-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ia1P7PNh8CqDvPcPTSJn+T8H+R5bcfsZxL5QK2ACpGoKy4qwleMVty3EbLje6MAv IkI62ioIMXHnrWOJt3aX2A== /in/edgar/work/20000602/0000893220-00-000733/0000893220-00-000733.txt : 20000919 0000893220-00-000733.hdr.sgml : 20000919 ACCESSION NUMBER: 0000893220-00-000733 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20000602 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONECTIV CENTRAL INDEX KEY: 0001029590 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 510377417 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: SEC FILE NUMBER: 070-09655 FILM NUMBER: 648097 BUSINESS ADDRESS: STREET 1: 800 KING STREET P O BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 BUSINESS PHONE: 3024293114 MAIL ADDRESS: STREET 1: 800 KING ST STREET 2: P O BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 U-1/A 1 0001.txt AMENDMENT NO. 3 TO FORM U-1 CONECTIV 1 File No. 70-9655 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 3 TO FORM U-1 DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 Conectiv Conectiv Energy Holding Company Atlantic City Electric Company ACE REIT, Inc. Conectiv Atlantic Generation, LLC Delmarva Power & Light Company Conectiv Delmarva Generation, Inc. 800 King Street Wilmington, DE 19899 (Name of company filing this statement and address of principal executive offices) Conectiv (Name of top registered holding company parent) Philip S. Reese Vice President and Treasurer Conectiv (address above) (Name and address of agent of service) The Commission is requested to send copies of all notices, orders and communications in connection with this Application to: Peter F. Clark Joyce Koria Hayes, Esquire General Counsel 7 Graham Court Conectiv Newark, DE 19711 (address above) 2 Table of Contents Item 1. DESCRIPTION OF PROPOSED TRANSACTIONS A. Introduction. B. Background and Regulatory Environment C. Transactions related to the capitalization of Conectiv Delmarva Generation, Inc. ("CDG") and Conectiv Atlantic Generation, LLC ("CAG") through the contribution of generating assets. Capitalization of ACE REIT, Inc. ("ACE-REIT") through the contribution of CAG ownership interests to ACE-REIT. D. Dividend of common stock of CDG and ACE-REIT to Conectiv. E. Approval of acquisition of CDG and ACE-REIT by CEH. Creation of Conectiv Energy Holding Company ("CEH") and contribution of CDG and ACE-REIT common stock to CEH. Determination that ACE-REIT is not a utility holding company. Possible future activities of CEH. F. Request for reservation of jurisdiction pending completion of the record with respect to status of CDG and CAG as EWGs. G. CEH Authority to acquire EWGs as an intermediary company. H. Financing of CEH and financing of ACE-REIT, CAG, and CDG by CEH or Conectiv. 1. CEH financing by Conectiv. 2. CDG, CAG, and ACE-REIT financing by CEH or Conectiv. I. Authority for the acquisition of utility assets pursuant to a like-kind exchange if at that time CDG is not an EWG. J. Affiliate Transactions. K. Authorization Period and Reporting. L. Statement Pursuant to Rule 54. Item 2. FEES, COMMISSION AND EXPENSES Item 3. APPLICABLE STATUTORY PROVISIONS Item 4. REGULATORY APPROVAL Item 5. PROCEDURE Item 6. EXHIBITS AND FINANCIAL STATEMENTS 2 3 A. Exhibits B. Financial Statements as of December 31, 1999. Item 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS 3 4 Item 6 of the Application/Declaration as previously amended is hereby amended and restated as follows: Item 6. Exhibits and Financial Statements. (a) Exhibits: A-1 Certificate of Organization of CDG* A-2 Certificate of Organization of ACE-REIT* A-3 Certificate of Organization of CAG* B-1 Form of Asset Transfer Agreement between Delmarva and CDG B-2 Form of Asset Transfer Agreement between ACE and CAG D-1 Summary Order dated July 15, 1999 issued by the NJBPU removing generating assets from regulatory oversight* D-2 Application to VaSCC for Authority to Transfer Delmarva Generating Assets under the Virginia Affiliates Act D-3 Order of VaSCC authorizing implementation of restructuring (to be filed by amendment) D-4 Order of the VaSCC under the Virginia Affiliates Act authorizing asset transfer (to be filed by amendment). D-5 Application to FERC for approval of Transfer to an Affiliate* D-6 FERC Order Authorizing Transfer D-7 Application to FERC for Approval of Dividend out of Capital and Affiliate Transactions.* D-8 FERC Order authorizing Dividends out of Capital. D-9 Application to the PaPUC for Authority to Transfer Delmarva Generating Assets D-10 PaPUC Order Authorizing Transfer (to be filed by Amendment) D-11 Application to the VaSCC for Authority to Transfer Delmarva Generating Assets pursuant to the restructuring F Preliminary opinion of counsel (to be filed by amendment) G Form of Federal Register notice* H-1 List of Generating Assets to be transferred* * filed previously 4 5 SIGNATURE Pursuant to the requirements of the Act, the undersigned companies have duly caused this amended Application to be signed on its behalf by the undersigned thereunto duly authorized. Dated: June 2, 2000 Conectiv Atlantic City Electric Company Delmarva Power & Light Company ACE REIT, Inc. Conectiv Atlantic Generation, LLC Conectiv Delmarva Generation, Inc. Conectiv Energy Holding Company By: /s/ Philip S. Reese ------------------------- Philip S. Reese Vice President and Treasurer 5 EX-99.B.1 2 0002.txt FORM OF ASSET TRANSFER AGREEMENT DELMARVA & CDG 1 Exhibit B-1 ASSET TRANSFER AGREEMENT BY AND BETWEEN DELMARVA POWER & LIGHT COMPANY and CONECTIV DELMARVA GENERATION, INC. Dated as of May 4, 2000 2 LIST OF EXHIBITS AND SCHEDULES
Exhibits - -------- Exhibit A Access Agreements Exhibit B Assignment and Assumption Agreement Exhibit C Fuel Storage Agreement Exhibit D Interconnection Agreement Exhibit E Limited Warranty Deeds Exhibit F Merrill Creek Sublease Schedules - --------- 1.1(17) Conemaugh Station 1.1(35) Facilities 1.1(53) Keystone Station 1.1(65) Permitted Encumbrances 1.1(76) Retained Real Property 1.1(88) Transferable Permits 1.1(95) Transferor Agreements 1.1(103) Transferred Real Property 2.1(b) Tangible Personal Property 2.1(h) Keystone/Conemaugh Emission Allowances 4.3(a) No Violations - Transferor 4.3(b) Transferor Consents and Approvals 4.5 Transferor Legal Proceedings 5.3(a) No Violations - Transferee 5.3(b) Transferee Consents and Approvals 6.4(a) Transferred Employees 6.4(b) Benefit Plans 6.9 Certain Tax-Exempt Bonds
3 TABLE OF CONTENTS
ARTICLE I DEFINITIONS 1.1 Definitions.................................................................................... 2 1.2 Certain Interpretive Matters................................................................... 12 1.3 U.S. Dollars................................................................................... 12 ARTICLE II CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES 2.1 Contribution of Transferred Assets............................................................. 12 2.2 Excluded Assets................................................................................ 13 2.3 Assumed Liabilities............................................................................ 15 2.4 Excluded Liabilities........................................................................... 18 2.5 Control of Litigation.......................................................................... 20 ARTICLE III CLOSING 3.1 Closing........................................................................................ 21 3.2 Prorations..................................................................................... 21 3.3 Deliveries by Transferor....................................................................... 22 3.4 Deliveries by Transferee....................................................................... 23 3.5 Relationship of this Agreement and Related Transfer Agreements................................. 24 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TRANSFEROR 4.1 Organization; Qualification.................................................................... 24 4.2 Authority...................................................................................... 24 4.3 Consents and Approvals; No Violation........................................................... 24 4.4 Title and Related Matters...................................................................... 25 4.5 Legal Proceedings.............................................................................. 25 ARTICLE V REPRESENTATIONS AND WARRANTIES OF TRANSFEREE 5.1 Organization; Qualification.................................................................... 26 5.2 Authority...................................................................................... 26 5.3 Consents and Approvals; No Violation........................................................... 26 5.4 Legal Proceedings.............................................................................. 27 ARTICLE VI COVENANTS 6.1 Conduct of Business Relating to the Transferred Assets......................................... 27 6.2 Books and Records.............................................................................. 28 6.3 Transfer Taxes................................................................................. 28
ii 4 6.4 Employees...................................................................................... 28 6.5 Qualification of Transferee under PUHCA........................................................ 29 6.6 Further Assurances............................................................................. 29 6.7 Consents and Approvals......................................................................... 30 6.8 PJM; MAAC...................................................................................... 30 6.9 Certain Tax-Exempt Bonds....................................................................... 30 6.10 Reimbursement of Certain Metering Expenses..................................................... 31 ARTICLE VII CONDITIONS....................................................................................................... 31 7.1 Conditions to Obligation of Transferee......................................................... 31 7.2 Conditions to Obligation of Transferor......................................................... 32 ARTICLE VIII INDEMNIFICATION 8.1 Indemnification By Transferor and Transferee................................................... 33 8.2 Defense of Claims.............................................................................. 35 ARTICLE IX TERMINATION 9.1 Termination.................................................................................... 36 9.2 Effect of Termination.......................................................................... 37 ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Amendment and Modification..................................................................... 37 10.2 Expenses....................................................................................... 37 10.3 Bulk Sales Laws................................................................................ 37 10.4 Waiver of Compliance; Consents................................................................. 37 10.5 No Survival.................................................................................... 37 10.6 Disclaimers.................................................................................... 37 10.7 Notices........................................................................................ 38 10.8 Assignment..................................................................................... 39 10.9 Governing Law; Forum; Service of Process....................................................... 39 10.10 Counterparts................................................................................... 40 10.11 Interpretation................................................................................. 40 10.12 Schedules and Exhibits......................................................................... 40 10.13 Entire Agreement............................................................................... 40
ASSET TRANSFER AGREEMENT ASSET TRANSFER AGREEMENT, dated as of May 4, 2000 (this "Agreement"), by and between Delmarva Power & Light Company, a Delaware and Virginia corporation iii 5 ("Transferor"), and Conectiv Delmarva Generation, Inc., a Delaware corporation and a wholly owned subsidiary of Transferor ("Transferee"). Transferor and Transferee may be referred to herein individually as a "Party," and collectively as the "Parties." W I T N E S S E T H WHEREAS, Transferor owns and operates plants and related facilities for the generation of electricity which is sold to wholesale and retail customers of Transferor (the "Business"); WHEREAS, Transferor desires to transfer, upon the terms hereinafter set forth, substantially all of its assets, properties, rights and interests relating to the Business to Transferee (other than assets Transferor has agreed to sell to (i) PECO Energy Company and PSEG Power LLC, pursuant to certain Purchase and Sale Agreements, each dated as of September 29, 1999 and (ii) NRG Energy, Inc., pursuant to that certain Purchase and Sale Agreement, dated as of January 18, 2000 relating to the wholly-owned generating stations owned by Transferor), except as set forth herein; WHEREAS, Transferee desires to acquire from Transferor, upon the terms hereinafter set forth, substantially all of such assets, properties, rights and interests of Transferor and to assume certain liabilities and obligations of Transferor specifically disclosed in this Agreement; WHEREAS, the Board of Directors of Transferor has determined that it is appropriate and desirable to distribute to Transferor's shareholder all of Transferor's interest in the capital stock of Transferee (the "Internal Distribution") following the transfer of the assets, properties, rights and interests contemplated under this Agreement (the "Transfer"); WHEREAS, for U.S. federal income tax consequences, it is intended that the Transfer and the Internal Distribution qualify as a reorganization under the provisions of Section 368(a)(1)(D) and Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"); WHEREAS, each of the Transfer and Internal Distribution is being carried out for business reasons of Transferor and Transferee including cost savings and a reduction in the regulatory compliance burdens of the Business; WHEREAS, concurrently with the execution and delivery of this Agreement, Transferor has executed and delivered an agreement with Conectiv Energy Supply, Inc., a Delaware corporation ("CESI"), pursuant to which Transferor has agreed to transfer, and CESI has agreed to accept, all of Transferor's right, title and interest in, to and under fuel supplies and inventories relating to the Transferred Assets (as defined herein); and WHEREAS, concurrently with the execution and delivery of this Agreement, Transferor has executed and delivered an agreement with CESI, pursuant to which Transferor has agreed to assign, and CESI has agreed to accept, all of Transferor's right, title and interest in, to and under 6 all of its fuel, energy and capacity supply and purchase agreements relating to the Transferred Assets. NOW THEREFORE, in consideration of the foregoing and the mutual covenants representations, warranties and agreements set forth herein and intending to be legally bound hereby, the Parties hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following capitalized terms have the meanings specified in this Section 1.1. (1) "Access Agreements" means the agreements between Transferor and Transferee to be delivered at the Closing, substantially in the form of Exhibit A hereto, pursuant to which Transferor will provide Transferee and Transferee will provide Transferor, with access rights with respect to certain of the Transferred Assets and real property used in connection with such Transferred Assets. (2) "Additional Agreements" means the Interconnection Agreement, the Access Agreements, the Limited Warranty Deeds, the Assignment and Assumption Agreement, the Fuel Storage Agreement and the Merrill Creek Sublease. (3) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Exchange Act, provided that for the purposes of this Agreement, each of Transferor and Transferee shall not be considered an Affiliate of the other. (4) "Agreement" means this Asset Transfer Agreement together with the Schedules and Exhibits hereto. (5) "Assignment and Assumption Agreement" means the assignment and assumption agreement between Transferor and Transferee, to be delivered at the Closing, substantially in the form of Exhibit B hereto, pursuant to which Transferor shall assign the Transferor Agreements, certain intangible assets and certain other Transferred Assets to Transferee, and Transferee shall accept such assignment and assume the Assumed Liabilities. (6) "Assumed Liabilities" has the meaning set forth in Section 2.3. (7) "Benefit Plans" means all deferred compensation, profit-sharing, retirement and pension plans, and all material bonus, fringe benefit and other employee benefit plans, maintained or with respect to which contributions are made or have been made by Transferor for the benefit of any Transferred Employee prior to the Closing. 7 (8) "Business" has the meaning set forth in the preamble to this Agreement. (9) "Business Day" means any day other than Saturday, Sunday and any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. (10) "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended from time to time. (11) "Closing" has the meaning set forth in Section 3.1. (12) "Closing Date" has the meaning set forth in Section 3.1. (13) "COBRA" means Sections 601 through 608 of ERISA and Section 4980B of the Code. (14) "Code" has the meaning set forth in the preamble to this Agreement. (15) "Commercially Reasonable Efforts" means efforts which are reasonably within the contemplation of the Parties at the time of entering into this Agreement and which do not require the performing Party to expend funds other than expenditures which are customary and reasonable in transactions of the kind and nature contemplated by this Agreement in order for the performing Party to satisfy its obligations hereunder. (16) "Conemaugh Interest" means Transferor's 3.72% undivided interest as tenant in common in Conemaugh Station. (17) "Conemaugh Station" means the generating station known as Conemaugh Station, located in the County of Indiana, Commonwealth of Pennsylvania, and related properties and assets, all as more fully identified on Schedule 1.1(17) attached hereto. (18) "Courts" has the meaning set forth in Section 10.9. (19) "Direct Claim" has the meaning set forth in Section 8.2(c). (20) "DNREC" means the Delaware Department of Natural Resources and Environmental Control. (21) "Easements" means, collectively, all easements, licenses, rights of way and other access rights to be granted by Transferor to Transferee and by Transferee to Transferor, pursuant to the Access Agreements and the easements, licenses, rights of way and other access rights reserved by Transferor in the Limited Warranty Deeds, including such as authorize access, use, maintenance, construction, repair, replacement and other activities by 8 Transferor or Transferee, or otherwise necessary for Transferor or Transferee to operate their respective businesses or fulfill applicable legal requirements. (22) "Emission Allowances" means Emission Reduction Credits, NO(x) Allowances and SO(2) Allowances owned by Transferor or credited to accounts maintained by or on behalf of Transferor. (23) "Emission Reduction Credits" means credits, in units that are established by the Governmental Authority with jurisdiction over the relevant Site that has obtained the credits, resulting from reductions in the emissions of air pollutants from an emitting source or facility (including and to the extent allowable under applicable Law, reductions resulting from shutdowns or control of emissions beyond that required by applicable Law) that have been certified by any applicable Governmental Authority as complying with the Law and regulations governing the establishment of such credits (including certification that such emissions reductions are enforceable, permanent, quantifiable and surplus), including air emissions reductions as described above that have been approved by the applicable Governmental Authority and are awaiting USEPA approval. The term also includes certified air emissions reductions, as described above, regardless as to whether the Governmental Authority certifying such reductions designates such certified air emissions reductions by a name other than "emission reduction credits." (24) "Encumbrances" means any and all mortgages, pledges, liens, claims, security interests, agreements, easements, activity and use limitations, restrictions, defects of title or encumbrances of any kind. (25) "Environmental Claims" has the meaning set forth in Section 8.1(c). (26) "Environmental Condition" means the presence or Release to the environment, whether at the Sites or otherwise, of Hazardous Substances, including any migration of Hazardous Substances through air, soil or groundwater at, to or from the Sites or at, to or from any Off-Site Location, regardless of when such presence or Release occurred or is discovered. (27) "Environmental Laws" means all (a) Laws, in each case, as amended from time to time, relating to pollution or protection of the environment, natural resources or human health and safety, including Laws relating to Releases or threatened Releases of Hazardous Substances or otherwise relating to the manufacture, formulation, generation, processing, distribution, use, treatment, storage, Release, transport, Remediation, abatement, cleanup or handling of Hazardous Substances, (b) Laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Substances and (c) Laws relating to the management or use of natural resources. (28) "Environmental Permits" means all permits, certificates, licenses and authorizations of all Governmental Authorities under Environmental Laws. 9 (29) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (30) "ERISA Affiliate" has the meaning set forth in Section 2.4(k). (31) "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(k). (32) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. (33) "Excluded Assets" has the meaning set forth in Section 2.2. (34) "Excluded Liabilities" has the meaning set forth in Section 2.4. (35) "Facilities" means the generators and generation stations set forth on Schedule 1.1(35). (36) "Fuel Storage Agreement" means the Fuel Storage Agreement, between CESI and Transferee, to be delivered at the Closing, substantially in the form of Exhibit C hereto, pursuant to which Transferee will permit CESI to store Retained Inventories on the Transferred Real Property. (37) "Governmental Authority" means any executive, legislative, judicial, regulatory or administrative agency, body, commission, department, board, court, tribunal, arbitrating body or authority of the United States or any foreign country, or any state, local or other governmental subdivision thereof. (38) "Hazardous Substances" means (a) any petrochemical or petroleum products, oil or coal ash, radioactive materials, radon gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid which may contain polychlorinated biphenyls, (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "hazardous constituents," "restricted hazardous materials," "extremely hazardous substances," "toxic substances," "contaminants," "pollutants," "toxic pollutants" or words of similar meaning and regulatory effect under any applicable Environmental Law and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law. (39) "IBEW 1238" means Local Union 1238 of the International Brotherhood of Electrical Workers. (40) "IBEW 1307" means Local Union 1307 of the International Brotherhood of Electrical Workers. 10 (41) "IBEW 1238 Agreement" means the Agreement between Transferor and IBEW 1238 effective February 1, 2000 through February 1, 2003, as amended and supplemented from time to time. (42) "IBEW 1307 Agreement" means the Agreement between Transferor and IBEW 1307 effective June 26, 1998 through June 25, 2000, as amended and supplemented from time to time. (43) "IBEW Collective Bargaining Agreements" means, together the IBEW 1238 Agreement and the IBEW 1307 Agreement. (44) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a). (45) "Indemnifying Party" has the meaning set forth in Section 8.1(e). (46) "Indemnitee" has the meaning set forth in Section 8.1(f). (47) "Independent Accounting Firm" means such nationally recognized, independent accounting firm as is mutually appointed by the Parties for purposes of this Agreement. (48) "Intellectual Property" means all patents, trademarks, trade names, service marks, brands, logos, copyrights, licenses, trade secrets, customer lists and other proprietary intellectual property rights required for, used in or incident to the Business or owned or held by Transferor. (49) "Interconnection Agreement" means the interconnection agreement, between Transferor and Transferee, to be delivered at the Closing, substantially in the form of Exhibit D hereto. (50) "Internal Distribution" has the meaning set forth in the preamble to this Agreement. (51) "Keystone/Conemaugh Inventories" means coal, oil, tire-derived fuel and other fuel inventories, limestone, materials, spare parts, capital spare parts, consumable supplies and chemical and gas inventories (together with related freight, commodity and handling (other than on-site handling)) which are located at or in transit to the Keystone Station or the Conemaugh Station relating to the operation of the Keystone Station or the Conemaugh Station. (52) "Keystone Interest" means Transferor's 3.70% undivided interest as tenant in common in Keystone Station. 11 (53) "Keystone Station" means the generating station known as Keystone Station located in Plumcreek Township, County of Armstrong, Commonwealth of Pennsylvania, and related properties and assets, all as more fully identified on Schedule 1.1(53) attached hereto. (54) "Knowledge" means the actual knowledge of the directors and executive officers of the specified Person, which directors and executive officers are charged with responsibility for the particular function as of the date of this Agreement, or, with respect to any certificate delivered pursuant to this Agreement, the date of delivery of such certificate. (55) "Laws" means all laws, statutes, rules, regulations and ordinances of any Governmental Authority. (56) "Limited Warranty Deeds" means the Limited Warranty Deeds, to be delivered at the Closing, substantially in the form of Exhibit E hereto, pursuant to which Transferor will transfer the Transferred Real Property to Transferee. (57) "MAAC" means the Mid-Atlantic Area Council. (58) "MDE" means the Maryland Department of the Environment. (59) "Merrill Creek Sublease" means the Sublease, dated as of the Closing Date, substantially in the form of Exhibit F hereto, between Transferor and Transferee, pursuant to which, Transferor as sublessor, has agreed to sublease to Transferee, as sublessee, certain of Transferor's leased entitlements to the Merrill Creek Reservoir, located in Harmony Township, County of Warren, State of New Jersey for Transferee's use in connection with the operation of certain of the Transferred Assets, subject to the terms and conditions set forth therein. (60) "NO(x)" means oxides of nitrogen. (61) "NO(x) Allowance" means (a) an authorization by the DNREC under its NO(x) Budget Program authorizing the emission of one ton of NO(x) during the ozone season, as such season is defined by the DNREC; or (b) an authorization by the MDE under its NO(x) Budget Program authorizing the emission of one ton of NO(x) during the ozone season, as such season is defined by the MDE; or (c) an authorization by the VDEQ under its NO(x) Budget Program authorizing the emission of one ton NO(x) of during the ozone season, as such season is defined by the VDEQ; or (d) an authorization by USEPA under any future NO(x) Budget Program promulgated by the USEPA, including, but not limited to, any future program implemented in lieu of a state NO(x) Budget Program, authorizing the emission of one ton of NO(x) during the ozone season, as such season is defined by the USEPA. (62) "NO(x) Budget Program" means Nitrogen Oxides Budget Program, which is a statutory or regulatory program promulgated by the United States or a state pursuant to which the United States or state provides for a limit on the oxides of nitrogen that can be emitted by all sources covered by the program and establishes allowances or authorizations, which in total are 12 equal to the amount of oxides of nitrogen allowed by the limit, where each allowance or authorization represents a "right" to emit a unit of oxides of nitrogen, as the means for ensuring compliance with the limit. (63) "Off-Site Location" means any real property other than the Sites. (64) "Party" and "Parties" have the respective meanings set forth in the preamble to this Agreement. (65) "Permitted Encumbrances" means: (a) the Easements; (b) those exceptions to title to the Transferred Assets listed on Schedule 1.1(65); (c) statutory liens for Taxes or other charges or assessments of Governmental Authorities not yet due or delinquent, or which are being contested in good faith by appropriate proceedings; (d) mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business; (e) zoning, entitlement, conservation restriction and other land use and environmental regulations by Governmental Authorities; and (f) such Encumbrances as (i) do not materially detract from the value of the Transferred Assets, taken as a whole, as currently used, or materially interfere with the present use of the Transferred Assets, taken as a whole, or (ii) would not, individually or in the aggregate, have a Transferor Material Adverse Effect. (66) "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, other business association or Governmental Authority. (67) "PJM" means the Pennsylvania-New Jersey-Maryland Power Pool, as established and administered by Pennsylvania-New Jersey-Maryland Interconnection L.L.C. (68) "PJM Agreement" means the Operating Agreement dated June 2, 1997 of Pennsylvania-New Jersey-Maryland Interconnection L.L.C., as amended from time to time. (69) "Qualifying Use" has the meaning set forth in Section 6.9. (70) "Real Property" means together, the Transferred Real Property and the Retained Real Property. (71) "Related Transfer Agreements" means, collectively, (i) that certain Asset Transfer Agreement, dated as of the date hereof, entered into by Atlantic City Electric Company, a New Jersey corporation, and Conectiv Atlantic Generation, LLC, a Delaware limited liability company, (ii) that certain Pipeline Transfer Agreement, dated as of the date hereof, entered into by Transferor and Transferee and (iii) that certain Assignment and Assumption Agreement (Fuel Inventories), dated as of the date hereof, entered into by Transferor and CESI. (72) "Release" means any release, spill, leak, discharge, disposal of, pumping, pouring, emitting, emptying, injecting, leaching, dumping or allowing to escape into or through the environment. 13 (73) "Remediation" means an action of any kind to address an Environmental Condition or a Release of Hazardous Substances or the presence of Hazardous Substances at the Sites or an Off-Site Location, including the following activities to the extent they relate to, result from or arise out of the presence of a Hazardous Substance at the Sites or an Off-Site Location: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (b) obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct any such activity; (c) preparing and implementing any plans or studies for any such activity; (d) obtaining a written notice from a Governmental Authority with jurisdiction over the Sites or an Off-Site Location under Environmental Laws that no material additional work is required by such Governmental Authority; (e) the use, implementation, application, installation, operation or maintenance of removal actions on the Sites or an Off-Site Location, remedial technologies applied to the surface or subsurface soils, excavation and treatment or disposal of soils at an Off-Site Location, systems for long-term treatment of surface water or groundwater, engineering controls or institutional controls; and (f) any other activities reasonably determined by a Party to be necessary or appropriate or required under Environmental Laws to address an Environmental Condition or a Release of Hazardous Substances or the presence of Hazardous Substances at the Sites or an Off-Site Location. (74) "Representatives" of a Person means, collectively, such Person's directors, officers, partners, members, employees, representatives, agents and advisors (including accountants, legal counsel, environmental consultants, engineering consultants and financial advisors). (75) "Retained Inventories" means coal, oil, tire-derived fuel and other fuel inventories which are located at or in transit to the Facilities (other than the Keystone Station and the Conemaugh Station) solely relating to the operation of the Transferred Assets. (76) "Retained Real Property" means the real property (including all buildings and other improvements thereon and all appurtenances thereto) described on Schedule 1.1(76). (77) "SEC" means the United States Securities and Exchange Commission, and any successor agency thereto. (78) "Securities Act" means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. (79) "Sites" means the Real Property forming a part, or used or usable in connection with the operation, of the Transferred Assets, including any real property used for the disposal of solid or hazardous waste that is included in the Real Property. Any reference to the Sites shall include the surface and subsurface elements, to the extent owned by or subject to any interest of Transferor, including the soil and groundwater present at the Sites, and any reference to materials or conditions "at the Sites," including Hazardous Substances and Environmental 14 Conditions, shall include all materials and conditions "at, on, in, upon, over, across, under or within" the Sites. (80) "SO(2)" means sulfur dioxide. (81) "SO(2) Allowance" means an authorization by the Administrator of the USEPA under the Clean Air Act, 42 U.S.C. Section 7401, et seq., to emit one ton of sulfur dioxide during or after a specified calendar year. (82) "Subsidiary", when used in reference to any Person, means any entity of which outstanding securities or interests having ordinary voting power to elect a majority of the board of directors or other governing body performing similar functions of such entity are owned directly or indirectly by such Person. (83) "Tangible Personal Property" has the meaning set forth in Section 2.1(b). (84) "Tax" or "Taxes" means all taxes, charges, fees, levies, penalties and other assessments imposed by any Governmental Authority responsible for the imposition of any tax, including income, gross receipts, excise, property, sales, transfer, use, franchise, payroll, withholding, social security and other taxes, together with any interest, penalties or additions attributable thereto. (85) "Third-Party Claim" has the meaning set forth in Section 8.2(a). (86) "Third-Party Claim Notice" has the meaning set forth in Section 8.2(a). (87) "Transfer" has the meaning set forth in the preamble to this Agreement. (88) "Transferable Permits" means those Permits and Environmental Permits (and all applications pertaining thereto) which are transferable under applicable Laws by Transferor to Transferee (with or without a filing with, notice to, consent or approval of any Governmental Authority), as set forth on Schedule 1.1(88). (89) "Transferee" has the meaning set forth in the preamble to this Agreement. (90) "Transferee Change of Control" means any transaction or series of related transactions the result of which is that Transferee shall cease to be a wholly owned subsidiary of either of (i) Conectiv, a Delaware corporation, or (ii) any wholly owned subsidiary of Conectiv. (91) "Transferee Indemnitee" has the meaning set forth in Section 8.1(b). (92) "Transferee Material Adverse Effect" has the meaning set forth in Section 5.3(a). 15 (93) "Transferee Required Regulatory Approvals" has the meaning set forth in Section 5.3(b). (94) "Transferor" has the meaning set forth in the preamble to this Agreement. (95) "Transferor Agreements" means, the contracts, agreements, arrangements, licenses, leases and warranties set forth on Schedule 1.1(95). (96) "Transferor Indemnitee" has the meaning set forth in Section 8.1(a). (97) "Transferor Material Adverse Effect" means any change in or effect on the Transferred Assets or the operation of the Transferred Assets after the date hereof that is materially adverse to the operation or condition (financial or otherwise) of the Transferred Assets, taken as a whole, other than (i) any change or effect affecting the international, national, regional or local electric industry as a whole and not specific and exclusive to the Transferred Assets, (ii) any change or effect resulting from changes in the international, national, regional or local wholesale or retail markets for electricity, including any change in or effect on the structure, operating agreements, operations or procedures of Pennsylvania-New Jersey-Maryland Interconnection L.L.C. or its control area, (iii) any change or effect resulting from changes in the international, national, regional or local markets for any fuel used at the Transferred Assets, (iv) any change or effect resulting from changes in the North American, national, regional or local electricity transmission systems or operations thereof, (v) changes in Law, or any judgments, orders or decrees that apply generally to similarly situated Persons, (vi) any condition imposed on any Party or the Transferred Assets by a Governmental Authority in connection with the grant of such Governmental Authority's consent or approval of the transactions contemplated hereby and by the Additional Agreements and (vii) any change or effect to the extent constituting or involving an Excluded Asset or an Excluded Liability. (98) "Transferor Required Regulatory Approvals" has the meaning set forth in Section 4.3(b). (99) "Transferred Assets" has the meaning set forth in Section 2.1. (100) "Transferred Employee Records" means all records of Transferor or that relate to Transferred Employees, including records that pertain to: (i) skill and development training, (ii) seniority histories, (iii) salary and benefit information, (iv) Occupational, Safety and Health Administration reports and (v) active medical restriction forms. (101) "Transferred Employees" has the meaning set forth in Section 6.4(a). (102) "Transferred Inventories" means limestone, materials, spare parts, capital spare parts and consumable supplies inventories which are located at or in transit to the Facilities (other than the Keystone Station and the Conemaugh Station) relating solely to the operation of the Transferred Assets. 16 (103) "Transferred Real Property" means the real property (including all buildings and other improvements thereon and all appurtenances thereto) described on Schedule 1.1(103). (104) "USEPA" means the United States Environmental Protection Agency, and any successor agency thereto. (105) "VDEQ" means the Virginia Department of Environmental Quality. 1.2 Certain Interpretive Matters. In this Agreement, unless the context otherwise requires, the singular words include the plural, the masculine includes the feminine and neuter, and vice versa. In this Agreement, the term "includes" or "including" shall be deemed followed by the words "including without limitation." References herein to a section, article, Exhibit or Schedule mean a section, article, Exhibit or Schedule of this Agreement, and reference to a given agreement or instrument constitutes a reference to that agreement or instrument as modified, amended, supplemented and restated through the date as of which such reference is made. 1.3 U.S. Dollars. When used herein, the term "dollars" and the symbol "$" refer to the lawful currency of the United States of America. ARTICLE II CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES 2.1 Contribution of Transferred Assets. Upon the terms set forth in this Agreement, at the Closing, Transferor shall assign, convey, transfer and deliver to Transferee, and Transferee shall assume and acquire from Transferor, free and clear of all Encumbrances, except for the Permitted Encumbrances, all of Transferor's right, title and interest in, to and under the following assets and properties, except as otherwise provided in Section 2.2, each as of the Closing Date, (collectively, the "Transferred Assets"), it being understood that, with respect to the Transferred Assets located at the Conemaugh Station and the Keystone Station, such Transferred Assets are being transferred only to the extent of the Conemaugh Interest and the Keystone Interest, as the case may be: (a) The Transferred Real Property; (b) Machinery, equipment, vehicles, furniture and related personal property located on the Real Property on the Closing Date, including certain electrical generation and transmission facilities (as opposed to generation facilities) and vehicles set forth on Schedule 2.1(b), (collectively, "Tangible Personal Property"); (c) The Transferred Inventories; 17 (d) The Keystone/Conemaugh Inventories; (e) Subject to the receipt of necessary consents and approvals, the Transferor Agreements; (f) Subject to the receipt of necessary consents and approvals, the Transferable Permits; (g) The Transferred Employee Records; (h) The right, title and interest of Transferor and its successors, assigns and Representatives in, to and under the Emission Allowances set forth on Schedule 2.1(h); (i) All rights, claims and benefits of Transferor in, to or under all insurance policies maintained by or for the benefit of Transferor with respect to the Transferred Assets; (j) The names "Conemaugh Station" and "Keystone Station"; provided, however, that Transferee expressly acknowledges and agrees that the Transferred Assets do not include any right, title or interest in or to the names "Delmarva Power & Light Company", "DP&L" or any derivation thereof, as well as any related or similar name, or any other trade names, trademarks, service marks, corporate names and logos or any part, derivation, colorable imitation or combination thereof; and (k) All books, operating records, operating, safety and maintenance manuals, engineering design plans, blueprints and as-built plans, specifications, procedures and similar items relating specifically to the Transferred Assets (subject to the right of Transferor to retain copies of same for its use). 2.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement shall constitute or be construed as requiring Transferor to assign, convey, transfer or deliver, and Transferee shall not be entitled to acquire, any right, title or interest in, to or under any properties, assets, business, operation or division of Transferor, not set forth in Section 2.1, including the following assets and properties which are hereby specifically excluded from the definition of Transferred Assets (collectively, the "Excluded Assets"): (a) The Retained Real Property; (b) The right, title and interest of Transferor and its successors, assigns, Affiliates and Representatives in, to and under all electrical transmission or distribution facilities (as opposed to generation facilities) or information technology or telecommunications assets of Transferor located at or forming a part of any of the Transferred Assets (whether or not regarded 18 as a "transmission" or "generation" asset for regulatory or accounting purposes), including all switchyard facilities, substation facilities and support equipment, as well as all permits, contracts and warranties, to the extent they relate to such transmission and distribution assets or information technology and telecommunications assets (other than the electrical transmission facilities set forth on Schedule 2.1(b), all of which are included as Transferred Assets) (collectively, the "Transmission Assets"); (c) The right, title and interest of Transferor and its successors, assigns, Affiliates and Representatives in, to and under certain switches and meters, gas facilities, revenue meters and remote testing units, drainage pipes and systems, pumping equipment and associated piping, in each case, located at or forming a part of the Transferred Assets, as identified in the Access Agreements; (d) All certificates of deposit, shares of stock, securities, bonds, debentures, evidences of indebtedness, and interests in joint ventures, partnerships, limited liability companies and other entities; (e) The Retained Inventories; (f) All cash, cash equivalents, bank deposits, accounts and notes receivable (trade or otherwise), prepaid expenses relating to the operation of the Transferred Assets and any income, sales, payroll or other receivables (in each case, whether held by Transferor or any third party); (g) The right, title and interest of Transferor and its successors, assigns, Affiliates and Representatives in, to and under all Intellectual Property, including the names "Delmarva Power & Light Company", "DP&L", or any derivation thereof, as well as any related or similar name, or any other trade names, trademarks, service marks, corporate names and logos, or any part, derivation, colorable imitation or combination thereof; (h) The right, title and interest of Transferor and its successors, assigns, Affiliates and Representatives in, to and under all contracts, agreements, arrangements, licenses, tariffs and leases of any nature, to which Transferor or its Representatives is a party, including tariffs, contracts, agreements and arrangements for the purchase or sale of electric capacity or energy, or for the purchase of transmission, distribution or ancillary services or for the purchase or procurement of Retained Inventories; (i) The rights of Transferor and its successors, assigns, Affiliates and Representatives in, to and under all causes of action against third parties relating to any Transferred Asset, if any, whether accruing prior to, on or after the Closing Date, including all claims for refunds, prepayments, offsets, recoupment, insurance proceeds, insurance distributions, dividends or other proceeds, condemnation awards, judgments and the like, whether received as payment or credit against future liabilities, in each case, relating to any period prior to the Closing Date; 19 (j) All Tax refunds or credits relating to the ownership, lease, maintenance or operation of the Transferred Assets, which refunds or credits are with respect to periods prior to the Closing Date, whether directly or indirectly, regardless of when actually paid; (k) All employment agreements and personnel records of Transferor and its successors, assigns and Representatives, other than Transferred Employee Records; (l) The minute books, stock transfer books, corporate seal and other corporate records of Transferor and its successors, assigns and Representatives; (m) The right, title and interest of Transferor and its successors, assigns, Affiliates and Representatives in, to and under all Emission Allowances, other than the Emission Allowances set forth on Schedule 2.1(h), all of which are included as Transferred Assets; and (n) The right, title and interest of Transferor and its successors, assigns and Representatives under this Agreement and the Additional Agreements. 2.3 Assumed Liabilities. On the Closing Date, Transferee shall assume and agree to pay, perform and otherwise discharge, without recourse to Transferor, all of the liabilities and obligations of Transferor and its successors, assigns or Representatives, direct or indirect, known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, which relate, directly or indirectly, to the Transferred Assets, other than Excluded Liabilities (collectively, the "Assumed Liabilities"), including the following such liabilities and obligations: (a) All liabilities and obligations of Transferor under the Transferor Agreements and the Transferable Permits in accordance with the terms thereof; (b) All liabilities and obligations of Transferor in respect of Taxes for which Transferee is liable pursuant to Section 3.2 or 6.3; (c) All liabilities and obligations of Transferor which relate to the Transferred Employees for which Transferee is responsible on or after the Closing Date pursuant to Section 6.4; provided that nothing set forth in this Section 2.3(c) shall require Transferee to assume any liabilities or obligations that are specifically excluded pursuant to Sections 2.4(k), 2.4(l) or 2.4(m); (d) With respect to the Transferred Assets forming a part of or relating to Keystone Station and the Conemaugh Station, all liabilities and obligations of Transferor arising under or relating to Environmental Laws or relating to any claim in respect of Environmental Conditions or Hazardous Substances, whether based on common law or Environmental Laws, whether relating to the Sites or any Off-Site Location, whether such liabilities or obligations are known or unknown, contingent or accrued, including (i) any violation or alleged violation of Environmental Laws, whether prior to, on or after the Closing Date, with respect to the ownership, lease, maintenance or operation of any of such Transferred Assets, including any 20 fines or penalties that arise in connection with the ownership, lease, maintenance or operation of such Transferred Assets on or after the Closing Date (but excluding all fines and penalties that arise in connection with the ownership, lease, maintenance or operation of such Transferred Assets prior to the Closing Date), and the costs associated with correcting any such violations; (ii) any bodily injury, loss of life, property damage, or natural resource damage (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) caused (or allegedly caused) by any Environmental Condition or the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from such Transferred Assets prior to, on or after the Closing Date, including any Environmental Condition or Hazardous Substances contained in building materials at or adjacent to such Transferred Assets or in the soil, surface water, sediments, groundwater, landfill cells, or in other environmental media at or near such Transferred Assets; (iii) any Remediation (whether or not such Remediation commenced before the Closing Date or commences on or after the Closing Date) of any Environmental Condition or Hazardous Substances that are present or have been Released prior to, on or after the Closing Date at, on, in, under, adjacent to or migrating from, such Transferred Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to such Transferred Assets; (iv) any bodily injury, loss of life, property damage, or natural resource damage arising from the storage, transportation, treatment, disposal, discharge, recycling or Release, at any Off-Site Location, or arising from the arrangement for such activities, on or after the Closing Date, of Hazardous Substances generated in connection with the ownership, lease, maintenance or operation of such Transferred Assets; and (v) any Remediation of any Environmental Condition or Release of Hazardous Substances arising from the storage, transportation, treatment, disposal, discharge, recycling or Release, at any Off-Site Location, or arising from the arrangement for such activities, on or after the Closing Date, of Hazardous Substances generated in connection with the ownership, lease, maintenance or operation of such Transferred Assets; provided that nothing set forth in this Section 2.3(d) shall require Transferee to assume any liabilities or obligations that are specifically excluded pursuant to Section 2.4; (e) With respect to the Transferred Assets forming a part of or relating to the Facilities, all liabilities and obligations of Transferor arising under or relating to Environmental Laws or relating to any claim in respect of Environmental Conditions or Hazardous Substances, whether based on common law or Environmental Laws, whether relating to the Sites or any Off-Site Location, relating to conditions, occurrences actions or omissions occurring on or after the Closing Date, including (i) any violation or alleged violation of Environmental Laws on or after the Closing Date with respect to the ownership, lease, maintenance or operation of any of such Transferred Assets, including any fines or penalties that arise in connection with the ownership, lease, maintenance or operation of such Transferred Assets on or after the Closing Date and the costs associated with correcting any such violations; (ii) any bodily injury, loss of life, property damage, or natural resource damage that arises on or after the Closing Date caused (or allegedly caused) by any Environmental Condition created, or the Release of Hazardous Substances at, on, in, under, adjacent to or migrating from such Transferred Assets, on or after the Closing Date; (iii) any Remediation of any Environmental Condition created or Hazardous Substances that are Released on or after the Closing Date at, on, in, under, adjacent to or migrating from, such 21 Transferred Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to such Transferred Assets; (iv) any bodily injury, loss of life, property damage, or natural resource damage arising from the storage, transportation, treatment, disposal, discharge, recycling or Release, at any Off-Site Location, or arising from the arrangement for such activities, on or after the Closing Date, of Hazardous Substances generated in connection with the ownership, lease, maintenance or operation of such Transferred Assets; and (v) any Remediation of any Environmental Condition or Release of Hazardous Substances arising from the storage, transportation, treatment, disposal, discharge, recycling or Release, at any Off-Site Location, or arising from the arrangement for such activities, on or after the Closing Date, of Hazardous Substances generated in connection with the ownership, lease, maintenance or operation of such Transferred Assets; provided that nothing set forth in this Section 2.3(e) shall require Transferee to assume any liabilities or obligations that are specifically excluded pursuant to Section 2.4; (f) With respect to the Transferred Assets forming a part of or relating to the Facilities, in addition to the Assumed Liabilities set forth in Section 2.3(e), from and after the earlier to occur of (i) a Transferee Change of Control and (ii) the sale by Transferee of all or substantially all of the Transferred Assets or any of the Transferred Real Property to any Person other than Conectiv or any wholly owned subsidiary of Conectiv, Transferee shall assume all liabilities and obligations of Transferor arising under or relating to Environmental Laws or relating to any claim in respect of Environmental Conditions or Hazardous Substances, whether based on common law or Environmental Laws, whether relating to the Sites or any Off-Site Location, relating to conditions occurrences, actions or omissions occurring prior to the Closing Date, including (i) any violation or alleged violation of Environmental Laws prior to the Closing Date with respect to the ownership, lease, maintenance or operation of any of such Transferred Assets, including any fines or penalties that arise in connection with the ownership, lease, maintenance or operation of such Transferred Assets prior to the Closing Date and the costs associated with correcting any such violations; (ii) any bodily injury, loss of life, property damage, or natural resource damage caused (or allegedly caused) by any Environmental Condition or the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from such Transferred Assets prior to the Closing Date and (iii) any Remediation of any Environmental Condition or Hazardous Substances that are present or have been Released prior to the Closing Date at, on, in, under, adjacent to or migrating from, such Transferred Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to such Transferred Assets, it being understood that the liabilities set forth in this Section 2.3(f) shall, from and after the first such occurrence shall be Assumed Liabilities and shall cease to be Excluded Liabilities pursuant to Section 2.4(h); and (g) For purposes of clarification, Transferee acknowledges that it shall assume and be fully responsible for holding in its accounts sufficient SO2 Allowances and NOx Allowances to cover emissions of SO2 and NOx from all of the Sites for all of the calendar year in which the Closing occurs, including the period of such year prior to the Closing Date, to the extent such requirements apply to the Transferred Assets. 22 2.4 Excluded Liabilities. Transferee shall not assume or be obligated to pay, perform or otherwise discharge the following liabilities or obligations of Transferor (the "Excluded Liabilities"): (a) Any liabilities or obligations of Transferor in respect of any Excluded Assets, except to the extent caused by the acts or omissions of Transferee or its Representatives or Transferee's ownership, lease, maintenance or operation of the Transferred Assets; (b) Any liabilities or obligations of Transferor arising from the breach prior to the Closing Date by Transferor of any of the Transferor Agreements; (c) Any and all asserted or unasserted liabilities or obligations to third parties for personal injury or tort, or similar causes of action arising solely out of the ownership, lease, maintenance or operation of the Transferred Assets prior to the Closing Date, other than the liabilities or obligations assumed by Transferee under Section 2.3; (d) Any payment obligations of Transferor for goods delivered or services rendered prior to the Closing Date, other than the liabilities or obligations assumed by Transferee under Section 2.3; (e) Any liability or obligation under or related to Environmental Laws or common law, whether such liability or obligation is known or unknown, contingent or accrued, arising as a result of or in connection with the ownership, lease, maintenance or operation by Transferor of the Transmission Assets prior to, on or after the Closing Date, except to the extent caused by the acts or omissions of Transferee or its Representatives or Transferee's ownership, lease, maintenance or operation of the Transferred Assets; (f) Any liability under or related to Environmental Laws or common law arising as a result of or in connection with bodily injury, loss of life, property damage or natural resource damage (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) caused (or allegedly caused) by the disposal, storage, transportation, discharge, migration of, Release or recycling of Hazardous Substances at an Off-Site Location, or the arrangement for such activities, prior to the Closing Date, in connection with the ownership, lease, maintenance or operation of the Transferred Assets, provided that, for purposes of this Section, "Off-Site Location" does not include any location to which Hazardous Substances disposed of or Released at or from the Transferred Assets have migrated; (g) Any liability under or related to Environmental Laws or common law arising as a result of or in connection with the Remediation (whether or not such Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are disposed, stored, transported, discharged, migrating from, Released, recycled, or the arrangement of such activities, in connection with the ownership, lease, maintenance or operation of the Transferred Assets, at any Off-Site Location, prior to the Closing Date; provided that, for purposes of this Section, "Off-Site Location" does not include 23 any location to which Hazardous Substances disposed of or Released at or from the Transferred Assets have migrated; (h) Subject to Section 2.3(f), with respect to the Transferred Assets forming a part of or relating to the Facilities, all liabilities and obligations of Transferor arising under or relating to Environmental Laws or relating to any claim in respect of Environmental Conditions or Hazardous Substances, whether based on common law or Environmental Laws, whether relating to the Sites or any Off-Site Location, relating to conditions occurrences, actions or omissions occurring prior to the Closing Date, including (i) any violation or alleged violation of Environmental Laws prior to the Closing Date with respect to the ownership, lease, maintenance or operation of any of such Transferred Assets, including any fines or penalties that arise in connection with the ownership, lease, maintenance or operation of such Transferred Assets prior to the Closing Date and the costs associated with correcting any such violations; (ii) any bodily injury, loss of life, property damage, or natural resource damage caused (or allegedly caused) by any Environmental Condition or the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from such Transferred Assets prior to the Closing Date and (iii) any Remediation of any Environmental Condition or Hazardous Substances that are present or have been Released prior to the Closing Date at, on, in, under, adjacent to or migrating from, such Transferred Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to such Transferred Assets, it being understood that from and after the earlier to occur of (i) a Transferee Change of Control and (ii) the sale by Transferee of all or substantially all of the Transferred Assets or any of the Transferred Real Property to any Person other than Conectiv or any wholly owned subsidiary of Conectiv, the liabilities set forth in this Section 2.4(h) shall be Assumed Liabilities pursuant to Section 2.3(f) and shall cease to be Excluded Liabilities pursuant to this Section 2.4(h); (i) With respect to the Transferred Assets forming a part of or relating to Keystone Station and the Conemaugh Station, any liability for Remediation of Environmental Conditions at, on, under or migrating from, such Transferred Assets, but only to the extent that (i) such liability arises out of or derives from the same facts which form the basis of a conviction, guilty plea or plea of nolo contendere by Seller for a violation of Environmental Laws by Transferor; (ii) Transferor's conviction, guilty plea or plea of nolo contendere was based on Transferor's intentional and willful wrongful actions; and (iii) Transferor's conviction, guilty plea or plea of nolo contendere arises from a matter as to which Transferor has received written notice from a Governmental Authority on or before the sixth anniversary of the Closing Date; (j) With respect to the Transferred Assets forming a part of or relating to Keystone Station and the Conemaugh Station, any fines or penalties imposed by or payable to any Governmental Authority under Environmental Laws that arise in connection with the ownership, lease, maintenance or operation of the Transferred Assets prior to the Closing Date; (k) Any liabilities or obligations relating to any Benefit Plan maintained by Transferor or any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with Transferor under 24 Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which Transferor and any ERISA Affiliate contributed thereunder (the "ERISA Affiliate Plans"), maintained by, contributed to, or obligated to contribute to, by Transferor or any ERISA Affiliate, including any liability (i) to the Pension Benefit Guaranty Corporation under Title IV of ERISA; or (ii) with respect to any noncompliance by Transferor with ERISA or any other applicable laws, but not including any liabilities or obligations assumed by Transferee pursuant to Section 6.4; (l) Any liabilities or obligations relating to the employment or termination of employment, including, workmens compensation, discrimination, wrongful discharge, unfair labor practices, or constructive termination by Transferor of any individual, attributable to any actions or inactions by Transferor prior to the Closing Date other than such actions or inactions taken at the direction of Transferee; and (m) Any obligation to provide continuation coverage under COBRA (and notice of the right to elect such coverage) to Transferred Employees, employees associated with the Transferred Assets who do not become Transferred Employees (and their dependents or former dependents), and former dependents of Transferred Employees who became eligible for continuation coverage under COBRA on account of a "qualifying event" (as defined under COBRA) occurring before the Closing Date (but not including any liabilities or obligations assumed by Transferee pursuant to Section 6.4). 2.5 Control of Litigation. The Parties agree and acknowledge that Transferor shall be entitled exclusively to control, defend and settle any suit, action or proceeding, and any investigation, in each case, involving any third party and arising out of or relating to any Excluded Assets or Excluded Liabilities, and Transferee shall cooperate fully with Transferor in connection therewith. ARTICLE III THE CLOSING 3.1 Closing. The assignment, conveyance, transfer and delivery of the Transferred Assets by Transferor to Transferee, and the assumption and acquisition by Transferee of the Transferred Assets and the Assumed Liabilities, and the consummation of the other transactions contemplated hereby, shall take place at a closing (the "Closing") to be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, One Rodney Square, Wilmington, Delaware, at 10:00 a.m. local time on the first business day after the date on which all of the conditions precedent to the Closing set forth in Article VII shall have been satisfied or, to the extent permitted by applicable Law, waived by the Party for whose benefit such conditions precedent exist, or at such other time and location as may be agreed upon in writing by the Parties. The date on which the Closing actually occurs is hereinafter called the "Closing Date." The Closing shall be effective for all purposes as of 12:01 a.m., New York City time, on the Closing Date. 25 3.2 Prorations. (a) Transferor and Transferee agree that, except as otherwise provided in this Agreement, all of the items customarily prorated relating to the ownership, lease, maintenance or operation of the Transferred Assets, including those listed below, shall be prorated as of the Closing Date, with Transferor liable to the extent such items relate to any period prior to the Closing Date, and Transferee liable to the extent such items relate to any period on or after the Closing Date (measured in the same units used to compute the item in question, otherwise measured by calendar days): (i) Personal property, real property, occupancy and other similar Taxes, if any, imposed on or with respect to the ownership or lease of the Transferred Assets for a taxable period that begins before and ends after the Closing Date; (ii) Rent, Taxes and all other items (including prepaid services and goods not included in Inventory), in each case, payable by or to Transferor under any of the Transferor Agreements; (iii) Any permit, license, registration, compliance assurance fees or other fees with respect to any Transferable Permit; (iv) Sewer rents and charges for water, telephone, electricity and other utilities; (v) Insurance premiums paid on or with respect to the ownership, lease, maintenance or operation of the Transferred Assets to the extent payable under any policy or other arrangement included among the Transferor Agreements; and (vi) Prepaid operating and maintenance expenses. (b) Transferor or Transferee, as the case may be, shall promptly reimburse the other Party or Parties that portion of any amount paid by such other Party or Parties to the extent relating to the period for which Transferor or Transferee, as the case may be, is liable under Section 3.2(a), in each case, upon presentation of a statement setting forth in reasonable detail the nature and amount of any such payment. In connection with the prorations set forth in Section 3.2(a), if actual figures are not available on the Closing Date, the proration shall be calculated based upon the respective amounts accrued through the Closing Date or paid for the most recent year or other appropriate period for which such amounts paid are available. All prorated amounts shall be recalculated and paid to the appropriate Party within sixty (60) days after the date that the previously unavailable actual figures become available. Transferor and Transferee shall furnish each other with such documents and other records as may be reasonably requested in order to confirm all proration calculations made pursuant to this Section 3.2. Notwithstanding anything to the contrary herein, no proration shall be made under this Section 26 3.2 with respect to (i) Tax refunds that are Excluded Assets under Section 2.2(j) or (ii) Taxes payable by Transferee pursuant to Section 6.3. 3.3 Deliveries by Transferor. At the Closing, Transferor shall deliver, or cause to be delivered, the following to Transferee: (a) The Limited Warranty Deeds, duly executed by Transferor and in recordable form; (b) The Assignment and Assumption Agreement, duly executed by Transferor; (c) The Interconnection Agreement, duly executed by Transferor; (d) The Access Agreements, duly executed by Transferor and in recordable form; (e) The Merrill Creek Sublease, duly executed by Transferor and in recordable form; (f) Copies, certified by the Secretary or Assistant Secretary of Transferor, of resolutions authorizing the execution and delivery of this Agreement, each Additional Agreement to which Transferor is a party and all of the other agreements and instruments, in each case, to be executed and delivered by Transferor in connection herewith; (g) A certificate of the Secretary or Assistant Secretary of Transferor identifying the name and title and bearing the signatures of the officers of Transferor authorized to execute and deliver this Agreement, each Additional Agreement to which Transferor is a party and the other agreements and instruments contemplated hereby; (h) All such other agreements, documents, instruments and writings as shall, in the reasonable opinion of Transferee and its counsel, be necessary to sell, assign, convey, transfer and deliver to Transferee the Transferred Assets, in accordance with this Agreement and, where necessary or desirable, in recordable form; and (i) Such other agreements, documents, instruments and writings as are required to be delivered by Transferor at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required by Transferee in connection herewith. 3.4 Deliveries by Transferee. At the Closing, Transferee shall deliver, or cause to be delivered, the following to Transferor: (a) The Assignment and Assumption Agreement, duly executed by Transferee; 27 (b) The Interconnection Agreement, duly executed by Transferee; (c) The Access Agreements, duly executed by Transferee; (d) The Merrill Creek Sublease, duly executed by Transferee and in recordable form; (e) The Fuel Storage Agreement, duly executed by Transferee; (f) A copy, certified by the Secretary or Assistant Secretary of Transferee, of resolutions authorizing the execution and delivery of this Agreement, each Additional Agreement and all of the agreements and instruments, in each case, to be executed and delivered by Transferee in connection herewith; (g) A certificate of the Secretary or Assistant Secretary of Transferee identifying the name and title and bearing the signatures of the officers of Transferee authorized to execute and deliver this Agreement, each Additional Agreement to which Transferee is a party and the other agreements contemplated hereby; (h) All such other permits, agreements, documents, instruments and writings as shall, in the reasonable opinion of Transferor and its counsel, be necessary for Transferee to acquire the Transferred Assets, and to assume the Assumed Liabilities, in each case, in accordance with this Agreement and, where necessary or desirable, in recordable form; and (i) Such other permits, agreements, documents, instruments and writings as are required to be delivered by Transferee at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required by Transferor in connection herewith. 3.5 Relationship of this Agreement and Related Transfer Agreements. The transactions contemplated by this Agreement, together with the transactions contemplated by the Related Transfer Agreements, are intended by the Parties to be consummated substantially simultaneously; and if any of the transactions contemplated hereby or by any of the Related Transfer Agreements are not consummated simultaneously on the Closing Date in accordance with the terms and subject to the conditions set forth herein and therein, as applicable, then each Party shall take, or cause to be taken, all actions, and do, or cause to be done, all things, in each case, that are necessary to dissolve and invalidate all transactions contemplated hereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TRANSFEROR Except as set forth in any filing made prior to the date of this Agreement by Transferor with the SEC pursuant to the Securities Act or the Exchange Act, Transferor hereby represents 28 and warrants to Transferee as follows (all such representations and warranties, except those set forth in Sections 4.1 and 4.2, being made to the Knowledge of Transferor): 4.1 Organization; Qualification. Transferor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and the Commonwealth of Virginia, and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. Transferor is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which its business as now being conducted requires it to be so qualified, except to the extent that the failure to be so qualified would not, individually or in the aggregate, have a Transferor Material Adverse Effect. 4.2 Authority. Transferor has full corporate power and authority to execute and deliver this Agreement and each Additional Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Transferor of this Agreement and each Additional Agreement to which it is a party and the consummation by Transferor of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action required on the part of Transferor. This Agreement has been duly and validly executed and delivered by Transferor and this Agreement constitutes, and upon the execution and delivery by Transferor of each Additional Agreement to which it is a party, each such Additional Agreement will constitute, the legal, valid and binding obligation of Transferor, enforceable against Transferor in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar Laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 4.3 Consents and Approvals; No Violation. (a) Except as set forth on Schedule 4.3(a), subject to obtaining or making all Transferor Required Regulatory Approvals, neither the execution and delivery by Transferor of this Agreement or the Additional Agreements to which it is a party nor the consummation by Transferor of the transactions contemplated hereby or thereby will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of Transferor; (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Transferor is a party or by which it, or any of the Transferred Assets, may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite consents, approvals or waivers have been, or will be prior to the Closing obtained, or which would not, individually or in the aggregate, have a Transferor Material Adverse Effect; or (iii) constitute violations of any Law, order, judgment or decree applicable to Transferor, which violations, individually or in the aggregate, would have a Transferor Material Adverse Effect. 29 (b) Except for consents, approvals, filings and notices set forth on Schedule 4.3(b) (such consents, approvals, filings and notices are collectively referred to herein as the "Transferor Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery by Transferor of this Agreement and the Additional Agreements to which it is a party or the consummation by Transferor of the transactions contemplated hereby or thereby, other than (i) such consents, approvals, filings and notices which, if not obtained or made, would not materially impair Transferor's ability to perform its material obligations under this Agreement or such Additional Agreements; (ii) such consents, approvals, filings and notices which become applicable to Transferor or the Transferred Assets as a result of the status of Transferee or as a result of any other facts that specifically relate to the business or activities in which Transferee is or proposes to be engaged; and (iii) such consents, approvals, filings and notices, the failure of which to obtain or make would not, individually or in the aggregate, have a Transferor Material Adverse Effect. 4.4 Title and Related Matters. Transferor has good and valid title to all Transferred Assets, free and clear of all Encumbrances, except for Permitted Encumbrances. 4.5 Legal Proceedings. Except as set forth on Schedule 4.5, there are no suits, actions or proceedings pending or, to the Knowledge of Transferor, threatened against Transferor by or before any Governmental Authority, which, if adversely determined, would, individually or in the aggregate, have a Transferor Material Adverse Effect or would materially impair Transferor's ability to consummate the transactions contemplated hereby or by any Additional Agreement to which it is a party. Except as set forth on Schedule 4.5, Transferor is not subject to any judgment, order or decree of any Governmental Authority which would, individually or in the aggregate, have a Transferor Material Adverse Effect or would materially impair Transferor's ability to consummate the transactions contemplated hereby or by any Additional Agreement to which it is a party. ARTICLE V REPRESENTATIONS AND WARRANTIES OF TRANSFEREE Transferee hereby represents and warrants to Transferor as follows (all such representations and warranties, except those set forth in Sections 5.1 and 5.2, being made to the Knowledge of Transferee): 5.1 Organization; Qualification. Transferee is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. Transferee is duly qualified to do business and is in good standing under the laws of each jurisdiction in which its business as now being conducted requires it to be 30 so qualified, except to the extent that the failure to be so qualified would not, individually or in the aggregate, have a Transferee Material Adverse Effect. 5.2 Authority. Transferee has full power and authority to execute and deliver this Agreement and each Additional Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and each such Additional Agreement by Transferee and the consummation by Transferee of the transactions contemplated hereby or thereby have been duly and validly authorized by all necessary action required on the part of Transferee. This Agreement has been duly and validly executed and delivered by Transferee and, subject to the receipt of the Transferee Required Regulatory Approvals, this Agreement constitutes, and upon the execution and delivery by Transferee of each Additional Agreement to which it is a party, each such Additional Agreement will constitute, the legal, valid and binding obligation of Transferee, enforceable against Transferee in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar Laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 5.3 Consents and Approvals; No Violation. (a) Except as set forth on Schedule 5.3(a), and subject to obtaining or making all Transferee Required Regulatory Approvals, neither the execution and delivery by Transferee of this Agreement or the Additional Agreements to which it is a party nor the consummation by Transferee of the transactions contemplated hereby or thereby will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws (or other similar governing documents) of Transferee or any of its Subsidiaries; (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Transferee or any of its Subsidiaries is a party or by which Transferee, any such Subsidiary or any of their respective properties and assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite consents, approvals or waivers have been or will be prior to the Closing obtained, or which would not, individually or in the aggregate, materially impair Transferee's ability to consummate the transactions contemplated hereby or by any Additional Agreement, or to perform its material obligations hereunder or thereunder (a "Transferee Material Adverse Effect"); or (iii) constitute violations of any Law, order, judgment or decree applicable to Transferee or any of its Subsidiaries, which violations, individually or in the aggregate, would have a Transferee Material Adverse Effect. (b) Except for consents, approvals, filings and notices set forth on Schedule 5.3(b) (such consents, approvals, filings and notices are collectively referred to herein as the "Transferee Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery by Transferee of this 31 Agreement and the Additional Agreements to which it is a party or the consummation by Transferee of the transactions contemplated hereby or thereby, other than such consents, approvals, filings or notices, which, if not obtained or made, would not have a Transferee Material Adverse Effect. 5.4 Legal Proceedings. There are no suits, actions or proceedings pending or threatened against Transferee by or before any Governmental Authority which, if adversely determined, would, individually or in the aggregate, have a Transferee Material Adverse Effect or would materially impair such Transferee's ability to consummate the transactions contemplated hereby or by any Additional Agreement to which it is a party. Transferee is not subject to any judgments, orders or decrees of any Governmental Authority which would, individually or in the aggregate, have a Transferee Material Adverse Effect or would materially impair such Transferee's ability to consummate the transactions contemplated hereby or by any Additional Agreement to which it is a party. ARTICLE VI COVENANTS 6.1 Conduct of Business Relating to the Transferred Assets. Except as contemplated by this Agreement or any Additional Agreement or to the extent Transferee otherwise consents in writing, during the period from the date of this Agreement to the Closing Date, Transferor shall operate the Transferred Assets in the ordinary course of business consistent with the past practices of Transferor and shall use all Commercially Reasonable Efforts to preserve intact the Transferred Assets, and endeavor to preserve the goodwill and relationships with customers, vendors, suppliers, employees and others having business dealings with it in connection with the Transferred Assets. 6.2 Books and Records. For a period of seven (7) years from and after the Closing Date, each of Transferor and Transferee and their respective Representatives shall have reasonable access to all of the books and records of the Transferred Assets, including, to the extent permitted by Applicable Law, all Transferred Employee Records, in the possession of the other Party to the extent that such access may reasonably be required by such Party in connection with the Assumed Liabilities or the Excluded Liabilities, or other matters relating to or affected by the operation of the Transferred Assets or the Excluded Assets. Such access shall be afforded by the Party in possession of any such books and records upon receipt of reasonable advance notice and during normal business hours. The Party exercising this right of access shall be solely responsible for any costs or expenses incurred by it or the other Party with respect to such access pursuant to this Section 6.2. If the Party in possession of such books and records shall desire to dispose of any books and records upon or prior to the expiration of such seven-year period, such Party shall, prior to such disposition, give the other Party a reasonable opportunity, at such other Party's cost and expense, to segregate and remove such books and records as such other Party may select. 32 6.3 Transfer Taxes. All transfer, use, stamp, sales and similar Taxes incurred in connection with this Agreement and the Additional Agreements, and the transactions contemplated hereby and thereby (including, if any, (i) sales Tax imposed by Delaware, Pennsylvania, Maryland and Virginia on the transfer of the Transferred Assets and (ii) transfer Tax imposed by Delaware, Pennsylvania, Maryland and Virginia on conveyances of interests in real property included in the Transferred Assets) shall be borne by Transferee and, to the extent paid by Transferor, Transferee shall reimburse Transferor upon request. 6.4 Employees. (a) From and after the Closing Date, the employees of Transferor set forth on Schedule 6.4(a) shall be employees of Transferee (the "Transferred Employees"). Transferee shall employ the Transferred Employees subject to the same terms and conditions, including terms and conditions relating to annual compensation, bonus and other incentive opportunities, to which each such Transferred Employee was subject immediately prior to the Closing. (b) Transferee shall, at the Closing, adopt the Benefit Plans set forth on Schedule 6.4(b) as the benefit plans to be maintained by Transferee for the benefit of the Transferred Employees from and after the Closing. Each Transferred Employee shall continue to be covered by, participate in, and receive the benefits under each such Benefit Plan to the same extent each such Transferred Employee was covered by, participated in and received the benefits under each such Benefit Plan immediately prior to the Closing. In furtherance and not in limitation of the foregoing, each Transferred Employee shall receive from Transferee full credit for service with Transferor and its Affiliates for eligibility, vesting and benefits entitlement purposes. (c) Transferee shall use its best efforts to take, or cause to be taken, all actions, or to do, or cause to be done, all things necessary, proper or advisable with respect to the IBEW Collective Bargaining Agreements, in each case as Transferor shall reasonably request, including becoming a party to or otherwise agreeing to be bound by the IBEW Collective Bargaining Agreements. Transferred Employees covered by the IBEW Collective Bargaining Agreements shall retain their seniority and receive full credit for service with Transferor and its Affiliates in connection with entitlement to vacation and all other benefits and rights under the IBEW Collective Bargaining Agreements to which seniority or years of service are applicable. On the Closing Date, Transferee shall assume the IBEW Collective Bargaining Agreements for the duration of their respective terms as they relate to Transferred Employees and other employees to be employed by Transferee or its Affiliates in positions covered by the IBEW Collective Bargaining Agreements, and Transferee shall comply with all applicable obligations under the IBEW Collective Bargaining Agreements. Transferee shall, for the duration of the IBEW 1238 Agreement, recognize the IBEW 1238 as the collective bargaining agent for the Transferred Employees who are members of IBEW 1238 in positions covered by the IBEW 1238 Agreement. Transferee shall, for the duration of the IBEW 1307 Agreement, recognize the IBEW 1307 as the collective bargaining agent for the Transferred Employees who are members of IBEW 1307 in positions covered by the IBEW 1307 Agreement. 33 6.5 Qualification of Transferee under PUHCA. From and after the Closing, Transferor shall use its Commercially Reasonable Efforts as reasonably requested by Transferee from time to time in order to enable Transferee to qualify as an "exempt wholesale generator" under the Public Utility Holding Company of 1935, as amended from time to time. 6.6 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of Transferor and Transferee shall use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate and make effective the transfer of the Transferred Assets pursuant to this Agreement and the assumption of the Assumed Liabilities, including using its reasonable best efforts to ensure satisfaction of the conditions precedent to each of Transferor's and Transferee's obligations hereunder, including obtaining all necessary consents, approvals and authorizations of, and making all required notices or filings with, third parties required to be obtained or made in order to consummate the transactions hereunder, including the transfer of the Transferable Permits to Transferee. Transferor shall cooperate with Transferee in its efforts to obtain all other permits and Environmental Permits necessary for Transferee to operate the Transferred Assets. Transferee shall perform all conditions required of Transferee in connection with obtaining the Transferor Required Regulatory Approvals. Neither Transferor nor Transferee shall, without prior written consent of the other, take or fail to take any action which might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. (b) Without limiting the generality of Section 6.6(a): (i) In the event that any Transferred Asset shall not have been conveyed to Transferee at the Closing, Transferor shall, subject to Section 6.6(b)(ii), use Commercially Reasonable Efforts after the Closing to convey such asset to Transferee as promptly as practicable. (ii) To the extent that Transferor's rights under any material Transferor Agreement may not be assigned without the consent, approval or authorization of any third party which consent, approval or authorization has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign such right if an attempted assignment would constitute a breach of such Transferor Agreement or violate any applicable Law. If any consent, approval or authorization to the assignment of any material Transferor Agreement shall not be obtained, or if any attempted assignment would be ineffective or would impair Transferee's rights and obligations under such Transferor Agreement, such that Transferee would not acquire and assume the benefit and detriment of all such rights and obligations, Transferor, at its option and to the fullest extent permitted by applicable Law and such Transferor Agreement, shall, after the Closing Date, appoint Transferee to be Transferor's agent with respect to such Transferor Agreement, or, to the fullest extent permitted by applicable Law and such Transferor 34 Agreement, enter into such reasonable arrangements with Transferee or take such other actions as are necessary to provide Transferee with the same or substantially similar rights and obligations under such Transferor Agreement. 6.7 Consents and Approvals. Without limiting the generality of Section 6.6(a), as promptly as practicable after the date of this Agreement, Transferor and Transferee shall take, or cause to be taken, all actions, and do, or cause to be done, all things necessary, proper or advisable under applicable Laws to obtain all required consents and approvals of all other Governmental Authorities, and make all other filings and give all other notices required to be made prior to the Closing with respect to the transactions contemplated hereby and by the Additional Agreements. 6.8 PJM; MAAC. From and after the Closing Date, Transferee shall use Commercially Reasonable Efforts to obtain membership in PJM and MAAC, and shall submit to the governance of the independent system operator established and administered under the PJM Agreement. 6.9 Certain Tax-Exempt Bonds. Transferee acknowledges that Transferor financed the Transferred Assets set forth on Schedule 6.9 with the proceeds of tax-exempt bonds and that the continuing tax-exempt status of such bonds depends on the continuing qualifying use of such assets as property used to abate or control water or atmospheric pollution or contamination by removing, altering, disposing or storing pollutants, contaminants, water or heat within the meaning of Section 103(b)(4)(F) of the Code ("Qualifying Use"). In the event that the use of such assets is changed to a non-Qualifying Use on or before the maturity date of such bonds, as set forth on Schedule 6.9, Transferor will be required to take certain action to comply with its obligations to maintain the tax-exempt status of those bonds. Accordingly, Transferee shall give Transferor written notice of any change in the use of such assets from their current Qualifying Use that occurs before the maturity date of such bonds, as set forth on Schedule 6.9. Such notice shall be given at least ten (10) Business Days prior to such change in use. Notwithstanding the foregoing, Transferee shall not be deemed to have breached this Section 6.9 if Transferee shall abandon the use of such assets. In the event that Transferee sells or otherwise transfers such assets on or before the maturity date of such bonds, as set forth on Schedule 6.9, Transferee shall give written notice to Transferor at least ten (10) Business Days prior thereto and Transferee shall require the subsequent owner of such assets to covenant and agree to comply with the provisions of this Section 6.9. This covenant shall be included in any recorded deed of transfer of such assets and, to the extent applicable, will be considered a covenant that runs with the land. 6.10 Reimbursement of Certain Metering Expenses. From and after the Closing, Transferee shall (i) reimburse Transferor for reasonable amounts expended by Transferor prior to the later to occur of (a) September 30, 2001 and (b) the date which is seventeen months after the Closing Date, in connection with the installation, renovation or improvement of revenue quality meters and related equipment up to an aggregate amount of $2.3 million and (ii) cooperate with Transferor as fully as reasonably possible in order to facilitate Transferor's installation, renovation or improvement of revenue quality meters and related equipment. 35 ARTICLE VII CONDITIONS 7.1 Conditions to Obligation of Transferee. The obligation of Transferee to effect the transactions contemplated by this Agreement shall be subject to the satisfaction (or the waiver, to the extent permitted by applicable Law, by Transferee) at or prior to the Closing of the following conditions: (a) No preliminary or permanent injunction, order or decree by any Governmental Authority which prevents the consummation of the transactions contemplated hereby or by the Additional Agreements shall have been issued and remain in effect (Transferee agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted), and no applicable Law shall be in effect which prohibits the consummation of the transactions contemplated hereby or thereby; (b) Transferee shall have obtained the Transferee Required Regulatory Approvals set forth on Schedule 5.3(b), in form and substance reasonably satisfactory to Transferee (including any adverse conditions therein); and such Transferee Required Regulatory Approvals shall be final and nonappealable; (c) Transferor shall have in all material respects performed and complied with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Transferor on or prior to the Closing Date; (d) (i) The representations and warranties of Transferor set forth in this Agreement that are qualified by reference to Transferor Material Adverse Effect shall be true and correct in all respects and (ii) the representations and warranties of Transferor set forth in this Agreement that are not so qualified shall be true and correct in all material respects, in each case, as of the Closing Date as though made at and as of the Closing Date (other than representations and warranties that are made as of a specific date which shall have been true and correct as of such date); (e) Transferee shall have received a certificate from an authorized officer of Transferor, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Sections 7.1(c) and (d) have been satisfied by Transferor; and (f) The Related Transfer Agreements shall be in full force and effect and the valid and binding obligation of each party thereto; and all conditions to the obligations of all parties to the Related Transfer Agreements to consummate the transactions contemplated thereby shall have been satisfied or, to the extent permitted by applicable Law, waived. 36 7.2 Conditions to Obligation of Transferor. The obligation of Transferor to effect the transactions contemplated by this Agreement shall be subject to the satisfaction (or the waiver, to the extent permitted by applicable Law, by Transferor) at or prior to the Closing of the following conditions: (a) No preliminary or permanent injunction or other order or decree by any Governmental Authority which prevents the consummation of the transactions contemplated hereby or by the Additional Agreements shall have been issued and remain in effect (Transferor agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted), and no applicable Law shall be in effect which prohibits the consummation of the transactions contemplated hereby or thereby; (b) Transferor shall have obtained the Transferor Required Regulatory Approvals set forth on Schedule 4.3(b), in form and substance reasonably satisfactory to Transferor (including any adverse conditions therein) and all conditions to effectiveness prescribed therein or otherwise by Law shall have been satisfied in all material respects; and such Transferor Required Regulatory Approvals shall be final and nonappealable; (c) Transferee shall have in all material respects performed and complied with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Transferee on or prior to the Closing Date; (d) (i) The representations and warranties of Transferee set forth in this Agreement that are qualified by reference to Transferee Material Adverse Effect shall be true and correct in all respects and (ii) the representations and warranties of Transferee that are not so qualified shall be true and correct in all material respects, in each case, as of the Closing Date as though made at and as of the Closing Date (other than representations and warranties that are made as of a specific date which shall have been true and correct as of such date); (e) Transferor shall have received a certificate from an authorized officer of Transferee, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Sections 7.2(c) and (d) have been satisfied by Transferee; and (f) The Related Transfer Agreements shall be in full force and effect and the valid and binding obligation of each party thereto; and all conditions to the obligations of all parties to the Related Transfer Agreements to consummate the transactions contemplated thereby shall have been satisfied or, to the extent permitted by applicable Law, waived. ARTICLE VIII INDEMNIFICATION 8.1 Indemnification By Transferor and Transferee. 37 (a) From and after the Closing Date, Transferee shall indemnify, defend and hold harmless Transferor and its Representatives (each, a "Transferor Indemnitee"), from and against any and all claims, demands, suits, losses, liabilities, penalties, damages, obligations, payments, costs and expenses (including reasonable attorneys' fees and expenses in connection therewith) (each, an "Indemnifiable Loss"), asserted against or suffered by any Transferor Indemnitee relating to, resulting from or arising out of (i) any breach by Transferee of any covenant or agreement of Transferee set forth in this Agreement, (ii) the Assumed Liabilities or (iii) any Third-Party Claim against any Transferor Indemnitee in connection with Transferee's ownership, lease, maintenance or operation of any of the Transferred Assets on or after the Closing Date (other than to the extent such Third-Party Claim constitutes an Excluded Liability); provided, however, that Transferee shall be liable to Transferor pursuant to clause (i) of this Section 8.1(a) only for Indemnifiable Losses for which any Transferor Indemnitee gives written notice to Transferee (setting forth with reasonable specificity the nature and amount of the Indemnifiable Loss) during the period for which such covenant or agreement survives the Closing in accordance with Section 10.5. (b) From and after the Closing, Transferor shall indemnify, defend and hold harmless Transferee and its Representatives (each, a "Transferee Indemnitee"), from and against any and all Indemnifiable Losses asserted against or suffered by any Transferee Indemnitee relating to, resulting from or arising out of (i) any breach by Transferor of any covenant or agreement of Transferor set forth in this Agreement or (ii) the Excluded Liabilities; provided, however, that Transferor shall be liable pursuant to clause (i) of this Section 8.1(b) only for Indemnifiable Losses for which any Transferee Indemnitee gives written notice to Transferor (setting forth with reasonable specificity the nature and amount of the Indemnifiable Loss) during the period for which such covenants or agreements survive the Closing in accordance with Section 10.5. (c) In furtherance and not in limitation of the provisions set forth in Section 8.1(a), Transferee, for itself and on behalf of its Representatives, hereby irrevocably releases, holds harmless and forever discharges Transferor from any and all Indemnifiable Losses of any kind or character, whether known or unknown, contingent or accrued, arising under or relating to Environmental Laws, or relating to any claim in respect of any Environmental Condition or Hazardous Substance, whether based on common law or Environmental Laws relating to the Transferred Assets, other than those liabilities and obligations which have been retained by Transferor hereunder (collectively, "Environmental Claims"). In furtherance of the foregoing, Transferee, for itself and on behalf of its Representatives, hereby irrevocably waives any and all rights and benefits with respect to such Environmental Claims that it now has, or in the future may have conferred upon it by virtue of any Law or common law principle, which provides that a general release does not extend to claims which a party does not know or suspect to exist in its favor at the time of executing the release, if knowledge of such claims would have materially affected such party's settlement with the obligor. In this connection, Transferee hereby acknowledges that it is aware that factual matters now unknown to it may have given, or hereafter may give, rise to Environmental Claims that are presently unknown, unanticipated and 38 unsuspected, and Transferee further agrees that this release set forth in this Section 8.1(c) has been negotiated and agreed upon in light of that awareness, and Transferee, for itself and on behalf of its Representatives, nevertheless hereby intends irrevocably to release, hold harmless and forever discharge Transferor from all such Environmental Claims. (d) The rights and remedies of Transferor and Transferee set forth in this Article VIII are exclusive and in lieu of any and all other rights and remedies which Transferor and Transferee may have under this Agreement, under applicable Law, whether at common law or in equity, including for declaratory, injunctive or monetary relief, in each case, with respect to any Indemnifiable Loss. (e) Notwithstanding anything to the contrary herein, no Person (including an Indemnitee) shall be entitled to recover from any other Person (including any Party hereto required to provide indemnification under this Agreement (an "Indemnifying Party")) any amount in excess of the actual compensatory damages, court costs and reasonable attorneys' fees suffered by such party. Transferee and Transferor hereby irrevocably waive any right to recover punitive, special, exemplary and consequential damages arising in connection with or with respect to this Agreement (other than with respect to indemnification for a Third-Party Claim). (f) Any Transferor Indemnitee or Transferee Indemnitee (each, an "Indemnitee") shall use Commercially Reasonable Efforts to mitigate all losses, damages and the like relating to a claim under the indemnification provisions in this Section 8.1, including availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity. For purposes of this Section 8.1(f), such Indemnitee's Commercially Reasonable Efforts shall include the reasonable expenditure of money to mitigate or otherwise reduce or eliminate any loss or expenses for which indemnification would otherwise be due, and, in addition to its other obligations hereunder, the Indemnifying Party shall reimburse the Indemnitee for its reasonable expenditures in undertaking the mitigation. 8.2 Defense of Claims. (a) If any Indemnitee receives notice of the assertion of any claim or of the commencement of any suit, action or proceeding made or brought by any Person who is not an Indemnitee (a "Third-Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying Party reasonably prompt written notice thereof (a "Third-Party Claim Notice"), but in no event later than ten (10) Business Days after the Indemnitee's receipt of notice of such Third-Party Claim. Such notice shall describe the nature of the Third-Party Claim in reasonable detail and shall indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be incurred by the Indemnitee. The Indemnifying Party shall have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third-Party Claim at such Indemnifying Party's expense and by such Indemnifying Party's own counsel. If within twenty (20) Business Days after receipt of the Third-Party Claim Notice, an Indemnifying Party fails to give written notice to the Indemnitee of its election to assume the defense of such Third-Party 39 Claim, then the Indemnitee may defend, compromise or settle such Third-Party Claim with counsel selected by it, provided that, without the prior written consent of the Indemnifying Party, the Indemnitee shall not agree to the entry of any judgment with respect to, or any compromise or settlement of, such Third-Party Claim, which judgment, compromise or settlement does not include the unconditional release of the Indemnifying Party. (b) If, within twenty (20) Business Days after an Indemnitee gives written notice to the Indemnifying Party of any Third-Party Claim, such Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third-Party Claim as provided in Section 8.2(a), then the Indemnifying Party shall not be liable for any costs, fees or expenses subsequently incurred by the Indemnitee in connection with the defense, compromise or settlement thereof. (c) Any claim by an Indemnitee on account of an Indemnifiable Loss which does not constitute a Third-Party Claim (a "Direct Claim") shall be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, in no event later than twenty (20) Business Days after the Indemnitee becomes aware of such Direct Claim, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, of such Indemnifiable Loss and the Indemnifying Party shall have a period of twenty (20) Business Days within which to respond to such Direct Claim. If the Indemnifying Party fails to respond during such twenty (20) Business Day period, the Indemnifying Party shall be deemed to have accepted such claim and, subject to this Article VIII, shall promptly reimburse the Indemnitee for the Indemnifiable Losses set forth in the Indemnitee's notice. (d) A failure to give timely notice as provided in this Section 8.2 shall not affect the rights or obligations of any Party hereunder except to the extent that, as a result of such failure, the Party which was entitled to receive such notice was actually prejudiced as a result of such failure. ARTICLE IX TERMINATION 9.1 Termination. (a) This Agreement may be terminated at any time prior to the Closing by mutual written consent of the Parties. (b) This Agreement may be terminated by Transferor, on the one hand, or Transferee, on the other hand, upon written notice to the other Party, (i) at any time prior to the Closing if any court of competent jurisdiction shall have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Closing, and such order, judgment or decree shall have become final and nonappealable; (ii) at any time prior to the Closing if any Law shall have been enacted or issued by any Governmental Authority which, 40 directly or indirectly, prohibits the consummation of the transactions contemplated by this Agreement or by any Additional Agreement; or (iii) at any time after July 31, 2000, if the Closing shall not have occurred on or before such date; provided, however, that the right to terminate this Agreement under this Section 9.1(b)(iii) shall not be available to any Party whose breach of this Agreement has caused, or resulted in, the failure of the Closing to occur on or before such date. (c) This Agreement may be terminated by Transferee, upon written notice to Transferor, if any of Transferee Required Regulatory Approvals, the receipt of which is a condition to the obligation of Transferee to effect the transactions contemplated by this Agreement as set forth in Section 7.1(b), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied), and such denial was not caused by or the result of a breach of this Agreement by Transferee. (d) This Agreement may be terminated by Transferor, upon written notice to Transferee, if any of the Transferor Required Regulatory Approvals, the receipt of which is a condition to the obligation of Transferor to effect the transactions contemplated by this Agreement as set forth in Section 7.2(b), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied), and such denial was not caused by or the result of a breach of this Agreement by Transferor. 9.2 Effect of Termination. Upon termination of this Agreement prior to the Closing pursuant to Section 9.1, this Agreement shall be null and void and of no further force or effect (except that the provisions set forth in this Section 9.2 and Article X shall remain in full force and effect in accordance with their respective terms); and no Party shall have any further liability under this Agreement (other than for any wilful breach of its obligations hereunder). ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Amendment and Modification. Subject to applicable Law, this Agreement may be amended, supplemented or otherwise modified only by written agreement entered into by all Parties. 10.2 Expenses. Except to the extent provided herein, whether or not the transactions contemplated hereby are consummated, all costs, fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs, fees and expenses. 10.3 Bulk Sales Laws. Transferee hereby acknowledges that, notwithstanding anything in this Agreement to the contrary, Transferor will not comply with the provisions of the bulk sales laws of any jurisdiction in connection with the transactions contemplated by this 41 Agreement; and Transferee hereby irrevocably waives compliance by Transferor with the provisions of the bulk sales laws of all applicable jurisdictions. 10.4 Waiver of Compliance; Consents. To the extent permitted by applicable Law, any failure of any of the Parties to comply with any covenant, agreement or condition set forth herein may be waived by the Party entitled to the benefit thereof only by a written instrument signed by such Party, but any such waiver shall not operate as a waiver of, or estoppel with respect to, any prior or subsequent failure to comply therewith. 10.5 No Survival. No representation or warranty contained in this Agreement shall survive the Closing. The covenants and agreements of the Parties contained in this Agreement shall survive the Closing in accordance with their respective terms. 10.6 Disclaimers. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE IV, THE TRANSFERRED ASSETS ARE TRANSFERRED "AS IS, WHERE IS", AND TRANSFEROR EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO TRANSFEROR AND THE TRANSFERRED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE IV: TRANSFEROR EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES REGARDING LIABILITIES, OWNERSHIP, LEASE, MAINTENANCE OR OPERATION OF THE TRANSFERRED ASSETS, THE TITLE, CONDITION, VALUE OR QUALITY OF THE TRANSFERRED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE TRANSFERRED ASSETS; AND TRANSFEROR EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE TRANSFERRED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL AUTHORITY, INCLUDING ANY ENVIRONMENTAL LAWS, OR WHETHER TRANSFEROR POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE TRANSFERRED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TRANSFEROR FURTHER EXPRESSLY DISCLAIMS ALL REPRESENTATIONS OR WARRANTIES REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE TRANSFERRED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TRANSFEROR EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES OF ANY KIND REGARDING THE CONDITION OF THE TRANSFERRED ASSETS OR THE SUITABILITY OF ANY OF THE TRANSFERRED ASSETS FOR OPERATION AS A POWER PLANT OR AS A FUEL PROCESSING FACILITY, AS APPLICABLE, AND NO 42 SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION PROVIDED, OR COMMUNICATIONS MADE, BY TRANSFEROR OR ITS REPRESENTATIVES, INCLUDING ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY SUCH REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE TRANSFERRED ASSETS. 10.7 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given on the day when delivered personally or by facsimile transmission (with confirmation), on the next Business Day when delivered to a nationally recognized overnight courier or five (5) Business Days after deposited as registered or certified mail (return receipt requested), in each case, postage prepaid, addressed to the recipient Party at its address set forth below (or at such other address or facsimile number for a Party as shall be specified by like notice; provided, however, that any notice of a change of address or facsimile number shall be effective only upon receipt thereof): (a) If to Transferor, to: Delmarva Power & Light Company c/o Conectiv 800 King Street P.O. Box 231 Wilmington, Delaware 19899 Attention: President Facsimile: (302) 429-3367 (b) if to Transferee, to: Conectiv Delmarva Generation, Inc. c/o Conectiv 800 King Street P.O. Box 231 Wilmington, Delaware 19899 Attention: President Facsimile: (302) 429-3367 10.8 Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, provided neither this Agreement nor any of the rights, interests, obligations or remedies hereunder shall be assigned by Transferor or Transferee, including by operation of law, without the prior written consent of the other Party; nor is this Agreement intended to confer upon any other Person any rights, interests, obligations or remedies hereunder. Without limiting the generality of the foregoing, no provision of this Agreement shall create any third-party beneficiary rights in any employee or former employee of Transferor (including any beneficiary or dependent thereof) in respect of continued employment 43 or resumed employment, and no provision of this Agreement shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. Notwithstanding the foregoing, without the prior written consent of Transferee, Transferor may assign all of its rights, interests, obligations and remedies hereunder to any of its Affiliates; provided, however, that no such assignment shall relieve or discharge Transferor from any of its obligations hereunder. 10.9 Governing Law; Forum; Service of Process. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (without giving effect to conflicts of law principles) as to all matters, including validity, construction, effect, performance and remedies. Venue in any and all suits, actions and proceedings related to the subject matter of this Agreement shall be in the state and federal courts located in and for the State of Delaware (the "Courts"), which shall have exclusive jurisdiction for such purpose, and the Parties hereby irrevocably submit to the exclusive jurisdiction of such courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such suit, action or proceeding. Service of process may be made in any manner recognized by such Courts. Each of the Parties hereby irrevocably waives its right to a jury trial arising out of any dispute in connection with this Agreement or the transactions contemplated hereby. 10.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.11 Interpretation. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or construction of this Agreement. Ambiguities and uncertainties in the wording of this Agreement shall not be construed for or against any Party, but shall be construed in the manner that most accurately reflects the Parties' intent as of the date of this Agreement. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement, and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. 10.12 Schedules and Exhibits. Except as otherwise provided in this Agreement, all Exhibits and Schedules referred to herein are intended to be and hereby are made a part of this Agreement. 10.13 Entire Agreement. This Agreement (including the Schedules and Exhibits), embodies the entire agreement and understanding of the Parties hereto in respect of the transactions contemplated by this Agreement and the Additional Agreements and supersedes all prior agreements and understandings between or among the Parties with respect to such transactions. There are no representations, warranties, covenants or agreements between or 44 among the Parties with respect to the subject matter set forth in such agreements, other than those expressly set forth or referred to herein or therein. [SIGNATURE PAGE FOLLOWS] 45 IN WITNESS WHEREOF, Transferor and Transferee have caused this Asset Transfer Agreement to be duly executed and delivered by their respective duly authorized officers as of the date first above written. DELMARVA POWER & LIGHT COMPANY By: _____________________________________ Name: Title: CONECTIV DELMARVA GENERATION, INC. By: ______________________________________ Name: Title: EX-99.B.2 3 0003.txt FORM OF ASSET TRANSFER AGREEMENT BETWEEN ACE & CAG 1 Exhibit B-2 ASSET TRANSFER AGREEMENT BY AND BETWEEN ATLANTIC CITY ELECTRIC COMPANY and CONECTIV ATLANTIC GENERATION, LLC Dated as of May 4, 2000 2 LIST OF EXHIBITS AND SCHEDULES Exhibits Exhibit A Access Agreements Exhibit B Assignment and Assumption Agreement Exhibit C Cumberland Lease Exhibit D Interconnection Agreement Schedules 1.1(17) Cumberland Lease 1.1(34) Facilities 1.1(59) Permitted Encumbrances 1.1(63) Real Property 1.1(79) Transferable Permits 1.1(86) Transferor Agreements 2.1(a) Tangible Personal Property 4.3(a) No Violations - Transferor 4.3(b) Transferor Consents and Approvals 4.5 Transferor Legal Proceedings 5.3(a) No Violations - Transferee 5.3(b) Transferee Consents and Approvals 6.4(a) Transferred Employees 6.4(b) Benefit Plans 3 TABLE OF CONTENTS ARTICLE I
DEFINITIONS............................................................................................... 2 1.1 Definitions...................................................................................... 2 1.2 Certain Interpretive Matters..................................................................... 11 1.3 U.S. Dollars..................................................................................... 11 ARTICLE II CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES...................................................... 11 2.1 Contribution of Transferred Assets............................................................... 11 2.2 Excluded Assets.................................................................................. 12 2.3 Assumed Liabilities.............................................................................. 14 2.4 Excluded Liabilities............................................................................. 15 2.5 Control of Litigation............................................................................ 18 ARTICLE III THE CLOSING............................................................................................... 18 3.1 Closing.......................................................................................... 18 3.2 Prorations....................................................................................... 18 3.3 Deliveries by Transferor......................................................................... 19 3.4 Deliveries by Transferee......................................................................... 20 3.5 Relationship of this Agreement and Related Transfer Agreements................................... 21 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TRANSFEROR.............................................................. 21 4.1 Organization; Qualification...................................................................... 21 4.2 Authority........................................................................................ 21 4.3 Consents and Approvals; No Violation............................................................. 22 4.4 Title and Related Matters........................................................................ 22 4.5 Legal Proceedings................................................................................ 23 ARTICLE V REPRESENTATIONS AND WARRANTIES OF TRANSFEREE.............................................................. 23 5.1 Organization; Qualification...................................................................... 23 5.2 Authority........................................................................................ 23 5.3 Consents and Approvals; No Violation............................................................. 24
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5.4 Legal Proceedings................................................................................ 24 ARTICLE VI COVENANTS................................................................................................. 25 6.1 Conduct of Business Relating to the Transferred Assets........................................... 25 6.2 Books and Records................................................................................ 25 6.3 Transfer Taxes................................................................................... 25 6.4 Employees........................................................................................ 25 6.5 Qualification of Transferee under PUHCA.......................................................... 26 6.6 Further Assurances............................................................................... 26 6.7 Consents and Approvals........................................................................... 27 6.8 PJM; MAAC........................................................................................ 28 6.9 Reimbursement of Certain Metering Expenses....................................................... 28 ARTICLE VII CONDITIONS................................................................................................ 28 7.1 Conditions to Obligation of Transferee........................................................... 28 7.2 Conditions to Obligation of Transferor........................................................... 29 ARTICLE VIII INDEMNIFICATION........................................................................................... 30 8.1 Indemnification By Transferor and Transferee..................................................... 30 8.2 Defense of Claims................................................................................ 32 ARTICLE IX TERMINATION............................................................................................... 33 9.1 Termination...................................................................................... 33 9.2 Effect of Termination............................................................................ 34 ARTICLE X MISCELLANEOUS PROVISIONS.................................................................................. 34 10.1 Amendment and Modification....................................................................... 34 10.2 Expenses......................................................................................... 34 10.3 Bulk Sales Laws.................................................................................. 34 10.4 Waiver of Compliance; Consents................................................................. 34 10.5 No Survival...................................................................................... 34 10.6 Disclaimers...................................................................................... 34 10.7 Notices.......................................................................................... 35
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10.8 Assignment....................................................................................... 36 10.9 Governing Law; Forum; Service of Process......................................................... 36 10.10 Counterparts..................................................................................... 37 10.11 Interpretation................................................................................... 37 10.12 Schedules and Exhibits........................................................................... 37 10.13 Entire Agreement................................................................................. 37
iv 6 ASSET TRANSFER AGREEMENT ASSET TRANSFER AGREEMENT, dated as of May 4, 2000 (this "Agreement"), by and between Atlantic City Electric Company, a New Jersey corporation ("Transferor"), and Conectiv Atlantic Generation, LLC, a Delaware limited liability company and a wholly owned subsidiary of Transferor ("Transferee"). Transferor and Transferee may be referred to herein individually as a "Party," and collectively as the "Parties." W I T N E S S E T H WHEREAS, Transferor owns and operates plants and related facilities for the generation of electricity which is sold to wholesale and retail customers of Transferor (the "Business"); WHEREAS, Transferor desires to transfer, upon the terms hereinafter set forth, substantially all of its assets, properties, rights and interests relating to the Business to Transferee (other than assets Transferor has agreed to sell to (i) PECO Energy Company and PSEG Power LLC, pursuant to certain Purchase and Sale Agreements, each dated as of September 29, 1999 and (ii) NRG Energy, Inc., pursuant to certain Purchase and Sale Agreements, each dated as of January 18, 2000, except as set forth herein; WHEREAS, Transferee desires to acquire from Transferor, upon the terms hereinafter set forth, substantially all of such assets, properties, rights and interests of Transferor and to assume certain liabilities and obligations of Transferor specifically disclosed in this Agreement; WHEREAS, the Board of Directors of Transferor has determined that it is appropriate and desirable to distribute to Transferor's shareholder all of Transferor's membership interest in Transferee (the "Internal Distribution") following the transfer of the assets, properties, rights and interests contemplated under this Agreement (the "Transfer"); WHEREAS, for U.S. federal income tax consequences, it is intended that the Transfer and the Internal Distribution qualify as a reorganization under the provisions of Section 368(a)(1)(D) and Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"); WHEREAS, each of the Transfer and Internal Distribution is being carried out for business reasons of Transferor and Transferee, including cost savings and a reduction in the regulatory compliance burdens of the Business; and WHEREAS, concurrently with the execution and delivery of this Agreement, Transferor has executed and delivered an agreement with Conectiv Energy Supply, Inc., a Delaware corporation ("CESI"), pursuant to which Transferor has agreed to assign, and CESI has agreed to accept, all of Transferor's right, title and interest in, to and under all of its fuel, energy and capacity supply and purchase agreements relating to the Transferred Assets (as defined herein). 7 NOW THEREFORE, in consideration of the foregoing and the mutual covenants representations, warranties and agreements set forth herein and intending to be legally bound hereby, the Parties hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following capitalized terms have the meanings specified in this Section 1.1. (1) "Access Agreements" means the agreements between Transferor and Transferee to be delivered at the Closing, substantially in the form of Exhibit A hereto, pursuant to which Transferor will provide Transferee and Transferee will provide Transferor, with access rights with respect to certain of the Transferred Assets and real property used in connection with such Transferred Assets. (2) "Additional Agreements" means the Interconnection Agreement, the Access Agreements, the Assignment and Assumption Agreement and the Cumberland Lease. (3) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Exchange Act, provided that for the purposes of this Agreement, each of Transferor and Transferee shall not be considered an Affiliate of the other. (4) "Agreement" means this Asset Transfer Agreement together with the Schedules and Exhibits hereto. (5) "Assignment and Assumption Agreement" means the assignment and assumption agreement between Transferor and Transferee, to be delivered at the Closing, substantially in the form of Exhibit B hereto, pursuant to which Transferor shall assign the Transferor Agreements, certain intangible assets and certain other Transferred Assets to Transferee, and Transferee shall accept such assignment and assume the Assumed Liabilities. (6) "Assumed Liabilities" has the meaning set forth in Section 2.3. (7) "Benefit Plans" means all deferred compensation, profit-sharing, retirement and pension plans, and all material bonus, fringe benefit and other employee benefit plans, maintained or with respect to which contributions are made or have been made by Transferor for the benefit of any Transferred Employee prior to the Closing. 8 (8) "Business" has the meaning set forth in the preamble to this Agreement. (9) "Business Day" means any day other than Saturday, Sunday and any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. (10) "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended from time to time. (11) "Closing" has the meaning set forth in Section 3.1. (12) "Closing Date" has the meaning set forth in Section 3.1. (13) "COBRA" means Sections 601 through 608 of ERISA and Section 4980B of the Code. (14) "Code" has the meaning set forth in the preamble to this Agreement. (15) "Commercially Reasonable Efforts" means efforts which are reasonably within the contemplation of the Parties at the time of entering into this Agreement and which do not require the performing Party to expend funds other than expenditures which are customary and reasonable in transactions of the kind and nature contemplated by this Agreement in order for the performing Party to satisfy its obligations hereunder. (16) "Courts" has the meaning set forth in Section 10.9. (17) "Cumberland Lease" means the lease agreement, dated as of the Closing Date, substantially in the form of Exhibit C hereto, pursuant to which Transferor, as lessor, has agreed to lease the real property described on Schedule 1.1(17), to Transferee, as lessee, subject to the terms and conditions set forth therein. (18) "Direct Claim" has the meaning set forth in Section 8.2(c). (19) "Discrete Emission Reduction" means a unit of air emission reductions generated over a finite period of time in accordance with N.J.A.C. 7:27-30.1, et seq. (20) "Easements" means, collectively, all easements, licenses, rights of way and other access rights to be granted by Transferor to Transferee and by Transferee to Transferor, pursuant to the Access Agreements and the easements, licenses, rights of way and other access rights reserved by Transferor in the Cumberland Lease, including such as authorize access, use, maintenance, construction, repair, replacement and other activities by Transferor or Transferee, 9 or otherwise necessary for Transferor or Transferee to operate their respective businesses or fulfill applicable legal requirements. (21) "Emission Allowances" means Emission Reduction Credits, Discrete Emission Reductions, NO(x) Allowances and SO(2) Allowances owned by Transferor or credited to accounts maintained by or on behalf of Transferor. (22) "Emission Reduction Credits" means credits, in units that are established by the Governmental Authority with jurisdiction over the relevant Site that has obtained the credits, resulting from reductions in the emissions of air pollutants from an emitting source or facility (including and to the extent allowable under applicable Law, reductions resulting from shutdowns or control of emissions beyond that required by applicable Law) that have been certified by any applicable Governmental Authority as complying with the Law and regulations governing the establishment of such credits (including certification that such emissions reductions are enforceable, permanent, quantifiable and surplus), including air emissions reductions as described above that have been approved by the applicable Governmental Authority and are awaiting USEPA approval. The term also includes certified air emissions reductions, as described above, regardless as to whether the Governmental Authority certifying such reductions designates such certified air emissions reductions by a name other than "emission reduction credits." The term also includes "Creditable Emission Reductions," as defined by N.J.A.C. 7:27-18.1, but does not include "Discrete Emission Reductions" which are defined elsewhere in this Agreement. (23) "Encumbrances" means any and all mortgages, pledges, liens, claims, security interests, agreements, easements, activity and use limitations, restrictions, defects of title or encumbrances of any kind. (24) "Environmental Claims" has the meaning set forth in Section 8.1(c). (25) "Environmental Condition" means the presence or Release to the environment, whether at the Sites or otherwise, of Hazardous Substances, including any migration of Hazardous Substances through air, soil or groundwater at, to or from the Sites or at, to or from any Off-Site Location, regardless of when such presence or Release occurred or is discovered. (26) "Environmental Laws" means all (a) Laws, in each case, as amended from time to time, relating to pollution or protection of the environment, natural resources or human health and safety, including Laws relating to Releases or threatened Releases of Hazardous Substances or otherwise relating to the manufacture, formulation, generation, processing, distribution, use, treatment, storage, Release, transport, Remediation, abatement, cleanup or handling of Hazardous Substances, (b) Laws with regard to recordkeeping, notification, disclosure and 10 reporting requirements respecting Hazardous Substances and (c) Laws relating to the management or use of natural resources. (27) "Environmental Permits" means all permits, certificates, licenses and authorizations of all Governmental Authorities under Environmental Laws. (28) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (29) "ERISA Affiliate" has the meaning set forth in Section 2.4(i). (30) "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(i). (31) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. (32) "Excluded Assets" has the meaning set forth in Section 2.2. (33) "Excluded Liabilities" has the meaning set forth in Section 2.4. (34) "Facilities" means the generators and generation stations set forth on Schedule 1.1(34). (35) "Fuel Inventories" means coal, oil, tire-derived fuel and other fuel inventories which are located at or in transit to the Facilities solely relating to the operation of the Transferred Assets. (36) "Governmental Authority" means any executive, legislative, judicial, regulatory or administrative agency, body, commission, department, board, court, tribunal, arbitrating body or authority of the United States or any foreign country, or any state, local or other governmental subdivision thereof. (37) "Hazardous Substances" means (a) any petrochemical or petroleum products, oil or coal ash, radioactive materials, radon gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid which may contain polychlorinated biphenyls, (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "hazardous constituents," "restricted hazardous materials," "extremely hazardous substances," "toxic substances," "contaminants," "pollutants," "toxic pollutants" or words of similar meaning and regulatory effect under any applicable Environmental Law and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law. 11 (38) "IBEW 210" means Local Union 210 of the International Brotherhood of Electrical Workers. (39) "IBEW Collective Bargaining Agreement" means the Number 30 Agreement between Transferor and IBEW 210 effective December 10, 1995 through December 12, 1999, as amended and supplemented from time to time. (40) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a). (41) "Indemnifying Party" has the meaning set forth in Section 8.1(e). (42) "Indemnitee" has the meaning set forth in Section 8.1(f). (43) "Independent Accounting Firm" means such nationally recognized, independent accounting firm as is mutually appointed by the Parties for purposes of this Agreement. (44) "Intellectual Property" means all patents, trademarks, trade names, service marks, brands, logos, copyrights, licenses, trade secrets, customer lists and other proprietary intellectual property rights required for, used in or incident to the Business or owned or held by Transferor. (45) "Interconnection Agreement" means the interconnection agreement, between Transferor and Transferee, to be delivered at the Closing, substantially in the form of Exhibit D hereto. (46) "Internal Distribution" has the meaning set forth in the preamble to this Agreement. (47) "Inventories" means, together, the Fuel Inventories and the Non-Fuel Inventories. (48) "ISRA" means the New Jersey Industrial Site Recovery Act, N.J.S.A. 13:1K-6, et seq. (49) "Knowledge" means the actual knowledge of the directors and executive officers of the specified Person, which directors and executive officers are charged with responsibility for the particular function as of the date of this Agreement, or, with respect to any certificate delivered pursuant to this Agreement, the date of delivery of such certificate. (50) "Laws" means all laws, statutes, rules, regulations and ordinances of any Governmental Authority. (51) "MAAC" means the Mid-Atlantic Area Council. 12 (52) "NJDEP" means the New Jersey Department of Environmental Protection, and any successor agency thereto. (53) "Non-Fuel" means limestone, materials, spare parts, capital spare parts and consumable supplies inventories which are located at or in transit to the Facilities solely relating to the operation of the Transferred Assets. (54) "NO(x)" means oxides of nitrogen. (55) "NO(x) Budget Program" means Nitrogen Oxides Budget Program, which is a statutory or regulatory program promulgated by the United States or a state pursuant to which the United States or state provides for a limit on the oxides of nitrogen that can be emitted by all sources covered by the program and establishes allowances or authorizations, which in total are equal to the amount of oxides of nitrogen allowed by the limit, where each allowance or authorization represents a "right" to emit a unit of oxides of nitrogen, as the means for ensuring compliance with the limit. (56) "NO(x) Emission Allowance" means (a) an authorization by the NJDEP under its NOx Budget Program authorizing the emission of one ton of NO(x) during the ozone season, as such season is defined by the NJDEP or (b) an authorization by the USEPA under any future NO(x) Budget Program promulgated by the USEPA, including, but not limited to, any future program implemented in lieu of a state NO(x) Budget Program, authorizing the emission of one ton of NO(x) during the ozone season, as such season is defined by the USEPA. (57) "Off-Site Location" means any real property other than the Sites. (58) "Party" and "Parties" have the respective meanings set forth in the preamble to this Agreement. (59) "Permitted Encumbrances" means: (a) the Easements; (b) those exceptions to title to the Transferred Assets listed on Schedule 1.1(59); (c) statutory liens for Taxes or other charges or assessments of Governmental Authorities not yet due or delinquent, or which are being contested in good faith by appropriate proceedings; (d) mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business; (e) zoning, entitlement, conservation restriction and other land use and environmental regulations by Governmental Authorities; and (f) such Encumbrances as (i) do not materially detract from the value of the Transferred Assets, taken as a whole, as currently used, or materially interfere with the present use of the Transferred Assets, taken as a whole, or (ii) would not, individually or in the aggregate, have an Transferor Material Adverse Effect. 13 (60) "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, other business association or Governmental Authority. (61) "PJM" means the Pennsylvania-New Jersey-Maryland Power Pool, as established and administered by Pennsylvania-New Jersey-Maryland Interconnection L.L.C. (62) "PJM Agreement" means the Operating Agreement dated June 2, 1997 of Pennsylvania-New Jersey-Maryland Interconnection L.L.C., as amended from time to time. (63) "Real Property" means the real property underlying the Facilities, as more particularly set forth on Schedule 1.1(63). (64) "Related Transfer Agreements" means, collectively, (i) that certain Asset Transfer Agreement, dated as of the date hereof, entered into by Delmarva Power & Light Company, a Delaware and Virginia corporation ("DP&L"), and Conectiv Delmarva Generation, Inc., a Delaware corporation ("CDG"), (ii) that certain Pipeline Transfer Agreement, dated as of the date hereof, entered into by DP&L and CDG and (iii) that certain Assignment and Assumption Agreement (Fuel Inventories), dated as of the date hereof, entered into by DP&L and CESI. (65) "Release" means any release, spill, leak, discharge, disposal of, pumping, pouring, emitting, emptying, injecting, leaching, dumping or allowing to escape into or through the environment. (66) "Remediation" means an action of any kind to address an Environmental Condition or a Release of Hazardous Substances or the presence of Hazardous Substances at the Sites or an Off-Site Location, including the following activities to the extent they relate to, result from or arise out of the presence of a Hazardous Substance at the Sites or an Off-Site Location: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (b) obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct any such activity; (c) preparing and implementing any plans or studies for any such activity; (d) obtaining a written notice from a Governmental Authority with jurisdiction over the Sites or an Off-Site Location under Environmental Laws that no material additional work is required by such Governmental Authority; (e) the use, implementation, application, installation, operation or maintenance of removal actions on the Sites or an Off-Site Location, remedial technologies applied to the surface or subsurface soils, excavation and treatment or disposal of soils at an Off-Site Location, systems for long-term treatment of surface water or groundwater, engineering controls or institutional controls; and (f) any other activities reasonably determined by a Party to be necessary or appropriate or required under Environmental Laws to address an Environmental 14 Condition or a Release of Hazardous Substances or the presence of Hazardous Substances at the Sites or an Off-Site Location. (67) "Representatives" of a Person means, collectively, such Person's directors, officers, partners, members, employees, representatives, agents and advisors (including accountants, legal counsel, environmental consultants, engineering consultants and financial advisors). (68) "SEC" means the United States Securities and Exchange Commission, and any successor agency thereto. (69) "Securities Act" means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. (70) "Sites" means the Real Property forming a part, or used or usable in connection with the operation, of the Transferred Assets, including any real property used for the disposal of solid or hazardous waste that is included in the Real Property. Any reference to the Sites shall include the surface and subsurface elements, to the extent owned by or subject to any interest of Transferor, including the soil and groundwater present at the Sites, and any reference to materials or conditions "at the Sites," including Hazardous Substances and Environmental Conditions, shall include all materials and conditions "at, on, in, upon, over, across, under or within" the Sites. (71) "SO(2)" means sulfur dioxide. (72) "SO(2) Allowance" means an authorization by the Administrator of the USEPA under the Clean Air Act, 42 U.S.C. Section 7401, et seq., to emit one ton of sulfur dioxide during or after a specified calendar year. (73) "Subsidiary", when used in reference to any Person, means any entity of which outstanding securities or interests having ordinary voting power to elect a majority of the board of directors or other governing body performing similar functions of such entity are owned directly or indirectly by such Person. (74) "Tangible Personal Property" has the meaning set forth in Section 2.1(a). (75) "Tax" or "Taxes" means all taxes, charges, fees, levies, penalties and other assessments imposed by any Governmental Authority responsible for the imposition of any tax, including income, gross receipts, excise, property, sales, transfer, use, franchise, payroll, withholding, social security and other taxes, together with any interest, penalties or additions attributable thereto. 15 (76) "Third-Party Claim" has the meaning set forth in Section 8.2(a). (77) "Third-Party Claim Notice" has the meaning set forth in Section 8.2(a). (78) "Transfer" has the meaning set forth in the preamble to this Agreement. (79) "Transferable Permits" means those Permits and Environmental Permits (and all applications pertaining thereto) which are transferable under applicable Laws by Transferor to Transferee (with or without a filing with, notice to, consent or approval of any Governmental Authority), as set forth on Schedule 1.1(79). (80) "Transferee" has the meaning set forth in the preamble to this Agreement. (81) "Transferee Change of Control" means any transaction or series of related transactions the result of which is that Transferee shall cease to be a wholly owned subsidiary of either of (i) Conectiv, a Delaware corporation, or (ii) any wholly owned subsidiary of Conectiv. (82) "Transferee Indemnitee" has the meaning set forth in Section 8.1(b). (83) "Transferee Material Adverse Effect" has the meaning set forth in Section 5.3(a). (84) "Transferee Required Regulatory Approvals" has the meaning set forth in Section 5.3(b). (85) "Transferor" has the meaning set forth in the preamble to this Agreement. (86) "Transferor Agreements" means, the contracts, agreements, arrangements, licenses, leases and warranties set forth on Schedule 1.1(86). (87) "Transferor Indemnitee" has the meaning set forth in Section 8.1(a). (88) "Transferor Material Adverse Effect" means any change in or effect on the Transferred Assets or the operation of the Transferred Assets after the date hereof that is materially adverse to the operation or condition (financial or otherwise) of the Transferred Assets, taken as a whole, other than (i) any change or effect affecting the international, national, regional or local electric industry as a whole and not specific and exclusive to the Transferred Assets, (ii) any change or effect resulting from changes in the international, national, regional or local wholesale or retail markets for electricity, including any change in or effect on the structure, operating agreements, operations or procedures of Pennsylvania-New Jersey-Maryland Interconnection L.L.C. or its control area, (iii) any change or effect resulting from changes in the international, national, regional or local markets for any fuel used at the Transferred Assets, (iv) 16 any change or effect resulting from changes in the North American, national, regional or local electricity transmission systems or operations thereof, (v) changes in Law, or any judgments, orders or decrees that apply generally to similarly situated Persons, (vi) any condition imposed on any Party or the Transferred Assets by a Governmental Authority in connection with the grant of such Governmental Authority's consent or approval of the transactions contemplated hereby and by the Additional Agreements and (vii) any change or effect to the extent constituting or involving an Excluded Asset or an Excluded Liability. (89) "Transferor Required Regulatory Approvals" has the meaning set forth in Section 4.3(b). (90) "Transferred Assets" has the meaning set forth in Section 2.1. (91) "Transferred Employee Records" means all records of Transferor or that relate to Transferred Employees, including records that pertain to: (i) skill and development training, (ii) seniority histories, (iii) salary and benefit information, (iv) Occupational, Safety and Health Administration reports and (v) active medical restriction forms. (92) "Transferred Employees" has the meaning set forth in Section 6.4(a). (93) "USEPA" means the United States Environmental Protection Agency, and any successor agency thereto. 1.2 Certain Interpretive Matters. In this Agreement, unless the context otherwise requires, the singular words include the plural, the masculine includes the feminine and neuter, and vice versa. In this Agreement, the term "includes" or "including" shall be deemed followed by the words "including without limitation." References herein to a section, article, Exhibit or Schedule mean a section, article, Exhibit or Schedule of this Agreement, and reference to a given agreement or instrument constitutes a reference to that agreement or instrument as modified, amended, supplemented and restated through the date as of which such reference is made. 1.3 U.S. Dollars. When used herein, the term "dollars" and the symbol "$" refer to the lawful currency of the United States of America. ARTICLE II CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES 2.1 Contribution of Transferred Assets. Upon the terms set forth in this Agreement, at the Closing, Transferor shall assign, convey, transfer and deliver to Transferee, and Transferee shall assume and acquire from Transferor, free and clear of all Encumbrances, except for the 17 Permitted Encumbrances, all of Transferor's right, title and interest in, to and under the following assets and properties, except as otherwise provided in Section 2.2, each as of the Closing Date (collectively, the "Transferred Assets"): (a) Machinery, equipment, vehicles, furniture and related personal property located on the Real Property on the Closing Date, including certain electrical generation and transmission facilities (as opposed to generation facilities) and vehicles set forth on Schedule 2.1(a), (collectively, "Tangible Personal Property"); (b) The Inventories; (c) Subject to the receipt of necessary consents and approvals, the Transferor Agreements; (d) Subject to the receipt of necessary consents and approvals, the Transferable Permits; (e) The Transferred Employee Records; (f) All rights, claims and benefits of Transferor in, to or under all insurance policies maintained by or for the benefit of Transferor with respect to the Transferred Assets; and (g) All books, operating records, operating, safety and maintenance manuals, engineering design plans, blueprints and as-built plans, specifications, procedures and similar items relating specifically to the Transferred Assets (subject to the right of Transferor to retain copies of same for its use). 2.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement shall constitute or be construed as requiring Transferor to assign, convey, transfer or deliver, and Transferee shall not be entitled to acquire, any right, title or interest in, to or under any properties, assets, business, operation or division of Transferor, not set forth in Section 2.1, including the following assets and properties which are hereby specifically excluded from the definition of Transferred Assets (collectively, the "Excluded Assets"): (a) The right, title and interest of Transferor and its successors, assigns, Affiliates and Representatives in, to and under all electrical transmission or distribution facilities (as opposed to generation facilities) of Transferor located at or forming a part of any of the Transferred Assets (whether or not regarded as a "transmission" or "generation" asset for regulatory or accounting purposes), including all switchyard facilities, substation facilities and support equipment, as well as all permits, contracts and warranties, to the extent they relate to such transmission and distribution assets (other than the electrical transmission facilities 18 identified on Schedule 2.1(a), all of which are included as Transferred Assets) (collectively, the "Transmission Assets"); (b) The Real Property; (c) The right, title and interest of Transferor and its successors, assigns, Affiliates and Representatives in, to and under certain switches and meters, gas facilities, revenue meters and remote testing units, drainage pipes and systems, pumping equipment and associated piping, in each case, located at or forming a part of the Transferred Assets, as identified in the Access Agreements; (d) All certificates of deposit, shares of stock, securities, bonds, debentures, evidences of indebtedness, and interests in joint ventures, partnerships, limited liability companies and other entities; (e) All cash, cash equivalents, bank deposits, accounts and notes receivable (trade or otherwise), prepaid expenses relating to the operation of the Transferred Assets and any income, sales, payroll or other receivables (in each case, whether held by Transferor or any third party); (f) The right, title and interest of Transferor and its successors, assigns, Affiliates and Representatives in, to and under all Intellectual Property, including the names "Atlantic City Electric Company", "ACE", or any derivation thereof, as well as any related or similar name, or any other trade names, trademarks, service marks, corporate names and logos, or any part, derivation, colorable imitation or combination thereof; (g) The right, title and interest of Transferor and its successors, assigns, Affiliates and Representatives in, to and under all contracts, agreements, arrangements, licenses, tariffs and leases of any nature, to which Transferor or its Representatives is a party, including tariffs, contracts, agreements and arrangements for the purchase or sale of electric capacity or energy, or for the purchase of transmission, distribution or ancillary services or for the purchase or procurement of Fuel Inventories; (h) The rights of Transferor and its successors, assigns, Affiliates and Representatives in, to and under all causes of action against third parties relating to any Transferred Asset, if any, whether accruing prior to, on or after the Closing Date, including all claims for refunds, prepayments, offsets, recoupment, insurance proceeds, insurance distributions, dividends or other proceeds, condemnation awards, judgments and the like, whether received as payment or credit against future liabilities, in each case, relating to any period prior to the Closing Date; 19 (i) All Tax refunds or credits relating to the ownership, lease, maintenance or operation of the Transferred Assets, which refunds or credits are with respect to periods prior to the Closing Date, whether directly or indirectly, regardless of when actually paid; (j) All employment agreements and personnel records of Transferor and its successors, assigns and Representatives, other than Transferred Employee Records; (k) The minute books, stock transfer books, corporate seal and other corporate records of Transferor and its successors, assigns and Representatives; (l) The right, title and interest of Transferor and its successors, assigns, Affiliates and Representatives in, to and under all Emission Allowances; and (m) The right, title and interest of Transferor and its successors, assigns and Representatives under this Agreement and the Additional Agreements. 2.3 Assumed Liabilities. On the Closing Date, Transferee shall assume and agree to pay, perform and otherwise discharge, without recourse to Transferor, all of the liabilities and obligations of Transferor and its successors, assigns or Representatives, direct or indirect, known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, which relate, directly or indirectly, to the Transferred Assets, other than Excluded Liabilities (collectively, the "Assumed Liabilities"), including the following such liabilities and obligations: (a) All liabilities and obligations of Transferor under the Transferor Agreements and the Transferable Permits in accordance with the terms thereof; (b) All liabilities and obligations of Transferor in respect of Taxes for which Transferee is liable pursuant to Section 3.2 or 6.3; (c) All liabilities and obligations of Transferor which relate to the Transferred Employees for which Transferee is responsible on or after the Closing Date pursuant to Section 6.4; provided that nothing set forth in this Section 2.3(c) shall require Transferee to assume any liabilities or obligations that are specifically excluded pursuant to Sections 2.4(i), 2.4(j) or 2.4(k); (d) All liabilities and obligations of Transferor arising under or relating to Environmental Laws or relating to any claim in respect of Environmental Conditions or Hazardous Substances, whether based on common law or Environmental Laws, whether relating to the Sites or any Off-Site Location, relating to conditions, occurrences, actions or omissions occurring on or after the Closing Date, including (i) any violation or alleged violation of Environmental Laws on or after the Closing Date with respect to the ownership, lease, maintenance or operation of any of the Transferred Assets, including any fines or penalties that arise in connection with the ownership, lease, maintenance or operation of the Transferred Assets on or after the Closing Date and the costs associated with correcting any such violations; (ii) any 20 bodily injury, loss of life, property damage, or natural resource damage that arises on or after the Closing Date caused (or allegedly caused) by any Environmental Condition created, or the Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Transferred Assets, on or after the Closing Date; (iii) any Remediation of any Environmental Condition created or Hazardous Substances that are Released on or after the Closing Date at, on, in, under, adjacent to or migrating from, the Transferred Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to the Transferred Assets; (iv) any bodily injury, loss of life, property damage, or natural resource damage arising from the storage, transportation, treatment, disposal, discharge, recycling or Release, at any Off-Site Location, or arising from the arrangement for such activities, on or after the Closing Date, of Hazardous Substances generated in connection with the ownership, lease, maintenance or operation of the Transferred Assets; and (v) any Remediation of any Environmental Condition or Release of Hazardous Substances arising from the storage, transportation, treatment, disposal, discharge, recycling or Release, at any Off-Site Location, or arising from the arrangement for such activities, on or after the Closing Date, of Hazardous Substances generated in connection with the ownership, lease, maintenance or operation of the Transferred Assets; provided that nothing set forth in this Section 2.3(d) shall require Transferee to assume any liabilities or obligations that are specifically excluded pursuant to Sections 2.4; (e) In addition to the Assumed Liabilities set forth in Section 2.3(d), from and after the earlier to occur of (i) a Transferee Change of Control and (ii) the sale by Transferee of all or substanitally all of the Transferred Assets or any of the Real Property to any Person other than Conectiv or any wholly owned subsidiary of Conectiv, Transferee shall assume all liabilities and obligations of Transferor arising under or relating to Environmental Laws or relating to any claim in respect of Environmental Conditions or Hazardous Substances, whether based on common law or Environmental Laws, whether relating to the Sites or any Off-Site Location, relating to conditions occurrences, actions or omissions occuring prior to the Closing Date, including (i) any violation or alleged violation of Environmental Laws prior to the Closing Date with respect to the ownership, lease, maintenance or operation of any of such Transferred Assets, including any fines or penalties that arise in connection with the ownership, lease, maintenance or operation of such Transferred Assets prior to the Closing Date and the costs associated with correcting any such violations; (ii) any bodily injury, loss of life, property damage, or natural resource damage caused (or allegedly caused) by any Environmental Condition or the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from such Transferred Assets prior to the Closing Date and (iii) any Remediation of any Environmental Condition or Hazardous Substances that are present or have been Released prior to the Closing Date at, on, in, under, adjacent to or migrating from, such Transferred Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to such Transferred Assets, it being understood that the liabilties set forth in this Section 2.3(e) shall, from and after the first such occurrence shall be Assumed Liabilities and shall cease to be Excluded Liabilities pursuant to Section 2.4(h); and 21 (f) For purposes of clarification, Transferee acknowledges that it shall assume and be fully responsible for holding in its accounts sufficient SO(2) Allowances and NO(x) Allowances to cover emissions of SO(2) and NO(x) from all of the Sites for all of the calendar year in which the Closing occurs, including the period of such year prior to the Closing Date, to the extent such requirements apply to the Transferred Assets. 2.4 Excluded Liabilities. Transferee shall not assume or be obligated to pay, perform or otherwise discharge the following liabilities or obligations of Transferor (the "Excluded Liabilities"): (a) Any liabilities or obligations of Transferor in respect of any Excluded Assets, except to the extent caused by the acts or omissions of Transferee or its Representatives or Transferee's ownership, lease, maintenance or operation of the Transferred Assets; (b) Any liabilities or obligations of Transferor arising from the breach prior to the Closing Date by Transferor of any of the Transferor Agreements; (c) Any and all asserted or unasserted liabilities or obligations to third parties for personal injury or tort, or similar causes of action arising solely out of the ownership, lease, maintenance or operation of the Transferred Assets prior to the Closing Date, other than the liabilities or obligations assumed by Transferee under Section 2.3; (d) Any payment obligations of Transferor for goods delivered or services rendered prior to the Closing Date, other than the liabilities or obligations assumed by Transferee under Section 2.3; (e) Any liability or obligation under or related to Environmental Laws or common law, whether such liability or obligation is known or unknown, contingent or accrued, arising as a result of or in connection with the ownership, lease, maintenance or operation by Transferor of the Transmission Assets prior to, on or after the Closing Date, except to the extent caused by the acts or omissions of Transferee or its Representatives or Transferee's ownership, lease, maintenance or operation of the Transferred Assets; (f) Any liability under or related to Environmental Laws or common law arising as a result of or in connection with bodily injury, loss of life, property damage or natural resource damage (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) caused (or allegedly caused) by the disposal, storage, transportation, discharge, migration of, Release or recycling of Hazardous Substances at an Off-Site Location, or the arrangement for such activities, prior to the Closing Date, in connection with the ownership, lease, maintenance or operation of the Transferred Assets, provided that, for purposes of this Section, "Off-Site Location" does not 22 include any location to which Hazardous Substances disposed of or Released at or from the Transferred Assets have migrated; (g) Any liability under or related to Environmental Laws or common law arising as a result of or in connection with the Remediation (whether or not such Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are disposed, stored, transported, discharged, migrating from, Released, recycled, or the arrangement of such activities, in connection with the ownership, lease, maintenance or operation of the Transferred Assets, at any Off-Site Location, prior to the Closing Date; provided that, for purposes of this Section, "Off-Site Location" does not include any location to which Hazardous Substances disposed of or Released at or from the Transferred Assets have migrated; (h) Subject to Section 2.3(e), all liabilities and obligations of Transferor arising under or relating to Environmental Laws or relating to any claim in respect of Environmental Conditions or Hazardous Substances, whether based on common law or Environmental Laws, whether relating to the Sites or any Off-Site Location, relating to conditions occurrences, actions or omissions occuring prior to the Closing Date, including (i) any violation or alleged violation of Environmental Laws prior to the Closing Date with respect to the ownership, lease, maintenance or operation of any of the Transferred Assets, including any fines or penalties that arise in connection with the ownership, lease, maintenance or operation of the Transferred Assets prior to the Closing Date and the costs associated with correcting any such violations; (ii) any bodily injury, loss of life, property damage, or natural resource damage caused (or allegedly caused) by any Environmental Condition or the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Transferred Assets prior to the Closing Date and (iii) any Remediation of any Environmental Condition or Hazardous Substances that are present or have been Released prior to the Closing Date at, on, in, under, adjacent to or migrating from, the Transferred Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to the Transferred Assets, it being understood that from and after the earlier to occur of (i) a Transferee Change of Control and (ii) the sale by Transferee of all or substanitally all of the Transferred Assets or any of the Real Property to any Person other than Conectiv or any wholly owned subsidiary of Conectiv, the liabilties set forth in this Section 2.4(h) shall be Assumed Liabilities pursuant to Section 2.3(e) and shall cease to be Excluded Liabilities pursuant to this Section 2.4(h); (i) Any liabilities or obligations relating to any Benefit Plan maintained by Transferor or any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with Transferor under Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which Transferor and any ERISA Affiliate contributed thereunder (the "ERISA Affiliate Plans"), maintained by, contributed to, or obligated to contribute to, by Transferor or any ERISA Affiliate, including any 23 liability (i) to the Pension Benefit Guaranty Corporation under Title IV of ERISA; or (ii) with respect to any noncompliance by Transferor with ERISA or any other applicable laws, but not including any liabilities or obligations assumed by Transferee pursuant to Section 6.4; (j) Any liabilities or obligations relating to the employment or termination of employment, including, workmens compensation, discrimination, wrongful discharge, unfair labor practices, or constructive termination by Transferor of any individual, attributable to any actions or inactions by Transferor prior to the Closing Date other than such actions or inactions taken at the direction of Transferee; and (k) Any obligation to provide continuation coverage under COBRA (and notice of the right to elect such coverage) to Transferred Employees, employees associated with the Transferred Assets who do not become Transferred Employees (and their dependents or former dependents), and former dependents of Transferred Employees who became eligible for continuation coverage under COBRA on account of a "qualifying event" (as defined under COBRA) occurring before the Closing Date (but not including any liabilities or obligations assumed by Transferee pursuant to Section 6.4). 2.5 Control of Litigation. The Parties agree and acknowledge that Transferor shall be entitled exclusively to control, defend and settle any suit, action or proceeding, and any investigation, in each case, involving any third party and arising out of or relating to any Excluded Assets or Excluded Liabilities, and Transferee shall cooperate fully with Transferor in connection therewith. ARTICLE III THE CLOSING 3.1 Closing. The assignment, conveyance, transfer and delivery of the Transferred Assets by Transferor to Transferee, and the assumption and acquisition by Transferee of the Transferred Assets and the Assumed Liabilities, and the consummation of the other transactions contemplated hereby, shall take place at a closing (the "Closing") to be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, One Rodney Square, Wilmington, Delaware, at 10:00 a.m. local time on the first business day after the date on which all of the conditions precedent to the Closing set forth in Article VII shall have been satisfied or, to the extent permitted by applicable Law, waived by the Party for whose benefit such conditions precedent exist, or at such other time and location as may be agreed upon in writing by the Parties. The date on which the Closing actually occurs is hereinafter called the "Closing Date." The Closing shall be effective for all purposes as of 12:01 a.m., New York City time, on the Closing Date. 3.2 Prorations. 24 (a) Transferor and Transferee agree that, except as otherwise provided in this Agreement, all of the items customarily prorated relating to the ownership, lease, maintenance or operation of the Transferred Assets, including those listed below, shall be prorated as of the Closing Date, with Transferor liable to the extent such items relate to any period prior to the Closing Date, and Transferee liable to the extent such items relate to any period on or after the Closing Date (measured in the same units used to compute the item in question, otherwise measured by calendar days): (i) Personal property, real property, occupancy and other similar Taxes, if any, imposed on or with respect to the ownership or lease of the Transferred Assets for a taxable period that begins before and ends after the Closing Date; (ii) Rent, Taxes and all other items (including prepaid services and goods not included in Inventory), in each case, payable by or to Transferor under any of the Transferor Agreements; (iii) Any permit, license, registration, compliance assurance fees or other fees with respect to any Transferable Permit; (iv) Sewer rents and charges for water, telephone, electricity and other utilities; (v) Insurance premiums paid on or with respect to the ownership, lease, maintenance or operation of the Transferred Assets to the extent payable under any policy or other arrangement included among the Transferor Agreements; and (vi) Prepaid operating and maintenance expenses. (b) Transferor or Transferee, as the case may be, shall promptly reimburse the other Party or Parties that portion of any amount paid by such other Party or Parties to the extent relating to the period for which Transferor or Transferee, as the case may be, is liable under Section 3.2(a), in each case, upon presentation of a statement setting forth in reasonable detail the nature and amount of any such payment. In connection with the prorations set forth in Section 3.2(a), if actual figures are not available on the Closing Date, the proration shall be calculated based upon the respective amounts accrued through the Closing Date or paid for the most recent year or other appropriate period for which such amounts paid are available. All prorated amounts shall be recalculated and paid to the appropriate Party within sixty (60) days after the date that the previously unavailable actual figures become available. Transferor and Transferee shall furnish each other with such documents and other records as may be reasonably requested in order to confirm all proration calculations made pursuant to this Section 3.2. Notwithstanding anything to the contrary herein, no proration shall be made under this Section 25 3.2 with respect to (i) Tax refunds that are Excluded Assets under Section 2.2(i) or (ii) Taxes payable by Transferee pursuant to Section 6.3. 3.3 Deliveries by Transferor. At the Closing, Transferor shall deliver, or cause to be delivered, the following to Transferee: (a) The Assignment and Assumption Agreement, duly executed by Transferor; (b) The Interconnection Agreement, duly executed by Transferor; (c) The Access Agreements, duly executed by Transferor and in recordable form; (d) The Cumberland Lease, duly executed by Transferor and in recordable form; (e) Copies, certified by the Secretary or Assistant Secretary of Transferor, of resolutions authorizing the execution and delivery of this Agreement, each Additional Agreement to which Transferor is a party and all of the other agreements and instruments, in each case, to be executed and delivered by Transferor in connection herewith; (f) A certificate of the Secretary or Assistant Secretary of Transferor identifying the name and title and bearing the signatures of the officers of Transferor authorized to execute and deliver this Agreement, each Additional Agreement to which Transferor is a party and the other agreements and instruments contemplated hereby; (g) All such other agreements, documents, instruments and writings as shall, in the reasonable opinion of Transferee and its counsel, be necessary to sell, assign, convey, transfer and deliver to Transferee the Transferred Assets, in accordance with this Agreement and, where necessary or desirable, in recordable form; and (h) Such other agreements, documents, instruments and writings as are required to be delivered by Transferor at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required by Transferee in connection herewith. 3.4 Deliveries by Transferee. At the Closing, Transferee shall deliver, or cause to be delivered, the following to Transferor: (a) The Assignment and Assumption Agreement, duly executed by Transferee; 26 (b) The Interconnection Agreement, duly executed by Transferee; (c) The Access Agreements, duly executed by Transferee; (d) The Cumberland Lease, duly executed by Transferee and in recordable form; (e) A copy, certified by the Secretary or Assistant Secretary of Transferee, of resolutions authorizing the execution and delivery of this Agreement, each Additional Agreement and all of the agreements and instruments, in each case, to be executed and delivered by Transferee in connection herewith; (f) A certificate of the Secretary or Assistant Secretary of Transferee identifying the name and title and bearing the signatures of the officers of Transferee authorized to execute and deliver this Agreement, each Additional Agreement to which Transferee is a party and the other agreements contemplated hereby; (g) All such other permits, agreements, documents, instruments and writings as shall, in the reasonable opinion of Transferor and its counsel, be necessary for Transferee to acquire the Transferred Assets, and to assume the Assumed Liabilities, in each case, in accordance with this Agreement and, where necessary or desirable, in recordable form; and (h) Such other permits, agreements, documents, instruments and writings as are required to be delivered by Transferee at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required by Transferor in connection herewith. 3.5 Relationship of this Agreement and Related Transfer Agreements. The transactions contemplated by this Agreement, together with the transactions contemplated by the Related Transfer Agreements, are intended by the Parties to be consummated substantially simultaneously; and if any of the transactions contemplated hereby or by any of the Related Transfer Agreements are not consummated simultaneously on the Closing Date in accordance with the terms and subject to the conditions set forth herein and therein, as applicable, then each Party shall take, or cause to be taken, all actions, and do, or cause to be done, all things, in each case, that are necessary to dissolve and invalidate all transactions contemplated hereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TRANSFEROR Except as set forth in any filing made prior to the date of this Agreement by Transferor with the SEC pursuant to the Securities Act or the Exchange Act, Transferor hereby represents 27 and warrants to Transferee as follows (all such representations and warranties, except those set forth in Sections 4.1 and 4.2, being made to the Knowledge of Transferor): 4.1 Organization; Qualification. Transferor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New Jersey and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. Transferor is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which its business as now being conducted requires it to be so qualified, except to the extent that the failure to be so qualified would not, individually or in the aggregate, have an Transferor Material Adverse Effect. 4.2 Authority. Transferor has full corporate power and authority to execute and deliver this Agreement and each Additional Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Transferor of this Agreement and each Additional Agreement to which it is a party and the consummation by Transferor of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action required on the part of Transferor. This Agreement has been duly and validly executed and delivered by Transferor and this Agreement constitutes, and upon the execution and delivery by Transferor of each Additional Agreement to which it is a party, each such Additional Agreement will constitute, the legal, valid and binding obligation of Transferor, enforceable against Transferor in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar Laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 4.3 Consents and Approvals; No Violation. (a) Except as set forth on Schedule 4.3(a), subject to obtaining or making all Transferor Required Regulatory Approvals, neither the execution and delivery by Transferor of this Agreement or the Additional Agreements to which it is a party nor the consummation by Transferor of the transactions contemplated hereby or thereby will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of Transferor; (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Transferor is a party or by which it, or any of the Transferred Assets, may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite consents, approvals or waivers have been, or will be prior to the Closing obtained, or which would not, individually or in the aggregate, have a Transferor Material Adverse Effect; or (iii) constitute violations of any Law, order, judgment or decree applicable to Transferor, which violations, individually or in the aggregate, would have a Transferor Material Adverse Effect. 28 (b) Except for consents, approvals, filings and notices set forth on Schedule 4.3(b) (such consents, approvals, filings and notices are collectively referred to herein as the "Transferor Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery by Transferor of this Agreement and the Additional Agreements to which it is a party or the consummation by Transferor of the transactions contemplated hereby or thereby, other than (i) such consents, approvals, filings and notices which, if not obtained or made, would not materially impair Transferor's ability to perform its material obligations under this Agreement or such Additional Agreements; (ii) such consents, approvals, filings and notices which become applicable to Transferor or the Transferred Assets as a result of the status of Transferee or as a result of any other facts that specifically relate to the business or activities in which Transferee is or proposes to be engaged; and (iii) such consents, approvals, filings and notices, the failure of which to obtain or make would not, individually or in the aggregate, have a Transferor Material Adverse Effect. 4.4 Title and Related Matters. Transferor has good and valid title to all Transferred Assets, free and clear of all Encumbrances, except for Permitted Encumbrances. 4.5 Legal Proceedings. Except as set forth on Schedule 4.5, there are no suits, actions or proceedings pending or, to the Knowledge of Transferor, threatened against Transferor by or before any Governmental Authority, which, if adversely determined, would, individually or in the aggregate, have a Transferor Material Adverse Effect or would materially impair Transferor's ability to consummate the transactions contemplated hereby or by any Additional Agreement to which it is a party. Except as set forth on Schedule 4.5, Transferor is not subject to any judgment, order or decree of any Governmental Authority which would, individually or in the aggregate, have a Transferor Material Adverse Effect or would materially impair Transferor's ability to consummate the transactions contemplated hereby or by any Additional Agreement to which it is a party. ARTICLE V REPRESENTATIONS AND WARRANTIES OF TRANSFEREE Transferee hereby represents and warrants to Transferor as follows (all such representations and warranties, except those set forth in Sections 5.1 and 5.2, being made to the Knowledge of Transferee): 5.1 Organization; Qualification. Transferee is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own, lease and operate its properties and to carry on its 29 business as it is now being conducted. Transferee is duly qualified to do business and is in good standing under the laws of each jurisdiction in which its business as now being conducted requires it to be so qualified, except to the extent that the failure to be so qualified would not, individually or in the aggregate, have a Transferee Material Adverse Effect. 5.2 Authority. Transferee has full power and authority to execute and deliver this Agreement and each Additional Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and each such Additional Agreement by Transferee and the consummation by Transferee of the transactions contemplated hereby or thereby have been duly and validly authorized by all necessary action required on the part of Transferee. This Agreement has been duly and validly executed and delivered by Transferee and, subject to the receipt of the Transferee Required Regulatory Approvals, this Agreement constitutes, and upon the execution and delivery by Transferee of each Additional Agreement to which it is a party, each such Additional Agreement will constitute, the legal, valid and binding obligation of Transferee, enforceable against Transferee in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar Laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 5.3 Consents and Approvals; No Violation. (a) Except as set forth on Schedule 5.3(a), and subject to obtaining or making all Transferee Required Regulatory Approvals, neither the execution and delivery by Transferee of this Agreement or the Additional Agreements to which it is a party nor the consummation by Transferee of the transactions contemplated hereby or thereby will (i) conflict with or result in any breach of any provision of the certificate of formation or operating agreement (or other similar governing documents) of Transferee or any of its Subsidiaries; (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Transferee or any of its Subsidiaries is a party or by which Transferee, any such Subsidiary or any of their respective properties and assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite consents, approvals or waivers have been or will be prior to the Closing obtained, or which would not, individually or in the aggregate, materially impair Transferee's ability to consummate the transactions contemplated hereby or by any Additional Agreement, or to perform its material obligations hereunder or thereunder (a "Transferee Material Adverse Effect"); or (iii) constitute violations of any Law, order, judgment or decree applicable to Transferee or any of its Subsidiaries, which violations, individually or in the aggregate, would have a Transferee Material Adverse Effect. 30 (b) Except for consents, approvals, filings and notices set forth on Schedule 5.3(b) (such consents, approvals, filings and notices are collectively referred to herein as the "Transferee Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery by Transferee of this Agreement and the Additional Agreements to which it is a party or the consummation by Transferee of the transactions contemplated hereby or thereby, other than such consents, approvals, filings or notices, which, if not obtained or made, would not have a Transferee Material Adverse Effect. 5.4 Legal Proceedings. There are no suits, actions or proceedings pending or threatened against Transferee by or before any Governmental Authority which, if adversely determined, would, individually or in the aggregate, have a Transferee Material Adverse Effect or would materially impair such Transferee's ability to consummate the transactions contemplated hereby or by any Additional Agreement to which it is a party. Transferee is not subject to any judgments, orders or decrees of any Governmental Authority which would, individually or in the aggregate, have a Transferee Material Adverse Effect or would materially impair such Transferee's ability to consummate the transactions contemplated hereby or by any Additional Agreement to which it is a party. ARTICLE VI COVENANTS 6.1 Conduct of Business Relating to the Transferred Assets. Except as contemplated by this Agreement or any Additional Agreement or to the extent Transferee otherwise consents in writing, during the period from the date of this Agreement to the Closing Date, Transferor shall operate the Transferred Assets in the ordinary course of business consistent with the past practices of Transferor and shall use all Commercially Reasonable Efforts to preserve intact the Transferred Assets, and endeavor to preserve the goodwill and relationships with customers, vendors, suppliers, employees and others having business dealings with it in connection with the Transferred Assets. 6.2 Books and Records. For a period of seven (7) years from and after the Closing Date, each of Transferor and Transferee and their respective Representatives shall have reasonable access to all of the books and records of the Transferred Assets, including, to the extent permitted by Applicable Law, all Transferred Employee Records, in the possession of the other Party to the extent that such access may reasonably be required by such Party in connection with the Assumed Liabilities or the Excluded Liabilities, or other matters relating to or affected by the operation of the Transferred Assets or the Excluded Assets. Such access shall be afforded by the Party in possession of any such books and records upon receipt of reasonable advance notice and during normal business hours. The Party exercising this right of access shall be solely 31 responsible for any costs or expenses incurred by it or the other Party with respect to such access pursuant to this Section 6.2. If the Party in possession of such books and records shall desire to dispose of any books and records upon or prior to the expiration of such seven-year period, such Party shall, prior to such disposition, give the other Party a reasonable opportunity, at such other Party's cost and expense, to segregate and remove such books and records as such other Party may select. 6.3 Transfer Taxes. All transfer, use, stamp, sales and similar Taxes incurred in connection with this Agreement and the Additional Agreements, and the transactions contemplated hereby and thereby (including, if any, (i) sales Tax imposed by New Jersey on the transfer of the Transferred Assets and (ii) transfer Tax imposed by New Jersey on conveyances of interests in real property included in the Transferred Assets), shall be borne by Transferee and, to the extent paid by Transferor, Transferee shall reimburse Transferor upon request. 6.4 Employees. (a) From and after the Closing Date, the employees of Transferor set forth on Schedule 6.4(a) shall be employees of Transferee (the "Transferred Employees"). Transferee shall employ the Transferred Employees subject to the same terms and conditions, including terms and conditions relating to annual compensation, bonus and other incentive opportunities, to which each such Transferred Employee was subject immediately prior to the Closing. (b) Transferee shall, at the Closing, adopt the Benefit Plans set forth on Schedule 6.4(b) as the benefit plans to be maintained by Transferee for the benefit of the Transferred Employees from and after the Closing. Each Transferred Employee shall continue to be covered by, participate in, and receive the benefits under each such Benefit Plan to the same extent each such Transferred Employee was covered by, participated in and received the benefits under each such Benefit Plan immediately prior to the Closing. In furtherance and not in limitation of the foregoing, each Transferred Employee shall receive from Transferee full credit for service with Transferor and its Affiliates for eligibility, vesting and benefits entitlement purposes. (c) Transferee shall use its best efforts to take, or cause to be taken, all actions, or to do, or cause to be done, all things necessary, proper or advisable with respect to the IBEW Collective Bargaining Agreement, in each case as Transferor shall reasonably request, including becoming a party to or otherwise agreeing to be bound by the IBEW Collective Bargaining Agreement. Transferred Employees covered by the IBEW Collective Bargaining Agreement shall retain their seniority and receive full credit for service with Transferor and its Affiliates in connection with entitlement to vacation and all other benefits and rights under the IBEW Collective Bargaining Agreement to which seniority or years of service are applicable. On the Closing Date, Transferee shall assume the IBEW Collective Bargaining Agreement for the duration of its term as it relates to Transferred Employees and other employees to be 32 employed by Transferee or its Affiliates in positions covered by the IBEW Collective Bargaining Agreement, and Transferee shall comply with all applicable obligations under the IBEW Collective Bargaining Agreement. Transferee shall, for the duration of the IBEW Collective Bargaining Agreement, recognize the IBEW 210 as the collective bargaining agent for the Transferred Employees in positions covered by the IBEW Collective Bargaining Agreement. 6.5 Qualification of Transferee under PUHCA. From and after the Closing, Transferor shall use its Commercially Reasonable Efforts as reasonably requested by Transferee from time to time in order to enable Transferee to qualify as an "exempt wholesale generator" under the Public Utility Holding Company of 1935, as amended from time to time. 6.6 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of Transferor and Transferee shall use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate and make effective the transfer of the Transferred Assets pursuant to this Agreement and the assumption of the Assumed Liabilities, including using its reasonable best efforts to ensure satisfaction of the conditions precedent to each of Transferor's and Transferee's obligations hereunder, including obtaining all necessary consents, approvals and authorizations of, and making all required notices or filings with, third parties required to be obtained or made in order to consummate the transactions hereunder, including the transfer of the Transferable Permits to Transferee. Transferor shall cooperate with Transferee in its efforts to obtain all other permits and Environmental Permits necessary for Transferee to operate the Transferred Assets. Transferee shall perform all conditions required of Transferee in connection with obtaining the Transferor Required Regulatory Approvals. Neither Transferor nor Transferee shall, without prior written consent of the other, take or fail to take any action which might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. (b) Without limiting the generality of Section 6.6(a): (i) In the event that any Transferred Asset shall not have been conveyed to Transferee at the Closing, Transferor shall, subject to Section 6.6(b)(ii), use Commercially Reasonable Efforts after the Closing to convey such asset to Transferee as promptly as practicable. (ii) To the extent that Transferor's rights under any material Transferor Agreement may not be assigned without the consent, approval or authorization of any third party which consent, approval or authorization has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign such right if an attempted assignment would constitute a breach of such Transferor Agreement or violate any applicable Law. If any 33 consent, approval or authorization to the assignment of any material Transferor Agreement shall not be obtained, or if any attempted assignment would be ineffective or would impair Transferee's rights and obligations under such Transferor Agreement, such that Transferee would not acquire and assume the benefit and detriment of all such rights and obligations, Transferor, at its option and to the fullest extent permitted by applicable Law and such Transferor Agreement, shall, after the Closing Date, appoint Transferee to be Transferor's agent with respect to such Transferor Agreement, or, to the fullest extent permitted by applicable Law and such Transferor Agreement, enter into such reasonable arrangements with Transferee or take such other actions as are necessary to provide Transferee with the same or substantially similar rights and obligations under such Transferor Agreement. 6.7 Consents and Approvals. Without limiting the generality of Section 6.6(a), as promptly as practicable after the date of this Agreement, Transferor and Transferee shall take, or cause to be taken, all actions, and do, or cause to be done, all things necessary, proper or advisable under applicable Laws to obtain all required consents and approvals of all other Governmental Authorities, and make all other filings and give all other notices required to be made prior to the Closing with respect to the transactions contemplated hereby and by the Additional Agreements. 6.8 PJM; MAAC. From and after the Closing Date, Transferee shall use Commercially Reasonable Efforts to obtain membership in PJM and MAAC, and shall submit to the governance of the independent system operator established and administered under the PJM Agreement. 6.9 Reimbursement of Certain Metering Expenses. From and after the Closing, Transferee shall (i) reimburse Transferor for reasonable amounts expended by Transferor prior to the later to occur of (a) September 30, 2001 and (b) the date which is seventeen months after the Closing Date, in connection with the installation, renovation or improvement of revenue quality meters and related equipment up to an aggregate amount of $1.35 million and (ii) cooperate with Transferor as fully as reasonably possible in order to facilitate Transferor's installation, renovation or improvement of revenue quality meters and related equipment. ARTICLE VII CONDITIONS 7.1 Conditions to Obligation of Transferee. The obligation of Transferee to effect the transactions contemplated by this Agreement shall be subject to the satisfaction (or the waiver, to the extent permitted by applicable Law, by Transferee) at or prior to the Closing of the following conditions: (a) No preliminary or permanent injunction, order or decree by any Governmental Authority which prevents the consummation of the transactions contemplated 34 hereby or by the Additional Agreements shall have been issued and remain in effect (Transferee agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted), and no applicable Law shall be in effect which prohibits the consummation of the transactions contemplated hereby or thereby; (b) Transferee shall have obtained the Transferee Required Regulatory Approvals set forth on Schedule 5.3(b), in form and substance reasonably satisfactory to Transferee (including any adverse conditions therein); and such Transferee Required Regulatory Approvals shall be final and nonappealable; (c) Transferor shall have in all material respects performed and complied with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Transferor on or prior to the Closing Date; (d) (i) The representations and warranties of Transferor set forth in this Agreement that are qualified by reference to Transferor Material Adverse Effect shall be true and correct in all respects and (ii) the representations and warranties of Transferor set forth in this Agreement that are not so qualified shall be true and correct in all material respects, in each case, as of the Closing Date as though made at and as of the Closing Date (other than representations and warranties that are made as of a specific date which shall have been true and correct as of such date); (e) Transferee shall have received a certificate from an authorized officer of Transferor, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Sections 7.1(c) and (d) have been satisfied by Transferor; and (f) The Related Transfer Agreements shall be in full force and effect and the valid and binding obligation of each party thereto; and all conditions to the obligations of all parties to the Related Transfer Agreements to consummate the transactions contemplated thereby shall have been satisfied or, to the extent permitted by applicable Law, waived. 7.2 Conditions to Obligation of Transferor. The obligation of Transferor to effect the transactions contemplated by this Agreement shall be subject to the satisfaction (or the waiver, to the extent permitted by applicable Law, by Transferor) at or prior to the Closing of the following conditions: (a) No preliminary or permanent injunction or other order or decree by any Governmental Authority which prevents the consummation of the transactions contemplated hereby or by the Additional Agreements shall have been issued and remain in effect (Transferor agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted), and no applicable Law shall be in effect which prohibits the consummation of the transactions contemplated hereby or thereby; 35 (b) Transferor shall have obtained the Transferor Required Regulatory Approvals set forth on Schedule 4.3(b), in form and substance reasonably satisfactory to Transferor (including any adverse conditions therein) and all conditions to effectiveness prescribed therein or otherwise by Law shall have been satisfied in all material respects; and such Transferor Required Regulatory Approvals shall be final and nonappealable; (c) Transferee shall have in all material respects performed and complied with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Transferee on or prior to the Closing Date; (d) (i) The representations and warranties of Transferee set forth in this Agreement that are qualified by reference to Transferee Material Adverse Effect shall be true and correct in all respects and (ii) the representations and warranties of Transferee that are not so qualified shall be true and correct in all material respects, in each case, as of the Closing Date as though made at and as of the Closing Date (other than representations and warranties that are made as of a specific date which shall have been true and correct as of such date); (e) Transferor shall have received a certificate from an authorized officer of Transferee, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Sections 7.2(c) and (d) have been satisfied by Transferee; and (f) The Related Transfer Agreements shall be in full force and effect and the valid and binding obligation of each party thereto; and all conditions to the obligations of all parties to the Related Transfer Agreements to consummate the transactions contemplated thereby shall have been satisfied or, to the extent permitted by applicable Law, waived. ARTICLE VIII INDEMNIFICATION 8.1 Indemnification By Transferor and Transferee. (a) From and after the Closing Date, Transferee shall indemnify, defend and hold harmless Transferor and its Representatives (each, a "Transferor Indemnitee"), from and against any and all claims, demands, suits, losses, liabilities, penalties, damages, obligations, payments, costs and expenses (including reasonable attorneys' fees and expenses in connection therewith) (each, an "Indemnifiable Loss"), asserted against or suffered by any Transferor Indemnitee relating to, resulting from or arising out of (i) any breach by Transferee of any covenant or agreement of Transferee set forth in this Agreement, (ii) the Assumed Liabilities or (iii) any Third-Party Claim against any Transferor Indemnitee in connection with Transferee's ownership, lease, maintenance or operation of any of the Transferred Assets on or after the 36 Closing Date (other than to the extent such Third-Party Claim constitutes an Excluded Liability); provided, however, that Transferee shall be liable to Transferor pursuant to clause (i) of this Section 8.1(a) only for Indemnifiable Losses for which any Transferor Indemnitee gives written notice to Transferee (setting forth with reasonable specificity the nature and amount of the Indemnifiable Loss) during the period for which such covenant or agreement survives the Closing in accordance with Section 10.5. (b) From and after the Closing, Transferor shall indemnify, defend and hold harmless Transferee and its Representatives (each, a "Transferee Indemnitee"), from and against any and all Indemnifiable Losses asserted against or suffered by any Transferee Indemnitee relating to, resulting from or arising out of (i) any breach by Transferor of any covenant or agreement of Transferor set forth in this Agreement or (ii) the Excluded Liabilities; provided, however, that Transferor shall be liable pursuant to clause (i) of this Section 8.1(b) only for Indemnifiable Losses for which any Transferee Indemnitee gives written notice to Transferor (setting forth with reasonable specificity the nature and amount of the Indemnifiable Loss) during the period for which such covenants or agreements survive the Closing in accordance with Section 10.5. (c) In furtherance and not in limitation of the provisions set forth in Section 8.1(a), Transferee, for itself and on behalf of its Representatives, hereby irrevocably releases, holds harmless and forever discharges Transferor from any and all Indemnifiable Losses of any kind or character, whether known or unknown, contingent or accrued, arising under or relating to Environmental Laws, or relating to any claim in respect of any Environmental Condition or Hazardous Substance, whether based on common law or Environmental Laws relating to the Transferred Assets, other than those liabilities and obligations which have been retained by Transferor hereunder (collectively, "Environmental Claims"). In furtherance of the foregoing, Transferee, for itself and on behalf of its Representatives, hereby irrevocably waives any and all rights and benefits with respect to such Environmental Claims that it now has, or in the future may have conferred upon it by virtue of any Law or common law principle, which provides that a general release does not extend to claims which a party does not know or suspect to exist in its favor at the time of executing the release, if knowledge of such claims would have materially affected such party's settlement with the obligor. In this connection, Transferee hereby acknowledges that it is aware that factual matters now unknown to it may have given, or hereafter may give, rise to Environmental Claims that are presently unknown, unanticipated and unsuspected, and Transferee further agrees that this release set forth in this Section 8.1(c) has been negotiated and agreed upon in light of that awareness, and Transferee, for itself and on behalf of its Representatives, nevertheless hereby intends irrevocably to release, hold harmless and forever discharge Transferor from all such Environmental Claims. (d) The rights and remedies of Transferor and Transferee set forth in this Article VIII are exclusive and in lieu of any and all other rights and remedies which Transferor and Transferee may have under this Agreement, under applicable Law, whether at common law 37 or in equity, including for declaratory, injunctive or monetary relief, in each case, with respect to any Indemnifiable Loss. (e) Notwithstanding anything to the contrary herein, no Person (including an Indemnitee) shall be entitled to recover from any other Person (including any Party hereto required to provide indemnification under this Agreement (an "Indemnifying Party")) any amount in excess of the actual compensatory damages, court costs and reasonable attorneys' fees suffered by such party. Transferee and Transferor hereby irrevocably waive any right to recover punitive, special, exemplary and consequential damages arising in connection with or with respect to this Agreement (other than with respect to indemnification for a Third-Party Claim). (f) Any Transferor Indemnitee or Transferee Indemnitee (each, an "Indemnitee") shall use Commercially Reasonable Efforts to mitigate all losses, damages and the like relating to a claim under the indemnification provisions in this Section 8.1, including availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity. For purposes of this Section 8.1(f), such Indemnitee's Commercially Reasonable Efforts shall include the reasonable expenditure of money to mitigate or otherwise reduce or eliminate any loss or expenses for which indemnification would otherwise be due, and, in addition to its other obligations hereunder, the Indemnifying Party shall reimburse the Indemnitee for its reasonable expenditures in undertaking the mitigation. 8.2 Defense of Claims. (a) If any Indemnitee receives notice of the assertion of any claim or of the commencement of any suit, action or proceeding made or brought by any Person who is not an Indemnitee (a "Third-Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying Party reasonably prompt written notice thereof (a "Third-Party Claim Notice"), but in no event later than ten (10) Business Days after the Indemnitee's receipt of notice of such Third-Party Claim. Such notice shall describe the nature of the Third-Party Claim in reasonable detail and shall indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be incurred by the Indemnitee. The Indemnifying Party shall have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third-Party Claim at such Indemnifying Party's expense and by such Indemnifying Party's own counsel. If within twenty (20) Business Days after receipt of the Third-Party Claim Notice, an Indemnifying Party fails to give written notice to the Indemnitee of its election to assume the defense of such Third-Party Claim, then the Indemnitee may defend, compromise or settle such Third-Party Claim with counsel selected by it, provided that, without the prior written consent of the Indemnifying Party, the Indemnitee shall not agree to the entry of any judgment with respect to, or any compromise or settlement of, such Third-Party Claim, which judgment, compromise or settlement does not include the unconditional release of the Indemnifying Party. 38 (b) If, within twenty (20) Business Days after an Indemnitee gives written notice to the Indemnifying Party of any Third-Party Claim, such Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third-Party Claim as provided in Section 8.2(a), then the Indemnifying Party shall not be liable for any costs, fees or expenses subsequently incurred by the Indemnitee in connection with the defense, compromise or settlement thereof. (c) Any claim by an Indemnitee on account of an Indemnifiable Loss which does not constitute a Third-Party Claim (a "Direct Claim") shall be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, in no event later than twenty (20) Business Days after the Indemnitee becomes aware of such Direct Claim, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, of such Indemnifiable Loss and the Indemnifying Party shall have a period of twenty (20) Business Days within which to respond to such Direct Claim. If the Indemnifying Party fails to respond during such twenty (20) Business Day period, the Indemnifying Party shall be deemed to have accepted such claim and, subject to this Article VIII, shall promptly reimburse the Indemnitee for the Indemnifiable Losses set forth in the Indemnitee's notice. (d) A failure to give timely notice as provided in this Section 8.2 shall not affect the rights or obligations of any Party hereunder except to the extent that, as a result of such failure, the Party which was entitled to receive such notice was actually prejudiced as a result of such failure. ARTICLE IX TERMINATION 9.1 Termination. (a) This Agreement may be terminated at any time prior to the Closing by mutual written consent of the Parties. (b) This Agreement may be terminated by Transferor, on the one hand, or Transferee, on the other hand, upon written notice to the other Party, (i) at any time prior to the Closing if any court of competent jurisdiction shall have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Closing, and such order, judgment or decree shall have become final and nonappealable; (ii) at any time prior to the Closing if any Law shall have been enacted or issued by any Governmental Authority which, directly or indirectly, prohibits the consummation of the transactions contemplated by this Agreement or by any Additional Agreement; or (iii) at any time after July 31, 2000, if the Closing shall not have occurred on or before such date; provided, however, that the right to 39 terminate this Agreement under this Section 9.1(b) (iii) shall not be available to any Party whose breach of this Agreement has caused, or resulted in, the failure of the Closing to occur on or before such date. (c) This Agreement may be terminated by Transferee, upon written notice to Transferor, if any of Transferee Required Regulatory Approvals, the receipt of which is a condition to the obligation of Transferee to effect the transactions contemplated by this Agreement as set forth in Section 7.1(b), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied), and such denial was not caused by or the result of a breach of this Agreement by Transferee. (d) This Agreement may be terminated by Transferor, upon written notice to Transferee, if any of the Transferor Required Regulatory Approvals, the receipt of which is a condition to the obligation of Transferor to effect the transactions contemplated by this Agreement as set forth in Section 7.2(b), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied), and such denial was not caused by or the result of a breach of this Agreement by Transferor. 9.2 Effect of Termination. Upon termination of this Agreement prior to the Closing pursuant to Section 9.1, this Agreement shall be null and void and of no further force or effect (except that the provisions set forth in this Section 9.2 and Article X shall remain in full force and effect in accordance with their respective terms); and no Party shall have any further liability under this Agreement (other than for any wilful breach of its obligations hereunder). ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Amendment and Modification. Subject to applicable Law, this Agreement may be amended, supplemented or otherwise modified only by written agreement entered into by all Parties. 10.2 Expenses. Except to the extent provided herein, whether or not the transactions contemplated hereby are consummated, all costs, fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs, fees and expenses. 10.3 Bulk Sales Laws. Transferee hereby acknowledges that, notwithstanding anything in this Agreement to the contrary, Transferor will not comply with the provisions of the bulk sales laws of any jurisdiction in connection with the transactions contemplated by this Agreement; and Transferee hereby irrevocably waives compliance by Transferor with the provisions of the bulk sales laws of all applicable jurisdictions. 40 10.4 Waiver of Compliance; Consents. To the extent permitted by applicable Law, any failure of any of the Parties to comply with any covenant, agreement or condition set forth herein may be waived by the Party entitled to the benefit thereof only by a written instrument signed by such Party, but any such waiver shall not operate as a waiver of, or estoppel with respect to, any prior or subsequent failure to comply therewith. 10.5 No Survival. No representation or warranty contained in this Agreement shall survive the Closing. The covenants and agreements of the Parties contained in this Agreement shall survive the Closing in accordance with their respective terms. 10.6 Disclaimers. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE IV, THE TRANSFERRED ASSETS ARE TRANSFERRED "AS IS, WHERE IS", AND TRANSFEROR EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO TRANSFEROR AND THE TRANSFERRED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE IV: TRANSFEROR EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES REGARDING LIABILITIES, OWNERSHIP, LEASE, MAINTENANCE OR OPERATION OF THE TRANSFERRED ASSETS, THE TITLE, CONDITION, VALUE OR QUALITY OF THE TRANSFERRED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE TRANSFERRED ASSETS; AND TRANSFEROR EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE TRANSFERRED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL AUTHORITY, INCLUDING ANY ENVIRONMENTAL LAWS, OR WHETHER TRANSFEROR POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE TRANSFERRED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TRANSFEROR FURTHER EXPRESSLY DISCLAIMS ALL REPRESENTATIONS OR WARRANTIES REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE TRANSFERRED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TRANSFEROR EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES OF ANY KIND REGARDING THE CONDITION OF THE TRANSFERRED ASSETS OR THE SUITABILITY OF ANY OF THE TRANSFERRED ASSETS FOR OPERATION AS A POWER PLANT OR AS A FUEL PROCESSING FACILITY, AS APPLICABLE, AND NO 41 SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION PROVIDED, OR COMMUNICATIONS MADE, BY TRANSFEROR OR ITS REPRESENTATIVES, INCLUDING ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY SUCH REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE TRANSFERRED ASSETS. 10.7 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given on the day when delivered personally or by facsimile transmission (with confirmation), on the next Business Day when delivered to a nationally recognized overnight courier or five (5) Business Days after deposited as registered or certified mail (return receipt requested), in each case, postage prepaid, addressed to the recipient Party at its address set forth below (or at such other address or facsimile number for a Party as shall be specified by like notice; provided, however, that any notice of a change of address or facsimile number shall be effective only upon receipt thereof): (a) If to Transferor, to: Atlantic City Electric Company c/o Conectiv 800 King Street P.O. Box 231 Wilmington, Delaware 19899 Attention: President Facsimile: (302) 429-3367 (b) if to Transferee, to: Conectiv Atlantic Generation, LLC c/o Conectiv 800 King Street P.O. Box 231 Wilmington, Delaware 19899 Attention: President Facsimile: (302) 429-3367 10.8 Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, provided neither this Agreement nor any of the rights, interests, obligations or remedies hereunder shall be assigned by Transferor or Transferee, including by operation of law, without the prior written consent of the other Party; nor is this Agreement intended to confer upon any other Person any rights, interests, obligations or remedies hereunder. Without limiting the generality of the foregoing, no provision of this Agreement shall create any third-party beneficiary rights in any Employee or former employee 42 of Transferor (including any beneficiary or dependent thereof) in respect of continued employment or resumed employment, and no provision of this Agreement shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. Notwithstanding the foregoing, without the prior written consent of Transferee, Transferor may assign all of its rights, interests, obligations and remedies hereunder to any of its Affiliates; provided, however, that no such assignment shall relieve or discharge Transferor from any of its obligations hereunder. 10.9 Governing Law; Forum; Service of Process. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (without giving effect to conflicts of law principles) as to all matters, including validity, construction, effect, performance and remedies. Venue in any and all suits, actions and proceedings related to the subject matter of this Agreement shall be in the state and federal courts located in and for the State of Delaware (the "Courts"), which shall have exclusive jurisdiction for such purpose, and the Parties hereby irrevocably submit to the exclusive jurisdiction of such courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such suit, action or proceeding. Service of process may be made in any manner recognized by such Courts. Each of the Parties hereby irrevocably waives its right to a jury trial arising out of any dispute in connection with this Agreement or the transactions contemplated hereby. 10.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.11 Interpretation. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or construction of this Agreement. Ambiguities and uncertainties in the wording of this Agreement shall not be construed for or against any Party, but shall be construed in the manner that most accurately reflects the Parties' intent as of the date of this Agreement. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement, and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. 10.12 Schedules and Exhibits. Except as otherwise provided in this Agreement, all Exhibits and Schedules referred to herein are intended to be and hereby are made a part of this Agreement. 10.13 Entire Agreement. This Agreement (including the Schedules and Exhibits), embodies the entire agreement and understanding of the Parties hereto in respect of the transactions contemplated by this Agreement and the Additional Agreements and supersedes all 43 prior agreements and understandings between or among the Parties with respect to such transactions. There are no representations, warranties, covenants or agreements between or among the Parties with respect to the subject matter set forth in such agreements, other than those expressly set forth or referred to herein or therein. [SIGNATURE PAGE FOLLOWS] 44 IN WITNESS WHEREOF, Transferor and Transferee have caused this Asset Transfer Agreement to be duly executed and delivered by their respective duly authorized officers as of the date first above written. ATLANTIC CITY ELECTRIC COMPANY By: _____________________________________ Name: Title: CONECTIV ATLANTIC GENERATION, LLC By: ______________________________________ Name: Title: EX-99.D.2 4 0004.txt APPLICATION TO VASCC FOR AUTHORITY TO TRANSFER 1 Exhibit D-2 BEFORE THE COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION APPLICATION OF ) DELMARVA POWER & LIGHT COMPANY, ) CONECTIV DELMARVA GENERATION, INC., ) AND CONECTIV ENERGY SUPPLY, INC. FOR ) Case No. PUA________ APPROVAL OF TRANSACTIONS UNDER ) CHAPTERS 4 AND 5 OF TITLE 56 OF THE ) CODE OF VIRGINIA ) APPLICATION Delmarva Power & Light Company ("Delmarva" or the "Company"), Conectiv Delmarva Generation, Inc. ("CDG") and Conectiv Energy Supply, Inc. ("CESI") hereby respectfully seek such authority under Chapter 4 of Title 56 of the Code of Virginia (the "Affiliates Act" or the "Act") as may be required for the transfer to CDG and CESI of certain Delmarva generation assets and related inventory, property, licenses, permits, contract rights and obligations, as described in this Application. In addition, with respect to two peak-load power plants that are physically located in the Commonwealth, Delmarva requests approval under Chapter 5 of Title 56 of the Code of Virginia (the "Utility Transfers Act") for the transfer of such assets to CDG. These transactions are part of Delmarva's functional separation plan (the "Plan") for which Delmarva is seeking Commission approval under Chapter 23 of Title 56 of the Code of Virginia (the "Restructuring Act") in Case No. PUA000086. In support of this Application, Delmarva, CDG and CESI respectfully state: 2 I. PARTIES 1. Delmarva is a Delaware and Virginia corporation that provides electric service to approximately 21,500 retail customers and one wholesale customer in Virginia's two Eastern Shore counties. Delmarva's Virginia customers produce approximately 3% of Delmarva's annual electric revenues. Approximately 445,000 additional electric service customers are located in Delaware and Maryland. Delmarva also provides natural gas service to approximately 106,000 customers located in Delaware. In addition to its regulated utility services, Delmarva currently is in the competitive wholesale and retail energy marketing business, which it performs as Delmarva Power & Light Company doing business as Conectiv Energy. Delmarva is a wholly owned subsidiary of Conectiv, which is incorporated in Delaware and is a registered holding company under the federal Public Utility Holding Company Act of 1935. 2. Conectiv also owns, directly or indirectly 100% of the voting securities of several other companies, including CESI, which is a Delaware corporation that currently holds an authorization from the Federal Energy Regulatory Commission ("FERC") to engage in wholesale electric power transactions at market-based rates. Delmarva and CESI previously filed under the Affiliates Act to transfer to CESI certain "ISDA Master Agreements" that were executed for use in the competitive wholesale electric power markets between Delmarva and unrelated power marketers and brokers, Case No. PUA000006, which transfer was authorized by the Commission on March 13, 2000. CESI either has obtained or is in the process of obtaining state licenses to be a non-utility retail supplier of electricity and gas under various state programs where retail choice has been initiated. Once necessary consents to assignment are received from the third-parties who have executed the ISDA Master Agreements and regulatory approvals have been obtained to -2- 3 engage in the transactions described in the instant filing, Delmarva will become almost exclusively a provider of regulated utility services while CESI and CDG will be the entities performing competitive wholesale and retail energy marketing and electric power generation. 3. CDG is a Delaware corporation that is a wholly-owned subsidiary of Delmarva and currently owns no assets and has no business. 4. On February 4, 2000, Delmarva filed its Plan pursuant to the Restructuring Act and described its intent to sell many of its generation facilities to unrelated third parties and to transfer the remaining generation facilities to CDG. The February 4 filing also described a transactional structure by which the stock of CDG would be distributed by Delmarva to its parent, Conectiv, which would, in turn, contribute such stock to Conectiv Energy Holding Company ("CEH"). The end-result would be that the Delmarva generation facilities not sold to third parties would be owned through a corporate chain comprised of Conectiv, CEH and CDG. Delmarva would not own any securities of or have any of its securities owned by CEH or CDG. Delmarva would have no continued ownership interests in the transferred facilities.(1) 5. The transferred facilities would be the power plants and related assets of: the Edge Moor Station (DE), the Hay Road Station (DE), and the peaking units at Madison Street (DE), Christiana (DE), Delaware City (DE), West Substation (DE), Crisfield (MD), Bayview (VA), and Tasley (VA). The nameplate generating capacity of the two units located in Virginia are: Bayview (12 MW) and Tasley (27 MW). This Application is filed in conjunction with the Plan filed on February 4, 2000, and in supplement thereto, renewing the request for all necessary - -------- (1) As discussed more fully below, Delmarva, as a Delaware natural gas utility, will retain a 10% interest in a natural gas pipeline that was constructed primarily to provide natural gas to the Hay Road facility. The remaining 90% is currently recorded as electric -3- 4 approvals for the transfer of these assets and related rights and obligations. An executed Asset Transfer Agreement will be provided in a supplemental filing on or about May 1, 2000. 6. Related to the transfer of assets are ancillary assets, property, rights and obligations to be transferred. Transfers to CDG will include: environmental permits and emission allowances, operating licenses, zoning approvals, inventory (excluding fuel inventory), spare parts and equipment located on-site, insurance contracts associated with the power plant equipment, employment agreements, and payment obligations and a portion of the water rights in the Merrill Creek Reservoir that were obtained by Delmarva and unrelated joint owners to resupply water to the Delaware River Basin to permit the owners of power plants in the region to draw water from that Basin. The transfer of the Merrill Creek Reservoir rights and obligations will be pursuant to a sublease between Delmarva and CDG. An executed sublease will be provided in a supplemental filing to be made on or about May 1, 2000. Current Delmarva employees who work at the power plants will be transferred and their direct and indirect employee costs and benefits will be directly charged or allocated to CDG in accordance with Conectiv's cost accounting manual. Transfers to CESI will include fuel inventory, fuel contracts with third parties and transportation contracts with third-parties to deliver fuel. 7. In furtherance of Conectiv's corporate plan to separate utility and non-utility activities, but not directly related to the transfer of the power plant assets, Delmarva will also be transferring to CESI all power sales contracts that are made in price-deregulated markets and the related power purchase agreements with third-parties that support such sales contracts. The sales contracts include all wholesale electricity contracts made within and outside the Delmarva - -------------------------------------------------------------------------------- generation plant and would be transferred to CESI as ancillary to the Hay Road facility. -4- 5 peninsula, with two exceptions,(2) and competitive, non-utility retail sales contracts in the states of Pennsylvania, New Jersey, Delaware and Maryland.(3) The transfer of various rights and obligations described in this and the preceding paragraph will be through Assignment and Assumption Agreements. Executed Assignment and Assumption Agreements will be provided in a supplemental filing to be made on or about May 1, 2000. 8. Because the power plant sites also contain Delmarva substations and other transmission-related assets that will not be transferred to CDG, there will be access and easement agreements between Delmarva and CDG. Delmarva plans to retain the land associated with each of the peaking power plants and grant access and easement rights to CDG; however, with respect to the two larger facilities, Hay Road and Edge Moor, the land associated with those power plants will be transferred to CDG and CDG will grant access and easement rights to Delmarva. Executed Access and Easement Agreements will be provided in a supplemental filing to be made on or about May 1, 2000. - -------- (2) The City of Berlin (MD) and Town of Seaford (DE) are Delmarva's only wholesale contracts supplied pursuant to a FERC-filed tariff subject to cost-of-service ratemaking and a FERC-regulated fuel clause. These contracts will be retained by Delmarva until renegotiated or terminated by their terms in 2001 and 2003, respectively. (3) These contracts were executed by the legal entity Delmarva Power & Light Company under the trade name Conectiv Energy. Conectiv Energy provides competitive gas and electric supply to several thousand residential, commercial, industrial, and governmental customers, most of which are located in Pennsylvania and New Jersey. Utility assets (power plants, purchased power, purchased gas, interstate pipeline capacity rights) have not been used to support these competitive retail sales; instead, separate non-utility "portfolios" of supply have been obtained and maintained separate from utility supply so as to avoid any impact on regulated rates or concerns regarding potential cross-subsidization. The vast majority of these retail contracts expire within 12 months. In addition to the transfer of the retail contracts themselves, this Application requests approval of the transfer of the non-utility portfolios of supply. -5- 6 9. Because of its unique nature ancillary to the transfer of the Hay Road facility, one related asset and ancillary rights and obligations are appropriately described separately. When the first phases of the natural gas-fired Hay Road facility were constructed in Northern Delaware in 1987, the projected natural gas needs of that facility were such that a seven-mile, 24-inch natural gas pipeline was constructed from the Delaware-Pennsylvania border to the facility. That "Claymont-to-Wilmington" pipeline is used predominately to provide gas to the Hay Road facility, but also provides some fuel to the adjacent and dual-fuel capable Edge Moor facility and is used to a limited extent to support Delmarva's natural gas utility operations. Since its construction, and in light of the relative usage of the pipeline, 90% of the capital investment has been recorded as electric generation plant and 10% as natural gas utility plant. Because Hay Road and Edge Moor are being transferred to CDG, but Delmarva's natural gas utility operations still need access to this pipeline, Delmarva intends to transfer the 90% share that has historically been in electric utility plant to CDG. This approach would make CDG and Delmarva (the gas utility) co-owners of the Claymont-to- Wilmington pipeline and it minimizes the on-going transactions that would otherwise be necessary if either were to own the entire pipeline and provide scheduling, balancing, and transportation services to the other. Under the proposed transfer of the 90% interest, CDG would use its share of the pipeline to supply natural gas to the Hay Road and Edge Moor facilities and Delmarva would use its share of the pipeline to support gas utility operations. The only on-going relationship between CESI and Delmarva that would be necessary due to their joint ownership of the Claymont-Wilmington pipeline will be reflected in a Joint Ownership/O&M agreement (to be filed as a supplement hereto). Under that agreement, Delmarva will perform the routine maintenance that it currently performs and will charge CESI for 90% of the costs. Repairs or replacement costs, property taxes, and similar -6- 7 types of costs would be split 90%/10% as well. Applicants note that investment in the 90% share of the pipeline facilities was included in the data submitted with the Plan. Applicants further note that because the 10% retained by Delmarva will be reflected in gas operations, any associated costs will have no effect on Virginia's electric consumers. An executed Asset Transfer Agreement relating to this pipeline will be provided in a supplemental filing to be made on or about May 1, 2000. 10. Ancillary to the Claymont-to-Wilmington pipeline, is a long-term contract between Delmarva and Texas Eastern Transmission Corporation ("TETCO"). Under that contract, Delmarva has reserved 20,000 MMBtu of capacity in the TETCO's interstate pipeline system to deliver gas into the Claymont-to-Wilmington pipeline for electric generation use. The capacity rights and payment obligations associated with the 20,000 MMBtu of capacity under that contract with TETCO will be transferred to CESI.(4) 11. In addition to the power plants discussed above, Delmarva is contemplating the interim transfer of Delmarva's minority interests in the Keystone and Conemaugh power plants located in Pennsylvania from Delmarva to CDG prior to their sale to an unrelated entity, NRG Energy, Inc. ("NRG"). In the February 4 filing, these interests were identified as assets to be sold to NRG and a copy of the sales agreement was submitted. A prior transfer to CDG would facilitate a like-kind exchange, which would provide cash flow benefits to Conectiv in the form - -------- (4) The TETCO contract also includes 10,000 MMBtu of interstate pipeline capacity used for gas utility purposes. Most of this capacity is used by Delmarva to have gas delivered by TETCO to a Delmarva-owned gate station at the Pennsylvania-Delaware border, where gas pressure is reduced and injected into the low-pressure distribution system. When necessary, particularly for pressure maintenance in the southern portion of New Castle County, Delaware, some of that gas is injected into the Claymont-to-Wilmington high pressure line and redelivered into the distribution system at the terminus of that pipeline. -7- 8 of deferred federal income taxes relative to a direct sale to NRG of Delmarva's interests in the Keystone and Conemaugh power plants. While the sale to NRG would not be subject to the Affiliates Act and is expected as of September 1, 2000, or shortly thereafter, this Application requests Affiliate Act approvals with respect to a prior, interim transfer to CDG of Delmarva's Keystone and Conemaugh interests and any related rights and obligations. An executed Asset Transfer Agreement involving the Keystone and Conemaugh interests will be provided in a supplemental filing to be made on or about May 1, 2000. 12. With the exception of the Keystone and Conemaugh interests, each of the power plants to be transferred is located on the Delmarva peninsula and is interconnected with Delmarva's transmission and distribution systems. Interconnection Agreements, filed with and regulated by the FERC under the Federal Power Act, will be necessary between Delmarva and CDG for each power plant. To the extent that this Commission does not view FERC's jurisdiction under the Federal Power Act as preempting this Commission's jurisdiction under the Affiliates Act, Applicants request that the Commission approve the Interconnection Agreements, each of which will be in a similar form. Attachment 1 consists of Delmarva's filing with the FERC, which filing includes the Interconnection Agreement and numerous attachments detailing the demarcation between facilities to be transferred and those retained (the points of interconnection) and technical considerations involved with interconnection. 13. As a source in addition to the open-market that Delmarva could use to ensure that it has sufficient capacity and energy to meet the needs of its customers for which it has continued obligations to serve, Delmarva and CESI have entered into a Service Agreement for the sale and purchase of power. Attachment 2 is the FERC filing that Delmarva, CESI and CDG made with respect to this Service Agreement and related contracts between CDG and CESI and similar -8- 9 agreements not relevant here involving Delmarva's affiliated utility, Atlantic City Electric Company. Under this Service Agreement, CESI will be permitted to sell and Delmarva will be permitted to buy capacity and energy at a mutually agreeable price. The Service Agreement is a so-called "umbrella agreement" which specifies general terms and conditions that would be applicable to individual "transaction agreements" that would establish price, quantity, and duration of a particular transaction. Under the Plan, the prices paid under any of these transactions would have no effect on Virginia customers because base rates (which would include capacity charges) would be frozen and fuel rates (which would include energy charges) would be either frozen or set at the energy charges of an existing contract between Delmarva and PECO Energy Company. Even in the absence of the Plan, capacity charges would not be reflected in rates unless a new base rate case were filed and, with respect to energy charges, Delmarva, in its FERC filing, pledged that: 1) it would reflect in its fuel rates only the actual fuel costs incurred by CESI(5) and 2) it would not assert that Virginia's jurisdiction over such costs was preempted by the FERC. 14. The commitments made to the FERC, as described above, are restated and reaffirmed with respect to the instant Application. These commitments are of indefinite duration and would apply with respect to any future electric energy transactions between CESI and - -------- (5) The contracts between CESI and CDG call for CESI to procure fuel that is then used by CDG to produce electricity for CESI. This is known at the FERC as a "tolling agreement." The approach of tracking CESI's actual fuel costs for inclusion in Delmarva's fuel expense is expressly permitted by FERC regulations affecting wholesale fuel clauses, 18 C.F.R. Section 35.14(a)(2)(ii), and maintains the status quo. That is, if Delmarva were to continue to own these power plants, it would incur the same actual fuel costs that will be incurred by CESI and flowed through CESI to Delmarva. This also eliminates the need to monitor the actual sales prices between CDG, CESI and Delmarva -9- 10 Delmarva until such time as the Commission and FERC relieved Delmarva and CESI of such commitments. For example, even if Delmarva were to remain the "default supplier" under the Restructuring Act after 2007, the fuel costs that would be eligible to be flowed through Virginia fuel rates of any electric energy transactions made between Delmarva and CESI would be limited to CESI's own fuel costs. 15. To the extent that the Commission does not independently view its jurisdiction under the Affiliates Act to be preempted by the Federal Power Act and FERC's review of the Service Agreement, Applicants request approval by this Commission of the Service Agreement and any related transaction agreements. Because individual transactions under the "umbrella" agreement may be very short-term (even as short as one day), and because these individual transactions cannot affect the rates charged to Delmarva's Virginia customers at any time prior to June 30, 2007, Delmarva also requests that the Commission approve at this time any contracts of less than 1 year's duration that Delmarva may enter into between now and June 30, 2007. During this time and for any quarter in which there is a transaction between Delmarva and CESI, Delmarva will submit to the Commission a copy of the quarterly FERC report summarizing each transaction made in the prior quarter. 16. The proposed transactions are in furtherance of the overall restructuring Plan that was described in Delmarva's February 4 filing of its Plan and will benefit consumers as set forth in that filing. As described in greater detail therein, the Plan involves a series of base rate reductions tied to the planned divestiture of generation assets, including the planned transfer of the power plants identified above. The Plan also provides the benefit of rate stability for fuel - ---------------- because the sales prices are not used for fuel rate purposes, only actual fuel costs incurred by CESI. -10- 11 costs, which costs are not currently subject to the capped rates established by the Restructuring Act. By first freezing fuel rates (whenever any generation assets are sold or transferred) and then resetting fuel rates at a price equal to that of an existing contract between Delmarva and PECO Energy Company (when total divestiture of generation assets occurs), the Plan provides a greater level of rate stability than the status quo provides. 17. CESI's initial capitalization of $10,000 was provided by Delmarva. CESI's on-going capital requirements have been met by funds from operations or from Conectiv and have not been contributed by Delmarva. CDG's initial capitalization is minimal ($1,000) and was provided by Delmarva. As part of the Plan and as described herein, Delmarva will contribute the above-describe power plants and related assets and liabilities to CDG. After the distribution of CDG stock from Delmarva to Conectiv and then to CEH, Delmarva will have no further responsibility and will not be asked to make capital contributions to CDG. CDG will seek to finance its activities primarily with funds from operations and third-party financing raised either directly or by its parent company CEH. CEH will not obtain capital contributions from Delmarva. II. TRANSACTIONS BETWEEN DELMARVA, CDG AND CESI 1. Delmarva believes that the following transactions may require Commission approval under the Affiliates Act: (a) TRANSFER OF ASSETS AND RELATED RIGHTS AND OBLIGATIONS. As described above, and pursuant to the forms of Asset Transfer Agreements, Assignment and Assumption Agreements, the Access and Easement Agreements, and the Merrill Creek Sublease, Applicants are seeking Commission authorization for Delmarva to transfer several power plants and related -11- 12 inventories, permits, licenses, contracts, rights and obligations and an interest in a natural gas pipeline and the Merrill Creek Reservoir to CDG and to transfer fuel inventories, fuel and associated fuel transportation contracts to CESI. (b) INTERCONNECTION AGREEMENTS. As described above, each of the transferred power plants, except for the interests in Keystone and Conemaugh, will be interconnected with Delmarva's transmission and distribution system. To the extent the Commission does not believe it is pre-empted by federal action, Applicants are seeking Commission authorization with respect to the form of Interconnection Agreements between Delmarva and CDG. (c) SERVICE AGREEMENT AND RELATED SHORT-TERM TRANSACTION AGREEMENTS. As described above, CESI and Delmarva have entered into an umbrella Service Agreement which would allow Delmarva to purchase a portion of the capacity and energy that it may need to serve its Virginia customers and other customers for which it has a continued obligation to serve. To the extent the Commission does not believe it is pre-empted by federal action, Applicants are seeking Commission authorization with respect to the Service Agreement and any related transaction agreements of less than 1-years' duration between Delmarva and CESI with the restrictions and limitations on recovery in rates set forth above and with the reporting requirement described above. (d) ENERGY MARKETING TRANSFERS. As described above, Applicants are seeking Commission authorization to transfer wholesale and retail electric and gas sales contracts that have been executed in price-deregulated markets and the related portfolios of supply contracts used to support such sales. -12- 13 2. Delmarva believes that the transfer of the peaking units located at Bayview, Virginia, and Tasley, Virginia, may require approvals pursuant to the Utility Transfers Act, Va. Code Section 56-89. III. COMMISSION ACTION REQUESTED 1. The Affiliates Act provides for Commission approval of contracts or arrangements between public service companies and their affiliates for management, supervisory, construction, engineering, accounting, legal, financial, and other similar services and for the purchase, sale, lease or exchange of any property, right or thing. Va. Code Section 56-77. The Utility Transfers Act provides for Commission approval of the transfer of any utility generation asset located in Virginia. Va. Code Section 56-89. 2. Applicants ask that the transactions described above be approved to the extent the Commission deems such approval to be necessary. The transactions described above are a necessary part of the restructuring and functional divestiture of Delmarva's generation functions from its remaining utility operations. 3. Delmarva believes it is appropriate that the transactions described in this Application be approved because they reduce Delmarva's rates in Virginia relative to the status quo and do not result in any subsidization by, or negative impacts on, Delmarva's Virginia electric service customers. IV. REQUIRED INFORMATION The Transaction Summary attached hereto as Exhibit A contains the information required by the Affiliate Act guidelines previously issued by the Commission. The Transaction Summary -13- 14 attached hereto as Exhibit B contains the information required by the Utility Transfers Act guidelines previously issued by the Commission. V. PRAYER FOR RELIEF WHEREFORE, Delmarva Power & Light Company, Conectiv Delmarva Generation, Inc., and Conectiv Energy Supply, Inc. respectfully ask that: 1. The Commission determine whether the Affiliates Act and/or the Utility Transfers Act applies to any of the transactions described in this Application; 2. If either or both Acts are applicable to any of these transactions, that the Commission grant all necessary approvals for such transactions. Respectfully submitted, DELMARVA POWER & LIGHT COMPANY By: /s/ Barbara S. Graham ----------------------------------- Barbara S. Graham Senior Vice President CONECTIV DELMARVA GENERATION, INC. CONECTIV ENERGY SUPPLY, INC. By: /s/ Thomas S. Shaw ----------------------------------- Thomas S. Shaw Executive Vice President -14- 15 Peter F. Clark Randall V. Griffin Legal Department Delmarva Power & Light Company 800 King Street, P. O. Box 231 Wilmington, DE 19899 (302) 429-3069 Guy T. Tripp, III Hunton & Williams Riverfront Plaza--East Tower 951 East Byrd Street Richmond, VA 23219-4074 (804) 788-8328 Dated: April 10, 2000 -15- 16 STATE OF DELAWARE ) ) ss. COUNTY OF NEW CASTLE ) On this 10th day of April, 2000, personally came before me, the subscriber, a Notary Public in and for the state and county aforesaid, Barbara S. Graham, Senior Vice President of Delmarva Power & Light Company, a corporation existing under the laws of the State of Delaware and the Commonwealth of Virginia, party to this Application, known to me personally to be such, and acknowledged this Application to be her act and deed and the act and deed of Delmarva Power & Light Company, that the signature of such Senior Vice President is in her own proper handwriting, and that the facts set forth therein are true and correct to the best of her knowledge, information, and belief. /s/ Barbara S. Graham ----------------------------------- Barbara S. Graham SUBSCRIBED AND SWORN before me this 10th day of April, 2000. ----------------------------------- Notary Public My Commission Expires: ____/____/____ -16- 17 STATE OF DELAWARE ) ) ss. COUNTY OF NEW CASTLE ) On this 10th day of April, 2000, personally came before me, the subscriber, a Notary Public in and for the state and county aforesaid, Thomas S. Shaw, Executive Vice President of Conectiv Delmarva Generation, Inc. and Conectiv Energy Supply, Inc., each of which is a corporation existing under the laws of the State of Delaware, party to this Application, known to me personally to be such, and acknowledged this Application to be his act and deed and the act and deed of Conectiv Delmarva Generation, Inc. and Conectiv Energy Supply, Inc., that the signature of such Executive Vice President is in his own proper handwriting, and that the facts set forth therein are true and correct to the best of his knowledge, information, and belief. /s/ Thomas S. Shaw ----------------------------------- Thomas S. Shaw SUBSCRIBED AND SWORN before me this 10th day of April, 2000. ----------------------------------- Notary Public My Commission Expires: ____/____/____ -17- 18 EXHIBIT A TRANSACTION SUMMARY 19 EXHIBIT A BEFORE THE COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION APPLICATION OF ) DELMARVA POWER & LIGHT COMPANY, ) CONECTIV DELMARVA GENERATION, INC., ) Case No. PUA________ AND CONECTIV ENERGY SUPPLY, INC. FOR ) APPROVAL OF TRANSACTIONS UNDER CHAPTER ) 4 OF TITLE 56 OF THE CODE OF VIRGINIA ) TRANSACTION SUMMARY Delmarva Power & Light Company ("Delmarva" or the "Company") provides this Transaction Summary in connection with its Application for exemption or approval of certain transactions. Defined terms have the same meanings ascribed to them in the Application. The Application addresses transactions involving the transfer from Delmarva to Conectiv Delmarva Generation, Inc. ("CDG") of certain power plants and related inventories, contracts, permits, licenses, and other rights and obligations and the transfer of the Claymont-to-Wilmington natural gas pipeline located in Northern Delaware. In addition, the Application addresses Interconnection Agreements and Access and Easement Agreements between Delmarva and CDG that are necessary with respect to the interconnection of the power plants located on the Delmarva peninsula with Delmarva's transmission and distribution facilities. The Application also addresses the transfer of fuel inventories, fuel and related transportation contracts with third parties, and a Service Agreement and related transaction agreements under which Delmarva may purchase capacity and energy from CESI with specific limitations proposed regarding the rate A-1 20 making consequences of such purchases. The Application also addresses the transfer from Delmarva to CESI of competitive wholesale and retail sales contracts in price-deregulated markets. 1. DESCRIBE, IN DETAIL, THE AFFILIATE RELATIONSHIP AMONG THE PARTIES INVOLVED. Delmarva and CESI are wholly-owned subsidiaries of Conectiv. CDG and CESI have officers and directors in common with Delmarva. CDG is currently a wholly-owned subsidiary of Delmarva, but will, at the close of the planned restructuring, become a non-subsidiary affiliate of Delmarva. CDG will be wholly-owned by an intermediate holding company, Conectiv Energy Holding Company ("CEH"), which, in turn, will be a wholly-owned subsidiary of Conectiv. CESI is a wholly-owned subsidiary of Conectiv, but will also become wholly-owned by CEH. CEH, CESI, and CDG will not own or control any securities of Delmarva and Delmarva will not own or control any securities of CEH, CESI, or CDG. 2. DESCRIBE THE CONDITIONS AND TERM OF THE AGREEMENT, INCLUDING RIGHTS OF PARTIES TO CANCEL AND RENEWABILITY. The transfer of assets will be pursuant to various Asset Transfer Agreements, which will document the transfer of the assets themselves and related land, inventories and other assets. The Asset Transfer Agreements relating to the power plants will require CDG to assume all future liabilities associated with the transferred assets, including employment-related liabilities for those employees at the transferred power plants. Those Asset Transfer Agreements will require CDG to bear the costs of any transfer tax liability and contains standard representations and warranties by each party. Except for the failure of conditions precedent, there will be no cancellation or renewal provisions because the transactions will be one-time only with no continuing relationship under the Agreements. A similar form of Asset Transfer Agreement will A-2 21 exist with respect to the transfer of the 90% interest in the Delaware natural gas pipeline to CDG. As noted, CDG and Delmarva will be joint owners of the Claymont-to-Wilmington pipeline, which will affect only Delmarva's natural gas utility operations and have no effect on Virginia electric customers. Various ancillary rights and obligations will be transferred under Assignment and Assumption Agreements. These are also one-time transactions. The Access and Easement Agreements will be of indefinite duration so long as the related assets are in service. A joint ownership/O&M operating agreement relating to the Claymont-to-Wilmington pipeline will also be of indefinite duration so long as the pipeline is in service. The wholesale and retail electric and/or gas sales contracts in price-deregulated markets and related power and gas purchase contracts to support those sales contracts will be pursuant to Assignment and Assumption Agreements and are one-time transactions. The Interconnection Agreements contain provisions common to other interconnection agreements that Delmarva has executed with unrelated owners of power plants located on the Delmarva peninsula. Of particular note, Delmarva retains the right to direct CDG to start-up, increase output, or decrease output during system emergencies. As with other Interconnection Agreements, there are no direct charges for interconnection between Delmarva and CDG -- Delmarva will receive transmission revenues for CDG's use of Delmarva's transmission system based on applicable tariffs filed by the PJM Interconnection, LLC, with the Federal Energy Regulatory Commission ("FERC"). For those power plants that are interconnected at distribution line voltages (below 69 kV), Delmarva will also receive distribution revenues for CDG's use of Delmarva's distribution facilities. As with other interconnection agreements, the Interconnection Agreements provide for charges that may arise between Delmarva and CDG in limited circumstances where one party incurs costs in order to protect its facilities from damage A-3 22 caused by the operation of the other party or to the extent that Delmarva incurs costs to upgrade its transmission system in order to facilitate an expansion of production by CDG. There will be a continued need for interconnection so the contract has an indefinite term. Section 4.2 provides limited cancellation rights applicable if there is mutual agreement, as the result of the decommissioning of the related power plant, a termination by operation of law, or by CDG on 120 days' notice provided that all required approvals of the Mid-Atlantic Area Council and PJM are received. The Service Agreement between CESI and Delmarva is an "umbrella" contract that provides general terms and conditions that would apply to specific electric power sales transactions, which would establish the term, quantities, and price. Under the umbrella contract, Delmarva may voluntarily purchase and CESI may voluntarily sell capacity and energy at a mutually-agreeable price. Neither party is obligated to enter into such agreement(s). The Service Agreement extends from year-to-year and either party may terminate the umbrella contract on 90 days notice prior to the end of a year, except that effective transaction agreements would continue until they expired or were terminated under the specific terms of the transaction agreements. 3. WHY IS THE UTILITY COMPANY PROVIDING THE SERVICE(S)/GOOD(S)? WHAT ARE THE CURRENT OR PRIOR ARRANGEMENTS? PROVIDE SPECIFIC DETAILS. With two exceptions, it is not expected that Delmarva will be providing any ongoing goods or services to CDG or CESI after the transfers of assets are complete. The first exception is the interconnection services that will be provided under Delmarva's FERC tariff and transmission and ancillary services that are provided under FERC tariffs filed by the PJM Interconnection, LLC. Currently, Delmarva "provides" these services to itself, subject to the A-4 23 tariffs filed by PJM. The second exception is that Delmarva will continue to perform maintenance and repairs with respect to the Claymont-to-Wilmington natural gas pipeline that supplies natural gas to the Hay Road and Edge Moor power plants. Because ownership in the pipeline will be 10% by Delmarva and 90% by CDG, Delmarva will charge CDG at 90% of its actual costs for such work. 4. SHOW THAT THE UTILITY IS RECEIVING COMPENSATION EQUAL TO OR GREATER THAN THAT RECEIVED FROM NON-AFFILIATES WHERE SUCH SERVICE(S)/GOOD(S) ARE PROVIDED TO AFFILIATES AND NON- AFFILIATES. WHERE SUCH SERVICE(S)/GOOD(S) ARE PROVIDED TO AFFILIATES ONLY, SUCH PRICING SHOULD BE AT THE HIGHER OF COST OR MARKET. SHOW THAT THIS IS TRUE FOR THE PROPOSED ARRANGEMENT OR PROVIDE JUSTIFICATION AS TO WHY THE ABOVE GUIDELINE SHOULD NOT APPLY. As set forth in Delmarva's February 4, 2000, Restructuring Plan, Delmarva will provide ratepayers with base rate reductions and a fuel rate that is either frozen or reset such that ratepayers benefit from the proposed transactions. The benefits of rate stability, particularly the rate stability associated with the frozen or reset fuel rate, could not be obtained in the absence of the Plan. The transferred assets will be removed from Delmarva's regulated books of account at net book value. In these circumstances, Delmarva believes that the above guideline should not be applied to the transfer of assets. With respect to the wholesale and retail electric and gas sales contracts within price-deregulated markets and the supply contracts that support such sales, the costs and revenues of such contracts have been borne solely by shareholders "below-the-line." That is, while Delmarva Power & Light Company has been the legal entity executing such contracts, the related costs and revenues are not recorded as utility costs or revenues. Thus, the proposed restructuring does not change the economic status quo but realigns and matches utility and non-utility activities with utility and non- utility corporate entities, also known as "legal and structural separation." In this A-5 24 circumstance, Delmarva believes that the above guideline should not be applied to the transfer of such contracts. With respect to the Interconnection Agreements, the provisions are regulated by the FERC and are subject to the Federal Power Act prohibition against being unduly discriminatory or preferential. The rates are identical with and all non-price terms are comparable to those of interconnection agreements executed by Delmarva with non-affiliates, which agreements are also on file with the FERC. With respect to the Service Agreement, the above guideline is inapplicable because Delmarva will not be providing services to an affiliate. With respect to any maintenance and repairs to the natural gas pipeline, the direct charging of 90% of related costs fully compensates Delmarva for its work. Because the Plan freezes rates, the level of charges can have no effect on Virginia customers. 5. HOW ARE THE ASSOCIATED COSTS TO BE CHARGED OR ALLOCATED? DETAILED DESCRIPTIONS MUST BE PROVIDED. As noted, Delmarva's regulated books of account will reflect the removal of the transferred assets at net book value and there will be no ongoing charges post-transfer. See Attachment A-1 for a summary of the original costs and net plant to be transferred to CDG. Any charges under the Interconnection Agreement and Service Agreement are or will be specified by FERC tariff and contract and directly charged. The costs incurred in developing these transactions have been accounted for under Conectiv's accounting system, which tracks and directly assigns costs to non-utility affiliates on a Fully-Loaded Basis. Delmarva has provided to the Commission Staff a copy of its Cost Accounting Manual (the "CAM") which sets forth in detail the procedure and methodology that the Company will follow to ensure that no cross- A-6 25 subsidization of competitive activities occurs. Costs associated with maintenance and repairs of the natural gas pipeline that will be jointly owned by Delmarva and CDG will be directly charged to CDG. Costs associated with the support of the price-deregulated wholesale and retail sales of electricity and gas will be transferred to and incurred by CESI. 6. PROVIDE ASSURANCE THROUGH SAFEGUARDS IN PLACE THAT NO UNREGULATED AFFILIATE WILL BE SUBSIDIZED BY THE REGULATED COMPANY AS A RESULT OF THE PROPOSED TRANSACTION. As described in the answers to Items 4 and 5 above and in greater detail in the Functional Separation Plan filed on February 4, 2000, Delmarva's Virginia ratepayers will be fully protected from any adverse ratemaking consequences of the proposed transactions and, in fact, will receive benefits in the form of rate reductions and fuel rate stability, thus preventing any subsidization of the activities of CDG or CESI by Delmarva's Virginia electric service customers. 7. PROVIDE ASSURANCES THAT THE UTILITY IS NOT EXPOSING ITSELF TO GREATER BUSINESS RISK AS A RESULT OF THE PROPOSED ARRANGEMENT. IF THE UTILITY IS BEING EXPOSED TO A GREATER DEGREE OF BUSINESS RISK, SHOW HOW THE ARRANGEMENT WOULD BE IN THE PUBLIC INTEREST IN SPITE OF THE ADDITIONAL RISK EXPOSURE. The proposed arrangements are part of an overall corporate plan under which Delmarva is exiting the increasingly competitive generation business to focus on its core utility business of transmission and distribution services. The generation business is becoming increasingly risky in light of potentially unrecoverable costs of current and future investment in generation plant, decommissioning expenses, and environmental remediation. The overall effect of the corporate plan should be to reduce Delmarva's risks. 8. SHOW THAT THE AGREEMENT OR ARRANGEMENT IS NOT DETRIMENTAL TO THE VIRGINIA RATEPAYERS. HOW IS THE TRANSACTION IN THE PUBLIC INTEREST? BE SPECIFIC. As discussed in the preceding paragraphs, the described transactions will not be detrimental to Delmarva's Virginia electric service customers because they will provide positive A-7 26 benefits in the form of base rate reductions and fuel rate stability and are consistent with the Virginia Electric Utility Restructuring Act as more fully described in Delmarva's February 4, 2000, Functional Separation Plan. 9. SHOW THAT THE ARRANGEMENT WILL NOT CAUSE THE UTILITY TO BECOME INVOLVED IN A LONG-TERM CAPTIVE RELATIONSHIP. The transfers of the assets and related rights and obligations are a one-time event, as are the transfer of the price-deregulated wholesale and retail gas and electric contracts and their related portfolios of supply. The Interconnection Agreements are largely comprised of standard provisions that are included in Delmarva's interconnection agreements with non-affiliates and is regulated by the FERC. The Service Agreement contains no requirement that Delmarva execute any transaction agreements with CESI and the Plan bars any flow-through of costs associated with such transactions until rates are "unfrozen." The joint ownership by Delmarva (10%) and CESI (90%) of a Delaware natural gas pipeline continues to reflect the economic equivalent of the status quo wherein 10% of the costs of that pipeline are borne by Delmarva's natural gas utility and 90% is booked as electric generation costs associated with electric generation facilities that are being transferred. 10. COSTS SHOULD BE DIRECTLY ASSIGNED WHERE POSSIBLE. DIRECT CHARGE ALLOCATION SHOULD BE EMPHASIZED FOR LABOR AND OTHER COSTS THAT CAN BE IDENTIFIED WITH A SPECIFIC ACTIVITY. ALLOCATIONS BASED ON A GENERAL ALLOCATOR SHOULD BE LIMITED TO 5% OF TOTAL CHARGES IF AT ALL POSSIBLE. IF SUCH ASSIGNMENTS DEVIATE FROM THE ABOVE GUIDELINES, PROVIDE JUSTIFICATION FOR SUCH DEVIATION. The net book value of the assets will be removed from Delmarva's regulated books of account. The costs or charges under the Interconnection Agreements will be as set forth in the Interconnection Agreements and/or PJM tariffs and directly assigned. Any charges under transaction agreements executed under the Service Agreement or for maintenance and repair of A-8 27 the jointly-owned natural gas pipeline will be directly assigned. None of the transactions will result in allocations that exceed 5% of total charges. 11. GOODS OR SERVICES PROVIDED TO AN AFFILIATE PURSUANT TO A TARIFF SHOULD BE AT THE TARIFFED RATE. IF THIS IS NOT THE CASE HERE, EXPLAIN. The transfer of assets and related licenses, permits, contracts, and other rights and obligations is not a tariffed activity. The Interconnection Agreements are FERC regulated tariffs that will control the relationship for interconnection services, rights, and responsibilities between Delmarva and CDG. Repair and maintenance activities for the jointly-owned natural gas pipeline are not tariffed services. No goods or services are expected to be provided by Delmarva to CESI. Dated: April 10, 2000. A-9 28 EXHIBIT B TRANSACTION SUMMARY B-0 29 EXHIBIT B BEFORE THE COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION APPLICATION OF ) DELMARVA POWER & LIGHT COMPANY, ) CONECTIV DELMARVA GENERATION, INC., ) Case No. PUA________ AND CONECTIV ENERGY SUPPLY, INC. FOR ) APPROVAL OF TRANSACTIONS UNDER CHAPTER ) 5 OF TITLE 56 OF THE CODE OF VIRGINIA ) TRANSACTION SUMMARY 1. PROVIDE A COPY OF THE AGREEMENT SIGNED BY THE PRESIDENT OR ANY VICE PRESIDENT AND THE SECRETARY OR ANY ASSISTANT SECRETARY OF THE COMPANY. An executed Asset Transfer Agreement and other ancillary agreements will be provided in a supplemental filing to be made on or about May 1, 2000. 2. PROVIDE A CLEAR SUMMARIZATION OF THE ASSET(S) IN QUESTION. The assets are two diesel-fueled peaking power plants and associated land and equipment located in Tasley and Bayview, Virginia. 3. DESCRIBE THE PROPOSED PROCEDURE AND THE TERMS AND CONDITIONS OF THE TRANSACTION TO INCLUDE: a) HISTORICAL AND CURRENT USE OF PROPERTY; b) PROPOSED USE OF PROPERTY; c) ORIGINAL COST OF PROPERTY; d) PROPOSED SALES PRICE OF PROPERTY AND METHOD OF DETERMINING THE PRICE; AND e) PROPOSED ACCOUNTING TREATMENT OF THE TRANSACTION AS WELL AS CURRENT RECORDING ON COMPANY'S BOOKS OF RECORD. a) and b) Historically and currently, these facilities are used to generate power during peak load periods. Under PJM rules, the facilities are dispatched: 1) whenever locational marginal prices for the Delmarva zone exceeds the bid-in price of the facilities, which price B-1 30 generally is very close to the fuel costs incurred in running the units; or 2) during system emergencies. The property will be used by CDG in an identical manner. c) The undepreciated cost of the facilities as of December 31, 1999, is as follows: Tasley: $3,633,576; Bayview $1,956,299. d) As described in detail in the Application to which this Transaction Summary is attached and in the Functional Separation Plan, there is no "sales" price. Instead, the assets are to be transferred to an affiliate and the net book value of the assets will be removed from Delmarva's regulated books of account. e) The proposed accounting treatment is provided as part of Attachment B-1. 4. PROVIDE ASSURANCES THAT ADEQUATE SERVICE TO THE PUBLIC AT JUST AND REASONABLE RATES WILL NOT BE IMPAIRED OR JEOPARDIZED BY THE PROPOSED TRANSFER. As detailed in Delmarva's Functional Separation Plan filed on February 4, 2000, the transfer of these facilities are part of an overall Plan which will result in reduced base rates and stabilized fuel rates for Virginia customers. That Plan also described why the total divestiture of Delmarva's generation assets to third parties or affiliates would not impair reliability to the public. With respect to the specific peaking facilities that are subject to Virginia's Utility Transfers Act, these are two facilities that are among the smallest in Delmarva's overall portfolio, with capacities of 12 MW and 27 MW (or less than 1.4% of Delmarva's currently owned capacity) and, because they are infrequently used peaking units, these facilities produced only about 0.16% of Delmarva's 1998 output. 5. SHOW THAT THE SALES PRICE WAS ARMS-LENGTH AND THAT THE PURCHASE WILL RESULT IN A DIRECT BENEFIT TO CUSTOMERS. B-2 31 As discussed in the above Application to which this Transaction Summary is attached and in Delmarva's Functional Separation Plan filed on February 4, 2000, the proposed transfer of assets is to an affiliate and, as such, the transaction is not at arms-length. There are direct and immediate benefits to customers in the form of base rate reductions and fuel rate stability as detailed in the Functional Separation Plan. 6. PROVIDE A SCHEDULE OF PLANT, BOOK DEPRECIATION, AND CONTRIBUTED PROPERTY RELATED TO ASSETS TO BE ACQUIRED UP TO CURRENT DATE (OR DATE OF PURCHASE, IF ACQUISITION HAS TAKEN PLACE). Not applicable. 7. PROVIDE COMPLETE FINANCIAL STATEMENTS, TO INCLUDE BALANCE SHEET, INCOME STATEMENT, AND CASH FLOW STATEMENT, FOR THE LATEST TWELVE-MONTH PERIOD AND FOR THE LAST FIVE YEARS. Attachment B-2 contains the requested information for Delmarva Power & Light Company. 8. ARE INVOICES AVAILABLE TO VERIFY PLANT FIGURES? IF NOT, WHY NOT? Due to the age of the facilities, invoices are either unavailable or in files that are not easily identifiable or accessible. The plant figures have been carried forward from year-to-year and Delmarva has no reason to believe that they are incorrect. 9. IN ADDITION TO THE ITEMS DESCRIBED ABOVE, FOR APPLICATIONS REQUESTING APPROVAL OF THE ACQUISITION/DISPOSITION OF CONTROL, ADDRESS THE ANTICIPATED IMPACT OF SUCH ACTION ON THE REGULATED COMPANY'S RATES AND SERVICE, CAPITAL STRUCTURE, AND ACCESS TO CAPITAL AND FINANCIAL MARKETS. DISCUSS FAVORABLE AND UNFAVORABLE ECONOMIC IMPACTS ON THE STATE OF VIRGINIA TO INCLUDE EMPLOYEE LEVELS, FACILITIES, AND SERVICE PROVIDED. WILL AN ADDITIONAL INVESTMENT BE REQUIRED TO IMPROVE SERVICE QUALITY? PROVIDE SPECIFIC DETAILS ON IMPROVEMENTS NEEDED. PROVIDE THE ANTICIPATED IMPACT ON RATES OF SUCH IMPROVEMENTS CURRENTLY AND FOR THE NEXT TEN YEARS. Not applicable. Dated: April 10, 2000. B-3 32 DELMARVA POWER & LIGHT COMPANY (DPL) Exhibit D-2 ENTRIES TO RECORD 1) A CONTRIBUTION OF INVESTMENT IN PLANT TO ITS SUBSIDIARY AND 2) A DIVIDEND OF INTEREST IN SUCH SUBSIDIARY TO DPL'S PARENT COMPANY FERC ENTRY #1: TO RECORD CONTRIBUTION BY DPL OF INVESTMENT IN CERTAIN A/C PLANT ASSETS TO ITS WHOLLY OWNED SUBSIDIARY. THE SUBSIDIARY RECEIVING THE CONTRIBUTION IS CONECTIV DELMARVA GENERATION, INC. (CDG, INC.) 123.1 DR Investment in Subsidiary-CDG, Inc. $332,043,000 282 DR Accumulated Deferred Income Taxes $50,245,100 108 DR Accumulated Provision for Depreciation $341,880,000 255 DR Accumulated Deferred ITC $7,633,900 101 CR Electric Plant in Service $691,268,000 107 CR Construction Work In Progress $4,457,000 151 CR Fuel Stock $28,984,000 154 CR Materials & Supplies $6,041,000 158 CR Emission Allowances $1,052,000
ENTRY #2: TO RECORD A DIVIDEND BY DPL TO CONECTIV, DPL'S PARENT COMPANY. THE DIVIDEND IS DPL'S 100% INTEREST IN CDG, INC. 211 DR Misc. Paid in Capital $332,043,000 123.1 CR Investment in Subsidiary-CDG, Inc $332,043,000
NOTE: The amounts above represent account balances as of December 31, 1999. The amounts will change for the actual entries to be recorded at the date of transfer to reflect actual balances at that time. 33 CONECTIV ENERGY HOLDING COMPANY (CEH) ENTRY TO RECORD CONTRIBUTION RECEIVED FROM ITS PARENT COMPANY FERC ENTRY #5: TO RECORD CONTRIBUTION RECEIVED FROM CONECTIV, THE PARENT OF A/C CEH. THE CONTRIBUTION IS A 100% INTEREST IN CDG, INC. 123.1 DR Investment in Subsidiary-CDG, Inc $332,043,000 211 CR Misc. Paid in Capital $332,043,000
ENTRY TO RECORD 1) DIVIDEND RECEIVED FROM IT WHOLLY-OWNED SUBSIDIARY AND 2) CONTRIBUTION OF SUCH DIVIDEND TO ANOTHER CEH WHOLLY-OWN SUBSIDIARY ENTRY #8: TO RECORD DIVIDEND BY CDG, INC, A WHOLLY-OWNED SUBIDIARY OF CEH. THE DIVIDEND RECEIVED IS INVESTMENT IN FUEL INVENTORIES AND EMISSION ALLOWANCES. 151 DR Fuel Stock $28,984,000 158 DR Emission Allowances $1,052,000 123.1 CR Investment in Subsidiary-CDG, Inc $30,036,000
ENTRY #9: TO RECORD CONTRIBUTION BY CEH OF IT INVESTMENT IN FUEL INVENTORIES AND EMISSION ALLOWANCES TO CONECTIV ENERGY SUPPLY, INC. (CESI), ITS WHOLLY-OWNED SUBSIDIARY. 123.1 DR Investment in Subsidiary-CESI $30,036,000 151 CR Fuel Stock $28,984,000 158 CR Emission Allowances $1,052,000
NOTE: The amounts above represent account balances as of December 31 1999. The amounts will change for the actual entries to be recorded at the date of transfer to reflect actual balances at that time. 34 CONECTIV ENTRIES TO RECORD 1) DIVIDENDS RECEIVED FROM ITS WHOLLY-OWNED SUBSIDIARIES, AND 2) CONTRIBUTION OF SUCH DIVIDENDS RECEIVED TO OTHER CONECTIV WHOLLY-OWNED SUB FERC ENTRY #3: TO RECORD A DIVIDEND RECEIVED FROM DPL, A WHOLLY-OWNED A/C SUBSIDIARY OF CONECTIV. THE DIVIDEND RECEIVED IS A 100% INTEREST IN CDG, INC. 123.1 DR Investment in Subsidiary-CDG, Inc $332,043,000 123.1 CR Investment in Subsidiary-DPL $332,043,000
ENTRY #4: TO RECORD A CONTRIBUTION BY CONECTIV TO ITS WHOLLY-OWNED SUBSIDIARY, CONECTIV ENERGY HOLDING COMPANY (CEH). THE CONTRIBUTION IS CONECTIV'S 100% INTEREST IN CDG, INC. 123.1 DR Investment in Subsidiary - CEH $332,043,000 123.1 CR Investment in Subsidiary - CDG, Inc. $332,043,000
NOTE: The amounts above represent account balances as of December 31 1999. The amounts will change for the actual entries to be recorded at the date of transfer to reflect actual balances at that time. 35 CONECTIV DELMARVA GENERATION, INC. (CDG, INC.) ENTRY TO RECORD CONTRIBUTION RECEIVED FROM ITS PARENT COMPANY FERC ENTRY #6: TO RECORD CONTRIBUTION RECEIVED FROM CEH, THE PARENT OF CDG, A/C INC. THE CONTRIBUTION IS CERTAIN GENERATING PLANT ASSETS. 101 DR Electric Plant in Service $691,268,000 107 DR Construction Work In Progress $ 4,457,000 151 DR Fuel Stock $ 28,984,000 154 DR Material & Supplies $ 6,041,000 158 DR Emission Allowances $ 1,052,000 108 CR Accumulated Provision for Depreciation $341,880,000 282 CR Accumulated Deferred Income Taxes $ 50,245,100 255 CR Accumulated Deferred ITC $ 7,633,900 211 CR Misc. Paid in Capital $332,043,000
FERC ENTRY #7: TO RECORD DIVIDEND BY CDG, INC. TO CEH, CDG, INC.'S PARENT. A/C THE CONTRIBUTION IS INVESTMENT IN FUEL INVENTORY AND EMISSION ALLOWANCES. 211 DR Misc. Paid in Capital $30,036,000 151 CR Fuel Stock $28,984,000 158 CR Emission Allowances $ 1,052,000
NOTE: The amounts above represent account balances as of December 31 1999. The amounts will change for the actual entries to be recorded at the date of transfer to reflect actual balances at that time. 36 DELMARVA POWER & LIGHT COMPANY ("DPL") ENTRIES TO RECORD 1) A CONTRIBUTION OF INVESTMENT IN PLANT TO ITS SUBSIDIARY AND 2) A DIVIDEND OF INTEREST IN SUCH SUBSIDIARY TO DPL'S PARENT COMPANY
FERC ENTRY #1: TO RECORD CONTRIBUTION BY DPL OF INVESTMENT IN A/C BAYVIEW & TASLEY ASSETS TO ITS WHOLLY OWNED SUBSIDIARY. THE SUBSIDIARY RECEIVING THE CONTRIBUTION IS CONECTIV DELMARVA GENERATION, INC. ("CDG, INC.") 123.1 DR Investment in Subsidiary-CDG, Inc. $1,596,985 282 DR Accumulated Deferred Income Taxes $ 340,231 108 DR Accumulated Provision for Depreciation $3,652,649 101 CR Electric Plant in Service $5,589,875
ENTRY #2: TO RECORD A DIVIDEND BY DPL TO CONECTIV, DPL'S PARENT COMPANY. THE DIVIDEND IS DPL'S 100% INTEREST IN CDG, INC. 211 DR Misc. Paid in Capital $1,596,995 123.1 CR Investment in Subsidiary-CDG, Inc. $1,596,995
CONECTIV ENTRY 1) TO RECORD DIVIDEND RECEIVED FROM ITS WHOLLY-OWNED SUBSIDIARY, AND 2) CONTRIBUTION OF SUCH DIVIDENDS RECEIVED TO OTHER CONECTIV WHOLLY-OWNED SUB
FERC ENTRY #1: TO RECORD A DIVIDEND RECEIVED FROM DPL, A A/C WHOLLY-OWNED SUBSIDIARY OF CONECTIV. THE DIVIDEND RECEIVED IS A 100% INTEREST IN CDG, INC. 123.1 DR Investment in Subsidiary-CDG, Inc. $1,596,995 123.1 CR Investment in Subsidiary-DPL $1,596,995
ENTRY #2: TO RECORD A CONTRIBUTION BY CONECTIV TO ITS WHOLLY-OWNED SUBSIDIARY, CONECTIV ENERGY HOLDING COMPANY ("CEH"). THE CONTRIBUTION IS CONECTIV'S 100% INTEREST IN CDG, INC. 123.1 DR Investment in Subsidiary-CEH $1,596,995 123.1 CR Investment in Subsidiary-CDG, Inc. $1,596,995
37 CONECTIV ENERGY HOLDING COMPANY ("CEH") ENTRY TO RECORD CONTRIBUTION RECEIVED FROM ITS PARENT COMPANY FERC TO RECORD CONTRIBUTION RECEIVED FROM CONECTIV, INC., THE PARENT OF CEH. A/C THE CONTRIBUTION IS A 100% INTEREST IN CDG, INC. 123.1 DR Investment in Subsidiary-CDG, Inc. $1,596,995 211 CR Misc. Paid in Capital $1,596,995
NOTE: The amounts above represent account balances as of Dec. 31 1999. The amounts will change for the actual entries to be recorded at the date of transfer to reflect actual balances at that time. 38 CONECTIV PLANT ASSETS AS OF 12/31/99
Exhibit D-2 Transmission Plant Assets & Distribution Accumulated Plant Original Cost Original Cost Total Plant Reserve Net Plant Edge Moor 344,722,749 2,495,606 347,218,355 227,066,612 120,151,743 Hay Road 260,064,129 6,332,765 266,396,894 73,657,607 192,739,287 Other Production* 18,913,478 667,470 19,580,948 15,081,048 4,499,900 Keystone 20,845,745 144,330 20,990,075 10,301,518 10,688,557 Conemaugh 33,205,560 283,440 33,489,000 13,183,382 20,305,618 Subtotal Plant Assets 677,751,661 9,923,611 687,675,272 339,290,167 348,385,105 Misc. Facilities 3,592,273 3,592,273 2,589,356 1,002,917 Total Plant 661,343,934 9,923,611 691,267,545 341,879,523 349,388,022
* Includes combustion turbines or diesel units Madison Street, Christiana, Delaware City, and West in Delaware, Crisfield in Maryland, and Bayview and Tasley in Virginia EX-99.D.6 5 0005.txt FERC ORDER AUTHORIZING TRANSFER 1 Exhibit D-6 UNITED STATES OF AMERICA 91 FERC & 61,046 FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: James J. Hoecker, Chairman; William L. Massey, Linda Breathitt, and Curt Hebert, Jr. Delmarva Power & Light Company Atlantic City Electric Company Docket No. EC00-40-000 DPL REIT, Inc. and Conectiv Atlantic Generation, LLC ORDER AUTHORIZING DISPOSITION OF JURISDICTIONAL FACILITIES (Issued April 13, 2000) On December 17, 1999, Delmarva Power & Light Company (Delmarva), Atlantic City Electric Company (Atlantic), DPL REIT, Inc. (CDG) and Conectiv Atlantic Generation, LLC (CAG) (collectively, Applicants) filed a joint application under section 203 of the Federal Power Act (FPA) (Applicants' Filing) requesting that the Commission authorize Delmarva to transfer certain jurisdictional facilities to CDG, and Atlantic to transfer certain jurisdictional facilities to CAG. The jurisdictional facilities in both cases include generation step-up transformers, radial lines and other related facilities that are appurtenant to certain generators which Delmarva and Atlantic are also transferring to CDG and CAG, respectively.(1) As discussed below, we will approve the proposed transfers of jurisdictional facilities as being consistent with the public interest. I. Background A. Description of the Parties and Other Affiliates - ----------- (1) Applicants' Filing at p. 9. 2 -2- Delmarva and Atlantic are subsidiaries of Conectiv. Conectiv is a registered public utility holding company under the Public Utility Holding Company Act. Delmarva and Atlantic presently are vertically integrated public utilities and own and operate generation, transmission and distribution facilities. Delmarva serves wholesale and retail customers in Delaware, Maryland and Virginia, and Atlantic serves retail customers in New Jersey. CDG and CAG are subsidiaries of Delmarva and Atlantic, respectively. These subsidiaries presently hold no assets and have no current business. Other affiliate companies include: 1) ACE REIT, Inc. (ACE REIT), which will hold CAG's common stock; 2) Conectiv Energy Holding Company (CEH), a soon-to-be-incorporated intermediate holding company within the Conectiv family; and 3) Conectiv Energy Supply, Inc. (CESI), a power marketer. B. The Proposed Transaction As part of an ongoing reorganization and restructuring of the electric utility industry in the states of Delaware, Maryland, New Jersey and Virginia, Applicants propose to transfer certain generation and jurisdictional assets from Delmarva and Atlantic to CDG and CAG respectively. The aim of the transfer is to allow Delmarva and Atlantic to conduct business primarily as wires companies, and to allow CDG and CAG to conduct business as generation companies.(2) Applicants state that after Delmarva transfers facilities to CDG, Delmarva will declare a capital dividend in the form of CDG common stock, which will be transferred to Conectiv and subsequently to CEH, the intermediate holding company. Atlantic will transfer facilities to CAG, which will temporarily become a wholly owned subsidiary of Atlantic. Atlantic will then transfer its CAG common stock to ACE REIT. Subsequently, Atlantic will cause the transfer of ACE REIT's common stock to Conectiv as a dividend payment, and Conectiv will then transfer that ACE REIT common stock to CEH.(3) At the conclusion of the transaction, CEH will directly own common stock in CDG and indirectly own common stock in CAG. Applicants note that CDG and CAG will sell power under market-based rates. - -------- (2) Delmarva owns approximately 2,728 MW of generating capacity, of which it plans to sell 1,312 MW to unaffiliated third parties. Delmarva will transfer the remaining 1,416 MW to its affiliate, CDG. Atlantic owns approximately 1,679 MW of generating capacity and it plans to sell about 1,135 MW to unaffiliated third parties. The balance of 544 MW Atlantic will transfer to its affiliate CAG. Applicants' Filing at pp. 4 - 5. (3) Applicants' Filing at p. 6. 3 -3- C. The Applicants' Statement of the Public Interest In their filing, Applicants contend that the transfers of jurisdictional facilities to CDG and CAG satisfy the requirements of the Commission's Merger Policy Statement.(4) First, they claim that the transfers will not adversely impact competition in the relevant product and geographic markets. The transfers will not increase market concentration, since Conectiv through its ownership of Delmarva and Atlantic already controls the assets being transferred to other subsidiaries. Applicants maintain that the transfers will promote competition in the power supply markets through separation of the generation function from the transmission and distribution function.(5) - ----------- (4) Inquiry Concerning the Commission's Merger Policy Under the Federal Power Act; Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996), FERC Stats. & Regs. & 31,044 (1996), order on reconsideration, Order no. 592-A, 62 Fed. Reg. 33,341 91997), 79 FERC & 61,321 (1997) (Merger Policy Statement). (5) Applicants' Filing at pp. 12-4. 4 -4- Second, Applicants claim that the transfers will not adversely affect state or federal regulation. As to federal regulation, Applicants commit to follow the Commission's policy regarding the treatment of costs and revenues related to inter-affiliate transactions.(6) They contend that the transfers will not diminish the regulatory authority of the pertinent states, and are consistent with the restructuring policies of those states.(7) - ----------- (6) Id. at p. 14, fn. 10. (7) Applicants' Filing at p. 14. 5 -5- Finally, Applicants maintain that the transfers will not affect materially the rates to wholesale customers. Applicants assert that Atlantic has no wholesale customers; hence, there are no wholesale rates to be affected. Applicants claim that Delmarva serves most of its wholesale customers under fixed demand and energy charges and thus their rates cannot be affected. Applicants note that two of Delmarva's wholesale customers do not have fixed rates, but are served under partial requirements contracts with fuel adjustment clauses (FAC).(8) As to these two wholesale customers, the Town of Seaford, Delaware (Seaford) and the City of Berlin, Maryland (Berlin), Applicants maintain that, because they account for less than one percent of Delmarva's total energy sales, Delmarva has no incentive or ability to pursue a power purchase strategy that targets these two customers. Moreover, Delmarva will either fulfill its obligations to these two customers by open market purchases or by buying power and energy from CDG, CAG or CESI, and in this regard the circumstance post-transfer is not different essentially from the circumstance pre-transfer.(9) II. Notice of Filing, Protest, Motions to Intervene and Answer to Motions Notice of the application was published in the Federal Register, 64 Fed. Reg. 73,541 (1999), with comments, protests and interventions due on or before January 18, 2000. A timely motion to intervene and request for imposition of conditions was filed by the Easton Utilities Commission of Easton, Maryland (Easton Commission). The Easton Commission states that it does not oppose the proposed transfer of facilities but recommends that, if the Commission approves the transfer, the approval be expressly conditioned on the adoption by Delmarva of commitments aimed at maintaining the reliability of electric service on the Delmarva Peninsula and ensuring that the transferred generators, which are located on the Delmarva Peninsula, are not operated so as to increase the Locational Marginal Prices (LMP) at the northern interconnection of that peninsula.(10) - ----------- (8) According to the application, the partial requirements contracts are scheduled to expire in 2001 and 2003, respectively. (9) Applicants' Filing at pp. 15-16. (10) Easton Commission's Motion at pp. 7-8. 6 -6- Delaware Municipal Electric Corporation, Inc. (Delaware Municipal)(11) filed a timely motion to intervene and protest. Delaware Municipal protests the application and claims that the proposed transaction will have a significant impact on the rates charged to Seaford each month for the remaining four years of its longstanding bundled partial requirements contract with Delmarva.(12) - ----------- (11) Delaware Municipal represents the Delaware Cities and Towns of Newark, New Castle, Seaford, Milford, Lewes, Smyrna, Clayton, Middleton, and Dover Delaware, but it is not seeking intervenor status for Dover in this proceeding. (12) Delaware Municipal's Motion at p. 3. 7 -7- On February 2, 2000, Delmarva filed an answer to the Delaware Municipal and Easton Commission. Delmarva requests that the Commission reject the protests on the ground that the issues raised are either premature or outside of the scope of this proceeding. Delmarva claims that this section 203 proceeding is not the proper proceeding in which to challenge the cost-of-service issues affecting its ratepayers. Delmarva maintains that the contract rates with Seaford resulted from negotiations and are not cost-of-service rates.(13) Delmarva states that if Delaware Municipal is dissatisfied with Seaford's contractual rate, it should file a complaint under section 206 of the FPA.(14) With respect to the allegations raised by the Easton Commission, Delmarva requests that the Commission find the Easton Commission's claim premature because it has no basis to conclude that the transfer of facilities to CDG will result in poorer reliability or an increase in LMP prices.(15) III. Discussion A. Procedural Matters Under Rule 214 of the Commission's Rules of Practice and Procedure, 18 C.F.R. Section 385.214 (1999), the timely, unopposed motion to intervene of the Easton Commission serves to make the Easton Commission a party. Applicants did oppose in part Delaware Municipal's timely motion to intervene. Applicants argue that those Delaware Municipal - ----------- (13) Delmarva's Answer at p. 13. (14) Id. at p. 4. (15) Id. at pp. 13, 15. 8 -8- members who have fixed rate contracts cannot possibly be affected by the transfer of assets and therefore have "no standing to intervene and no litigable interest in these proceedings."(16) Delmarva further argues that because none of the Delaware Municipal members has a contract with Atlantic, they have no litigable interest in the portion of this proceeding that involves the transfer of Atlantic's assets.(17) - ----------- (16) Delmarva's Answer at p. 3. (17) Id. 9 -9- As in a recently decided case, we disagree with Delmarva.(18) Further, the partial requirements contracts between the eight municipals and Conectiv, the parent of both Delmarva and Atlantic, themselves provide sufficient interest to support intervention in this proceeding regardless of how those contracts affect the merits of the substantive issues involved.(19) Delaware Municipal has standing to be a party to this proceeding.(20) We accept Delmarva's Answer to the protests of the Easton Commission and Delaware Municipal because the Answer has assisted our understanding of the matters in this proceeding. B. Standard of Review Under Section 203 of the FPA Section 203 (a) of the FPA provides in relevant part: No public utility shall sell, lease, or otherwise dispose of the whole of its facilities subject to the jurisdiction of the Commission, or any part thereof of a value in excess of $50,000, or by any means whatsoever, directly or indirectly, merge or consolidate such facilities or any part thereof with those of any other person, or purchase, acquire, or take any security of any other public utility, without first having secured an order of the Commission authorizing it to do so. 16 U.S.C. Section 824b(a) (1994). Under section 203(a), the Commission must approve a proposed jurisdictional transfer if it finds that the transaction "will be consistent with the public interest."(21) In - ----------- (18) See, Atlantic Electric City Co., et al., 90 FERC & 61,268 (2000) (involving sales to unaffiliated third parties). (19) See, Utility Users League v. Federal Power Commission, 394 F.2d 16, 18 (7 Cir. 1968). (20) In its protest and motion to intervene, Delaware Municipal has limited its particular concerns to the Delmarva transfer. Delmarva's request in its Answer that Delaware Municipal be prohibited hereafter from addressing with particularity the Atlantic transfer is thus not ripe for review. (21) 16 U.S.C. Section 824b(a) (1994). 10 -10- 1996, the Commission issued the Merger Policy Statement updating and clarifying its procedures, criteria and policies applicable to such transactions.(22) The Commission has reviewed the application under the criteria discussed in the Commission's Merger Policy Statement. For the reasons discussed below, we find that the proposed transaction is consistent with the public interest. Accordingly, we will approve the proposed transfers of jurisdictional facilities. C. Analysis of the Application 1. Effect on Competition As previously noted, the Applicants state that the proposed transfers will have no adverse effect on competition. The Easton Commission and Delaware Municipal do not disagree. We agree with Applicants' general assertion that market structure will not be adversely affected by the proposed transfer. The proposed transaction is a transfer of jurisdictional facilities within a family of corporations and will not result in a net loss of competitors from the generation market. Conectiv, through its ownership of Delmarva and Atlantic, presently controls all of the assets being transferred and will continue to control many of those assets after the transfers through its control of CEH, the intermediate holding company. For the foregoing reasons, we find that the proposed transfers will not adversely effect competition. 2. Effect on Rates We find that the proposed transfers will not adversely affect wholesale rates. Atlantic does not serve any wholesale customers and thus, has no wholesale rates to be affected. As previously noted, Applicants state that Delmarva serves ten wholesale customers under either full or partial requirements contracts, and eight of those customers - ----------- (22) The criteria of the Merger Policy Statement are discussed infra. 11 -11- are under contracts with no FAC and with fixed demand and energy charges. Applicants maintain that the proposed transaction will have no effect on these fixed rate customers, and Delaware Municipal has not persuaded us to the contrary. As we discuss below, Delaware Municipal focuses on other customers. Delaware Municipal focuses its protest on the impact of the Delmarva facilities transfer to CDG on the rates of Berlin and Seaford, both customers with FACs. Delaware Municipal alleges that Applicants have not addressed aspects of the proposed facilities transfer that will have a significant impact on their rates.(23) According to Delaware Municipal, data submitted in support of the proposed facilities transfer highlights several cost issues that show that Berlin and Seaford, under negotiated contracts with Delmarva, are overpaying Delmarva's cost of service and may continue to do so after the facilities transfer. Among other things, Delaware Municipal claims that ratepayers, over the years, have overpaid Delmarva more than $76 million in accumulated depreciation, deferred income taxes and accumulated deferred ITC.(24) Delaware Municipal also contends that the Delmarva ratepayers continue to pay excessive amounts for the investment in the generating plants to be transferred. Delaware Municipal further alleges that as a result of the proposed transaction there will be a reduction of approximately $69 million in deferred income taxes, property taxes, operation and maintenance expenses, fuel inventories, materials and supplies, and cash working capital. Delaware Municipal believes that if Seaford is to be charged market energy prices in the post transaction period, its annual demand charges should be significantly reduced to reflect the asset transfer.(25) - ----------- (23) Delaware Municipal's Motion at pp. 4-6. (24) Id. at pp. 5 - 6. (25) Delaware Municipal's Motion at p. 5. 12 -12- Delaware Municipal requests that the Commission order Delmarva to: (1) file cost-of-service data to reflect the impact of the proposed transaction on Seaford's overall rate; (2) order a reduction in Seaford's demand charge on an annual basis for each year of the remaining term of the contract; and (3) require Delmarva to provide Seaford with an adequate hold harmless protection. (26) - ----------- (26) Delaware Municipal's Motion at pp. 6-7. 13 -13- We deny Delaware Municipal's requests for the following reasons.(27) First, we find that Seaford's allegation regarding inadequate ratepayer protection is without merit. We note that, recently, in a divestiture application involving the disposition of certain nuclear generating units,(28) we found that Delmarva had provided Seaford and Berlin with ratepayer protection that allows Seaford to terminate its contract and purchase power from other market participants. Second, if Delaware Municipal believes the rates are unjust and unreasonable, it should file a section 206 complaint with the Commission. In the past we have found it beyond the scope of a divestiture proceeding to address the rate concerns Delmarva Municipal has raised.(29) For the foregoing reasons, we conclude that the proposed transaction will not have an adverse affect on rates.(30) 3. Effect on Regulation - ----------- (27) We denied similar requests by Delaware Municipal in our order issued March 17, 2000 in Atlantic City Electric Co., et al. 90 FERC & 61,268 (2000). (28) Atlantic Electric Company et al., 90 FERC & 61,268 (March 17, 2000), Mimeo at p. 7. (29) See, e.g., Jersey Central Power & Light Co., 87 FERC & 61,014 at 61,039 (1999); Niagara Mohawk, 87 FERC & 61,283 at 62,138 (1999). In the Niagara Mohawk case, certain intervenors contended that the Commission should condition its approval of an asset divestiture under section 203 of the FPA upon the removal of the costs of generator step-up transformers from the applicant's transmission rates. The Commission denied the request and concluded: This is not the appropriate forum to consider whether Niagara Mohawk's transmission rates continue to be just and reasonable. Furthermore, Multiple Intervenors have singled out a specific cost component -- generator step-up costs -- to be removed from Niagara Mohawk's rates. If Multiple Intervenors believe that the overall level of their rates (not just a single component) is excessive, they may file a complaint [footnote omitted] with the Commission. (30) We note that the public interest does not require that each element of a transaction benefit every utility or individual that might be affected. Rather "the whole transaction must be considered with the interest of the public." Duquesne Light Company, 88 FERC & 61,248 at 61,792 (1999). 14 -14- As previously noted, Applicants claim that the transfers will have no adverse effect on state or federal regulation. We agree. The Easton Commission and Delaware Municipal have raised no substantive issues in this regard. Moreover, Applicants have reaffirmed their commitment to follow Commission policy regarding the treatment of costs and revenues related to inter-affiliate transactions. Wholesale sales by CDG and CAG will be subject to the Commission's jurisdiction, as will be any interstate transmission service provided by Delmarva and Atlantic. Further, the transaction does not impair the ability of the pertinent states to exercise their regulatory authority regarding the Applicants. No state commission has intervened and argued to the contrary. D. The Easton Commission's Issues As previously noted, while the Easton Commission does not oppose the proposed transfer of jurisdictional facilities, it is concerned that the transaction will have the potential to adversely affect the reliability of electric service on the Delmarva Peninsula. The Easton Commission also is concerned that the Delmarva generating facilities will be operated in a manner that increases the Locational Marginal Prices (LMP) to which the on-Peninsula transmission customers may be subject during periods of system congestion. The Easton Commission has not substantiated its concern regarding the reliability of the Delmarva on-Peninsula transmission system. We find that the proposed transaction is simply a transfer within a family of corporations and has no material effect on the reliability of the transmission system. The PJM-ISO has operational control of Delmarva's transmission system and is responsible for maintaining PJM system reliability, including the portion of the system that is on the Delmarva Peninsula. (31) Accordingly, we find that adequate procedures are in place to ensure reliability in the PJM control area, including on the Delmarva Peninsula. With respect to the Easton Commission's concern regarding the potential increase in LMPs to which on-Peninsula transmission customers may be subject, that concern is premature. We find that there are no pre-existing circumstances that indicate the new owners will have either the ability or incentive to influence the LMP prices on the Delmarva Peninsula. In addition, the Easton Commission has provided no supporting documentation to indicate the likelihood of this increase occurring as a result of this transaction. We conclude, contrary to the Easton Commission's suggestions, that the - ----------- (31) Pennsylvania-New Jersey-Maryland Interconnection LLC (PJM), 81 FERC & 61,257 (1997). 15 -15- proposed transaction will not have an adverse affect on rates and is consistent with the public interest. The Commission orders: (A) The proposed dispositions of Delmarva's and Atlantic's jurisdictional facilities are hereby approved, as discussed in the body of this order. (B) The Commission retains authority under sections 203(b) and 309 of the FPA to issue supplemental orders and to place further conditions on the transaction as appropriate. (C) The foregoing authorization is without prejudice to the authority of this Commission or any other regulatory body with respect to rates, service, accounts, valuation, estimates or determinations of costs, or any other matter whatsoever now pending or which may come before this Commission. (D) Nothing in this order shall be construed to imply acquiescence in any estimate or determination of cost or any valuation of property claimed or asserted. (E) The Applicants are hereby directed to notify the Commission when the transaction is completed, within 10 days of its completion. By the Commission. ( S E A L ) David P. Boergers, Secretary. EX-99.D.8 6 0006.txt FERC ORDER AUTHORIZING DIVIDENDS OUT OF CAPITAL 1 Exhibit D-8 UNITED STATES OF AMERICA 91 FERC & 61,043 FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: James J. Hoecker, Chairman; William L. Massey, Linda Breathitt, and Curt Hebert, Jr. Delmarva Power & Light Company; Atlantic City Electric Company Docket No. EL00-52-000 ORDER GRANTING PETITION FOR DECLARATORY ORDER (Issued April 13, 2000) On March 1, 2000, Delmarva Power and Light Company (Delmarva) and Atlantic City Electric Company (Atlantic) filed a petition for declaratory order (Petition) seeking authorization to pay dividends out of paid-in capital, and approval of the related accounting for such dividends. Delmarva and Atlantic filed the Petition on their behalf and on behalf of all of their affiliated companies that will participate in an intra-corporate transaction to dispose of jurisdictional assets (collectively, Applicants) pursuant to section 203 of the Federal Power Act (FPA)(1) in Docket No. EC00-40-000. As discussed below, we will grant the Petition, based on the circumstances of this case. Background and the Transaction Participants - ----------- (1) 16 U.S.C. Section 824b (1994). 2 -2- Delmarva and Atlantic are subsidiaries of Conectiv, which is a registered public utility holding company under the Public Utility Holding Company Act. Delmarva and Atlantic presently are vertically integrated public utilities and own and operate generation, transmission and distribution facilities. They plan to transfer jurisdictional facilities to DPL REIT, Inc. (CDG) and Conectiv Atlantic Generation, LLC (CAG), which are corporate subsidiaries of Delmarva and Atlantic respectively.(2) In the long run, Delmarva and Atlantic will be wires companies that provide transmission and distribution services only.(3) Two other affiliate companies pertinent to the transaction are ACE REIT, Inc. (ACE REIT), which now is a wholly owned subsidiary of Atlantic, and Conectiv Energy Holding Company (CEH), a soon-to-be-incorporated intermediate holding company within the Conectiv family. The Proposed Transaction Applicants state that Delmarva will transfer jurisdictional facilities to CDG. Then Delmarva will declare a capital dividend in the form of CDG common stock and distribute the stock to Conectiv. Conectiv subsequently will transfer the CDG stock to CEH. Atlantic will transfer facilities to CAG. Atlantic will then transfer its CAG common stock to ACE REIT. Next, Atlantic will cause the transfer of its ACE REIT common stock to Conectiv as a capital dividend. Conectiv will then transfer that common stock to CEH.(4) At the conclusion of the transaction, CEH will own directly CDG stock and will own - ----------- (2) The Commission will rule on this section 203 case in Docket No. EC00-40-000, the companion proceeding to this case. (3) Petition at p.2. (4) Petition at p.2. 3 -3- indirectly through ACE REIT, CAG stock. The two dividends paid out of capital accounts are: 1) the dividend of CDG stock from Delmarva to Conectiv; and 2) the dividend of ACE REIT stock from Atlantic to Conectiv.(5) Notice of Filing and Interventions and the Petition Notice of the Petition was published in the Federal Register, 65 Fed.Reg.15,627 (2000), with comments, protests and interventions due on or before April 6, 2000. None was filed. - ----------- (5) Id. 4 -4- In the Petition, the Applicants claim that the dividend payments of CDG stock to Conectiv and of ACE REIT stock to Conectiv, while made from paid-in capital accounts, should not be prohibited by section 305(a) of the FPA because the abusive circumstances which that provision was designed to address are not present in this transaction.(6) Applicants maintain that the transaction does not result in the personal financial benefit of utility company officials, does not defraud the general public and does not undermine the financial health of Delmarva or Atlantic.(7) As part of the Petition, Applicants include in an Appendix A proposed accounting journal entries that reflect the capital dividend payments. In addition, Applicants include in the Petition an unaudited accounting description of a possible future like-kind exchange of property between CDG and a yet-to-be-determined unaffiliated purchaser. Applicants indicate that if the like-kind transaction does occur, the value of the CDG common stock paid as a capital dividend would increase by approximately $26 million dollars.(8) Discussion We will grant the Petition because, as Applicants maintain, the concerns underlying section 305(a) of the FPA are not present in the circumstances of this transaction. Section 305(a) of the FPA reads It shall be unlawful for any officer or director of any public utility to receive for his own benefit, directly or indirectly, any money or thing of value in respect of the negotiation, hypothecation, or sale by such public utility of any security issued or to be issued by such public utility, or to share in any of the proceeds thereof, or to participate in the making or paying of any dividends of such public utility from any funds properly included in capital account. 16 U.S.C. Section 825d(a) (1994) (emphasis added). The concerns underlying the enactment of section 305(a) of the FPA included "that sources from which cash dividends were paid were not clearly identified and that holding - ----------- (6) Id. at p.5. (7) Id. (8) Petition at p.3. We do not consider in this decision Applicants' speculation that they may engage in a like-kind exchange of property at some future date. 5 -5- companies had been paying out excessive dividends on the securities of their operating companies."(9) A central concern thus "was corporate officials raiding corporate coffers for their personal financial benefit."(10) The record in this case justifies no such concerns. While both of the dividend payments at issue in this proceeding are from capital accounts, the proposed accounting entries reflecting these payments are clear. In addition, the dividend payments are not cash payments and the proposed entries, therefore, do not evidence any excessive payments of cash dividends. The dividend payments are payments of stock made from one affiliated corporation to another to accommodate an intra-corporate transfer of jurisdictional facilities, the ultimate aim of which is to separate transmission and distribution service from generation service within the Conectiv family of companies. The dividend payments are not made to the public, and the record does not suggest any impropriety. The concerns underlying section 305(a) are not present in this proceeding. For these reasons, and under the circumstances of this case, we grant the petition and find that section 305(a) is not a bar to the two stock dividends in question in this transaction. - ----------- (9) Citizens Utilities Company, 84 FERC & 61,158 at 61,865 (1998). (10) Id. 6 -6- We also approve the accounting related to the stock dividend payments. When the facilities are initially transferred to the CDG and CAG, Delmarva and Atlantic propose to remove the original cost of those facilities, the related accumulated provision for depreciation, and the related deferred income taxes from Accounts 101, 108, 282 and 255;(11) they charge Account 123.1, Investments in Subsidiary Companies. Upon declaration of the dividend, Account 123.1 will be credited and Account 211, Miscellaneous Paid-In Capital, will be charged for the amount recorded therein. We find that the proposed accounting is consistent with the Commission's Uniform System of Accounts, except that the accounting for the initial transfer of the facilities should be cleared through Account 102, Electric Plant Purchased or Sold. The Commission orders: (A) The petition for declaratory order is hereby granted, as discussed in the body of this order. (B) Applicants' proposed accounting is approved, as discussed in the body of this order. (C) Applicants shall file actual journal entries to clear Account 102, Electric Plant Purchased or Sold, within six months of the date of the transaction. - ----------- (11) Account 101, Electric Plant In Service; Account 108, Accumulated Provision for Depreciation of Electric Utility Plant; Account 282, Accumulated Deferred Income Taxes-Other Property; Account 255, Accumulated Deferred Investment Tax Credits. 18 C.F.R. pt. 101 (1999). 7 -7- (D) The foregoing authorization is without prejudice to the authority of the Commission or any other regulatory body with respect to rates, services, accounts, valuation, estimates or determinations of cost, or any other matter whatsoever now pending or which may come before the Commission. By the Commission. ( S E A L ) David P. Boergers, Secretary. EX-99.D.9 7 0007.txt APPLICATION TO THE PAPUC FOR AUTHORITY TO TRANSFER 1 Exhibit D-9 BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION APPLICATION OF ATLANTIC CITY * ELECTRIC COMPANY, DELMARVA POWER AND LIGHT COMPANY, * Docket No. ___________ AND CONECTIV DELMARVA GENERATION, INC. FOR CERTIFICATES * OF PUBLIC CONVENIENCE EVIDENCING APPROVAL UNDER CHAPTER 11 OF * THE PUBLIC UTILITY CODE FOR TRANSFERS OF INTERESTS IN THE * KEYSTONE GENERATING STATION, THE CONEMAUGH GENERATING STATION * AND RELATED ASSETS TO PENNSYLVANIA PUBLIC UTILITY COMMISSION: I. INTRODUCTION 1. Atlantic City Electric Company ("ACE"), Delmarva Power & Light Company ("Delmarva"), and Conectiv Delmarva Generation, Inc. ("CDG") (collectively, the "Applicants") hereby request that the Pennsylvania Public Utility Commission ("PUC" or the "Commission"): (1) issue Certificates of Public Convenience evidencing approval under Chapter 11 of the Public Utility Code (66 Pa.C.S. Section 1101 et seq.) in connection with the transfers (a) by ACE of its respective interests in the Keystone Generating Station and the Conemaugh Generating Station to NRG Energy, Inc. ("NRG") (or an NRG subsidiary) and (b) by Delmarva of its respective interests in the Keystone Generating Station and the Conemaugh Generating Station to CDG, an unregulated, direct subsidiary of Delmarva, and then to NRG (or an NRG subsidiary), or directly 2 to NRG (or an NRG subsidiary) and (2) make findings pursuant to Section 2811(e) of the Public Utility Code (66 Pa.C.S. Section 2811(e)) as a prerequisite for such approval. 2. The names and addresses of the Applicants are as follows: Atlantic City Electric Company c/o Conectiv 800 King Street P.O. Box 231 Wilmington, DE 19899 Delmarva Power & Light Company c/o Conectiv 800 King Street P.O. Box 231 Wilmington, DE 19899 Conectiv Delmarva Generation, Inc. c/o Conectiv 800 King Street P.O. Box 231 Wilmington, DE 19899 3. The names and address of the attorneys for the Applicants are as follows: Robert C. Gerlach, Esquire Rebecca J. Kamp, Esquire Ballard Spahr Andrews & Ingersoll, LLP 1735 Market Street, 51st Floor Philadelphia, PA 19103-7599 2 3 II. DESCRIPTION OF THE COMPANIES INVOLVED IN THE PROPOSED TRANSACTIONS 4. ACE is a corporation organized and existing under the laws of the State of New Jersey and is a wholly owned subsidiary of Conectiv ("Conectiv")(1). ACE furnishes electric generation, transmission and distribution services in the southern one-third of New Jersey under and subject to the jurisdiction of the New Jersey Board of Public Utilities ("BPU"). ACE is qualified to do business in the Commonwealth of Pennsylvania where it owns: (1) a 7.51% interest in Peach Bottom nuclear generating station,(2) located in Drumore Township, York County, and Fulton Township, Lancaster County ("Peach Bottom"); (2) a 2.47% interest in the Keystone Generating Station, related facilities and related interests, located in Armstrong and Indiana Counties ("Keystone"); (3) a 3.83% interest in the Conemaugh Generating Station, related facilities and related interests, located in Indiana County ("Conemaugh"); and (4) an 8% interest in the Conemaugh-Conastone EHV Transmission Line, located in Adams, Bedford, Blair, Cambria, Cumberland, Franklin, Huntington, Indiana, Westmoreland and York Counties (the "Conemaugh-Conastone Line"). ACE also has an ownership interest in buildings located in Pennsylvania and used by the PJM Interconnection, L.L.C. ("PJM"), which are not jurisdictional - ----------- (1) Conectiv is a corporation organized and existing under the laws of Delaware. Pursuant to its Order and Certificate of Public Convenience issued October 2, 1997 at Docket No. A-00091675F.0002, the Commission approved a series of transactions whereby ACE and Delmarva became wholly owned subsidiaries of Conectiv. Conectiv is not an operating utility under either federal or state law. Conectiv is a registered public utility holding company under the Public Utility Holding Company Act of 1935, as amended (15 U.S.C. Section 79). (2) ACE has filed a Section 1102(a)(3) application with the Commission at Docket No. A-96379F200 requesting approval of the 3 4 facilities. The transactions that are the subject of this Application do not include ACE's interests in Peach Bottom, the Conemaugh-Conastone Line or the buildings located in Pennsylvania and used by the PJM. ACE holds Certificates of Public Convenience issued by the Commission on November 25, 1964, July 25, 1966, April 24, 1968 and June 21, 1971 at Application Docket No. 91674, 93233, 94225 and 96379, respectively, for the purpose of exercising the rights of a foreign public utility in Pennsylvania. ACE has no retail utility customers in Pennsylvania, receives no gross operating revenue for services rendered pursuant to a tariff filed with the Commission for intrastate service within Pennsylvania and operates no public utility facilities within the Commonwealth. - ----------- transfer of its interest in Peach Bottom. Approval is still pending. 4 5 5. Delmarva is a corporation organized and existing under the laws of the State of Delaware and the Commonwealth of Virginia and is a wholly owned subsidiary of Conectiv. Delmarva furnishes electric generation, transmission and distribution service in Delaware, the Eastern Shore of Maryland and the Eastern Shore of Virginia and also furnishes gas service in northern Delaware, under and subject to the jurisdiction of the Delaware Public Service Commission, the Maryland Public Service Commission and the Virginia State Corporation Commission. Delmarva is qualified to do business in the Commonwealth of Pennsylvania where it owns: (1) a 7.51% interest in Peach Bottom(3); (2) a 3.70% interest in Keystone; (3) a 3.72% interest in Conemaugh; and (4) a 9% interest in the Conemaugh-Conastone Line. Delmarva also has an ownership interest in buildings located in Pennsylvania and used by PJM, which are not jurisdictional facilities. The transactions that are the subject of this Application do not include Delmarva's interests in Peach Bottom, the Conemaugh-Conastone Line or the buildings located in Pennsylvania and used by the PJM. Delmarva holds Certificates of Public Convenience issued by the Commission on November 25, 1964, July 25, 1966, April 24, 1968 and June 21, 1971 at Application Docket Nos. 91675, 93235, 94227 and 96380, respectively, for the purpose of exercising the rights of a foreign public utility in Pennsylvania. Delmarva has no retail utility customers in Pennsylvania, receives no gross operating revenue for service rendered pursuant to a tariff filed with the Commission for - ----------- (3) Delmarva has filed a Section 1102(a)(3) application with the Commission at Docket No. A-96380F200 requesting approval of the transfer of its interest in Peach Bottom. Approval is still pending. 5 6 intrastate service within Pennsylvania and operates no public utility facilities within the Commonwealth. 6. CDG is a corporation organized and existing under the laws of the State of Delaware and is a wholly owned subsidiary of Delmarva. CDG has no retail utility customers in Pennsylvania, receives no gross operating revenue for service rendered pursuant to a tariff filed with the Commission for intrastate service within Pennsylvania and operates no public utility facilities within the Commonwealth. CDG is not subject to the jurisdiction of the Commission. III. THE FACILITIES INVOLVED IN THE PROPOSED TRANSACTION 7. Keystone consists of two coal generation units with a total capacity of 1,700 MW and four diesel units with a total capacity of 11 MW and related facilities. Conemaugh consists of two coal generation units with a total capacity of 1,700 MW and four diesel units with a total capacity of 11 MW and related facilities. 8. As previously indicated, ACE has a 2.47% ownership share in Keystone and a 3.83% ownership in Conemaugh and Delmarva has a 3.70% interest in Keystone and a 3.72% interest in Conemaugh. 6 7 IV. SUMMARY OF THE TRANSACTIONS FOR WHICH APPROVALS ARE REQUESTED A. SALE BY ACE TO NRG 9. As a result of an auction process, ACE reached agreement with NRG for the purchase of all ACE's interests in and to the real and personal property comprising Keystone and Conemaugh and ACE's interests in certain operating agreements and related assets (the "ACE Assets"). NRG is a corporation organized and existing under the laws of the State of Delaware and is a wholly owned subsidiary of Northern States Power Company.(4) NRG is principally engaged in the acquisition, development and operation of interests in independent power production and cogeneration facilities, thermal energy production and transmission facilities and resource recovery facilities. NRG is not subject to jurisdiction of the Commission.(5) Either NRG, or a subsidiary of NRG to be designated by NRG before closing, is the proposed transferee. 10. On January 18, 2000, a Purchase Agreement was executed between ACE and NRG (the "ACE Agreement") wherein ACE agreed to sell and NRG (or a designated subsidiary) has agreed to purchase the ACE Assets for a purchase price of approximately $96.1 million. A copy of the ACE Agreement is provided as Exhibit A to this Application. - ----------- (4) Northern States Power Company is a corporation organized and existing under the laws of Minnesota. Northern States Power is a public utility and an exempt public utility holding company under Section 3(a)(2) of the Public Utility Holding Company Act of 1935, as amended (15 U.S.C. Section 79). (5) A wholly owned subsidiary of NRG is subject to the jurisdiction of the Commission due to its ownership of Pittsburgh Thermal Limited Partnership. Another wholly owned subsidiary of NRG has signed an agreement to purchase the Harrisburg District Steam System and will become subject to the jurisdiction of the Commission upon the closing of that transaction. 7 8 11. Upon the terms and conditions set forth in the ACE Agreement, NRG has agreed to assume essentially all pre-closing, on-site environmental liabilities associated with the ACE Assets. NRG will also assume all post-closing on-site and off-site environmental liabilities. Closing on the sale of the ACE Assets to NRG is planned for September 1, 2000. B. SALE BY DELMARVA TO NRG 12. On January 18, 2000, Delmarva and NRG entered into an agreement (the "Delmarva Agreement") wherein Delmarva has agreed to sell and NRG (or a designated subsidiary) has agreed to purchase all of Delmarva's interests in and to the real and personal property comprising Keystone and Conemaugh and Delmarva's interests in certain operating agreements and related assets (the "Delmarva Assets"). A copy of the Delmarva Agreement is provided as Exhibit B to this Application. The Delmarva Agreement also provides that Delmarva and NRG will cooperate to structure the transaction so as to maximize proceeds. There are two alternative methods pursuant to which the Delmarva Assets may be transferred to NRG. Under the first alternative, the "Sale Alternative," Delmarva will sell the Delmarva Assets directly to NRG for cash consideration of approximately $113.1 million on or about September 1, 2000. Under the second alternative, the "Exchange Alternative," Delmarva will transfer the Delmarva Assets to CDG on or about June 1, 2000. CDG will transfer the Delmarva Assets on or about September 1, 2000 to NRG in exchange for replacement assets designated by NRG at a future date that would qualify for a tax-deferred like-kind-exchange treatment. Delmarva plans to proceed with the second alternative, the Exchange Alternative, if it determines it can receive favorable tax treatment and if it receives necessary regulatory approvals prior to June 1, 2000. 8 9 13. Upon the terms and conditions set forth in the Delmarva Agreement, NRG has agreed to assume essentially all pre-closing, on-site environmental liabilities associated with the Delmarva Assets. NRG will also assume all post-closing on-site and off-site liabilities. C. REGULATORY APPROVALS, OTHER THAN THOSE REQUESTED HEREIN 14. In addition to the approvals requested herein, the following principal regulatory approvals will be required in connection with the sale of the ACE Assets and Delmarva Assets: a. FEDERAL ENERGY REGULATORY COMMISSION: Approval under Section 203 of the Federal Power Act for NRG's acquisition of FERC jurisdictional assets. Under the Exchange Alternative, CDG will also need approval under Section 203 of the Federal Power Act for its acquisition of FERC jurisdictional assets. b. U.S. DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION: Filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the termination or expiration of applicable waiting periods. c. SECURITIES AND EXCHANGE COMMISSION: Under the Exchange Alternative, the transfer of the Delmarva Assets to CDG will require approval under Section 12 of the Public Utility Holding Company Act, which is required because of Conectiv's status as a registered public utility holding company and the fact that CDG would be a public utility under federal law. d. NEW JERSEY BPU: Approval of the sale and purchase of assets under state law and, because NRG will seek to qualify the ACE Assets and the Delmarva Assets as "eligible facilities" and obtain Exempt Wholesale Generator status ("EWG Status"), specified findings under Section 32(c) of the Public Utility Holding Company Act of 1935, 15 U.S.C. Section 79z-5a(c). 9 10 e. DELAWARE PUBLIC SERVICE COMMISSION, MARYLAND PUBLIC SERVICE COMMISSION ("MPSC") AND VIRGINIA STATE CORPORATION COMMISSION ("VSCC"): Since NRG, or an NRG subsidiary, will seek to qualify the ACE Assets and the Delmarva Asset as "eligible facilities" and obtain EWG Status, specified findings under Section 32(c) of the Public Utility Holding Company Act of 1935, 15 U.S.C. Section 79z-5a(c). The VSCC will also review the sale of the Delmarva Assets under the Virginia Utility Restructuring Act and, if the Exchange Alternative is utilized, the transfer of the Delmarva Assets to CDG under the Virginia Affiliate Act. The MPSC will review the appropriate accounting of transfers between Delmarva and CDG if the Exchange Alternative is utilized. V. REQUEST FOR APPROVALS UNDER SECTION 1102 15. Section 1102(a)(3) requires Commission approval, evidenced by a Certificate of Public Convenience: For any public utility or an affiliated interest of a public utility as defined in Section 2102 ... to acquire from, or transfer to, ... any person or corporation ... by any method or device whatsoever ... any tangible or intangible property used or useful in the public service. 16. Exhibit C, which accompanies this Application, sets forth a statement of the ACE Assets and the Delmarva Assets to be transferred by ACE to NRG showing: (a) gross plant; (b) accumulated reserve plant; and (c) net plant, as of December 31, 1999. 17. Exhibit D, which contains certified copies of the Board of Directors' resolutions of ACE authorizing the execution and delivery of the ACE Agreement, will be provided supplementally. 10 11 18. Exhibit E, which contains certified copies of the Board of Directors' resolutions of Delmarva authorizing the execution and delivery of the Delmarva Agreement, will be provided supplementally. 19. All annual reports, tariffs, certificates and applications filed with the Commission by ACE and Delmarva are incorporated herein by reference. 20. The transfer of the ACE Assets and Delmarva Assets to NRG will have no effect on the rates or services of Pennsylvania retail electric customers. As previously explained, ACE, Delmarva and NRG do not furnish regulated retail electric service in Pennsylvania. 21. ACE, Delmarva and CDG request that the Commission issue its approvals, under Section 1102(a)(3), as evidenced by Certificates of Public Convenience, for the sale and transfer by ACE and Delmarva of the ACE Assets and the Delmarva Assets, respectively, to NRG (or subsidiaries of NRG) and that such approvals be valid irrespective of whether or not the Delmarva Assets are transferred directly to NRG or NRG subsidiaries or are first transferred to CDG with a subsequent transfer to NRG or an NRG subsidiaries. In addition, because ACE and Delmarva will own no interest in Keystone or Conemaugh after the transfers to NRG are consummated, ACE requests approval under Section 1102(a)(2) to abandon the Certificates of Public Convenience for ACE issued at Application Docket Nos. 91674 and 93233 authorizing ACE to hold ownership interests in Keystone and Conemaugh, and Delmarva requests approval under Section 1102(a)(2) to abandon the Certificates of Public convenience for Delmarva issued at Application Docket Nos. 91675 and 93235 authorizing Delmarva to hold ownership interests in Keystone and Conemaugh. 11 12 22. The proposed transfers of these minority interests are consistent with public interest. The safe, reliable, reasonable and efficient operation of Keystone and Conemaugh is unaffected by these proposed transfers which do not result in a change in entities who own much larger shares of the facilities. Moreover, the proposed transfers have no effect on the company responsible for operation of Keystone and Conemaugh. NRG and its subsidiaries are fully capable of providing their proportionate share of funds necessary to maintain such safe, reliable, reasonable and efficient operation. VI. REQUEST FOR SECTION 2102 APPROVAL OF CONTRACTS WITH AFFILIATED INTERESTS 23. CDG is a wholly owned subsidiary of Delmarva. If Delmarva pursues the Exchange Alternative under the Delmarva Agreement, Delmarva and CDG will enter into an agreement (the "Transfer Agreement") pursuant to which Delmarva will transfer the Delmarva Assets to CDG in anticipation of a tax-deferred like-kind-exchange between CDG and NRG. The form of Transfer Agreement will be provided supplementally as Exhibit F. Delmarva and CDG request that the Commission issue its approval of the Transfer Agreement to the extent such approval is required by Section 2102 (66 Pa. C.S. Section 2102). 24. An organizational chart, showing Conectiv, Delmarva, CDG and ACE, is attached to this Application as Exhibit G. If Delmarva pursues the Exchange Alternative it will first transfer the Delmarva Assets to CDG, a wholly owned subsidiary of Delmarva. 12 13 VII. THE PROPOSED TRANSACTION WILL NOT RESULT IN ANTICOMPETITIVE OR DISCRIMINATORY CONDUCT 25. Section 2811(e)(1) provides, in pertinent part, as follows: In the exercise of authority the commission otherwise may have to approve ... the acquisition or disposition of assets of other public utilities or electricity suppliers, the commission shall consider whether the proposed ... acquisition or disposition is likely to result in anticompetitive or discriminatory conduct, including the unlawful exercise of market power, which will prevent retail electricity customers in this Commonwealth from obtaining the benefits of a properly functioning and workable competitive retail electricity market. 26. The proposed acquisitions for which approval is sought herein will have no adverse effect on competition or result in any unlawful exercise of market power. Since ACE and Delmarva's interests in Keystone and Conemaugh are small, minority interests, the transfer of these interests to NRG will not create a significant shift in the market place. NRG owns portions of two cogeneration facilities in the Philadelphia, Pennsylvania area(6) and a 50% interest in two land fill gas generation facilities in Philadelphia and Imperial, Pennsylvania,(7) all of which are in PJM. Additionally, NRG has signed agreements with Statoil to purchase Paxston Creek Cogeneration, a 6.3 MW electric generation facility in - ---------- (6) NRG owns 20% of Cogeneration Corporation of America ("Cogen"). Cogen owns Greys Ferry, a 150 MW electric generation facility and Philadelphia Water Department, a 22 MW electric generation facility. NRG's net megawatt ownership interest in Greys Ferry and the Philadelphia Water Department is 15 MW and 4 MW respectively. (7) NRG owns 50% of SKB, a 1.1 MW facility and 50% of Mazarro, a 0.5 MW facility. 13 14 Harrisburg, Pennsylvania ("Paxston") and Crozer Chester Medical Center, a 3.3 MW electric generation facility in Philadelphia, Pennsylvania ("Crozer"). NRG's combined interests after the sales described herein would total only 264.15 MW.(8) Therefore, the Commission should make the findings necessary under Section 2811(e)(2) for approval of the acquisition. VIII. NOTICE 27. Notice to be provided by the parties is governed by 52 Pa.Code Section 5.14(b)(7). In accordance with that regulation, the Applicants request that, promptly upon its receipt of this Application, the Commission: (1) cause notice hereof to be published in the Pennsylvania Bulletin; and (2) direct the Applicants as to the additional forms of notice, if any, that are required. 28. Contemporaneously with the filing of this Application, copies hereof will be served upon the Commission's Office of Trial Staff, the Pennsylvania Office of Consumer Advocate and the Pennsylvania Office of Small Business Advocate. - ---------- (8) The total number includes the acquisition of Paxston and Crozer. NRG expects to complete these acquisitions by the end of this year. 14 15 IX. CONCLUSION WHEREFORE, for the reasons set forth above, Atlantic City Electric Company, Delmarva Power & Light Company and Conectiv Delmarva Generation, Inc. request that the Commission approve this Application and grant the relief requested herein. Respectfully submitted, BY: ____________________________________ Name: Rebecca J. Kamp Title: Attorney for the Applicants 15 16 AFFIDAVIT __________________________ , being duly sworn according to law, deposes and says that he is _________________________ of ______________________________; that he is authorized to and does make this affidavit for it; and that the facts set forth above are, to the best of his knowledge, information and belief, true and correct and he expects the said ______________________________ to be able to provide the same at any hearing hereof. ___________________________________ Name: Sworn to and subscribed before me this _____ day of _________________, 2000 _______________________ My Commission Expires: 16 17 Exhibits 1. Purchase Agreement between Atlantic City Electric Company and NRG Energy, Inc. dated as of January 18, 2000. A. Agreement between Delmarva Power & Light Company and NRG Energy, Inc. dated as January 18, 2000. B. Valuation of Atlantic City Electric Company Assets and Delmarva Power and Light Company Assets C. Resolutions of the Board of Directors of Atlantic City Electric Company* D. Resolutions of the Board of Directors of Delmarva Power and Light Company* E. Form of Transfer Agreement between Delmarva Power & Light Company and Conectiv Delmarva Generation, Inc.* F. Organizational Chart - ---------- *To be provided supplementally. 17 EX-99.D.11 8 0008.txt APPLICATION TO VASCC FOR AUTHORITY TO TRANSFER 1 Exhibit D-11 BEFORE THE COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION APPLICATION OF DELMARVA POWER & ) LIGHT COMPANY UNDER THE VIRGINIA ) ELECTRIC UTILITY RESTRUCTURING ACT ) CASE No. PUE____________ AND FOR OTHER FINDINGS ) APPLICATION OF DELMARVA POWER & LIGHT COMPANY Delmarva Power & Light Company ("Delmarva" or the "Company") hereby respectfully seeks approval pursuant to Section 56-590.B of the Code of Virginia, of a plan for the functional separation of the Company's generation activities from its transmission and distribution activities (the "Plan") and necessary approvals for the implementation of the Plan in accordance with the Virginia Electric Utility Restructuring Act ("Restructuring Act"). As explained in more detail below, the Plan involves complete divestiture of Delmarva's generation facilities, some of which would be sold to unaffiliated parties and the remainder of which are proposed to be transferred to an affiliate. In order to effectuate the Plan, Delmarva also asks for certain findings relating to Delmarva and its affiliate, Atlantic City Electric Company ("ACE"), that are necessary under the Public Utility Holding Company Act of 1935, as amended ("PUHCA") in order to sell or transfer these generation facilities to an Exempt Wholesale Generator ("EWG"). Delmarva further requests findings that Delmarva's membership in the PJM Interconnection, LLC, meets the requirements of Virginia Code Sections 56-577.A.1 and 56- 2 579 relating to the transfer of management and control of utility transmission facilities to regional transmission entities by January 1, 2001. Delmarva further requests that the Virginia State Corporation Commission ("Commission") exercise its discretion pursuant to Virginia Code Section 56-249.6 to waive the requirements of filing fuel rate adjustments for the recovery of fuel costs, including purchase power costs, on the grounds that Delmarva's fuel costs can be reasonably recovered through the rates and charges established by the Commission in conjunction with the Plan. The Plan provides for the divestiture of Delmarva's generation facilities in three Phases. Therefore, Delmarva asks that the Commission enter orders from time to time as necessary to authorize the conveyances described herein. In particular, Delmarva asks that orders be entered on or before March 15, 2000, authorizing the sale to unaffiliated purchasers of its interests in nuclear baseload generation facilities, with such orders containing the PUHCA findings that are necessary in order to sell such generation facilities to an EWG. I. PARTIES AND OTHER RELATED COMPANIES. 1. Delmarva is a Delaware corporation and a Virginia public service corporation that provides electric service to approximately 21,500 retail customers and one wholesale customer in Virginia's two Eastern Shore counties. Delmarva has approximately 445,000 additional electric service customers located in Delaware and Maryland. Delmarva also provides natural gas service to approximately 106,000 customers located in Delaware. Delmarva's Virginia customers produce less than 3% of Delmarva's annual electric revenues. During the period, October 1, 1998 - September 2 3 30, 1999, Delmarva's Virginia retail load peaked on July 5, 1999, at approximately 84.8 MW, or about 2.6% of the 3,255 MW total system peak for Delmarva on that day. Annual energy usage by Virginia retail customers was 367,154 MWH, or about 2.7% of Delmarva's system annual energy usage of 13,657,098 MWH. Delmarva is a wholly owned subsidiary of Conectiv. Delmarva is also a member of the PJM Interconnection, LLC, ("PJM") which is an Independent System Operator as defined by the Federal Energy Regulatory Commission ("FERC"). PJM administers a generation bidding, dispatching and scheduling program and provides interstate transmission service for power generated within and/or transmitted across all or portions of Pennsylvania, New Jersey, Maryland and the Delmarva peninsula. 2. Conectiv is a Delaware corporation and a registered holding company under PUHCA. Conectiv also owns ACE, Conectiv Resource Partners, Inc. ("CRP") and a number of other corporations with non-regulated businesses. CRP employees provide various services for Conectiv-owned companies, including financial, accounting, legal, human resources, and other administrative services. 3. ACE is a New Jersey corporation whose retail utility activities are regulated by the New Jersey Board of Public Utilities. ACE has approximately 488,800 electric customers located in the southern one-third of New Jersey. ACE is also a member of PJM. II. BACKGROUND. A. THE LAW. 4. The Restructuring Act requires that, prior to January 1, 2001, each Virginia electric utility file a plan for the functional separation of its generation activities 3 4 from its distribution and transmission activities. The Commission is to review each plan. Section 56-590(B). 5. The Restructuring Act provides in Sections 56-577.A.1 and 56-579 for the transfer of management and control of utility transmission facilities to regional transmission entities by January 1, 2001. 6. Section 56-249.6 provides the Commission with discretion to waive the requirements of filing fuel rate adjustments for the recovery of fuel costs, including purchase power costs, if it makes findings that the utility's fuel costs can be reasonably recovered through the rates and charges established by the Commission. 7. Section 32 of PUHCA, 15 U.S.C. Section 79z-5a, contains a variety of provisions relating to EWGs, which are, by definition, exclusively in the business of owning and/or operating "eligible facilities" and selling the electric energy from such facilities at wholesale. Because they sell electricity at retail, Delmarva and ACE cannot be EWGs, and their existing power plants are not "eligible facilities" under PUHCA. 8. Under PUHCA, the power plants of Delmarva and ACE could become "eligible facilities" upon the sale or transfer to an EWG if certain findings are made; namely that: allowing such facility to be an eligible facility a) will benefit consumers; b) is in the public interest, and c) does not violate state law. 15 U.S.C. Section 79z-5a(c). 9. A special PUHCA rule within 15 U.S.C. Section 79z-5a(c) applies to utilities that are members of a registered utility holding company group, such as Delmarva and ACE. That special rule requires that the EWG findings be obtained from each state 4 5 commission with rate-making authority over any utility within the holding company group for any facility held as of 1992 by any utility in the group. This means that EWG findings must be sought from the Commission even for facilities currently owned by ACE that are to be sold to an EWG. The same EWG findings are being sought in Delaware, Maryland and New Jersey. B. THE PERTINENT FACTS. 10. In anticipation of retail electric competition, Conectiv, Delmarva, and ACE have developed a corporate strategy that focuses Delmarva and ACE on the core utility business of transmitting and distributing energy to retail and wholesale customers. Under this strategy, Delmarva and ACE would retain their transmission and distribution facilities, continue to read meters and bill customers, and, at least during the transition to full competition in the retail electric generation business, be the provider of last resort to customers who do not choose another electric supplier. Delmarva and ACE would exit the business of owning and operating power plants. 11. The corporate strategy also classifies the existing power plants as "strategic" and "non-strategic," depending on the perceived ability to operate them profitably. "Non-strategic" facilities include the nuclear and fossil units in which Delmarva and ACE have only small minority interests and base-load coal or oil units whose economic value may be driven largely by economies of scale. "Strategic facilities" are gas- or oil-fired units that are "load-following" units, (i.e., units that can be fired-up and shutdown relatively rapidly to match consumer demand for electricity). The corporate strategy is to sell the non-strategic facilities to unaffiliated companies. The strategic facilities would be transferred to an affiliate that would be part of a group 5 6 operating in largely unregulated markets, including electric energy trading, oil and gas trading, and competitive retail electric and gas sales markets. 12. On September 27, 1999, Delmarva executed contracts with PECO Energy Company and PSEG Power, LLC to sell its nuclear interests in the Peach Bottom Nuclear Generating Station located in York County, Pennsylvania, and the Salem Nuclear Power Station located in Salem County, New Jersey, subject to obtaining necessary regulatory approvals. The sales include the nuclear generation units themselves, nuclear decommissioning trust fund balances, nuclear fuel, and the associated interests in land and other equipment, including the small turbine at Salem that is primarily used for start-up and on-site power needs. It is Delmarva's understanding that on or prior to closing, PSEG Power, LLC will designate a subsidiary, PSEG Nuclear, LLC, to be the actual purchaser of the interests. 13. Delmarva currently owns 7.51% of Peach Bottom and 7.41% of Salem, (representing 173 MW and 172 MW of capacity, respectively). The sales agreements also provide that Delmarva's affiliate, ACE, will sell its 7.51% share of Peach Bottom and 7.41% share of Salem. One-half of each of those interests in Peach Bottom would be sold to PECO Energy Company ("PECO"), and one-half to PSEG Power, LLC. All of the Delmarva and ACE interests in Salem would be sold to PSEG Power, LLC. In addition, ACE holds a 5% share in the Hope Creek Nuclear Station located in Salem County, New Jersey. That 5% interest would also be sold to PSEG Power, LLC. 14. Under the sales agreements, the purchase price for Delmarva's interest in Salem and Peach Bottom is approximately $4.1 million and $5.1 million respectively. In addition, the purchasers will compensate Delmarva for Delmarva's share of the net book 6 7 value of the nuclear fuel at each facility as of the closing date. Under the sales agreements, PECO and PSEG Power, LLC, will assume future decommissioning and environmental liabilities. The net loss (pre-tax) expected from the sale of the Delmarva interests (including transactional costs) in the Nuclear Facilities relative to book value is approximately $252.3 million, but that number cannot be precisely quantified at this time because transaction costs and adjustments to the purchase price and book value will not be known until closing. 15. On January 18, 2000, Delmarva and ACE executed contracts with NRG Energy, Inc., a non-utility affiliate of the Minnesota-based utility, Northern States Power Company, which contracts, among other things, provide for the sale of: Delmarva's Indian River and Vienna powerplants located in Delaware and Maryland, respectively; Delmarva's minority interests in the Keystone and Conemaugh coal plants located in Pennsylvania; the unimproved land acquired by Delmarva for the once-planned construction of a coal-fired powerplant in Dorchester County, Maryland; and certain facilities and interests owned by ACE, including ACE's interests in the Keystone and Conemaugh plants. The sales price for the assets owned by Delmarva was $621.6 million, subject to adjustments for certain projected capital costs incurred prior to closing and changes in inventory levels. The net gain (net of transactional costs and pre-tax) expected from the sale of the Delmarva interests in the Fossil Facilities relative to book value is approximately $249.5 million, but that number cannot be precisely quantified at this time because transaction costs and adjustments to the purchase price and book value will not be known until closing. Associated with the sales contracts are various related agreements involving, among other things, the interconnection of the powerplants to the 7 8 Delmarva or ACE systems, a six month transitional services agreement and a term sheet for a power purchase agreement to be executed between Delmarva and NRG Energy, Inc. that will provide Delmarva with 500 MW of firm energy (deliverable in every hour) from the date of closing the Fossil Facilities transactions through the end of 2005. It is Delmarva's understanding that on or prior to closing, NRG Energy, Inc. will assign its interests to several subsidiaries or affiliates such that each plant or share of a plant will be owned by a separate legal entity, who will be the actual purchaser of the interests. 16. For many years Delmarva has been a member of the PJM power pool. That power pool was reorganized in 1997 as the PJM Interconnection, LLC. PJM operates as a single transmission control area with free-flowing interconnections serving 23 million customers of eight mid-Atlantic utilities, including Delmarva. By order dated November 25, 1997, the FERC approved PJM's open access transmission tariff. In addition to its function as an independent system operator (ISO), PJM operates a competitive energy market through the PJM Interchange Energy Market, as described in the FERC order. III. THE FUNCTIONAL SEPARATION PLAN. A. PROPOSED DIVESTITURES. 17. Delmarva proposes to separate its generation function from its transmission and distribution function through divestiture. If approved, it is expected that the divestiture will be complete in the second quarter 2000 and will occur in three phases: 1) sales to third parties (PECO and PSEG Nuclear) of minority interests in Peach Bottom and Salem (the "Nuclear Facilities") on or about March 31, 2000 ("Phase I"); 2) sales to third parties (NRG Energy, Inc.) of its minority interests in the Keystone and Conemaugh 8 9 coal-fired plants and its 100% interests in the Vienna and Indian River base-load fossil units (the "Fossil Units") ("Phase II"); and 3) transfer of intermediate and peak-load facilities to an affiliate ("Phase III"). 18. Delmarva currently owns 2,849 MW of capacity, of which 1,455 is planned for sale to unrelated entities in Phases I and II. The remaining 1,394 MW of capacity would be transferred in Phase III of the Plan to an affiliate after seeking approval of this Commission in a separate filing under the Affiliate Act. That Affiliate Act filing will also identify and describe the proposed transfer to an affiliate of certain intermediate-term and short-term power purchase contracts that were entered into with unaffiliated parties as part of Delmarva's wholesale trading activities. 19. The Plan results in a functional separation between employees who work at the generation plants and employees performing transmission and distribution functions. Employees at the generation plants will become employees of the companies to which the plants are sold or transferred. 20. CRP employees will generally be retained by CRP and will continue to provide services including legal, accounting, financial, fuel procurement and energy trading services for the Conectiv holding company group, including Delmarva and the affiliate(s) to which certain of the generation facilities will be transferred. It is expected that, at some point within the period that rates are capped, current CRP employees who perform functions primarily associated with electric generation and supply (e.g., the trading desk employees, fuel procurement employees) will be transferred out of CRP to an affiliated entity. 9 10 B. RATE PROPOSALS. (i) Introduction. 21. Delmarva's Plan reduces and stabilizes rates for Virginia retail electric customers. For each of the first two Phases to close, Delmarva proposes that there be a base rate decrease and that fuel rates be frozen. When the final Phase closes, Delmarva proposes an additional rate decrease so there will be an overall revenue decrease of 2.58%. The rates would stay in effect until at least January 1, 2004, except for small, scheduled, annual increases in the fuel rates. Each of the sales and transfers will require approvals from multiple regulatory authorities. In the event that one or more such approvals is delayed with respect to the sale of facilities to third parties, it is possible that the Phase III transfer of generation facilities to an affiliate could occur prior to implementation of one of the other phases. Delmarva's rate proposals as described below do not require that the Phases close in I-II-III order. As each Phase closes, there will be a rate decrease as described with respect to the Phase that closes. Only two of these reductions would become effective, because, at the closing of whichever Phase is last to close ("Total Divestiture"), the Plan calls for a different set of base and fuel rates (which yield the same overall result) than would result from implementing the base rate reductions in all three Phases. 22. Because of the rate decreases in the Plan, no separate tracking of "stranded costs" or net losses or net profits associated with the sale or transfer of generation facilities will be necessary. 10 11 23. The following illustrates the rate proposals described in more detail below:
- ---------------------------------------------------------------------------------------- Base Rates Fuel Rates Total Revenues - ---------------------------------------------------------------------------------------- Phase I Class decreases Frozen Decrease from Closing of Sales of 0.88% - 1.03% each Class of of Nuclear 0.70%. Facilities - --------------------------------------------------------------------------------------- Phase II Class decreases Frozen Decrease from Closing of Sales of 1.07% - 1.33% each Class of of Fossil 0.90% Facilities - ---------------------------------------------------------------------------------------- Phase III Class decreases Frozen Decrease from Affiliate Transfer of 1.19% - 1.49% each Class of of Remaining 1.00% Facilities - ---------------------------------------------------------------------------------------- Capped Rates Going Class decreases Reset to Energy Decrease from Forward After of 14.75% - Price of PECO each Class of Total Divestiture 34.42% Power Purchase 2.58% (All Three Phases Agreement; 64.01% Closed) above current fuel rate but offset by Base Rate Reductions - ----------------------------------------------------------------------------------------
(ii) Base Rate Proposal With Respect To Closing of Phases I, II, and III. 24. Delmarva proposes that, as of the first day of the month beginning at least 15 days after closing (the "Effective Date") of any of the three Phases, Virginia retail revenues be reduced as follows: for Phase I, the overall revenue reduction for each class of customer would be 0.7%; for Phase II, the overall revenue reduction for each class of customer would be an additional 0.9%; and for Phase III, the overall revenue reduction for each class of customer would be an additional 1.0%. In each instance, the reductions would be with proration (based on consumption on and after the Effective Date) and, across rate classes, would be pro rata based on revenues from each rate class. See Appendix H, Att. 3, page 1, line 9. 11 12 (iii) Fuel Rate Proposals Effective with the First Closing of Any Phase. 25. Delmarva proposes that, as of the Effective Date after the closing of the transactions involving any Phase of the Plan, Virginia retail fuel rates be frozen at the level of actual fuel costs for the 12-month period ending at least 30 days prior to the Effective Date. Any deferred fuel balance as of the last day of the above-referenced 12-month period would continue to be deferred until the date of Total Divestiture. Approximately 30 days after the date of Total Divestiture, a final "true-up" of the deferred fuel balance would be computed for recovery from or crediting to ratepayers over a period to be determined by the Commission. (iv) Base and Fuel Rate Proposals Effective upon the Date of Total Divestiture. 26. In order to establish a reasonable degree of price stability for Virginia ratepayers after Total Divestiture, Delmarva proposes as part of its Plan to establish a Virginia fuel rate that is equal to the energy charge of a recently executed, six and one-half year power purchase contract that is larger than Delmarva's entire Virginia load, available every hour on an entirely firm basis and backed by the 30,500 MW of capacity owned by PECO. 27. As of the first month starting at least 15 days after Total Divestiture, the Virginia retail fuel rate would be set to equal the energy charges set forth within that PECO power purchase agreement ("PECO PPA"). The PECO PPA contains a fixed price per MWH with pre-determined increases scheduled under a fixed price escalator each year.(1) Base rates will be simultaneously reset such that the aggregate level of charges to - -------- (1) The PECO PPA provides 243 megawatts ("MW") of capacity and 1,835,184 megawatt-hours ("MWH") of energy in 2000. There are scheduled increases in the amount of 12 13 customers yields a 2.58% overall revenue decrease compared with the existing base rates and the fuel rates that were frozen at the closing of the first set of assets to be sold or transferred under the Plan. See Appendix H, Att. 3, page 2, line 16. 28. Under the Plan, the PECO PPA energy charge is used as a proxy price for the Virginia fuel rate and to establish a schedule of future fuel rate charges; but that PECO PPA energy charge should not be viewed as Delmarva's actual cost for serving Virginia's retail load. Because the PECO PPA is a 100% load factor contract, in order to calculate Delmarva's costs to serve Virginia's retail load based on the PECO PPA, the energy charges would need to increased by at least 50% under a formula that takes into account the actual Virginia retail load factor, offset in part by sales back to PJM of off-peak energy not used by Virginia customers, and grossed-up to reflect losses. Under the Plan, there would be no need to establish such a formula or track PJM interchange purchases and sales -- instead, the Virginia fuel rate would be set to equal the PECO PPA energy charges and base rates decreased to offset the difference between those energy charges and the frozen fuel rates and to provide a total bill reduction of 2.58%. 29. Delmarva's Plan contemplates that the above-described base and fuel rates would be frozen until January 1, 2004, except that the modest escalation in PECO PPA energy charges would be reflected each year in fuel rates. - -------------------------------------------------------------------------------- capacity and energy purchased each year through the May 31, 2006 termination date. The price is initially set at $33.90 per MWH (with no separately stated capacity charge) and slowly escalates to $37.07 per MWH by 2006. The power purchase agreement with PECO has been filed with the FERC and is to become effective on January 1, 2000. The agreement requires PECO to provide and Delmarva to purchase firm energy "around-the-clock," (i.e., 24 hours a day at a 100% load factor). The electric energy provided is not tied to any particular plant owned by PECO and, thus, is backed by all of PECO's generation assets. 13 14 30. During this period until January 1, 2004, consistent with the Commission's discretionary power under Section 56-249.6, Delmarva would not make filings to recover fuel costs, because Delmarva's rates and charges would be deemed to be sufficient to reasonably recover its fuel costs. Delmarva would also request that it not be required to file fuel cost information during this period beyond identification of annual quantities of Virginia retail sales and the PECO PPA energy costs. C. FUTURE FILINGS. 31. Phase III will also require entering into a number of contractual relationships between Delmarva and one or more affiliates, including: the transfer of the generation facilities; the assignment to an affiliate of certain purchase and sales agreements currently between Delmarva and unaffiliated third-parties; and interconnection and easement agreements between Delmarva and the affiliate that would permit the affiliate's power to be transmitted across Delmarva's system. There may also be power sales agreements between Delmarva and an affiliate. These transactions will be the subject of a subsequent Affiliates Act application. 32. Delmarva does request, however, that the Commission approve in this proceeding certain principles associated with these future affiliate transactions: - Because of the rate reductions described above, the asset transfers to a Delmarva affiliate will be at net book value and no gain or loss will be recognized for ratemaking purposes. - Because the Virginia retail fuel clause will be frozen or established with reference to a contract with an unaffiliated supplier, the appropriateness of the price of any other power purchase agreement under which an affiliate sell power to Delmarva will not be the subject of further regulatory review by this Commission if such power purchase agreement does not affect the fuel costs charged to Virginia customers. 14 15 33. Delmarva's Plan contemplates a filing in early 2001 to unbundle rates and establish a Code of Conduct that would prohibit cross-subsidization among other things, and make other tariff modifications necessary to comply with the requirements of the Restructuring Act. Because Delmarva has only about 21,000 Virginia retail customers, the Plan would permit 100% of such customers to choose an alternative electric supplier on or after January 1, 2002, rather than proposing a phase-in of retail choice. 34. Delmarva believes that a competitive market will exist in Delmarva's Virginia service area before January 1, 2004. Consequently, the Plan contemplates a filing in mid-2003 seeking a termination of Capped Rates pursuant to Section 56-582.C. In the event the Commission does not terminate Delmarva's Capped Rates as part of that proceeding, Delmarva would likely file a general rate case application to reset base and fuel rates effective January 1, 2004. IV. THE APPROVAL OF THE PLAN IS IN THE PUBLIC INTEREST A. THE PLAN SATISFIES THE RESTRUCTURING ACT. 35. The Restructuring Act in Section 56-590 requires functional separation between a utility's generation activities and its transmission and distribution activities. The Plan provides for such separation by complete divestiture of all of Delmarva's generation facilities to either third parties or affiliated entities. The Commission has authority under Section 56-590.B.3 to provide that a utility retain generating assets "or their equivalent" while the utility serves as a default provider. The Plan fulfills this requirement by Delmarva's commitment to obtain, through power purchase agreements and its membership in PJM, sufficient capacity and energy to serve Delmarva's Virginia retail load, with such capacity and energy priced with reference to the PECO PPA. 15 16 B. THE PUBLIC INTEREST IS SERVED BY THE PLAN'S SUBSTANTIAL PRICE PROTECTIONS. 36. Historically, utility rates, particularly fuel rates, have varied substantially over time and sometimes have fluctuated dramatically. Nuclear Facilities, in particular, have had a history of millions of dollars being spent on new capital investment to replace or repair equipment that has failed or is needed to comply with changing Nuclear Regulatory Commission rules. The future costs of decommissioning nuclear units are unpredictable, and a major benefit of the sale of the Nuclear Facilities is the purchasers' agreement to assume future liability for decommissioning and other environmental costs. Ratepayers are also currently subject to the risk of sharply higher fuel prices due to demand during abnormally hot or cold weather and as a result of general trends in fuel costs that are outside of Delmarva's control. 37. The Plan provides substantial price reductions and price stability, which, Delmarva respectfully submits, are in the public interest. Between the date the first closing of any Phase occurs and Total Divestiture, base and fuel rates will be set so that any rate changes are rate decreases. 38. When Total Divestiture occurs, customers similarly benefit. Base and fuel rates are set so that the aggregate effect compared to base rates and fuel costs prior to the sales, will be a revenue reduction of 2.58%. 39. After Total Divestiture, base rates will be fixed and fuel rates will increase very slowly over time in accordance with the changes set forth in the PECO PPA. Rate stability is guaranteed until January 1, 2004. 40. The Plan also provides savings relative to that which would occur if Total Divestiture were to occur and "traditional" cost of service ratemaking mechanisms were 16 17 employed. See Appendix H, Att.1, line 9. Under a traditional approach: 1) base rates would be reduced by removing the remaining investment in generation plant from rate base and removing from cost of service the operations and maintenance and other costs associated with the generation facilities; 2) base rates would be increased by the capacity charges incurred under new power purchase contracts to procure sufficient capacity to meet the needs of Virginia retail customers; and 3) fuel rates would rise or fall depending on the costs of replacement energy in the market. 41. Under the "traditional" ratemaking approach, approximately $8.1 million of Delmarva's $21.3 million in Virginia retail base revenues would be eliminated if the investment and cost of service costs from generation facilities were removed from base rates. This reduction is almost exactly offset, however, by approximately $8.1 million in added costs that would be incurred to replace the capacity and energy provided by the generation facilities. About 92.4 MW of capacity must be obtained in order to meet Virginia-retail peak requirements including the reserve requirements established by PJM. The estimated price for such replacement capacity is $21,900 per MW per year as of May 2000, based on posted bids in futures markets. Replacement fuel costs are calculated using the interchange price at which Delmarva can purchase energy through PJM. The data in Appendix H applies the actual PJM locational marginal prices for each hour multiplied by the energy used by Virginia retail customers in such hours over the 12-month period ending September 30, 1999. 42. Under current market conditions, the sale and transfer of all of Delmarva's generation facilities and replacing the capacity and energy in the open market would be essentially "break-even," with a slight increase in customer bills of about $34,000 (about 17 18 0.1%). (Appendix H, Att. 1.) In contrast, the Plan would reduce customer bills by about 2.58% or $727,543. 43. The workpapers in Appendix H do not reflect a change in the capital structure of Delmarva caused by the sale of the generation facilities. Delmarva's current expectations are that, while third quarter write-offs primarily associated with the expected sale of the Nuclear Facilities have temporarily increased Delmarva's debt/equity ratio, the proceeds from the sales of fossil facilities and other sources will permit debt to be paid down to levels that leave Delmarva's debt/equity ratio at a reasonable level. C. RELIABILITY IS MAINTAINED UNDER THE PLAN. 44. After the divestiture, Delmarva will meet its retail load obligations in Virginia through power purchase agreements and its continued membership in and obligations with the PJM. Under Virginia law, until such time as this Commission determines that some other entity should be the provider of last resort, Delmarva has a continuing legal obligation to provide sales service within its service territory. 45. Under its agreements with PJM, Delmarva is required to designate resources (i.e., generation or firm power sales agreements) sufficient to meet its customers' estimated peak demand. PJM is a so-called "tight power pool," with member companies that own in excess of 75,000 MW of capacity that is dispatched by PJM on a daily, bid-in price basis. The physical electron flows of such power is throughout the pool following the laws of physics (i.e., paths of least resistance). PJM operates the higher-voltage transmission systems within the region and the complex accounting systems that track and assign revenues and costs in accordance with actual power generated and used. PJM is the 2nd largest non-government-owned power pool in the 18 19 world. Delmarva submits that its membership in PJM complies with the requirements of Virginia Code Section 56-577(A)(1). 46. On a purely physical basis, virtually nothing short of mothballing or decommissioning a plant can impair the reliability of supply within the PJM system. No matter who owns a power plant within PJM, the output of that plant will be delivered into the interconnected transmission grid and will physically flow along the lines of least resistance to customers throughout the PJM region. Thus, a change in ownership of the power plants, by itself, will neither change the availability of power in the PJM region nor the amount of power delivered into Delmarva's Virginia service area. All that would change is the accounting by PJM so that the new power plant owner would receive the revenues for the output of the plant. 47. With respect to physical reliability, Delmarva also notes the planned construction near Oak Hall, Virginia, by Commonwealth Chesapeake Company, LLC, ("CCC") of a power plant complex of approximately 135 MW (expected operation in 2000) and an additional 312 MW in a subsequent period. CCC will be executing sales contracts with various entities and it is expected that, for PJM accounting and billing purposes, most or all of the power from this facility will be treated as if delivered to purchasers outside the Delmarva peninsula. On a purely physical basis, however, it is highly unlikely that the actual power flow across Delmarva's system will result in deliveries outside the peninsula. In fact, much of this power will likely flow along paths of least resistance to Delmarva's retail customers in Virginia and southern Maryland. 48. In the short-run, Delmarva's ability to meet the needs of its customers is actually enhanced by the onset of customer choice in Delmarva's service area. Retail 19 20 customer choice began for larger industrial customers in Delaware on October 1, 1999. As of January 26, 2000, Delmarva had already lost 336 MW of load (an amount that is four times the peak demand of Delmarva's entire Virginia retail load) and is only a little less than the 345 MW of nuclear capacity to be sold. Loss of load is expected to increase over time as all Delaware customers become eligible to choose an alternative electric supplier on October 1, 2000. On July 1, 2000, 100% of Delmarva's retail customers in Maryland also become eligible for customer choice. 49. By the end of 2000, the lost load in Delaware and Maryland will far exceed the size of the nuclear capacity sold. Delmarva recognizes, however, that customer choice in Delaware and Maryland is not likely in the near-term to result in lost load that would totally offset the amount of nuclear and fossil capacity that is to be sold in Phases I and II. By obtaining power through power purchase agreements and PJM, however, Delmarva will ensure that there is sufficient capacity and energy to meet the needs of its Virginia customers. V. REQUESTED FINDINGS UNDER PUHCA. 50. The requested PUHCA findings are that the treatment as "eligible facilities" of Delmarva and ACE's generation facilities: 1) will benefit consumers; 2) is in the public interest; and 3) is not contrary to state law. 51. The first two criteria set forth in PUHCA are effectively indistinguishable from the standard set forth in the Restructuring Act with respect to the review of a functional separation plan. The Commission is to review such plans and may impose conditions, "as the public interest requires." Virginia Code Section 56-590(B)(3). Delmarva respectfully submits that these criteria of PUHCA are met because the Plan, which 20 21 contemplates a sale or transfer of generation facilities to entities with EWG status, offers substantial benefits to consumers in the form of rate reductions and rate stability, without impairing reliability. 52. Delmarva's sales of its nuclear interests are contingent on the entire set of agreements involving Delmarva, ACE, PECO and PSEG Power, LLC, being approved and the transactions closed. Thus, the benefits of the Phase I rate reductions and fuel rate freeze that are triggered by Delmarva's sales of its Nuclear Facilities cannot be obtained in the absence of the ACE sales. Hence, the treatment of both Delmarva's and ACE's Nuclear Facilities as "eligible facilities" is in the public interest and will result in benefits to Virginia consumers. 53. Delmarva's sales of its fossil interests are contingent on the entire set of agreements involving Delmarva, ACE, and NRG Energy, Inc. being approved and the transactions closed. Thus, the benefits of the Phase II rate reductions that are triggered by Delmarva's sales of its Fossil Facilities cannot be obtained in the absence of the ACE sales. Hence, the treatment of both Delmarva's and ACE's Fossil Facilities as "eligible facilities" is in the public interest and will result in benefits to Virginia consumers. 54. The proposed sales of generation facilities in Phases I and II are not contrary to state law. The Utilities Transfer Act, Chapter 4 of Title 56 of the Virginia Code, would not have even required Commission approval for Delmarva's sale of these Phase I and II facilities, because none of them are located in Virginia. Under the Restructuring Act, adding Section 56-590, the law contemplates the possibility that a utility would divest itself of generation facilities. Thus, in the context of the requested PUHCA findings, the Commission can and should find that the sale of the Nuclear and Fossil 21 22 Facilities by Delmarva is not contrary to state law. Clearly, the sale of ACE's nuclear and fossil facilities is not contrary to Virginia law. 55. Because Delmarva is part of a registered electric utility holding company group, Section 32(c) of PUHCA imposes a special rule that calls for the PUHCA findings to be made with respect to any facilities of any member of the group that will become "eligible facilities." Thus, the same PUHCA findings are requested with respect to ACE's proposed sales of its nuclear and fossil interests. 56. Delmarva and ACE plan to transfer the generation facilities that are not sold to third parties to one or more affiliates. It is expected that, at some point in the future, such affiliates may seek to qualify as EWGs. Thus, Delmarva also requests in this Application that the Commission make the requisite PUHCA findings for the generation facilities owned by Delmarva and ACE that will be transferred to one or more affiliates. VI. REQUESTED FINDINGS REGARDING TRANSMISSION 57. As a part of this Application, Delmarva seeks a determination from the Commission that its participation in PJM satisfies the requirements of those provisions of the Restructuring Act, Sections 56-577 and 56-579.A and B. 58. Because of the geographic isolation of Delmarva's Virginia service area on the Eastern Shore from the remainder of Virginia, Delmarva is not connected to any other electric utility operating in Virginia. Therefore, Delmarva is not involved in "the transfer of electric energy through the Commonwealth's interconnected transmission grid" within the meaning of the definition of "transmission" in Section 56-576 of the Restructuring Act. Accordingly, Delmarva would not be subject to the provisions of the 22 23 Restructuring Act relating to the transfer of management and control of transmission facilities. 59. The Commission noted these unique circumstances relative to Delmarva's transmission facilities in its Modification of Filing Requirements order dated June 11, 1998 in Case No. PUE980138 at page 3 which excused Delmarva from certain reporting requirements relating to the development of Independent System Operators and Regional Power Exchanges applicable to utilities owning transmission facilities on "mainland" Virginia. 60. Though not required to do so, Delmarva satisfied the requirements of Virginia Code Sections 56-577 and 56-579 prior to their enactment by virtue of its membership in PJM. Therefore, Delmarva asks that the Commission determine either that (1) the requirements of Sections 56-577 and 56-579.A and B for transfer of management and control of transmission assets to a regional transmission entity are not applicable to Delmarva or (2) participation by Delmarva in the PJM power pool satisfies the Sections 56-577 and 56-579.A and B requirements. VII. DESCRIPTION OF APPENDICES. 61. The following items are appended: - Appendix A lists Delmarva's generation facilities and identifies fuel type, capacity, 1998 energy output, location, and net book value on a Virginia retail basis. - Appendix B lists ACE's generation facilities and their location. None of ACE's generation facilities are located in Virginia. - Appendix C is a copy of Delmarva's recently executed power purchase agreement with PECO (the "PECO PPA"). - Appendices D and E are, respectively, the Delmarva sales agreements involving Peach Bottom and Salem. 23 24 - Appendices F and G are, respectively, the Delmarva sales agreement involving wholly-owned (Indian River and Vienna) and minority interest owned (Keystone and Conemaugh) Fossil Facilities. - Appendix H is a set of workpapers and illustrative rates demonstrating the revenue reductions proposed under the Plan. VIII. COMMISSION ACTION REQUESTED. 62. The Restructuring Act, adding Section 56-590(D), provides for Commission review of a functional separation plan within 60 days after filing, with a discretionary authority to extend the period for a period not to exceed 120 days. Delmarva respectfully requests that the Commission issue an initial order upon its review of Delmarva's Plan in order to facilitate the planned sales to unaffiliated third parties of the Nuclear Facilities (scheduled for closing on March 31, 2000). Therefore, Delmarva requests expedited consideration and an order issued on or before March 15, 2000, that: - Finds that this Application satisfies the requirement of Section 56-590 to file a functional separation Plan prior to January 1, 2001. - Approves, without further conditions, that portion of the Plan with respect to the sale to third-parties of the Phase I facilities and the associated base rate reduction and fuel rate freeze. - Makes explicit findings that, for the Phase I facilities to be sold to third parties by Delmarva or by its affiliate, ACE, the treatment of each such facility as an "exempt facility" as defined by PUHCA: 1) will benefit customers; 2) is in the public interest; and 3) is not contrary to state law. - Finds that the rate reductions set forth in the Plan make unnecessary any separate ratemaking treatment of net losses or net gains from the sale to third parties of generation facilities. 63. Delmarva respectfully requests that the Commission subsequently enter an order that: 24 25 - Approves, without further conditions, that portion of the Plan with respect to the sale to third-parties of the Phase II facilities and the associated base rate reduction and fuel rate freeze. - Approves the Plan with respect to the transfer at net book value to one or more non-utility affiliates of the Phase III facilities, with the conditions that the sales, interconnection, easement, power purchase and related contracts between Delmarva and its affiliate(s) be filed and submitted for Commission review under the Virginia Affiliates Act and that the rate adjustments set forth herein be implemented. - Approves, without further conditions, that portion of the Plan relating to future filing dates for unbundling rates and establishing other mechanisms for 100% of retail customers to become eligible to choose an alternative electric supplier January 2002. - In conjunction with the above approvals and to facilitate the sale of the Phase II facilities and the transfer of the Phase III facilities, makes explicit findings that, for the treatment of each such facility currently owned by Delmarva and ACE as an "exempt facility" as defined by PUHCA: 1) will benefit customers; 2) is in the public interest; and 3) is not contrary to state law. - Approves, without further conditions, that portion of the Plan that, as of the date of complete divestiture, would establish the Virginia fuel rates with reference to a power purchase agreement between Delmarva and PECO Energy Company and permit recovery in fuel rates of the per MWH charges associated with such agreement. - Finds that either (1) the requirements of Sections 56-577 and 56-579.A and B for transfer of management and control of transmission assets to a regional transmission entity are not applicable to Delmarva or (2) participation by Delmarva in the PJM Interconnection, LLC satisfies the Sections 56-577 and 56-579.A and B requirements. - Finds, pursuant to Section 56-249.6, that Delmarva can reasonably recover its fuel costs through the rates and charges otherwise established and, therefore, that Delmarva need not file for rate recovery or report of fuel costs during the period ending January 1, 2004. 25 26 WHEREFORE, Delmarva Power & Light Company respectfully asks that the Commission grant this Application and make the requested findings set forth herein. Respectfully submitted, DELMARVA POWER & LIGHT COMPANY By: /s/ Thomas S. Shaw _______________________________ Thomas S. Shaw Executive Vice President Peter F. Clark Randall V. Griffin Legal Department Delmarva Power & Light Company 800 King Street, P. O. Box 231 Wilmington, DE 19899 (302) 429-3069 Guy T. Tripp, III Hunton & Williams Riverfront Plaza -- East Tower 951 East Byrd Street Richmond, VA 23219-4074 (804) 788-8328 Dated: February 1, 2000 26 27 STATE OF DELAWARE ) ) ss. COUNTY OF NEW CASTLE ) On this 31st day of January, 2000, personally came before me, the subscriber, a Notary Public in and for the state and county aforesaid, Thomas S. Shaw, Executive Vice President of Delmarva Power & Light Company, a corporation existing under the laws of the State of Delaware and the Commonwealth of Virginia, party to this Application, known to me personally to be such, and acknowledged this Application to be his act and deed and the act and deed of Delmarva Power & Light Company, that the signature of such Executive Vice President is in his own proper handwriting, and that the facts set forth therein are true and correct to the best of his knowledge, information, and belief. Thomas S. Shaw ------------------------------ Thomas S. Shaw SUBSCRIBED AND SWORN before me this 31st day of January, 2000. ------------------------------ Notary Public My Commission Expires: ____/____/____ 27 28 APPENDIX A DELMARVA POWER & LIGHT COMPANY GENERATING FACILITIES PHASE I FACILITIES
- ------------------------------------------------------------------------------------------------------------- Plant Name Location Fuel Capacity 1998 Output Net Book Value (MW) (MWH) (VA) (7/31/99) - ------------------------------------------------------------------------------------------------------------- Peach Bottom PA Nuclear 173 1,230,366 $ 2,177,322 - ------------------------------------------------------------------------------------------------------------- Salem NJ Nuclear 172 1,046,849 $ 4,374,436 - -------------------------------------------------------------------------------------------------------------
PHASE II FACILITIES
- ------------------------------------------------------------------------------------------------------------- Plant Name Location Fuel Capacity 1998 Output Net Book Value (MW) (MWH) (VA) (7/31/99) - ------------------------------------------------------------------------------------------------------------- Keystone PA Coal 70 493,731 $ 307,272 - ------------------------------------------------------------------------------------------------------------- Conemaugh PA Coal 70 488,898 $ 587,478 - ------------------------------------------------------------------------------------------------------------- Indian River DE Coal/Oil 790 2,600,894 $ 7,302,330 - ------------------------------------------------------------------------------------------------------------- Vienna MD Oil 180 218,207 $ 551.032 - -------------------------------------------------------------------------------------------------------------
PHASE III FACILITIES
- ------------------------------------------------------------------------------------------------------------- Plant Name Location Fuel Capacity 1998 Output Net Book Value (MW) (MWH) (VA) (7/31/99) - ------------------------------------------------------------------------------------------------------------- Edge Moor DE Coal/Gas/ 713 2,500,806 $ 3,471,362 Oil - ------------------------------------------------------------------------------------------------------------- Hay Road DE Gas/ 541 1,045,526 $ 5,742,693 Kerosene - ------------------------------------------------------------------------------------------------------------- Madison St DE Oil 14 178 $ 18,180 - ------------------------------------------------------------------------------------------------------------- Christiana DE Gas 56 5,200 $ 44,338 - ------------------------------------------------------------------------------------------------------------- Del. City DE Oil 21 79 $ (0) - ------------------------------------------------------------------------------------------------------------- West Sub DE Oil 20 1,013 $ ( 1,517) - ------------------------------------------------------------------------------------------------------------- Crisfield MD Oil 11 6,855 $ 7,525 - ------------------------------------------------------------------------------------------------------------- Bayview VA Oil 12 8,816 $ 14,056 - ------------------------------------------------------------------------------------------------------------- Tasley VA Oil 27 6,370 $ 41,839 - -------------------------------------------------------------------------------------------------------------
Notes: VA portion of Net Book Value is 2.7963% (from 1998 VA AIF Filing). Capacity, Output and Net Book Value figures for Salem, Keystone, Conemaugh, Indian River and Vienna include the small peak units that are part of each of the facilities. 29 APPENDIX B ATLANTIC CITY ELECTRIC COMPANY GENERATING FACILITIES PHASE I FACILITIES
- ------------------------------------------------------------------------------------------------------------- Plant Name Location Fuel - ------------------------------------------------------------------------------------------------------------- Peach Bottom PA Nuclear - ------------------------------------------------------------------------------------------------------------- Salem NJ Nuclear - ------------------------------------------------------------------------------------------------------------- Hope Creek NJ Nuclear - -------------------------------------------------------------------------------------------------------------
PHASE II FACILITIES
- ------------------------------------------------------------------------------------------------------------- Plant Name Location Fuel - ------------------------------------------------------------------------------------------------------------- B.L. England NJ Coal/Oil/Tire Chips - ------------------------------------------------------------------------------------------------------------- Deepwater NJ Gas/Coal/Oil - ------------------------------------------------------------------------------------------------------------- Keystone PA Coal - ------------------------------------------------------------------------------------------------------------- Conemaugh PA Coal - -------------------------------------------------------------------------------------------------------------
PHASE III FACILITIES
- ------------------------------------------------------------------------------------------------------------- Plant Name Location Fuel - ------------------------------------------------------------------------------------------------------------- Cumberland NJ Gas/Oil - ------------------------------------------------------------------------------------------------------------- Missouri NJ Oil - ------------------------------------------------------------------------------------------------------------- Middle Station NJ Oil - ------------------------------------------------------------------------------------------------------------- Cedar Station NJ Oil - ------------------------------------------------------------------------------------------------------------- Carlls Corner NJ Oil - ------------------------------------------------------------------------------------------------------------- Mickleton NJ Gas - ------------------------------------------------------------------------------------------------------------- Sherman Avenue NJ Gas/Oil - -------------------------------------------------------------------------------------------------------------
30 APPENDIX C POWER PURCHASE AGREEMENT BETWEEN DELMARVA POWER & LIGHT COMPANY AND PECO ENERGY COMPANY 31 APPENDIX D PURCHASE AGREEMENT AMONG DELMARVA POWER & LIGHT COMPANY PECO ENERGY COMPANY AND PSEG POWER LLC (PEACH BOTTOM ATOMIC POWER STATION) 32 APPENDIX E PURCHASE AGREEMENT BETWEEN DELMARVA POWER & LIGHT COMPANY AND PSEG POWER LLC (SALEM NUCLEAR GENERATING STATION) 33 APPENDIX F PURCHASE AND SALES AGREEMENT BETWEEN DELMARVA POWER & LIGHT COMPANY AND NRG ENERGY, INC. (INDIAN RIVER AND VIENNA POWER PLANTS, DORCHESTER SITE) 34 APPENDIX G PURCHASE AND SALES AGREEMENT BETWEEN DELMARVA POWER & LIGHT COMPANY AND NRG ENERGY, INC. (KEYSTONE AND CONEMAUGH INTERESTS) 35 APPENDIX H WORKPAPERS AND RATES 36 DESCRIPTION OF APPENDIX H ATTACHMENTS ATTACHMENT 1: Attachment 1 demonstrates that the "Total Divestiture" proposal results in overall lower revenue requirements to Delmarva Power & Light Company's Virginia retail customers than current revenues, with updated fuel costs, or revenues reflecting divestiture of generation assets under a traditional regulatory approach. This Attachment illustrates that current revenues, including updated fuel costs, result in revenues of $28,223,815 for the 12 month period ending July 31, 1999. Delmarva Power & Light Company's "Total Divestiture" proposal results in revenues of $27,496,272 for the same time period. This is a $727,543 or 2.58% revenue reduction when compared to current revenue levels, adjusted for updated fuel costs. Under a traditional regulatory approach (reflecting removal of generation and associated costs and replacement of this capacity by capacity purchased at market-based capacity prices and fuel costs replaced by Virginia hourly load priced at the PJM Locational Marginal Price (LMP) adjusted for losses and gross receipts taxes) the revenues would be $28,257,779 for the 12 month period ending July 31, 1999. This represents a revenue increase of $33,964 or .12% above current revenue levels, adjusted for updated fuel costs. ATTACHMENT 2: Page 1 of Attachment 2 summarizes impact on the revenue requirement of removing generation plant and associated costs from the Virginia jurisdictional revenue requirement calculation. The impact of this removal, before the inclusion of replacement capacity for the generation capacity removed, is a reduction in the revenue requirement of $8,074,896. This figure is used in the calculation of revenues under the traditional regulatory approach on page 1 of Attachment 1. Page 2 of Attachment 2 summarizes the impact of updating fuel costs and basing the fuel cost on the actual fuel costs from October 1998 through September 1999. The average fuel rate based on this calculation is $0.02067 per kWh. This figure is used in the calculation of current revenues on page 1 of Attachment 1. Page 2 of Attachment 2 also includes the calculation of the fuel rate based on the Virginia hourly load data applied to PJM energy rates which results in a fuel rate of $0.03890 per kWh. This figure is used in the calculation of revenues under the traditional regulatory approach on page 1 of Attachment 1. Finally, page 2 of Attachment 2 contains the calculation of the replacement capacity costs for the Virginia retail electric jurisdiction of $2,024,326 per year., based on the cost of capacity as of May 2000 and 1999 peak load for the Virginia retail jurisdiction. This figure is used in the calculation of revenues under the traditional regulatory approach on page 1 of Attachment 1. ATTACHMENT 3: Page 1 of Attachment 3 provides a summary of the present revenues by customer rate class using August 1, 1998 through July 31, 1999 base revenues and fuel rates based on actual fuel costs for the period October 1, 1998 through September 30, 1999. In addition, page 1 of Attachment 3 provides a summary of revenues for Phases I, II and III reflecting proposed bases rate decrease and frozen fuel rates. Page 2 of Attachment 3 provides a summary of the Phase III revenues developed on page 1 of Attachment 3 and "Total Divestiture" revenues which reflect fuel charges set at the contract level and base rates adjusted to yield the same overall revenues as the Phase III revenues. ATTACHMENT 4: Pages 1 through 9 of Attachment 4 provide the specific rates by customer rate class for Phases I, II and III of the proposed rate decrease and the "Final Proposed Rates" reflecting the "Total Divestiture" proposal. 37 Exhibit D-11 Appendix H Attachment 2 Page 2 of 2 ----------- Delmarva Power & Light Company Calculation of Virginia Retail Electric Fuel Rate Based on Actual Fuel Cost Data From October 1998 - September 1999 ----------------------------------------------------------------- Exhibit D-11
Based On Existing System Fuel Costs ---------- System Fuel and Interchange Cost..................... $ 270,262,191 System Output (kWh).................................. 14,328,081,678 Cost per kWh Output.................................. $ 0.01886 x Loss Factor........................................ 1.06730 Cost per kWh Sold.................................... $ 0.02013 Less: Base Cost of Fuel.............................. 0 -------------- Current Year Factor.................................. $ 0.02013 Fuel Rate Before Gross Receipts Tax.................. $ 0.02013 Gross Receipts Tax Factor............................ 1.02880 -------------- Fuel Rate with Gross Receipts Tax.................... $ 0.02067 Delmarva Power & Light Company Calculation of Virginia Retail Electric Fuel Rate Based on Virginia Hourly Load Data Applied to PJM Energy Rates Only For The Period October 1998 - September 1999 ----------------------------------------------------------------- Total Virginia Retail Fuel Costs (VA Hr. Load - PJM Rates)............................................. $ 13,028,528 Virginia Output (Total Hourly Virginia load data).... 367,153,987 Cost per kWh Output.................................. $ 0.03549 x Loss Factor........................................ 1.08730 Cost per kWh Sold.................................... $ 0.03788 Less: Base Cost of Fuel.............................. 0 ----------- Current Year Factor.................................. $ 0.03788 Fuel Rate Before Gross Receipts Tax.................. $ 0.03788 Gross Receipts Tax Factor............................ 1.02880 ----------- Fuel Rate with Gross Receipts Tax.................... $ 0.03880 Delmarva Power & Light Company Calculation of Capacity Dollars For The Virginia Retail Electric Jurisdiction Based on The Maximum Virginia Load Recorded on July 5, 1999 ----------------------------------------------------------------- Maximum Virginia Load Recorded on 7/5/99 (KW)........ 84,803 Multiplied by Capacity Reserve Margin For PJM...................... 109% ----------- Virginia Load Grossed Up............................. 92,435 Multiplied by Cost Of Capacity as of May 2000 ($/KW Year).......... $ 21.90 Total Cost of Capacity per Year...................... $ 2,024,332
38 EXHIBIT D-11 DELMARVA POWER & LIGHT COMPANY d/b/a CONECTIV POWER DELIVERY - VIRGINIA 1996-1998 SALES, REVENUE AND NUMBER OF CUSTOMERS Revised 10/28/99 jdv
1996 --------------------------- SERVICE RATE RATE DEC 1996 1996 CLASSIFICATION CLASS CODE CUST SALES kWh -------------- ----- ---- ---- --------- RESIDENTIAL TIME-OF-USE NON-DEMAND R-TOU-ND (1) 2 34,434 RESIDENTIAL R - W/O WH AND SH (6) 9,804 59,578,279 RESIDENTIAL R - WITH WATER HEATING (7) 3,566 31,357,569 ------ ----------- SUBTOTAL RESIDENTIAL W/O SPACE HEATING SUBTOTAL RESIDENTIAL W/O RSH 13,372 90,970,282 RESIDENTIAL R - SPACE AND WATER HEATING (8) 3,338 45,394,392 RESIDENTIAL TIME-OF-USE NON-DEMAND R-TOU-ND (1) 1 4,087 RESIDENTIAL R - SPACE HEATING (9) 65 893,475 ------ ----------- SUBTOTAL RESIDENTIAL SPACE HEATING RSH SUBTOTAL RES SPACE HEATING RSH 3,404 46,291,954 SMALL GENERAL SERVICE - SECONDARY SGS-S (11) 2,645 82,516,376 LARGE GENERAL SERVICE - SECONDARY LGS-S (16) 12 19,409,340 GENERAL SERVICE - PRIMARY GS-P (18) 7 53,480,160 OUTDOOR RECREATIONAL LIGHTING ORL (21) 6 18,234 ------ ----------- TOTAL COMMERCIAL TOTAL COMMERCIAL 2,670 155,424,110 SMALL GENERAL SERVICE - SECONDARY SGS-S (11) 47 1,983,339 LARGE GENERAL SERVICE - SECONDARY LGS-S (16) 2 19,327,500 GENERAL SERVICE - PRIMARY GS-P (18) 4 18,616,800 ------ ----------- TOTAL INDUSTRIAL TOTAL INDUSTRIAL 53 39,927,639 PRIVATE LIGHTING - RESIDENTIAL PL - RES (25) 1,216 1,054,661 PRIVATE LIGHTING - COMMERCIAL PL - COM (25) 326 464,651 PRIVATE LIGHTING - INDUSTRIAL PL - IND (25) 11 16,377 ------ ----------- TOTAL PRIVATE LIGHTING TOTAL PRIVATE LIGHTING 1,553 1,535,689 TOTAL STREET LIGHTING SL (30) 28 1,714,762 ------ ----------- TOTAL VIRGINIA RETAIL W/O UNBILLED TOTAL VIRGINIA RETAIL W/O UNBILLED 21,080 335,864,436 UNBILLED UNBILLED (3,600,010) TOTAL VIRGINIA RETAIL WITH UNBILLED TOTAL VIRGINIA RETAIL WITH UNBILLED 332,264,426 FERC FORM NO. 1 FERC FORM NO. 1 332,266,000 DIFFERENCE DIFFERENCE (1,574) kWh
1996 REVENUE 1997 ---------- ----------------------------- SERVICE 1996 WITH UNBILLED 1996 DEC 1997 1997 CLASSIFICATION REVENUE FERC FORM 1 REV DIFF CUST SALES KWH -------------- ------- ----------- -------- ---- --------- RESIDENTIAL TIME-OF-USE NON-DEMAND $2,922 2 25,370 RESIDENTIAL $6,034,817 9,748 58,095,589 RESIDENTIAL $3,073,901 3,633 30,973,641 ----------- ------ ----------- SUBTOTAL RESIDENTIAL W/O SPACE HEATING $9,111,640 $0 $9,111,640 13,383 89,094,600 RESIDENTIAL $4,196,978 3,445 42,637,819 RESIDENTIAL TIME-OF-USE NON-DEMAND $404 1 2,687 RESIDENTIAL $82,906 66 787,532 ----------- ------ ----------- SUBTOTAL RESIDENTIAL SPACE HEATING RSH $4,280,289 $13,381,290 ($9,101,001) 3,512 43,428,038 SMALL GENERAL SERVICE - SECONDARY $7,036,749 2,709 81,175,179 LARGE GENERAL SERVICE - SECONDARY $1,348,213 13 21,303,220 GENERAL SERVICE - PRIMARY $3,017,579 7 50,823,260 OUTDOOR RECREATIONAL LIGHTING $2,366 6 32,491 ----------- ------ ----------- TOTAL COMMERCIAL $11,404,908 $11,373,607 $31,301 2,735 153,334,150 SMALL GENERAL SERVICE - SECONDARY $182,247 47 1,892,694 LARGE GENERAL SERVICE - SECONDARY $1,293,924 2 17,805,000 GENERAL SERVICE - PRIMARY $1,137,710 4 18,222,000 ----------- ------ ----------- TOTAL INDUSTRIAL $2,613,881 $2,598,278 $15,603 53 37,919,694 PRIVATE LIGHTING - RESIDENTIAL $131,467 1,232 1,069,022 PRIVATE LIGHTING - COMMERCIAL $58,327 331 460,923 PRIVATE LIGHTING - INDUSTRIAL $2,009 12 16,758 ----------- ------ ----------- TOTAL PRIVATE LIGHTING $191,802 $0 $191,802 1,575 1,546,703 TOTAL STREET LIGHTING $232,360 $231,767 $593 30 1,721,405 ----------- ------------ --------- ------ ----------- TOTAL VIRGINIA RETAIL W/O UNBILLED $27,834,880 21,288 327,044,590 $27,584,942 $249,938 UNBILLED ($249,698) UNBILLED ($249,698) 6,407,704 TOTAL VIRGINIA RETAIL WITH UNBILLED $27,585,182 333,452,294 FERC FORM NO. 1 $27,584,942 333,451,000 DIFFERENCE $240 DIFFERENCE $240 1,294 Revenue kWh
1997 REVENUE 1998 --------- -------------------------------------- SERVICE 1997 WITH UNBILLED 1997 DEC 1998 1998 1998 CLASSIFICATION REVENUE FERC FORM 1 REV DIFF CUST SALES KWH REVENUE -------------- ------- ----------- -------- ---- --------- ------- RESIDENTIAL TIME-OF-USE NON-DEMAND $2,388 2 23,831 $2,132 RESIDENTIAL $5,997,541 9,688 60,117,366 $5,985,298 RESIDENTIAL $3,098,578 3,681 32,470,246 $3,149,462 ----------- ------ ----------- ----------- SUBTOTAL RESIDENTIAL W/O SPACE HEATING $9,098,507 $0 $9,098,507 13,371 92,611,443 $9,136,891 RESIDENTIAL $4,062,419 3,542 43,340,236 $4,042,238 RESIDENTIAL TIME-OF-USE NON-DEMAND $273 1 2,814 $272 RESIDENTIAL $75,558 66 766,679 $72,051 ----------- ------ ----------- ----------- SUBTOTAL RESIDENTIAL SPACE HEATING RSH $4,138,251 $13,799,674 ($9,661,423) 3,609 44,109,729 $4,114,561 SMALL GENERAL SERVICE - SECONDARY $7,072,129 2,764 83,216,657 $7,010,669 LARGE GENERAL SERVICE - SECONDARY $1,487,474 14 23,207,860 $1,550,864 GENERAL SERVICE - PRIMARY $2,960,034 8 47,497,420 $2,659,693 OUTDOOR RECREATIONAL LIGHTING $3,845 6 32,830 $3,699 ----------- ------ ----------- ----------- TOTAL COMMERCIAL $11,523,482 $11,582,440 ($58,958) 2,792 153,954,767 $11,224,925 SMALL GENERAL SERVICE - SECONDARY $176,354 42 2,010,728 $178,435 LARGE GENERAL SERVICE - SECONDARY $1,222,658 - 1,506,000 $100,990 GENERAL SERVICE - PRIMARY $1,148,439 3 34,257,015 $2,027,768 ----------- ------ ----------- ----------- TOTAL INDUSTRIAL $2,547,451 $2,549,531 ($2,080) 45 37,773,743 $2,307,194 PRIVATE LIGHTING - RESIDENTIAL $135,747 1,247 1,068,854 $133,796 PRIVATE LIGHTING - COMMERCIAL $58,959 327 454,294 $57,708 PRIVATE LIGHTING - INDUSTRIAL $2,080 9 15,029 $1,835 ----------- ------ ----------- ----------- TOTAL PRIVATE LIGHTING $196,786 $196,786 1,583 1,538,177 $193,339 TOTAL STREET LIGHTING $239,455 $239,455 $0 36 1,736,325 $241,262 ----------- ------------ --------- ------ ----------- ----------- TOTAL VIRGINIA RETAIL W/O UNBILLED $27,743,931 21,436 331,724,184 $27,218,172 $28,171,100 ($427,169) UNBILLED $427,169 UNBILLED $427,169 UNBILLED (2,467,179) ($295,335) TOTAL VIRGINIA RETAIL WITH UNBILLED $28,171,100 329,257,005 $26,922,837 FERC FORM NO. 1 $28,171,100 N/A N/A DIFFERENCE $0 DIFFERENCE $0 Revenue
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