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...September 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 222,538,087 shares of common stock outstanding on
October 31, 1996.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Millions of Dollars)
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)
September 30, December 31,
1996 1995
(Unaudited)
ASSETS
UTILITY PLANT
Plant at Original Cost $14,895.2 $14,696.0
Less Accumulated Provision for Depreciation 4,975.9 4,623.7
--------- ---------
9,919.3 10,072.3
Nuclear Fuel, Net 163.7 191.1
Construction Work in Progress 611.2 494.2
Leased Property, Net 189.1 180.4
--------- ---------
10,883.3 10,938.0
--------- ---------
CURRENT ASSETS
Cash and Temporary Cash Investments 60.8 20.6
Accounts Receivable, Net
Customer 51.2 75.2
Other 56.2 72.0
Inventories, at Average Cost
Fossil Fuel 78.4 78.3
Materials and Supplies 118.8 123.4
Deferred Energy Costs 78.5 55.9
Other 117.6 60.8
--------- ---------
561.5 486.2
--------- ---------
DEFERRED DEBITS AND OTHER ASSETS
Recoverable Deferred Income Taxes 1,988.4 2,077.4
Deferred Limerick Costs 374.2 390.4
Deferred Non-Pension Postretirement Benefits Costs 237.1 248.1
Investments 409.5 318.4
Loss on Reacquired Debt 289.8 308.6
Other 158.1 193.5
--------- ---------
3,457.1 3,536.4
--------- ---------
TOTAL $14,901.9 $14,960.6
========= =========
See Notes to Condensed Consolidated Financial Statements
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)
(Continued)
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(MILLIONS OF DOLLARS)
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements as of
September 30, 1996 and for the three and nine months then ended 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 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 due to degradation of a significant number of tubes in the Unit
No. 1 steam generator, the co-owners will purchase unused steam generators from
the unfinished Seabrook Generating Station Unit No. 2 to replace the Salem Unit
-6-
No. 1 steam generators. For additional information regarding the Unit No. 1
steam generators, see "PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION" in
this quarterly report on Form 10-Q. In addition, PSE&G indicated that Unit No. 2
is not expected to return to service until early in the first quarter of 1997.
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 nine months ended September 30, 1996, the Company recorded in
the accompanying Statements of Income as Fuel and Energy Interchange $27 and $65
million, respectively, of replacement power costs and as Maintenance $14 and $45
million, respectively, of maintenance costs relating to the shutdown of Salem.
For the year ended December 31, 1996, the Company expects to incur and expense
approximately $170 million for increased costs related to the shutdown,
including $15 million of restart-related expenses incurred in 1995 but expensed
in 1996. Of these costs, approximately $10 million are expected to be offset by
adjustments to deferred fuel resulting from a Pennsylvania Public Utility
Commission (PUC) approved settlement of the Company's Energy Cost Adjustment.
3. SALES OF ACCOUNTS RECEIVABLE
The Company is party to an agreement with a financial institution under
which it sold with limited recourse an undivided interest, adjusted daily, in up
to $425 million of designated accounts receivable through November 14, 2000. At
September 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 September 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 5.42%.
By terms of this agreement, under certain circumstances, a portion of
Limerick Generating Station (Limerick) deferred costs may be included in
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the pool of eligible receivables. At September 30, 1996, $24.6 million of
Deferred Limerick Costs were included in the pool of eligible receivables.
4. DECLARATORY ACCOUNTING ORDER
On February 22, 1996, the 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 this order,
effective October 1, 1996, depreciation and amortization on certain assets
associated with Limerick increased by approximately $100 million per year while
depreciation and amortization on certain other Company assets decreased by
approximately $10 million per year, for a net increase of approximately $90
million per year. Rates charged to customers are not 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 September
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 Quarterly Report on Form 10-Q for the period ended
March 31, 1996 (March 31, 1996 Form 10-Q)and the Quarterly Report on Form 10-Q
for the period ended June 30, 1996 (June 30, 1996 Form 10-Q).
As previously reported, the Company has identified 26 sites where former
manufactured gas plant (MGP) activities have or may have resulted in actual site
contamination. As of September 30, 1996, the Company had accrued $29 million for
environmental investigation and remediation costs, including $16 million for MGP
investigation and remediation. The Company believes that it could incur
additional liabilities with respect to MGP sites, which cannot be reasonably
estimated at this time.
* * * *
-8-
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 the Company's share of the expenditures
relating to the replacement of Unit No. 1 steam generators at Salem Generating
Station (Salem), currently estimated to be approximately $73 to $81 million. For
additional information, see "PART II. OTHER INFORMATION. ITEM 5. OTHER
INFORMATION" in this Quarterly Report on Form 10-Q.
The Company's construction program is subject to periodic review and
revision to reflect changes in economic conditions 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 $150 million in joint ventures and other telecommunications
opportunities through its Telecommunications Group, all of which are expected to
be funded through internally generated funds. 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."
* * * *
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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), and regulatory assets, any regulatory
changes which do not provide for recovery of these amounts could result in a
substantial write-down of assets. 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 increased by
approximately $100 million per year while depreciation and amortization on
certain other Company assets decreased by approximately $10 million per year,
for a net increase of approximately $90 million per year. Rates charged to
customers are not affected by the order; accordingly, the Company expects
results of operations for the remainder of 1996 to be negatively impacted. In
addition, to the extent that offsetting benefits from the Company's Competitive
Breakthrough Strategy are not achieved in 1997, the Company's future results of
operations will also be negatively impacted. 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."
* * * *
-10-
For the year ended December 31, 1996, the Company expects to incur
replacement power and additional maintenance costs of approximately $160 million
as a result of the Salem shutdown. 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."
* * * *
At September 30, 1996, the Company and its subsidiaries had outstanding
$282 million of short-term borrowings, including $149 million of commercial
paper. The Company has formal and informal lines of bank credit aggregating $275
million. At September 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 September 30, 1996 was 4.47 times compared to 4.76 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 September 30, 1996, was 2.53 times compared to 2.62
times for the corresponding period in 1995. For the nine months ended September
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 3.35 times and 3.10 times, respectively, compared to 3.64 times and
3.32 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 outstanding for the three and nine months
ended September 30, 1996 were $0.65 and $1.73 per share, respectively, compared
to $0.80 and $2.13 per share for the corresponding
-11-
periods in 1995. The decrease in 1996 third quarter earnings was primarily due
to lower electric revenues from retail sales resulting from cooler weather
conditions, partially offset by increased sales to others which together reduced
earnings by $0.11 per share. Also contributing to the decrease in earnings were
higher expenses including customer expenses of $0.06 per share and Salem outage
replacement power and maintenance costs of $0.04 per share. Savings resulting
from the Company's ongoing debt and preferred stock refunding and refinancing
program increased earnings by $0.03 per share.
The decrease in earnings for the nine months ended September 30, 1996 was
primarily due to higher Salem outage replacement power and maintenance costs
which reduced earnings by $0.23 per share, lower electric revenues due to cooler
weather conditions compared to last year which reduced earnings by $0.13 per
share, the gain on the sale of Conowingo Power Company (COPCO) which increased
1995 earnings by $0.12 per share, and higher customer expenses which reduced
earnings by $0.09 per share. These decreases were partially offset by higher
revenues due to increased sales to other utilities which benefited earnings by
$0.13 per share and savings resulting from the Company's ongoing debt and
preferred stock refunding and refinancing program which benefited earnings by
$0.07 per share.
* * * *
OPERATING REVENUES
Electric revenues decreased 2% and increased 4% for the three and nine
months ended September 30, 1996, respectively, compared to the corresponding
periods in 1995. The decrease in electric revenues for the three months ended
September 30, 1996 was primarily due to lower retail sales resulting from
unfavorable weather conditions compared to the prior year, which was partially
offset by increased sales to other utilities. The increase in electric revenues
for the nine months ended September 30, 1996 was primarily due to increased
sales to other utilities, which was partially offset by decreased retail sales
due to unfavorable weather conditions compared to the prior year.
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Gas revenues increased 10% and 9% for the three and nine months ended
September 30, 1996, respectively, compared to the corresponding periods in 1995.
The increase for the three months ended September 30, 1996 was primarily due to
an increase in the number of house heating customers and higher levels of firm
sales resulting from customers switching from transportation service to firm
service. This increase was partially offset by lower rates. The increase for the
nine months ended September 30, 1996 was primarily due to increased sales to
retail customers from more favorable weather conditions in the first half of
1996 compared to the prior year and higher levels of firm sales resulting from
customers switching from transportation service to firm service.
* * * *
FUEL AND ENERGY INTERCHANGE EXPENSES
Fuel and energy interchange expenses increased 14% and 30% for the three
and nine months ended September 30, 1996, respectively, compared to the
corresponding periods in 1995 primarily due to interchange purchases needed for
increased sales to other utilities. In addition, for the nine months ended
September 30, 1996, the increase was due to higher replacement power costs
resulting from the shutdown of Salem and a net credit to expense in 1995 from
certain energy sales to other utilities.
* * * *
OPERATING AND MAINTENANCE EXPENSES
Operating and maintenance expenses increased 7% and 6% for the three and
nine months ended September 30, 1996, respectively, compared to the
corresponding periods in 1995. The increases were primarily due to higher
uncollectible charges, higher customer service expenses related to process
improvements, higher contractor costs and higher nuclear generating station
charges resulting from the shutdown of Salem. These increases were partially
offset by lower operating costs at the Company-operated nuclear generating
stations and lower administrative and general expenses.
* * * *
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DEPRECIATION
Depreciation expense was substantially unchanged for the three months ended
September 30, 1996, and increased 3% for the nine months ended September 30,
1996, compared to the corresponding periods in 1995 primarily due to additions
to plant in service.
* * * *
INCOME TAXES
Income taxes charged to operating expenses decreased 22% and 12% for the
three and nine months ended September 30, 1996 compared to the corresponding
periods in 1995, respectively, primarily due to a decrease in pre-tax income.
The decrease was partially offset by reduced tax depreciation benefits from
plant assets which are not fully normalized for ratemaking.
* * * *
OTHER TAXES
Other taxes charged to operating expenses decreased 5% and 1% for the three
and nine months ended September 30, 1996, compared to the corresponding periods
in 1995 primarily due to decreased gross receipts taxes resulting from lower
retail revenue and lower real estate taxes. These decreases were partially
offset by increased capital stock and payroll taxes.
* * * *
OTHER INCOME AND DEDUCTIONS
Other income and deductions was substantially unchanged for the three
months ended September 30, 1996, and decreased 90% for the nine months ended
September 30, 1996 compared to the corresponding periods in 1995. The decrease
for the nine months ended September 30, 1996 is primarily due to the June 1995
gain on the sale of COPCO.
* * * *
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TOTAL INTEREST CHARGES
Total interest charges decreased 8% for the three and nine months ended
September 30, 1996, compared to the 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.
* * * *
PREFERRED DIVIDENDS
Preferred stock dividends decreased 26% for the three and nine months ended
September 30, 1996, 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.
* * * *
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in the 1995 Form 10-K, the Company filed appeals
from the May 13, 1994 United States District Court for the Eastern District of
Pennsylvania (Eastern District Court) decision and subsequent August 23, 1995
order which found the Company liable to a class of plaintiffs who made inquiries
about early retirement in or about April 1990 and awarded damages to these
plaintiffs in the amount of $1.5 million. On October 1, 1996, the United States
Circuit Court of Appeals for the Third Circuit (Third Circuit Court of Appeals)
reversed the Eastern District Court decision and held for the Company.
Plaintiffs have until December 30, 1996 to file an appeal.
* * * *
As previously reported in the 1995 Form 10-K, the Company filed appeals
from the May 13, 1994 Eastern District Court decision and subsequent August 23,
1995 order which found the Company liable to a class of plaintiffs who made
inquiries about early retirement in or about June 1987 and awarded damages to
these plaintiffs in the amount of $1.8 million. On October 1, 1996, the Third
Circuit Court of Appeals reversed the Eastern District Court decision and held
for the Company. Plaintiffs have until December 30, 1996 to file an appeal.
* * * *
As previously reported, the Court of Common Pleas of Philadelphia County
(Court of Common Pleas) denied the Company's petition to terminate the
consolidated shareholder derivative lawsuits relating to the Company's past
credit and collection practices. On June 20, 1996, the Company filed a petition
with the Supreme Court of Pennsylvania (Pennsylvania Supreme Court)for
extraordinary relief. On October 15, 1996, the Pennsylvania Supreme Court
granted the Company's petition and agreed to accept for review the issue of
whether the business judgment rule permits the boards of directors of a
Pennsylvania corporation to terminate derivative lawsuits brought by minority
shareholders. Pending resolution of this issue by the
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Pennsylvania Supreme Court, all matters in the lower courts related to the suits
are suspended. The Company cannot predict when or how the Supreme Court of
Pennsylvania will decide on this issue.
* * * *
ITEM 5. OTHER INFORMATION
As previously reported, the Company has been informed by Public Service
Electric and Gas Company (PSE&G) that the cost relating to the replacement of
the steam generators of Unit No. 1 at Salem with steam generators from Seabrook
Generating Station Unit No. 2 will be approximately $170 to $190 million, of
which the Company's share will be approximately $73 to $81 million.
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
restart-related maintenance expenditures will be approximately $75 million for
1996, including $15 million of restart-related expenses incurred in 1995 but
expensed in 1996.
The latest estimate of the cost of replacement power for the year ended
1996 is $95 million, which includes approximately $5 million per unit per month
for the remainder of 1996. Of these costs, approximately $10 million are
expected to be offset by adjustments to deferred fuel resulting from a
PUC-approved settlement of the Energy Cost Adjustment. Additionally, the Company
estimates replacement power costs to be $5 million per unit per month during
1997.
The Company has been informed by PSE&G that it now expects Salem Unit No. 2
to return to service early in the first quarter of 1997. PSE&G expects Unit No.
1 to return to service by mid-1997.
* * * *
As previously reported, PSE&G and the Company announced the commissioning
of a study to identify and evaluate alternatives to their separate nuclear power
plant operations. In particular, the study will
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evaluate strategies to reduce nuclear operation and maintenance costs for both
companies and increase the efficiencies of operations. A preliminary draft of
the study indicates opportunities for risk diversification, performance
improvement and cost savings. Further review will take place during the fourth
quarter of 1996.
* * * *
On October 28, 1996, the Board of Directors of the Company increased the
Company's quarterly common stock dividend 3.4% from $0.435 per share to $0.45
per share. The higher dividend will be payable December 20, 1996 to common stock
shareholders of record on November 15, 1996. The new annual common stock
dividend will be $1.80 per share.
* * * *
In a letter dated October 9, 1996, the NRC informed the Company that an
enforcement conference would be scheduled to discuss an alleged violation of NRC
regulations at Peach Bottom relating to preventative maintenance procedures for
several critical station systems and components. This conference is scheduled to
be held on November 15, 1996.
In a letter dated October 10, 1996, the NRC informed the Company that a
separate enforcement conference would be scheduled to discuss an alleged
violation of NRC regulations at Peach Bottom relating to station modifications
associated with emergency diesel generators. This conference is scheduled to be
held on December 11, 1996.
The NRC is expected to make a decision following each of these conferences
which potentially could include the imposition of a civil penalty.
* * * *
As previously reported, in response to a 1990 recommendation by General
Electric Company (GE) to all owners of GE Boiling Water Reactors (BWRs) that
interim corrective actions be taken for possible cracking in or near the seam
welds of BWR core shroud assemblies, the Company initiated a series of visual
inspections of the accessible areas of the core shroud seam welds of each of the
reactors at Limerick and Peach Bottom Atomic
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Power Station (Peach Bottom). Although prior inspections performed during the
planned refueling outages for these reactors have revealed crack indications in
the seam welds of the core shroud assemblies, the Company concluded and the
Nuclear Regulatory Commission (NRC) agreed, in each case, that the extent of
cracking identified was minimal and within industry-established guidelines.
Peach Bottom Unit No. 2 was reinspected in September 1996, and although
additional minor flaw indications were discovered, the Company concluded and the
NRC concurred that neither repair nor modification to the core shroud was
necessary prior to restarting the reactor.
* * * *
As previously reported, 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. At the direction of the Governor of Pennsylvania, and under
the leadership of the Chairman of the PUC, a two-month collaborative effort was
undertaken to reach a consensus on legislation to implement retail customer
choice of generation supplier in Pennsylvania (Consensus Bill). The
collaborative effort included representatives from electric utilities, large
industrial customers, consumer advocates, organized labor, legislators,
environmental interests, and others (Consensus Group). Some entities, including
environmental groups and citizen action groups, have expressed public opposition
to the Consensus Bill.
The Consensus Bill proposes the restructuring of the electric industry in
Pennsylvania to provide for the unbundling of electric services and open-retail
competition for generation. Retail access pilot programs would begin on April 1,
1997 and direct generation access for all customers would be phased in three
steps over a two-year period beginning January 1, 1999. By April 1, 1997, each
electric utility would be required to submit to the PUC its restructuring plan,
including the utility's "stranded costs" which
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will result from competition. These stranded costs would include regulatory
assets and nuclear decommissioning costs, for which full recovery would be
allowed; non-utility generation buyout costs, for which full recovery would be
allowed, and other costs, including investment in nuclear plants, spent fuel
disposal, long-term purchase power commitments, retirements costs and
reorganization costs, for which an opportunity for recovery would be allowed in
an amount determined by the PUC as just and reasonable. These costs, after
mitigation by the utility, would be recoverable through a "competitive
transition charge" approved by the PUC and collected from distribution customers
for up to nine years (or for an alternative period determined by the PUC for
good cause shown). During that period, the utility would be subject to a rate
cap providing that total charges to customers could not exceed rates in place as
of the effective date of the bill, subject to certain exceptions. The bill also
provides a mechanism for reducing the utility's stranded investment and related
capitalization through the issuance of "Transition Bonds." The Transition Bonds
would be repaid through the imposition of "intangible transition charges" which
would be collected in lieu of competitive transition charges. The maximum
maturity of the Transition Bonds would be ten years. The current legislative
session ends November 30, 1996 with the new session beginning January 7, 1997.
The Company cannot predict whether the Consensus Bill, any of the pending bills,
or new 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, on April 24, 1996 the Federal Energy Regulatory
Commission (FERC) issued a final rule (Order No. 888) that became effective July
9, 1996, which requires all public utilities to file non-discriminatory
open-access tariffs that offer others the same wholesale transmission service
they provide to themselves. FERC Order No. 888 also requires that power pools
file and begin taking service under joint pool-wide open access transmission
tariffs by December 31, 1996, which deadline
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was subsequently extended by the FERC to March 1, 1997 in a subsequent order.
On July 5, 1996, the Company filed with the FERC a revised transmission
tariff reflecting the final pro forma terms and conditions required by Order No.
888.
* * * *
On November 1, 1996, the Company filed with the FERC certain revisions to
its wholesale electric tariffs in compliance with the FERC's requirement,
pursuant to FERC Order No. 888, that utilities unbundle their generation and
transmission costs for wholesale market transactions. Included among the
revisions was a proposal to eliminate the existing cost-based cap on prices
charged for power which is purchased by the Company in anticipation of later
resale in the wholesale market (so-called "buy-for-resale" transactions) and
certain changes regarding the terms of buy-for-resale agreements.
In an order dated September 20, 1996 relating to the Pennsylvania-New
Jersey-Maryland Interconnection Association (PJM) restructuring filings, the
FERC commented that neither of the competing restructuring proposals would be
evaluated until the FERC addressed the related applications by the PJM-member
companies to transfer operational control over their transmission facilities to
an Independent System Operator (ISO). On November 13, 1996, the FERC issued an
order providing guidance to the PJM members in connection with PJM-pool
restructuring. The FERC concluded that neither of the competing proposals, as
currently structured, satisfied either the ISO or tariff comparability
requirements of Order No. 888. The FERC directed the PJM members to revise and
re-file their proposals by December 31, 1996. The Company cannot predict how or
when the FERC will act on the PJM restructuring issue.
* * * *
As previously reported, the Company was named as a third-party defendant in
a suit commenced by the New Jersey Department of Environmental Protection and
Energy (NJDEPE) for certain clean-up costs at the Gloucester
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Environmental Management Services, Inc. (GEMS) site located in New Jersey based
on information which suggested that wastes generated by the Company were
disposed of at the site by a third party. On July 9, 1996, the Company signed a
Consent Decree in which it agreed to pay NJDEPE $238,452 to settle its potential
liability at the site.
* * * *
As previously reported, the Company was named as a third-party defendant in
a suit commenced by the NJDEPE for clean-up costs at the Helen Kramer landfill
located in New Jersey. The Company, together with a number of other direct and
third-party defendants, has agreed to participate in a proposed de minimis
settlement which would allow the Company to settle its potential liability at
the site for approximately $40,000.
* * * *
As previously reported, the Company has been identified as a potentially
responsible party at the Bridgeport Rental and Oil Services (BROS) Superfund
Site in New Jersey and, while not named in the pending litigation regarding
clean-up of the site, had been participating in informal settlement negotiations
involving the United States Environmental Protection Agency, the direct and
third-party defendants and several other parties which have yet to be joined in
the suit. On September 25, 1996, the Company agreed to a settlement with the
parties which provides that the Company would pay $375,000 to settle its
potential liability at the site. Not covered by the settlement were possible
natural resource damage and private party claims.
* * * *
As previously reported, in response to a 1989 Notice of Violation issued by
the Pennsylvania Department of Environmental Protection (PDEP) for soil
contamination at one of the Company's maintenance facilities, the Company had
undertaken a PDEP-approved remedial clean-up plan pursuant to which the Company
spent $1.3 million. On September 20, 1996, PDEP notified the Company that it was
satisfied that the site had been sufficiently
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remediated within state guidelines and that no further investigation, monitoring
or remediation is necessary at the facility.
* * * *
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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 July 3, 1996, reporting information under "ITEM 5. OTHER
EVENTS" relating to the report and recommendation by the PUC. Report,
dated July 22, 1996, reporting information under "ITEM 5. OTHER
EVENTS" relating to Salem Generating Station.
Reports on Form 8-K (filed subsequent to the reporting period):
None
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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: November 14, 1996