SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1994
----------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 1-1405
Delmarva Power & Light Company
------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware and Virginia 51-0084283
------------------------- -------------------
(States of incorporation) (I.R.S. Employer
Identification No.)
800 King Street, P.O. Box 231, Wilmington, Delaware 19899
- - ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302-429-3011
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1994
- - ----------------------------- -----------------------------
Common Stock, $2.25 par value 59,461,528 Shares
DELMARVA POWER & LIGHT COMPANY
------------------------------
Table of Contents
-----------------
Page No.
--------
Part I. Financial Information:
Consolidated Balance Sheets as of March 31, 1994
and December 31, 1993................................. 2-3
Consolidated Statements of Income for the three and
twelve months ended March 31, 1994 and 1993........... 4
Consolidated Statements of Cash Flows for the three
and twelve months ended March 31, 1994 and 1993....... 5
Notes to Consolidated Financial Statements............ 6-8
Selected Financial and Operating Data................. 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10-15
Part II. Other Information and Signature....................... 16-20
- 1 -
PART I. FINANCIAL INFORMATION
DELMARVA POWER & LIGHT COMPANY
------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
----------------------
March 31, December 31,
1994 1993
---------- -----------
(Unaudited)
ASSETS
------
UTILITY PLANT, AT ORIGINAL COST:
Electric......................................... $2,583,653 $2,561,507
Gas.............................................. 178,679 176,167
Common........................................... 124,114 122,182
---------- ----------
2,886,446 2,859,856
Less: Accumulated depreciation.................. 1,006,756 989,351
---------- ----------
Net utility plant in service..................... 1,879,690 1,870,505
Construction work-in-progress.................... 84,951 91,001
Leased nuclear fuel, at amortized cost........... 31,735 33,905
---------- ----------
1,996,376 1,995,411
---------- ----------
INVESTMENTS AND NONUTILITY PROPERTY:
Investment in leveraged leases................... 50,694 50,914
Funds held by trustee............................ 20,792 17,577
Other investments and nonutility property, net... 54,115 55,248
---------- ----------
125,601 123,739
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents........................ 43,668 23,017
Accounts receivable:
Customers...................................... 104,704 98,472
Other.......................................... 19,681 18,405
Inventories, at average cost:
Fuel (coal, oil, and gas)...................... 26,957 27,335
Materials and supplies......................... 38,226 37,687
Prepayments...................................... 6,351 9,534
Deferred income taxes, net....................... 10,807 10,713
---------- ----------
250,394 225,163
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS:
Unamortized debt expense......................... 11,132 11,222
Deferred debt refinancing costs.................. 28,230 28,794
Deferred recoverable plant costs................. 15,170 15,613
Deferred recoverable income taxes................ 144,544 144,463
Other............................................ 55,458 49,124
---------- ----------
254,534 249,216
---------- ----------
TOTAL ASSETS $2,626,905 $2,593,529
========== ==========
See accompanying Notes to Consolidated Financial Statements.
- 2 -
DELMARVA POWER & LIGHT COMPANY
------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
----------------------
March 31, December 31,
1994 1993
---------- -----------
(Unaudited)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock..................................... $133,185 $132,366
Additional paid-in capital....................... 478,133 470,997
Retained earnings................................ 274,118 259,507
Unearned compensation............................ (1,355) (675)
---------- ----------
Total common stockholders' equity.............. 884,081 862,195
Preferred stock.................................. 168,085 168,085
Long-term debt................................... 726,230 736,368
---------- ----------
1,778,396 1,766,648
---------- ----------
CURRENT LIABILITIES:
Long-term debt due within one year............... 25,959 25,986
Variable rate demand bonds....................... 41,500 41,500
Accounts payable................................. 50,358 55,175
Taxes accrued.................................... 36,246 10,987
Interest accrued................................. 18,309 15,522
Dividends declared............................... 22,755 22,664
Current capital lease obligation................. 12,627 12,684
Deferred energy costs............................ 17,935 14,229
Other............................................ 31,081 32,681
---------- ----------
256,770 231,428
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes, net....................... 497,338 497,457
Deferred investment tax credits.................. 48,847 49,475
Long-term capital lease obligation............... 21,173 23,335
Other............................................ 24,381 25,186
---------- ----------
591,739 595,453
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $2,626,905 $2,593,529
========== ==========
See accompanying Notes to Consolidated Financial Statements.
- 3 -
DELMARVA POWER & LIGHT COMPANY
------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
-----------
Three Months Ended Twelve Months Ended
March 31 March 31
------------------- -------------------
1994 1993 1994 1993
-------- -------- -------- --------
OPERATING REVENUES
Electric................................................ $242,753 $210,289 $908,127 $797,445
Gas..................................................... 49,641 37,718 106,867 89,476
-------- -------- -------- --------
292,394 248,007 1,014,994 886,921
-------- -------- -------- --------
OPERATING EXPENSES
Electric fuel and purchased power....................... 88,494 75,522 311,279 270,060
Gas purchased........................................... 29,699 20,254 63,076 46,984
Operation and maintenance............................... 57,883 52,879 253,056 230,186
Depreciation............................................ 26,651 24,552 103,028 96,480
Taxes other than income taxes........................... 10,729 9,647 38,501 36,807
Income taxes............................................ 25,168 18,875 74,423 54,470
-------- -------- -------- --------
238,624 201,729 843,363 734,987
-------- -------- -------- --------
OPERATING INCOME.......................................... 53,770 46,278 171,631 151,934
-------- -------- -------- --------
OTHER INCOME
Nonutility Subsidiaries
Revenues and gains.................................... 9,971 7,609 39,998 17,986
Expenses including interest and income taxes.......... (8,679) (6,920) (37,587) (17,225)
-------- -------- -------- --------
Net earnings of nonutility subsidiaries............ 1,292 689 2,411 761
Allowance for equity funds used during construction..... 706 2,315 3,700 7,067
Other income, net of income taxes....................... (1,090) 44 (623) 1,184
-------- -------- -------- --------
908 3,048 5,488 9,012
-------- -------- -------- --------
INCOME BEFORE UTILITY INTEREST CHARGES.................... 54,678 49,326 177,119 160,946
-------- -------- -------- --------
UTILITY INTEREST CHARGES
Debt.................................................... 14,202 15,776 58,857 65,012
Other................................................... 1,206 620 4,250 2,707
Allowance for borrowed funds used during
construction........................................... (371) (1,484) (2,292) (4,925)
-------- -------- -------- --------
15,037 14,912 60,815 62,794
-------- -------- -------- --------
NET INCOME................................................ 39,641 34,414 116,304 98,152
DIVIDENDS ON PREFERRED STOCK.............................. 2,264 2,503 9,762 9,051
-------- -------- -------- --------
EARNINGS APPLICABLE TO COMMON STOCK....................... $37,377 $31,911 $106,542 $89,101
======== ======== ======== ========
COMMON STOCK
Average shares outstanding (000)........................ 59,022 55,135 58,529 54,021
Earnings per average share.............................. $0.63 $0.58 $1.82 $1.65
Dividends declared per share............................ $0.38 1/2 $0.38 1/2 $1.54 $1.54
See accompanying Notes to Consolidated Financial Statements.
- 4 -
DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended Twelve Months Ended
March 31 March 31
-------------------- ----------------------
1994 1993 1994 1993
------- ------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $39,641 $34,414 $116,304 $98,152
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization......................... 29,550 27,379 115,097 107,122
Allowance for equity funds used during construction... (706) (2,315) (3,700) (7,067)
Investment tax credit adjustments, net................ (628) (629) (2,514) (2,414)
Deferred income taxes, net............................ (138) (5,728) 4,419 (4,705)
Net change in:
Receivable for Peach Bottom settlement.............. - - - 18,538
Accounts receivable................................. (7,522) (12,154) (11,219) (17,123)
Inventories......................................... (161) 2,375 3,732 3,696
Accounts payable.................................... (4,823) (8,576) 2,565 936
Other current assets & liabilities*................. 32,279 31,289 12,039 13,406
Other, net............................................ (2,897) (3,290) (5,046) (2,686)
------- ------- -------- -------
Net cash provided by operating activities................... 84,595 62,765 231,677 207,855
------- ------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures, excluding AFUDC................ (27,604) (38,444) (149,151) (207,987)
Allowance for borrowed funds used during construction..... (371) (1,484) (2,292) (4,925)
Cash flows from leveraged leases:
Sale of interests in leveraged leases................... - 3,843 17,699 3,843
Insurance proceeds from casualty loss................... - - - 4,115
Other................................................... 274 256 1,529 2,088
Investment in subsidiary projects and operations.......... (978) (1,415) (2,390) (7,481)
Net decrease in bond proceeds held in trust funds......... 7 686 473 2,532
Deposits to nuclear decommissioning trust funds........... (671) (1,016) (2,312) (2,330)
Other, net................................................ (3,681) (3,267) (802) (2,945)
------- ------- -------- -------
Net cash used in investing activities....................... (33,024) (40,841) (137,246) (213,090)
------- ------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends: Common.................................... (22,618) (20,845) (89,762) (82,545)
Preferred................................. (2,313) (2,381) (9,974) (9,001)
Issuances: Long-term debt............................ - - 148,200 223,335
Variable rate demand bonds................ - - 15,500 -
Common stock.............................. 7,943 86,588 30,818 110,780
Preferred stock........................... - - 20,000 40,000
Redemptions: Long-term debt............................ (198) (179) (184,225) (208,693)
Variable rate demand bonds................ - - (15,500) -
Common stock.............................. (794) (743) (799) (743)
Preferred stock........................... - - (28,280) -
Principal portion of capital lease payments............... (2,899) (2,827) (10,028) (10,642)
Net change in term loan................................... (10,000) - - -
Net change in short-term debt ............................ - (15,000) (2,000) (366)
Cost of issuances and refinancings........................ (41) (2,545) (10,593) (14,821)
------- ------- -------- -------
Net cash provided/(used) by financing activities............ (30,920) 42,068 (136,643) 47,304
------- ------- -------- -------
Net change in cash and cash equivalents..................... 20,651 63,992 (42,212) 42,069
Cash and cash equivalents at beginning of period............ 23,017 21,888 85,880 43,811
------- ------- -------- -------
Cash and cash equivalents at end of period.................. $43,668 $85,880 $43,668 $85,880
======= ======= ======== =======
*Other than debt classified as current and current deferred income taxes.
See accompanying Notes to Consolidated Financial Statements.
- 5 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. INTERIM FINANCIAL STATEMENTS
----------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. The statements reflect all adjustments necessary
in the opinion of the Company for a fair presentation of interim results. They
should be read in conjunction with the Company's 1993 Annual Report to
Stockholders and Part II of this Report on Form 10-Q for additional relevant
information.
2. BASE RATE MATTERS
-----------------
Below is an update to matters previously reported on under "Regulatory and Rate
Matters-Base Rate Proceedings" in Part I of the Company's 1993 Annual Report on
Form 10-K.
Delaware Gas Rates
- - ------------------
On May 6, 1994, the Company filed an application with the Delaware Public
Service Commission for a $4.2 million or 4.1% increase in gas base rates.
Current gas rates are based largely upon costs and investment levels for the
twelve-month period ended September 30, 1991. The Company believes that a base
rate increase is now necessary to provide for recovery of the current and
ongoing level of operating costs and rate base for gas utility operations. An
interim $1.0 million rate increase will become effective, subject to refund, on
July 5, 1994.
3. INVESTMENTS
-----------
As of March 31, 1994, the Company had $48.2 million of investments in securities
which were included in the following balance sheet classifications: cash and
cash equivalents-$28.6 million; funds held by trustee-$18.2 million; other
investments-$1.4 million. These securities, based on the Company's intent and
criteria established by Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities," are
categorized as available-for-sale securities. The fair value of such securities
was not materially different from book value as of March 31, 1994. Gains and
losses from the sale of investment securities were not material to any period
for which an income statement is presented. As of March 31, 1994, the Company's
investments in debt securities other than those considered to be cash
equivalents had the following maturities: $7.2 million due in 1994-1999; $10.1
million due in 2000-2004.
4. COMMON STOCK
------------
During the first quarter of 1994, the Company issued 364,081 shares of Common
Stock for $7,943,000 primarily through the Dividend Reinvestment and Common
Share Purchase Plan. As of March 31, 1994, 59,193,364 shares of Common Stock
were outstanding.
- 6 -
5. CONTINGENCIES
-------------
Nuclear Insurance
- - -----------------
In the event of an incident at any commercial nuclear power plant in the United
States, the Company could be assessed for a portion of any third party claims
associated with the incident. Under the provisions of the Price Anderson Act,
if third party claims relating to such an incident exceed $200 million (the
amount of primary insurance), the Company could be assessed up to $23.7 million
for third party claims. In addition, Congress could impose a revenue-raising
measure on the nuclear power industry to pay such claims.
The co-owners of the Peach Bottom Atomic Power Station (Peach Bottom) and Salem
Nuclear Generating Station (Salem) maintain nuclear property damage and
decontamination insurance in the aggregate amount of $2.7 billion for each
station. The Company is self-insured, to the extent of its ownership interest,
for its share of property losses in excess of insurance coverages. Under the
terms of the various insurance agreements, the Company could be assessed up to
$3.5 million in any policy year for losses incurred at nuclear plants insured by
the insurance companies.
The Company is a member of an industry mutual insurance company which provides
replacement power cost coverage in the event of a major accidental outage at a
nuclear power plant. The premium for this coverage is subject to retrospective
assessment for adverse loss experience. The Company's present maximum share of
any assessment is $1.4 million per year.
Environmental Matters
- - ---------------------
As previously disclosed under "Hazardous Substances" on page I-17 of the
Company's 1993 Annual Report on Form 10-K, the disposal of Company-generated
hazardous substances can result in costs to clean up facilities found to be
contaminated due to past disposal practices. The Company is currently a
potentially responsible party (PRP) at one federal superfund site and is alleged
to be a third-party contributor at two other such sites. The Company also has
three former coal gasification sites and is currently participating with the
State of Delaware in conducting studies at two of the three sites to assess the
extent of contamination and risk to the environment. The Company does not
expect clean-up and other potential costs related to the PRP and coal
gasification sites, either separately or cumulatively, to have a material effect
on the Company's financial position or results of operations.
Other
- - -----
On December 14, 1993, Star Enterprise (Star) filed a complaint against the
Company in Delaware Chancery Court alleging that the Company overcharged it for
pension and tax-related costs under a contract entered into by the parties'
predecessors in 1955. The complaint asks for a refund and damages totalling
$9.3 million. Currently, the procedural schedule in the case is being delayed
to allow the parties to engage in settlement discussions. Should such
discussions prove unsuccessful, the Company will continue to defend its position
that it did not overcharge Star. The Company expects that resolution of this
matter will not have a material effect on the Company's financial position or
results of operations.
The Company is involved in certain other legal and administrative proceedings
before various courts and governmental agencies concerning rates, fuel
contracts, tax filings and other matters. The Company expects that the ultimate
disposition of these proceedings will not have a material effect on the
Company's financial position or results of operations.
- 7 -
6. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Three Months Ended Twelve Months Ended
March 31, March 31,
------------------ -------------------
(Dollars in Thousands) 1994 1993 1994 1993
-------- -------- -------- ---------
Cash paid for
Interest, net of amounts
capitalized $11,546 $9,616 $60,084 $59,528
Income taxes, net of refunds $ 2,863 $9,291 $65,858 $48,321
7. NONUTILITY SUBSIDIARIES
-----------------------
The following presents condensed financial information of the Company's
nonregulated wholly-owned subsidiaries: Delmarva Energy Company; Delmarva
Industries, Inc.; and Delmarva Capital Investments, Inc. A subsidiary which
leases real estate to the Company's utility business, Delmarva Services Company,
is excluded from these statements since its income is derived from intercompany
transactions which are eliminated in consolidation.
Three Months Ended Twelve Months Ended
March 31, March 31,
-------------------- ---------------------
(Dollars in Thousands) 1994 1993 1994 1993
---------- -------- ---------- ---------
Revenues and Gains
Landfill and waste hauling $2,763 $2,215 $12,296 $ 9,302
Operating services 4,724 4,304 22,538 6,599
Other revenues 2,251 324 4,044 1,079
Leveraged leases 53 741 146 706
Other investment income 180 25 974 300
------ ------ ------- -------
9,971 7,609 39,998 17,986
------ ------ ------- -------
Costs and Expenses
Operating expenses 7,822 7,289 36,940 19,529
Interest expense 58 62 260 447
Capitalized interest (43) (30) (260) (233)
Income taxes 842 (401) 647 (2,518)
------ ------ ------- -------
8,679 6,920 37,587 17,225
------ ------ ------- -------
Net income $1,292 $ 689 $ 2,411 $ 761
====== ====== ======= =======
Earnings per share of common
stock attributed to subsidiaries $0.02 $0.01 $0.04 $0.01
- 8 -
SELECTED FINANCIAL AND OPERATING DATA
-------------------------------------
(Dollars in Thousands)
3 Months Ended 12 Months Ended
March 31 March 31
------------------------- -------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
Electric Revenues
- - -----------------
Residential $92,748 $79,981 $318,213 $277,907
Commercial 59,499 54,456 242,828 223,521
Industrial 34,786 35,380 149,584 145,851
Resale, etc. 31,279 28,677 114,383 104,837
Unbilled Sales Revenues, net (4,452) (2,242) 708 1,391
----------- ----------- ----------- -----------
Sales Revenues 213,860 196,252 825,716 753,507
Interchange Deliveries 26,960 12,261 76,136 36,132
Miscellaneous Revenues 1,933 1,776 6,275 7,806
----------- ----------- ----------- -----------
Total Electric Revenues $242,753 $210,289 $908,127 $797,445
=========== =========== =========== ===========
Electric Sales
- - --------------
(1000 kWh)
Residential 1,176,817 1,025,459 3,650,745 3,286,336
Commercial 892,149 824,021 3,404,975 3,180,635
Industrial 771,067 771,710 3,231,590 3,150,752
Resale, etc. 609,437 555,028 2,239,415 2,057,589
Unbilled Sales, net (78,270) (31,322) (20,191) 38,245
----------- ----------- ----------- -----------
Total Electric Sales 3,371,200 3,144,896 12,506,534 11,713,557
=========== =========== =========== ===========
Interchange Deliveries 802,007 435,076 2,592,315 1,213,271
=========== =========== =========== ===========
Gas Revenues
- - ------------
Billed Sales Revenues $50,466 $37,907 $106,679 $87,815
Unbilled Sales Revenues, net (997) (332) (402) 721
Gas Transportation Revenues 172 143 590 940
----------- ----------- ----------- -----------
Total Gas Revenues $49,641 $37,718 $106,867 $89,476
=========== =========== =========== ===========
Gas Sales and Gas Transported
- - -----------------------------
(1000 mcf)
Billed Sales 8,268 7,359 18,852 17,431
Unbilled Sales, net (388) (99) (166) 295
Gas Transported 328 499 1,369 2,915
----------- ----------- ----------- -----------
Total 8,208 7,759 20,055 20,641
=========== =========== =========== ===========
March 31, 1994 December 31, 1993 March 31, 1993
------------------------- ------------------------- -------------------------
$ % $ % $ %
----------- ----------- ----------- ----------- ----------- -----------
Capitalization
- - --------------
Variable Rate Demand Bonds (1) $41,500 2.3 $41,500 2.3 $41,500 2.2
Long-Term Debt 726,230 39.9 736,368 40.7 787,219 42.7
Preferred Stock 168,085 9.2 168,085 9.3 176,365 9.6
Common Stockholders' Equity 884,081 48.6 862,195 47.7 838,779 45.5
----------- ----------- ----------- ----------- ----------- -----------
Total $1,819,896 100.0 $1,808,148 100.0 $1,843,863 100.0
=========== =========== =========== =========== =========== ===========
(1) The Company intends to use the bonds as a source of long-term financing as
discussed in Note 9 to the Consolidated Financial Statements of the 1993
Annual Report.
- 9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
EARNINGS
- - --------
Earnings per average share of common stock outstanding for the three and twelve
month periods ended March 31, 1994 and March 31, 1993 were as follows:
Three Months Twelve Months
Ended Ended
------------------ ------------------
3/31/94 3/31/93 3/31/94 3/31/93
-------- -------- -------- --------
Core Utility Operations $ 0.61 $ 0.57 $ 1.78 $ 1.64
Nonutility Subsidiaries 0.02 0.01 0.04 0.01
-------- -------- -------- --------
$ 0.63 $ 0.58 $ 1.82 $ 1.65
======== ======== ======== ========
Major components of change in earnings per share from the same period of the
previous year are shown below.
Increase (Decrease) in
Earnings Per Share
----------------------------
Three Months Twelve Months
Ended Ended
March 31 March 31
1994 vs 1993 1994 vs 1993
------------ -------------
Core Utility Operations
Revenues, net of fuel expense
Rate increases $ 0.13 $ 0.40
Sales volume and other 0.12 0.41
Operation and maintenance expense (0.06) (0.26)
Depreciation (0.02) (0.08)
Allowance for funds used during
construction (AFUDC) (0.04) (0.09)
Effect of increased number of
average common shares (0.05) (0.15)
Other (0.04) (0.09)
-------- -------
0.04 0.14
Nonutility Subsidiaries 0.01 0.03
-------- -------
$ 0.05 $ 0.17
======== =======
CORE UTILITY EARNINGS
- - ---------------------
Earnings per share from core utility operations increased by $0.04 and $0.14 for
the three- and twelve-month periods ended March 31, 1994, respectively, compared
to the same periods last year. The increases in core utility operating earnings
were mainly due to growth in electric revenues attributed to approximately 7%
higher kilowatt-hour (kWh) sales in both periods and higher customer base rates.
Electric sales reflect the effects of 2% yearly customer growth and weather
conditions which increased customer usage during the winter heating and summer
cooling seasons. Earnings growth from the additional electric revenues was
partially offset by increased non-fuel expenses, lower AFUDC, and the dilutive
effect on earnings per share of more common shares outstanding. Ice-storms in
the first quarter of 1994 resulted in increased maintenance costs for repairs to
electric lines; however, the increase in revenues attributed to colder weather
was more than sufficient to offset these costs.
- 10 -
STRATEGIC PLANS
- - ---------------
As previously disclosed under the "Competition" section of the Company's 1993
Annual Report on Form 10-K, the Company has developed strategic plans to address
anticipated operating cost increases and the expected loss of up to $24 million
in non-fuel revenue beginning in 1995 when the Company's largest resale customer
will start to purchase about one-half of its electricity from another utility.
The strategies are as follows: (1) reduce costs by $15 to $20 million; (2)
increase revenues through $10 to $15 million of targeted pricing surcharges; and
(3) increase revenues by an additional $10 to $20 million through short-term
energy and capacity sales to regional utilities, and additional retail sales.
These strategies are designed to aid the Company in achieving its goal of
earning a return on equity of at least 11.5%, while keeping prices competitive,
growing earnings, and protecting the current dividend level. Below are updates
to the discussion of these strategies previously disclosed in the 1993 Annual
Report on Form 10-K.
In April 1994, the Company announced that through a voluntary early retirement
option, the work force will be reduced by 7% to 10%. Work processes and
activities will be realigned with a focus on meeting the expectations of a
changing market and increasing shareholder value. The Company does not expect
that the early retirement option will result in a material charge to earnings.
The Company believes that other opportunities for cost savings exist primarily
through lower construction expenditures and interest rate management techniques.
The Company is seeking to recover through pricing surcharges $10 to $15 million
of higher costs imposed by law. These costs include the 1993 one percent
increase in the federal income tax rate, compliance with the Clean Air Act
Amendments of 1990, and nuclear decommissioning.
The Company is also working to reduce the risk of resale customers switching
energy suppliers on short notice by extending notice periods for termination of
service and negotiating long-term full supply contracts, such as with the Town
of Smyrna, Delaware. The Town has favorably received the Company's proposal for
a 20-year contract and negotiations are proceeding.
ELECTRIC REVENUES AND SALES
- - ---------------------------
Details of the changes in the various components of electric revenues are shown
below:
Increase (Decrease) in Electric Revenues
From Comparable Period in Prior Year
-----------------------------------------------
(Dollars in Millions)
Three Twelve
Months Months
------ ------
Non-fuel (Base Rate) Revenue
Increased Rates $ 11.2 $ 35.3
Sales Volume and Other 8.3 33.9
Fuel Revenue (1.7) 1.5
Interchange Delivery Revenue 14.7 40.0
------ ------
Total $ 32.5 $110.7
====== ======
- 11 -
Electric Non-fuel (Base Rate) Revenue - Increased Rates
- - -------------------------------------------------------
The electric non-fuel (base rate) revenue increases shown above as "Increased
Rates" are due to the following:
Electric Base Rate Increases
--------------------------------------------------------------
Annualized Base Effective
Jurisdiction Revenue Increase Date
------------ ---------------- ---------
Retail Electric
Delaware $24.9 million 06/01/93
Maryland $ 7.8 million 04/01/93
Virginia (1) $ 1.15 million 07/01/92
Virginia $ 1.3 million 10/05/93
Resale (FERC) (2) $ 1.5 million 06/03/93
(1) On a comparative basis, this rate increase contributed to the twelve-
month revenue increase but had no effect on the three-month revenue
variance because the rate increase was effective throughout the
entire three-month period for both 1994 and 1993.
(2) This rate increase is based on settlement agreements subject to
approval by the Federal Energy Regulatory Commission (FERC).
Electric Non-fuel (Base Rate) Revenue - Sales Volume and Other
- - --------------------------------------------------------------
Percentage changes in kWh sales billed by customer class are shown below:
Percentage Increase (Decrease) in kWh Sales
From Comparable Period in Prior Year
----------------------------------------------------
Three Twelve
Customer Class Months Months
-------------- ------ ------
Residential 14.8 % 11.1 %
Commercial 8.3 7.1
Industrial (0.1) 2.6
Resale, etc. 9.8 8.8
Total Billed Sales 8.6 7.3
Total Sales, including
Unbilled Sales 7.2 % 6.8 %
Electric non-fuel revenues from "Sales Volume and Other" variances increased
$8.3 million for the three-month period and $33.9 million for the twelve-month
period due to increases in total kWh sales of 7.2% and 6.8%, respectively. For
both periods, increases in residential, commercial, and resale kWh sales were
largely due to weather conditions that caused customer usage to increase. Sales
comparisons for both periods benefited from a winter heating season that was
colder than normal and colder than the prior year. Sales comparisons for the
twelve-month period also benefited from a summer cooling season that was hotter
than normal and much hotter than the previous year. The three- and twelve-month
increases in kWh sales also reflect the effect of 2% growth in the number of
customers. Industrial sales were relatively unchanged for the three-month
period and increased 2.6% for the twelve-month period mainly due to increased
production levels of certain large customers.
- 12 -
Electric Fuel Revenue
- - ---------------------
Fuel costs billed to customers, or fuel revenues, generally do not affect net
income since the expense recognized as fuel costs is adjusted to match the fuel
revenues. The amount of under- or over-recovered fuel costs is deferred until
it is subsequently recovered from or returned to utility customers. Higher kWh
sales and lower average electric fuel rates were the main factors which caused
fuel revenue variances of a $1.7 million decrease for the three-month period and
a $1.5 million increase for the twelve-month period.
Interchange Delivery Revenue
- - ----------------------------
Interchange delivery revenues are reflected in the calculation of rates charged
to customers under fuel adjustment clauses and, thus, do not affect net income.
Interchange delivery revenues benefit customers by reducing the effective cost
of fuel billed to customers. For the three- and twelve-month periods,
interchange delivery revenues increased $14.7 million and $40.0 million,
respectively, mainly due to higher sales to the Pennsylvania-New Jersey-Maryland
(PJM) Interconnection Association which resulted from increased demand for
electricity in the region and greater availability of the Company's generating
units.
GAS REVENUES, SALES, AND TRANSPORTATION
- - ---------------------------------------
For the three months ended March 31, 1994, gas revenues increased $11.9 million
compared to the same period last year due to a $2.3 million increase in non-fuel
revenues and a $9.6 million increase in fuel revenues. For the twelve months
ended March 31, 1994, gas revenues increased $17.4 million compared to the same
period last year due to a $1.1 million increase in non-fuel revenues and a $16.3
million increase in fuel revenues. Non-fuel revenues for both periods increased
primarily due to higher sales to firm customers which are billed at higher rates
than sales to non-firm (interruptible) and transportation customers. Firm gas
sales increased 12.0% and 2.8% for the three- and twelve-month periods,
respectively, due to colder winter weather and an increased number of
residential space heating and commercial customers. Total gas sold and
transported increased 5.8% for the three-month period and decreased 2.8% for the
twelve-month period.
Gas fuel revenues increased $9.6 million and $16.3 million in the three- and
twelve-month periods, respectively, due to higher average fuel rates charged to
customers and increased firm sales.
ELECTRIC FUEL AND PURCHASED POWER EXPENSES
- - ------------------------------------------
The components of the changes in electric fuel and purchased power expenses are
shown in the table below. Variances labeled as "Deferral of Energy Costs" were
due to varying levels of under- and/or over-collections of fuel costs which are
subsequently recovered from or returned to utility customers.
Increase (Decrease) in Electric Fuel and
Purchased Power from Comparable Period in Prior Year
----------------------------------------------------
(Dollars in Millions)
Three Twelve
Months Months
------ ------
Average Cost of Electric Fuel
and Purchased Power $ 7.4 $(3.9)
kWh Output 11.5 44.0
Deferral of Energy Costs (5.9) 1.1
----- -----
Total $13.0 $41.2
===== =====
- 13 -
During the first quarter of 1994, the kWh output of oil and gas generating units
was increased to meet the unusually high demand for power that resulted from
severely cold winter weather. More output from the oil and gas generating
units, which have higher fuel costs than the system average, was the primary
reason for the $7.4 million increase in the "Average Cost of Electric Fuel and
Purchased Power" and for the $11.5 million increase related to higher "kWh
Output." The impact on customer fuel rates of the higher average fuel cost
should be substantially reduced by additional revenues that were realized from
higher kWh sales to the PJM Interconnection Association.
For the twelve months ended March 31, 1994, compared to the same period a year
ago, the "Average Cost of Electric Fuel and Purchased Power" decreased $3.9
million chiefly due to lower average oil prices and due to the addition to the
electric system on June 1, 1993 of Hay Road Unit 4, a 175 megawatt combined-
cycle unit which uses exhaust heat from the three Hay Road combustion turbines
as its energy source. This average cost decrease was mitigated by the higher
average cost experienced in the first quarter which is discussed above.
Electric fuel and purchased expenses increased $44.0 million in the twelve-month
period due to higher kWh output from electric generating units. Output rose due
to greater electric sales demand in the Company's service territory and in the
region served by the PJM Interconnection Association.
The kWh output required to serve load within the Company's service territory is
equivalent to total output less interchange deliveries. For the twelve months
ended March 31, 1994, the Company's output for load within its service territory
was provided by 47% coal generation, 14% nuclear generation, 30% oil and gas
generation, and 9% net purchased power, which consisted primarily of purchases
under the Company's agreement with PECO Energy Company.
OPERATION, MAINTENANCE, AND DEPRECIATION EXPENSES
- - -------------------------------------------------
For the three- and twelve-month periods ended March 31, 1994, compared to the
same periods a year ago, operation and maintenance expenses increased $5.0
million and $22.9 million, respectively. The increases for both periods were
due primarily to increased maintenance expenses for repair of storm-related
damage, and higher administrative and general expenses. Administrative and
general expenses included increases for salaries and wages, and postretirement
benefits other than pensions due to the Company's adoption of SFAS No. 106
beginning in 1993. During the first quarter of 1993, the Company had deferred
the additional expense attributed to SFAS No. 106.
Depreciation increased $2.1 million and $6.5 million for the three- and twelve-
month periods, respectively, mainly due to additions to the electric system,
which included Hay Road Unit 4.
UTILITY FINANCING COSTS
- - -----------------------
Interest charges on debt of the core utility decreased $1.6 million and $6.2
million for the three- and twelve-month periods, respectively, largely due to
redemption on June 1, 1993, of $50 million of 10% First Mortgage Bonds with a
portion of the proceeds from a previous public offering of Common Stock.
Interest savings from refinancings of long-term debt also contributed to the
decreases.
AFUDC decreased $2.7 million and $6.0 million for the three- and twelve-month
periods, respectively. AFUDC decreased in both periods because construction of
Hay Road Unit 4 was completed on May 31, 1993, resulting in lower average
construction work-in-progress balances. For the twelve months ended March 31,
1994, AFUDC was 4.4% of net income.
- 14 -
Due to increased common equity financing, the average number of shares of Common
Stock outstanding increased in both the three- and twelve-month periods. The
additional shares outstanding decreased earnings per share by $0.05 for the
three-month period and $0.15 for the twelve-month period. Rates charged to
customers are designed to result in sufficient revenues to offset the dilution
of earnings per share due to increased common equity financing. This result is
reflected in operating results for the first quarter of 1994; however, for the
twelve months ended March 31, 1994, there were about three months of operating
results during which additional shares of Common Stock had been issued but rate
increases had not yet become effective.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The net cash provided by operating activities increased $21.8 million during the
three months ended March 31, 1994, compared to the same period last year mainly
due to higher utility sales and base rates. For the three months ended March
31, 1994, utility construction expenditures were $27.6 million compared to $38.4
million for the same period last year. Construction expenditures for the three
months ended March 31, 1994, were $15.7 million under budget primarily due to
delays caused by severe winter weather conditions. Internally generated funds
(net cash provided by operating activities less Common and Preferred dividends)
provided 216% of the cash required for construction for the three months ended
March 31, 1994, compared to 103% for the same period last year. For the twelve
months ended March 31, 1994 and March 31, 1993, utility construction
expenditures were $149.2 million and $208.0 million, respectively. Internally
generated funds provided 88% and 56% of the cash required for construction
during the twelve months ended March 31, 1994, and March 31, 1993, respectively.
As of March 31, 1994, the Company had repaid its term loan which had a $10
million balance as of December 31, 1993. During the three months ended March
31, 1994, $7.9 million of Common Stock was issued primarily through the
Company's Dividend Reinvestment and Common Share Purchase Plan. These factors
and a $14.6 million increase in retained earnings resulted in further
strengthening of the Company's capital structure. Long-term debt and variable
rate demand bonds as a percent of capitalization decreased from 43.0% as of
December 31, 1993 to 42.2% as of March 31, 1994. Common stockholders' equity as
a percent of capitalization increased from 47.7% as of December 31, 1993 to
48.6% as of March 31, 1994.
NONUTILITY SUBSIDIARIES
- - -----------------------
Information on the Company's nonutility subsidiaries, in addition to the
following discussion, can be found in Note 7 to the Consolidated Financial
Statements.
In the first quarter of 1994, nonutility subsidiaries earned $0.02 per share
primarily due to gains from the sale of a mini-storage facility and recovery of
previously written off joint venture assets. In comparison, the nonutility
subsidiaries earned $0.01 per share in the first quarter of 1993 largely due to
a gain on the sale of the residual value of a leveraged lease.
For the twelve-month periods ended March 31, 1994, and March 31, 1993,
nonutility subsidiary earnings per share were $0.04 and $0.01, respectively.
Both twelve-month periods included gains on sales of equity and residual value
interests in leveraged leases. Earnings increased $0.03 per share in the
current twelve-month period primarily due to gains from the sale of a mini-
storage facility and recoveries of previously written off joint venture assets.
Due to sales of leveraged lease assets, income from ongoing leveraged lease
operations declined in both the three- and twelve-month periods. However, this
earnings decrease was offset by improved operating results of the Pine Grove
Landfill and lower administrative and general expenses.
- 15 -
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
- - --------------------------
Refer to Note 5 to the Consolidated Financial Statements for updated information
concerning the complaint filed by Star against the Company in December 1993.
Item 5. Other Information
- - --------------------------
A) Peach Bottom Atomic Power Station
---------------------------------
On March 28, 1994, the Nuclear Regulatory Commission (NRC) approved PECO
Energy Company's request to extend the expiration dates to 40 years from the
date of issuance of the Facility Operating Licenses for Peach Bottom Units 2
and 3. The previous expiration dates were based on 40 years from the date of
issuance of the construction permit for both units. The amended expiration
dates of August 8, 2013, for Unit 2 and July 2, 2014, for Unit 3 extend the
operating license for Unit 2 by approximately five years, six months and the
operating license for Unit No. 3 by approximately six years, five months.
B) Salem Nuclear Generating Station
--------------------------------
On March 9, 1994, Public Service Electric & Gas Company (PSE&G) received from
the NRC a Notice of Violation and a Proposed Imposition of Civil Penalty of
$50,000 for failure to follow procedures related to control of maintenance
work activities at Salem. The violations were identified through NRC
inspections conducted between October 17 and November 27, 1993. The NRC is
concerned that similar examples of inadequate control of work processes have
been identified in the past at Salem. On April 8, 1994, PSE&G paid the civil
penalty and identified corrective actions to be taken in response to the
Notice of Violation.
On April 7, 1994, a series of problems occurred at Salem Unit 1 which resulted
in a shutdown of the unit and declaration of an alert. An NRC Augmented
Inspection Team (AIT) was sent to the site to determine the cause of the
shutdown and alert. On April 26, 1994, the AIT issued preliminary findings
which indicated that no abnormal releases of radiation occurred during the
event, management allowed equipment problems to exist that made operations
difficult, operator errors occurred which complicated the event, operator use
of emergency operating procedures was good, and PSE&G's investigation and
trouble-shooting were good.
On May 9, 1994, PSE&G and the NRC Staff presented their findings to the NRC
Commissioners, and PSE&G described the actions it has taken to prepare Salem
Unit 1 for restart. On May 11, 1994, Senator Joseph Biden, representing
Delaware, wrote to the NRC expressing his concerns regarding early restart of
the unit and requested assurances "that all outstanding mechanical and
management problems have been resolved and that a fine in the maximum amount
will be levied upon the licensee." Nevertheless, PSE&G believes that the event
has been thoroughly analyzed and that all necessary corrective actions have
been identified so as to permit the unit to return to service. PSE&G expects
to request authorization to restart the unit shortly. The Company cannot
predict what NRC enforcement action, if any, may be taken in this matter or
when PSE&G will be permitted to restart the unit.
- 16 -
C) Delaware Task Force on Regulation
---------------------------------
As previously reported under the "Competition" section of the Company's 1993
Annual Report on Form 10-K, in Delaware, the Governor has convened a task force
"to recommend reforms to the existing regulatory process, structure and
organization that will improve utility efficiency and encourage utility
innovation, while assuring continued availability of utility services at
affordable and competitive prices." In May 1994, the task force issued a
preliminary report to the Governor which included the following recommendations:
(1) Replace the current five-member, part-time Delaware Public Service
Commission (DPSC) with three full-time commissioners and expand the
Staff in order to manage the regulatory process more effectively,
examine policy issues more thoroughly, and reduce the use of outside
consultants and attorneys.
(2) Provide the DPSC with the authority to deregulate competitive
markets, implement alternative forms of regulation, and allow
economic development rates .
(3) Pass legislation which would encourage the DPSC to resolve matters
through the use of settlements.
(4) Strengthen the role of the Office of the Public Advocate (OPA) and
provide the OPA with an in-house legal and regulatory research staff.
A final report containing the recommendations of the task force is expected to
be issued in June 1994.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
A) Exhibits
--------
Exhibit 12, Computation of Ratio of Earnings to Fixed Charges.
B) Reports on Form 8-K
-------------------
The Company did not file any Reports on Form 8-K during the first quarter of
1994.
- 17 -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delmarva Power & Light Company
------------------------------
(Registrant)
Date: May 13, 1994 /s/ B. S. Graham
-------------------- --------------------------------
B. S. Graham, Vice President and
Chief Financial Officer
- 18 -
EXHIBIT INDEX
-------------
Exhibit Page
Number Number
------ ------
Computation of ratio of earnings to fixed charges 12 20
- 19 -