FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report: January 23, 1997
PECO ENERGY COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 1-1401 23-0970240
(State or other (SEC (IRS Employer
jurisdiction of file number) Identification
incorporation) Number)
230l Market Street, Philadelphia, Pennsylvania 19101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(215) 841-4000
Item 5. Other Events
On January 22, 1997, the Company filed an Application (Application) under the
provisions of the Pennsylvania Electricity Generation Consumer Choice and
Competition Act (Competition Act) with the Pennsylvania Public Utility
Commission (PUC) for the issuance of a Qualified Rate Order (QRO) authorizing
the recovery by the Company of $3.9 billion of stranded costs and related
transaction and use of proceeds costs through the issuance of $3.9 billion of
"Transition Bonds." The issuance of Transition Bonds, directly by a utility, by
a finance subsidiary or by a third party assignee of a utility, is a mechanism
authorized under the Competition Act to mitigate stranded costs and reduce
customer rates.
The Application, which has been filed in advance of the Company's required
restructuring filing, presently anticipated to be made on April 1, 1997, seeks
recovery of $3.6 billion of the Company's $7.1 billion estimate (at December 31,
1998) of its total stranded costs through the issuance of the Transition Bonds
covered by the Application. The Company's estimate of total stranded costs
includes $3.9 billion of generation assets, $560 million of decommissioning
expenses and $2.6 billion of regulatory assets. Recovery of the portion of the
Company's stranded costs not covered by the Application will be requested by the
Company in its restructuring filing.
The Application sets forth the Company's preferred proposal for the issuance of
Transition Bonds. The proposal provides for (i) the sale by the Company to an
unrelated special purpose entity (SPE) of the intangible transition property
authorized under the Competition Act, which represents the right to recover
through intangible transition charges (ITC) the $3.9 billion of stranded costs
and related transaction and use of proceeds costs, and (ii) the issuance by the
SPE of the Transition Bonds. The Company believes that such a transaction would
be the sale of a financial asset for accounting purposes under SFAS 125,
resulting in the exclusion of the ITC from the Company's revenues and
off-balance sheet treatment of the Transition Bonds; however, such accounting
treatment will require Securities and Exchange Commission approval.
The Company proposes using the proceeds it receives from the SPE resulting from
the issuance of the Transition Bonds to pay estimated transaction costs of $277
million, to settle deferred fuel balances of $240 million and to reduce
capitalization by approximately $3.4 billion. The capitalization reduction is
expected to be proportionate to the Company's current capitalization of 50%
debt, 5% preferred and 45% equity. Specific securities to be retired or the
manner in which they are to be retired have not been determined and will depend
on market conditions at the time or times of issuance of the Transition Bonds.
Adoption by the PUC of the requested QRO and issuance of $3.9 billion of
Transition Bonds at current interest rates would result in an estimated 2.9%
reduction in the Company's retail electric customer rates. The Company estimates
that the consummation of the transaction as proposed in the Application would
reduce the Company's revenues by approximately $650 million and its net income
by approximately $149 million. The impact on the Company's earnings per common
share will depend on the price at which shares of the Company's Common Stock are
purchased. If Common Stock is purchased at a price above book value ($20.88 at
December 31, 1996), earnings per share will be reduced.
The Company has requested expedited review of its Application under the
Competition Act which requires the PUC to complete its review of the Application
and issue a final determination within 120 days. The Company cannot predict
whether the PUC will issue the requested QRO, the level of stranded cost
recovery authorized by any QRO issued by the PUC or the amount of Transition
Bonds, if any, ultimately issued pursuant to any QRO issued by the PUC. Under
the Competition Act, and within the terms of the QRO, if issued, the Company
retains flexibility with respect to when and whether the Transition Bonds are
issued; in any event the Company does not expect that Transition Bonds will be
issued prior to June 30, 1997.
As previously reported in the Company's Report on Form 10-Q for the quarter
ended September 30, 1996 and the Company's Report on Form 8-K dated December 3,
1996, the Competition Act was passed in December 1996 and provides for the
restructuring of the electric industry in Pennsylvania. The Competition Act
requires the unbundling of electric services into separate generation,
transmission and distribution services with open retail competition for
generation.
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.
PECO ENERGY COMPANY
\s\ J. B. Mitchell
Vice President - Finance
and Treasurer
January 23, 1997