UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 3, 1999
POTOMAC ELECTRIC POWER COMPANY
(Exact name of registrant as specified in its charter)
District of Columbia and Virginia 1-1072 53-0127880
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) 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) 872-3526
(Former Name or Former Address, if Changed Since Last Report)
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Pepco
Form 8-K
Item 5. Other Events
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On February 3, 1999, Potomac Electric Power Company (the "Company") together
with several 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 "PSC") 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.
The conditions to the Agreement, in addition to the approval, without
change, of all of the provisions of the Agreement by the PSC, 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 (the "D.C. Commission") of the sale by the Company of its
generation assets.
The parties to the Agreement include the staff of the PSC, 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. There are a number of other parties
to the proceeding.
Divestiture of Generation 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 totalling 764
megawatts under long-term contracts.
Under the Agreement, if it is approved by the PSC 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.
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<PAGE> Pepco
Form 8-K
The Company has agreed to endeavor to obtain D.C. Commission approval for
the sale of its generation assets by March 31, 1999, 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 PSC.
Application of Sale Proceeds and Recovery of Stranded Costs and Transition
Costs
==========================================================================
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 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 Competitive
Transition Charge to Maryland customers.
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%
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<PAGE> Pepco
Form 8-K
The period of time over which the Competitive Transition Charge or the
Competitive Transition Credit would be applied has not yet been determined.
Introduction to Retail Access
=============================
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.
* * *
As discussed above, implementation of the Agreement is subject to a number
of conditions, including approval of the Agreement by the PSC without any
changes or conditions, as well as legislative action by the Maryland General
Assembly and approval of the Company's sale of its generation assets by the
D.C. Commission. There is no assurance that any or all of the conditions to
the Agreement will be satisfied or, if satisfied, the timeframes within which
such conditions will be satisfied.
The information in this Form 8-K 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, including targeted
dates for the occurrence of various events, are based on the current
expectations, estimates or projections of management and are not guarantees of
future performance or future occurrences. Actual results may differ
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<PAGE> Pepco
Form 8-K
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 in many cases are beyond the control of the Company,
such as the actions that will be taken by the PSC, the D.C. Commission, the
Maryland General Assembly, and other regulatory authorities, as well as
actions by the Company's prospective competitors and other interested parties.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Potomac Electric Power Company
==============================
(Registrant)
/s/ Dennis R. Wraase
By ___________________________
Dennis R. Wraase
Senior Vice President and
Chief Financial Officer
February 3, 1999
================
DATE
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