section 4.02. In order to investigate alleged grievances, a
Union Officer, Chief Steward or Steward shall be permitted to
visit employees at work or observe working conditions. On such
occasions, the person shall first see the Department Head, who
will make such arrangements as may be necessary, provided there
is no undue interference with work in progress. Upon being
granted permission to enter the property, the Union Officer,
Chief Steward or Steward will conform to all Company regulations.
Section 4.03. Union Officers, Chief Stewards or Stewards or any
other Union representatives shall not engage in Union activities
on Company time or property except as provided in Section 4.01 of
this Article or in Articles 16, 17 or 18.
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<PAGE>
Section 4.04. The Company's compensation procedure with respect
to time off for employees relative to Union business shall be as
follows:
(a) Under Step 1 of Article 17 of this Agreement, the Company
will compensate the grievant and the Steward for hours spent
in discussion meetings with Company representatives. If
such meetings take place outside the grievant's regular
working hours or extend beyond the grievant's regular
working hours, then such time shall be compensated at the
straight time rate.
(b) For Step 2 meetings under Article 17, the Company agrees to
compensate the grievant, the Steward and/or the Chief
Steward on the same basis as Section 4.04(a) above.
(c) The Company will not compensate any Union members for time
spent in arbitration hearings or labor contract negotiating
meetings.
(d) No person who is a full-time employee of the Union shall
receive any compensation from the Company for any meetings
held in connection with this Agreement.
(e) For meetings scheduled under the terms of Article 16 of this
Agreement, the Company will compensate the Steward for time
in such meetings within the guidelines of Section 4.04(a)
above.
(f) Union members who are requested by the Company or OSHA or
who are required under State or Federal regulations to
attend, assist or accompany OSHA tours or OSHA meetings will
be compensated for hours spent during their regularly
scheduled working hours. Time spent where Union members
have requested voluntary involvement shall not be
compensated by the Company.
(g) The Union will make a reasonable effort to minimize the need
for Stewards to handle grievances outside their Department
or regular work location.
ARTICLE 5
PAY PROGRESSION, WORK ASSIGNMENTS,
AND JOB CLASSIFICATIONS
Section 5.01. Wages and salaries shall be paid in accordance
with the Standard Wage Classification (identified as Annex A of
this Agreement).
Section 5.02. Progression periods for advancement from the
minimum rate to the maximum rate indicated for the various
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<PAGE>
positions included in the bargaining unit shall be on a time and
merit basis. Employees receiving less than the maximum rate
shall be considered for advancement to the next step rate at the
time intervals prescribed in the Standard Wage Classification
until they reach the maximum rate of the Pay Grade to which their
classification is assigned. Dates for consideration for
advancement shall be known as consideration dates. When the
employee's ability and general performance record have been
satisfactory since his/her last consideration date, he/she shall
be advanced to the next step rate. Employees who are to be
denied advancement to the next step rate shall be notified in
writing of that fact, and the reasons therefor, at least one week
prior to their consideration dates, unless absence from work
precludes such notice. In such case, the employee shall be given
written notice upon return to work.
Section 5.03. Employees not at work for a period of time in
excess of 31 consecutive calendar days shall have their
consideration dates postponed until they have worked the full
period required by the Standard Wage Classification. This shall
not apply to employees absent due to an injury incurred in line
of duty or because of jury duty or vacation; or to employees
absent because they are reservists or National Guard called to
active duty for annual military training or temporary active duty
by the declaration of an emergency by a state governor or the
Mayor of the District of Columbia.
Section 5.04. Changes in pay rates shall become effective on the
first day of the payroll period nearest the consideration date.
(a) An employee whose classification is changed to one in a
higher Pay Grade shall receive an increase in pay that is
more than the largest increase between the step rates of
his/her former Pay Grade.
(b) Except as provided in Subsection (c) below, an employee
whose classification is changed to one in a lower Pay Grade
shall enter the new Pay Grade at the first step; if, during
the first consideration period, the employee demonstrates
that he/she is qualified to be in a higher step in the Pay
Grade than the step for which he/she is being considered at
his/her consideration date, he/she shall be moved to the
highest step for which he/she is deemed qualified.
(c) An employee whose classification is changed to one in a
lower Pay Grade within the same Occupational Group or
another Occupational Group whose work is like or similar to
the work of the Occupational Group from which the employee
came shall enter the new Pay Grade at the highest step which
is not greater than his/her former rate of pay. During
his/her first consideration period (or within six (6)
months, if at the top step), the employee must demonstrate
satisfactorily through his/her general work performance that
he/she is qualified for that rate. If the employee's
performance does not demonstrate such qualification, he/she
shall be notified, in writing, of the fact, the reasons
therefor, and the step rate in which he/she is to be placed,
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at least one (1) week before the consideration date unless
absence from work precludes such notice, in which case the
employee shall be given written notice upon return to work.
(d) In order to determine which is the higher Pay Grade in the
case of a change between weekly and hourly Pay Grades, the
weekly equivalent of the top step of the hourly rate shall
be compared to the top step of the weekly rate.
(e) An employee whose classification is changed to a
classification which is 2 or more Pay Grades below his/her
present Pay Grade, the provisions of Section (c) above shall
apply.
Section 5.05. The Company agrees that all regular employees will
receive a full day's employment each basic scheduled workday of
their basic scheduled workweek provided they report for work in
accordance with their assigned basic work schedules and the terms
and conditions of this Agreement and are in condition to perform
their work.
Section 5.06. It is understood and agreed that a full day's
employment is defined as the basic schedule only and includes no
hours of overtime. It is further agreed that this basic schedule
will not be considered as changed by the addition of overtime
hours immediately preceding and/or immediately following the
basic schedule.
Section 5.07. This is not to preclude furloughs with proper
notice as provided in Article 9. This is not to affect the
Company's right to suspend employees from duty for disciplinary
reasons.
Section 5.08. It is agreed that in the day-by-day assignment of
duties in the normal work of any particular Occupational Group,
the Company may assign to employees in the Occupational Group any
duties required for the execution of that work.
Section 5.09. It is further agreed that the Company may, when
necessary, assign employees to duties outside of the normal work
of their Occupational Group under the following conditions:
(a) To keep employees productively and usefully engaged in
filling in the guaranteed full employment workweek, or
(b) When normal work (of an employee) is slack, or
(c) To avoid furloughs, or
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(d) Where there is insufficient work to provide full-time work
for any employee of a particular classification, or
(e) While training employees for advancement to higher rated
jobs.
Section 5.10. It is further agreed that the Company may, when
necessary, in order to meet service requirements, or fulfill the
Company's overall work requirements, or substitute for sickness,
vacation or other absence, temporarily assign employees to duties
outside the normal work of their Occupational Group, provided
that, prior to any such assignment, the Company shall first fully
utilize the employees in the other Occupational Group to execute
the work.
Section 5.11. Any such assignment under Sections 5.09 and 5.10
shall be (1) a temporary assignment; (2) made only for the above
enumerated purposes; (3) terminated as soon as possible
consistent with the above purposes; (4) made by the Company
without discrimination for Union or personal reasons; and (5) the
employee so assigned shall be paid in accordance with Section
5.12 while temporarily assigned.
Section 5.12.
(a) When an employee is temporarily assigned to a job in a
higher classification and performs the normal duties and
responsibilities of the job, such employee shall be paid the
rate of the job for which the employee has previously
qualified, or a rate shown in the Annex A Schedules for that
job which is at least thirty-five (35) cents an hour ($14.00
a week in weekly rated jobs) over his/her basic regular
rate, whichever is higher. The rate of pay is applicable
only to time worked and is not to be considered as the
employee's regular rate.
(b) While upgraded to Supervisor, an employee shall not be
assigned to perform bargaining unit work on an overtime
basis within 24 hours after starting the upgrade except (1)
in emergencies or (2) when no other employee eligible to
work such overtime is available to work the overtime on a
voluntary basis.
Section 5.13. It is agreed that to be entitled to the higher
rate of pay, the employee must be capable of performing the
normal duties and responsibilities of the higher classification
as needed that day; however, such capability is not to be
considered as a determination as to qualification for permanent
promotion to the higher rated classification.
Section 5.14. When an employee is promoted or temporarily
upgraded to a job classification in a higher Pay Grade, credit
shall be given in establishing the applicable rate of pay and
next consideration date for all periods of prior temporary
upgrading for which payment was made in that higher Pay Grade.
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Section 5.15. When an employee is assigned to fill a permanent
job vacancy in a higher Pay Grade and is deemed qualified to
perform the duties of the job, he/she shall be promoted at the
time of assignment. If the employee assigned must be given
training in order to be able to assume the duties of the job, a
training period of 3 months shall be allowed for him/her to
establish his/her fitness. During this training period he/she
shall receive his/her old rate of pay.
Section 5.16. It is agreed that in the interest of obtaining
improved service, better operations or lower costs, the Company
has the right to make changes in equipment, operations, and the
organization of work, including the determination of job content,
requirements and qualifications; and combine jobs, eliminate
jobs, and create new jobs, and it is understood that this is a
proper function of management.
Section 5.17.
(a) Employees in classifications which are affected by
technological change will be given assistance, training and
appropriate opportunity to qualify to perform duties arising
as a result of such change. If, after being given such
assistance, training and opportunity, an employee is deemed
not to be qualified to perform the duties of his/her
classification, the Company may invoke the provisions of
this Section by giving written notice to the employee, copy
to the Union. Such notice shall include the following
information:
(1) The employee's name, social security number, job title
and number, and classified and continuous service
seniority dates.
(2) A description of the new or changed duties resulting
from technological change that the employee has been
unable to perform.
(3) A description of the Company's efforts to provide the
employee with assistance, training and appropriate
opportunity to qualify to perform the new or changed
duties.
(4) A statement that the employee may bid out on any
available bargaining unit job he/she is qualified to
perform.
(5) A statement that after six (6) months if the employee
has failed to make a reasonable attempt to bid into
another bargaining unit job which he/she is qualified
to perform, the Company will endeavor to place him/her
in any available bargaining unit work that he/she is
qualified to perform.
(6) A statement that if the employee makes a reasonable
attempt to bid into another bargaining unit job but
after twelve (12) months has been unsuccessful, the
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Company shall prepare a list of all bargaining unit
jobs within the employee's Organizational Group for
which the employee is deemed qualified that are
available at that time or that are anticipated will be
available within six (6) months. (Determination as to
qualifications shall be based on the criteria set forth
in Article 8, Section 8.09). Within fourteen (14)
calendar days, the employee must irrevocably choose, in
writing, a job from the list or must irrevocably elect
to choose a job from a Company-wide list as explained
below. If there are no available jobs within the
Organizational Group for which the employee is deemed
qualified or if the employee elected to choose from the
Company-wide list, the Company shall prepare a list of
all jobs that are available at that time within the
bargaining unit for which the employee is deemed
qualified. Within fourteen (14) calendar days, the
employee must irrevocably choose, in writing, a job
from the list.
(7) An appropriate statement explaining how the employee's
pay shall be protected. Protection shall apply as
follows:
a) If the employee has twelve and one-half (12-1/2)
years of continuous service at the time he/she is
sent such notice, he/she will not be reduced in
pay.
b) If the employee does not have twelve and one-half
(12-1/2) years of continuous service at the time
he/she is sent the notice, the employee shall not
be reduced in pay for a period of one (1) full
year from the date the notice was sent plus three
(3) weeks for every full year of continuous
service the employee had at the time the notice
was sent. After expiration of this period of pay
rate protection, the employee shall be paid the
rate of the job into which he/she has bid or been
assigned.
(b) The Company will meet with the Union and discuss the
seniority placement of such employee; however, in fulfilling
its obligation under this Section, the Company may place the
employee, either as a result of a bid under Subsection
(a)(4) above or through placement under Subsection (a)(5) or
(6) above, without regard to the requirements of Article 8
of this Agreement.
(c) In the event a reduction in force is required due in full or
in part to technological change, the procedures contained in
Article 9 shall apply as they would in any other reduction
in force; nothing in Section 5.17 requires otherwise.
Section 5.18. The Standard Wage Classification Schedule
(identified and attached hereto as Annex A) will be implemented
in accordance with the terms of this Agreement and will remain in
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effect throughout the term of this Agreement. Should any dispute
related to Annex A arise during the term of this Agreement, it
shall not be subject to the grievance procedure outlined in
Article 17 or to the arbitration procedure outlined in Article 18
of this Agreement. The rate of pay for any "new job" or
"combined job" will be established by the Company subject to
negotiation with the Union. For the purpose of this Section a
"new job" will be defined as one in which substantially all of
the assigned tasks in the job classification have not previously
been performed by employees within that classification. For the
purpose of this Section a "combined job" will be defined as a job
classification created by the combining of two or more existing
jobs (jobs currently listed in Annex A) which results in the
abolition of either of the existing jobs. The terms "new job"
and "combined job" do not apply to the mere addition of duties
to, or removal of duties from, a job. If the parties are not
able to agree on the proper rate of pay for a new job or combined
job, the matter shall be presented to an arbitrator for
resolution. The decision of the arbitrator shall be binding on
all parties to this Agreement but in no event will affect the
classification or rate of pay of any other jobs in Annex A.
Section 5.19.
(a) The Company and the Union agree that either party may
prepare a "Change of Duty" form for the purpose of compiling
and documenting what it believes to be changes in the duties
and/or responsibilities of the job classifications set forth
in Annex A. These Change of Duty forms shall be available
from the Company or the Union. When the Union or any
employee feels that duties and/or responsibilities of a job
have been changed, a Change of Duty form may be filed at any
time during the term of this Agreement. The Change of Duty
form shall list the changed duties and/or responsibilities,
the approximate date(s) of implementation or performance and
information necessary to the identification of the job
classification in question and the person(s) completing the
form. Upon receipt of a Change of Duty form, the appropri-
ate Department Head shall sign and date the form. Copies of
the form will be distributed as follows: one copy to the
Union President, one copy to Industrial Relations, and one
copy to the employee. The Department Head's signature shall
only acknowledge receipt of the form and shall not represent
agreement with its contents.
(b) The Company and the Union shall include any jobs which
either party believes has undergone a substantial change in
duties and/or responsibilities since June 1, 1982, or the
last date on which the Pay Grade for the job was adjusted,
in the negotiations referred to in Section 24.02 of this
Agreement. Any settlement reached to change the wage rate
of a classification shall be retroactive to the date on
which added duties and/or responsibilities of the job
warranted an increase or June 1, 1994 whichever is later,
except that if a Change of Duty form regarding such change
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was not filed within thirty (30) days after the date of the
change, the retroactive period shall terminate with the
filing date of the Change of Duty form. Disputes over the
period for which retroactive pay under this Subsection is to
apply shall be resolved only through negotiation and shall
not be subject to the grievance or arbitration procedures
outlined in Article 17 or 18 of this Agreement or the
successor agreement.
ARTICLE 6
SPECIAL PREMIUMS
Section 6.01.
(a) Standard A&C Shifts
===================
Employees whose regular schedule requires them to work a
shift where half or more hours are within 4 p.m. to 8 a.m.
shall be paid a premium equal to $1.40 multiplied by the
number of hours in the employee's regular schedule for that
day.
(b) Non-Standard Shifts
===================
Employees whose regular schedule requires them to work a
shift that begins more than two (2) hours before or after 12
midnight ("A" shift), 8 a.m. ("B" shift) or 4 p.m. ("C"
shift) shall be paid a premium equal to $1.65 as follows,
multiplied by the number of hours in the employee's regular
schedule for that day.
(c) Premiums paid for non-standard shifts are in lieu of, not in
addition to, premiums for standard shifts.
(d) The payments under this Section are not to be paid to
employees working shifts as overtime or receiving premium
payments because of change of schedule, but are applicable
only to those hours worked on the shift when worked as a
regular schedule.
Section 6.02. Employees whose regular schedule requires them to
work a shift where half or more hours occur on Sunday, shall be
paid a premium of 25% of the employee's basic rate per hour
multiplied by the number of hours in the employee's regular
schedule for that shift. The payments are not to be paid to
employees working shifts as overtime or receiving premium
payments because of change of schedule, but are applicable only
to those hours worked on the shift when worked as a regular
schedule.
Section 6.03. Whenever the basic working schedule of an employee
is changed by the Company and he/she does not receive 96 hours'
notice before the change takes place, he/she shall be paid at the
rate of double time for the first day worked on the new schedule.
When notice of 96 hours is given before the change takes place,
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no premium rate will be paid. If an employee is given a change
of schedule without 96 hours' notice but on the day the employee
receives the change of schedule, he/she receives notice of its
cancellation before being released from work--the employee will
receive no change of schedule premium.
Section 6.04. Any change in schedule, whether the 96 hours'
notice is given or not, will be given to the employee in writing.
If the employee is not at work, such change will be given to the
employee in writing immediately upon his/her return to work.
Section 6.05. Where a change in working schedule without the
required notice causes an employee to be off duty instead of
working, he/she shall be paid double time for his/her next
straight time working day.
Section 6.06. Changes in working hours whereby schedules are
shifted by one (1) hour or less will not be considered a change
of schedule within the meaning of Sections 6.03-6.10 inclusive
providing notice is given to the employee during his/her last
preceding work shift or at least 12 hours prior to the change.
Section 6.07. A shift or off-day exchange within the same
workweek by mutual agreement between employees in the same job
classification will be permitted if approved by the Supervisor,
when it does not require the payment of overtime or change in
rate of pay and in the opinion of the Supervisor will not hinder
the work or unduly inconvenience fellow employees.
Section 6.08. When an employee has been given notice to change
his/her schedule in accordance with Sections 6.03-6.10 inclusive,
the changed schedule shall be considered his/her regular schedule
for that period. A period shall consist of the regularly
scheduled workweek, including off days, or any remaining part
thereof. Any further change from this schedule shall be
considered another change of schedule and the pertinent Sections
of this Article shall apply.
By way of elaboration, the following shall apply:
(a) When an employee is given a change of schedule without 96
hours' notice which identifies that the employee will be
changed from one shift to another for one (1) day and will
revert to his/her regular schedule the following day, the
employee will be paid at the rate of double time for the one
(1) day only and shall not be paid double time when he/she
reverts to his/her regular shift for that period;
(b) When an employee is given a change of schedule without 96
hours' notice which identifies that the employee will be
changed to another shift for an indefinite or unspecified
period of time and where the employee actually works on the
new shift for more than one (1) day before reverting to
his/her regular schedule, the employee shall be paid at the
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rate of double time on the first day worked on the new shift
and on the first day he/she reverts to his/her regular
schedule;
(c) When an employee is given a change of schedule without 96
hours' notice which identifies that the shift is changed for
more than one (1) day but the employee has an off day before
reverting to his/her regular schedule, the employee shall
not be paid double time when reverting to his/her regular
schedule. If, however, the employee's off day is changed
without the required notice, he/she shall be paid double
time on his/her next straight time day as described in
Section 6.05;
(d) When an employee's off day and his/her schedule are both
changed without the required notice, the employee shall be
paid at the rate of double time on the first day and second
day worked on the new schedule;
(e) When an employee is given a change of schedule, regardless
of notice, which identifies that he/she will be changed from
his/her original shift to another shift and then to another
(third) shift within the same period, the employee will be
paid at the rate of double time for the original change and
at double time for the change to the third shift within that
period.
Section 6.09. The requirements of Sections 6.03-6.10 inclusive
shall not apply to employees who are permitted to return to work
on a limited or light duty basis as the result of agreement
between the Medical Department and the management of their
Departments. This exclusion shall apply also at the time such
employees are returned to a regular schedule after release for
regular duty. When the return to regular duty and regular
schedule is to take place, the Company will, whenever possible,
schedule an off day for the employee between the days of change
when such return would allow only one shift of rest.
Section 6.10. Changes in working hours whereby schedules are
extended by the addition of overtime hours immediately preceding
and/or immediately following the basic schedule will not be
considered change of schedule within the meaning of Sections
6.03-6.09 inclusive when all of the hours of the normal schedule
are included in the extended workday.
Section 6.11. Meal allowances of $8.75 per meal shall be paid to
employees under the following conditions (except when the Company
furnishes an adequate meal):
(a) An employee whose hours of work are ten consecutive hours
(exclusive of meal times) or more shall be entitled to the
following number of meal allowances:
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Hours of Work Allowances
10 hours, but less than 15 1
15 hours, but less than 20 2
20 hours, but less than 25 3
(b) An employee reporting to work with less than two hours'
notice will be entitled to a meal allowance for each full 5-
hour period of work without limitation.
(c) When it is apparent that meal allowances will be due under
this Section, supervisors may release employees for meals at
any convenient period around normal meal times.
(d) If an employee is allowed time off for a meal, no deduction
from his/her time will be made if it does not exceed one-
half hour. Time taken in excess of one-half hour will be
deducted from his/her time.
Section 6.12. Employees shall report for work at their regular
reporting location or any other location when so instructed. An
employee's workday will start when he/she reports for work at the
assigned location and will end at the close of his/her scheduled
working time or when he/she is released, whichever is later.
Travel to any reporting location at the beginning of the workday
or from a work location at the end of a workday will be personal
time and mileage.
Section 6.13. Employees who report at the beginning of their
workday to, or who leave at the end of their workday from, a
location other than their regular reporting location, shall be
paid a travel allowance computed as follows:
(a) The Company shall establish reporting locations consistent
with regular, established business requirements and will
notify the Union of such locations.
(b) Using the reporting location as a center point, circles will
be drawn with radii of 7, 13, 19 and 25 miles (and
additional increments of 6 miles as needed) to establish
zones.
(c) The zone within 7 miles of the employee's regular reporting
location shall be considered as his/her base zone.
(d) Employees who, as instructed, report at the beginning of the
workday to a location other than one in their base zone
shall be paid an allowance based upon the zone in which the
location is set.
(e) Employees who, as instructed, leave a location at the end of
the workday from a location other than one in their base
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zone shall be paid an allowance based upon the zone in which
the location is set.
(f) A $1.70 allowance shall be paid for reporting to or leaving
from the first zone outside the base zone.
A $1.60 additional allowance will be paid for each
additional zone that the employee reports to or leaves from
at the beginning or end of his/her workday.
(g) No allowances will be paid when transportation is supplied
or made available by the Company.
Section 6.14. Employees who may be required to move from one
location to another, after reporting to work at the beginning of
the workday, shall do so on Company time and expense. When an
employee uses his/her own vehicle in such moves, a rate of 31
cents per mile shall be paid to the employee as full reim-
bursement. In the event the Internal Revenue Service changes its
prevailing mileage rate during the term of this Agreement, an
adjustment to that rate shall be made within two (2) payroll
periods from the publication of the announcement and applied
prospectively. Travel mileage shall be limited to reasonably
direct routes and time expended should relate to normal
expectations.
Section 6.15. The allowances provided for in Sections 6.12-6.14
inclusive shall be paid to employees called out for overtime in
addition to travel time provided for in Article 7, Sections 7.09-
7.15 inclusive.
Section 6.16. Nothing contained in Sections 6.12-6.16 inclusive
shall be construed as to prevent the Company from changing an
employee's location either on a regular or temporary basis.
Travel allowances under Section 6.13 above will not be
applicable, however, under any of the following conditions:
(a) A permanent change in reporting location where the new
location is within the employee's base zone. Permanent
reassignment is to denote an expectation of continuing
without change in the foreseeable future.
(b) In lieu of any travel allowance, a single relocation
allowance shall be paid to an employee permanently
reassigned to a location outside his/her base zone. Such
relocation allowance shall be equal to the straight-line
distance, in whole miles, between the new and old locations
multiplied by $8.50. The relocation allowance shall not be
payable where the reassignment was at the request of the
employee or if the distance between the employee's home and
new location is less than the distance between his/her home
and the old location.
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(c) A temporary change in reporting location where such
assignments result from the Department Head and the Chief
Steward concluding an arrangement satisfactory to them is
stated in writing, with a copy to the Union.
ARTICLE 7
OVERTIME
Section 7.01. Except for weekly rated employees, the normal
workday shall consist of 8 consecutive hours of work, exclusive
of meal times, and the normal workweek shall consist of 5 normal
workdays. Hours scheduled in excess of 8 hours are not
considered as part of the normal day.
Section 7.02. For payroll purposes the workday begins at 12:01
a.m. in the morning and ends at 12 midnight that night, and the
workweek begins at 12:01 Sunday morning and ends at 12 midnight
the following Saturday night.
Section 7.03. When a normal workday begins before 12:01 a.m. and
continues past 12:01 a.m., time shall be charged on the day in
which the majority of the hours is worked. When the normal
workday is divided evenly before and after midnight, time shall
be charged on the days on which work was started.
Section 7.04. Overtime is defined as time worked in excess of 8
hours of work in a normal workday or 40 hours of work in a normal
workweek. All overtime shall be paid for at the rate of one and
one-half times basic rates except where higher rates are provided
for elsewhere in this Agreement.
Section 7.05. When an employee worked a full workweek of 5
normal workdays and also worked a minimum of 4 consecutive hours
on his/her first scheduled off day in the same workweek, any work
on the second scheduled off day in the same workweek shall be
paid at twice his/her basic rate of pay. Compensation paid to an
employee for hours not worked on regularly-scheduled workdays
shall not be considered as time worked unless specifically
provided for in this Agreement.
Section 7.06.
(a) After 16 consecutive hours of work, employees shall be paid
double time for all consecutive hours worked thereafter.
(b) An employee who has worked 13 or more consecutive hours
shall, upon his/her release, be entitled to an 8-hour rest
period before he/she returns to work. If, however, the
employee is required by the Company to return to work after
the rest period and before a 10-hour period has elapsed, the
employee shall be entitled to a payment equal to two (2)
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hours of straight time base pay in addition to any hours
worked.
(c) Notwithstanding the provisions of Section 7.43, an employee
will only be entitled to a rest period based on consecutive
hours on the job; no unproductive hours, paid or unpaid
(except for Union business), will count towards determining
whether an employee is entitled to a rest period or
application of Section 7.08.
(d) If this rest period extends into his/her regularly-
scheduled working hours for four (4) hours or more, he/she
shall be excused from his/her regular tour of duty and paid
his/her straight time base rate for those hours. If the
rest period extends into his/her regularly-scheduled hours
for less than four (4) hours, he/she shall be excused from
that portion of his/her regular tour of duty and be paid for
the excused hours at his/her straight time base rate.
Section 7.07. If an employee whose rest period extends into
his/her regularly scheduled working hours for four (4) hours or
more is instructed to report back to work at the end of his/her
8-hour rest period, his/her rate of compensation for these
regularly scheduled working hours shall be time and one-half.
Section 7.08. An employee who has been released after 13
consecutive hours of work may be recalled or instructed to report
back to work before the end of his/her 8-hour rest period if
needed. If the elapsed time between time of release and time of
reporting back to duty is less than 8 hours, his/her rate of
compensation for consecutive hours of work after his/her return
shall be at double time.
Section 7.09. An employee is considered to be "called out" for
overtime work when he/she is given notice while off duty to
report for work within 7 hours, and the hours worked are not
continuous with other hours worked.
Section 7.10. When an employee is "called out" for overtime
work, or is instructed to report for overtime work and the hours
worked are not continuous with other hours worked, he/she shall
receive a minimum of 4 hours pay exclusive of travel time.
Section 7.11. Except as prohibited in Section 7.15 below, when
an employee is "called out" for overtime work, he/she shall be
paid travel time of one hour at time and one-half rate in
addition to time worked, regardless of whether the work continues
on to be continuous with other hours worked.
Section 7.12. When an employee is "called out" for overtime work
and reports for work within 6 hours of the beginning of his/her
upcoming regular shift and works at least 4 hours, he/she shall
be retained on duty and paid on overtime until the beginning of
his/her upcoming regular shift.
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Section 7.13. If an employee is "called out" for overtime work
within 14 hours of the beginning of his/her upcoming regular
shift and works to within 4 hours of his/her upcoming regular
shift, he/she may remain on duty and be paid at the straight time
rate ONLY, until the beginning of his/her upcoming regular shift.
The time paid at the straight time rate SHALL break the
employee's consecutive hours of work, but such employee after 16
consecutive hours of work shall be paid at twice his/her regular
rate for any hours worked thereafter.
Section 7.14. Employees shall have the option to remain on duty
as described in Section 7.13 above or be released from duty when
their work is completed prior to their upcoming regular shift. If
during that rest period the employee is required to return to
work, his/her time shall be considered as unbroken but the rest
period shall be paid at the straight time rate as described in
Section 7.13.
Section 7.15. When an employee is "called out" for overtime work
and reports for work within 2 hours of his/her previous release
from duty, he/she shall be paid as if he/she worked continuously.
In these cases travel time will not be allowed.
Section 7.16. When the Company determines that overtime work is
required, such work shall be distributed as equitably as possible
among employees in the job classification in the Occupational
Group in which such overtime work is to be performed.
Section 7.17.
(a) The employee in the appropriate job classification with the
lowest amount of charged overtime hours shall normally be
first considered for overtime work to be done taking into
account the nature of the work, ability to perform such work
within reasonable time limits and availability of the
employee. If such employee refuses the assignment, then the
employee with the next lowest amount of charged overtime
hours will be considered and so forth through the overtime
list. If no employee on the overtime list agrees to accept
the overtime work, then the Company may assign the overtime
work to the available qualified employee with the lowest
amount of overtime hours worked. No more than one (1)
reasonable attempt to reach an employee will be required.
In emergency situations the Company may call any employee it
deems necessary under the circumstances.
(b) In cases when overtime is planned or foreseen, Management
shall make a reasonable effort to inform the potentially
affected employees as early as reasonably possible.
Section 7.18. In Departments that have rotating 3-shift
operations, after the Company has called all employees on the
overtime list once per shift, it may request the employee with
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the lowest amount of overtime hours worked in each job
classification to remain on duty for overtime work.
Section 7.19. If through the fault of the Company the
appropriate employee on the overtime list is not assigned to a
particular case of overtime work, he/she will be compensated at
the appropriate overtime rate for the number of hours he/she
would have worked unless the Company gives him/her an opportunity
to make up such hours within 30 days after the mistake occurred.
Any such overtime hours shall not be charged to the employee on
the overtime list in the hours charged column.
Section 7.20. No grievance may be filed on the distribution of
overtime work in any particular case unless the difference in
charged overtime hours between the employee assigned to the work
and the complaining employee exceeds 20% of the charged overtime
of the assigned employee. Any absence of the employee due to
vacation or sickness will be added to the 30-day period.
Section 7.21. An employee will be charged as being unavailable
for overtime work for the number of hours he/she could have
worked without need for any attempt to contact him/her in the
following situations:
(a) When he/she does not have a telephone or a current telephone
number listed with the Company.
(b) When he/she is restricted to limited duty or light duty, or
absent other than for vacation on his/her last previous
regularly scheduled shift, or, since his/her last previous
regularly scheduled shift, has reported to the effect that
he/she is not able to work.
Section 7.22. Overtime work offered to an employee but waived
with the consent of the Company and overtime work which would be
offered to an employee if he/she were available shall be charged
to him/her as overtime hours.
Section 7.23. Overtime work offered to an employee but declined
and overtime work which would be offered to an employee if he/she
were available, shall be charged to him/her as overtime hours at
a rate of 1-1/2 times the number of hours the employee would have
worked had he/she not declined or been unavailable.
Section 7.24. For every 60 hours of overtime an employee works,
he/she will receive 2 hours time off with pay at straight time
not to exceed 24 hours of time off within any calendar year.
Such time off shall be scheduled by the employee and his/her
Supervisor based on operating conditions.
Section 7.25. When a job started on straight time cannot be
completed without overtime work, the Company shall have the
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option of continuing on overtime work the employees who started
the job or replacing them with other employees who have a lower
number of charged overtime hours. This Section may be modified
in any Department to meet local conditions if the Union and
Company desire to do so and conclude an arrangement satisfactory
to them which is stated in writing with copies to the Union and
Industrial Relations.
Section 7.26. Temporary employees may be called for overtime in
emergencies but shall not be scheduled for prearranged overtime
work until they have completed 2 months continuous service.
Section 7.27. The Company will post lists of employees for
overtime assignment consideration on appropriate departmental
bulletin boards by job classification and Occupational Group.
Further subdivisions according to geographical assignment areas
may be agreed to by the Chief Steward and Departmental Management
and copies of such agreements are to be sent to the Union and
Manager-Industrial Relations.
Section 7.28. At the beginning of the appropriate pay period in
each calendar year the lists of employees for overtime selection
consideration shall be prepared with the employee having the
lowest number of charged overtime hours in the preceding year
listed with zero hours and the remaining employees listed with a
corresponding reduction in the previous year's charged overtime
hours.
Section 7.29. Thereafter, postings shall be made within 4
working days after the close of every other payroll period
listing overtime hours worked, hours unavailable, and hours
declined with the consent of the Company, for the period since
the last posting and cumulative for the calendar year.
Section 7.30. A copy of each posting shall be sent to each
appropriate Steward and to each employee working out of a
headquarters where lists are not posted who is being charged with
being unavailable for overtime during the period covered by the
posting.
Section 7.31. The dates of posting of the lists for each
prescribed period in the areas specified and dispatching to the
Steward and reasonable delivery dates to individual employees
affected shall be the dates for cause for the grievance under
Article 17 regulating the time periods for filing grievances.
Section 7.32. An employee who wishes to be excused from overtime
work whenever possible may submit a written request to his/her
Department Head. An employee shall not submit this written
request for a waiver from overtime work and a Department Head
shall not approve such a request unless both the employee and
Department Head intend a bona fide waiver of consideration for
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overtime work. Such waivers are not intended to be a vehicle for
avoiding the intent and purpose of Article 7, Sections 7.16-7.38
inclusive.
Section 7.33. After approval, if any, such employee will be
excluded from consideration for the equitable distribution of
overtime but will not be excused from the requirement to work
overtime as may be determined to be needed by the Company. Such
employee will be listed on the overtime record with a "W"
identification to indicate "Waiver." All overtime hours actually
worked by such employee will be shown for him/her on the overtime
lists.
Section 7.34. The Company or the employee may revoke the waiver
referred to above by notice in writing to be effective at the
beginning of the first pay period in the following calendar
month. When restored to regular overtime status such employee
shall be listed at one (1) hour above the highest number of hours
listed for any employee in his/her job classification or one (1)
hour above his/her previously charged overtime hours, whichever
is higher.
Section 7.35. Waivers and revocations of waivers shall be valid
only when prepared on the standard forms agreed upon by the Union
and the Company with copies to the Union and the Industrial
Relations Department.
Section 7.36. Overtime worked by an employee while in a
temporary upgraded status will be charged to the employee in
his/her regular job classification.
Section 7.37. Employees changed from one overtime record list to
another or added to an existing list in any of the following
situations shall be charged with the highest number of overtime
hours charged to any employee on the list to which they are to be
placed plus one (1) hour:
(a) New employees, and temporary employees after 2 months'
service.
(b) Return from an approved Leave of Absence.
(c) Returning to the bargaining unit within 2 years of promotion
to exempt status.
(d) Transfer from non-bargaining unit to bargaining unit.
Section 7.38. Employees changed from one overtime record list to
another or added to an existing list in the following situations
shall be given an average (mean) of the overtime of all employees
on that list:
(a) Promotions and demotions
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(b) Transfers from one seniority roster to another, or from one
geographical location to another
(c) Returning from an extended illness or injury (an illness or
injury of which all compensatory time was exhausted).
Section 7.39. When an employee has been previously instructed to
work overtime on his/her off day and the work is canceled by the
Company, it will give notice of cancellation to the employee
affected 8 hours before reporting time. If 8 hours' notice is
not given, the employee may report to the work location as
planned and be paid an allowance of 4 hours at the applicable
overtime rate.
Section 7.40. If the job is canceled within 8 hours of reporting
time and the employee requests permission not to report, he/she
may be excused by his/her supervisor, and in such case shall not
be entitled to any pay allowance.
Section 7.41. An employee shall not be required to take time off
on his/her regular basic work schedule in lieu of overtime worked
or to be worked. This shall not affect the Company's right to
change the schedule of basic work and off days or hours of duty
of employees as set forth in Article 6, Sections 6.03-6.10
inclusive.
Section 7.42. When an employee is temporarily transferred to
perform work normally performed by employees in a different
Occupational Group under Section 5.09 or 5.10 of this Agreement,
the following rules shall apply:
(a) All overtime hours charged and worked in the temporary
assignment shall be accrued on the employee's normal
overtime roster.
(b) Employees on temporary assignment shall not be considered
for overtime work until all available qualified employees
within that Occupational Group have been polled except in
situations covered by Section 7.25 of this Agreement.
(c) Employees on temporary assignment shall not be assigned
overtime work unless there are no other qualified employees
available in the Occupational Group except in situations
covered by Section 7.25 of this Agreement.
(d) Employees on temporary assignment may be considered for
overtime work in their normal Occupational Group. However,
such employees shall not be charged unavailable for overtime
work in their normal Occupational Group while on temporary
assignment.
Section 7.43. For purposes of this Agreement, all hours of paid
compensation such as holidays, vacation, jury duty, funeral
leave, sickness disability, etc., will be considered as hours
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worked for purposes of Article 7. Also to be included for such
purposes would be excused unpaid hours such as union leave,
excused without pay and sickness disability.
ARTICLE 8
SENIORITY
Section 8.01. The Company and the Union accept the principles of
seniority and agree that the seniority rosters established
hereunder shall be the basis of the application of seniority
rights as set forth herein.
Section 8.02. For seniority roster purposes Occupational Groups
shall be established within each Department and reflected in
Annex A (a space between groupings of jobs indicates separate
Occupational Groups). An Occupational Group shall be composed of
employees of the bargaining unit engaged in substantially the
same type of work where normal lines of progression from job to
job exist. Specific Occupational Groups shall be established by
agreement between the Company and the Union.
Section 8.03. A seniority roster shall be prepared for each Pay
Grade within each Occupational Group listing the employees
"Classified Seniority" and "Continuous Service Seniority" with
the Company.
(a) "Classified Seniority" shall be the date on which the
employee was placed into the classification, and shall be
the date used as the seniority date for promotions within
that Occupational Group.
(b) "Continuous Service Seniority" shall be the employee's most
recent date of hire and shall be used to fill jobs when
there is no qualified employee within the Occupational
Group.
Section 8.04. Employees employed as temporary employees shall
not have seniority position or seniority rights while in such
employment status. If changed to regular employment status they
shall have seniority position and seniority rights as of the date
of change. The seniority rights in this section refer to an
employee's competitive standing against other employees for such
things as promotions, holiday and vacation choice, application of
Article 9 (Reduction in Force) and so forth.
Section 8.05. Employees who move from one roster to another,
within the same Occupational Group or to a different Occupational
Group, regardless of reason, shall have their Classified
Seniority date adjusted accordingly.
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Section 8.06. Employees shall be considered as terminated from
the service of the Company and shall be removed from the
seniority roster, with no provision for reinstatement of past
continuous service under the following conditions:
(a) Resignation or discharge from the service of the Company.
(b) Expiration of two years after date of furlough and employee
has not been recalled to duty.
(c) Reclassification and transfer to a nonunion position with no
termination of service; however, if any such employee
returns to the bargaining unit within two years, there shall
be no loss of continuous service credit.
(d) Expiration of two years after commencement of absence due to
a nonoccupational illness or injury; however, where an
employee has received Long Term Disability benefits during
such an absence, removal shall occur two years from the date
the employee is no longer determined eligible for such
benefits.
Section 8.07. Promotion within an Occupational Group shall be
based upon the concepts of seniority, ability and performance.
The Company shall select the most senior (as noted on the
classified seniority rosters) qualified employee. Qualifications
will be based upon general job knowledge, previous job perfor-
mance, and mental as well as physical ability to perform the job
duties. If senior employees are determined not to be qualified
and a junior employee is selected for promotion, a written notice
of such action, and the reason therefore, will be given to the
senior employees two weeks prior to the anticipated effective
date of promotion, with a copy to the Union. Such occurrence
will not affect future considerations. An employee may decline
consideration for promotion by submitting a written waiver of
consideration, with a copy to the Union. If there are no
employees within the entire Occupational Group who are qualified
for promotion, a general notice of that determination shall be
posted in the work areas two weeks prior to the anticipated
effective date, with a copy to the Union, in lieu of individual
notices.
Section 8.08. When vacancies above Pay Grade 6 hourly and Pay
Grade 2 weekly cannot be filled by qualified, available employees
from within the same Occupational Group, the Company will post
the notice of vacancy, including the number of job openings, for
a period of two (2) calendar weeks. A copy of these posting
notices will be forwarded to the Union. Employees having one (1)
year of continuous service are eligible to be considered for such
vacancies providing they complete an authorized Job Bid Form
which they must forward to the Employment Office within three (3)
working days after the expiration of the posted notice. An
employee must be a member of the bargaining unit to be eligible
to bid on a posted job. (A list of all bidders will be furnished
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to the Union.) Future postings will not be required for job
vacancies where an insufficient number of qualified applicants
have bid until such time as the designated number of vacancies on
the bid have been filled or three (3) months have passed since
the date of the original posting, whichever is sooner. Employees
selected for any posted job are ineligible to bid on another job
for one (1) year.
Section 8.09. Selection of bidders to fill posted vacancies
under Section 8.08 above shall be based upon seniority, ability
and performance. Ability and performance shall be based upon
general job knowledge, previous job performance and mental as
well as physical ability to perform the job duties. The Company
will select the most senior qualified employee (based on
continuous service date) to fill the posted job providing that
such employee is presently a permanently assigned employee in the
Group where the job vacancy exists. If a senior employee so
designated is determined not to be qualified and a junior
employee is selected for the posted job, a written notice of such
action and the reason therefore will be given to the senior
employee with a copy to the Union. If no employee in the Group
bids or is qualified, the Company will then consider bidders from
other Groups; however, seniority will be considered only when
ability and performance are essentially equal. The Company shall
provide the Union and each bidder with a notice of the
disposition of the posting. In cases where a posted vacancy
cannot be filled by bargaining unit applicants, the Company may
fill such jobs with persons from any other source either within
the Company or from outside. For the purposes of this Section
8.09, a Group shall be designated as one of those listed below:
(a) Comptroller (h) General Administration
(b) Computer Services (i) Human Resources
(c) Corporate Affairs (j) Investor Relations
(d) Customer Services (k) Materials
(e) Electric System Operations & (l) Market Planning & Policy
Construction, System (m) Production
Operations, Operations & (n) Rates & Regulatory Practices
Construction (o) Treasurer
(f) Energy Planning & Resources,
Energy Policy & Development
(g) Environment, System Engineering
Adjustments to these designated Groups may be made in the future
as appropriate and agreed to by the Company and the Union.
Section 8.10. Employees with one (1) year of continuous service
will be eligible to bid on Pay Grade 4 and 6 (Hourly) or Pay
Grades 1 and 2 (Weekly) jobs in accordance with the following:
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(a) An employee desiring to bid on entry level jobs shall
complete an Advance Bid Form and submit the form to the
Employment Department, Thomas Edison Building; the Company
shall send a copy of the bid form to the Union.
(b) An employee may bid on no more than three (3) entry level
jobs during any calendar year. Such bids shall be in effect
from the date of filing until December 31 of the same year.
As of January 1 of any year, all bids from the previous year
shall be void.
(c) Each employee shall show on the Advance Bid Form the
specific job titles and job numbers (as taken from Annex A)
of the jobs the employee desires to bid on.
(d) The Employment Department shall list employees who bid for
specific jobs according to their continuous service dates.
(e) When a vacancy occurs in a specified entry level job, the
Employment Department will refer the most senior employee
(by continuous service date) to the department where the
vacancy exists and that employee will be selected for the
vacancy if qualified. Qualifications shall be based on
general job knowledge, previous job performance and mental
as well as physical ability to perform the job duties.
(f) Entry level jobs are only those positions in Pay Grade 4 and
6 Hourly and Pay Grades 1 and 2 Weekly.
(g) When a vacancy occurs in an entry level job and there are no
bids on record or no bidder is qualified, the vacancy may be
filled from any other source.
(h) If an employee has a current rate of pay above the maximum
rate of the entry level Pay Grade into which he/she
successfully bids under this Section, such employee shall be
reduced in pay to the maximum rate of such entry level Pay
Grade.
(i) When any job for which one or more Advance Bids are in
effect is filled, the Company shall provide each bidder and
the Union with a written notice of the disposition.
Section 8.11. All postings required under this Article will be
on Company bulletin boards as located at various work locations.
The Company assumes no responsibility for job postings or other
notices once they are placed upon the boards. Employees who
remove or destroy this material shall be subject to disciplinary
action.
Section 8.12. All incumbent employees in the entire bargaining
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unit shall maintain their present classified seniority position
on the seniority roster for his/her classification until he/she
transfers to another classification or seniority roster. At the
time of the transfer the employee shall be placed on the new
seniority roster as described in Sections 8.03 and 8.05.
Section 8.13. Employees who transfer from one seniority roster
to another in Pay Grades above the starting level shall be given
classified seniority (as of the date of transfer) for all lower
classifications within that Occupational Group and be given one
(1) day more seniority above all employees in the lower classifi-
cations in that Occupational Group for the purposes of Article 9
of this Agreement.
Section 8.14. Employees who promote through the different
classifications within an Occupational Group, or who transfer
from one Occupational Group to another, shall continue to
accumulate classified seniority in all classifications previously
held for the purpose of Article 9 of this Agreement.
ARTICLE 9
REDUCTION IN WORKING FORCE
Section 9.01. When lack of work requires a reduction in the
working force, the Company and the Union subscribe to the
principle of last in-first out. The Company and the Union
recognize that each circumstance requiring a reduction in force
is unique and needs to be evaluated as a unique occurrence. To
that end the Company and the Union shall meet and try to reach a
mutual agreement on how to carry out the reduction in force. If
an agreement cannot be reached, the reductions in working force
shall be governed by the procedures set forth in this Article.
Section 9.02. When the reduction does not involve eliminating
all jobs within the affected Occupational Group(s), the following
shall apply:
(a) Except as provided in Subsection (f) below, employees with
the lowest classified seniority on the highest affected Pay
Grade roster shall be removed in a number as determined by
the reductions. Those employees so removed shall move down
to the next Pay Grade roster in their Occupational Group.
When these moves result in too many employees on the
roster(s), the employees with the lowest classified
seniority on those rosters shall be removed in a number as
determined by the reductions. Those employees so removed
shall move down to the next Pay Grade roster in their
Occupational Group and so forth until the necessary
reductions in the rosters have been achieved.
(b) When the final reductions result in too many employees on
the roster(s), the employees with the lowest classified
seniority shall be removed from the rosters and placed on a
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surplus-pool list. The Company shall then prepare a list of
vacancies in the affected Organizational Group. By
continuous service seniority order, the employees shall
irrevocably choose, in writing, any vacancy for which they
are deemed qualified. Determination as to qualifications
shall be based on the criteria set forth in Article 8,
Section 8.09.
(c) Employees not placed under the procedures set forth in (b)
above shall irrevocably choose, in writing, from a Company-
prepared list of selected vacancies within the bargaining
unit for which they are deemed qualified. Determination as
to qualifications shall be based on the criteria set forth
in Article 8, Section 8.09.
(d) Employees displaced from an Occupational Group(s) or work
location(s) under Section 9.02, 9.03 or 9.05 of this Article
shall retain the right, as limited herein, to return to
their previous Occupational Group or work location should a
vacancy(s) become available, for which they are deemed
qualified. Determinations as to the qualifications shall be
based on the same criteria as outlined in Article 8, Section
8.09. New employees shall not be employed or transferred
into the Occupational Group or work location, until such
displaced employee(s) have had one (1) opportunity to accept
such a vacancy or until the expiration of two (2) years from
the date of displacement, whichever occurs first. Vacan-
cy(s) shall be offered to the employees by continuous
service seniority.
(e) For the purpose of this Article the Company and the Union
agree to waive the advance bid procedures as outlined in
Article 8, Section 8.10(b) for employees displaced under
this Article for two (2) years from the date of
displacement.
(f) After an employee has been transferred to a new Occupational
Group pursuant to a reduction in force under this Article,
for three (3) years thereafter he/she shall not be removed
from his/her Pay Grade roster under Subsection (a) above
before other employees on such roster with less continuous
service providing the employee is satisfactorily performing
the duties of the classification.
(g) If more than one (1) reduction in force is enacted in one
(1) Occupational Group within a three (3) year period and
employees from that Occupational Group are transferred
pursuant to the reductions in force to the same new
Occupational Group, employees who are transferred in the
latter reduction(s) in force shall receive the same
classified seniority date in the job classification to which
they are transferred as if they had been transferred during
the earliest reduction in force.
Section 9.03. When the reduction involves eliminating an
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Occupational Group, Department, or Organizational Group, the
procedures set forth in Section 9.02(b) and, if necessary,
Section 9.02(c) or (d) shall apply to the affected employees.
Section 9.04. For the purposes of this Article 9 only, each
organization or grouping of organizations listed below shall be
deemed to be an "Organizational Group":
(a) Comptroller
(b) Computer Services
(c) Corporate Affairs
(d) Customer Services
(e) Electric System
Operations & Construction,
System Operations, Operations & Construction
(f) Energy Planning & Resources,
Energy Policy & Development
(g) Environment,
System Engineering
(h) General Administration
(i) Human Resources
(j) Investor Relations
(k) Materials
(l) Market Planning & Policy
(m) Production
(n) Rates & Regulatory Practices
(o) Treasurer
Adjustments to these designated Organizational Groups may be made
in the future as appropriate and agreed to by the Company and the
Union.
Section 9.05. Employees not placed under the procedures set
forth above shall be furloughed; provided, however, that no
individual employee shall be furloughed if he/she is qualified
and willing to perform work presently being performed by a
contractor who has been awarded an annual labor contract (that
is, a contractor who makes available to the Company a labor pool
from which the Company on a daily basis routinely and regularly
draws to perform bargaining unit work). Employees to be
furloughed shall receive two (2) weeks notice in writing before
the reduction becomes effective. Such notice shall state that
for a period of two (2) years thereafter the employee may retain
a position on the seniority roster, provided that within ten (10)
days after the effective date of furlough the employee shall give
notice in writing to the Company and to the Union of his/her
intention to retain such position, and shall thereafter,
throughout said period of two (2) years keep the Company and the
Union advised of his/her mailing address. All employees from the
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same Organizational Group (Section 9.04) will be placed on a
recall list with the most senior employee, by continuous service
date, listed first. In addition, the employee shall maintain a
position, by classified seniority date, on the roster from which
he/she was furloughed. Furloughed employees on the recall list
shall be called back to their Group by certified mail notifica-
tions as seniority and qualifications allow. Determination as to
qualifications shall be based on the criteria set forth in
Article 8, Section 8.09. If an employee so called shall fail to
return to work within two (2) calendar weeks from the date of
mailing such call, the employee's name shall be removed from the
roster and his/her seniority shall terminate. New employees shall
not be employed in a Group until all furloughed employees from
the Group who are qualified for the particular job opening have
been removed or recalled in accordance with this Section.
Section 9.06. Notwithstanding any other provision of this
Article, no employee with twelve and one-half (12-1/2) years or
more of continuous service will be furloughed nor will they be
reduced in pay because of a reduction in the working force.
ARTICLE 10
GENERAL PROVISIONS
Section 10.01. The Company agrees that on basic schedule
workdays, it will not require employees to work outdoors in
extremely inclement weather, unless such work is necessary to
protect life or property or to maintain service. During such
periods of extremely inclement weather, the Company may assign
such employees to any work out of the weather. Nothing in this
Section shall be interpreted as to deny the right of the Company
to require meter readers, testers, installers, drivers and other
persons occupying positions of similar type to work outdoors at
any time at their normal tasks.
Section 10.02. No supervisor shall act in other than a
supervisory capacity except in emergencies. This is not intended
to prevent a supervisor from protecting life or property, giving
occasional or emergency assistance or performing work for the
purpose of instruction. However, the primary function of a
supervisor is supervision and he/she is not to perform work which
will eliminate an employee or interfere with supervision.
Section 10.03. By special agreement of the parties, it is agreed
that employees in the exempt supervisory position presently
designated as Senior Power Plant Operator at the Dickerson, Chalk
Point, and Morgantown Generating Stations and all such
supervisors with similar duties and responsibilities in
generating stations constructed in the future are specifically
excluded from the provisions of Section 10.02.
Section 10.04. Professional engineers and other employees with
special experience, education or training, may be assigned work
at different occupations within the bargaining unit in any
Department as part of a training period. When employees in the
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bargaining unit are so assigned, they shall retain their rights
in their regular status under this Agreement and their assignment
shall not affect the rights of other employees under this
Agreement. When employees not in the bargaining unit are so
assigned, they shall neither be affected by provisions of this
Agreement nor shall their assignment deprive other qualified
employees of work.
Section 10.05. In the operation of Section 10.04, the number of
employees included at any one time shall be not more than one
percent of the total number of Company employees. No employee
shall be kept in any one assignment for longer than one year or
for longer than a total period of 5 years in all assignments
included herein. The Company will inform the Union of the names
of employees and the Departments to which they will be assigned.
Section 10.06. When the Company plans to install new or revised
general work schedules which will affect the majority of the
employees in an Occupational Group, it will post the new or
revised schedules on the bulletin board for the Occupational
Group affected. If the Company fails to post the notice for two
(2) weeks before implementation of the new or revised schedules,
employees whose schedules have been changed shall receive time
and one-half on the first three (3) days of the changed schedule.
If unforeseen circumstances make it necessary to extend a revised
general work schedule beyond the date which was originally
contemplated, the provisions of this Section shall not apply and
the extension shall be treated as a change of schedule as
provided for elsewhere in this Agreement.
Section 10.07. It is recognized that the Company has the right to
have work done by outside contractors. Work normally performed
as of the effective date of this Agreement, by employees in the
bargaining unit, will not be contracted out if it will result in
the furlough or affect recall of employees in the bargaining unit
who normally perform such work.
Section 10.08. The Company shall provide Union bulletin boards at
the major work locations for the posting of official Union
notices. The Company shall determine the number of bulletin
boards required and the placement of such boards at the work
locations. The Union agrees that it shall not post any notice
that is derogatory or inflammatory or anything which is
considered inappropriate as to Company-Union relations.
Section 10.09. Any future agreements or memoranda of
understanding during the term of this Agreement that are prepared
by the Company and the Union, or any subdivisions thereof, shall
require the signature or confirming signature of the Union
President and the Manager - Industrial Relations or their
designated representatives.
ARTICLE 11
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HOLIDAYS
Section 11.01. For the term of this Agreement, the following days
will be observed as uniform and fixed Company holidays:
Independence Day December 24, 2001
Labor Day December 24, 2002
Thanksgiving Day New Year's Day
Day after Thanksgiving Martin Luther King's Birthday
Christmas Day Presidents' Day
December 23, 1999 Memorial Day
December 26, 2000
Section 11.02. In each contract year, each employee will be
eligible to select one (1) floating holiday (in addition to those
fixed holidays in Section 11.01 above). Each employee is
required to request his/her floating holiday with at least 24
hours advance notice.
Section 11.03. The Company will, as far as practicable consistent
with work requirements, permit such floating holidays to be taken
at the time desired by employees, but determinations as to the
total number of employees or any employees, the number of
employees of a particular classification or at a particular
location, the number and classification of employees of a
particular working group, to be allowed off on a holiday at any
time; and the make-up of working groups for holiday purposes, are
reserved solely to the Company in order to ensure the orderly
operation of the Company. When these determinations have been
made by the Company and there is an opportunity of choice between
two (2) or more employees, the employee with the highest
classified seniority roster position shall have first choice of
holiday time off.
Section 11.04. Employees normally scheduled to work on a
designated holiday, or who are off duty as part of their regular
schedule on a designated holiday, shall be paid a holiday
allowance of a normal workday at their basic rate of pay and
double time for all hours actually worked on the holiday. When
January 1 (New Year's Day), July 4 (Independence Day), or
December 25 (Christmas Day) are designated to be observed on a
Monday or Friday through the operation of Section 11.07,
employees who work on either the designated holiday or the actual
holiday shall receive a holiday premium of double time for all
hours actually worked on either day providing, however, that any
employee who works both days will only be entitled to the holiday
premium for the hours worked on the actual holiday.
Section 11.05. When Company requirements make it necessary for
some but not all employees in any department to work on a
holiday, the Company will indicate the number and classifications
of employees needed. Employees, beginning with the most senior
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employee (by classified seniority), will choose whether or not to
work the holiday. Such choices will continue until the Company
requirements are met. In the event that after all department
employees have been polled it becomes necessary to assign
employees to work the holiday, such assignment will be by inverse
classified seniority order. This process must be completed no
less than forty-eight (48) hours prior to the holiday.
Section 11.06. An employee will be eligible for holiday allowance
providing (1) he/she performs work or is on vacation in the pay
period in which the holiday is observed, and (2) works as
scheduled or assigned both on his/her last scheduled workday
prior to and his/her first scheduled workday following the day on
which the holiday is observed unless he/she has failed to so work
because of sickness or because of death in the immediate family
or because of similar good cause. Irrespective of the above, an
employee on a Sickness Disability Case will not be paid holiday
allowance unless the Company's Medical Department determines that
the employee was able to return to work on or before the holiday
and would have been released to return at that time but for the
holiday. An employee who is scheduled to work on a holiday,
either on regular shift or overtime, but who fails to report to
work, will not be paid holiday allowance.
Section 11.07. When any of the holidays referenced in Section
11.01 of this Article fall on a Sunday, the following Monday
shall be observed as the holiday. Should any of the holidays
fall on a Saturday, the preceding Friday shall be observed as the
holiday.
Section 11.08. Holidays to be selected under Section 11.02 of
this Article shall not be carried over from one contract year to
the next. The Company may deny any employee his/her holiday
observance when in its discretion the employee cannot be spared.
If the employee has a holiday schedule approved, but later denied
by the Company, the employee shall have a choice of selecting
another holiday or being paid for the holiday under the
provisions of Section 11.04 of this Article.
ARTICLE 12
VACATIONS
Section 12.01. Regular employees shall be entitled to vacation
eligibility according to the maximum allowances set forth in the
following table. An employee's initial vacation allowance for
any calendar year will be determined by length of continuous
service as of December 31 of the previous year. Eligibility may
increase during the calendar year by application of the
employee's anniversary date to the following table; however, in
no case will any employee with less than five (5) years of
continuous service receive a mid-year increase in vacation
allowance by application of the employee's anniversary date.
Increases in eligibility during a calendar year shall take effect
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for the remainder of that year, provided that if the increase
cannot be accommodated in the remainder of the year the Company
may grant advance leave in the amount of the prospective
increase.
Maximum allowances are as follows:
Continuous Service Maximum Vacation Allowance
Less than 6 months 1 day for each full calendar month of
continuous service but not to exceed 1
week
6 months 2 weeks
5 years 3 weeks
10 years 4 weeks
20 years 5 weeks
30 years 6 weeks
Section 12.02. No employee may have a Maximum Vacation
Allowance in excess of the allowance provided for his/her period
of continuous service.
Section 12.03. The amount of vacation pay will be based upon
the employee's normal workweek at the regular basic straight time
rate exclusive of any premiums, overtime or other remuneration.
Section 12.04. Maximum allowances will be payable to
employees who have worked 1,000 hours or more during the
preceding calendar year. Employees with less than 1,000 hours of
work in such year will not be eligible for any vacation
allowance. Compensation paid to an employee for hours not worked
on a regularly-scheduled workday shall not be considered toward
the 1,000 hours of work unless specifically provided for in this
Agreement.
Section 12.05. Employees with less than six (6) months of
continuous service shall be eligible for their maximum allowances
if they have worked a minimum of one hundred forty (140) hours
multiplied by the number of full calendar months of continuous
service. All hours, including overtime hours of paid
compensation will be counted towards establishing vacation
eligibility.
Section 12.06. An employee who is off work due to an on-job
injury and thereby cannot meet the 1,000 hour requirement for an
earned vacation shall be entitled to a vacation based on his/her
continuous Company service in the calendar year when the employee
is released by the Medical Department to return to work on a
full-time basis.
Section 12.07. Any employee who leaves the Company's
employment for any reason shall be paid for any unused vacation
eligibility in effect at the time of leaving employment. Upon
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the death of an employee such eligibility shall be paid to his or
her estate.
Section 12.08. An employee who is laid off after 1 year of
service, retires, or dies will be paid a vacation allowance
proportionate to the number of full months worked in the calendar
year in which the layoff, retirement or death occurs. An
employee whose employment terminates for any other reason will
not be paid a proportionate vacation allowance for any time
worked in that calendar year.
Section 12.09. The Company will, as far as practicable
consistent with work requirements, permit vacations to be taken
at the time desired by employees, but determinations as to the
total number of employees or any employees, the number of
employees of a particular classification or at a particular
location, the number and classification of employees of a
particular working group, to be allowed on vacation at any time;
the time within which vacations may be taken; and the make-up of
working groups for vacation purposes, are reserved solely to the
Company in order to ensure the orderly operation of the Company.
When these determinations have been made by the Company and there
is an opportunity of choice between two (2) or more employees,
the employee with the highest seniority roster position shall
have first choice of vacation time made available.
Section 12.10. When employees are requested to state
vacation preferences preparatory to the Company's establishing
vacation schedules, an employee who divides his/her vacation
allowance into more than one period may apply his/her seniority
preference as provided above to only one period, and he/she shall
not have another selection opportunity until all other employees
with whom he/she is concerned for vacation purposes have had the
opportunity of selecting a vacation period.
Section 12.11. It is agreed that vacations shall normally be
scheduled to be taken in periods of one full week or more.
Shorter periods of vacation may be allowed, however, in the
discretion of the Company, for special circumstances when
approved in advance of the day or days for which vacation
allowance is requested. In no case will vacation be allowed for
a period of less than one-half day.
Section 12.12. Employees are considered to be on vacation at
the end of their last scheduled workday; or, if they continue on
duty for overtime work, at the time they are released from such
overtime work. Employees are considered to be returned from
vacation when they report to work at the beginning of their first
regular scheduled shift after scheduled vacation days.
Section 12.13. Vacations shall not be carried over from one
year to the next except as herein permitted.
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(a) Employees who will have earned more than three (3) weeks of
vacation based on their length of continuous service as of
December 31 of a calendar year may elect to:
(1) Carry over full weeks of vacation to a maximum of two
(2) weeks which must be used by the end of the calendar
year following the calendar year for which the election
is made; and/or,
(2) Receive pay in lieu of any full weeks in excess of
three (3) weeks;
Provided, however, in exercising either or both of these
options, employees must retain at least two (2) weeks of
vacation allowance (from allowance determined as of December
31 of the calendar year in which the election is made) for
use during the next year.
(b) Employees who wish to exercise options provided for in
Subsection (a) above must notify the Company of their
decision by December 1 of the current year for elections
effective for the next calendar year. Such notice must
describe the option(s) selected, the amount of vacation sold
back or carried over, and in the case of payment for
vacation must indicate the month(s) in the next calendar
year in which the payment(s) is/are to be made. Payments
may begin in March of each year and will be made
concurrently with the first full payroll period of any
designated month(s). At the sole discretion of the Company,
an employee may be allowed to take any vacation previously
designated for carry over in the same calendar year (in full
day increments only). Nothing herein shall entitle an
employee to vacation in the next calendar year if the
employee does not otherwise meet the requirements of this
Article.
(c) An employee may not elect to receive pay in lieu of taking
vacation for any vacation carried over under this section.
(d) The Company may deny any employee his/her current vacation
allowance or any part of it when in its discretion he/she
cannot be spared. In such cases the employee shall have the
choice of carrying over to the following year the amount of
vacation denied him/her without regard to the limitations of
Subsection (a) above or being paid for it at his/her basic
straight time rate of pay.
Section 12.14. Legal holidays as set forth in Article 11
which fall on scheduled vacation days shall be considered as
holidays and not as days of vacation. The additional day of
vacation resulting in these cases may not necessarily be taken as
continuation of the same vacation period but will be allowed at
the convenience of the Company.
Section 12.15. When an employee is disabled because of
sickness disability and qualifies for Sickness Disability
Allowances; or is disabled due to an occupational injury; or is
called up on a military emergency, and any such event occurs
prior to the time for the employee's vacation to begin, the
employee may request a postponement of vacation. Any such
postponed vacation may be rescheduled by the Company at anytime
during the same calendar year. If it is not practicable for the
Company to reschedule the vacation during the same calendar year,
the Company shall have the option of allowing such vacation in
the following calendar year or paying the employee for it at the
employee's basic straight time rate of pay. If the Company
chooses to pay the employee for the vacation, such payment shall
be in addition to any occupational injury, sickness disability
case, or military emergency allowances being paid at that time.
Section 12.16. As to vacation eligibility, all hours,
including overtime hours, of paid compensation, except sickness
disability, will be counted toward establishing vacation
eligibility. As to paid vacation eligibility, all hours,
including overtime hours, of paid compensation, including
sickness disability will be counted toward establishing vacation
eligibility for those employees with twenty or more years of
continuous service as of December 31 of the previous year.
ARTICLE 13
SICKNESS DISABILITY ALLOWANCES
Section 13.01. Employees shall be eligible for sickness
allowances as provided herein. Sickness shall include injury
other than any injury arising out of or in the course of
employment by the Company for which compensation will be paid
under the provisions of the Workers' Compensation Act.
Section 13.02. Eligible employees absent due to sickness shall
be paid at their regular basic rates for absences occurring on
their regular workdays, assuming proper report is made and
assuming medical certification is timely furnished if required
under Section 13.03. Such payments will begin on the first
workday of absence except as provided below:
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(a) Annual Allowance
Employees shall receive an annual sickness allowance in
accordance with the following schedule:
Annual
Continuous Service As of Allowance
December 31 of Previous Year (in days)
6 Months 1
1 but less than 3 years 3
3 years or more 5
(b) Options Regarding Unused Annual Allowance
As soon as practicable after the end of a calendar year, an
employee who has not exhausted his/her Annual Allowance for that
year has the following options:
(1) Carryover Bank
The employee may elect to carryover the unused portion
into the next year at the rate of one (1) day for every
full unused sick day.
Fractions must be bought back in accordance with buy
back provision below, or,
(2) Buy Back Option
The employee may elect to have the Company buy back the
unused Annual Allowance, which will be paid for by
separate check, at a conversion rate of four (4) hours
per unused day (two (2) hours per fractional). Once a
day is placed in the Carryover Bank, it may not be
converted under this Section. Except as may be
required due to fractional days, an employee may not
split his/her election between the Carryover Bank and
Buy Back Option.
(c) Use of Annual Allowance and Carryover Bank
(1) An employee's Annual Allowance must be exhausted before
his/her Carryover Bank is used.
(2) An employee whose Annual Allowance and Carryover Bank
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are exhausted shall not be eligible for additional
sickness payment until the fourth consecutive workday
of an absence during the remainder of the calendar
year. This three (3) day waiting period shall apply
when an employee's Annual Allowance and Carryover Bank
are exhausted during an absence as well as to all
subsequent absences during that calendar year. An
absence under this Article shall be a continuous
absence of a half a day or more.
(d) When an employee has taken twenty (20) sick days (exclusive
of days compensated under Section 13.04) in a calendar year,
paid or unpaid, he/she shall not be eligible for sickness
payments until the seventh consecutive workday of the
absence during which the 20th day is reached or any
subsequent absence in that calendar year.
(e) An employee who dies, retires, or is furloughed shall be
paid at one hundred percent (100%) of the employee's regular
basic rate then in effect, and an employee whose employment
with the Company is otherwise terminated shall be paid at
fifty percent (50%) of the employee's regular basic rate
then in effect, for all unused days in his/her Carryover
Bank.
Section 13.03. Absences due to sickness disability of three (3)
days or less, whether compensated or not, need not require
medical certification as to the employee's inability to report to
work; however, upon advance notice medical certificates may be
required when the Company feels the employee's attendance record
warrants such. Absences of more than three (3) days shall
require medical certification. When a medical certificate is
required, it should be presented to the Company upon the return
to work, but in no case later than three (3) working days after
the employee returns to work. The Company may have an employee
or other persons (not a member of the bargaining unit) visit
absent employees and may require medical examinations by
physicians.
Section 13.04. An employee whose absence extends more than six
(6) workdays shall thereafter be paid at his/her regular basic
rates provided proper report is made and a medical certificate
attesting to his/her sickness is presented to the Company. These
periods shall be termed "sickness disability cases" and pay
allowances shall be made according to the following schedule:
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Continuous Service (in years) Allowance (in weeks)
At least: But less than: Full Pay 3/4 Pay 1/2 Pay
1 2 2 - 4
2 5 3 - 6
5 10 8 - 18
10 20 10 - 16
20 25 14 8 4
25 16 10 0
Section 13.05. The Company reserves the right to require a
medical examination by a physician of its own choosing and to
have a nurse or other employee or person (not a member of the
bargaining unit) visit an employee who is claiming allowance for
sickness disability.
Section 13.06. When an employee is absent on a sickness
disability case, whether new or continued, there shall be
deducted from his/her allowance under Section 13.04 all Annual
Allowance days taken during the previous seventeen (17) weeks.
Section 13.07. Successive sickness disability cases shall be
counted as one (1) case in computing the time for which an
employee shall be entitled to allowances unless the employee has
returned to work and engaged in the performance of his/her normal
duties for a continuous period of seventeen (17) weeks between
cases. When an employee has worked seventeen (17) weeks, the
next sickness disability case shall be considered a new case.
Section 13.08. After a medical examination of any employee, who
has been absent on account of sickness disability for any length
of time, by a physician selected by the Company, and the
physician's report states that the employee is able to return to
work, and such employee fails to do so, no further payments or
allowances will be made on account of such sickness disability
and said report shall be conclusive and final. However, if the
employee informs the Company's physician of the date on which the
employee's physician has advised the employee to return to work,
and the Company's physician does not agree, then the Company's
physician shall make a reasonable effort to consult with the
employee's physician before issuing a report.
Section 13.09. No employees shall receive any sickness allowance
when the following conditions exist:
(a) For time for which salary or wages might be paid by the
Company.
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(b) From the time any retirement payments might begin.
(c) When the disability is caused or results from an
intentionally self-inflicted injury or other general acts of
misconduct.
(d) When the employee is on furlough or suspended from duty.
(e) When the employee is on vacation.
(f) When proper notice of sickness disability is not given to
his/her Department. Reasonable rules governing time and
place of notice may be promulgated by the various
Departments of the Company, depending upon the operating
conditions existing in each. When proper notice is not
given, allowances shall not begin until such notice is
given.
(g) When, upon the occasion of a visit to the employee by a
nurse or other employee or person (not a member of the
bargaining unit) he/she is found not to be home and cannot
furnish a satisfactory explanation of his/her whereabouts.
(h) When the injury is the result of the employee's working for
an employer other than the Company or self-employment for
gain.
Section 13.10. When an employee has received the maximum
allowance indicated in the schedule in Section 13.04, he/she
shall not be eligible for further allowances until he/she shall
have performed his/her normal duties for a continuous period of
seventeen (17) weeks.
Section 13.11. No assignment of any sickness allowance will be
permitted or recognized. Attempts at assignment will be regarded
as sufficient cause for revocation of any allowances heretofore
made, and in case of any attempted attachment or other legal
proceedings, the Company may cancel or revoke any allowances, and
in its discretion, or if it so elects, pay such allowances to the
family of such sick or disabled employee.
Section 13.12. Where the sickness of an employee is such as to
amount to permanent disability, or to indicate a more or less
permanent absence from the service of the Company, the Company
reserves the right to arrange to have the employee, if eligible,
placed on Long Term Disability, in which event all payments
herein provided shall be exhausted before such action is taken.
Any allowance herein provided for shall in no way affect the
right of the Company to sever the connection of an employee from
the service of the Company for just cause.
Section 13.13. In the event an employee is paid Sickness
Disability Allowance due to an injury caused by some person other
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than the Company or such injured employee, the Company may after
a reasonable time pursue the subrogated rights of such employee
against said other person up to the extent of the amount it has
paid to the employee as Sickness Disability Allowances, if the
injured employee does not pursue his/her remedy for damages. In
addition, in the event the employee pursues his/her remedy
against such third person and receives a judgment or decree or
settlement from such third person, the Company shall under its
rights of subrogation be notified and will be entitled to
participate in such judgment or decree or settlement up to the
extent of the amount it has paid to the employee as Sickness
Disability Allowances. If the Company receives a settlement, to
the extent of the amount it has been paid, the employee shall
have his/her Sickness Disability Allowance restored to the extent
used.
Section 13.14. The Company will provide a Workers' Compensation
Supplement to eligible employees who sustain an on-the-job injury
and who meet the eligibility provisions and other conditions set
forth in this Article 13. Such supplement shall represent the
approximate difference between the value of compensation an
employee receives under the applicable Workers' Compensation law
and the net pay an employee would receive under the provisions of
this article for his/her pay grade and step.
Section 13.15. Female employees (regular status) who leave work
due to pregnancy shall be eligible for benefits in accordance
with this Article 13 in the same manner as any other disability,
provided that the following procedures are adhered to:
(a) The employee shall present a written statement from her
attending physician certifying (1) that a pregnancy exists,
and (2) the last date on which the employee can safely work.
Such written statement shall be submitted to the Medical
Department within a reasonable time after the pregnancy is
known but not later than the end of the sixth month of preg-
nancy. It is expected that the employee will work to the
date certified above and no employee will be allowed to work
beyond the date certified by her physician as the last date
on which the employee can safely work.
(b) Following childbirth, the employee shall submit to the
Medical Department a written statement from her physician
certifying the earliest date that the employee can return to
work. Benefits under this Article 13 shall cease on the
return to work date certified by the employee's physician.
If the employee elects not to return to work on this date
the employee may request a leave of absence in accordance
with Article 14, Sections 14.06, 14.08 and 14.09.
Section 13.16. It is understood that none of the provisions of
this Article 13 shall in any way limit the Company's right to
discipline employees for excessive absenteeism or misrepresenta-
tion of injuries, ailments, or physical condition.
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ARTICLE 14
LEAVE OF ABSENCE
Section 14.01. Employees will be excused with pay for absence on
scheduled workdays upon the occasion of a death as follows:
(a) Between, and including, the day of death and the day of the
funeral of a father, mother, foster father or mother,
husband, wife, brother, sister, son or daughter, mother-in-
law, or father-in-law, with a maximum of four (4) working
days. One (1) of the four (4) days total allotment may be
taken on the day immediately after the funeral.
(b) For one day on the day of the funeral to attend the services
for a son-in-law, daughter-in-law, grandfather, grandmother,
grandson, granddaughter, stepfather, stepmother,
stepbrother, stepsister, stepchild, half brother or half
sister.
(c) In the event relatives listed in Section 14.01(b) were
living in the household of the employee at the time of
death, the allowance of Section 14.01(a) shall apply.
(d) The allowances of this Section shall apply only to employees
regularly at work and shall not apply to employees absent
because of vacation, sick leave, leave of absence for any
reason, layoff, furlough, disciplinary action, or any
permitted absence.
Section 14.02. When regular employees are selected to serve as
jurors in the jurisdiction of their residence and are required to
be absent from work on regular scheduled workdays because of jury
duty, pay at their basic rate shall be continued during such
absences and they may retain any fees paid to them for jury duty.
The work schedules of shift workers will be revised when
necessary so that they will not be assigned to night work on
normal jury duty days. Employees shall notify their supervisors
promptly after receiving notice of jury duty summons and shall
obtain such certifications regarding hours and days of jury duty
as may be required by the Company. Employees shall report for
work whenever they are not actually serving as jurors during
their regular scheduled workdays unless otherwise instructed by
their supervisors. Continuation of pay as provided herein shall
not be allowed more than once in two consecutive calendar years
unless the individual is unable to be excused from serving on
jury duty.
Section 14.03. Any employee subpoenaed as an innocently involved
witness in a federal, state or local government judicial
proceeding shall lose no pay thereby.
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Section 14.04. Employees who are called to active duty or enlist
in the U.S. Armed Forces shall be granted leaves of absence for
their initial tour of duty or initial enlistment period. If such
employees return to work within 90 days of their separation or
discharge from military service, their continuous service with
the Company shall not be broken. All employee benefits shall be
suspended during the period such employees are on active duty.
Section 14.05. Employees who are called to temporary, short term
active duty in the National Guard or Reserve due to a declared
emergency or regular encampment shall be granted a leave of
absence on request. The Company will compensate employees during
such leaves for the difference between the employee's military
pay and the employee's base pay rate in the Company, providing
employees promptly submit official military documentation as to
military pay received for the period of the emergency or regular
encampment.
Section 14.06. An employee who has worked for PEPCO for at
least one (1) year may make a request for a leave of absence
under local and/or federal family and medical leave laws provided
the employee has worked the requisite number of hours in the
preceeding twelve (12) months. A request for leave must be made
in writing specifying the reason for such leave (including any
requested supporting documentation), the date the leave is
expected to commence and the date the employee expects to return
to work.
Section 14.07. An employee may request a personal leave of
absence without pay for a period up to four (4) months providing
such request is made in writing stating the reason for such
leave, the date the leave is to commence, and the date the
employee will return to work. Such leave requests shall be
submitted to the employee's department head and shall require the
approval of the employee's General Manager and the General
Manager - Human Resources. Depending on Company operating
requirements and reasons for requested leaves of absence, the
Company shall be the sole determiner as to whether a leave of
absence is granted. If the employee does not return to work on
the approved return date, his/her employment with the Company
shall be terminated. Personal leaves of absence shall not be
renewed or extended beyond the approved return date except in
cases of demonstrated hardship and only on the approval of the
employee's General Manager and the General Manager - Human
Resources. No leave will be granted to accept employment with
another organization or to be self-employed. No more than one
(1) leave of absence (four (4) months maximum) will be granted
within any continuous eighteen (18) month period. Before
beginning such a leave of absence, an employee must take all
vacation to which he/she is then entitled.
Section 14.08. Any employee who is duly elected to a federal,
state, or local government position which requires such employee
to be absent from the Company on a full-time basis, may request a
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leave of absence without pay for a period not to exceed the first
term of office.
Section 14.09. Employees granted leaves of absence under section
14.06 shall maintain the applicable group medical and group
dental plan coverage as if they had continued working. In the
event the employee is a member of a medical plan requiring an
employee contribution, the employee must timely forward the
appropriate contribution to employee benefits each month to
continue coverage. Group life insurance may be continued under
the terms described in Section 14.10.
Section 14.10. Employees granted leaves of absence under
Sections 14.07 and 14.08 shall have the coverage of the following
benefit plans continued to the end of the month in which the
leave commences:
Group Life Insurance Program
Group Medical Insurance Program
Group Dental Assistance Plan
If the employee desires to obtain continued coverage under these
programs after the period specified above, such employees shall
pay the full monthly cost of the benefit plan premiums or
contributions up to and including the month in which the employee
returns to work from his/her leave of absence. Full monthly cost
shall include both employee and employer premiums or
contributions. Such payments shall commence and be submitted to
the Employee Benefits Department by the first day of the month
following the periods specified above and by the first day of any
succeeding months of the leave of absence. Failure to make
timely payments as prescribed shall cause the immediate
cancellation of the program coverage. Regarding the General
Retirement Plan, if an employee does not desire to make
contributions to the Plan during a leave, contributions to the
Plan will be suspended during the leave of absence and be resumed
when the employee returns to work.
Section 14.11. Employees who return from a personal leave of
absence prior to or on the approved return date will be
reinstated in their former position at their former rate of pay
and will retain their position on the seniority roster.
Section 14.12. A regular employee who is elected or appointed to
a full-time official position in Local Union #1900 shall be
granted a leave of absence without pay by the Company for the
term of such elected or appointed office. In conjunction with
such leave, the following will apply:
(a) The President of Local Union #1900 shall give written notice
to the Manager - Industrial Relations stating the name of
the employee to be granted leave, the date such leave will
commence, and the name and term of office involved.
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(b) The Company shall make no wage payments to the employee
during the term of leave of absence; however, the Company
will continue the employee's coverage under certain benefit
plans listed below, provided that Local Union #1900
reimburses the Company for the full cost of premiums or
contributions (employee-employer) currently in effect for
such plans. Such reimbursements shall be forwarded monthly
to the Manager-Employee Benefits, Thomas Edison Building.
The benefit plans subject to such continuation are as
follows:
Group Medical Insurance Program
Group Life Insurance Program
General Retirement Plan
Long Term Disability Plan
Group Dental Assistance Plan
Local Union #1900 shall be responsible for providing
Workers' Compensation coverage for any employee who is on
leave of absence under this Section 14.12.
(c) An employee on leave shall continue to accrue all seniority
rights during the term of office with Local Union #1900 and
shall, upon expiration of such leave, be reinstated in
his/her former job classification at the former work
location if he/she is physically qualified to perform the
work. It is understood that an employee on leave for Union
business forfeits any promotional opportunities in the
Company which occur during such leave of absence.
ARTICLE 15
LIMITED SERVICE
Section 15.01. When (a) an employee with ten (10) or more years
of continuous service is unable to perform the regular work of
his/her classification because of a disability resulting from a
non-occupational illness or injury, or when (b) an employee,
regardless of length of service, is unable to perform the regular
work of his/her classification because of a disability resulting
from an accident on the job, the Company may invoke the
provisions of this Article by giving written notice to the
employee, copy to the Union. Such notice shall state that the
employee may bid into any available job he/she can do within the
limits of his/her disability and shall have his/her pay protected
to the extent set forth in the applicable provision of this
Article. If the employee does not successfully bid into another
job within 12 months of such notice, the Company will endeavor to
place him/her in any available work where, in the Company's
opinion, the employee can be productive taking into account
his/her previous experience, education and the limits of his/her
disability. At its election, the Company can permanently place
an employee prior to the expiration of this 12-month period and
the employee's salary shall be grandfathered for the balance of
that 12-month period. In the event the employee bids into
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another position prior to the expiration of the original 12-month
period, that employee's pay shall be grandfathered for the
balance of that 12-month period governed by the provisions of
Sections 15.02 & 15.03. In fulfilling its obligation under this
Article, the Company may place employees without regard to the
posting, seniority or other selection requirements of Article 8;
however, such placement shall be discussed in advance with the
Union.
Section 15.02. If the disability referred to in Section 15.01
results from a non-occupational illness or injury, the employee's
rate of pay shall be determined as follows:
(a) If the employee has completed twenty (20) years of
continuous service, his/her rate of pay will be
grandfathered (as defined below in Section 15.03).
(b) If the employee has completed fifteen (15) years of
continuous service, his/her rate of pay will be reduced by
50% of the difference between his/her existing rate and the
rate established for the work he/she is to perform.
(c) If the employee has completed ten (10) years of continuous
service, his/her rate of pay will be the rate established
for the work he/she is to perform.
Section 15.03. When the disability referred to in Section 15.01
results from an accident on the job which was promptly reported
and was not the result of a willful or deliberate act by the
employee, the employee's rate of pay shall be grandfathered, that
is, he/she shall continue to be paid at the same step and pay
grade that the employee was receiving at the time he/she was
informed in writing of the Company's intention to invoke the
provisions of this Article and shall be eligible for future
general wage increases.
Section 15.04. Employees in limited service status who become
subject to a reduction under the terms of Article 9 shall first
have their status reviewed under the terms of this Article
including classification and seniority.
Section 15.05. When an employee is to be changed to, or from,
limited service, the case will be discussed with the Union and
his/her seniority status decided by mutual agreement.
Section 15.06. Future status of an employee's ability to return
to his/her former job or a job of higher classification shall be
subject to review at anytime the employee's condition improves to
allow such consideration. If the employee is found to be capable
of performing the duties of his/her former job as determined by
the Company's Medical Director, he/she shall be returned to the
job in question. Concerning a job in a higher classification or
a job in another Occupational Group, if the employee is found to
be capable of performing the duties of such job as determined by
the Medical Director, the employee shall be given consideration
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on the next job vacancy.
ARTICLE 16
SUSPENSION AND DISCHARGE
Section 16.01. The maintenance of discipline is the
responsibility of the Company and to that end the Company may
discipline employees for cause. A copy of all disciplinary
actions issued to Bargaining Unit employees will be forwarded to
the Union. This includes all Oral Reminders, Written Reminders,
Decision Making Leaves (DML), and notices of meetings regarding
continuation of employment (and resulting determinations from
such meetings).
Section 16.02. In the event the Company believes that a
Bargaining Unit employee's problems regarding work performance,
conduct & safety, or attendance appears to warrant discharge, a
meeting will be scheduled for that employee before his/her
General Manager (or designated representative); other Company
representatives may also be present.
(a) The employee and the Union will be notified, in writing, at
least two (2) days prior to the meeting. The notification
will include the date and time of the meeting, a statement
describing the employee's performance problem(s), and a
statement to the employee advising of his/her right to Union
representation (also included will be the Union's telephone
number).
(b) The Company will endeavor to assure that a Union Steward is
available when an employee is notified of the meeting. In
the event a Steward is not available, the Union office will
be notified as soon as reasonably possible.
(c) The purpose of the meeting is to assure that an appropriate
decision is made regarding the Bargaining Unit employee's
continued employment with the Company. A representative of
the Union may attend that meeting. If desired, the employee
may allow that Union official to represent him/her at that
meeting. During this meeting, all parties will make all
relevant facts available. Further, the Company may allow
witnesses with relevant information to testify at the
meeting.
(d) After the meeting, and after the Company has completed any
additional investigation that it deems appropriate, the
employee will be advised, in writing, of the Company's final
determination. A copy of that determination will be
forwarded to the Union. It is understood that employees will
remain at work pending the Company's final determination,
unless that employee has been placed on Crisis Suspension or
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Excused With Pay.
Section 16.03. In the event a Bargaining Unit employee is placed
on Crisis Suspension or Decision-Making Leave, the Company will
endeavor to assure that a Steward is present when the employee is
notified. In the event a Steward is not available, or it is
impractical to have a Steward present, the management
representative who places the employee on Crisis Suspension or
Decision-Making Leave is responsible for ensuring that the Union
office is notified as soon as possible. Additionally, the
employee will be provided with the Union's telephone number.
(a) It is understood and agreed that a Crisis Suspension
does not necessitate a meeting before the employee's
General Manager (or designated Representative) unless
that suspension is expected to be converted to
discharge. However, in the event a Crisis Suspension
extends past five (5) days, the Union shall have the
right to request a hearing. In the event of such
request, the parties shall, within two (2) days,
arrange to meet and discuss the employee's employment
status.
Section 16.04. In the event the Union disagrees with a Company
decision to discharge a Bargaining Unit employee, the Union may,
within five (5) working days after the determination, appeal the
discharge directly to Arbitration in accordance with Article 18.
However, prior to Arbitration, the Union may request that a Step
2 meeting be held to discuss the matter.
Section 16.05. Crisis suspensions may be appealed directly to
Step 2 of the Grievance Procedure, Article 17.
ARTICLE 17
GRIEVANCE PROCEDURE
Section 17.01. It is considered by the parties that all
grievances should be presented promptly, discussed without delay
and answered within a reasonable time. A grievance is defined as
a violation of a specific term(s) or provision(s) of this
Agreement or of an established precedent in terms and/or
conditions of employment. It is also considered that grievances
should be settled whenever possible at the levels where the
greatest familiarity with the subject matter exists. Any
individual employee or group of employees shall have the right to
present grievances and to have them considered for adjustment,
provided any adjustments are not inconsistent with the terms of
this Agreement and a Union representative has been given an
opportunity to attend as provided in this procedure. Therefore,
it is agreed that all grievances shall be subject to the
following grievance procedure.
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Section 17.02. Any employee who believes that he/she has a
grievance shall, within one (1) week after the cause of the
grievance is alleged or known to have taken place, discuss it
with his/her immediate supervisor. The employee may, if he/she
desires, have his/her Steward present during the discussion. The
supervisor shall within three (3) workdays after the discussion,
notify the employee or Steward (if present at the discussion) of
his/her disposition of the matter.
Section 17.03. Step 1--If the appropriate supervisor's response
does not resolve the grievance, then within two (2) weeks after
the cause for the grievance is alleged or known to have taken
place, the grievance shall be stated in writing on forms
available from the Company or the Union, listing facts, reasons,
Agreement provisions in question, and/or established precedent in
terms and conditions of employment. The grievance must be
numbered (by the Local Union Office), dated and signed and one
(1) copy shall be delivered to the Department Head and one (1)
copy shall be delivered to Industrial Relations. If a grievance
is not delivered to the Department Head within two (2) weeks
after occurrence of cause for the grievance, it will no longer
exist.
Section 17.04. Within one (1) week of delivery of the aforesaid
grievance to the Department Head, the appropriate supervisor(s),
the grievant, Steward, and/or Chief Steward shall meet to resolve
the grievance. Within one (1) week after the meeting, the
appropriate supervisor(s) shall give written notice to the
Steward, with a copy to the Local Union President, of the
determination of the grievance. If the grievance is not resolved,
it may be taken to Step 2.
Section 17.05. Step 2--If the grievance is not resolved in Step
1, the President of the Local Union (or his/her designated
representative) may, within two (2) weeks after receipt of the
written determination in Step 1, submit in writing to the Manager
- - Industrial Relations (or his/her designated representative) a
request for a meeting to resolve the grievance. Within one (1)
week after receipt of such request from the Local Union President
(or his/her designated representative), the Manager - Industrial
Relations (or his/her designated representative) shall arrange to
meet with the Union's Grievance Committee (grievant, Steward,
Chief Steward, and/or Local Union President or his/her designated
representative) to resolve the grievance. Such meeting will be
held within four (4) weeks of the receipt of the request unless
mutually agreed otherwise. The Union and the Company may have
present and eligible to participate in the discussion any persons
they so desire. Within two (2) weeks after the meeting, the
Manager - Industrial Relations (or his/her designated
representative) shall give written notice to the Local Union
President (or his/her designated representative) of the
determination of the grievance. If the grievance is not resolved
in Step 2, it may be taken to arbitration as provided in Article
18.
Section 17.06. Discussions regarding grievances shall be
conducted as far as practicable during the employee's working
hours. Payment for discussions regarding grievances shall be
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compensated as outlined in Article 4 of this Agreement. All
employees shall first obtain permission from their supervisor to
be absent for such meetings and must report to him/her upon
returning.
Section 17.07. Grievances relating to matters which extend
beyond a single Department, Division, or Group may originate in
the Step of the grievance procedure where management authority to
settle the matter exists, but no grievance may be taken to
arbitration until it has been presented in Step 2, except where
time limits as described in Section 17.05 have been exceeded and
then only if the party seeking to move the matter to arbitration
has not caused or contributed to the time limits being exceeded
or except as otherwise provided for in Section 16.05 regarding
discharges.
Section 17.08. Whenever a grievance involves a group of
employees, a committee of not more than three persons, which
shall include the appropriate Steward and at least one of the
employees affected, may be substituted for an employee wherever
the word "employee" is used in the grievance procedure.
Section 17.09. It is agreed that the grievance procedure or time
limits may be varied at anytime by agreement of the parties when
such action appears to be necessary or desirable.
Section 17.10. The Union and the Company shall inform each other
of persons authorized to represent them in grievance matters.
Section 17.11. Grievances of the Company or Union shall
originate in the lowest step where authority to take appropriate
action exists.
Section 17.12. The grievance procedure is applicable to all
employees in the bargaining unit except as otherwise restricted
elsewhere in this Agreement, provided, however, that terminations
of regular employees during their first year of continuous
service and terminations of temporary employees at anytime may
not be the subject of a grievance.
Section 17.13. Failure to comply with the time limit provisions
by employees or Union representatives shall invalidate the
grievance. Failure to comply with the time limit provisions by
Management representatives shall permit the grievance to be
advanced to the next Step of the grievance procedure.
ARTICLE 18
ARBITRATION
Section 18.01. Any grievance not resolved in Step 2 of the
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grievance procedure may be submitted to impartial arbitration.
Section 18.02. The Company or the Union shall notify the other
party of its desire to proceed to arbitration within two (2)
weeks of receipt of the Step 2 answer. Such notice shall be in
writing and shall specify the grievance to be arbitrated and
state the issue(s) involved.
Section 18.03. An impartial Arbitrator shall be selected by
mutual consent of the Company and the Union as soon as
practicable after receipt of the request for arbitration. If the
parties do not agree on the selection of an Arbitrator within two
(2) weeks after receipt of the request for arbitration, the
American Arbitration Association shall select from a standing
panel (agreed to by the parties in the Memorandum of
Understanding by which this Agreement was established) the five
Arbitrators least recently selected under this Article and shall
provide a list thereof to each party. Within one (1) week
following receipt of the list of Arbitrators, the parties shall
meet and alternate in striking names from the list with the loser
of a coin toss striking first. The remaining name, after each
party has struck twice, shall be the impartial Arbitrator.
Section 18.04. The arbitration hearing shall be held as quickly
as possible. The award of the Arbitrator shall be final and
binding upon both parties and upon the employee(s) involved. The
fees and expenses of the Arbitrator, and any other expenses
agreed to by the parties prior to the arbitration hearing, shall
be shared equally by the Company and the Union. The Arbitrator
shall have power and authority to arbitrate only those matters
expressly made subject to arbitration by the terms of this
Agreement and shall rule only on the issues submitted to him/her.
The Arbitrator shall have power only to interpret this Agreement
and shall not have the power to alter or amend it.
Section 18.05. At the request of either party, a grievance
involving the discharge or discipline of an employee shall be
submitted to Expedited Arbitration (as defined below). The
Arbitrator for such Expedited Arbitrations shall be appointed
from a standing panel of at least ten (10) Arbitrators agreed to
by the parties in the Memorandum of Understanding by which this
Agreement was established. As soon as practicable after receipt
of the arbitration request referred to in Section 18.02 above,
the parties shall try to agree on a date(s) to arbitrate the
case. If agreement is reached, the parties shall notify the
American Arbitration Association (hereinafter "AAA") of the
desired date(s). The AAA will then appoint an Arbitrator from
the parties' standing panel who is available on the requested
date(s). Prior to the parties' selection of a mutually
acceptable date(s), neither party shall be informed of the
availability of a named Arbitrator on a particular date. If the
parties are unable to agree on a date within two (2) weeks after
receipt of the request for arbitration, either party may so
notify the AAA, requesting that the AAA appoint an Arbitrator who
will set the time and date(s) after considering the parties'
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positions on when the case should be heard. In appointing
Arbitrators under this Section, the AAA shall make every effort
to evenly distribute the cases among the standing panel of
Arbitrators. The Expedited Arbitration will be conducted
according to the Expedited Arbitration rules in effect July 1,
1983, except to the extent inconsistent with this Section.
ARTICLE 19
APPLICABLE LAWS AND REGULATIONS
Section 19.01. It is understood and agreed that the provisions
of this Agreement are in all respects subject to all applicable
laws and governmental regulations now or hereafter in effect and
to the lawful rulings and orders of all regulatory commissions
now or hereafter having jurisdiction. Should any provision of
this Agreement be found to be in conflict with any applicable
laws or lawful rulings or regulations, the parties shall at once
meet for the purpose of discussing and/or modifying that portion
of the Agreement only.
Section 19.02. The Company will endeavor to comply with all
state and local laws and regulations relating to the safety and
health of employees and will take such additional steps as may be
necessary to make adequate provision therefore, including the
establishment and maintenance of appropriate first aid stations
and other facilities. The Company will also formulate and
publish safety rules to which the employees shall be required to
conform.
ARTICLE 20
SAFETY AND HEALTH
Section 20.01. The Company and the Union recognize the need for
an effective Safety and Health Program for the benefit of all
employees and the Company. The Union will cooperate in assisting
and maintaining the Company's rules regarding safety and health.
The Company recognizes the interest of the Union in the safety
and health of its members, and will give careful consideration to
any recommendations made by it. The Company agrees to
investigate, upon request of the Union, any conditions which
might affect the safety and health of employees, and will meet
with a Union safety committee as designated below.
Section 20.02. The Company and the Union agree to establish a
Joint Safety and Health Advisory Committee for the purpose of
reviewing or recommending new or revised safety and health rules,
discussing current safety and health conditions or problems, and
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discussing laws and regulations concerning Occupational Safety
and Health Act (OSHA) and/or other federal and state regulatory
agencies having local jurisdiction. This Committee shall consist
of not more than three (3) members for the Company and three (3)
members for the Union. Two of the three members of the Union
committee will be permanent members of the Joint Safety and
Health Advisory Committee and the third may be a rotating member
as designated by the Union.
Section 20.03. This Committee shall generally meet on a monthly
basis and take actions it deems appropriate in presenting and
recommending new or revised safety and health rules affecting the
employees of the Company. However, it should be understood that
the establishment and enforcement of safety and health rules and
regulations is a proper function of management and to this end
the final determination as to adoption and implementation of
safety and health rules shall be the sole responsibility of the
Company.
Section 20.04. It is understood that any dispute arising out of
the enforcement of Company established safety and health rules
shall be proper subject for a grievance under Article 17 of this
Agreement.
Section 20.05. The Company will compensate members (Company
employees) for time spent in meetings of the Joint Safety and
Health Advisory Committee.
Section 20.06. When the Company is required to notify OSHA or a
corresponding state agency of an accident involving Company
employee(s), it will also notify the Union of such accident. The
Union may thereafter investigate the accident by having a Union
official contact the Manager-Corporate Safety or a member of
his/her staff who will arrange for such investigation.
ARTICLE 21
UNAUTHORIZED WORK STOPPAGES,
SLOWDOWNS, OR LOCKOUTS
Section 21.01. It is understood and agreed that the services
performed by the employees of the Company in their employment are
essential to the continuing operations of the Company as a public
utility and to the welfare of the public.
Section 21.02. During the term of this Agreement and any
mutually agreed-upon extensions thereof, the Union will not call,
authorize, encourage, ratify, or engage in any strike, sitdown,
slowdown, or other interference with or stoppage of the work of
the Company, and the Company will not engage in any lockout of
employees.
Section 21.03. In the event that any employees in the bargaining
unit individually or collectively engage in any strike, sitdown,
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slowdown, or other interference with or stoppage of work, the
Company shall notify the Union of such incident and the Union
shall take the following actions:
(a) Notify the Company in writing within 24 hours of such
incident that such strike, sitdown, slowdown, or other
interference with or stoppage of work is not authorized by
the Union.
(b) Immediately instruct such employees that they are in
violation of the Agreement and order them to immediately
cease such action.
(c) Grant such employees no assistance in such action.
Section 21.04. If the Union complies with Section 21.03 there
shall be no responsibility on the part of the Union, its officers
or representatives.
Section 21.05. If such employees (Section 21.03) do not cease
such action immediately upon instructions of the Union, they
shall be subject to discipline by the Company, including
discharge.
Section 21.06. If there is any question about any individual
employee as to his/her participation in a strike, sitdown,
slowdown, or other interference with or stoppage of work, and/or
the discipline imposed, the matter may be subject to Article 17,
Grievance Procedure.
ARTICLE 22
BENEFIT PLANS
Section 22.01. General Retirement Plan (GRP) - The level and
type of benefits provided under the existing General Retirement
Plan will be continued during the term of this Agreement.
Section 22.02. Long Term Disability Plan (LTD)
(a) The level and type of benefits provided under the existing
Long Term Disability Plan for bargaining unit employees, as
amended by the 1993 Memorandum of Understanding (Benefits),
will be continued during the term of this Agreement. All
employees awarded long term disability benefits under the
plan must make timely application for Social Security
Disability Benefits and if benefits are denied, must
continue to appeal, in a timely manner, the denial of such
benefits unless and until the Company or its agent
determines further appeals are no longer necessary. Failure
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to file timely application or timely appeal(s) for Social
Security Disability Benefits or to cooperate with the
Company or its agents in such appeal(s) will result in
suspension of benefits under the plan. The existing
Disability Retirement Plan shall continue in effect only for
purposes of coverage for employees who became disabled prior
to June 1, 1982.
(b) When an employee with ten (10) or more years of continuous
service is unable to perform the regular work of his/her
classification because of a physical disability resulting
from a non-occupational illness or injury, and such employee
has been determined ineligible for benefits under the Long
Term Disability Plan for bargaining unit employees, when the
Company is notified of such ineligibility, the Company shall
endeavor to place the employee in any available work where,
in the Company's opinion, the employee can be productive
taking into account his/her previous experience, education
and the limits of his/her physical disability; however, such
placement shall be discussed in advance with the Union. In
fulfilling its obligation, the Company may place employees
without regard to the posting, seniority or other selection
requirements of Article 8. Nothing herein shall preclude
the employee from bidding into any available job during this
period and the employee shall retain all rights under
Article 15 of the Labor Agreement.
Section 22.03. Medical Coverage
(a) The level and type of benefits provided under the existing
Medical Plan for bargaining unit employees, as amended by
the 1993 Memorandum of Understanding (Benefits), will be
continued during the term of this Agreement and shall apply
to all bargaining unit employees except those who elect
medical coverage under a Health Maintenance Organization
plan as described in Section 22.04 below. During the term
of this Agreement, all covered employees shall pay the
following monthly contribution:
$10.00 Individual coverage
$30.00 Family coverage
(b) In the event a Plan member has been paid benefits from the
Plan for injuries caused by some person other than the
Company or such injured member, the Company may, after a
reasonable time, and with the written authorization of the
injured member, pursue the subrogated rights of such member
against said other person up to the amount it has incurred
or paid to or on behalf of the member from the Plan, if the
injured member does not pursue his/her remedy. Such injured
member shall not unreasonably withhold his/her consent. In
the event the member pursues his/her remedy against such
third person and receives a judgment or decree or settlement
from such third person, the Company shall, under its rights
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of subrogation, be notified by the member and will be
entitled to participate in the judgment or decree or
settlement up to the amount it has paid on behalf of the
member from the Plan. If the Company receives a settlement,
to the extent of the amount it has been paid, the employee
shall have his/her "lifetime maximum" restored. It is
agreed, however, that the Company shall be paid only from
the amount remaining after all expenses, legal fees and
court costs, etc. have been paid.
Section 22.04. Health Maintenance Organizations (HMO) -
(a) Employees may elect either medical coverage described in
Section 22.03, or medical coverage under a Health
Maintenance Organization (HMO). Employees may make such an
election during an annual "open enrollment period" in the
last quarter of each year and such election shall be
irrevocable during the next calendar year. Employees who
elect an HMO plan shall pay the difference in the added
monthly premium cost, if any, between the elected coverage
in the HMO plan and the applicable monthly premium cost less
the applicable employee contribution to PEPCO's Medical Plan
in effect on January 1 of each year for medical coverage
described in Section 22.03, above.
(b) The Company shall offer the services of a representative
group of at least three HMOs. The determination as to which
HMO shall be offered under this Section shall be made by the
Company taking into account 1) the objective of providing
representative HMO options to as many employees as
reasonably possible; 2) the requirements of federal law and
regulations relating to HMOs; and 3) the need to protect
employees and the Company from problems associated with
medically or financially deficient HMO administration. If
the Company determines to offer an HMO to employees, it
shall not be deemed to be an endorsement of the HMO or an
assurance from the Company that the employee will receive
proper care from the HMO.
(c) An employee who elects HMO medical coverage shall have such
medical coverage as his/her exclusive medical coverage and
the Company shall have no obligation with regard to the
provision of medical benefits or payment thereof, other than
payment as described in Section 22.04(a) above.
(d) If any employee is enrolled in an HMO which is no longer
made generally available to employees, any employee who is
enrolled in such HMO shall be permitted to continue
participation in such HMO for one (1) year subject to
payment of any applicable contribution.
Section 22.05. Life Insurance - The level and type of benefits
provided under the existing Group Life Insurance Plan for
bargaining unit employees shall continue during the term of this
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Agreement.
Section 22.06. Travel-Accident Insurance - The existing Travel-
Accident Insurance coverage (Company paid) for bargaining unit
employees will be continued during the term of this Agreement.
Section 22.07. Dental Assistance Plan - The level and type of
benefits provided under the existing Dental Assistance Plan for
bargaining unit employees, as amended by the 1993 Memorandum of
Understanding (Benefits), shall continue during the term of this
Agreement.
Section 22.08. Savings Plan - Provided Section 401(k) of the
Internal Revenue Code as in effect on the date of this Agreement
remains available, the level and type of benefits provided under
the existing Savings Plan for bargaining unit employees, as
amended by the 1993 Memorandum of Understanding (Benefits), shall
continue during the term of this Agreement. The Company will
provide a match of 40 Cents for each dollar of participant's
contributions to the Plan, up to 6% of base pay.
Section 22.09. Pre-Tax Spending Account - Provided Sections 125
and 129 of the Internal Revenue Code as in effect on the date of
this Agreement remains available, the level and type of benefits
provided under the existing Pre-Tax Spending Account for
bargaining unit employees shall continue during the term of this
Agreement.
Section 22.10. Child Care Referral Service - The level and type
of benefits provided under the existing Child Care Referral
Service shall continue during the term of this Agreement.
Section 22.11 The method of funding, the election to self-
insure any benefit plan described in this Article or the
selection of an insurer for any plan shall be entirely within the
discretion of the Company, and in the event there is any change
from the current insurer(s), the Company shall maintain programs
whose overall level and type of benefits are equal to the present
programs, if available. Any dividends or reductions in premium
rates during the term of this Agreement will accrue to the
benefit of the Company.
Section 22.12 The administration of benefit plans described in
this Article shall be the responsibility of the Administrative
Board of the Company under the direction of the Board of
Directors. Such responsibility shall include the selection of
trustees, consultants, actuaries, investment managers, or other
parties deemed necessary for the orderly operation of the plans.
The Company may enter into or amend contracts or agreements with
any parties involved with any of the Plans described in this
Article such as trustees, insurance carriers, financial
institutions, or investment fund managers, in the administration
and operation of trusteed, self-funded self-insured, or insured
60
<PAGE>
benefit plans, and when necessary, to amend plans and plan
documents to reflect operational changes or to secure
qualification as appropriate from the Internal Revenue Service.
It shall be the Company's responsibility and authority to
determine the extent to which all or any part of any benefit plan
is self-funded, trusteed or insured. The Company will annually
submit reports to the Union on defined benefit plans in
accordance with the Employee Retirement Income Security Act
(ERISA).
ARTICLE 23
IDENTITY OF PARTIES AND
COMPLETE AGREEMENT
Section 23.01. The parties to this Agreement agree that it shall
be binding upon them and their successors and assigns.
Section 23.02. It is agreed that in the negotiations leading to
the execution of this Agreement each party had full opportunity
to propose, present, and discuss all matters concerning
relationships between the Company, its employees in the agreed
classifications and jobs covered by this Agreement, and the
Union. Neither party is obligated to bargain collectively, as
regards such employees, with respect to any matter not covered by
this Agreement, for the life thereof, except as may be
specifically permitted by any reopening clause. Neither party
shall have the right, without consent of the other party, to
insist upon an addition thereto, change therein or deletion
therefrom. Amendments to this Agreement may be made, however,
and amendments proposed in writing by one party shall be
considered by the other and discussed by the parties jointly; but
if, as a result of such negotiations, no amendments are agreed
to, the disagreement shall not constitute a dispute subject to
Article 17, Grievance Procedure.
ARTICLE 24
DURATION, REOPENING AND RENEWAL
Section 24.01. Except as otherwise specifically provided in this
Agreement or accompanying General Memorandum of Understanding and
attachments thereto by which this Agreement was established, it
shall become effective upon formal signing and shall supersede
all prior agreements between the parties; except for the
implementation of any change from the previous Agreement which
shall occur as may be called for in the Agreement. The Standard
Wage Classification shall be implemented as outlined in Sections
24.03, 24.04 and 24.05 of this Article. The term of this
Agreement shall be to and including May 31, 2003 and it shall
thereafter continue in full force and effect for succeeding
periods of 12 calendar months each, unless either party, prior to
April 1, 2003, or April 1 of any year thereafter, shall serve
written notice upon the other party of its desire to amend and/or
to terminate the Agreement as of the following June 1.
61
<PAGE>
(a) In 2002, either party may request to reopen the contract by
giving the other party 60 day's notice prior to June 1,
2002. Any such re-opener will be limited to wages and
benefits.
Section 24.02. If amendments to the Agreement are so proposed
for any such June 1, such notice shall set forth the Articles and
Sections of which amendment is desired and the nature of the
proposed amendments. If, following negotiations on such
amendments, agreement is not reached by June 1, either party may
thereafter terminate this Agreement at any time by giving 48
hours' written notice thereof to the other.
Section 24.03. The Wage and Salary Schedule included in the
Standard Wage Classification which constitutes Annex A to this
Agreement shall become effective as of the date set forth in said
Annex A, for all employees in the bargaining unit who are not
covered by Section 24.04 below with each such employee's wage or
salary rate, as the case may be, thereupon being changed to the
applicable rate shown in Annex A for such employee's progression
step in his/her Pay Grade.
Section 24.04. Other provisions of this Agreement
notwithstanding, a wage increase of any type shall not become
effective prior to the start of a pay period during which the
employee records hours of work.
Section 24.05. Only those employees being carried on the
Company's payroll as of the date of ratification shall be
eligible for any retroactive payment as they may be otherwise
entitled.
62
<PAGE>
IN WITNESS THEREOF, the Company and the Union have
respectfully caused this Agreement, constituting the entire
agreement between the parties with respect to the collective
bargaining agreement, to be signed by their proper and duly
authorized officials, this 8th day of December 1998.
Washington, D.C.
POTOMAC ELECTRIC POWER COMPANY
Group Vice President - /S/ Anthony S. Macerollo
Corporate Services
Manager - Industrial Relations & /S/ William J. Wolverton
Employee Benefits
Supervisor - Labor Relations /S/ Michael J. Sullivan, Jr.
LOCAL UNION #1900
INTERNATIONAL BROTHERHOOD
OF ELECTRICAL WORKERS
President/Financial Secretary /S/ James L. Hunter
/S/ John A. Coleman
/S/ John L. Holt
/S/ Lionel Briscoe
63
<PAGE>
IN WITNESS THEREOF, the Company and the Union have
respectfully caused this Agreement, constituting the entire
agreement between the parties with respect to the collective
bargaining agreement, to be signed by their proper and duly
authorized officials, this 8th day of December 1998.
Washington, D.C.
POTOMAC ELECTRIC POWER COMPANY
/s/Anthony S. Macerollo
Group Vice President - ______________________
Corporate Services Anthony S. Macerollo
/s/ William J. Wolverton
Manager - Industrial Relations & ______________________
Employee Benefits William J. Wolverton
/s/ Michael J. Sullivan, Jr.
Supervisor - Labor Relations ______________________
Michael J. Sullivan, Jr.
LOCAL UNION #1900
INTERNATIONAL BROTHERHOOD
OF ELECTRICAL WORKERS
/s/James L. Hunter
President/Financial Secretary _________________________
James L. Hunter
/s/John A. Coleman
_________________________
John A. Coleman
/s/John L. Holt
_________________________
John L. Holt
/s/Lionel Briscoe
_________________________
Lionel Briscoe
64
<PAGE>
WAGE SCHEDULE FOR
HOURLY RATE CLASSIFICATIONS
Effective January 1, 1999
PAY
GRADE DOLLARS PER HOUR
4 8.50 8.76 9.01 9.27 9.53
6 11.11 11.62 11.85 12.04 12.52
7 12.24 12.44 12.63 12.83 12.99
8 12.63 12.83 12.99 13.21 13.41
9 13.67 13.82 14.08 14.30 14.44
10 14.82 15.07 15.29 15.56 15.74
11 15.45 15.68 15.94 16.16 16.37
12 17.06 17.31 17.54 17.77 18.04
13 19.12 19.39 19.55 19.84 20.10
14 20.12 20.41 20.68 20.96 21.19
15 20.97 21.30 21.55 21.81 22.13
15-A 22.62
16 22.13 22.41 22.63 22.96 23.26
17 23.38 23.68 23.94 24.22 24.50
18 24.72 25.04 25.26 25.51 25.87
19 26.13 26.38 26.64 26.93 27.24
20 27.48 27.78 28.02 28.31 28.62
Consideration for time and merit progression
through step rates in each Pay Grade at
6-month intervals.
<PAGE>
WAGE SCHEDULE FOR
HOURLY RATE CLASSIFICATIONS
effective May 29, 2000
PAY
GRADE DOLLARS PER HOUR
4 8.76 9.02 9.28 9.55 9.82
6 11.44 11.97 12.21 12.40 12.90
7 12.61 12.81 13.01 13.21 13.38
8 13.01 13.21 13.38 13.61 13.81
9 14.08 14.23 14.50 14.73 14.87
10 15.26 15.52 15.75 16.03 16.21
11 15.91 16.15 16.42 16.64 16.86
12 17.57 17.83 18.07 18.30 18.58
13 19.69 19.97 20.14 20.44 20.70
14 20.72 21.02 21.30 21.59 21.83
15 21.60 21.94 22.20 22.46 22.79
15-A 23.30
16 22.79 23.08 23.31 23.65 23.96
17 24.08 24.39 24.66 24.95 25.24
18 25.46 25.79 26.02 26.28 26.65
19 26.91 27.17 27.44 27.74 28.06
20 28.30 28.61 28.86 29.16 29.48
Consideration for time and merit progression
through step rates in each Pay Grade at
6-month intervals.
<PAGE>
WAGE SCHEDULE FOR
HOURLY RATE CLASSIFICATIONS
effective May 29, 2001
PAY
GRADE DOLLARS PER HOUR
4 9.02 9.29 9.56 9.84 10.11
6 11.78 12.33 12.58 12.77 13.29
7 12.99 13.19 13.40 13.61 13.78
8 13.40 13.61 13.78 14.02 14.22
9 14.50 14.66 14.94 15.17 15.32
10 15.72 15.99 16.22 16.51 16.70
11 16.39 16.63 16.91 17.14 17.37
12 18.10 18.36 18.61 18.85 19.14
13 20.28 20.57 20.74 21.05 21.32
14 21.34 21.65 21.94 22.24 22.48
15 22.25 22.60 22.87 23.13 23.47
15-A 24.00
16 23.47 23.77 24.01 24.36 24.68
17 24.80 25.12 25.40 25.70 26.00
18 26.22 26.56 26.80 27.07 27.45
19 27.72 27.99 28.26 28.57 28.90
20 29.15 29.47 29.73 30.03 30.36
Consideration for time and merit progression
through step rates in each Pay Grade at
6-month intervals.
<PAGE>
WAGE SCHEDULE FOR
HOURLY RATE CLASSIFICATIONS
effective May 29, 2002*
PAY
GRADE DOLLARS PER HOUR
4 9.29 9.57 9.85 10.14 10.41
6 12.13 12.70 12.96 13.15 13.69
7 13.38 13.59 13.80 14.02 14.19
8 13.80 14.02 14.19 14.44 14.65
9 14.94 15.10 15.39 15.63 15.78
10 16.19 16.47 16.71 17.01 17.20
11 16.88 17.13 17.42 17.65 17.89
12 18.64 18.91 19.17 19.42 19.71
13 20.89 21.19 21.36 21.68 21.96
14 21.98 22.30 22.60 22.91 23.15
15 22.92 23.28 23.56 23.82 24.17
15-A 24.72
16 24.17 24.48 24.73 25.09 25.42
17 25.54 25.87 26.16 26.47 26.78
18 27.01 27.36 27.60 27.88 28.27
19 28.55 28.83 29.11 29.43 29.77
20 30.02 30.35 30.62 30.93 31.27
Consideration for time and merit progression
through step rates in each Pay Grade at
6-month intervals.
*Rates effective unless wage re-opener requested.
<PAGE>
WAGE SCHEDULE FOR
WEEKLY RATE CLASSIFICATIONS
effective January 1, 1999
PAY
GRADE DOLLARS PER WEEK
1 427.50 452.50 460.50 472.75 489.75
2 463.75 488.50 499.00 508.50 528.00
3 553.25 564.25 569.75 576.00 586.50
4 600.50 612.50 622.50 637.25 645.50
5 667.25 681.50 695.25 705.50 716.25
6 764.50 778.25 789.75 801.50 812.50
7 831.75 845.75 856.75 869.50 880.75
8 879.50 896.75 910.75 928.75 940.25
9 955.50 973.50 992.00 1017.25 1034.75
9-A 1055.50 1073.75 1094.00 1117.25 1136.25
Consideration for time and merit progression
through step rates in each Pay Grade at
6-month intervals.
<PAGE>
WAGE SCHEDULE FOR
WEEKLY RATE CLASSIFICATIONS
effective May 31, 2000
PAY
GRADE DOLLARS PER WEEK
1 440.25 466.00 474.25 487.00 504.50
2 477.75 503.25 514.00 523.75 543.75
3 569.75 581.25 586.75 593.25 604.00
4 618.50 631.00 641.25 656.25 664.75
5 687.25 702.00 716.00 726.75 737.75
6 787.50 801.50 813.50 825.50 837.00
7 856.75 871.00 882.50 895.50 907.25
8 906.00 923.75 938.00 956.50 968.50
9 984.25 1002.75 1021.75 1047.75 1065.75
9-A 1087.25 1106.00 1126.75 1150.75 1170.25
Consideration for time and merit progression
through step rates in each Pay Grade at
6-month intervals.
<PAGE>
WAGE SCHEDULE FOR
WEEKLY RATE CLASSIFICATIONS
effective May 31, 2001
PAY
GRADE DOLLARS PER WEEK
1 453.50 480.00 488.50 501.50 519.75
2 492.00 518.25 529.50 539.50 560.00
3 586.75 598.75 604.25 611.00 622.00
4 637.00 650.00 660.50 676.00 684.75
5 707.75 723.00 737.50 748.50 760.00
6 811.25 825.50 838.00 850.25 862.00
7 882.50 897.25 909.00 922.25 934.50
8 933.25 951.50 966.25 985.25 997.50
9 1013.75 1032.75 1052.50 1079.25 1097.75
9-A 1119.75 1139.25 1160.50 1185.25 1205.25
Consideration for time and merit progression
through step rates in each Pay Grade at
6-month intervals.
<PAGE>
WAGE SCHEDULE FOR
WEEKLY RATE CLASSIFICATIONS
effective May 31, 2002*
PAY
GRADE DOLLARS PER WEEK
1 467.00 494.50 503.25 516.50 535.25
2 506.75 533.75 545.50 555.75 576.75
3 604.25 616.75 622.50 629.25 640.75
4 656.00 669.50 680.25 696.25 705.25
5 729.00 744.75 759.75 771.00 782.75
6 835.50 850.25 863.25 875.75 887.75
7 909.00 924.25 936.25 950.00 962.50
8 961.25 980.00 995.25 1014.75 1027.50
9 1044.25 1063.75 1084.00 1111.75 1130.75
9-A 1153.25 1173.50 1195.25 1220.75 1241.50
Consideration for time and merit progression
through step rates in each Pay Grade at
6-month intervals.
*Rates effective unless wage re-opener requested.
<PAGE>
HOURLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
CUSTOMER SERVICES AND POWER DELIVERY BUSINESS UNIT
CUSTOMER SERVICES GROUP
METERS SERVICES DIVISION
Meter Installation & Test
013040 Meter Electronic Technician A .................... 18
013726 Meter Electronic Technician B .................... 16
013066 Meter Electronic Technician C .................... 12
013017 Meter Laboratory Technician ...................... 17
013039 High Tension Field Meter Tester .................. 17
013041 Field Meter Tester A ............................. 15
013044 Laboratory Meter Tester A ........................ 15
013042 Field Meter Tester B ............................. 13
013045 Laboratory Meter Tester B ........................ 11
013090 Meter Installation Technician .................... 16
013047 Meter Installer A ................................ 15
013048 Meter Installer B ................................ 12
013043 Field Meter Tester/Installer C ................... 10
013046 Laboratory Meter Tester/Installer C .............. 8
013062 Helper ........................................... 6
013010 Meter Repairer A ................................. 15
013050 Equipment Service Technician A ** ................ 15
Meter Reading
015001 Special Meter Reader ............................. 13
015002 Meter Reader ..................................... 12
CUSTOMER SERVICES OPERATIONS & ACCOUNTING DIVISION
Customer Credit
024002 Collection Specialist ............................ 15
024001 Collector ........................................ 14
024013 Collection Order Dispatcher ...................... 14
**Restricted Roster
1
<PAGE>
HOURLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
POWER DISTRIBUTION GROUP
Distribution Field Support
141064 Gardener A ....................................... 12
141065 Gardener B ....................................... 9
Customer Reliability & Test
027010 Lead Transmission & Distribution Tester .......... 19
027001 Lead Distribution Tester ......................... 18
027011 Distribution Tester A ............................ 16
027020 Lead Transformer Tester .......................... 18
027021 Transformer Tester A ............................. 16
027030 Transmission & Distribution Tester B ............. 14
027031 Transmission & Distribution Tester C ............. 11
027032 Transmission & Distribution Tester D ............. 9
027033 Helper ........................................... 6
027050 Utility Mechanic A** ............................. 11
027051 Utility Mechanic B** ............................. 6
FORESTVILLE SERVICE CENTER DIVISION
Forestville Service Center
413020 Lead Line Mechanic ............................... 18
413027 Qualified Line Mechanic .......................... 16
413004 Line Mechanic A .................................. 14
413005 Line Mechanic B .................................. 13
413006 Line Mechanic C .................................. 9
413017 Helper ........................................... 6
413014 Trouble Assistant/Street Light Replacer A ........ 12
413012 Trouble Assistant/Street Light Replacer B ........ 9
413007 Service Line Mechanic ............................ 14
413021 Overhead Equipment Operator ...................... 14
413082 Service Inspector ................................ 13
413035 Truck Driver-Ground Helper-Boat Operator ......... 13
413010 Truck Driver-Ground Helper A ..................... 12
413013 Truck Driver-Ground Helper B ..................... 6
**Restricted Roster
2
<PAGE>
HOURLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Forestville Service Center (Cont')
413063 Truck Driver B ................................... 8
413040 Utility Mechanic A** ............................. 11
413041 Utility Mechanic B** ............................. 6
ROCKVILLE SERVICE CENTER DIVISION
Rockville Service Center
412220 Lead Line Mechanic - Rockville ................... 18
412227 Qualified Line Mechanic - Rockville .............. 16
412204 Line Mechanic A - Rockville ..................... 15
412205 Line Mechanic B - Rockville ..................... 14
412206 Line Mechanic C - Rockville ..................... 9
412017 Helper - Rockville .............................. 6
412210 Truck Driver-Ground Helper A - Rockville ........ 12
412213 Truck Driver-Ground Helper B - Rockville ........ 6
BENNING SERVICE CENTER DIVISION
Benning Service Center
411002 Lead Construction Mechanic ....................... 18
411001 Construction Mechanic ............................ 17
411010 Conduit Crew Leader .............................. 15
411005 Conduit Equipment Operator ....................... 14
411003 Compressor Operator .............................. 9
411004 Conduit Installer A .............................. 13
411006 Conduit Installer B .............................. 9
411061 Conduit Installer C .............................. 6
411064 Truck Driver Conduit ............................. 9
411063 Truck Driver B ................................... 8
411075 Conduit Line Locator** ........................... 13
411040 Utility Mechanic A** ............................. 11
411041 Utility Mechanic B** ............................. 6
411019 Lead Cable Splicer/Mechanic Pressurized Systems .. 18
411022 Lead Cable Splicer/Mechanic ...................... 18
**Restricted Roster
3
<PAGE>
HOURLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Benning Service Center (Cont'd)
411001 Cable Splicer/Mechanic A ......................... 16
411002 Cable Splicer/Mechanic B ......................... 14
411006 Cable Splicer/Mechanic C ......................... 13
411020 Cable Splicer/Mechanic D ......................... 9
411062 Helper ........................................... 6
411082 Service Inspector ................................ 13
411012 Materials Handler/Crane Operator ................. 13
411004 Underground Lines Training Assistant** ........... 17
TRANSMISSION BUSINESS UNIT
TRANSMISSION OPERATIONS & MAINTENANCE GROUP
SUBSTATION OPERATIONS & MAINTENANCE DIVISION
Substation Operations & Maintenance
051001 Lead Substation Technician - Maintenance ......... 19
051002 Sr. Substation Technician - Maintenance .......... 17
051003 Substation Technician - Maintenance .............. 15
051004 Substation Technician Trainee III - Maintenance .. 12
051007 Lead Substation Technician - Operations .......... 19
051008 Sr. Substation Technician - Operations ........... 17
051009 Substation Technician - Operations ............... 15
051010 Substation Technician Trainee III - Operations ... 12
051017 Lead Substation Technician - Test ................ 19
051018 Sr. Substation Technician - Test ................. 17
051019 Substation Technician - Test ..................... 15
051020 Substation Technician Trainee III - Test ......... 12
051005 Substation Technician Trainee II ................. 8
051006 Substation Technician Trainee I .................. 4
SYSTEM PROTECTION & CONTROL DIVISION
Substation Test
052007 Test Specialist .................................. 20
052001 Relay Tester A ................................... 17
052008 Relay Tester B ................................... 14
052003 Relay Tester C ................................... 9
052021 Helper ........................................... 6
**Restricted Roster
4
<PAGE>
HOURLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
SPC Planning & Analysis
145055 Laboratory Technician A .......................... 15
145054 Laboratory Technician B .......................... 13
145053 Laboratory Technician C .......................... 8
TELECOMMUNICATIONS DIVISION
Microwave & Fibre Optics
199022 Radio Frequency Interference Investigator ........ 18
199044 Instrument and Equipment Technician A ............ 17
199010 Lead Electronic Technician ....................... 20
199005 Electronic Technician A .......................... 17
199006 Electronic Technician B .......................... 14
199009 Electronic Technician C .......................... 9
199018 Helper ........................................... 6
TRANSMISSION SYSTEMS OPERATIONS & SERVICES GROUP
CONTROL CENTER SYSTEMS DIVISION
Control Systems Support
065020 System Service Specialist ........................ 20
065021 System Service Technician A ...................... 17
065022 System Service Technician B ...................... 14
065010 Lead System Service Mechanic ..................... 17
065011 System Service Mechanic A ........................ 15
065012 System Service Mechanic B ........................ 13
065013 System Service Mechanic C ........................ 9
065014 Helper ........................................... 6
065001 Lead Building Attendant .......................... 9
065002 Building Attendant A ............................. 6
TRANSMISSION ENGINEERING & CONSTRUCTION GROUP
TRANSMISSION CONSTRUCTION & PROJECT MANAGEMENT DIVISION
Transmission Construction & Project Management
179040 Construction Crew Leader ......................... 19
179041 Sr. Construction Electrical Mechanic ............. 17
179042 Construction Electrical Mechanic ................. 15
179043 Construction Elec. Mechanic Trainee III .......... 12
179044 Construction Elec. Mechanic Trainee II ........... 8
179045 Construction Elec. Mechanic Trainee I ............ 4
5
<PAGE>
HOURLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
GENERATION BUSINESS UNIT
GENERATION OPERATIONS WEST GROUP
Benning Generating Station
021022 System Technician ................................ 20
021021 Control Technician ............................... 19
021108 Senior Plant Technician .......................... 17
021106 Plant Technician ................................. 15
021041 Plant Technician Trainee III ..................... 12
021042 Plant Technician Trainee II ...................... 8
021043 Plant Technician Trainee I ....................... 4
021044 Control Room Operator ............................ 17
021015 Parts Specialist ................................. 15
021097 Plant Toolkeeper A ............................... 12
021086 Plant Toolkeeper B ............................... 11
021140 Operating Technician A (Buzzard Pt) .............. 17
021141 Operating Technician B (Buzzard Pt) .............. 15
021142 Operating Technician C (Buzzard Pt) .............. 13
021143 Operating Technician D (Buzzard Pt) .............. 9
021144 Helper (Buzzard Pt) .............................. 6
Potomac River Generating Station
095022 System Technician ................................ 20
095021 Control Technician ............................... 19
095108 Senior Plant Technician .......................... 17
095106 Plant Technician ................................. 15
095041 Plant Technician Trainee III ..................... 12
095042 Plant Technician Trainee II ...................... 8
095043 Plant Technician Trainee I ....................... 4
095051 Senior Fuel & Ash Technician ..................... 16
095052 Fuel & Ash Technician ............................ 14
095053 Fuel & Ash Technician Trainee III ................ 12
095057 Fuel & Ash Technician Trainee II ................. 8
059059 Fuel & Ash Technician Trainee I .................. 4
095101 Senior Maintenance Technician .................... 17
095102 Maintenance Technician ........................... 15
095105 Maintenance Technician - Trainee III ............. 12
095103 Maintenance Technician - Trainee II .............. 8
095048 Maintenance Technician - Trainee I ............... 4
095044 Control Room Operator ............................ 17
6
<PAGE>
HOURLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Potomac River Generating Station (Cont'd)
095015 Parts Specialist ................................. 15
095097 Plant Toolkeeper A ............................... 12
095086 Plant Toolkeeper B ............................... 11
095009 Lead Laboratory Technician** ..................... 16
095004 Laboratory Technician A .......................... 15
095006 Laboratory Technician B .......................... 13
095007 Laboratory Technician C .......................... 8
095008 Helper ........................................... 6
Dickerson Generating Station
096022 System Technician ................................ 20
096021 Control Technician ............................... 19
096108 Senior Plant Technician .......................... 17
096106 Plant Technician ................................. 15
096041 Plant Technician Trainee III ..................... 12
096042 Plant Technician Trainee II ...................... 8
096043 Plant Technician Trainee I ....................... 4
096051 Senior Fuel & Ash Technician ..................... 16
096052 Fuel & Ash Technician ............................ 14
096053 Fuel & Ash Technician Trainee III ................ 12
096057 Fuel & Ash Technician Trainee II ................. 8
096059 Fuel & Ash Technician Trainee I .................. 4
096101 Senior Maintenance Technician .................... 17
096102 Maintenance Technician ........................... 15
096105 Maintenance Technician - Trainee III ............. 12
096103 Maintenance Technician - Trainee II .............. 8
096048 Maintenance Technician - Trainee I ............... 4
096044 Control Room Operator ............................ 17
096015 Parts Specialist ................................. 15
096097 Plant Toolkeeper A ............................... 12
096086 Plant Toolkeeper B ............................... 11
096009 Lead Laboratory Technician** ..................... 16
096004 Laboratory Technician A .......................... 15
096006 Laboratory Technician B .......................... 13
096007 Laboratory Technician C .......................... 8
096008 Helper ........................................... 6
**Restricted Roster
7
<PAGE>
HOURLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
GENERATION OPERATIONS EAST GROUP
Chalk Point Generating Station
089022 System Technician ................................ 20
089021 Control Technician ............................... 19
089108 Senior Plant Technician .......................... 17
089106 Plant Technician ................................. 15
089041 Plant Technician Trainee III ..................... 12
089042 Plant Technician Trainee II ...................... 8
089043 Plant Technician Trainee I ....................... 4
089051 Senior Fuel & Ash Technician ..................... 16
089052 Fuel & Ash Technician ............................ 14
089053 Fuel & Ash Technician Trainee III ................ 12
089057 Fuel & Ash Technician Trainee II ................. 8
089059 Fuel & Ash Technician Trainee I .................. 4
089044 Control Room Operator ............................ 17
089015 Parts Specialist ................................. 15
089097 Plant Toolkeeper A ............................... 12
089086 Plant Toolkeeper B ............................... 11
089009 Lead Laboratory Technician** ..................... 16
089004 Laboratory Technician A .......................... 15
089006 Laboratory Technician B .......................... 13
089007 Laboratory Technician C .......................... 8
089008 Helper ........................................... 6
Morgantown Generating Station
093022 System Technician ................................ 20
093021 Control Technician ............................... 19
093108 Senior Plant Technician .......................... 17
093106 Plant Technician ................................. 15
093041 Plant Technician Trainee III ..................... 12
093042 Plant Technician Trainee II ...................... 8
093043 Plant Technician Trainee I ....................... 4
093051 Senior Fuel & Ash Technician ..................... 16
093052 Fuel & Ash Technician ............................ 14
093053 Fuel & Ash Technician Trainee III ................ 12
093057 Fuel & Ash Technician Trainee II ................. 8
093059 Fuel & Ash Technician Trainee I .................. 4
**Restricted Roster
8
<PAGE>
HOURLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Morgantown Generating Station (Cont'd)
093044 Control Room Operator ............................ 17
093015 Parts Specialist ................................. 15
093097 Plant Toolkeeper A ............................... 12
093086 Plant Toolkeeper B ............................... 11
093009 Lead Laboratory Technician** ..................... 16
093004 Laboratory Technician A .......................... 15
093006 Laboratory Technician B .......................... 13
093007 Laboratory Technician C .......................... 8
093008 Helper 6
GENERATING ENGINEERING & MAINTENANCE SERVICES GROUP
Production Services
155101 Senior Maintenance Technician .................... 17
155102 Maintenance Technician ........................... 15
155105 Maintenance Technician - Trainee III ............. 12
155103 Maintenance Technician - Trainee II .............. 8
155048 Maintenance Technician - Trainee I ............... 4
155007 Parts Specialist ................................. 15
155097 Plant Toolkeeper A ............................... 12
155086 Plant Toolkeeper B ............................... 11
Performance & Technical Services
171052 Condition Monitoring Technician A ................ 19
171051 Condition Monitoring Technician B ................ 17
Metallurgy
172060 Metallurgical Laboratory Technician .............. 16
CORPORATE SERVICES BUSINESS UNIT
GENERAL SERVICES/MATERIALS GROUP
General Services/Materials Support
340340 Lead Messenger ................................... 9
340025 Mobile Messenger ................................. 8
340341 Messenger ........................................ 6
**Restricted Roster
9
<PAGE>
HOURLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Fleet Services
017004 Lead Automotive Mechanic ......................... 17
017001 Automotive Mechanic A ............................ 16
017002 Automotive Mechanic B ............................ 13
017003 Automotive Mechanic C ............................ 8
017062 Helper ........................................... 6
017011 Service Specialist A ............................. 9
017012 Service Specialist B ............................. 8
017009 Garage Attendant A ............................... 7
017007 Garage Attendant B ............................... 6
017040 Utility Mechanic A** ............................. 11
017041 Utility Mechanic B** ............................. 6
FACILITY & SECURITY SERVICES DIVISION
General Shops
005004 Lead Shop Mechanic .............................. 17
005001 Shop Mechanic A ................................. 15
005002 Shop Mechanic B ................................. 13
005003 Shop Mechanic C ................................. 9
005062 Helper .......................................... 6
005006 Sign Painter .................................... 15A
005007 Painter A ........................................ 15
005008 Painter B ........................................ 13
005009 Painter C ........................................ 9
005010 Helper ........................................... 6
005040 Utility Mechanic A** ............................. 11
005041 Utility Mechanic B** .............................
Facility & Security Services
043015 Lead Building Engineer ........................... 15
043002 Building Engineer A .............................. 14
043006 Building Engineer B .............................. 13
043007 Building Engineer C .............................. 9
043020 Helper ........................................... 6
043016 Lead Building Electrician ........................ 17
043017 Building Electrician A ........................... 14
043018 Building Electrician B ........................... 13
043011 Building Electrician C ........................... 9
043019 Helper ........................................... 6
043001 Lead Building Attendant .......................... 9
043004 Building Attendant ............................... 6
**Restricted Roster
10
<PAGE>
HOURLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
MATERIALS SERVICES DIVISION
Stores
016021 Lead Handler/Disposal Specialist /1 .............. 16
016022 Specialized Carrier /2 ........................... 16
016030 Material Handler/Driver /3 ....................... 15
016002 Stock Handler A .................................. 14
016003 Stock Handler B .................................. 11
016004 Stock Handler C .................................. 8
016062 Stock Handler-Helper ............................. 6
016006 Equipment Operator A ............................. 14
016008 Equipment Operator B ............................. 11
016063 Material Handler ................................. 8
016061 Helper ........................................... 6
016040 Utility Worker A** ............................... 11
016041 Utility Worker B** ............................... 6
Waste Management
229021 Lead Handler/Disposal Specialist ................. 16
229002 Stock Handler A .................................. 14
229003 Stock Handler B .................................. 11
229004 Stock Handler C .................................. 8
229062 Stock Handler - Helper ........................... 6
229022 Specialized Carrier .............................. 16
COMPUTER SERVICES GROUP
CLIENT SERVICES DIVISION
Network Services
336070 Telecommunications Technician .................... 17
337071 Associate Telecommunications Technician .......... 13
(1) Promotion to this position will be from job #016030 or
016002.
(2) Promotion to this position will be from job #016030 or
016016.
(3) Promotion to this position will be from job #016002 or
016006.
**Restricted Roster
11
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
CUSTOMER SERVICES AND POWER DELIVERY
BUSINESS UNIT
CUSTOMER SERVICES AND POWER DISTRIBUTION GROUP
DISTRIBUTION SYSTEM OPERATIONS DIVISION
Distribution Control Room Operations
417008 Complaint Dispatcher A.......................... 8
417009 Complaint Dispatcher B.......................... 6
Distribution Operations Support
418002 System Operations Aide A ....................... 8
418003 System Operations Aide B ....................... 7
418010 System Operations Aide C ....................... 6
CUSTOMER SERVICES GROUP
METER SERVICES DIVISION
Meters Installation & Test
013020 Lead Meters Aide ............................... 8
013725 Meters Aide A .................................. 6
013022 Meters Aide B .................................. 4
013023 Meters Clerk ................................... 2
013031 Computer Applications Assistant ................ 5
013011 Data Input Clerk A - Special ................... 4
013012 Data Input Clerk B - Special ................... 3
Meter Reading
015005 Regional Accounts Clerk/Machine Operator ....... 5
015006 Regional Accounts Clerk ........................ 3
015007 Route Clerk .................................... 3
015064 Clerk-Typist A ................................. 2
015065 Clerk-Typist B ................................. 1
12
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
CUSTOMER SERVICES ADMINISTRATIVE & DEVELOPMENT DIVISION
Customer Services Development
037002 Schedule Analyst ............................... 7
037013 System Development Representative A ............ 7
037014 System Development Representative B ............ 5
037080 General Clerk .................................. 1
Customer Services Administration & Training
049021 Lead Representative (Special Investigations) ... 8
049020 Special Investigations Representative .......... 7
CUSTOMER SERVICES OPERATIONS & ACCOUNTING DIVISION
Customer Credit
024015 Senior Credit Analyst .......................... 7
024016 Credit Analyst A ............................... 6
024017 Credit Analyst B ............................... 4
024018 Senior Delinquent Accounts Clerk ............... 3
024027 Delinquent Accounts Clerk ...................... 1
024047 Data Input Clerk ............................... 3
024064 Clerk-Typist A ................................. 2
Revenue Accounting
028081 Lead CIS Processing Analyst .................... 7
028082 CIS Processing Analyst A ....................... 6
028083 CIS Processing Analyst B ....................... 5
028084 CIS Processing Analyst C ....................... 4
028085 CIS Processing Analyst D ....................... 3
028020 Meters Aide A .................................. 6
028021 Meters Aide B .................................. 4
028047 Data Input Clerk B ............................. 3
028064 Clerk-Typist A ................................. 2
028010 Computer Applications Specialist ............... 9
028011 Computer Applications Assistant ................ 5
13
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Customer Operations
083022 Data Input Clerk A ............................. 4
083023 Data Input Clerk B ............................. 3
083001 Lead Service Representative ................... 7
083033 Service Representative A ....................... 6
083034 Service Representative B ....................... 4
083024 Receptionist ................................... 3
083041 Telephone Operator A ........................... 3
083042 Telephone Operator B ........................... 2
Billing Services & Investigations
306004 Lead Representative (Account Investigation) .... 8
306021 Account Investigation Representative A ......... 7
306020 Account Investigation Representative B ......... 5
306010 Account Investigation Representative C ......... 4
306011 Account Investigations Assistant** ............. 5
306001 Lead Representative (Billing Maintenance) ...... 6
306002 Billing Maintenance Analyst .................... 5
306006 Billing Maintenance Representative A ........... 4
306005 Billing Maintenance Representative B ........... 3
306047 Data Input Clerk B ............................. 3
306064 Clerk-Typist A ................................. 2
306065 Clerk-Typist B ................................. 1
CUSTOMER DESIGN DC DIVISION
Customer Design DC
054044 Field Technician A ............................. 9
054041 Field Technician B ............................. 8
054042 Field Technician C ............................. 7
054043 Field Technician D ............................. 5
054018 Field Assistant ................................ 2
054085 Technical Assistant A .......................... 9
054084 Technical Assistant B .......................... 8
054083 Technical Assistant C .......................... 6
054082 Technical Assistant D .......................... 4
054081 Technical Clerk ................................ 2
054075 Service Security Assistant** ................... 7
**Restricted Roster
14
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Customer Design DC (Cont'd)
054003 Customer Engineering Representative ............ 9
054010 Builder Service Representative ................. 7
054011 Customer Engineering Assistant ................. 5
054007 Processing & Liaison Clerk ..................... 7
054017 Customer Engineering Clerk A ................... 6
054004 Customer Engineering Clerk B ................... 5
054005 Customer Engineering Clerk C ................... 4
054033 Data Input Clerk B ............................. 3
054064 Clerk-Typist A ................................. 2
054065 Clerk-Typist B ................................. 1
054080 General Clerk .................................. 1
CUSTOMER DESIGN MD DIVISION
Customer Design MD
039044 Field Technician A ............................. 9
039041 Field Technician B ............................. 8
039042 Field Technician C ............................. 7
039043 Field Technician D ............................. 5
039018 Field Assistant ................................ 2
039085 Technical Assistant A .......................... 9
039084 Technical Assistant B .......................... 8
039083 Technical Assistant C .......................... 6
039082 Technical Assistant D .......................... 4
039081 Technical Clerk ................................ 2
039039 Right-of-Way Representative .................... 8
039003 Customer Engineering Representative ............ 9
039010 Builder Service Representative ................. 7
039011 Customer Engineering Assistant ................. 5
039007 Processing & Liaison Clerk ..................... 7
039017 Customer Engineering Clerk A ................... 6
039004 Customer Engineering Clerk B ................... 5
039005 Customer Engineering Clerk C ................... 4
039033 Data Input Clerk B ............................. 3
039064 Clerk-Typist A ................................. 2
039065 Clerk-Typist B ................................. 1
15
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
POWER DISTRIBUTION GROUP
Distribution Administrative Support
004034 Technical Aide A ............................... 8
004035 Technical Aide B ............................... 7
004036 Technical Aide C ............................... 6
004082 Technical Aide D ............................... 4
004015 Lead ESO&C Aide ................................ 8
004017 ESO&C Aide A ................................... 6
004019 ESO&C Aide B ................................... 4
004081 ESO&C Aide C ................................... 2
004025 Lead Administration Assistant .................. 6
004026 Administration Assistant A ..................... 5
004027 Administration Assistant B ..................... 4
004005 Administration Assistant C ..................... 3
004030 Lead Data/Program Coder ........................ 7
004031 Data/Program Coder A ........................... 6
004004 Lead Data Processing Aide ...................... 7
004033 Data Processing Aide A ......................... 5
004007 Data Processing Aide B ......................... 4
004010 Data Processing Aide C ......................... 3
004721 Data Input Clerk A ............................. 4
004029 Data Input Clerk B ............................. 3
004064 Clerk-Typist A ................................. 2
004065 Clerk-Typist B ................................. 1
Customer Reliability & Test
027040 Transmission & Distribution Test Aide A ........ 8
027041 Transmission & Distribution Test Aide B ........ 7
027042 Transmission & Distribution Test Aide C ........ 6
DISTRIBUTION ENGINEERING & CONSTRUCTION DIVISION
Distribution Engineering & Construction
006011 Prior Rights Aide A ............................ 8
006012 Prior Rights Aide B ............................ 6
006085 Technical Assistant A .......................... 9
006084 Technical Assistant B .......................... 8
006083 Technical Assistant C .......................... 6
006082 Technical Assistant D .......................... 4
006081 Technical Clerk ................................ 2
16
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Distribution Engineering & Construction (Cont'd)
006038 Computer Applications Assistant A .............. 7
006040 Computer Applications Assistant B .............. 5
006044 Field Technician A ............................. 9
006041 Field Technician B ............................. 8
006042 Field Technician C ............................. 7
006043 Field Technician D ............................. 5
006045 Field Technician E ............................. 4
006018 Field Assistant ................................ 2
006019 Specialist Surveyor ............................ 9
006020 Surveyor A ..................................... 8
006021 Surveyor B ..................................... 7
006022 Surveyor C ..................................... 4
006039 Right-of-Way Representative A .................. 8
006029 Right-of-Way Representative B .................. 6
006062 Clerk-Stenographer C ........................... 3
006063 Clerk-Stenographer D ........................... 2
TRANSMISSION BUSINESS UNIT
RESOURCE PLANNING GROUP
Electric System Planning
014085 Technical Assistant A .......................... 9
014084 Technical Assistant B .......................... 8
014083 Technical Assistant C .......................... 6
014082 Technical Assistant D .......................... 4
014081 Technical Clerk ................................ 2
014062 Clerk Stenographer C ........................... 3
014063 Clerk Stenographer D ........................... 2
Office of VP
170085 Technical Assistant A .......................... 9
170084 Technical Assistant B .......................... 8
170083 Technical Assistant C .......................... 6
170082 Technical Assistant D .......................... 4
17
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
ENERGY PLANNING DIVISION
Energy Systems Planning
311085 Technical Assistant A .......................... 8
311084 Technical Assistant B .......................... 7
311083 Technical Assistant C .......................... 6
311082 Technical Assistant D .......................... 4
311081 Technical Clerk ................................ 2
Transmission System Operations & Services Group
TRANSMISSION SERVICES DIVISION
Transmission Planning
309086 Technical Assistant A** ........................ 9
TRANSMISSION SYSTEM OPERATIONS DIVISION
Transmission Control Room Operations
020008 Complaint Dispatcher A ......................... 8
020009 Complaint Dispatcher B ......................... 6
020020 Complaint Dispatcher C ......................... 4
020002 System Operations Aide A ....................... 8
020003 System Operations Aide B ....................... 7
020010 System Operations Aide C ....................... 6
020011 System Operations Aide D ....................... 4
020085 Technical Assistant A .......................... 9
020084 Technical Assistant B .......................... 7
020083 Technical Assistant C .......................... 6
020082 Technical Assistant D .......................... 4
Transmission System Operations Engineering
322002 System Operations Aide A ....................... 8
322003 System Operations Aide B ....................... 7
322004 System Operations Aide C ....................... 6
322005 System Operations Aide D ....................... 4
**Restricted Roster
18
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
CONTROL ROOM SYSTEMS DIVISION
Control Systems Support
065006 System Operations Aide A ....................... 8
065003 System Operations Aide B ....................... 7
065004 System Operations Aide C ....................... 6
065005 System Operations Aide D ....................... 4
TRANSMISSION ENGINEERING & CONSTRUCTION GROUP
TRANSMISSION ENGINEERING & DESIGN DIVISION
Design Services
008010 Lead Design Technician, Electrical ............. 9A
008001 Design Technician A, Electrical ................ 9
008002 Design Technician B, Electrical ................ 8
008003 Design Technician C, Electrical ................ 6
008004 Drafting Technician, Electrical ................ 4
008005 Tracer, Electrical ............................. 2
008041 Design Technician A, Mechanical ................ 9
008042 Design Technician B, Mechanical ................ 8
008043 Drafting Technician A, Mechanical .............. 6
008044 Drafting Technician B, Mechanical .............. 5
008016 Graphic Technician A ........................... 8
008017 Graphic Technician B ........................... 6
008018 Graphic Technician C ........................... 4
008019 Graphic Technician D ........................... 2
008007 Lead Print Reproduction Operator ............... 6
008015 Print Reproduction Operator A .................. 4
008014 Print Reproduction Operator B .................. 2
008024 Records Preservation Clerk A ................... 5
008025 Records Preservation Clerk B ................... 3
008026 Records Preservation Clerk C ................... 2
008039 Drafting File Clerk A .......................... 3
008038 Drafting File Clerk B .......................... 1
008032 Data Input Clerk A ............................. 4
008033 Data Input Clerk B ............................. 3
008064 Clerk-Typist A ................................. 2
008065 Clerk-Typist B ................................. 1
008011 Technical File Clerk ........................... 5
008081 Technical Clerk ................................ 2
19
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Transmission Engineering & Design
128085 Technical Assistant A .......................... 9
128084 Technical Assistant B .......................... 8
128083 Technical Assistant C .......................... 6
128082 Technical Assistant D .......................... 4
128062 Clerk Stenographer C ........................... 3
128063 Clerk Stenographer D ........................... 2
TRANSMISSION CONSTRUCTION & PROJECT MANAGEMENT DIVISION
Substation & Transmission Project Management
140024 Job Processor Clerk A .......................... 8
140047 Job Processor Clerk B .......................... 7
140026 Job Processor Clerk C .......................... 6
140031 Pricing Clerk A ................................ 5
140027 Pricing Clerk B ................................ 4
140001 Work Record Clerk .............................. 3
140034 Technical Assistant A .......................... 9
140035 Technical Assistant B .......................... 8
140036 Technical Assistant C .......................... 6
140082 Technical Assistant D .......................... 4
140013 System Analyst A ............................... 8
140014 System Analyst B ............................... 6
TRANSMISSION OPERATIONS & MAINTENANCE GROUP
SYSTEM PROTECTION & CONTROL DIVISION
Substation Test
052029 Technical Aide A ............................... 8
052034 Technical Aide B ............................... 7
052035 Technical Aide C ............................... 6
052036 Technical Aide D ............................... 4
System Protection & Control
125085 Technical Assistant A .......................... 9
125084 Technical Assistant B .......................... 8
125083 Technical Assistant C .......................... 6
125082 Technical Assistant D .......................... 4
20
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
TELECOMMUNICATIONS DIVISION
Mobile Radio & Paging
198085 Technical Assistant A .......................... 9
198084 Technical Assistant B .......................... 8
198083 Technical Assistant C .......................... 6
198082 Technical Assistant D .......................... 4
Microwave & Fibre Optics
199085 Technical Assistant A .......................... 9
199084 Technical Assistant B .......................... 8
199083 Technical Assistant C .......................... 6
199082 Technical Assistant D .......................... 4
RATES AND REGULATORY PRACTICES GROUP
RATE ECONOMICS DIVISION
Rate Economics
105064 Clerk-Typist A ................................. 2
105065 Clerk-Typist B ................................. 1
Revenue Analysis
307001 Rate Research Aide A ........................... 8
307002 Rate Research Aide B ........................... 6
Rate Design
022001 Research Aide A ................................ 8
022003 Statistical Analyst D .......................... 6
022004 Statistical Analyst C .......................... 3
RATE ACCOUNTING DIVISION
Cost Allocation
038001 Research Aide A ................................ 8
038002 Research Aide B ................................ 6
21
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
MARKET PLANNING AND POLICY GROUP
DEMAND SIDE RESOURCES DIVISION
Load Research
058001 Load Research Aide A ........................... 8
058002 Load Research Aide B ........................... 6
Program Design
133031 Program Design Aide ............................ 8
FINANCE BUSINESS UNIT
FINANCE GROUP
Corporate Budget Coordination
316004 Budget Clerk A ................................. 6
316002 Budget Clerk B ................................. 4
316032 Data Input Clerk A ............................. 4
316033 Data Input Clerk B ............................. 3
316064 Clerk-Typist A ................................. 2
316065 Clerk-Typist B ................................. 1
COMPTROLLER GROUP
Property and Plant Accounting
026001 Technical Valuation Aide A ..................... 9
026002 Technical Valuation Aide B ..................... 7
026003 Technical Valuation Aide C ..................... 6
026011 Lead Cost Analyst .............................. 8
026004 Cost Analyst A ................................. 6
026005 Cost Analyst B ................................. 4
026021 Cost Analyst C ................................. 3
026016 Inventory Cost Clerk A ......................... 4
026020 Inventory Cost Clerk B ......................... 3
026018 Property Records Clerk A ....................... 2
026019 Property Records Clerk B ....................... 1
026049 Lead Plant Analyst ............................. 7
026050 Plant Analyst A ................................ 6
026051 Plant Analyst B ................................ 5
026052 Plant Analyst C ................................ 3
22
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Disbursement Accounting
025050 Lead Accounts Payable Clerk .................... 7
025051 Accounts Payable Clerk ......................... 6
025052 Invoice Clerk A ................................ 5
025053 Invoice Clerk B ................................ 4
025054 Invoice Clerk C ................................ 2
025062 Lead Accounting Clerk .......................... 7
025063 Accounting Clerk A ............................. 6
025064 Accounting Clerk B ............................. 5
025065 Accounting Clerk C ............................. 3
025081 Lead Records Preservation Clerk ................ 6
025082 Records Preservation Clerk A ................... 5
025083 Records Preservation Assistant ................. 4
025084 Records Preservation Clerk B ................... 3
025085 Records Preservation Clerk C ................... 2
General Accounting
035030 Lead Data Control Specialist ................... 7
035013 Data Control Specialist ........................ 5
035012 Data Control Clerk A ........................... 5
035032 Data Input Clerk A ............................. 4
035075 Typist A ....................................... 2
035001 Lead Fuel Reporting Clerk ...................... 7
035002 Fuel Reporting Control Clerk ................... 6
035003 Fuel Accounting Clerk A ........................ 5
035004 Fuel Accounting Clerk B ........................ 3
035005 Fuel Accounting Clerk C ........................ 2
Payroll & Benefits Accounting
044045 Lead Payroll Control Clerk ..................... 7
044046 Payroll Control Clerk A ........................ 6
044048 Payroll Control Clerk B ........................ 5
044049 Payroll Clerk .................................. 3
TREASURER GROUP
Mail and Bank Receipts
023034 Lead Processing Clerk .......................... 6
023030 Receipts Processing Clerk A .................... 5
023032 Receipts Processing Clerk B .................... 3
023033 Receipts Processing Clerk C .................... 2
23
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Treasury Management & Analysis
328010 Clerk-Teller ................................... 6
328001 Lead Teller .................................... 4
328002 Teller A ....................................... 3
328003 Teller B ....................................... 2
328081 Teller C ....................................... 1
328722 Receipts Assistant A ........................... 5
328006 Receipts Assistant B ........................... 3
INVESTOR RELATIONS DIVISION
Shareholder Services
042006 Lead Shareholder Records Clerk ................. 6
042008 Control Clerk .................................. 5
042011 Shareholder Records Clerk ...................... 4
042012 Ledger Posting Clerk B ......................... 2
042080 General Clerk .................................. 1
042062 Clerk-Stenographer C ........................... 3
042063 Clerk-Stenographer D ........................... 2
GENERATION BUSINESS UNIT
ENVIRONMENT GROUP
GENERATION ENVIRONMENT & SAFETY SERVICES DIVISION
Air Management
046085 Technical Assistant A .......................... 8
046084 Technical Assistant B .......................... 7
046083 Technical Assistant C .......................... 6
046082 Technical Assistant D .......................... 4
Natural Resource Management
149085 Technical Assistant A .......................... 8
149084 Technical Assistant B .......................... 7
149083 Technical Assistant C .......................... 6
149082 Technical Assistant D .......................... 4
24
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
Environmental Services
070085 Technical Assistant A .......................... 8
070084 Technical Assistant B .......................... 7
070083 Technical Assistant C .......................... 6
070082 Technical Assistant D .......................... 4
GENERATION FUELS & BUSINESS PLANNING GROUP
Generation Financial & Budget Analysis
167026 Principal Administrative Aide .................. 6
167027 Senior Administrative Aide ..................... 4
167028 Administrative Aide ............................ 3
Generation Information Technology
169026 Principal Administrative Aide .................. 6
169027 Senior Administrative Aide ..................... 4
169028 Administrative Aide ............................ 3
Generation Training & Procedures
168026 Principal Administrative Aide .................. 6
168027 Senior Administrative Aide ..................... 4
168028 Administrative Aide ............................ 3
GENERATION FUELS DIVISION
Coal Procurement
163026 Principal Administrative Aide .................. 6
163027 Senior Administrative Aide ..................... 4
163028 Administrative Aide ............................ 3
163081 Buyer B - Petroleum ............................ 5
Petroleum & Natural Gas Procurement
165026 Principal Administrative Aide .................. 6
165027 Senior Administrative Aide ..................... 4
165028 Administrative Aide ............................ 3
165089 Fuels Information Clerk ........................ 5
GENERATION OPERATIONS WEST GROUP
Potomac River Generating Station
095050 Laboratory Test Technician ..................... 8
25
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
BULK POWER MANAGEMENT GROUP
Accounting & Billing
050085 Technical Assistant A .......................... 8
050084 Technical Assistant B .......................... 7
050083 Technical Assistant C .......................... 6
050082 Technical Assistant D .......................... 4
050002 System Operations Aide A ....................... 8
050003 System Operations Aide B ....................... 7
050004 System Operations Aide C ....................... 6
050005 System Operations Aide D ....................... 4
CORPORATE SERVICES BUSINESS UNIT
GENERAL SERVICES/MATERIALS GROUP
General Services/Materials Support
340010 Financial Control Assistant .................... 6
340015 General Services Clerk ......................... 4
340009 Systems Clerk .................................. 4
340008 Financial Clerk ................................ 3
340064 Clerk-Typist A ................................. 2
340065 Clerk-Typist B ................................. 1
340039 Lead Mail Machine Operator ..................... 7
340040 Mail Machine Operator A ........................ 5
340041 Mail Machine Operator B ........................ 3
340003 Dispatch Stenographer B ........................ 4
Fleet Services
017019 Parts Inventory & Cost Control Specialist ...... 4
017010 Transportation & Warranty Clerk ................ 4
FACILITY AND SECURITY SERVICES DIVISION
Facility & Security Services
043719 Print Shop Operator ............................ 9
043005 Print Shop Assistant A ......................... 7
043297 Print Shop Assistant B ......................... 5
043021 Print Shop Assistant C ......................... 3
043023 Data Input Clerk A ............................. 4
043003 Data Input Clerk B ............................. 3
26
<PAGE>
WEEKLY RATED CLASSIFICATION
JOB PAY
NUMBER CLASSIFICATION GRADE
MATERIAL SERVICES DIVISION
Purchasing
107010 Purchasing Aide A .............................. 5
107011 Purchasing Aide B .............................. 4
107012 Purchasing Aide C .............................. 3
107013 Purchasing Aide D .............................. 2
Stores
016014 Stores Office Clerk A** ........................ 7
016015 Stores Office Clerk B** ........................ 5
016016 Stores Office Clerk C** ........................ 3
016064 Clerk-Typist A ................................. 2
016065 Clerk-Typist B ................................. 1
016080 General Clerk .................................. 1
Waste Management
229014 Stores Office Clerk A .......................... 7
COMPUTER SERVICES GROUP
TECHNICAL SERVICES & OPERATIONS DIVISION
Computer Operations
057001 Lead Data Control Clerk ........................ 7
057012 Data Control Clerk A ........................... 5
057020 Auxiliary Machine Operator A ................... 4
057003 Data Control Clerk B ........................... 3
EXTERNAL AFFAIRS BUSINESS UNIT
CORPORATE COMMUNICATIONS GROUP
Management & Employee Communications
075010 Typesetting/Graphics Aide ...................... 4
075058 Staff Photographer ............................. 6
075002 Photographic Assistant A ....................... 4
075001 Photographic Assistant B ....................... 2
**Restricted Roster
27
<PAGE>
1999 General Memorandum of Understanding
Whereas, the Potomac Electric Power Company (the "Company" or
"Pepco") and Local 1900 of the International Brotherhood of
Electrical Workers (the "Union") by mutual agreement conducted
early negotiations to establish a successor Collective Bargaining
Agreement to the 1998 Collective Bargaining Agreement and,
Whereas, the Company and the Union have agreed to a successor
Collective Bargaining Agreement (hereinafter referred to as the
"Agreement" or "CBA"), whose terms are set forth below;
It is, therefore, further agreed and understood between the
Company and Union that:
I. Contract Duration
The 1999 Agreement shall be effective upon ratification
except as provided otherwise in this Agreement. The term of
this Agreement shall be to and including May 31, 2003 and it
shall thereafter continue in full force and effect for
succeeding periods of 12 calendar months each, unless either
party, prior to April 1, 2003, or April 1 of any year
thereafter, shall serve written notice upon the other party
of its desire to amend and/or terminate the Agreement as of
the following June 1. The Contract shall read as set forth
in the 1993 Collective Bargaining Agreement except to the
extent modified herein or modified through other written
agreements between the parties. The Annex shall be modified
consistent with written agreements between the parties since
the signing of the 1993 Collective Bargaining Agreement.
II. General Wage Increases
A. The Company shall provide a general wage increases
(GWI) of 3% in 1999, 3% in 2000, and 3% in 2001 to
eligible employees. In 2002, there will also be a 3%
increase unless either party, for any reason, provides
60-days notice prior to June 1, 2002 of its intention
to reopen the contact. Any such reopener will be
limited to wages and benefits. If no agreement is
reached regarding wages and benefits by June 1, 2002,
either party may terminate the agreement at any time
by giving 48 hours written notice thereof to the other
party.
B. The 1999 increase shall be effective as soon as
practicable after ratification. If the Agreement is
ratified in December 1998, the Company shall endeavor
to place the GWI in effect by the payroll period
beginning February 14, 1999. The Company further
agrees that if the Agreement is ratified in December
1998, each employee employed in the bargaining unit
from January 3, 1999, to the beginning of payroll
period in which the 1999 GWI takes effect will receive
a lump-sum payment of 3% of the employee's regular rate
for a normal workweek (40 hours for hourly employees;
38-3/4 for weekly employees) for the period between
January
1
GMU-12/8/98
<PAGE>
1999 General Memorandum of Understanding
3, 1999, and the beginning of the payroll period in
which the 1999 GWI goes into effect. The 2000 increase
shall be effective the payroll period beginning
June 4, 2000. The 2001 increase shall be effective the
payroll period beginning June 3, 2001. Unless either
party requests a reopener, the 2002 increase shall be
effective the payroll period beginning June 2, 2002.
If a reopener is requested, the time and amount of any
increase shall be subject to negotiations in 2002.
III. Divestiture Issues
The industry is in the midst of a major restructuring, with
the possibility that it may be either necessary or prudent,
in the Company's sole judgment, to sell generation or other
corporate assets or operations to a third party or to
transfer assets or operations to a subsidiary, pursuant to a
joint venture or other business combination(s). In such
cases, employees who are offered employment by the new
employer shall have their employment at Pepco terminated on
the closing or transfer date and shall have no future rights
under the collective bargaining agreement (hereinafter
"CBA") with respect to Pepco. Nothing in CBA shall require
a different result. The Company shall bargain with the
Union regarding the effects of any such transaction on
bargaining-unit employees and has already conducted effects
bargaining with respect to the possible divestiture of
generation assets (see IV, immediate below).
IV. The Company and Union have conducted "effects bargaining"
regarding the possible divestiture of generation assets and
agree as follows:
A. With respect to the divestiture of generation assets,
the Company agrees that as a condition of divestiture,
the Company will:
1. Require any Buyer to offer employment from and
after the closing to all affected bargaining-unit
employees, including employees absent from active
service due to illness or leave of absence,
whether paid or unpaid (excluding employees on LTD
as of the closing date who will remain as Pepco
employees). It is anticipated that the all
bargaining-unit employees in the Generation
Business Unit will be affected as well as some
employees in areas that directly support
Generation. In the event that some, but not all,
employees in an occupational group are affected,
the Company will initially solicit volunteers,
with the most senior employees getting the first
opportunity to elect whether to stay at Pepco or
go with a Buyer. If there are insufficient
volunteers, the least senior employees will be
offered employment with the Buyer.
2
GMU-12/8/98
<PAGE>
1999 General Memorandum of Understanding
2. Require any Buyer to recognize the Union as the
exclusive bargaining representative of affected
bargaining-unit employees ("affected bargaining-
unit employees" are employees who are offered
employment by any Buyer).
3. Subject to paragraph B. below, require any Buyer
to assume the 1999 CBA for those affected
bargaining-unit employees who transfer to the
Buyer.
4. Require any Buyer to provide employees with full
credit for service with Pepco, including retention
of seniority under the provisions of the 1999 CBA.
For example, if at time of closing employee X has
15 years of service with Pepco, then he/she will
be deemed to have 15 years of service with the
Buyer under the 1999 CBA.
5. Require any Buyer to agree that, should any other
business entity (regardless of relationship to the
Buyer) acquire the generation assets from the
Buyer prior to the expiration of the 1999 CBA, the
Buyer will require this third party to assume the
conditions set forth immediately above in
IV.A.1, 2, 3 and 4.
B. Employee Benefits
The Company will further require any Buyer to provide
benefits to affected bargaining-unit employees
substantially equivalent to those provided under the
CBA. In doing so, the Buyer shall have the right to
use different providers and to establish its own
benefit plans or use its existing plans. There shall
be no duplication of benefits. The Company shall
require any Buyer to recognize service with Pepco for
purposes of eligibility and vesting and benefit
calculations in any benefit plan, program, or fringe
benefit arrangement.
1. With respect to the General Retirement Plan (GRP),
Pepco will coordinate information and efforts with
the Buyer to enable the Buyer to provide affected
employees no less than the GRP benefit with
respect to their service with the Buyer during the
term of the CBA as they would have received had
they remained at Pepco. More specifically, the
Company shall require any Buyer to agree to credit
all past service with the Company (subject to
Pepco's General Retirement provisions) for
eligibility for participation, vesting, early
retirement subsidies and benefit accrual service.
The Company shall be responsible for affected
employees' benefits accrued through the date of
closing. After the
3
GMU-12/8/98
<PAGE>
1999 General Memorandum of Understanding
date of closing, the Buyer shall be responsible
for benefits accrued during the remainder of the
1999 CBA by such affected employees. The Buyer's
plan may offset the benefit it pays by the benefit
paid by the Company's plan.
2. For purposes of health care coverage, the Company
shall require any Buyer to waive all limitations
regarding pre-existing condition exclusions,
actively at work exclusions and waiting periods
for employees who become employees of the Buyer.
Further, during the calendar year in which closing
occurs, all health care expenses incurred by
affected bargaining-unit employees that were
qualified to be taken into account for purposes of
satisfying any deductible or out-of-pocket limit
under Pepco's health care plans shall be taken
into account for purposes of satisfying any
deductible or out-of-pocket limit under the
Buyer's health care plans for such calendar year.
3. Any Buyer shall be required to give affected
bargaining-unit employees full credit for all
vacation, sick leave or comp time benefits accrued
but not used as of the closing.
4. With respect to the Savings Plan, any Buyer shall
be required to establish a 401(k) plan or add
affected bargaining-unit employees to its existing
plan provided that the employees' deferral options
and employer match (except that matching
contributions will not be made in Pepco stock) are
no less favorable than those provided under
Pepco's plan. Any Buyer must accept rollovers
from other qualified plans. Any Buyer has the
right to offer investment funds different from
those offered under Pepco's plan. Employees going
to a Buyer will, to the extent possible under
applicable law, be considered terminations of
employment and under Pepco's plan will have the
option of leaving their account balance in the
Pepco 401(k) plan, rolling the amount into the
Buyer's plan, or an individual retirement account,
or cashing in the account balance subject to tax
withholding and penalties.
5. Employees offered employment by any Buyer shall
not be eligible for severance pay or any other
termination benefits from Pepco, except as may be
required by law.
C. Transfer of Ownership
Affected bargaining-unit employees will cease to be
employees of the Company upon the transfer of ownership
and will have no further bidding,
4
GMU-12/8/98
<PAGE>
1999 General Memorandum of Understanding
recall or other rights for positions in the Company.
The Union acknowledges that upon transfer of ownership,
the Company is relieved of obligations and liabilities
under the CBA and this Agreement or otherwise to all
affected bargaining-unit employees or future employees
of the Buyer(s) to the extent that those obligations or
liabilities arise on or after the transfer of
ownership.
D. Stranded-Cost Proceedings
The Union agrees that it will not oppose Company
settlement proposals at regulatory agencies, in
the legislature and in the court regarding
restructuring and stranded costs. The Union further
agrees to support, or at least not oppose, agreements
(including settlements) between parties involved in the
Company's stranded-cost efforts as reasonable and
support the Company's position that the stranded costs
it has identified are reasonable in amount and fully
recoverable from customers. The Company agrees it will
provide the Union as much, and as timely, information
as is reasonably practicable about its regulatory and
legislative proposals. The agreement set forth in this
paragraph is not intended to limit legislative or
regulatory actions on matters not reasonably related to
the Company's restructuring and stranded-cost
proposals.
E. Any claim by the Union that any Buyer has failed to
comply with its obligations under the CBA after the
closing date shall be a matter strictly between the
Union and the Buyer.
V. Successorship
The parties agree that Section 23.01 of the 1998 CBA shall be
modified in the 1999 CBA to read as follows: "The parties
to this Agreement agree that it shall be binding upon them
and their successors and assigns."
VI. Union-Management Relations
The Company and Union recognize that the industry is
changing dramatically and that it is critical that the
parties work together to ensure that employees are as
productive as possible and that the Company be able to
compete effectively in this new era. To that end, the
parties agree as follows:
A. The parties will establish an Executive Steering
Committee (hereafter ESC) whose purpose shall be to
oversee a joint committee process and to resolve
disputes or issues as may be necessary. The ESC shall
be made up of two senior executives, a representative
from Labor Relations, the Union president, and two
additional Union representatives. Each party shall
designate its representatives.
5
GMU-12/8/98
<PAGE>
1999 General Memorandum of Understanding
B. The parties will continue to establish joint committees
as mutually agreed.
C. A new committee must identify its purpose and draft a
mission statement for submission to the ESC for
approval.
D. To improve the quality of committee discussions, the
Company offers to provide facilitator training, as may
be requested by various committees.
E. In the event the parties mutually agree that we need
the assistance of a consultant to further advance the
committee process, the Company shall pay the costs of
the consultant.
F. The parties agree that no committee disputes are
subject to the grievance or arbitration process. This
does not preclude the filing of a grievance over the
application of the labor agreement to a matter being
discussed by a committee.
G. After agreeing to extend the 1995 labor agreement, the
parties set up a number of committees, both corporate
and area, to consider a variety of issues. The parties
made substantial progress in many of the committees;
however, much additional work needs to be done as we go
forward in a restructured industry. For example, the
Benefits Committee began reviewing how to develop a
more modern and portable pension plan. The parties
agree to continue to work on coming up with a mutually acceptable
way to implement such a plan. The Superior Performance
Committee began reviewing "peer review" for the
Company. The parties agree to conduct a pilot program
on peer review and if successful, to consider further
expansion of the concept. Many area committees are
working to create multi-skilled jobs to increase
productivity and enhance employee skills. The parties
agree to continue to negotiate such agreements, which
shall be voted upon by employees in affected areas
prior to implementation; nothing, however, precludes
the Company from exercising its rights under the
Agreement to implement new or revised jobs on a
unilateral basis. In other matters directly affecting
a specific work unit such as the creation of new jobs,
special agreements on overtime, work rules or
standards, the company and Union agree that only
affected employees shall vote on such matters.
VII. Holidays
In addition to the days set forth in Section 11.01 of the
1993 Collective Bargaining Agreement, Thursday, December 23,
1999, Tuesday, December 26, 2000, and Monday, December 24,
2001 shall be observed as uniform and fixed holidays during
the 1999 Agreement. Further, the parties agree to observe
New
6
GMU-12/8/98
<PAGE>
1999 General Memorandum of Understanding
Years Day 2000 on the date celebrated by the federal
government, which may be either Friday, December 31, 1999 or
Monday, January 3, 2000. In 2001, it is the parties'
understanding that Inauguration Day will occur on a
Saturday. When Inauguration Day occurs during a normal
workday (Monday through Friday), it precludes employees from
being able to work at the Thomas Edison Building, which has
resulted in the Company's agreeing to provide the day off
(as a holiday) for the entire Company. The parties agree
that Saturday, January 20, 2001 will not be deemed a holiday
that requires any employee to be paid a holiday allowance;
however, the parties agree that any employee who actually
works on Inauguration Day will receive the holiday premium
of double time for each hour worked, though he/she will not
receive a holiday allowance.
IN WITNESS WHEREOF, on this 8th day of December 1998, the parties
have caused their appropriate and duly authorized representatives
to sign this General Memorandum of Understanding, signifying
thereby their agreement hereon. This Agreement is subject to
ratification by bargaining-unit members.
For the Union For the Company
/s/ James L. Hunter /s/ A. S. Macerollo
______________________________ _____________________________
James L. Hunter Anthony S. Macerollo,
President/Financial Secretary/ Group Vice-President
Business Manager Corporate Services
/s/ Lionel R. Briscoe /s/ William J. Wolverton
______________________________ _____________________________
Lionel R. Briscoe William J. Wolverton,
Recording Secretary/ Manager, Industrial Relations
Business Representative & Employee Benefits
/s/ John A. Coleman /s/ Michael J. Sullivan, Jr
______________________________ _____________________________
John A. Coleman Michael J. Sullivan, Jr,
Vice-President Supervisor, Labor Relations
Business Representative
/s/ John L. Holt
______________________________
John L. Holt
Business Representative
7
GMU-12/8/98
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000079732
<NAME> POTOMAC ELECTRIC POWER COMPANY
<SUBSIDIARY>
<NUMBER> 1
<NAME> POTOMAC CAPITAL INVESTMENT CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,481,200
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 391,700
<TOTAL-DEFERRED-CHARGES> 655,500
<OTHER-ASSETS> 1,126,400
<TOTAL-ASSETS> 6,654,800
<COMMON> 118,500
<CAPITAL-SURPLUS-PAID-IN> 1,011,600
<RETAINED-EARNINGS> 747,300
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,877,400
50,000
100,000
<LONG-TERM-DEBT-NET> 1,859,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 191,700<F1>
<LONG-TERM-DEBT-CURRENT-PORT> 45,200
0
<CAPITAL-LEASE-OBLIGATIONS> 157,600
<LEASES-CURRENT> 20,800
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,353,100<F2>
<TOT-CAPITALIZATION-AND-LIAB> 6,654,800
<GROSS-OPERATING-REVENUE> 2,063,900
<INCOME-TAX-EXPENSE> 130,500
<OTHER-OPERATING-EXPENSES> 1,579,100
<TOTAL-OPERATING-EXPENSES> 1,709,600
<OPERATING-INCOME-LOSS> 354,300
<OTHER-INCOME-NET> 19,600
<INCOME-BEFORE-INTEREST-EXPEN> 373,900
<TOTAL-INTEREST-EXPENSE> 147,600
<NET-INCOME> 226,300
18,000<F3>
<EARNINGS-AVAILABLE-FOR-COMM> 208,300
<COMMON-STOCK-DIVIDENDS> 196,600
<TOTAL-INTEREST-ON-BONDS> 139,000<F4>
<CASH-FLOW-OPERATIONS> 417,200
<EPS-PRIMARY> 1.76<F5>
<EPS-DILUTED> $1.73
<FN>
<F1>Included on the Balance Sheet in the caption "short-term debt."
<F2>Includes redeemable preferred securities of subsidiary trust.
<F3>Includes preferred stock redemption premium of $6,600.
<F4>Total annualized interest cost for all utility long-term debt and maditorily
redeemable preferred securities of subsidiary trust outstanding at December 31,
1998.
<F5>Basic earnings per share for the twelve months ended December 31, 1998 were
$1.76. Diluted earnings per share for the twelve months ended December 31,
1998 were $1.73.
</FN>
</TABLE>
