<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
------------------
OR
- --
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 1-3559
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 21-0398280
---------- ----------
(States of incorporation) (I.R.S. Employer
Identification No.)
800 King Street, P.O. Box 231 Wilmington, Delaware 19899
-------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302-429-3114
------------
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 issuer's classes of
common stock, as of the latest practicable date:
Conectiv owns all of the 18,320,937 outstanding shares of Common Stock of
Atlantic City Electric Company.
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
Table of Contents
-----------------
Page No.
--------
Part I. Financial Information:
Consolidated Statements of Income for the three
months and nine months ended September 30, 1998 and 1997 1
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 2-3
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997 4
Notes to Consolidated Financial Statements 5-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Part II. Other Information and Signature 14-19
<PAGE>
PART I. FINANCIAL INFORMATION
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric $ 332,529 $ 334,136 $ 809,071 $ 815,277
Other services (1,126) 4,026 2,164 8,782
------------ ------------ ------------ ------------
331,403 338,162 811,235 824,059
------------ ------------ ------------ ------------
OPERATING EXPENSES
Electric fuel and purchased energy 99,824 94,781 242,174 214,404
Purchased electric capacity 44,964 48,657 129,583 137,666
Employee separation and other merger-related costs 1,014 - 49,132 -
Operation and maintenance 56,842 46,685 152,840 125,145
Cost of sales - Other services 401 2,625 5,228 7,446
Depreciation 28,081 25,189 84,464 74,800
Taxes other than income taxes 12,516 30,645 31,848 82,629
------------ ------------ ------------ ------------
243,642 248,582 695,269 642,090
------------ ------------ ------------ ------------
OPERATING INCOME 87,761 89,580 115,966 181,969
------------ ------------ ------------ ------------
OTHER INCOME
Allowance for equity funds used
during construction 110 182 429 726
Other income 2,176 787 5,908 3,663
------------ ------------ ------------ ------------
2,286 969 6,337 4,389
------------ ------------ ------------ ------------
INTEREST EXPENSE
Interest charges 16,091 16,340 47,455 48,823
Allowance for borrowed Funds used during
construction and capitalized interest (221) (230) (784) (777)
------------ ------------ ------------ ------------
15,870 16,110 46,671 48,046
------------ ------------ ------------ ------------
DIVIDENDS ON PREFERRED SECURITIES
OF A SUBSIDIARY TRUST 1,444 1,444 4,332 4,332
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 72,733 72,995 71,300 133,980
INCOME TAXES 31,183 25,454 31,174 47,392
------------ ------------ ------------ ------------
NET INCOME 41,550 47,541 40,126 86,588
DIVIDENDS ON PREFERRED STOCK 863 1,000 2,863 3,820
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
INCOME APPLICABLE TO COMMON STOCK $ 40,687 $ 46,541 $ 37,263 $ 82,768
============ ============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 23,014 $ 20,765
Accounts receivable 148,098 126,148
Inventories, at average cost:
Fuel (coal and oil) 16,256 22,670
Material and supplies 20,989 20,893
Emission allowances 6,489 6,489
Prepaid state excise & sales tax 51,989 3,804
Other prepayments 4,435 3,949
Deferred income taxes, net 3,074 -
Deferred energy costs - 27,424
---------- ----------
274,344 232,142
---------- ----------
INVESTMENTS
Funds held by trustee 100,794 88,743
Other investments 112 9
---------- ----------
100,906 88,752
---------- ----------
PROPERTY, PLANT, AND EQUIPMENT
Electric 2,611,921 2,591,825
Less: Accumulated depreciation 989,217 945,921
---------- ----------
Net utility plant in service 1,622,704 1,645,904
Construction work-in-progress 87,624 106,806
Leased property, net 35,469 38,795
Nonutility property, net 8,270 8,517
---------- ----------
1,754,067 1,800,022
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS
Unrecovered other postretirement employee benefit costs 35,602 37,476
Unamortized debt costs 13,238 13,416
Deferred debt refinancing costs 28,516 30,002
Deferred recoverable income taxes 85,858 85,858
Unrecovered purchased power costs 52,777 66,264
Unrecovered state excise taxes 37,984 45,154
Other 31,097 37,669
---------- ----------
285,072 315,839
---------- ----------
TOTAL ASSETS $2,414,389 $2,436,755
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -----------
(Unaudited)
CAPITALIZATION AND LIABILITIES
-------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Short term debt $ 17,300 $ 55,675
Long-term debt due within one year 30,075 -
Accounts payable 42,245 37,779
Interest accrued 22,860 19,562
Dividends declared 22,354 21,215
Taxes accrued 42,770 5,922
Current capital lease obligation 15,819 15,653
Employee separation & Merger-related
accrued costs 12,650 -
Deferred energy costs 3,740 -
Deferred income taxes, net - 9,974
Pension Costs Accrued 9,254 -
Other 22,520 41,074
---------- ----------
241,587 206,854
---------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net 343,069 352,239
Deferred investment tax credits 42,142 44,043
Long-term capital lease obligation 19,989 24,077
Accrued other postretirement employee benefit costs 44,019 37,476
Other 21,581 21,339
---------- ----------
470,800 479,174
---------- ----------
CAPITALIZATION
Common stock 54,963 54,963
Additional paid-in capital 492,872 493,161
Retained earnings 211,028 234,909
---------- ----------
Total common stockholder's equity 758,863 783,033
Preferred stock subject to mandatory redemption 23,950 33,950
Preferred stock not subject to mandatory redemption 30,000 30,000
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely Company debentures 70,000 70,000
Long-term debt 819,189 833,744
---------- ----------
1,702,002 1,750,727
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $2,414,389 $2,436,755
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 40,126 $ 86,588
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 89,172 82,056
Investment tax credit adjustments, net (1,901) (1,901)
Deferred income taxes, net (22,218) (3,313)
Deferred energy 31,164 4,308
Prepaid state sales taxes (45,646) -
Prepaid excise taxes (3,963) (19,380)
Unrecovered state excise taxes 7,170 7,170
Employee separation & Merger-related costs
not requiring operating funds 16,148 -
Net change in:
Accounts receivable (21,950) (18,366)
Inventories 9,872 5,171
Accounts payable 6,695 (13,687)
Taxes payable 36,848 38,489
Other current assets & liabilities 11,793 (9,795)
Other, net 9,032 7,687
--------- ----------
Net cash provided by operating activities 162,342 165,027
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (49,980) (58,774)
Nuclear decommissioning trust fund deposits (3,212) (4,818)
Other, net (428) (1,448)
--------- ----------
Net cash used by investing activities (53,620) (65,040)
--------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends: Common (61,146) (60,642)
Preferred (2,863) (3,820)
Issuances: Long-term debt 85,000 37,600
Redemptions. Long-term debt (58,500) (23,334)
Preferred stock (10,000) (20,000)
Net change in short-term debt (54,800) (19,050)
Other, net (4,164) (9,970)
--------- ----------
Net cash used by financing activities (106,473) (99,216)
--------- ----------
Net change in cash and cash equivalents 2,249 771
Cash and cash equivalents at beginning of period 20,765 7,927
--------- ----------
Cash and cash equivalents at end of period $ 23,014 $ 8,698
========= ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
1. FINANCIAL STATEMENT PRESENTATION
--------------------------------
The consolidated financial statements include the accounts of Atlantic City
Electric Company (the Company) and its wholly owned subsidiaries. The
statements reflect all adjustments necessary in the opinion of the Company for a
fair presentation of interim results. They should be read in conjunction with
the Company's 1997 Annual Report on Form 10-K and Part II of this report on Form
10-Q for additional information.
Certain reclassifications, not affecting net income, have been made to conform
amounts for the three months ended and the nine months ended September 30, 1997,
to the current presentation. Primarily, the operating results of nonutility
activities were reclassified from "Other Income" into other classifications
within the income statement. Revenues from "Other services" includes revenues
from these nonutility activities of the Company. Reclassifications have also
been made within the balance sheet to conform to current year reporting.
2. MERGER WITH DELMARVA POWER & LIGHT COMPANY
------------------------------------------
As previously reported, on March 1, 1998, Atlantic Energy, Inc. (AEI) merged
with Conectiv, with Conectiv as the surviving corporation (the Merger). Prior
to the Merger, AEI owned the Company and Atlantic Energy Enterprises (AEE). As
a result of the Merger, Conectiv owns (directly or indirectly) the Company, AEE,
Delmarva Power & Light Company (DPL), and the nonutility subsidiaries formerly
held by DPL.
The Merger was accounted for under the purchase method as a tax-free, stock-for-
stock transaction, with DPL as the acquirer. Under the terms of the agreement,
AEI shareholders received 0.75 shares of Conectiv's common stock and 0.125
shares of Conectiv's Class A common stock for each share of AEI stock held. DPL
shareholders received one share of Conectiv's common stock for each share of DPL
common stock held.
Under the terms of the New Jersey Board of Public Utilities (BPU) approval of
the Merger, approximately 75% or $15.7 million of the Company's total average
annual projected merger savings will be returned to the Company's customers for
an overall Merger-related customer rate reduction of 1.7%.
The Company has recorded the financial effects of enhanced retirement offers and
other employee separation programs utilized to achieve workforce reductions in
conjunction with the Merger. The Company expects a reduction of 354 positions,
of which 307 employee separations have occurred. The employee separation
programs and other Merger-related costs resulted in a $49.1 million pre-tax
charge to expense (or $29.6 million after taxes) for the nine-month period ended
September 30, 1998. The pre-tax expenses are shown on the Statement of Income
as "Employee separation and other merger-related costs." As of September 30,
1998, $20.3 million of the $49.1 million expense had been paid, $16.1 million
will not require the use of operating funds, and $12.7 million remains to be
paid from operating funds.
3. DEBT
----
In January 1998, the Company issued $85 million of medium-term notes and used
$50 million of the proceeds to redeem medium-term notes, which matured in
January 1998.
In May 1998, the Company repaid at maturity $6.0 million of 5.5% Medium-Term
Notes and $2.5 million of 7.25% Debentures.
In March and May 1998, the Company arranged two separate uncommitted lines of
credit in the amount of $25 million and $20 million, respectively. The
facilities are renewable annually and bear interest at variable rates.
4. PREFERRED STOCK OF SUBSIDIARIES
-------------------------------
On August 3, 1998, the Company redeemed the remaining 100,000 shares of its
$8.20 No Par Preferred Stock (Subject to Mandatory Redemption) at $100 per share
or $10.0 million in total (the book value of the preferred stock).
5
<PAGE>
In October 1998, the Company purchased and retired 237,232 shares, or
$23,723,200, of various series mandatorily redeemable preferred stock, which had
an average dividend rate of 4.4%.
A wholly owned subsidiary trust (Atlantic Capital II) was established in
September 1998 as a financing subsidiary of the Company for the purposes of
issuing common and preferred trust securities and holding 7 3/8% Junior
Subordinated Debentures (the Debentures). The Debentures held by the trust are
its only assets. The trust uses interest payments received on the Debentures it
holds to make cash distributions on the trust securities.
The combination of the obligations of the Company pursuant to the Debentures and
the Company's guarantee of distributions with respect to trust securities, to
the extent the trust has funds available therefor, constitute a full and
unconditional guarantee by the Company of the obligations of the trust under the
trust securities that the trust has issued. The Company is the owner of all of
the common securities of the trust, which constitute approximately 3% of the
liquidation amount of all of the trust securities issued by the trust.
In November 1998, the trust issued $25 million in aggregate liquidation amount
of 7 3/8% Cumulative Trust Preferred Capital Securities (representing 1,000,000
preferred securities at $25 per security). At the same time, $25.8 million in
aggregate principal amount of 7 3/8% Junior Subordinated Debentures, Series I,
due 2028 were issued to the trust. For consolidated financial reporting
purposes, the Debentures are eliminated in consolidation against the trust's
investment in the Debentures. The preferred trust securities are subject to
mandatory redemption upon payment of the Debentures at maturity or upon
redemption. The Debentures are subject to redemption, in whole or in part at
the option of the Company, at 100% of their principal amount plus accrued
interest, after an initial period during which they may not be redeemed and at
any time upon the occurrence of certain events.
5. RATES
-----
As previously disclosed in Note 4 of the Consolidated Financial Statements of
the Company's Annual Report on Form 10-K, the Company's total electric base rate
decrease associated with Merger-related cost savings passed on to the Company's
customers is $15.7 million effective as follows: (1) $5.0 million effective
January 1, 1998, coincident with a $5.0 million increase for recovery of other
postretirement benefit costs; (2) $9.9 million effective March 1, 1998, and (3)
$0.8 million effective January 1, 1999.
As previously reported and as discussed below, the Company has quantified
stranded costs in regulatory filings. The amount of stranded costs ultimately
recovered from utility customers and the final form of legislation deregulating
the electric utility industry in New Jersey cannot be predicted. Also, the
quantification of stranded costs under existing generally accepted accounting
principles (GAAP) can differ from methods used in regulatory filings. Among
other differences, GAAP precludes recognition of the gains on plants (or
purchased power contracts) not impaired, but requires write down of the plants
that are impaired. Due to the aforementioned considerations, management
currently cannot predict the ultimate effects that electric utility industry
deregulation may have on the financial statements of the Company, although such
effects could be material. However, any stranded costs recovered from
transmission and distribution customers through a market transition charge are
expected to reduce the potential one-time charge for the write-down of assets or
reserve for uneconomic purchased power contracts.
On August 19, 1998, an Administrative Law Judge (the ALJ) from the New Jersey
Office of Administrative Law issued an initial decision on the Company's
stranded costs and unbundled rate filing. The ALJ, in reviewing the Company's
filing, recognized that the Company's stranded costs were $812 million for
nonutility generation contracts and $397 million for generation assets. The ALJ
made no specific recommendations on rate issues. A final BPU decision is
expected the in first quarter of 1999 if the necessary legislation is approved
by the New Jersey legislature and signed by the Governor in the fourth quarter
of 1998.
The "Electric Discount and Energy Competition Act" was introduced into the New
Jersey Assembly as Bill A-10 (the Bill) on September 14, 1998. Among other
things, the Bill would require the BPU to provide for retail choice of electric
power suppliers; deregulation of electric power rates and other competitive
services, such as metering and billing; separation of competitive and regulated
services; unbundling of rates for electric power service; and licensing of
electric and gas suppliers. The Bill provides June 1, 1999 as the starting date
for each utility to provide retail choice of electric power suppliers to its
customers. Full implementation of retail choice is expected within 4
6
<PAGE>
months of the start date of retail competition. A companion Senate Bill (Bill S-
5) was introduced shortly after the Assembly Bill and contained identical
provisions.
In connection with the deregulation of electric power rates, the Bill would
authorize the BPU to permit electric public utilities to recover a portion of
their stranded costs through a non-bypassable market transition charge for a
fixed number of years. In addition, the Bill would allow for the issuance of
transition bonds to finance portions of a given utility's stranded costs, as
determined to be appropriate by the BPU.
The Senate and Assembly are currently holding legislative committee hearings on
the Bills. These hearings will allow the Company and others the opportunity to
voice their support or opposition and to suggest amendments to the Bills. Full
legislative action is expected by year-end 1998, after the completion of the
hearings.
The Bill contains provisions which mandate reductions in rates by a minimum of
five to ten percent relative to the aggregate level of bundled rates in effect
as of April 30, 1997. Under certain circumstances, the minimum rate reductions
may be implemented according to specified time frames. Rate reductions in
addition to the minimums prescribed may be ordered by the BPU, if it determines
that such reductions are necessary in order to achieve just and reasonable
rates. The Company's management believes that any rate reductions, including
the minimums required by the proposed legislation, should give consideration to
a utility's financial integrity and result in just and reasonable rates.
If enacted in its present form, rate reductions, as mandated in the Bill, could
have a material effect upon the results of operations of the Company.
As previously reported, the Energy Tax Reform Act (ETR) was signed into law in
July 1997. This act, when fully implemented, will reduce the Company's
effective state tax rate from 13% to approximately 7%, with the savings to be
passed on to ratepayers. On January 1, 1998, interim rates were implemented
reflecting the ETR changes. Those interim rates were approved by the BPU in
June 1998. See Note 8 for additional information.
6. CONTINGENCIES
-------------
Environmental Matters
- ---------------------
The Company is subject to regulation with respect to the environmental effects
of its operations, including air and water quality control, solid and hazardous
waste disposal, and limitation on land use by various federal, regional, state,
and local authorities. Costs may be incurred to clean up facilities found to be
contaminated due to past disposal practices. Federal and state statutes
authorize governmental agencies to compel responsible parties to clean up
certain abandoned or uncontrolled hazardous waste sites. The Company is a
potentially responsible party at a state superfund site and has agreed, along
with other responsible parties, to remediate the site pursuant to an
Administrative Consent Order with the New Jersey Department of Environmental
Protection. The Company is also a defendant in an action to recover costs at a
federal superfund site in Gloucester, New Jersey. There is $1.0 million
included in the Company's current liabilities as of September 30, 1998, for
remediation activities at these sites. The Company does not expect such future
costs to have a material effect on its financial position or results of
operations.
Insurance Programs
- ------------------
Nuclear
- -------
In conjunction with the Company's ownership interests in the Peach Bottom Atomic
Power Station (Peach Bottom), Salem Nuclear Generating Station (Salem), and the
Hope Creek Nuclear Generating Station (Hope Creek), the Company could be
assessed for a portion of any third-party claims associated with an incident at
any commercial nuclear power plant in the United States. Under the provisions
of the Price Anderson Act, if third-party claims relating to such an incident
exceed $200 million (the amount of primary insurance), the Company could be
assessed up to $27.6 million on an aggregate basis for such third-party claims.
In addition, Congress could impose a revenue-raising measure on the nuclear
industry to pay such claims.
The co-owners of Peach Bottom, Salem, and Hope Creek maintain property insurance
coverage of approximately $2.8 billion for each unit for loss or damage to the
units, including coverage for decontamination expense and premature
decommissioning. In addition, the Company is a member of an industry mutual
insurance company,
7
<PAGE>
which provides replacement power cost coverage in the event of a major
accidental outage at a nuclear power plant. Under these coverages, the Company
is subject to potential retrospective loss experience assessments of up to $4.4
million.
7. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, which becomes effective in the
first quarter of fiscal years beginning after June 15, 1999. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that all derivatives be recognized as
assets or liabilities in the balance sheet and be measured at fair value. Under
specified conditions, a derivative may be designated as a hedge. The change in
the fair value of derivatives not designated as hedge is recognized in earnings.
For derivatives designated as hedges of change in the fair value of an asset or
liability, or as a hedge of exposure to variable cash flows of a forecasted
transaction, earnings are affected to the extent the hedge does not match
offsetting changes in the hedged item.
Based on the Company's current limited level of unregulated electric sales and
trading, SFAS No. 133 should not have a material effect on the Company's
financial statements and related notes. For information concerning the
Company's current policy for derivatives and related energy trading activities,
refer to Note 15 to the 1997 Financial Statements in the Company's 1997 Annual
Report on Form 10-K.
8. TAXES
-----
As previously reported, effective January 1, 1998 the New Jersey Gross Receipts
and Franchise Tax (GRFT), which resulted in an effective tax rate of
approximately 13% on unit sales of electricity, was eliminated. Replacing the
GRFT is a combination of State Corporate Business Tax, Sales and Use Tax, which
was expanded to include sales of electric power, and a Transitional Energy
Facility Assessment (TEFA). The TEFA will be phased out over a five-year
period. As a result of this tax reform, the Company's effective state tax rate
will be substantially reduced. Those savings will be passed on to the
ratepayers. For the effect on rates charged to customers as a result of this
tax reform, refer to Note 5 to the Consolidated Financial Statements. The
effective income tax rate of the Company has changed as shown below:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Federal tax provision at statutory rate 35.0% 35.0% 35.0% 35.0%
New Jersey Corporate Business Tax,
Net of Federal Benefit. 5.9% -- 5.9% --
Other - net 2.0% (0.1)% 2.8% 0.4%
----- ------ ----- -----
Effective Income Tax Rate 42.9% 34.9% 43.7% 35.4%
===== ====== ===== =====
</TABLE>
9. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
Cash paid for: 1998 1997
---- ----
<S> <C> <C>
(dollars in thousands)
Interest, net of amounts capitalized $ 44,157 $ 52,592
Income taxes, net of refunds $ 25,393 $ 11,344
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
EARNINGS SUMMARY
- ----------------
The Company's operations resulted in net income of $41.6 million for the three
months ended September 30, 1998, compared to net income of $47.5 million for the
three months ended September 30, 1997. The $5.9 million decrease was primarily
due to higher operations and maintenance expense, partly offset by higher
electric sales caused by hotter summer weather.
For the nine months ended September 30, 1998, the Company reported net income of
$40.1 million compared to net income of $86.6 million for the nine months ended
September 30, 1997. Merger-related charges decreased current-year after-tax
earnings by $29.6 million. Excluding the Merger-related charges, the Company
earned $69.7 million, a $16.9 million decrease from last year, which was
attributed to higher operations and maintenance expenses.
MERGER IMPACT
- -------------
As previously reported, on March 1, 1998, Atlantic Energy, Inc. (AEI) merged
with Conectiv, with Conectiv as the surviving corporation (the Merger). Prior
to the Merger, AEI owned the Company and Atlantic Energy Enterprises (AEE). As
a result of the Merger, Conectiv owns (directly or indirectly) the Company, AEE,
Delmarva Power & Light Company (DPL), and the nonutility subsidiaries formerly
held by DPL.
Under the terms of the New Jersey Board of Public Utilities (BPU) approval of
the Merger, approximately 75%, or $15.7 million, of the Company's total average
annual projected Merger savings will be returned to the Company's customers for
an overall Merger-related customer rate reduction of 1.7%.
The Company has recorded the financial effects of enhanced retirement offers and
other employee separation programs utilized to achieve workforce reductions in
conjunction with the Merger. The Company expects a reduction of 354 positions,
of which 307 employee separations have occurred. The employee separation
programs and other Merger-related costs resulted in a $49.1 million pre-tax
charge to expense (or $29.6 million after taxes) for the nine-month period ended
September 30, 1998. The pre-tax expenses are shown on the Statement of Income
as "Employee separation and other merger-related costs." As of September 30,
1998, $20.3 million of the $49.1 million expense had been paid, $16.1 million
will not require the use of operating funds, and $12.7 million remains to be
paid from operating funds.
ELECTRIC UTILITY INDUSTRY RESTRUCTURING AND STRANDED COSTS
- ----------------------------------------------------------
For background information concerning restructuring the electric utility
industry in New Jersey refer to page 3 of the Company's 1997 Report on Form 10-
K. Updates to previously disclosed information are detailed below.
As previously reported and as discussed below, the Company has quantified
stranded costs in regulatory filings. The amount of stranded costs ultimately
recovered from utility customers and the final form of legislation deregulating
the electric utility industry in New Jersey cannot be predicted. Also, the
quantification of stranded costs under existing generally accepted accounting
principles (GAAP) can differ from methods used in regulatory filings. Among
other differences, GAAP precludes recognition of the gains on plants (or
purchased power contracts) not impaired, but requires write down of the plants
that are impaired. Due to the aforementioned considerations, management
currently cannot predict the ultimate effects that electric utility industry
deregulation may have on the financial statements of the Company, although such
effects could be material. However, any stranded costs recovered from
transmission and distribution customers through a market transition charge are
expected to reduce the potential one-time charge for the write-down of assets or
reserve for uneconomic purchased power contracts.
On August 19, 1998, an Administrative Law Judge (the ALJ) from the New Jersey
Office of Administrative Law issued an initial decision on the Company's
stranded costs and unbundled rate filing. The ALJ, in reviewing the Company's
filing, recognized that the Company's stranded costs were $812 million for
nonutility generation contracts and $397 million for generation. The ALJ made
no specific recommendations on rate issues. A final
9
<PAGE>
BPU decision is expected the first quarter of 1999 if the necessary legislation
is approved by the New Jersey legislature and signed by the Governor in the
fourth quarter of 1998.
The "Electric Discount and Energy Competition Act" was introduced into the New
Jersey Assembly as Bill A-10 (the "Bill") on September 14, 1998. A companion
Senate Bill (Bill S-5) was introduced shortly after the Bill and contained
identical provisions. The Bill provides for deregulation of electric power
rates and June 1, 1999, as the date for each utility to begin providing retail
choice of electric power suppliers to its customers. The Bill also contains
provisions which mandate reductions in rates by a minimum of five to ten
percent, relative to the aggregate level of bundled rates in effect as of April
30, 1997.
If enacted in its present form, rate reductions, as mandated in the Bill, could
have a material effect upon the results of operations of the Company. The Senate
and Assembly are currently holding legislative committee hearings on the Bills.
These hearings will allow the Company and others the opportunity to voice their
support or opposition and to suggest amendments to the Bills. Full legislative
action is expected by year-end 1998, after the completion of the hearings. For
additional information concerning the Bill, refer to Note 5 to the Consolidated
Financial Statements included in this report.
RESULTS OF OPERATIONS
- ---------------------
Electric Revenues
Details of the changes in the various components of electric revenues for the
three-month period and the nine-month period ended September 30, 1998, as
compared to the same periods in 1997 are shown below (dollars in millions):
<TABLE>
<CAPTION>
Three Months Nine Months
Variance Variance
-------- --------
<S> <C> <C>
Non-fuel (Base Rate) Revenues
Change in New Jersey tax law $(17.9) $(41.1)
Merger-related base rate decrease (2.5) (5.8)
All other variances 11.7 9.6
----- -----
Subtotal (8.7) (37.3)
Fuel Revenues 11.6 18.0
Interchange Revenues 23.5 33.1
Merchant Revenues (28.0) (20.0)
----- -----
Total $ (1.6) $ (6.2)
===== =====
</TABLE>
Electric non-fuel revenues decreased $8.7 million for the three-month period and
$37.3 million for the nine-month period, respectively, as shown in the preceding
table. Although changes in the New Jersey tax law related to sales of
electricity caused electric revenues to decrease as shown above, this revenue
reduction did not affect earnings due to corresponding reductions in taxes other
than income taxes. The sales and use taxes billed to customers in 1998 are
recorded as a current liability, whereas in 1997, certain other state taxes
(which were replaced in part by the sales and use taxes) were recorded as
revenues. The Merger-related base rate decrease shown above results from
sharing with utility customers the expected Merger-related cost savings, as
discussed in Note 5 to the Consolidated Financial Statements. "All other
variances" in electric non-fuel revenues reflect growth in retail kilowatt-hour
(kWh) sales and the number of customers in both periods.
Total retail kWh sales increased 8.8% in the third quarter primarily due to
hotter summer weather. The weather's effect on year-to-date electric sales
variances was minimal because higher sales from hotter summer weather were
substantially offset by lower sales from milder winter weather earlier in the
year. For the nine-month period, total retail kWh sales increased 4.1% mainly
due to favorable economic conditions and continued growth in the number of
customers.
Interchange delivery revenues for the three months increased $23.5 million and
for the nine months increased $33.1 million from the same periods of the prior
year due to additional revenues from ancillary transmission and distribution
services. The nine-month period increase was offset in part by reduced sales in
the first quarter to the Pennsylvania-New Jersey-Maryland Interconnection (PJM).
Interchange sales reduce the rates charged to customers under fuel adjustment
clauses and, thus, generally do not affect earnings.
10
<PAGE>
Merchant revenues, which represent bulk power sales not subject to price
regulation decreased $28.0 million and $20.0 million for the three- and nine-
month periods, respectively. These decreases occurred because, subsequent to
the merger, bulk power has been sold through DPL, in order to achieve Merger
synergies. The margin provided by the wholesale market revenues in excess of the
related energy costs is relatively small due to the competitive nature of bulk
power sales.
Other Services Revenues
- -----------------------
Other services revenues represent the Company's initiative to enter the non-
regulated marketplace with a variety of energy related services, including
energy management services. Other services revenues for the three months ended
September 30, 1998 reflect a decrease of $2.2 million, due to revisions of
estimated revenues previously recognized.
Electric Fuel and Purchased Energy Expenses
- -------------------------------------------
Electric fuel and purchased energy expenses increased $1.4 million for the
three-month period and $19.7 million for the nine-month period ended September
30, 1998, due to the increased energy purchases related to wholesale market
sales and increased recognition of energy expenses pursuant to the Company's
Levelized Energy Clause.
Merger-Related Employee Separation Expenses
- -------------------------------------------
Employee separation programs and other Merger-related costs resulted in a $49.1
million pre-tax charge to expense (or $29.6 million after-taxes) for the nine
months ended September 30, 1998. See Note 2 of the Consolidated Financial
Statements for further details on the Merger and Merger-related expenses.
Operation and Maintenance Expenses
- ----------------------------------
Operation and maintenance expenses increased $10.2 million for the three-month
period and $27.7 million for the nine-month period ended September 30, 1998. An
actuarial valuation of the Company's pension plan liability based on updated
assumptions and data resulted in a $5.9 million increase in operations and
maintenance expense in the third quarter of 1998. The remaining increase for the
three-month period and the nine-month period was due primarily to lower
capitalized expenses and increased contracted services.
Taxes Other Than Income Taxes
- -----------------------------
Taxes other than income taxes decreased $18.1 million for the three-month period
and $50.8 million for the nine-month period ended September 30, 1998, due
primarily to the changes in the New Jersey tax laws, eliminating the state gross
receipts and franchise tax. Earnings generally were not affected by this
decrease due to related reductions in electric revenues resulting from the tax
law change.
YEAR 2000
- ---------
The Year 2000 issue is the result of computer programs and embedded systems
using a two-digit format, as opposed to four digits, to indicate the year.
Computer and embedded systems with this characteristic may be unable to
interpret dates beyond the year 1999, which could cause a system failure or
other computer errors, leading to disruption of operations. A Conectiv project
team, originally started in 1996 by the Company, is assisting line management in
addressing the issue of computer programs and embedded systems not properly
recognizing the Year 2000. A Conectiv corporate officer, reporting directly to
the Chief Executive Officer, is coordinating all Year 2000 activities. There
are substantial challenges in identifying and correcting the many computer and
embedded systems critical to generating and delivering power and providing other
services to customers.
The project team is using a phased approach to managing its activities. The
first phase is, inventory and assessment of all systems, equipment, and
processes. Each identified item is given a criticality rating of high, medium
or low. Those items rated as high or medium are believed to put the Company's
business
11
<PAGE>
operations and customers at substantial risk and are then subject to the second
phase of the project. The second phase is determining and implementing
corrective action for the systems, equipment and processes, and concludes with a
test of the unit being remediated. The third phase is system testing and
compliance certification. Additionally, the project team will be updating
existing outage contingency plans to address Year 2000 issues over the next 12
months.
The following chart sets forth the current completion percentage of the Year
2000 Project by major business group, and for the information technology systems
used in managing the Company's business. The Company expects significant
progress in remediation and testing over the next two quarters based on work
that is in process and material that is being ordered.
<TABLE>
<CAPTION>
Inventory and Corrective Testing and
Business Group Assessment Action Compliance
- --------------------------- -------------- ----------- ------------
<S> <C> <C> <C>
Business systems 95% 70% 60%
Power production 90% 0% 0%
Electricity distribution 90% 5% 5%
Energy and other services 75%-95% 0%-80% 0%-80%
</TABLE>
The Company is also contacting critical vendors and service providers to review
remediation of their Year 2000 issues. Many aspects of the Company's businesses
are dependent on third parties. For example, fuel suppliers must be able to
provide coal or gas to allow the Company to generate power.
Distribution of electricity is dependent on the overall reliability of the
electric grid. The Company is cooperating with the North American Electric
Reliability Council and the PJM Interconnection in Year 2000 remediation
efforts, and is accelerating its Year 2000 Project timeline to be generally in-
line with the recommendations of those groups.
Conectiv has incurred approximately $3 million in costs for the Year 2000
Project and currently estimates the costs for the Year 2000 Project to range
from $10 million to $15 million. These estimates could change significantly as
the Year 2000 Project progresses.
Since the project team is still in the process of assessing and correcting
impacted systems, equipment and processes, Conectiv cannot currently determine
whether the Year 2000 issue might cause disruptions to its operations and have
impacts on related costs and revenues. Conectiv assesses the status of the Year
2000 Project on at least a monthly basis to determine the likelihood of business
disruptions. Any substantial disruption to the Company's operations could
significantly impact its customers and could generate legal claims against the
Company. The Company's results of operations and financial position would
likely suffer an adverse impact if other entities, such as suppliers, customers
and service providers do not effectively address their Year 2000 issues.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities was $162.3 million for the nine months
ended September 30, 1998 compared to $165.0 million for the nine months ended
September 30, 1997.
On an interim basis, the Company finances construction costs and other capital
requirements in excess of internally generated funds through the issuance of
unsecured short-term debt, consisting of commercial paper and notes from banks.
As of September 30, 1998, the Company had authority to issue $150 million in
short-term debt and had $17.3 million outstanding. The Company also has two
separate uncommitted lines of credit in the amount of $25 million and $20
million, respectively. The facilities are renewable annually and bear interest
at variable rates.
In January 1998, the Company issued $85 million of medium-term notes and used
$50 million of the proceeds to redeem medium-term notes, which matured in
January 1998.
In May 1998, the Company repaid at maturity $6.0 million of 5.5% Medium-Term
Notes and $2.5 million of 7.25% Debentures.
On August 3, 1998, the Company redeemed 100,000 shares of its $8.20 No Par
Preferred Stock at $100 per share, or $10.0 million in total (the book value of
the preferred stock).
12
<PAGE>
In October 1998, the Company redeemed $23.7 million of preferred stock not
subject to mandatory redemption, which had an average dividend rate of 4.4%. In
November 1998, a subsidiary trust of the Company issued $25 million of 7 3/8%
preferred securities subject to mandatory redemption. On a consolidated basis,
Conectiv receives a tax benefit, which is equivalent to the tax effect of a
deduction for the trust's distributions on the preferred securities.
RATIO OF EARNINGS TO FIXED CHARGES
- ----------------------------------
The Company's ratios of earnings to fixed charges and earnings to fixed charges
and preferred stock dividends under the SEC Method are shown below:
<TABLE>
<CAPTION>
12 Months
Ended
September 30, Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
------------- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to:
Fixed Charges (1) 2.03 2.84 2.59 3.19 3.07
Fixed Charges and Preferred
Stock Dividends (1) 1.85 2.58 2.16 2.43 2.26
</TABLE>
(1) For the 12 months ended September 30, 1998, excluding pre-tax charges
totaling $71.4 million for employee separation and other Merger-related
costs, the ratio of earnings to fixed charges is 3.39 and the ratio of
earnings to fixed charges and preferred dividends is 3.14.
Under the SEC Method, earnings, including allowance for funds used during
construction (AFUDC), have been computed by adding income taxes and fixed
charges to net income. Fixed charges include gross interest expense, the
estimated interest component of rentals, and dividends on preferred securities
of a subsidiary trust. For the ratio of earnings to fixed charges and preferred
stock dividends, preferred stock dividends represent annualized preferred stock
dividend requirements multiplied by the ratio that pre-tax income bears to net
income.
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
disclosure 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", and "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; an
increasingly competitive energy marketplace; sales retention and growth; federal
and state regulatory actions; costs of construction; operating restrictions;
increased cost 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.
13
<PAGE>
Part II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
As previously reported in Note 11 to the Consolidated Financial Statements
included in the Company's 1997 Form 10-K, on February 27, 1996, the co-owners of
Salem filed a complaint in the United States District Court for New Jersey
against Westinghouse Electric Corporation (Westinghouse), the designer and
manufacturer of the Salem steam generators. The complaint, which sought to
recover from Westinghouse the costs associated with and resulting from the
cracks discovered in Salem's steam generators and with replacing such steam
generators, alleged violations of federal and New Jersey Racketeer influenced
and Corrupt Organizations Acts, fraud, negligent misrepresentation and breach of
contract. On November 4, 1998, the Court granted Westinghouse's motion for
summary judgment with regard to the federal Racketeer Influenced and Corrupt
Organizations Act claim, and dismissed the remaining state law claims without
prejudice. The Company is assessing its options, including a possible appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
A special meeting of Company shareholders was held on October 14, 1998, to
approve an amendment to the Company's Charter. Shareholders voted to eliminate
paragraph (7)(B)(c) of Article III of the Charter, removing a restriction on the
amount of securities representing unsecured indebtedness issuable by the
Company. Votes cast on the single proposal were as follows:
<TABLE>
<CAPTION>
Number of Shares
---------------------------------------------------
Outstanding For Against Abstain
------------- --- ------- -------
<S> <C> <C> <C> <C>
Common Securities: 18,320,937 18,320,937 - 0 - - 0 -
Preferred Securities:
Cumulative Preferred Stock ($100 Par Value)
4% Series 77,000 59,223 232 150
4.10% Series 72,000 71,496 - 0 - - 0 -
4.35% Series 15,000 12,183 - 0 - - 0 -
4.35% 2nd Series 36,000 35,672 - 0 - - 0 -
4.75% Series 50,000 45,550 - 0 - - 0 -
5.00% Series 50,000 46,455 100 - 0 -
No Par Preferred Stock
$7.80 Series 239,500 239,500 - 0 - - 0 -
</TABLE>
ITEM 5. OTHER INFORMATION
- -------------------------
ENVIRONMENTAL MATTERS - AIR
- ---------------------------
Due to their location in the Ozone Transport Region created by the federal Clean
Air Act Amendments of 1990, the Company's facilities are required, by the New
Jersey Department of Environmental Protection regulations, to reduce nitrogen
oxide emissions significantly during warm weather months beginning in summer
1999. Achieving these reductions will require capital expenditures of
approximately $3 million.
SALEM NUCLEAR GENERATING STATION
- --------------------------------
In September 1998, the Nuclear Regulatory Commission (NRC) issued its periodic
Systematic Assessment of Licensee Performance (SALP) Report on the performance
of activities at Salem for the period March 1, 1997 to August 1, 1998. SALP
reports rate licensee performance in four assessment areas: Operations,
Maintenance, Engineering and Plant Support. Ratings range from a high of "1" to
a low of "3". Salem received a rating of 1 in Operations, a 2 in Maintenance, a
2 in Engineering, and a 1 in Plant Support. The NRC noted that the overall
performance at Salem improved as demonstrated by a nearly event free return of
both units to operation following the extended outage.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
Exhibits
- --------
Exhibit 12-A, Computation of Ratio of Earnings to Fixed Charges
Exhibit 12-B, Computation of Ratio of Earnings to Fixed Charges and Preferred
Dividends
Exhibit 27, Financial Data Schedule
Reports On Form 8-K
- -------------------
On September 18, 1998 the Company filed an 8-K, which reported introduction of
the "Electric Discount and Energy Competition Act" into the New Jersey
legislature and an Administrative Law Judge's decision on the Company's stranded
cost filing.
15
<PAGE>
SIGNATURE
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 thereunto duly authorized.
Atlantic City Electric Company
------------------------------
(Registrant)
Date: November 12, 1998 /s/ B. S. Graham
----------------- ----------------
B. S. Graham, Senior Vice President
and Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Number
------- ------
<S> <C> <C>
Computation of ratio of earnings to fixed charges 12-A 18
Computation of ratio of earnings to fixed charges
and preferred dividends 12-B 19
Financial Data Schedule 27 20
</TABLE>
17
<PAGE>
Exhibit 12-A
Atlantic City Electric Company
------------------------------
Ratio of Earnings to Fixed Charges
----------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
12 Months
Ended September 30, 12 Months Ended December 31,
---------------------------------------
1998 1997 1996 1995 1994
------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income $ 40,242 85,747 $ 75,017 $ 98,752 $ 93,174
-------- -------- -------- -------- --------
Income taxes 34,224 50,442 36,958 48,277 36,130
-------- -------- -------- -------- --------
Fixed charges:
Interest on long-term debt 63,133 64,501 64,847 62,879 58,460
Other interest 3,435 3,574 4,019 4,364 4,148
Preferred stock dividend
requirements of subsidiaries 5,775 5,775 1,428 - -
-------- -------- -------- -------- --------
Total fixed charges 72,343 73,850 70,294 67,243 62,608
-------- -------- -------- -------- --------
Earnings before income taxes
and fixed charges $146,809 $210,039 $182,269 $214,272 $191,912
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges 2.03 2.84 2.59 3.19 3.07
-------- -------- -------- -------- --------
</TABLE>
For purposes of computing the ratio, earnings are net income plus income taxes
and fixed charges. Fixed charges consist of interest on long- and short-term
debt, amortization of debt discount, premium, and expense, dividends on
preferred securities of a subsidiary trust, and the interest factor associated
with the Company's major leases.
18
<PAGE>
Exhibit 12-B
Atlantic City Electric Company
------------------------------
Ratio of Earnings to Fixed Charges & Preferred Dividends
--------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
12 Months
Ended September 30, 12 Months Ended December 31,
--------------------------------------
1998 1997 1996 1995 1994
------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income $ 40,242 85,747 $ 75,017 $ 98,752 $ 93,174
-------- -------- -------- -------- --------
Income taxes 34,224 50,442 36,958 48,277 36,130
-------- -------- -------- -------- --------
Fixed charges:
Interest on long-term debt 63,133 64,501 64,847 62,879 58,460
Other interest 3,435 3,574 4,019 4,364 4,148
Preferred stock dividend
requirements of subsidiaries 5,775 5,775 1,428 - -
-------- -------- -------- -------- --------
Total fixed charges 72,343 73,850 70,294 67,243 62,608
-------- -------- -------- -------- --------
Earnings before income taxes
and fixed charges $146,809 $210,039 $182,269 $214,272 $191,912
======== ======== ======== ======== ========
Fixed charges 72,343 73,850 70,294 67,243 62,608
-------- -------- -------- -------- --------
Preferred dividend requirement 6,862 7,506 14,214 20,839 22,212
-------- -------- -------- -------- --------
$ 79,205 $ 81,356 $ 84,508 $ 88,082 $ 84,820
======== ======== ======== ======== ========
Ratio of earnings to fixed charges &
Preferred dividends 1.85 2.58 2.16 2.43 2.26
-------- -------- -------- -------- --------
</TABLE>
For purposes of computing the ratio, earnings are net income plus income taxes
and fixed charges. Fixed charges consist of interest on long- and short-term
debt, amortization of debt discount, premium, and expense, dividends on
preferred securities of a subsidiary trust, and the interest factor associated
with the Company's major leases. Preferred dividend requirements represent
annualized preferred dividend requirements multiplied by the ratio that pre-tax
income bears to net income.
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S THIRD QUARTER 1998 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,745,797 1,745,797
<OTHER-PROPERTY-AND-INVEST> 109,176 109,176
<TOTAL-CURRENT-ASSETS> 274,344 274,344
<TOTAL-DEFERRED-CHARGES> 285,072 285,072
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 2,414,389 2,414,389
<COMMON> 54,963 54,963
<CAPITAL-SURPLUS-PAID-IN> 492,872 492,872
<RETAINED-EARNINGS> 211,028 211,028
<TOTAL-COMMON-STOCKHOLDERS-EQ> 758,863 758,863
23,950 23,950
100,000 100,000
<LONG-TERM-DEBT-NET> 819,189 819,189
<SHORT-TERM-NOTES> 17,300 17,300
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 30,075 30,075
0 0
<CAPITAL-LEASE-OBLIGATIONS> 19,989 19,989
<LEASES-CURRENT> 15,819 15,819
<OTHER-ITEMS-CAPITAL-AND-LIAB> 629,204 629,204
<TOT-CAPITALIZATION-AND-LIAB> 2,414,389 2,414,389
<GROSS-OPERATING-REVENUE> 331,403 811,235
<INCOME-TAX-EXPENSE> 31,183 31,174
<OTHER-OPERATING-EXPENSES> 243,642 695,269
<TOTAL-OPERATING-EXPENSES> 274,825 726,443
<OPERATING-INCOME-LOSS> 56,578 84,792
<OTHER-INCOME-NET> 2,286 6,337
<INCOME-BEFORE-INTEREST-EXPEN> 58,864 91,129
<TOTAL-INTEREST-EXPENSE> 17,314 51,003
<NET-INCOME> 41,550 40,126
863 2,863
<EARNINGS-AVAILABLE-FOR-COMM> 40,687 37,263
<COMMON-STOCK-DIVIDENDS> 20,338 61,146
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> 120,832 162,342
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
