SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter ended March 31, 1997
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission Registrant; State of Incorporation; IRS Employer
File No. Address; and Telephone No. Identification No.
1-9760 Atlantic Energy, Inc. 22-2871471
(New Jersey)
6801 Black Horse Pike
Egg Harbor Township, NJ 08234
(609) 645-4500
1-3559 Atlantic City Electric Company 21-0398280
(New Jersey)
6801 Black Horse Pike
Egg Harbor Township, NJ 08234
(609) 645-4100
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
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date:
Atlantic Energy, Inc. 52,502,479 shares (as of May 8, 1997)
All of the outstanding shares of Common Stock of Atlantic City
Electric Company are owned by Atlantic Energy, Inc.
<PAGE>
Atlantic Energy, Inc.
and
Atlantic City Electric Company
Form 10-Q
For the Quarter Ended
March 31, 1997
INDEX
Page No.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Atlantic Energy, Inc.
Consolidated Statement of Income
and Retained Earnings 1
Consolidated Statement of Cash Flows 2
Consolidated Balance Sheet 3
Atlantic City Electric Company
Consolidated Statement of Income
and Retained Earnings 5
Consolidated Statement of Cash Flows 6
Consolidated Balance Sheet 7
Notes to Financial Statements
Atlantic Energy, Inc. and
Atlantic City Electric Company 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Atlantic Energy, Inc. and
Atlantic City Electric Company 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 4. Submission of Matters to a Vote of
Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 31
<PAGE>
Atlantic Energy, Inc. and Subsidiaries
PART I. Financial Information
ITEM I. Financial Statements
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(Thousands of Dollars, except per share data)
Quarter/Year-to-Date
Ended March 31,
1997 1996
(unaudited)
Operating Revenues-Electric $235,399 $245,325
Operating Expenses:
Energy 56,740 58,782
Purchased Capacity 48,255 49,330
Operations 29,456 35,714
Maintenance 6,395 10,714
Depreciation and Amortization 20,562 20,251
State Excise Taxes 24,742 26,805
Federal Income Taxes 11,747 7,806
Other Taxes 2,919 2,943
Total Operating Expenses 200,816 212,345
Operating Income 34,583 32,980
Other Income:
Allowance for Equity Funds Used During
Construction 264 221
Other-Net 2,190 905
Total Other Income 2,454 1,126
Interest Charges:
Interest on Long Term Debt 14,707 15,095
Other Interest Expense 1,107 798
Total Interest Charges 15,814 15,893
Allowance for Borrowed Funds Used
During Construction (262) (331)
Net Interest Charges 15,552 15,562
Less Preferred Securities Dividend
Requirements of Subsidiary 2,854 3,009
Net Income 18,631 15,535
Retained Earnings at Beginning of Period 227,630 249,741
Dividends Declared on Common Stock (20,214) (20,290)
Retained Earnings at End of Period $226,047 $244,986
Average Number of Shares of Common 52,502 52,702
Stock Outstanding (in thousands)
Per Common Share:
Earnings $ .35 $ .29
Dividends Declared $ .385 $ .385
Dividends Paid $ .385 $ .385
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic Energy Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
Quarter/Year-to-Date
Ended March 31,
1997 1996
Cash Flows Of Operating Activities: (unaudited)
Net Income $ 18,631 $ 15,535
Unrecovered Purchased Power Costs 4,280 4,104
Deferred Energy Costs 3,182 (432)
Preferred Securities Dividends of ACE 1,410 3,009
Depreciation and Amortization 20,562 20,251
Deferred Income Taxes-Net (1,672) (234)
Prepaid State Excise Taxes (68,758) (67,212)
Unrecovered State Excise Taxes 2,390 2,390
Changes - Net Working Capital Components:
Accounts Receivable & Unbilled Revenues 2,130 (1,712)
Accounts Payable (15,800) (5,988)
Inventory 1,992 2,877
Other (4,083) 10,647
Other-Net (6,021) (5,248)
Net Cash Used in Operating Activities (41,757) (22,013)
Cash Flows Of Investing Activities:
Utility Cash Construction Expenditures (19,313) (20,260)
Nonutility Construction Expenditures (8,952) (2,012)
Partnership Distribution 3,445 6,504
Nonutility Investment in Affiliates - (4,800)
Nuclear Decommissioning Trust Fund
Deposits (1,606) (1,606)
Other-Net (2,591) (1,695)
Net Cash Used in Investing Activities (29,017) (23,869)
Cash Flows Of Financing Activities:
Retirement and Maturity of Long
Term Debt - (15,247)
Proceeds from Long Term Debt 29,425 -
Proceeds from Short Term Debt 62,550 97,150
Redemption of Preferred Stock - (12,120)
Dividends Declared-ACE Preferred
Securities (1,410) (3,009)
Dividends Declared on Common Stock (20,214) (20,290)
Other-Net 216 2,819
Net Cash Provided by Financing Activities 70,567 49,303
Net (Decrease) Increase in Cash and
Temporary Investments (207) 3,421
Cash and Temporary Investments:
beginning of period 15,278 5,691
end of period $ 15,071 $ 9,112
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic Energy, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET March 31, December 31,
(Thousands of Dollars) 1997 1996
(unaudited)
Assets
Electric Utility Plant In Service $2,512,100 $2,508,220
Less Accumulated Depreciation 876,107 871,531
Utility Plant in Service-Net 1,635,993 1,636,689
Construction Work in Progress 114,940 117,188
Land Held for Future Use 5,604 5,604
Leased Property-Net 38,254 39,914
Electric Utility Plant-Net 1,794,791 1,799,395
Investments and Nonutility Property:
Investment in Leveraged Leases 79,887 79,687
Nuclear Decommissioning Trust Fund 73,935 71,120
Nonutility Property and Equipment-Net 54,931 46,147
Other Investments and Funds 51,247 53,550
Total Investments and Nonutility Property 260,000 250,504
Current Assets:
Cash and Temporary Investments 15,071 15,278
Accounts Receivable:
Utility Service 61,843 64,432
Miscellaneous 34,845 32,547
Allowance for Doubtful Accounts (3,500) (3,500)
Unbilled Revenues 31,476 33,315
Fuel (at average cost) 28,058 29,682
Materials and Supplies (at average cost) 23,447 23,815
Working Funds 15,527 15,517
Deferred Energy Costs 30,347 33,529
Prepaid Excise Tax 75,883 7,125
Other 15,313 11,354
Total Current Assets 328,310 263,094
Deferred Debits:
Unrecovered Purchased Power Costs 79,120 83,400
Recoverable Future Federal Income Taxes 85,858 85,858
Unrecovered State Excise Taxes 52,324 54,714
Unamortized Debt Costs 43,896 44,423
Other Regulatory Assets 60,482 59,575
License Fees 23,008 17,733
Other 15,868 12,066
Total Deferred Debits 360,556 357,769
Total Assets $2,743,657 $2,670,762
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Atlantic Energy, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
March 31, December 31,
1997 1996
(unaudited)
Liabilities and Capitalization
Capitalization:
Common Shareholders' Equity:
Common Stock $ 562,656 $ 562,746
Retained Earnings 226,047 227,630
Unearned Compensation (2,799) (2,982)
Total Common Shareholders' Equity 785,904 787,394
Preferred Securities of Atlantic Electric:
Not Subject to Mandatory Redemption 30,000 30,000
Subject to Mandatory Redemption 43,950 43,950
Cumulative Quarterly Income
Preferred Securities 70,000 70,000
Long Term Debt 844,585 829,745
Total Capitalization (excluding current
portion) 1,774,439 1,761,089
Current Liabilities:
Preferred Stock Redemption Requirement 10,000 10,000
Capital Lease Obligation-Current Portion 715 702
Long Term Debt-Current Portion 112,675 98,250
Short Term Debt 127,500 64,950
Accounts Payable 50,708 66,508
Taxes Accrued 19,577 7,504
Interest Accrued 17,905 20,241
Dividends Declared 21,624 21,701
Deferred Income Taxes 1,560 3,190
Provision for Rate Refunds - 13,000
Other 27,945 24,696
Total Current Liabilities 390,209 330,742
Deferred Credits and Other Liabilities:
Deferred Income Taxes 434,067 434,108
Deferred Investment Tax Credits 45,944 46,577
Capital Lease Obligations 37,538 39,212
Other 61,460 59,034
Total Deferred Credits and Other Liabilities 579,009 578,931
Total Liabilities and Capitalization $2,743,657 $2,670,762
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic City Electric Company and Subsidiary
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(Thousands of Dollars)
Quarter/Year-to-Date
Ended March 31,
1997 1996
(unaudited)
Operating Revenues-Electric $236,126 $245,472
Operating Expenses:
Energy 56,740 58,782
Purchased Capacity 48,255 49,330
Operations 29,418 35,760
Maintenance 6,395 10,720
Depreciation and Amortization 20,562 20,251
State Excise Taxes 24,742 26,805
Federal Income Taxes 11,747 7,806
Other Taxes 2,919 2,943
Total Operating Expenses 200,778 212,397
Operating Income 35,348 33,075
Other Income:
Allowance for Equity Funds Used During
Construction 264 221
Miscellaneous Income-Net 1,755 1,582
Total Other Income 2,019 1,803
Interest Charges:
Interest on Long Term Debt 14,707 15,095
Other Interest Expense 1,107 798
Total Interest Charges 15,814 15,893
Allowance for Borrowed Funds Used
During Construction (262) (331)
Net Interest Charges 15,552 15,562
Less Cumulative Quarterly Income
Preferred Securities Dividend
of Trust 1,444 -
Net Income 20,371 19,316
Retained Earnings at Beginning of Period 234,948 252,484
Dividends Declared:
Cumulative Preferred Stock (1,410) (3,009)
Common Stock (20,214) (20,290)
Total Dividends Declared (21,624) (23,299)
Capital Stock Expense and Other - (83)
Retained Earnings at End of Period $233,695 $248,418
Earnings for Common Stock:
Net Income $ 20,371 $ 19,316
Less Preferred Dividend Requirements 1,410 3,009
Balance Available for Common Shareholder $ 18,961 $ 16,307
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic City Electric Company and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars) Quarter/Year-to-Date
Ended March 31,
1997 1996 Cash
Flows Of Operating Activities: (unaudited)
Net Income $ 20,371 $ 19,316
Unrecovered Purchased Power Costs 4,280 4,104
Deferred Energy Costs 3,182 (432)
Cumulative Quarterly Income Preferred
Securities Dividends of Trust 1,444 -
Depreciation and Amortization 20,562 20,251
Deferred Federal Income Taxes-Net (1,569) (604)
Prepaid State Excise Taxes (68,758) (67,212)
Unrecovered State Excise Taxes 2,390 2,390
Changes - Net Working Capital Components:
Accounts Receivable & Unbilled Revenues 4,209 903
Accounts Payable (13,208) (5,964)
Inventory 2,003 2,889
Other (7,626) (5,734)
Other-Net (480) 525
Net Cash Used in Operating Activities (33,200) (29,568)
Cash Flows Of Investing Activities:
Cash Construction Expenditures (19,313) (20,260)
Leased Property (662) (778)
Nuclear Decommissioning Trust Fund
Deposits (1,606) (1,606)
Other-Net (1,312) (65)
Net Cash Used in Investing Activities (22,893) (22,709)
Cash Flows Of Financing Activities:
Proceeds from Long Term Debt 15,000 -
Retirement and Maturity of Long Term Debt - (12,247)
Proceeds from Short Term Debt 62,550 97,150
Redemption of Preferred Stock - (12,120)
Capital Contributions 733 2,131
Dividends Declared on Preferred Stock (1,410) (3,009)
Dividends on Cumulative Quarterly Income
Preferred Securities of Trust (1,444) -
Dividends Declared on Common Stock (20,214) (20,290)
Other-Net 306 632
Net Cash Provided by Financing Activities 55,521 52,247
Net Decrease in Cash and
Temporary Investments (572) (30)
Cash and Temporary Investments:
beginning of period 7,927 3,987
end of period $ 7,355 $ 3,957
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Atlantic City Electric Company and Subsidiary
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
March 31, December 31,
1997 1996
(unaudited)
Assets
Electric Utility Plant
In Service $2,512,100 $2,508,220
Less Accumulated Depreciation 876,107 871,531
Utility Plant in Service-Net 1,635,993 1,636,689
Construction Work in Progress 114,940 117,188
Land Held for Future Use 5,604 5,604
Leased Property-Net 38,254 39,914
Electric Utility Plant-Net 1,794,791 1,799,395
Investments and Nonutility Property:
Nuclear Decommissioning Trust Fund 73,935 71,120
Other 9,735 9,750
Total Investments and Nonutility
Property 83,670 80,870
Current Assets:
Cash and Temporary Investments 7,355 7,927
Accounts Receivable:
Utility Service 61,843 64,432
Miscellaneous 21,869 21,650
Allowance for Doubtful Accounts (3,500) (3,500)
Unbilled Revenues 31,476 33,315
Fuel (at average cost) 27,968 29,603
Materials and Supplies (at average cost) 23,447 23,815
Working Funds 15,525 15,517
Deferred Energy Costs 30,347 33,529
Prepaid Excise Tax 75,883 7,125
Other Prepayments 11,515 10,089
Total Current Assets 303,728 243,502
Deferred Debits:
Unrecovered Purchased Power Costs 79,120 83,400
Recoverable Future Federal Income Taxes 85,858 85,858
Unrecovered State Excise Taxes 52,324 54,714
Unamortized Debt Costs 43,074 43,579
Other Regulatory Assets 60,482 59,575
Other 13,169 9,848
Total Deferred Debits 334,027 336,974
Total Assets $2,516,216 $2,460,741
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Atlantic City Electric Company and Subsidiary
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
March 31, December 31,
1997 1996
(unaudited)
Liabilities and Capitalization
Capitalization:
Common Shareholder's Equity:
Common Stock $ 54,963 $ 54,963
Premium on Capital Stock 231,081 231,081
Contributed Capital 259,811 259,078
Capital Stock Expense (1,645) (1,645)
Retained Earnings 233,695 234,948
Total Common Shareholder's Equity 777,905 778,425
Preferred Securities:
Not Subject to Mandatory Redemption 30,000 30,000
Subject to Mandatory Redemption 43,950 43,950
Cumulative Quarterly Income
Preferred Securities of Trust 70,000 70,000
Long Term Debt 817,084 802,245
Total Capitalization (excluding
current portion) 1,738,939 1,724,620
Current Liabilities:
Preferred Stock Redemption Requirement 10,000 10,000
Capital Lease Obligations-Current 715 702
Long Term Debt-Current 175 175
Short Term Debt 127,500 64,950
Accounts Payable 50,436 63,644
Federal Income Taxes Payable-Affiliate 12,725 7,398
Other Taxes Accrued 7,863 7,494
Interest Accrued 16,920 19,619
Dividends Declared 21,624 21,701
Deferred Income Taxes 1,560 3,190
Provision for Rate Refunds - 13,000
Other 26,301 22,980
Total Current Liabilities 275,819 234,853
Deferred Credits and Other Liabilities:
Deferred Income Taxes 357,641 357,580
Deferred Investment Tax Credits 45,944 46,577
Capital Lease Obligations 37,538 39,212
Other 60,335 57,899
Total Deferred Credits and Other
Liabilities 501,458 501,268
Total Liabilities and Capitalization $2,516,216 $2,460,741
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Organizational and Other Matters of AEI and Subsidiaries
Atlantic Energy, Inc. (AEI or the Company) is the parent of
Atlantic City Electric Company (ACE), Atlantic Energy
Enterprises, Inc. (AEE) and Atlantic Energy International, Inc.
(AEII) which are wholly-owned subsidiaries. ACE is a public
utility primarily engaged in the generation, transmission,
distribution and sale of electric energy. AEE is a holding
company which is responsible for the management of the
investments in nonutility companies consisting of: Atlantic
Generation, Inc. (AGI), ATE Investment, Inc. (ATE), Atlantic
Southern Properties, Inc. (ASP), Atlantic Thermal Systems, Inc.
(ATS), CoastalComm, Inc. (CCI) and Atlantic Energy Technology,
Inc. (AET). AEE also has a 50% equity interest in Enerval, LLC.
ATE also has a 94% equity interest in Enertech Capital Partners,
L.P. AEII provides utility consulting services and equipment
sales to international markets. AEII is winding down its
business. ACE is the principal subsidiary of AEI. The
consolidated financial information of AEI is principally the
financial information of ACE unless indicated otherwise. Certain
prior year amounts have been reclassified to conform to the
current year reporting.
On August 12, 1996, the Boards of Directors of AEI and Delmarva
Power & Light Company (DP&L) jointly announced an agreement to
merge the companies into Conectiv, Inc. The merger is expected
to be a tax-free, stock-for-stock transaction accounted for as a
purchase. Under the terms of the agreement, DP&L shareholders
will receive one share of the Conectiv common stock for each
share of DP&L common stock held. AEI shareholders will receive
0.75 shares of the Conectiv common stock and 0.125 shares of the
Conectiv Class A common stock for each share of AEI common stock
held. On January 30, 1997, the merger was approved by the
shareholders of both companies. In order for the merger to
become effective, approvals are still needed from a number of
Federal and state regulatory agencies. The Company expects the
regulatory approval process to be complete in late 1997 or early
1998.
New Accounting Standards - The Financial Accounting Standards
Board (FASB) issued two new Statement of Financial Accounting
Standards in 1997 - Statement No. 128 (SFAS 128) "Earnings Per
Share" and Statement No. 129 (SFAS 129) "Disclosure of
Information about Capital Structure". SFAS 128 specifies the
computation, presentation and disclosure requirements of earnings
per share for entities with publicly held common stock and
potential common stock. The Company has not fully assessed the
impacts of the requirements of this standard on its financial
statements. SFAS 129 relates to disclosures of the Company's
capital structure and is not expected to change current
disclosure practices of the Company with regard to capital
structure.
NOTE 2. RATE MATTERS OF ACE
On March 29, 1996, ACE filed with the New Jersey Board of Public
Utilities (BPU) a petition requesting a $49.7 million increase in
annual Levelized Energy Clause (LEC) revenues to be effective
June 1, 1996. A stipulation was reached by the parties, and
approved by the BPU on July 17, 1996, allowing ACE to implement
provisional rates resulting in an increase of annual LEC revenues
of $27.6 million. The stipulation provided for the continuation
of BPU hearings to decide on the following LEC rate issues: $27.8
million for the estimated replacement power costs related to the
Salem Units 1 and 2 ongoing outages; $1.7 million in deferred
replacement power costs associated with a 1994 Salem Unit 1
outage and $1.7 million in New Jersey emission fees. The
provisional LEC rates also included the deferral of $6.4 million
in 1996/97 LEC costs to be recovered without carrying costs in
the next LEC period. On December 19, 1996 and December 31, 1996
the BPU issued Orders approving two stipulations reached on
October 22, 1996 settling the outstanding issues regarding the
replacement power costs related to the current Salem outage and
the 1994 Salem Unit 1 outage. The stipulations provided that
ACE's replacement power costs for the current Salem outage, up to
each Salem Unit's agreed-upon return-to-service date (June 30,
1997 for Unit 1 and December 31, 1996 for Unit 2), and the 1994
Salem Unit 1 outage will be recoverable in LEC rates implemented
in ACE's next LEC filing. As a result of these BPU approved
stipulations, only the issue of $1.7 million in emission fees
remained unresolved.
On April 23, 1997, the Administrative Law Judge submitted his
decision on this issue and found that emission fees are fuel
related and should be recovered through ACE's LEC. The final
decision on the matter is now pending before the BPU. ACE cannot
predict the outcome of this matter.
On February 28, 1997, ACE filed a petition with the BPU
requesting an increase in annual LEC revenues of $20.0 million to
be made effective for service rendered on and after June 1, 1997.
The $20.0 million proposed increase includes recovery of Salem
replacement power costs up to the agreed-upon return-to-service
date for each Salem unit, in accordance with the Stipulation
settling the BPU's investigation into the continuing outage of
the Salem Nuclear Generating Station. The proposed increase also
permits recovery of $1.7 million in replacement power costs
related to a 1994 outage at Salem Unit 1. ACE agreed to forego
recovery of this amount in the 1996 LEC period in order to
implement the provisional 1996 LEC rates. The Stipulation of
Partial Settlement of ACE's 1996 LEC permits recovery of the $1.7
million. In April 1997, ACE's filing was transferred to the
Office of Administrative Law. At this date, hearings have not
been scheduled.
On January 8, 1997, the BPU approved a stipulation related to its
generic proceeding for methods of implementing Statement of
Financial Accounting Standard No. 106 - "Employers' Accounting
for Post-retirement Benefits Other Than Pensions" (SFAS 106).
SFAS 106 required publicly held companies to change from the
practice of accounting for post-retirement benefits such as
medical benefits, hospitalization and life insurance (OPEB), on a
pay-as-you-go basis to an accrual basis of accounting. SFAS 106
required that companies recognize a transition obligation
composed of the present value of OPEB obligations for retirees
and current employees incurred as of the date of adoption.
Statement of Financial Accounting Standards No. 71 - "Accounting
for the Effects of Certain Types of Regulation" (SFAS 71) allows
for the recognition of a regulatory asset relating to costs for
which rate recovery has been deferred. In December 1992, the BPU
approved ACE's request for the application of deferred accounting
to OPEB costs. These deferred costs are recorded as a regulatory
asset consistent with SFAS 71. Under the terms of a stipulation,
ACE will file a petition in the second quarter of 1997 requesting
ratemaking treatment of OPEB expenses including an amortized
recovery of the regulatory asset.
NOTE 3. DEBT AND PREFERRED SECURITIES
AEI
At March 31, 1997 and December 31, 1996, AEI had $50.0 million
and $37.6 million, respectively, outstanding under its $75.0
million revolving credit and term loan facility. Proceeds have
been used for general corporate purposes.
ACE
ACE's Cumulative Preferred Securities and long term debt
securities are not widely held and generally trade infrequently.
Their estimated aggregate fair market values at March 31, 1997
and December 31, 1996 are approximately $943.5 million and $975.2
million, respectively. With regard to short term debt, ACE had
outstanding $127.5 million at March 31, 1997 and $65.0 million at
December 31, 1996.
<PAGE>
On March 26, 1997, ACE issued and sold $15.0 million principal
amount of unsecured Medium Term Notes in the following
increments: $10.0 million at 7.5% and $5.0 million at 7.52%, both
due April, 2007.
AEE
At March 31, 1997 and December 31, 1996, ATE had outstanding
$7.0 million and $18.5 million, respectively, under its $25.0
million revolving credit and term loan facility. The estimated
aggregate fair market value of ATE's $15 million in 7.44% Senior
Notes at March 31, 1997 and December 31, 1996 was approximately
$15.1 million and $15.5 million, respectively.
At March 31, 1997, and December 31, 1996, ATS had outstanding
$55.5 million and $42.0 million, respectively, under its $100.0
million revolving credit and term loan facility. Commitment fees
on the unused credit line were not significant. This facility
will be used to satisfy certain associated company payables and
for other general corporate purposes, including construction of
the Midtown Energy Center in Atlantic City, New Jersey which
began in November 1996.
In December 1995, ATS, through a partnership arrangement,
borrowed from the New Jersey Economic Development Authority
(NJEDA) $12.5 million from the proceeds of the sale of special,
limited obligation bonds issued by the NJEDA. Proceeds from the
bond issuance remain restricted in trust pending resolution of
certain release conditions. The bonds paid an initial rate of
3.7% for the 120 day period ending on April 30, 1996. The bonds
have been remarketed four times at fixed rates ranging from 3.5%
to 3.8%. They may be remarketed for one or more additional
periods not to exceed 120 days, but in no event later than
December 1, 1998 at which time the bonds must be redeemed if the
escrow conditions are not satisfied. ATS expects to satisfy all
the escrow release conditions in the second quarter of 1997.
NOTE 4. COMMON STOCK OF AEI
As of both March 31, 1997, and December 31, 1996, 52,502,479
shares of common stock were outstanding.
NOTE 5. CONTINGENCIES
On February 28, 1997, ACE filed its comments on the BPU's Draft
Phase II of the New Jersey Energy Master Plan (the Plan)
concerning the restructuring of the electric utility industry.
The BPU issued final findings and recommendations on the electric
industry restructuring in New Jersey to the Governor and the
State Legislature for their consideration on April 30, 1997.
The final findings and revisions differed from the draft relative
to the proposed timetable for the phase-in of retail choice for
electric customers in the State. The recommendation for phase-in
was accelerated, calling for choice to 10% of all customers
beginning October 1, 1998 and to 100% by July 1, 2000. The Plan
requires each electric utility to file, no later than July 15,
1997, complete restructuring plans, stranded cost filings and
unbundled rate filings.
ACE currently accounts for the economic effects of regulation as
specified by SFAS 71. ACE believes it continues to meet the
criteria set forth in SFAS 71 and has presented these financial
statements in accordance with SFAS 71. However, if future
changes in ratemaking regulation preclude ACE from meeting the
criteria of SFAS 71, ACE would be required to apply Statement of
Financial Accounting Standards No. 101 "Regulated Enterprises -
Accounting for the Discontinuation of Application of FASB
Statement No. 71" and write down certain assets if they are
impaired. The result of this application may be an
extraordinary, noncash charge to operations that could be
material to the financial position and results of operations of
the Company.
On April 1, 1997, the Pennsylvania-New Jersey-Maryland
Interconnections Association (PJM) began implementing interim
guidelines approved by FERC on February 28, 1997. The guidelines
created, among other things, an independent system operator
(ISO), an open access tariff, a spot energy market open to
utilities, nonutilities, power generators and wholesale energy
brokers with comparable pool-wide transmission service and new
rules governing generation and transmission activities. A final
proposal is to be submitted to the FERC by May 31, 1997 which
will address the remaining ISO issues and congestive pricing.
In mid-March, 1997, the New Jersey Legislature introduced a bill
proposing to eliminate the Gross Receipts and Franchise Tax
(GR&FT) paid by electric, natural gas and telecommunication
public utilities. In its place, utilities will be subject to the
State's corporate business tax. The State's existing sales and
use tax will be expanded to include retail sales of electric
power and natural gas, and a transitional energy facility
assessment tax (TEFA) will be applied for a limited time on
electric and natural gas utilities and will be phased-out over a
five year period. It is intended that the legislation will take
effect on January 1, 1998 and that on January 1, of each of the
years thereafter, the TEFA will be reduced by 20%. ACE currently
cannot predict the outcome of this matter.
<PAGE>
ACE is a 7.41% owner of the Salem Nuclear Generating Station
operated by Public Service Electric and Gas Company (PS).
Salem Units 1 and 2 were taken out of service on May 16, 1995 and
June 7, 1995, respectively.
During these outages, PS has made significant changes and
improvements related to the people, processes and equipment at
Salem to improve the long-term reliability of the units. Salem
Unit 2 is in the final stages of preparation for restart. The
reactor has been refueled and reassembled and the reactor coolant
pumps have been tested and placed in service. Over 90% of the
total work activities have been completed and approximately 80%
of the plant systems have been restored. Salem Unit 2 is
currently expected to return to service in the third quarter of
1997.
Salem Unit 1 is currently expected to return to service in late
1997, after replacement of the unit's four steam generators,
which was required in order to correct a generic problem with
certain pressurized water reactors.
On February 27, 1996, the Salem co-owners filed a Complaint in
United States District Court for the District of New Jersey
against Westinghouse Electric Corporation, the designer and
manufacturer of the Salem steam generators, under Federal and
state statutes alleging fraud, negligent misrepresentation and
breach of contract. The Westinghouse complaint seeks
compensatory and punitive damages. On April 30, 1996,
Westinghouse filed an answer and a counterclaim for unpaid work.
PS has advised ACE that the amount being claimed by Westinghouse
in the counterclaim approximates $2.5 million. An answer to the
counterclaim will be filed on behalf of the co-owners. The
litigation is in the process of discovery and investigation.
ACE is subject to a performance standard for its five jointly-
owned nuclear units. This standard is used by the BPU in
determining recovery of replacement energy costs when output from
the nuclear units falls below a level set by the performance
standard. Underperformance results in penalties which are not
permitted to be recovered from customers and are charged against
income. According to the Salem outage stipulation agreement as
previously discussed in the 1996 AEI Annual Report on Form 10-K,
the performance of Salem Unit 1 and Unit 2 shall not be included
in the calculation of the nuclear performance penalty or award
for the period each unit was taken out of service up to each
unit's respective return-to-service date.
The outage of each Salem unit causes ACE to incur replacement
power costs of approximately $700 thousand per unit per month.
As previously discussed, ACE's replacement power costs for the
current outage for each unit, up to the agreed-upon return-to-
service dates (June 30, 1997 for Unit 1 and December 31, 1996 for
Unit 2), will be recoverable in rates in ACE's 1997 LEC
proceeding. Replacement power costs incurred after the
respective agreed-upon return-to-service dates for the Salem
Units will not be recoverable in rates.
Effective December 31, 1996, ACE entered into a Stipulation
Agreement (Agreement) with PS for the purpose of limiting ACE's
exposure to Salem's 1997 operation and maintenance (O&M)
expenses. Pursuant to the terms of the Agreement, ACE will pay
to PS $10 million of O&M expense, as a fixed charged payable in
twelve equal installments beginning February 1, 1997. ACE's
obligation for any contributions, above the $10 million, to Salem
1997 O&M expenses up to ACE's estimated share of $21.8 million,
is based on performance and directly related to the timely return
and operation of Salem Units 1 and 2. To the extent ACE derives
a savings against 1997 O&M expenditures, those savings will
offset replacement power costs incurred due to the unavailability
of the Salem Units. As a result of this Agreement, ACE agreed to
dismiss the complaint filed against PS in the Superior Court of
New Jersey in March 1996 alleging negligence and breach of
contract.
ACE has a trust to fund the future costs of decommissioning each
of the five jointly-owned nuclear units. The current annual
funding amount of this trust is based on estimates of the future
costs of decommissioning each unit derived from studies performed
in 1987. In accordance with BPU requirements, updated site
specific studies were completed as of September 1996. ACE is
currently evaluating the results of the studies and has not fully
assessed the impacts upon amounts to be recognized and recovered
in rates based on these updated studies.
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Information pertaining specifically to ACE and its subsidiary is
included in Note 1, Note 2, Note 3 and Note 5 of the Consolidated
Financial Statements of AEI and is incorporated by reference.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited)
The following is management's discussion and analysis of
significant factors which affected Atlantic Energy, Inc. (AEI or
the Company) interim financial condition and results of
operations. Atlantic City Electric Company (ACE) is the
principal subsidiary of AEI and the following discussion focuses
on ACE unless indicated otherwise. To properly assess and
evaluate the Company's performance one should read, in
conjunction with this report, the Management's Discussion and
Analysis of Financial Condition and Results of Operations
included in AEI's 1997 proxy statement for the annual meeting of
shareholders and the 1996 AEI Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
AEI
The operating needs of AEI, representing those of the
consolidated group, are dependent upon the results of its
subsidiaries, principally ACE.
At March 31, 1997 and December 31, 1996, AEI had $50.0 million
and $37.6 million outstanding, respectively, under its revolving
credit and term loan facility.
ACE
At March 31, 1997 ACE had $127.5 million outstanding in short
term debt, compared to $65.0 million outstanding at December 31,
1996. Short term debt consisted of notes payable to banks.
Proceeds were used for general corporate purposes and to fund the
annual remittance of the state excise tax payment as discussed
below.
In March 1997, ACE made its annual payment to the State of New
Jersey in the amount of $91.1 million for state excise tax. The
current asset, Prepaid Excise Taxes reflects this current year
payment which has caused a net cash usage in operating activities
for the current and prior year quarter ended period as presented
on the Consolidated Statement of Cash Flows.
Atlantic Energy Enterprises, Inc. (AEE)
At March 31, 1997 and December 31, 1996, ATE Investment, Inc.
(ATE) had outstanding $7.0 million and $18.5 million,
respectively, under its revolving credit and term loan facility.
At March 31, 1997 and December 31, 1996, Atlantic Thermal
Systems, Inc. (ATS) had outstanding $55.5 million and $42.0
million, respectively, under its revolving credit and term loan
facility. Commitment fees on the unused credit line were not
significant. This facility will be used to satisfy certain
associated company payables and for other general corporate
purposes including construction of the Midtown Energy Center in
Atlantic City, New Jersey which began in November 1996 and is
expected to be completed by mid-1997. ATS's capital expenditures
have been approximately $38.1 million for this project to date.
In December 1995, ATS, through a partnership arrangement,
borrowed from the New Jersey Economic Development Authority
(NJEDA) $12.5 million from the proceeds of the sale of special,
limited obligation bonds issued by the NJEDA. Proceeds from the
bond issuance remain restricted in trust pending resolution of
certain release conditions. The bonds paid an initial rate of
3.7% for the 120 day period ending on April 30, 1996. The bonds
have been remarketed four times at fixed rates ranging from 3.5%
to 3.8%. They may be remarketed for one or more additional
periods not to exceed 120 days, but in no event later than
December 1, 1998 at which time the bonds must be redeemed if the
escrow conditions are not satisfied. ATS expects to satisfy all
the escrow release conditions in the second quarter of 1997.
RESULTS OF OPERATIONS
Changes in net income and earnings per share for the period ended
March 31, 1997 versus the corresponding period of the previous
year are as follows:
Period Ended March 31, 1997
Quarter/Year-to-Date
Net Income 19.9%
Earnings Per Share 20.7%
The change in net income and earnings per share primarily reflect
decreased operating expenses and increased nonutility income.
<PAGE>
Utility Revenues of ACE
Changes in Operating Revenues-Electric, exclusive of inter-
company sales, are disclosed in the following table:
Quarter/Year-to-Date
Ended March 31, 1997
(Thousands of Dollars)
Base Revenues $ (377)
Levelized Energy Clause 6,777
Kilowatt-hour Sales (17,581)
Unbilled Revenues 3,564
Sales for Resale (1,345)
Other Revenues (383)
Total $ (9,345)
The decrease in Base Revenues reflects ACE's BPU approved Off-
Tariff Rate Agreements (OTRAs). OTRAs are special reduced rates
that are being offered by ACE to at-risk customers which reduced
base revenues by an estimated $1.8 million, or $1.2 million, net
of tax, for the current period. LEC revenues for the period
increased due to an annual rate increase in July 1996 of $27.6
million. Changes in Kilowatt-hour Sales are explained in the
'Billed Sales to Ultimate Utility Customers' section. The
changes in Unbilled Revenues are a result of the amount of
kilowatt-hours consumed by, but not yet billed to, ultimate
customers at the end of the respective periods, which are
affected by weather, economic conditions and the corresponding
price per kilowatt-hour. The changes in Sales for Resale to
wholesale customers are a function of ACE's energy mix strategy,
which in turn is dependent upon ACE's needs for energy, the
energy needs of other utilities participating in the regional
power pool of which ACE is a member, and the sources and prices
of energy available. In addition, changes in Sales for Resale
are dependent on adjacent power pool resources and prices of
energy available.
Billed Sales to Ultimate Utility Customers of ACE
Changes in billed kilowatt-hour sales are generally due to
changes in the average number of customers and average customer
use, which is affected by economic and weather conditions.
Energy sales statistics, stated as percentage changes from the
corresponding periods of the prior year, are shown below.
Quarter/Year-To-Date
Ended March 31, 1997
Average
Sales Use Cust
Residential (11.4%) (12.1%) 0.8%
Commercial (3.4) (4.7) 1.3
Industrial (3.9) (4.3) 0.4
Total (7.3) (8.1) 0.9
The decrease in the current period sales was due primarily to
reduced electric heating usage, as a result of milder weather in
1997 compared to 1996. Another factor in the decreased sales was
fewer billing days in the current period when compared to the
same period of the previous year.
Operating Expenses
Total Operating Expenses decreased by 5.4%. Excluding
depreciation and taxes, Total Operating Expenses decreased by
8.9% largely due to decreases in operations and maintenance costs
of ACE.
Energy expense reflects the amount of energy needed to meet load
requirements, as well as the various fuel and purchased energy
sources used and the operation of the LEC. Changes in costs
reflect the availability of low-cost generation from ACE-owned
and purchased energy sources, the unit prices of the energy
sources used and changes in the needs of other utilities
participating in the regional power pool. The cost of energy is
recovered from customers primarily through the operation of the
LEC. Generally, earnings are not affected by energy costs
because these costs are adjusted to match the associated LEC
revenues. However, ACE had voluntarily foregone recovery of
certain amounts of otherwise recoverable fuel costs through its
Southern New Jersey Economic Initiative (SNJEI), thereby reducing
earnings through May 1996, as indicated below. Such reduced
recoveries are discretionary by ACE, and are influenced by
competitive and economic factors. ACE elected not to continue
the SNJEI beyond May 1996. Otherwise, in any period the actual
amount of LEC revenue recovered from customers will be greater or
less than the actual amount of energy cost incurred and eligible
for recovery in that period. Such respective overrecovery or
underrecovery of energy costs is deferred on the Consolidated
Balance Sheet as a liability or asset as appropriate. Amounts on
the balance sheet are recognized in the Consolidated Statement of
Income within Energy expense during the period in which they are
subsequently recovered through the LEC. ACE was underrecovered
by $30.3 million at March 31, 1997 as compared to underrecovered
by $33.5 million at December 31, 1996.
Energy expense decreased by 3.5%. Excluding deferred energy
costs, Energy expense decreased by 9.7%, when compared to the
prior year largely due to the milder weather.
Sources of ACE's energy for the current period are as follows:
Quarter\Year-to-Date
Ended March 31, 1997
Coal 26%
Nuclear 17
Interchanged and Purchased 37
Nonutility Purchased 19
Oil and Natural Gas 1
Total 100%
Operations expense decreased by 17.5% which was the result of
reduced expenses resulting from the operations and maintenance
stipulation agreement with PS regarding the Salem Units, as
discussed in Note 5, and cost saving measures instituted by ACE.
Maintenance expense decreased by 40.3% as a result of reduced
expenses associated with the Salem Station operations and
maintenance stipulation.
State Excise Tax expense decreased 7.7%, reflecting a decreased
energy sales tax base for the quarter compared to the same period
last year.
Federal Income Tax expense increased by 50.5% and Taxes Accrued
on the Consolidated Balance Sheet increased significantly due to
an increase of taxable income for the current quarter when
compared to the same period last year.
Accounts Payable decreased significantly due to reduced operating
costs which have resulted in a reduction to current period end
accruals.
<PAGE>
Other Matters
On February 28, 1997, ACE filed its comments on the BPU's Draft
Phase II of the New Jersey Energy Master Plan (the Plan)
concerning the restructuring of the electric utility industry.
The BPU issued final findings and recommendations on the electric
industry restructuring in New Jersey to the Governor and the
State Legislature for their consideration on April 30, 1997.
The final findings and revisions differed from the draft relative
to the proposed timetable for the phase-in of retail choice for
electric customers in the State. The recommendation for phase-in
was accelerated, calling for choice to 10% of all customers
beginning October 1, 1998 and to 100% by July 1, 2000. The Plan
requires each electric utility to file, no later than July 15,
1997, complete restructuring plans, stranded cost filings and
unbundled rate filings.
ACE currently accounts for the economic effects of regulation as
specified by SFAS 71. ACE believes it continues to meet the
criteria set forth in SFAS 71 and has presented these financial
statements in accordance with SFAS 71. However, if future
changes in ratemaking regulation preclude ACE from meeting the
criteria of SFAS 71, ACE would be required to apply Statement of
Financial Accounting Standards No. 101 "Regulated Enterprises -
Accounting for the Discontinuation of Application of FASB
Statement No. 71" and write down certain assets if they are
impaired. The result of this application may be an
extraordinary, noncash charge to operations that could be
material to the financial position and results of operations of
the Company.
On April 1, 1997, the Pennsylvania-New Jersey-Maryland
Interconnections Association (PJM) began implementing interim
guidelines approved by FERC on February 28, 1997. The guidelines
created, among other things, an independent system operator
(ISO), an open access tariff, a spot energy market open to
utilities, nonutilities, power generators and wholesale energy
brokers with comparable pool-wide transmission service and new
rules governing generation and transmission activities. A final
proposal is to be submitted to the FERC by May 31, 1997 which
will address the remaining ISO issues and congestive pricing.
In mid-March, 1997, the New Jersey Legislature introduced a bill
proposing to eliminate the Gross Receipts and Franchise Tax
(GR&FT) paid by electric, natural gas and telecommunication
public utilities. In its place, utilities will be subject to the
State's corporate business tax. The State's existing sales and
use tax will be expanded to include retail sales of electric
power and natural gas, and a transitional energy facility
assessment tax (TEFA) will be applied for a limited time on
electric and natural gas utilities and will be phased-out over a
five year period. It is intended that the legislation will take
effect on January 1, 1998 and that on January 1, of each of the
years thereafter, the TEFA will be reduced by 20%. ACE currently
cannot predict the outcome of this matter.
ACE is a 7.41% owner of the Salem Nuclear Generating Station
operated by Public Service Electric and Gas Company (PS).
Salem Units 1 and 2 were taken out of service on May 16, 1995 and
June 7, 1995, respectively.
During these outages, PS has made significant changes and
improvements related to the people, processes and equipment at
Salem to improve the long-term reliability of the units. Salem
Unit 2 is in the final stages of preparation for restart. The
reactor has been refueled and reassembled and the reactor coolant
pumps have been tested and placed in service. Over 90% of the
total work activities have been completed and approximately 80%
of the plant systems have been restored. Salem Unit 2 is
currently expected to return to service in the third quarter of
1997.
Salem Unit 1 is currently expected to return to service in late
1997, after replacement of the unit's four steam generators,
which was required in order to correct a generic problem with
certain pressurized water reactors.
On February 27, 1996, the Salem co-owners filed a Complaint in
United States District Court for the District of New Jersey
against Westinghouse Electric Corporation, the designer and
manufacturer of the Salem steam generators, under Federal and
state statutes alleging fraud, negligent misrepresentation and
breach of contract. The Westinghouse complaint seeks
compensatory and punitive damages. On April 30, 1996,
Westinghouse filed an answer and a counterclaim for unpaid work.
PS has advised ACE that the amount being claimed by Westinghouse
in the counterclaim approximates $2.5 million. An answer to the
counterclaim will be filed on behalf of the co-owners. The
litigation is in the process of discovery and investigation.
ACE is subject to a performance standard for its five jointly-
owned nuclear units. This standard is used by the BPU in
determining recovery of replacement energy costs when output from
the nuclear units falls below a level set by the performance
standard. Underperformance results in penalties which are not
permitted to be recovered from customers and are charged against
income. According to the Salem outage stipulation agreement as
previously discussed in the 1996 AEI Annual Report on Form 10-K,
the performance of Salem Unit 1 and Unit 2 shall not be included
in the calculation of the nuclear performance penalty or award
for the period each unit was taken out of service up to each
unit's respective return-to-service date.
The outage of each Salem unit causes ACE to incur replacement
power costs of approximately $700 thousand per unit per month.
As previously discussed, ACE's replacement power costs for the
current outage for each unit, up to the agreed-upon return-to-
service dates (June 30, 1997 for Unit 1 and December 31, 1996 for
Unit 2), will be recoverable in rates in ACE's 1997 LEC
proceeding. Replacement power costs incurred after the
respective agreed-upon return-to-service dates for the Salem
Units will not be recoverable in rates.
Effective December 31, 1996, ACE entered into a Stipulation
Agreement (Agreement) with PS for the purpose of limiting ACE's
exposure to Salem's 1997 operation and maintenance (O&M)
expenses. Pursuant to the terms of the Agreement, ACE will pay
to PS $10 million of O&M expense, as a fixed charged payable in
twelve equal installments beginning February 1, 1997. ACE's
obligation for any contributions, above the $10 million, to Salem
1997 O&M expenses up to ACE's estimated share of $21.8 million,
is based on performance and directly related to the timely return
and operation of Salem Units 1 and 2. To the extent ACE derives
a savings against 1997 O&M expenditures, those savings will
offset replacement power costs incurred due to the unavailability
of the Salem Units. As a result of this Agreement, ACE agreed to
dismiss the complaint filed against PS in the Superior Court of
New Jersey in March 1996 alleging negligence and breach of
contract.
ACE has a trust to fund the future costs of decommissioning each
of the five jointly-owned nuclear units. The current annual
funding amount of this trust is based on estimates of the future
costs of decommissioning each unit derived from studies performed
in 1987. In accordance with BPU requirements, updated site
specific studies were completed as of September 1996. ACE is
currently evaluating the results of the studies and has not fully
assessed the impacts upon amounts to be recognized and recovered
in rates based on these updated studies.
Nonutility Activities-AEI and AEE
Nonutility operations, which include AEI parent and AEII,
resulted in net losses of $0.3 million compared to losses of $0.7
million for the prior period. Of these amounts, operations of
AEE and subsidiaries resulted in net income of $0.5 million
compared to net losses of $0.3 million for the same period of the
prior year. The current net income is primarily due to the ATS's
casino heating and cooling service contracts. ATS has signed
agreements with two additional casinos in Atlantic City, New
Jersey to operate their heating and cooling systems, bringing the
total number of agreements to five. As part of these new
agreements, ATS has agreed to pay $8.5 million in license fees
for the right to operate and service these systems for a period
of 20 years, of which, $5.5 million has been paid to date. These
license fees are recorded on the Consolidated Balance Sheet as
License Fees and are amortized to expense over the life of the
contracts. Also contributing to the income was a reduction of
ATE's interest expenses.
AEI parent only resulted in net losses of $0.6 million compared
to net losses of $0.5 million for the corresponding period of the
prior year. The 1997 and 1996 losses are largely due to interest
expense associated with the borrowings from AEI's revolving
credit and term loan facility. AEI's credit facility is used to
support general corporate purposes.
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY
The information required by this item is incorporated herein by
reference from the following portions of AEI's Management's
Discussion and Analysis of Financial Condition and Results of
Operations, insofar as they relate to ACE and its subsidiary:
Liquidity and Capital Resources-ACE; Results of Operations and
Other Matters of ACE.<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The following information updates certain matters previously
reported under Part I, Item 1 - Business of the Annual Report on
Form 10-K for 1996 of Atlantic Energy, Inc. and Atlantic City
Electric Company (ACE). In addition, certain new information is
contained herein.
Rate Matters
On March 12, 1997, ACE filed with the Superior Court of New
Jersey, Appellate Division, information statements as part of the
appeal filed on February 27, 1997 by the Coalition for
Competitive Energy. The appeal was based on the Board of Public
Utilities' (BPU) Summary Decision and Order dated December 31,
1996 approving settlements regarding the rate treatment of the
Salem Nuclear Generating Station. The appeal alleges, among
other things, that the settlement violates the BPU's previously
announced policy of requiring an "up-front" market test for all
utility supply side construction, including repowering, and that
the BPU's use of a "Summary Order" process is illegal under the
Administrative Procedure Act. ACE is unable to predict the
outcome of this appeal.
On April 11, 1997, the Rate Intervention Steering Committee
(RISC) submitted a brief of its appeal with the Superior Court of
New Jersey pertaining to the BPU's Decision and Order on ACE's
Levelized Energy Clause filing dated April 24, 1996. In the
brief, RISC argues that the BPU did not follow the rules of the
Federal Energy Regulatory Commission (FERC) or the Public Utility
Regulatory Act in its approval of nonutility generation contracts
and the stipulation approving these contracts were without public
notice or the opportunity for public hearings. RISC argues that
the BPU should order a hearing to reconsider the contracts,
recalculate the contract prices and give the public the
opportunity to participate in the hearings. RISC further argues
that ACE's customers should not pay for above current market
costs and that ACE should not be permitted to recover costs
relating to the maintenance of excess capacity. ACE and other
parties to the proceeding have 30 days to respond.
On April 24, 1997, the BPU issued a generic order in the
matter of its investigation regarding the policy issues relating
to whether customers who cease to take electric service from a
utility, going to on-site generation as an alternative supply
choice, should be charged an exit fee. In its order, the BPU
determined that a further examination of the policy issue of
whether electric utilities should have the ability to collect
stranded costs from customers in the form of an exit fee is
necessary, in conjunction with the Energy Master Plan, with a view
towards applying any decision: 1) on an interim basis, if
necessary; and 2) during any proposed stranded cost recovery
period, commencing with the start of retail competition. A
hearing is scheduled for June 19, 1997. ACE is unable to predict
the outcome of this matter.
Item 4. Submission of Matters to a Vote of Security Holders
On January 30, 1997, Atlantic Energy, Inc. held a special
meeting of Atlantic Energy, Inc. shareholders to approve the
Agreement and Plan of Merger between Atlantic Energy, Inc. and
Delmarva Power & Light Company (DP&L). Shareholders were also
asked to approve the Conectiv, Inc. Incentive Compensation Plan.
The Agreement and Plan of Merger and the Incentive Compensation
Plan were approved by the required majority of shareholders. The
details of the shareholder vote were reported under Item 5 -
Other Events - on Form 8-K dated January 31, 1997, which is
incorporated herein by reference.
On April 23, 1997, Atlantic Energy, Inc. held its annual
meeting of shareholders. Proxies for the meeting were solicited
pursuant to Regulation 14A under the Securities Exchange Act of
1934, there was no solicitation in opposition to the management's
nominees as listed in the proxy statement and all of the nominees
were elected. Details of other matters voted upon at the meeting
are as follows:
Proposal #2 - To ratify the appointment of Deloitte & Touche LLP
as independent auditors for the year ending December 31, 1997.
Votes For 40,488,869 Shares
Votes Against 274,093 Shares
Votes Abstained 362,646 Shares
Item 5. Other Information
Pending Merger
As previously reported, the proposed merger between the
Company and DP&L requires the approval of a number of Federal and
state regulatory agencies. In addition to having filed for
approval of the merger with the FERC under the Federal Power Act,
filings for the approval of the Delaware, Virginia, Maryland, New
Jersey and Pennsylvania utility commissions have been made and
are being reviewed by each of the states. As required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
certain information relative to the merger has been submitted to
the Antitrust Division of the Department of Justice and the
Federal Trade Commission. Approval has also been requested in a
filing made with the Nuclear Regulatory Commission (NRC) under
the Atomic Energy Act of 1954. Orders from the respective state
and Federal commissions or agencies are expected to be obtained
by year-end.
Nuclear Generating Station Developments
ACE has been advised that in 1990, General Electric Company
(GE) reported that crack indications were discovered near the
seam welds in the core shroud assembly in a GE boiling water
reactor (BWR) located outside the United States. As a result, GE
issued a letter requesting that the owners of GE BWR plants take
interim corrective actions. Both Peach Bottom Units 2 and 3 and
Hope Creek are affected by this issue and both PECO Energy
Company (PE) and Public Service Electric and Gas Company (PS) are
participating in the GE BWR Owners Group to evaluate this issue
and develop long-term corrective actions. PS advised ACE that
during the spring 1994 refueling outage, PS inspected the shroud
of Hope Creek in accordance with GE's recommendations and found
no cracks. In June 1994, an industry group was formed and
subsequently established generic inspection guidelines which were
approved by the NRC. Hope Creek was initially placed in the
lowest susceptibility category under these guidelines. PS has
advised ACE that due to Hope Creek's operating time, it now falls
into the intermediate susceptibility category. Hope Creek will
perform another shroud inspection during its next refueling
outage in September 1997.
In a separate matter, PS advised that as a result of several
BWRs experiencing clogging in some emergency core cooling system
suction strainers, which supply water from the suppression pool
for emergency cooling of the core and related structures, the NRC
issued a Bulletin in May 1996 to operators of BWRs requesting
that measures be taken to minimize the potential for clogging.
The NRC has proposed three resolution options, with a request
that actions be completed by the end of the unit's first
refueling outage after January 1997. Alternative resolution
options will be subject to NRC approval. ACE has been advised
that PS has responded to the NRC, indicating its intention to
comply with the Bulletin. The Bulletin requires all BWRs to
resolve this issue at their first refueling after January 1,
1997. Therefore, PS will be installing large capacity passive
strainers during Hope Creek's next refueling outage in September
1997. PE has advised that large capacity passive strainers will
also be installed at Peach Bottom Units 2 and 3 during their next
refueling outages in September 1998 and September 1997,
respectively. ACE cannot predict what other actions, if any, the
NRC may take in this matter.
<PAGE>
Salem Nuclear Generating Station
ACE is a 7.41% owner of the Salem Nuclear Generating Station
(Salem) operated by PS. Salem consists of two 1,106 megawatt
(MW) pressurized water nuclear reactors representing 164 MWs of
ACE's total installed capacity of 2,385.7 MWs.
As previously reported, Salem Units 1 and 2 were taken out of
service in the second quarter of 1995. ACE has been advised by
PS that Salem Unit 2 is in the final stage of preparation for
restart and is expected to return to service early in the third
quarter of 1997. In an April 11, 1997 letter to the NRC, PS
stated that Unit 2 restart activities are approaching conclusion,
and requested that the NRC commence its Readiness Team Inspection
(a requirement for unit restart). PS has advised ACE that PS
expects the inspection to commence in early-June 1997. Salem
Unit 1 is expected to return to service in late 1997, following
the installation of new steam generators. Restart of each Salem
unit is subject to NRC approval.
Item 6. Exhibits and Reports on 8-K
Exhibits: See Exhibit Index Attached
Reports on Form 8-K:
Current Reports on Form 8-K were filed dated January 6, 1997,
January 27, 1997 and January 31, 1997 describing the agreement
between ACE and PS, the Draft Phase II of the BPU's Energy Master
Plan and events at the Salem Nuclear Generating Station. A
Current Report on Form 8-K was also filed dated March 24, 1997
which included, as exhibits, certain documents associated with
the registration under the Securities Act of 1933 of $150 million
of the long-term debt of Atlantic City Electric Company.
***************************************************
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Atlantic Energy, Inc.
Atlantic City Electric Company
(Registrant)
Date: May 13, 1997 By: /s/ M. J. Barron
M. J. Barron
Vice President and Chief
Financial Officer of Atlantic
Energy, Inc. and Senior Vice
President and Chief Financial
Officer of Atlantic City
Electric Company
Date: May 13, 1997 By: /s/ L. M. Walters
L. M. Walters
Treasurer of Atlantic Energy,
Inc. and Vice President,
Treasurer and Assistant
Secretary of Atlantic City
Electric Company
<PAGE>
EXHIBIT INDEX
27 Financial Data Schedules for Atlantic Energy, Inc. and
Atlantic City Electric Company for periods ended
March 31, 1997.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000008192
<NAME> ATLANTIC CITY ELECTRIC COMPANY
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,794,791
<OTHER-PROPERTY-AND-INVEST> 83,670
<TOTAL-CURRENT-ASSETS> 303,728
<TOTAL-DEFERRED-CHARGES> 334,027
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,516,216
<COMMON> 54,963
<CAPITAL-SURPLUS-PAID-IN> 489,247
<RETAINED-EARNINGS> 233,695
<TOTAL-COMMON-STOCKHOLDERS-EQ> 777,905
43,950
100,000
<LONG-TERM-DEBT-NET> 817,084
<SHORT-TERM-NOTES> 127,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 175
10,000
<CAPITAL-LEASE-OBLIGATIONS> 37,538
<LEASES-CURRENT> 715
<OTHER-ITEMS-CAPITAL-AND-LIAB> 601,349
<TOT-CAPITALIZATION-AND-LIAB> 2,516,216
<GROSS-OPERATING-REVENUE> 236,126
<INCOME-TAX-EXPENSE> 11,747
<OTHER-OPERATING-EXPENSES> 189,031
<TOTAL-OPERATING-EXPENSES> 200,778
<OPERATING-INCOME-LOSS> 35,348
<OTHER-INCOME-NET> 2,019
<INCOME-BEFORE-INTEREST-EXPEN> 37,367
<TOTAL-INTEREST-EXPENSE> 15,552
<NET-INCOME> 20,371
1,410
<EARNINGS-AVAILABLE-FOR-COMM> 18,961
<COMMON-STOCK-DIVIDENDS> 20,213
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> (33,200)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000806393
<NAME> ATLANTIC ENERGY, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,794,791
<OTHER-PROPERTY-AND-INVEST> 260,000
<TOTAL-CURRENT-ASSETS> 328,310
<TOTAL-DEFERRED-CHARGES> 360,556
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,743,657
<COMMON> 562,656
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 223,248
<TOTAL-COMMON-STOCKHOLDERS-EQ> 785,904
43,950
100,000
<LONG-TERM-DEBT-NET> 844,585
<SHORT-TERM-NOTES> 127,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 112,675
10,000
<CAPITAL-LEASE-OBLIGATIONS> 37,538
<LEASES-CURRENT> 715
<OTHER-ITEMS-CAPITAL-AND-LIAB> 680,790
<TOT-CAPITALIZATION-AND-LIAB> 2,743,657
<GROSS-OPERATING-REVENUE> 235,399
<INCOME-TAX-EXPENSE> 11,747
<OTHER-OPERATING-EXPENSES> 189,069
<TOTAL-OPERATING-EXPENSES> 200,816
<OPERATING-INCOME-LOSS> 34,583
<OTHER-INCOME-NET> 2,454
<INCOME-BEFORE-INTEREST-EXPEN> 37,037
<TOTAL-INTEREST-EXPENSE> 15,552
<NET-INCOME> 18,631
0
<EARNINGS-AVAILABLE-FOR-COMM> 18,631
<COMMON-STOCK-DIVIDENDS> 20,213
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> (41,757)
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
