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, 2001
--------------
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
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302-429-3018
------------
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
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Table of Contents
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Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the three months ended
March 31, 2001 and March 31, 2000........................... 1
Consolidated Balance Sheets as of March 31, 2001 and
and December 31, 2000....................................... 2-3
Consolidated Statements of Cash Flows for the three months
ended March 31, 2001, and March 31, 2000.................... 4
Notes to Consolidated Financial Statements.................. 5-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 10-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................ 15
Signature ............................................................ 16
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,
---------------------------
2001 2000
------------- -------------
OPERATING REVENUES
Electric $ 260,643 $ 424,390
Gas 102,535 270,537
Other services 5,744 11,022
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368,922 705,949
------------- -------------
OPERATING EXPENSES
Electric fuel and purchased energy and capacity 139,963 241,352
Gas purchased 79,731 251,009
Other services' cost of sales 5,354 9,842
Operation and maintenance 26,673 68,957
Depreciation and amortization 26,643 29,236
Taxes other than income taxes 8,953 10,942
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287,317 611,338
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OPERATING INCOME 81,605 94,611
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OTHER INCOME 3,149 1,612
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INTEREST EXPENSE
Interest charges 17,758 19,285
Allowance for borrowed funds used during
construction and capitalized interest (162) (310)
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17,596 18,975
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PREFERRED DIVIDEND REQUIREMENT ON
PREFERRED SECURITIES OF A SUBSIDIARY TRUST 1,422 1,422
------------- -------------
INCOME BEFORE INCOME TAXES 65,736 75,826
INCOME TAXES 26,803 28,633
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NET INCOME 38,933 47,193
DIVIDENDS ON PREFERRED STOCK 1,300 1,189
------------- -------------
EARNINGS APPLICABLE TO COMMON STOCK $ 37,633 $ 46,004
============= =============
See accompanying Notes to Consolidated Financial Statements.
-1-
DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
2001 2000
--------------- ---------------
ASSETS
Current Assets
Cash and cash equivalents $ 11,160 $6,263
Accounts receivable, net of allowances
of $16,021 and $16,285, respectively 254,636 283,426
Accounts receivable from affiliated companies - 21,915
Investment in Conectiv money pool 166,038 88,341
Inventories, at average cost
Fuel (coal, oil and gas) 15,680 19,877
Materials and supplies 24,133 23,912
Prepayments 25,546 22,209
Deferred energy supply costs 21,199 22,094
--------------- ---------------
518,392 488,037
--------------- ---------------
Investments 6,168 6,275
--------------- ---------------
Property, Plant and Equipment
Electric generation 617,744 617,077
Electric transmission and distribution 1,479,954 1,451,644
Gas transmission and distribution 281,241 277,650
Other electric and gas facilities 183,008 184,529
Other property, plant and equipment 5,463 5,463
--------------- ---------------
2,567,410 2,536,363
Less: Accumulated depreciation 1,108,944 1,090,557
--------------- ---------------
Net plant in service 1,458,466 1,445,806
Construction work-in-progress 64,193 80,103
Goodwill, net 67,416 67,945
--------------- ---------------
1,590,075 1,593,854
--------------- ---------------
Deferred Charges and Other Assets
Recoverable stranded costs 25,576 29,271
Deferred recoverable income taxes 70,444 70,753
Prepaid employee benefits costs 177,774 174,335
Unamortized debt expense 10,411 10,624
Deferred debt refinancing costs 7,864 8,247
Other 21,996 24,723
--------------- ---------------
314,065 317,953
--------------- ---------------
Total Assets $ 2,428,700 $ 2,406,119
=============== ===============
See accompanying Notes to Consolidated Financial Statements.
-2-
DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
2001 2000
--------------- ---------------
CAPITALIZATION AND LIABILITIES
Current Liabilities
Long-term debt due within one year $ 2,253 $ 2,253
Variable rate demand bonds 104,830 104,830
Accounts payable 156,157 174,470
Accounts payable to affiliated companies 11,194 -
Taxes accrued 46,746 25,016
Interest accrued 22,509 19,406
Dividends payable 6,503 6,463
Current capital lease obligation 115 111
Above-market purchased energy contracts and
other electric restructuring liabilities 16,351 16,305
Deferred income taxes, net 2,586 2,594
Other 28,847 34,426
--------------- ---------------
398,091 385,874
--------------- ---------------
Deferred Credits and Other Liabilities
Deferred income taxes, net 343,303 340,048
Deferred investment tax credits 19,949 20,505
Long-term capital lease obligation 841 872
Above-market purchased energy contracts and
other electric restructuring liabilities 78,984 86,831
Other 12,618 28,782
--------------- ---------------
455,695 477,038
--------------- ---------------
Capitalization
Common stock, $2.25 par value;
1,000,000 shares authorized; 1,000 shares outstanding 2 2
Additional paid-in-capital 212,612 212,612
Retained earnings 289,538 257,866
--------------- ---------------
Total common stockholder's equity 502,152 470,480
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 913,059 913,024
--------------- ---------------
1,574,914 1,543,207
--------------- ---------------
Commitments and Contingencies (Note 8)
Total Capitalization and Liabilities $2,428,700 $ 2,406,119
=============== ===============
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,
--------------------------
2001 2000
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 38,933 $47,193
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 26,670 32,209
Deferred income taxes, net 3,556 4,675
Investment tax credit adjustments, net (556) (640)
Net change in:
Accounts receivable 48,351 (119,576)
Inventories 3,976 6,549
Accounts payable (7,119) 35,977
Other current assets and liabilities (1) 4,897 52,107
Other, net (8,644) (3,180)
------------ -------------
Net cash provided by operating activities 110,064 55,314
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Conectiv money pool (77,697) (10,454)
Capital expenditures (20,552) (24,943)
Other, net 330 (234)
------------ -------------
Net cash used by investing activities (97,919) (35,631)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid (5,960) (6,708)
Preferred dividends paid (1,261) (1,769)
Long-term debt redeemed - (2,100)
Principal portion of capital lease payments (27) (2,973)
Cost of issuances and refinancings - (46)
------------ -------------
Net cash used by financing activities (7,248) (13,596)
------------ -------------
Net change in cash and cash equivalents 4,897 6,087
Cash and cash equivalents at beginning of period 6,263 648
------------ --------------
Cash and cash equivalents at end of period $ 11,160 $ 6,735
============ ==============
(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, consisting of only normal recurring
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 that would substantially duplicate the disclosures
in DPL's 2000 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 2000 Annual Report on Form 10-K and Part II of
this Quarterly Report on Form 10-Q for additional relevant information.
Note 2. Accounting For Derivative Instruments And Hedging Activities
- ------- ------------------------------------------------------------
DPL implemented the provisions of Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133), as amended, effective January 1, 2001. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. SFAS No. 133 requires all derivative instruments, within the scope
of the statement, to be recognized as assets or liabilities on the balance sheet
at fair value. Changes in the fair value of derivatives that are not hedges,
under SFAS No. 133, are recognized in earnings. The gain or loss on a derivative
that hedges exposure to variable cash flow of a forecasted transaction is
initially recorded in other comprehensive income (a separate component of common
stockholder's equity) and is subsequently reclassified into earnings when the
forecasted transaction occurs. Changes in the fair value of other hedging
derivatives result in a change in the value of the asset, liability, or firm
commitment being hedged, to the extent the hedge is effective. Any ineffective
portion of a hedge is recognized in earnings immediately.
DPL implemented the provisions of SFAS No. 133 effective January 1, 2001. As of
December 31, 2000, DPL held derivative instruments solely in connection with
limiting regulated gas customers' exposure to commodity price uncertainty. The
gains or losses on derivative instruments associated with the regulated gas
supply business are subject to the provisions of SFAS No. 71, "Accounting for
the Effects of Certain Types of Regulation." The initial effects of adopting
SFAS No. 133 were recognition of a $14.4 million asset for the fair value of the
derivative instruments held and a $14.4 million regulatory liability for the
effects of regulation.
During the first quarter of 2001, DPL held derivative instruments solely in
connection with limiting regulated gas customers' exposure to commodity price
uncertainty. These derivatives were not designated as hedges under SFAS No. 133.
-5-
Note 3. Related Party Purchases and Sales
- ------- ---------------------------------
DPL's operating expenses and revenues include amounts for transactions with
other Conectiv subsidiaries. DPL purchased electric capacity from Conectiv
subsidiaries in the amount of $7.9 million during the first quarter of 2001 and
had no intercompany purchases of energy or capacity during the first quarter of
2000. DPL also sold natural gas and electricity and leased certain assets to
other Conectiv subsidiaries. Amounts included in operating revenues for these
transactions were $5.5 million for the first quarter of 2001 and $15.2 million
for the first quarter of 2000.
DPL also recently executed a fixed price contract with Conectiv Energy Supply,
Inc. (CESI), a Conectiv subsidiary; the contract provides substantially all of
DPL's needed energy and capacity for the period April 1, 2001 through August 31,
2001.
Note 4. Proceeds From Termination Of Membership In Mutual Insurance Company
- ------- -------------------------------------------------------------------
DPL sold its interests in nuclear electric generating plants on December 29,
2000, as discussed in Note 11 to the Consolidated Financial Statements included
in Item 8 of Part II of DPL's 2000 Annual Report on Form 10-K. Prior to February
19, 2001, DPL was a member of an industry mutual insurance company (NEIL), which
provides replacement power cost coverage to members in the event of a major
accidental outage at a nuclear power plant.
Under changes in NEIL's by-laws effective December 31, 2000, member account
balances no longer exist. NEIL members that sold their interests in nuclear
electric generating plants on or before December 31, 2000 could elect prior to
February 28, 2001 to be paid their member account balances by NEIL for
terminating their NEIL insurance coverages. On February 19, 2001, DPL elected to
terminate its NEIL membership and received $16.3 million for its member account
balance. As a result of DPL's NEIL membership termination, DPL's operation and
maintenance expenses for the three months ended March 31, 2001 include a $16.3
million pre-tax credit ($9.8 million after taxes).
Note 5. Agreements for the Sale of Electric Generating Plants
- ------- -----------------------------------------------------
For information concerning agreements for the sale of electric generating
plants, see Note 11 to the Consolidated Financial Statements included in Item 8
of Part II of DPL's 2000 Annual Report on Form 10-K. There is no significant new
information to report concerning this matter.
-6-
Note 6. Income Taxes
- ------- ------------
For the three months ended March 31, 2001, the amount computed by multiplying
"Income before income taxes" by the federal statutory rate is reconciled in the
table below to income tax expense.
Three Months Ended
March 31, 2001
----------------------
Amount Rate
---------- ----------
(Dollars in Thousands)
Statutory federal income tax expense $23,008 35%
State income taxes, net of federal benefit 3,625 6
Depreciation 770 1
Amortization of investment tax credits (557) (1)
Other, net (43) -
--------- ---------
Income tax expense $26,803 41%
========= =========
Note 7. Debt
- ------- ----
On February 12, 2001, DPL reduced the commitments under its revolving credit
facility, which expires January 31, 2003, from $150 million to $105 million;
this credit facility provides liquidity for DPL's $104.8 million of Variable
Rate Demand Bonds and also may be used for general corporate purposes.
Also see Note 11 to the Consolidated Financial Statements, "Subsequent Event,
Debt Refinancing."
Note 8. Contingencies
- ------- -------------
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.
In addition, DPL 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. DPL's current liabilities include $8.2 million as of March 31, 2001
($8.8 million as of December 31, 2000) for clean-up and other potential costs
related to these sites, including $6.5 million for remediation and other costs
associated with environmental contamination that resulted from an oil leak at
the Indian River power plant. DPL does not expect such future costs to have a
material effect on DPL's financial position or results of operations.
-7-
Note 9. Supplemental Cash Flow Information
- ------- ----------------------------------
Three Months Ended
March 31,
----------------------
2001 2000
-------- --------
(Dollars in thousands)
Cash paid (received) for:
Interest, net of amounts capitalized $13,861 $15,591
Income taxes, net of refunds $360 $(7,663)
Note 10. Business Segments
- -------- -----------------
Conectiv's organizational structure and management reporting information is
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 SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information") is
available for DPL on a stand-alone basis. However, DPL's principal business is
expected to be the transmission and distribution of electricity upon completion
of the sale of the electric generating plants of DPL (as discussed in Note 11 to
the Consolidated Financial Statements included in Item 8 of Part II of DPL's
2000 Annual Report on Form 10-K). The transfer of certain electric generating
plants and energy trading activities to Conectiv effective July 1, 2000 resulted
in electricity transmission and distribution representing a greater proportion
of DPL's business.
Note 11. Subsequent Event, Debt Refinancing
- -------- ----------------------------------
On behalf of DPL, the Delaware Economic Development Authority issued the bonds
listed below on May 11, 2001, and loaned the proceeds to DPL. The bonds are not
secured by a mortgage or security interest in property of DPL.
Bonds Issued
- --------------------------------------------------------------------------------------------------
Maturity Interest
Principal Series Date Rate
- --------- ------------------------------------------------------ ----------- --------
($000)
$20,000 Exempt Facilities Refunding Revenue Bonds, Series 2001A May 1, 2031 Variable (1)
4,500 Exempt Facilities Refunding Revenue Bonds, Series 2001B May 1, 2031 Variable (1)
34,500 Pollution Control Refunding Revenue Bonds, Series 2001C May 1, 2026 (2) 4.9%
- -------
$59,000
=======
(1) The interest rates on these bonds are set by either auction or remarketing
procedures for periods specified by DPL, which may be daily, weekly or
other periods, including long-term periods extending up to the bonds'
maturity date. The bonds may be subject to optional redemption prior to
maturity as provided for in the indenture for the bonds.
(2) The bonds are subject to mandatory tender on May 1, 2011. All or a portion
of the tendered bonds may be redeemed and/or remarketed. After May 1, 2011,
the bonds may bear interest at a variable rate or fixed rate and may be
subject to optional redemption prior to maturity, as provided for in the
indenture for the bonds.
-8-
The proceeds from the issuance of the bonds listed above and additional cash are
expected to be used to refund on or about July 1, 2001, $59.0 million of bonds,
which are listed below. The bonds are expected to be called at 102% of their
principal amounts.
Bonds Expected To Be Refunded
- --------------------------------------------------------------------------------
Interest
Principal Series Rate
- --------- ------------------------------------------------------ --------
($000)
$20,000 Gas Facilities Revenue Bonds, Series 1991A 7.3%
4,500 Gas Facilities Refunding Revenue Bonds, Series 1991C 7.15%
34,500 Pollution Control Refunding Revenue Bonds, Series 1991B 7.15%
- -------
$59,000
=======
-9-
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
acceptable terms; 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; 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 decreased $8.4 million to $37.6 million for
the first quarter of 2001, from $46.0 million for the first quarter of 2000. The
$8.4 million earnings decrease was primarily due to the unfavorable effects on
earnings of the transfer of electric generating plants and competitive energy
activities to Conectiv, effective July 1, 2000. Primarily as a result of these
transfers, DPL's income from non-regulated energy trading activities decreased
to an insignificant amount and there was an increase in the cost per kilowatt-
hour of the energy and capacity associated with electricity supplied to DPL's
default service customers. These variances were partly offset by lower operating
and maintenance costs.
DPL's participation in energy markets, which has decreased due to the transfer
of competitive energy activities, results in exposure to commodity market risk.
DPL has controls 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.
-10-
Electric Revenues
- -----------------
Three Months Ended
March 31,
---------------------
2001 2000
-------- --------
(Dollars in millions)
Regulated electric revenues $260.0 $265.2
Non-regulated electric revenues 0.6 159.2
-------- --------
Total electric revenues $260.6 $424.4
======== ========
The table above shows the amounts of electric revenues earned that are subject
to price regulation (Regulated) and that 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" decreased by $5.2 million to $260.0 million for
the first quarter of 2001, from $265.2 million for the first quarter of 2000,
primarily due to lower interchange and resale sales. The revenue decrease was
mitigated by higher sales to electric space-heating customers, due to colder
winter weather, and sales during the first quarter of 2001 to customers who
previously purchased electricity from alternative suppliers.
"Non-regulated electric revenues" decreased by $158.6 million to $0.6 million
for first quarter of 2001, from $159.2 million for the first quarter of 2000,
due to the transfer of competitive energy activities and electric generating
plants to Conectiv, effective July 1, 2000.
Gas Revenues
- ------------
Three Months Ended
March 31,
---------------------
2001 2000
-------- --------
(Dollars in millions)
Regulated gas revenues $72.1 $44.9
Non-regulated gas revenues 30.4 225.6
-------- --------
Total gas revenues $102.5 $270.5
======== ========
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). DPL's on-system sales and transportation of natural
gas are generally subject to price regulation. Effective July 1, 2000, DPL ended
its non-regulated gas trading activities. "Non-regulated gas revenues" for the
first quarter of 2001 primarily resulted from off-system sales to large retail
customers.
"Regulated gas revenues" increased by $27.2 million to $72.1 million for the
first quarter of 2001, from $44.9 million for the first quarter of 2000. The
$27.2 million revenue increase was primarily due to higher rates charged under
the gas rate clause to recover higher costs of purchased natural gas. DPL's
gross margin (gas revenues less gas purchased) from supplying regulated gas
customers is insignificant, so earnings were not affected by the additional
revenues from the rate increase under the gas rate clause. "Regulated gas
revenues" also include an increase for higher volumes of gas delivered to
customers, reflecting colder winter weather, which resulted in a $2.5 million
increase in the gross margin earned for gas delivery.
-11-
"Non-regulated gas revenues" decreased by $195.2 million to $30.4 million for
the first quarter of 2001, from $225.6 million for the first quarter of 2000,
primarily due to the transfer to Conectiv of gas trading and most other
competitive gas activities, effective July 1, 2000. Since the gross margin
(revenues less purchased gas costs) earned from these activities was
insignificant in the first quarter of 2000, the decrease in revenues had little
effect on earnings.
Other Services Revenues
- -----------------------
Other services revenues decreased by $5.3 million for the first quarter of 2001
primarily due to revenues earned in the first quarter of 2000 for 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" decreased by $101.4 million to
$140.0 million for the first quarter of 2001, from $241.4 million for the first
quarter of 2000. The decrease was primarily due to the transfer of non-regulated
electricity trading and marketing activities to Conectiv, partly offset by an
increase due to a higher cost per kilowatt-hour for the energy and capacity
associated with electricity supplied to DPL's default service customers. Due to
the transfer of electric generating plants to Conectiv and the sale of DPL's
interests in nuclear electric generating plants, a greater portion of DPL's load
requirement was supplied with power purchased under short-term arrangements,
which caused the cost per kilowatt-hour supplied to increase. DPL's capacity
cost for the first quarter of 2001 benefited from a purchased capacity
arrangement with Conectiv Energy Supply, Inc. (CESI), a Conectiv subsidiary. DPL
also recently executed a fixed-price contract with CESI; the contract provides
substantially all of DPL's needed energy and capacity for the period April 1,
2001 through August 31, 2001.
Gas Purchased
Gas purchased decreased by $171.3 million to $79.7 million for the first quarter
of 2001, from $251.0 million for the first quarter of 2000. This decrease was
mainly due to the transfer to Conectiv of non-regulated gas trading and most
other competitive gas activities, partly offset by an increase from higher costs
for supplying natural gas to customers in DPL's regulated service area due to
higher prices paid for natural gas and a larger volume of natural gas purchased.
Other Services' Cost of Sales
Other services' cost of sales decreased by $4.5 million in the first quarter of
2001 primarily due to the cost of oil inventory sold in the first quarter of
2000 in conjunction with termination of a lease of a storage tank.
Operation and Maintenance Expenses
Operation and maintenance expenses decreased by $42.3 million to $26.7 million
for the first quarter of 2001, from $69.0 million for the first quarter of 2000.
This decrease was due to proceeds ($16.3 million) received by DPL for
termination of its membership in NEIL, the sale of the interests of DPL in
nuclear electric generating plants, and the transfer of electric generating
plants to Conectiv.
-12-
Depreciation and Amortization
Depreciation and amortization expenses decreased $2.6 million for the first
quarter of 2001 primarily due to the transfer of electric generating plants to
Conectiv and the sale of DPL's interests in nuclear electric generating plants.
Income Taxes
- ------------
Income taxes decreased $1.8 million for the first quarter of 2001 mainly due to
lower income before income taxes, partly offset by a higher effective income tax
rate.
Liquidity and Capital Resources
- -------------------------------
Due to $110.1 million of cash provided by operating activities, $97.9 million of
cash used by investing activities, and $7.2 million of cash used by financing
activities, cash and cash equivalents increased by $4.9 million during the first
quarter of 2001.
The net cash provided by operating activities increased by $54.8 million to
$110.1 million for the first quarter of 2001, from $55.3 million for the first
quarter of 2000. The increase in cash flow was primarily due to increased
collections of accounts receivable, including amounts from discontinued
competitive retail energy activities.
The $97.9 million of net cash used by investing activities for the first quarter
of 2001 included $77.7 million for the incremental amount invested by DPL in
Conectiv's pool of funds that Conectiv subsidiaries borrow from or invest in,
depending on their cash position, and $20.6 million of capital expenditures,
primarily for the electric transmission and distribution systems.
The $7.2 million of net cash used by financing activities for the first quarter
of 2001 included $6.0 million of dividends on common stock paid to Conectiv and
$1.3 million of dividends paid to preferred stockholders.
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, 2001, and December 31, 2000.
March 31, December 31,
2001 2000
--------- ------------
Common stockholder's equity 29.8% 28.5%
Preferred stock and preferred trust securities 9.5% 9.7%
Long-term debt, including current maturities
and variable rate demand bonds 60.7% 61.8%
On February 12, 2001, DPL reduced the commitments under its revolving credit
facility, which expires January 31, 2003, from $150 million to $105 million;
this credit facility provides liquidity for DPL's $104.8 million of Variable
Rate Demand Bonds and also may be used for general corporate purposes.
As discussed in Note 11 to the Consolidated Financial Statements, on behalf of
DPL, the Delaware Economic Development Authority issued $59.0 million of bonds
on May 11, 2001 and loaned the proceeds to DPL. Of the bonds issued, $24.5
million have a variable interest rate and a maturity date of May 1, 2031 and
$34.5 million have a fixed interest rate of 4.9% and a maturity date of May 1,
2026, subject to mandatory tender on May 1, 2011. The proceeds received by DPL
and additional cash are expected to be used on or about July 1, 2001 to refund
$59.0 million of bonds (7.2% average interest rate).
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DPL's ratio of earnings to fixed charges and ratio of earnings to fixed charges
and preferred dividends 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, ------------------------------------
2001 2000 1999 1998 1997 1996
--------- ---- ---- ---- ---- ----
Ratio of Earnings to
Fixed Charges (SEC Method) 3.41 3.47 3.65 2.92 2.83 3.33
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends (SEC Method) 3.12 3.20 3.37 2.72 2.63 2.83
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------- ----------------------------------------------------------
As previously disclosed under "Quantitative and Qualitative Disclosures About
Market Risk" on page II-14 to DPL's 2000 Annual Report on Form 10-K, DPL is
subject to market risks, including interest rate risk and commodity price risk.
There were no material changes in DPL's level of market risk associated with
interest rates and derivative commodity instruments as of March 31, 2001
compared to December 31, 2000. During the first quarter of 2001, DPL held
derivative instruments solely for the purposes of limiting regulated gas
customers' exposure to commodity price uncertainty. Due to the operation of
the regulated gas cost recovery clause, DPL had no value at risk as of
March 31, 2001 or December 31, 2000.
Although DPL's level of market risk associated with derivative commodity
instruments is unchanged as of March 31, 2001 compared to December 31, 2000,
during the first quarter of 2001 DPL purchased increased amounts of electricity
under short-term arrangements due to the transfer of its electric generating
plants to Conectiv and the sale of its interests in nuclear electric generating
plants. As a result, DPL experienced more exposure to fluctuations in the market
price of electricity during the first quarter of 2001. On the other hand, DPL's
capacity cost for the first quarter of 2001 benefited from a capacity purchase
arrangement with CESI, a Conectiv subsidiary. Also, DPL recently executed a
fixed-price contract with CESI to provide substantially all of DPL's needed
energy and capacity for the period April 1, 2001 through August 31, 2001.
-14-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
- ------------
Exhibit 12-A, Ratio of Earnings to Fixed Charges
Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends
(b) Reports on Form 8-K
- -----------------------
On January 8, 2001, DPL filed a Current Report on Form 8-K dated December 29,
2000 reporting on Item 5, Other Events, and Item 7, Financial Statements and
Exhibits.
-15-
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 14, 2001 /s/ John C. van Roden
------------ ----------------------------------------
John C. van Roden, Senior Vice President
and Chief Financial Officer
-16-
Exhibit Index
-------------
Exhibit 12-A, Ratio of Earnings to Fixed Charges
Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends