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 March 31, 2000
--------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-1405
Delmarva Power & Light Company
------------------------------
(Exact name of registrant as specified in its charter)
Delaware and Virginia 51-0084283
------------------------- ------------
(States of incorporation) (I.R.S. Employer
Identification No.)
800 King Street, P.O. Box 231, Wilmington, Delaware 19899
- ----------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302-429-3114
------------
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.
All 1,000 issued and outstanding shares of Delmarva Power & Light Company common
stock, $2.25 per share par value, are owned by Conectiv.
DELMARVA POWER & LIGHT COMPANY
------------------------------
Table of Contents
-----------------
Part I. Financial Information Page No.
--------
Item 1. Financial Statements
Consolidated Statements of Income for the three
months ended March 31, 2000, and March 31, 1999........... 1
Consolidated Balance Sheets as of March 31, 2000,
and December 31, 1999..................................... 2-3
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000, and March 31, 1999.................. 4
Notes to Consolidated Financial Statements................ 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.......................... 14
Signature.............................................................. 15
i
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
DELMARVA POWER & LIGHT COMPANY
------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------------
2000 1999
------------- ------------
OPERATING REVENUES
Electric $ 424,390 $323,211
Gas 270,537 290,991
Other services 11,022 5,505
------------- ------------
705,949 619,707
------------- ------------
OPERATING EXPENSES
Electric fuel and purchased energy and capacity 241,352 163,708
Gas purchased 251,009 271,613
Other services' cost of sales 9,842 5,747
Operation and maintenance 68,957 60,302
Depreciation and amortization 29,236 32,802
Taxes other than income taxes 10,942 8,325
------------- ------------
611,338 542,497
------------- ------------
OPERATING INCOME 94,611 77,210
------------- ------------
OTHER INCOME 1,612 3,312
------------- ------------
INTEREST EXPENSE
Interest charges 19,285 20,520
Allowance for borrowed funds used during
construction and capitalized interest (310) (492)
------------- ------------
18,975 20,028
------------- ------------
PREFERRED DIVIDEND REQUIREMENT ON
PREFERRED SECURITIES OF A SUBSIDIARY TRUST 1,422 1,422
------------- ------------
INCOME BEFORE INCOME TAXES 75,826 59,072
INCOME TAXES 28,633 23,458
------------- ------------
NET INCOME 47,193 35,614
DIVIDENDS ON PREFERRED STOCK 1,189 1,073
------------- ------------
EARNINGS APPLICABLE TO COMMON STOCK $46,004 $ 34,541
============ ===========
See accompanying Notes to Consolidated Financial Statements.
-1-
DELMARVA POWER & LIGHT COMPANY
------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
2000 1999
-------------- --------------
ASSETS
Current Assets
Cash and cash equivalents $ 6,735 $ 648
Accounts receivable, net of allowances
of $7,006 and $6,479, respectively 435,312 308,690
Intercompany loan receivable 23,928 13,473
Inventories, at average cost
Fuel (coal, oil and gas) 37,964 45,686
Materials and supplies 33,029 31,855
Prepayments 8,410 14,152
Deferred energy supply costs 2,116 8,612
Deferred income taxes, net 2,494 18,935
-------------- --------------
549,988 442,051
-------------- --------------
Investments
Funds held by trustee 68,203 67,896
Other investments 1,580 1,615
-------------- --------------
69,783 69,511
-------------- --------------
Property, Plant and Equipment
Electric generation 1,315,383 1,314,657
Electric transmission and distribution 1,406,588 1,398,574
Gas transmission and distribution 266,451 265,708
Other electric and gas facilities 201,966 202,953
Other property, plant and equipment 7,377 5,469
-------------- --------------
3,197,765 3,187,361
Less: Accumulated depreciation 1,459,136 1,434,597
-------------- --------------
Net plant in service 1,738,629 1,752,764
Construction work-in-progress 70,453 64,747
Leased nuclear fuel, at amortized cost 23,222 25,592
Goodwill, net 69,358 69,850
-------------- --------------
1,901,662 1,912,953
-------------- --------------
Deferred Charges and Other Assets
Recoverable stranded costs 39,217 41,775
Deferred recoverable income taxes 71,897 71,986
Prepaid employee benefits costs 141,001 129,962
Unamortized debt expense 10,880 11,106
Deferred debt refinancing costs 7,027 7,538
Other 17,050 17,903
-------------- --------------
287,072 280,270
-------------- --------------
Total Assets $2,808,505 $2,704,785
============= =============
See accompanying Notes to Consolidated Financial Statements.
-2-
DELMARVA POWER & LIGHT COMPANY
------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
2000 1999
-------------- ---------------
CAPITALIZATION AND LIABILITIES
Current Liabilities
Long-term debt due within one year $ 1,545 $ 1,545
Variable rate demand bonds 104,830 104,830
Accounts payable 243,050 207,073
Taxes accrued 65,205 31,621
Interest accrued 22,720 20,160
Dividends payable 6,108 7,027
Current capital lease obligation 12,498 12,495
Above-market purchased energy contracts and
other electric restructuring liabilities 27,833 33,109
Other 29,956 26,226
-------------- ---------------
513,745 444,086
-------------- ---------------
Deferred Credits and Other Liabilities
Deferred income taxes, net 329,894 341,748
Deferred investment tax credits 34,183 34,823
Long-term capital lease obligation 11,778 14,175
Above-market purchased energy contracts and
other electric restructuring liabilities 98,175 102,781
Other 30,061 14,079
-------------- ---------------
504,091 507,606
-------------- ---------------
Capitalization
Common stock, $2.25 par value;
1,000,000 shares authorized; 1,000 shares outstanding 2 2
Additional paid-in-capital 528,893 528,893
Retained earnings 186,923 147,288
-------------- ---------------
Total common stockholder's equity 715,818 676,183
Preferred stock not subject to mandatory redemption 89,703 89,703
Preferred securities of subsidiary trust subject to
mandatory redemption 70,000 70,000
Long-term debt 915,148 917,207
-------------- ---------------
1,790,669 1,753,093
-------------- ---------------
Commitments and Contingencies (Notes 3 and 5)
Total Capitalization and Liabilities $2,808,505 $ 2,704,785
============== ===============
See accompanying Notes to Consolidated Financial Statements.
-3-
DELMARVA POWER & LIGHT COMPANY
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
------------------------
2000 1999
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 47,193 $35,614
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 32,209 35,602
Allowance for equity funds used during construction (270) (590)
Deferred income taxes, net 4,675 4,457
Investment tax credit adjustments, net (640) (639)
Net change in:
Accounts receivable (119,576) (23,572)
Inventories 6,549 17,531
Accounts payable 35,977 (23,949)
Other current assets and liabilities (1) 52,107 34,255
Other, net (2,910) 2,648
------------ -----------
Net cash provided by operating activities 55,314 81,357
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Intercompany loan receivable (10,454) (800)
Capital expenditures (24,943) (23,773)
Deposits to nuclear decommissioning trust funds - (1,068)
Other, net (234) 279
------------ -----------
Net cash used by investing activities (35,631) (25,362)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid (6,708) (23,649)
Preferred dividends paid (1,769) (823)
Long-term debt redeemed (2,100) -
Principal portion of capital lease payments (2,973) (2,800)
Net change in short-term debt - (21,700)
Cost of issuances and refinancings (46) (69)
------------ -----------
Net cash used by financing activities (13,596) (49,041)
------------ -----------
Net change in cash and cash equivalents 6,087 6,954
Cash and cash equivalents at beginning of period 648 1,761
------------ -----------
Cash and cash equivalents at end of period $6,735 $ 8,715
============ ===========
(1) Other than debt and deferred income taxes classified as current.
See accompanying Notes to Consolidated Financial Statements.
-4-
DELMARVA POWER & LIGHT COMPANY
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
NOTE 1. FINANCIAL STATEMENT PRESENTATION
- ------- --------------------------------
The consolidated condensed interim financial statements contained herein include
the accounts of Delmarva Power & Light Company (DPL) and its wholly-owned
subsidiaries and reflect all adjustments necessary in the opinion of management
for a fair presentation of interim results. In accordance with regulations of
the Securities and Exchange Commission (SEC), disclosures which would
substantially duplicate the disclosures in DPL's 1999 Annual Report on Form 10-K
have been omitted. Accordingly, DPL's consolidated condensed interim financial
statements contained herein should be read in conjunction with DPL's 1999 Annual
Report on Form 10-K and Part II of this Quarterly Report on Form 10-Q for
additional relevant information.
Within the Consolidated Statements of Income, amounts previously reported for
the three months ended March 31, 1999 as "Electric fuel and purchased power" and
"Purchased electric capacity" have been combined and reported as "Electric fuel
and purchased energy and capacity." Certain other reclassifications of prior
period data have been made to conform with the current presentation.
NOTE 2. PLANNED ASSET SALES
- ------- -------------------
For information concerning agreements for the sale of the nuclear and non-
strategic baseload fossil electric generating plants of DPL, see Note 11 to the
Consolidated Financial Statements included in Item 8 of Part II of DPL's 1999
Annual Report on Form 10-K.
NOTE 3. LONG-TERM PURCHASED POWER CONTRACTS
- ------- -----------------------------------
As of March 31, 2000, DPL's commitments under long-term purchased power
contracts included 593 megawatts (MW) of capacity and 100 megawatt-hours of firm
energy. Based on these contracts, DPL's commitments during the next five years
for capacity and energy under long-term purchased power contracts are estimated
to be $142.9 million in 2000; $157.5 million in 2001; $161.5 million in 2002;
$101.0 million in 2003; and $93.2 million in 2004.
As previously disclosed in Notes 1 and 11 to the Consolidated Financial
Statements included in Item 8 of Part II of DPL's 1999 Annual Report on Form 10-
K, the electric generating plants of DPL are expected to be divested during 2000
through sales to third parties and transfers to other Conectiv subsidiaries.
Subsequent to this divestiture, DPL will supply electricity to its customers
entirely with purchased power. In addition to the commitments for purchased
power discussed above, DPL will purchase 500 megawatt-hours of firm electricity
per hour from NRG Energy, Inc. beginning upon completion of the sale of DPL's
non-strategic fossil-fired electric generating plants; the term of this
purchased power agreement will extend through December 31, 2005.
5
NOTE 4. DEBT
- ------- ----
On February 1, 2000, DPL redeemed $2.1 million of 7 1/8% Pollution Control
Bonds.
On January 31, 2000, DPL arranged a $150 million revolving credit facility which
expires January 31, 2003. The credit facility will provide liquidity for DPL's
$104.8 million of Variable Rate Demand Bonds and for general corporate purposes.
NOTE 5. CONTINGENCIES
- ------- --------------
Environmental Matters
DPL is subject to regulation with respect to the environmental effect of its
operations, including air and water quality control, solid and hazardous waste
disposal, and limitation on land use by various federal, regional, state, and
local authorities. Costs may be incurred to clean up facilities found to be
contaminated due to past disposal practices. Federal and state statutes
authorize governmental agencies to compel responsible parties to clean up
certain abandoned or uncontrolled hazardous waste sites. DPL is currently a
potentially responsible party at three federal superfund sites. At one of these
sites, DPL has resolved its liability for clean up costs through a de minimis
settlement with the government. At this site, DPL may be liable for a claim by
the state or federal government for natural resource damages. DPL also is
alleged to be a third-party contributor at three other federal superfund sites.
DPL also has two former coal gasification sites in Delaware and one former coal
gasification site in Maryland, each of which is a state superfund site. Also,
the Delaware Department of Natural Resources and Environmental Control notified
DPL in 1998 that it is a potentially responsible party liable for clean-up of
the Wilmington Public Works Yard as a former owner of the property.
In December 1999, DPL discovered an oil leak at the Indian River power plant.
DPL took action to determine the source of the leak and cap it, contain the oil
to minimize impact to a nearby waterway and began recovering oil from the soil.
DPL is in the process of determining the extent of the leak, designing an oil
recovery/remediation system, and estimating the costs to remediate the site.
DPL may be subject to monetary penalties for this leak. Management cannot
predict the outcome of this matter.
There is $2 million included in DPL's current liabilities as of March 31, 2000
and December 31, 1999 for clean-up and other potential costs related to these
sites. DPL does not expect such future costs to have a material effect on DPL's
financial position or results of operations.
Nuclear Insurance
In conjunction with DPL's ownership interests in Peach Bottom Atomic Power
Station (Peach Bottom) and Salem Nuclear Generating Station (Salem), DPL could
be assessed for a portion of any third-party claims associated with an incident
at any commercial nuclear power plant in the United States. Under the
provisions of the Price Anderson Act, if third-party claims relating to such an
incident exceed $200 million (the amount of primary insurance), DPL could be
assessed up to $26.3 million on an aggregate basis for such third-party claims.
In addition, Congress could impose a revenue-raising measure on the nuclear
industry to pay such claims.
6
The co-owners of Peach Bottom and Salem maintain property insurance coverage of
approximately $2.8 billion for each unit for loss or damage to the units,
including coverage for decontamination expense and premature decommissioning.
In addition, DPL is a member of an industry mutual insurance company, which
provides replacement power cost coverage in the event of a major accidental
outage at a nuclear power plant. Under these coverages, DPL is subject to
potential retrospective loss experience assessments of up to $3.4 million on an
aggregate basis.
NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION
- ------- ----------------------------------
THREE MONTHS ENDED
March 31,
----------
2000 1999
------- -------
(Dollars in thousands)
CASH PAID (RECEIVED) FOR:
Interest, net of amounts capitalized $15,591 $15,522
Income taxes, net of refunds $(7,663) $ 83
NOTE 7. BUSINESS SEGMENTS
- ------- -----------------
Conectiv's organizational structure and management reporting information are
aligned with Conectiv's business segments, irrespective of the subsidiary, or
subsidiaries, through which a business is conducted. Businesses are managed
based on lines of business, not legal entity. Business segment information is
not produced, or reported, on a subsidiary by subsidiary basis. Thus, as a
Conectiv subsidiary, no business segment information (as defined by Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information") is available for DPL on a stand-alone
basis.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- --------------------------
The Private Securities Litigation Reform Act of 1995 (Litigation Reform Act)
provides a "safe harbor" for forward-looking statements to encourage such
disclosures without the threat of litigation, provided those statements are
identified as forward-looking and are accompanied by meaningful, cautionary
statements identifying important factors that could cause the actual results to
differ materially from those projected in the statement. Forward-looking
statements have been made in this report. Such statements are based on
management's beliefs as well as assumptions made by and information currently
available to management. When used herein, the words "intend," "will,"
"anticipate," "estimate," "expect," "believe," and similar expressions are
intended to identify forward-looking statements. In addition to any assumptions
and other factors referred to specifically in connection with such forward-
looking statements, factors that could cause actual results to differ materially
from those contemplated in any forward-looking statements include, among others,
the following: the effects of deregulation of energy supply and the unbundling
of delivery services; the ability to enter into purchased power agreements on
terms acceptable to DPL; market demand and prices for energy, capacity, and
fuel; weather variations affecting energy usage; operating performance of power
plants; an increasingly competitive marketplace; results of any asset
dispositions; sales retention and growth; federal and state regulatory actions;
future litigation results; costs of construction; operating restrictions;
increased costs and construction delays attributable to environmental
regulations; nuclear decommissioning and the availability of reprocessing and
storage facilities for spent nuclear fuel; and credit market concerns. DPL
undertakes no obligation to publicly update or revise any forward- looking
statements, whether as a result of new information, future events or otherwise.
The foregoing list of factors pursuant to the Litigation Reform Act should not
be construed as exhaustive or as any admission regarding the adequacy of
disclosures made prior to the effective date of the Litigation Reform Act.
EARNINGS RESULTS SUMMARY
- -------------------------
Earnings applicable to common stock were $46.0 million for the first quarter of
2000 in comparison to $34.5 million for the first quarter of 1999. The $11.5
million earnings increase was mainly due to additional gross margin (revenues
net of related fuel and purchased power costs) from non-regulated electricity
generation, trading and sales, partly offset by rate decreases for electric
delivery customers and higher operation and maintenance costs. Earnings also
benefited from lower depreciation and energy costs due to the effects of
discontinuing the application of Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71) in
the third quarter of 1999. The impact of DPL's electricity delivery customers
choosing alternative electricity suppliers was minimized by (a) selling
electricity generated by the deregulated power plants to other customers, and
(b) some customers selecting "Conectiv Energy" (the trade name under which DPL
markets competitive retail energy) as their alternative electricity supplier.
PLANNED DIVESTITURE OF ELECTRIC GENERATING PLANTS
- -------------------------------------------------
As previously disclosed in Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) under "Deregulated Generation and
Power Plant Divestiture" on page II-5 of DPL's 1999 Annual Report on Form 10-K,
Conectiv is building mid-merit electric generating plants and is selling the
nuclear and non-strategic baseload fossil electric generating plants of DPL.
The strategic electric generating plants of DPL which are being retained by
Conectiv are expected to be transferred to another Conectiv subsidiary during
mid-2000. In anticipation of this transaction, DPL has formed a new subsidiary,
Conectiv Delmarva Generation Inc. (CDG). After the necessary regulatory
approvals are obtained,
8
management expects to transfer the following to CDG: (a) DPL's strategic
electric generating plants (approximately 1,364 MW) and (b) 126 MW of non-
strategic electric generating plants which are expected to be sold through a
special purpose entity. After the electric generating plants are transferred to
CDG, the ownership of CDG will be transferred to a Conectiv subsidiary that will
hold subsidiaries engaged in non-regulated electricity production and sales, and
energy trading and marketing. Also, the electricity and gas competitive energy
activities currently conducted by DPL are expected to be phased out by DPL and
assumed by another Conectiv subsidiary over the next six to twelve months.
By late-2000, the principal business of DPL is expected to be the transmission
and distribution of energy as a result of the transfers and expected sales of
electric generating plants, as well as the expected transfer of competitive
energy activities from DPL to another Conectiv subsidiary. The businesses of
DPL will also include supplying electricity to customers who do not choose an
alternative electricity supplier (default service); power purchased by DPL will
be the source of the electricity supplied to its default service customers.
DPL's exit from the businesses of electricity production and competitive energy
activities is expected to cause a decrease in DPL's earnings capacity.
ELECTRIC REVENUES
- -----------------
Three Months Ended
March 31,
------------------
2000 1999
------ ------
(Dollars in millions)
Regulated electric revenues $265.2 $257.7
Non-regulated electric revenues 159.2 65.5
------ ------
Total electric revenues $424.4 $323.2
====== ======
The table above shows the amounts of electric revenues earned which are subject
to price regulation (Regulated) and which are not subject to price regulation
(Non-regulated). "Regulated electric revenues" include revenues for delivery
(transmission and distribution) service and electricity supply service within
the service area of DPL.
Regulated electric revenues increased by $7.5 million due a $9.1 million
increase from higher volumes of electricity sold through the interchange, partly
offset by a $1.6 million decrease in retail and other electric revenues.
Decreases in retail electric revenues due to customers choosing alternative
electricity suppliers and retail rate decreases for electric utility industry
restructuring were largely offset by additional revenues from higher volumes of
electricity delivered.
"Non-regulated electric revenues" result primarily from electricity trading
activities, bulk sales of electricity including sales of output from deregulated
electric generating plants, and competitive retail sales. DPL actively
participates in the wholesale energy markets to support wholesale utility and
competitive retail marketing activities. Energy market participation results in
exposure to commodity market risk when, at times, net open energy commodity
positions are created or allowed to continue. To the extent that DPL has net
open positions, controls are in place that are intended to keep risk exposures
within certain management-approved risk tolerance levels. For additional
information concerning commodity market risk, see "Item 3. Quantitative and
Qualitative Disclosures About Market Risk," included herein.
9
Non-regulated electric revenues increased by $93.7 million, from $65.5 million
for the first quarter of 1999 to $159.2 million for the first quarter of 2000.
The $93.7 million increase was mainly due to higher wholesale sales of
electricity generated by deregulated power plants, increased volumes of
electricity traded, and higher competitive retail electricity sales.
Deregulation of the electric generating plants, high plant availability, and
lower load obligations due to some customers choosing alternative suppliers made
more electricity output of electric generating plants available for sale in the
non-regulated markets. Sales of competitive retail electricity increased due to
increased marketing to large commercial and industrial customers outside DPL's
service area and sales to the delivery customers of DPL who selected "Conectiv
Energy" (trade name ) as their alternative electricity supplier.
GAS REVENUES
- ------------
Three Months Ended
March 31,
------------------
2000 1999
------ ------
(Dollars in millions)
Regulated gas revenues $ 44.9 $ 52.6
Non-regulated gas revenues 225.6 238.4
------ ------
Total gas revenues $270.5 $291.0
====== ======
DPL earns gas revenues from on-system sales which generally are subject to price
regulation, off-system trading and sales of natural gas which are not subject to
price regulation, and from the transportation of gas for customers. The table
above shows the amounts of gas revenues earned from sources which were subject
to price regulation (Regulated) and which were not subject to price regulation
(Non-regulated).
Regulated gas revenues decreased $7.7 million for the first quarter of 2000 in
comparison to the first quarter of 1999. The decrease resulted from some
commercial and industrial customers electing to buy gas from alternative
suppliers. However, because DPL's gross margin (gas revenues less gas
purchased) from supplying regulated gas customers is insignificant, the $7.7
million gas revenue decrease did not affect pre-tax profits.
Non-regulated gas revenues decreased $12.8 million due to lower volumes of gas
traded, partly offset by increased competitive retail gas sales. Although non-
regulated gas revenues decreased $12.8 million, the change in the gross margin
earned from non-regulated gas revenues was insignificant.
OTHER SERVICES REVENUES
- ------------------------
Other services revenues increased by $5.5 million mainly due to the sale of oil
inventory in conjunction with termination of a lease of a storage tank.
OPERATING EXPENSES
- -------------------
Electric Fuel and Purchased Energy and Capacity
"Electric fuel and purchased energy and capacity" increased $77.6 million in the
first quarter of 2000 primarily due to higher volumes of non-regulated
electricity generated and purchased for resale, partly offset by lower costs due
to the effects of discontinuing application of SFAS No. 71 to the electricity
supply business of DPL.
10
Gas Purchased
Gas purchased decreased by $20.6 million in the first quarter of 2000 due to
lower volumes of gas purchased for resale off-system and for supply of
commercial and industrial customers in DPL's service area.
Other Services' Cost of Sales
Other services' cost of sales increased by $4.1 million in the first quarter of
2000 primarily due to the sale of oil inventory in conjunction with termination
of a lease of a storage tank.
Operation and Maintenance Expenses
Operation and maintenance expenses increased by $8.7 million in the first
quarter of 2000 primarily due to increases in the operating expenses of jointly-
owned power plants and customer care expenses associated with electric and gas
delivery customers.
Depreciation and amortization
Depreciation and amortization expenses decreased $3.6 million mainly due to the
write-down in the third quarter of 1999 of the nuclear electric generating
plants in connection with restructuring the electric utility industry in
Delaware and Maryland. Amortization of "Recoverable stranded costs" partly
offset the decrease from lower depreciation of power plants.
Taxes other than income taxes
Taxes other than income taxes increased $2.6 million primarily due to higher
revenues from non-regulated electricity sales.
INCOME TAXES
- ------------
Income taxes increased $5.2 million mainly due to higher income before income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------
Due to $55.3 million of cash provided by operating activities, $35.6 million of
cash used by investing activities, and $13.6 million of cash used by financing
activities, cash and cash equivalents increased by $6.1 million during the first
quarter of 2000.
The $55.3 million of net cash provided by operating activities for the first
quarter of 2000 represented a $26.0 million decrease in comparison to cash flow
from operations during the first quarter of 1999. This decrease was primarily
due to slower collection of accounts receivable, partly offset by higher cash
flow from gross margins realized on increased volumes of non-regulated
electricity sales.
Excluding changes due to reclassifications, accounts receivable as of March 31,
2000 increased by $119.6 million in comparison to December 31, 1999. This
increase reflects higher revenues and slower collections of accounts receivable
caused by conversion to a new customer billing system in December 1999.
Management expects that the average time period for collection of accounts
receivable will decrease in future periods.
11
The $10.5 million use of cash in the first quarter of 2000 for "Intercompany
loan receivable" represents DPL's investment in Conectiv's pool of funds that
Conectiv subsidiaries borrow from or invest in, depending on their cash
position.
Capital expenditures of $24.9 million for the first quarter of 2000 were
primarily for electric transmission and distribution system upgrades.
Common dividends paid decreased to $6.7 million for the first quarter of 2000
from $23.6 million for the first quarter of 1999 due to lower payments to
Conectiv.
On February 1, 2000, DPL redeemed $2.1 million of 7 1/8% Pollution Control
Bonds.
On January 31, 2000, DPL arranged a $150 million revolving credit facility which
expires January 31, 2003. The credit facility will provide liquidity for DPL's
$104.8 million of Variable Rate Demand Bonds and for general corporate purposes.
DPL's capital structure including current maturities of long-term debt,
expressed as a percentage of total capitalization, is shown below as of March
31, 2000, and December 31, 1999.
March 31, December 31,
2000 1999
---- ----
Common stockholder's equity 37.7% 36.4%
Preferred stock and preferred trust securities 8.4% 8.6%
Long-term debt, including current maturities
and variable rate demand bonds 53.9% 55.0%
DPL's ratio of earnings to fixed charges under the SEC Methods are shown below.
See Exhibit 12-A, Ratio of Earnings to Fixed Charges, and Exhibit 12-B, Ratio of
Earnings to Fixed Charges and Preferred Dividends, for additional information.
12 Months
Ended Year Ended December 31,
March 31, ----------------------------
2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
Ratio of Earnings to
Fixed Charges (SEC Method) 3.87 3.65 2.92 2.83 3.33 3.54
Ratio of Earnings to Fixed Charges and
Preferred Dividends (SEC Method) 3.56 3.37 2.72 2.63 2.83 2.92
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
As previously disclosed under "Quantitative and Qualitative Disclosures About
Market Risk" on pages II-14 to II-15 of DPL's 1999 Annual Report on Form 10-K,
DPL is subject to market risks, including interest rate risk, equity price risk,
and commodity price risk. An update concerning DPL's commodity price risk is
below.
DPL is exposed to the impact of market fluctuations in the price and
transportation costs of natural gas, electricity, and petroleum products. DPL
engages in commodity hedging activities to minimize the risk of market
fluctuations associated with the purchase and sale of energy commodities
(natural gas, petroleum and electricity). Some hedging activities are conducted
using energy derivatives (futures, option, and swaps). The remainder of DPL's
hedging activity is conducted by backing physical transactions with offsetting
physical positions. The hedging objectives include the assurance of stable and
known minimum cash flows and the fixing of favorable prices and margins when
they become available. DPL also engages in energy commodity trading and
arbitrage activities, which expose DPL to commodity market risk when, at times,
DPL creates net open energy commodity positions or allows net open positions to
continue. To the extent that DPL has net open positions, controls are in place
that are intended to keep risk exposures within management-approved risk
tolerance levels.
DPL uses a value-at-risk model to assess the market risk of its electricity,
gas, and petroleum commodity activities. The model includes fixed price sales
commitments, physical forward contracts, and commodity derivative instruments.
Value-at-risk represents the potential gain or loss on instruments or portfolios
due to changes in market factors, for a specified time period and confidence
level. DPL estimates value-at-risk across its power, gas, and petroleum
commodity business using a delta-normal variance/covariance model with a 95
percent confidence level and assuming a five-day holding period. DPL's
calculated value-at-risk with respect to its commodity price exposure was
approximately $15.7 million as of March 31, 2000, in comparison to $5.3 million
as of December 31, 1999. The increase in value-at-risk was primarily due to
increased hedging, with forward contracts, of the deregulated portion of the
electricity output of DPL's power plants.
13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
Exhibits
- ---------
Exhibit 12-A, Ratio of Earnings to Fixed Charges
Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends
Exhibit 27, Financial Data Schedule
Reports on Form 8-K
- --------------------
On January 31, 2000, DPL filed a Current Report on Form 8-K dated January 18,
2000 reporting on Item 5, Other Events, and Item 7, Financial Statements and
Exhibits.
On March 22, 2000, DPL filed a Current Report on Form 8-K dated March 22, 2000
reporting on Item 5, Other Events.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delmarva Power & Light Company
------------------------------
(Registrant)
Date: May 12, 2000 /s/ John C. van Roden
------------ ---------------------
John C. van Roden, Senior Vice President
and Chief Financial Officer
15
Exhibit Index
Exhibit 12-A, Ratio of Earnings to Fixed Charges
Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends
Exhibit 27, Financial Data Schedule