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EXHIBIT C-2
AGENDA DATE: 07/15/99
STATE OF NEW JERSEY
BOARD OF PUBLIC UTILITIES
TWO GATEWAY CENTER
NEWARK NJ 07102
ENERGY
IN THE MATTER OF ATLANTIC CITY ) SUMMARY ORDER
ELECTRIC COMPANY'S RATE )
UNBUNDLING, STRANDED COSTS AND ) BPU DOCKET NOS. E097070455,
RESTRUCTURING FILINGS ) EO97070456, AND EO97070457
(SERVICE LIST ATTACHED)
BY THE BOARD:
This Summary Order memorializes in summary fashion the action taken by
the Board of Public Utilities ("Board") in these matters at its specially-
scheduled July 15, 1999 public agenda meeting with respect to the rate
unbundling, stranded costs and restructuring filings of Atlantic City Electric
Company ("ACE", "Atlantic" or "Company").
The Board will issue a more detailed Decision and Order in these
matters, which will provide a full discussion of the issues as well as the
reasoning for the Board's determinations. These matters come before the Board on
a record developed by Administrative Law Judge ("ALJ") William Gural, who issued
an Initial Decision on August 17, 1998, and hearings conducted before
Commissioner Carmen J. Armenti from April 27, 1998 through May 28, 1998.
Subsequent to the ALJ's Initial Decision and the hearings before Commissioner
Armenti, the Legislature passed and Governor Whitman signed into law on February
9, 1999, the Electric Discount and Energy Competition Act, P.L. 1999, c. 23
("the Act").
Settlement negotiations were conducted among the parties during the
latter part of April, through the early part of June 1999. A comprehensive
settlement was not reached, but on June 9, 1999, a Stipulation was filed by ACE
on behalf of a number of parties to the proceedings ("ACE Stipulation"). The
Board determined to solicit and consider comments on the ACE Stipulation, and
established a comment deadline of June 16, 1999 for comments addressing the ACE
Stipulation, including any alternative settlement proposal(s), and a deadline of
June 18, 1999 for comments addressing any alternative settlement proposal(s). On
June 16, 1999 an alternative joint proposal was submitted by the Division of the
Ratepayer Advocate on behalf of a number of other parties to these proceedings
("RPA Stipulation").
Based on our review of the extensive record in these proceedings, as
well as the comments submitted, the Board is not fully satisfied that either
proposal in its entirety represents an appropriate resolution of these
proceedings. The Board finds the ACE
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Stipulation to be overall more financially prudent and consistent with the Act's
requirements and, with the modifications and clarifications set forth
hereinbelow, provides the framework for a reasonable resolution of these matters
based upon the record before us. However, the proponents of the RPA Stipulation
and others have raised a number of legitimate concerns regarding the ACE
Stipulation which merit serious consideration and which, where appropriate, are
addressed by the modifications and clarifications set forth below.
Accordingly, except as specifically noted below, and as will be further
explained in a detailed order which shall be issued, we hereby incorporate by
reference as if completely set forth herein as a fair resolution of the issues
in these proceedings, the elements of the ACE Stipulation and, to the extent the
Initial Decision is inconsistent herewith, it is modified to conform herewith.
The modifications and clarifications to the ACE Stipulation which we
HEREBY ORDER are summarized as follows:
Paragraph 1: The initial aggregate rate reduction, inclusive of all
unbundled rate components, to be implemented effective August 1, 1999
shall be 5% from current rates. The average distribution rate for the
Company effective on August 1, 1999 shall be 2.1384 cents per kwh. The
MTC shall be set as the residual amount necessary to achieve the rate
reduction, after accounting for other unbundled rate components
established pursuant to this Order, including the distribution rate,
regulatory asset charge, state energy taxes including sales and use
tax, corporate business tax and TEFA, societal benefits charge, NNC,
and BGS charge. The DSM and LEAC overrecovery balances, including
accrued interest, shall not be utilized to offset regulatory asset
charges but shall instead be credited to, and become the starting
balance of, the deferred balance established pursuant to paragraph 27.
Effective no later than January 1, 2001 the Company shall implement a
further aggregate rate reduction of at least 2% relative to current
rates (bringing the total rate reduction to at least 7%). However, to
the extent that the Company completes the divestiture of generating
assets and securitization of net owned generation stranded costs, or
successfully completes a NUG contract(s) restructuring, buyout or
buydown and securitization of net NUG stranded costs prior to January
1, 2001, it shall implement a rate reduction reflecting the full
resultant savings no later than the date of the establishment of the
resultant TBC. To the extent that such savings result in the
implementation of a further rate reduction of less than 2%, Atlantic
shall in any event reduce rates effective January 1, 2001 to achieve
the 7% total rate reduction as of that date. To the extent that the
savings resulting from divestiture and securitization of net owned
generation stranded costs, and/or NUG restructuring buyout or buydown
and
DOCKET NOS. EO97070455,
EO97070456, EO97070457
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securitization exceeds 2%, Atlantic shall implement a rate reduction
beyond 7% to fully pass such savings on to customers, upon the date of
the establishment of the resultant TBC. To the extent that the sum of
the unbundled rate components as of July 31, 2002 exceeds the price cap
resulting from the implementation of a 10% aggregate rate reduction
relative to April 30, 1997 rates, which unbundled rate components are
to reflect any savings which have resulted from the buyout, buydown, or
restructuring and securitization of NUG contracts implemented pursuant
to paragraph 1(c) of the Stipulation, the Company shall, consistent
with the provisions of the Stipulation, achieve effective August 1,
2002 the mandated 10% aggregate rate reduction relative to April 30,
1997 rates.
Paragraph 2: The initial 5% (August 1, 1999) and final 10% (August 1,
2002) rate reductions are required by the Act, and shall not be
contingent upon divestiture and securitization of generation assets.
Paragraphs 5 and 6: The floor residential service ("RS") shopping
credits shall be increased by 0.50 cents per kwh for 1999 and 2000, and
by 0.55 cents per kwh in 2001, 2002 and 2003. The floor shopping
credits for commercial and industrial Secondary and Primary voltage
tariff customers (MGS-Sec, MGS-Pri, AGS-Sec, AGS-Pri, AGT-Sec, AGT-Pri)
shall be decreased in all years by 0.1 cents per kwh.
Paragraph 7: Atlantic shall apply both NUG contract power and
to-be-divested owned generation power (prior to the closure of the sale
of the generation assets) towards the BGS supply requirement, which
power shall be credited at the net BGS price (the floor shopping credit
less transmission cost, sales and use tax, line losses, ancillary
services and capacity reserve margin). Such credited prices shall be
employed for purposes of establishing the level of the NNC and
establishing the level of owned generation revenue requirement recovery
(prior to the completion of divestiture), in accordance with this
Order. Atlantic shall utilize and open competitive bidding process for
BGS supply requirements net of NUG Power and Owned Generation
(Pre-Divesture).
Paragraph 8: The 12 month minimum BGS commitments requirement for
customers returning to BGS supply shall not apply to residential
customers who return to BGS for any reason. However, the Board will
monitor this issue and request related reports from the Company, and
may revisit this issue if gaming occurs, or if it is otherwise
determined by the Board to be appropriate.
DOCKET NOS. EO97070455,
EO97070456, EO97070457
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Paragraph 9: Modified in accordance with modifications to paragraph 7.
Paragraph 11: We hereby clarify the language to indicate that the Board
is not pre-judging the reasonableness and prudence of the actual
parting contracts or financial instruments that the Company may procure
in accordance with this paragraph, and that any such costs are subject
to Board review and approval.
Paragraph 12: We hereby modify the language as necessary to conform
with the modifications to paragraph 7, and further clarify that
Atlantic shall reserve the right to bid out the BGS obligation net of
NUG power or to sell NUG power to the selected BGS supplier at the net
BGS price.
Paragraph 16: The Board concurs that the Company shall be permitted the
opportunity to recover 100% of its net owned generation stranded costs
(established definitively upon completion of the divsetiture) and NUG
contract costs, however we modify the language only so far as is
necessary to conform with the differing standards for recovery of net
generation stranded costs and 100% recovery of NUG stranded costs
provided in section 13 of the Act.
Paragraph 17: We hereby clarify the language to indicate that the net
book value shall reflect the net investment in each facility,
reflective of the gross investment less depreciation reserve less
accumulated deferred income tax, and investment tax credits if
appropriate, as of the closing date(s), and to clarify that the tax
impacts with respect to taxable gains and/or losses will be considered
in calculating net stranded cost.
Paragraph 18: We hereby modify the language to indicate that while the
Board supports the Company's decision to auction its generation assets,
we are not pre-judging the prudence of Atlantic in implementing the RFP
and selecting a winner bidder(s), and that such final judgement will
come at the conclusion of the separate divestiture proceeding.
Paragraph 19: The Board recognizes the benefit of expediting its review
and approval of divestiture standards, and will endeavor to accomplish
same, but modifies the language to indicate that we cannot be bound at
this time by a specific timetable.
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EO97070456, EO97070457
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Paragraph 20: The Board recognizes that parting contracts that make
possible or enhance the sale of generating assets can be in the public
interest, but clarify the language as necessary to indicate that the
Board is not pre-judging prudence of actual parting contracts which may
be entered into by Atlantic; such judgement will be rendered after
Board review in the context of the separate divestiture proceeding.
Paragraph 21: The transfer of Deepwater and the combustion turbines
shall occur at a transfer value equal to the net book value of the
assets at the time of the transfer. This amount is approximately $9
million higher than that provided in the Stipulation, is intended to
reflect full and fair compensation for the assets, and will avert the
need for Atlantic to take a write-off prior to the transfer. We further
modify this paragraph such that if within the four year Transition
Period any transferred asset is sold to an unaffiliated company, the
net after tax gain over the adjusted book value will be shared equally
between the Company and customers. Further, as a condition of the
transfer during the transition period, Atlantic's affiliate shall offer
capacity from the transferred units for sale within the PJM control
area at market prices, and if the capacity is sold outside the PJM
control area, the Company's affiliate shall make the capacity subject
to recall by PJM during system emergencies.
Paragraph 22: During the period between August 1, 1999 and completion
of the divestiture of generation assets, MTC revenues shall be applied
to owned generation revenue requirements, including continued
depreciation of assets, and return on investment, operating and
maintenance expenses and fuel expenses, and, between the time of
divestiture closing and time of securitization closing, MTC revenues
shall be applied to provide a return on the net owned generation
stranded cost at 13.0% pre-tax. At time of the termination of the MTC
(upon the establishment of the TBC), total MTC revenues and market
revenues received from the crediting of owned generation power to BGS
in accordance with paragraph 7 (as modified) will be reconciled to the
amounts indicated, including a review of the prudence and
reasonableness of the Company's operation of the units, and the
deferred balance will be reconciled accordingly to reflect a resulting
shortfall or excess.
Paragraph 23: We modify the language to provide that, during the
Transition Period, Atlantic will only retain a portion of savings from
NUG contract buyouts, buydowns or restructurings once the 10% aggregate
rate reduction relative to April 30, 1997 rates is achieved without the
use of cost deferrals. We further clarify the language to indicate that
NUG securitization approval is
DOCKET NOS. EO97070455,
EO97070456, EO97070457
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contingent upon such NUG contract buyout, buydown or restructuring
being approved by the Board and found to be consistent with the
standards in sections 13 and 14 of the Act.
Paragraph 24: The Board renders no determination at this time with
respect to the securitization of restructuring-related costs of
capital. The recovery of restructuring-related costs of a capital
nature via the MTC shall be subject to a reasonableness and
verification review by the Board, and shall be net of other sources of
recovery towards such costs, including Third Party Supplier Agreement
fees. The rate of return on unamortized restructuring-related costs
collected via the MTC shall be 13.0% pre-tax.
Paragraph 25: The recovery of restructuring-related costs of an
operating nature other than consumer education costs, as listed in
Schedule D, via the MTC shall be subject to reasonableness and
verification review by the Board, and shall be net of other sources of
recovery towards such costs, including Third Party Supplier Agreement
fees.
Paragraph 26: This is not appropriate language for a Board Order. AE
may reserve all its legal rights, however the Board rejects this
paragraph.
Paragraphs 27, 28 and 29: The Board hereby modifies this paragraph to
change references from "Deferred Revenues" to "Deferred Costs," and to
provide, with respect to the rate of return on the Deferred Costs
balance, that on any accrued underrecovery balance up to $50 million,
interest will be accrued at a rate equal to the then-current cost of
medium term debt. On any accrued deferred underrecovery balance amounts
in excess of $50 million, such excess amounts shall accrue interest at
a rate equal to the then-current cost of mid-term debt plus 350 basis
points. The Board further modifies the language to indicate that, while
the Company shall be provided the opportunity to fully recover Deferred
Costs and related interest in accordance with the provisions of the
Stipulation, as modified herein and consistent with the Act, the Board
will not bestow on Atlantic an "absolute right" to such recovery.
Finally, we hereby clarify the language to indicate that final approval
of recoverability of the Deferred Cost balance is subject to Board
review of the prudence and reasonableness of such costs.
Paragraph 30: The Board hereby clarifies the language to indicate that
the Company shall be provided with full and timely recovery of
transition bond charges in conformance with the standards set forth in
sections 14 through 27 of the Act, and that the Company shall be
provided the opportunity for full
DOCKET NOS. EO97070455,
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recovery of related and applicable taxes via a separate MTC charge with
a term identical to the securitization financing pursuant to the
standards set forth in sections 13 and 14 of the Act.
Paragraph 31: With respect to the securitization of net NUG stranded
costs related to a contract restructuring, buyout or buydown, we hereby
clarify the language to conform with the clarifications rendered in
paragraph 23.
Paragraph 32: The Board will render no determination at this time with
respect to the securitization of restructuring-related costs of
capital.
Paragraph 36: We hereby clarify the language to indicate that
imputation of tax expenses or tax benefits on a utility stand-alone
basis is for ratemaking purposes as it applies to the computation of
divestiture proceeds, MTC revenues, divestiture and NUG buyouts as a
result of these matters only, and that such treatment has no
precedential value with regard to future rate cases pertaining to the
regulated rates of Atlantic.
Paragaph 38: While we recognize the desire for and potential benefit of
expeditious review and approval of NUG contract restructuring, buyout
or buydown proposals, and will make every effort to accomplish same,
the Board cannot be bound at this time to a specific timetable.
Paragraph 43: We clarify the language to indicate that recovery via the
MTC of expenses to redeem or retire outstanding capital in connection
with the recovery of stranded costs is subject to Board review that
such costs have been reasonably and prudently incurred. We also note
that reasonably and prudently incurred capital retirement and
redemption expenses associated with a securitization financing are
included within the definition of bondable stranded costs in the Act
and may therefore be securitized and recovered via the TBC.
Paragraph 44: The Board supports the need for an annual review of the
indicated charges and related deferred costs accruals, and further
notes that periodic true-ups of the TBC are required by the Act. We
clarify, however, that to satisfy the rate reduction provisions of the
Act, the Board may or may not actually adjust the indicated charges
(other than the TBC, and the BGS price as provided in elsewhere in the
Stipulation and in this Order) during the transition period.
Paragraph 47: The Board acknowledges that the Company may reserve its
rights, however we shall not adopt this paragraph.
DOCKET NOS. EO97070455,
EO97070456, EO97070457
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In summary, subject to the conditions embodied herein, the rate
discounts provided by Atlantic, all stated relative to current rates, shall be
at a minimum as follows:
August 1, 1999 5%
January 1, 2001 7%
August 1, 2002 10.2%
The average shopping credits during the Transition Period shall be, at
a minimum, as follows:
Rate Class 1999 2000 2001 2002 2003
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RS 5.65 5.70 5.75 5.80 5.85
RS-TOU 5.10 5.15 5.20 5.25 5.30
MGS-Sec 5.35 5.40 5.50 5.60 5.70
MGS-Pri 5.18 5.23 5.33 5.43 5.53
AGS-Sec 5.30 5.35 5.45 5.55 5.65
AGS-Pri 5.07 5.12 5.17 5.22 5.27
AGT-Sec 5.05 5.10 5.15 5.20 5.25
AGT-Pri 4.95 5.00 5.00 5.00 5.00
AGT-SubT 4.30 4.30 4.30 4.30 4.30
AGT-Trans 4.25 4.25 4.25 4.25 4.25
TGS 4.30 4.30 4.30 4.30 4.30
SPL/CSL 2.97 3.05 3.07 3.10 3.12
DDC 3.58 3.68 3.71 3.75 3.78
System
Average 5.27 5.31 5.37 5.42 5.48
Within five (5) business days of the date of this Order, the Company is
HEREBY DIRECTED to submit to the Board a tariff compliance filing addressing the
provisions of this Summary Order, and to submit to the Board schedules that show
all accounting entries that will be required with respect to the transfer of the
combustion turbine and Deepwater generating facilities as a result of this
Order, for both Atlantic and the unregulated affiliate. The Company shall
consult with Staff to assure the adequacy of the required submissions
DATED: 7/15/99 BOARD OF PUBLIC UTILITIES
BY:
/S/ Herbert H. Tate
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HERBERT H. TATE
PRESIDENT
DOCKET NOS. EO97070455,
EO97070456, EO97070457
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/s/ Carmen J. Armenti
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CARMEN J. ARMENTI
COMMISSIONER
/s/ Frederick F. Butler
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FREDERICK F. BUTLER
COMMISSIONER
ATTEST: /s/ Mark W. Musser
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MARK W. MUSSER
SECRETARY
DOCKET NOS. EO97070455,
EO97070456, EO97070457
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