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
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-3559
Atlantic City Electric Company
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(Exact name of registrant as specified in its charter)
New Jersey 21-0398280
------------ ------------
(State 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 302-429-3018
------------
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 18,320,937 issued and outstanding shares of Atlantic City Electric Company
common stock, $3 per share par value, are owned by Conectiv.
Atlantic City Electric Company
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Table of Contents
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Page
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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
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................ 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9-12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 12
Part II. Other Information
Item 1. Legal Proceedings......................................... 13
Item 6. Exhibits and Reports on Form 8-K.......................... 13
Signature.......................................................... 14
i
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ATLANTIC CITY ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------------
2001 2000
------------- ------------
OPERATING REVENUES $ 230,538 $208,886
------------- ------------
OPERATING EXPENSES
Electric fuel and purchased energy and capacity 110,410 89,955
Operation and maintenance 56,629 61,042
Depreciation and amortization 21,836 25,695
Taxes other than income taxes 9,261 9,514
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198,136 186,206
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OPERATING INCOME 32,402 22,680
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OTHER INCOME 3,662 1,622
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INTEREST EXPENSE
Interest charges 17,805 19,866
Allowance for borrowed funds used during
construction and capitalized interest (125) (176)
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17,680 19,690
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PREFERRED DIVIDEND REQUIREMENTS ON
PREFERRED SECURITIES OF SUBSIDIARY TRUSTS 1,905 1,905
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INCOME BEFORE INCOME TAXES 16,479 2,707
INCOME TAXES 7,203 1,134
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NET INCOME 9,276 1,573
DIVIDENDS ON PREFERRED STOCK 533 533
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EARNINGS APPLICABLE TO COMMON STOCK $ 8,743 $ 1,040
============= ============
See accompanying Notes to Consolidated Financial Statements.
-1-
ATLANTIC CITY ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
2001 2000
--------------- ---------------
ASSETS
Current Assets
Cash and cash equivalents $11,769 $8,117
Accounts receivable, net of allowances
of $5,789 and $4,423, respectively 140,291 140,785
Investment in Conectiv money pool 147,785 147,954
Inventories, at average cost
Fuel (coal and oil) 14,824 6,818
Materials and supplies 6,916 6,786
Deferred income taxes, net 13,955 15,750
Other prepayments 935 1,738
--------------- ---------------
336,475 327,948
--------------- ---------------
Investments 115,666 112,501
--------------- ---------------
Property, Plant and Equipment
Electric generation 142,243 142,243
Electric transmission and distribution 1,261,364 1,255,184
Other electric facilities 120,025 119,782
Other property, plant, and equipment 5,772 5,772
--------------- ---------------
1,529,404 1,522,981
Less: Accumulated depreciation 653,445 640,103
--------------- ---------------
Net plant in service 875,959 882,878
Construction work-in-progress 53,443 50,247
Leased nuclear fuel, at amortized cost 25,129 28,352
--------------- ---------------
954,531 961,477
--------------- ---------------
Deferred Charges and Other Assets
Recoverable stranded costs 951,968 958,883
Unrecovered purchased power costs 13,988 14,487
Deferred recoverable income taxes 12,006 13,978
Unrecovered New Jersey state excise taxes 7,163 10,360
Deferred debt refinancing costs 12,167 12,409
Deferred other postretirement benefit costs 29,356 29,981
Unamortized debt expense 12,852 12,842
Other 32,272 26,516
--------------- ---------------
1,071,772 1,079,456
--------------- ---------------
Total Assets $ 2,478,444 $ 2,481,382
=============== ===============
See accompanying Notes to Consolidated Financial Statements.
-2-
ATLANTIC CITY ELECTRIC 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 $ 97,200 $ 97,200
Variable rate demand bonds 22,600 22,600
Accounts payable 58,696 50,744
Taxes accrued 18,302 10,243
Interest accrued 12,579 18,193
Dividends payable 17,871 17,871
Current capital lease obligation 15,480 15,480
Deferred energy supply costs 30,480 34,650
Above-market purchased energy contracts
and other electric restructuring liabilities 7,368 7,586
Other 37,758 30,268
--------------- --------------
318,334 304,835
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Deferred Credits and Other Liabilities
Deferred income taxes, net 401,594 405,385
Regulatory liability for New Jersey income tax benefit 49,262 49,262
Above-market purchased energy contracts
and other electric restructuring liabilities 16,799 16,744
Deferred investment tax credits 35,223 35,851
Long-term capital lease obligation 9,649 12,872
Pension benefit obligation 27,597 26,948
Other postretirement benefit obligation 35,802 37,614
Other 29,290 28,918
--------------- --------------
605,216 613,594
--------------- --------------
Capitalization
Common stock, $3 par value; shares authorized:
25,000,000; shares outstanding: 18,320,937 54,963 54,963
Additional paid-in capital 410,194 410,194
Retained earnings 106,878 114,962
--------------- --------------
Total common stockholder's equity 572,035 580,119
Preferred stock not subject to mandatory redemption 6,231 6,231
Preferred stock subject to mandatory redemption 23,950 23,950
Preferred securities of subsidiary trusts subject to
mandatory redemption 95,000 95,000
Long-term debt 857,678 857,653
--------------- --------------
1,554,894 1,562,953
--------------- --------------
Commitments and Contingencies (Note 6)
--------------- --------------
Total Capitalization and Liabilities $2,478,444 $2,481,382
=============== ==============
See accompanying Notes to Consolidated Financial Statements.
-3-
ATLANTIC CITY ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
------------------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $9,276 $1,573
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 25,640 29,071
Investment tax credit adjustments, net (628) (633)
Deferred income taxes, net (24) (5,556)
Deferred energy supply costs (4,170) 7,303
Net change in:
Accounts receivable 494 12,150
Inventories (8,136) 5,178
Prepaid New Jersey sales & excise taxes 10,716 2,287
Accounts payable 7,952 (13,594)
Taxes accrued 8,059 68,731
Other current assets and liabilities (1) (8,037) 832
Other, net (2,266) 855
------------ ------------
Net cash provided by operating activities 38,876 108,197
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in investment in Conectiv money pool 169 3,869
Capital expenditures (12,592) (11,882)
Deposits to nuclear decommissioning trust funds (825) -
Other, net (1,376) (108)
------------ ------------
Net cash used by investing activities (14,624) (8,121)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid (16,827) (16,827)
Preferred dividends paid (533) (497)
Long-term debt redeemed - (46,000)
Principal portion of capital lease payments (3,240) (3,376)
Net change in short-term debt - (30,000)
------------ ------------
Net cash used by financing activities (20,600) (96,700)
------------ ------------
Net change in cash and cash equivalents 3,652 3,376
Cash and cash equivalents at beginning of period 8,117 7,924
------------ ------------
Cash and cash equivalents at end of period $11,769 $11,300
============ ============
(1) Other than debt and deferred income taxes classified as current.
See accompanying Notes to Consolidated Financial Statements.
-4-
ATLANTIC CITY ELECTRIC COMPANY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
Note 1. Financial Statement Presentation
- ------- --------------------------------
The consolidated condensed interim financial statements contained herein include
the accounts of Atlantic City Electric Company (ACE) 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 ACE's 2000 Annual Report on Form 10-K have been omitted. Accordingly, ACE's
consolidated condensed interim financial statements contained herein should be
read in conjunction with ACE'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
- ------- ------------------------------------------------------------
ACE 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.
ACE's financial statements were not affected by the initial adoption of SFAS No.
133, effective January 1, 2001, because ACE did not hold derivative instruments
as of December 31, 2000. Also, ACE did not hold derivative instruments during
the first quarter of 2001.
Note 3. 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 ACE's 2000 Annual Report on Form 10-K. There is no significant
new information to report concerning this matter.
On April 11, 2001, ACE entered into a purchased power agreement with an
affiliate of NRG Energy, Inc. (NRG), the party with which ACE has an agreement
for the sale of certain of its fossil fuel-fired electric generating plants.
The purchased power agreement provides for ACE to begin purchasing 400 megawatts
of capacity and energy over a period that begins when the sale of certain of
ACE's electric generating plants to NRG is completed and ends on August 31,
2002.
-5-
Note 4. Regulatory Matters
- ------- ------------------
An update to the information previously reported in Note 7 to the Consolidated
Financial Statements included in Item 8 of Part II of ACE's 2000 Annual Report
on Form 10-K is presented below.
New Jersey Electric Utility Industry Restructuring
As previously disclosed, the New Jersey Board of Public Utilities (NJBPU) issued
a Summary Order to ACE in July 1999 concerning restructuring ACE's electricity
supply business and indicated that a more detailed order would be issued at a
later time.
The Final Decision and Order of the NJBPU, dated March 30, 2001, for ACE was
publicly posted on the NJBPU's website in mid-May 2001. The Final Decision and
Order supersedes a Summary Order issued on July 15, 1999, which was the subject
of a Form 8-K filing made by ACE and Conectiv on July 15, 1999. The Final
Decision and Order and the 1999 Summary Order were issued in conjunction with a
June 9, 1999 settlement in the NJBPU's restructuring proceeding relating to
ACE's stranded costs, unbundled rates, and other provisions relevant to
establishing competitive retail electric supply markets within ACE's franchised
service area in southern New Jersey.
After an initial review, management believes that the substantive provisions of
the Final Decision and Order largely track the substantive provisions of the
Summary Order filed with and discussed in ACE's and Conectiv's July 15, 1999
Form 8-K filings. Differences between the Summary Order and the Final Decision
and Order that have been identified, in management's view, are not material and
include: 1) establishing August 1, 2002, as the date for submission of a filing
regarding the level of all unbundled rate components proposed to be applicable
on and after August 1, 2003; 2) with respect to deferred costs to be recovered
in future rates, establishing an interest rate to be applied to the deferred
balances that is tied to 7-year Treasury constant maturities rather than tied to
intermediate-term maturities actually issued by ACE or Conectiv; 3) finding
that such deferred balances and interest are recoverable over a "reasonable
period of time" to be determined by the NJBPU rather than the four-year period
explicitly set forth in the Summary Order; and 4) striking a provision in the
settlement that identified a statutory right for ACE to make an early filing for
rate modifications under certain specified conditions.
Note 5. 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 $5,768 35%
State income taxes, net of federal benefit 1,294 8
Plant basis differences 704 5
Amortization of investment tax credits (628) (4)
Other, net 65
------ ------
Income tax expense $7,203 44%
====== ======
-6-
Note 6. Contingencies
- ------- --------------
Environmental Matters
ACE is subject to regulation with respect to the environmental effects 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. ACE is a potentially
responsible party at a state superfund site and has agreed, along with other
responsible parties, to remediate the site pursuant to an Administrative Consent
Order with the New Jersey Department of Environmental Protection. ACE is also a
defendant in an action to recover costs at a federal superfund site in
Gloucester County, New Jersey. ACE's liability for clean-up costs is affected
by the activities of these governmental agencies and private land-owners, the
nature of past disposal practices, the activities of others (including whether
they are able to contribute to clean-up costs), and the scientific and other
complexities involved in resolving clean-up related issues (including whether
ACE or a corporate predecessor is responsible for conditions on a particular
parcel). There is $1.0 million included in ACE's current liabilities as of
March 31, 2001 and December 31, 2000 for remediation activities at these sites.
ACE does not expect such future costs to have a material effect on its financial
position or results of operations.
Nuclear Insurance
In conjunction with the ownership interests of ACE in Peach Bottom Atomic Power
Station (Peach Bottom), Salem Nuclear Generating Station (Salem), and Hope Creek
Nuclear Generating Station (Hope Creek), ACE 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), ACE could be assessed up to $30.7 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.
The co-owners of Peach Bottom, Salem, and Hope Creek maintain property insurance
coverage of approximately $1.8 billion for each unit for loss or damage to the
units, including coverage for decontamination expense and premature
decommissioning. An industry mutual insurance company (NEIL) provides
replacement power cost coverage to members in the event of a major accidental
outage at a nuclear power plant. Under these coverages, ACE is subject to
potential retrospective loss experience assessments of up to $1.9 million on an
aggregate basis.
Under changes in NEIL's by-laws effective December 31, 2000, member account
balances no longer exist. NEIL members who sell their interests in nuclear
electric generating plants after December 31, 2000, may choose either (1) to
continue to receive certain policyholders' distributions from NEIL (if, as, and
when declared) over a 5-year period or (2) to remain a NEIL member by purchasing
other insurance products from NEIL and thus remain eligible for policyholders'
distributions (if, as, and when declared) for a longer period. If the sale of
ACE's ownership interests in nuclear electric generating plants is completed,
then ACE will be able to choose one of the two options available to it under
NEIL's by-laws.
Other
On October 24, 2000, the City of Vineland, New Jersey, filed an action in a New
Jersey Superior Court to acquire ACE electric distribution facilities located
within the City limits by eminent domain. The City
-7-
has offered approximately $11 million for these assets, including the right to
provide electric service in this area. ACE believes that, properly evaluated,
the assets sought by the City are worth approximately $40 million. Management
cannot predict the outcome of this matter.
Note 7. Supplemental Cash Flow Information
- ------- ----------------------------------
Three Months Ended
March 31,
------------------
2001 2000
---- ----
(Dollars in thousands)
Cash paid (received) for:
Interest, net of amounts capitalized $22,636 $ 23,527
Income taxes, net of refunds -- $(61,444)
As shown above, ACE received a $61.4 million income tax refund during the three
months ended March 31, 2000. The income tax refund was related to the tax
benefit associated with ACE's payment of $228.5 million on December 28, 1999 to
terminate ACE's purchase of electricity under a contract with the Pedricktown
Co-generation Limited Partnership (Pedricktown). For additional information
concerning the contract termination, see Note 8 to the Consolidated Financial
Statements included in Item 8 of Part II of ACE's 2000 Annual Report on Form
10-K.
Note 8. 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 ACE on a stand-alone basis. However, ACE's principal business is
expected to be the transmission and distribution of electricity upon completion
of the sale of the electric generating plants of ACE (as discussed in Note 11 to
the Consolidated Financial Statements included in Item 8 of Part II of ACE's
2000 Annual Report on Form 10-K). The transfer of the combustion turbines to
Conectiv effective July 1, 2000, resulted in electricity transmission and
distribution representing a greater proportion of ACE's business.
Note 9. Subsequent Event, Mandatory Redemption Of Preferred Stock
- ------- ---------------------------------------------------------
On May 1, 2001, ACE redeemed 115,000 shares of its $7.80 annual dividend rate
preferred stock, which has mandatory redemption provisions, at the $100 per
share stated value or $11.5 million in total.
-8-
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; nuclear decommissioning and the availability of reprocessing and
storage facilities for spent nuclear fuel; and credit market concerns. ACE
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 $8.7 million for the first quarter of
2001, compared to $1.0 million for the first quarter of 2000. The $7.7 million
earnings increase was mainly due to higher volumes of regulated electricity
sales and deliveries, reflecting the effect of colder winter weather on
electricity usage by customers with electric heating systems. Although ACE
experienced higher average energy costs in serving its Basic Generation Service
(BGS) customers, additional revenues were recognized based on the regulated
cost-based, rate-recovery mechanism that exists for BGS, as discussed in Notes 1
and 7 to the Consolidated Financial Statements included in Item 8 of Part II of
ACE's 2000 Annual Report on Form 10-K. The earnings increase for the first
quarter of 2001 also reflects higher investment income and lower expenses,
including operating and maintenance costs, depreciation and amortization
expenses, and interest expense. The variances that positively affected earnings
were partly offset by a negative earnings variance attributed to the transfer of
the combustion turbine electric generating units to Conectiv on July 1, 2000.
New Jersey Electric Utility Industry Restructuring
- --------------------------------------------------
As previously disclosed, the New Jersey Board of Public Utilities (NJBPU) issued
a Summary Order to ACE in July 1999 concerning restructuring ACE's electricity
supply business and indicated that a more detailed order would be issued at a
later time.
The Final Decision and Order of the NJBPU, dated March 30, 2001, for ACE was
publicly posted on the NJBPU's website in mid-May 2001. The Final Decision and
Order supersedes a Summary Order issued
-9-
on July 15, 1999, which was the subject of a Form 8-K filing made by ACE and
Conectiv on July 15, 1999. The Final Decision and Order and the 1999 Summary
Order were issued in conjunction with a June 9, 1999 settlement in the NJBPU's
restructuring proceeding relating to ACE's stranded costs, unbundled rates, and
other provisions relevant to establishing competitive retail electric supply
markets within ACE's franchised service area in southern New Jersey.
After an initial review, management believes that the substantive provisions of
the Final Decision and Order largely track the substantive provisions of the
Summary Order filed with and discussed in ACE's and Conectiv's July 15, 1999
Form 8-K filings. Differences between the Summary Order and the Final Decision
and Order that have been identified, in management's view, are not material and
include: 1) establishing August 1, 2002, as the date for submission of a filing
regarding the level of all unbundled rate components proposed to be applicable
on and after August 1, 2003; 2) with respect to deferred costs to be recovered
in future rates, establishing an interest rate to be applied to the deferred
balances that is tied to 7-year Treasury constant maturities rather than tied to
intermediate-term maturities actually issued by ACE or Conectiv; 3) finding
that such deferred balances and interest are recoverable over a "reasonable
period of time" to be determined by the NJBPU rather than the four-year period
explicitly set forth in the Summary Order; and 4) striking a provision in the
settlement that identified a statutory right for ACE to make an early filing for
rate modifications under certain specified conditions.
Operating Revenues
- ------------------
Three Months Ended
March 31,
------------------
2001 2000
------ ------
(Dollars in millions)
Regulated electric revenues $225.3 $196.8
Non-regulated electric revenues 3.5 9.1
Other revenues 1.7 3.0
------ ------
Total operating revenues $230.5 $208.9
====== ======
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 BGS.
"Regulated electric revenues" increased by $28.5 million, to $225.3 million for
the first quarter of 2001, from $196.8 million for the first quarter of 2000.
The increase was primarily due to increased interchange sales, higher sales to
electric space-heating customers due to colder winter weather, and additional
revenues recognized under the regulated cost-based, rate-recovery mechanism that
exists for BGS.
"Non-regulated electric revenues" decreased by approximately $5.6 million mainly
due to the transfer of the combustion turbine electric generating units to
Conectiv on July 1, 2000.
-10-
Operating Expenses
- -------------------
Electric Fuel and Purchased Energy and Capacity
"Electric fuel and purchased energy and capacity" increased $20.5 million for
the first quarter of 2001 mainly due to increased volume of electricity
purchased at a higher average cost.
On April 11, 2001, ACE entered into a purchased power agreement with an
affiliate of NRG Energy, Inc. (NRG), the party with which ACE has an agreement
for the sale of certain of its fossil fuel-fired electric generating plants.
The purchased power agreement provides for ACE to begin purchasing 400 megawatts
of capacity and energy over a period that begins when the sale of certain of
ACE's electric generating plants to NRG is completed and ends on August 31,
2002.
Operation and Maintenance Expenses
Operation and maintenance expenses decreased $4.4 million for the first quarter
of 2001 mainly due to lower expenses associated with ACE's interests in jointly-
owned nuclear electric generating units.
Depreciation and amortization
Depreciation and amortization expenses decreased $3.9 million for the first
quarter of 2001 mainly due to expiration of the amortization of a regulatory
asset for purchased capacity costs.
Other Income
- ------------
Other income increased $2.0 million in the first quarter of 2001 primarily due
to a higher average investment balance in Conectiv's money pool.
Interest Expense
- ----------------
Interest expense, net of amounts capitalized, decreased $2.0 million for the
first quarter of 2001 mainly due to the redemption of $46.0 million of Medium
Term Notes in January 2000, lower amortization of debt issuance and refinancing
expenses, and less interest expense attributed to ACE's regulatory liability for
deferred energy supply costs.
Income Taxes
- ------------
Income taxes increased $6.1 million for the first quarter of 2001 mainly due to
higher income before income taxes.
Liquidity and Capital Resources
- --------------------------------
Due to $38.9 million of cash provided by operating activities, $14.6 million of
cash used by investing activities, and $20.6 million of cash used by financing
activities, cash and cash equivalents increased by $3.7 million during first
quarter of 2001.
Net cash provided by operating activities decreased by $69.3 million to $38.9
million for the first quarter of 2001, from $108.2 million for the first quarter
of 2000. The decrease was primarily due to income tax refunds received in the
first quarter of 2000 related to the tax benefit associated with the December
1999 payment to terminate the Pedricktown purchased power contract.
-11-
ACE's $12.6 million of capital expenditures during the first quarter of 2001
were primarily for the electric transmission and distribution systems of ACE.
Cash flows from financing activities for the first quarter of 2001 consisted of
$16.8 million of dividends on common stock paid to Conectiv, $0.5 million of
dividends paid to preferred stockholders, and $3.2 million of capital lease
principal payments.
ACE's capital structure, 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 34.2% 34.5%
Preferred stock and preferred trust securities 7.5% 7.4%
Long-term debt and variable rate demand bonds 52.5% 52.3%
Short-term debt and current maturities of long-term debt 5.8% 5.8%
On May 1, 2001, ACE redeemed 115,000 shares of its $7.80 annual dividend rate
preferred stock, which has mandatory redemption provisions, at the $100 per
share stated value or $11.5 million in total.
ACE's ratio of earnings to fixed charges and ratio of earnings to fixed charges
and preferred stock 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) 2.21 2.03 2.57 1.66 2.84 2.59
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends (SEC Method) 2.12 1.95 2.44 1.55 2.58 2.16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------- ----------------------------------------------------------
As previously disclosed under "Quantitative and Qualitative Disclosures About
Market Risk" on page II-13 to ACE's 2000 Annual Report on Form 10-K, ACE is
subject to market risks, including interest rate risk, equity price risk, and
commodity price risk. There were no material changes in ACE's level of market
risks as of March 31, 2001 compared to December 31, 2000.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
Information reported under the heading "Other" in Note 6 to the Consolidated
Financial Statements under Item 1 in Part I herein, concerning an action filed
in a New Jersey Superior Court by the City of Vineland, is incorporated by
reference.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
- -------------
Exhibit 12-A, Ratio of Earnings to Fixed Charges (filed herewith)
Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends (filed
herewith)
Exhibit 99, New Jersey Board of Public Utilities, Final Decision and Order,
dated March 30, 2001 (incorporated by reference from Conectiv's Report on Form
10-Q for the quarterly period ended March 31, 2001, filed May 10, 2001)
(b) Reports on Form 8-K
- ------------------------
On January 8, 2001, ACE 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.
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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.
Atlantic City Electric Company
------------------------------
(Registrant)
Date: May 14, 2001 /s/ John C. van Roden
------------ ---------------------
John C. van Roden, Senior Vice President
and Chief Financial Officer
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Exhibit Index
-------------
Exhibit 12-A, Ratio of Earnings to Fixed Charges
Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends