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 June 30, 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. 52,504,479 shares (as of August 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
June 30, 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 3
Consolidated Balance Sheet 4
Atlantic City Electric Company
Consolidated Statement of Income
and Retained Earnings 6
Consolidated Statement of Cash Flows 8
Consolidated Balance Sheet 9
Notes to Financial Statements
Atlantic Energy, Inc. and
Atlantic City Electric Company 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Atlantic Energy, Inc. and
Atlantic City Electric Company 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 35
Signatures 36
Atlantic Energy, Inc and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars, except per share data)
Quarter Ended June 30,
1997 1996
(unaudited)
Operating Revenues-Electric $225,556 $225,678
Operating Expenses:
Energy 45,756 46,495
Purchased Capacity 49,066 47,903
Operations 32,881 39,455
Maintenance 7,487 11,735
Depreciation and Amortization 20,737 19,973
State Excise Taxes 24,284 24,193
Federal Income Taxes 10,191 5,810
Other Taxes 2,309 2,429
Total Operating Expenses 192,711 197,993
Operating Income 32,845 27,685
Other Income:
Allowance for Equity Funds Used During
Construction 281 272
Other-Net 2,956 1,879
Total Other Income 3,237 2,151
Interest Charges:
Interest on Long Term Debt 14,944 15,041
Other Interest Expense 1,725 1,831
Total Interest Charges 16,669 16,872
Allowance for Borrowed Funds Used
During Construction (286) (295)
Net Interest Charges 16,383 16,577
Less Preferred Securities Dividend
Requirements of Subsidiary 2,854 3,009
Net Income $ 16,845 $ 10,250
Average Number of Shares of Common 52,502 52,702
Stock Outstanding (in thousands)
Per Common Share:
Earnings $ .32 $ .20
Dividends Declared $ .385 $ .385
Dividends Paid $ .385 $ .385
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic Energy, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(Thousands of Dollars, except per share data)
Year-to-Date June 30,
1997 1996
(unaudited)
Operating Revenues-Electric $460,955 $471,003
Operating Expenses:
Energy 102,495 105,278
Purchased Capacity 97,321 97,232
Operations 62,338 75,168
Maintenance 13,881 22,450
Depreciation and Amortization 41,300 40,224
State Excise Taxes 49,025 50,998
Federal Income Taxes 21,938 13,615
Other Taxes 5,228 5,372
Total Operating Expenses 393,526 410,337
Operating Income 67,429 60,666
Other Income:
Allowance for Equity Funds Used During
Construction 544 492
Other-Net 5,146 2,785
Total Other Income 5,690 3,277
Interest Charges:
Interest on Long Term Debt 29,650 30,136
Other Interest Expense 2,833 2,630
Total Interest Charges 32,483 32,766
Allowance for Borrowed Funds Used
During Construction (548) (626)
Net Interest Charges 31,935 32,140
Less Preferred Securities Dividend
Requirements of Subsidiary 5,708 6,019
Net Income 35,476 25,784
Retained Earnings at Beginning of
Period 227,630 249,741
Dividends Declared on Common Stock (40,428) (40,580)
Retained Earnings at End of Period $222,678 $234,945
Average Number of Shares of Common 52,503 52,702
Stock Outstanding (in thousands)
Per Common Share:
Earnings $ .68 $ .49
Dividends Declared $ .77 $ .77
Dividends Paid $ .77 $ .77
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic Energy Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
Year-to-Date
Ended June 30,
1997 1996
Cash Flows Of Operating Activities: (unaudited)
Net Income $ 35,476 $ 25,784
Unrecovered Purchased Power Costs 8,563 8,206
Deferred Energy Costs (1,983) (4,244)
Preferred Securities Dividends of ACE 5,708 6,019
Depreciation and Amortization 41,300 40,224
Deferred Income Taxes-Net (791) (514)
Prepaid State Excise Taxes (46,865) (45,409)
Unrecovered State Excise Taxes 4,780 4,780
Changes - Net Working Capital Components:
Accounts Receivable & Unbilled Revenues (12,500) (7,244)
Accounts Payable (15,154) (7,473)
Inventory 2,133 2,798
Other 14,330 21,565
Other-Net (9,481) (3,665)
Net Cash Provided by Operating Activities 25,516 40,827
Cash Flows Of Investing Activities:
Utility Cash Construction Expenditures (39,265) (40,220)
Nonutility Construction Expenditures (27,101) (3,154)
Partnership Distribution 4,420 10,729
Nuclear Decommissioning Trust Fund
Deposits (3,212) (3,212)
Other-Net (4,795) (4,104)
Net Cash Used in Investing Activities (69,953) (39,961)
Cash Flows Of Financing Activities:
Retirement and Maturity of Long
Term Debt (100) (19,266)
Proceeds from Long Term Debt 55,925 1,000
Proceeds from Short Term Debt 35,950 76,720
Redemption of Preferred Stock - (12,120)
Dividends Declared-ACE Preferred
Securities (5,708) (6,019)
Dividends Declared on Common Stock (40,428) (40,580)
Other-Net 1,086 3,790
Net Cash Provided by Financing Activities 46,725 3,525
Net Increase in Cash and
Temporary Investments 2,288 4,391
Cash and Temporary Investments:
beginning of period 15,278 5,691
end of period $ 17,566 $ 10,082
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Atlantic Energy, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET June 30, December 31,
(Thousands of Dollars) 1997 1996
(unaudited)
Assets
Electric Utility Plant In Service $2,540,498 $2,508,220
Less Accumulated Depreciation 894,176 871,531
Utility Plant in Service-Net 1,646,322 1,636,689
Construction Work in Progress 102,360 117,188
Land Held for Future Use 5,604 5,604
Leased Property-Net 36,795 39,914
Electric Utility Plant-Net 1,791,081 1,799,395
Investments and Nonutility Property:
Investment in Leveraged Leases 80,080 79,687
Nuclear Decommissioning Trust Fund 76,528 71,120
Nonutility Property and Equipment-Net 73,252 46,147
Other Investments and Funds 53,276 53,550
Total Investments and Nonutility Property 283,136 250,504
Current Assets:
Cash and Temporary Investments 17,566 15,278
Accounts Receivable:
Utility Service 63,334 64,432
Miscellaneous 38,171 32,547
Allowance for Doubtful Accounts (3,500) (3,500)
Unbilled Revenues 41,289 33,315
Fuel (at average cost) 27,887 29,682
Materials and Supplies (at average cost) 23,477 23,815
Working Funds 15,071 15,517
Deferred Energy Costs 35,512 33,529
Prepaid Excise Tax 53,990 7,125
Other 14,545 11,354
Total Current Assets 327,342 263,094
Deferred Debits:
Unrecovered Purchased Power Costs 74,837 83,400
Recoverable Future Federal Income Taxes 85,858 85,858
Unrecovered State Excise Taxes 49,934 54,714
Unamortized Debt Costs 43,482 44,423
Other Regulatory Assets 61,386 59,575
License Fees 26,761 17,733
Other 14,464 12,066
Total Deferred Debits 356,722 357,769
Total Assets $2,758,281 $2,670,762
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic Energy, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
June 30, December 31,
1997 1996
(unaudited)
Liabilities and Capitalization
Capitalization:
Common Shareholders' Equity:
Common Stock $ 562,686 $ 562,746
Retained Earnings 222,678 227,630
Unearned Compensation (2,676) (2,982)
Total Common Shareholders' Equity 782,688 787,394
Preferred Securities of Atlantic Electric:
Preferred Stock:
Not Subject to Mandatory Redemption 30,000 30,000
Subject to Mandatory Redemption 43,950 43,950
Company-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the
Company 70,000 70,000
Long Term Debt 786,187 829,745
Total Capitalization (excluding current
portion) 1,712,825 1,761,089
Current Liabilities:
Preferred Stock Redemption Requirement 10,000 10,000
Capital Lease Obligation-Current Portion 729 702
Long Term Debt-Current Portion 197,675 98,250
Short Term Debt 100,900 64,950
Accounts Payable 51,354 66,508
Taxes Accrued 30,593 7,504
Interest Accrued 21,133 20,241
Dividends Declared 21,624 21,701
Deferred Income Taxes 3,013 3,190
Provision for Rate Refunds - 13,000
Other 30,791 24,696
Total Current Liabilities 467,812 330,742
Deferred Credits and Other Liabilities:
Deferred Income Taxes 433,494 434,108
Deferred Investment Tax Credits 45,310 46,577
Capital Lease Obligations 36,066 39,212
Other Post-Retirement Benefits 35,608 32,608
Other 27,166 26,426
Total Deferred Credits and Other Liabilities 577,644 578,931
Total Liabilities and Capitalization $2,758,281 $2,670,762
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic City Electric Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)
Quarter Ended June 30,
1997 1996
(unaudited)
Operating Revenues-Electric $227,237 $226,035
Operating Expenses:
Energy 45,756 46,495
Purchased Capacity 49,066 47,903
Operations 32,886 39,479
Maintenance 7,491 11,746
Depreciation and Amortization 20,737 19,973
State Excise Taxes 24,284 24,193
Federal Income Taxes 10,191 5,810
Other Taxes 2,309 2,429
Total Operating Expenses 192,720 198,028
Operating Income 34,517 28,007
Other Income:
Allowance for Equity Funds Used During
Construction 281 272
Miscellaneous Income-Net 1,705 1,762
Total Other Income 1,986 2,034
Interest Charges:
Interest on Long Term Debt 14,944 15,041
Other Interest Expense 1,725 1,831
Total Interest Charges 16,669 16,872
Allowance for Borrowed Funds Used
During Construction (286) (295)
Net Interest Charges 16,383 16,577
Less Company-Obligated Mandatorily
Redeemable Preferred Securities
Dividends of Subsidiary Trust Holding
Solely Junior Subordinated Debentures
of the Company 1,444 -
Net Income 18,676 13,464
Less Preferred Dividend Requirements 1,410 3,009
Balance Available for Common Shareholder $ 17,266 $ 10,455
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic City Electric Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(Thousands of Dollars) Year-to-Date June 30,
1997 1996
(unaudited)
Operating Revenues-Electric $463,363 $471,507
Operating Expenses:
Energy 102,495 105,278
Purchased Capacity 97,321 97,232
Operations 62,303 75,239
Maintenance 13,887 22,466
Depreciation and Amortization 41,300 40,224
State Excise Taxes 49,025 50,998
Federal Income Taxes 21,938 13,615
Other Taxes 5,228 5,372
Total Operating Expenses 393,497 410,424
Operating Income 69,866 61,083
Other Income:
Allowance for Equity Funds Used During
Construction 544 492
Miscellaneous Income-Net 3,460 3,345
Total Other Income 4,004 3,837
Interest Charges:
Interest on Long Term Debt 29,650 30,136
Other Interest Expense 2,833 2,630
Total Interest Charges 32,483 32,766
Allowance for Borrowed Funds Used
During Construction (548) (626)
Net Interest Charges 31,935 32,140
Less Company-Obligated Mandatorily
Redeemable Preferred Securities
Dividends of Subsidiary Trust Holding
Solely Junior Subordinated Debentures
of the Company 2,888 -
Net Income 39,047 32,780
Retained Earnings at Beginning of Period 234,948 252,484
273,995 285,264
Dividends Declared:
Cumulative Preferred Stock (2,820) (6,019)
Common Stock (40,428) (40,580)
Total Dividends Declared (43,248) (46,599)
Capital Stock Expense and Other - (83)
Retained Earnings at End of Period $230,747 $238,582
Earnings for Common Stock:
Net Income $ 39,047 $ 32,780
Less Preferred Dividend Requirements 2,820 6,019
Balance Available for Common Shareholder $ 36,227 $ 26,761
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic City Electric Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars) Year-to-Date
Ended June 30,
1997 1996
Cash Flows Of Operating Activities: (unaudited)
Net Income $ 39,047 $ 32,780
Unrecovered Purchased Power Costs 8,563 8,206
Deferred Energy Costs (1,983) (4,244)
Company-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust
Holding Solely Junior Subordinated
Debentures of the Company 2,888 -
Depreciation and Amortization 41,300 40,224
Deferred Federal Income Taxes-Net (752) (1,121)
Prepaid State Excise Taxes (46,865) (45,409)
Unrecovered State Excise Taxes 4,780 4,780
Changes - Net Working Capital Components:
Accounts Receivable & Unbilled Revenues (8,888) (5,214)
Accounts Payable (12,290) (7,446)
Inventory 2,144 2,810
Other 9,890 10,774
Other-Net 4,503 (1,362)
Net Cash Provided by Operating Activities 42,337 34,778
Cash Flows Of Investing Activities:
Cash Construction Expenditures (39,265) (40,220)
Leased Property (1,499) (1,832)
Nuclear Decommissioning Trust Fund
Deposits (3,212) (3,212)
Other-Net (978) 864
Net Cash Used in Investing Activities (44,954) (44,400)
Cash Flows Of Financing Activities:
Proceeds from Long Term Debt 15,000 -
Retirement and Maturity of Long Term Debt (100) (12,266)
Proceeds from Short Term Debt 35,950 76,720
Redemption of Preferred Stock - (12,120)
Dividends Declared on Preferred Stock (2,820) (6,019)
Dividends on Company-Obligated Mandatory
Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the Company (2,888) -
Dividends Declared on Common Stock (40,428) (40,580)
Other-Net (1,535) 3,738
Net Cash Provided by Financing Activities 3,179 9,473
Net Increase (Decrease) in Cash and
Temporary Investments 562 (149)
Cash and Temporary Investments:
beginning of period 7,927 3,987
end of period $ 8,489 $ 3,838
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic City Electric Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
June 30, December 31,
1997 1996
(unaudited)
Assets
Electric Utility Plant
In Service $2,540,498 $2,508,220
Less Accumulated Depreciation 894,176 871,531
Utility Plant in Service-Net 1,646,322 1,636,689
Construction Work in Progress 102,360 117,188
Land Held for Future Use 5,604 5,604
Leased Property-Net 36,795 39,914
Electric Utility Plant-Net 1,791,081 1,799,395
Investments and Nonutility Property:
Nuclear Decommissioning Trust Fund 76,528 71,120
Other 9,724 9,750
Total Investments and Nonutility
Property 86,252 80,870
Current Assets:
Cash and Temporary Investments 8,489 7,927
Accounts Receivable:
Utility Service 63,334 64,432
Miscellaneous 23,662 21,650
Allowance for Doubtful Accounts (3,500) (3,500)
Unbilled Revenues 41,289 33,315
Fuel (at average cost) 27,797 29,603
Materials and Supplies (at average cost) 23,477 23,815
Working Funds 15,071 15,517
Deferred Energy Costs 35,512 33,529
Prepaid Excise Tax 53,990 7,125
Other Prepayments 10,605 10,089
Total Current Assets 299,726 243,502
Deferred Debits:
Unrecovered Purchased Power Costs 74,837 83,400
Recoverable Future Federal Income Taxes 85,858 85,858
Unrecovered State Excise Taxes 49,934 54,714
Unamortized Debt Costs 42,400 43,579
Other Regulatory Assets 61,386 59,575
Other 12,463 9,848
Total Deferred Debits 326,878 336,974
Total Assets $2,503,937 $2,460,741
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Atlantic City Electric Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
June 30, 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 259,960 259,078
Capital Stock Expense (1,645) (1,645)
Retained Earnings 230,747 234,948
Total Common Shareholder's Equity 775,106 778,425
Preferred Securities:
Preferred Stock:
Not Subject to Mandatory Redemption 30,000 30,000
Subject to Mandatory Redemption 43,950 43,950
Company-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the
Company 70,000 70,000
Long Term Debt 758,687 802,245
Total Capitalization (excluding
current portion) 1,677,743 1,724,620
Current Liabilities:
Preferred Stock Redemption Requirement 10,000 10,000
Capital Lease Obligations-Current 729 702
Long Term Debt-Current 58,675 175
Short Term Debt 100,900 64,950
Accounts Payable 51,354 63,644
Federal Income Taxes Payable-Affiliate 24,393 7,398
Other Taxes Accrued 6,668 7,494
Interest Accrued 20,383 19,619
Dividends Declared 21,624 21,701
Deferred Income Taxes 3,013 3,190
Provision for Rate Refunds - 13,000
Other 28,415 22,980
Total Current Liabilities 326,154 234,853
Deferred Credits and Other Liabilities:
Deferred Income Taxes 357,006 357,580
Deferred Investment Tax Credits 45,310 46,577
Capital Lease Obligations 36,066 39,212
Other Post-Retirement Benefits 35,608 32,608
Other 26,050 25,291
Total Deferred Credits and Other
Liabilities 500,040 501,268
Total Liabilities and Capitalization $2,503,937 $2,460,741
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 provided utility consulting services and equipment
sales to international markets and is in the process of winding
down its business. On January 7, 1997 ATS formed Atlantic Paxton
Cogeneration, Inc. (APC) and ATS-EPC, L.P. APC incorporated in
the State of Delaware, is the general partner for the acquisition
of Paxton Creek Cogeneration Associates, Inc. ATS-EPC, L.P. is
the limited partnership that will own and operate the Paxton
Creek Cogeneration facility located in Harrisburg, Pa. 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. The Maryland Public Service
Commission gave its approval on the merger on July 16, 1997, the
Federal Energy Regulatory Commission approved the merger on July
30, 1997, and the Virginia State Corporation Commission approved
the merger on August 7, 1997. In order for the merger to become
effective, approval is still required from several other Federal
and state regulatory agencies. The Company expects the
regulatory approval process to be completed in late 1997 or early
1998.
New Accounting Standards - The Financial Accounting Standards
Board (FASB) issued two new Statements 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", which are effective for
financial statements presented for periods ending after December
15, 1997. 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 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.
In June 1997, the FASB issued Statement No. 130 "Reporting
Comprehensive Income" and Statement No. 131 "Disclosure About
Segment of an Enterprise and related Information". These
statements are effective for fiscal years beginning after
December 15, 1997. Since these statements are primarily
disclosure related, the Company currently believes that they will
not have a significant effect on the Financial Statements.
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 among ACE, New Jersey
Division of the Ratepayer Advocate and the Staff of the BPU 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 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 (See Note 5).
On April 23, 1997, the Administrative Law Judge (ALJ) submitted
his decision on the recovery of the $1.7 million in emission fees
and found that the emission fees are fuel related and should be
recovered through ACE's LEC. On July 30, 1997, the BPU rejected
the ALJ's recommendation that emission fees be included in the
current LEC and ordered that the present LEC rate be continued
without recovery of the emission fees.
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. Public hearings have been
scheduled for mid-September, 1997. ACE cannot predict the
outcome of this matter.
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 the
stipulation, on August 1, 1997, ACE filed its request for
ratemaking treatment of OPEB expenses including an amortized
recovery of the regulatory assets. In its filing, ACE requested
a $6.8 million increase in annual base rate revenues for the
recovery of OPEB expenses.
On July 15, 1997 ACE filed its electric industry restructuring
plan with the BPU as required by Energy Master Plan proposing how
ACE plans to move to retail access and the possible effect on
rates. (See Note 5)
NOTE 3. DEBT AND PREFERRED SECURITIES
AEI
At June 30, 1997 and December 31, 1996, AEI had $51.5 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 June 30, 1997 and
December 31, 1996 are approximately $978.4 million and $975.2
million, respectively. With regard to short term debt, ACE had
outstanding $100.9 million at June 30, 1997 and $65.0 million at
December 31, 1996.
On May 1, 1997 ACE satisfied the sinking fund requirements of
$0.1 million for its 7 1/4% Debentures.
On July 30, 1997, ACE issued $22.6 million aggregate amount of
variable rate, tax-exempt pollution control notes. The principal
amount of $22.6 million represents two separate series of notes:
$18.2 million Pollution Control Revenue Refunding Bonds, 1997
Series A due April 15, 2014 (Series A) and $4.4 million Pollution
Control Revenue Refunding Bonds, 1997 Series B due July 15, 2017
(Series B). The Series A and the Series B notes initially will
bear interest at a weekly rate of 3.4% and 3.5%, respectively.
Each subsequent rate will be determined by a remarketing agent.
The rates of interest of each series may be changed from time to
time to a daily mode, a flexible mode for periods of any duration
up to 270 days or a multi-annual mode for periods of not less
than 365 days. The proceeds from the sale of the Series A and
Series B notes will be applied to the redemption of $18.2 million
aggregated principal amount of Pollution Control Revenue Bonds of
1984, Series A and $4.4 million aggregate principal amount of
Pollution Control Revenue Bonds of 1987, Series B.
On August 1, 1997 ACE redeemed 200,000 shares of its $8.20 Series
No Par Preferred Stock, 100,000 shares were required to be
redeemed under a mandatory sinking fund requirement and ACE
elected to redeem an optional 100,000 additional shares, both at
$100 per share, for a total of $20.0 million.
AEE
At June 30, 1997 and December 31, 1996, ATE had outstanding $9.5
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
June 30, 1997 and December 31, 1996 was approximately $15.4
million and $15.5 million, respectively.
In June, 1997, ATS's revolving credit and term loan facility was
amended and increased to $175.0 million from $100.0 million.
Under the restated agreement $40.0 million can be used to
establish letters of credit. At June 30, 1997 and December 31,
1996, ATS had outstanding $78.0 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 has been used for funding the construction of the
Midtown Energy Center in Atlantic City, New Jersey which began in
November, 1996 and is expected to be completed in September,
1997. This facility has also been used to satisfy certain
associated company payables and for other general corporate
purposes.
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 five 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 fourth quarter of 1997.
NOTE 4. COMMON STOCK OF AEI
As of June 30, 1997, and December 31, 1996, 52,504,479 and
52,502,479 shares of common stock were outstanding, respectively.
NOTE 5. CONTINGENCIES
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 recommendation for the implementation of a phase-in plan for
retail competition would span a twenty-one month period providing
choice to 10% of all customers beginning October 1, 1998 and to
100% by July 1, 2000. The plan required each electric utility in
the state to file complete restructuring plans, stranded cost
filings and unbundled rate filings by July 15, 1997. The plan
would allow utilities the opportunity to recover stranded costs
on a case-by-case basis, with no guarantee of 100 percent
recovery of eligible stranded costs.
ACE filed its response to the BPU on July 15, 1997. ACE's
restructuring filing met the BPU's recommendations for phase-in
of retail electric access based on a first-come, first-served
basis, proposing choice to 10% of all customers beginning October
1, 1998 and to 100% by July 1, 2000. Customers remaining with
ACE will be charged the market-based electricity price beginning
October 1, 1998. The restructuring filing included a two-phased
approach to future rate reductions of approximately five percent.
The first phase is a projected rate reduction of approximately
one percent upon consummation of the merger of AEI and DP&L into
Conectiv, Inc. (see Note 1). The second phase projects an
additional rate reduction of approximately four percent beginning
in 2001.
Under the restructuring filing ACE specified its total stranded
cost estimated to be approximately $1.3 billion, of which $965
million is attributable to above-market Non-Utility Generation
(NUG) Contracts. The remaining amount, approximately $340
million, is related to wholly and jointly-owned generation
investments. The restructuring filing supports full recovery of
stranded costs, which ACE believes are necessary to move to a
competitive environment.
On June 26, 1997, the Company and DP&L jointly announced an
enhanced retirement offer (ERO) and separation programs that will
be utilized to achieve workforce reductions as a result of the
merger. (Refer to Note 1 for merger discussion.) The total cost
to the Company for these programs, as well as, the cost of
executive severance, employee relocation and facilities
integration is estimated to range from $38 million to $48
million. These costs are contingent upon the consummation of the
merger. ACE will be required to recognize these costs through
expense in accordance with the generally accepted accounting
principles (GAAP). The actual cost to the Company and ACE will
depend on the number of factors related to the employee mix as
well as the actual number of employees who will be separated.
ACE currently accounts for the economic effects of regulation as
specified by SFAS 71 which provides guidance on circumstances
when the economic effect of a regulator's decision warrants
different application of GAAP as a result of the ratemaking
process. At this time, ACE continues to meet the criteria set
forth in SFAS 71 and has presented these financial statements in
accordance therewith.
FASB, through the Emerging Issue Task Force (EITF), has recently
set forth guidance necessary for clarifying the accounting
treatment of specific issues associated with the restructuring of
the electric utility industry through EITF Issue No. 97-4,
"Deregulation of the Pricing of Electricity-Issues Related to the
Application of FASB Statements No. 71, Accounting for the Effects
of Certain Types of Regulation, and No. 101, Regulated
Enterprises-Accounting for the Discontinuation of application of
FASB Statement No. 71." At the July 24, 1997 EITF meeting a
consensus was reached that as to SFAS 71 "when deregulatory
legislation or a rate order (whichever is necessary to effect
change in the jurisdiction) that contains sufficient detail for
the enterprise to reasonably determine how the transition plan
will effect the separable portion of its business" (e.g.
generation) "whose pricing is being deregulated is issued, the
enterprise should stop applying Statement 71 to that separable
portion of its business." As to SFAS 101, consensus were also
reached "that the regulatory assets and regulatory liabilities
that originated in the separable portion of an enterprise to
which Statement 101 is being applied should be evaluated on the
basis of where (that is, the portion of the business in which)
the regulated cash flows to realize and settle them,
respectively, will be derived", and that the "source of the cash
flow approach adopted in the consensus should be used for
recoveries of all costs and settlements of all obligations (not
just for regulatory assets and regulatory liabilities that are
recorded at the date Statement 101 is applied) for which
regulated cash flows are specifically provided in the
deregulatory legislation or rate order".
At this time ACE cannot predict with certainty when it will stop
applying SFAS 71 for its generation business. ACE also cannot
predict the impacts on its financial condition as a result of
applying SFAS 101. The outcome will be dependent upon when a
plan is approved and the level of recovery of stranded costs
allowed by the BPU. If assets require a write-down as a result
of the application of SFAS 101, ACE may need to record an
extraordinary noncash charge to operations that could have a
material impact on the financial position and results of
operations of ACE.
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. After
extensive discussions, the seven supporting companies of PJM
submitted a package of proposals that would advance the current
market design, allow for market based rates for generation, move
to a traditional pricing model for handling transmission
congestion and would position the PJM pool operator as an ISO.
Other market participants have subsequently filed separate
proposals. The timing of a decision from FERC is not known.
The BPU's Energy Master Plan has suggested that the establishment
of an ISO, or its functional equivalent, is critical to the
functioning of a fully competitive, retail power market that
retains the current high degree of system reliability. In the
BPU's judgment there should be a reasonable transition period for
the ISO to fully implement its open access responsibilities at
the wholesale level before adding the additional complexities
associated with competitive retail transactions.
On July 14, 1997 the Governor signed a bill into law eliminating
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. In addition, 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. The law will take effect January 1, 1998 and on January
1 of each of the years thereafter, the TEFA will be reduced by
20%. By the year 2003, the TEFA will be fully phased-out and the
savings will be passed through to ACE's customers.
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.
PS has advised ACE that the Salem restart plan, which encompassed
a comprehensive review and improvement of personnel, process and
equipment issues has been completed for Salem Unit 2. On August
6, 1997, the NRC authorized the restart of Salem 2 and stated
that it would continue to closely monitor activities at Salem.
Three planned hold points were established and the NRC plans to
perform a final assessment after approximately two months of full
power operations. The NRC's June 9, 1995 Confirmatory Action
letter was amended to include the planned hold points of the
final assessment. The restart process is underway.
PS has advised ACE that the installation of Salem Unit 1 steam
generators has been completed and the unit is expected to return
to service around the end of the year. Restart of Salem Unit 1
is also subject to NRC approval.
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 an 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 charge 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. Contingent upon the return of Salem 2 to full power in
September 1997, total O&M expenses related to the Salem Units are
expected to be $12.8 million for 1997.
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 impact, if any, upon amounts to be recognized and
recovered in rates as a result of these updated studies.
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Information pertaining specifically to ACE and its subsidiaries
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 June 30, 1997 and December 31, 1996, AEI had $51.5 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
At June 30, 1997 ACE had $100.9 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 in the amount of $91.1
million.
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 June 30, 1997 and
December 31, 1996 are approximately $978.4 million and $975.2
million, respectively. With regard to short term debt, ACE had
outstanding $100.9 million at June 30, 1997 and $65.0 million at
December 31, 1996.
On May 1, 1997 ACE satisfied the sinking fund requirements of
$0.1 million for its 7 1/4% Debentures.
On July 30, 1997, ACE issued $22.6 million aggregate amount of
variable rate, tax-exempt pollution control notes. The principal
amount of $22.6 million represents two separate series of notes:
$18.2 million Pollution Control Revenue Refunding Bonds, 1997
Series A due April 15, 2014 (Series A) and $4.4 million Pollution
Control Revenue Refunding Bonds, 1997 Series B due July 15, 2017
(Series B). The Series A and the Series B notes initially will
bear interest at a weekly rate of 3.4% and 3.5%, respectively.
Each subsequent rate will be determined by a remarketing agent.
The rates of interest of each series may be changed from time to
time to a daily mode, a flexible mode for periods of any duration
up to 270 days or a multi-annual mode for periods of not less
than 365 days. The proceeds from the sale of the Series A and
Series B notes will be applied to the redemption of $18.2 million
aggregated principal amount of Pollution Control Revenue Bonds of
1984, Series A and $4.4 million aggregate principal amount of
Pollution Control Revenue Bonds of 1987, Series B.
On August 1, 1997 ACE redeemed 200,000 shares of its $8.20 Series
No Par Preferred Stock, 100,000 shares were required to be
redeemed under a mandatory sinking fund requirement and ACE
elected to redeem an optional 100,000 additional shares, both at
$100 per share, for a total of $20.0 million.
Atlantic Energy Enterprises, Inc. (AEE)
At June 30, 1997 and December 31, 1996, ATE Investment, Inc.
(ATE) had outstanding $9.5 million and $18.5 million,
respectively, under its revolving credit and term loan facility.
In June, 1997, the Atlantic Thermal Systems, Inc. (ATS) revolving
credit and term loan facility was amended and increased to $175.0
million from $100.0 million. At June 30, 1997 and December 31,
1996, ATS had outstanding $78.0 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 has been used for funding the construction of the
Midtown Energy Center in Atlantic City, New Jersey which began in
November 1996 and is expected to be completed by September 1997.
ATS's capital expenditures have been approximately $54.0 million
for this project to date. This facility has also been used to
satisfy certain associated company payables and for other general
corporate purposes. The increase in Nonutility Property and
Equipment-Net on the Consolidated Balance Sheet is mainly due to
the construction of the Midtown Energy Center.
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 five 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 fourth quarter of 1997.
RESULTS OF OPERATIONS
Changes in net income and earnings per share for the periods
ended June 30, 1997 versus the corresponding periods of the
previous year are as follows:
Periods Ended June 30, 1997
Quarter Year-to-Date
Net Income 64.3% 37.6%
Earnings Per Share 60.0% 38.8%
The change in net income and earnings per share primarily reflect
decreased operations and maintenance expenses, related to Salem
and increased nonutility income, primarily ATS, for the periods.
Utility Revenues of ACE
Changes in Operating Revenues-Electric, exclusive of inter-
company sales, are disclosed in the following table:
Periods Ended June 30, 1997
Quarter Year-to-Date
(Thousands of Dollars)
Base Revenues $(3,054) $ (3,432)
Levelized Energy Clause 6,159 12,936
Kilowatt-hour Sales (5,268) (22,849)
Unbilled Revenues 7,766 11,330
Sales for Resale (4,778) (6,123)
Other Revenues 377 (6)
Total $ 1,202 $ (8,144)
The decrease in Base Revenues reflects ACE's BPU approved Off-
Tariff Rate Agreements (OTRAs). OTRAs are special reduced rates
that are being offered, for periods ranging from 5 to 7 years, by
ACE to at-risk customers which reduced Base Revenues $2.6
million, or $1.7 million, net of tax, for the current quarter and
$4.4 million, or $2.9 million, net of tax for the year-to-date.
LEC revenues for the periods 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.
Periods Ended June 30, 1997
Quarter Year-To-Date
Average Average
Customer Class Sales Use Cust Sales Use Cust
Residential (7.4%) (8.3%) 1.0% (9.7%) (10.5%) 0.9%
Commercial (0.7) (2.4) 1.8 (2.1) (3.5) 1.6
Industrial 5.4 4.3 1.1 0.9 0.1 0.8
Total (2.4) (3.5) 1.1 (5.0) (6.0) 1.0
The decreases in the current periods sales were due primarily to
reduced electric heating usage, as a result of milder weather in
1997 compared to 1996.
Operating Expenses
Total Operating Expenses decreased by 2.7% for the current
quarter and 4.1% for the year-to-date when compared to the same
periods of the prior year. Excluding depreciation and taxes,
Total Operating Expenses decreased by 7.1% for the current
quarter and 8.0% for the year-to-date, when compared to the same
periods of the prior year, 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. 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 $35.5
million at June 30, 1997 and by $33.5 million at December 31,
1996.
Energy expense decreased by 1.6% for the current quarter, when
compared to the same period of the prior year. Excluding
deferred energy costs, Energy expense increased by 1.1%, for the
current quarter, when compared to the same period of the prior
year.
Sources of ACE's energy for the current period are as follows:
Periods Ended June 30, 1997
Quarter Year-to-Date
Coal 26% 26%
Nuclear 20 18
Interchanged and Purchased 26 32
Nonutility Purchased 25 22
Oil and Natural Gas 3 2
Total 100% 100%
Operations expense decreased by 16.7% for the quarter ended and
17.1% for the year-to-date, when compared to the same periods of
the previous year, which was the result of reduced expenses
resulting from the operations and maintenance agreement with PS
regarding the Salem Units, as discussed in Note 5, and other cost
saving measures instituted by ACE.
Maintenance expense decreased by 36.2% for the quarter ended and
38.2% for the year-to-date, when compared to the same periods of
the previous year, as a result of reduced expenses associated
with the Salem Station stipulation.
Federal Income Tax expense increased by 75.4% for the current
quarter and 61.1% for the year-to-date, when compared to the same
periods of the previous year, and Taxes Accrued on the
Consolidated Balance Sheet increased significantly due to the
decrease in operations and maintenance expense, which resulted in
an increase of taxable income for the year-to-date period.
Other Income
Other Income increased by 50.5% for the current quarter and 73.6%
for the year-to-date, when compared to the same periods of the
previous year, due primarily to an increase in nonutility
earnings.
Other Matters
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 recommendation for the implementation of a phase-in plan for
retail competition would span a twenty-one month period providing
choice to 10% of all customers beginning October 1, 1998 and to
100% by July 1, 2000. The plan required each electric utility in
the state to file complete restructuring plans, stranded cost
filings and unbundled rate filings by July 15, 1997. The plan
would allow utilities the opportunity to recover stranded costs
on a case-by-case basis, with no guarantee of 100 percent
recovery of eligible stranded costs.
ACE filed its response to the BPU on July 15, 1997. ACE's
restructuring filing met the BPU's recommendations for phase-in
of retail electric access based on a first-come, first-served
basis, proposing choice to 10% of all customers beginning October
1, 1998 and to 100% by July 1, 2000. Customers remaining with
ACE will be charged the market-based electricity price beginning
October 1, 1998. The restructuring filing included a two-phased
approach to future rate reductions of approximately five percent.
The first phase is a projected rate reduction of approximately
one percent upon consummation of the merger of AEI and DP&L into
Conectiv, Inc. (see Note 1). The second phase projects an
additional rate reduction of approximately four percent beginning
in 2001.
Under the restructuring filing ACE specified its total stranded
cost estimated to be approximately $1.3 billion, of which $965
million is attributable to above-market Non-Utility Generation
(NUG) Contracts. The remaining amount, approximately $340
million, is related to wholly and jointly-owned generation
investments. The restructuring filing supports full recovery of
stranded costs, which ACE believes are necessary to move to a
competitive environment.
On June 26, 1997, the Company and DP&L jointly announced an
enhanced retirement offer (ERO) and separation programs that will
be utilized to achieve workforce reductions as a result of the
merger. (Refer to Note 1 for merger discussion.) The total cost
to the Company for these programs, as well as, the cost of
executive severance, employee relocation and facilities
integration is estimated to range from $38 million to $48
million. These costs are contingent upon the consummation of the
merger. ACE will be required to recognize these costs through
expense in accordance with the generally accepted accounting
principles (GAAP). The actual cost to the Company and ACE will
depend on the number of factors related to the employee mix as
well as the actual number of employees who will be separated.
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. After
extensive discussions, the seven supporting companies of PJM
submitted a package of proposals that would advance the current
market design, allow for market based rates for generation, move
to a traditional pricing model for handling transmission
congestion and would position the PJM pool operator as an ISO.
Other market participants have subsequently filed separate
proposals. The timing of a decision from FERC is not known.
The BPU's Energy Master Plan has suggested that the establishment
of an ISO, or its functional equivalent, is critical to the
functioning of a fully competitive, retail power market that
retains the current high degree of system reliability. In the
BPU's judgment there should be a reasonable transition period for
the ISO to fully implement its open access responsibilities at
the wholesale level before adding the additional complexities
associated with competitive retail transactions.
On July 14, 1997 the Governor signed a bill into law eliminating
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. In addition, 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. The law will take effect January 1, 1998 and on January
1 of each of the years thereafter, the TEFA will be reduced by
20%. By the year 2003, the TEFA will be fully phased-out and the
savings will be passed through to ACE's customers.
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.
PS has advised ACE that the Salem restart plan, which encompassed
a comprehensive review and improvement of personnel, process and
equipment issues has been completed for Salem Unit 2. On August
6, 1997, the NRC authorized the restart of Salem 2 and stated
that it would continue to closely monitor activities at Salem.
Three planned hold points were established and the NRC plans to
perform a final assessment after approximately two months of full
power operations. The NRC's June 9, 1995 Confirmatory Action
letter was amended to include the planned hold points of the
final assessment. The restart process is underway.
PS has advised ACE that the installation of Salem Unit 1 steam
generators has been completed and the unit is expected to return
to service around the end of the year. Restart of Salem Unit 1
is also subject to NRC approval.
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 an 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 charge 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. Contingent upon the return of Salem 2 to full power in
September 1997, total O&M expenses related to the Salem Units are
expected to be $12.8 million for 1997.
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 impact, if any, upon amounts to be recognized and
recovered in rates as a result of these updated studies.
Nonutility Activities-AEI, AEII and AEE
Nonutility operations, which include AEI parent and AEII,
resulted in net losses of $0.8 million for the year-to-date
compared to losses of $1.0 million for the same period of the
prior year. Of these amounts, operations of AEE and subsidiaries
resulted in net income of $0.9 million for the year-to-date
compared to net income of $0.3 million for the same period of the
prior year. The current net income is primarily due to ATS's
casino heating and cooling service contracts. In March and April
of 1997, ATS 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 six. As part
of these new agreements, ATS has paid $9.5 million in license
fees for the right to operate and service these systems for a
period of 20 years. 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
nonutility income was a reduction of ATE's interest expenses.
AEI parent only resulted in net losses of $1.3 million for the
year-to-date of both the current year and 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 Matter of ACE.
<PAGE>
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (Litigation
Reform Act) provides a "safe harbor" for forward-looking
statements to encourage such disclosures without the threat of
litigation, provided those statements are identified as forward-
looking and are accompanied by meaningful, cautionary statements
identifying important factors that could cause the actual results
to differ materially from those projected in the statement.
Forward-looking statements have been made in this report. Such
statements are based on management's beliefs as well as
assumptions made by and information currently available to
management. When used herein, the words "will", "anticipate,"
"estimate," "expect", "objective", and similar expressions are
intended to identify forward-looking statements. In addition to
any assumptions and other factors referred to specifically in
connection with such forward-looking statements, factors that
could cause actual results to differ materially from those
contemplated in any forward-looking statements include, among
others, the following: deregulation and the unbundling of energy
supplies and services; and increasingly competitive energy
marketplace; sales retention and growth; federal and state
regulatory actions; costs of construction; operating
restrictions; increased costs and construction delays
attributable to environmental regulations; nuclear
decommissioning and the availability of reprocessing and storage
facilities for spent nuclear fuel; and credit market concerns.
The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise. The foregoing review of
factors pursuant to the Litigation Reform Act should not be
construed as exhaustive or as any admission regarding the
adequacy of disclosures made by the Company prior to the
effective date of the Litigation Reform Act.<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 and Part II, Item 1-Legal Proceedings and Item
5-Other Information on Form 10-Q for the quarter ended March 31,
1997 for Atlantic Energy, Inc. and Atlantic City Electric Company
(ACE). In addition, certain new information is contained herein.
Rate Matters
As previously reported, the Rate Intervention Steering
Committee (RISC) submitted a brief of its appeal with the
Superior Court of New Jersey on April 11, 1997, 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 FERC or the Public Utility Regulatory
Act in its approval of non utility 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. On July 14, 1997 ACE submitted
its response to the Appellate Court on the RISC appeal. RISC
will have a chance to rebut the Company's response before the
matter is determined by the Court. ACE is unable to predict the
outcome of this appeal.
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 electric restructuring, 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. On July
30, 1997 the BPU held a hearing in which they deferred a decision
on this matter. ACE is unable to predict the outcome of this
matter.
NONUTILITY SUBSIDIARIES
As previously reported in the 1996 Form 10-K, in April 1995,
ATS filed a petition with the BPU for an Order declaring that ATS
is not a public utility subject to the BPU's jurisdiction by
reason of its business activities in Atlantic City. It is ATS'
position that its service to a limited number of large use energy
consumers does not invoke the requisite public interest that is a
prerequisite to public utility classification. Proceedings on
the petition are currently pending before an Administrative Law
Judge. ATS is working to resolve relevant issues with the Staff
of the BPU and other parties thereto.
Item 5. Other Information
Environmental Matters
As previously reported in the 1996 Form 10-K, on January 23,
1997, the EPA issued Compliance Order 113-97-001 (Order) for
failure to comply with emission monitoring requirements on a
combustion turbine unit at the Sherman Avenue Generating Station.
The Order carries a potential penalty of $25,000 a day,
retroactive to May 30, 1991. On June 19, 1997 ACE completed all
actions specified in the Order within the time limits set forth
in the Order and believes it is in full compliance with all
applicable requirements. ACE is awaiting a response from the
EPA and cannot predict the outcome of this matter.
On August 1, 1997, the New Jersey Department of Environmental
Protection (NJDEP) announced that it intends to introduce rules
to reduce nitrogen oxide (NOx) emissions by 90% from the 1990
levels by the year 2003. These rules have not yet been
promulgated. New Jersey is a member of the Ozone Transport
Commission, a coalition of twelve northeastern states, that
agreed to achieve a 75% reduction in NOx by that time. Both
Atlantic Electric's B.L. England and Deepwater generating
stations will be affected by the NJDEP's proposed NOx standards.
ACE has taken reasonable steps to significantly reduce its NOx
levels and has engaged in an aggressive program of NOx reduction.
ACE will undertake to represent its interests in pursuing
remedies in the event such proposal is ultimately promulgated
into law. ACE cannot predict the impact upon its facilities or
predict its ability to comply with the regulations until such
time as ACE has had an opportunity to evaluate the, yet to be
promulated, NOx regulations.
<PAGE>
Pending Merger
As previously reported, the proposed merger between AEI and
DP&L, is conditioned upon, the approval of a number of Federal
and State regulatory agencies, including Maryland, New Jersey,
Delaware, Pennsylvania, Virginia, FERC, the NRC and the SEC.
The shareholders of AEI and DP&L have approved such merger,
and in mid-July the Maryland Public Service Commission approved a
settlement in connection with the merger. Under the terms of the
settlement, Maryland ratepayers will receive an annual reduction
of $3.5 million and Conectiv will make contributions for three
years to the State's economic development and social programs.
On July 30, 1997, FERC approved the merger and on August 7, 1997
the Virginia State Corporation Commission also approved the
merger.
The BPU has begun hearings and has granted a motion to
intervene by South Jersey Gas Company on the Company's merger
application. Additional hearings and testimony are scheduled in
August, with an initial decision by the Office of Administrative
Law scheduled for early November. A final BPU decision is
expected by year-end, as well as approvals in Delaware, and
Pennsylvania, and by the NRC and SEC.
On August 14, 1997, the parties to the Agreement and Plan of
Merger, dated as of August 9, 1996 as Amended and Restated as of
December 26, 1996 (the "Merger Agreement") by and among AEI,
DP&L, Conectiv, Inc. and DS Sub, Inc., took action to amend
section 7.14 of the Merger Agreement to replace Michael J.
Chesser as President and Chief Operating Officer with Meredith I.
Harlacher, Jr. as President, to be effective at the time of the
merger. This management change has been made as a result of a
decision by Michael J. Chesser to pursue other professional and
personal alternatives.
Nuclear Generating Station Developments
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 the Salem Restart Plan, which encompassed a comprehensive
review and improvement of personnel, process and equipment
issues, has been completed for Salem Unit 2. On August 6, 1997
the NRC authorized the restart of Salem Unit 2 and stated that it
would continue to closely monitor activities at Salem. Three
planned hold points were established and the NRC plans to perform
a final assessment after approximately two months of full power
operations. The NRC's June 9, 1995 Confirmatory Action letter
was amended to include the planned hold points and the final
assessment. The restart process is underway.
PS has advised ACE that the installation of Salem Unit 1 steam
generators has been completed and the unit is expected to return
to service around the end of the year.
PS has advised ACE that on July 8, 1997, a predecisional
enforcement conference was held with the NRC to discuss apparent
violations at Salem. These apparent violations were identified
in May and June, 1997, and concern emergency core cooling system
switchover and related residual heat removal system flow issues
and Appendix R (fire protection) issues. It is unknown what
further actions the NRC may take in this matter.
Hope Creek Station
PS has advised ACE that a predecisional enforcement conference
was held with the NRC on August 12, 1997, to discuss apparent
violations at Hope Creek Station (Hope Creek) relating to the
installation of cross-tie valves in the residual heat removal
system at Hope Creek in 1994. It is unknown what further actions
the NRC may take in this matter.
Peach Bottom Nuclear Generating Station
PECO Energy (PE), operator of the Peach Bottom Atomic Power
Station (Peach Bottom), has advised ACE that on July 17, 1997,
the NRC issued its periodic SALP Report for Peach Bottom for the
period October 15, 1995 to June 7, 1997. Peach Bottom achieved
ratings of "1", in the areas of Plant Operations, Maintenance and
Plant Support. The area of Engineering achieved a rating of "2".
Overall, the NRC observed excellent performance at Peach Bottom
during the assessment period. PE has advised ACE that the NRC
stated that station management provided excellent oversight and
control of engineering activities throughout the period. The NRC
noted that, while overall engineering performance was good, there
were several instances where operating procedures, surveillance,
and tests were not consistent with the design and licensing
basis.
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 July 15, 1997
describing the Company's restructuring filing as required by the
BPU's Energy Master Plan.
***************************************************
<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: August 14, 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: August 14, 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
2 Amendment dated August 14, 1997 to Agreement and Plan of
Merger, dated as of August 9, 1996 as amended and restated
as of December 26, 1996.
27 Financial Data Schedules for Atlantic Energy, Inc. and
Atlantic City Electric Company for periods ended June 30,
1997.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000008192
<NAME> ATLANTIC CITY ELECTRIC COMPANY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,791,081
<OTHER-PROPERTY-AND-INVEST> 86,252
<TOTAL-CURRENT-ASSETS> 299,726
<TOTAL-DEFERRED-CHARGES> 326,878
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,503,937
<COMMON> 54,963
<CAPITAL-SURPLUS-PAID-IN> 489,396
<RETAINED-EARNINGS> 230,747
<TOTAL-COMMON-STOCKHOLDERS-EQ> 775,106
43,950
100,000
<LONG-TERM-DEBT-NET> 758,687
<SHORT-TERM-NOTES> 100,900
<LONG-TERM-NOTES-PAYABLE> 0
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<LONG-TERM-DEBT-CURRENT-PORT> 58,675
10,000
<CAPITAL-LEASE-OBLIGATIONS> 36,066
<LEASES-CURRENT> 729
<OTHER-ITEMS-CAPITAL-AND-LIAB> 619,824
<TOT-CAPITALIZATION-AND-LIAB> 2,503,937
<GROSS-OPERATING-REVENUE> 463,363
<INCOME-TAX-EXPENSE> 21,938
<OTHER-OPERATING-EXPENSES> 371,559
<TOTAL-OPERATING-EXPENSES> 393,497
<OPERATING-INCOME-LOSS> 69,866
<OTHER-INCOME-NET> 4,004
<INCOME-BEFORE-INTEREST-EXPEN> 73,870
<TOTAL-INTEREST-EXPENSE> 31,935
<NET-INCOME> 39,047
2,820
<EARNINGS-AVAILABLE-FOR-COMM> 36,227
<COMMON-STOCK-DIVIDENDS> 40,428
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 42,337
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000806393
<NAME> ATLANTIC ENERGY, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 782,688
43,950
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<LONG-TERM-DEBT-NET> 786,187
<SHORT-TERM-NOTES> 100,900
<LONG-TERM-NOTES-PAYABLE> 0
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<CAPITAL-LEASE-OBLIGATIONS> 36,066
<LEASES-CURRENT> 729
<OTHER-ITEMS-CAPITAL-AND-LIAB> 700,086
<TOT-CAPITALIZATION-AND-LIAB> 2,758,281
<GROSS-OPERATING-REVENUE> 460,955
<INCOME-TAX-EXPENSE> 21,938
<OTHER-OPERATING-EXPENSES> 371,588
<TOTAL-OPERATING-EXPENSES> 393,526
<OPERATING-INCOME-LOSS> 67,429
<OTHER-INCOME-NET> 5,690
<INCOME-BEFORE-INTEREST-EXPEN> 73,119
<TOTAL-INTEREST-EXPENSE> 31,935
<NET-INCOME> 35,476
0
<EARNINGS-AVAILABLE-FOR-COMM> 35,476
<COMMON-STOCK-DIVIDENDS> 40,428
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 25,516
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</TABLE>
AMENDMENT NUMBER 1
to
AGREEMENT AND PLAN OF
MERGER
dated as of August 9, 1996
as
amended and restated
as of December 26, 1996
by and among
DELMARVA POWER & LIGHT COMPANY
ATLANTIC ENERGY, INC.
CONECTIV, INC.
and
DS SUB, INC.
<PAGE>
AMENDMENT NUMBER 1 TO THE AGREEMENT AND PLAN OF MERGER
AMENDMENT NUMBER 1 TO THE AGREEMENT AND PLAN OF MERGER,
dated as of 1997 (this "Amendment"), by and among
Delmarva Power & Light Company, a corporation formed under the
laws of the State of Delaware and the Commonwealth of Virginia
("Delmarva"), Atlantic Energy, Inc., a corporation formed under
the laws of the State of New Jersey ("Atlantic"), CONECTIV, INC.,
a corporation formed under the laws of the State of Delaware, 50%
of whose outstanding capital stock is owned by Delmarva and 50%
of whose capital stock is owned by Atlantic (the "Company"), and
DS Sub, Inc., a corporation formed under the laws of the State of
Delaware and a wholly owned subsidiary of the Company. ("DS
Sub").
WHEREAS, the parties hereto entered into an Agreement
and Plan of Merger dated as of August 9, 1996 as amended and
restated as of December 26, 1996 (the "Agreement of Merger");
WHEREAS, the parties desire to amend the Agreement of
Merger in accordance with the terms hereof in order to provide
that following the consummation of the merges contemplated by the
Agreement of Merger Michael J. Chesser shall no longer be
appointed as the President and Chief Operating Officer of the
Company and that Meredith I. Harlacher, Jr. shall be the
President of the Company.
NOW THEREFORE, in consideration of the premises and the
covenants and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agrees as follows:
Section 1. Amendment. Section 7.14 of the Agreement
of Merger is hereby amended by deleting the following language
therefrom "Michael J. Chesser shall be the President and Chief
Operating Officer of the Company" and inserting in lieu thereof
the following language "Meredith I. Harlacher, Jr. shall be the
President of the Company".
Section 2. No Other Amendment. The parties hereto
agree that except as amended by this Amendment, the Agreement of
Merger shall remain in full force and effect.
Section 3. Governing Law; Waiver of Jury Trial; Etc.
This amendment shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to contracts
executed in and to be fully performed in such state, without
giving effect to its conflicts of laws statutes, rules or
principles. Each party hereto acknowledges and agrees that any
controversy that may arise under this Amendment is likely to
involve complicated and difficult issues, and therefore each such
party hereby irrevocably and unconditionally waives any right
such party may have to a trial by jury in respect of any
litigation directly or indirectly arising out of or relating to
this Amendment or the transactions contemplated hereby.
Section 4. Counterparts; Effect. This Amendment may
be executed in one or more counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one
and the same agreement.
IN WITNESS WHEREOF, Delmarva, Atlantic, the Company and
DS Sub have caused this Agreement to be signed by their
respective officers thereunto duly authorized as of the date
first above written.
DELMARVA POWER & LIGHT COMPANY
By ___________________________
Name:
Title:
ATLANTIC ENERGY, INC.
By ___________________________
Name:
Title:
CONECTIV, INC.
By ___________________________
Name:
Title:
And By _______________________
Name:
Title:
DS SUB, INC.
By ___________________________
Name:
Title:
