<PAGE>
UNITED STATES
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 the quarterly period ended March 31, 2000
--------------
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
- ------------------------------ -----------------
(State 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:
All 18,320,937 issued and outstanding shares of Atlantic City Electric Company
common stock, $3 per share par value, are owned by Conectiv.
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
Table of Contents
-----------------
Page
----
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income for the three months
ended March 31, 2000, and March 31, 1999.................. 1
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999......................................... 2-3
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000, and March 31, 1999.................. 4
Notes to Consolidated Financial Statements................ 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Part II. Other Information
Item 1. Legal Proceedings......................................... 13
Item 6. Exhibits and Reports on Form 8-K.......................... 13
Signature............................................................ 14
i
<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
2000 1999
------------- ------------
<S> <C> <C>
OPERATING REVENUES $ 208,886 $244,839
------------- ------------
OPERATING EXPENSES
Electric fuel and purchased energy and capacity 89,955 114,906
Operation and maintenance 61,042 53,230
Depreciation and amortization 25,695 28,694
Taxes other than income taxes 9,514 9,975
------------- ------------
186,206 206,805
------------- ------------
OPERATING INCOME 22,680 38,034
------------- ------------
OTHER INCOME 1,622 2,244
------------- ------------
INTEREST EXPENSE
Interest charges 19,866 14,647
Allowance for borrowed funds used during
construction and capitalized interest (176) (167)
------------- ------------
19,690 14,480
------------- ------------
PREFERRED DIVIDEND REQUIREMENTS ON
PREFERRED SECURITIES OF SUBSIDIARY TRUSTS 1,905 1,920
------------- ------------
INCOME BEFORE INCOME TAXES 2,707 23,878
INCOME TAXES 1,134 8,787
------------- ------------
NET INCOME 1,573 15,091
DIVIDENDS ON PREFERRED STOCK 533 533
------------- ------------
EARNINGS APPLICABLE TO COMMON STOCK $ 1,040 $ 14,558
============= ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-1-
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 11,300 $ 7,924
Accounts receivable, net of allowances
of $3,500 and $3,500, respectively 130,211 133,879
Intercompany loan receivable 69,663 73,532
Inventories, at average cost
Fuel (coal and oil) 13,511 19,598
Materials and supplies 9,799 8,890
Prepaid income taxes 19,752 88,483
Deferred income taxes, net 25,553 6,245
Other prepayments 594 2,223
--------------- ---------------
280,383 340,774
--------------- ---------------
Investments
Funds held by trustee 107,113 105,268
Other investments 114 103
--------------- ---------------
107,227 105,371
--------------- ---------------
Property, Plant and Equipment
Electric generation 257,536 256,899
Electric transmission and distribution 1,233,529 1,224,644
Other electric facilities 126,473 128,388
Other property, plant, and equipment 5,772 5,772
--------------- ---------------
1,623,310 1,615,703
Less: Accumulated depreciation 637,709 626,080
--------------- ---------------
Net plant in service 985,601 989,623
Construction work-in-progress 37,445 46,025
Leased nuclear fuel, at amortized cost 27,817 30,391
--------------- ---------------
1,050,863 1,066,039
--------------- ---------------
Deferred Charges and Other Assets
Recoverable stranded costs 981,188 988,273
Unrecovered purchased power costs 25,318 28,923
Deferred recoverable income taxes 21,867 21,867
Unrecovered New Jersey state excise taxes 19,600 22,567
Deferred debt refinancing costs 13,137 13,574
Deferred other postretirement benefit costs 31,855 32,479
Unamortized debt expense 13,824 14,197
Other 21,939 20,595
--------------- ---------------
1,128,728 1,142,475
--------------- ---------------
Total Assets $2,567,201 $2,654,659
=============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-2-
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- --------------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Current Liabilities
Short-term debt $ - $ 30,000
Long-term debt due within one year 75 46,075
Variable rate demand bonds 22,600 22,600
Accounts payable 48,575 62,169
Interest accrued 15,378 20,182
Dividends payable 18,107 18,071
Current capital lease obligation 15,480 15,480
Deferred energy supply costs 55,542 46,375
Above-market purchased energy contracts
and other electric restructuring liabilities 7,308 7,992
Other 38,187 31,893
--------------- --------------
221,252 300,837
--------------- --------------
Deferred Credits and Other Liabilities
Deferred income taxes, net 403,346 389,594
Regulatory liability for New Jersey income tax benefit 49,262 49,262
Above-market purchased energy contracts
and other electric restructuring liabilities 17,431 16,921
Deferred investment tax credits 38,975 39,608
Long-term capital lease obligation 12,310 14,911
Pension benefit obligation 21,765 20,309
Other postretirement benefit obligation 41,537 42,952
Other 19,201 22,381
--------------- --------------
603,827 595,938
--------------- --------------
Capitalization
Common stock, $3 par value; shares authorized:
25,000,000; shares outstanding: 18,320,937 54,963 54,963
Additional paid-in capital 493,007 493,007
Retained earnings 114,194 129,981
--------------- --------------
Total common stockholder's equity 662,164 677,951
Preferred stock subject to mandatory redemption 23,950 23,950
Preferred stock not subject to mandatory redemption 6,231 6,231
Preferred securities of subsidiary trusts subject to mandatory
redemption 95,000 95,000
Long-term debt 954,777 954,752
--------------- --------------
1,742,122 1,757,884
--------------- --------------
Commitments and Contingencies (Note 5)
Total Capitalization and Liabilities $ 2,567,201 $2,654,659
=============== ==============
</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>
Three Months Ended
March 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,573 $ 15,091
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 29,071 28,083
Investment tax credit adjustments, net (633) (634)
Deferred income taxes, net (5,556) (9,860)
Deferred energy supply costs 7,303 20,344
Net change in:
Accounts receivable 12,150 10,470
Inventories 5,178 (5,669)
Prepaid New Jersey sales & excise taxes 2,287 19,437
Accounts payable (13,594) (18,289)
Taxes accrued 68,731 18,489
Other current assets and liabilities (1) 832 (5,558)
Other, net 855 3,929
------------ ------------
Net cash provided by operating activities 108,197 75,833
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Intercompany loan receivable 3,869 -
Capital expenditures (11,882) (6,100)
Deposits to nuclear decommissioning trust funds - (1,606)
Other, net (108) 2,620
------------ ------------
Net cash used by investing activities (8,121) (5,086)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid (16,827) (20,304)
Preferred dividends paid (497) (533)
Long-term debt redeemed (46,000) -
Principal portion of capital lease payments (3,376) (3,120)
Net change in short-term debt (30,000) -
Other, net - (468)
------------ ------------
Net cash used by financing activities (96,700) (24,425)
------------ ------------
Net change in cash and cash equivalents 3,376 46,322
Cash and cash equivalents at beginning of period 7,924 28,767
------------ ------------
Cash and cash equivalents at end of period $ 11,300 $ 75,089
============ ============
</TABLE>
(1) Other than debt and deferred income taxes classified as current.
See accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
NOTE 1. FINANCIAL STATEMENT PRESENTATION
- ------- --------------------------------
The consolidated condensed interim financial statements contained herein include
the accounts of Atlantic City Electric Company (ACE) and its wholly-owned
subsidiaries and reflect all adjustments necessary in the opinion of management
for a fair presentation of interim results. In accordance with regulations of
the Securities and Exchange Commission (SEC), disclosures which would
substantially duplicate the disclosures in ACE's 1999 Annual Report on Form 10-K
have been omitted. Accordingly, ACE's consolidated condensed interim financial
statements contained herein should be read in conjunction with ACE's 1999 Annual
Report on Form 10-K and Part II of this Quarterly Report on Form 10-Q for
additional relevant information.
Within the Consolidated Statements of Income, amounts previously reported for
the three months ended March 31, 1999 as "Electric fuel and purchased power" and
"Purchased electric capacity" have been combined and reported as "Electric fuel
and purchased energy and capacity." Certain other reclassifications of prior
period data have been made to conform with the current presentation.
NOTE 2. PLANNED ASSET SALES
- ------- -------------------
For information concerning agreements for the sale of the nuclear and non-
strategic baseload fossil electric generating plants of ACE, see Note 11 to the
Consolidated Financial Statements included in Item 8 of Part II of ACE's 1999
Annual Report on Form 10-K.
NOTE 3. RATE MATTERS
- ------- ------------
An update to the information previously reported in Note 7 to the Consolidated
Financial Statements included in Item 8 of Part II of ACE's 1999 Annual Report
on Form 10-K is presented below.
NEW JERSEY ELECTRIC UTILITY INDUSTRY RESTRUCTURING
As previously disclosed, the New Jersey Board of Public Utilities (NJBPU) issued
a Summary Order to ACE in July 1999 concerning restructuring ACE's electricity
supply business and indicated that a more detailed order would be issued at a
later time. The NJBPU's final order for ACE has been delayed due to appeals of
the NJBPU's final order concerning restructuring the electricity supply business
of Public Service Electric and Gas Company (PSE&G). In April 2000, the appeals
of the NJBPU's restructuring order for PSE&G were denied by the Appellate
Division of the New Jersey Superior Court. On May 2, 2000, one of the
appellants filed a notice of its intention to request the New Jersey Supreme
Court to exercise its discretion to review the unanimous Appellate Division
decision.
NOTE 4. DEBT
- ------- ----
ACE redeemed $46.0 million of 6.83% Medium Term Notes at maturity on January 26,
2000.
-5-
<PAGE>
NOTE 5. CONTINGENCIES
- ------- --------------
Environmental Matters
ACE 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. ACE 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. ACE is also a
defendant in an action to recover costs at a federal superfund site in
Gloucester County, New Jersey. There is $1.0 million included in ACE's current
liabilities as of March 31, 2000 and December 31, 1999 for remediation
activities at these sites. ACE does not expect such future costs to have a
material effect on its financial position or results of operations.
Nuclear Insurance
In conjunction with ACE's ownership interests in Peach Bottom Atomic Power
Station (Peach Bottom), Salem Nuclear Generating Station (Salem), and Hope Creek
Nuclear Generating Station (Hope Creek), ACE 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), ACE could be assessed up to $30.7 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, ACE is a member of an industry mutual insurance
company, which provides replacement power cost coverage in the event of a major
accidental outage at a nuclear power plant. Under these coverages, ACE is
subject to potential retrospective loss experience assessments of up to $3.9
million.
NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION
- ------- ----------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
<S> <C> <C>
2000 1999
-------- -------
(Dollars in thousands)
CASH PAID (RECEIVED) FOR:
Interest, net of amounts capitalized $ 23,527 $15,213
Income taxes, net of refunds $(61,444) $ 63
</TABLE>
As shown above, ACE received a $61.4 million income tax refund during the three
months ended March 31, 2000. The income tax refund was related to the tax
benefit associated with ACE's payment of $228.5 million on December 28, 1999 to
terminate ACE's purchase of electricity under a contract with the Pedricktown
Co-generation Limited Partnership (Pedricktown). For additional information
concerning the contract termination, see Note 8 to the Consolidated Financial
Statements included in Item 8 of Part II of ACE's 1999 Annual Report on Form 10-
K.
-6-
<PAGE>
NOTE 7. BUSINESS SEGMENTS
- ------- -----------------
Conectiv's organizational structure and management reporting information are
aligned with Conectiv's business segments, irrespective of the subsidiary, or
subsidiaries, through which a business is conducted. Businesses are managed
based on lines of business, not legal entity. Business segment information is
not produced, or reported, on a subsidiary by subsidiary basis. Thus, as a
Conectiv subsidiary, no business segment information (as defined by Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information") is available for ACE on a stand-alone
basis.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 "intend," "will,"
"anticipate," "estimate," "expect," "believe," 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: the effects of deregulation of energy supply and the unbundling
of delivery services; the ability to enter into purchased power agreements on
terms acceptable to ACE; market demand and prices for energy, capacity, and
fuel; weather variations affecting energy usage; operating performance of power
plants; an increasingly competitive marketplace; results of any asset
dispositions; sales retention and growth; federal and state regulatory actions;
future litigation results; 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. ACE
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 list of factors pursuant to the Litigation Reform Act should not
be construed as exhaustive or as any admission regarding the adequacy of
disclosures made prior to the effective date of the Litigation Reform Act.
EARNINGS RESULTS SUMMARY
- -------------------------
In the first quarter of 2000, earnings applicable to common stock were $1.0
million, which was a $13.5 million decrease compared to earnings for the first
quarter of 1999. The earnings decrease was mainly due to lower electric
revenues, reflecting the effect of customer rate decreases and a lower volume of
electricity delivered, and higher operation and maintenance expenses.
PLANNED DIVESTITURE OF ELECTRIC GENERATING PLANTS
- -------------------------------------------------
As previously disclosed in Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) under "Deregulated Generation and
Power Plant Divestiture" on page II-6 of ACE's 1999 Annual Report on Form 10-K,
Conectiv is building mid-merit electric generating plants and is selling the
nuclear and non-strategic baseload fossil electric generating plants of ACE.
The strategic electric generating plants of ACE which are being retained by
Conectiv are expected to be transferred to another Conectiv subsidiary during
mid-2000. In anticipation of this transaction, ACE plans to form a new
subsidiary, Conectiv Atlantic Generation LLC (CAG), which will be a subsidiary
of ACE REIT, Inc, which is currently an inactive ACE subsidiary. After the
necessary regulatory approvals are obtained, management expects to transfer the
strategic electric generating plants of ACE, with approximately 502 MW of
capacity to CAG. After the electric generating plants are transferred to CAG,
the ownership of ACE REIT, Inc. and CAG will be transferred to a Conectiv
subsidiary that will hold subsidiaries engaged in non-regulated electricity
production and sales, and energy trading and marketing.
-8-
<PAGE>
As a result of the transfers and expected sales of electric generating plants,
the principal business of ACE is expected to be the transmission and
distribution of electricity by late-2000. The businesses of ACE will also
include supplying electricity to customers who do not choose an alternative
electricity supplier (Basic Generation Service or "BGS"); power purchased by ACE
will be the source of the electricity supplied to its BGS customers. ACE
expects to enter into additional long-term purchased power agreements in the
third quarter of 2000 in order to supply its BGS customers.
ACE's exit from the business of electricity production is expected to cause a
decrease in ACE's earnings capacity.
ELECTRIC UTILITY INDUSTRY RESTRUCTURING
- ----------------------------------------
An update to the information previously reported in the MD&A under "Electric
Utility Industry Restructuring," beginning on page II-4 of ACE's 1999 Annual
Report on Form 10-K is presented below.
NEW JERSEY ELECTRIC UTILITY INDUSTRY RESTRUCTURING
As previously disclosed, the NJBPU issued a Summary Order to ACE in July 1999
concerning restructuring ACE's electricity supply business and indicated that a
more detailed order would be issued at a later time. The NJBPU's final order
for ACE has been delayed due to appeals of the NJBPU's final order concerning
restructuring the electricity supply business of PSE&G. In April 2000, the
appeals of the NJBPU's restructuring order for PSE&G were denied by the
Appellate Division of the New Jersey Superior Court. On May 2, 2000, one of the
appellants filed a notice of its intention to request the New Jersey Supreme
Court to exercise its discretion to review the unanimous Appellate Division
decision.
OPERATING REVENUES
- ------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------
2000 1999
------ ------
(Dollars in millions)
<S> <C> <C>
Regulated electric revenues $196.8 $242.4
Non-regulated electric revenues 9.1 -
Other revenues 3.0 2.4
------ ------
Total operating revenues $208.9 $244.8
====== ======
</TABLE>
The table above shows the amounts of electric revenues earned which are subject
to price regulation (Regulated) and which are not subject to price regulation
(Non-regulated). "Regulated electric revenues" include revenues for delivery
(transmission and distribution) service and BGS.
Regulated electric revenues decreased by $45.6 million due to the following: (a)
a $13.7 million revenue decrease due to rate decreases for electric utility
industry restructuring and savings resulting from termination of the Pedricktown
purchased power contract; (b) a $5.6 million revenue decrease due to customers
choosing alternative electricity suppliers; (c) a $6.3 million revenue decrease
due to over-recoveries of BGS costs; and (d) a $20.0 million decrease primarily
due to lower volumes of electricity delivered, including the effect of the
shutdown of two major customers.
The gross margin (revenues less related fuel and purchased power costs) earned
from regulated electricity sales, decreased by approximately $16.9 million.
-9-
<PAGE>
Non-regulated electric revenues of $9.1 million for the first quarter of 2000
resulted primarily from the sale of the electricity generated by ACE's
deregulated electric generating plants. Under the terms of the Summary Order
issued by NJBPU on July 15, 1999, the electricity generated by ACE's combustion
turbines (502 MW of capacity) and the Deepwater electric generating plant (239
MW of capacity), may be sold in deregulated markets; ACE's other electric
generating plants are dedicated to supplying BGS until they are sold. For
additional information concerning commodity market risk associated with ACE's
deregulated generation, see "Item 3. Quantitative and Qualitative Disclosures
About Market Risk," included herein.
OPERATING EXPENSES
- -------------------
Electric Fuel and Purchased Energy and Capacity
"Electric fuel and purchased energy and capacity" decreased $25.0 million in the
first quarter of 2000 primarily due to costs which were recorded in the first
quarter of 1999 pursuant to the energy adjustment clause which was eliminated
effective August 1, 1999, in connection with restructuring the electric utility
industry.
Operation and Maintenance Expenses
Operation and maintenance expenses increased $7.8 million in the first quarter
of 2000 primarily due to increases in the operating expenses of jointly-owned
power plants and customer care expenses associated with electric delivery
customers.
Depreciation and amortization
Depreciation and amortization expenses decreased $3.0 million mainly due to the
write-downs in the third and fourth quarters of 1999 of electric generating
plants in connection with restructuring the electric utility industry in New
Jersey. Amortization of "Recoverable stranded costs" partly offset the decrease
from lower depreciation of power plants.
INCOME TAXES
- ------------
Income taxes decreased $7.7 million mainly due to lower income before income
taxes.
INTEREST EXPENSE
- ----------------
Interest charges increased $5.2 million primarily due to $4.1 million of
interest charges on the $228.5 million borrowing in December 1999 to finance the
payment to terminate the Pedricktown purchased power contract, and $1.0 million
of interest expense accrued on ACE's regulatory liability related to BGS.
-10-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------
Due to $108.2 million of cash provided by operating activities, $8.1 million of
cash used by investing activities, and $96.7 million of cash used by financing
activities, cash and cash equivalents increased by $3.4 million during the first
quarter of 2000.
Net cash provided by operating activities for the first quarter of 2000 included
positive cash flow from a $61.4 million income tax refund, which was related to
the tax benefit associated with the December 1999 payment to terminate the
Pedricktown purchased power contract. In the first quarter of 1999, $0.1
million of income taxes were paid. Excluding the $61.5 million positive
variance in cash flow attributed to income taxes, net cash flow from operations
decreased by $29.1 million primarily due to prior-year over-collections of
energy costs from customers, lower electricity sales, higher interest expense
payments, and slower collections of accounts receivable.
As of March 31, 2000, ACE had prepaid income taxes of $19.8 million in
comparison to prepaid income taxes of $88.5 million as of December 31, 1999.
The $68.7 million decrease in prepaid income taxes was mainly due to the $61.4
million income tax refund received in the first quarter of 2000.
Capital expenditures of $11.9 million for the first quarter of 2000 were
primarily for electric transmission and distribution system upgrades.
Financing activities used cash of $96.7 million primarily due to redemption of
$46.0 million of 6.83% Medium Term Notes at maturity on January 26, 2000, the
repayment of $30.0 million of short-term debt, and the payment of a $16.8
million common dividend to Conectiv.
ACE's capital structure, including short-term debt, variable rate demand bonds
and current maturities of long-term debt, is shown below as of March 31, 2000
and December 31, 1999, expressed as a percentage of total capitalization.
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Common stockholder's equity 37.5% 36.5%
Preferred stock and preferred trust securities 7.1% 6.7%
Long-term debt, including current maturities,
variable rate demand bonds, and short-term debt 55.4% 56.8%
</TABLE>
ACE's ratio of earnings to fixed charges under the SEC Methods are shown below.
See Exhibit 12-A, Ratio of Earnings to Fixed Charges, and Exhibit 12-B, Ratio of
Earnings to Fixed Charges and Preferred Dividends, for additional information.
<TABLE>
<CAPTION>
12 Months
Ended Year Ended December 31,
March 31, ----------------------------
2000 1999 1998 1997 1996 1995
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges (SEC Method) 2.19 2.57 1.66 2.84 2.59 3.19
Ratio of Earnings to Fixed Charges and
Preferred Dividends (SEC Method) 2.09 2.44 1.55 2.58 2.16 2.43
</TABLE>
-11-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
As previously disclosed under "Quantitative and Qualitative Disclosures About
Market Risk" on pages II-13 to II-14 of ACE's 1999 Annual Report on Form 10-K,
ACE is subject to market risks, including interest rate risk, equity price risk,
and commodity price risk. An update concerning ACE's commodity price risk is
below.
Effective August 1, 1999, 741 MW of capacity of ACE's electric generating plants
was deregulated. The megawatt-hour (MWH) output of these plants is sold in
markets not subject to price regulation. ACE hedges the MWH output of the
deregulated portion of its electric generating units primarily through forward
contracts, which are used to lock-in selling prices for electricity. ACE also
writes (or sells) options for sale of the electric generating plants' MWH
output.
ACE uses a value-at-risk model to assess the market risk of the electricity
output of its deregulated generating units. The model includes fixed price
sales commitments, physical forward contracts, and commodity derivative
instruments. Value-at-risk represents the potential gain or loss on instruments
or portfolios due to changes in market factors, for a specified time period and
confidence level. ACE estimates value-at-risk using a delta-normal
variance/covariance model with a 95 percent confidence level and assuming a
five-day holding period.
ACE's calculated value-at-risk with respect to its commodity price exposure was
approximately $12.7 million as of March 31, 2000, in comparison to $6.4 million
as of December 31, 1999. The increase in value-at-risk was primarily due to
increased hedging, with forward contracts, of the deregulated portion of the
electricity output of ACE's power plants.
-12-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
The municipal utility within the City of Vineland has built electric
distribution facilities to a previously undeveloped area that is both within the
city limits and ACE's franchised service area. After unsuccessful negotiations
with the City of Vineland, ACE has initiated litigation before the NJBPU to
defend its franchise right to serve. Because the area has previously been
undeveloped, the outcome of the litigation, even if negative, will have no
immediate effects on revenue.
In addition, the City of Vineland has recently initiated a process to appraise
all of ACE's electric distribution property located within the municipal
boundaries. This process may or may not lead to an effort by the City of
Vineland to condemn ACE's electric distribution property. ACE intends to oppose
any involuntary condemnation and, alternatively, to ensure that there is
adequate compensation for any property condemned.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
Exhibits
- ---------
Exhibit 12-A, Ratio of Earnings to Fixed Charges
Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends
Exhibit 27, Financial Data Schedule
Reports on Form 8-K
- --------------------
On January 31, 2000, ACE filed a Current Report on Form 8-K dated January 18,
2000 reporting on Item 5, Other Events, and Item 7, Financial Statements and
Exhibits.
On March 22, 2000, ACE filed a Current Report on Form 8-K dated March 22, 2000
reporting on Item 5, Other Events.
-13-
<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: May 12, 2000 /s/ John C. van Roden
------------ ---------------------
John C. van Roden, Senior Vice President
and Chief Financial Officer
-14-
<PAGE>
Exhibit Index
-------------
Exhibit 12-A, Ratio of Earnings to Fixed Charges
Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends
Exhibit 27, Financial Data Schedule
<PAGE>
Exhibit 12-A
Atlantic City Electric Company
Ratio of Earnings to Fixed Charges
----------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
12 Months
Ended Year Ended December 31,
March 31, -----------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item $ 50,412 $ 63,930 $ 30,276 $ 85,747 $ 75,017 $ 98,752
------------- --------- -------- -------- -------- --------
Income taxes 41,673 49,326 18,178 50,442 36,958 48,277
------------- --------- -------- -------- -------- --------
Fixed charges:
Interest on long-term debt
including amortization of
discount, premium and
expense 65,781 60,562 63,940 64,501 64,847 62,879
Other interest 3,916 3,837 3,435 3,574 4,019 4,364
Preferred dividend require-
ments of subsidiary
trusts 7,619 7,634 6,052 5,775 1,428 -
------------- --------- -------- -------- -------- --------
Total fixed charges 77,316 72,033 73,427 73,850 70,294 67,243
------------- --------- -------- -------- -------- --------
Earnings before extraordinary
item, income taxes and
fixed charges $ 169,401 $ 185,289 $121,881 $210,039 $182,269 $214,272
============= ========= ======== ======== ======== ========
Ratio of earnings to fixed charge 2.19 2.57 1.66 2.84 2.59 3.19
</TABLE>
For purposes of computing the ratio, earnings are income before extraordinary
item 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 subsidiary trusts, and the estimated
interest component of rentals.
<PAGE>
Exhibit 12-B
Atlantic City Electric Company
Ratio of Earnings to Fixed Charges and Preferred Dividends
----------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
12 Months
Ended Year Ended December 31,
March 31, ----------------------------------------------------------
2000 1999 1998 1997 1996 1995
--------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item $ 50,412 $ 63,930 $ 30,276 $ 85,747 $ 75,017 $ 98,752
--------------- ---------- ---------- ---------- ---------- ----------
Income taxes 41,673 49,326 18,178 50,442 36,958 48,277
--------------- ---------- ---------- ---------- ---------- ----------
Fixed charges:
Interest on long-term debt
including amortization of
discount, premium and
expense 65,781 60,562 63,940 64,501 64,847 62,879
Other interest 3,916 3,837 3,435 3,574 4,019 4,364
Preferred dividend require-
ments of subsidiary
trusts 7,619 7,634 6,052 5,775 1,428 -
--------------- ---------- ---------- ---------- ---------- ----------
Total fixed charges 77,316 72,033 73,427 73,850 70,294 67,243
--------------- ---------- ---------- ---------- ---------- ----------
Earnings before extraordinary
item, income taxes and
fixed charges $ 169,401 $ 185,289 $ 121,881 $ 210,039 $ 182,269 $ 214,272
=============== ========== ========== ========== ========== ==========
Fixed charges $ 77,316 $ 72,033 $ 73,427 $ 73,850 $ 70,294 $ 67,243
Preferred dividend requirement 3,894 3,777 5,289 7,506 14,214 20,839
--------------- ---------- ---------- ---------- ---------- ----------
$ 81,210 $ 75,810 $ 78,716 $ 81,356 $ 84,508 $ 88,082
=============== ========== ========== ========== ========== ==========
Ratio of earnings to fixed charges
and preferred dividends 2.09 2.44 1.55 2.58 2.16 2.43
</TABLE>
For purposes of computing the ratio, earnings are income before extraordinary
item 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 subsidiary trusts, and the estimated
interest component of rentals. Preferred dividend requirements represent
annualized preferred dividend requirements multiplied by the ratio that pre-tax
income bears to net income.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME FROM ACE'S FIRST QUARTER 2000
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 980,702
<OTHER-PROPERTY-AND-INVEST> 112,126
<TOTAL-CURRENT-ASSETS> 280,383
<TOTAL-DEFERRED-CHARGES> 1,128,728
<OTHER-ASSETS> 65,262
<TOTAL-ASSETS> 2,567,201
<COMMON> 54,963
<CAPITAL-SURPLUS-PAID-IN> 493,007
<RETAINED-EARNINGS> 114,194
<TOTAL-COMMON-STOCKHOLDERS-EQ> 662,164
118,950
6,231
<LONG-TERM-DEBT-NET> 954,777
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 75
0
<CAPITAL-LEASE-OBLIGATIONS> 12,310
<LEASES-CURRENT> 15,480
<OTHER-ITEMS-CAPITAL-AND-LIAB> 797,214
<TOT-CAPITALIZATION-AND-LIAB> 2,567,201
<GROSS-OPERATING-REVENUE> 208,886
<INCOME-TAX-EXPENSE> 1,134
<OTHER-OPERATING-EXPENSES> 186,206
<TOTAL-OPERATING-EXPENSES> 187,340
<OPERATING-INCOME-LOSS> 21,546
<OTHER-INCOME-NET> 1,622
<INCOME-BEFORE-INTEREST-EXPEN> 23,168
<TOTAL-INTEREST-EXPENSE> 21,595
<NET-INCOME> 1,573
533
<EARNINGS-AVAILABLE-FOR-COMM> 1,040
<COMMON-STOCK-DIVIDENDS> 16,827
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 108,197
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
