EXHIBIT 10.5
Agenda Date: 9/18/02
Agenda Item: 2B
STATE OF NEW JERSEY
Board of Public Utilities
Two Gateway Center
Newark, NJ 07102
IN THE MATTER OF THE PETITION OF ATLANTIC CITY )
ELECTRIC COMPANY FOR A BONDABLE STRANDED )
COSTS RATE ORDER IN ACCORDANCE WITH N.J.S.A. )
48:3-49 et seq., TO AUTHORIZE THE IMPOSITION OF A )
NON-BYPASSABLE TRANSITION BOND CHARGE AND A )
RELATED MARKET TRANSITION CHARGE-TAX )
COMPONENT, TO AUTHORIZE THE RECOVERY AND )
REFINANCING OF CERTAIN OF ITS RECOVERY-ELIGIBLE ) BONDABLE
STRANDED COSTS AND THE SALE OF BONDABLE ) STRANDED COSTS
TRANSITION PROPERTY, TO AUTHORIZE THE ISSUANCE ) RATE ORDER
AND SALE OF TRANSITION BONDS UP TO AN )
AGGREGATE PRINCIPAL AMOUNT CONSISTENT WITH )
N.J.S.A. 48:3-62 TO RECOVER PETITIONER'S RECOVERY-) DOCKET NO. EF01060394
ELIGIBLE STRANDED COSTS, AND TO AUTHORIZE THE )
APPLICATION OF TRANSITION BOND PROCEEDS TO BUY )
DOWN OR BUY OUT LONG-TERM POWER PURCHASE )
CONTRACTS, TO RETIRE OUTSTANDING DEBT, EQUITY )
OR BOTH, AND TO APPROVE THE METHODOLOGY FOR )
THE CALCULATION AND ADJUSTMENT OF THE )
TRANSITION BOND CHARGE AND MARKET TRANSITION )
CHARGE-TAX RELATED THERETO. )
(SERVICE LIST ATTACHED)
LeBoeuf, Lamb, Greene & MacRae, LLP, Stephen B. Genzer, Esq. and Colleen A.
Foley, Esq., Newark, New Jersey, Counsel for Atlantic City Electric
Company.
Fred S. Grygiel, Chief Economist, and Mark C. Beyer, Manager, Office of the
Economist, and Larry P. Gentieu, Division of Energy, on behalf of the
Staff of the Board of Public Utilities and Ray Lamboy, Deputy Attorney
General.
Badrhn Ubushin, Deputy Ratepayer Advocate, Division of the Ratepayer
Advocate.
BY THE BOARD:
By Petition filed with the Board of Public Utilities (the "Board" or "BPU") on
June 25, 2001 (the "Petition"), Atlantic City Electric Company, (the "Company"
or "Atlantic"), for purposes of recovering the stranded costs deemed eligible
for rate recovery by the Board in the Summary Order dated July 15, 1999, which
was more fully detailed in the Final Decision and Order dated March 30, 2001
("Restructuring Order"), in BPU Docket Nos. E097070455, E097070456 and
E097070457 and OAL Docket Nos. PUC-7311-97 and PUC 7312-97, together with other
bondable stranded costs described in the Electric Discount and Energy
Competition Act (the "Act"), P.L. 1999, c. 23, codified at N.J.S.A. 48:3-49, et
seq., and to enable the Company to comply with the rate reduction requirements
determined by the Board to be necessary and appropriate consistent with the
provisions of Sections 4 and 13 of the Act, requests that the Board issue an
irrevocable Bondable Stranded Costs Rate Order (the "Financing Order") to
authorize: (i) the recovery of $420.833 million of recovery-eligible stranded
costs, and $19.167 million of transaction costs resulting from the issuance of
the transition bonds described herein; (ii) the imposition of a usage-based
nonbypassable transition bond charge (the "TBC"), as provided in Section 18 of
the Act, and the collection of such charge by the Company or another entity
approved by the Board; (iii) the Company to transfer its interest in the
Bondable Transition Property (as defined below) in respect of such TBC to a
financing entity approved by the Board; (iv) the issuance and sale of up to $440
million aggregate principal amount of transition bonds, series 2002-1 (the
"Transition Bonds") by a financing entity approved by the Board to securitize
the recovery of a portion of the Company's bondable stranded costs (the
"Transition Bond Transaction") and to apply the net proceeds of the Transition
Bonds for the purposes of reducing the amount of its otherwise recovery-eligible
stranded costs through the buydown or buyout of long-term power purchase
contracts, or to retire or refinance the Company's outstanding debt, equity or
both; (v) the methodology for the calculation and adjustment of a tax component
(the "MTC-Tax") to be included in its nonbypassable market transition charge
(the "MTC") and the collection of such charge as previously authorized by the
Board in the Restructuring Order to recover federal income and state corporation
business taxes, if applicable, associated with the Bondable Transition Property
(as defined below) and the collection of the TBC and the MTC-Tax (the "MTC-Tax
Component") to reconcile future tax rates and MTC-Tax collections to assure full
recovery of the MTC-Tax Component; and (vi) the methodology for the calculation
and adjustment of the TBC. Additionally, the Company asks that the Board modify
its Order dated July 21, 2000, in Docket No. EM99110870 to permit the Company to
securitize its nuclear generation stranded costs prior to the Board's final
review and determination of the recovery-eligible stranded costs associated with
the Company's fossil generation assets.
The Company states that the proceeds of the Transition Bonds (net of Upfront
Transaction Costs (as defined below)) will be used by or on behalf of the
Company for the purposes of reducing the amount of its otherwise
recovery-eligible stranded costs, through the retirement of debt or equity, or
both, of the Company consistent with Section 14 of the Act, and to buy down or
buy out Board-approved long-term power purchase contracts ("NUG Contracts")/1
consistent with Section 14.
The Company estimates that the Transition Bond Transaction will result in
present value savings over the term of the Transition Bonds. Exhibit A of this
Order sets forth a calculation of the net present value benefits of the
Transition Bond Transaction based on the assumptions contained herein. The
Company's MTC and TBC will be trued up to reflect the terms of the
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1 Pursuant to a Board Order dated November 10, 1999, the Company bought out an
existing Board-approved NUG Contract with the Pedricktown Cogeneration Limited
Partnership in BPU Docket No. EE99090685. Pursuant to a Board Order dated
December 6, 2000, the Company bought down an existing Board-approved NUG
Contract with American Ref-Fuel Company of Delaware Valley, L.P. in BPU Docket
No. EM00060388.
ACE Bondable Stranded Costs Rate Order 2 BPU Docket No. EF01060394
actual Transition Bond Transaction so that, among other things, any incremental
savings from the actual Transition Bond Transaction, beyond those anticipated
and already provided to customers of the Company, will benefit such customers
through adjustments to the TBC and MTC.
1. PROCEDURAL HISTORY
On April 30, 1997, the Board issued an Order adopting and releasing a document
entitled "Restructuring the Electric Power Industry in New Jersey: Findings and
Recommendations" (the "Final Report"). The Final Report contained the findings
and recommendations concerning the future structure of the electric power
industry in New Jersey, including the recommendation that in the future electric
consumers be offered a choice of electric power suppliers in order to effectuate
substantial economic benefits by way of lower electric bills and the provision
of more service options to the State's residents and businesses.
Recognizing that there were a number of substantial procedural steps necessary
to implement the recommended policies and to prepare for the commencement of
retail competition, the Board directed in the Order adopting the Final Report
that each of the State's four investor owned electric utilities make three
filings: a rate unbundling petition, a stranded cost petition, and a
restructuring plan.
On July 11, 1997, the Board issued an Order Establishing Procedures, wherein it
determined to transmit each utility's rate unbundling and stranded cost filings
to the Office of Administrative Law (the "OAL") for hearings and the issuance of
an Initial Decision. The Board also determined to retain the restructuring plan
filings for its own review and, as necessary, hearings.
On July 15, 1997, the Company filed its response to the Final Report. The
Company's unbundling and stranded costs proceedings were transmitted to the OAL
and assigned to Administrative Law Judge William Gural ("ALJ Gural") (BPU Docket
Nos. EO97070455 and EO97070456 respectively). The restructuring Petition was
retained by the Board (BPU Docket No. EO97070457).
Nine days of evidentiary hearings on the unbundling and stranded costs
proceedings were conducted by ALJ Gural at the OAL between February 17, 1998 and
February 27, 1998. During that time period, witnesses were cross-examined on
their prefiled direct testimony, as well as on any filed rebuttal or surrebuttal
testimony. At the close of hearings, a briefing schedule was adopted by ALJ
Gural. Initial Briefs were filed in March, 1998. Reply Briefs were filed in
April, 1998.
After the Company's unbundling and stranded cost hearings and briefing were
completed at the OAL, approximately twenty additional days of evidentiary
hearings were held before Commissioner Carmen J. Armenti between April 27 and
May 28, 1998. During these dates, the parties presented testimony and conducted
cross-examination on certain identified restructuring issues affecting all four
electric utilities.
Following the close of hearings before Commissioner Armenti, briefs and reply
briefs on the restructuring issues were filed on June 26 and July 17, 1998,
respectively.
After requesting and receiving an extension of time from the Board, ALJ Gural
issued an Initial Decision and Report on the Company's unbundling and stranded
cost filings on August 19,
ACE Bondable Stranded Costs Rate Order 3 BPU Docket No. EF01060394
1998. The parties filed Exceptions and Replies to Exceptions to the Initial
Decision with the Board in October and November, 1998, respectively.
On February 9, 1999, then-Governor Whitman signed the Act into law. The Act
authorized the Board to permit competition in the electric generation and
natural gas supply marketplaces and such other traditional utility areas as the
Board determines. In addition, all four electric utilities were mandated to
implement specific rate reductions over a period of four years. Among other
things, the Act required the Board, by Order, to provide that by no later than
August 1, 1999 each electric public utility would provide retail choice of
electric power suppliers for its customers, reduce its aggregate level of rates
for each customer class by no less than five percent, unbundle its rate
schedules and establish so-called "shopping credits" applicable to the bills of
retail customers who choose alternative electric power suppliers.
By Order dated February 11, 1999, the Board established guidelines and a
schedule for the commencement of settlement negotiations among the parties in
the Company's stranded costs, rate unbundling, and restructuring proceedings.
The Board set a deadline for the submission to the Board of a negotiated
settlement, which deadline was later extended. No comprehensive settlement was
reached among all the parties; however, on June 9, 1999 a proposed Stipulation
of Settlement ("Stipulation") was filed by the Company and four other parties. A
proposed alternative stipulation of settlement ("Stipulation II") was submitted
to the Board on June 15, 1999 by the Division of the Ratepayer Advocate and
three other parties. The parties were provided the opportunity to submit
comments to the Board on both Stipulations.
At its July 15, 1999 open public agenda meeting, the Board found that with
certain modifications the Stipulation could serve as a reasonable framework for
a fair and reasonable resolution of the matters and issued its Summary Order
dated July 15, 1999 ("Summary Order") memorializing the Board's decision in BPU
Docket Nos. EO97070455, EO97070456 and EO97070457. In that Summary Order, the
Board determined, among other things, that the Company would have an opportunity
to recover its net owned generation stranded costs (established definitively
upon divestiture), as well as 100% of NUG Contract stranded costs, through the
use of securitization, contingent upon such NUG Contract buyout or buydown or
restructuring being approved by the Board and found to be consistent with the
standards in Sections 13 and 14 of the Act.
Pursuant to a Board Order dated November 10, 1999, the Company bought out an
existing Board-approved NUG Contract with the Pedricktown Cogeneration Limited
Partnership in BPU Docket No. EE99090685. Pursuant to a Board Order dated
December 6, 2000, the Company bought down an existing Board-approved NUG
Contract with American Ref-Fuel Company of Delaware Valley, L.P. in BPU Docket
No. EM00060388. On October 18, 2001, the Company closed on the sale of its
nuclear generation assets for approximately $11.3 million, subject to certain
adjustments, in accordance with the Board Orders dated July 21, 2000 and
September 17, 2001 in BPU Docket No. EM99110870. Specifically, the Company sold
its interests in the Salem Nuclear Generating Station Units 1 and 2 ("Salem")
and the Hope Creek Nuclear Generating Station ("Hope Creek") to PSEG Power LLC,
and one-half of its interest in the Peach Bottom Station Units 2 and 3 ("Peach
Bottom") (collectively the "Nuclear Assets") to each of PSEG Power LLC and PECO
Energy Company.
As noted above, the Company filed its Initial Petition in this securitization
matter on June 25, 2001.
ACE Bondable Stranded Costs Rate Order 4 BPU Docket No. EF01060394
On July 26, 2002, the Company filed with the Board a copy of Amendment No. 1 to
the Registration Statement of Atlantic City Electric Transition Funding LLC, a
Delaware limited liability company (the "SPE"), the equity in which is wholly
owned by the Company on Form S-3 (the "SEC Filing") relating to the Transition
Bonds.
On September 12, 2002, a public legislative-type hearing was held before
Commissioner Butler and Commissioner Hughes. Any party wishing to do so was
afforded the opportunity to participate and present comments. The parties who
participated in the hearing were the Company, the Board's Staff and the Division
of the Ratepayer Advocate. Those testifying included a Company-sponsored panel
of witnesses, including witnesses from Morgan Stanley & Co. Incorporated and
Fitch Ratings, Inc. Witnesses from the Division of the Ratepayer Advocate and
Bear, Stearns & Co. Inc., the Board's financial advisor, also appeared.
During the public legislative-type hearing, the Division of the Ratepayer
Advocate stated that it did not oppose the proposed securitization transaction,
but raised concerns about various alleged benefits of securitization to the
Company, as well as certain issues related to stranded costs. The Company and
the Ratepayer Advocate have agreed that those matters related to stranded costs
should be addressed in the Company's pending deferral proceeding in BPU Docket
No. ER02080510./2 The Board finds that such matters may be addressed in the
deferral proceeding or other appropriate proceeding, however, the Bondable
Transition Property described herein will not be altered by such consideration.
Further, the Board believes that, to the extent there are any additional
benefits as alleged by the Ratepayer Advocate, they can and will be reviewed in
the Company's next electric base rate case. Any adjustments that are found to be
appropriate following such review can be made at that time. We note that this
approach is consistent with the approach taken in the Bondable Stranded Costs
Rate Order, dated September 17, 1999, issued in connection with the Public
Service Electric and Gas Company securitization transaction in BPU Docket No.
EF99060390, and with the Bondable Stranded Costs Rate Order, dated February 6,
2002, issued in connection with the Jersey Central Power & Light Company
securitization transaction in BPU Docket No. EF99080615.
2. TRANSITION BOND TRANSACTION
a. Proposed Structure
A general description of the Transition Bond Transaction structure proposed by
the Company follows. This proposed structure is subject to modification,
depending upon the requirements of tax authorities, input from underwriters in
connection with the marketing of the Transition Bonds and negotiations with
nationally recognized statistical rating organizations (collectively the "rating
agencies") selected by the Company to assign credit ratings to the Transition
Bonds. The Company states that the proposed structure is intended to ensure that
the Company's customers pay the lowest TBC consistent with market conditions at
the time of pricing and the terms of this Financing Order, in compliance with
the requirement of Section 14(b)(4) of the Act. The Company has also requested
that the Board authorize the execution of hedging arrangements at the time of
pricing as described in Section 2(e) hereof. Pricing of the Transition Bonds
will be determined by the Company in consultation with the underwriters and
approved by a designee of the Board (the "Designee") subject to the guidelines
contained in Appendix F hereto. The structure and terms of the Transition Bond
Transaction will be fixed based on such approved pricing.
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2 The Company, the Division of the Ratepayer Advocate and the Board's Staff have
agreed to address in the deferral proceeding the final accounting related to the
transaction costs in the NUG Contract buyout and buydown, and the stranded costs
related to the nuclear asset sale.
ACE Bondable Stranded Costs Rate Order 5 BPU Docket No. EF01060394
The Company states that the Bondable Stranded Costs to be securitized in this
transaction are attributable to the Company's actual net investment in the
Nuclear Assets and to the buyout and buydown of Board-approved NUG Contracts,
net of (i) deferred income taxes attributable to the plants and (ii) certain
other tax benefits. Such Bondable Stranded Costs are approximately $420.833
million, and the transaction costs are currently estimated at $19.167 million.
Section 14(c) of the Act permits the Board to authorize the issuance of
Transition Bonds for utility generation plant stranded costs in an amount up to
75 percent of the total amount of an electric public utility's recovery-eligible
utility generation plant stranded costs. Pursuant to prior Board orders cited
herein and in Appendix I, the Board has found that for the purpose of
determining the 75 percent the securitizable amount may be measured relative to
the recoverable utility generation plant grossed up to account for the tax
liability the Company will incur associated with the recovery of the net-of-tax
stranded costs. Therefore, the Company's nuclear generation plant
recovery-eligible stranded costs, based on a statutory federal and state tax
rate of 40.85% and a net-of-tax recoverable stranded cost amount of $277.946
million, is approximately $470 million. The requested level of nuclear
generation plant stranded cost securitization of $277.946 million represents
approximately 59% of the total amount of the recovery-eligible nuclear
generation related stranded costs, and thereby meets the requirements of Section
14(c) of the Act./3
The Company has requested the authority to recover its aforementioned Bondable
Stranded Costs, and, in addition, the following bondable stranded costs relating
to the Transition Bonds: (1) the costs (including, but not limited to,
redemption premiums, unamortized costs of issuance, interest and preferred
dividends accruing on or after the issuance of the Transition Bonds and other
fees, costs and charges relating thereto), estimated at $9.734 million, of
retiring the Company's debt or preferred equity, or both, with the proceeds of
the Transition Bonds ("Capital Reduction Costs"); (2) the costs, estimated at
$9.433 million, incurred to issue the Transition Bonds ("Upfront Transaction
Costs"); and (3) principal and interest on the Transition Bonds, together with
the costs of paying, refinancing, administering and servicing, credit enhancing,
overcollateralizing and hedging the Transition Bonds as more fully described
herein ("Ongoing Transition Bond Costs"). The Company has also requested
approval of the methodology for the calculation and adjustment of the TBC and
MTC-Tax related thereto.
The Company has also requested that, pursuant to this Financing Order, the
Company be granted authority to recover through the sale of the Bondable
Transition Property up to $440 million of its bondable stranded costs, including
Capital Reduction Costs and Upfront Transaction Costs. Ongoing Transition Bond
Costs will be recovered by the SPE through the assessment and collection of the
TBC, a separate, nonbypassable, usage-based charge assessed and collected from
all of the Company's customers and/or the customers of any electric distribution
company that succeeds to all or a significant part of the electric distribution
business within the Company's service territory as it exists today ("Successor
Utility"), subject to Section 28 of the Act, which specifies when the TBC may be
imposed on power produced by on-site generation facilities.
The bondable stranded costs whose recovery is approved pursuant to this
Financing Order are referred to in this Financing Order as the "Bondable
Stranded Costs."
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3 On September 10, 2002, the Company provided a certification indicating that,
based on preliminary information from prospective bidders, "it seems highly
likely that the sale of ACE's fossil assets will result in additional utility
generation plant stranded costs." See Certification of Charles F. Morgan, Jr.,
paragraph 4 (dated September 10, 2002).
ACE Bondable Stranded Costs Rate Order 6 BPU Docket No. EF01060394
The Company states that the principal asset supporting the Transition Bonds will
be bondable transition property, which is property created by the Act and this
Financing Order that includes (a) the irrevocable right to charge, collect,
receive and be paid from collections of, the TBC, in the amount necessary to
provide for the full recovery of Ongoing Transition Bond Costs and all other
bondable stranded costs determined to be recoverable in this Financing Order,
(b) all rights of the Company under this Financing Order, including, without
limitation, all rights to obtain periodic adjustments of the TBC pursuant to
Section 15(b) of the Act and (c) all revenues, collections, payments, money and
proceeds arising under, or with respect to, all of the foregoing. The bondable
transition property created by the Act and this Financing Order is herein
referred to as the "Bondable Transition Property." For convenience of usage in
this Financing Order, there are numerous references to the holding and transfer
of the Bondable Transition Property by the Company and others. However, the
Bondable Transition Property arises, and constitutes a vested, presently
existing property right, only upon (i) its transfer to an assignee and (ii)
receipt of consideration therefor. It will be vested in the SPE as an original
right and not by assignment from any other entity. Pursuant to Section 16 of the
Act, this Financing Order and the TBC are irrevocable upon this Financing Order
becoming effective pursuant to Section 19 of the Act, and this Financing Order
cannot be rescinded, altered, repealed, modified or amended by the Board or any
other governmental entity, nor can it be impaired by the State of New Jersey, as
pledged by the State of New Jersey in Section 17 of the Act.
The Company will sell its interest in the Bondable Transition Property to
implement the Transition Bond Transaction to the SPE, a newly formed,
nonutility, bankruptcy-remote special purpose entity, which is a Delaware
limited liability company, the equity in which will be wholly-owned by the
Company, in exchange for the net proceeds received by the SPE from the sale of
the Transition Bonds. The Company will also make a cash capital contribution to
the SPE in an amount that will at least equal 0.5% of the aggregate initial
principal amount of the Transition Bonds. The capitalization amount for the
Transition Bonds will be held in a separate subaccount (the "Capital
Subaccount") as described in more detail below. The SPE will remit to the
Company the proceeds from the sale of the Transition Bonds, in payment for the
Bondable Transition Property.
Under Section 23 of the Act, the transfer to the SPE will be treated, for
bankruptcy purposes, as a true sale and absolute transfer to the SPE,
notwithstanding: (1) the fact that the Company acts as the collector or servicer
of the TBC; (2) the treatment of such transfer as a financing for federal, state
or local tax purposes or financial accounting purposes; (3) the capitalization
of the SPE by the Company; or (4) the retention or acquisition of any rights
listed in Section 23(a)(4) of the Act. The SPE will be a "financing entity" for
purposes of the Act. The Company states that Board approval of the SPE and the
Transition Bond Transaction in this Financing Order will constitute a finding
that the SPE's activities will not violate any affiliate relation standards
currently in effect or that the Board may adopt in the future.
The Company states that the SPE will issue and sell Transition Bonds, which will
be either fixed or floating rate instruments, under an indenture ("Indenture")
between the SPE and an institutional trustee (the "Transition Bond Trustee")
supplemented by a supplemental indenture for the series 2002-1 bonds (the
"Series Supplement"), and will purchase the Bondable Transition Property from
the Company with the net proceeds received from the sale of the Transition
Bonds. The SPE will issue and sell the Transition Bonds in a negotiated, fully
underwritten public offering as asset-backed securities ("ABS"). According to
the Company, all prior securitizations of utility stranded costs in other
jurisdictions have been structured as ABS and sold on a negotiated basis and the
expertise of an underwriter is critical to the structuring,
ACE Bondable Stranded Costs Rate Order 7 BPU Docket No. EF01060394
pricing and marketing of securities in the ABS market. Indeed, in other states
where competitive bidding requirements generally exist, such as Massachusetts,
competitive bidding of stranded cost securitization transactions either has been
waived or has not been required. The Company asserts that a negotiated sale, as
opposed to one accomplished through competitive bidding, should result in lower
interest costs and will ensure that the Company's customers pay the lowest TBC
consistent with market conditions at time of pricing and the terms of this
Financing Order, in compliance with the requirement of Section 14(b)(4) of the
Act. If the Company sells floating rate instruments, it intends to enter into
appropriate hedging arrangements, including interest rate caps, swaps or
collars, which will have the effect of creating fixed interest rate obligations
for the SPE.
The Company states that all of the assets of the SPE, including, without
limitation, the Bondable Transition Property and the other collateral of the SPE
(the "Other SPE Collateral"), will be pledged as collateral to secure the
Transition Bonds. The Company notes that the Other SPE Collateral may include
(without limitation): (i) the rights of the SPE under certain of the Transition
Bond Transaction documents, including (a) a sale agreement and related bill of
sale by which the SPE acquires the Bondable Transition Property and receives
certain indemnification from the Company, (b) a servicing agreement (the
"Servicing Agreement") by which the Company or any successor in that capacity
acts as servicer of the Bondable Transition Property (the "Servicer"), and (c)
an administration agreement by which the SPE will be administered will be with
an affiliate of Atlantic; (ii) various trust accounts of the SPE, including, but
not necessarily limited to, the Capital Subaccount, the overcollateralization
subaccount for the series 2002-1 bonds (the "Overcollateralization Subaccount"),
the reserve subaccount for the series 2002-1 bonds (the "Reserve Subaccount"),
the series subaccount for the series 2002-1 bonds (the "Series Subaccount"),
under which the Capital Subaccount, the Overcollateralization Subaccount and the
Reserve Subaccount will be established, and the collection account (the
"Collection Account"), under which will be established the foregoing accounts
(as well as similar accounts for any other series of transition bonds later
issued by the SPE) and a general subaccount (the "General Subaccount"); (iii)
any investment earnings on amounts held by the Transition Bond Trustee, other
than investment earnings released to the SPE or to counterparties under swap
agreements, if any, in accordance with the Indenture and Series Supplement.
The Company requests, in accordance with Section 14 of the Act, that the Board
approve Transition Bonds with scheduled amortizations upon issuance (1) not
exceeding 15 years from the date of issuance in the case of Transition Bonds the
proceeds of which will be used to reduce stranded costs related to utility-owned
generation and (2) not exceeding the remaining term of a NUG Contract in the
case of Transition Bonds the proceeds of which will be used to buy down or buy
out such NUG Contract. The Company also requests that the Board approve stated
maturities of up to two years (or, in the case of the Transition Bonds referred
to in clause (2) above, three years) beyond the expected final scheduled
maturity date of each class of Transition Bonds in order to minimize
overcollateralization requirements and enhance the prospects of securing the
highest possible credit rating for the Transition Bonds.
b. Recovery of Upfront Transaction Costs
In order to issue Transition Bonds to achieve net savings for the benefit of its
customers, the Company will incur Upfront Transaction Costs. Based on the
currently estimated initial offering of $440 million of Transition Bonds, the
Company has estimated that such amount will include Upfront Transaction Costs of
approximately $9.433 million which may vary, in part, based on the factors
described below. The Company states that these Upfront Transaction Costs will
include,
ACE Bondable Stranded Costs Rate Order 8 BPU Docket No. EF01060394
among other items, the underwriting fee, rating agency fees, financial advisory
fees, accounting fees, SEC registration fees, printing and marketing expenses,
trustees' fees, legal fees, servicing set-up fees and the administrative cost of
forming the SPE. The Company has requested authority to recover the Upfront
Transaction Costs from the proceeds of the sale of the Transition Bonds and to
include such costs as Bondable Stranded Costs so that the right to recover such
amounts will constitute a portion of the Bondable Transition Property. The
Company indicates that to the extent payment of any Upfront Transaction Costs is
required prior to the issuance of the Transition Bonds, the Company will pay
such costs and then will be reimbursed from the proceeds of the Transition
Bonds.
c. Recovery of Capital Reduction Costs
The Company has requested recovery of approximately $9.734 million of Capital
Reduction Costs of retiring the Company's debt and/or preferred equity, or both,
including, but not limited to, any accrued interest or dividends accrued from
and after the date of sale of the Transition Bonds, premium and other fees,
costs and charges relating thereto, from the proceeds of the sale of the
Transition Bonds and to include such Capital Reduction Costs as Bondable
Stranded Costs so that the right to recover such amounts will constitute a
portion of the Bondable Transition Property.
d. Recovery of Ongoing Transition Bond Costs
The Company has requested recovery of Ongoing Transition Bond Costs through the
TBC. The Company states that the primary Ongoing Transition Bond Costs are the
periodic payments of principal and interest on the Transition Bonds (including
past due and deferred amounts), and that other such costs include principally
the annual servicing fee of .10% of the initial principal amount of all series
of transition bonds that the SPE has issued (the "Servicing Fee") payable
monthly in 12 equal amounts to the Company, in its capacity as the Servicer (as
defined below), or such higher fee as may be payable to a successor Servicer (in
an amount of up to 1.25% of the initial principal balance of all series of
transition bonds that the SPE has issued), the ongoing cost of credit
enhancement and the costs of overcollateralization. The Company states that
there will also be a small amount of additional, ongoing costs associated with
the Transition Bond Transaction, such as the administration fee, legal and
accounting fees, directors' or managers' fees, rating agency fees, trustees'
fees and other costs of operating the SPE. The Company states that these costs
should be included as Bondable Stranded Costs to be recovered through the TBC in
accordance with Section 14 of the Act, and the right to recover these costs as
Bondable Stranded Costs will constitute a portion of the Bondable Transition
Property.
e. Approval of Final Terms and Conditions: Transition Bond Transaction
The Company states that upon the pricing of the Transition Bonds, it will
cooperate with and provide such information to the Board's Designee as is
reasonably requested in order that the Designee may make the certifications
required below. To assist the Designee in making his or her required
certifications, upon the pricing of the Transition Bonds, the Company will file
with the Board's Designee a Pricing Advice Certificate, substantially in the
form of Appendix D hereto. This document may be based in part on the advice of
the Company's lead underwriter and will certify in substance that the structure
and pricing of the Transition Bonds (including any hedging arrangement priced at
the time of the pricing of the Transition Bonds as described below) assures that
the Company's customers pay the lowest TBC consistent with then current market
conditions and the terms of this Financing Order.
ACE Bondable Stranded Costs Rate Order 9 BPU Docket No. EF01060394
The Company also states that prior to the approval by the Board's Designee of
pricing of the Transition Bonds (including any hedging arrangement priced at the
time of the pricing of the Transition Bonds), the Company's lead underwriter
will provide a certificate substantially in the form of Appendix G hereto to the
effect that, in its judgment and subject to the assumptions, qualifications and
limitations contained therein, the structuring and pricing of the Transition
Bonds (and any such hedging arrangement at the time of pricing) is reasonable in
the light of then current market conditions and the terms of this Financing
Order and will result in customers of the Company paying the lowest TBC
consistent with then current market conditions and the terms of this Financing
Order. Upon the filing of the Pricing Advice Certificate (at the time of the
pricing of the Transition Bonds and any such hedging arrangement), the Company
requests that the Board's Designee file with the Board a certificate (the
"Designee Certification") substantially in the form of Appendix A hereto, (i)
approving the pricing and the terms and conditions of the Transition Bonds (and
any hedging arrangement), including (a) scheduled amortizations upon issuance
(1) not exceeding 15 years from the date of issuance in the case of Transition
Bonds the proceeds of which will be used to reduce stranded costs related to
utility-owned generation and (2) not exceeding the remaining term of a long-term
power purchase agreement with a non-utility generator in the case of Transition
Bonds the proceeds of which will be used to buy down or buy out such power
purchase agreement and (b) stated maturities of up to two years (or, in the case
of the Transition Bonds referred to in clause (a)(2) above, three years) beyond
the expected final scheduled maturity date of each class of Transition Bonds and
(ii) stating that the structure and pricing of the Transition Bonds assures that
the Company's customers pay the lowest TBC consistent with market conditions and
the terms of this Financing Order. The Designee Certification will represent the
Designee's final and irrevocable approval of the pricing of the Transition Bonds
(including any hedging arrangement priced at the time of pricing Transition
Bonds, as described below) and the terms and conditions of the Transition Bond
Transaction. The Company states that such terms and conditions, including the
expected principal amortization schedule (the "Expected Amortization Schedule"),
will be fixed based on such approved pricing, and will include (a) scheduled
amortizations upon issuance (1) not exceeding 15 years from the date of issuance
in the case of Transition Bonds the proceeds of which will be used to reduce
stranded costs related to utility-owned generation and (2) not exceeding the
remaining term of a long-term power purchase agreement with a non-utility
generator in the case of Transition Bonds the proceeds of which will be used to
buy down or buy out such power purchase agreement, and such longer legal
maturities as are required to obtain the highest possible credit rating on the
Transition Bonds (up to two years (or, in the case of the Transition Bonds
referred to in clause (a)(2) above, three years) beyond the expected final
scheduled maturity date of each class of Transition Bonds). Payments on the
Transition Bonds will be made semi-annually or quarterly, depending upon market
conditions or rating agency considerations at the time of pricing. Exhibit C-1
of the Company's Petition contains forecasted principal and interest payments
each year in the Transition Bond Transaction based upon the forecasted level of
the Transition Bonds to be issued. Exhibit B hereto is an updated version of
Exhibit C-1 to the Company's Petition. The ultimate Expected Amortization
Schedule may be altered as a result of market conditions or rating agency
requirements, and will be subject to the Designee's Guidelines contained in
Appendix F hereto. The associated MTC-Tax collections may be adjusted from time
to time to reflect the changing principal and interest components of the
Transition Bond debt service.
If the structure, pricing, terms and conditions meet the requirements discussed
above, the Company will be authorized under this Financing Order to undertake
the Transition Bond Transaction. Prior to the pricing of the Transition Bonds,
the Designee may obtain from the Board's financial advisor, Bear, Stearns & Co.
(the "Financial Advisor"), recent secondary market trading levels of existing
utility stranded cost securitization bonds, to the extent such
ACE Bondable Stranded Costs Rate Order 10 BPU Docket No. EF01060394
information is available through public sources. To the extent such information
is available, the Company anticipates that such information may, in part, be
considered in connection with the pricing of the Transition Bonds. Finally, the
Company has invited the Designee to be present at pricing, either in person or
by telephone.
The Company states that one or more classes of the Transition Bonds may be
issued as variable rate instruments under which the SPE will pay a fixed
interest rate through the execution of an interest rate exchange agreement, an
interest rate cap agreement or similar hedging arrangement. If, at the time of
pricing of the Transition Bonds, the Company and its lead underwriter determine
that such a hedging arrangement is expected to result in a lower interest cost
on such classes of bonds or on all classes of an issue taken as a whole, the
hedging arrangement will be competitively bid, will be described in the Pricing
Advice Certificate (see Appendix D hereto) and the Company's lead underwriter
will provide a certificate as to its reasonableness in accordance with Appendix
G hereto, after which the arrangement will be subject to approval by the
Designee in the Designee Certification. Any counterparty to such a hedging
arrangement must have a credit rating consistent with achieving the highest
possible ratings on the Transition Bonds.
The Company states that not later than five business days after the issuance and
sale of the Transition Bonds, the Company will confirm to the Board, in an
"Issuance Advice Letter", substantially in the form of Appendix B hereto, the
actual interest rates (or formula for determining variable interest rates) on
the Transition Bonds, the Expected Amortization Schedule, the Required
Overcollateralization Schedule (as defined in Section 2(f) below) and the
initial TBC and MTC-Tax, which will be calculated using the methodology approved
hereby and described in Appendix C hereto. At such time, the Company will also
file revised tariff sheets with the Board setting forth the initial TBC and
MTC-Tax. The initial TBC and MTC-Tax and related revised tariff sheets will
become effective the same day the Company files the Issuance Advice Letter and
the revised tariff sheets, without further action by the Board.
f. TBC
In accordance with Section 18 of the Act, the Company states the TBC will apply
equally to each customer of the Company, regardless of class, based on the
amount of electricity delivered to each customer through the transmission and
distribution system of the Company or any Successor Utility within the Company's
service territory as it exists today, subject to Section 28 of the Act, which
specifies when the TBC may be imposed upon power produced by on-site generation
facilities. Pursuant to Section 15(b) of the Act, the Company states that the
TBC will be periodically adjusted from time to time, in accordance with the
methodology approved in this Financing Order, to ensure that it is set at a
level intended to recover the Ongoing Transition Bond Costs, including, without
limitation: (1) the principal of (determined in accordance with the Expected
Amortization Schedule as detailed in the Issuance Advice Letter), and interest
on, the Transition Bonds authorized by the Board in this Financing Order; (2)
the costs of operating and administering the SPE; (3) the costs of servicing the
Transition Bonds, including servicing and trustee fees, expenses and
indemnities, substantially as described in the SEC Filing; (4) amounts required
to fund or replenish the Overcollateralization Subaccount in accordance with the
overcollateralization schedule ("Required Overcollateralization Schedule"), or
to fund or replenish any similar account which provides credit enhancement for
the Transition Bonds, all as confirmed in the Issuance and Advice Letter; (5)
the reimbursement of any amounts drawn from the Capital Subaccount pursuant to
the Indenture, substantially as described in the SEC Filing, or the
reimbursement of any drawn amounts from any similar account which provides
ACE Bondable Stranded Costs Rate Order 11 BPU Docket No. EF01060394
credit enhancement for the Transition Bonds; and (6) the ongoing expenses, if
any, of any other credit enhancement arrangements.
In Appendix C, the Company sets forth the general methodology by which it
proposes to establish and adjust from time to time the TBC and the MTC-Tax. The
Company states that the TBC and the MTC-Tax will be set and adjusted based on
assumptions described in Appendix C, as those assumptions are adjusted from time
to time based on various factors including, but not limited to, energy sales
forecasts, customer payment and charge-off patterns, defaults by third party
suppliers (as described herein), the Ongoing Transition Bond Costs (including
unpaid amounts from prior periods and replenishment of credit enhancement, if
applicable) and, with respect to the MTC-Tax, the applicable income tax rates in
effect from time to time. In Exhibit B hereto, the Company has projected the
initial TBC and the MTC-Tax using the methodology described in Appendix C and
assuming the Ongoing Transition Bond Costs as described herein.
In accordance with Section 15(c) of the Act, the Company requests that the TBC
remain in effect until the Bondable Stranded Costs, including, without
limitation, the principal of, and accrued interest and acquisition or redemption
premium on, any Transition Bonds issued to finance such Bondable Stranded Costs,
have been paid in full and all other obligations and undertakings with respect
thereto have been fully satisfied.
The Company states that each customer's monthly bill will reflect, either
explicitly, or through a notation, that a portion of the charges on such bill
represents amounts being collected on behalf of the SPE as owner of the Bondable
Transition Property.
g. Periodic Adjustments to the TBC and MTC-Tax
Section 15(b) of the Act requires that this Financing Order provide for
mandatory periodic adjustments (each, a "TBC True-Up") to be made by the Board
at least annually upon petition of the Company, its assignee or a financing
entity, to ensure receipt of revenues sufficient to make payments related to
Ongoing Transition Bond Costs (including unpaid amounts from prior periods and
replenishment of credit enhancements, if applicable) by the payment dates
designated by the Company in its TBC True-Up filing, such that the Transition
Bonds will be retired in accordance with the Expected Amortization Schedule.
Each TBC True-Up must be formula-based, and the Company intends to use the
formula-based methodology described in Appendix C hereto. As Servicer, the
Company states that it will be responsible for filing with the Board
documentation for any TBC True-Up. (The Company, as Servicer under the Servicing
Agreement, and any successor to the Company as servicer, are herein referred to
as the "Servicer".)
Although the Company, as Servicer, will file for TBC True-Ups at least annually,
the Company has requested authorization to file for adjustments of the TBC as
often as monthly or quarterly, as may be determined from time to time in the
future to be necessary to maintain the highest possible credit rating (all as
set forth in the Servicing Agreement). Under Section 15(b) of the Act, the
Servicer shall propose such TBC True-Up in a filing with the Secretary of the
Board at least 30 days in advance of the date upon which it is requested to be
effective. The TBC True-Up shall become effective on an interim basis on the
date on which it is requested to be effective, in the absence of a Board Order
to the contrary. Under Section 15(b) of the Act, in the absence of a Board order
to the contrary, the periodic adjustment shall become final and nonappealable 60
days after the filing. The Company has requested that TBC True-ups go into
effect at least annually, and that the Board confirm that the TBC True-Up will
become effective or final, as the case may be, absent a finding by the Board of
manifest error (for purposes of this
ACE Bondable Stranded Costs Rate Order 12 BPU Docket No. EF01060394
Financing Order, "manifest error" is an arithmetic error evident on the face of
such filing) in the application of the adjustment methodology approved herein.
In the event of a finding of manifest error, the rate to be made effective will
be the arithmetically corrected rate or, in the absence of agreement on the
arithmetically corrected rate, the rate in effect for the prior period will
remain in effect until the arithmetically corrected rate is made effective. The
Company asserts that this standard for effectiveness is consistent with the
other provisions of Section 15(b) of the Act that require that the TBC True-Up
be implemented to ensure "timely payment" of, among other things, principal of,
and interest and acquisition or redemption premium on, the Transition Bonds. The
Company further asserts that in order to achieve the highest possible credit
ratings on the Transition Bonds and, thus, to reduce costs to customers, the TBC
True-Ups must be made final and nonappealable based upon this objective
standard.
The Company will be entitled to request, and the Board will approve, mandatory
periodic adjustments of the MTC-Tax (each, an "MTC-Tax True-Up"). Each MTC-Tax
True-Up will be made at least annually to reconcile the income tax recovered to
the income taxes required to be assessed to the Company on the taxable net
revenue from the TBC and MTC-Tax. The reconciliation will be made in the same
manner and at the same time as the TBC True-Up to ensure receipt of revenues
sufficient to assure recovery of the MTC-Tax. Upon petition of the Company, the
MTC-Tax will be adjusted based upon assumptions described in Appendix C hereto,
as those assumptions are adjusted from time to time in accordance with such
Appendix C. No delay in the MTC-Tax True-Up will influence or affect the TBC
True-Up.
The Company also requests that the Board grant the Company authority to make
"non-routine" adjustments to the TBC and the MTC-Tax. Such filings for
non-routine adjustments would be made to accommodate material changes to the
methodology described in Appendix C hereto. Any such filing must be made at
least 90 days prior to the proposed effective date, and will be subject to Board
approval before implementation.
h. Remittance of TBC Collections
The Company states that the Servicer will make monthly remittances (or daily
remittances if required to do so under the rating agencies' criteria) of
estimated payments arising from the TBC to the Transition Bond Trustee, on
behalf of the SPE, based on the Company's collection history (as may be updated
from time to time).
The Company states that payments from its customers will be applied first to
sales taxes (which the Company will collect as trustee for the State and not for
its own account or that of the SPE, and which are not "charges" for purposes of
the following allocations) until all of such amounts are paid, then to charges
in arrears, if any, and then to current charges. With respect to each billing
period, partial payments of charges and taxes other than sales taxes will be
allocated pro rata (i) to the TBC; (ii) to the MTC-Tax; and (iii) to the
Company's other charges, based on the proportions that the TBC, the MTC-Tax and
the Company's other charges bear to the total charges billed. If following the
issuance of the Transition Bonds, one or more additional series of transition
bonds are issued, partial payments of the TBC will be allocated to each
respective series so issued, pro rata, based on the estimated revenue
requirement of each series of transition bonds for the period in which the
allocation is made. Each such period is to begin on a date on which a TBC
True-Up goes into effect and end on the day immediately prior to the effective
date of the next TBC True-Up.
The Company states that in the near future it will file a base rate case and
include in that filing data showing the impact of the timing of customer
payments of TBCs to the Company versus
ACE Bondable Stranded Costs Rate Order 13 BPU Docket No. EF01060394
payments by the Company, as Servicer, to the Bond Trustee. This data will
include a calculation of customer daily remittances, timing of remittances to
the Bond Trustee and the short-term interest rate then applicable to determine
the amount of "float" income earned by the Company in its capacity as Servicer.
If the Board determines in its review of this filing that the Company retained
interest income over and above its Servicing Fee, it may calculate such retained
income, and impute interest thereon, in determining fair and reasonable rates
going forward from the date of its review. In determining its cash working
capital requirements in a base rate proceeding, the Company will exclude from
its cash balances any TBCs collected, but not yet remitted to the Trustee.
The Company states that the amounts remitted by the Servicer to the Transition
Bond Trustee (the "Deemed TBC Collections") will be retained by the Transition
Bond Trustee until it pays to the appropriate parties all periodically required
Ongoing Transition Bond Costs, including scheduled principal and interest
payments, Servicing Fees, other fees and expenses, any unpaid amounts from prior
payment dates related to the aforementioned and any required additions to or
replenishments of the Collection Account. The Company expects that monthly
disbursements, in amounts to be specified in the Indenture and Series
Supplement, will be made to the Transition Bond Trustee, to the independent
managers of the SPE, in respect of the Servicing Fee, to the administrator of
the SPE and in respect of operating expenses. In addition, payments of principal
and interest on the Transition Bonds (as well as payments of the aforementioned
amounts) will be made on a quarterly or semi-annual basis. The Transition Bond
Trustee will hold all Deemed TBC Collections received from the Servicer from the
remittance date to the dates on which such payments are made in the General
Subaccount of the Collection Account. The Transition Bond Trustee will invest
the funds in the Collection Account in securities that mature on or before the
next scheduled distribution date, in accordance with rating agency criteria for
investment of such funds.
The Company states that investment earnings on funds in the Collection Account
held by the Transition Bond Trustee may be used to satisfy currently scheduled
interest and principal payments on the Transition Bonds and other Ongoing
Transition Bond Costs. Additionally, investment earnings on such funds may be
used to restore Capital Subaccount amounts previously withdrawn therefrom to
meet periodically required Ongoing Transition Bond Costs and may be applied to
meet the Required Overcollateralization Schedule. Investment earnings on funds
in the Collection account in excess of the amount applied as described above
will be held in the Reserve Subaccount, except for such investment earnings in
the Capital Subaccount, which will be distributed to the SPE as provided in the
Indenture and Series Supplement.
Upon retirement of all outstanding Transition Bonds, including payment of all
interest thereon, and the payment of all Ongoing Transition Bond Costs, all
other Bondable Stranded Costs, and any bondable stranded costs relating to the
Company and the SPE that may be approved in favor of the Company under the Act
pursuant to any subsequent financing orders, the Company states that any
remaining amounts held by the Transition Bond Trustee will be released to the
SPE and ultimately returned to the Company as an equity distribution or, if
required under the series indenture supplement for a subsequently issued series
of transition bonds, if any, of the SPE, be reallocated to the subaccounts of
such series; provided, however, that upon retirement of all outstanding
transition bonds of the SPE, including payment of all interest thereon, and the
payment of all related bondable stranded costs, any remaining amounts held by
the Transition Bond Trustee will be released to the SPE and ultimately returned
to the Company as an equity distribution. The Company will credit, against the
distribution charges it bills to its customers, any amounts so received from the
SPE that exceed the sum of (i) the initial amount of the equity
ACE Bondable Stranded Costs Rate Order 14 BPU Docket No. EF01060394
contribution to the SPE and (ii) the investment earnings on funds in the Capital
Subaccount, less the amount of any unpaid MTC-Tax charges and any amount that
was withdrawn and not replenished to the SPE's equity.
i. Credit Enhancement
The Transition Bond documents will provide for the TBC True-Up as is authorized
by Section 15(b) of the Act as described above and for overcollateralization
amounts as described below or other means of credit enhancement as required by
the rating agencies.
The Company explains that a portion of the TBC will be applied to an
"overcollateralization amount" which will be deposited into the
Overcollateralization Subaccount to meet the Required Overcollateralization
Schedule. The Company states that the collection of the overcollateralization
amount will be in addition to the collection of the principal (which will be
collected in accordance with the Expected Amortization Schedule) and interest
payable on the Transition Bonds, and the collection of the other Ongoing
Transition Bond Costs, all of which will be recovered through the TBC. The total
overcollateralization requirement will be determined prior to the pricing of the
Transition Bonds but will in no event be less than 0.5% of the initial
Transition Bond principal amount. The total overcollateralization amount will be
determined by the Company based on criteria from the rating agencies, and will
be reflected in the Issuance Advice Letter and will be subject to the approval
of the Designee. It is possible that the rating agencies may require additional
credit enhancement, the terms of which will be set forth in the Pricing Advice
Certificate and subject to the Designee Guidelines.
All collection shortfall amounts relating to the TBC and amounts expected to
become due and payable during the next succeeding period for which the TBC is in
effect, including overcollateralization amounts, and any shortfall amounts
arising from defaults relating to a third party electric power supplier (an
"EPS") will be incorporated into each TBC True-Up to the extent necessary.
The Company states that it will reduce the distribution charges payable by its
customers by an amount equal to the amount remaining in the Collection Account
(including amounts in the Overcollateralization Subaccount), except for amounts
in the Capital Subaccount including any investment earnings on funds in such
subaccount, after payment in full of all Ongoing Transition Bond Costs, all
other Bondable Stranded Costs, and any bondable stranded costs relating to the
Company and the SPE that may be approved in favor of the Company under the Act
pursuant to any subsequent financing orders, less the amount of any unpaid
MTC-Tax charges.
j. Formation of SPE
The SPE, a Delaware limited liability company, is a direct, wholly-owned,
nonutility subsidiary of the Company, which will be managed pursuant to the
administration agreement substantially as described in the SEC Filing.
k. Bondable Transition Property
Under Section 3 of the Act, the Bondable Transition Property includes (a) the
irrevocable right to charge, collect and receive, and be paid from collections
of, the TBC, in the amount necessary to provide for the full recovery of Ongoing
Transition Bond Costs and all other bondable stranded costs whose recovery is
authorized in this Financing Order, (b) all rights of the Company under this
Financing Order, including, without limitation, all rights to obtain periodic
ACE Bondable Stranded Costs Rate Order 15 BPU Docket No. EF01060394
adjustments of the TBC pursuant to Section 15(b) of the Act and (c) all
revenues, collections, payments, money and proceeds arising under, or with
respect to, all of the foregoing.
Pursuant to Sections 16 and 22 of the Act, when the Company has transferred, and
received consideration for, the Bondable Transition Property from the SPE, the
Bondable Transition Property will constitute a vested, presently existing
property right and will continuously exist as property for all purposes as
provided in the Act and the Financing Order, whether or not the revenues and
proceeds arising with respect thereto have accrued and notwithstanding the fact
that the value of the property right may depend upon consumers using electricity
or the Servicer performing services; and the validity of any sale, assignment or
other transfer of the Bondable Transition Property will not be defeated or
adversely affected by the commingling by the Company of revenues recovered or
payments arising from amounts billed, collected and received on account of the
Bondable Transition Property with other funds of the Company.
l. Sale of Bondable Transition Property to SPE
The Company requests the Board to approve the transfer by the Company of the
Bondable Transition Property to the SPE in one or more transactions which, in
accordance with Section 23 of the Act, will be treated as a true sale and
absolute transfer to the SPE, even though such transactions may be treated as a
financing, and not a sale, for federal and state tax purposes, for financial
accounting purposes or for other purposes and even though the Company is the
collector or servicer of the TBC. The Company explains that the SPE will have
all of the statutory rights inherent in the Bondable Transition Property,
including, without limitation, the right to exercise, through the Company or any
Successor Utility, any and all rights and remedies to collect any amounts
payable by any customer of the Company in respect of the Bondable Transition
Property, which includes the right to direct the Company or any Successor
Utility to discontinue electric power supply to a particular customer to the
extent permitted in accordance with law and any applicable regulations. The SPE
and other third parties, however, will not have any right to exercise any direct
control over the distribution and transmission system of the Company. Any
direction to the Company or any Successor Utility to shut off the electric power
supply to a customer would be subject to Board policies and procedures and any
applicable laws then in effect.
The Company notes that the agreements which will govern transfer of the Bondable
Transition Property to the SPE may include representations and warranties with
respect to, among other things, the validity of this Financing Order, the
Bondable Transition Property and the title thereto, and may provide specific
covenants, indemnities and/or repurchase obligations in connection with such
transfer for the benefit of the holders of Transition Bonds.
m. Issuance of Transition Bonds
The Company requests that the Board approve the issuance of Transition Bonds by
the SPE. The Company states that the Transition Bonds will, by their terms,
permit the holders to have recourse only to the SPE's credit and assets, and
will be secured by a pledge to the Transition Bond Trustee of all of the right,
title and interest of the SPE in the Bondable Transition Property and Other SPE
Collateral.
n. Nonbypassable TBC and MTC-Tax
Under Section 18 of the Act, the TBC and the MTC-Tax are nonbypassable and will
be assessed against and collected from all customers of the Company or any
Successor Utility until
ACE Bondable Stranded Costs Rate Order 16 BPU Docket No. EF01060394
all Ongoing Transition Bond Costs and other bondable stranded costs determined
to be recoverable in this Financing Order are paid in full, even past legal
maturity, subject to Section 28 of the Act. The TBC will apply equally to each
customer, regardless of class, based on the amount of electricity delivered to
the customer through the transmission and distribution system of the Company or
any Successor Utility. With respect to on-site generation, Section 28(b) of the
Act provides that the TBC will not be imposed on the electricity sold solely to
the on-site customer of an on-site generator. Section 28(c), however, provides
that the TBC shall be imposed on the generation from on-site generation
facilities to the extent that on-site generation has displaced customer
purchases from an electric public utility by an amount such that the kilowatt
hours distributed by the electric public utility have been reduced to an amount
equal to 92.5 percent of the 1999 kilowatt hours distributed by the electric
public utility.
o. Electric Power Suppliers
The Transition Bond Transaction currently contemplates that the Company, in its
capacity as Servicer, will have sole responsibility for the billing, collection
and remittance of the TBC and the MTC-Tax. The Company states that there is the
possibility, however, that an EPS may seek to assume such role. Permitting an
EPS to bill, collect and remit the TBC and the MTC-Tax in place of the Company
may increase the risk of shortfalls in TBC collections or MTC-Tax collections by
exposing the cash flow to potential interruption due to the default, bankruptcy
or insolvency of the EPS. This potential interruption will increase risks to
investors, and may result in an increase to the required credit enhancement for,
and/or a reduction of the credit rating of, and/or an increase in the interest
rate on, the Transition Bonds. Additionally, such EPS billing may necessitate an
increase to the TBC or to the MTC-Tax if EPS billing causes interruption or
delay in payment to the Servicer.
In order to mitigate these risks, satisfy rating agency requirements and reduce
the cost to customers, the Company requests that any EPS the Board authorizes to
bill, collect and remit the TBC be required to comply with the billing,
collection and remittance procedures and information access requirements set
forth below. These procedures and requirements are comparable to those in effect
in this and other states in which utilities have securitized their stranded
costs. These requirements are largely derived from rating agencies' criteria.
The Company requests that the Board authorize an EPS to bill and collect the TBC
and associated MTC-Tax with respect to power sold by it, for remittance to the
Servicer, only if (i) such EPS agrees to remit the full amount of all charges it
bills to customers for services provided by the Company, together with amounts
related to the TBC and the MTC-Tax, regardless of whether payments are received
from such customers, within 15 days of the Company's (or any successor
Servicer's) bill for such charges; (ii) such EPS agrees to provide the Servicer
(or any successor Servicer) with total monthly kWh usage information for each
customer in a timely manner to enable the Servicer (or such successor) to
fulfill its obligations, because such information is the basis for assessing the
required level of such remittances; and (iii) the Servicer (or any successor
Servicer) is entitled, seven days after a default by the EPS in remitting any
charges payable to it, including amounts related to the TBC and the MTC-Tax, to
assume responsibility for billing all charges for services provided by it,
including the TBC and the MTC-Tax, or to transfer such billing responsibility to
a qualifying third party. In addition, if and so long as the billing EPS does
not maintain at least a "Baa2" and "BBB" (or the equivalent) long-term unsecured
credit rating from Moody's Investors Service and Standard & Poor's,
respectively, such EPS would be required to maintain with the Servicer (or any
successor Servicer) a cash deposit or comparable security equal to two months'
maximum estimated collections of all charges payable to the Servicer (or such
successor), including amounts related
ACE Bondable Stranded Costs Rate Order 17 BPU Docket No. EF01060394
to the TBC and the MTC-Tax, as must be agreed upon by the Servicer (or such
successor) and the EPS. In the event of a default in the remittance of any such
amounts by an EPS, any shortfall in TBC Collections or MTC-Tax collections by an
EPS not recovered from a withdrawal from such cash deposit or security would be
included in the TBC True-Up and the MTC-Tax True-Up as described in Appendix C
hereto.
p. Servicing
The Company states that it will enter into the Servicing Agreement with the SPE
pursuant to which it will perform servicing functions on behalf of the SPE with
respect to the Bondable Transition Property. Details regarding the Servicing
Agreement, including servicing compensation, will be substantially as described
in the SEC Filing. The Company states that under the Servicing Agreement, the
Servicer is to receive an annual servicing fee equal to 0.10% of the aggregate
initial principal amount of the Transition Bonds (the "Servicing Fee"). The
Company also requests that the Board approve a higher annual Servicing Fee of
any successor Servicer of up to 1.25% of the initial principal balance of all
transition bonds that the SPE has issued, including the Transition Bonds.
q. Tax Recoveries - Accounting and Related Issues
Pursuant to the Restructuring Order, the Company has been directed to recover
the federal income taxes and state corporation business taxes associated with
the collection of the TBC and the MTC-Tax through the ongoing collection of the
MTC-Tax, until the SPE has received full payment of principal of and interest on
the Transition Bonds. The Restructuring Order authorizes the MTC-Tax to be
collected over essentially the same period as the TBC. The Restructuring Order
also directs that the MTC-Tax be subject to mandatory periodic adjustment (at
the same time and in the same manner as the TBC) to reconcile the MTC-Tax
collections with the income tax required to be assessed on the taxable revenue
from the TBC and the MTC-Tax. The Company will maintain separate accounting for
the MTC-Tax collections and the Bondable Transition Property. As provided in
Section 23(a)(4) of the Act, the Company's retention of the MTC-Tax until
remittance to the appropriate taxing authority will in no way affect or impair
treatment of the transfer of the Bondable Transition Property to the SPE as a
true sale and absolute transfer for bankruptcy purposes, or otherwise affect the
legal rights and attributes of the Bondable Transition Property under the Act.
3. CUSTOMER BENEFITS
The Restructuring Order required that rate reductions pursuant to the Act were
not to be contingent upon the Company securitizing its stranded costs.
Therefore, the rate reductions mandated in the Restructuring Order already
anticipate and incorporate net present value savings and rate reductions
resulting from the anticipated issuance of the Transition Bonds. The Company
represents that, as proposed, the Transition Bond Transaction will result in net
present value savings over the term of the Transition Bonds (currently estimated
to be $114 million based on projected interest rates at the time of the public
hearing and illustrated on Exhibit A hereto), and lower rates than would have
been achieved were the recoverable stranded costs to be recovered without
issuance of the Transition Bonds. The Company states that the actual net present
value savings resulting from the Transition Bond Transaction will depend upon
the actual amount of Transition Bonds issued, market conditions at the time of
the pricing of the Transition Bonds (and any hedging arrangement) and the actual
amount of bondable stranded costs whose recovery is authorized in this Financing
Order. The structure, pricing, terms and conditions of the Transition Bonds (and
any hedging arrangement) will be
ACE Bondable Stranded Costs Rate Order 18 BPU Docket No. EF01060394
subject to approval by the Designee pursuant to the delegation of authority in
this Financing Order. In its Issuance Advice Letter to be filed with the Board
not later than five business days after the issuance and sale of the Transition
Bonds, the Company will present a calculation of the expected net present value
savings resulting from the actual terms of the Transition Bonds, using the
methodology described in Appendix C hereto and based upon the findings in the
Restructuring Order and the rate reductions prescribed in the Act.
4. USE OF PROCEEDS
The Company states that the SPE will remit the proceeds from the sale of the
Transition Bonds, net of underwriting discount, to the Company in consideration
of the Company's transfer of its Bondable Transition Property to the SPE. In
accordance with Section 14 of the Act, the Company will use such proceeds to
reduce its otherwise recovery-eligible bondable stranded costs through the
retirement of its debt or equity, or both (including transactions completed
prior to the issuance of the Transition Bonds), and to buy out, buy down or
otherwise restructure its existing NUG Contracts (or to repay interim financing
in respect of same).
5. FINDINGS WITH RESPECT TO PETITION
Based on the record of proceedings in this matter and those related to the
Restructuring Order, the Petition and the provisions of the Act and the
Restructuring Order, the Board HEREBY FINDS:
Recovery of Costs
(1) Consistent with the Board's decision in BPU Docket Nos. EO97070455,
EO97070456 and EO97070457 (which approval constitutes the
"Restructuring Order"), EM99119870 (the Nuclear Asset Sale),
EE99090685 (the Pedricktown Buyout), and EM00060388 (the Ref-Fuel
Buydown), the Company is authorized to recover, through
securitization, its bondable stranded costs as described in paragraph
2 below.
(2) The Company's stranded costs to be securitized in connection with the
Nuclear Asset Sale, the Pedricktown Buyout, and the Ref-Fuel Buydown,
are approximately $420.833 million plus an additional amount of up to
$19.167 million for transaction and capital reduction costs and are
recoverable through the TBC. In addition, the Restructuring Order
permits the recovery of the federal income and state corporation
business taxes related to securitization through an MTC-Tax Component
with a term identical to the term of the Transition Bonds.
(3) The Company's Bondable Stranded Costs include: (1) the Capital
Reduction Costs, (2) the Upfront Transaction Costs and (3) the Ongoing
Transition Bond Costs.
Mitigation
(4) In accordance with Section 14(b)(1) of the Act and the Restructuring
Order, that the Company has taken reasonable measures to date, and has
the appropriate incentives or plans in place to take reasonable
measures, to mitigate the total amount of its stranded costs. As
required by the Act, the Company shall continue to pursue all
reasonable
ACE Bondable Stranded Costs Rate Order 19 BPU Docket No. EF01060394
mitigation opportunities to mitigate the total amount of its stranded
and deferred costs.
Necessity of Securitization
(5) In accordance with Section 14(b)(2) of the Act and the Restructuring
Order, that the Company would not have been able to achieve the level
of rate reduction deemed by the Board to be necessary and appropriate
pursuant to the provisions of Sections 4 and 13 of the Act absent the
issuance of the Transition Bonds.
Tangible Benefits
(6) In accordance with Section 14(b)(3) and (b)(4) of the Act, based on
current estimates of interest rates, the issuance of such Transition
Bonds will provide tangible and quantifiable benefits to customers,
including lower rates than would have been achieved absent the
issuance of Transition Bonds, and net present value savings over the
term of the Transition Bonds (currently estimated at $114 million),
even after truing up the MTC, MTC-Tax and TBC to reflect the terms of
the actual Transition Bond Transaction. The Company has advised the
BPU Staff that it will exercise its best effort to achieve the lowest
TBC consistent with market conditions, the terms of this Order and the
Designee Guidelines.
(7) The methodology used to calculate expected net present value savings,
as described in Appendix C and applied in Exhibit A hereto, is
reasonable.
(8) Exhibit B hereto contains forecasted principal and interest payments
each year in the Transition Bond Transaction based upon the forecasted
level of the Transition Bonds to be issued. The ultimate Expected
Amortization Schedule may be altered as a result of market conditions
or rating agency requirements, subject to the approval of the
Designee. The methodology used to calculate the initial TBC, the TBC
True-Up, the MTC-Tax and the MTC-Tax True-Up as described in Exhibit C
of the Petition are reasonable and adherence thereto will provide
assurance that customers will pay the lowest TBC consistent with
market conditions and the terms of this Financing Order, in compliance
with Section 14(b)(4) of the Act. The standard for the Board to use in
making TBC True-Ups final is the absence of a manifest error (i.e., an
arithmetic error evident on the face of the filing) in the application
of the TBC True-Up methodology, which standard the Board finds
consistent with Section 15(b) of the Act and the achievement of the
lowest TBC consistent with market conditions at the time of pricing
and the terms of this Financing Order. The estimate of the initial
TBC, determined in accordance with Appendix C attached hereto, is
reasonable. The request of the Company that it be authorized to make
non-routine adjustments to the TBC and the MTC-Tax as described in
Section 2(g) hereof is reasonable.
Structuring and Pricing; Hedging Arrangements
(9) The procedures established in this Financing Order relating to the
final approval of the structuring and pricing of the Transition Bonds
(including any hedging arrangements priced at the time of the pricing
of the
ACE Bondable Stranded Costs Rate Order 20 BPU Docket No. EF01060394
Transition Bonds) assure that, in accordance with Section 14(b)(4) of
the Act, the Company's customers pay the lowest TBC consistent with
market conditions and the terms of this Financing Order. As authorized
herein by the Board and in full satisfaction of the requirements of
Sections 14(b)(4) and 15(a)(3) of the Act, the structuring and pricing
of the Transition Bonds (including any such hedging arrangement) will
be conclusively deemed to satisfy the requirements of Section
14(b)(4), and the terms and conditions of the Transition Bond
Transaction shall be conclusively approved, if so certified by the
Designee upon the pricing of the Transition Bonds and any such hedging
arrangement.
(10) The methodology for the determination of the TBC proposed by the
Company in Appendix C hereto is reasonable. The assumptions the
Company made in such Appendix C are reasonable. The Company's proposed
methodologies for the mathematical calculation of the TBC are
reasonable.
(11) The formation of the SPE by the Company, the capitalization of the SPE
by the Company, the transfer by the Company to the SPE of its Bondable
Transition Property, the providing of overcollateralization as
described herein and as approved in the Designee Certification, the
hedging arrangements and the entering into of a servicing agreement,
an administration agreement, a sale agreement and other agreements and
transactions by the Company and the SPE, all substantially as
described in the Petition and the SEC Filing and the hedging
arrangements as described herein and in Appendix F hereto, are
reasonable and necessary.
(12) The lien of the Transition Bond Trustee on the Bondable Transition
Property shall: (A) attach automatically to such Bondable Transition
Property from the time of the issuance of the Transition Bonds; (B) be
continuously perfected through a filing made pursuant to the Uniform
Commercial Code with the New Jersey Secretary of State; (C) be
enforceable against the Company and the SPE and all third parties,
including judicial lien creditors; (D) from and after the filing
described in clause (B) above, constitute a continuously perfected
security interest in, and lien on, all then existing or subsequent
revenues and proceeds arising with respect to the associated Bondable
Transition Property, whether or not the electric power and energy
included in the calculation of such revenues and proceeds have been
provided; and (E) rank prior to any other lien, including any judicial
lien, which subsequently attaches to the Bondable Transition Property
or any other rights created by this Financing Order or any revenues or
proceeds of the foregoing.
(13) The methodology for the remittance of payments arising from the TBC as
described in the Petition will satisfy the requirements of Section 14
of the Act and is a reasonable means of undertaking the remittance of
these amounts.
(14) The Servicing Fee to be paid to the Company in its role as Servicer as
described herein is reasonable. The Board finds the higher annual
servicing fee of any successor Servicer of up to 1.25% of the initial
principal balance of all transition bonds that the SPE has issued,
including
ACE Bondable Stranded Costs Rate Order 21 BPU Docket No. EF01060394
the Transition Bonds, is reasonable. The conditions to the resignation
or replacement of the Company as Servicer as described in the SEC
Filing are reasonable; however, no third party servicer shall be
approved or required to replace the Company in any of its servicing
functions in whole or in part if such approval or requirement will
cause the then current rating of the Transition Bonds to be withdrawn
or downgraded.
(15) The TBC and MTC-Tax billing, collection and remittance procedures
imposed upon any EPS as set forth in this Financing Order and the
Petition are reasonable.
(16) Capital Reduction Costs, which do not include interest or preferred
dividends accrued prior to the date of the issuance of the Transition
Bonds, and the Upfront Transaction Costs, not to exceed $19.167
million in the aggregate, are reasonable.
(17) The recovery of Ongoing Transition Bond Costs, as previously described
herein, is reasonable and consistent with the Act.
(18) The (a) scheduled amortization upon issuance for the Transition Bonds
(1) not exceeding 15 years from the date of issuance in the case of
Transition Bonds the proceeds of which will be used to reduce stranded
costs related to utility-owned generation and (2) not exceeding the
remaining term of a long-term power purchase agreement with a
nonutility generator in the case of Transition Bonds the proceeds of
which will be used to buy down or buy out such power purchase
agreement and (b) the stated maturity of the Transition Bonds being up
to two additional years (or, in the case of the Transition Bonds
referred to in clause (a)(2) above, three years) following the
scheduled amortization are reasonable and permitted under the Act, and
the collection of the TBC (and the remittance thereof to the SPE)
until payment in full of the Transition Bonds is reasonable and
permitted under the Act.
(19) The issuance of series and classes of Transition Bonds by the SPE in
an aggregate principal amount not to exceed $440 million is reasonable
and consistent with the Act and prior Board Orders. The Financial
Advisor has advised the Board that in this case, in its opinion, the
negotiated sale of the Transition Bonds should be expected to provide
a lower cost of funds than a competitive sale. Therefore, the
negotiation of the sale of the Transition Bonds is reasonable and
serves the public interest.
(20) The TBC True-Up to obtain adjustments to the TBC and the MTC-Tax
True-Up to obtain adjustments to the MTC-Tax described hereinabove and
set forth in Appendix C hereof are reasonable.
Use of Proceeds
(21) The Company's proposed application of the proceeds of the Transition
Bonds as described herein and in the Petition is reasonable and
consistent with the Act.
Regulatory Compliance
(22) In light of the specific provisions of the Act governing the
Transition Bond Transaction, the Company's Petition is found to comply
with N.J.A.C. 14:1-5.6 and -5.9, to the extent either might be deemed
applicable.
ACE Bondable Stranded Costs Rate Order 22 BPU Docket No. EF01060394
Periodic Adjustment of the MTC-Tax
(23) The MTC-Tax should be subject to mandatory periodic adjustment at the
same time and in substantially the same manner as adjustments to the
TBC; provided, however, the Company makes reasonable efforts to
utilize any and all deductions to taxable income for which it may be
eligible with respect to the securitization transaction, now or in the
future, whether or not such deductions are contained in the
methodology presented by the Company in its Petition, so that the
MTC-Tax Component does not result in the over-recovery or
under-recovery of taxes to the Company.
6. ORDERS
Based on the foregoing, the record of proceedings on the Petition and the
provisions of the Act, the Restructuring Order, and other related Orders the
Board HEREBY ORDERS:
(1) The Petition for this Financing Order pursuant to Section 14 of the
Act is approved subject to the terms and conditions stated herein.
(2) The Board hereby authorizes recovery of the following bondable
stranded costs of the Company consisting of: (1) the Capital Reduction
Costs, the Upfront Transaction Costs and the Bondable Stranded Costs
specified in Appendix I and (2) the Ongoing Transition Bond Costs. The
Board hereby also approves the methodology for the calculation and
adjustment of the TBC and the MTC-Tax in accordance with the Board's
Findings herein.
Bondable Transition Property and TBC
(3) The issuance of Transition Bonds by the SPE up to a maximum of $440
million, and the transfer by the Company to the SPE of the bondable
transition property created by the Act and this Financing Order are
authorized.
(4) The TBC will be assessed against all existing and future customers of
the Company or any Successor Utility, subject to Section 28 of the
Act, and will apply equally to each such customer of the Company,
regardless of class, based on the amount of electricity delivered to
the customer (whether purchased from the Company or an EPS) through
the transmission and distribution system of the Company or any
Successor Utility. Pursuant to Section 28 of the Act, the TBC shall be
imposed on the power produced by on-site generators under the
circumstances specified in Section 28 of the Act.
(5) The TBC will be set at a level sufficient to recover the Ongoing
Transition Bond Costs. The TBC and the MTC-Tax will remain in effect
until the SPE, as owner of the Bondable Transition Property, has
received TBC collections sufficient to recover the Ongoing Transition
Bond Costs.
(6) Pursuant to the Act, upon transfer by the Company of its interest in
Bondable Transition Property, receipt of consideration therefor by the
Company and acquisition of such Bondable Transition Property by an
assignee, there will be created and established for the benefit of the
assignee in accordance herewith Bondable Transition Property
consisting
ACE Bondable Stranded Costs Rate Order 23 BPU Docket No. EF01060394
of: (i) the irrevocable right to charge, collect and receive, and be
paid from collections of, the TBC in the amount necessary to recover
the Ongoing Transition Bond Costs, (ii) all rights of the Company
under this Financing Order with respect to the TBC including without
limitation all rights to obtain TBC True-Ups pursuant to Section 15(b)
of the Act, and (iii) all revenues, collections, payments, money and
proceeds arising under, or with respect to, all of the foregoing.
(7) Pursuant to Section 16 of the Act, neither the Board nor any other
governmental entity will have the authority, directly or indirectly,
legally or equitably, to rescind, alter, repeal, modify or amend this
Financing Order, to revalue, re-evaluate or revise the amount of
Bondable Stranded Costs, to determine that the TBC or the MTC-Tax or
the revenues required to recover Bondable Stranded Costs are unjust or
unreasonable, or in any way to reduce or impair the value of the
Bondable Transition Property, nor shall the amount of revenues arising
with respect thereto be subject to reduction, impairment, postponement
or termination, directly or indirectly, provided, however, that
nothing in this Financing Order will preclude the TBC True-Up or the
MTC-Tax True-Up in accordance with the provisions hereof and of
Section 15(b) of the Act.
(8) Pursuant to Section 16 of the Act, and notwithstanding any other
provision of law, this Financing Order and the TBC authorized herein
will become irrevocable upon the issuance of this Financing Order and
its becoming effective pursuant to Section 19 of the Act. Pursuant to
Section 16 of the Act, this Financing Order, the TBC and the Bondable
Transition Property will constitute vested, presently existing
property rights upon the transfer of the Company's interest in the
Bondable Transition Property by the Company to an assignee and receipt
by the Company of consideration for such interest in the Bondable
Transition Property, and following such transfer and receipt of
consideration, such property right in the Bondable Transition Property
shall be vested ab initio in such assignee.
(9) Pursuant to Section 15(c) of the Act, until the Ongoing Transition
Bond Costs have been fully recovered, this Financing Order and the
authority to meter, charge, collect and receive the TBC and the
MTC-Tax will remain in effect and the Company shall be obligated to
provide electricity to its customers and will have the right to meter,
charge, collect and receive the TBC and the MTC-Tax, which rights and
obligations may be assignable solely within the discretion of the
Company.
Sale, Pledge and Assignment Of Transition Property
(10) In accordance with the Act and as described in the Petition, the
Company is authorized to sell, pledge or assign any or all of its
interest in the Bondable Transition Property to the SPE. The SPE is
authorized to acquire the Bondable Transition Property and is approved
and designated as a "financing entity" (as defined in Section 3 of the
Act) for such purpose, and for the purpose of issuing Transition Bonds
and pledging the Bondable Transition Property to the payment of the
Transition Bonds. The transfer by the Company of the Bondable
Transition Property to the SPE will be treated as a true sale and
absolute transfer to the SPE, even
ACE Bondable Stranded Costs Rate Order 24 BPU Docket No. EF01060394
though such transaction may be treated as a financing, and not a sale,
for federal and state tax purposes, for financial accounting purposes
or for other purposes. Neither this Financing Order nor the transfer
of the Bondable Transition Property nor the interest of the SPE in the
Bondable Transition Property shall be defeated or otherwise affected
by the commingling of TBC collections with other funds of the Company,
and the portion of such commingled funds allocable to TBC collections
may be determined by such methods of estimation as are set forth in
the Servicing Agreement.
(11) The SPE will pay the purchase price of the Bondable Transition
Property equal to the net proceeds from the issuance of the Transition
Bonds to the Company, to be applied substantially as described in the
Petition and as set forth in ordering paragraph 36 of this Financing
Order.
(12) When the Company transfers its interest in the Bondable Transition
Property to the SPE as described in this Financing Order, the Bondable
Transition Property will arise and constitute a valid, presently
existing property right, and will be vested in the SPE as an original
property right and not by assignment from any other entity. The SPE
will have all of the statutory rights inherent in the Bondable
Transition Property, including, without limitation, the right to
exercise, through the Company or any Successor Utility, any and all
rights and remedies, including the right to direct the Company or any
Successor Utility to shut-off electric power to a particular customer
to the extent permitted by Board policies and procedures and any
applicable laws then in effect, and to assess and collect any amounts
payable by any customer in respect of such Bondable Transition
Property, notwithstanding any objection or direction to the contrary
by the Servicer.
(13) When the Company transfers its interest in the Bondable Transition
Property to the SPE, neither the Company nor any successor Servicer
will be entitled to recover the TBC other than for the benefit of the
holders of Transition Bonds in accordance with the Company's duties as
Servicer of such Bondable Transition Property as authorized in this
Financing Order.
Transition Bonds
(14) The scheduled amortization upon issuance of the Transition Bonds will
be (1) up to 15 years in the case of Transition Bonds the proceeds of
which will be used to reduce stranded costs related to utility-owned
generation and (2) up to the remaining term of a long-term power
purchase agreement with a nonutility generator in the case of
Transition Bonds the proceeds of which will be used to buy down or buy
out such power purchase agreement, and the stated maturity will be up
to two additional years (or, in the case of the Transition Bonds
referred to in clause (2) above, three additional years). The
Transition Bonds may be issued in series and classes with different
terms. Exhibit B hereto contains forecasted principal and interest
payments each year in the Transition Bond Transaction based upon the
forecasted level of the Transition Bonds to be issued. The ultimate
Expected Amortization Schedule may be altered as a result of market
conditions or rating agency requirements, subject to Designee
approval. The associated MTC-Tax collections may
ACE Bondable Stranded Costs Rate Order 25 BPU Docket No. EF01060394
be adjusted from time to time to reflect the changing principal and
interest components of the Transition Bond debt service. One or more
classes of Transition Bonds may be issued as variable rate
instruments, the interest on which will be fixed or hedged in
accordance with the terms of a hedging arrangement consistent with
this Financing Order.
(15) The amount of Transition Bonds to be issued (not to exceed $440
million) is approved as described herein and as detailed in Appendix
I. The Company should be afforded substantial flexibility in
establishing the provisions of the Transition Bonds, and the final
structure, pricing, terms and conditions of the Transition Bonds
(including any hedging arrangement described in Section 2(e) hereof)
will, to the extent consistent with the provisions of this Financing
Order, be determined by the Company and approved by the Board or its
Designee pursuant to his delegation of authority from the Board,
pursuant to Sections 14(b)(4) and 15(a)(3) of the Act, at the time
Transition Bonds are priced. The Designee may rely conclusively on the
finding of the tangible and quantifiable benefits of securitization in
paragraph 6 of Section 5 hereof, as required by Section 14(b)(3) of
the Act, upon the advice of the Financial Advisor provided in the form
of Appendix H hereto and upon information provided to the Designee by
the Company to support any Designee Certification. Any Designee
Certification shall be substantially in the form of Appendix A hereto,
shall constitute a part of this Financing Order, shall constitute a
full and complete record of the determinations and approvals made
therein and full satisfaction of the requirements of Sections 14(b)(4)
and 15(a)(3) of the Act, and shall be final and uncontestable as of
its date.
(16) The issuance and sale of the Transition Bonds through negotiation with
underwriters is approved.
Recovery of Bondable Stranded Costs
(17) In accordance with Section 20 of the Act, Transition Bonds will be
recourse only to the credit and assets of the SPE. Investment income
earned on the trust accounts held by the Transition Bond Trustee may
be used to satisfy current scheduled interest and principal payments
on the Transition Bonds and related expenses and to replenish the
SPE's equity and the Required Overcollateralization Schedule.
Investment income in the Capital Subaccount not used currently for
this purpose will be released to the SPE. Any earnings in excess of
amounts required to be held in such trust accounts (other than the
Capital Subaccount) will reduce the TBC through the TBC True-Up.
(18) The Capital Reduction Costs and Upfront Transaction Costs up to
$19.167 million in the aggregate are authorized to be recovered
through the issuance of Transition Bonds.
(19) The Ongoing Transition Bond Costs as described herein are authorized
to be recovered through the TBC.
Reports
ACE Bondable Stranded Costs Rate Order 26 BPU Docket No. EF01060394
(20) The Designee will make his/her determinations and approvals of the
pricing of the Transition Bonds upon receipt from the Company of the
Pricing Advice Certificate(s) substantially in the form of Appendix D
hereto. Within two business days after the pricing of the Transition
Bonds, the Designee shall file with the Secretary of the Board a
Designee Certification substantially in the form of Appendix A hereto.
As provided in ordering paragraph 15 of this Financing Order, any
Designee Certification will be final and uncontestable as of its date
and will represent final approval, pursuant to Sections 14(b)(4) and
15(a)(3) of the Act, of the structure, pricing, terms and conditions
of the Transition Bonds. No delay or error in such filing will affect
the validity of this Financing Order, the Bondable Transition Property
or the Transition Bonds.
(21) Pursuant to Section 15(a)(3) of the Act, not later than five business
days after the issuance and sale of the Transition Bonds, the Company
will notify the Secretary of the Board, in an Issuance Advice Letter
substantially in the form of Appendix B hereto, of the initial TBC and
MTC-Tax (which are hereby approved), the Expected Amortization
Schedule approved in the Designee Certification and related matters.
The Issuance Advice Letter will be automatically effective upon filing
with the Secretary of the Board. No delay or error in such filing will
affect the validity of this Financing Order, the Bondable Transition
Property or the Transition Bonds.
Servicing of Transition Bonds
(22) The Company, as Servicer, is authorized to enter into a servicing
agreement, substantially as described in the SEC Filing, with the SPE
pursuant to which the Company agrees to continue to operate its
distribution system to provide service to its customers, to impose,
charge, collect and receive the TBC with respect to Bondable
Transition Property for the benefit and account of such SPE or its
assigns, and to account for and remit these amounts to or for the
account of such SPE or its assigns in the manner described in the
Petition.
(23) Each customer's monthly bill will note that a portion of the charges
on such bill represents amounts being collected on behalf of the SPE
as owner of the Bondable Transition Property.
(24) Payments from customers will be applied first to sales taxes (which
the Company will collect as trustee for the State and not for its own
account or that of the SPE, and which are not "charges" for purposes
of the following allocations), then to charges in arrears, if any, and
then to current charges. With respect to each billing period, partial
payments of charges will be allocated pro rata: (i) to the TBC, (ii)
to the MTC-Tax and (iii) to the Company's other charges based on the
proportions that the TBC, the MTC-Tax and the Company's other charges
bear to the total charges billed. If the Transition Bonds are issued
in more than one series, partial payments of the TBC will be allocated
to each respective series so issued, pro rata, based on the respective
amounts owed under each series.
ACE Bondable Stranded Costs Rate Order 27 BPU Docket No. EF01060394
(25) Pursuant to Section 22 of the Act, in the event of a default by a
Servicer under any servicing agreement with respect to the Transition
Bonds, upon application of the SPE or the Transition Bond Trustee, the
Board will designate a successor Servicer for the Bondable Transition
Property, who will promptly assume billing and collection
responsibilities for the TBC and the MTC-Tax. The Board will act on an
expedited basis to designate within 30 days such successor Servicer.
Such successor Servicer will assume all rights and obligations of the
initial Servicer.
(26) The Board will permit a successor Servicer to replace the Company as
Servicer in any of its servicing functions with respect to the TBC and
the Bondable Transition Property authorized by this Financing Order
only upon determining that approving or requiring such successor
Servicer will not cause then current credit ratings on Transition
Bonds to be withdrawn or downgraded.
(27) Any EPS that proposes to collect and remit the TBC and associated
MTC-Tax must (i) meet the creditworthiness criteria to be established
by the Board, and at a minimum, the criteria set forth and approved
below in this Financing Order; and (ii) comply with the billing,
collection and remittance procedures and information access
requirements set forth below.
(28) The Board will authorize a EPS to bill and collect the TBC and
associated MTC-Tax, for remittance to the Servicer, only with respect
to power sold by it and only if: (i) such EPS agrees to remit the full
amount of all charges it bills to customers for services provided by
the Company or any Successor Utility, together with amounts related to
the TBC and the MTC-Tax, regardless of whether payments are received
from such customers, within 15 days of the Company's (or any successor
Servicer's) bill for such charges; (ii) such EPS agrees to provide the
Servicer with total monthly kWh usage information for each customer in
a timely manner to enable the Servicer to fulfill its obligations,
because such information is the basis for assessing the required level
of such remittances; and (iii) the Servicer is entitled, seven days
after a default by the EPS in remitting any charges payable to the
Company, including amounts related to the TBC and the MTC-Tax, to
assume responsibility for billing and collecting all charges for
services provided by the Company or any Servicer, including the TBC
and the MTC-Tax, or to transfer responsibility to a qualifying third
party. In addition, if and so long as such EPS does not maintain at
least a "Baa2" and "BBB" (or the equivalent) long-term unsecured
credit rating from Moody's Investors Service and Standard & Poor's
Rating Services, respectively, such EPS will maintain, with the
Servicer or as directed by the Servicer, a cash deposit or comparable
security equal to two months' maximum estimated collections of all
charges payable to the Company, including the amounts related to the
TBC and the MTC-Tax, as must be agreed upon by the Company (or any
Successor Servicer) and the EPS. In the event of a default in the
remittance of any such amounts by an EPS, any shortfall in TBC
collections or MTC-Tax collections by an EPS not recovered from such
cash deposits or comparable security will be included in the TBC
True-Up and the MTC-Tax True-Up as described in Appendix C hereto.
ACE Bondable Stranded Costs Rate Order 28 BPU Docket No. EF01060394
(29) Customers will continue to be responsible for payment to the Servicer
of the TBC and the MTC-Tax billed by an EPS, to the extent such
customer has not paid the TBC or MTC-Tax billed to it. In the event of
a failure of any customer to pay the TBC or MTC-Tax, the Company is
authorized to shut-off power, or a successor Servicer is authorized to
direct the Successor Utility to shut-off power, to such customer in
accordance with Board policies and procedures and any applicable laws
then in effect.
(30) The Servicer will be entitled to an annual servicing fee equal to
0.10% of the aggregate initial principal amount of the Transition
Bonds (the "Servicing Fee"). The Board approves the Servicing Fee as
described herein. The Board also approves a higher annual Servicing
Fee of any successor Servicer of up to 1.25% of the initial principal
balance of all transition bonds that the SPE has issued, including the
Transition Bonds.
The TBC: Establishment and Adjustment
(31) The methodology used to calculate the TBC, the TBC True-Up and the
MTC-Tax True-Up, as described in Appendix C hereof, is approved.
(32) Pursuant to Section 15(a)(3) of the Act, the initial TBC and MTC-Tax
will be filed with the Secretary of the Board in the Issuance Advice
Letter and will be effective upon such filing, to be adjusted up or
down, as necessary, by the TBC True-Up and MTC-Tax True-Up.
(33) In accordance with Section 15(b) of the Act, the Servicer, on behalf
of the Company and the pledgees or transferees of the Bondable
Transition Property, is authorized to file with the Secretary of the
Board periodic TBC True-Ups, at least annually but not more frequently
than quarterly (or monthly in the last two years before the scheduled
maturity of the Transition Bonds and continuing until all Ongoing
Transition Bond Costs and other bondable stranded costs determined to
be recoverable in this Financing Order are paid in full, even past
legal maturity), to the extent necessary to ensure the timely receipt
of revenues equal in amount to required payments of Ongoing Transition
Bonds Costs. Each such adjustment shall be formula-based, shall be in
the amount required to ensure the timely receipt of revenues
sufficient to provide for the full and timely recovery of Bondable
Stranded Costs, including, without limitation, the timely payment of
principal of, and interest and acquisition or redemption premium on,
the Transition Bonds issued to finance such Bondable Stranded Costs.
The periodic adjustments will be filed in substantially the form
attached to this Financing Order as Appendix E.
(34) The Company will propose each TBC True-Up in a filing with the
Secretary of the Board at least 30 days in advance of the date upon
which it is requested to be effective. The proposed adjustment will
become effective on an interim basis on the date on which it is
requested to be effective and, in the absence of a Board Order to the
contrary finding manifest error (i.e., an arithmetic error evident on
the face of the filing), will become final and nonappealable 60 days
after the filing.
(35) If necessary to ensure the timely recovery of the Ongoing Transition
Bond Costs and the MTC-Tax, the Board will approve adjustments to the
ACE Bondable Stranded Costs Rate Order 29 BPU Docket No. EF01060394
methodology as proposed by the Company in "non-routine" adjustments to
the TBC and the MTC-Tax.
Use Of Transition Bond Proceeds
(36) The Company will use the proceeds of the Transition Bonds, net of
transaction costs and any costs of credit enhancement for the
Transition Bonds paid from the proceeds, to reduce its otherwise
recovery-eligible Bondable Stranded Costs through the retirement of
the Company's debt or equity, or both (including transactions
completed prior to the date of this Financing Order), or to buy out or
buy down or otherwise restructure power purchase agreements (or to
repay interim financing in respect of same). The Company is authorized
to apply the proceeds to retire debt, equity or both, and to buyout,
buydown or restructure power purchase agreements, substantially as set
forth in the Petition, and to pay any accrued interest and accrued
preferred dividends from the date of issuance of the Transition Bonds
to the date of retirement, and to pay any premium, unamortized
discounts and other fees, costs and charges associated with such
retirement. No failure to apply the proceeds in accordance with the
Restructuring Order or this Financing Order shall affect the sale of
the Bondable Transition Property or the right to collect the TBC.
Approval of Servicing Agreement, Administration Agreement, Sale Agreement,
Hedging Arrangement, if any, and Other Agreements or Transactions
(37) The Company's entering into a servicing agreement, an administration
agreement, a sale agreement, any hedging arrangement as described in
Section 2(e) and any other Transition Bond Transaction documents with
the SPE or any other party consistent with the terms of this Financing
Order and/or substantially as described in the SEC Filing and such
other related transaction documents and other dealings between the
Company and the SPE or any other party as contemplated therein and
herein are authorized.
Accounting for Certain Benefits
(38) Pursuant to Section 15(d) of the Act, any amount of the TBC
collections held by the Transition Bond Trustee in excess of those
amounts necessary to fully recover the Ongoing Transition Bond Costs
will be applied as a credit to reduce charges to customers of the
Company, as described in the Petition, except that if more than one
series of Transition Bonds is sold, all such requirements with respect
to such Transition Bonds will be aggregated for purposes of
determining whether or not the total TBC collected exceeds the total
of such requirements for all such Transition Bonds.
(39) Upon retirement of all outstanding Transition Bonds and payment of any
related Ongoing Transition Bond Costs and other Bondable Stranded
Costs, any remaining amounts held by the Transition Bond Trustee will
be released to the SPE. The Company's equity in the SPE may be
distributed to the Company. The Company will credit an amount equal to
any remaining TBC (but not investment earnings on funds in the Capital
ACE Bondable Stranded Costs Rate Order 30 BPU Docket No. EF01060394
Subaccount), less any amount of any unpaid MTC-Tax charges and any
amount that was withdrawn and not replenished to the SPE's equity, to
its electric customers against its distribution charges. Any
overcollected MTC-Tax charges shall also be credited to the Company's
electric customers against the Company's distribution charges.
Records
(40) Pursuant to Section 21 of the Act, the Company or another Servicer on
its behalf will maintain or cause to be maintained records of TBC and
associated MTC-Tax collections which have been assessed and collected
by the Company, as Servicer, under this Financing Order and the
Restructuring Order, respectively. Such records, and any records of a
financing entity, will be made available by the Company for inspection
and examination within a reasonable time upon demand therefor by the
Board or the related financing entity.
MTC-Tax Establishment and Adjustment
(41) Pursuant to the Restructuring Order and this Financing Order, the
Company is authorized to file with the Board proposals for mandatory
periodic MTC-Tax True-Ups authorized by the Board in the Restructuring
Order. The methodology used to calculate the MTC-Tax and the MTC-Tax
True-Up, as described in Appendix C hereto, is approved. Pursuant to
Section 15 of the Act, the initial MTC-Tax will be filed with the
Secretary of the Board in the Issuance Advice Letter and will be
effective upon such filing, to be adjusted up or down, as necessary,
by the MTC-Tax True-Up. The MTC-Tax True-Up shall be made
substantially in the same manner and at the same time as the TBC
True-Up for the TBC in order to insure receipt of revenues sufficient
to recover the MTC-Tax Component. Unless the Company or the Board
proposes an adjustment to the methodology used to calculate the
MTC-Tax, any MTC-Tax True-Up will become effective 30 days after
filing absent manifest error and, in the absence of a Board Order to
the contrary, will become final and nonappealable 60 days after
filing. The periodic adjustments will be filed in substantially the
form attached to this Financing Order as Appendix E hereto.
(42) It is the express intention of the Board that the Company shall not
overrecover or underrecover the MTC-Tax Component. Accordingly, the
Company shall adjust the methodology used to calculate the MTC-Tax to
reflect changes in federal income tax or state corporate business tax
rates and any other changes to the application or interpretation of
such laws, provided such changes are either "generic" (affect all
taxpayers such as a prospective change in the tax rate) or are
securitization-related.
Any proposed adjustment to the MTC-Tax methodology by the Company
shall be submitted to the Secretary of the Board no less than 60 days
prior to its proposed effective date and shall become effective on the
proposed effective date absent a Board Order to the contrary;
provided, however, that the existing methodology shall remain
effective in the interim.
ACE Bondable Stranded Costs Rate Order 31 BPU Docket No. EF01060394
(43) As provided in Section 23(a)(4) of the Act, the Company's right to
recover the MTC-Tax Component will in no way affect or impair the
legal true sale and absolute transfer of the Bondable Transition
Property to the SPE, or otherwise affect the legal rights and
attributes of the Bondable Transition Property under the Act or under
this Financing Order.
Miscellaneous
(44) Pursuant to Section 19 of the Act, this Financing Order will be
effective only in accordance with the terms hereof and upon the
written consent of the Company to all such terms.
(45) Pursuant to Section 25 of the Act, the consideration or approval by
the Board of a petition by the Company under the Act, including this
Financing Order and the periodic adjustment provided in Section 15 of
the Act, will be wholly separate from, and will not be utilized in the
Board's consideration of, any other ratemaking or other proceeding
involving the Company, except as otherwise provided in Sections 39 and
40 hereof and in the Act.
(46) Any holder of a Transition Bond and the Transition Bond Trustee, for
the benefit of such holders, are entitled to the benefit of the
pledges and agreements of the State of New Jersey set forth in the Act
and each of the Company, the SPE and the Transition Bond Trustee is
authorized to include such pledges and agreements in any contract with
the holders of the Transition Bonds, the Transition Bond Trustee or
with any assignees.
(47) The Board is aware of, and hereby expressly modifies, its prior Orders
in Docket Nos. E097070455, E097070456 and E097070457 (Electric
Restructuring) and EM99110870 (Nuclear Asset Sale) to permit the
Company to securitize at this time those bondable stranded costs
associated with the Company's nuclear generation assets as set forth
hereinabove. The Board takes this step in reliance upon the
certification of the Company regarding the fossil divestiture filed on
September 10, 2002, and in order to permit customers to benefit from
the current low interest rate environment. The Board reserves the
right to address, and to adjust if necessary, any net positive
benefits which might result from the fossil divestiture in a future
divestiture, ratemaking or other proceeding. The Board finds, however,
that the Bondable Transition Property described herein will not be
altered by such future review.
This Financing Order is issued subject to the following provisions, failure of
compliance with which shall not affect the rights of the holders of the
Transition Bonds:
(1) The Company will furnish the Secretary of the Board with copies of all
documents as executed and filed with other regulatory agencies
relating to the Transition Bonds.
(2) The Company will quarterly file with this Board, until all proceeds
are disbursed, a statement setting forth details with respect to the
disbursement of net proceeds of the Transition Bonds and their use in
retiring debt or equity or both and in buying out, buying down or to
otherwise restructuring existing Board-approved power purchase
ACE Bondable Stranded Costs Rate Order 32 BPU Docket No. EF01060394
agreements. Interest on any undisbursed proceeds will be credited to
the Deferred Balance (as that term is defined in the Board's Final
Order, dated March 30, 2001) in the monthly reconciliation process.
(3) This Financing Order will not be construed as a certification that the
Transition Bonds will be secured by tangible or intangible assets of
commensurate value or investment costs.
(4) The Company is directed to file, as part of its next base rate filing,
data showing the impact of the timing of customer payments of TBCs to
the Company versus payments by the Company, as Servicer, to the Bond
Trustee. This data will include a calculation of customer daily
remittances, timing of remittances to the Bond Trustee and the
short-term interest rate then applicable to determine the amount of
"float" income earned by the Company in its capacity as Servicer. If
the Board determines in its review of this filing that the Company
retained interest income over and above its Servicing Fee, it may
calculate such retained income, and impute interest thereon, in
determining fair and reasonable rates going forward from the date of
its review. Furthermore, in determining its cash working capital
requirements in a base rate proceeding, the Company will exclude from
its cash balances any TBCs collected, but not yet remitted to the
Trustee.
(5) Not more than nine months following issuance of the Transition Bonds,
the Company will file with the Board a reconciliation statement for
Upfront Transaction Costs and Capital Reduction Costs. If the sum of
Upfront Transaction Costs and Capital Reduction Costs exceeds $19.167
million, or if the sum of Upfront Transaction Costs and Capital
Reduction Costs is less than $19.167 million, any difference will be
accounted for by an appropriate adjustment made to the Deferred
Balance, as that term is used in the Restructuring Order. Prior to
being expended for their intended purpose, earnings on proceeds from
the Transition Bonds issued to pay transaction costs (Capital
Reduction Costs and Upfront Transaction Costs) shall be credited to
the beginning balance of deferred costs associated with the Company's
Deferred Balance, and bear interest at the rate applicable to the
Deferred Balance as set forth on page 83 of the Restructuring Order.
The failure to file such statement or any delay in filing the same or
making such credits shall not affect the validity of this Financing
Order, the Bondable Transition Property or the Transition Bonds.
ACE Bondable Stranded Costs Rate Order 33 BPU Docket No. EF01060394
(6) The Board hereby designates Commissioner Frederick F. Butler or, in
his absence, any other Commissioner, as its Designee under this
Financing Order. Such Designee shall act only in accordance with the
Designee Guidelines approved herein and attached hereto as Appendix F
hereto.
DATED: BOARD OF PUBLIC UTILITIES
BY:
/s/ Jeanne M. Fox
JEANNE M. FOX
PRESIDENT
/s/ Frederick F. Butler
FREDERICK F. BUTLER
COMMISSIONER
/s/ Carol J. Murphy
CAROL J. MURPHY
COMMISSIONER
/s/ Connie O. Hughes
CONNIE O. HUGHES
COMMISSIONER
ATTEST:
KRISTI IZZO
BOARD SECRETARY
ACE Bondable Stranded Costs Rate Order 34 BPU Docket No. EF01060394
CONSENT OF THE COMPANY
Pursuant to Section 19 of the Act, the Company hereby consents to all of the
terms of this Financing Order, this ____ day of September, 2002.
ATLANTIC CITY ELECTRIC COMPANY
BY:
/s/ Joseph M. Rigby
____________________________________
Joseph M. Rigby, President
Atlantic City Electric Company
ACE Bondable Stranded Costs Rate Order 35 BPU Docket No. EF01060394
INDEX
1. PROCEDURAL HISTORY..........................................................3
2. TRANSITION BOND TRANSACTION.................................................5
a. Proposed Structure.......................................................5
b. Recovery of Upfront Transaction Costs....................................8
c. Recovery of Capital Reduction Costs......................................9
d. Recovery of Ongoing Transition Bond Costs................................9
e. Approval of Final Terms and Conditions: Transition Bond Transaction......9
f. TBC.....................................................................11
g. Periodic Adjustments to the TBC and MTC-Tax.............................12
h. Remittance of TBC Collections...........................................13
i. Credit Enhancement......................................................15
j. Formation of SPE........................................................15
k. Bondable Transition Property............................................15
l. Sale of Bondable Transition Property to SPE.............................16
m. Issuance of Transition Bonds............................................16
n. Nonbypassable TBC and MTC-Tax...........................................16
o. Electric Power Suppliers................................................17
p. Servicing...............................................................18
q. Tax Recoveries - Accounting and Related Issues..........................18
3. RATEPAYER BENEFITS.........................................................18
4. USE OF PROCEEDS............................................................19
5. FINDINGS WITH RESPECT TO PETITION..........................................19
6. ORDERS.....................................................................23
EXHIBITS
Exhibit A Savings Analysis (2 pages)
Exhibit B Debt Design Chart (1 page), TBC Development Chart (1 page), MTC-Tax
Charge Development & True-Up (1 page), and MTC-Tax Charge Development & True-Up
Line Item Descriptions (1 page).
APPENDICES
Appendix A Form of Designee Certification (w/ Attachment 1 Expected
Amortization Schedule)
Appendix B Form of Issuance Advice Letter (w/ Attachment 1 Expected
Amortization Schedule)
Appendix C Revised Exhibit C-3 to the Petition (methodology for setting
and adjusting the TBC and MTC-Tax)
ACE Bondable Stranded Costs Rate Order 36 BPU Docket No. EF01060394
Appendix D Form of Pricing Advice Certificate
Appendix E Form of True-Up Letter (w/ Table 1 Input Values)
Appendix F Designee Guidelines
Appendix G Form of Underwriter Certification
Appendix H Form of Bear Stearns Letter
Appendix I Series 2002-1 Amounts to be Securitized (1 page),
Estimated Securitization Issuance & Capital Reduction
Costs (1 page), Detailed Capital Reduction Costs (2 pages)
ACE Bondable Stranded Costs Rate Order 37 BPU Docket No. EF01060394
Appendix A
[BPU LETTERHEAD]
DESIGNEE CERTIFICATION
(to be filed with the Secretary of the Board
within two business days after
the pricing of the Transition Bonds)
BOARD OF PUBLIC UTILITIES (THE "BOARD") OF THE STATE OF NEW JERSEY
SUBJECT: Certification for Atlantic City Electric Transition Funding LLC Series
2002-1 Transition Bonds ("Transition Bonds") Pursuant to the Order of the Board
dated September 18, 2002, Docket No. EF01060394 (the "Financing Order").
I, _____________________________ (the "Designee"), in accordance with
Sections 14(b) and 15(a)(3) of the Electric Discount and Energy Competition Act,
Chapter 23 of the Laws of 1999 ("Act"), for the purpose of (a) establishing that
the structuring and pricing of the Transition Bonds assures that the customers
of Atlantic City Electric Company (the "Company") pay the lowest Transition Bond
Charges consistent with market conditions and the terms of the Financing Order
and (b) approving at the time of pricing of the Transition Bonds, the terms and
conditions of the Transition Bonds, servicing fees, if any, with respect to the
collection of such Transition Bond Charges and the pledging, assignment and sale
of Bondable Transition Property in connection with the initial Transition Bond
Charge, HEREBY CERTIFY as follows:
1. Any capitalized terms not defined herein shall have the meanings
ascribed thereto in the Financing Order.
The following are the terms of the Transition Bonds:
Name of Transition Bonds: Series 2002-1 Transition Bonds
SPE: Atlantic City Electric Transition Funding LLC
Closing Date: _________
Amount Issued: $440,000,000
Interest Rates and Expected Amortization Schedule: See Attachment 1
Distributions to Investors (quarterly or semi-annually): ________
Weighted Average Coupon Rate: ________
Weighted Average Yield:_________
Capitalization Amount: ________
Overcollateralization Amount:_______
Overcollateralization Schedule: See Attachment 1
New Jersey Statutory Corporate Business Tax Rate: __________
New Jersey Sales Tax Rate:____________
Federal Statutory Corporate Income Tax Rate: __________
2. All such items are within the parameters established in the Financing
Order and in the Designee Guidelines in Appendix F to the Financing Order.
Accordingly, (a) the structuring
A-1
and pricing of the Transition Bonds assures that the Company's customers will
pay the lowest Transition Bond Charges consistent with market conditions and the
terms of the Financing Order and (b) the terms and conditions of the Transition
Bonds and the schedule of payments of principal and interest on the Transition
Bonds and overcollateralization requirements are approved.
THIS CERTIFICATION, in accordance with Sections 14(b)(4) and 15(a)(3) of
the Act and the Financing Order, is final and uncontestable as of its date,
which is the pricing date of the Transition Bonds.
DATED:
-----------------------------------------
Designee
A-2
ATTACHMENT 1
EXPECTED AMORTIZATION SCHEDULE
(with coupons, prices, classes, if any, expected amortization schedule
and stated maturities, call features, and scheduled
overcollateralization requirements)
General Terms
Call
Class Price Coupon Fixed/Floating Ave. Life Stated Maturity Feature
----- ----- ------ -------------- --------- --------------- -------
Scheduled Amortization Requirement
Date Class A-1 Class A-2 Class A-3 Class A-4
---- --------- --------- --------- ---------
Schedule of Overcollateralization Requirement
Date Required Overcollateralization Level
---- ------------------------------------
A-3
Appendix B
ISSUANCE ADVICE LETTER
[ACE Letterhead]
[To be filed with the Board of Public Utilities or
its successor not later than five business days
after the issuance and sale of the Transition Bonds]
[DATE]
Kristi Izzo, Secretary
State of New Jersey
Board of Public Utilities
Two Gateway Center
Newark, New Jersey 07102
Re: Docket No. EF01060394
Dear Secretary Izzo:
Pursuant to your Honorable Board's order in the above-captioned Docket
("Financing Order"), Atlantic City Electric Company (the "Company") hereby
transmits for filing this Issuance Advice Letter. Any capitalized terms not
defined herein shall have the meanings ascribed thereto in the Financing Order.
In the Financing Order, the Board authorized the Company to file an
Issuance Advice Letter not later than five business days after the issuance and
sale of a series of Transition Bonds. This Issuance Advice Letter filing applies
the methodology approved by the Board in the Financing Order to establish the
initial Transition Bond Charge and initial MTC-Tax. The terms of issuance are as
follows:
1. Transition Bond Name: Series 2002-1 Transition Bonds
2. SPE Name: Atlantic City Electric Transition Funding LLC
3. Trustee: _________
4. Closing Date: _________
5. Amount Issued: $440,000,000
6. Upfront Transaction Costs: _______
7. Interest Rates and Expected Amortization Schedule: See Attachment 1
8. Distributions to Investors (quarterly or semi-annually): ________
9. Annual Servicing Fee as a percent of the initial principal balance:
________
10. Overcollateralization amount: _______________
11. Overcollateralization Schedule: See Attachment 1
12. Capitalization Amount: ________
13. Brief description of any interest rate exchange agreement or other
hedging arrangement:
B-1
Table I below shows the current assumptions for each of the variables
used in the Transition Bond Charge and MTC-Tax calculation.
TABLE I
INPUT VALUES FOR INITIAL TRANSITION BOND CHARGE AND MTC-TAX
Forecasted annual kWh sales:________
Days Outstanding:_______
Percent of billed amounts expected to be charged-off:____________
Forecasted annual Ongoing Transition Bond Costs (including any hedging
costs):________
Required annual overcollateralization amount: ________
Current Transition Bond outstanding balance: ________
Scheduled Transition Bond outstanding balance as of ___/___/___:_____
New Jersey Statutory Corporate Business Tax Rate: __________
New Jersey Sales Tax Rate:____________
Federal Statutory Corporate Income Tax Rate: __________
Based on the approved formula, the initial Transition Bond Charge is
________(cent)/kWh and the initial MTC-Tax is ________(cent)/kWh
Revised Exhibit E to the Petition filed in this docket by the Company shows
expected net present value savings of $___ million for this series of Transition
Bonds.
In accordance with the Financing Order, the Transition Bond Charge and
MTC-Tax shall be automatically effective when this Issuance Advice Letter is
filed and will continue to be effective.
Respectfully submitted,
[ ]
Attachments
B-2
ATTACHMENT 1
EXPECTED AMORTIZATION SCHEDULE
(with coupons, prices, classes, if any, expected amortization schedule
and stated maturities, call features, and scheduled
overcollateralization requirements)
A. General Terms
Stated
Class Price Coupon Fixed/Floating Ave. Life Maturity Call Feature
----- ----- ------ -------------- --------- -------- ------------
Scheduled Amortization Requirement
Date Class A-1 Class A-2 Class A-3 Class A-4
---- --------- --------- --------- ---------
Schedule of Overcollateralization Requirement
Date Required Overcollateralization Level
---- ------------------------------------
B-3
Appendix C
Development of the Transition Bond Charge,
MTC-Tax and True-up Formula
The Transition Bond Charge (the "TBC") is designed to insure full and
timely recovery of all Bondable Stranded Costs including financing charges and
related costs. A separate Tax Market Transition Charge (the "MTC-Tax") is
designed to recover all income taxes associated with the TBC and MTC-Tax
revenues. First, the TBC necessary to generate sufficient revenues to service
Transition Bonds and pay all related expenses is computed. Second, the MTC-Tax,
designed to recover the necessary tax gross-up is developed taking into account
projected TBC billings, projected Transition Bond interest expense accrued, the
current statutory Federal Income and New Jersey Income tax rates and projected
collections of the MTC-Tax. The detailed mechanics of this procedure are
described below:
Phase 1 - Development of the TBC
- --------------------------------
TBC development: The TBC is developed as follows: Subtract any expected
collections of TBCs billed in the prior period from the scheduled debt service
for the upcoming period (note that in developing the initial charge there are no
prior period billed charges). Debt service includes principal, interest,
administrative and servicing fees, overcollateralization and any true-up amount
computed below (note that there is no true-up adjustment used in developing the
initial charge). This results in the TBC amount required to be billed and
collected during the upcoming period. That result is then divided by projected
kilowatt hours ("kWhs") of electric distribution throughput expected to be
billed to customers and collected from customers during the next period. These
collected kWhs are computed by multiplying monthly kWhs metered and billed by
collections curves which estimate the percent of customer payments received in
each month following a billed sale. The result is a charge per kWh that will
generate the expected collections necessary to pay required debt service and
account for prior period shortfalls or excesses. The resulting TBC is multiplied
by 1 plus the New Jersey state sales tax rate to appropriately include sales tax
in the charge.
Phase 2 - Tax Gross-up Adjustment: MTC-Tax Charge Development
- -------------------------------------------------------------
Tax Gross-up on the TBC: The first step of the process is to compute the
income tax due on the next projected TBC and MTC-Tax revenue (excluding sales
tax). This computation is made as follows: Add projected TBC and MTC-Tax charges
to be billed to customers during the upcoming period to determine the combined
Total Taxable Revenue (Note this requires an iterative computation since the
MTC-Tax charges billed are an input into the equation and also a function of the
resulting MTC-Tax charge rate). From Total Taxable Revenue, subtract
C-1
projected accrued interest on the Transition Bonds for the period, any accruable
fees for administrative or servicing services to be provided to the Issuer, any
tax deductible amortization of Transition Bond issuance costs (limited, in
aggregate, to the amount recoverable through the TBC), any deductible
expenses/losses on the debt retired by Transition Bond proceeds (limited, in
aggregate, to the amount recoverable through the TBC), and any projected
allowable deduction for uncollectable accounts. The result is taxable income
from the net combined charges. Multiply this amount by the combined effective
tax rate for New Jersey state income/CBT tax and the statutory regular federal
income tax rate in effect for the period, (currently the combined effective tax
rate is 40.85%) and the result is the total income tax associated with net
combined charges.
MTC-Tax charges billed in the prior year but expected to be collected in the
upcoming year are subtracted from the estimated total income tax liability
associated with the net combined charges to derive the expected tax liability
required to be billed and collected during the subsequent year (note that this
step is not applicable in developing the initial charge). To that result, any
true-up adjustment computed below is added or subtracted (not applicable for
initial charge). The result is then divided by projected kWhs of electric
distribution throughput expected to be billed to customers and collected from
customers during the next period as developed in Phase 1. The result is a charge
per kWh that will generate the expected collections necessary to pay the
forecasted tax liability resulting from net combined TBC and MTC-Tax charge
revenues in the upcoming period. The resulting MTC-Tax charge is multiplied by 1
plus the New Jersey state sales tax rate to appropriately add sales tax to the
charge.
Computing True-up Adjustments
- -----------------------------
True-up adjustments are designed to adjust the charges to ensure that the
cost of Transition Bonds, related fees and taxes are fully and timely recovered
from customers and that customers pay no more than is required to satisfy these
costs. As in the case of the development of the TBC and MTC-Tax charges, the
true-up adjustments are completed in two steps - Step One for the TBC and Step
Two for the MTC-Tax charge.
Step 1: TBC True-up Adjustment
- ------------------------------
The TBC is to be adjusted at least annually to ensure full and timely
recovery of all Bondable Stranded Costs, financing charges and related costs.
The adjustment is computed as follows:
1. TBC Shortfalls: TBC collections are remitted to the Bond Trustee and used
to service the Transition Bonds of each outstanding series and pay related
expenses. To the extent TBC collections are insufficient to fund required
debt service and meet other SPE expenses with respect to a series, the Bond
Trustee will fund the shortfall first with any excess
C-2
collection from prior periods in the Reserve Subaccount for such series,
then the Overcollateralization Subaccount for such series funds held by the
Bond Trustee, and then with equity capital of the Issuer held in the
Capital Subaccount for such series. If these amounts are not sufficient to
fund debt service and meet other expenses, the Bond Trustee will, after
paying certain fees and expenses in accordance with the Indenture, pay
interest on the Transition Bonds first and then principal to the extent of
remaining funds. To the extent overcollateralization or equity funds are
used to service debt and meet other SPE expenses, these amounts will be
added as a true-up adjustment to be factored into the subsequent period TBC
to fully replenish those accounts to their scheduled amounts within the
next period. In addition, any principal payment shortfall (relative to the
Expected Amortization Schedule) and the interest that accrues on this
principal shortfall will be added to the subsequent year's TBC via the true
up.
2. TBC Over-collections: To the extent, TBC collections are in excess of the
amount needed for current debt service requirements and related expenses,
the excess is first applied to reduce any shortfalls from prior periods
computed under 1. above. Any TBC excess is next applied to restore the
Issuer's Capital Subaccount to its scheduled balance. Excesses are then
applied to restore the Overcollateralization Subaccount to its scheduled
level. Any remaining excess is retained in the Reserve Subaccount
maintained by the Bond Trustee. These amounts are invested by the Bond
Trustee in eligible investments and are retained until they are required to
service debt, replenish accounts to their scheduled levels or until the
next periodic true-up which ever comes first. Any balance in the Reserve
Subaccount including interest on hand (with the exception of interest
earnings on the Capital Subaccount) at the time of periodic true up is
subtracted as a true-up adjustment in determining the subsequent period
TBC.
3. Investment Earnings on the accounts held by the Bond Trustee (including to
the extent provided in the Indenture, in the Capital Subaccounts) will be
used to service debt or fund or replenish the Capital or
Overcollateralization Subaccounts to their scheduled levels and if not
needed for that purpose will be retained in the Reserve Subaccount and will
be subtracted as a true-up adjustment as of the next true-up date.
4. Periodic True-up: On at least an annual basis, any true-up adjustment,
computed as above will be used to develop a new TBC rate for the up-coming
period. The true-up amount will be added or subtracted to the amount of
required debt service and related expenses used in developing the TBC rate
for the subsequent period described in Phase 1 above.
Step 2 - MTC-Tax True-up Adjustment
- -----------------------------------
1. Using the methodology described in Phase 2 above, compute the income tax
associated with net combined charges for the prior period by substituting
actual amounts for the prior period for the projected amounts.
2. Compute Income Tax True-up amount: Subtract the tax liability computed in
1. above from the actual MTC-Tax collections for the same period to derive
the shortfall or over-
C-3
collection with respect to Taxes. Interest will be added to any over or
under collection to ensure that no party is economically harmed by any such
over or under collection. The net adjustment plus accrued interest will be
added or subtracted to the projected amount of total income tax associated
with net combined charges used in developing the MTC-Tax charge for the
subsequent period described in Phase 2 above.
C-4
Appendix D
PRICING ADVICE CERTIFICATE
[ACE Letterhead]
[To be filed no later than the date of pricing of the Transition Bonds]
[DATE]
[Kristi Izzo, Secretary
State of New Jersey
Board of Public Utilities
Two Gateway Center
Newark, New Jersey 07102]
and
[Board Designee]
Re: Docket No. EF01060394
Dear Secretary Izzo:
Pursuant to your Honorable Board's order in the above-captioned Docket
("Financing Order"), Atlantic City Electric Company (the "Company") hereby
transmits for filing this Pricing Advice Certificate. Any capitalized terms not
defined herein shall have the meanings ascribed thereto in the Financing Order.
In the Financing Order, the Board requires the Company to file a Pricing
Advice Certificate when pricing terms for a series of Transition Bonds and the
pricing of any hedging arrangement in advance of the issuance of Transition
Bonds have been approved by the Company. The proposed terms of pricing and
issuance of the [Transition Bonds] [hedging arrangement] are as follows:
Name of Transition Bonds: Series 2002-1 Transition Bonds
SPE: Atlantic City Electric Transition Funding LLC
Closing Date: __________
Amount Issued: $440,000,000
Interest Rates and Expected Amortization Schedule: See Attachment 1
Distributions to Investors (quarterly or semi-annually): __________
Weighted Average Coupon Rate: __________
Weighted Average Yield: __________
Capitalization Amount: __________
Overcollateralization Amount: __________
Overcollateralization Schedule: See Attachment 1
D-1
[Brief description of any hedging arrangement:]
The Company hereby certifies that: (i) all proposed terms of pricing and
issuance of the [Transition Bonds] and/or [the hedging arrangement] are within
the parameters established in the Financing Order and the Designee's Guidelines
attached as Appendix F to the Financing Order [and] (ii) the structuring and
pricing of the [Transition Bonds] and/or [the hedging arrangement] assures that
the Company's customers will pay the lowest Transition Bond Charges consistent
with market conditions and the terms of the Financing Order [or (iii) the
hedging arrangement reasonably protects ratepayers against interest rate
increases which may occur after the date hereof.]
The Company's certification provided in clause (ii) or (iii) above is
based, in part, upon representations provided to the Company by its Lead
Underwriter for the Transition Bonds, Morgan Stanley & Co. Incorporated.
Respectfully submitted,
[ ]
Attachments
D-2
Appendix E
TRUE-UP LETTER
[ACE Letterhead]
[date]
Kristi Izzo, Secretary
State of New Jersey
Board of Public Utilities
Two Gateway Center
Newark, New Jersey 07102
Re: Docket No. EF01060394
Dear Secretary Izzo:
Pursuant to your Honorable Board's order in the above-captioned Docket
("Financing Order"), Atlantic City Electric Company ("Company") as Servicer of
the Transition Bonds or any successor Servicer and on behalf of the trustee as
assignee of the SPE shall apply at least annually for mandatory periodic
adjustment to the Transition Bond Charge and MTC-Tax charge. Any capitalized
terms not defined herein shall have the meanings ascribed thereto in the
Financing Order.
Each such adjustment shall be proposed in a filing ("True-Up Letter") with
the Board at least 30 days in advance of the date upon which it is requested to
be effective (which effective date hereunder is _________________). The proposed
adjustment to the Transition Bond Charge will become effective on an interim
basis on the date on which it is requested to be effective and, in the absence
of a Board Order to the contrary correcting manifest error in the calculation,
will become final 60 days after the filing. The proposed adjustment to the
MTC-Tax charge, absent a proposed change in the formula, will become effective
on an interim basis on the date on which it is requested to be effective and, in
the absence of a Board order to the contrary correcting manifest error in the
calculation, will become final 60 days after the filing.
Using the formula approved by the Board in the Financing Order (or in
effect pursuant to the True-Up Letter dated _______), this filing modifies the
variables used in the Transition Bond Charge and MTC-Tax calculation and
provides the resulting modified Transition Bond Charge and MTC-Tax charge. Table
I shows the revised assumptions for each of the variables used in calculating
the Transition Bond Charge and MTC-Tax charge. The assumptions underlying the
current Transition Bond Charge and MTC-Tax charge were filed by the Company in
an Issuance Advice/True-Up Letter dated ________________.
E-1
Based on the approved formula, the proposed Transition Bond Charge is
______ (cent)/kWh and the resulting MTC-Tax is ______ (cent)/kWh.
Respectfully submitted,
[ ]
Attachment
E-2
TABLE I
INPUT VALUES FOR ADJUSTED TRANSITION BOND CHARGE AND MTC-TAX
Forecasted annual kWh sales:______
Days outstanding:________
Percent of billed amounts expected to be charged-off:_______
1. Under-collection of prior principal amount _______
2. Upcoming collection of current principal amount _______
3. Under-collection of prior interest amount ____
4. Upcoming collection of current interest amount _______
5. Under-collection of prior over-collateralization amount _______
6. Upcoming collection of current over-collateralization amount _______
7. Under-collection of prior tax component amount _______
8. Upcoming collection of current tax component amount _______
9. Deficiency in required capital amount _______
10. Amount in reserve subaccount ________
11. Upcoming period servicing and administration fees and expenses _______
12. New Jersey Statutory Corporate Business Tax Rate ___________
13. New Jersey Sales Tax Rate _________
14. Federal Statutory Corporate Income Tax Rate___________
E-3
Appendix F
Designee Guidelines
Docket No. EF01060394
The Designee is empowered to agree to the terms and conditions of the
Transition Bonds to be issued to recover a portion of the Stranded Costs of
Atlantic City Electric Company (the "Company"), and to certify that the
structuring and pricing of the Transition Bonds assure that the ratepayers will
pay the lowest Transition Bond Charges ("TBC") consistent with market conditions
and the terms of the Financing Order; provided, however, that the Designee
cannot approve the terms and conditions or deliver such certification if the
terms and conditions of the structuring and pricing of the Transition Bonds fall
outside the parameters set forth below:
Bond Size: Not to exceed $440,000,000
Bond Maturity: 15 year scheduled amortization, not to exceed 17
year final stated maturity for Transition Bonds
the proceeds of which will be used to reduce
stranded costs related to the Company's nuclear
generation assets, and 20 year scheduled
amortization, not to exceed 23 year final stated
maturity for Transition Bonds the proceeds of
which will be used to buy out or buy down existing
Board-approved long-term power purchase agreements.
Amortization: Set to provide an approximately level TBC rate per
kWh.
Payment Dates: The first payment of principal shall occur within
11 months of issuance and payments of principal and
interest shall be no less frequent than quarterly
or semi-annually.
Capital Account and The Company shall capitalize the SPE at no less
Over-Collateralization: than 0.50% of the initial principal amount of the
bonds. The Transition Bond Charge shall include
over-collateralization in amounts sufficient to
build up to at least 0.50% of the initial principal
amount of the Transition Bonds.
Redemption Features: The bonds will have a 5% "clean-up" call.
Underwriting and Consistent with the provisions of the Financing
Syndication: Order and the letter dated September 10, 2002 from
Morgan Stanley & Co. detailing the proposed
syndication plan, the Transition Bonds were
offered by way of a negotiated sale, and customary
practices were used in the syndication and
underwriting process for the execution of an
asset-backed securitization of this size and credit
quality.
F-1
Floating Rate Bond If the Company proposes to cause the issuer to
Hedging Arrangement: issue floating rate bonds which are swapped to a
fixed rate then any such swap shall be
competitively bid among no less than three (3)
qualified swap counterparties and the issuer shall
accept the lowest responsible bid taking into
account the trading value of the counterparties. A
swap counterparty shall be deemed a qualified swap
counterparty if the rating of the counterparty is
at least AA-/ Aa3.
Hedging Arrangement: The Designee may authorize a Hedging Arrangement if
(i) the Company notifies the Designee and the
Financial Advisor that it proposes to enter into a
Hedging Arrangement, (ii) the Company provides an
analysis to the Designee and the Financial Advisor
comparing the estimated present value savings using
the Hedging Arrangement and the estimated present
value savings assuming the Transition Bonds were
issued on the same date, (iii) the difference
between the estimated present value savings using
the Hedging Arrangement and the estimated present
value savings assuming the Transition Bonds were
issued on the same date is less than $500,000 and
(iv) the Financial Advisor concurs with the
analysis.
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Financing Order.
The terms and conditions described therein are hereby approved with such
modifications and amendments as are acceptable to the Designee relying upon the
written advice and recommendations of the Financial Advisor (collectively, the
"Designee Guidelines").
F-2
CONFIDENTIAL
Appendix G
FORM OF MORGAN STANLEY CERTIFICATION
[Morgan Stanley Letterhead]
[To be filed on the date of pricing of the Transition Bonds]
[DATE]
[Kristi Izzo, Secretary
State of New Jersey
Board of Public Utilities
Two Gateway Center
Newark, New Jersey 07102]
and
[Board Designee]
Re: Bondable Stranded Costs Rate Order - Docket No. EF01060394
(the "Financing Order").
Dear Secretary Izzo:
We have been exclusively engaged by Atlantic City Electric Company (the
"Company") to act as lead underwriter in connection with the offering by
Atlantic City Electric Transition Funding LLC of $[ ] million in aggregate
principal amount of Transition Bonds, Series 2002-1 (the "Transition Bonds")
pursuant to the terms of an underwriting agreement dated as of [insert pricing
date] (the "Underwriting Agreement"). The Transition Bonds were priced at [ : ]
[A.M./P.M.], New York time today (the "Pricing Time"). At the Pricing Time, we
agreed to purchase the Transition Bonds from Atlantic City Electric Transition
Funding LLC, subject to certain conditions contained in the Underwriting
Agreement. Any capitalized terms not defined herein shall have the meanings
ascribed thereto in the Financing Order.
The Company has informed us that the [State of New Jersey Board of Public
Utilities] issued the Financing Order dated September [ ], 2002 and that the
Financing Order requires the Company's lead underwriter to file a Certification
supporting the Company's Pricing Advice Certificate when [(i)] pricing terms for
a series of Transition Bonds have been approved by the Company [and (ii) when
the terms of a hedging arrangement have been approved by the Company].
In its Pricing Advice Certificate, the Company indicated that terms of
pricing and issuance are as follows:
G-1
Name of Transition Bonds: Series 2002-1 Transition Bonds
SPE: Atlantic City Electric Transition Funding LLC
Closing Date: __________
Amount Issued: __________
Interest Rates and Expected Amortization Schedule: See Attachment 1
Distributions to Investors (quarterly or semi-annually): __________
Weighted Average Coupon Rate: __________
Weighted Average Yield: __________
Capitalization Amount: __________
Overcollateralization Amount: __________
Overcollateralization Schedule: See Attachment 1
[Brief description of any interest rate exchange agreement or other hedging
arrangement:]
For purposes of the certification set forth herein, we have:
(i) reviewed the structuring and pricing of the Transition Bonds as set
forth in the Company's Pricing Advice Certificate;
(ii) reviewed the reported prices and trading activity for other publicly
traded "stranded costs" bonds that are comparable to the Transition Bonds;
(iii) reviewed the Financing Order, including the Company's methodology and
assumptions set forth therein for calculating the transition bond charge;
(iv) discussed with senior executives of the Company the Company's
methodology and assumptions for calculating the transition bond charge;
[(v) reviewed the structuring and pricing of the hedging arrangement and
the proposed structuring and pricing of the Transition Bonds as set forth in the
Company's Pricing Advice Certificate;
(vi) reviewed the pricing of certain comparable hedging arrangements that
are known to us;] and
(vii) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information provided to us by management of the
Company and reviewed by us for the purposes of this certification. We have also
assumed that the Company implements the transactions contemplated hereby in
accordance with the terms of the Financing Order, including that any hedge
payment benefits ratepayers. Our certification is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made
G-2
available to us as of, the date hereof. We have not made any independent
valuation or appraisal of the assets or liabilities of the Issuer, nor have we
been furnished with any such appraisals. This certification does not constitute
a bid for any of the Transition Bonds. Rather it is a statement of our view of
the reasonableness of the structuring and pricing of the Transition Bonds, as
proposed, at a particular point in time relative to current market conditions.
The structuring and pricing of the Transition Bonds does not reflect a level at
which actual other transactions have occurred or may occur. Our views set forth
in this certification may vary significantly from the views expressed in
certifications from other sources.
It is understood that this certification is solely for the information of
the Board and the Board Designee and is not on behalf of, and is not intended to
confer any rights upon, any other person, and this certification is not to be
relied upon by any other person for any purpose. This certification is being
delivered to the Board and the Board Designee pursuant to the Financing Order
for the sole purpose of supporting the Company's Pricing Advice Certificate. It
is understood that the delivery of this certification by us to the Board and the
Board Designee does not establish a fiduciary relationship between us and the
Board or the Board Designee. This certification does not address nor should it
be construed to address the relative merits of alternative business strategies
that may be available to the Company.
We have acted as lead underwriter for the Company in connection with the
proposed offering of Transition Bonds and will receive underwriting compensation
for our services. We will not receive a separate fee for providing this
certification. In the past, we have provided [financial advisory and] financing
services for the Company and have received fees for the rendering of these
services.
Based on the foregoing it is the view of Morgan Stanley, as lead
underwriter, that:
(1) The structuring and pricing of the Transition Bonds, as proposed, is
reasonable in the light of current market conditions.
(2) Assuming the accuracy of the assumptions of the Company contained in the
Financing Order and the formulae contained therein, and of the consistency of
mathematical calculations made by the Company with those formulae contained in
the Financing Order, the customers of the Company will pay the lowest
transition bond charges consistent with current market conditions and the terms
of the Financing Order.
[or, if the certification is given in connection with the execution of a hedging
arrangement in advance of the pricing of the Transition Bonds
(1) The structuring and pricing of the hedging arrangement is reasonable in
light of current market conditions.
(2) The hedging arrangement reasonably protects ratepayers against interest
rate increases above the locked-in rate which may occur after the date of
its execution.
G-3
[or if the certification is given in connection with the termination of a
hedging arrangement, the pricing of the termination payment is reasonable in
light of current market conditions.]
Respectfully submitted,
Morgan Stanley
Attachments
G-4
Appendix H
Form of Advisory Letter from Bear Stearns & Co. Inc.
As Financial Advisor
Bear Stearns & Co. Inc. ("Bear Stearns") has acted as the financial advisor to
the New Jersey Board of Public Utilities ("BPU") with respect to the offering
and issuance of $440,000,000 of Series 2002-1 Transition Bonds (the "Transition
Bonds") and/or the execution of a hedging arrangement by [Issuer Designation]
(the "Issuer").
Bear Stearns has examined (i) the Final Decision and Order (the "Restructuring
Order") of the BPU signed on March 30, 2001 (the "Order Date"); (ii) the
Petition of Atlantic City Electric Company ("ACE") for a Financing Order, dated
June 25, 2001 (the "Petition"); (iii) the Financing Order of the BPU dated
September 18, 2002 (the "Financing Order") (iv) the form of Prospectus and
Prospectus Supplement of the Issuer as filed with the SEC on [date of final
draft reviewed] concerning the Transition Bonds (collectively the "SEC Filing");
(v) the final pricing terms (the "Final Terms") for the Transition Bonds
provided by Morgan Stanley & Co. Incorporated (the "Lead Underwriter") which
final pricing terms were agreed upon between the Issuer, ACE and the Lead
Underwriter; (vi) the Underwriting Agreement for the Transition Bonds (the
"Underwriting Agreement"), proposed for execution on the date hereof among ACE,
the Issuer and the Lead Underwriter; (vii) the form of Designee Certification
proposed to be delivered to the BPU within two business days after the final
pricing terms are determined pursuant to the Financing Order; (viii) the Pricing
Advice Certificate delivered by ACE on the date hereof; and (ix) such other
documents, representations and other forms of information as we have deemed
necessary and appropriate in order for us to deliver this Advisory Letter. We
have found the following:
1. The structuring and pricing of the Transition Bonds (and any hedging
arrangement), as evidenced, inter alia, by the terms thereof contained in
the SEC Filing and the Final Terms provided to us by the Lead Underwriter
are reasonable in light of current market conditions and are consistent
with the terms of the Financing Order.
2. The Final Terms of the Transition Bonds including the syndicate rules, the
estimated costs of issuance, the overcollateralization levels and the
servicing fees, appear reasonable and consistent with current market
conditions.
3. The initial Transition Bond Charge proposed by ACE in accordance with the
Financing Order should be [adjusted up or down] [left unchanged] in order
to provide the Issuer with amounts not less than those necessary to fully
recover the bondable stranded costs of ACE, in light of the actual interest
rates achieved in the marketing and sale of the Securities and the costs,
including overcollateralization of __%, associated with the issuance of the
Transition Bonds.
4. Assuming the accuracy of the assumptions of ACE contained in the Financing
Order and the formulae contained therein, and of the mathematical
calculations made by ACE
H-1
thereunder, the structuring and pricing of the Transition Bonds assure that
the customers of ACE will pay the lowest Transition Bond Charges consistent
with current market conditions and the terms of the Financing Order.
5. ACE has delivered its Pricing Advice Certificate, which conforms to the
Final Terms.
H-2
Appendix I
Atlantic City Electric Company
Stranded Costs to be
Securitized in Series 2002-1
$000
Pre-Tax After-Tax
Stranded Stranded
Costs Costs
------------------- ----------------------
Nuclear $372,839 $277,946 /1
PCLP:
Buyout Payment $228,500 $135,158 /2
Transaction Costs $1,884 $1,114 /3
Tax Payment on CIAC $2,755 $2,755 /4
------------------- ----------------------
Total $233,139 $139,027
Ref-Fuel:
Buydown Payment $3,450 $3,450 /5
Transaction Costs $693 $410 /6
------------------- ----------------------
Total $4,143 $3,860
Stranded Cost Total $610,121 $420,833
=================== ======================
Securitization
Issuance & Capital
Reduction Costs
Total $19,167 /7
----------------------
Securitization
Grand Total $440,000
----------------------
- --------
1 The Board approved the sale of the nuclear assets in I/M/O the Petition of
Atlantic City Electric Company for Approval of the Sale of its Nuclear
Generating Units, BPU Docket No. EM99110870, Decision and Orders dated July 21,
2000 and September 17, 2001. Final post-closing stranded costs were filed with
the Board pursuant to those Orders on June 24, 2002.
2 The Board approved the buyout payment in I/M/O the Petition of Atlantic City
Electric Company for Approval of an Agreement to Terminate its Power Purchase
Agreement with Pedricktown Cogeneration Limited Partnership, BPU Docket No.
EE99090685, Decision and Order, dated November 10, 1999.
3 Atlantic made compliance filings quantifying transaction costs related to the
PCLP buyout on February 22, 2001, (estimated costs) and April 4, 2001 (final
costs).
4 Atlantic's April 4, 2001 compliance filing identified and quantified the PCLP
tax payment on CIAC.
5 The Board approved the Ref-Fuel buydown payment in I/M/O the Petition of
Atlantic City Electric Company for Approval of an Amendment to the Agreement for
Purchase of Electric Power with American Ref-Fuel Company of Delaware Valley,
L.P., BPU Docket No. EM00060388, Order of Approval, dated December 6, 2000.
6 Atlantic made a compliance filing quantifying transaction costs related to the
Ref-Fuel buydown on April 4, 2001.
7 A detailed breakdown of estimated securitization issuance and transaction
costs is included in Exhibit B to this statement.
I-1
Atlantic City Electric Appendix I
Docket Number EF 01060394
Estimated Securitization Issuance & Capital Reduction Costs
Description Amount
- ---------------------------------------------------------
Underwriting Discount and Fees $3,023,000
Structuring Fee $336,000
Underwriters' Reimbursable Expenses $100,000
Road Show (Bloomberg) $8,000
Road Show $50,000
SEC Registration Fee $117,000
Issuer's and Underwriter's Legal Fees $4,000,000
Rating Agency Fees $417,000
Auditor's Fees $130,000
Printing Fees $120,000
Trustee Fees $36,000
Blue Sky Fees $3,000
IRS Private Letter Ruling Request User Fee $5,000
SPE Organizational Costs $100,000
BPU Financial Advisor Fee * $150,000
Internal Labor $350,000
Miscellaneous & Contingency $488,000
Capital Reduction Costs $9,734,000
- ---------------------------------------------------------
Total $19,167,000
=========================================================
Footnote
* - could increase to $300,000 if a hedging arrangement is made
APPENDIX I
Atlantic City Electric CAPITAL REDUCTION COSTS
NPV-Based Priority List for Outstanding Long-Term Debt and Preferred Stock ASSUMING CURRENT CAPITALIZATION
(Highlighted Securities Included on RAR-12 - Use of Securitization Proceeds) RATIOS ARE MAINTAINED
As of August 22, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Sorted By NPV (%) Repurchase Pricing Capital Reduction Costs
--------------------------------------------------------------------------------------
Security Description Type Type UST Spread Yield Price Cash Capital Planned Tender Unamortized Accrued
(%) (bp) (%) (%) Cost Reduction Cap Reduct $mm Issuance Int
$mm Cost $mm Cost $mm $mm $mm
- ------------------------------------------------------------------------------------------------------------------------------------
$70.00 mm 8.250% QUIPS Pfd Pfd NA NA NA 100.0 70.0 -
- ---------------------------------------------------------------------------------
$0.41 mm 5.000% undated Pfd Pfd 5.08 -50 4.58 109.1 0.4 0.0
- ---------------------------------------------------------------------------------
$2.43 mm 4.000% undated Pfd Pfd 5.08 -50 4.58 87.3 2.1 (0.3)
- ---------------------------------------------------------------------------------
$0.86 mm 4.750% undated Pfd Pfd 5.08 -50 4.58 103.6 0.9 0.0
- ---------------------------------------------------------------------------------
$0.17 mm 4.350% undated Pfd Pfd 5.08 -50 4.58 94.9 0.2 (0.0)
- ---------------------------------------------------------------------------------
$0.31 mm 4.350% undated Pfd Pfd 5.08 -50 4.58 94.9 0.3 (0.0)
- ---------------------------------------------------------------------------------
$2.05 mm 4.100% undated Pfd Pfd 5.08 -50 4.58 89.4 1.8 (0.2)
- ---------------------------------------------------------------------------------
$25.00 mm 7.375% QUIPS Pfd Pfd 1.78 50 2.28 105.9 26.5 1.5
- ---------------------------------------------------------------------------------
$19.5mm 7.980% due May 2004- 02 Call ss NA NA NA 100.0 19.5 - 0.6 - 0.0 0.5
- ---------------------------------------------------------------------------------
$10.5mm 7.970% due May 2004- 02 Call ss NA NA NA 100.0 10.5 - 0.3 - 0.0 0.3
- ---------------------------------------------------------------------------------
$28.0mm 7.125% due Feb 2004- 03 Call ss 1.63 28 1.91 102.2 28.6 0.6 0.9 0.6 0.0 0.3
- ---------------------------------------------------------------------------------
$62.5mm 7.000% due Sep 2023- 03 Call ss 1.70 29 1.99 107.8 67.3 4.8
- ---------------------------------------------------------------------------------
$7.0mm 7.630% due Aug 2014 Bullet ss 4.30 128 5.58 117.8 8.2 1.2 1.4 1.2 0.0 0.1
- ---------------------------------------------------------------------------------
$68.6mm 6.625% due Aug 2013 Bullet ss 4.30 125 5.55 108.7 74.6 6.0
- ---------------------------------------------------------------------------------
$1.0mm 7.250% due Aug 2010 Bullet ss 4.05 119 5.24 113.0 1.1 0.1 0.2 0.1 0.0 0.0
- ---------------------------------------------------------------------------------
$15.0mm 7.680% due Aug 2015 Bullet ss 4.30 131 5.61 118.9 17.8 2.8 3.2 2.8 0.1 0.3
- ---------------------------------------------------------------------------------
$75.0mm 7.000% due Aug 2028- 03 Call ss 1.67 29 1.96 107.4 80.6 5.6
- ---------------------------------------------------------------------------------
5.0mm 6.710% due Jun 2008 Bullet ss 3.61 116 4.77 109.8 5.5 0.5 0.6 0.5 0.0 0.1
- ---------------------------------------------------------------------------------
$4.0mm 6.730% due Jun 2008 Bullet ss 3.61 116 4.77 109.9 4.4 0.4
- ---------------------------------------------------------------------------------
$11.0mm 6.750% due May 2008 Bullet ss 3.53 116 4.69 110.2 12.1 1.1
- ---------------------------------------------------------------------------------
$10.0mm 6.750% due May 2008 Bullet ss 3.53 116 4.69 110.2 11.0 1.0
- ---------------------------------------------------------------------------------
$1.0mm 6.770% due Apr 2008 Bullet ss 3.53 116 4.69 110.1 1.1 0.1
- ---------------------------------------------------------------------------------
$5.0mm 6.810% due Mar 2008 Bullet ss 3.53 116 4.69 110.3 5.5 0.5
- ---------------------------------------------------------------------------------
$10.0mm 6.780% due Mar 2008 Bullet ss 3.53 116 4.69 110.1 11.0 1.0
- ---------------------------------------------------------------------------------
$4.0mm 6.730% due May 2008 Bullet ss 3.53 116 4.69 110.1 4.4 0.4
- ---------------------------------------------------------------------------------
$2.0mm 7.680% due Aug 2016 Bullet ss 4.30 134 5.64 119.6 2.4 0.4
- ---------------------------------------------------------------------------------
$50.0mm 6.190% due Jan 2006 Bullet ss 2.79 98 3.77 107.6 53.8 3.8
- ---------------------------------------------------------------------------------
$15.0mm 6.180% due Jan 2006 Bullet ss 2.79 98 3.77 107.5 16.1 1.1
- ---------------------------------------------------------------------------------
$1.0mm 7.150% due May 2007 Bullet ss 3.22 102 4.24 112.4 1.1 0.1
- ---------------------------------------------------------------------------------
$20.0mm 6.000% due Jan 2003 Bullet ss 1.63 28 1.91 101.5 20.3 0.3 0.3 0.3 0.0 -
- ---------------------------------------------------------------------------------
$30.0mm 6.630% due Jun 2003 Bullet su 1.67 20 1.87 103.5 31.1 1.1
- ---------------------------------------------------------------------------------
$3.3mm 6.300% due Aug 2005 Bullet ss 2.58 65 3.23 108.6 3.5 0.3
- ---------------------------------------------------------------------------------
$2.0mm 6.290% due Jul 2005 Bullet ss 2.58 65 3.23 108.4 2.2 0.2
- ---------------------------------------------------------------------------------
$1.5mm 6.350% due Aug 2005 Bullet ss 2.58 65 3.23 108.7 1.6 0.1
- ---------------------------------------------------------------------------------
$1.0mm 6.350% due Aug 2005 Bullet ss 2.58 65 3.23 108.7 1.1 0.1
- ---------------------------------------------------------------------------------
$1.5mm 6.300% due Jul 2005 Bullet ss 2.58 65 3.23 108.4 1.6 0.1
- ---------------------------------------------------------------------------------
$1.1mm 6.330% due Jul 2005 Bullet ss 2.58 65 3.23 108.5 1.2 0.1
- ---------------------------------------------------------------------------------
$2.5mm 6.340% due Jul 2005 Bullet ss 2.58 65 3.23 108.5 2.7 0.2
- ---------------------------------------------------------------------------------
$2.2mm 6.350% due Jul 2005 Bullet ss 2.58 65 3.23 108.5 2.3 0.2
- ---------------------------------------------------------------------------------
$2.0mm 6.380% due Aug 2005 Bullet ss 2.58 65 3.23 108.7 2.2 0.2
- ---------------------------------------------------------------------------------
$11.0mm 6.400% due Jul 2005 Bullet ss 2.58 65 3.23 108.6 11.9 0.9
- ---------------------------------------------------------------------------------
$10.0mm 7.160% due Jan 2003 Bullet ss 1.63 28 1.91 102.1 10.2 0.2 0.2 0.2 0.0 -
- ---------------------------------------------------------------------------------
$8.0mm 7.190% due Jan 2003 Bullet ss 1.63 28 1.91 102.1 8.2 0.2 0.2 0.2 0.0 -
- ---------------------------------------------------------------------------------
$2.0mm 7.200% due Jan 2003 Bullet ss 1.63 28 1.91 102.1 2.0 0.0 0.0 0.0 0.0 -
- ---------------------------------------------------------------------------------
$2.0mm 6.650% due Mar 2005 Bullet ss 2.46 43 2.89 109.2 2.2 0.2
- ---------------------------------------------------------------------------------
$10.0mm 6.670% due Mar 2005 Bullet ss 2.46 43 2.89 109.3 10.9 0.9
- ---------------------------------------------------------------------------------
$9.0mm 7.150% due May 2004 Bullet ss 1.96 31 2.27 108.3 9.7 0.7
- ---------------------------------------------------------------------------------
$5.0mm 7.520% due Apr 2007 Bullet su 3.22 24 3.46 117.1 5.9 0.9
- ---------------------------------------------------------------------------------
$10.0mm 7.500% due Apr 2007 Bullet su 3.22 24 3.46 117.0 11.7 1.7
- ---------------------------------------------------------------------------------
106.5 681.6 41.3 8.0 6.0 0.2 1.7
- ------------------------------------------------------------------------------------------------------------------------------------
1.7 Miscellaneous & Contingency
- ---------------------------------------------------------------------------------
9.7
- ------------------------------------------------------------------------------------------------------------------------------------
2002 Retirements
- ---------------------------------------------------- -------- -------
$20.0mm 6.460% Bullet su 20.0
- ---------------------------------------------------- -------- -------
$5.0mm 7.040% Bullet ss 5.0
- ---------------------------------------------------- -------- -------
$12.45 mm 7.800% Pfd Pfd 12.45
- ---------------------------------------------------- -------- -------
$25.0mm 7.010% Bullet ss 25.0
- ---------------------------------------------------- -------- -------
62.5
Atlantic City Electric CAPITAL REDUCTION COSTS
PV-Based Priority List for Outstanding Long-Term Debt and Preferred Stock ASSUMING AUTHORIZED CAPITALIZATION
(Highlighted Securities Included on RAR-12 - Use of Securitization Proceeds) RATIOS ARE MAINTAINED
As of August 22, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Sorted By NPV (%) Repurchase Pricing Capital Reduction Costs
-------------------------------------------------------------------------------------
Security Description Type Type UST Spread Yield Price Cash Capital Planned Tender Unamortized Accrued
(%) (bp) (%) (%) Cost Reduction Cap Reduct $mm Issuance Int
$mm Cost $mm Cost $mm $mm $mm
- ------------------------------------------------------------------------------------------------------------------------------------
$70.00 mm 8.250% QUIPS Pfd Pfd NA NA NA 100.0 70.0 -
- ---------------------------------------------------------------------------------
$0.41 mm 5.000% undated Pfd Pfd 5.08 -50 4.58 109.1 0.4 0.0
- ---------------------------------------------------------------------------------
$2.43 mm 4.000% undated Pfd Pfd 5.08 -50 4.58 87.3 2.1 (0.3)
- ---------------------------------------------------------------------------------
$0.86 mm 4.750% undated Pfd Pfd 5.08 -50 4.58 103.6 0.9 0.0
- ---------------------------------------------------------------------------------
$0.17 mm 4.350% undated Pfd Pfd 5.08 -50 4.58 94.9 0.2 (0.0)
- ---------------------------------------------------------------------------------
$0.31 mm 4.350% undated Pfd Pfd 5.08 -50 4.58 94.9 0.3 (0.0)
- ---------------------------------------------------------------------------------
$2.05 mm 4.100% undated Pfd Pfd 5.08 -50 4.58 89.4 1.8 (0.2)
- ---------------------------------------------------------------------------------
$25.00 mm 7.375% QUIPS Pfd Pfd 1.78 50 2.28 105.9 26.5 1.5
- ---------------------------------------------------------------------------------
$19.5mm 7.980% due May 2004- 02 Call ss NA NA NA 100.0 19.5 - 0.6 - 0.0 0.5
- ---------------------------------------------------------------------------------
$10.5mm 7.970% due May 2004- 02 Call ss NA NA NA 100.0 10.5 - 0.3 - 0.0 0.3
- ---------------------------------------------------------------------------------
$28.0mm 7.125% due Feb 2004- 03 Call ss 1.63 28 1.91 102.2 28.6 0.6 1.1 0.6 0.0 0.5
- ---------------------------------------------------------------------------------
$62.5mm 7.000% due Sep 2023- 03 Call ss 1.70 29 1.99 107.8 67.3 4.8
- ---------------------------------------------------------------------------------
$7.0mm 7.630% due Aug 2014 Bullet ss 4.30 128 5.58 117.8 8.2 1.2 1.3 1.2 0.0 0.0
- ---------------------------------------------------------------------------------
$68.6mm 6.625% due Aug 2013 Bullet ss 4.30 125 5.55 108.7 74.6 6.0
- ---------------------------------------------------------------------------------
$1.0mm 7.250% due Aug 2010 Bullet ss 4.05 119 5.24 113.0 1.1 0.1
- ---------------------------------------------------------------------------------
$15.0mm 7.680% due Aug 2015 Bullet ss 4.30 131 5.61 118.9 17.8 2.8 3.2 2.8 0.1 0.3
- ---------------------------------------------------------------------------------
$75.0mm 7.000% due Aug 2028- 03 Call ss 1.67 29 1.96 107.4 80.6 5.6
- ---------------------------------------------------------------------------------
$5.0mm 6.710% due Jun 2008 Bullet ss 3.61 116 4.77 109.8 5.5 0.5 0.6 0.5 0.0 0.1
- ---------------------------------------------------------------------------------
$4.0mm 6.730% due Jun 2008 Bullet ss 3.61 116 4.77 109.9 4.4 0.4 0.5 0.4 0.0 0.1
- ---------------------------------------------------------------------------------
$11.0mm 6.750% due May 2008 Bullet ss 3.53 116 4.69 110.2 12.1 1.1
- ---------------------------------------------------------------------------------
$10.0mm 6.750% due May 2008 Bullet ss 3.53 116 4.69 110.2 11.0 1.0
- ---------------------------------------------------------------------------------
$1.0mm 6.770% due Apr 2008 Bullet ss 3.53 116 4.69 110.1 1.1 0.1
- ---------------------------------------------------------------------------------
$5.0mm 6.810% due Mar 2008 Bullet ss 3.53 116 4.69 110.3 5.5 0.5 0.6 0.5 0.0 0.1
- ---------------------------------------------------------------------------------
$10.0mm 6.780% due Mar 2008 Bullet ss 3.53 116 4.69 110.1 11.0 1.0
- ---------------------------------------------------------------------------------
$4.0mm 6.730% due May 2008 Bullet ss 3.53 116 4.69 110.1 4.4 0.4
- ---------------------------------------------------------------------------------
$2.0mm 7.680% due Aug 2016 Bullet ss 4.30 134 5.64 119.6 2.4 0.4 0.4 0.4 0.0 0.0
- ---------------------------------------------------------------------------------
$50.0mm 6.190% due Jan 2006 Bullet ss 2.79 98 3.77 107.6 53.8 3.8
- ---------------------------------------------------------------------------------
$15.0mm 6.180% due Jan 2006 Bullet ss 2.79 98 3.77 107.5 16.1 1.1
- ---------------------------------------------------------------------------------
$1.0mm 7.150% due May 2007 Bullet ss 3.22 102 4.24 112.4 1.1 0.1
- ---------------------------------------------------------------------------------
$20.0mm 6.000% due Jan 2003 Bullet ss 1.63 28 1.91 101.5 20.3 0.3 0.3 0.3 0.0 -
- ---------------------------------------------------------------------------------
$30.0mm 6.630% due Jun 2003 Bullet su 1.67 20 1.87 103.5 31.1 1.1
- ---------------------------------------------------------------------------------
$3.3mm 6.300% due Aug 2005 Bullet ss 2.58 65 3.23 108.6 3.5 0.3
- ---------------------------------------------------------------------------------
$2.0mm 6.290% due Jul 2005 Bullet ss 2.58 65 3.23 108.4 2.2 0.2
- ---------------------------------------------------------------------------------
$1.5mm 6.350% due Aug 2005 Bullet ss 2.58 65 3.23 108.7 1.6 0.1
- ---------------------------------------------------------------------------------
$1.0mm 6.350% due Aug 2005 Bullet ss 2.58 65 3.23 108.7 1.1 0.1
- ---------------------------------------------------------------------------------
$1.5mm 6.300% due Jul 2005 Bullet ss 2.58 65 3.23 108.4 1.6 0.1
- ---------------------------------------------------------------------------------
$1.1mm 6.330% due Jul 2005 Bullet ss 2.58 65 3.23 108.5 1.2 0.1
- ---------------------------------------------------------------------------------
$2.5mm 6.340% due Jul 2005 Bullet ss 2.58 65 3.23 108.5 2.7 0.2
- ---------------------------------------------------------------------------------
$2.2mm 6.350% due Jul 2005 Bullet ss 2.58 65 3.23 108.5 2.3 0.2
- ---------------------------------------------------------------------------------
$2.0mm 6.380% due Aug 2005 Bullet ss 2.58 65 3.23 108.7 2.2 0.2
- ---------------------------------------------------------------------------------
$11.0mm 6.400% due Jul 2005 Bullet ss 2.58 65 3.23 108.6 11.9 0.9
- ---------------------------------------------------------------------------------
$10.0mm 7.160% due Jan 2003 Bullet ss 1.63 28 1.91 102.1 10.2 0.2 0.2 0.2 0.0 -
- ---------------------------------------------------------------------------------
$8.0mm 7.190% due Jan 2003 Bullet ss 1.63 28 1.91 102.1 8.2 0.2 0.2 0.2 0.0 -
- ---------------------------------------------------------------------------------
$2.0mm 7.200% due Jan 2003 Bullet ss 1.63 28 1.91 102.1 2.0 0.0 0.0 0.0 0.0 -
- ---------------------------------------------------------------------------------
$2.0mm 6.650% due Mar 2005 Bullet ss 2.46 43 2.89 109.2 2.2 0.2
- ---------------------------------------------------------------------------------
$10.0mm 6.670% due Mar 2005 Bullet ss 2.46 43 2.89 109.3 10.9 0.9
- ---------------------------------------------------------------------------------
$9.0mm 7.150% due May 2004 Bullet ss 1.96 31 2.27 108.3 9.7 0.7
- ---------------------------------------------------------------------------------
$5.0mm 7.520% due Apr 2007 Bullet su 3.22 24 3.46 117.1 5.9 0.9
- ---------------------------------------------------------------------------------
$10.0mm 7.500% due Apr 2007 Bullet su 3.22 24 3.46 117.0 11.7 1.7
- ---------------------------------------------------------------------------------
106.5 681.6 41.3 9.4 7.2 0.3 1.9
- ------------------------------------------------------------------------------------------------------------------------------------
0.3 Miscellaneous & Contingency
- ---------------------------------------------------------------------------------
9.7
- ------------------------------------------------------------------------------------------------------------------------------------
2002 Retirements
- ---------------------------------------------------- -------- -------
$20.0mm 6.460% Bullet su 20.0
- ---------------------------------------------------- -------- -------
$5.0mm 7.040% Bullet ss 5.0
- ---------------------------------------------------- -------- -------
$12.45 mm 7.800% Pfd Pfd 12.45
- ---------------------------------------------------- -------- -------
$25.0mm 7.010% Bullet ss 25.0
- ---------------------------------------------------- -------- -------
62.5
Atlantic City Electric Company Exhibit A
Net Present Value
of Securitization Savings
($000's)
Table 1 - No Securitization
Rev Req
Combined 15 Year
Combined 15 Year Nuclear/ 20 Year
Nuclear - 15 Year NUGS - 15 Year NUGS - 20 Year Nuclear/NUG NUG
-------------------------------------------------------------------------------------------------
Year
1 $ 67,770 $ 21,941 $ 18,946 $ 89,711 $ 86,716
2 $ 65,341 $ 21,941 $ 18,946 $ 87,281 $ 84,286
3 $ 62,911 $ 21,941 $ 18,946 $ 84,852 $ 81,857
4 $ 60,481 $ 21,941 $ 18,946 $ 82,422 $ 79,427
5 $ 58,052 $ 21,941 $ 18,946 $ 79,992 $ 76,998
6 $ 55,622 $ 21,941 $ 18,946 $ 77,563 $ 74,568
7 $ 53,193 $ 21,941 $ 18,946 $ 75,133 $ 72,138
8 $ 50,763 $ 21,941 $ 18,946 $ 72,704 $ 69,709
9 $ 48,333 $ 21,941 $ 18,946 $ 70,274 $ 67,279
10 $ 45,904 $ 21,941 $ 18,946 $ 67,844 $ 64,850
11 $ 43,474 $ 21,941 $ 18,946 $ 65,415 $ 62,420
12 $ 41,045 $ 21,941 $ 18,946 $ 62,985 $ 59,990
13 $ 38,615 $ 21,941 $ 18,946 $ 60,556 $ 57,561
14 $ 36,186 $ 21,941 $ 18,946 $ 58,126 $ 55,131
15 $ 33,756 $ 21,941 $ 18,946 $ 55,697 $ 52,702
16 $ - $ - $ 18,946 $ - $ 18,946
17 $ - $ - $ 18,946 $ - $ 18,946
18 $ - $ - $ 18,946 $ - $ 18,946
19 $ - $ - $ 18,946 $ - $ 18,946
20 $ - $ - $ 18,946 $ - $ 18,946
-------------------------------------------------------------------------------------------------
$ 761,446 $ 329,109 $ 378,915 $ 1,090,555 $ 1,140,361
=================================================================================================
($000's)
Table 2 - Securitization Transaction Options
Rev Req
Combined 15 Year
Combined 15 Year Nuclear/ 20 Year
Nuclear - 15 Year NUGS - 15 Year NUGS - 20 Year Nuclear/NUG NUG
-------------------------------------------------------------------------------------------------
Year
1 $ 44,297 $ 22,275 $ 17,981 $ 66,573 $ 62,635
2 $ 37,122 $ 18,663 $ 15,035 $ 55,785 $ 52,447
3 $ 39,637 $ 19,923 $ 16,030 $ 59,560 $ 55,971
4 $ 40,137 $ 20,170 $ 16,206 $ 60,308 $ 56,643
5 $ 41,002 $ 20,601 $ 16,532 $ 61,603 $ 57,833
6 $ 41,815 $ 21,005 $ 16,840 $ 62,820 $ 58,953
7 $ 42,449 $ 21,320 $ 17,099 $ 63,769 $ 59,845
8 $ 43,119 $ 21,653 $ 17,374 $ 64,772 $ 60,790
9 $ 43,798 $ 21,990 $ 17,656 $ 65,787 $ 61,751
10 $ 44,389 $ 22,284 $ 17,916 $ 66,673 $ 62,602
11 $ 45,012 $ 22,594 $ 18,190 $ 67,606 $ 63,499
12 $ 45,666 $ 22,919 $ 18,480 $ 68,585 $ 64,443
13 $ 46,314 $ 23,241 $ 18,771 $ 69,554 $ 65,375
14 $ 46,819 $ 23,492 $ 19,010 $ 70,312 $ 66,080
15 $ 47,361 $ 23,761 $ 19,269 $ 71,122 $ 66,841
16 $ (5,177) $ (2,591) $ 20,232 $ (7,768) $ 11,983
17 $ - $ - $ 20,560 $ - $ 21,213
18 $ - $ - $ 20,821 $ - $ 20,075
19 $ - $ - $ 21,157 $ - $ 20,630
20 $ - $ - $ 21,492 $ - $ 20,930
21 $ (2,507) $ (3,839)
-------------------------------------------------------------------------------------------------
$ 643,761 $ 323,299 $ 364,145 $ 967,060 $ 1,006,700
=================================================================================================
Page 1 of 3
($000's)
Table 3 - Securitization Savings
Combined 15 Year
Combined 15 Year Nuclear/ 20 Year
Nuclear - 15 Year NUGS - 15 Year NUGS - 20 Year Nuclear/NUG NUG
-------------------------------------------------------------------------------------------------
Year
1 $ 23,473 $ (335) $ 965 $ 23,138 $ 24,081
2 $ 28,219 $ 3,278 $ 3,911 $ 31,497 $ 31,840
3 $ 23,274 $ 2,017 $ 2,915 $ 25,291 $ 25,886
4 $ 20,344 $ 1,770 $ 2,739 $ 22,114 $ 22,784
5 $ 17,049 $ 1,340 $ 2,414 $ 18,389 $ 19,165
6 $ 13,807 $ 936 $ 2,105 $ 14,743 $ 15,615
7 $ 10,743 $ 621 $ 1,847 $ 11,364 $ 12,293
8 $ 7,644 $ 288 $ 1,572 $ 7,932 $ 8,919
9 $ 4,536 $ (49) $ 1,290 $ 4,487 $ 5,529
10 $ 1,515 $ (343) $ 1,030 $ 1,172 $ 2,248
11 $ (1,538) $ (653) $ 755 $ (2,191) $ (1,079)
12 $ (4,621) $ (978) $ 465 $ (5,599) $ (4,453)
13 $ (7,699) $ (1,300) $ 175 $ (8,999) $ (7,814)
14 $ (10,634) $ (1,551) $ (65) $ (12,185) $ (10,949)
15 $ (13,605) $ (1,821) $ (323) $ (15,426) $ (14,139)
16 $ 5,177 $ 2,591 $ (1,287) $ 7,768 $ 6,963
17 $ - $ - $ (1,614) $ - $ (2,267)
18 $ - $ - $ (1,875) $ - $ (1,130)
19 $ - $ - $ (2,211) $ - $ (1,684)
20 $ - $ - $ (2,546) $ - $ (1,985)
21 $ - $ - $ 2,507 $ - $ 3,839
-------------------------------------------------------------------------------------------------
$ 117,685 $ 5,809 $ 14,770 $ 123,495 $ 133,662
=================================================================================================
($000's)
Table 4 - NPV@ 7.76%
Combined 15 Year
Combined 15 Year Nuclear/ 20 Year
Nuclear - 15 Year NUGS - 15 Year NUGS - 20 Year Nuclear/NUG NUG
-------------------------------------------------------------------------------------------------
Year
1 $ 21,783 $ (311) $ 895 $ 21,473 $ 22,348
2 $ 24,303 $ 2,823 $ 3,368 $ 27,126 $ 27,421
3 $ 18,602 $ 1,612 $ 2,330 $ 20,214 $ 20,689
4 $ 15,090 $ 1,313 $ 2,032 $ 16,403 $ 16,899
5 $ 11,736 $ 922 $ 1,662 $ 12,658 $ 13,192
6 $ 8,820 $ 598 $ 1,345 $ 9,418 $ 9,975
7 $ 6,369 $ 368 $ 1,095 $ 6,737 $ 7,288
8 $ 4,205 $ 158 $ 865 $ 4,364 $ 4,907
9 $ 2,316 $ (25) $ 658 $ 2,291 $ 2,823
10 $ 718 $ (163) $ 488 $ 555 $ 1,065
11 $ (676) $ (287) $ 332 $ (963) $ (475)
12 $ (1,886) $ (399) $ 190 $ (2,285) $ (1,817)
13 $ (2,915) $ (492) $ 66 $ (3,408) $ (2,959)
14 $ (3,737) $ (545) $ (23) $ (4,282) $ (3,848)
15 $ (4,437) $ (594) $ (105) $ (5,031) $ (4,611)
16 $ 1,567 $ 784 $ (389) $ 2,351 $ 2,107
17 $ - $ - $ (453) $ - $ (637)
18 $ - $ - $ (489) $ - $ (294)
19 $ - $ - $ (535) $ - $ (407)
20 $ - $ - $ (572) $ - $ (446)
21 $ - $ - $ 522 $ - $ 800
-------------------------------------------------------------------------------------------------
$ 101,856 $ 5,763 $ 13,283 $ 107,619 $ 114,020
=================================================================================================
Page 2 of 3
Exhibit A
Atlantic City Electric Company
Net Present Value
of Securitization Savings
Assumptions
1. Capital Structure Used for Nuclear Non-Securitization Analysis
Coupon Rate Making
3/31/2002 Nominal Weighted Pre-Tax AfterTax
Capital Structure Percentage Cost Cost WACC Cost
- ---------------------------------------------------------------------------------------------
Debt 49.38% 6.76% A 3.34% 3.34% 1.97%
Senior Equity 7.90% 8.61% B 0.68% 0.74% 0.44%
Common Equity 42.73% 12.50% B 5.34% 9.03% 5.34%
---------- ---------- ----------
Total Capital Cost 100.00% 9.36% 13.11% 7.76%
---------- ---------- ----------
Federal Tax Rate 40.00%
State Tax Rate 9.00%
----------
Effective Tax Rate 40.85%
----------
Notes
A - cost rate of debt
B - these costs are actually after tax since they are set by NJBPU
2. Debt Rates Used for NUG Non-Securitization Analysis
Assumptions:
Recovery Period (yrs.) 20
Principal Amount $142,887
After Tax 20 yr. Debt Rate 4.73%
Pre Tax 20 yr. Debt Rate 8.00%
Assumptions:
Recovery Period (yrs.) 15
Principal Amount $142,887
After Tax 15 yr. Debt Rate 4.14%
Pre Tax 15 yr. Debt Rate 7.00%
3. Securitization Assumptions
Duration Weighted Coupon:
15 yr Nuclear/ 20 yr NUG Contract 5.62%
Page 3 of 3
Exhibit B Debt Design
Debt Design Variables:
Original Principal 440,000,000
Overcollateralization 0.50% 2,200,000
Issuance Costs 19,167,000
Use of Funds Cost - Deductible 0
Use of Funds Cost - Non-Deductible 0
SPE Equity 0.50% 2,200,000
Federal Income Tax Rate 35.00%
State Income Tax Rate 9.00%
Trustee & Other Fees (Admin Fees) 350,000
Servicing Fee (Annual) 0.10%
Interest Rate 5.62%
1 2 3 4 5 6 7
TBC Charge Sales Tax TBC Charge TBC Charge
Billed Billed Billed Collected Admin
Year (including Sales Tax) (excluding Sales Tax) (excluding Sales Tax) Interest Principal Fees
- ------------------------------------------------------------------------------------------------------------------------------------
1 48,449,899 2,742,447 45,707,452 41,392,561 22,735,228 17,757,333 350,000
2 43,889,779 2,484,327 41,405,452 41,602,708 22,032,337 18,670,371 350,000
3 45,030,386 2,548,890 42,481,496 41,968,279 21,437,789 19,630,489 350,000
4 45,336,922 2,566,241 42,770,681 42,315,288 20,775,165 20,640,123 350,000
5 45,746,164 2,589,405 43,156,758 42,688,961 20,087,128 21,701,833 350,000
6 46,113,686 2,610,209 43,503,478 43,034,035 19,315,722 22,818,313 350,000
7 46,203,610 2,615,299 43,588,311 43,137,672 18,245,274 23,992,398 350,000
8 46,282,108 2,619,742 43,662,366 43,210,980 17,083,911 25,227,069 350,000
9 46,336,645 2,622,829 43,713,816 43,263,919 15,838,458 26,525,461 350,000
10 46,233,183 2,616,973 43,616,210 43,178,978 14,388,104 27,890,875 350,000
11 46,115,187 2,610,294 43,504,893 43,069,871 12,843,092 29,326,778 350,000
12 45,992,107 2,603,327 43,388,780 42,955,317 11,218,494 30,836,824 350,000
13 45,801,503 2,592,538 43,208,965 42,782,323 9,457,474 32,424,850 350,000
14 45,325,898 2,565,617 42,760,281 42,359,266 7,364,369 34,094,896 350,000
15 44,823,284 2,537,167 42,286,117 41,891,933 5,140,720 35,851,213 350,000
16 11,778,285 666,695 11,111,589 13,438,922 3,138,706 9,400,216 350,000
17 14,669,371 830,342 13,839,029 13,484,342 2,653,880 9,930,462 350,000
18 14,283,296 808,488 13,474,808 13,365,883 1,975,265 10,490,619 350,000
19 14,216,209 804,691 13,411,518 13,279,679 1,297,308 11,082,372 350,000
20 14,105,477 798,423 13,307,054 13,179,504 571,999 11,707,505 350,000
------------------------------------------------------------------------------------------------------------------------------
Total 756,732,999 42,833,943 713,899,055 705,600,424 247,600,424 440,000,000 7,000,000
==============================================================================================================================
11 12 13
Aggregate TBC
8 9 10 Customer Charge per
for TBC plus column 1 MTC -Tax Billed
Servicing Over- Debt Balance MTC -Tax above (including Sales Tax)
Year Fee collateralization Outstanding (including Sales Tax)
- ----------------------------------------------------------------------------------------------------------------------------
440,000,000
1 440,000 110,000 422,242,667 66,393,266 48,449,899 17,943,367
2 440,000 110,000 403,572,296 55,593,533 43,889,779 11,703,753
3 440,000 110,000 383,941,806 59,329,221 45,030,386 14,298,835
4 440,000 110,000 363,301,684 60,041,946 45,336,922 14,705,024
5 440,000 110,000 341,599,851 61,302,570 45,746,164 15,556,406
6 440,000 110,000 318,781,538 62,489,728 46,113,686 16,376,041
7 440,000 110,000 294,789,140 63,435,975 46,203,610 17,232,365
8 440,000 110,000 269,562,072 64,437,028 46,282,108 18,154,920
9 440,000 110,000 243,036,610 65,455,535 46,336,645 19,118,890
10 440,000 110,000 215,145,736 66,357,746 46,233,183 20,124,563
11 440,000 110,000 185,818,957 67,309,410 46,115,187 21,194,223
12 440,000 110,000 154,982,134 68,310,086 45,992,107 22,317,979
13 440,000 110,000 122,557,284 69,297,016 45,801,503 23,495,513
14 440,000 110,000 88,462,388 70,045,177 45,325,898 24,719,279
15 440,000 110,000 52,611,174 70,851,263 44,823,284 26,027,979
16 440,000 110,000 43,210,958 12,701,924 11,778,285 923,639
17 440,000 110,000 33,280,495 22,485,641 14,669,371 7,816,270
18 440,000 110,000 22,789,877 21,279,953 14,283,296 6,996,657
19 440,000 110,000 11,707,505 21,867,380 14,216,209 7,651,171
20 440,000 110,000 0 22,186,227 14,105,477 8,080,750
----------------------------------------------------------------------------------------------------------------------
Total 8,800,000 2,200,000 1,071,170,624 756,732,999 314,437,625
======================================================================================================================
14 15 16
Total Total
MTC - Tax MTC - Tax
MTC -Tax Related Billed Collected
Sales Tax (excluding (excluding
Year Billed Sales Tax) Sales Tax)
- ------------------------------------------------------------
1 1,015,662 16,927,705 15,329,689
2 662,477 11,041,277 11,493,998
3 809,368 13,489,467 13,161,458
4 832,360 13,872,664 13,702,287
5 880,551 14,675,855 14,464,151
6 926,946 15,449,096 15,231,478
7 975,417 16,256,948 16,028,100
8 1,027,637 17,127,283 16,884,359
9 1,082,201 18,036,689 17,781,522
10 1,139,126 18,985,437 18,717,513
11 1,199,673 19,994,550 19,711,607
12 1,263,282 21,054,698 20,756,946
13 1,329,935 22,165,578 21,852,524
14 1,399,204 23,320,074 22,991,830
15 1,473,282 24,554,697 24,207,587
16 52,281 871,358 2,716,650
17 442,430 7,373,839 6,789,546
18 396,037 6,600,620 6,593,831
19 433,085 7,218,086 7,096,122
20 457,401 7,623,349 7,513,865
------------------------------------------------------
Total 17,798,356 296,639,269 293,025,064
======================================================
Exhibit B TBC Development
Year 1 Year 2 Year 3 Year 4 Year 5
--------------- --------------------------------------------------------------------
Principal 17,757,333 18,670,371 19,630,489 20,640,123 21,701,833
Interest 22,735,228 22,032,337 21,437,789 20,775,165 20,087,128
Administration Fees 350,000 350,000 350,000 350,000 350,000
Servicing Fees 440,000 440,000 440,000 440,000 440,000
Over-collateralization 110,000 110,000 110,000 110,000 110,000
--------------- --------------------------------------------------------------------
A Transition Bond Periodic Payment
Requirement 41,392,561 41,602,708 41,968,279 42,315,288 42,688,961
B Less TBC Billed & Expected to be
Collected During the Upcoming Period N/A 3,858,950 3,244,093 3,327,848 3,349,879
--------------- --------------------------------------------------------------------
C Transition Bond Debt Service to be
Collected During the Period 41,392,561 37,743,759 38,724,186 38,987,440 39,339,082
D True-up Adjustment for Under/(Over)
Collections of Prior Period N/A
--------------- --------------------------------------------------------------------
E Total TBC to be Billed and Collected
During the Period 41,392,561 37,743,759 38,724,186 38,987,440 39,339,082
F Projected Kwh's to be Delivered,
Billed, & Cash Collected During
the Period 8,935,292,434 9,832,485,684 9,972,043,801 10,108,808,512 10,244,698,489
G TBC Rate per Kwh Before Sales Tax
($ per Kwh) 0.004632 0.003839 0.003883 0.003857 0.003840
H TBC Rate per Kwh Including Sales Tax
($ per Kwh) 0.004910 0.004069 0.004116 0.004088 0.004070
Kwh's Billed 9,866,735,480 10,786,379,794 10,939,606,032 11,089,741,336 11,238,899,294
TBC Charged 45,707,452 0 41,405,452 42,481,496 42,770,681 43,156,758
Year 6 Year 7 Year 8 Year 9 Year 10
--------------------------------------------------------------------------------------
Principal 22,818,313 23,992,398 25,227,069 26,525,461 27,890,875
Interest 19,315,722 18,245,274 17,083,911 15,838,458 14,388,104
Administration Fees 350,000 350,000 350,000 350,000 350,000
Servicing Fees 440,000 440,000 440,000 440,000 440,000
Over-collateralization 110,000 110,000 110,000 110,000 110,000
--------------------------------------------------------------------------------------
A Transition Bond Periodic Payment
Requirement 43,034,035 43,137,672 43,210,980 43,263,919 43,178,978
B Less TBC Billed & Expected to be
Collected During the Upcoming Period 3,379,447 3,406,177 3,412,304 3,418,347 3,422,375
--------------------------------------------------------------------------------------
C Transition Bond Debt Service to be
Collected During the Period 39,654,589 39,731,495 39,798,675 39,845,573 39,756,604
D True-up Adjustment for Under/(Over)
Collections of Prior Period
--------------------------------------------------------------------------------------
E Total TBC to be Billed and Collected
During the Period 39,654,589 39,731,495 39,798,675 39,845,573 39,756,604
F Projected Kwh's to be Delivered,
Billed, & Cash Collected During
the Period 10,378,452,082 10,512,278,213 10,642,832,674 10,775,868,083 10,910,566,434
G TBC Rate per Kwh Before Sales Tax
($ per Kwh) 0.003821 0.003780 0.003739 0.003698 0.003644
H TBC Rate per Kwh Including Sales Tax
($ per Kwh) 0.004050 0.004006 0.003964 0.003920 0.003862
Kwh's Billed 11,385,788,525 11,532,726,004 11,676,048,302 11,821,998,906 11,969,773,892
TBC Charged 43,503,478 43,588,311 43,662,366 43,713,816 43,616,210
Year 11 Year 12 Year 13 Year 14 Year 15
--------------------------------------------------------------------------------------
Principal 29,326,778 30,836,824 32,424,850 34,094,896 35,851,213
Interest 12,843,092 11,218,494 9,457,474 7,364,369 5,140,720
Administration Fees 350,000 350,000 350,000 350,000 350,000
Servicing Fees 440,000 440,000 440,000 440,000 440,000
Over-collateralization 110,000 110,000 110,000 110,000 110,000
--------------------------------------------------------------------------------------
A Transition Bond Periodic Payment
Requirement 43,069,871 42,955,317 42,782,323 42,359,266 41,891,933
B Less TBC Billed & Expected to be
Collected During the Upcoming Period 3,414,733 3,406,018 3,396,928 3,382,850 3,347,722
--------------------------------------------------------------------------------------
C Transition Bond Debt Service to be
Collected During the Period 39,655,138 39,549,299 39,385,396 38,976,416 38,544,211
D True-up Adjustment for Under/(Over)
Collections of Prior Period
--------------------------------------------------------------------------------------
E Total TBC to be Billed and Collected
During the Period 39,655,138 39,549,299 39,385,396 38,976,416 38,544,211
F Projected Kwh's to be Delivered,
Billed, & Cash Collected During
the Period 11,046,948,514 11,185,035,371 11,324,848,313 11,466,408,917 11,609,739,028
G TBC Rate per Kwh Before Sales Tax
($ per Kwh) 0.003590 0.003536 0.003478 0.003399 0.003320
H TBC Rate per Kwh Including Sales Tax
($ per Kwh) 0.003805 0.003748 0.003686 0.003603 0.003519
Kwh's Billed 12,119,396,066 12,270,888,517 12,424,274,623 12,579,578,056 12,736,822,781
TBC Charged 43,504,893 43,388,780 43,208,965 42,760,281 42,286,117
Year 16 Year 17 Year 18 Year 19 Year 20
--------------------------------------------------------------------------------------
Principal 9,400,216 9,930,462 10,490,619 11,082,372 11,707,505
Interest 3,138,706 2,653,880 1,975,265 1,297,308 571,999
Administration Fees 350,000 350,000 350,000 350,000 350,000
Servicing Fees 440,000 440,000 440,000 440,000 440,000
Over-collateralization 110,000 110,000 110,000 110,000 110,000
--------------------------------------------------------------------------------------
A Transition Bond Periodic Payment
Requirement 13,438,922 13,484,342 13,365,883 13,279,679 13,179,504
B Less TBC Billed & Expected to be
Collected During the Upcoming Period 3,310,600 869,931 1,083,464 1,054,949 1,049,994
--------------------------------------------------------------------------------------
C Transition Bond Debt Service to be
Collected During the Period 10,128,323 12,614,411 12,282,420 12,224,731 12,129,510
D True-up Adjustment for Under/(Over)
Collections of Prior Period
--------------------------------------------------------------------------------------
E Total TBC to be Billed and Collected
During the Period 10,128,323 12,614,411 12,282,420 12,224,731 12,129,510
F Projected Kwh's to be Delivered,
Billed, & Cash Collected During
the Period 11,754,860,766 11,901,796,526 12,050,568,982 12,201,201,095 12,353,716,108
G TBC Rate per Kwh Before Sales Tax
($ per Kwh) 0.000862 0.001060 0.001019 0.001002 0.000982
H TBC Rate per Kwh Including Sales Tax
($ per Kwh) 0.000913 0.001123 0.001080 0.001062 0.001041
Kwh's Billed 12,896,033,066 13,057,233,480 13,220,448,898 13,385,704,509 13,553,025,816
TBC Charged 11,111,589 13,839,029 13,474,808 13,411,518 13,307,054
A = Total Annual Transition Bond Debt Service Requirement and Fees Related to
Debt Service (See Exhibit C-1)
B = TBC revenues billed in the prior period and expected to be collected in
the current period. (prior period G times kwh's billed during the prior
period less actual period collections and expected uncollectable accounts)
C = Amount of Total Debt service required to be funded through TBC collections
during the period. (A minus B)
D = Amount of Under or (Over) collection of the prior period TBC as computed
under the methodology described in Exhibit C-3.
E = total amount required to be collected during the upcoming period through the
TBC (C plus D).
F = Projected kwh's that will be sold, delivered, billed, and collected during
the upcoming period. This amount is computed by multiplying forecasted kwh
sales on a monthly basis times a percentage expected to be collected in cash
each month subsequent to the sale. The collection percentage is developed
based on historical collection experience inherent in ACE's electric sales.
See Exhibit C-4.
G = TBC before statutory addition of sales tax (E divided by F).
H = TBC including statutory addition of sales tax (G times 1.06).
Kwh's
Billed Year 1 Year 2 Year 3 Year 4 Year 5
----------------------------- --------------------------------------------------------------------
Residential 3,868,332,873 4,098,874,211 4,133,816,807 4,166,706,316 4,199,181,568
Commercial 4,801,738,667 5,440,065,246 5,555,304,365 5,669,370,173 5,782,916,857
Industrial 1,196,663,940 1,247,440,337 1,250,484,860 1,253,664,847 1,256,800,869
--------------- --------------------------------------------------------------------
9,866,735,480 10,786,379,794 10,939,606,032 11,089,741,336 11,238,899,294
=============== ====================================================================
Kwh's
Billed Year 6 Year 7 Year 8 Year 9 Year 10
---------------------------------------------------------------------------------------------------
Residential 4,230,102,772 4,260,902,102 4,311,011,773 4,364,899,421 4,419,460,663
Commercial 5,896,290,679 6,009,704,973 6,088,130,453 6,164,232,084 6,241,284,985
Industrial 1,259,395,074 1,262,118,928 1,276,906,075 1,292,867,401 1,309,028,244
--------------------------------------------------------------------------------------
11,385,788,525 11,532,726,004 11,676,048,302 11,821,998,906 11,969,773,892
======================================================================================
Kwh's
Billed Year 11 Year 12 Year 13 Year 14 Year 15
----------------------------------------------------------------------------------------------------
Residential 4,474,703,922 4,530,637,721 4,587,270,692 4,644,611,576 4,702,669,220
Commercial 6,319,301,047 6,398,292,310 6,478,270,964 6,559,249,351 6,641,239,968
Industrial 1,325,391,097 1,341,958,485 1,358,732,966 1,375,717,129 1,392,913,593
--------------------------------------------------------------------------------------
12,119,396,066 12,270,888,517 12,424,274,623 12,579,578,056 12,736,822,781
======================================================================================
Kwh's
Billed Year 16 Year 17 Year 18 Year 19 Year 20
----------------------------------------------------------------------------------------------------
Residential 4,761,452,586 4,820,970,743 4,881,232,877 4,942,248,288 5,004,026,392
Commercial 6,724,255,468 6,808,308,661 6,893,412,520 6,979,580,176 7,066,824,928
Industrial 1,410,325,013 1,427,954,075 1,445,803,501 1,463,876,045 1,482,174,495
--------------------------------------------------------------------------------------
12,896,033,066 13,057,233,480 13,220,448,898 13,385,704,509 13,553,025,816
======================================================================================
Page 1 of 3
Exhibit B MTC-Tax Charge Development & True-Up
Year 1 Year 2 Year 3 Year 4 Year 5
---------------- -------------------------------------------------------------
A Forecasted TBC Billed (excluding sales tax) 45,707,452 41,405,452 42,481,496 42,770,681 43,156,758
(TBC Rate times forecasted kwh sales)
B Forecasted MTC-Tax Billed (excluding sales tax) 16,927,705 11,041,277 13,489,467 13,872,664 14,675,855
(MTC-Tax Rate times forecasted kwh sales)
---------------- -------------------------------------------------------------
C Total Taxable Revenue 62,635,156 52,446,729 55,970,963 56,643,345 57,832,613
Less Deductible Expenses:
Interest on Transition Bonds 22,735,228 22,032,337 21,437,789 20,775,165 20,087,128
Amortization of Transition Bond Issuance Expense 958,350 958,350 958,350 958,350 958,350
Uncollectables 624,799 528,959 565,832 576,900 589,175
Administration and Servicing Fees 790,000 790,000 790,000 790,000 790,000
Other - - - - -
---------------- -------------------------------------------------------------
D Total Deductions 25,108,377 24,309,646 23,751,971 23,100,415 22,424,654
E Taxable Income 37,526,780 28,137,083 32,218,992 33,542,930 35,407,959
F Tax Rate 40.85% 40.85% 40.85% 40.85% 40.85%
---------------- -------------------------------------------------------------
G Tax Obligation 15,329,689 11,493,998 13,161,458 13,702,287 14,464,151
H Less MTC-Tax Billed and expected to be 1,429,158 865,078 1,056,717 1,086,533
collected during the upcoming period
---------------- -------------------------------------------------------------
I Tax to be billed & collected 15,329,689 10,064,841 12,296,381 12,645,570 13,377,618
J Projected kwh's to be delivered, billed and 8,935,292,434 9,832,485,684 9,972,043,801 10,108,808,512 10,244,698,489
cash collected during the period
K MTC -Tax Charge before sales tax ($ per kwh) 0.001716 0.001024 0.001233 0.001251 0.001306
L MTC-Tax Charge including sales tax ($ per kwh) 0.001819 0.001085 0.001307 0.001326 0.001384
Year 6 Year 7 Year 8 Year 9 Year 10
-------------------------------------------------------------------------------
A Forecasted TBC Billed (excluding sales tax) 43,503,478 43,588,311 43,662,366 43,713,816 43,616,210
(TBC Rate times forecasted kwh sales)
B Forecasted MTC-Tax Billed (excluding sales tax) 15,449,096 16,256,948 17,127,283 18,036,689 18,985,437
(MTC-Tax Rate times forecasted kwh sales)
-------------------------------------------------------------------------------
C Total Taxable Revenue 58,952,573 59,845,259 60,789,649 61,750,505 62,601,647
Less Deductible Expenses:
Interest on Transition Bonds 19,315,722 18,245,274 17,083,911 15,838,458 14,388,104
Amortization of Transition Bond Issuance Expense 958,350 958,350 958,350 958,350 958,350
Uncollectables 602,142 615,159 624,807 634,880 645,088
Administration and Servicing Fees 790,000 790,000 790,000 790,000 790,000
Other - - - - -
-------------------------------------------------------------------------------
D Total Deductions 21,666,214 20,608,783 19,457,068 18,221,688 16,781,542
E Taxable Income 37,286,359 39,236,476 41,332,581 43,528,817 45,820,105
F Tax Rate 40.85% 40.85% 40.85% 40.85% 40.85%
-------------------------------------------------------------------------------
G Tax Obligation 15,231,478 16,028,100 16,884,359 17,781,522 18,717,513
H Less MTC-Tax Billed and expected to be 1,149,212 1,209,612 1,272,673 1,340,903 1,412,101
collected during the upcoming period
-------------------------------------------------------------------------------
I Tax to be billed & collected 14,082,266 14,818,488 15,611,686 16,440,619 17,305,412
J Projected kwh's to be delivered, billed and 10,378,452,082 10,512,278,213 10,642,832,674 10,775,868,083 10,910,566,434
cash collected during the period
K MTC -Tax Charge before sales tax ($ per kwh) 0.001357 0.001410 0.001467 0.001526 0.001586
L MTC-Tax Charge including sales tax ($ per kwh) 0.001438 0.001494 0.001555 0.001617 0.001681
Year 11 Year 12 Year 13 Year 14 Year 15
-------------------------------------------------------------------------------
A Forecasted TBC Billed (excluding sales tax) 43,504,893 43,388,780 43,208,965 42,760,281 42,286,117
(TBC Rate times forecasted kwh sales)
B Forecasted MTC-Tax Billed (excluding sales tax) 19,994,550 21,054,698 22,165,578 23,320,074 24,554,697
(MTC-Tax Rate times forecasted kwh sales)
--------------- --------------------------------------------------------------
C Total Taxable Revenue 63,499,443 64,443,478 65,374,543 66,080,355 66,840,814
Less Deductible Expenses:
Interest on Transition Bonds 12,843,092 11,218,494 9,457,474 7,364,369 5,140,720
Amortization of Transition Bond Issuance Expense 958,350 958,350 958,350 958,350 958,350
Uncollectables 654,373 664,037 674,168 684,087 692,046
Administration and Servicing Fees 790,000 790,000 790,000 790,000 790,000
Other - - - - -
--------------- --------------------------------------------------------------
D Total Deductions 15,245,815 13,630,880 11,879,992 9,796,806 7,581,115
E Taxable Income 48,253,628 50,812,597 53,494,552 56,283,549 59,259,699
F Tax Rate 40.85% 40.85% 40.85% 40.85% 40.85%
--------------- --------------------------------------------------------------
G Tax Obligation 19,711,607 20,756,946 21,852,524 22,991,830 24,207,587
H Less MTC-Tax Billed and expected to be 1,486,379 1,565,382 1,648,382 1,735,353 1,825,739
collected during the upcoming period
--------------- --------------------------------------------------------------
I Tax to be billed & collected 18,225,229 19,191,564 20,204,142 21,256,477 22,381,848
J Projected kwh's to be delivered, billed and 11,046,948,514 11,185,035,371 11,324,848,313 11,466,408,917 11,609,739,028
cash collected during the period
K MTC -Tax Charge before sales tax ($ per kwh) 0.001650 0.001716 0.001784 0.001854 0.001928
L MTC-Tax Charge including sales tax ($ per kwh) 0.001749 0.001819 0.001891 0.001965 0.002044
Year 16 Year 17 Year 18 Year 19 Year 20
--------------- --------------------------------------------------------------
A Forecasted TBC Billed (excluding sales tax) 11,111,589 13,839,029 13,474,808 13,411,518 13,307,054
(TBC Rate times forecasted kwh sales)
B Forecasted MTC-Tax Billed (excluding sales tax) 871,358 7,373,839 6,600,620 7,218,086 7,623,349
(MTC-Tax Rate times forecasted kwh sales)
--------------- --------------------------------------------------------------
C Total Taxable Revenue 11,982,947 21,212,869 20,075,428 20,629,604 20,930,403
Less Deductible Expenses:
Interest on Transition Bonds 3,138,706 2,653,880 1,975,265 1,297,308 571,999
Amortization of Transition Bond Issuance Expense 958,350 958,350 958,350 958,350 958,350
Uncollectables 445,586 189,963 210,243 212,780 216,260
Administration and Servicing Fees 790,000 790,000 790,000 790,000 790,000
Other - - - - -
--------------- --------------------------------------------------------------
D Total Deductions 5,332,641 4,592,193 3,933,858 3,258,437 2,536,609
E Taxable Income 6,650,306 16,620,676 16,141,570 17,371,167 18,393,794
F Tax Rate 40.85% 40.85% 40.85% 40.85% 40.85%
--------------- --------------------------------------------------------------
G Tax Obligation 2,716,650 6,789,546 6,593,831 7,096,122 7,513,865
H Less MTC-Tax Billed and expected to be 1,922,399 68,219 577,301 516,766 565,107
collected during the upcoming period
--------------- --------------------------------------------------------------
I Tax to be billed & collected 794,251 6,721,327 6,016,530 6,579,356 6,948,758
J Projected kwh's to be delivered, billed and 11,754,860,766 11,901,796,526 12,050,568,982 12,201,201,095 12,353,716,108
cash collected during the period
K MTC -Tax Charge before sales tax ($ per kwh) 0.000068 0.000565 0.000499 0.000539 0.000562
L MTC-Tax Charge including sales tax ($ per kwh) 0.000072 0.000599 0.000529 0.000572 0.000596
Page 2 of 3
Exhibit B MTC-Tax Charge Development & True-Up
Line Item Descriptions
A = Total forecasted taxable revenue from the TBC equal to the TBC rate
(excluding sales tax) multiplied by forecasted kwh sales for the period.
B = Total forecasted taxable revenue from the MTC - Tax Charge equal to the MTC
- Tax Rate (excluding sales tax) times forecasted kwh sales for the period.
Note that this computation is circular since this amount is used in
developing the MTC - Tax Charge Rate. Therefore the amount of the MTC - Tax
Charge Rate and the forecasted taxable revenue must be solved simultaneously
in an iterative computation.
C = Total taxable revenue associated with the transition bonds (A plus B) (See
Exhibit C-1 of Petition).
D = All deductible expenses associated with the transition bonds (See Exhibit
C-1 of Petition). Amortization (See Ex. C-1 of Petition.) Amortization of
transition bond issuance costs equals issuance costs divided by term of the
transition bonds. Deduction for uncollectable accounts is estimated based on
historical collection experience.
E = Taxable Income (C minus D).
F = Effective Tax Rate (NJ Corporate Business Tax Rate = 9%, Federal Tax Rate =
35%).
G = Total Income Tax obligation (E times F).
H = MTC -Tax Charge revenues billed in the prior period and expected to be
collected in the current period (prior period K times kwh billed during the
prior period less actual prior period collections and expected uncollectable
accounts).
I = Amount of Total Income Tax obligation required to be funded through MTC -
Tax collections during the period.
J = Projected kwh's that will be sold, delivered, billed, and collected during
the upcoming period. The amount is computed by multiplying forecasted kwh
sales on a monthly basis times a percentage expected to be collected in cash
each month subsequent to the sale. The collection percentage is developed
based on historical collection experience. This methodology takes into
account the collection lag and uncollectable experience inherent in ACE's
electric sales (See Exhibit C-4 of the Petition).
K = MTC -Tax Charge Rate before statutory addition of sales tax (I divided by
J).
L = MTC - Tax Charge Rate including statutory addition of sales tax (K times
1.06).
Page 3 of 3
In the Matter of the Petition of Atlantic City Electric Company
for a Bondable Stranded Costs Rate Order
in Accordance with N.J.S.A. 48:3-49 et seq.
BPU Docket No. EF 01060394
- --------------------------------------------------------------------------------
Dr. Fred Grygiel, Chief Economist Ray Lamboy, DAG
Office of the Economist Department of Law & Public Safety
Board of Public Utilities Division of Law
Two Gateway Center 124 Halsey Street, P.O. Box 45029
Newark, NJ 07102 Newark, NJ 07101
Phone: (973) 648-3860 Phone: (973) 648-4726
Fax: (973) 648-4410 Fax: (973) 648-3879
Mark Beyer, Manager Seema M. Singh, Director
Office of the Economist Division of Ratepayer Advocate
Board of Public Utilities 31 Clinton Street, 11th Fl.,
Two Gateway Center P.O. Box 46005
Newark, NJ 07102 Newark, NJ 07101
Phone: (973) 648-3414 Phone: (973) 648-7112
Fax: (973) 648-4410 Fax: (973) 624-1047
Nusha Wyner, Director Badrhn Ubushin, Esq.
Division of Energy Division of Ratepayer Advocate
Board of Public Utilities 31 Clinton Street, 11th Fl.,
Two Gateway Center P.O. Box 46005
Newark, NJ 07102 Newark, NJ 07101
Phone: (973) 648-7290 Phone: (973) 648-2690
Fax: (973) 648-2467 Fax: (973) 624-1047
George Riepe Stephen B. Genzer, Esq.
Division of Energy LeBoeuf, Lamb, Greene & MacRae, LLP
Board of Public Utilities One Riverfront Plaza, 6th Floor
Two Gateway Center Newark, NJ 07102-5490
Newark, NJ 07102 Phone: (973) 643-8000
Phone: (973) 648-2160 Fax: (973) 643-6111
Fax: (973) 648-2467
Mark L. Mucci, Esq.
Elise Goldblat, SDAG LeBoeuf, Lamb, Greene & MacRae, LLP
Department of Law & Public Safety One Riverfront Plaza, 6th Floor
Division of Law Newark, NJ 07102-5490
124 Halsey Street, P.O. Box 45029 Phone: (973) 643-8000
Newark, NJ 07101 Fax: (973) 643-6111
Phone: (973) 648-3174
Fax: (973) 648-3879
Colleen A. Foley, Esq. Geoffrey Hurley, Esq.
LeBoeuf, Lamb, Greene & MacRae, LLP Latham & Watkins
One Riverfront Plaza, 6th Floor 885 Third Avenue
Newark, NJ 07102-5490 New York, NY 10022
Phone: (973) 643-6662 Phone: (212) 906-1243
Fax: (973) 643-6111
Jack Kattan
Charles F. Morgan Morgan Stanley
Manager, Regulatory Restructuring 1585 Broadway
Conectiv Power Delivery New York, NY 10036
5100 Harding Highway, Suite 155 Phone: (212) 761-1850
Mays Landing, NJ 08330 Fax: (212) 761-0872
Phone: (609) 625-5856
Fax: (609) 625-5838 Andrea Zana
Morgan Stanley
Donna Kinzel 1585 Broadway
Assistant Treasurer New York, NY 10036
Conectiv
800 King Street David Rush
P.O. Box 231 Wilmington, DE 19899 Bear Stearns & Co., Inc.
Phone: (302) 429-3004 245 Park Avenue
Fax: (302) 429-3188 New York, NY 10167
Jay Ziminsky, Finance Manager James A. Rothschild
Treasury Department Rothschild Financial Consulting
Conectiv 115 Scarlet Oak Drive
800 King Street Wilton, CT 06897
P.O. Box 231 Wilmington, DE 19899
Phone: (302) 429-3115
Fax: (302) 429-3006
Thomas P. Dwyer, Esq.
Special Counsel
Conectiv
800 King Street
P.O. Box 231 Wilmington, DE 19899
Phone: (302) 429-3045
Fax: (302) 429-3188