SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 8-K
Current Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
Date of Report January 27, 1997
Registrant;
Commission State of Incorporation IRS Employer
File No. Address and Telephone No. Identification No.
1-9760 Atlantic Energy, Inc. 22-2871471
(New Jersey)
6801 Black Horse Pike
Egg Harbor Township, NJ 08234
(609) 645-4500
1-3559 Atlantic City Electric Company 21-0398280
(New Jersey)
6801 Black Horse Pike
Egg Harbor Township, NJ 08234
(609) 645-4100
Item 5. Other Events
The following information updates certain matters previously
reported under Part I, Item 1- Business of the Annual Report on
Form 10-K for the year ended December 31, 1995 for Atlantic
Energy, Inc. and Atlantic City Electric Company, as amended and
supplemented by Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996, and
Current Reports on Form 8-K dated May 29, 1996, June 26, 1996,
July 25, 1996, October 22, 1996 and January 6, 1997.
Competition
On January 16, 1997, the New Jersey Board of Public
Utilities (BPU) issued its Draft Phase II of the New Jersey
Energy Master Plan addressing wholesale and retail competition in
New Jersey ("Restructuring Proposal"). The Restructuring
Proposal contains specific proposals for restructuring the
electric power industry in the State of New Jersey. Beginning in
October 1998, 5% of retail electric customer load of all classes
(industrial, commercial and residential) would be given the
ability to directly choose their electric power supplier. All
customers would be phased-in, with the percentage increasing to
20% in April 1999, 35% in October 1999, 50% in April 2000, 75% in
October 2000 and 100% in April 2001. The Restructuring Proposal
suggests that retail competition in New Jersey be introduced
approximately 12 to 18 months after the implementation of full
wholesale competition as provided by Order 888 which has been
issued by the Federal Energy Regulatory Commission ("FERC").
The BPU proposes in its Restructuring Proposal that
beginning October 1998, the costs for bundled electricity
services, consisting of power generation, transmission,
distribution and auxiliary customer services, such as metering
and billing, be unbundled. Each electric utility, including
Atlantic City Electric Company ("ACE"), would continue to be
responsible for providing distribution service to all customers.
Price and service quality for distribution service would continue
to be regulated by the BPU. Other customer services would also
continue to be offered by the electric utility, for a monthly
fee, including metering, billing and account administration,
which would also be regulated by the BPU.
Transmission service would be provided by an Independent
System Operator (ISO), which would be responsible for maintaining
the reliability of the regional power grid. The ISO would be
regulated by the FERC. The utility would continue to pass
through the cost of transmission to customers in its regulated
rates. The Restructuring Proposal also calls for further review
of metering and billing in order to make recommendations for the
long term related to introduction of competition into the
customer services area. A distribution utility would be
permitted to offer customer-side services, such as equipment
repair and service contracts in a competitive marketplace.
The Restructuring Proposal states that the BPU is committed
to assuring that a fully competitive marketplace exists prior to
the ending of its economic regulation of power supply. At a
minimum, utility generating assets and functions must be
functionally separated and operate at arms length from the
transmission, distribution and customer service functions of the
electric utility. The BPU reserves final judgment on the issue
of requiring divestiture of utility generating assets until
detailed analyses of the potential for market power abuses by
utilities have been performed. In addition, the BPU believes
that it is necessary to have a fully independent and operating
ISO prior to the implementation of customer choice. The BPU
proposes that retail competition in New Jersey be introduced
approximately 12 to 18 months after the implementation of full
wholesale competition as provided by the FERC Order 888.
The Restructuring Proposal would require each electric
utility to file, no later than July 15, 1997, complete
restructuring plans, stranded cost filings and unbundled rate
filings. Review of the filings would be completed by October
1998.
Consumer protections proposed in the Restructuring Proposal
include maintaining the electric utility as a universal service
or "basic generation service" provider; continued funding of
social programs now provided by electric utilities; registration
of all third party suppliers with the BPU; establishment of
standards of conduct for third party suppliers; and continued
funding for energy efficiency programs.
The Restructuring Proposal proposes that utilities have an
opportunity for a limited number of years to recover through
rates stranded costs associated with generating capacity
commitments made prior to the advent of competition. However,
while the BPU proposes that the quantification of eligible
stranded costs and a determination of stranded cost recovery
should be undertaken on a case-by-case basis, the Restructuring
Proposal recommends that there not be a guarantee for 100%
recovery of all eligible stranded costs. The Restructuring
Proposal provides that the opportunity for full recovery of such
eligible costs is contingent upon and may be constrained by the
utility meeting a number of conditions, including achievement of
the goal of delivering a near term rate reduction to customers of
5 to 10%. The Restructuring Proposal states that the independent
power contracts must be eligible for stranded cost recovery. The
Restructuring Proposal strongly encourages all stakeholders to
renew efforts to explore all reasonable means to mitigate
independent power contracts and invites the FERC, the Congress
and the New Jersey State legislature to review the issue in order
to provide an added impetus for parties to these contracts to
seriously consider mitigation.
With regard to utility-owned generation, the Restructuring
Proposal states that the utility-owned generation costs permitted
to be recovered in rates in the last base rate case prior to the
Restructuring Proposal would be presumed to be eligible for
recovery through a Market Transition Charge ("MTC"). Costs for
utility generating plants incurred subsequent to the last base
rate case of the utility would not be presumptively eligible for
recovery through the MTC. The Restructuring Proposal further
states that the BPU would entertain requests for recovery of such
costs incurred after the conclusion of a utility's last base rate
case; however, there would be a substantial shift in the burden
of proof to be met by the utility to demonstrate that the utility
had no more cost effective resource alternatives available to it
at the time the commitment was made, which may include evidence
of a market test.
The Restructuring Proposal further states that utilities are
obligated to take all reasonably available measures to mitigate
stranded costs caused by the introduction of retail competition.
The Restructuring Proposal further notes that New Jersey is
studying the "securitization" of stranded costs as a means of
financing these costs at interest rates lower than the utility
cost of capital, thereby helping to mitigate the rate impact of
stranded cost recovery.
A specific MTC would be established for each utility and
would be a separate component of a customer's electric bill. The
MTC would provide a mechanism to allow utilities the opportunity
to recover stranded costs for a limited number of years, ranging
from four to eight. Recovery of securitization may occur over a
different period of time. The proposal also suggests that a cap
may be imposed on the level of the MTC as a mechanism to achieve
the goal of overall rate reduction.
The Restructuring Proposal suggests the need for federal
action in a number of areas as an integral part of electric
restructuring. Of particular concern is the transport of
nitrogen oxides and other pollutants to New Jersey from power
plants located in the Midwest and Southeast. The Restructuring
Proposal states that New Jersey will develop a contingency action
plan if federal action fails to mitigate adverse environmental
impacts caused by electric restructuring.
The Restructuring Proposal states that the preliminary
findings and recommendations contained therein are being released
for the purpose of making the preliminary conclusions of the BPU
concerning electric restructuring known and available to the
Legislature, the public, and interested parties, and for
soliciting and receiving further public comments. After the
analysis of the next round of public comments, the Restructuring
Proposal states that the BPU intends to issue final findings and
recommendations on electric industry restructuring in New Jersey
to the Governor and the State Legislature for their consideration
in March 1997.
ACE is currently analyzing the Restructuring Proposal to
determine its impact if adopted as drafted. The deadline for
submission of written comments is February 14, 1997. ACE cannot
predict what action will ultimately be taken by the BPU.
Salem Nuclear Generation Station
ACE is an owner of 7.41% of Salem Nuclear Generating Station
Units 1 and 2 ("Salem"), which are operated by Public Service
Electric & Gas Co. ("PS"). As previously reported, Salem Units 1
and 2 have been out of service since May 16, 1995 and June 7,
1995, respectively. The Salem units represent 164,000 kilowatts
of ACE's total installed capacity of 2,351,700 kilowatts.
Salem Units 1 and 2 were taken out of service by PS in the
second quarter of 1995. During these outages, PS has advised ACE
that it has made significant changes and improvements related to
the people, processes and equipment at Salem to improve the long-
term reliability of the units. During the course of these
outages, PS has also been required to address certain generic
issues applicable to nuclear power plants, which have also
affected the length of the outages. Restart of the units is
subject to completion of the restart plans for the units to the
satisfaction of PS and the Nuclear Regulatory Commission ("NRC").
ACE has been advised by PS that Salem Unit 2 is in the final
stage of preparation for restart. The reactor has been refueled
and reassembled and the reactor coolant pumps have been tested
and placed in service. Over 90% of the total work activities
have been completed and approximately 75% of the plant systems
have been restored. The unit is currently scheduled to enter
Mode 4 in early February which will allow additional testing to
be performed in preparation for startup.
ACE has also been advised by PS that a Generic Letter from
the NRC (used to notify the nuclear industry of issues affecting
plants generally) identified an issue that will impact the Salem
Unit 2 startup schedule. Generic Letter (96-06) requested all
nuclear utilities, including PS, to review systems for potential
waterhammer events (hydrodynamic stress caused by steam formation
in a piping system) and the impact that these events could have
on the system's safety function. PS reports that it has
determined that in order to address the concerns of the Generic
Letter, modifications are necessary to the containment fan coil
units of Salem Units 1 and 2, which provide containment air
cooling. As a result of installation of these modifications and
the time required for NRC acceptance of PS's proposed resolution
of the Generic Letter issues, PS reports that the start up of
Salem Unit 2 will be delayed, which results in an expected return
to service in the second quarter of 1997.
PS further advised ACE that Salem Unit 1 is expected to
return to service in the summer of 1997, after replacement of the
unit's four steam generators, which was required in order to
correct a generic problem with certain pressurized water
reactors. Removal of the old steam generators has been completed
and installation of the new steam generators is underway. Salem
Unit 1 will also require modifications similar to Salem Unit 2 to
respond to the NRC Generic Letter, but such modifications are not
expected to delay the unit's return to service.
Restart of both Salem units is subject to NRC approval,
which cannot be assured. PS advised ACE that on January 14,
1997, Senator Joseph Biden of Delaware wrote to the NRC to
request that the full Commission vote on the decision to restart
Salem, rather than permit the NRC staff to authorize the restart
under applicable NRC rules. The NRC has not yet responded to
Senator Biden's request.
As previously reported, ACE entered into a Stipulation
Agreement ("Agreement") with PS for the purpose of limiting ACE's
exposure to operation and maintenance ("O&M") expenses for Salem
to be incurred during calendar year 1997. Receipt of the NRC's
generic letter 96-06 preceded the effective date of the Agreement
and should have no adverse affect upon the benefits to be derived
by ACE pursuant to that Agreement. ACE's obligation for any
additional contribution to 1997 Salem O&M expenses remains
performance-based and directly related to the return and
subsequent operation of Salem Units 1 and 2. To the extent ACE
derives a savings against 1997 O&M expenditures, those savings
will offset replacement power costs incurred due to the
unavailability of the Salem Units.
Hope Creek and Peach Bottom
ACE has been advised by PS that PS does not anticipate that
modifications to Hope Creek Nuclear Generating Station will be
necessary as a result of the Generic Letter. ACE has been
advised by PECO Energy that modifications to Peach Bottom Atomic
Power Station Units 2 and 3 will not be necessary as a result of
the Generic Letter.
PS advised ACE that on December 24, 1996, the NRC issued its
latest periodic Systematic Appraisal of Licensee Performance
("SALP") report for Hope Creek for the period between April 23,
1995 to November 9, 1996. The NRC noted that overall performance
improved during the SALP period, after a significant decline in
performance that occurred early in the period. Further, the NRC
notes that PS's actions to address the areas of concern, once
identified, were comprehensive and generally effective. Three
areas, Operations, Maintenance and Engineering, were each rated
Category 2, as they had been in the previous SALP rating.
Improvements were noted in these areas with most of the
improvement in Operations and Maintenance occurring later in the
period. The fourth area, Plant Support, was also rated Category
2, a decline from the previous SALP rating due to problems
principally with security, radiation protection and emergency
preparedness implementation. Weaknesses in communication
contributed to performance issues across the organization.
*****************
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 hereunto duly
authorized.
Atlantic Energy, Inc.
Atlantic City Electric Company
(Registrant)
By: /s/J. E. Franklin II
J. E. Franklin II
Vice President, Secretary and
General Counsel of Atlantic Energy, Inc.
Senior Vice President, Secretary and
General Counsel of Atlantic City
Electric Company
Date: January 27, 1997