-----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, MjjYTbIgIbKG8OP9boZzE3iPcuq9pqrWnx8AcwGbFF1GCveuJqDlAs3lcipDU7xt L9ewZlSgNXxl3AjrnlrS1w== /in/edgar/work/0000950172-00-001849/0000950172-00-001849.txt : 20001110 0000950172-00-001849.hdr.sgml : 20001110 ACCESSION NUMBER: 0000950172-00-001849 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20001109 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: 070-09607 FILM NUMBER: 756518 BUSINESS ADDRESS: STREET 1: 800 KING ST STREET 2: 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. 4 TO FORM U-1 As filed with the Securities and Exchange Commission on November 9, 2000 File No. 070-09607 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------------------- AMENDMENT NO. 4 TO FORM U-1 APPLICATION/DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ---------------------------------------------------- Conectiv Delmarva Power & Light Company Atlantic City Electric Company 800 King Street Wilmington, DE 19899 (Name of companies filing this statement and addresses of principal executive offices) - -------------------------------------------------------------------------------- Conectiv (address above) (Name of top registered holding company parent of declarant) ---------------------------------- Philip S. Reese Treasurer Conectiv (address above) (Name and addresses of agents for service) ---------------------------------- The Commission also is requested to send copies of any communications in connection with this matter to: John N. Estes III Peter F. Clark Judith A. Center General Counsel William C. Weeden Randall V. Griffin Skadden, Arps, Slate, Meagher & Flom LLP Senior Counsel 1440 New York Avenue, N.W. Conectiv Washington, D.C. 20005 (address above) The Application/Declaration, as previously filed, is hereby amended as follows: I. DESCRIPTION OF THE PROPOSED TRANSACTION...................................1 A. Introduction.........................................................1 B. Description of the Parties ..........................................3 C. Description of the Peach Bottom Assets...............................4 D. Background on the Transaction........................................6 E. Benefits of the Transaction..........................................7 II. FEES, COMMISSIONS AND EXPENSES...........................................12 III. APPLICABLE STATUTORY PROVISIONS..........................................12 IV. OTHER REGULATORY APPROVAL................................................13 V. PROCEDURE................................................................13 VI. EXHIBITS AND FINANCIAL STATEMENTS........................................14 A. EXHIBITS............................................................14 B. FINANCIAL STATEMENTS................................................15 VII. INFORMATION AS TO ENVIRONMENTAL EFFECT...................................16 The Application/Declaration, as previously filed, is hereby amended as follows: I. DESCRIPTION OF THE PROPOSED TRANSACTION A. Introduction This Form U-1 Application/Declaration ("Application/Declaration") seeks approvals pursuant to Section 12(d), of the Public Utility Holding Company Act of 1935, as amended (the "Act"), and Rule 44 thereunder, relating to the sale of certain utility assets by Conectiv, to PECO Energy Company ("PECO"). Specifically, Conectiv and its subsidiaries, Delmarva Power & Light Company ("DPL") and Atlantic City Electric Company ("ACE," together with DPL and Conectiv, "Applicants"), have proposed the sale of a 7.51-percent (164 MW) ownership interest in the Peach Bottom Atomic Power Station Units 2 and 3 ("Peach Bottom") to PECO, (the "Transaction"). PECO presently owns 42.49 percent of Peach Bottom. In exchange for their interests in Peach Bottom that are being sold to PECO, ACE and DPL will each receive $2,550,000, plus 3.755 percent of the net book value of the Nuclear Fuel Supplies as of the Closing Date and furthermore PECO will assume various liabilities of ACE and DPL.1 The 3.755 percent of the Nuclear Fuel Supplies which would qualify as Utility Assets (as defined in the Act), as of the anticipated closing date would be worth approximately $10 million. It is estimated that the total proceeds from PECO to be shared by ACE and DPL will be approximately $25.1 million. In addition, PECO will assume essentially all of ACE and DPL's environmental and decommissioning liabilities for Peach Bottom, in proportion to the ownership share being transferred. As explained below, the Transaction is in the public interest and should be approved as soon as practicable. DPL proposes to complete the sale of its interests in Peach Bottom to PECO as soon as possible, and the Applicants thus respectfully request Commission action on this Application/Declaration as soon as possible after the outstanding regulatory approvals described in Item IV of this Application/Declaration have been issued. The Applicants further request that the Commission reserve jurisdiction over ACE's sale of its interests in Peach Bottom to PECO. - --------------- 1 Nuclear Fuel Supplies include the nuclear fuel assemblies in the reactor core, natural uranium, converted uranium, enriched uranium and any other form of any thereof, under contract or in inventory, and located at or in transit to the Peach Bottom Station, as well as all nuclear fuel constituents in all stages of the fuel cycle that are in the process of production, conversion, enrichment or fabrication. The Transaction is part of several interrelated transactions, whereby PECO and a non-utility affiliate of Public Service Electric and Gas Company ("PSE&G") agreed to buy the interests of ACE and DPL in the various jointly owned nuclear plants ("Nuclear Assets").2 PECO will be purchasing a combined 7.51-percent ownership interest in Peach Bottom from ACE and DPL. The PSE&G affiliate, PSEG Nuclear L.L.C. ("PSEG Nuclear"), also will be buying a combined 7.51-percent ownership interest in Peach Bottom from ACE and DPL.3 In addition, PSEG Nuclear will be buying, in transactions that are separate from any transaction for which this Application/Declaration seeks approval, the additional minority ownership interests in other nuclear plants. In each of the PSEG Nuclear transactions, however, the buyer is an exempt wholesale generator ("EWG"). Therefore, no Commission approval is required for those transactions under Section 32 of the Act. In contrast, PECO is buying an ownership interest in Peach Bottom, not through an EWG, but as an operating public utility. Commission approval under Section 12(d) of the Act therefore is required for the sale to PECO. - --------------- 2 ACE and DPL each own a minority ownership share in Salem Units 1 & 2, Salem Peaking Unit, and Peach Bottom Units 2 and 3. Furthermore ACE is selling its minority ownership share in Hope Creek Unit 1. Conectiv is conveying all of its interests in the nuclear plants through a series of purchase agreements dated as of September 27, 1999, as amended, which included agreements: by and between ACE and PSEG Power LLC (relating to the Salem Station); by and between DPL and PSEG Power LLC (relating to Salem Station); by and between ACE and PSEG Power LLC (relating to Hope Creek Station); by and among ACE, PECO Energy Company and PSEG Power LLC (relating to Peach Bottom Station); by and among DPL, PECO Energy Company and PSEG Power LLC (relating to Peach Bottom Station). The sales include the nuclear generating units themselves, the 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. 3 Public Service Enterprise Group Incorporated (PSEG) is an exempt public utility holding company. PSEG has two principal direct wholly-owned subsidiaries: PSE&G and PSEG Energy Holdings Inc. PSE&G, a New Jersey corporation, is an operating public utility company engaged principally in the transmission, distribution and sale of electric energy service and in the transmission, distribution and sale of gas service in New Jersey. PSE&G supplies electric and gas service in areas of New Jersey in which approximately 5.5 million people, about 70% of the State's population, reside. PSEG Power LLC ("PSEG Power") is a wholesale electric generation and trading company operating in the Northeastern United States. PSEG Power is a wholly owned subsidiary of Public Service Enterprise Group that ACE and DPL expect will own all of the shares of PSEG Nuclear, PSEG Fossil LLC and PSEG Energy Resources & Trade LLC. It is ACE and DPL's understanding that PSEG Power has designitated its subsidiary, PSEG Nuclear, as the party which will actually receive the ownership interests at closing. It is also ACE and DPL's understanding that PSEG Nuclear ultimately will own all of PSE&G's nuclear facilities and will operate those nuclear facilities for which PSE&G is currently the operator (PSE&G may continue as operator for an interim period). PSEG Nuclear will engage only in wholesale sales of electric power. The New Jersey Board of Public Utilities ("NJBPU") has approved the sale of ACE's interest in Peach Bottom. The Pennsylvania Public Utility Commission ("PaPUC") has approved the sale by ACE and DPL, and purchase by PECO, of the Peach Bottom interests. The Virginia State Corporation Commission ("VSCC") has reviewed the proposed sale of DPL interests in the context of its overall review and approval of DPL's plan for the functional separation of generation assets from transmission and distribution assets. Furthermore, pursuant to Section 32 of the Act, all four of the state commissions that regulate ACE and DPL - the NJBPU, the Delaware Public Service Commission ("DPSC"), the Maryland Public Service Commission ("MPSC"), and the VSCC - will be addressing the related transactions in which an EWG owned by PSE&G will be buying interests in this and other nuclear plants from ACE and DPL. The state commissions therefore will be well informed regarding the proposed Peach Bottom transaction. B. Description of the Parties On March 1, 1998, Conectiv became a registered holding company under the Act. Conectiv has two operating public utility subsidiaries: ACE and DPL. ACE is a New Jersey corporation that distributes and sells electricity at retail in southern New Jersey. ACE's retail service is regulated by the NJBPU. DPL is a Delaware and Virginia corporation that distributes and sells electricity at retail in portions of Delaware, Maryland and Virginia, and gas at retail in New Castle County, Delaware. DPL's retail service is regulated by the DPSC, MPSC, and the VSCC. In addition, because of their ownership interest in Peach Bottom, both ACE and DPL are subject to minimal regulation by the PaPUC. The PaPUC does not regulate the electric rates of either ACE or DPL. Neither ACE nor DPL have any retail utility customers in Pennsylvania, receive any gross operating revenue for service rendered under a tariff filed with the PaPUC for intrastate service within Pennsylvania, or operate any public utility facilities within Pennsylvania. The PaPUC regulates ACE and DPL solely as holders of certificates of public convenience and necessity regarding their partial interests in the Peach Bottom plant, as well as certain other Pennsylvania generation assets. The Federal Energy Regulatory Commission ("FERC") also has regulatory authority over the wholesale sales and transmission activities of DPL and ACE. Excluding off-system sales not subject to price regulation, the percentage of electric and gas utility operating revenues regulated by each regulatory commission, for the year ended December 31, 1998, was as follows: NJBPU, 41.8%; DPSC, 38.9%; MPSC, 14.5%; VSCC, 1.4%; and FERC, 3.4%. Conectiv's total generation capacity is approximately 6,035 MW as of December 31, 1998. The partial ownership interests in Peach Bottom being sold to PECO provides approximately 2.7% of this capacity. DPL's and ACE's ownership interests in the Nuclear Assets provided approximately 12% of Conectiv's total installed capacity as of December 31, 1998. In 1998, kilowatt-hour output for load from the jointly-owned Nuclear Assets provided 21% of the electricity used by Conectiv's retail customers. PECO is a wholly-owned subsidiary of Exelon Corporation ("Exelon"), a registered holding company under the Act, and is an electric and gas utility serving 1.5 million electric customers in the five-county Philadelphia area and 400,000 natural gas customers in four suburban counties. PECO is one of the nation's largest nuclear utility operators. As explained more fully in the Commission's order authorizing Exelon's acquisition of PECO and Unicom Corporation, PECO is undergoing a number of restructurings associated with the realignment of Exelon's various utility and nonutility businesses following the acquisition. Exelon Corp., Holding Co. Act Release No. 27256 (Oct. 19, 2000). C. Description of the Peach Bottom Assets The Peach Bottom nuclear power plant is located in York County, Pennsylvania and has a summer capacity of 2,186 MW. ACE and DPL acquired their interest in Peach Bottom on November 24, 1971, and they each own 164 MW, or 7.51 percent, of the plant. Conectiv as a whole therefore owns 328 MW, or 15.02 percent, half of which is being sold to PECO. The other co-owners of Peach Bottom, PECO and PSE&G, each own approximately 42.49 percent of the facility. The following chart sets forth the original acquisition value and the book value of ACE and DPL's interest in Peach Bottom before and after the write-down.4
Value of Peach Bottom Assets - --------------------------------------------------------------------------------------------- Company Plant in Actual Book Pro Forma Service Value ($)5 Value As Of Without Third December 31, Quarter Write Down 1999 ($)6 in Book Value($)7 - --------------------------------------------------------------------------------------------- Delmarva Power & Light 49,513,500 4,689,000 80,496,900 Company (DPL) Atlantic City Electricity 47,400,500 4,705,000 72,413,700 Company (ACE) Total Conectiv 96,914,000 9,394,000 152,910,600 - ---------------------------------------------------------------------------------------------
- --------------- 4 The net book value of Peach Bottom and other plant-related assets including inventories were written down to their estimated fair market value (net of estimated selling costs) due to impairment. The write-down took place in the third quarter of 1999. The extraordinary charge related to impaired assets was determined in accordance with Statements of Financial Accounting Standards ("SFAS") No. 121. The extraordinary charge was decreased by the regulatory asset established for the amount of stranded costs expected to be recovered through regulated electricity delivery rates. 5 This reflects the value recorded in 1974 on DPL and ACE's financial statements for their respective ownership interest in Peach Bottom, as of the in-service date of the facility. 6 This represents the 12/31/99 net book value per each Company's financial statements which reflects a third quarter 1999 write-down to net realizable value based on the purchase agreements of sale entered into that same quarter. These agreements are attached hereto as Exhibit B-1 and Exhibit B-2 respectively. 7 This is a pro forma amount representing the net book value prior to the third quarter 1999 write-down. This net book value prior to the third quarter 1999 write-down is greater than the Plant in Service Value due to several capital projects that have been undertaken since the Plant was put in service. D. Background on the Transaction As the Commission is well aware, the electric utility industry is in the midst of a fundamental restructuring at both the federal and state levels. The states in which Conectiv operates have been part of this effort. In particular, New Jersey began retail choice on August 1, 1999. Delaware began phasing in retail choice on October 1, 1999. Maryland began retail choice on July 1, 2000. Virginia will begin phasing in retail choice on January 1, 2002. In light of these state utility restructuring initiatives, and the evolving competitive marketplace, Conectiv made the strategic decision to divest a substantial portion of its baseload generation assets, including its partial ownership in Peach Bottom. Towards this end, ACE and DPL commenced the process of auctioning their relatively small minority interests in these generation assets during the early part of 1999. The companies envisioned two parallel auctions - one involving the fossil plants, and the other involving nuclear plants. The fossil auction has concluded; purchase agreements were signed with the winning bidder on January 18, 2000. The closing process has commenced. This Application relates to the sale of the nuclear plant. As a threshold matter, ACE and DPL's minority interests in the Nuclear Assets are subject to certain conditions contained in certain agreements among the co-owners. Pursuant to these agreements, ACE and DPL have the right to transfer their interests in the co-owned Nuclear Assets to non-co-owners, subject to a right of first refusal by each of the co-owners. Because of this right, and because PECO and PSE&G already owned interests in the Nuclear Assets and were familiar with those units, PECO and PSE&G were the most logical buyers for ACE and DPL's minority interests. Notwithstanding this, the sale process for the nuclear power plants initially took the form of an auction to meet the requirements imposed upon ACE by the NJBPU. Standards for the auction were approved orally by the NJBPU at a meeting on September 17, 1999, followed by a written order dated January 4, 2000. While DPL was not subject to regulation of NJBPU, it nevertheless adopted the same standards for the sale of its interest in Peach Bottom. On August 30, 1999, before Conectiv began opening and evaluating any bids, PECO and PSE&G submitted a comprehensive proposal to purchase ACE's and DPL's interests in the Nuclear Assets. Specifically, PSEG Power offered to acquire the combined ACE/DPL interests in Salem and also offered to purchase ACE's interest in Hope Creek. PSEG Power and PECO each offered to purchase one-half of the interests that ACE and DPL held in Peach Bottom. As a result of its analysis of the proposal, as well as an evaluation of the prices, terms and conditions of recent comparable nuclear asset sales, Conectiv postponed the auction and began negotiating with PECO and PSE&G regarding the terms of an acquisition of the Peach Bottom interests. On September 27, 1999, Conectiv reached agreement with PECO and PSE&G regarding the terms governing the Transaction, cancelled the auction and entered into purchase agreements between ACE and PECO and between DPL and PECO. These agreements are attached hereto as Exhibit B-1 and Exhibit B-2 respectively. ACE has sought approval from the NJBPU for the sale of its interests to PECO and PSE&G, including approval of the process used to effect the sale. On July 21, 2000, ACE received an order from the NJBPU granting these approvals. In this order the NJBPU concluded that ACE's sale of its interests to PECO and PSE&G reflects the full market value of those interests. E. Benefits of the Transaction The Transaction should be approved because it is the result of arm's-length negotiations and is in the public interest. Conectiv explored potential avenues for disposing of the Peach Bottom ownership interests, including conducting the initial stages of an auction. Conectiv concluded that the terms offered by PECO were superior to what it was likely to achieve at auction and negotiated those terms on an arm's-length basis in order to maximize benefits for all of Conectiv's stakeholders. Based upon the advice of a consulting firm hired to advise the company (which included the delivery of a fairness opinion to Conectiv's board of directors), and that has reviewed several nuclear divestiture sales over the past five years, management concluded that the Transaction presents both shareholders and consumers with virtually unique benefits, in comparison to other nuclear divestitures: o Conectiv will avoid substantially all liability for the nuclear decommissioning of Peach Bottom. In addition to removing its exposure to the risk of future decommissioning costs, the Transaction will enable Conectiv to avoid additional funding of the nuclear decommissioning trusts which otherwise would likely have been required in a sale to a non-co-owner. o Conectiv's long-term exposure to the risk of potentially costly environmental clean-up liability is minimized because PECO and PSE&G will assume essentially all environmental liabilities associated with the Nuclear Assets.8 o Conectiv was not required by PECO to agree to any above-market purchased power contracts. Such contracts have been required in certain nuclear divestitures. Avoiding this burden directly benefits customers, because it is the customers who would ultimately bear any increased costs. o ACE, consistent with New Jersey state law, will apply the proceeds it receives from the sale of the Nuclear Assets to partially offset stranded costs it will recover from its retail customers in New Jersey.9 - --------------- 8 Conectiv will continue to assume liability for pre-closing offsite environmental risks associated with the Nuclear Assets, though none have been identified at this time. 9 The Transaction should not affect DPL's retail rates. Retail rates in Delaware and Maryland are frozen for three to four years. The VSCC retains jurisdiction over DPL's retail rates in principal executive offices) In addition to these specific advantages, the Transaction offers substantive overall long-term benefits for Conectiv, adding new financial strength and decreasing exposure to risk. As a result, Conectiv will be well-positioned to compete in the energy marketplace. By selling approximately 708 megawatts of nuclear generation, Conectiv expects to raise cash for internal uses, including debt repayment and new investments that more closely conform with Conectiv's competitive strategy. Conectiv intends to retain certain generation plants that it considers to be strategic to its energy business and necessary to assure reliability for its customers as electricity markets become more competitive. In sum, the Transaction plainly benefits the interests that the Act was designed to protect. It therefore should be approved as soon as practicable. DPL plans to close its portion of the Transaction as soon as possible, and the Applicants respectfully request Commission action on its sale to PECO as soon as possible after the outstanding regulatory approvals described in Item IV of this Application/Declaration have been issued. Applicants request that the Commission reserve jurisdiction over the sale to PECO of ACE's interests in Peach Bottom. F. Discussion of Rules 53 and 54 Rule 54 promulgated under the Act states that in determining whether to approve the issue or sale of a security by a registered holding company for purposes other than the acquisition of an Exempt Wholesale Generator ("EWG") or a Foreign Utility Company ("FUCO"), or other transactions by such registered holding company or its subsidiaries other than with respect to EWGs or FUCOs, the Commission shall not consider the effect of the capitalization or earnings of any subsidiary which is an EWG or a FUCO upon the registered holding company system if Rules 53(a), (b), or (c) are satisfied. As demonstrated below, such rules are satisfied. Conectiv meets all of the conditions of Rule 53 under the Act, except for Rule 53(a)(1). By Order dated August 17, 2000, Holding Company Release No. 35-27213 (the "August 17 Order"), the Commission authorized Conectiv to invest up to $350 million ("EWG Project Limit") in EWGs. Conectiv has no investments in FUCOs and does not propose to make any investments in FUCOs. Conectiv is currently in compliance with the EWG Project Limit, in that its current investment in EWGs as of September 30, 2000 equals approximately $79 million. Moreover, Conectiv will inform the Commission of its investments in EWGs on an ongoing basis by filing with the Commission, as required by the August 17 Order, quarterly certificates containing extensive information specified in the August 17 Order concerning those investments. With respect to the other requirements of Rule 53: (i) Conectiv maintains books and records to identify investments in, and earnings from, each EWG and FUCO in which it directly or indirectly holds an interest. (A) For each United States EWG in which Conectiv directly or indirectly holds an interest: (1) the books and records for such EWG will be kept in conformity with United States generally accepted accounting principles ("GAAP"); (2) the financial statements will be prepared in accordance with GAAP; and (3) Conectiv directly or through its subsidiaries undertakes to provide the Commission access to such books and records and financial statements as the Commission may request. (B) For each FUCO or foreign EWG which is a majority-owned subsidiary of Conectiv: (1) the books and records for such subsidiary will be kept in accordance with GAAP; (2) the financial statements for such subsidiary will be prepared in accordance with GAAP; and (3) Conectiv directly or through its subsidiaries undertakes to provide the Commission access to such books and records and financial statements, or copies thereof in English, as the Commission may request. (C) For each FUCO or foreign EWG in which Conectiv owns 50% or less of the voting securities, Conectiv directly or through its subsidiaries will proceed in good faith, to the extent reasonable under the circumstances, to cause: (1) such entity to maintain books and records in accordance with GAAP; (2) the financial statements of such entity to be prepared in accordance with GAAP; and (3) access by the Commission to such books and records and financial statements (or copies thereof) in English as the Commission may request and, in any event, will provide the Commission on request copies of such materials as are made available to Conectiv and its subsidiaries. If and to the extent that such entity's books, records or financial statements are not maintained in accordance with GAAP, Conectiv will, upon request of the Commission, describe and quantify each material variation therefrom as and to the extent required by subparagraphs (a) (2) (iii) (A) and (a) (2) (iii) (B) of Rule 53. (ii) No more than 2% of Conectiv's domestic public utility subsidiary employees will render any services, directly or indirectly, to any EWG or FUCO in which Conectiv directly or indirectly holds an interest. (iii) Conectiv, in connection with any Form U-1 seeking approval of EWG or FUCO financing, will submit copies of such Form U-1 and every certificate filed pursuant to Rule 24 with every federal, state or local regulator having jurisdiction over the retail rates of the public utility companies in the Conectiv holding company system. In addition, Conectiv will submit to each such commission copies of any amendments to any Form U-1 seeking approval of EWG or FUCO financing and any Rule 24 certificates required thereunder, as well as a copy of Item 9 of Conectiv's Form U5S and Exhibits H and I thereof (commencing with the Form U5S to be filed for the calendar year in which the authorization therein requested is granted). (iv) None of the provisions of paragraph (b) of Rule 53 render paragraph (a) of that Rule unavailable for a transaction requiring Commission approval for the issuance and sale of a security by Conectiv for purposes other than the acquisition of an EWG or FUCO or other transactions by Conectiv or its subsidiaries other than with respect to EWGs or FUCOs. (A) Neither Conectiv nor any subsidiary of Conectiv having a book value exceeding 10% of Conectiv's consolidated retained earnings is the subject of any pending bankruptcy or similar proceeding. (B) As stated previously, Conectiv is in complete compliance with the August 17 Order, which dealt with the status of Conectiv's consolidated retained earnings. The sale of the ACE's and DPL's interests in Peach Bottom will enhance Conectiv's consolidated retained earnings in a manner consistent with the August 17 Order. (C) Conectiv did not incur operating losses from direct or indirect investments in EWGs and FUCOs in 1999 in excess of 5% of Conectiv's December 31, 1999 consolidated retained earnings. As described above, Conectiv meets all the conditions of Rule 53(a), except for clause (1). With respect to clause (1), the Commission determined in the August 17 Order that Conectiv's financing of investments in EWGs in an amount up to the EWG Project Limit would not have either of the adverse effects set forth in Rule 53(c). As noted above, Conectiv has no investments in FUCOs and has no plans to make any such investments. The August 17 Order was predicated, in part, upon the assessment of Conectiv's overall financial condition which took into account, among other factors, Conectiv's consolidated capitalization ratio and the recent growth trend in Conectiv's retained earnings. As noted in the August 17 Order, at December 31, 1999, Conectiv's common equity total capital capitalization ratio ("Common Equity Ratio") was 26.3% due to certain restructuring charges. As also noted in the August 17 Order, Conectiv expects that the sale of certain generating assets, including the Peach Bottom assets, will return its common Equity Ration to above 30%. Applicants also noted in connection with the August 17 Order that ACE's Common Equity Ratio will fall from 37% at December 31, 1999 to 23% due to its issuance of transition bonds but that they estimate that ACE's Common Equity Ratio will return to a level higher than 30% by December 31, 2004 as this debt is amortized. Applicants also noted that DPL's Common Equity Ratio will fall from 36% at December 31, 1999 to approximately 26% as a result of an intrasystem transfer of certain assets, as mandated by state regulatory initiatives, but that planned sales of generation assets to non-affiliates will cause DPL's Common Equity Ratio to return to above 30%. Since the date of the August 17 Order there have been no adverse changes that would alter the presmises underlying that order. Accordingly, since the date of the August 17 Order, the capitalization and earnings attributable to Conectiv's investments in EWGs have not had any adverse impact on Conectiv's financial integrity. II. FEES, COMMISSIONS AND EXPENSES The fees, commissions and expenses to be incurred, directly or indirectly, by Conectiv or any associate company thereof in connection with the proposed Transaction are estimated as follows: Fees of Conectiv $ 0 Fees of outside counsel $ 55,000 Miscellaneous expenses $ 0 ------- TOTAL $ 55,000 III. APPLICABLE STATUTORY PROVISIONS The properties are utility assets within the meaning of the definition in Section 2(a)(18) of the Act. Section 12(d) of the Act and Rule 44 under the Act apply to the sale of the Peach Bottom interest in the ownership of electric generating assets. If the Commission considers the proposed future transactions to require any authorization, approval or exemption, under any section of the Act or any Rule or Regulation other than those cited herein above, such authorization, approval or exemption is hereby requested. IV. OTHER REGULATORY APPROVAL The Transaction is subject to approval by other federal and state agencies. On or about December 14, 1999, Conectiv and PECO filed Pre-merger Notification and Report Forms with the Antitrust Division of the Department of Justice ("DOJ") and the Federal Trade Commission (the "FTC") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"). On January 4, 2000, Conectiv and PECO received early termination of the applicable waiting period under the HSR Act. On October 20, 2000, PECO merged with and became a subsidiary of Exelon, a registered holding company. As a result, PECO is deemed to have a new "ultimate parent entity" for purposes of the HSR Act, and this requires Conectiv and PECO to file a new Pre-Merger Notification and Report Forms with the DOJ and FTC. Conectiv and PECO expect to make these filings in the near future and expect that the applicable waiting period will be terminated early or allowed to expire by the DOJ and FTC. The FERC has approved the Transaction. In addition, the PaPUC has approved the purchase by PECO of interests of ACE and DPL. The VSCC has reviewed the Transaction in the broader context of considering an overall plan for the functional separation of generation, transmission and distribution activities and has approved of the Transaction. The NJBPU must approve the sale of ACE's interest in Peach Bottom. It issued its approval on July 21, 2000. Copies of all of these applications and orders are attached as exhibits. The Nuclear Regulatory Commission ("NRC") approved the Transaction on April 21, 2000. This approval was granted based on the assumption that the transfers by DPL and ACE would close simultaneously. On October 10, 2000, requests were filed with the NRC seeking, among other things, permission to transfer DPL's interests in Peach Bottom prior to the transfer of ACE's interests. Copies of these requests are attached as exhibits. The NRC staff may require a public notice and 30-day comment period in connection with the requested changes. A copy of NRC's action on the requested changes will be filed as an amendment to this Application/Declaration. V. PROCEDURE The Commission issued a notice in this proceeding on April 14, 2000 and requested that interested persons wishing to comment or request a hearing on the Application/Declaration submit their views to the Secretary of the Commission by May 9, 2000. No comments were submitted to the Secretary by that date or subsequently. Conectiv (1) waives a recommended decision by a hearing officer or other responsible officer of the Commission; (2) consents that the Staff of the Division of Investment Management may assist in the preparation of the Commission's order; and (3) requests that there be no waiting period between the issuance of the Commission's order and its effectiveness. VI. EXHIBITS AND FINANCIAL STATEMENTS A. EXHIBITS A-1 Not Applicable........................................................ B-1 Purchase Agreement By And Among Atlantic City Electric Company, PECO Energy Company and PSEG Power LLC, Dated as of September 27, 1999 (previously filed).................................................... B-2 Purchase Agreement By And Among Delmarva Power & Light Company, PECO Energy Company and PSEG Power LLC, Dated as of September 27, 1999 (previously filed).................................................... B-3 Amendment to Purchase Agreement By And Among Atlantic City Electric Company, PECO Energy Company and PSEG Power LLC, Dated as of October 3, 2000............................................................... B-4 Amendment to Purchase Agreement By And Among Delmarva Power & Light Company, PECO Energy Company and PSEG Power LLC, Dated as of October 3, 2000............................................................... C-1 Not Applicable........................................................ D-1 NJ State Application (previously filed)............................... D-2 NJ State Order........................................................ D-3 PA State Application (previously filed)............................... D-4 PA State Order (previously filed)..................................... D-5 VA State Application (previously filed)............................... D-6 VA State Order........................................................ D-7 FERC Application (previously filed)................................... D-8 FERC Order (previously filed)......................................... D-9 NRC Application (previously filed).................................... D-10 NRC Order (previously filed).......................................... D-11 FTC Hart-Scott-Rodino Application (previously filed).................. D-12 FTC Hart-Scott-Rodino Approval (previously filed)..................... D-13 NRC Application....................................................... D-14 NRC Order (to be filed by amendment).................................. D-15 FTC Hart-Scott-Rodino Application (to be filed by amendment).......... D-16 FTC Hart-Scott-Rodino Approval (to be filed by amendment)............. E-1 Not Applicable........................................................ F-1 Opinions of Counsel................................................... G-1 Not Applicable........................................................ H-1 Not Applicable........................................................ I-1 Proposed Form of Notice (previously filed)............................ B. FINANCIAL STATEMENTS FS-1 Delmarva Power & Light Company Pro Forma Consolidated Statements of Income (previously filed)............................................. FS-2 Delmarva Power & Light Company Pro Forma Consolidated Balance Sheets (Exhibit FS-3 to Conectiv's Form U-1 Declaration under The Public Utility Holding Company Act of 1935, File no. 070-09655, and incorporated herein by reference)..................................... FS-3 Atlantic City Electric Company Pro Forma Consolidated Statements of Income (previously filed)............................................. FS-4 Atlantic City Electric Company Pro Forma Consolidated Balance Sheets (Exhibit FS-5 to Conectiv's Form U-1 Declaration under The Public Utility Holding Company Act of 1935, File no. 070-09655, and incorporated herein by reference)..................................... FS-5 Conectiv Pro Forma Consolidated Statements of Income for the period ended September 30, 1999 (previously filed)........................... FS-6 Conectiv Pro Forma Consolidated Balance Sheets (Exhibit FS-1 to Conectiv's Form U-1 Declaration under The Public Utility Holding Company Act of 1935, File no. 070-09655, and incorporated herein by reference)............................................................ FS-7 Conectiv Consolidated Financial Data Schedule (include in electronic submission only) (Exhibit FS-4 to Conectiv's Post-Effective Amendment No. 7 to Form U-1 Declaration under The Public Utility Holding Company Act of 1935, File no. 070-09095, and incorporated herein by reference)............................................................ FS-8 Notes to Financial Statements (previously filed)...................... There have been no material changes, not in the ordinary course of business, since the date of the financial statements filed herewith. VII. INFORMATION AS TO ENVIRONMENTAL EFFECT The proposed transactions do not involve major federal action having a significant effect on the human environment. No other federal agency has prepared or is preparing an environmental impact statement with respect to the transaction. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] SIGNATURE Pursuant to the requirements of the Act, the undersigned companies have duly caused this amended Application/Declaration to be signed on its behalf by the undersigned hereunto duly authorized. Dated: November 9, 2000 Conectiv /s/ Philip S. Reese ----------------------------- By: Philip S. Reese Title: Treasurer Delmarva Power & Light Company /s/ Philip S. Reese ----------------------------- By: Philip S. Reese Title: Treasurer Atlantic City Electric Company /s/ Philip S. Reese ----------------------------- By: Philip S. Reese Title: Treasurer EX-99.1 2 0002.txt EXHIBIT B-3 EXHIBIT B-3 AMENDMENT TO PURCHASE AGREEMENT BY AND AMONG ATLANTIC CITY ELECTRIC COMPANY, PECO ENERGY COMPANY, PSEG POWER LLC AND PSEG NUCLEAR LLC This AMENDMENT dated as of October 3, 2000 (this "Amendment"), by and among Atlantic City Electric Company, a New Jersey corporation ("ACE" or "Seller"), PECO Energy Company, a Pennsylvania corporation ("PECO"), PSEG Power LLC, a Delaware limited liability company ("PSEG Power"), and PSEG Nuclear LLC, a Delaware limited liability company ("PSEG Nuclear" and, together with PSEG Power and PECO, "Buyers"), amends in certain aspects the Purchase Agreement dated as of September 27, 1999 (the "Purchase Agreement") by and among PECO, PSEG Power and Seller, which was assigned by PSEG Power to its wholly-owned subsidiary, PSEG Nuclear LLC on May 12, 2000, with respect to the sale and purchase of certain undivided tenant in common interests in the Peach Bottom Atomic Power Station. ACE, PECO, PSEG Power and PSEG Nuclear are referred to individually as a "Party" and collectively as the "Parties." Capitalized terms used herein but not defined shall have the meanings given to such terms in the Purchase Agreement. WHEREAS, ACE, PECO and PSEG Power have entered into the Purchase Agreement pursuant to which ACE agreed to sell to each of PECO and PSEG Power one-half of ACE's interest in the Peach Bottom Atomic Power Station Station; and WHEREAS, the parties to the Purchase Agreement have experienced unanticipated delays in the Closing of the transactions contemplated by such Purchase Agreement; and WHEREAS, the Purchase Agreement may be terminated by either Buyers or Seller at any time prior to the Closing and after the first anniversary of the Purchase Agreement (the "Termination Date"); and WHEREAS, pursuant to the Purchase Agreements, PSEG Power assigned its rights, duties and interest thereunder to PSEG Nuclear; and WHEREAS, the Parties desire to amend the Purchase Agreement, among other reasons, to extend the Termination Date. NOW, THEREFORE, in consideration of the foregoing and of the covenants and agreements set forth herein, and in consideration of the agreement of the Parties, including certain Affiliates of PSEG Power, to enter into the Wholesale Transaction Confirmation, dated the date hereof, for a term commencing October 7, 2000, and intending to be legally bound hereby, the Parties hereby agree to amend the Purchase Agreement as follows: 1. Section 3.11 of the Purchase Agreement is hereby amended by deleting such Section in its entirety. 2. Section 7.7 of the Purchase Agreement is hereby amended to read in its entirety: "Risk of Loss. -------------- (a) From September 27, 1999 through (but not including) October 7, 2000, all risk of loss or damage to the assets or properties included in the Purchased Assets (other than the Decommissioning Funds) shall be borne by Seller. Notwithstanding any provision hereof to the contrary, if, prior to October 7, 2000, all or any portion of the Purchased Assets is (i) condemned or taken by eminent domain or is the subject of a pending or threatened condemnation or taking which has not been consummated or (ii) damaged or destroyed by fire or other casualty, Seller shall notify Buyers promptly in writing of such fact, and (x) in the case of a condemnation or taking, Seller shall assign or pay, as the case may be, any proceeds thereof to PECO, to the extent of the PECO Interest, and to PSEG, to the extent of the PSEG Interest, at the Closing and (y) in the case of a fire or other casualty, Seller shall either restore such damage or assign the insurance proceeds therefor (and pay the amount of any deductible and/or self-insured amount in respect of such casualty) to PECO, to the extent of the PECO Interest, and to PSEG, to the extent of the PSEG Interest, at the Closing. Notwithstanding the foregoing, if such condemnation, taking, damage, destruction or other casualty results in a Material Adverse Effect, Buyers and Seller shall negotiate to settle the loss resulting from such condemnation, taking, damage, destruction or other casualty (and such negotiation shall include the negotiation of a fair and equitable reduction of the Purchase Price). If no such settlement can be agreed upon within sixty (60) days after Seller has notified Buyers of such casualty or loss, then PECO and PSEG, on the one hand, or Seller on the other hand, may terminate this Agreement pursuant to Section 10.1(h). (b) From and after October 7, 2000 through (but not including) the Closing Date, all risk of loss or damage to the assets or properties included in the Purchased Assets (other than (i) any condemnation or taking by eminent domain, of the Purchased Assets or (ii) an event or occurrence which arises out of or relates to the Assumed Decommissioning Liabilities) shall be borne by PECO, to the extent of the PECO Interest and PSEG, to the extent of the PSEG Interest. From and after October 7, 2000 through (but not including) the Closing Date, all risk of loss or damage to the assets or properties included in the Purchased Assets which arises out of or relates to (i) any condemnation or taking by eminent domain of the Purchased Assets or (ii) the Assumed Decommissioning Liabilities shall be borne by Seller. If, on or after October 7, 2000 and before the Closing Date, all or any portion of the Purchased Assets is (i) condemned or taken by eminent domain or is the subject of a pending or threatened condemnation or taking which has not been consummated or (ii) damaged or destroyed by fire or other casualty, Seller shall notify Buyers promptly in writing of such fact. In the case of a fire or other casualty, Seller shall assign the insurance proceeds therefor to PECO, to the extent of the PECO Interest, and to PSEG, to the extent of the PSEG Interest, at the earlier of the Closing or the receipt of such proceeds. Buyers shall not have the right to terminate this Agreement pursuant to Section 10.1(h) in the event such damage, destruction or other casualty (other than (i) any condemnation or taking by eminent domain, of the Purchased Assets or (ii) an event or occurrence which arises out of or relates to the Assumed Decommissioning Liabilities) results in a Material Adverse Effect. In the event of (i) any condemnation or taking by eminent domain of the Purchased Assets or (ii) an event or occurrence which arises out of or relates to the Assumed Decommissioning Liabilities, in each case, which results in a Material Adverse Effect, Buyers and Seller shall negotiate to settle the loss resulting from such event (and such negotiation shall include the negotiation of a fair and equitable reduction of the Purchase Price). If no such settlement can be agreed upon within sixty (60) days after Seller has notified Buyers of such event, then PECO and PSEG, on the one hand, or Seller on the other hand, may terminate this Agreement pursuant to Section 10.1(h). (c) Notwithstanding anything in this Section 7.7 to the contrary, if the Purchase Agreement terminates prior to the Closing, the risk of loss shall be borne by Seller as provided for in Section 10.2, and, pursuant to the Transaction Confirmation "Price" Sections (2) and (3), Seller shall reimburse Buyers for any capital expenditures paid by Buyers for Seller's respective share of Peach Bottom." 3. Section 8.2(g) of the Purchase Agreement is hereby amended by deleting such Section in its entirety. 4. Section 8.2(h) of the Purchase Agreement is hereby amended to read in its entirety: "There shall not have occurred and be continuing a Material Adverse Effect, provided that Buyers shall be obligated to consummate the transactions contemplated hereby if such Material Adverse Effect arises out of or relates to any of the Assumed Liabilities and arises out of or relates to events or occurrences on or after October 7, 2000." 5. Section 8.3(g) of the Purchase Agreement is hereby amended by deleting such Section in its entirety. 6. Section 8.3(h) of the Purchase Agreement is hereby amended to read in its entirety: "There shall not have occurred and be continuing a Material Adverse Effect, provided that Buyers shall be obligated to consummate the transactions contemplated hereby if such Material Adverse Effect arises out of or relates to any of the Assumed Liabilities and arises out of or relates to events or occurrences on or after October 7, 2000." 7. Section 8.4(j) of the Purchase Agreement is hereby amended by deleting such Section in its entirety. 8. Section 8.4(k) of the Purchase Agreement is hereby amended to read in its entirety: "Seller shall have received a private letter ruling issued by the Internal Revenue Service to the effect that Seller will be allowed current ordinary deductions for federal income tax purposes for any amounts treated as realized by Seller, or otherwise recognized as income to Seller, as a result of Buyers' assumption of the Assumed Decommissioning Liabilities, provided, however that if the PECO Restructuring shall have occurred prior to the Closing, the condition set forth in this Section 8.4(k) shall be satisfied only if such private letter ruling contemplates and, accurately sets forth as factual matters in a manner reasonably satisfactory to Seller (i) that the Closing and the closing of the Collateral Agreement will occur at different times and are independent of each other and (ii) that the PECO Restructuring has occurred." 9. Section 10.1(b)(iii) of the Purchase Agreement is hereby amended to read in its entirety: "(iii) at any time after September 26, 2001, at 11:59 p.m., New York City time, if the Closing shall not have occurred on or before such date (the "Termination Date")." 10. Section 10.1(h) of the Purchase Agreement is hereby amended to read in its entirety: "This Agreement may be terminated by Seller, on the one hand (subject to Seller's obligation to comply with Section 7.7(c) after such termination), or PECO and PSEG acting together, on the other hand, upon written notice to the other Party, in accordance with the provisions of Section 7.7(a) or 7.7(b), as the case may be, provided that the Party seeking to so terminate shall have complied in all material respects with its obligations under Section 7.7(a) or 7.7(b)." 11. Section 10.2 of the Purchase Agreement is hereby amended to read in its entirety: "Effect of Termination. - ---------------------- (a) Upon termination of this Agreement prior to the Closing pursuant to Section 10.1, this Agreement shall be null and void and of no further force or effect (except that the provisions set forth in this Section 10.2 and Article XI, and the Confidentiality Agreements, shall remain in full force and effect in accordance with their respective terms); and no Party shall have any further liability or obligation under this Agreement (other than (i) the obligations of such Party under such provisions hereof as remain in full force and effect after such termination and (ii) for any willful breach of its obligations hereunder). If this Agreement is terminated as provided herein, all filings, applications and other submissions made pursuant to this Agreement, to the extent practicable, shall be withdrawn from the agency or other Person to which they were made. (b) In the event that this Agreement is terminated in accordance with its terms prior to the Closing hereunder and after the Closing (as defined in the Collateral Agreement), then within thirty (30) days thereafter, ACE shall pay to each of PECO and PSEG Power an amount equal to one-fourth of the amount by which, as of the close of business on the date immediately preceding the Closing Date under the Collateral Agreement, the Decommissioning Funds exceeds the DP&L Decommissioning Funds. As used herein, "DP&L Decommissioning Funds" means the amount of Decommissioning Funds as defined in the Collateral Agreement. 12. Section 11.9(b)(A) of the Purchase Agreement is hereby amended to read in its entirety: "impair or materially delay the consummation of the transactions contemplated hereby, it being acknowledged and agreed to by the Seller and Buyers that the assignment, transfer, pledge, conveyance or disposition pursuant to Section 11.9(b) by PECO to an affiliate of PECO ("GENCO"), (the "PECO Restructuring") shall not be deemed to impair or materially delay the consummation of the transactions contemplated hereby, or" 13. Section 11.2 of the Purchase Agreement is hereby amended to read in its entirety: "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, including the fees and commissions referred to in Section 11.3. During the first year after the date of this Agreement, in no event shall Seller bear or be liable for the payment of any costs, fees or expenses (other than attorneys' fees and expenses and the fees and commissions referred to in Section 11.3) incurred by Seller to obtain any approval of FERC or the NRC Approvals included among the PECO Required Regulatory Approvals, PSEG Required Regulatory Approvals, or Seller's Required Regulatory Approvals, or to transfer the Decommissioning Funds to Buyer at the Closing, to the extent that the aggregate amount of such costs, fees and expenses exceeds, together with all such costs, fees and expenses which Seller bears or is liable for under the Collateral Agreement, $200,000; and Buyers shall equally bear and be liable to the extent of such excess. After September 27, 2000, subject to Sections 7.9(a) and (b), 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." 14. The Parties agree that Exhibit A to the Purchase Agreement (Amendment to Owners Agreement) shall be amended at the Closing, in form and substance mutually satisfactory to the Parties, to give effect to the transactions contemplated by the Transaction Confirmation (as defined below) and this Amendment. 15. Subject to the terms and conditions of this Amendment, each Party shall use its Commercially Reasonable 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 Law to effect the separate Closing of the Purchase Agreement and the Collateral Agreement as soon as practicable. Such actions shall include, without limitation, each Party using its Commercially Reasonable Efforts to ensure the separate satisfaction of the conditions precedent to its obligations under the Purchase Agreement and the Collateral Agreement, including obtaining all necessary consents, approvals, and authorizations of third parties and Governmental Authorities required to be obtained in order separately to consummate the transactions contemplated by the Purchase Agreement and the Collateral Agreement. Except as permitted by Section 11.9, no Party shall, without the prior written consent of the other Parties, take or fail to take any other action, which would reasonably be expected to prevent or materially impede, interfere with or delay the separate Closing of the Purchase Agreement or the Collateral Agreement; provided that the good faith exercise of any approval rights or discretion provided for in the Purchase Agreement and the Collateral Agreement shall not be deemed in violation of the requirements of this Section 15. 16. Reference is made to that certain Wholesale Transaction Confirmation of even date herewith, a copy of which is attached as Annex I hereto (the "Transaction Confirmation"). The responsibility for the payment, performance and discharge of all liabilities and obligations in respect of nuclear fuel supplies, operation and maintenance costs and capital expenditures, and allocation of responsibility for other liabilities and obligations, set forth in the Transaction Confirmation shall be governed by the Transaction Confirmation, notwithstanding any provision of the Purchase Agreement (including, without limitation, Sections 3.7 and 7.1 of the Purchase Agreement), as amended hereby, or the Owners Agreement to the contrary. 17. Except as herein modified or as modified by the Transaction Confirmation, the terms and conditions of the Purchase Agreement shall remain unmodified and shall remain in full force and effect and are hereby ratified and confirmed. This Amendment shall be construed as one with the Purchase Agreement, and the Purchase Agreement shall, where the context requires, be read and construed throughout so as to incorporate this Amendment. 18. This Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania (without giving effect to conflicts of law principles) as to all matters, including validity, construction, effect, performance and remedies. 19. This Amendment 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. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first written above. ATLANTIC CITY ELECTRIC COMPANY By: _____________________________ Name: _____________________________ Title: _____________________________ PECO ENERGY COMPANY By: _____________________________ Name: _____________________________ Title: _____________________________ PSEG POWER LLC By: _____________________________ Name: _____________________________ Title: _____________________________ PSEG NUCLEAR LLC By: _____________________________ Name: _____________________________ Title: _____________________________ EX-99.2 3 0003.txt EXHIBIT B-4 Exhibit B-4 AMENDMENT TO PURCHASE AGREEMENT BY AND AMONG DELMARVA POWER & LIGHT COMPANY, PECO ENERGY COMPANY, PSEG POWER LLC AND PSEG NUCLEAR LLC This AMENDMENT dated as of October 3, 2000 (this "Amendment"), by and among Delmarva Power & Light Company, a Delaware and Virginia Corporation ("DP&L" or "Seller"), PECO Energy Company, a Pennsylvania corporation ("PECO"), PSEG Power LLC, a Delaware limited liability company ("PSEG Power"), and PSEG Nuclear LLC, a Delaware limited liability company ("PSEG Nuclear" and, together with PSEG Power and PECO, "Buyers"), amends in certain aspects the Purchase Agreement dated as of September 27, 1999 (the "Purchase Agreement") by and among PECO, PSEG Power and Seller, which was assigned by PSEG Power to its wholly-owned subsidiary, PSEG Nuclear LLC on May 12, 2000, with respect to the sale and purchase of certain undivided tenant in common interests in the Peach Bottom Atomic Power Station. DP&L, PECO, PSEG Power and PSEG Nuclear are referred to individually as a "Party" and collectively as the "Parties." Capitalized terms used herein but not defined shall have the meanings given to such terms in the Purchase Agreement. WHEREAS, DP&L, PECO and PSEG Power have entered into the Purchase Agreement pursuant to which DP&L agreed to sell to each of PECO and PSEG Power one-half of DP&L's interest in the Peach Bottom Atomic Power Station Station; and WHEREAS, the parties to the Purchase Agreement have experienced unanticipated delays in the Closing of the transactions contemplated by such Purchase Agreement; and WHEREAS, the Purchase Agreement may be terminated by either Buyers or Seller at any time prior to the Closing and after the first anniversary of the Purchase Agreement (the "Termination Date"); and WHEREAS, pursuant to the Purchase Agreements, PSEG Power assigned its rights, duties and interest thereunder to PSEG Nuclear; and WHEREAS, the Parties desire to amend the Purchase Agreement, among other reasons, to extend the Termination Date. NOW, THEREFORE, in consideration of the foregoing and of the covenants and agreements set forth herein, and in consideration of the agreement of the Parties, including certain Affiliates of PSEG Power, to enter into the Wholesale Transaction Confirmation, dated the date hereof, for a term commencing October 7, 2000, and intending to be legally bound hereby, the Parties hereby agree to amend the Purchase Agreement as follows: 1. Section 3.11 of the Purchase Agreement is hereby amended by deleting such Section in its entirety. 2. Section 7.7 of the Purchase Agreement is hereby amended to read in its entirety: "Risk of Loss. ------------ (a) From September 27, 1999 through (but not including) October 7, 2000, all risk of loss or damage to the assets or properties included in the Purchased Assets (other than the Decommissioning Funds) shall be borne by Seller. Notwithstanding any provision hereof to the contrary, if, prior to October 7, 2000, all or any portion of the Purchased Assets is (i) condemned or taken by eminent domain or is the subject of a pending or threatened condemnation or taking which has not been consummated or (ii) damaged or destroyed by fire or other casualty, Seller shall notify Buyers promptly in writing of such fact, and (x) in the case of a condemnation or taking, Seller shall assign or pay, as the case may be, any proceeds thereof to PECO, to the extent of the PECO Interest, and to PSEG, to the extent of the PSEG Interest, at the Closing and (y) in the case of a fire or other casualty, Seller shall either restore such damage or assign the insurance proceeds therefor (and pay the amount of any deductible and/or self-insured amount in respect of such casualty) to PECO, to the extent of the PECO Interest, and to PSEG, to the extent of the PSEG Interest, at the Closing. Notwithstanding the foregoing, if such condemnation, taking, damage, destruction or other casualty results in a Material Adverse Effect, Buyers and Seller shall negotiate to settle the loss resulting from such condemnation, taking, damage, destruction or other casualty (and such negotiation shall include the negotiation of a fair and equitable reduction of the Purchase Price). If no such settlement can be agreed upon within sixty (60) days after Seller has notified Buyers of such casualty or loss, then PECO and PSEG, on the one hand, or Seller on the other hand, may terminate this Agreement pursuant to Section 10.1(h). (b) From and after October 7, 2000 through (but not including) the Closing Date, all risk of loss or damage to the assets or properties included in the Purchased Assets (other than (i) any condemnation or taking by eminent domain, of the Purchased Assets or (ii) an event or occurrence which arises out of or relates to the Assumed Decommissioning Liabilities) shall be borne by PECO, to the extent of the PECO Interest and PSEG, to the extent of the PSEG Interest. From and after October 7, 2000 through (but not including) the Closing Date, all risk of loss or damage to the assets or properties included in the Purchased Assets which arises out of or relates to (i) any condemnation or taking by eminent domain of the Purchased Assets or (ii) the Assumed Decommissioning Liabilities shall be borne by Seller. If, on or after October 7, 2000 and before the Closing Date, all or any portion of the Purchased Assets is (i) condemned or taken by eminent domain or is the subject of a pending or threatened condemnation or taking which has not been consummated or (ii) damaged or destroyed by fire or other casualty, Seller shall notify Buyers promptly in writing of such fact. In the case of a fire or other casualty, Seller shall assign the insurance proceeds therefor to PECO, to the extent of the PECO Interest, and to PSEG, to the extent of the PSEG Interest, at the earlier of the Closing or the receipt of such proceeds. Buyers shall not have the right to terminate this Agreement pursuant to Section 10.1(h) in the event such, damage, destruction or other casualty (other than (i) any condemnation or taking by eminent domain, of the Purchased Assets or (ii) an event or occurrence which arises out of or relates to the Assumed Decommissioning Liabilities) results in a Material Adverse Effect. In the event of (i) any condemnation or taking by eminent domain of the Purchased Assets or (ii) an event or occurrence which arises out of or relates to the Assumed Decommissioning Liabilities, in each case, which results in a Material Adverse Effect, Buyers and Seller shall negotiate to settle the loss resulting from such event (and such negotiation shall include the negotiation of a fair and equitable reduction of the Purchase Price). If no such settlement can be agreed upon within sixty (60) days after Seller has notified Buyers of such event, then PECO and PSEG, on the one hand, or Seller on the other hand, may terminate this Agreement pursuant to Section 10.1(h). (c) Notwithstanding anything in this Section 7.7 to the contrary, if the Purchase Agreement terminates prior to the Closing, the risk of loss shall be borne by Seller as provided for in Section 10.2, and, pursuant to the Transaction Confirmation "Price" Sections (2) and (3), Seller shall reimburse Buyers for any capital expenditures paid by Buyers for Seller's respective share of Peach Bottom." 3. Section 8.2(g) of the Purchase Agreement is hereby amended by deleting such Section in its entirety. 4. Section 8.2(h) of the Purchase Agreement is hereby amended to read in its entirety: "There shall not have occurred and be continuing a Material Adverse Effect, provided that Buyers shall be obligated to consummate the transactions contemplated hereby if such Material Adverse Effect arises out of or relates to any of the Assumed Liabilities and arises out of or relates to events or occurrences on or after October 7, 2000." 5. Section 8.3(g) of the Purchase Agreement is hereby amended by deleting such Section in its entirety. 6. Section 8.3(h) of the Purchase Agreement is hereby amended to read in its entirety: "There shall not have occurred and be continuing a Material Adverse Effect, provided that Buyers shall be obligated to consummate the transactions contemplated hereby if such Material Adverse Effect arises out of or relates to any of the Assumed Liabilities and arises out of or relates to events or occurrences on or after October 7, 2000." 7. Section 8.4(j) of the Purchase Agreement is hereby amended by deleting such Section in its entirety 8. Section 8.4(k) of the Purchase Agreement is hereby amended to read in its entirety: "Seller shall have received a private letter ruling issued by the Internal Revenue Service to the effect that Seller will be allowed current ordinary deductions for federal income tax purposes for any amounts treated as realized by Seller, or otherwise recognized as income to Seller, as a result of Buyers' assumption of the Assumed Decommissioning Liabilities, provided, however that if the PECO Restructuring shall have occurred prior to the Closing, the condition set forth in this Section 8.4(k) shall be satisfied only if such private letter ruling contemplates and, accurately sets forth as factual matters in a manner reasonably satisfactory to Seller (i) that the Closing and the closing of the Collateral Agreement will occur at different times and are independent of each other and (ii) that the PECO Restructuring has occurred." 9. Section 10.1(b)(iii) of the Purchase Agreement is hereby amended to read in its entirety: "(iii) at any time after September 26, 2001, 11:59 a.m., New York City time, if the Closing shall not have occurred on or before such date (the "Termination Date")." 10. Section 10.1(h) of the Purchase Agreement is hereby amended to read in its entirety: "This Agreement may be terminated by Seller, on the one hand (subject to Seller's obligation to comply with Section 7.7(c) after such termination), or PECO and PSEG acting together, on the other hand, upon written notice to the other Party, in accordance with the provisions of Section 7.7(a) or 7.7(b), as the case may be, provided that the Party seeking to so terminate shall have complied in all material respects with its obligations under Section 7.7(a) or 7.7(b)." 11. Section 11.9(b)(A) of the Purchase Agreement is hereby amended to read in its entirety: "impair or materially delay the consummation of the transactions contemplated hereby, it being acknowledged and agreed to by the Seller and Buyers that the assignment, transfer, pledge, conveyance or disposition pursuant to Section 11.9(b) by PECO to an affiliate of PECO ("GENCO"), (the "PECO Restructuring") shall not be deemed to impair or materially delay the consummation of the transactions contemplated hereby, or" 12. Section 11.2 of the Purchase Agreement is hereby amended to read in its entirety: 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, including the fees and commissions referred to in Section 11.3. During the first year after the date of this Agreement, in no event shall Seller bear or be liable for the payment of any costs, fees or expenses (other than attorneys' fees and expenses and the fees and commissions referred to in Section 11.3) incurred by Seller to obtain any approval of FERC or the NRC Approvals included among the PECO Required Regulatory Approvals, PSEG Required Regulatory Approvals, or Seller's Required Regulatory Approvals, or to transfer the Decommissioning Funds to Buyer at the Closing, to the extent that the aggregate amount of such costs, fees and expenses exceeds, together with all such costs, fees and expenses which Seller bears or is liable for under the Collateral Agreement, $200,000; and Buyers shall equally bear and be liable to the extent of such excess. After September 27, 2000, subject to Sections 7.9(a) and (b), 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. 13. The Parties agree that Exhibit A to the Purchase Agreement (Amendment to Owners Agreement) shall be amended at the Closing, in form and substance mutually satisfactory to the Parties, to give effect to the transactions contemplated by the Transaction Confirmation (as defined below) and this Amendment. 14. Subject to the terms and conditions of this Amendment, each Party shall use its Commercially Reasonable 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 Law to effect the separate Closing of the Purchase Agreement and the Collateral Agreement as soon as practicable. Such actions shall include, without limitation, each Party using its Commercially Reasonable Efforts to ensure the separate satisfaction of the conditions precedent to its obligations under the Purchase Agreement and the Collateral Agreement, including obtaining all necessary consents, approvals, and authorizations of third parties and Governmental Authorities required to be obtained in order separately to consummate the transactions contemplated by the Purchase Agreement and the Collateral Agreement. No Party shall, without the prior written consent of the other Parties, take or fail to take any other action, which would reasonably be expected to prevent or materially impede, interfere with or delay the separate Closing of the Purchase Agreement or the Collateral Agreement; provided that the good faith exercise of any approval rights or discretion provided for in the Purchase Agreement and the Collateral Agreement shall not be deemed in violation of the requirements of this Section 14. 15. Reference is made to that certain Wholesale Transaction Confirmation of even date herewith, a copy of which is attached as Annex I hereto (the "Transaction Confirmation"). The responsibility for the payment, performance and discharge of all liabilities and obligations in respect of nuclear fuel supplies, operation and maintenance costs and capital expenditures, and allocation of responsibility for other liabilities and obligations, set forth in the Transaction Confirmation shall be governed by the Transaction Confirmation, notwithstanding any provision of the Purchase Agreement (including, without limitation, Sections 3.7 and 7.1 of the Purchase Agreement), as amended hereby, or the Owners Agreement to the contrary. 16. Except as herein modified or as modified by the Transaction Confirmation, the terms and conditions of the Purchase Agreement shall remain unmodified and shall remain in full force and effect and are hereby ratified and confirmed. This Amendment shall be construed as one with the Purchase Agreement, and the Purchase Agreement shall, where the context requires, be read and construed throughout so as to incorporate this Amendment. 17. This Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania (without giving effect to conflicts of law principles) as to all matters, including validity, construction, effect, performance and remedies. 18. This Amendment 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. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first written above. DELMARVA POWER & LIGHT COMPANY By: _____________________________ Name: _____________________________ Title: _____________________________ PECO ENERGY COMPANY By: _____________________________ Name: _____________________________ Title: _____________________________ PSEG POWER LLC By: _____________________________ Name: _____________________________ Title: _____________________________ PSEG NUCLEAR LLC By: _____________________________ Name: _____________________________ Title: _____________________________ EX-99.3 4 0004.txt EXHIBIT D-2 Exhibit D-2 Re Atlantic City Electric Company Docket No. EM99110870 New Jersey Board of Public Utilities July 21, 2000 Before Tate, president and Armenti and Butler, commissioners. BY THE BOARD: ENERGY DECISION AND ORDER (SERVICE LIST ATTACHED) This matter concerns a petition filed by Atlantic City Electric Company ('Petitioner', 'Atlantic', 'ACE' or 'Company') dated November 23, 1999, requesting that the Board of Public Utilities ('Board') approve the sale of its minority interest in the Salem Nuclear Generating Station, Units 1 and 2 ('Salem'), Peach Bottom Atomic Power Station, Units 2 and 3 ('Peach Bottom '), and the Hope Creek Nuclear Generating Station ('Hope Creek') (collectively referred to as the 'Nuclear Assets'), [FN1] as well as the recovery of resultant stranded costs and for other related findings. Procedural History In May 1999, Conectiv [FN2] announced that it intended to sell certain nuclear and fossil generation assets owned by its wholly-owned utility subsidiaries, Atlantic City Electric Company and Delmarva Power & Light Company ('Delmarva '). Conectiv indicated that its decision to divest ACE's and Delmarva's generating assets was motivated, among other things, by the development of an active market for generating units, its strategic business plans, and the passage of the Electric Discount and Energy Competition Act ('Act'), N.J.S.A. 48:3-49 et seq. On August 11, 1999, consistent with the requirements of subsection 11(b) of the Act, the Company filed a petition with the Board seeking approval of Auction Standards for the sale of certain of its non-nuclear and nuclear generating units. Memorializing determinations made at its September 19, 1999 Agenda meeting, the Board issued a written Order dated January 4, 2000, adopting Auction Standards ('Auction Standards'), [FN3] to be applicable when the Company sought Board approval of the sale of its nuclear and fossil generation assets. These Auction Standards recognize and take into account the fact that the Company owns only minority, non-operating interests in its Nuclear Assets, which interests are subject to pre-existing contractual rights of first refusal held by the co-owners of those units. The Auction Standards also establish principles for maximizing the sales price while considering the unique characteristics of the Company's generating assets, continuing environmental stewardship, mitigating the impact on the incumbent workforce, and maintaining the reliability of the electric system. The Auction Standards require ACE to submit the proposed sale of the generating assets to the Board for review and approval, at which time the divesting utility must demonstrate compliance with the Auction Standards, as well as other applicable laws, regulations and policies. On May 13, 1999, Conectiv initiated its auction process for the sale of its minority interest in the Nuclear Assets with the mailing of approximately 1200 early interest letters to industry contacts around the world. The next step in the auction process, based on a response of 10 entities to the early interest letters, was the execution of confidentiality agreements, as well as a request for qualifications from those parties who expressed an interest in the purchase of the Company's interest in the Nuclear Assets. In the next phase of the auction process, from about July 1999 to August 1999, the Company issued detailed offering memoranda and a CD-ROM [FN4] to nine entities that executed confidentiality agreements. Prior to the submission of the first round of indicative bids, which were due August 30, 1999, the Company, on August 28, 1999, received an offer from PSEG Power LLC ('PSEG Power' or 'Genco') [FN5] and PECO Energy Company ('PECO') [FN6] (collectively referred to as the 'Co-owners' or 'Purchasers') to purchase its interest in its Nuclear Assets. A condition of the proposal from the Co-owners was that the Company suspend the auction process until it evaluated the bid from the Co-owners. The Company elected to delay the auction process, postponing the date indicative bids were due until the Company could evaluate the bid from the Co-owners. [FN7] After evaluating the bid from the Co-owners, the Company determined not to proceed with the bid process. On September 27, 1999, the Company entered into Purchase and Sale Agreements [FN8] ('PSAs') with the Co-owners providing for the sale of the Company's interest in its Nuclear Assets and other related assets for approximately $11.3 million, [FN9] subject to certain adjustments. [FN10] On December 22, 1999, the Board adopted a procedural schedule [FN11] to allow parties the opportunity to review and provide input to the Board regarding the proposed sale of Company's Nuclear Assets to PSEG Power and PECO. The procedural schedule included an opportunity for parties to propound discovery, participate in a public/legislative-type hearing, and submit post-hearing comments and reply comments to the Board. On February 17, 2000, a public/legislative type hearing was held at the Board, before Commissioner Frederick F. Butler, regarding the pending sale of the Company's Nuclear Assets to PSEG Power and PECO. At the hearing, the Company presented testimony by Tom Shaw, Executive Vice President of the Company and its parent company Conectiv; Donna Powell of the Conectiv Financial Services department; Charles Mannix, Manager of Taxes for Conectiv; and James Coyne, Managing Director, Navigant Consulting. The Company's witnesses were questioned by Commissioner Butler, Board Staff, and the Division of the Ratepayer Advocate ('RPA') on a number of issues regarding the proposed sale to PSEG Power and PECO, including workforce impacts, the sale process, and reliability issues. At the hearing the RPA presented its positions on the Company's proposal and expressed certain concerns to the Board. On March 3, 2000, the Board received written comments from the Company and the RPA, with both parties filing reply comments with the Board on March 17, 2000. On March 14, 2000, the Company filed a petition with the Board requesting approval of a bidding process for energy and capacity for the purposes of satisfying a portion of its Basic Generation Service requirements. [FN12] Part of the petition included the request for approval of a 350 MW bid, to replace the energy and capacity associated with the Company's interest in the Nuclear Assets. The Board, on May 15, 2000, issued an Order in this matter, wherein it recognized that 350 MWs of energy and capacity will be needed by the Company if the sale of the Company's Nuclear Assets is approved by the Board. On May 4, 2000, the Company amended its filing in this matter by including a Financial Setback Lookback Option ('FSLO') between itself and PSEG Energy Resources and Trade, LLC, for energy and capacity for the months of June, July and August of 2000. On May 10, 2000, in response to the Company's amendment to the filing, the RPA submitted a letter memorandum setting forth additional comments for the Board's consideration. Terms of the Proposed Nuclear Generating Assets Sale On September 27, 1999, the Company entered into Purchase and Sale Agreements ('PSAs') with PSEG Power and PECO providing for the sale of the Company's interest in its Nuclear Assets and other related assets for approximately $11.3 million, subject to certain adjustments. Delmarva also entered into PSAs with the Co-owners for the sale of its interests in Salem and Peach Bottom for a total of $9.2 million, subject to certain adjustments. Specifically, PSEG Power will acquire the combined Company/Delmarva 15.02% interest in Salem, as well as the Company's 5% interest in Hope Creek, and PSEG Power and PECO have agreed to each purchase one-half of the Company's and Delmarva's combined 14.82% interests in Peach Bottom. The Company will convey to the Co-owners all of its right title and interest in and to all of the Nuclear Assets, including, among other things, the real property upon which the generation assets are sited, all inventories, machinery, equipment, contracts, vehicles, fixtures and furniture, transferable permits, all books, records and operating manuals, agreements relating to the ownership, operation or maintenance of such assets and transferable warranties and guarantees. Pursuant to the PSAs, the Co-owners will assume the nuclear decommissioning liability associated with the Nuclear Assets. Additionally, the PSAs do not require the Company to make an additional payment to the decommissioning trust fund, as would likely be the case in a sale to a non-Co-owner. Further, the PSAs do not require the Company to agree to any continuing 'parting contracts' for energy supplies after the transaction closes. Pursuant to the PSAs and the Auction Standards, the Co-owners have agreed to assume all on-site environmental liabilities associated with the Nuclear Assets. The Co-owners have also agreed to assume all post-closing offsite liabilities. The Company indicates that as a result of the sale there will be no impact on the employees working at the nuclear facilities. The Company owns only minority, non-operating interests in the Nuclear Assets, and does not employ any workers at the units. The Company testified that no Company employees will be affected by the proposed sale. (Tr. 2/17/00 at 20). In addition, on May 4, 2000, the Company amended its filing in this matter as part of the PSA to include a FSLO between itself and PSEG Power for energy and capacity for the months of June, July and August of 2000. The agreement includes a financially settled call option for energy, based on the difference between the average Locational Marginal Price ('LMP') at the Salem Bus price as defined by the PJM LLC and the Strike Price. The Strike Price is $40.00 per MwHr. for June, $60.00 per MwHr. for July, and $55.00 per MwHr. for August, all in the year 2000. The FSLO also includes the sale of installed capacity (unforced capacity credits for application only in the PJM Interconnection) from PSEG Energy Resources and Trade, LLC to the Company in the months of June, July and August of 2000 at a price of $60.00 per Mw-day. Positions of the Parties Atlantic City Electric Company The Company asserts that it conducted the sale of its nuclear generation assets in accordance with the Board's directives and in compliance with the Board's Auction Standards. The Company explains that because the Nuclear Assets were subject to prior contractual rights of first refusal by the Co-owners, the Company determined that it was in the best interest of its customers and shareholders to accept an offer made by the Co-owners and not complete the auction process. Nonetheless, the Company explains that it took the following steps to satisfy the Board's Auction Standards: its sale process was designed to foster competition among purchasers, ensure a maximum sales price and recognize the existing rights of the Co-owners; the Company considered tax consequences and the funding of the nuclear decommissioning trust fund; a market power study was filed with the Board; the Company has ensured system reliability and the provision of safe, adequate and reliable service post- divestiture by selling to the Co-owner.q, existing PJM members; all on-site environmental liabilities will be assumed by the Co-owners, whose environmental track records are well-known to the Board; and the sale will have no impact on the incumbent generation workforce. The Company asserts that it elected to accept the offer made by the Co- owners because the Company had concluded that the market for minority, non- operating interests in nuclear units was not robust. Moreover, the Company had been advised by its consultant, Navigant Consulting, Inc., that the offer by the Co-owners represented the fair market value of the assets. The Rate Payer Advocate The RPA, in its initial comments stressed the need for, and urged the Board to hold an evidentiary hearing, in order to establish a comprehensive record upon which to base its ruling in this matter, since the result of the sale will ultimately impact the rates paid by the Company's ratepayers. The RPA also argued that the Company has not maximized the sale price for the sale of its Nuclear Assets since the Company failed to complete the auction process by accepting the Co-owners' offer, and agreed to sell the Nuclear Assets for a price below the estimate provided by the Company in the Board's earlier stranded costs and rate unbundling proceedings. The RPA argues that the Company's sale is not consistent with the Auction Standards. The RPA further argues that the Company has an obligation to maximize the market value of its generating assets, and its New Jersey ratepayers should be no worse off as a result of the divestiture then they would have been if the assets were not sold. Further, the RPA contends that the sale either should be rejected as not in the public interest, or the Board should disallow all stranded costs above the administrative estimate of stranded costs proffered by the Company in the stranded costs proceedings. Moreover, the RPA urged the Board to reduce the Company's Societal Benefits Charge ('SBC') to eliminate nuclear decommissioning funding currently recovered in rates. The RPA also asserted that the Company has not provided sufficient record information upon which the Board may make the requested findings as to whether the Company's and Delmarva's ownership interest in Peach Bottom, Salem and Hope Creek qualify as Exempt Wholesale Generators ('EWG') pursuant to the Public Utility Holding Company Act ('PUHCA '). The RPA also asserts that the Board, in conjunction with the appropriate federal authorities, should monitor the market power of the purchasers on a prospective basis. Lastly, the RPA posited that the Company may 'double recover' its loss on reacquired debt. The RPA, in response to the May 4, 2000 amendment containing a financial agreement for energy and capacity in the months of June, July, and August of 2000, points out that this hedging and supply arrangement appears to reduce the total costs of replacement power tied to the sale of the Company's interest in its Nuclear Assets. However, the RPA argues that the Company has not conclusively demonstrated that its hedging proposal would result in optimum Basic Generation Service ('BGS') prices for its New Jersey customers. Discussion and Findings The Board has carefully reviewed the record developed in this matter. At the outset, we note that this Order is limited to certain aspects of the Company's filing relating to the sale of its interest in its Nuclear Assets, specifically, whether the proposed sale of the Company's nuclear generation assets is consistent with the Board's Auction Standards; whether the Company has met the requirements set forth in section 11 of the Act, N.J.S.A. 48:3-49 et seq.; whether to approve the proposed transfer of the Company's nuclear decommissioning trust fund balances to PSEG Power and PECO; whether the proposed financial hedging and supply agreement is reasonable; and whether the ownership interest of the Company's and Delmarva's Nuclear Assets qualify as EWGs under section 31 of PUHCA. In addition, this Order addresses issues raised in the public/legislative type hearing and the written comments including, among other things, whether the process for the selection of PSEG Power and PECO as the winning bidders was reasonable, whether the sale reflects the full market value of the assets, and whether the Company's proposed treatment of the federal income tax benefits associated with the divested assets is appropriate. At the outset, we reject the contention of the RPA that an evidentiary hearing should have been held in this matter to develop a full record. Based on our review of the requirements of the Act, the procedures which have been followed and the record which has been developed in this matter, we are satisfied that a thorough record has been developed and that all parties, including the RPA, have had a full and fair opportunity through discovery, public/legislative hearings, including the opportunity to present testimony, comments and reply comments to the Board, to review and explore the underlying facts regarding the Company's proposal, and to present their factual, policy and legal concerns to the Board regarding the proposed sale, and other related issues of concern. See, I/M/O Public Service Electric and Gas Company's Rate Unbundling, Stranded Costs, and Restructuring Filing, 330 N.J. Super. 65, 117-120 (App. Div. 2000), petition for certification pending. Standards for Review for Approval of Sale As a preliminary matter, we have also considered what review criteria should be used in assessing the appropriateness and reasonableness of the sale of the Company's interest in its nuclear generating facilities. We FIND that subsection 11(b) of the Act, N.J.S.A. 48:3-59(b), requires that prior to the commencement by an electric public utility of the solicitation of bids for the sale of generating assets subject to recovery pursuant to sections 13 and 14 of the Act, the Board shall establish standards for the conduct of such a sale by the utility. The Act indicates that such standards shall include provisions for the Board to monitor the progress of the bid process to ensure that the process is conducted by parties acting in their best interest and in a manner designed to ensure a fair market value determination and does not unreasonably preclude participation by prospective purchasers. Section 11(b) further requires that the standards adopted by the Board shall include provisions that the purchasing entity shall: (1) recognize the existing employees bargaining unit, and shall continue to honor and abide by an existing collective bargaining agreement for the duration of the agreement. The new entity shall be required to bargain in good faith with the existing collective bargaining unit when the existing collective bargaining agreement has expired; (2) hire its initial employee complement from qualified employees of the electric public utility employed at the generating facility at the time of the functional separation or divestiture; and (3) continue such terms and conditions of employment of employees as are in existence at the generating facility at the time of the functional separation or divestiture. The provisions of subsection 11(c) of the Act, N.J.S.A. 48:3-59(c), require that prior to completing the sale of generating assets subject to recovery pursuant to sections 13 and 14 of the Act, an electric public utility shall file for and obtain approval by the Board for the sale. The Board shall approve such filing subject to the provisions of subsection 11(d)if it finds (1) the sale reflects the full market value of the assets; (2) the sale is otherwise in the best interest of the electric public utility's ratepayers; (3) the sale will not jeopardize the electric power system; (4) the sale will not result in undue market control by the prospective buyer; (5) the impacts of the sale on the utility's workers have been reasonably mitigated; (6) the sale is consistent with standards established by the Board in subsection 11(b) of the Act; (7) the sale includes provisions that the purchasing entity shall recognize the existing employee bargaining unit and shall honor and abide by any existing collective bargaining agreement for the duration of the agreement; (8) the sale of the generation assets includes a provision that the purchasing entity shall hire its initial employee complement from among the employees who are employed at the generation facility at the time of the sale; and (9) the sale of the generation assets includes a provision that the purchasing entity shall continue such terms and conditions of employment of employees as are in existence at the generating facility at the time of the sale. Findings Our review of the record for compliance with the Auction Standards indicates the following: 1. The auction process must be designed to foster competition among bidders, ensure maximum sales price, thereby minimizing stranded costs, and encourage bidder flexibility. The process must be designed in a way to maintain necessary confidentiality in order to restrict the possibility of gaming and to maintain an optimal situation for the development of a comprehensive energy supply market for competition. The process must also consider the costs incurred. The auction should be structured to maximize the sale price while reasonably managing costs, administrative and otherwise. The Company utilized a multi-step process to identify and reach potential bidders for sale of its interest in Nuclear Assets The purpose of the multi- step process was to market the assets widely in order to maximize the purchase price Additionally, by contacting a large number of prospective bidders, the Company attempted to facilitate the development of a competitive energy supply market by inviting bids from a diverse group of potential bidders In May 1999, early interest letters were sent to approximately 1,200 companies indicating the Company's intention to sell its interest in its nuclear and fossil generation assets. However, the Company was well aware, based on other nuclear sales, that, in reality, there would only be a limited number of entities actually interested purchasing a nuclear generating station, and an even smaller group of parties that would be interested in acquiring a minority ownership interest in a nuclear generating station, where the other Co-owners had a joint ownership agreement in place that gave them a contractual opportunity to match the winning bidders' offer. In response to the early interest letters, ten interested parties provided formal expressions of interest in acquiring the Company's minority interest in the Nuclear Assets. The Company, in an effort to maintain necessary confidentiality, then required that the ten prospective bidders execute a confidentiality agreement. Nine parties were willing to do so, and were determined to be qualified bidders by the Company. Detailed offering memoranda were sent to these nine companies on July 12, 1999. 2. The bidder qualifications should be reasonable and not unduly restrictive. Qualifications may include such criteria as financial capability, regulatory or other legal requirements, experience in ownership, operation and decommissioning of nuclear generating facilities, labor and industrial relations experience, and relevant safety, environmental and community involvement track records. Prospective bidders must be required to indicate the intended use of the nuclear generating facilities. From May through July, 1999, Confidentiality Agreements and Requests for Qualifications ('RFQ') were issued to all prospective bidders who expressed interest in the Nuclear Assets. The RFQ solicited financial, operating and technical information to demonstrate that prospective buyers were both financially capable of entering into a transaction with the Company and likely to satisfy regulatory requirements. Interested parties who executed the Confidentiality Agreement and satisfied the RFQ were eligible to participate further in the auction process. 3. Any 'short list' or final bidding group must strive to include enough participants to promote competition, to the extent practicable, recognizing that there may be a limited market for nuclear power plants approaching decommissioning. The Board recognizes that some of ACE's generating facilities are jointly owned. The Board further recognizes that any transaction involving those jointly owned facilities must be both consistent with the joint ownership agreements and with the existing contractual rights of the joint owners, and must also consider tax consequences, nuclear decommissioning trust funding, and other issues. Prior to the submission of the first round of indicative bids, the Company received an offer from the Co-owners to purchase the Nuclear Assets. A condition of the offer was that the Company suspend the auction process. With the assistance of its outside consultants, Navigant Consulting, the Company evaluated the offer in the context of the Co-owners' rights of first refusal. The Company also considered the tax consequences, as well as the decommissioning trust funding implications, of a sale to the Co-owners. The Company was advised by its consultants that the Co-owners' offer represented the fair market value of the Nuclear Assets. As a result, the Company decided to accept the Co-owners' offer. The Company testified that in reaching this conclusion, the Company considered the limited interest that had been expressed in submitting indicative bids, as well as what it expected would be forthcoming from the bid process. Before the indicative bids were due, the Company polled all nine of the qualified bidders, and at that time it became clear that there was very limited interest among the bidders in purchasing the Company's interest in the Nuclear Assets because of their concerns regarding the co- ownership issues and the lack of operating control associated with the assets for sale. Prior to the receipt of the Co-owners' offer, the Company made substantial efforts, as noted above under the first Auction Standard, to promote competition and create interest in the sale of the Nuclear Assets. 4. ACE must ensure that access to all relevant information is provided to all prospective bidders (this may include but will not necessarily be limited to plant and site data; transmission and fuel supply infrastructure; interim buyback requirements, if any; State and federal regulatory requirements; relevant market information, environmental, decommissioning, and other liabilities; labor responsibilities) industry and market analysis). Bidders should be provided with appropriate access to relevant documentation and key personnel to perform necessary due diligence investigations. The bidders should also be informed about regulatory and commercial terms of sale in order to make informed decisions and correctly analyze the value of the assets being offered. An Offering Memorandum and virtual data room on CD ROM were issued to Qualified Bidders. The Offering Memorandum provided information regarding assets, the PJM marketplace, and the terms of sale anticipated by the Company. The virtual data room provided detailed technical and operating information about the assets. Qualified Bidders were also given the opportunity to pose questions relevant to their evaluation of the assets. 5. ACE, upon completion of the auction, and as part of its request for approval, will be required to submit a market power analysis for regulatory review. ACF must demonstrate that the sale of the nuclear facilities will not create or enhance market power in the relevant market, and should take into account the effect of any identified load pockets. The Board will give particular attention to any buyer which currently owns or controls electric generation assets in the State of New Jersey. The Company ownership interests are relatively small, non-operating interests, and, therefore, the market power of the Co-owners will not be altered significantly by the transaction. In addition, the Board has reviewed a market power analysis prepared by Bruce Sloan of PB Hagler Bailly, Inc. submitted by the Company in response to the RPA discovery request RAR-15. Mr. Sloan concludes that the sale of the Company's Nuclear Assets to the Co-owners will not adversely impact competition in the relevant geographic markets. 6. ACE must demonstrate that it has adequately provided for system reliability and the provision of safe, adequate, and reliable service post- divestiture. ACE must demonstrate that there will be an entity or structure in place for it to meet the reasonably anticipated load requirements (including basic generating service) through retail phase-in, and provide local area support, if necessary. The buyer should commit to adhere to the requirements of the local control area independent system operator entity and all applicable operational and reliability standards. Pursuant to the Stipulation of settlement regarding the Company's Unbundling, Stranded Costs, and Restructuring filings, the elements of which were approved with modifications in a Summary Order dated July 15, 1999 ('Summary Order '), [FN13] the Company agreed to conduct a competitive procurement process to meet the Company's BGS obligation. This strategy was reviewed and approved by the Board in its July 15, 1999 Summary Order. The Company filed a petition [FN14] with the Board on March 14, 2000, several months later than contemplated in the Summary Order, requesting approval of a bidding process for energy and capacity for the purposes of satisfying a portion of its Basic Generation Service Requirements. The petition included a request for approval of a 350 MW bid, to replace energy and capacity associated with the Company's interest in the Nuclear Assets. In addition, the Company has entered into a financial hedging and supply arrangement for BGS supply with PSEG Energy Resources and Trade, LLC, for the months of June, July and August 2000. Additionally, the Co- owners must comply with PJM requirements, including operational and reliability standards. 7. Absent a showing by ACE that retention of such liabilities provides a substantial risk-adjusted benefit to ratepayers, all on-site environmental and decommissioning liabilities associated with the nuclear generating facilities shall be assumed by the purchaser unless otherwise required by applicable local, State, and federal laws. The buyer shall comply with all safety and environmental standards as embodied in existing State and federal statutes and regulations and associated permits, and as subsequently modified through legislative or regulatory actions. Under the PSAs entered into between the Company the Co-owners, the Co- owners have agreed to assume all on-site environmental liabilities to the extent permitted by applicable laws. The Co-owners have also agreed to assume, from the date of closing, all decommissioning liabilities associated with the Nuclear Assets. This also includes the transfer of each of the Company's decommissioning trust fund balances for the Company's Nuclear Assets, where, from the date of closing, the Co-owners will assume all future responsibility for decommissioning costs associated with the Nuclear Assets. As such, from the date of closing, the Company's ratepayers will no longer fund through rates the costs associated with nuclear decommissioning the Company's interest in the Nuclear Assets. 8. All bidders on the short list, or in the final bidding group, shall be required to submit to ACE, on a confidential basis, a disclosure of all formal notices of violation of local, State, and federal environmental permit applicable to the ownership or operation of electric generating facilities for the past five year period. The safety and environmental performance record for the proposed buyer shall be submitted and made public as part of the petition by ACE for approval of the sale. The Company has submitted information regarding the safety and environmental performance record of both PSEG Power and PECO, the Co-owners and operators of the Nuclear Assets. 9. The divestiture petition must include a reasonable transition plan, plus a system of reporting such plan, for the incumbent generation workforce, including, but not limited to, assurances that existing pension and other post- retirement benefits and entitlements accrued through the date of sale are protected, and requirements that the buyer assume any existing collective bargaining agreements covering union employees associated with the nuclear generating facilities. In addition, ACE is expected to assist employees (both union and non-union) in obtaining positions with the buyer. The Company is a minority, non-operating owner of each of the Nuclear Assets. As a minority owner of the Nuclear Assets, pursuant to the terms of the co- owner's agreement, it contributes to employee salaries and benefits. None of the employees at the facilities either union or non-union, are employed by Conectiv. Instead, all of the workers at each of the nuclear facilities where the Company is a minority owner are employed by the respective operators of the nuclear facilities, and all responsibility for employee issues rests with the facility operators. Therefore, since Conectiv does not employ any of the workers at the Hope Creek, Salem and Peach Bottom nuclear facilities, and since the operators of these facilities will remain unchanged as a result of the proposed sale, the sale itself will not alter the status of any employees, making a employee transition plan unnecessary. 10. Upon completion of the auction process, and with its petition for approval of the sale, ACE shall be required to submit a complete and accurate summary of the auction proceedings and outcome. ACE must be prepared to provide to the Board in writing the rationale behind the exclusion of any bidder at each stage of the action process. The Company was presented a summary of the auction and sale proceedings in its testimony at the public/legislative hearing on February 17, 2000. Taken together with the Company's responses to data requests propounded by the Staff of the Board and the RPA, the Company's submission appears to constitute a complete and accurate summary of the auction and sale proceeding. The Board notes that the RPA, in its comments concerning the Company's compliance with the auction standards, argues that the Company did not satisfy the Board's auction standards, noting that the Company did not complete the competitive bid process and instead aborted the auction process in order to enter into sales negotiations with the Co-owners of the facilities. The RPA asserts that since the auction process was not completed, the sales price offered by the Co-owners does not represent the full market value of the assets and therefore does not satisfy the Auction Standards or the Act. However, the Company argues that it has complied with the Auction Standards set by the Board for this divestiture sale. The Company points out that the competitive bid process was halted, based the limited interest that had been expressed during the indicative bid stage, which, it asserts, was influenced by bidders' concerns regarding the co-ownership issues and the lack of operating control associated with the Nuclear Assets. As a result, the Company determined to accept the Co-owners' offer, which it determined to be reasonable. The Company argues that this is consistent with the Auction Standards which recognizes that some of ACE's generating facilities are jointly owned and that any transaction involving those jointly owned facilities must be both consistent with the joint ownership agreements and with the existing contractual rights of the joint owners. The Board agrees with the RPA that the Company's decision to enter into a PSA for the sale of its interest in its Nuclear Assets to the Co-owners rather than proceeding to the conclusion of the auction process, is somewhat different than the auction process envisioned by the Board's in its Order adopting the Auction Standards. However, the Board also recognizes the unique nature of ACE's interest in its nuclear generating assets, given that the facilities are jointly owned and the Company is a minority, non-operator owner in each facility and that the Co-owners have a right of first refusal to match the proposed sale price of any sale of ACE's interest in these facilities. Further, the Board recognizes the Auction Standards approved by the Board for this sale, specifically the third Auction Standard, take into account the unique nature of the Company's nuclear generating assets which are being sold as part of this sale, and that any transaction involving those jointly owned facilities must be both consistent with the joint ownership agreements and with the existing contractual rights of the joint owners, in addition to taking into account the tax consequences, nuclear decommissioning trust funding, and other issues. A review of the record in this matter indicates that the Company's minority interest in the Nuclear Assets is subject to certain conditions contained in the Co-owners' Agreements, previously entered into by the Company regarding each of its Nuclear Assets. Pursuant to these agreements, the Company has the right to transfer its interests in the co-owned Nuclear Assets to non- Co-owners, subject to a first right-of refusal by each of the Co-owners. More specifically, any Co-owner may transfer all or part of its interest in one or more of the units to a third party, provided that the same offer of transfer shall first have been made in writing to the other Co-owners and such offer shall have been rejected by them. (Petition at 20). A further review of the record indicates that prior to the submission of the first round of indicative bids, the Company received an offer from the Co- owners to purchase the Nuclear Assets. A condition of the offer from the Co- owners was that the Company postpone the auction process. With the assistance of its outside consultants, Navigant Consulting, the Company evaluated the offer in the context of the Co-owners' rights of first refusal. An analysis conducted by Navigant Consulting, concluded that the Company was receiving a fair market value for its interest in the Nuclear Assets based the terms and proceeds for the proposed transaction in comparison to other nuclear transactions, as well as the specific characteristics of these assets and the contractual relationship which bind the joint owners together. The Company also considered the tax consequences of the sale, as well as the decommissioning trust funding implications as part of its evaluation of a sale to the Co- owners. (Discovery response to RAR-11d). Because the Co-owners will assume future decommissioning liabilities associated with the assets, and receive the nuclear decommissioning trust assets, the offer by the Co-owners will enable the Company and its ratepayers to avoid additional funding of the nuclear decommissioning trust from the date of the closing, which would otherwise likely have been required in a sale to a non-Co-owner. In addition, the Company expects that there will be no tax risk associated with the transfer of the existing nuclear decommissioning trusts. (Petition at 6). Based on the advice of its outside consultant, the Company concluded that the Co-owners' offer represented the fair market value of the Nuclear Assets. As a result, the Company decided to accept the Co-owners' offer. The record indicates that in reaching this conclusion, the Company also considered the limited interest that had been expressed in submitting indicative bids, prior to the receipt of the Co-owners' offer, as it became clear that despite the measures described taken by ACE to solicit bids from a wide range of bidders, entities were reluctant to bid on minority owned interest in a nuclear facility where they would not obtain operating authority. (Tr. 2/17/00 at 37-48). As noted above, the Company had made substantial efforts to promote a competitive bid process for the sale of its interest in the Nuclear Assets. Based on the foregoing, and considering the unique nature of the Company's minority ownership in its nuclear generating assets, the Board believes that the Company's sale process was consistent with the intent of the Board's Auction Standards for the sale of its interest in its Nuclear Assets to promote a competitive process to maximize value for customers. The Board FINDS that the Company made a reasonable attempt to promote a competitive bid process for these facilities, consistent with the terms of the Co-owners' agreement. We FIND that the Company's decision to discontinue the competitive bid process and accept the offer from Co-owners is not violative of the intent of the Auction Standards, recognizing that some of the Nuclear Assets are jointly owned, and that any transaction involving those jointly owned facilities must be both consistent with the joint ownership agreements, and with the existing contractual rights of the joint owners, and must also consider tax consequences, nuclear decommissioning trust funding, and other issues. While in the absence of actually completing the auction process, we will never be able to determine with 100% certainty whether any of the bids would have come in higher or lower than the price ultimately accepted by the Company, based on the record developed including the testimony presented at the hearing, we are persuaded by the Company's position that, because of the limited interest in the Company's minority interest in the Nuclear Assets and because of the Co- owners' first right of refusal, there was significant risk that ratepayers would have received less value had the auction been allowed to proceed to its conclusion, and that the Company's conclusion to stop the bid process and accept the Co-owners' offer was a reasonable one in light of the unique circumstances of this case. We CONCLUDE that the record in this matter supports the decision to terminate the auction process, and instead select the offer from the Co-owners to purchase the Company's interest in the Nuclear Assets. As such, the Board HEREBY FINDS that the Company has complied with the requirement to submit the proposed sale of its interest in its nuclear generating assets to the Board for its review and approval, and that the Company has satisfactorily demonstrated substantial compliance with the Board- approved Auction Standards. In light of our finding that the Company has demonstrated substantial compliance with the Board approved Auction Standards, we also HEREBY WAIVE the advertising requirements as set forth in N.J.A.C. 14:1-5.6(b), as this requirement has been fulfilled by the Company's compliance with the aforementioned Auction Standards. As noted above, the Company agreed to a purchase price of approximately $11.3 million, subject to certain adjustments at closing. The RPA, in its initial comments, argues that the Company has contracted to sell its interest in its nuclear facilities at a price far below the administrative estimates of the worth of the interest in its Nuclear Assets developed during the stranded costs proceedings, including even the Company's own earlier administrative estimates of the units' worth. The RPA argues that the sale either should be rejected as not in the public interest, or the Board should disallow all stranded costs above the administrative estimate of stranded costs proffered by the Company in the stranded costs proceedings. The RPA argues that the Company has an obligation to maximize the market value of its generating assets, and its New Jersey ratepayers should be no worse off as a result of the divestiture sale then they would have been if the assets were not sold. The RPA further argues that this concern is compounded by the fact that the Company did not complete the competitive bid process, and instead aborted the auction process in order to enter into sales negotiations with the purchasers, who are Co-owners of the nuclear facilities, and that the sales price does not 'reflect the full market value' of the generating assets. The RPA asserts that instead of operating to mitigate the Company's stranded costs, the net result of the low sales price is to increase stranded costs. While we agree with the RPA that the Company has an obligation to maximize, to the best of its ability, the market price of its interest in its nuclear generating assets in order to minimize its stranded costs, the Board believes that, based on the unique facts and circumstances of this case, it is insufficient to judge the final sale price simply on the basis of a comparison with the earlier administrative estimates of the units' worth. We recognize that administrative estimates are based on assumptions of future market prices and conditions, plant operating performance, O&M and capital costs, etc. for a specific unit, and we continue to believe that such estimates are instructive and appropriate for use where there has not been an actual sale of the unit, such as was the case in I/M/O Public Service Electric and Gas Company's Rate Unbundling Stranded Costs and Restructuring Filings, supra. However, in this case, where there is an actual market sale of that unit after the undertaking of an auction process for the specific facilities, in our view, the actual sale price should be given significant weight, as it represents the fair market value that a prospective buyer is willing to pay for that specific asset(s) at a specific instant in time based upon the prospective buyer's assessment of the value of the assets, as well as the prospective buyer's unique position in the market, its forecast of the future, its corporate strategy, and optimism. Further, in this case, the operational risks of the units are transferred to the purchaser as of the date of closing. This transfer of risk is particularly significant in the case of the nuclear generating facilities, which have historically experienced substantial performance and cost uncertainty. Additionally, the purchasers are assuming all of the responsibility and risk associated with unforeseen escalation in the cost of decommissioning of the plant. In sum, given the facts and circumstances of this transaction, the Board believes that, in this case, it is more appropriate to rely upon the actual market-determined sale price of these assets rather than the earlier administrative estimates. Additionally, the record developed in this case suggests that there has not been much market interest in the purchase of nuclear generating assets, and that the few nuclear units that have been or are being sold have fetched a consistently modest price. In particular, the Company's response to Staff discovery request S-NS-1, indicates that the total purchase price, as well as the price per KW, appears to compare favorably to other sales for relatively similar size and age nuclear plants. While such a comparable approach is imperfect and not, in and of itself, dispositive of the instant issue, it does give us additional comfort that the sale price is not unreasonable. Based upon all of the foregoing factors, the Board concludes that the sale of the Company's interest in its nuclear generating assets to PSEG Power and PECO reflects the full market value of the assets. In addition, the Board FINDS that the sale is beneficial to customers in that it transfers to PSEG Power and PECO all future operating, fuel disposal and nuclear decommissioning risk that the Company and its ratepayers would otherwise be exposed to in the future. Therefore, the sale of the Company's interest Nuclear Assets for approximately $11.3 million to PSEG Power and PECO is HEREBY APPROVED pursuant to N.J.S.A. 48:3-7. In addition, as part of the term of the PSA, the Company will transfer the decommissioning trust fund balances that are in various funds established the Company for each of the nuclear generating units being sold. Provisions in the PSAs require that these balances are to be transferred to the Purchasers in the same proportion as the transfer of the Nuclear Assets themselves (i.e., one- half of the Company's balance for Peach Bottom will be transferred to PECO and one-half to PSEG Power, while all of the balances associated with Salem and Hope Creek will be transferred to PSEG Power). As indicated above, the purchasers will assume all future nuclear decommissioning risk and future nuclear decommissioning costs for these nuclear facilities, whereas of the closing of this sale, the Company's ratepayers will no longer be responsible for nuclear decommissioning costs in their rates. Pursuant to the Company's request in this filing, under the PSA that the nuclear decommissioning trust fund balances be transferred to the Purchasers, the Board HEREBY AUTHORIZES the transfer of the nuclear decommissioning trust fund balances to the Purchasers upon closing of the sale. In addition, as part of the amended filing, the Company is seeking approval of the FSLO entered into by the Company and PSEG Energy Resources and Trade, LLC. The FSLO provides that for the months of June, July and August all in the year 2000, the Company will have the financial hedge listed below, as well as the purchase of unforced capacity credits from PSEG Energy Resources and Trade, LLC, for the Company's share of the net energy output of its interest in its nuclear generating assets, as well as 372 MWs of unforced capacity credits as defined by PJM: ENERGY: Month Price Quantity June (2000) $40.00 252,000 MWHrs. July (2000) $60.00 260,400 MWHrs. August (2000) $55.00 260,400 MWHrs. Capacity: Month Price Quantity June (2000) $60.00 372 MWs July (2000) $60.00 372 MWs August (2000) $60.00 372 MWs These energy and capacity prices that are specified in the FSLO will provide considerable benefit to the Company's customers during the upcoming summer months, since they will help insulate the Company from anticipated price spikes that may occur from time-to-time as it serves basic generation customers, and which otherwise could ultimately impact the Company's deferred balances which has the potential to be passed on to customers. However, the Board again emphasizes that, as stated in its July 15, 1999 Summary Order, the Company has not been granted an 'absolute right' to recover its 'Deferred Costs' balance and such purchase power replacement costs associated with sale of its interest in its Nuclear Assets for the purposes of serving BGS customers are, and shall continue to be, subject to Board review of the prudence and reasonableness of the Company's actions and resultant costs. Accordingly, with that caveat, the Board HEREBY APPROVES the FSLO entered into by the Company with PSEG Energy Resources and Trade, LLC, to be in the public interest, in accordance with applicable law. Further, based on the foregoing, the Board concludes that the Company has satisfactorily complied with the provisions of subsections 11(b) and 11(c) of the Act. As indicated above, we FIND the Company's divestiture process is consistent with the intent of the Board's Auction Standards as required in subsection 11(b) of the Act. Further, based on our review of the record, we FIND that the sale of Company's interest in its Nuclear Assets to PSEG Power and PECO reflects the full market value of the assets; is in the best interest of the Company's customers; will not jeopardize reliability; will not result in undue market control by PSEG Power and PECO in the generation market; complies with the Board's Auction Standards; and fully and adequately addresses the employee related standards addressed in the Act. As such, the Board HEREBY FINDS that the sale process selecting PSEG Power and PECO as the purchasers of the Company's minority interest of its nuclear generating assets is reasonable in light of the specific facts of this case and complies with the provisions set forth in sub-sections 11(b) and 11(c) of the Act for the divestiture of a utility's generation assets. In addition, consistent with the Board's prior Orders relating to the sale of a utility's generating assets, the Board HEREBY DIRECTS the Company to file for a letter ruling with the IRS regarding the treatment of the federal income tax benefits associated with the divested assets, such as the Investment Tax Credit ('ITC'), Excess Deferred Income Taxes ('EDIT') associated with changes in the corporate tax rate, and Accumulated Deferred Income Taxes ('ADIT ') associated with timing differences between tax and book accounting, namely, timing differences associated with accelerated tax depreciation. If favorable, the requested ruling, which could be based on the arguments advanced in a similar request ordered by the Connecticut Department of Utility Control in connection with the divestiture of United Illuminating Company's Bridgeport Harbor and New Haven Harbor generating stations, would allow the benefits associated with the remaining balances of deferred income and investment tax credits to continue to flow through to ratepayers. Thus, the Board HEREBY ORDERS the Company to file for a private letter ruling with the IRS regarding these tax issues and accordingly, our final determination of the net proceeds and stranded costs (the post-closing true-up proposed by the Company on page 26 of the Petition) shall await the outcome of this ruling. In both its initial and reply comments, the Ratepayer Advocate urged the Board to direct the Company to eliminate the annual provision for nuclear decommissioning costs of $6.4 million currently included in its Societal Benefits Charge in recognition of the fact that the ratepayers' obligation to fund such costs will cease as of the closing date. In reply, the Company argued that the SBC should be left unchanged, thereby allowing that portion of the SBC to potentially fund other programs and initiatives that might be included in the SBC in the future. The Board notes that, in either case, the Company's overall rates would not change during the four year transition period and thus the revenues 'freed up' by the cessation of decommissioning funding would either serve to reduce the SBC deferral if the SBC were left unchanged, or the Basic Generation Service, Net Non-Utility Generation Charge ('NNC') or Market Transition Charge ('MTC') deferral in the event the SBC were reduced. For that reason, we will allow the Company to maintain the SBC at its current level, recognizing that interest will be accrued on any over-recovered balance that may result, and that the full over-recovered balance with applicable interest shall be applied for the benefit of ratepayers in a manner to be determined by the Board at a future date and shall be netted against all other deferrals for purposes of applying the threshold tests included in paragraphs 27 through 29 of the Stipulation of Settlement, [FN15] as modified by the Board's Summary Order. Finally, the Company maintains that, as a condition to closing of the purchase by PSEG Power and PECO of the Company's interest in its Nuclear Assets, as well as Delmarva's interest in its Nuclear Assets, PSEG Power and PECO must qualify as an exempt wholesale generator, [FN16] which will exempt PSEG Power and PECO from regulation under PUHCA. Under Section 32 of PUHCA, certain generators of electricity may apply to the FERC to qualify for EWG status. In order for the divested portions of the Hope Creek, Salem and Peach Bottom nuclear generating facilities to be considered eligible facilities by FERC under Section 32 of PUHCA: (c) ...every State commission having jurisdiction over any such rate or charge must make specific determination that allowing such facility to be an eligible facility (1) will benefit consumers, (2) is in the public interest, and (3) does not violate State law; [p]rovided, [t]hat in the case Gf such a rate or charge which is a rate or charge of an affiliate of a registered holding company: (A) such determination with respect to the facility in question shall be required from every State Commission having jurisdiction over the retail rates and charges of the affiliates of such registered holding company... .[15 U.S.C. s 79z-5a(c)]. Because Conectiv is a registered holding company under PUHCA and rates for electric energy produced by the Hope Creek, Salem and Peach Bottom nuclear generating facilities were in effect under New Jersey law, in addition to every state that has jurisdiction over the retail rates and charges of the affiliates of Conectiv as of October 24, 1992 (the date of the enactment of Section 32 of PUHCA), each State commission having jurisdiction over the retail charges of the affiliates of Conectiv must make such determination with respect to all of the generating facilities being sold by Conectiv, regardless of the particular Conectiv affiliate owning such plants. Petitions will be filed with the Federal Energy Regulatory Commission ('FERC') and the Nuclear Regulatory Commission ('NRC') by Conectiv seeking authorization for the sale of its interest in the Hope Creek, Salem and Peach Bottom nuclear generating facilities insofar as such transactions are subject to the jurisdiction of that agency. Having reviewed the Company's submission in this matter, it appears that the sale of the Company's and Delmarva's interest in the Hope Creek, Salem and Peach Bottom nuclear generating facilities will not adversely affect either the availability or reliability of electric supply to Conectiv's customers, and that the reasonable divestiture of the Company's and Delmarva's interest in Hope Creek, Salem and Peach Bottom nuclear generating facilities should enhance the availability of competitive energy supplies for the Conectiv's customers within PJM. As noted above, consistent with our above findings, and based on our review of the market power study provided by the Company, it does not appear that this transaction raises any significant generation or transmission market power issues within the State of New Jersey or the PJM. Nevertheless, the Board, in conjunction with the PJM LLC will closely monitor the potential for exercise of generation or transmission market power issues. Therefore, for the reasons stated, the Board HEREBY FINDS that allowing the divested portions of the Hope Creek, Salem and Peach Bottom nuclear generating facilities to become eligible facilities pursuant to section 32 of PUHCA will benefit New Jersey consumers, is in the public interest and does not violate State law. With regard to the Company's request that the Board make a finding that it may recover the eligible stranded costs associated with the Nuclear Assets, the Board will issue a separate order under this docket that will address the issue of eligible stranded costs associated with the Nuclear Assets, as well as the loss on reacquired debt. With regard to the Company's request as part of this petition that the Board make a finding that it may recover the total amount of stranded costs associated with the Nuclear Assets through the issuance of transition bonds, the Board will reserve its decision regarding the amount, if any, eligible for securitization until a later date after the Company's sale of its fossil assets [FN17] has been evaluated and considered by the Board. We wish to emphasize, however that, consistent with subsection 14(c)(1) of EDECA, N.J.S.A. 48:3-62(c)(1), in no event will the securitizable amount exceed 75% of the total amount of ACE's recovery-eligible utility generation plant stranded costs as determined by the Board in accordance with section 13 of the Act. The Board in approving the sale of the Company's interest in its Nuclear Assets shall reserve judgment as to a final determination with respect to the net divestiture proceeds, including the Company's treatment of the federal income tax benefits associated with the divested assets, and we HEREBY DIRECT the Company to: 1) file with the Board within 15 days of the closing date of the asset sale proof of closing and the net transaction cost; and 2) subsequently, the Company shall advise the Board upon receipt by the Company of a private letter ruling from the IRS regarding the treatment of the federal income tax benefits associated with the divested assets, and the Company shall within 30 days of receipt of such a ruling make a compliance filing with the Board which shall include a final proposed determination of the net divestiture proceeds, based upon actual results of the closing of the asset sale. DATED: July 21, 2000 Atlantic City Electric Company (ACE) Proposed Sale of its Interest in its Nuclear Generation Assets Docket No. EM99110870 SERVICE LIST George Riepe, Acting Director Division of Energy Board of Public Utilities Two Gateway Center Newark, NJ 07102 Frank Perrotti Division of Energy Board of Public Utilities Two Gateway Center Newark, NJ 07102 Larry Gentieu Division of Energy Board of Public Utilities Two Gateway Center Newark, NJ 07102 Helene Wallenstein, DAG Department of Law & Public Safety Division of Law 124 Halsey Street P.O. Box45029 Newark, NJ 07101 Elise Goldblat, SDAG Department of Law & Public Safety Division of Law 124 Halsey Street P.O. Box 45029 Newark, NJ 07101 Blossom A. Peretz, Director Division of the Ratepayer Advocate 31 Clinton Street, 11th Fl. P.O. Box 46005 Newark, NJ 07101 Greg Eisenstark, Esq. Division of the Ratepayer Advocate 31 Clinton Street, 11th Fl. P.O. Box 46005 Newark, NJ 07101 Stephen B. Genzer, Esq. LeBoeuf, Lamb, Greene & MacRae, LLP One Rivermont Plaza Newark, NJ 07102-5490 Mark Mucci, Esq. LeBoeuf, Lamb, Greene & MacRae, LLP One Riverfront Plaza Newark, NJ 07102-5490 Larry Bainter Conectiv 800 King Street P.O. Box 231 Wilimington, Delaware 19899 Randall V. Griffin, Esq. Conectiv 800 King Street P.O. Box 231 Wilimington, Delaware 19899 LWayne Barndt Conectiv 800 King Street P.O. Box 231 Box 231 Wilimington, Delaware 19899 FOOTNOTES FN1 The Company owns five percent of Hope Creek, 7.41 percent of Salem, and 7.51 percent of Peach Bottom. FN2 Conectiv is the parent company of the Atlantic City Electric Company, serving southern New Jersey and Delmarva-Power & Light Company, an electric utility serving portions of Delaware, Maryland and Virginia. FN3 In the Matter of the Request of the Company City Electric Company for the Establishment of Auction Standards for the Sale of Certain Generating Units, BPU Docket Nos. EM99080605 (non-Nuclear Assets) and EM99080606 (Nuclear Assets), Order Adopting Auction Standards, (January 4, 2000). FN4 The CD-ROM included data relating to the Nuclear Assets as part of this sale. FN5 By Final Order dated August 24, 1999, the BPU approved the transfer of PSE&G's generating assets, including PSE&G's 42.4% interest in Peach Bottom, 42.59% of Salem and 95% of Hope Creek, along with various rights and liabilities associated therewithin to Genco. I/M/O Public Service Electric and Gas Company's Rate Unbundling, Stranded Costs, and Restructuring Filing, BPU Docket Nos. EO97070461, EO97070462, EO97070463, dated August 24, 1999, affirmed I/M/O Public Service Electric and Gas Company's Rate Unbundling, Stranded Costs, and Restructuring Filing, 330 N.J. Super. 65 (App. Div. 2000), certif. granted July 14, 2000, Docket No. 49690. FN6 PECO owns 42.49% of Peach Bottom and 42.59% of Salem. FN7 The Company indicates that it did actually receive one indicative bid early, and based on the terms of the agreement with Co-owners elected not to open the bid and returned the bid, unopened, to the entity submitting the bid. FN8 Attached to its Petition, the Company provided copies of the executed PSAs to the Board. See Petitioner's Exhibit P-1, Exhibit A (Hope Creek PSA), Exhibit B (Salem PSA), and Exhibit C (Peach Bottom PSA). FN9 The purchase price is allocated as follows: $4.1 million for Salem, $2.1 million for Hope Creek, and $5.1 million for Peach Bottom. FN10 Pursuant to the PSAs, adjustments will be made to the purchase price for various items including: nuclear fuel supplies; taxes; insurance premiums; utility charges; spent nuclear fuel fees; and Department of Energy Decommissioning and Decontamination fees. FN11 In the Matter of the Petition of Atlantic City Electric Company Regarding the Sale of Nuclear Assets, BPU Docket No. EM99110870, Scheduling Order, (December 22, 1999). FN12 In The Matter of the Petition of Atlantic City Electric Company For Approval of a Request For Proposals, Authorization of a Competitive Procurement and To Enter Into a Contract For Basic Generation Service Supply, Docket No. EM00030156. FN13 I/M/O Atlantic City Electric Company's Rate Unbundling, Stranded Costs and Restructuring Filing, Docket Nos. EO9707455, EO9707456, EO9707457, dated July 15, 1999. FN14 In The Matter of the Petition of Atlantic City Electric Company For Approval of a Request For Proposals, Authorization of a Competitive Procurement and To Enter Into a Contract For Basic Generation Service Supply, Docket No. EM00030156. FN15 I/M/O Atlantic City Electric Company's Rate Unbundling, Stranded Costs and Restructuring Filing, Docket Nos. EO9707455, EO9707456, EO9707457, filed June 9, 1999. FN16 Section 32(a) of PUHCA defines an EWG as 'any person determined by the [FERC] to be engaged directly, or indirectly through one or more affiliates ..., and exclusively in the business of owning or operating, or both owning and operating, all or part of one or more eligible facilities and selling electric energy at wholesale... .' FN17 I/M/O the Petition of Atlantic City Electric Company Regarding the of Certain Fossil Generation Assets, Docket No. EM00020106. EX-99.4 5 0005.txt EXHIBIT D-6 Exhibit D-6 Re Delmarva Power & Light Company Case No. PUE000086 Case No. PUA000032 Virginia State Corporation Commission June 29, 2000 BY THE COMMISSION: FINAL ORDER History of the Case On February 4, 2000, Delmarva Power & Light Company ('Delmarva' or the 'Company') filed an application, pursuant to Virginia Code s 56-590 B of the Virginia Electric Utility Restructuring Act ('Restructuring Act'), for approval of a plan for the functional separation of its generation activities from its transmission and distribution activities (the 'Plan'). Delmarva's proposed Plan provides for, among other things, a three-phased divestiture of all its generating units. In a companion filing made on April 12, 2000, the Company requested approvals under Chapter 4 ('Affiliates Act') and Chapter 5 ('Utility Transfers Act') of Title 56 of the Code of Virginia for approval to transfer generating facilities and related assets to its affiliates Conectiv Delmarva Generation, Inc. ('CDG'), and Conectiv Energy Supply, Inc. ('CESI'), and approval of certain transactions with those affiliates. Delmarva also seeks approval of the following generation transfers: (1) the sale to PECO Energy Company ('PECO') and PSEG Power, LLC ('PSEG'), of its ownership interests in the Peach Bottom Nuclear Generating Station located in York County, Pennsylvania, and the Salem Nuclear Power Generating Station located in Salem County, New Jersey ('Phase I'); (2) the sale to NRG Energy, Inc. ('NRG'), of its Indian River (Delaware) and Vienna (Maryland) plants, and its ownership interests in the Keystone and Conemaugh (Pennsylvania) plants ('Phase II'); and (3) the transfer of its remaining intermediate and peaking units to CDG ('Phase III'). As part of its filings, Delmarva also seeks Commission determinations on behalf of itself and its affiliate Atlantic City Electric ('ACE') pursuant to s 32 of the Public Utility Holding Company Act of 1935 ('PUHCA'), 15 U.S.C. s 79z-5a. Conectiv, Delmarva's parent, is a registered utility holding company subject to PUHCA oversight and regulation by the Securities and Exchange Commission ('SEC'). The determinations sought under PUHCA are that the Phase I and Phase II transfers of nuclear and fossil units, respectively, by Delmarva and ACE to exempt wholesale generators and the designation of these units as 'eligible facilities:' (i) will benefit consumers, (ii) are in the public interest, and (iii) do not violate state law. Similar declarations are sought for Phase III transfers to Delmarva's affiliate CDG, and the transfers by ACE to Conectiv Atlantic Generation, LLC ('CAG'). CDG and CAG anticipate filing applications with the Federal Energy Regulatory Commission ('FERC') for exempt wholesale generator ('EWG') status for eligible Phase III units within the next twelve months or shortly thereafter. As set forth in Delmarva's February 4, 2000, filing, the Plan also included a proposal for incremental reductions in Delmarva's base rates corresponding with the closing of the transfers in each of the phases described above, with a final cumulative rate reduction of 2.58 percent for each customer class which would remain in effect until January 1, 2004. The Company's Plan also provides for scheduled annual increases in the fuel rates. Fuel rates proposed as part of the Plan would have equaled the energy charges specified in a power purchase agreement that Delmarva recently executed with PECO Energy Company (the 'PECO PPA'). Delmarva also proposed to collect over a twelve-month period any deferred fuel balance that exists approximately 30 days after the date of full divestiture of its generating units. Delmarva's February 4, 2000, filing also requests that the Commission find that the Company's participation in the PJM Interconnection, LLC ('PJM ') satisfies the requirements of ss 56-577 and 56-579 of the Restructuring Act, or, alternatively, that the Company is not subject to these provisions of the Restructuring Act because of the geographic isolation of its Virginia service territory. These provisions of the Restructuring Act require that incumbent utilities with an ownership interest in, or entitlement to, transmission capacity join or establish regional transmission entities. On June 12, 2000, Delmarva filed, by motion, a Memorandum of Agreement ('MOA ') between the Company and the Staff. The MOA sets forth the agreements reached between Delmarva and the Staff for resolution of the issues raised by the Company's Plan. Delmarva's motion requests that the Commission adopt the Company's Plan, as modified by the June 12, 2000, MOA. The Staff filed a Report on June 15, 2000 ('Staff Report'), providing support for the MOA and furnishing additional information regarding the numerous issues raised by Delmarva's proposed Plan. Summary of the Memorandum of Agreement The Staff and Delmarva have proposed in the MOA that the Commission, in conjunction with its review of Delmarva's filings described above, adopt certain findings and recommendations. These proposed findings and recommendations are set forth in detail in Part III of the MOA, and are briefly summarized as follows: . That Delmarva be authorized to divest its generation assets in three separate phases as described in its February 4, 2000, and April 12, 2000, filings in this matter, and as further modified by the MOA; . That in conjunction with such divestitures, Delmarva's base rates for its Virginia customers be cumulatively reduced by $727,542, in intervals linked to the completion of each proposed phase of generation divestiture; . That Delmarva not seek an increase in its production (non-fuel), transmission or distribution rates prior to January 1, 2001; . That Delmarva waive its rights to collect any wires charge calculated by the Commission pursuant to s 56-583 during any period in which such collection would otherwise be authorized under the Restructuring Act; . That Delmarva's current fuel factor of $0.01917 per kWh remain in effect until the earlier of the first day of the month preceded by an interval of at least 15 days following the closing date of whichever divestiture phase is last to close ('Total Divestiture') or January 1, 2001; . That following the earlier of January 1, 2001, or the first day of the month preceded by an interval of at least 15 days following the date of Total Divestiture, Delmarva's fuel factor be reset at $0.021 per kWh, which factor shall remain in effect at least until January 1, 2004, and that the action to reset such fuel rate be accomplished by separate application to the Commission made pursuant to s 56-249.6; . That effective January 1, 2004, and subject to the conditions for applicability set forth therein, Delmarva's fuel factor be modified pursuant to the Rate Case Protocol (appended as Attachment 1 to the MOA) established by the Staff and Delmarva, based upon (i) Delmarva's 1999 generation mix, and (ii) and the Fuel Index Procedure (Attachment 2 to the MOA); . That, as of the earlier on the first day of the month preceded by an interval of at least 15 days following the date of Total Divestiture or January 1, 2001, an unrecovered fuel balance of $892,921 be recovered over a 24 month period, subject to Commission approval under a separate application by Delmarva pursuant to s 56-249.6; . That Delmarva's capped rate established pursuant to s 56-582 and the provisions of the MOA be deemed its default rate pursuant to s 56-585 whenever Delmarva is a provider of default service during any period in which capped rates are also in effect; . That, if capped rates under s 56-582 are terminated, by Commission action or operation of law, on or before July 1, 2007, or if such rates expire by operation of law on July 1, 2007 and Delmarva is then, in either event, a designated provider of default service within its certificated service territory pursuant to s 56-585 on or after any such termination, Delmarva's rates for such default service be determined or redetermined pursuant to the Rate Case Protocol. Such rates shall become effective with the termination of capped rates. The Rate Case Protocol shall remain operative thereafter for purposes of determining or redetermining default rates until such time as Delmarva is no longer designated as a provider of default service by the Commission pursuant to s 56-585; . That pursuant to the provisions of s 32 of PUHCA, 15 U.S.C. s 79z-5a, the Commission find that the transfer of generation plants and facilities by Delmarva and its affiliate ACE to exempt wholesale generators, as more fully described in paragraphs 50-56 of Delmarva's February 4, 2000, filing (i) will benefit consumers, (ii) is in the public interest, and (iii) is not contrary to state law; and . That Delmarva agree to operate and maintain the distribution system of its Virginia service territory at or above current levels of service quality and reliability. These proposed recommendations and findings are discussed in detail in the June 15, 2000, Staff Report. Other parties appearing in the case On June 12, 2000, the Company filed a motion with the Commission seeking disposition of its Plan pursuant to the terms of the MOA. As noted in the motion, three parties filed Comments in Case No. PUE000086. They are Virginia Electric and Power Company ('Virginia Power'), Old Dominion Electric Cooperative ('Old Dominion'), and Commonwealth Chesapeake Company, LLC ('Commonwealth Chesapeake'). None of these parties opposed Delmarva's application or requested a hearing. Moreover, these three parties have reviewed the MOA and do not oppose it. Attached to the Company's June 12, 2000, motion were letters from each of these three parties stating that they have no opposition to the MOA or to expedited disposition of this matter by the Commission. The attached letters also acknowledge that no hearing has been scheduled in this matter, and none requests a hearing. The Restructuring Act's provisions governing functional separation As noted in the Staff Report, Delmarva's application to divest its generating assets as part of a functional separation plan represents the first such proposal received by the Commission. [FN1] As such, Delmarva's proposed Plan raises a number of issues where there is no precedent. These issues bear directly on the balancing of utility and ratepayer interests that is recognized in the Restructuring Act. The Restructuring Act sets forth a number of conditions and considerations for functional separation. Specific requirements for separation are set forth in s 56-590 of the Code of Virginia. In particular, s 56-590.B 3 states: Consistent with this chapter, the Commission may impose conditions, as the public interest requires, upon its approval of any incumbent electric utility's plan for functional separation, including requirements that (i) the incumbent electric utility's generation assets or their equivalent remain available for electric service during the capped rate period as provided in s 56-582 and, if applicable, during any period the incumbent electric utility serves as a default provider as provided for in s 56-585, and (ii) the incumbent electric utility receive Commission approval for the sale, transfer or other disposition of generation assets during the capped rate period and, if applicable, during any period the incumbent electric utility serves as a default provider. The Company's proposed Plan may also have implications with respect to the pricing of default services as provided for under the Restructuring Act. Section 56-585.C states that: The Commission shall, after notice and opportunity for hearing, determine the rates, terms and conditions for such services consistent with the provisions of subdivision B 3 and Chapter 10 (s 56-232 et seq.) of this title and shall establish such requirements for providers and customers as it finds necessary to promote the reliable and economic provision of such services and to prevent the inefficient use of such services. The Commission may use any rate method that promotes the public interest and may establish different rates, terms and conditions for different classes of customers. As noted in the Staff Report, subdivision B 3 of s 56-585 indicates that rates for default service should provide fair compensation for utilities and reflect any cost of energy prudently procured, including energy procured from the competitive market. Chapter 10 of Title 56 of the Code of Virginia provides for traditional cost of service ratemaking, which may, in appropriate circumstances, include the cost of energy prudently procured from the competitive market. Divestiture of the Company's generating units without provisions requiring the availability of alternative resources that are equivalent with respect to both price and reliability could ultimately produce higher rates for default services if the market cost of power is in excess of what costs would have been absent divestiture. Alternatively, similarly priced but less reliable service might result. The Company's original Plan sought to assure that equivalent resources would be made available from a reliability perspective but not from a price perspective. Similarly, the Company's proposed divestiture has implications regarding capped rates as provided for in s 56-582 of the Restructuring Act. Section 56- 582.B provides for the adjustment of capped rates in connection with fuel costs, which have traditionally included certain costs associated with purchased power. As emphasized in the Staff Report, the Company's Plan would effectively remove the embedded cost of its generating assets from base rates and recover purchased power costs through the fuel factor. As such, the Company's overall rates could potentially exceed what Delmarva's capped rates would have been if the Company had not divested its generating assets. Consequently, ratepayers would be deprived of rate cap protections if energy acquired from competitive markets reflects a higher cost than would have been incurred had Delmarva continued to own its generation and these higher purchased power costs were recovered through the fuel factor. The proposed divestitures Delmarva's Plan calls for the complete divestiture of its generation assets. The MOA proposes a timeline, different from the Company's original proposal, in which as soon after May 31, 2000, as regulatory approvals can be obtained, including those of this Commission, the following transactions would be completed: (i) the sale of Delmarva's Phase I minority interests in certain nuclear facilities; (ii) the Phase III transfers of certain fossil-fueled intermediate and peak-load facilities to an affiliate; and (iii) the intermediate transfer of Delmarva's minority interests in the Keystone and Conemaugh plants (part of the Phase II transfers) to CDG, a Delmarva affiliate. This interim transfer will provide federal income tax benefits to Conectiv, Delmarva's parent company. Phase II is scheduled for completion on or about August 31, 2000, when (i) CDG transfers the Keystone and Conemaugh plant interests to NRG, (ii) Delmarva transfers its Indian River and Vienna power plants to NRG, and (iii) Delmarva and ACE transfer certain land, facilities and interests to NRG. In connection with these proposed transfers and sales, Delmarva has agreed to Staff's proposal of an overall base rate revenue decrease of $727,542. The reduced base rates would be calculated based on billing determinants consistent with a test year ending July 31, 1999, as reflected in the February 4, 2000, filing. These base rate reductions would be implemented in phases concurrent with the overall phasing of the generation asset divestitures proposed by Delmarva. The MOA further provides that the Phase I transfers will trigger a base rate decrease of $197,566, which will be applied by reducing residential, general service-secondary, general service-primary, and lighting base rates by $96,835, $62,127, $35,499, and $3,105, respectively. The Phase III transfer will prompt a base rate decrease of $277,740, and the Phase II sales will initiate a further base rate reduction of $252,236. The Phase II decrease will be implemented by applying reductions of $123,631, $79,318, $45,322, and $3,965 to residential, general service-secondary, general service-primary, and lighting base rates, respectively. The Phase III reduction will be applied to residential, general service-secondary, general service-primary, and lighting base rates by $136,132, $87,338, $49,905, and $4,365, respectively. Delmarva and Staff propose to defer for later consideration by the Commission the issue of whether the base rate reductions set forth in the MOA should be assigned to the production component of rates or proportionately assigned among production, transmission, and distribution components of rates. Findings concerning capped rate service As discussed in the Staff Report, as originally proposed, Delmarva's Plan would have decreased overall rate revenues by 2.58 percent once all three phases of the Company's proposed divestiture had been completed. As set forth in the Company's February 4, 2000, filing, this rate change would have been accomplished through a 24.12 percent base rate reduction and a fuel factor increase of 64.01 percent. Interim base rate reductions would have been implemented with each phase of the proposed divestiture. The proposal also provided for scheduled increases in purchased power costs as provided for in the PECO PPA. The reduced base rates and fuel factor, with scheduled increases, would have remained in effect until January 1, 2004. From that point forward, Delmarva had proposed to reset its fuel factor at a level sufficient to recover the cost of power prudently procured from the competitive market. The Company also proposed to recover any deferred fuel balance existing at the time of full divestiture over a 12-month period. Delmarva's original Plan could have resulted in higher rates. Capped rates would be higher in the future if the cost of power procured from the competitive market is higher than what the embedded costs of the Company's generating assets would have been. The proposed MOA sets forth a number of provisions that seek to resolve this potential problem and to assure that the Company's customers are not adversely impacted by the proposed divestiture. The estimated revenue impacts of these provisions were summarized as Attachment A to Delmarva's June 12, 2000, motion. Under the MOA, Delmarva has agreed to: reduce base rates in phases with an ultimate reduction of $727,542; . forego any collection of wires charges as provided for under the Restructuring Act; . not seek an increase in its production (non-fuel), transmission or distribution rates prior to January 1, 2001; . maintain its currently operative fuel factor of 1.917 cents per kilowatt hour ('[ /kWh') until the earlier of the first day of the month preceded by an interval of at least 15 days following complete divestiture or January 1, 2001, without a continued deferral of fuel costs; . reset its fuel factor to 2.1[ /kWh through a separate application upon the earlier of complete divestiture or January 1, 2001, and to freeze the fuel factor at that level without any further deferral of fuel costs until January 1, 2004; . establish a fuel index mechanism for determining its fuel factor effective January 1, 2004, and until the end of the capped rate period and the elimination of Delmarva's default service obligations; and . lock-in and collect a reduced deferred fuel balance of $892,921 over a 24-month period. We find that the above provisions are in the public interest and that they will benefit Delmarva's customers. Clearly the base rate reductions and the Company's willingness to forego any collection of wires charges as provided for under the Restructuring Act provide benefits to ratepayers. Additionally, Delmarva's waiver of its statutory entitlement under s 56-582 of the Restructuring Act to seek a rate increase prior to January 1, 2001, also provides potential benefits to customers since the Company could have requested a one-time increase in its capped rates for the period ending January 1, 2004, As pointed out in the Staff Report, however, the Company's filings in this matter did not provide public notice of the proposed fuel factor increase included in the MOA and described above. Accordingly, this increase must be formally requested in a separate filing by the Company. Findings concerning default service As noted earlier and as discussed in the Staff Report, Delmarva's original Plan detailed in its February 4, 2000, filing stated that in conjunction with the proposed divestitures, the Company would commit to purchase power from competitive markets for the purposes of meeting any on-going default service requirements imposed by the Commission pursuant to s 56-585 of the Restructuring Act. As discussed in the Staff Report, the Company's application indicated that the proposed Plan would satisfy any requirement that it be required to retain generating assets or their equivalent pursuant to s 56-590.B since Delmarva was committed to acquiring capacity and energy to serve its Virginia retail load through purchased power agreements and its membership in PJM. On page 19 of its February 4, 2000, application, the Company stated that reliability would not be affected under this approach since '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.' The Staff Report observes that the Company's filing apparently did not contemplate the possibility that an equivalency requirement could be construed to require pricing equivalency given the ratemaking provisions for default service as set forth in s 56-585 of the Restructuring Act. The Staff was concerned that the Company's proposed divestiture could ultimately produce higher rates for default service provided by Delmarva since competitive power costs could exceed costs that would have been associated with continued ownership of the Company's existing generating assets. Given these uncertainties, the Staff stated that it felt it could not support Delmarva's original Plan. The MOA, however, seeks to resolve this issue by establishing a Rate Case Protocol that would assure that the generation component of future rates is no higher than it would have been had Delmarva continued to own its existing generating assets. The Rate Case Protocol also recognizes that Delmarva's embedded cost of generation could change over time and establishes mechanisms for adjusting future rates accordingly. We agree with Staff that the Rate Case Protocol represents an effective means of meeting the requirements of the Restructuring Act, thus allowing Delmarva to move forward with its proposed divestiture relatively quickly. Findings concerning separation of transmission function Delmarva also seeks a Commission determination that the Company's participation in PJM satisfies elements of the Restructuring Act requiring incumbent utilities with an interest in transmission capacity to join or establish regional transmission entities. In the MOA and its report, Staff generally concurs that Delmarva's participation in PJM will likely be in compliance with the Restructuring Act. As noted by the Staff, however, the Commission has initiated Case No. PUE990349 to promulgate rules regarding utility participation in regional transmission entities and such rules could potentially set forth requirements that are not satisfied by Delmarva's participation in PJM. Consequently, we will defer any ruling regarding the Company's RTE participation until such rules are adopted. Findings concerning proposed transfers of generation and related assets On April 12, 2000, Delmarva, CDG, and CESI, filed an application seeking approval to transfer to CDG and CESI certain Delmarva generation assets and related land, inventories, and other assets, which requires approval under the Affiliates Act. Delmarva is also requesting approval under the Utility Transfers Act to transfer two peak-load power plants that are physically located in the Commonwealth to CDG. Such filing was subsequently supplemented with certain forms of agreements and contracts filed on May 8 and May 26, 2000, respectively. Delmarva also seeks a Commission determination required by PUHCA for the transfer of Delmarva and ACE generation facilities and their subsequent treatment as 'eligible facilities.' [FN2] In its April 12 application, Delmarva specifically requests (i) approval to transfer several power plants and related ancillary assets, inventories, permits, licenses, contracts, its interest in a natural gas pipeline, and its rights and obligations in the Merrill Creek Reservoir to CDG; (ii) approval to transfer fuel inventories, fuel, and associated fuel transportation contracts to CESI; (iii) approval of Interconnection Agreements with CDG to the extent the Commission does not believe it is preempted by the FERC; (iv) approval of a Service Agreement and any related transaction agreements of less than one- year's duration with CESI; (v) approval to transfer wholesale and retail electric and gas contracts that have been executed in price-deregulated markets and the related portfolios of supply contracts used to support such sales to CESI; and (vi) approval to transfer the peaking units located at Bayview and Tasley, Virginia, to CDG. We agree with Staff that approvals sought pursuant to the Affiliates Act and Utility Transfers Act described above should be granted in this proceeding consistent with the statutory requirements of s 56-77 of the Affiliates Act and s 56-90 of the Utility Transfers Act. Specifically, we find that the approvals sought pursuant to the Affiliates Act are in the public interest. Additionally, we find that the approval sought pursuant to the Utility Transfers Act will not impair or jeopardize adequate service at just and reasonable rates. Finally, we find that the transfer of the Bayview and Tasley peaking units to CDG is also in the public interest, as required under the Affiliates Act. We note that the Staff has proposed conditions to be placed on these transactions under the Affiliates Act and the Utility Transfers Act. We find these conditions to be reasonable, and we understand that the Company has no objection to them. Accordingly, we will incorporate them into our Order in this matter, as set forth below. Finally, because of the protections afforded Delmarva's customers embodied in the MOA, including the Rate Case Protocol, and upon consideration of the laws of Virginia, we find that the transfer of generation facilities by Delmarva and ACE, resulting in such plants becoming 'eligible facilities' under PUHCA, (i) will benefit consumers, (ii) is in the public interest, and (iii) does not violate state law. Accordingly, IT IS ORDERED THAT: (1) Delmarva's Plan for the functional separation of its generation from transmission and distribution, through divestiture of its generation assets, as modified by the June 12, 2000, Memorandum of Agreement between Delmarva and the Commission Staff is hereby approved. (2) Delmarva shall make a separate application pursuant to s 56-249.6 for authority to increase its fuel rates in accordance with the provisions of the June 12, 2000, Memorandum of Agreement. (3) In accordance with the provisions of s 32 of PUHCA, 15 U.S.C. s 79z-5a, we find that the transfer of generation facilities by Delmarva and ACE to exempt wholesale generators and to affiliates that may seek to qualify as exempt wholesale generators, as more fully described in paragraphs 50-56 of Delmarva's February 4, 2000, filing: (i) will benefit consumers; (ii) is in the public interest; and (iii) is not contrary to Virginia law. (4) Delmarva shall make such additional and further filings as may be required in conjunction with the Commission's promulgation of final rules governing functional separation pursuant to s 56-590 and regional transmission entities pursuant to ss 56-577 and 56-579 of the Restructuring Act. (5) The approvals sought by Delmarva, CDG, and CESI pursuant to the Affiliates Act and Utility Transfers Act, are granted in this proceeding consistent with (i) the terms of the Memorandum of Agreement and (ii) the requirements of s 56-77 of the Affiliates Act and s 56-90 of the Utility Transfers Act. In conjunction with Delmarva's filings under the Affiliates Act and Utility Transfers Act, the following conditions shall be placed on such transactions: a) That there will be no change in the terms and conditions in the form of the Asset Transfer Agreements, Assignment and Assumption Agreements, Easement and License Agreement, and the Merrill Creek Sublease included in the application without prior Commission approval; b) That neither Delmarva, CDG, nor CESI shall assert in any forum that the Commission's jurisdiction over rates, charges, terms, and conditions of utility service, or services, transfers of utility assets, the determination of appropriate capital and corporate structure, and establishment of retail rates is preempted; c) That any approvals granted shall have no ratemaking implications except as provided for in the Memorandum of Agreement; d) That in regard to the Service Agreement between Delmarva and CESI, the Commission shall not be precluded from exercising its authority under the provisions of ss 56-78 through 56-80 of the Affiliates Act; e) That the Commission reserves the right to examine the books and records of any affiliate in connection with the authority granted whether or not the Commission regulates such affiliate; f) That neither Delmarva, CDG, nor CESI shall assert, in any future proceeding, that the Commission's ratemaking authority is preempted by federal law with respect to the Commission's retail ratemaking treatment of any charges from any affiliate to Delmarva or from Delmarva to any affiliate; g) That the transfer or assignment by Delmarva of any real or personal property not included in the application to any affiliate or non-affiliate shall require additional Commission approval in accordance with s 56-77; h) That within 60 days following the completion of all transactions under all agreements in the application, Delmarva shall file a report with the Commission's Division of Public Utility Accounting. Such report shall include date of transfer, description of each asset, book value, and the accounting entries reflecting the transactions; i) That Delmarva shall file with the Commission's Division of Public Utility Accounting a copy of the quarterly FERC reports summarizing each transaction with CESI; j) That Delmarva shall include all transactions under the O&M Agreement with CDG, Interconnection Agreements with CDG, and Service Agreement and related Short-term Transaction Agreements with CESI in its Annual Report of Affiliated Transactions filed with the Commission's Director of Public Utility Accounting; and k) That any approvals granted may be subject to modification or revoked in connection with the Commission's promulgation of rules in Case Nos. PUE990349 and PUA000029 under the Restructuring Act. (6) This matter shall be continued generally, subject to the continuing review, audit, and appropriate directive of the Commission. AN ATTESTED COPY hereof shall be sent by the Clerk of the Commission to: Guy T. Tripp, III, Esquire, Hunton & Williams, Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia 23219-4074; Randall V. Griffin, Esquire, Delmarva Power & Light Company, Legal Department, P.O. Box 231, Wilmington, Delaware 19899; Thomas B. Nicholson, Esquire, Williams, Mullen, Clark & Dobbins, P.C., Two James Center, 1021 East Cary Street, P.O. Box 1320, Richmond, Virginia 23218-1320; Karen L. Bell, Esquire, Virginia Electric and Power Company, P.O. Box 26666, Richmond, Virginia 23261; John A. Pirko, Esquire, LeClair Ryan, P.C., 4201 Dominion Boulevard, Suite 200, Glen Allen, Virginia 23060; and the Commission's Office of General Counsel and Divisions of Energy Regulation, Economics and Finance, and Public Utility Accounting. A True Copy FN1 Moreover, Delmarva's filings were received prior to the Commission's April 18, 2000, Order Prescribing Notice and Inviting Comments concerning proposed functional separation rules in Case No. PUA000029. Final rules have not been promulgated in that case. FN2 The facilities of Delmarva and ACE are set forth in Appendices A and B, respectively, of Delmarva's February 4, 2000, application. EX-99.5 6 0006.txt EXHIBIT D-13 October 10, 2000 Docket Nos. 50-277 50-278 BY HAND DELIVERY ON OCTOBER 12, 2000 U.S. Nuclear Regulatory Commission Attn: Samuel J. Collins, Director, Office of Nuclear Reactor Regulation Mail Stop O-5, E7 One White Flint North 11555 Rockville Pike Rockville, MD 20852-2738 Re: Peach Bottom Atomic Power Station, Units 2 & 3 Facility Operating License Nos. DPR-44 & DPR-56 Supplemental Information: Transfers of Non-Operating Ownership Interests Dear Mr. Collins: On April 21, 2000, the Nuclear Regulatory Commission ("NRC") issued Orders approving the transfer of the minority, non-operating interests of Atlantic City Electric Company ("ACE") and Delmarva Power and Light Company ("DP&L") in the Peach Bottom Atomic Power Station, Units 2 & 3 to PECO Energy Company ("PECO") and PSEG Nuclear LLC ("PSEG Nuclear"). The NRC also approved conforming changes to the Peach Bottom 2 & 3 Operating Licenses to reflect the transfers. In addition, on August 3, 2000, the NRC issued an Order approving the transfer of PECO's interests in Peach Bottom 1, 2 & 3 to Exelon Generation Company, LLC ("EGC") in connection with the proposed merger of PECO and Unicom Corporation (Unicom) the parent of Commonwealth Edison Company (ComEd). EGC will be a wholly owned subsidiary of Exelon Ventures Company, which will be a wholly owned subsidiary of Exelon Corporation, a publicly traded company that will also own ComEd and PECO. On October 5, 2000, the NRC issued an Order approving an indirect transfer of control of PECO's interests in Peach Bottom 1, 2 & 3, on an interim basis, as a result of PECO becoming a wholly owned subsidiary of Exelon Corporation for a period of time prior to the formation of EGC and the transfer of PECO's interests to EGC. The purpose of the present letter is to bring to the NRC's attention certain developments that have occurred since the April 21, 2000 Peach Bottom Order was issued. These developments relate to the sequence in which the Peach Bottom transactions and transfers will be implemented and appear to require NRC administrative action to modify the approved, conforming Operating License Amendments and to specify new minimum decommissioning fund amounts to be transferred. If the NRC concludes that new transfer orders are necessary, PECO, on behalf of itself and PSEG Nuclear, DP&L, and ACE, requests that the NRC treat this letter as an application for appropriate orders. 1. Sequence of Transactions for Peach Bottom 2 & 3 Both PECO and PSEG Nuclear originally contemplated that the transfer of the DP&L and ACE interests in Peach Bottom 2 & 3 would occur simultaneously in the Spring of 2000. PSEG Nuclear anticipated that this would occur prior to the reorganization of the Public Service Enterprise Group ("PSEG"), and PECO anticipated that these transactions would be completed prior to the PECO-Unicom merger. The anticipated sequence of the transactions has now been modified, as follows. First, the PSEG reorganization has occurred, and the interests in Peach Bottom 2 & 3 previously held by Public Service Electric & Gas Company were transferred to PSEG Nuclear on August 21, 2000. Similarly, the PECO-Unicom merger is likely to be consummated prior to any transfer of the DP&L and ACE interests in Peach Bottom 2 & 3. It now appears that transfers of the DP&L and ACE interests could occur at various times relative to various stages of the PECO-Unicom merger and restructuring of the generating assets of PECO and ComEd. In addition, PECO originally anticipated that its interests in Peach Bottom 2 & 3 would be transferred to EGC upon consummation of the merger. However, as indicated in its July 7, 2000 Application, PECO now anticipates that it will become a wholly owned subsidiary of Exelon Corporation for an interim period of time prior to the transfer of its interests to EGC. Therefore, the transfers of DP&L and ACE interests could be made: (1) to the current PECO; (2) to PECO, as a direct wholly owned subsidiary of Exelon Corporation; or (3) to EGC, as an indirect wholly owned subsidiary of Exelon Corporation. 2. Interim DP&L Transfer for Peach Bottom 2 & 3 Certain regulatory approvals in New Jersey that are needed before ACE can transfer its nuclear interests are still pending. Specifically, while the New Jersey Board of Public Utilities ("BPU") has approved the transfer of the ACE interests, it has not yet issued a final order covering all aspects of the transaction. It is unclear when such an order will be issued. Additionally, an appeal of the BPU decision in the PSEG restructuring case that challenges the BPU's implementation of the deregulation legislation in New Jersey has been filed. This situation has caused ACE to delay the closing on the transfer of its nuclear assets.1 - --------------- 1 Transfer of the DP&L and ACE interests in Salem 1 & 2 and Hope Creek are the subject of a separate letter being submitted on those dockets by PSEG Nuclear. On the other hand, the state regulatory approvals required for the transfer of the DP&L interests have been completed. Accordingly, the parties to these transactions have agreed to proceed with the transfer of the DP&L interests in Peach Bottom 2 & 3 (subject to any necessary NRC action), while deferring the transfer of the ACE interests in Peach Bottom 2 & 3 until the status of restructuring in New Jersey is more certain. While the NRC's April 21, 2000 Order has already approved the transfer of the interests of both DP&L and ACE, the proposed implementation of these transfers in two steps (first DP&L and second ACE) creates a need to modify the previously approved conforming License amendments for Peach Bottom 2 & 3 to reflect that, until completion of the ACE transfer, ACE will remain on the licenses for Peach Bottom 2 & 3 as a minority, non-operating owner -- while the DP&L interest will be transferred to PECO/EGC and PSEG Nuclear. To illustrate, the current (October 2000) ownership interests in the Peach Bottom units (before either the DP&L or ACE transfers) are as follows: - -------------------------------------------------------------------------------- Peach Bottom 2 Peach Bottom 3 (%) (%) - -------------------------------------------------------------------------------- ACE 7.51 7.51 DP&L 7.51 7.51 PSEG Nuclear 42.49 42.49 PECO 42.49 42.49 - -------------------------------------------------------------------------------- Under the plan now agreed to by PECO, PSEG Nuclear, DP&L, and ACE, as discussed above, the DP&L interests will be transferred to PECO/EGC (3.755%) and PSEG Nuclear (3.755%) prior to the transfer of the ACE interests. Under this approach, in an interim phase after the DP&L transfer but before the transfer of the ACE interests, the ownership interests in the Peach Bottom units will be as follows: - -------------------------------------------------------------------------------- Peach Bottom 2 Peach Bottom 3 (%) (%) - -------------------------------------------------------------------------------- ACE 7.51 7.51 PECO or EGC 46.245 46.245 PSEG Nuclear 46.245 46.245 - -------------------------------------------------------------------------------- With respect to the transfer of the ACE and DP&L interests in Peach Bottom 2 and 3 to PSEG Nuclear, the Orders and conforming License changes issued by the NRC on April 21, 2000, were premised on an assumption that these transfers would precede finalization and implementation of the PSE&G restructuring. Accordingly, the conforming License changes approved by the NRC retain PSE&G as a licensee but add PSEG Nuclear in the place of ACE and DP&L. Because the PSE&G restructuring has now been accomplished, PSE&G is no longer a licensee and will not be on the license at the time that the non-operating interests of DP&L and ACE are transferred. Therefore, the conforming license changes for Peach Bottom 2 and 3 need to be modified to omit any reference to PSE&G. As noted above, the NRC has already approved the transfer of the DP&L Peach Bottom 2 & 3 interests to PECO and PSEG Nuclear in conjunction with the ACE transfer. Moreover, the end state, following the transfer of both the DP&L and the ACE interests to EGC, has been approved by the combination of the April 21 and August 3 Orders. The purpose of the present letter is to seek NRC administrative actions to address: a) the interim arrangement for the Peach Bottom units under which the transfer of the DP&L interest will take place while the ACE transfer remains pending, b) the transfer of the PECO portion of the DP&L/ACE interests, which could be made to PECO, PECO (as a direct wholly owned subsidiary of Exelon Corporation), or EGC (as an indirect wholly owned subsidiary of Exelon Corporation), together referred to herein as "PECO/EGC," and c) the results of the completion of the PSE&G restructuring. 3. Requested NRC Actions To address the issues identified above, the Attachments to this letter describe the administrative actions that the NRC should take. These Attachments are: o Attachments A2 & A3: (PECO, PSEG Nuclear and ACE are licensees.) Revised mark-ups for the Peach Bottom 2 & 3 Licenses to reflect the transfer of DP&L's interests to PECO and PSEG Nuclear, with ACE remaining a licensee. (DP&L's interests are transferred to PECO prior to the transfer of PECO's interests to EGC, but ACE's interests are not yet transferred.) o Attachments B2 & B3: (PECO and PSEG Nuclear are licensees.) Revised mark-ups for the Peach Bottom 2 & 3 Licenses to reflect the transfer of both DP&L and ACE's interests to PECO and PSEG Nuclear. (Both DP&L and ACE's interests are transferred to PECO prior to the transfer of PECO's interests to EGC.) o Attachments C2 & C3: (EGC, PSEG Nuclear and ACE are licensees.) Revised mark-ups for the Peach Bottom 2 & 3 Licenses to reflect the transfer of DP&L's interests to EGC (either from DP&L or from PECO) and PSEG Nuclear, with ACE remaining a licensee. (DP&L's interests are transferred to PECO/EGC, but ACE's interests have not yet transferred.) o Attachments D2 & D3: (EGC and PSEG Nuclear are licensees.) Revised mark-ups for the Peach Bottom 2 & 3 Licenses to reflect the transfer of DP&L and ACE's interests to EGC (either from DP&L and/or ACE, and/or from PECO) and PSEG Nuclear. (This is the planned end state under all scenarios.) PECO and PSEG Nuclear view all of the above mark-ups as administrative clarifications to the already approved conforming License Amendments. PECO has also concluded that the information contained in this letter and its attachments do not alter the conclusions reached in the 10 CFR 50.92 No Significant Hazards analysis previously submitted with the previously approved License Amendment requests. These administrative changes would seemingly not require new transfer consents under 10 CFR 50.80 or new license amendments under 10 CFR 50.90. However, to the extent the NRC views any new approvals as necessary, PECO, on behalf of itself and PSEG Nuclear, DP&L, and ACE, respectfully requests that those approvals be issued expeditiously. 4. Update on Decommissioning Funding Assurance for Peach Bottom In the April 21, 2000 Order approving the transfers, the decommissioning trust funds for the ACE and DP&L interests in Peach Bottom 2 & 3 were assumed to be combined and divided equally among PECO and PSEG Nuclear. (Both ACE and DP&L were combined as the Conectiv interests. Decommissioning funding assurance for the aggregated Conectiv interests was demonstrated.) Under the two-phase transfer approach now contemplated for the Conectiv shares, it is necessary to address the transfer of the DP&L and ACE decommissioning funds separately. PECO requests that the NRC revise the transfer Orders for the Peach Bottom units accordingly.2 - --------------- 2 The parties determined in preparation for closing that the level of funding to be transferred by DP&L is different from what PECO and PSEG Nuclear had previously understood. The revised showing provided herein utilizes current estimates of the funds to be transferred by DP&L and ACE. Any administrative action clarifying the prior approvals should be based on the new estimates of funds for transfer by DP&L and ACE. In Attachment E, PECO and PSEG Nuclear demonstrate decommissioning funding assurance based on the decommissioning trusts to be maintained by PECO/EGC and PSEG Nuclear immediately following closing on each transaction. Initially, upon closing of the DP&L transfer, the DP&L funds will be transferred to PECO/EGC and PSEG Nuclear, divided equally. By contract, PECO/EGC and PSEG Nuclear will be further entitled to receive either the combined decommissioning funding of both DP&L and ACE, upon the subsequent transfer of the ACE share, or if the ACE transfer does not occur, PECO/EGC and PSEG Nuclear will each be entitled to receive additional payments from ACE to adjust for the difference between the DP&L balances and the average of the combined DP&L and ACE balances, which they would have otherwise been entitled to receive. PECO/EGC and PSEG Nuclear will make contributions to their respective trust funds for each unit in the amount of the payments made by ACE. Based on current estimates, the combined ACE and DP&L decommissioning trust fund balances are sufficient to meet the NRC's minimum requirements for prepaid decommissioning funding (with earnings credited at a 2% real rate of return) for a 7.51% share of each unit. Alternatively, based upon current balances, the additional funds provided by ACE and deposited by PECO/EGC and PSEG Nuclear in their respective trusts, if the ACE interests and funds are not transferred, would be sufficient to be fully funded (when earnings are credited) with respect to their 3.755% interests in each unit. These matters are discussed in greater detail in Attachment E. 5. Financial Qualifications In the Safety Evaluation accompanying the April 21 Order, NRC concluded that both PECO and PSEG Nuclear are financially qualified to hold the Peach Bottom licenses with respect to the increased ownership interests to be acquired from DP&L and ACE. In addition, in the Safety Evaluation accompanying NRC's August 3 Order relating to the PECO-Unicom merger, NRC concluded that EGC is financially qualified to hold the licenses for all of the nuclear units currently owned by PECO and ComEd (to the extent of their ownership shares). In connection with this NRC review, PECO submitted a proprietary "Projected Income Statement" (including a "five year pro forma" estimating total annual operating costs and the source of funds to cover these costs) in accordance with 10 CFR 50.33(f)(2), both in its December 20, 1999 Application and a March 10, 2000 letter providing additional information. This information included separate line items providing the "five year pro forma" for the incremental interests in Peach Bottom 2 & 3, to be acquired from DP&L and ACE. Nevertheless, in order to facilitate NRC's review, the information relating to each 3.755% interest in Peach Bottom 2 & 3 is provided in a proprietary addendum to this letter labeled Attachment F (Addendum). PECO requests that this Addendum be withheld from public disclosure, as described in the Section 2.790 Affidavit provided in Enclosure G. A non-proprietary version of this information, suitable for public disclosure is provided as Attachment F. 6. Extension of Effectiveness of Orders The parties anticipate that the DP&L transfers for Peach Bottom will close as soon as practicable upon receipt of NRC administrative action addressing the above-described two-step transaction. The parties respectfully request that the NRC complete its review of the present request, and take action to revise the April 21, 2000 Order and to approve revised conforming License amendments, by no later than December 1, 2000. The parties hope to be in a position to complete the ACE transfers for Peach Bottom 2 & 3 no later than June 30, 2001. The April 21, 2000, Orders specify that the ACE and DP&L transfers be completed by December 31, 2000, or the Orders shall become null and void. Given the current schedule, and the unavoidable delay in obtaining the other regulatory approvals, there is good cause to extend the deadline. To allow for future contingencies with respect to closing both transfers, the parties request that the completion date be extended for all of the transactions to December 31, 2001. PECO will keep the NRC apprised of developments in these matters. If you need additional information, please contact James A. Hutton at 610-765-5520. Sincerely, Joseph J. Hagan Senior Vice President Nuclear Operations Attachments Affidavit COMMONWEALTH OF PENNSYLVANIA : : ss COUNTY OF CHESTER : AFFIDAVIT Joseph J. Hagan, being first duly sworn, deposes and says: That he is Senior Vice President Nuclear Operations, PECO Energy Company, the Applicant herein; that he has read the enclosed letter, knows the contents thereof; and that the statements and matters set forth therein are true and correct to the best of his knowledge, information and belief. __________________________________________ Senior Vice President - Nuclear Operations PECO Energy Company Subscribed and sworn to before me this ____ day of October, 2000. ______________________ Notary Public [ATTACHMENTS PRESENTING MANUAL MARKUPS OF LICENSE DELETED] Attachment E Decommissioning Funding Assurance Transfer of Non-Operating Ownership Interests to PECO/EGC and PSEG Nuclear Peach bottom Atomic Power Station, Units 2 and 3 DP&L and ACE have each maintained their own nuclear decommissioning trust ("NDT") funds for their respective interests in Peach Bottom Atomic Power Station, Units 2 and 3 ("Peach Bottom 2 & 3"). Therefore, each company's current NDT fund balances for each unit vary due to the level of prior contributions to the trust funds and investment performance. As in the prior transfer application related to these interests, the current combined NDT fund balances of DP&L and ACE for Peach Bottom 2 and for Peach Bottom 3, are sufficient to qualify as fully pre-paid decommissioning trust funds for the companies' combined 15.02% interest in each unit, within the meaning of 10 CFR 50.75(e)(1)(i), when earnings are credited as permitted by the NRC using a two percent real rate of return until the end of the operating licenses for each unit. The DP&L and ACE NDT funds for each unit will be transferred to the corresponding PECO and PSEG Nuclear NDT funds in direct proportion to the interests in each unit to be transferred by each transferring company to each receiving company, with the PECO and PSEG Nuclear NDT funds each receiving an amount that corresponds to the 3.755% share of DP&L and ACE's 7.51% interests in each unit. Thus, based upon the current balances, when the transfers of both the DP&L and ACE interests are completed, the PECO and PSEG Nuclear NDT funds would each have balances for the respective shares received from ACE and DP&L that are fully prepaid within the meaning of NRC's rules, when earnings are credited. The NRC minimum amount for decommissioning funding assurance for Peach Bottom 2 is $375,504,999 ($56,400,850 for a 15.02% share, $28,200,425 for a 7.51% share, and $14,100,212 for a 3.755% share). This NRC "formula amount" calculated in accordance with 10 CFR 50.75(c) using the updated escalation factors available for December 31, 1999 is provided in the attached Table 1. The NRC minimum amount is the same for Peach Bottom 3. Based upon earnings credited at a two percent real rate of return, as permitted by 10 CFR 50.75(e)(1)(i), the current level of funding necessary for Unit 2 trust funds to be considered fully "prepaid" within the meaning of NRC rules is approximately $290.3 million ($43.6 million for a 15.02% share, $21.8 million for a 7.51% share, and $10.9 million for a 3.755% share). Slightly lower amounts of funding would be required with respect to Peach Bottom 3, because its license is longer and further earnings could be credited. A calculation reflecting the sufficiency of $10.9 million to fund the minimum for a 3.755% interest in Peach Bottom 2, when earnings are credited, is provided in an attached Table 2. A chart summarizing the trust fund balances, as provided by DP&L and ACE, as of August 31, 2000, as compared with the NRC formula amount, and "prepaid" level of funding required follows:
- -------------------------------------------------------------------------------- 08/31/2000 Unit 2 Unit 3 "Prepaid" NRC Formula (balance) (balance) Minimum Amount - -------------------------------------------------------------------------------- Conectiv 15.02%--total 44,775,233 46,201,586 43,600,000 56,400,850 7.51%--DP&L 18,243,471 18,246,878 21,800,000 28,200,425 7.51%--ACE 26,531,762 27,954,709 21,800,000 28,200,425 - -------------------------------------------------------------------------------- PECO/EGC 7.51%--total 22,387,616 23,100,793 21,800,000 28,200,425 average 11,193,808 11,550,396 10,900,000 14,100,212 3.755%--DP&L 9,121,736 9,123,439 10,900,000 14,100,212 3.755%--ACE 13,265,881 13,977,354 10,900,000 14,100,212 - -------------------------------------------------------------------------------- PSEG Nuclear 7.51%--total 22,387,616 23,100,793 21,800,000 28,200,425 average 11,193,808 11,550,396 10,900,000 14,100,212 3.755%--DP&L 9,121,736 9,123,439 10,900,000 14,100,212 3.755%--ACE 13,265,881 13,977,354 10,900,000 14,100,212 - --------------------------------------------------------------------------------
As already noted, the combined balances that will be received by each of the Peach Bottom 2 and 3 NDT funds of PECO/EGC and PSEG Nuclear will be adequate to provide decommissioning funding assurance using the prepayment method, when earnings are credited. 10 CFR 50.75(e)(1)(i). However, the DP&L interests in each unit, and accompanying nuclear decommissioning trust funds, will be transferred first, and there is an expectation, but no guarantee, that the ACE interests in each unit, and the accompanying NDT funds will be subsequently transferred. Therefore, ACE has agreed that in the event that it is unable to transfer its interests and NDT funds, it will provide funding to PECO/EGC and PSEG Nuclear equal to the difference between the actual DP&L NDT fund balances transferred, and the average of the DP&L and ACE NDT fund balances that would have been transferred to the PECO/EGC and PSEG Nuclear NDT funds had the ACE interests and NDT funds been transferred at the same time as DP&L's. Applying this methodology to the balances noted above, if the closing of the DP&L interests had taken place on August 31, 2000, PECO/EGC and PSEG Nuclear each would be entitled to an additional payment from ACE of $4,499,029, yielding a total payment due from ACE to PECO/EGC and PSEG Nuclear of $8,998,058.3 PECO/EGC and PSEG Nuclear agree that they will in turn contribute to their respective NDT funds for each unit the corresponding portion of the payment received from ACE, i.e., $2,249,515 per unit. When these sums are credited to the respective PECO/EGC and PSEG Nuclear NDT funds and added to the DP&L fund balances, the total amount transferred to the PECO/EGC and PSEG Nuclear NDT funds exceeds the current level of funding required to meet the prepayment method of providing financial assurance for each 3.755% interest in each unit. - --------------- 3 The actual figure that would be due from ACE to PECO and PSEG Nuclear would of course depend on when the DP&L transfer actually takes place. Thus, during the interim period following the transfer of DP&L's interests in Peach Bottom 2 & 3, but prior to the transfer of the ACE interests (or the determination that such transfer will not take place), decommissioning funding assurance for their respective 3.755% shares in each unit from DP&L will be provided by both PECO/EGC and PSEG Nuclear by using a combination of the funding transferred by DP&L and the contractual commitments of ACE either: (1) to complete the transfer of the ACE interests and the accompanying NDT fund balances; or (2) to make the additional payments to PECO/EGC and PSEG Nuclear described above. In the first instance, the combined balances that will be received are currently adequate to be considered fully prepaid for each 7.51% interest in each unit in accordance with NRC's rules. In the second instance, the combination of the DP&L funds that are transferred and the additional payment from ACE (which PECO/EGC and PSEG Nuclear commit to contribute to their respective Peach Bottom 2 & 3 NDT funds) are currently adequate to be considered fully prepaid for each 3.755% interest in each unit in accordance with NRC's rules. During the interim period, these mechanisms provide assurance of decommissioning funding in accordance with 10 CFR 50.75(e)(1)(vi) that is equivalent to that provided by the mechanisms specified in 10 CFR 50.75(e)(1)(i) through (v). ACE's ability to make the payments to PECO/EGC and PSEG Nuclear (if the ACE interests and NDT funds are not transferred) totaling approximately $9 million can be demonstrated by analogy through its ability to meet the financial tests that would apply in the case of a parent guarantee, as follows: NRC Financial Test for Parent Guarantees (10 CFR Part 30, App. A, Section II.A.2) (All dollar amounts below in millions) Financial Test II.A.2 Source: 1999 Annual Report (i) A current rating for its most recent bond issuance of AAA, AA, A, or BBB as issued by Standard and Poor's or AAA, AA, A, or BAA as issued by Moody's; and Atlantic City Electric Standard & Poor's Rating A- (ii) Tangible net worth each at least six times the current decommissioning cost estimates for the total of all facilities or parts thereof (or prescribed amount if a certification is used), or, for a power reactor licensee, at least six times the amount of decommissioning funds being assured by a parent company guarantee for the total of all reactor units or parts thereof (Tangible net worth shall be calculated to exclude the net book value of the nuclear unit(s)); and - -------------------------------------------------------------------------------- Tangible Net Worth $798 - -------------------------------------------------------------------------------- Total Amount of Payments $9 - -------------------------------------------------------------------------------- Ratio of Tangible Net Worth to Payment Amounts 88.7 - -------------------------------------------------------------------------------- (iii) Tangible net worth of at least $10 million; and - -------------------------------------------------------------------------------- Tangible Net Worth $798 - -------------------------------------------------------------------------------- (iv) Assets located in the United States amounting to at least 90 percent of the total assets or at least six times the current decommissioning cost estimates for the total of all facilities or parts thereof (or prescribed amount if a certification is used), or, for a power reactor licensee, at least six times the amount of decommissioning funds being assured by a parent company guarantee for the total of all reactor units or parts thereof. - -------------------------------------------------------------------------------- Total Assets $2,655 - -------------------------------------------------------------------------------- Total Foreign Assets $0 - -------------------------------------------------------------------------------- Total U.S. Assets $2,655 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Amount of Payments $9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Ratio of U.S. Assets to Payment Amounts 295 - -------------------------------------------------------------------------------- The above information is provided for purposes of facilitating NRC's review and determination of the dependability of ACE's contractual obligations to PECO/EGC and PSEG Nuclear. No specific guarantee from ACE is being provided to the NRC or is in any way intended or implied. In accordance with 10 CFR 50.75(e)(1)(vi), this combination of mechanisms provides assurance of decommissioning funding during the interim period that is equivalent to that provided by the mechanisms specified in 10 CFR 50.75(e)(1)(i) through (v). Following the transfer or ACE's interests or ACE's payment to PECO/EGC and PSEG, the decommissioning funding would be prepaid in accordance with 10 CFR 50.75(e)(1)(i). Attachment F Projected Income Statement (Non-Proprietary Version) Attachment G AFFIDAVIT OF JOSEPH P. HAGAN I, Joseph P. Hagan, Senior Vice President Nuclear Operations of PECO Energy Company (PECO), do hereby affirm and state: 1. I am authorized to execute this affidavit on behalf of PECO. 2. PECO is providing an Attachment F (Addendum) in connection with the transfer of certain interests in Peach Bottom Atomic Power Station, Units 2 and 3 (Peach Bottom). The information being provided in Attachment F (Addendum) includes PECO's financial projections relating to the interests in Peach Bottom 2 & 3 to be transferred and constitutes proprietary commercial and financial information that should be held in confidence by the Nuclear Regulatory Commission (NRC) pursuant to the policy reflected in 10 CFR sections 2.790(a)(4) and 9.17(a)(4) in that: i. This information is and has been held in confidence by PECO. ii. This information is of a type that is held in confidence by PECO, and there is a rational basis for doing so because the information contains sensitive financial information concerning PECO's projected revenues and operating expenses. iii. This information is being transmitted to the NRC in confidence. iv. This information is not available in public sources and could not be gathered readily from other publicly available information. v. Public disclosure of this information would create substantial harm to the competitive position of PECO by disclosing PECO's internal financial projections, related to a unique transaction, to other parties whose commercial interests may be adverse to those of PECO. 3. Accordingly, PECO requests that the information be withheld from public disclosure pursuant to the policy reflected in 10 CFR sections 2.790(a)(4) and 9.17(a)(4). PECO Energy Company ____________________________ Joseph P. Hagan Senior Vice President Nuclear Operations COMMONWEALTH OF PENNSYLVANIA COUNTY OF CHESTER Subscribed and sworn to me, a Notary Public, in and for the county and state above named, this _______ day of __________________, 2000. _________________________________ My Commission Expires: __________ Attachment F (Addendum) Projected Income Statement (Proprietary) CONFIDENTIAL CONTAINS CONFIDENTIAL INFORMATION PURSUANT TO 10 CFR 2.790(a)(4), 9.17(a)(4) EX-99.6 7 0007.txt EXHIBIT F-1 Exhibit F-1 [CONECTIV LETTERHEAD] November 2, 2000 Securities and Exchange Commission Office of Public Utility Regulation 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Conectiv SEC File No. 70-9607 Ladies and Gentlemen: This opinion is furnished to the Securities and Exchange Commission (the "Commission") in connection with the filing of an Application on Form U-1 (File No. 70-9607) (the "Application") of Conectiv, Delmarva Power & Light Company ("DPL"), and Atlantic City Electric Company ("ACE," collectively "Applicants") under the Public Utility Holding Company Act of 1935, as amended (the "Act"). The Application requests, among other things, that the Commission issue an order authorizing the sale by DPL of a 7.51% (164 MW) ownership interest in the Peach Bottom Atomic Power Station Unit Nos. 2 and 3 ("Peach Bottom") to PECO Energy Company ("PECO") (the "Transaction"). PECO presently owns 42.49% of Peach Bottom. I am a member of the bars of the State of Delaware and the Commonwealth of Virginia, the states in which DPL is incorporated. I am not a member of the bar of the Commonwealth of Pennsylvania, where the assets to be sold by DPL are located. I do not hold myself out as an expert in the laws of any state other than Delaware and Virginia. For purposes of this opinion, to the extent I deemed necessary, I have relied on advice from counsel employed or retained by Conectiv who are members of the bar of the Commonwealth of Pennsylvania. In connection with this opinion, I or attorneys in whom I have confidence have examined originals or copies, certified or otherwise identified to our satisfaction, of such records of the Applicants and such other documents, certificates and corporate or other records as we have deemed necessary or appropriate as a basis for the opinions set forth herein. In this examination, we have assumed the genuineness of all signatures, the legal capacity of all persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. As to various questions of fact material to such opinions, we have relied, when relevant facts were not independently established, upon statements contained in the Application. The opinions expressed below with respect to the Transaction are subject to and rely upon the following assumptions, qualifications, limitations, conditions and exceptions: 1. The Transaction shall have been duly authorized and approved, to the extent required by the governing corporate documents and applicable state laws, by the Board of Directors of DPL. 2. All required approvals, authorizations, consents, certificates, rulings and orders of, and all filings and registrations with, all applicable federal and state commissions and regulatory authorities (other than commissions and regulatory authorities of the State of Delaware and the Commonwealth of Virginia) with respect to the Transaction shall have been obtained or made, as the case may be, and shall have become final and unconditional in all respects and shall remain in effect (including the approval and authorization of the Commission under the Act), and the Transaction shall have been accomplished in accordance with all such approvals, authorizations consents, certificates, orders, filings and registrations. 3. All corporate formalities required by state laws for the consummation of the Transaction shall have been taken. 4. The parties shall have obtained all consents, waivers and releases, if any, required for the Transaction under all applicable governing corporate documents, contracts, agreements, debt instruments, indentures, franchises, licenses and permits. Based on the foregoing, and subject to the assumptions, qualifications, limitations, conditions and exceptions set forth herein, I am of the opinion that, in the event the Transaction is consummated in accordance with the Application: 1. All state laws applicable to the Transaction will have been complied with. 2. Conectiv is a corporation validly organized and duly existing under the laws of the State of Delaware. DPL is a corporation validly organized and duly existing under the laws of the State of Delaware and the Commonwealth of Virginia. 3. The consummation of the Transaction will not violate the legal rights of the holders of any securities issued by DPL, or any associate company thereof. I hereby consent to the use of this opinion in connection with the Application. Very truly yours, Peter F. Clark [CONECTIV LETTERHEAD] November 2, 2000 Securities and Exchange Commission Office of Public Utility Regulation 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Conectiv SEC File No. 70-9607 Ladies and Gentlemen: This opinion is furnished to the Securities and Exchange Commission (the "Commission") in connection with the filing of an Application on Form U-1 (File No. 70-9607) (the "Application") of Conectiv, Delmarva Power & Light Company ("DPL"), and Atlantic City Electric Company ("ACE," collectively "Applicants") under the Public Utility Holding Company Act of 1935, as amended (the "Act"). The Application requests, among other things, that the Commission issue an order authorizing the sale by DPL of a 7.51% (164 MW) ownership interest in the Peach Bottom Atomic Power Station Unit Nos. 2 and 3 ("Peach Bottom") to PECO Energy Company ("PECO") (the "Transaction"). PECO presently owns 42.49% of Peach Bottom. I am a member of the bars of the State of Delaware and the Commonwealth of Pennsylvania. The assets to be sold by DPL are located in the Commonwealth of Pennsylvania. I do not hold myself out as an expert in the laws of any state other than Delaware and Pennsylvania. In connection with this opinion, I or attorneys in whom I have confidence have examined originals or copies, certified or otherwise identified to our satisfaction, of such records of the Applicants and such other documents, certificates and corporate or other records as we have deemed necessary or appropriate as a basis for the opinions set forth herein. In our examination, we have assumed the genuineness of all signatures, the legal capacity of all persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. As to various questions of fact material to such opinions, we have relied, when relevant facts were not independently established, upon statements contained in the Application. The opinions expressed below with respect to the Transaction are subject to and rely upon the following assumptions, qualifications, limitations, conditions and exceptions: 1. The Transaction shall have been duly authorized and approved, to the extent required by the governing corporate documents and applicable state laws, by the Board of Directors of DPL. 2. All required approvals, authorizations, consents, certificates, rulings and orders of, and all filings and registrations with, all applicable federal and state commissions and regulatory authorities (other than commissions and regulatory authorities of the Commonwealth of Pennsylvania) with respect to the Transaction shall have been obtained or made, as the case may be, and shall have become final and unconditional in all respects and shall remain in effect (including the approval and authorization of the Commission under the Act), and the Transaction shall have been accomplished in accordance with all such approvals, authorizations consents, certificates, orders, filings and registrations. 3. All corporate formalities required by state laws for the consummation of the Transaction shall have been taken. The parties shall have obtained all consents, waivers and releases, if any, required for the Transaction under all applicable governing corporate documents, contracts, agreements, debt instruments, indentures, franchises, licenses and permits. Based on the foregoing, and subject to the assumptions, qualifications, limitations, conditions and exceptions set forth herein, I am of the opinion that, in the event the Transaction is consummated in accordance with the Application: 1. The laws of the Commonwealth of Pennsylvania applicable to the Transaction will have been complied with. I hereby consent to the use of this opinion in connection with the Application. Very truly yours, Karen M. Bab -----END PRIVACY-ENHANCED MESSAGE-----