SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 31, 2002
COMMISSION FILE NUMBER REGISTRANT, STATE OF I.R.S. EMPLOYER
INCORPORATION, ADDRESS AND IDENTIFICATION NUMBER
TELEPHONE NUMBER
1-13895 Conectiv 51-0377417
(a Delaware Corporation)
800 King Street
P. O. Box 231
Wilmington, Delaware 19899
Telephone: (302) 429-3114
ITEM 5. OTHER EVENTS
2001 EARNINGS ANNOUNCEMENT
Conectiv has announced its earnings, as set forth in the press release
attached as Exhibit 99 hereto.
MID-MERIT ELECTRIC GENERATION PLANTS
Conectiv has been increasing its "mid-merit" electric generating
capacity by building combined cycle units, which are constructed with combustion
turbines, waste heat recovery boilers and a steam turbine. Mid-merit electric
generating plants can quickly change their kWh output level on an economic basis
and generally are operated during times when demand for electricity rises and
prices are higher. In contrast, baseload electric generating plants run almost
continuously to supply the base level of demand for electricity, or the minimum
demand level that generally always exists on an electrical system.
In 2000, Conectiv ordered 21 combustion turbines, which, with
additional equipment, could be configured into eight combined cycle plants.
Conectiv has previously stated that the number of combined cycle plants
ultimately built as part of this construction program and the timing of
construction will depend on various factors, including: growth in demand for
electricity; construction of generating units by competitors; energy prices; the
availability and price of fuel; the availability of suitable financing; possible
construction delays; and the timing and ability to obtain required permits and
licenses. In light of continuing declines in wholesale energy prices, further
analysis of energy markets and projections of future demand for electricity,
among other factors, Conectiv has adjusted its mid-merit plans. Accordingly, in
order to optimize the use of capital resources, Conectiv has taken steps to
extend construction schedules and reduce equipment orders, with no material
financial exposure resulting from those changes. Conectiv has 13 combustion
turbines currently on order (excluding the three Hay Road combustion turbines
discussed below), which, with additional equipment, could be configured into up
to five combined cycle plants.
Each proposed combined cycle plant would have approximately 550 MW of
capacity and, as revised, the total construction program would allow Conectiv to
add up to 2,750 MW of electric generating capacity, representing a potential
total investment of about $2.0 billion (reduced from the previously announced
potential investment of about $2.6 billion). Under a revised extended schedule,
construction would occur in phases and would be completed by the end of 2006,
with delivery of combustion turbines occurring in phases through 2003. Conectiv
is actively developing sites for combined cycle plants within the region of the
PJM Interconnection, L.L.C. (PJM) and, as discussed below, is currently
constructing new plants at the Hay Road site and at a new site in Bethlehem,
Pennsylvania. The final permits for the Bethlehem site were received in
mid-January 2002.
Three new combustion turbines at the Hay Road site became operational
during June and July of 2001, adding approximately 350 MW of capacity. The
waste heat recovery boiler and steam turbine needed for the new combined cycle
operation at Hay Road are expected to be completed by the second quarter of
2002. After completion, this combined cycle plant will have approximately 550 MW
of capacity. In January 2002, Conectiv began construction at a new site in
Bethlehem, Pennsylvania. This site is expected to be the location for up to six
combustion turbines and up to two sets of waste heat recovery boilers and steam
turbines capable of generating 1,100
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MW of capacity. Three combustion turbines are expected to be in service by the
end of 2002, the remaining three are expected to be operational by the second
quarter of 2003. The waste heat recovery boilers and related steam turbines are
expected to be operational in phases, the first in the second quarter of 2003,
the second in the fourth quarter of 2003.
Conectiv's Board of Directors has authorized cumulative expenditures of
approximately $1.2 billion for new mid-merit construction, including (i) $953
million of expenditures expected to be required to complete construction of
three combined cycle plants (one at the Hay Road site and two at the Bethlehem
site, utilizing a total of nine combustion turbines), and (ii) $250 million of
expenditures related to building up to three additional combined cycle plants,
including payments on seven combustion turbines (which represent total
contractual commitments of $234 million), other equipment, and sites necessary
for construction of these three combined cycle plants. Management expects to
fund these and all other future capital requirements from internally generated
funds, leasing, external financings (including securitization of stranded
costs), and proceeds from the sales of electric generating units.
In addition to the factors described above, the construction program
could potentially be affected in the event the new holding company resulting
from completion of the merger of Conectiv and Potomac Electric Power Company
were to determine to further alter the program. Should Conectiv choose not to
build all five of the combined cycle plants in its current plan (excluding the
plants on the Hay Road site), then Conectiv would attempt to sell some or all of
its related investment, including combustion turbines, other equipment and site
development. The ability to find a buyer and the amount of the proceeds from
such a sale would be determined by market conditions. The current market for
combustion turbines is uncertain due to a weaker economy that has reduced demand
for combustion turbines in the region served by the PJM and other regions
throughout the United States. The units would be portable to other markets.
Should Conectiv cancel additional combustion turbine orders, substantial
penalties could be assessed under the contracts with suppliers, which could
result in a material write-off. Through December 31, 2001, Conectiv had invested
approximately $131 million in the seven combustion turbines, other equipment,
and sites needed to build up to three combined cycle plants, in addition to one
combined cycle plant at the Hay Road site and two at the Bethlehem site, for
which full funding has been approved.
ENRON BANKRUPTCY IMPACT
After a review of contracts entered into by Conectiv's subsidiaries,
Conectiv Energy Supply, Inc. and, to a much lesser extent, Delmarva Power &
Light Company, with Enron and its subsidiaries (collectively referred to as
"Enron"), the Company does not believe that it has material financial exposure
related to the Enron bankruptcy. This conclusion is based, among other factors,
on the specific provisions in the contracts of the Conectiv subsidiaries with
Enron and applicable legal principles.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Litigation
Reform Act") provides a "safe harbor" for forward-looking statements to
encourage such disclosures without the threat of litigation, provide those
statements are identified as forward-looking and are accompanied by meaningful,
cautionary statements identifying important factors that could cause the actual
results to differ materially from those projected in the statements.
Forward-looking statements have been made in this Report. Such statements are
based on beliefs of Conectiv's management ("Management") as
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well as assumptions made by and information currently available to Management.
When used herein, the words "will," "anticipate," "estimate," "expect,"
"objective," and similar expressions are intended to identify forward-looking
statements. In addition to any assumptions and other factors referred to
specifically in connection with such forward-looking statements, factors that
could cause actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following: deregulation of
energy supply; the unbundling of delivery services; and increasingly competitive
and volatile energy marketplace; results of any asset dispositions; sales
retention and growth; the effects of weather; federal and state regulatory
actions; future litigation results; cost of construction; operating
restrictions; increased costs and construction delays attributable to
environmental regulations; and credit market concerns. Conectiv undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. The foregoing list
of factors pursuant to the Litigation Reform Act should not be construed as
exhaustive or as admission regarding the adequacy of disclosures made prior to
the effective date of the Litigation Reform Act.
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.
Conectiv
By:
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John C. van Roden
Senior Vice President &
Chief Financial Officer
Date: January 31, 2002
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EXHIBIT INDEX
EXHIBIT NO.
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99 Press release dated January 31, 2002, distributed in connection
with the announcement of Conectiv's year-end 2001 earnings
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