UNITED STATES
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...June 30, 1995............
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..........1-1401..........
.....................PECO Energy Company.....................
(Exact name of registrant as specified in its charter)
............Pennsylvania.................... 23-0970240......
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
...2301 Market Street, Philadelphia, PA..........19103.......
(Address of principal executive offices) (Zip Code)
......................(215) 841-4000........................
(Registrant's telephone number, including area code)
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. The Company had 221,903,072
shares of common stock outstanding on July 31, 1995.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Millions of Dollars)
3 Months Ended 6 Months Ended
June 30, June 30,
------------------------- --------------------------
1995 1994 1995 1994
------- ------- --------- ---------
OPERATING REVENUES
Electric $887.5 $885.4 $1,768.9 $1,807.0
Gas 71.1 66.2 248.3 273.0
------- ------- --------- ---------
TOTAL OPERATING REVENUES 958.6 951.6 2,017.2 2,080.0
------- ------- --------- ---------
OPERATING EXPENSES
Fuel and Energy Interchange 166.6 161.5 366.9 421.3
Other Operating 213.2 250.9 444.8 473.6
Maintenance 74.4 86.4 155.4 176.6
Depreciation 112.5 109.3 224.1 218.0
Income Taxes 85.6 68.7 183.6 172.4
Other Taxes 73.7 72.0 153.1 155.0
------- ------ --------- ---------
TOTAL OPERATING EXPENSES 726.0 748.8 1,527.9 1,616.9
------- ------- --------- ---------
OPERATING INCOME 232.6 202.8 489.3 463.1
------- ------- --------- ---------
OTHER INCOME AND DEDUCTIONS
Allowance for Other Funds Used
During Construction 3.2 2.9 7.5 5.0
Gain on Sale of Subsidiary, Net 27.1 -- 27.1 --
Income Taxes (1.0) (8.5) (2.3) (11.4)
Other, Net 0.6 16.8 2.3 24.1
------- ------- --------- ---------
TOTAL OTHER INCOME AND DEDUCTIONS 29.9 11.2 34.6 17.7
------- ------- --------- ---------
INCOME BEFORE INTEREST CHARGES 262.5 214.0 523.9 480.8
------- ------- --------- ---------
INTEREST CHARGES
Long-Term Debt 97.0 92.0 196.1 192.0
Company Obligated Minority Interests
in Partnership 5.0 -- 10.0 --
Short-Term Debt 9.8 9.1 19.3 18.8
------- ------- --------- ---------
TOTAL INTEREST CHARGES 111.8 101.1 225.4 210.8
Allowance for Borrowed Funds
Used During Construction (2.9) (3.1) (7.1) (5.4)
------- ------- --------- ---------
NET INTEREST CHARGES 108.9 98.0 218.3 205.4
Net Income 153.6 116.0 305.6 275.4
Preferred Stock Dividends 6.0 10.8 12.1 21.6
------- ------- --------- ---------
EARNINGS APPLICABLE TO COMMON STOCK $147.6 $105.2 $293.5 $253.8
======= ======= ========= =========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING (Millions) 221.8 221.5 221.7 221.5
EARNINGS PER AVERAGE COMMON
SHARE (Dollars) $0.67 $0.48 $1.32 $1.15
DIVIDENDS PER COMMON SHARE (Dollars) $0.405 $0.38 $0.81 $0.76
See Notes to Condensed Consolidated Financial Statements
- 2 -
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
June 30, December 31,
1995 1994
(UNAUDITED)
--------- ---------
ASSETS
UTILITY PLANT
Plant at Original Cost $14,477.6 $14,414.6
Less Accumulated Provision for Depreciation 4,393.1 4,242.6
--------- ---------
10,084.5 10,172.0
Nuclear Fuel, Net 159.9 184.2
Construction Work in Progress 449.0 472.5
Leased Property, Net 163.2 174.6
--------- ---------
10,856.6 11,003.3
--------- ---------
CURRENT ASSETS
Cash and Temporary Cash Investments 130.1 47.0
Accounts Receivable, Net
Customer 72.1 97.0
Other 53.7 49.8
Inventories, at Average Cost
Fossil Fuel 74.3 72.8
Materials and Supplies 121.2 118.2
Deferred Income Taxes 9.2 12.0
Other 222.7 58.0
--------- ---------
683.3 454.8
--------- ---------
DEFERRED DEBITS AND OTHER ASSETS
Recoverable Deferred Income Taxes 2,067.9 2,138.1
Deferred Limerick Costs 403.1 413.9
Deferred Non-Pension Postretirement Benefits Costs 254.1 261.9
Investments 252.1 236.6
Loss on Reacquired Debt 307.4 320.9
Other 254.9 263.3
--------- ---------
3,539.5 3,634.7
--------- ---------
TOTAL $15,079.4 $15,092.8
========= =========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Shareholders' Equity
Common Stock (No Par) $ 3,498.5 $ 3,490.7
Other Paid-In Capital 1.3 1.3
Retained Earnings 923.4 810.5
Preferred and Preference Stock
Without Mandatory Redemption 277.4 277.4
With Mandatory Redemption 92.7 92.7
Company Obligated Minority Interests in Partnership 221.3 221.3
Long-Term Debt 4,515.5 4,785.6
--------- ---------
9,530.1 9,679.5
--------- ---------
CURRENT LIABILITIES
Notes Payable, Bank -- 11.5
Long-Term Debt Due Within One Year 375.9 201.2
Capital Lease Obligations Due Within One Year 60.5 60.5
Accounts Payable 205.2 308.8
Taxes Accrued 147.7 87.2
Deferred Energy Costs 8.6 15.5
Interest Accrued 92.9 93.2
Dividends Payable 27.8 15.1
Other 145.7 85.6
--------- ---------
1,064.3 878.6
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Capital Lease Obligations 102.7 114.1
Deferred Income Taxes 3,200.7 3,225.9
Unamortized Investment Tax Credits 355.9 374.1
Pension Obligation for Early Retirement Plan 238.3 238.3
Non-Pension Postretirement Benefits Obligation 370.4 354.5
Other 217.0 227.8
--------- ---------
4,485.0 4,534.7
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 5)
--------- ---------
TOTAL $15,079.4 $15,092.8
========= =========
See Notes to Condensed Consolidated Financial Statements
- 3 -
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
6 Months Ended
June 30,
-------------------------
1995 1994
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $305.6 $275.4
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 259.4 255.0
Deferred Income Taxes 65.7 38.2
Gain on Sale of Subsidiary (58.7) --
Deferred Energy Costs (6.6) (19.0)
Changes in Working Capital:
Accounts Receivable 13.6 16.0
Inventories (4.7) 20.4
Accounts Payable (99.5) (42.8)
Other Current Assets and Liabilities (44.5) (101.5)
Other Items Affecting Operations 9.1 (16.0)
-------- --------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 439.4 425.7
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Plant (223.6) (219.0)
Proceeds from Sale of Subsidiary 150.0 --
Increase in Investments (16.9) (15.8)
-------- --------
NET CASH FLOWS USED BY INVESTING ACTIVITIES (90.5) (234.8)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Short-Term Debt (11.5) 62.2
Issuance of Common Stock 7.8 0.8
Retirement of Preferred Stock (0.1) (4.3)
Issuance of Long-Term Debt -- 145.9
Retirement of Long-Term Debt (97.3) (224.1)
Loss on Reacquired Debt 13.5 9.9
Dividends on Preferred and Common Stock (191.7) (189.9)
Change in Dividends Payable 12.7 12.7
Other Items Affecting Financing 0.8 1.1
-------- --------
NET CASH FLOWS USED BY FINANCING ACTIVITIES (265.8) (185.7)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 83.1 5.2
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 47.0 46.9
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $130.1 $52.1
======== ========
See Notes to Condensed Consolidated Financial Statements
- 4 -
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited,
but include all adjustments that PECO Energy Company (Company) considers
necessary for a fair presentation of such financial statements. All adjustments
are of a normal, recurring nature except for the recognition of a one-time gain
of $58.7 million ($27.1 million net of taxes) in the second quarter of 1995 to
recognize the Company's sale of its Maryland retail electric subsidiary,
Conowingo Power Company, described in note 2. The year-end condensed
consolidated balance sheet data were derived from audited financial statements
but do not include all disclosures required by generally accepted accounting
principles.
These notes should be read in conjunction with the Notes to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (1994 Form 10-K).
2. SALE OF SUBSIDIARY COMPANY COMPLETED
On June 19, 1995, the Company completed the sale of Conowingo Power Company
to Delmarva Power & Light Company (Delmarva) for $150 million. The transaction,
which was approved by state and federal regulators, also included a 10-year
contract for the Company to sell power to Delmarva.
The Company's gain on the sale of $58.7 million ($27.1 million net of
taxes) is included in second quarter earnings.
- 5 -
The sale did not involve the Conowingo Hydroelectric Project, which is owned by
two Company subsidiaries, PECO Energy Power Company and Susquehanna Power
Company.
3. SALES OF ACCOUNTS RECEIVABLE
The Company is party to an agreement with a financial institution under
which it can sell on a daily basis and with limited recourse an undivided
interest in up to $325 million of designated accounts receivable through January
24, 1996. At June 30, 1995, the Company had sold a $325 million interest in
accounts receivable under this agreement. The Company retains the servicing
responsibility for these receivables. At June 30, 1995, the average annual
service-charge rate, computed on a daily basis on the portion of the accounts
receivable sold but not yet collected, was 6.2%.
By terms of this agreement, under certain circumstances, a portion of
Deferred Limerick Costs may be included in the pool of eligible receivables. At
June 30, 1995, $34.1 million of Deferred Limerick Costs were included in the
pool of eligible receivables.
4. ACCOUNTING UNDER STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
(SFAS) NO. 121
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires that long-lived assets and certain
identifiable
- 6 -
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The new standard is effective for fiscal years beginning
after December 15, 1995. The Company is currently evaluating the impact of the
standard, but does not expect it to have a material effect upon the Company's
financial condition or results of operations.
5. COMMITMENTS AND CONTINGENCIES
The Price-Anderson Act, as amended (Price-Anderson Act), sets the limit of
liability of approximately $8.9 billion for claims that could arise from an
incident involving any licensed nuclear facility in the nation. The limit is
subject to increase to reflect the effects of inflation and changes in the
number of licensed reactors. All utilities with nuclear generating units,
including the Company, have obtained coverage for these potential claims through
a combination of private insurances of $200 million and mandatory participation
in a financial protection pool. Under the Price-Anderson Act, all nuclear
reactor licensees can be assessed up to $76 million per reactor per incident,
payable at no more than $10 million per reactor per incident per year. This
assessment is subject to inflation, state premium taxes and an additional
surcharge of 5% if the total amount of claims and legal costs exceeds the basic
assessment. If the damages from an incident at a licensed nuclear facility
exceed $8.9 billion, the President of the United States is to submit to Congress
a plan for providing additional
- 7 -
compensation to the injured parties. Congress could impose further
revenue-raising measures on the nuclear industry to pay claims. The
Price-Anderson Act and the extensive regulation of nuclear safety by the Nuclear
Regulatory Commission (NRC) do not preempt claims under state law for personal,
property or punitive damages related to radiation hazards.
Although the NRC requires the maintenance of property insurance on nuclear
power plants in the amount of $1.06 billion or the amount available from private
sources, whichever is less, the Company maintains coverage in the amount of its
$2.75 billion proportionate share for each station. The Company's insurance
policies provide coverage for decontamination liability expense, premature
decommissioning and loss or damage to its nuclear facilities. These policies
require insurance proceeds first be applied to assure that, following an
accident, the facility is in a safe and stable condition and can be maintained
in such condition. Within 30 days of stabilizing the reactor, the licensee must
submit a report to the NRC which provides a clean-up plan, including the
identification of all clean-up operations necessary to decontaminate the reactor
to permit either the resumption of operations or decommissioning of the
facility. Under the Company's insurance policies, proceeds not already expended
to place the reactor in a stable condition must be used to decontaminate the
facility. If the decision is made to decommission the facility, a portion of the
insurance proceeds will be allocated to a fund which the Company is required by
the NRC to maintain to provide funds for decommissioning the
- 8 -
facility. These proceeds would be paid to the fund to make up any difference
between the amount of money in the fund at the time of the early decommissioning
and the amount that would have been in the fund if contributions had been made
over the normal life of the facility. The Company is unable to predict what
effect these requirements may have on the timing of the availability of
insurance proceeds to the Company for the Company's bondholders and the amount
of such proceeds which would be available. Under the terms of the various
insurance agreements, the Company could be assessed up to $48 million for losses
incurred at any plant insured by the insurance companies. The Company is
self-insured to the extent that any losses may exceed the amount of insurance
maintained. Any such losses, if not recovered through the ratemaking process,
could have a material adverse effect on the Company's financial condition or
results of operations.
The Company is a member of an industry mutual insurance company which
provides replacement power cost insurance in the event of a major accidental
outage at a nuclear station. The policy contains a 21-week waiting period before
recovery of costs can commence. The premium for this coverage is subject to
assessment for adverse loss experience. The Company's maximum share of any
assessment is $14 million per year.
* * * *
On April 11, 1991, 33 former employees of the Company filed an amended
class action suit against the Company in the United States District Court for
the Eastern District of Pennsylvania
- 9 -
(Eastern District Court) on behalf of approximately 141 persons who retired from
the Company between January and April 1990. The lawsuit, filed under the
Employee Retirement Income Security Act (ERISA), alleges that the Company
fraudulently and/or negligently misrepresented or concealed facts concerning the
Company's 1990 Early Retirement Plan and thus induced the plaintiffs to retire
or not to defer retirement immediately before the initiation of the 1990 Early
Retirement Plan, thereby depriving the plaintiffs of substantial pension and
salary benefits. In June 1991, the plaintiffs filed amended complaints adding
additional plaintiffs. The lawsuit names the Company, the Company's Service
Annuity Plan (SAP) and two Company officers as defendants. The plaintiffs seek
approximately $20 million in damages representing, among other things, increased
pension benefits and nine months salary pursuant to the terms of the 1990 Early
Retirement Plan, as well as punitive damages. On March 24 and 25, 1994, the case
was tried in Eastern District Court on the issue of liability. On May 13, 1994,
the Eastern District Court issued a decision, finding the Company liable to all
plaintiffs who made inquiries about any early retirement plan after March 12,
1990 and retired prior to April 1990. The Eastern District Court will try the
case on the issue of damages. The ultimate outcome of this matter is not
expected to have a material adverse effect on the Company's financial condition
or results of operations.
* * * *
On May 2, 1991, 37 former employees of the Company filed an amended class
action suit against the Company, the SAP and three
- 10 -
former Company officers in the Eastern District Court on behalf of 147 former
employees who retired from the Company between January and June 1987. The
lawsuit was filed under ERISA and concerns the August 1, 1987 amendment to the
SAP. The plaintiffs claim that the Company concealed or misrepresented the fact
that an amendment to the SAP was planned to increase retirement benefits and, as
a consequence, they retired prior to the amendment to the SAP and were deprived
of significant retirement benefits. The complaint does not specify any dollar
amount of damages. On March 24 and 25, 1994, the case was tried in Eastern
District Court on the issue of liability. On May 13, 1994, the Eastern District
Court issued a decision, finding the Company liable to all plaintiffs who made
inquiries about any pension improvement after March 1, 1987 and retired prior to
June 1987. The Eastern District Court will try the case on the issue of damages.
The ultimate outcome of this matter is not expected to have a material adverse
effect on the Company's financial condition or results of operations.
* * * *
As disclosed in note 3 of Notes to Consolidated Financial Statements for
the year ended December 31, 1994, the Company's share of the current estimated
cost for decommissioning nuclear generating stations, based on site-specific
studies approved for ratemaking purposes by the Pennsylvania Public Utility
Commission (PUC), is $643 million expressed in 1990 dollars. Under current
rates, the Company collects approximately $20 million annually from customers
for decommissioning the Company's nuclear units.
- 11 -
At June 30, 1995, the Company held $188 million in trust accounts, representing
amounts recovered from customers and realized investment earnings thereon, to
fund future decommissioning costs. The Company's most recent estimate of its
share of the cost to decommission its nuclear units is $900 million in 1994
dollars. Any increase in the 1990 decommissioning cost estimate being recovered
in base rates is to be recoverable in the Company's next base rate case. As a
result, the Company expects to receive recovery of a higher level of
decommissioning expense in its next base rate proceeding. The staff of the
Securities and Exchange Commission has questioned the electric utility industry
accounting practices regarding the recognition, measurement and classification
of decommissioning costs for nuclear generating stations in financial
statements. The FASB has agreed to review the accounting for removal costs
including decommissioning. The Company does not expect the outcome of this
review to have a material effect on the Company's financial condition or results
of operations.
As disclosed in note 3 of Notes to Consolidated Financial Statements for
the year ended December 31, 1994, the Company recorded an estimated liability
and related regulatory asset of $59 million, reflecting the Company's share of
the costs of decommissioning and decontamination of the United States Department
of Energy's nuclear enrichment facilities which the Company is required to pay
under the National Energy Policy Act of 1992 (Energy Act). The Company is paying
its share of such costs on an installment basis through 2006 and is currently
- 12 -
recovering these costs in rates through the Energy Cost Adjustment clause.
The Company believes that the ultimate costs of decommissioning and
decontamination of its nuclear generating stations and any assessment under the
Energy Act will continue to be recoverable through rates, although such recovery
is not assured.
* * * *
The Company's operations have in the past and may in the future require
substantial capital expenditures in order to comply with environmental laws.
Additionally, under federal and state environmental laws, the Company is
generally liable for the costs of remediating environmental contamination of
property now or formerly owned by the Company or of property contaminated by
hazardous substances generated by the Company. The Company owns or leases a
substantial number of real estate parcels, including parcels on which its
operations or the operations of others may have resulted in contamination by
substances which are considered hazardous under environmental laws. The Company
is currently involved in a number of proceedings relating to sites where
hazardous substances have been deposited and may be subject to additional
proceedings in the future. An evaluation of all Company sites for potential
environmental clean-up liability is in progress, including approximately 20
sites where manufactured gas plant activities may have resulted in site
contamination. Past activities at several sites have resulted in actual site
contamination. The Company is presently engaged in performing
- 13 -
detailed evaluations of these sites to define the nature and extent of the
contamination, to determine the necessity of remediation and to identify
possible remediation alternatives. At June 30, 1995, the Company had accrued $20
million for various investigation and remediation costs that currently can be
reasonably estimated. The Company cannot currently predict whether it will incur
other significant liabilities for additional investigation and remediation costs
at these or additional sites identified by the Company, environmental agencies
or others, or whether all such costs will be recoverable through rates or from
third parties.
* * * *
The Company is involved in various other litigation matters, the ultimate
outcomes of which, while uncertain, are not expected to have a material adverse
effect on the Company's financial condition or results of operations.
* * * *
- 14 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
The Company's construction program is currently estimated to require
expenditures of approximately $495 million for 1995 and $1.8 billion from 1996
to 1999, all of which are expected to be financed from internal sources. The
Company's construction program is subject to periodic review and revision to
reflect changes in economic conditions, revised load forecasts and other
appropriate factors. Certain facilities under construction and to be constructed
may require permits and licenses which the Company has no assurance will be
granted.
* * * *
On June 19, 1995, the Company completed the sale of Conowingo Power Company
(COPCO) to Delmarva Power & Light Company (Delmarva) for $150 million. Proceeds
from the sale will be used to retire long-term debt and for general corporate
purposes. The transaction also included a 10-year contract to sell power to
Delmarva. Revenue received under this contract is expected to offset the revenue
lost as a result of the sale of COPCO.
* * * *
See note 5 of Notes to Condensed Consolidated Financial Statements in this
Quarterly Report on Form 10-Q under "PART I. FINANCIAL INFORMATION, ITEM 1.
FINANCIAL STATEMENTS," for a discussion of commitments and contingencies
relating to environmental matters.
* * * *
- 15 -
Salem Generating Station (Salem) Unit No. 1 and Unit No. 2 were removed
from service on May 16, 1995 and June 7, 1995, respectively. The Company owns a
42.59% share of each of the units. The operator, Public Service Electric and Gas
Company (PSE&G), currently estimates that Unit No. 1 will be ready to return to
service in the first quarter of 1996 and Unit No. 2 during the second quarter of
1996, although no assurances can be given.
The Company expects to purchase replacement power, to the extent necessary,
and to incur additional operating and maintenance expenses until Salem is
returned to service. While replacement power costs could vary significantly on a
month-to-month basis depending on a number of factors, the Company's current
estimate is that the replacement power costs for Salem will average
approximately $5 million per month. The Company cannot predict the length of the
shutdown, the total cost of replacement power or whether the Company will be
permitted by the Pennsylvania Public Utility Commission (PUC) to recover the
replacement power costs through the Energy Cost Adjustment clause. For
additional information see "PART II. OTHER INFORMATION, ITEM 5. OTHER
INFORMATION," in this Quarterly Report on Form 10-Q.
* * * *
The Company's future financial condition or results of operations may be
affected by increased competition among utilities and non-utility generators in
the power generation market and regulatory changes designed to encourage such
- 16 -
competition. To date, the Company's electric business, particularly sales to
large industrial customers and off-system sales, has been affected by increased
competition. The Company has responded to increased competition for
larger-volume industrial customers through the use of interruptible rates and
long-term contracts with cost-based rates. In the wholesale market, the Company
has increased its off-system sales but increased competition has reduced the
Company's margin for these sales.
On March 29, 1995, the Federal Energy Regulatory Commission (FERC) issued a
Notice of Proposed Rulemaking regarding open access to utility transmission
facilities. See the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1995 (March 31, 1995 Form 10-Q) under "PART II. OTHER INFORMATION,
ITEM 5. OTHER INFORMATION," for a discussion of the FERC's proposed rules. In
addition, see "PART II. OTHER INFORMATION, ITEM 5. OTHER INFORMATION," in this
Quarterly Report on Form 10-Q for a discussion of the PUC's investigation into
electric power competition issues.
* * * *
At June 30, 1995, the Company and its subsidiaries had no short-term
borrowings outstanding. The Company has formal and informal lines of bank credit
aggregating $351 million. At June 30, 1995, the Company and its subsidiaries had
$80 million of short-term investments.
* * * *
- 17 -
In June 1995, the Company entered into a $400 million revolving credit
agreement with a group of banks and terminated a $150 million revolving credit
and term loan agreement. The Company anticipates utilizing up to $300 million of
the borrowing capacity under the new revolving credit facility to support the
issuance, from time to time, of commercial paper. This will permit the Company
to reduce its formal and informal lines of bank credit. The Company had no
commercial paper outstanding at June 30, 1995.
* * * *
The Company's Ratio of Earnings to Fixed Charges (Mortgage Method) for the
twelve months ended June 30, 1995 was 3.71 times compared to 4.43 times for the
corresponding period ended June 30, 1994. The Company's Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends (Articles of Incorporation
Method) for the twelve months ended June 30, 1995, was 2.17 times compared to
2.40 times for the corresponding period ended June 30, 1994. These ratios,
although significantly above minimum requirements, will continue to be adversely
affected through the third quarter of 1995 by the one-time charge in the third
quarter of 1994 as a result of the voluntary retirement and separation programs
approved by the Company's Board of Directors in April 1994. For the six months
ended June 30, 1995, the Company's Ratio of Earnings to Fixed Charges (SEC
Method) and Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends (SEC Method) were 3.46 times and 3.15 times, respectively. See the
Company's Annual Report on Form 10-K for the year ended
- 18 -
December 31, 1994 (1994 Form 10-K) under "PART I. ITEM 1. BUSINESS-Capital
Requirements and Financing Activities," for a discussion of the ratio methods.
* * * *
RESULTS OF OPERATIONS
EARNINGS
Common stock earnings for the three and six months ended June 30, 1995 were
$0.67 and $1.32 per share, respectively, compared to $0.48 and $1.15 per share
for the corresponding periods ended June 30, 1994. The increase in earnings for
the second quarter of 1995 was due primarily to the gain recognized on the sale
of Conowingo Power Company (COPCO) in June 1995 which resulted in a $0.12 per
share increase compared to the prior year, and to lower non-fuel operating and
maintenance expenses of $0.12 per share. These increases in 1995 earnings were
partially offset by a reduction in other income due to revenues recorded in 1994
from the receipt of nuclear fuel from Shoreham Nuclear Power Station (Shoreham)
of $0.06 per share.
The earnings increase for the six months ended June 30, 1995 was due
primarily to the gain recognized on the sale of COPCO in June 1995 which
resulted in a $0.12 per share increase compared to the prior year, and $0.16 per
share resulting from lower non- fuel operating and maintenance expenses.
Earnings also increased by $0.04 per share due to fuel-related revenues
associated with sales to other utilities and by $0.04 per share from the
retention by the Company of a share of the energy savings resulting from the
operation of Limerick Generating Station
- 19 -
(Limerick) as provided by the 1991 Limerick Settlement Agreement. These
increases were partially offset by $0.13 per share for milder weather conditions
for the six months ended June 30, 1995 as compared to the corresponding period
ended June 30, 1994, and by $0.06 per share related to a reduction in other
income due to revenues recorded in 1994 from the receipt of nuclear fuel from
Shoreham.
* * * *
OPERATING REVENUES
Electric revenues increased 0.2% and decreased 2.1% for the three and six
months ended June 30, 1995, respectively, compared to the corresponding periods
ended June 30, 1994. The increase for the three months ended June 30, 1995 was
primarily due to increased sales to other utilities. This increase was partially
offset by decreased retail sales due to cooler summer weather conditions in
1995. The decrease for the six months ended June 30, 1995 was primarily due to
decreased retail sales resulting from milder weather conditions in 1995 and
lower fuel-clause revenues.
Gas revenues increased 7.4% and decreased 9.1% for the three and six months
ended June 30, 1995, respectively, compared to the corresponding periods ended
June 30, 1994. The increase for the three months ended June 30, 1995 was
primarily due to increased sales to retail customers and higher fuel-clause
revenues. The decrease for the six months ended June 30, 1995 was primarily due
to decreased retail and small commercial sales resulting from
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milder weather conditions in 1995. This decrease was partially offset by higher
fuel-clause revenues.
* * * *
FUEL AND ENERGY INTERCHANGE EXPENSES
Fuel and energy interchange expenses increased 3.2% and decreased 12.9% for
the three and six months ended June 30, 1995, respectively, compared to the
corresponding periods ended June 30, 1994. The increase for the three months
ended June 30, 1995 was primarily due to increased sales to other utilities. The
decrease for the six months ended June 30, 1995 was primarily due to decreased
electric output and gas sendout resulting from weather conditions, and net
credits to expense from the retention by the Company of a share of the energy
savings resulting from the operation of Limerick and from certain energy sales
to other utilities.
* * * *
OPERATION AND MAINTENANCE EXPENSES
Operation and maintenance expenses decreased 14.7% and 7.7% for the three
and six months ended June 30, 1995, respectively, compared to the corresponding
periods ended June 30, 1994 primarily due to the Company's continuing
cost-control efforts, including the savings associated with the Company's 1994
voluntary retirement and separation programs as well as lower nuclear generating
station charges resulting from fewer and shorter refueling and maintenance
outages. In addition, inventory and environmental charges were lower in 1995 as
compared to the prior year. For the six months ended June 30,
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1995, these decreases were partially offset by increased process reengineering
costs.
* * * *
DEPRECIATION
Depreciation expense increased 2.9% and 2.8% for the three and six months
ended June 30, 1995, respectively, compared to the corresponding period ended
June 30, 1994 primarily due to additions to plant in service.
* * * *
INCOME TAXES
Income taxes charged to operating expenses increased 24.6% and 6.5% for the
three and six months ended June 30, 1995, respectively, compared to the
corresponding periods ended June 30, 1994 primarily due to higher operating
income which was partially offset by higher interest expense allocated to
operations.
* * * *
OTHER TAXES
Other taxes charged to operating expenses increased by 2.4% and decreased
1.2% for the three and six months ended June 30, 1995, respectively, compared to
the corresponding periods ended June 30, 1994. The increase for the three months
ended June 30, 1995 was primarily due to increased Pennsylvania gross receipts
tax resulting from higher operating revenues and increased capital stock taxes.
The decrease for the six months ended June 30, 1995 was primarily due to
decreased Pennsylvania gross
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receipts taxes resulting from lower operating revenues and lower real estate
taxes.
* * * *
OTHER INCOME AND DEDUCTIONS
Other income and deductions increased significantly for the three and six
months ended June 30, 1995, respectively, compared to the corresponding periods
ended June 30, 1994 primarily due to the gain recognized on the sale of COPCO in
June 1995 and decreased income taxes on other income. These increases were
partially offset by revenues recorded in 1994 from the receipt of nuclear fuel
from Shoreham.
* * * *
TOTAL INTEREST CHARGES
Total interest charges increased 11.1% and 6.3% for the three and six
months ended June 30, 1995, respectively, compared to the corresponding periods
ended June 30, 1994 primarily due to the July 1994 issuance of Monthly Income
Preferred Securities (reflected in the financial statements as Company Obligated
Minority Interests in Partnership).
* * * *
PREFERRED DIVIDENDS
Preferred stock dividends decreased 44.4% and 44.0% for the three and six
months ended June 30, 1995 compared to the corresponding periods ended June 30,
1994 due to redemptions of preferred stock in the third quarter of 1994 with the
proceeds from the issuance of Monthly Income Preferred Securities.
* * * *
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in the 1994 Form 10-K, on April 12, 1994, the
Company filed a motion for summary judgment seeking termination of the July 26,
1993 shareholder derivative suit regarding the Company's prior credit and
collections practices. On June 29, 1995, the Court of Common Pleas of
Philadelphia County denied the Company's motion for summary judgment. On July
28, 1995, the Company filed a motion requesting the court to, among other
things, reconsider its decision.
* * * *
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information regarding the submission of matters to a vote of security
holders was presented in the March 31, 1995 Form 10-Q.
* * * *
ITEM 5. OTHER INFORMATION
On August 2, 1995, the Company's single-hour peak load reached 7,262
megawatts (MW), surpassing the previous peak of 7,227 MW set on July 8, 1994.
Also, on August 2, 1995, the single-hour peak load for the Pennsylvania-New
Jersey-Maryland Interconnection Association (PJM) reached 48,750 MW. The PJM's
previous peak was 47,240 MW set on July 27, 1995.
* * * *
On May 24, 1995, the Nuclear Regulatory Commission (NRC) issued its
periodic Systematic Assessment of Licensee Performance (SALP) Report for
Limerick for the period September 26, 1993 to April 1, 1995. The SALP process
rates nuclear power plant
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licensees in four functional areas: plant operations, maintenance, engineering,
and plant support. The plant support area includes radiological controls,
security, emergency preparedness, fire protection, chemistry, and housekeeping
controls.
Limerick achieved ratings of "1," the highest of the three rating
categories, in all four areas. The NRC stated that, overall, it observed an
excellent level of performance at Limerick. The NRC noted continued strong
performance in the operations and engineering areas during this SALP period and
improved performance was noted in the maintenance and plant support areas. The
NRC stated that factors contributing to this level of performance included
excellent oversight management, along with excellent interdepartmental
communication and coordination of activities. Particularly, the NRC noted the
Company's excellent planning and execution of the two refueling outages during
the SALP period and the aggressive use of probabilistic safety assessment in
scheduling outage and non- outage maintenance activities.
The NRC also stated that, in recognition of Limerick's superior
performance, the next SALP period for Limerick has been extended to 24 months
and both the number of resident NRC inspectors and planned total inspection
hours have been reduced.
* * * *
On August 2, 1995, the NRC held an enforcement conference regarding three
alleged violations identified by the NRC at Peach Bottom Atomic Power Station.
The NRC's findings include alleged
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violations in control and design activities and technical specification
requirements regarding operability of the emergency diesel generators. The
Company cannot predict what action, if any, the NRC may take as a result of the
enforcement conference.
* * * *
As previously reported in the Company's Current Reports on Form 8-K dated
June 13, 1995 and July 24, 1995, the Company has been informed by PSE&G that,
Salem Unit No. 1 and Unit No. 2 were taken out of service May 16, 1995 and June
7, 1995, respectively. On August 10, 1995, PSE&G met with the NRC concerning the
Salem restart plan (Plan). PSE&G presented an overview of the Plan and discussed
independent oversight and engineering performance issues.
* * * *
The Company has also been informed by PSE&G that, on July 28, 1995, the NRC
held an enforcement conference, originally scheduled for June 1, 1995, regarding
Salem. Apparent violations discussed included valves that were incorrectly
positioned following a plant modification in May 1993, nonconservatisms in
setpoints for a pressurizer overpressure protection system and several examples
of inadequate root-cause determination of events, leading to insufficient
corrective actions at Salem. PSE&G cannot predict what action, if any, the NRC
may take as a result of this meeting.
* * * *
As previously reported in the 1994 Form 10-K, all of the appeals relating
to the Point Pleasant Project have been
- 26 -
resolved, except for two appeals pending before the Commonwealth Court of
Pennsylvania (Commonwealth Court). The appeals relate to two orders issued by
the Pennsylvania Environmental Hearing Board (EHB) which had dismissed two
appeals filed by certain groups concerning National Pollutant Discharge
Elimination System permits issued by the Pennsylvania Department of
Environmental Resources (now the Pennsylvania Department of Environmental
Protection). On June 14, 1995, the Commonwealth Court affirmed the orders of the
EHB dismissing the two appeals. The time for petitioning the Supreme Court of
Pennsylvania for further appeal has expired.
* * * *
As previously reported in the 1994 Form 10-K, on May 24, 1994, the Company
entered into a stock purchase agreement to sell COPCO to Delmarva Power & Light
Company. On June 19, 1995, the Company completed the sale. See note 2 of Notes
to Condensed Consolidated Financial Statements in this Quarterly Report on Form
10-Q under "PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS."
* * * *
As previously reported in the 1994 Form 10-K, on August 5, 1994, Duquesne
Light Company (Duquesne) filed an application under Section 211 of the Federal
Power Act requesting that the FERC order the Company and the other PJM member
and associate utilities to provide it with 300 MW of firm transmission service
for a 20-year term. On May 17, 1995, the FERC issued an order requiring the PJM
companies to provide transmission service to
- 27 -
Duquesne. The order provides guidance as to the rates, terms and conditions for
the service and directs that further procedures be held, including negotiations
among the parties and the filing of additional briefs.
* * * *
As previously reported in the 1994 Form 10-K, in May 1994, the PUC
instituted an investigation into electric power competition issues. On August 4,
1995, the PUC released a report on electric power competition prepared by the
PUC's Bureau of Conservation, Economics and Energy Planning and the PUC's Law
Bureau. The report, which is not binding on the PUC, recommends against retail
wheeling and supports alternative regulatory measures to reduce electric rates
over time. The report also identifies significant legal issues, including the
scope of the PUC's existing authority to order retail wheeling and the ability
of utilities to recover stranded costs caused by the introduction of retail
wheeling. Concurrent with release of the report, the PUC announced its intention
to schedule hearings after which the PUC itself would issue a report to the
Governor of Pennsylvania and the Pennsylvania Legislature.
* * * *
On May 31, 1995, the Company filed Purchased Gas Cost No. 12 rates for the
period December 1, 1995 through November 30, 1996, which reflect a $0.80 per
thousand cubic feet reduction in natural gas sales rates. The rate filing is
under review by the PUC.
* * * *
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As previously reported in the 1994 Form 10-K, a settlement has been reached
among the potentially responsible parties (PRPs), the federal and private PRPs,
the Commonwealth of Kentucky and the United States Environmental Protection
Agency (EPA) concerning remedial activities at the Maxey Flats disposal site
near Moorehead, Kentucky. On June 5, 1995, a Consent Decree, which included the
terms of the settlement, was filed with the United States District Court for the
Eastern District of Kentucky. The Consent Decree was subject to public comment
through August 8, 1995.
* * * *
As previously reported in the 1994 Form 10-K, on October 14, 1994, the PRPs
for the Metal Bank of America site, located in Philadelphia, Pennsylvania,
submitted to the EPA a remedial investigation and feasibility study which
identified a range of possible remedial alternatives for the site from taking no
action to removal of essentially all contaminated material with an estimated
cost range of $2 million to $90 million. On July 19, 1995, the EPA issued a
proposed plan for remediation of the site which involves removal of contaminated
soil, sediment and groundwater and which the EPA estimates would cost
approximately $17 million to implement. The PRPs are reviewing the proposed plan
and will provide comments on the plan to the EPA during the public comment
period.
* * * *
As previously reported in the 1994 Form 10-K, in March 1994, the Company
received a notice from the EPA that it may be a de
- 29 -
minimis PRP with respect to a site (Jack's Creek/Sitkin Smelting Facility)
located in Mifflin County, Pennsylvania. The Company has signed an agreement to
pay $6,000 to settle this matter with the EPA. The settlement has been approved
by the United States Assistant Attorney General and the Company has received an
assessment for $6,000.
* * * *
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
12-1 - Statement regarding computation of ratio of earnings to fixed
charges.
12-2 - Statement regarding computation of ratio of earnings to
combined fixed charges and preferred stock dividends.
27 - Financial Data Schedule.
(b) Reports on Form 8-K (filed during the reporting period):
Report, dated May 24, 1995, reporting information under "ITEM 7.
EXHIBITS" relating to the sale of Company securities.
Report, dated June 13, 1995, reporting information under "ITEM 5.
OTHER EVENTS" relating to Salem Nuclear Generating Station.
Reports on Form 8-K (filed subsequent to the reporting period):
Report, dated July 25, 1995, reporting information under "ITEM 5.
OTHER EVENTS" relating to Salem Nuclear Generating Station.
Report, dated August 14, 1995, reporting information under "ITEM 5.
OTHER EVENTS" relating to the Company's proposal to merge with PP&L
Resources.
- 31 -
Signatures
Pursuant to 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.
PECO ENERGY COMPANY
/s/ Kenneth G. Lawrence
--------------------------
Kenneth G. Lawrence
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date August 14, 1995
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