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, 1996............
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 222,518,287 shares of common stock outstanding on July 31,
1996.
-1-
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,
1996 1995 1996 1995
OPERATING REVENUES
Electric $ 915.4 $ 887.5 $ 1,889.1 $ 1,768.9
Gas 74.0 71.1 270.8 248.3
-------- -------- --------- ---------
TOTAL OPERATING REVENUES 989.4 958.6 2,159.9 2,017.2
-------- -------- --------- ---------
OPERATING EXPENSES
Fuel and Energy Interchange 211.3 166.6 510.8 366.9
Other Operating 230.5 213.2 461.5 444.8
Maintenance 89.7 74.4 175.1 155.4
Depreciation 116.4 112.5 233.1 224.1
Income Taxes 71.3 85.6 175.2 183.6
Other Taxes 74.3 73.7 155.0 153.1
-------- -------- --------- ---------
TOTAL OPERATING EXPENSES 793.5 726.0 1,710.7 1,527.9
-------- -------- --------- ---------
OPERATING INCOME 195.9 232.6 449.2 489.3
-------- -------- --------- ---------
OTHER INCOME AND DEDUCTIONS
Allowance for Other Funds Used
During Construction 3.0 3.2 6.0 7.5
Gain on Sale of Subsidiary --- 58.7 --- 58.7
Income Taxes (0.4) (32.6) 0.2 (33.9)
Other, Net (0.2) 0.6 (3.2) 2.3
-------- -------- --------- ---------
TOTAL OTHER INCOME AND DEDUCTIONS 2.4 29.9 3.0 34.6
-------- -------- --------- ---------
INCOME BEFORE INTEREST CHARGES 198.3 262.5 452.2 523.9
-------- -------- --------- ---------
INTEREST CHARGES
Long-Term Debt 81.4 97.0 170.1 196.1
Company Obligated Mandatorily Redeemable
Preferred Securities of a Partnership,
Which Holds Solely Subordinated
Debentures of the Company 6.7 5.0 13.4 10.0
Short-Term Debt 14.1 9.8 25.0 19.3
-------- -------- --------- ---------
TOTAL INTEREST CHARGES 102.2 111.8 208.5 225.4
Allowance for Borrowed Funds
Used During Construction (2.7) (2.9) (5.4) (7.1)
-------- -------- --------- ---------
NET INTEREST CHARGES 99.5 108.9 203.1 218.3
-------- -------- --------- ---------
NET INCOME 98.8 153.6 249.1 305.6
Preferred Stock Dividends 4.5 6.0 9.0 12.1
-------- -------- --------- ---------
EARNINGS APPLICABLE TO COMMON STOCK $ 94.3 $ 147.6 $ 240.1 $ 293.5
======== ======== ========= =========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING (Millions) 222.5 221.8 222.5 221.7
EARNINGS PER AVERAGE COMMON
SHARE (Dollars) $ 0.43 $ 0.67 $ 1.08 $ 1.32
DIVIDENDS PER COMMON SHARE (Dollars) $ 0.435 $ 0.405 $ 0.87 $ 0.81
See Notes to Condensed Consolidated Financial Statements.
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PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
June 30, December 31,
1996 1995
(UNAUDITED)
ASSETS
UTILITY PLANT
Plant at Original Cost $ 14,833.3 $ 14,696.0
Less Accumulated Provision for Depreciation 4,844.1 4,623.7
--------- ---------
9,989.2 10,072.3
Nuclear Fuel, Net 163.4 191.1
Construction Work in Progress 505.1 494.2
Leased Property, Net 174.2 180.4
--------- ---------
10,831.9 10,938.0
--------- ---------
CURRENT ASSETS
Cash and Temporary Cash Investments 24.6 20.6
Accounts Receivable, Net
Customer 58.9 75.2
Other 59.7 72.0
Inventories, at Average Cost
Fossil Fuel 63.4 78.3
Materials and Supplies 123.2 123.4
Deferred Energy Costs 55.5 55.9
Other 179.3 60.8
--------- ---------
564.6 486.2
--------- ---------
DEFERRED DEBITS AND OTHER ASSETS
Recoverable Deferred Income Taxes 1,995.0 2,077.4
Deferred Limerick Costs 379.6 390.4
Deferred Non-Pension Postretirement Benefits Costs 240.8 248.1
Investments 385.5 318.4
Loss on Reacquired Debt 295.8 308.6
Other 182.1 193.5
--------- ---------
3,478.8 3,536.4
--------- ---------
TOTAL $ 14,875.3 $ 14,960.6
========= =========
(continued on next page)
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PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Continued)
June 30, December 31,
1996 1995
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Shareholders' Equity
Common Stock (No Par) $ 3,517.0 $ 3,506.3
Other Paid-In Capital 1.3 1.3
Retained Earnings 1,064.9 1,023.7
Preferred and Preference Stock
Without Mandatory Redemption 199.4 199.4
With Mandatory Redemption 92.7 92.7
Company Obligated Mandatorily Redeemable Preferred Securities of a
Partnership, Which Holds Solely Subordinated Debentures of the Company 302.3 302.3
Long-Term Debt 4,156.1 4,198.3
--------- ---------
9,333.7 9,324.0
--------- ---------
CURRENT LIABILITIES
Notes Payable, Bank 355.4 ---
Long-Term Debt Due Within One Year 85.6 401.0
Capital Lease Obligations Due Within One Year 60.3 60.3
Accounts Payable 178.9 299.7
Taxes Accrued 65.8 107.6
Deferred Income Taxes 15.6 17.1
Interest Accrued 82.8 88.0
Dividends Payable 30.5 20.7
Other 103.4 82.8
--------- ---------
978.3 1,077.2
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Capital Lease Obligations 113.9 120.1
Deferred Income Taxes 3,315.0 3,312.6
Unamortized Investment Tax Credits 344.3 351.6
Pension Obligation for Early Retirement Plans 216.3 216.3
Non-Pension Postretirement Benefits Obligation 343.7 326.3
Other 230.1 232.5
--------- ---------
4,563.3 4,559.4
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 5)
--------- ---------
TOTAL $ 14,875.3 $ 14,960.6
========= =========
See Notes to Condensed Consolidated Financial Statements.
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PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
6 Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 249.1 $ 305.6
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 270.3 259.4
Deferred Income Taxes 81.9 65.7
Gain on Sale of Subsidiary --- (58.7)
Deferred Energy Costs 0.4 (6.6)
Changes in Working Capital:
Accounts Receivable 28.6 13.6
Inventories 15.1 (4.7)
Accounts Payable (120.8) (99.5)
Other Current Assets and Liabilities (144.9) (44.5)
Other Items Affecting Operations 77.4 9.1
------ ------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 457.1 439.4
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Plant (187.7) (223.6)
Proceeds from Sale of Subsidiary --- 150.0
Increase in Investments (88.6) (16.9)
------ ------
NET CASH FLOWS USED BY INVESTING ACTIVITIES (276.3) (90.5)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Short-Term Debt 355.4 (11.5)
Issuance of Common Stock 10.7 7.8
Retirement of Preferred Stock --- (0.1)
Issuance of Long-Term Debt 34.0 ---
Retirement of Long-Term Debt (393.4) (97.3)
Loss on Reacquired Debt 12.8 13.5
Dividends on Preferred and Common Stock (205.6) (191.7)
Change in Dividends Payable 9.8 12.7
Other Items Affecting Financing (0.5) 0.8
------ ------
NET CASH FLOWS USED BY FINANCING ACTIVITIES (176.8) (265.8)
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS 4.0 83.1
------ ------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20.6 47.0
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24.6 $ 130.1
====== ======
See Notes to Condensed Consolidated Financial Statements.
-5-
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. 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. Certain
prior-year amounts have been reclassified for comparative purposes. These notes
should be read in conjunction with the Notes to Consolidated Financial
Statements in the Company's 1995 Annual Report to Shareholders, which are
incorporated by reference in the Company's 1995 Annual Report on Form 10-K for
the year ended December 31, 1995 (1995 Form 10-K).
2. SHUTDOWN OF SALEM GENERATING STATION (SALEM)
Public Service Electric and Gas Company (PSE&G), the operator of Salem
Units No. 1 and No. 2 which are 42.59% owned by
-6-
the Company, removed the units from service on May 16, 1995 and June 7, 1995,
respectively. Immediately following the shutdown of Unit No. 2, PSE&G informed
the Nuclear Regulatory Commission (NRC) that it had determined to keep the Salem
units shut down pending review and resolution of certain equipment and
management issues, and NRC agreement that each unit is sufficiently prepared to
restart. PSE&G has informed the Company that Unit No. 2 is not expected to
return to service until late in the fourth quarter of 1996. PSE&G estimates the
projected restart of Unit No. 1 to be mid-1997. For additional information
regarding the shutdown of Salem, see "PART II. OTHER INFORMATION. ITEM 5. OTHER
INFORMATION" in this Quarterly Report on Form 10-Q. For the three and six months
ended June 30, 1996, the Company recorded in the accompanying Statements of
Income as Fuel and Energy Interchange $20 and $38 million, respectively, of
replacement power costs and as Maintenance $19 and $31 million, respectively, of
maintenance costs relating to the shutdown of Salem. The Company expects to
incur and expense a total of approximately $130 million in 1996 for increased
costs related to the shutdown.
-7-
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 $425 million of designated accounts receivable through
November 14, 2000. At June 30, 1996, the Company had sold a $425 million
interest in accounts receivable under this agreement. The Company retains the
servicing responsibility for these receivables. At June 30, 1996, the average
annual service-charge rate, computed on a daily basis on the portion of the
accounts receivable sold but not yet collected, was 5.37%.
By terms of this areement, under certain circumstances, a portion of
Limerick Generating Station (Limerick) deferred costs may be included in the
pool of eligible receivables. At June 30, 1996, $26.3 million of Deferred
Limerick Costs were included in the pool of eligible receivables.
4. DECLARATORY ACCOUNTING ORDER
On February 22, 1996, the Pennsylvania Public Utility Commission (PUC)
approved the Company's petition for a declaratory accounting order regarding
changes in the estimated
-8-
depreciable lives of certain of the Company's electric plant. As a result of
this order, effective October 1, 1996, depreciation and amortization on certain
assets associated with Limerick will increase by approximately $100 million per
year while depreciation and amortization on certain other Company assets will
decrease by approximately $10 million per year, for a net increase of
approximately $90 million per year. Rates charged to customers will not be
affected by the order.
5. COMMITMENTS AND CONTINGENCIES
Except as described below, the information regarding the Company's
construction expenditures, nuclear insurance, nuclear decommissioning and spent
fuel storage, energy purchases, environmental issues, and litigation at June 30,
1996 is substantially the same as described in note 4 of Notes to Consolidated
Financial Statements which is incorporated by reference in the Company's 1995
Form 10-K.
The Company's construction expenditures are estimated to be $538 million
for 1996 and $1.6 billion for 1997 to 2000. For the period 1996 to 2000, the
Company expects that all of its capital needs will be provided through
internally generated funds.
-9-
The Company has been informed by PSE&G that, as a result of reracking the
two spent-fuel pools at Salem, the availability of adequate spent-fuel storage
capacity is conservatively estimated to be through 2008 for Salem Unit No. 1 and
2012 for Salem Unit No. 2, without affecting operational full-core discharge
reserve capability. The current shutdown of Salem is expected to extend these
dates further by a few years.
In addition to the previously identified 23 sites where former manufactured
gas plant (MGP) activities have or may have resulted in actual site
contamination, the Company has discovered evidence indicating that similar MGP
activities were conducted at three additional sites. As of June 30, 1996, the
Company had accrued $27 million for environmental investigation and remediation
costs, including $13 million for MGP investigation and remediation. The Company
expects that it will incur additional liabilities with respect to MGP sites,
which cannot be reasonably estimated at this time.
* * * *
-10-
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 $538 million for 1996 and $1.6 billion for 1997 to
2000, all of which are expected to be funded from internal sources. The
estimated expenditures do not include any amounts for replacement of Unit No. 1
steam generators at Salem Generating Station (Salem). 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.
* * * *
For the period 1996 through 2000, the Company also plans to invest
approximately $125 million in joint ventures and other telecommunications
opportunities through its Telecommunications Group, all of which are expected to
be funded through internally generated funds.
-11-
The Company's telecommunications joint ventures are accounted for under the
equity method of accounting.
* * * *
See note 4 of Notes to Consolidated Financial Statements for the year ended
December 31, 1995 for a discussion of commitments and contingencies relating to
environmental matters and note 5 of Notes to Condensed Consolidated Financial
Statements in this Quarterly Report on Form 10-Q under "PART 1. FINANCIAL
INFORMATION. ITEM 1. FINANCIAL STATEMENTS."
* * * *
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
competition. Due to the Company's substantial investment in plant, particularly
Limerick Generating Station (Limerick), any regulatory changes which do not
provide for recovery of the Company's investment could result in a substantial
write-down of assets. To date, the Company's electric business, particularly
sales to large industrial customers and sales to other utilities, has been
affected by increased competition.
-12-
For additional information concerning competition, see the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (1995 Form 10-K), the
Company's Current Report on Form 8-K dated July 3, 1996 and "PART II. OTHER
INFORMATION ITEM 5. OTHER INFORMATION" of this Quarterly Report on Form 10-Q.
* * * *
On February 22, 1996, the Pennsylvania Public Utility Commission (PUC)
approved the Company's petition for a declaratory accounting order regarding
changes in the estimated depreciable lives of certain of the Company's electric
plant. As a result of the order, effective October 1, 1996, depreciation and
amortization on certain assets associated with Limerick will increase by
approximately $100 million per year while depreciation and amortization on
certain other Company assets will decrease by approximately $10 million per
year, for a net increase of approximately $90 million per year. Rates charged to
customers will not be affected by the order. To the extent that offsetting
benefits from the Company's Competitive Breakthrough Strategy are not achieved,
the Company's future results of operations may be negatively impacted.
-13-
See note 3 of Notes to Consolidated Financial Statements for the year ended
December 31, 1995 and note 4 of Notes to Condensed Consolidated Financial
Statements of this Quarterly Report on Form 10-Q under "PART I. FINANCIAL
INFORMATION. ITEM 1. FINANCIAL STATEMENTS."
* * * *
As a result of the shutdown of Salem, the Company expects to incur
replacement power and additional maintenance costs of approximately $130 million
in 1996. See note 2 of Notes to Condensed Consolidated Financial Statements of
this Quarterly Report on Form 10-Q under "PART I. FINANCIAL INFORMATION. ITEM 1.
FINANCIAL STATEMENTS" and "PART II. OTHER INFORMATION. ITEM 5. OTHER
INFORMATION."
* * * *
In April 1996, the Company entered into an $87.5 million term-loan
agreement with a bank to repay the remaining borrowings under an existing $525
million revolving credit and term loan agreement.
On June 3, 1996, the Company redeemed, at a price of $102, all $34 million
outstanding, 8-7/8% pollution control bonds due 2034.
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The bonds ere redeemed with the proceeds of $34 million of tax-exempt, long-term
debt issued in the first quarter of 1996 and cash.
* * * *
At June 30, 1996, the Company and its subsidiaries had outstanding $355
million of short-term borrowings, including $223 million of commercial paper.
The Company has formal and informal lines of bank credit aggregating $275
million. At June 30, 1996, the Company and its subsidiaries had no short-term
investments.
* * * *
The Company's Ratio of Earnings to Fixed Charges (Mortgage Method) for the
twelve months ended June 30, 1996 was 4.72 times compared to 3.71 times for the
corresponding period in 1995. 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, 1996, was 2.63 times compared to 2.17 times for the
corresponding period in 1995. For the six months ended June 30, 1996, 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
-15-
3.20 times and 2.97 times, respectively, compared to 3.46 times and 3.15 times,
respectively, for the corresponding period in 1995. See the Company's 1995 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
Earnings per average common share for the three and six months ended June
30, 1996 were $0.43 and $1.08 per share, respectively, compared to $0.67 and
$1.32 per share for the corresponding periods in 1995. The decline in second
quarter earnings for 1996 was primarily due to the one-time gain in June 1995 on
the sale of Conowingo Power Company (COPCO), which increased 1995 earnings by
$0.12 per share, and replacement power and maintenance costs resulting from the
shutdown of Salem, which reduced 1996 earnings by $0.10 per share.
The decline in earnings for the six months ended June 30, 1996 was
primarily due to Salem replacement power and maintenance costs, which reduced
-16-
1996 earnings by $0.18 per share, and the June 1995 gain on the sale of COPCO.
Also contributing to the decline were costs associated with enhancements to the
customer service system and the start-up of a telecommunications joint venture
in which the Company has invested, which reduced 1996 earnings by $0.04 per
share. These decreases were partially offset by increased revenues due to
favorable weather conditions and increased sales to other utilities.
* * * *
OPERATING REVENUES
Electric revenues increased 3% and 7% for the three and six months ended
June 30, 1996, respectively, compared to the corresponding periods in 1995
primarily due to higher retail sales resulting from favorable weather conditions
and from increased sales to other utilities.
Gas revenues increased 4% and 9% for the three and six months ended June
30, 1996, respectively, compared to the corresponding periods in 1995 primarily
due to increased sales to retail customers from more favorable weather
conditions and higher levels of interruptible sales as transportation customers
switched from transportation service to interruptible service.
-17-
* * * *
FUEL AND ENERGY INTERCHANGE EXPENSES
Fuel and energy interchange expenses increased 27% and 39% for the three
and six months ended June 30, 1996, respectively, compared to the corresponding
periods in 1995 primarily due to increased purchases for sales to other
utilities, replacement power costs resulting from the shutdown of Salem and
higher output needed to meet sales demand.
* * * *
OPERATING AND MAINTENANCE EXPENSES
Operating and maintenance expenses increased 11% and 6% for the three and
six months ended June 30, 1996, respectively, compared to the corresponding
periods in 1995. The increase for the three months was primarily due to higher
nuclear generating station charges resulting from the shutdown of Salem, higher
customer service expenses related to process improvements, higher general and
administrative expenditures and other operation and maintenance expenses. The
increase for the six months was
-18-
primarily due to higher nuclear generating station charges resulting from the
shutdown of Salem and higher customer service expenses related to process
improvements. The increase for the six months was partially offset by slightly
lower general and administrative expenditures and other operation and
maintenance expenses.
* * * *
DEPRECIATION
Depreciation expense increased 3% and 4% for the three and six months ended
June 30, 1996, respectively, compared to the corresponding periods in 1995
primarily due to additions to plant in service.
* * * *
INCOME TAXES
Income taxes charged to operating expenses decreased 17% and 5% for the
three and six months ended June 30, 1996 compared to the corresponding periods
in 1995, respectively, primarily due to a decrease in pre-tax income which was
partially offset by reduced accelerated tax depreciation benefits from plant
assets
-19-
which are not subject to normalization for ratemaking.
* * * *
OTHER TAXES
Other taxes charged to operating expenses increased by 1% for the three and
six months ended June 30, 1996, compared to the corresponding periods in 1995
primarily due to increased gross receipts taxes resulting from higher revenue.
* * * *
OTHER INCOME AND DEDUCTIONS
Other income and deductions decreased significantly for the three and six
months ended June 30, 1996 compared to the corresponding periods in 1995
primarily due to the June 1995 gain on the sale of COPCO and a 1996 loss
recorded from start-up activities of the Company's telecommunications joint
ventures (accounted for under the Equity Method).
* * * *
TOTAL INTEREST CHARGES
Total interest charges decreased 9% and 8% for the three and six months
ended June 30, 1996, respectively, compared to the
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corresponding periods in 1995 primarily due to the Company's ongoing program to
reduce and refinance higher-cost, long-term debt, partially offset by the
replacement of preferred stock with Company Obligated Mandatorily Redeemable
Preferred Securities in the fourth quarter of 1995 and an increase in short-term
borrowings in the second quarter of 1996.
* * * *
PREFERRED DIVIDENDS
Preferred stock dividends decreased 25% and 26% for the three and six
months ended June 30, 1996, respectively, compared to the corresponding periods
in 1995 due to the replacement of preferred stock with Company Obligated
Mandatorily Redeemable Preferred Securities in the fourth quarter of 1995.
* * * *
-21-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, on February 23, 1996, the Company and the
defendants in the consolidated shareholder derivative lawsuits relating to the
Company's past credit and collection practices filed a petition to terminate the
action. On May 15, 1996, the Court of Common Pleas of Philadelphia County denied
the petition. On June 20, 1996, the Company appealed the denial to the Supreme
Court of Pennsylvania.
* * * *
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 Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996 (March 31, 1996 Form 10-Q).
* * * *
ITEM 5. OTHER INFORMATION
As previously reported, the Company has been informed by Public Service
Electric and Gas Company (PSE&G) that the cost of replacing, including
installing, the steam generators of Unit No.
-22-
1 at Salem with steam generators from Seabrook Generating Station Unit No. 2
will be approximately $150 to $170 million, of which the Company's share will be
approximately $64 to $72 million. In addition, the cost of disposal of the four
old steam generators could be as much as $20 million, of which the Company's
share will be approximately $9 million. The disposal options include storing
them at the Salem site or shipping them to another location.
* * * *
In addition, the Company has been informed by PSE&G that, given the
additional scope of work and the delay of the restart of Salem Unit No. 2, Unit
No. 1 restart activities (excluding the steam generator replacement) and various
initiatives in progress, it is expected that the Company's share of operation
and maintenance expenditures will increase from the original budget to a revised
total of $130 million for 1996.
* * * *
On June 24, 1996, PSE&G and the Company announced the commissioning of a
study to investigate competitive alternatives
-23-
to the current independent nuclear power plant operations of the two companies.
The goal of this study is to determine if feasible alternatives exist to permit
diversification of financial risks and reduction of costs for both companies in
order to increase competitiveness. It is anticipated that the study will be
completed during 1996.
* * * *
In a decision issued July 23, 1996, the United States Court of Appeals for
the District of Columbia Circuit found that the Department of Energy (DOE) is
obligated to begin accepting spent nuclear fuel for disposal no later than
January 31, 1998. The Company cannot predict if or when the DOE will accept
nuclear fuel because no repository or other storage facility currently exists or
is under construction.
* * * *
The Company has been informed by PSE&G that, as a result of reracking the
two spent-fuel pools at Salem, the availability of adequate spent-fuel storage
capacity is conservatively estimated to be through 2008 for Salem Unit No. 1 and
2012 for Salem Unit No. 2, without affecting operational full-core discharge
reserve
-24-
capability. The current shutdown of Salem is expected to extend these dates
further by a few years.
* * * *
Three bills have been introduced in the Pennsylvania General Assembly that
would require the PUC to adopt a plan to restructure the electric utility
industry and would also require customers and utility company shareholders to
share stranded investment costs resulting from such restructuring. The Company
cannot predict if any of these bills will be brought before the General Assembly
for a vote, or whether any of these bills will be enacted into law.
* * * *
As previously reported in the March 31, 1996 Form 10-Q, on March 28, 1996,
the PUC adopted a tentative order approving a new Energy Cost Adjustment clause,
providing for an increase in annual revenue of $21.7 million, to become
effective April 1, 1996. On June 21, 1996, the tentative order became final.
* * * *
On May 31, 1996, the Company filed Purchased Gas Cost (PGC)
-25-
No. 13 rates for the period December 1, 1996 through November 30, 1997, which
reflected a $0.79 per thousand cubic feet (mcf) increase in natural gas sales
rates. On July 15, 1996, a settlement in principle was reached with interested
parties to accept the proposed PGC No. 13 rates, subject to updating procedures
for more recent gas cost data. The settlement in principle also includes: (1) an
off-system sales program under which the net margin from off-system sales will
be allocated 75% to PGC customers and 25% to the Company; (2) a futures market
incentive program under which the risks and benefits of procuring natural gas on
the basis of futures prices, in lieu of monthly spot prices, will be shared
between PGC customers and the Company. Both programs are effective from April 1,
1995 and extend through March 31, 1998.
* * * *
As previously reported in the 1995 Form 10-K and the March 31, 1996 Form
10-Q, on April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued
final rules (Order No. 888) that became effective July 9, 1996, requiring all
public utilities to file non-discriminatory open-access tariffs that
-26-
offer others the same transmission service they provide to themselves. On March
28, 1996, the FERC approved the Company's tariff for network and point-to-point
transmission services and for market-based rates outside the Pennsylvania-New
Jersey-Maryland Interconnection (PJM) control area, subject to compliance with
the final pro forma tariff terms and conditions which were adopted by the FERC
in Order No. 888. On July 5, 1996, the Company filed with the FERC a revised
transmission tariff reflecting the final pro forma terms and conditions.
* * * *
On July 24, 1996, the PJM member companies other than the Company filed a
restructuring plan with the FERC to offer regional open access to their
transmission facilities, to create an independent system operator, and to adapt
the existing PJM regional wholesale energy market to increased competition. On
the same day, the Company announced its opposition to the plan filed by the
other PJM companies, stating that it contains transmission pricing and energy
market proposals that significantly discourage open, wholesale competition
within PJM and violate FERC transmission pricing policies. The Company has
developed its own
-27-
plan for the restructuring of PJM which was filed with the FERC on August 8,
1996.
* * * *
As previously reported in the Company's 1995 Form 10-K, the Company was
added as a defendant in the suit commenced by the New Jersey Department of
Environmental Protection and Energy (NJDEPE) which alleged that several hundred
defendants, including the Company, were liable for certain cleanup costs
associated with the Gloucester Environmental Management Services, Inc. (GEMS)
site located in New Jersey. The Company joined a group of defendants which has
negotiated a settlement of the suit with the NJDEPE. On July 9, 1996, the
Company executed a Consent Decree in which the Company agreed to pay
approximately $240,000 in exchange for a release from liability at the GEMS
site. The Consent Decree must be approved by the United States District Court
for the District of New Jersey.
* * * *
As reported in the Company's 1995 Form 10-K, the Company has previously
identified 23 sites where former manufactured gas plant (MGP) activities
conducted in the early to mid-1900s have
-28-
or may have resulted in actual site contamination. As a result of the Company's
continuing investigation of its prior MGP activities, the Company has discovered
evidence indicating that similar MGP activities were conducted at three
additional sites. For additional information, see note 4 of Notes to
Consolidated Financial Statements for the year ended December 31, 1995 and note
5 of Notes to Condensed Consolidated Financial Statements in this Quarterly
Report on Form 10-Q under "PART 1. FINANCIAL INFORMATION. ITEM 1. FINANCIAL
STATEMENTS."
* * * *
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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 23, 1996, reporting information under "ITEM 5. OTHER
EVENTS" relating to Salem Generating Station.
Reports on Form 8-K (filed subsequent to the reporting period):
Report, dated July 3, 1996, reporting information under "ITEM 5. OTHER
EVENTS" relating to a report and recommendation by the Pennsylvania
Public Utility Commission.
Report, dated July 22, 1996, reporting information under "ITEM 5. OTHER
EVENTS" relating to Salem Generating Station.
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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 13, 1996