SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
(x) Quarterly Report Pursuant to Section 13 OR 15 (d)
of The Securities Exchange Act of 1934
For Quarter ended September 30, 1994
( ) Transition Report Pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
Commission Registrant; State of Incorporation; IRS Employer
File No. Address; and Telephone No. Identification No.
1-9760 Atlantic Energy, Inc. 22-2871471
(New Jersey)
6801 Black Horse Pike
Pleasantville, NJ 08232
(609) 645-4500
1-3559 Atlantic City Electric Company 21-0398280
(New Jersey)
P.O. Box 1264
6801 Black Horse Pike
Pleasantville, NJ 08232
(609) 645-4100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date:
Atlantic Energy, Inc. 54,376,945 (as of November 14, 1994)
All of the outstanding shares of Common Stock of Atlantic City
Electric Company are owned by Atlantic Energy, Inc.
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF INCOME
Thousands of Dollars
Quarter Ended September 30,
1994 1993
(unaudited)
Operating Revenues-Electric $272,708 $268,883
Operating Expenses:
Energy 67,714 45,243
Purchased Capacity 30,171 29,457
Operations 40,197 43,552
Maintenance 9,136 9,341
Depreciation and Amortization 18,351 15,840
State Excise Taxes 24,695 26,160
Federal Income Taxes 21,400 28,136
Other Taxes 2,613 2,574
Total Operating Expenses 214,277 200,303
Operating Income 58,431 68,580
Other Income:
Allowance for Equity Funds Used During
Construction 975 396
Other-Net 5,334 3,073
Total Other Income 6,309 3,469
Interest Charges:
Interest on Long Term Debt 14,243 15,446
Other Interest Expense 645 311
Total Interest Charges 14,888 15,757
Allowance for Borrowed Funds Used
During Construction (780) (357)
Net Interest Charges 14,108 15,400
Less Preferred Stock Dividend
Requirements of Subsidiary 4,309 4,320
Net Income $ 46,323 $ 52,329
Average Number of Shares of Common 54,353 53,034
Stock Outstanding (in thousands)
Per Common Share:
Earnings $ .85 $ .99
Dividends Declared $ .385 $ .385
Dividends Paid $ .385 $ .385
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Thousands of Dollars
Year-to-Date September 30,
1994 1993
(unaudited)
Operating Revenues-Electric $710,629 $665,078
Operating Expenses:
Energy 158,581 120,589
Purchased Capacity 97,840 84,118
Operations 115,419 118,773
Maintenance 27,184 26,820
Depreciation and Amortization 55,117 51,558
State Excise Taxes 75,786 78,120
Federal Income Taxes 43,394 45,240
Other Taxes 8,737 8,453
Total Operating Expenses 582,058 533,671
Operating Income 128,571 131,407
Other Income:
Allowance for Equity Funds Used During
Construction 2,697 1,592
Other-Net 9,512 8,373
Total Other Income 12,209 9,965
Interest Charges:
Interest on Long Term Debt 42,862 44,368
Other Interest Expense 1,024 1,623
Total Interest Charges 43,886 45,991
Allowance for Borrowed Funds Used
During Construction (2,018) (1,132)
Net Interest Charges 41,868 44,859
Less Preferred Stock Dividend
Requirements of Subsidiary 12,928 13,096
Net Income 85,984 83,417
Retained Earnings at Beginning of Period 256,549 242,768
342,533 326,185
Dividends Declared on Common Stock (62,581) (60,746)
Capital Stock Expense and Other - (170)
Retained Earnings at End of Period $279,952 $265,269
Average Number of Shares of Common
Stock Outstanding (in thousands) 54,082 52,721
Per Common Share:
Earnings $1.59 $1.58
Dividends Declared $1.155 $1.150
Dividends Paid $1.155 $1.145
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
Thousands of Dollars
Quarter Ended September 30,
1994 1993
(unaudited)
Cash Flows Of Operating Activities:
Net Income $ 46,323 $ 52,329
Deferred Purchased Power Costs 3,880 3,489
Deferred Energy Costs 10,882 (7,800)
Depreciation and Amortization 18,351 15,840
Deferred Income Taxes-Net (6,045) 7,366
Prepaid State Excise Taxes 24,695 25,024
Net Decrease in Other Working Capital 10,604 20,935
Preferred Stock Dividend Requirements
of Subsidiary 4,309 4,320
Other-Net (4,721) (648)
Net Cash Provided by Operating Activities 108,278 120,855
Cash Flows Of Investing Activities:
Utility Cash Construction Expenditures (26,540) (27,742)
Leased Property (1,452) (3,987)
Nuclear Decommissioning Trust Fund
Deposits (1,606) (1,606)
Utility Plant Removal Costs (2,082) 1,315
Other-Net 4,243 (1,840)
Net Cash Used by Investing Activities (27,437) (33,860)
Cash Flows Of Financing Activities:
Proceeds from Long Term Debt - 249,879
Retirement and Maturity of Long Term Debt (11,029) (207,760)
Decrease in Short Term Debt (23,700) (60,500)
Proceeds from Capital Lease Obligations 1,452 3,987
Proceeds from Common Stock Issued 81 4,097
Dividends Declared on Preferred Stock (4,309) (4,320)
Dividends Declared on Common Stock (20,870) (16,886)
Other-Net (759) (393)
Net Cash Used by Financing Activities (59,134) (31,896)
Net Increase in Cash and Temporary
Investments 21,707 55,099
Cash and Temporary Investments,
beginning of period 16,657 21,791
Cash and Temporary Investments,
end of period $ 38,364 $ 76,890
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
Thousands of Dollars
Year-to-Date September 30,
1994 1993
(unaudited)
Cash Flows Of Operating Activities:
Net Income $ 85,984 $ 83,417
Deferred Purchased Power Costs 11,170 10,461
Deferred Energy Costs (11,919) (7,059)
Depreciation and Amortization 55,117 51,558
Deferred Income Taxes 18,099 24,652
Prepaid State Excise Taxes (61,724) (61,006)
Net Increase in Other Working Capital (19,457) (175)
Preferred Stock Dividend Requirements
of Subsidiary 12,928 13,096
Other-Net (5,407) (720)
Net Cash Provided by Operating
Activities 84,791 114,224
Cash Flows Of Investing Activities:
Utility Cash Construction Expenditures (79,592) (86,031)
Leased Property (3,925) (5,000)
Nuclear Decommissioning Trust Fund
Deposits (4,818) (4,818)
Utility Plant Removal Costs (3,585) (1,448)
Other-Net (253) (8,595)
Net Cash Used by Investing Activities (92,173) (105,892)
Cash Flows Of Financing Activities:
Proceeds from Long Term Debt 22,693 460,686
Retirement and Maturity of Long Term Debt (36,023) (370,439)
Increase (Decrease) in Short Term Debt 40,400 (14,600)
Proceeds from Capital Lease Obligations 3,925 5,000
Proceeds from Common Stock Issued 9,917 11,626
Dividends Declared on Preferred Stock (12,928) (13,096)
Dividends Declared on Common Stock (55,000) (50,293)
Other-Net (873) (5,973)
Net Cash (Used)Provided by Financing
Activities (27,889) 22,911
Net (Decrease)Increase in Cash and Temporary
Investments (35,271) 31,243
Cash and Temporary Investments,
beginning of period 73,635 45,647
Cash and Temporary Investments,
end of period $ 38,364 $ 76,890
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
Thousands of Dollars
September 30, December 31,
1994 1993
(unaudited)
ASSETS
Electric Utility Plant:
In Service $2,270,833 $2,193,656
Less Accumulated Depreciation 713,163 668,832
Net 1,557,670 1,524,824
Construction Work in Progress 149,417 156,590
Land Held for Future Use 6,949 6,901
Leased Property-Net 38,544 45,268
Electric Utility Plant-Net 1,752,580 1,733,583
Nonutility Property and Investments:
Investment in Leveraged Leases 78,005 77,268
Nuclear Decommissioning Trust Fund 49,750 43,163
Nonutility Property and Equipment-Net 15,043 14,535
Other Investments and Funds 25,336 18,102
Total Nonutility Property and
Investments 168,134 153,068
Current Assets:
Cash and Temporary Investments 38,364 73,635
Accounts Receivable:
Utility Service 64,980 51,502
Miscellaneous 9,041 11,420
Allowance for Doubtful Accounts (3,300) (3,000)
Unbilled Revenues 36,141 39,309
Fuel (at average cost) 25,933 14,635
Materials and Supplies (at average cost) 28,142 28,230
Working Funds 14,678 14,315
Prepaid State Excise Taxes 27,592 8,386
Other Prepayments 7,041 7,410
Deferred Energy Costs 19,099 7,180
Deferred Income Taxes 2,261 3,283
Total Current Assets 269,972 256,305
Deferred Debits:
Unrecovered Purchased Power Costs 119,288 130,458
Recoverable Future Federal Income Taxes 85,854 85,855
Unrecovered State Excise Taxes 76,224 33,706
Unamortized Debt Costs 38,464 39,306
Property Abandonment Costs-Net 9,633 10,325
Other Regulatory Assets 36,201 31,380
Other 20,917 13,522
Total Deferred Debits 386,581 344,552
Total Assets $2,577,267 $2,487,508
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
Thousands of Dollars
September 30, December 31,
1994 1993
(unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Shareholders' Equity:
Common Stock $ 596,941 $ 579,443
Retained Earnings 279,952 256,549
Total Common Shareholders' Equity 876,893 835,992
Preferred Stock of Atlantic Electric:
Not Subject to Mandatory Redemption 40,000 40,000
Subject to Mandatory Redemption 173,750 173,750
Long Term Debt 753,980 766,101
Total Capitalization
(excluding current portion) 1,844,623 1,815,843
Current Liabilities:
Cumulative Preferred Stock Redemption
Requirement 12,250 12,250
Capital Lease Obligations 911 861
Short Term Debt 40,400 -
Accounts Payable 51,897 63,847
Taxes Accrued 41,114 16,020
Interest Accrued 15,464 22,149
Dividends Declared 25,236 24,910
Other Customer Deposits 2,952 2,890
Other 15,735 21,875
Total Current Liabilities 205,959 164,802
Deferred Credits and Other Liabilities:
Deferred Income Taxes 402,303 383,347
Deferred Investment Tax Credits 52,280 54,180
Capital Lease Obligations 37,633 44,407
Other 34,469 24,929
Total Deferred Credits and
Other Liabilities 526,685 506,863
Total Liabilities and Capitalization $2,577,267 $2,487,508
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Atlantic Energy, Inc. (the Company) is a public utility
holding company. Its principal subsidiary is Atlantic City
Electric Company (ACE), an electric utility. Other
subsidiaries of the Company, which are nonutility companies,
are Atlantic Generation, Inc. (AGI), ATE Investment, Inc.
(ATE), Atlantic Southern Properties, Inc. (ASP), Atlantic
Energy Technology, Inc. (AET), and Atlantic Thermal Systems,
Inc., (ATS). The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of
which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated in
consolidation. The results of operations of the nonutility
companies are not significant and are classified under Other
Income in the Consolidated Statement of Income. These
consolidated financial statements reflect all normal,
recurring adjustments and accruals which, in the opinion of
management, are necessary for a fair presentation of the
consolidated financial statements presented. The notes to
the consolidated financial statements accompanying the
Company's 1993 Annual Report to Shareholders and on Form 10-
K filed with the Securities and Exchange Commission should
be read in conjunction with this report. Note 1 of these
annual reports specifically identifies the significant
accounting policies of the Company. The consolidated
balance sheet contained in the financial statements
presented herein that is labeled December 31, 1993 was
derived from the audited consolidated balance sheet
presented in the 1993 Annual Report to Shareholders and Form
10-K.
2. The components of Federal Income Tax expense are as follows
(in thousands of dollars):
Quarter Ended September 30,
1994 1993
(unaudited)
Current $29,685 $21,743
Deferred (6,095) 7,340
Investment Tax Credits Recognized on
Leverage Leases - (2)
Total Federal Income Tax Expense 23,590 29,081
Less Amounts Included in Other Income 2,190 945
Federal Income Taxes Included
in Operating Expenses $21,400 $28,136
A reconciliation of the expected Federal income taxes
compared to the reported Federal Income Tax expense computed
by applying the statutory rate follows:
Tax Computed at the Statutory Rate
of 35% $25,978 $30,006
Utility Plant Basis Differences 113 106
Investment Tax Credits (634) (636)
Deferred Tax Adjustments - (197)
Other-Net (1,867) (198)
Total Federal Income Tax Expense $23,590 $29,081
Effective Federal Income Tax Rate 32% 34%
Year-to-Date September 30,
1994 1993
(unaudited)
Current $28,479 $21,654
Deferred 18,104 23,509
Investment Tax Credits Recognized on
Leverage Leases - (25)
Total Federal Income Tax Expense 46,583 45,138
Less Amounts Included in Other Income 3,189 (102)
Federal Income Taxes Included
in Operating Expenses $43,394 $45,240
Tax Computed at the Statutory Rate
of 35% $50,923 $49,578
Utility Plant Basis Differences 1,347 1,789
Investment Tax Credits (1,901) (1,926)
Deferred Tax Adjustments (375) (2,575)
Other-Net (3,411) (1,728)
Total Federal Income Tax Expense $46,583 $45,138
Effective Federal Income Tax Rate 32% 32%
Certain prior year reconciliation amounts have been
reclassified to conform to the current year reporting.
3. On February 8, 1994, ACE filed a petition with the New
Jersey Board of Public Utilities (BPU) requesting an
increase in Levelized Energy Clause (LEC) revenues of $63
million for the period June 1, 1994 through May 31, 1995.
The increase is due primarily to the costs to be incurred
from the purchase of 388 megawatts of capacity and energy
from two new independent power producers scheduled to begin
commercial operation during the 1994/1995 LEC period.
Incorporated into the requested amount is utilization of $56
million of current base rate revenue associated with a
utility power purchase contract that expired on May 31,
1994, and the Southern New Jersey Economic Initiative, a
voluntary rate reduction by ACE of $28 million over the LEC
period designed to keep its rates competitive. On June 27,
1994, ACE filed a motion requesting an interim increase in
LEC revenues in order to avoid the effects of rate
compression on customers. On July 19, 1994 the BPU approved
a provisional increase in annual LEC revenues of $55 million
effective July 26, 1994. On September 9, 1994, the
Administrative Law Judge issued its Initial Decision that
recommends an increase in annual LEC revenues of
approximately $54 million. On October 12, 1994, the BPU
extended the time period by which it must render its
decision. Presently, the BPU is expected to render its
final decision with regard to the LEC increase in December
1994.
On June 23, 1994, the BPU approved a stipulation to allow
casino customers to take service under existing commercial
base rate schedules. Prior to BPU approval, casino
customers were served under the Hotel Casino Service (HCS)
rate schedule, the highest rate for service of all ACE's
service classes. Effective July 1, 1994, all casino
customers began taking service under the AGS-TOU, or Annual
General Service-Time of Use, rate schedule which could
reduce annual base rate revenues by approximately $6.7
million. Original estimates of annual base rate revenue
reductions of $5 million were based on the Transmission
General Service rate schedule. Effective July 25, 1994, the
Hotel Casino Service tariffs were no longer offered as
tariffs for electric service.
Pursuant to a February 18, 1994 ruling supporting the
investigation of the "double recovery" of capacity costs
from nonutility generation projects, the BPU issued its
written Order dated September 16, 1994. The Order confirms
the establishment of a generic proceeding to review the
utility power purchase cost recovery methodology and ordered
this matter be transferred to the Office of Administrative
Law for evidenciary hearings. The BPU ordered that this
matter be reviewed in a two phase proceeding. The scope of
the issues to be resolved during the first phase of the
proceeding will include: 1) the determination of the
existence, or lack of existence, of the double recovery as a
result of the traditional LEC pass-through of nonutility
generation capacity costs; 2) the quantification of any
such double recovery found to exist for each utility for the
relevant periods; and 3) a determination of an appropriate
remedy or adjustment if and when such double recovery is
found to occur and the periods of time over which such an
adjustment would be applicable. Following the conclusion of
the first phase of the proceeding, the BPU, in the second
phase, will render a final decision regarding the specific
findings of the Office of Administrative Law and address the
broader issues relating to the appropriate prospective
purchased power cost recovery methods. ACE cannot estimate
the impact that the double recovery issue may have on future
rates. The Ratepayer Advocate has not proposed a standard
methodology for quantifying the double recovery issue.
4. During the third quarter of 1994, ACE acquired and retired
$10.5 million principle amount of 9-1/4% First Mortgage
Bonds due 2019. The aggregate cost of these redemptions was
$409,000, net of related Federal income taxes.
At September 30, 1994, ACE had outstanding $40.4 million of
short term debt with maturities of one to four months.
ACE's Cumulative Preferred Stock and long term debt
securities are not widely held and generally trade
infrequently. The estimated aggregate fair market value at
September 30, 1994 is approximately $214.1 million and
$685.5 million, respectively. The estimated aggregate fair
market value at September 30, 1994 of ATE's senior notes was
approximately $14.7 million.
5. As of September 30, 1994 and December 31, 1993, 54,355,137
and 53,506,786 shares of common stock were outstanding,
respectively. Shares issued during 1994 were through the
Dividend Reinvestment and Stock Purchase Plan and ACE
employee benefit plans.
On October 27, 1994, the Company's Board of Directors
authorized the acquisition of up to 3 million shares or
approximately 5.5% of its outstanding common stock. Under
the plan, the Company will retire these shares. There is no
schedule or specific share price target associated with the
acquisition program.
6. ACE has been identified as one of a number of responsible
parties at two sites which are the subject of clean-up and
remediation activity. The first site involves a property in
Gloucester County, New Jersey. Notwithstanding the joint
and several liability imposed by law, sufficient discovery
has been conducted to establish that the contribution of ACE
to the clean-up and remediation activity would be in the
lower tiers of financial participation. Primary
responsibility will be apportioned among others, including
the Federal and State agencies and private parties. This
matter is pending in the Federal court. ACE is a member of
a joint defense group in that proceeding.
The second site involves a sanitary landfill in Atlantic
County, New Jersey which is the subject of an Administrative
Consent Order (ACO) which has been executed and delivered to
the New Jersey Department of Environmental Protection
(NJDEP) by ACE and at least four other identified
potentially responsible parties. A remedy, which will
include a soil cover of the site, has been developed and
will be implemented. While ACE is subject to joint and
several liability pursuant to the terms of the ACO, ACE has
joined with three other parties to implement the terms of
the ACO. Recovery will be pursued against those persons who
were named as potentially responsible parties who do not
execute and deliver the ACO and against other persons not
named by the NJDEP.
ACE's responsibility for such claims is not expected to
exceed $1,000,000 in the aggregate. ACE believes that
insurance coverage should be available to satisfy any
amounts in excess of the self-insured limits associated with
these particular claims.
7. A contract with a large industrial concern whereby ACE
delivered process steam, water and by-product electricity
was terminated by the concern effective June 30, 1994. The
steam and electricity needs of this concern is now being
provided by a nonutility cogeneration facility. ACE
received approximately $4 million from this concern in 1993
for these services. In addition, ACE also received
approximately $8 million from sales of energy to this
concern in 1993.
By terms of the termination agreement, the industrial
concern is to make certain payments to ACE over a period of
time, and ACE must also perform certain activities. As a
result of this termination agreement, ACE received $4.2
million in cash proceeds and recognized again of $2.4
million net of tax in other income.
CONSOLIDATED STATEMENT OF INCOME
Thousands of Dollars
Quarter Ended September 30,
1994 1993
(unaudited)
Operating Revenues-Electric $272,769 $268,927
Operating Expenses:
Energy 67,714 45,243
Purchased Capacity 30,171 29,457
Operations 40,346 43,731
Maintenance 9,158 9,365
Depreciation and Amortization 18,351 15,840
State Excise Taxes 24,695 26,160
Federal Income Taxes 21,400 28,136
Other Taxes 2,613 2,574
Total Operating Expenses 214,448 200,506
Operating Income 58,321 68,421
Other Income:
Allowance for Equity Funds Used During
Construction 975 396
Miscellaneous Income-Net 4,491 2,060
Total Other Income 5,466 2,456
Interest Charges:
Interest on Long Term Debt 14,243 15,446
Other Interest Expense 645 311
Total Interest Charges 14,888 15,757
Allowance for Borrowed Funds Used
During Construction (780) (357)
Net Interest Charges 14,108 15,400
Net Income 49,679 55,477
Less Preferred Dividend Requirements 4,309 4,320
Balance Available for Common Shareholder $ 45,370 $ 51,157
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Thousands of Dollars
Year-to-Date September 30,
1994 1993
(unaudited)
Operating Revenues-Electric $710,765 $665,161
Operating Expenses:
Energy 158,581 120,589
Purchased Capacity 97,840 84,118
Operations 115,860 119,304
Maintenance 27,249 26,891
Depreciation and Amortization 55,117 51,558
State Excise Taxes 75,786 78,120
Federal Income Taxes 43,394 45,240
Other Taxes 8,737 8,453
Total Operating Expenses 582,564 534,273
Operating Income 128,201 130,888
Other Income:
Allowance for Equity Funds Used During
Construction 2,697 1,592
Miscellaneous Income-Net 8,416 6,510
Total Other Income 11,113 8,102
Interest Charges:
Interest on Long Term Debt 42,862 44,368
Other Interest Expense 1,024 1,623
Total Interest Charges 43,886 45,991
Allowance for Borrowed Funds Used
During Construction (2,018) (1,132)
Net Interest Charges 41,868 44,859
Net Income 97,446 94,131
Retained Earnings at Beginning of Period 256,961 246,883
354,407 341,014
Dividends Declared:
Cumulative Preferred Stock 12,928 13,096
Common Stock 62,581 60,746
Total Dividends Declared 75,509 73,842
Capital Stock Expense - (193)
Retained Earnings at End of Period $278,898 $266,979
Earnings for Common Stock:
Net Income $ 97,446 $ 94,131
Less Preferred Dividend Requirements 12,928 13,096
Balance Available for Common Shareholder $ 84,518 $ 81,035
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
Thousands of Dollars
Quarter Ended September 30,
1994 1993
(unaudited)
Cash Flows Of Operating Activities:
Net Income $ 49,679 $ 55,477
Deferred Purchased Power Costs 3,880 3,489
Deferred Energy Costs 10,882 (7,800)
Depreciation and Amortization 18,351 15,840
Deferred Federal Income Taxes-Net (6,977) 6,574
Prepaid State Excise Taxes 24,695 25,024
Net Decrease in Other Working Capital 10,758 21,056
Other-Net (1,932) 1,966
Net Cash Provided by Operating Activities 109,336 121,626
Cash Flows Of Investing Activities:
Cash Construction Expenditures (26,540) (27,742)
Leased Property (1,452) (3,987)
Nuclear Decommissioning Trust Fund
Deposits (1,606) (1,606)
Plant Removal Costs (2,082) 1,315
Other-Net 5,060 (2,964)
Net Cash Used by Investing Activities (26,620) (34,984)
Cash Flows Of Financing Activities:
Proceeds from Long Term Debt - 249,879
Retirement and Maturity of Long Term Debt (11,029) (207,760)
Decrease in Short Term Debt (23,700) (60,500)
Proceeds from Capital Lease Obligations 1,452 3,987
Dividends Declared on Preferred Stock (4,309) (4,320)
Dividends Declared on Common Stock (20,928) (20,459)
Other-Net (1,920) (393)
Net Cash Used by Financing Activities (60,434) (39,566)
Net Increase in Cash and
Temporary Investments 22,282 47,076
Cash and Temporary Investments,
beginning of period 13,631 8,892
Cash and Temporary Investments,
end of period $ 35,913 $ 55,968
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
Thousands of Dollars
Year-to-Date September 30,
1994 1993
(unaudited)
Cash Flows Of Operating Activities:
Net Income $ 97,446 $ 94,131
Deferred Purchased Power Costs 11,170 10,461
Deferred Energy Costs (11,919) (7,059)
Depreciation and Amortization 55,117 51,558
Deferred Federal Income Taxes 16,201 20,864
Prepaid State Excise Taxes (61,724) (61,006)
Net (Increase)Decrease in Other Working
Capital (20,202) 2,334
Other-Net (2,168) 3,952
Net Cash Provided by Operating
Activities 83,921 115,235
Cash Flows Of Investing Activities:
Cash Construction Expenditures (79,592) (86,031)
Leased Property (3,925) (5,000)
Nuclear Decommissioning Trust Fund
Deposits (4,818) (4,818)
Plant Removal Costs (3,585) (1,448)
Other-Net 3,782 (5,224)
Net Cash Used by Investing Activities (88,138) (102,521)
Cash Flows Of Financing Activities:
Proceeds from Long Term Debt 22,693 460,686
Retirement and Maturity of Long Term Debt (36,023) (360,316)
Increase(Decrease) in Short Term Debt 40,400 (14,600)
Proceeds from Capital Lease Obligations 3,925 5,000
Capital Contributions 25,270 991
Dividends Declared on Preferred Stock (12,928) (13,096)
Dividends Declared on Common Stock (62,581) (60,746)
Other-Net (869) (5,974)
Net Cash (Used)Provided by Financing
Activities (20,113) 11,945
Net (Decrease)Increase in Cash and
Temporary Investments (24,330) 24,659
Cash and Temporary Investments,
beginning of period 60,243 31,309
Cash and Temporary Investments,
end of period $ 35,913 $ 55,968
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
Thousands of Dollars
September 30, December 31,
1994 1993
(unaudited)
ASSETS
Electric Utility Plant:
In Service $2,270,833 $2,193,656
Less Accumulated Depreciation 713,163 668,832
Net 1,557,670 1,524,824
Construction Work in Progress 149,417 156,590
Land Held for Future Use 6,949 6,901
Leased Property-Net 38,544 45,268
Electric Utility Plant-Net 1,752,580 1,733,583
Nonutility Property and Investments:
Nuclear Decommissioning Trust Fund 49,750 43,163
Other Property, Investments and Funds 1,297 1,297
Total Nonutility Property and
Investments 51,047 44,460
Current Assets:
Cash and Temporary Investments 35,913 60,243
Accounts Receivable:
Utility Service 64,980 51,502
Miscellaneous 9,596 10,940
Allowance for Doubtful Accounts (3,300) (3,000)
Unbilled Revenues 36,141 39,309
Fuel (at average cost) 25,933 14,635
Materials and Supplies (at average cost) 28,142 28,230
Working Funds 14,678 14,313
Prepaid State Excise Taxes 27,592 8,386
Other Prepayments 6,889 7,196
Deferred Energy Costs 19,099 7,180
Deferred Income Taxes 2,122 2,945
Total Current Assets 267,785 241,879
Deferred Debits:
Unrecovered Purchased Power Costs 119,288 130,458
Recoverable Future Federal Income Taxes 85,854 85,855
Unrecovered State Excise Taxes 76,224 33,706
Unamortized Debt Costs 38,358 39,185
Property Abandonment Costs-Net 9,633 10,325
Other Regulatory Assets 36,201 31,380
Other 20,031 12,753
Total Deferred Debits 385,589 343,662
Total Assets $2,457,001 $2,363,584
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
Thousands of Dollars
September 30, December 31,
1994 1993
(unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Shareholder's Equity:
Common Stock $ 54,963 $ 54,963
Premium on Capital Stock 231,081 231,081
Contributed Capital 262,749 237,479
Capital Stock Expense (2,470) (2,470)
Retained Earnings 278,898 256,961
Total Common Shareholder's Equity 825,221 778,014
Cumulative Preferred Stock:
Not Subject to Mandatory Redemption 40,000 40,000
Subject to Mandatory Redemption 173,750 173,750
Long Term Debt 738,980 751,101
Total Capitalization
(excluding current portion) 1,777,951 1,742,865
Current Liabilities:
Cumulative Preferred Stock Redemption
Requirement 12,250 12,250
Capital Lease Obligations 911 861
Short Term Debt 40,400 -
Accounts Payable 51,890 63,819
Federal Income Taxes Payable-Affiliate 36,276 10,339
Other Taxes Accrued 6,768 6,873
Interest Accrued 15,074 22,038
Dividends Declared 25,236 24,910
Other Customer Deposits 2,952 2,890
Other 15,070 21,336
Total Current Liabilities 206,827 165,316
Deferred Credits and Other Liabilities:
Deferred Income Taxes 350,130 332,852
Deferred Investment Tax Credits 52,280 54,180
Capital Lease Obligations 37,633 44,407
Other 32,180 23,964
Total Deferred Credits and
Other Liabilities 472,223 455,403
Total Liabilities and Capitalization $2,457,001 $2,363,584
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Atlantic City Electric Company (ACE) is a wholly-owned
subsidiary of Atlantic Energy, Inc. The consolidated
financial statements include the accounts of the ACE and its
subsidiary, which is wholly-owned. All significant
intercompany accounts and transactions have been eliminated
in consolidation. These consolidated financial statements
reflect all normal, recurring adjustments and accruals
which, in the opinion of management, are necessary for a
fair presentation of the consolidated financial statements
presented. The notes to the consolidated financial
statements accompanying the Company's 1993 Annual Report on
Form 10-K filed with the Securities and Exchange Commission
should be read in conjunction with this report. Note 1 of
these annual reports specifically identifies the significant
accounting policies of the company. The consolidated
balance sheet contained in the financial statements
presented herein that is labeled December 31, 1993 was
derived from the audited consolidated balance sheet
presented in the 1993 Form 10-K.
2. The components of Federal Income Tax expense are as follows
(in thousands of dollars):
Quarter Ended September 30,
1994 1993
(unaudited)
Current $30,184 $22,050
Deferred (6,977) 6,574
Total Federal Income Tax Expense 23,207 28,624
Less Amounts Included in Other Income 1,807 488
Federal Income Taxes Included
in Operating Expenses $21,400 $28,136
A reconciliation of the expected Federal income taxes
compared to the reported Federal Income Tax expense computed
by applying the statutory rate follows:
Tax Computed at the Statutory Rate
of 35% $25,510 $29,435
Utility Plant Basis Differences 113 106
Investment Tax Credits (634) (634)
Deferred Tax Adjustments - (187)
Other-Net (1,782) (96)
Total Federal Income Tax Expense $23,207 $28,624
Effective Federal Income Tax Rate 32% 34%
Year-to-Date September 30,
1994 1993
(unaudited)
Current $29,997 $27,074
Deferred 16,201 19,617
Total Federal Income Tax Expense 46,198 46,691
Less Amounts Included in Other Income 2,804 1,451
Federal Income Taxes Included
in Operating Expenses $43,394 $45,240
Tax Computed at the Statutory Rate
of 35% $50,275 $49,288
Utility Plant Basis Differences 1,347 1,789
Investment Tax Credits (1,901) (1,901)
Deferred Tax Adjustments (375) (562)
Other-Net (3,148) (1,923)
Total Federal Income Tax Expense $46,198 $46,691
Effective Federal Income Tax Rate 32% 33%
Certain prior year reconcilation amounts have been
reclassified to conform to the current year reporting.
3. On February 8, 1994, ACE filed a petition with the New
Jersey Board of Public Utilities (BPU) requesting an
increase in Levelized Energy Clause (LEC) revenues of $63
million for the period June 1, 1994 through May 31, 1995.
The increase is due primarily to the costs to be incurred
from the purchase of 388 megawatts of capacity and energy
from two new independent power producers scheduled to begin
commercial operation during the 1994/1995 LEC period.
Incorporated into the requested amount is utilization of $56
million of current base rate revenue associated with a
utility power purchase contract that expired on May 31,
1994, and the Southern New Jersey Economic Initiative, a
voluntary rate reduction by ACE of $28 million over the LEC
period designed to keep its rates competitive. On June 27,
1994, ACE filed a motion requesting an interim increase in
LEC revenues in order to avoid the effects of rate
compression on customers. On July 19, 1994 the BPU approved
a provisional increase in annual LEC revenues of $55 million
effective July 26, 1994. On September 9, 1994, the
Administrative Law Judge issued its Initial Decision that
recommends an increase in annual LEC revenues of
approximately $54 million. On October 12, 1994, the BPU
extended the time period by which it must render its
decision. Presently, the BPU is expected to render its
final decision with regard to the LEC increase in December
1994.
On June 23, 1994, the BPU approved a stipulation to allow
casino customers to take service under existing commercial
base rate schedules. Prior to BPU approval, casino
customers were served under the Hotel Casino Service (HCS)
rate schedule, the highest rate for service of all the ACE's
service classes. Effective July 1, 1994, all casino
customers began taking service under the AGS-TOU, or Annual
General Service-Time of Use, rate schedule which could
reduce annual base rate revenues by approximately $6.7
million. Original estimates of annual base rate revenue
reductions of $5 million were based on the Transmission
General Service rate schedule. Effective July 25, 1994, the
Hotel Casino Service tariffs were no longer offered as
tariffs for electric service.
Pursuant to a February 18, 1994 ruling supporting the
investigation of the "double recovery" of capacity costs
from nonutility generation projects, the BPU issued its
written Order dated September 16, 1994. The Order confirms
the establishment of a generic proceeding to review the
utility power purchase cost recovery methodology and ordered
this matter be transferred to the Office of Administrative
Law for evidenciary hearings. The BPU ordered that this
matter be reviewed in a two phase proceeding. The scope of
the issues to be resolved during the first phase of the
proceeding will include: 1) the determination of the
existence, or lack of existence, of the double recovery as a
result of the traditional LEC pass-through of nonutility
generation capacity costs; 2) the quantification of any
such double recovery found to exist for each utility for the
relevant periods; and 3) a determination of an appropriate
remedy or adjustment if and when such double recovery is
found to occur and the periods of time over which such an
adjustment would be applicable. Following the conclusion of
the first phase of the proceeding, the BPU, in the second
phase, will render a final decision regarding the specific
findings of the Office of Administrative Law and address the
broader issues relating to the appropriate prospective
purchased power cost recovery methods. ACE cannot estimate
the impact that the double recovery issue may have on future
rates. The Ratepayer Advocate has not proposed a standard
methodology for quantifying the double recovery issue.
4. During the third quarter of 1994 ACE acquired and retired
$10.5 million principle amount of 9-1/4% First Mortgage
Bonds due 2019. The aggregate cost of these redemptions was
$409,000, net of related Federal income taxes.
At September 30, 1994, ACE had outstanding $40.4 million of
short term debt with maturities of one to four months. The
ACE's Cumulative Preferred Stock and long term debt
securities are not widely held and generally trade
infrequently. The estimated aggregate fair market value at
September 30, 1994 is approximately $214.1 million and
$685.5 million, respectively.
5. ACE has been identified as one of a number of responsible
parties at two sites which are the subject of clean-up and
remediation activity. The first site involves a property in
Gloucester County, New Jersey. Notwithstanding the joint
and several liability imposed by law, sufficient discovery
has been conducted to establish that the contribution of the
Company to the clean-up and remediation activity would the
in the lower tiers of financial participation. Primary
responsibility will be apportioned among others, including
the Federal and State agencies and private parties. This
matter is pending in the Federal Court. ACE is a member of
a joint defense group in that proceeding.
The second site involves a sanitary landfill in Atlantic
County, New Jersey which is the subject of an Administrative
Consent Order (ACO) which has been executed and delivered to
the New Jersey Department of Environmental Protection
(NJDEP) by the Company and at least four other identified
potentially responsible parties. A remedy, which will
include a soil cover of the site, has been developed and
will be implemented. While the Company is subject to joint
and several liability pursuant to the terms of the ACO, the
Company has joined with three other parties to implement the
terms of the ACO. Recovery will be pursued against those
persons who were named as potentially responsible parties
who do not execute and deliver the ACO and against other
persons not named by the NJDEP.
ACE's responsibility for such claims is not expected to
exceed $1,000,000 in the aggregate. ACE believes that
insurance coverage should be available to satisfy any
amounts in excess of the self-insured limits assoicated with
these particular claims.
6. A contract with a large industrial concern whereby the
Company delivered process steam, water and by-product
electricity was terminated by the concern effective June 30,
1994. The steam and electricity needs of this concern is
now being provided by a nonutility cogeneration facility.
ACE received approximately $4 million from this concern in
1993 for these services. In addition, the Company received
approximately $8 million from sales of energy to this
concern in 1993.
By terms of the termination agreement, the industrial
concern is to make certain payments to the Company over a
period of time, and the Company must also perform certain
activities. As a result of the termination agreement, the
Company received $4.2 million in cash proceeds and
recognized again of $2.4 million net of tax in Other Income.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited)
The following is management's discussion and analysis of
significant factors which affected the Company's interim
financial condition and results of operations. To properly
assess and evaluate the Company's performance one should read, in
conjunction with this report, the Management's Discussion and
Analysis of Financial Condition and Results of Operations
included in the Company's 1993 Annual Report to Shareholders
(pages 41-49). ACE is the principal subsidiary of the Company
and the following discussion focuses primarily on ACE.
LIQUIDITY AND CAPITAL RESOURCES
The Company customarily raises capital by issuance of common
stock as part of its overall financial strategy to fund
activities and development of its subsidiaries. In July 1994,
the Company discontinued the issuance of common stock through the
Dividend Reinvestment and Stock Reinvestment Plan, except for
certain employee benefit plans. On October 27, 1994, the
Company's Board of Directors authorized the Company to acquire up
to three million shares of common stock. The Company will retire
these shares but there is no schedule or specific share price
targeted with this acquisition program.
During the third quarter, ACE acquired and retired, $10.5 million
of 9-1/4% First Mortgage Bonds that were due in 2019.
RESULTS OF OPERATIONS
Changes in net income and earnings per share for the periods
ended September 30, 1994 versus the corresponding periods of the
prior year are as follows:
Periods Ended September 30, 1994
Quarter Year-to-Date
Net Income (11.5)% 3.1%
Earnings Per Share (14.1)% .6%
Year-to-date earnings have increased on the strength of improved
sales of electricity and Sales for Resale in the current year
when compared to the same period of 1993. Results for the
quarter have decreased compared to the same period of 1993 due to
lower energy sales and the adoption of the Southern New Jersey
Economic Initiative which is explained below.
Significant factors contributing to these changes are explained
below. Unless otherwise specified, changes are in terms of the
current year period compared to the corresponding prior year
period.
Utility Revenues
Changes in Operating Revenues-Electric are disclosed in the
following table:
Periods Ended September 30, 1994
(Thousands of Dollars)
Quarter Year-to-Date
Base Revenues $ 195 $ (47)
Levelized Energy Clauses 12,083 17,593
Kilowatt-hour Sales (2,579) 10,665
Unbilled Revenues (4,286) (1,792)
Sales for Resale (2,570) 18,300
Other Revenues 982 832
Total $ 3,825 $45,551
Levelized Energy Clause (LEC) Revenues for the periods increased
due to rate increases in July 1994 and October 1993. Changes in
Kilowatt-hour Sales are explained in the following section
'Billed Sales to Ultimate Utility Customers'. The changes in
Unbilled Revenues are a result of the amount of kilowatt-hours
consumed by ultimate customers at the end of the respective
periods, which are affected by weather and economic conditions
and the corresponding price per kilowatt-hour. The changes in
Sales for Resale are a function of ACE's energy mix strategy,
which in turn is dependent upon ACE's needs for energy, the
energy needs of other utilities participating in the regional
power pool of which ACE is a member, and the sources and prices
of energy available. The year-to-date increase in Sales for
Resale was the result of meeting the demands of the regional
power pool due to the extreme weather conditions the first six
months of 1994.
Effective July 1, 1994, the BPU permitted the casino customers to
take service under existing commercial rate schedules. ACE now
anticipates that this could reduce annual revenues by
approximately $6.7 million from the previous estimate of $5.0
million.
Billed Sales to Ultimate Utility Customers
Changes in billed kilowatt-hour sales are generally due to
changes in the average number of customers and average customer
use, which is affected by economic and weather conditions.
Energy sales statistics, stated as percentage changes from the
corresponding periods of the prior year, are shown below.
Periods Ended September 30, 1994
Quarter Year-to-Date
Average Average
Customer Class Sales Use Cust Sales Use Cust
Residential (.3)%(1.5)% 1.2% 2.8% 1.6% 1.1%
Commercial .6 (1.4) 2.0 2.5 .4 2.1
Industrial (7.9) (9.7) 2.0 (3.1) (3.8) .7
Total (1.0) (2.3) 1.3 1.8 .6 1.2
The decline in the current quarter's residential sales was due to
cooler than normal weather in August and September. Year-to-date
residential average use was higher due to more extreme winter
weather conditions than last year and increased number of billing
days. Commercial sales for the quarter and the year-to-date
increased due mostly to growth in public sector consumption and
several small casino expansions. The difference between the
quarter and year-to-date sales growth was the result of the
weather contrast noted above. Approximately one-half of the
increase in commercial customers is due to ACE's Night Light
Program. All of the quarter's industrial sales decline is due to
ACE's largest customer now being served by an independent power
producer unrelated to ACE.
Expenses
Total Operating Expenses for the quarter and year-to-date periods
increased by 7.0% and 9.1%, respectively. Excluding depreciation
and taxes, Total Operating Expenses year-to-date increased by
15.4% and 13.9% in each of the respective periods.
Energy expense reflects the amount of energy needed to meet load
requirements, as well as the various fuel and purchased energy
sources used and the operation of the LECs. Changes in costs
reflect the varying availability of low-cost generation from ACE-
owned and purchased energy sources and in the unit prices of the
energy sources used, as well as changes in the needs of other
utilities participating in the regional power pool. The cost of
energy is recovered from customers primarily through the
operation of the LECs. Earnings generally are not affected by
Energy expense because these costs are adjusted to match the
associated LEC revenues. This relationship will be altered by
ACE's economic initiative included in its most recent LEC filing,
as discussed below. In any period, the actual amount of LEC
revenue recovered from customers will be greater or less than the
actual amount of energy cost incurred and eligible for recovery
in that period. Such respective overrecovery or underrecovery of
energy costs is recorded on the consolidated balance sheet as a
liability or asset as appropriate. Amounts in the balance sheet
are recognized in the consolidated statement of income within
Energy expense during the period in which they are subsequently
recovered through the LECs. ACE was underrecovered by $19.1
million at September 30, 1994, as compared to $7.2 million at
December 31, 1993.
As a result of implementing the Southern New Jersey Economic
Initiative in rates, effective July 19, 1994, ACE will forego
recovery of future energy costs in LEC rates of $28 million
through May 31, 1995. After tax income will be reduced by
approximately $18 million on an annual basis. Quarter ended and
year-to-date September 1994 after tax income has been reduced by
$5.0 million.
Energy expense for the quarter and year-to-date increased 49.7%
and 31.5%, respectively, due to the adoption of the Southern New
Jersey Economic Initiative, and the increase in the levelized
energy clauses that reduced underrrecovered fuel costs. Also
contributing to the increase was the higher cost of energy from
nonutility sources. Purchased Capacity expense reflects contract
payments for generating capacity owned by others. Purchased
Capacity increased for the year-to-date period due to capacity
supplied by a nonutility power producer that became operational
this year.
Sources of Energy by Fuel Source for the periods ended September
30, 1994 are as follows:
Quarter Year-to-Date
Coal 29% 30%
Nuclear 24 22
Interchanged and Purchased 21 25
Nonutility Purchased 20 15
Oil and Natural Gas 6 8
Total 100% 100%
Note: Energy purchased that has been specifically contracted as
to source of energy is included under its respective fuel type.
The decrease in Operations Expense for the quarter ended period
reflects the reorganization expenses recorded by the Company in
the third quarter of 1993.
Federal Income Taxes expense decreased for the current quarter
and year-to-date periods. The decrease for the quarter was due
to lower taxable income in 1994 versus 1993.
The increase in Other Income for the quarter and year-to-date
periods reflect a $2.4 million after tax gain as a result of the
contract termination of ACE's largest industrial customer.
NONUTILITY ACTIVITIES
Operations of nonutility subsidiaries for the quarter were
virtually unchanged from last year. Year-to-date September 30,
1994 and 1993 resulted in net income of $1.9 million and $2.5
million respectively. The decrease in current year results is
primarily due to decreased operation of a cogeneration facility
in which a subsidiary of AGI has a partnership interest.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited)
The following is management's discussion and analysis of
significant factors which affected the Company's interim
financial condition and results of operations. To properly
assess and evaluate the Company's performance one should read, in
conjunction with this report, the Management's Discussion and
Analysis of Financial Condition and Results of Operations
included in the Company's 1993 Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter, ACE acquired and retired $10.5 million
of 9-1/4% First Mortgage Bonds that were due in 2019.
RESULTS OF OPERATIONS
Net Income decreased for the quarter by 10.5% from the
corresponding period of 1993 due to lower energy sales and the
adoption of the Southern New Jersey Economic Initiative which is
explained below. Year-to-date Net Income increased 3.5% from the
prior year on the strength of improved sales of electricity and
Sales for Resale in the current year when compared to the same
period of 1993.
Significant factors contributing to these changes are explained
below. Unless otherwise specified, changes are in terms of the
current year period compared to the corresponding prior year
period.
Revenues
Changes in Operating Revenues-Electric are disclosed in the
following table:
Periods Ended September 30, 1994
(Thousands of Dollars)
Quarter Year-to-Date
Base Revenues $ 212 $ 6
Levelized Energy Clauses 12,083 17,593
Kilowatt-hour Sales (2,579) 10,665
Unbilled Revenues (4,286) (1,792)
Sales for Resale (2,570) 18,300
Other Revenues 982 832
Total $ 3,842 $45,604
Levelized Energy Clause (LEC) Revenues for the periods increased
due to rate increases in July 1994 and October 1993. Changes in
Kilowatt-hour Sales are explained in the following section
'Billed Sales to Ultimate Customers'. The change in Unbilled
Revenues are a result of the amount of kilowatt-hours consumed by
ultimate customers at the end of the respective periods, which
are affected by weather and economic conditions and the price per
kilowatt-hour in effect. The changes in Sales for Resale are a
function of the Company's energy mix strategy, which in turn is
dependent upon its needs for energy, the energy needs of other
utilities participating in the regional power pool of which the
Company is a member, and the sources and prices of energy
available. The year-to-date increase in Sales for Resale was the
result of meeting the demands of the regional power pool due to
extreme weather conditions in the first six months of 1994.
Effective July 1, 1994, the BPU permitted the casino customers to
take service under existing commercial rate schedules. The
Company now anticipates that this could reduce annual revenues by
approximately $6.7 million from the previous estimate of $5.0
million.
Billed Sales to Ultimate Customers
Changes in billed kilowatt-hour sales are generally due to
changes in the average number of customers and average customer
use, which is affected by economic and weather conditions.
Energy sales statistics, stated as percentage changes from the
corresponding period of the prior year, are shown below.
Periods Ended September 30, 1994
Quarter Year-to-Date
Average Average
Customer Class Sales Use Cust Sales Use Cust
Residential (.3)% (1.5)% 1.2% 2.8% 1.6% 1.1%
Commercial .6 (1.4) 2.0 2.5 .4 2.1
Industrial (7.9) (9.7) 2.0 (3.1) (3.8) .7
Total (1.0) (2.3) 1.3 1.8 .6 1.2
The decline in the current quarter's residential sales was due to
cooler than normal weather in August and September. Year-to-date
residential average use was higher due to more extreme weather
conditions than last year and increased number of billing days.
Commercial sales for the quarter and the year-to-date increased
due mostly to growth in public sector consumption and several
small casino expansions. The difference between the quarter and
year-to-date sales growth was the result of the weather contrast
noted above. Approximately one-half of the increase in
commercial customers is due to ACE's Night Light Program. All of
the quarter's industrial sales decline is due to the loss of the
Company's largest customer now being served by an independent
power producer unrelated to the Company.
Expenses
Total Operating Expenses for the quarter and year-to-date periods
ended September 30, 1994 increased by 7.0% and 9.0%,
respectively, compared to the same periods of the prior year.
Excluding depreciation and taxes, Total Operating Expenses
increased by 15.3% and 13.9% over each of the respective periods.
Energy expense reflects the amount of energy needed to meet load
requirements, as well as the various fuel and purchased energy
sources used and the operation of the LECs. Changes in costs
reflect the varying availability of low-cost generation from
Company-owned and purchased energy sources and in the unit prices
of the energy sources used, as well as changes in the needs of
other utilities participating in the regional power pool. The
cost of energy is recovered from customers primarily through the
operation of the LECs. Earnings generally are not affected by
Energy expense because these costs are adjusted to match the
associated LEC revenues. This relationship will be altered by
the Company's economic initiative included in its most recent LEC
filing, as discussed below. In any period, the actual amount of
LEC revenue recovered from customers will be greater or less than
the actual amount of energy cost incurred and eligible for
recovery in that period. Such respective overrecovery or
underrecovery of energy costs is recorded on the consolidated
balance sheet as a liability or asset as appropriate. Amounts in
the balance sheet are recognized in the consolidated statement of
income within Energy expense during the period in which they are
subsequently recovered through the LECs. The Company was
underrecovered by $19.1 million at September 30, 1994, as
compared to $7.2 million at December 31, 1993.
As a result of implementing the Southern New Jersey Economic
Initiative in rates, effective July 19, 1994, the Company will
forego recovery of future energy costs in LEC rates of $28
million through May 31, 1995. After tax income will be reduced
by approximately $18 million on an annual basis. Quarter ended
and year-to-date September 1994 after tax income has been reduced
by $5.0 million.
Energy Expense for the quarter and year-to-date increased 49.7%
and 31.5%, respectively, due to the adoption of the Southern New
Jersey Economic Initiative, and the increase in the levelized
energy clauses that reduced underrecovered fuel costs. Also
contributing to the increase was the higher cost of energy from
nonutility sources. Purchased Capacity expense reflects contract
payments for generating capacity owned by others. Purchased
Capacity increased in the year-to-date period due to capacity
supplied by a nonutility power producer that became operational
this year.
Sources of Energy by Fuel Source for the periods ended September
30, 1994 are as follows:
Quarter Year-to-Date
Coal 29% 30%
Nuclear 24 22
Interchanged and Purchased 21 25
Nonutility Purchased 20 15
Oil and Natural Gas 6 8
100% 100%
Note: Energy purchased that has been specifically contracted as
to source of energy is included under its respective fuel type.
The decrease in Operating Expenses for the quarter ended period
reflects the reorganization expenses recorded by the Company in
the previous year.
Federal Income Taxes expense decreased for the current quarter
and year-to-date periods. The decrease for the quarter was due
to lower taxable income in 1994 versus 1993.
The increase in Other Income for the quarter and year-to-date
periods reflect a $2.4 million after tax gain as a result of the
contract termination of the Company's largest industrial
customer.
Part II. Other Information
Item 1. Legal Proceedings
Certain developments have occurred in connection with matters
previously reported under Part I, Item 1-Business in the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993
for the Company and ACE; Part II, Other Information in the
Quarterly Report on Form 10-Q for the quarters ended March 31,
1994 and June 30, 1994; and Part II, Item 5 in the Current Report
on Form 8-K dated June 17, 1994, October 3, 1994 and October 11,
1994 for AEI and ACE. In addition, certain new information is
contained herein.
Rate Matters
ACE's rates for electric service at retail are subject to the
approval of the New Jersey Board of Public Utilities (BPU),
formerly referred to as the New Jersey Board of Regulatory
Commissioners. Reference is made to Note 3 of the Notes to
Financial Statements for AEI and ACE filed herewith for
information pertaining to changes in the hotel casino tariff, the
issue of double recovery of capacity costs and the pending
request before the BPU for changes in Levelized Energy Clause
(LEC) revenues. Further information concerning the LEC filing
follows:
The original terms of a contract between ACE and an
independent power producer recently renegotiated, required that
fixed rate, long term financing be arranged during the project's
construction. Interest rates on funds borrowed to finance the
project averaged at about 10%.
In an effort to reduce the cost of borrowing, interest rate
swap agreements to which the project developer was a party were
terminated, the cost of such termination amounting to $43
million. ACE agreed to pay $20 million of such termination
costs, for which ACE received the right to make interest rate
selections until the unit commenced commercial operation. To
date, such interest rate selections have reduced financing costs
by approximately $17 million. ACE expects that financing costs
will be reduced by the full amount of the swap termination
payment by the time the unit begins commercial operation.
The terms of this contract amendment were approved by the BPU
on August 12, 1993. In the provisional LEC rates approved by the
BPU effective July 26, 1994 and referenced in Note 3, ACE is
currently recovering this swap termination payment over a 20-year
amortization period. The Initial Decision of the Administrative
Law Judge supports recovery through LEC rates of the $20 million
payment.
As previously reported in the Form 10-K for the year ended
December 31, 1993, the expected savings from changes to
nonutility power purchase agreements were estimated to be between
$15 million and $20 million annually in the first five years of
the contracts. Such estimation is net of the $20 million
termination payment.
Item 5. Other Information
On October 14, 1994, ACE was advised that a rating agency had
downgraded ACE's credit rating to "A-" from "A" for ACE's debt
securities, to "BBB+" from "A-" for ACE's preferred stock and
debentures and to "D-1-" for ACE's commercial paper. The agency
cited intensifying competition, pricing pressures and regulatory
uncertainty as reasons for its action. ACE's debt securities are
currently rated "A-/A3/A-", its preferred stock is rated
"BBB+/Baa1/BBB+" and its commercial paper is rated
"A-2/P2/D-1-". No assurances can be given that the current
ratings of ACE's securities will be maintained or continue at
their present levels. Downward revisions or changes in ratings
of a company's securities could have an adverse effect on the
market price of such securities and could increase the Company's
cost of capital.
On November 11, 1994, ACE announced a reorganization plan to
better position itself for a competitive environment. The plan
includes staff reductions of up to 350 employees or up to 20% of
its workforce. Included is a voluntary separation program
scheduled to take effect during the first quarter of 1995. At
this time, ACE cannot estimate the amount of such reorganization
expenses. However, ACE anticipates that it will be able to
quantify such amount later in the fourth quarter of 1994 as the
number of employees participating in the program is determined,
and will reduce 1994 earnings by such amount.
On August 17, 1994, the BPU approved ACE's Demand Side
Management Resource Plan (Plan). There are 16 programs
identified in the Plan which covers residential, commercial and
industrial customers and all major end-users. The costs of
implementing the Plan are expected to be $13.5 million over a two
year period. Currently, $4.8 million is included in base rates
to cover such costs. When fully implemented, ACE expects to
reduce peak demand by 5.6 megawatts.
Nonutility Generation
The Pedricktown Cogeneration Limited Partnership (PCLP)
generating plant, a 116 megawatt gas-fired cogeneration facility
located in Pedricktown, New Jersey, began commercial operation in
March 1992. The facility supplies 10 megawatts of electricity
and byproduct steam to an industrial customer and, under the
terms of an existing purchased power agreement, supplies 106
megawatts of capacity and energy to ACE. Atlantic Generation,
Inc., a subsidiary of the Company, is a partner in this project.
On July 15, 1994, an amendment to the contract was executed. If
approved, the contract amendments will result in reduced pricing
and greater operating efficiencies. The terms of the contract
amendment are subject to the approval of the BPU and others. BPU
approval is currently scheduled for November 18, 1994.
Under contract arrangements with Keystone Energy Services
Company, LP (Keystone), ACE is scheduled to begin purchasing
energy and capacity effective April 1, 1995. Construction of
Keystone's 200 megawatt coal-fired cogeneration facility located
in Logan Township, New Jersey was completed in September 1994.
On October 21, 1994, ACE began purchasing energy from this
facility.
Nonutility Subsidiaries
Vineland Cogeneration Limited Partnership (VCLP), a special
purpose limited partnership, was formed by subsidiaries of
Atlantic Generation, Inc. and The Columbia Gas System, Inc.
for the development of a gas-fired cogeneration facility located
in Vineland, New Jersey. VCLP, which has a power purchase
agreement with the City of Vineland for the sale of 46.5
megawatts of capacity and energy for a term of 25 years, began
commercial operation on June 1, 1994.
Nuclear
Peach Bottom
ACE has been advised by PECO Energy Company (PECO) that
initial examinations of Unit No. 2 at Peach Bottom Atomic Power
Station for core shroud seam weld cracks were planned for the
Unit's September 1994 refueling outage. During the refueling
outage, Peach Bottom Unit No. 2 was examined and PECO has advised
ACE that no corrective actions were determined necessary to
operate Unit No. 2 for another two-year cycle.
ACE has been advised by PECO that, by letter dated October 18,
1994, the Nuclear Regulatory Commission (NRC) has approved PECO's
request to rerate the authorized maximum reactor core power
levels of Peach Bottom Units No. 2 and 3 by 5% to 3,458 megawatts
thermal (Mwt) from the current limits of 3,293 Mwt. The
amendment of the Peach Bottom Unit No. 2 facility operating
license was effective upon the date of the NRC approval letter.
The amendment of the Unit No. 3 facility operating license will
be effective upon completion of the implementation of associated
hardware changes, which are to be completed during Unit No. 3's
next refueling outage scheduled for the fall of 1995.
Salem
As previously reported in the 1993 Form 10-K, ACE has been
informed by Public Service Electric and Gas Company (PS) that on
June 24, 1993, the New Jersey Department of Environmental
Protection (NJDEP) issued a revised draft discharge to surface
water permit that would allow Salem to continue with once-through
cooling and would also require certain plant modification in
addition to certain other actions to enhance the ecology of the
affected water body. The final permit, with essentially the same
provisions as the revised draft permit, was issued on July 20,
1994. Certain environmental groups and other entities, including
the State of Delaware, have filed requests for hearings with the
NJDEP challenging the final permit. The NJDEP granted the
hearing requests on certain of the issues and PS has been named
as a respondent along with the NJDEP in these matters which are
pending in the Office of Administrative Law. PS has advised ACE
that PS is implementing the final permit.
As previously reported in ACE's Form 10-Q for the quarters
ending March 31, 1994 and June 30, 1994 and in ACE's Current
Reports on Form 8-K dated June 17, 1994 and October 11, 1994, PS
has advised ACE that Unit 1 of the Salem Nuclear Generating
Station (Salem) experienced an automatic reactor shutdown which
occurred on April 7, 1994 due to excessive grass from the
Delaware River clogging the station's water intake structure.
Salem remained out of service while PS and the NRC investigated
the event and PS implemented remedial action. Following the
event, Salem was returned to service on June 4, 1994.
On April 7, 1994, the NRC sent an augmented inspection team
(AIT) to Salem to investigate the event. The AIT presented its
preliminary findings, concluding that the event had challenged
the reactor coolant system pressure boundary, that operator error
had occurred which complicated the event, that management had
allowed equipment problems to exist which made operations
difficult for plant operators, and that some equipment was
degraded by the event, but overall the plant performed as
designed. The AIT further concluded that operator use of
emergency operating procedures was good and that investigation
and trouble-shooting efforts were good. PS's investigation of
the event resulted in conclusions similar to those of the AIT.
On May 9, 1994, PS and the NRC staff presented their findings to
the NRC Commissioners, and PS described the actions it had taken
to prepare Salem for restart.
ACE has been advised by PS that PS has continued to address
matters to improve Salem's operations identified by itself, the
NRC and the Institute of Nuclear Power Operations (INPO), an
independent industry group consisting of utilities, including PS,
that provides self-critical analysis of nuclear operations to
member utilities. Actions are being taken to improve the plant's
material condition, to upgrade procedures and to enhance
personnel performance, as well as other efforts to such end,
including appointment of a new station manager and senior plant
staff. In addition, PS, effective September 29, 1994,
established its nuclear operations as a separate business unit
reporting directly to the Chairman and Chief Executive Officer of
PS and hired Leon R. Eliason as its Chief Nuclear Officer and
President of its new Nuclear Business Unit.
PS has advised ACE that on October 5, 1994, the NRC, as a
result of the AIT inspection, as well as a follow-up inspection,
issued a Notice of Violation and Proposed Imposition of Civil
Penalty to PS advising that it proposed to impose an aggregate
fine of $500,000 for violations relating to the April 7, 1994
event, including: the failure to identify and correct
significant conditions adverse to quality at the facility related
to spurious steam flow signals and inoperable atmospheric relief
valves, both of which, it concluded, led to unnecessary safety
injections during the event; the failure to identify and correct
significant conditions adverse to quality at the facility related
to providing adequate training, guidance and procedures for the
operators to cope with the event; and the failure by supervisors
to exercise appropriate command and control of the operations
staff and the reactor during the event. In assessing its fine,
the NRC advised PS that it "expects an aggressive and prompt
response to this matter as neither PS nor the NRC can accept (1)
such performance in the future and (2) the large number of
equipment related events that have recently occurred at Salem."
The NRC has stated, that after reviewing PS's response to the
Notice, including PS's proposed corrective actions and the
results of future inspections, it will determine whether further
NRC enforcement action is necessary to ensure compliance with NRC
regulatory requirements.
ACE is further advised that PS's own assessments, as well as
those by the NRC and INPO, indicate that additional efforts are
required to further improve operating performance, and PS is
committed to taking the necessary actions to address Salem's
performance needs. PS has indicated that the proposed $500,000
fine will be paid without challenge. No assurance can be given
as to what, if any, further or additional actions may be taken by
the NRC or what further or additional actions may be taken by PS,
or required by the NRC, to improve Salem's performance.
Item 6. Exhibits and Reports on 8-K
Exhibits: See Exhibit Index Attached
Reports on Form 8-K:
A Current report on Form 8-K was filed on October 3, 1994 and
containing a Statement of Computations of Ratio of Earnings to
Fixed Charges for the twelve months ended June 30, 1994.
A Current report on Form 8-K was filed October 11, 1994
relating to the events of April 7th at the Salem Nuclear
Generating Station and the subsequent penalty imposed by the
Nuclear Regulatory Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Atlantic Energy, Inc.
Atlantic City Electric Company
(Registrant)
Date: November 14, 1994 By: /s/ J. L. Jacobs
J. L. Jacobs
President and Chief Executive
Officer of Atlantic Energy, Inc.
Chairman, President and Chief
Executive Officer of Atlantic
City Electric Company
Date: November 14, 1994 By: /s/ J. G. Salomone
J. G. Salomone
Vice President, Treasurer and
Secretary of Atlantic Energy,Inc.
Senior Vice President-Finance
and Administration of
Atlantic City Electric Company
EXHIBIT INDEX
4 Mortgage and Deed of Trust, dated January 15, 1937, between
Atlantic City Electric company and The Bank of New York (formerly
Irving Trust Company) and Supplemental Indentures through
November 1, 1993 (File No. 2-66820-Exhibit No. 2(b); File No. 1-
33599, Form 10-K for year ended December 31, 1980-Exhibit No.
4(d); Form 10-Q for quarter ended June 30, 1981-Exhibit No. 4(a);
Form 10-K for year ended December 31, 1983-Exhibit No. 4(d); Form
10-Q for quarter ended March 31, 1984-Exhibit No. 4(a); Form 10-Q
for quarter ended June 30, 1984-Exhibit 4(a); Form 10-Q for
quarter ended September 30, 1985-Exhibit 4; Form 10-Q for quarter
ended March 31, 1986-Exhibit No. 4; Form 10-K for year ended
December 31, 198-Exhibit No. 4(d); Form 10-Q for quarter ended
September 30, 1989-Exhibit No. 4(a); Form 10-K for year ended
December 31, 1990-Exhibit 4(c); File No. 33-49279-Exhibit No.
4(b); File No. 1-3559, Form 10-Q for the quarter ended September
30, 1993-Exhibit Nos. 4(a) & 4(b); Form 10-K for year ended
December 31, 1993-Exhibit No. 4c(1); File No. 1-3559, Form 10-Q
for the quarter ended June 30, 1994-Exhibit No. 4(a).
4a Indenture Supplemental dated as of October 1, 1994 to
Mortgage and Deed of Trust dated January 15, 1937 between
Atlantic City Electric Company and The Bank of New York.
12 Statement of Computations of Ratio of Earnings to Fixed
Charges for the twelve months ended September 30, 1994.
27 Financial Data Schedules for Atlantic Energy, Inc. and
Atlantic City Electric Company for periods ended September 30,
1994.