-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, JgXikk1LBGLzHSS4nQP8cGElCuhRehOeOf0RgQJESKL7AUBfaX1HmrfDnUsPhy+j L/zS9/j1XiDT356Xr54Ytw== 0000078100-95-000004.txt : 19950516 0000078100-95-000004.hdr.sgml : 19950516 ACCESSION NUMBER: 0000078100-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PECO ENERGY CO CENTRAL INDEX KEY: 0000078100 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 230970240 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01401 FILM NUMBER: 95539493 BUSINESS ADDRESS: STREET 1: 2301 MARKET ST STREET 2: P O BOX 8699 CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2158414000 FORMER COMPANY: FORMER CONFORMED NAME: PHILADELPHIA ELECTRIC CO DATE OF NAME CHANGE: 19920703 10-Q 1 PECO ENERGY CO 3/95 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-1401 PECO Energy Company (Exact name of registrant as specified in its charter) Pennsylvania 23-0970240 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2301 Market Street, Philadelphia, PA 19103 (Address of principal executive offices) (Zip Code) (215) 841-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. The Company had 221,769,168 shares of common stock outstanding on April 30, 1995. PAGE
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Millions of Dollars) 3 Months Ended March 31, --------------------------- 1995 1994 ---------- ---------- OPERATING REVENUES Electric $ 881.4 $921.6 Gas 177.2 206.8 ------- ------- TOTAL OPERATING REVENUES 1,058.6 1,128.4 ------- ------- OPERATING EXPENSES Fuel and Energy Interchange 200.3 259.8 Other Operating 231.6 222.7 Maintenance 81.0 90.2 Depreciation 111.6 108.7 Income Taxes 98.0 103.7 Other Taxes 79.4 83.0 ------- ------- TOTAL OPERATING EXPENSES 801.9 868.1 ------- ------- OPERATING INCOME 256.7 260.3 ------- ------- OTHER INCOME AND DEDUCTIONS Allowance for Other Funds Used During Construction 4.3 2.1 Income Taxes (1.3) (2.9) Other, Net 1.7 7.3 ------- ------- TOTAL OTHER INCOME AND DEDUCTIONS 4.7 6.5 ------- ------- INCOME BEFORE INTEREST CHARGES 261.4 266.8 ------- ------- INTEREST CHARGES Long-Term Debt 99.1 100.0 Guaranteed Interest on Preferred Securities of Partnership 5.0 -- Short-Term Debt 9.5 9.7 ------- ------- TOTAL INTEREST CHARGES 113.6 109.7 Allowance for Borrowed Funds Used During Construction (4.2) (2.3) ------- ------- NET INTEREST CHARGES 109.4 107.4 Net Income 152.0 159.4 Preferred Stock Dividends 6.1 10.8 ------- ------- EARNINGS APPLICABLE TO COMMON STOCK $ 145.9 $148.6 ======= ======= AVERAGE SHARES OF COMMON STOCK OUTSTANDING (Millions) 221.7 221.5 EARNINGS PER AVERAGE COMMON SHARE (Dollars) $0.66 $0.67 DIVIDENDS PER COMMON SHARE (Dollars) $0.405 $0.38 See Notes to Condensed Consolidated Financial Statements
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PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (Millions of Dollars) March 31, December 31, 1995 1994 (UNAUDITED) ------------- --------------- ASSETS UTILITY PLANT Plant at Original Cost $14,486.7 $14,414.6 Less Accumulated Provision for Depreciation 4,320.9 4,242.6 --------- ---------- 10,165.8 10,172.0 Nuclear Fuel, Net 172.2 184.2 Construction Work in Progress 477.3 472.5 Leased Property, Net 170.7 194.7 --------- ---------- 10,986.0 11,003.3 --------- ---------- CURRENT ASSETS Cash and Temporary Cash Investments 66.4 47.0 Accounts Receivable, Net Customer 79.4 97.0 Other 44.5 49.8 Inventories, at Average Cost Fossil Fuel 60.0 72.8 Materials and Supplies 119.5 118.2 Deferred Income Taxes 7.6 12.0 Other 188.4 58.0 --------- ---------- 565.8 454.8 --------- ---------- DEFERRED DEBITS AND OTHER ASSETS Recoverable Deferred Income Taxes 2,138.1 2,138.1 Deferred Limerick Costs 408.5 413.9 Deferred Non-Pension Post- retirement Benefits Costs 258.3 261.9 Investments 242.6 236.6 Loss on Reacquired Debt 314.2 320.9 Other 265.1 263.3 --------- ---------- 3,626.8 3,634.7 --------- ---------- TOTAL $15,178.6 $15,092.8 ========= ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Shareholders' Equity Common Stock (No Par) $3,494.9 $3,490.7 Other Paid-In Capital 1.2 1.3 Retained Earnings 866.2 810.5 Preferred and Preference Stock Without Mandatory Redemption 277.5 277.4 With Mandatory Redemption 92.7 92.7 Guaranteed Interest in Preferred Securities of Partnership 221.3 221.3 Long-Term Debt 4,602.3 4,785.6 --------- ---------- 9,556.1 9,679.5 --------- ---------- CURRENT LIABILITIES Notes Payable, Bank -- 11.5 Long-Term Debt Due Within One Year 375.9 201.2 Capital Lease Obligations Due Within One Year 60.4 60.5 Accounts Payable 210.7 308.8 Taxes Accrued 152.6 87.2 Deferred Energy Costs 4.9 15.5 Interest Accrued 102.0 93.2 Dividends Payable 28.1 15.1 Other 140.5 85.6 --------- ---------- 1,075.1 878.6 --------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Capital Lease Obligations 110.3 114.1 Deferred Income Taxes 3,254.1 3,225.9 Unamortized Investment Tax Credits 360.6 374.1 Pension Obligation for Early Retirement Plan 238.3 238.3 Non-Pension Postretirement Benefits Obligation 362.2 354.5 Other 221.9 227.8 --------- ---------- 4,547.4 4,534.7 --------- ---------- COMMITMENTS AND CONTINGENCIES (NOTE 4) --------- ---------- TOTAL $15,178.6 $15,092.8 ========= ========== See Notes to Condensed Consolidated Financial Statements
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PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Millions of Dollars) 3 Months Ended March 31, ---------------------------- 1995 1994 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME $152.0 $159.4 Adjustments to Reconcile Net Income to Net cash Provided by Operating Activities: Depreciation and Amortization 127.6 125.0 Deferred Income Taxes 32.3 30.8 Deferred Energy Costs (10.6) (28.1) Changes in Working Capital: Accounts Receivable 22.9 (20.9) Inventories 11.5 29.5 Accounts Payable (98.1) (60.6) Other Current Assets and Liabilities (1.3) (3.8) Other Items Affecting Operations 5.9 (7.0) -------- -------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 242.2 224.3 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Investment in Plant (124.2) (93.5) Increase in Investments (6.0) (14.6) -------- -------- NET CASH FLOWS USED BY INVESTING ACTIVITIES (130.2) (108.1) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Change in Short-Term Debt (11.5) 15.8 Issuance of Common Stock 4.2 0.1 Retirement of Preferred Stock 0.0 (1.1) Retirement of Long-Term Debt (9.8) (50.8) Loss on Reacquired Debt 6.7 6.7 Dividends on Preferred and Common Stock (95.8) (95.0) Change in Dividends Payable 13.0 13.2 Other Items Affecting Financing 0.6 0.7 -------- -------- NET CASH FLOWS USED BY FINANCING ACTIVITIES (92.6) (110.4) -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 19.4 5.8 -------- -------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 47.0 46.9 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $66.4 $52.7 ======== ======== See Notes to Condensed Consolidated Financial Statements
PAGE PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements are unaudited, but include all adjustments which PECO Energy Company (Company) considers necessary for a fair presentation of such financial statements. All adjustments are of a normal, recurring nature except for the recognition of a one-time pre-tax charge of $254 million made in the third quarter of 1994 to recognize costs associated with the Company's Voluntary Retirement and Separation Incentive Programs described in note 2. The year-end condensed consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by generally accepted accounting principles. These notes should be read in conjunction with the Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (1994 Form 10-K). 2. VOLUNTARY RETIREMENT AND SEPARATION INCENTIVE PROGRAMS The Company incurred a one-time pre-tax charge of $254 million ($145 million net of taxes) in the third quarter of 1994 as the result of voluntary retirement and separation programs approved by the Company's Board of Directors in April 1994. Pursuant to these programs, 1,474 employees elected to retire and 1,008 employees elected to voluntarily separate from the Company. The retirements and separations are taking place in stages PAGE through December 31, 1995. The Company was also required to accelerate recognition of $180 million of its non-pension postretirement benefits obligation. The Company recorded a corresponding regulatory asset as it expects to receive recovery of all non-pension postretirement benefits costs through the ratemaking process. This recognition of $180 million of non- pension postretirement benefits obligation and the recordation of the corresponding regulatory asset did not impact earnings. 3. SALES OF ACCOUNTS RECEIVABLE The Company is party to an agreement with a financial institution under which it can sell on a daily basis and with limited recourse an undivided interest in up to $325 million of designated accounts receivable through January 24, 1996. At March 31, 1995, the Company had sold a $325 million interest in accounts receivable under this agreement. The Company retains the servicing responsibility for these receivables. At March 31, 1995, the average annual service-charge rate, computed on a daily basis on the portion of the accounts receivable sold but not yet collected, was 6.3%. By terms of this agreement, under certain circumstances, a portion of Deferred Limerick Costs may be included in the pool of eligible receivables. At March 31, 1995, $36 million of Deferred Limerick Costs were included in the pool of eligible receivables. PAGE 4. COMMITMENTS AND CONTINGENCIES The Price-Anderson Act, as amended (Price-Anderson Act), sets the limit of liability of approximately $8.9 billion for claims that could arise from an incident involving any licensed nuclear facility in the nation. The limit is subject to increase to reflect the effects of inflation and changes in the number of licensed reactors. All utilities with nuclear generating units, including the Company, have obtained coverage for these potential claims through a combination of private insurances of $200 million and mandatory participation in a financial protection pool. Under the Price-Anderson Act, all nuclear reactor licensees can be assessed up to $76 million per reactor per incident, payable at no more than $10 million per reactor per incident per year. This assessment is subject to inflation, state premium taxes and an additional surcharge of 5% if the total amount of claims and legal costs exceeds the basic assessment. If the damages from an incident at a licensed nuclear facility exceed $8.9 billion, the President of the United States is to submit to Congress a plan for providing additional compensation to the injured parties. Congress could impose further revenue-raising measures on the nuclear industry to pay claims. The Price-Anderson Act and the extensive regulation of nuclear safety by the Nuclear Regulatory Commission (NRC) do not preempt claims under state law for personal, property or punitive damages related to radiation hazards. Although the NRC requires the maintenance of property insurance on nuclear power plants in the amount of $1.06 billion or the amount available from private sources, whichever is less, PAGE the Company maintains coverage in the amount of its $2.75 billion proportionate share for each station. The Company's insurance policies provide coverage for decontamination liability expense, premature decommissioning and loss or damage to its nuclear facilities. These policies require insurance proceeds first be applied to assure that, following an accident, the facility is in a safe and stable condition and can be maintained in such condition. Within 30 days of stabilizing the reactor, the licensee must submit a report to the NRC which provides a clean- up plan, including the identification of all clean-up operations necessary to decontaminate the reactor to permit either the resumption of operations or decommissioning of the facility. Under the Company's insurance policies, proceeds not already expended to place the reactor in a stable condition must be used to decontaminate the facility. If the decision is made to decommission the facility, a portion of the insurance proceeds will be allocated to a fund which the Company is required by the NRC to maintain to provide funds for decommissioning the facility. These proceeds would be paid to the fund to make up any difference between the amount of money in the fund at the time of the early decommissioning and the amount that would have been in the fund if contributions had been made over the normal life of the facility. The Company is unable to predict what effect these requirements may have on the timing of the availability of insurance proceeds to the Company for the Company's bondholders and the amount of such proceeds which would be available. Under the terms of the various insurance agreements, the Company could be assessed up to $48 million, by PAGE the insurance companies. The Company is self-insured to the extent that any losses may exceed the amount of insurance maintained. Any such losses, if not recovered through the ratemaking process, could have a material adverse effect on the Company's financial condition or results of operations. The Company is a member of an industry mutual insurance company which provides replacement power cost insurance in the event of a major accidental outage at a nuclear station. The policy contains a 21-week waiting period before recovery of costs can commence. The premium for this coverage is subject to assessment for adverse loss experience. The Company's maximum share of any assessment is $14 million per year. * * * * On April 11, 1991, 33 former employees of the Company filed an amended class action suit against the Company in the United States District Court for the Eastern District of Pennsylvania (Eastern District Court) on behalf of approximately 141 persons who retired from the Company between January and April 1990. The lawsuit, filed under the Employee Retirement Income Security Act (ERISA), alleges that the Company fraudulently and/or negligently misrepresented or concealed facts concerning the Company's 1990 Early Retirement Plan and thus induced the plaintiffs to retire or not to defer retirement immediately before the initiation of the 1990 Early Retirement Plan, thereby depriving the plaintiffs of substantial pension and salary benefits. In June 1991, the plaintiffs filed amended complaints adding additional plaintiffs. The lawsuit names the Company, the Company's Service Annuity Plan (SAP) and two Company officers as defendants. The plaintiffs PAGE seek approximately $20 million in damages representing, among other things, increased pension benefits and nine months salary pursuant to the terms of the 1990 Early Retirement Plan, as well as punitive damages. On March 24 and 25, 1994, the case was tried in Eastern District Court on the issue of liability. On May 13, 1994, the Eastern District Court issued a decision, finding the Company liable to all plaintiffs who made inquiries about any early retirement plan after March 12, 1990 and retired prior to April 1990. The Eastern District Court will try the case on the issue of damages. The ultimate outcome of this matter is not expected to have a material adverse effect on the Company's financial condition or results of operations. * * * * On May 2, 1991, 37 former employees of the Company filed an amended class action suit against the Company, the SAP and three former Company officers in the Eastern District Court on behalf of 147 former employees who retired from the Company between January and June 1987. The lawsuit was filed under ERISA and concerns the August 1, 1987 amendment to the SAP. The plaintiffs claim that the Company concealed or misrepresented the fact that an amendment to the SAP was planned to increase retirement benefits and, as a consequence, they retired prior to the amendment to the SAP and were deprived of significant retirement benefits. The complaint does not specify any dollar amount of damages. On March 24 and 25, 1994, the case was tried in Eastern District Court on the issue of liability. On May 13, 1994, the Eastern District Court issued a decision, finding the Company liable to all plaintiffs who made inquiries about any PAGE pension improvement after March 1, 1987 and retired prior to June 1987. The Eastern District Court will try the case on the issue of damages. The ultimate outcome of this matter is not expected to have a material adverse effect on the Company's financial condition or results of operations. * * * * As disclosed in note 3 of Notes to Consolidated Financial Statements for the year ended December 31, 1994, the Company's share of the current estimated cost for decommissioning nuclear generating stations, based on site-specific studies approved for ratemaking purposes by the Pennsylvania Public Utility Commission (PUC), is $643 million expressed in 1990 dollars. Under current rates, the Company collects approximately $20 million annually from customers for decommissioning the Company's nuclear units. At March 31, 1995, the Company held $181 million in trust accounts, representing amounts recovered from customers and realized investment earnings thereon, to fund future decommissioning costs. The most recent estimate of the Company's share of the cost to decommission its nuclear units is $900 million in 1994 dollars. Any increase in the 1990 decommissioning cost estimate being recovered in base rates is to be recoverable in the Company's next base rate case. As a result, the Company expects to receive recovery of a higher level of decommissioning expense in its next base rate proceeding. The staff of the Securities and Exchange Commission has questioned the electric utility industry accounting practices regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements. PAGE The Financial Accounting Standards Board (FASB) has agreed to review the accounting for removal costs including decommissioning. The Company does not expect this review to have a material effect on the Company's financial condition or results of operations. As disclosed in note 3 of Notes to Consolidated Financial Statements for the year ended December 31, 1994, the Company recorded an estimated liability and related regulatory asset of $59 million, reflecting the Company's share of the costs of decommissioning and decontamination of the Department of Energy's nuclear enrichment facilities which the Company is required to pay under the National Energy Policy Act of 1992 (Energy Act). The Company is paying its share of such costs on an installment basis through 2006 and is currently recovering these costs in rates through the Energy Cost Adjustment clause. The Company believes that the ultimate costs of decommissioning and decontamination of its nuclear generating stations and any assessment under the Energy Act will continue to be recoverable through rates, although such recovery is not assured. * * * * The Company's operations have in the past and may in the future require substantial capital expenditures in order to comply with environmental laws. Additionally, under federal and state environmental laws, the Company is generally liable for the costs of remediating environmental contamination of property now or formerly owned by the Company or of property contaminated by hazardous substances generated by the Company. The Company owns PAGE or leases a substantial number of real estate parcels, including parcels on which its operations or the operations of others may have resulted in contamination by substances which are considered hazardous under environmental laws. The Company is currently involved in a number of proceedings relating to sites where hazardous substances have been deposited and may be subject to additional proceedings in the future. An evaluation of all Company sites for potential environmental clean-up liability is in progress, including approximately 20 sites where manufactured gas plant activities may have resulted in site contamination. Past activities at several sites have resulted in actual site contamination. The Company is presently engaged in performing detailed evaluations of these sites to define the nature and extent of the contamination, to determine the necessity of remediation and to identify possible remediation alternatives. At March 31, 1995, the Company had accrued $23 million for various investigation and remediation costs that currently can be reasonably estimated. The Company cannot currently predict whether it will incur other significant liabilities for additional investigation and remediation costs at these or additional sites identified by the Company, environmental agencies or others, or whether all such costs will be recoverable through rates or from third parties. * * * * PAGE The Company is involved in various other litigation matters, the ultimate outcomes of which, while uncertain, are not expected to have a material adverse effect on the Company's financial condition or results of operations. * * * * 5. ACCOUNTING UNDER STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 121 In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The new standard is effective for fiscal years beginning after December 15, 1995. The Company is currently evaluating the impact of the standard, but does not expect it to have a material effect upon the Company's financial condition or results of operations. * * * * PAGE ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The Company's construction program is currently estimated to require expenditures of approximately $495 million for 1995 and $1.4 billion from 1996 to 1998, all of which are expected to be financed from internal sources. The Company's construction program is subject to periodic review and revision to reflect changes in economic conditions, revised load forecasts and other appropriate factors. Certain facilities under construction and to be constructed may require permits and licenses which the Company has no assurance will be granted. * * * * See note 4 of Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q under "PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS," for a discussion of commitments and contingencies relating to environmental matters. * * * * The Company's future financial condition or results of operations may be affected by increased competition among utilities and non-utility generators in the power generation market and regulatory changes designed to encourage such competition. To date, the Company's electric business, particularly sales to large industrial customers and off-system sales, has been affected by increased competition. The Company has responded to increased competition for larger-volume industrial customers through the use of interruptible rates and PAGE long-term contracts with cost-based rates. In the wholesale market, the Company has increased its off-system sales but increased competition has reduced the Company's margin for these sales. On March 29, 1995, the Federal Energy Regulatory Commission (FERC) issued a Notice of Proposed Rulemaking regarding open access to utility transmission facilities. See "PART II. ITEM 5. OTHER INFORMATION," for a discussion of the FERC's proposed rules. * * * * For information concerning Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," see note 5 of Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q under "PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS." * * * * At March 31, 1995, the Company and its subsidiaries had no short-term borrowings outstanding. The Company has formal and informal lines of bank credit aggregating $351 million. At March 31, 1995, the Company and its subsidiaries had $12 million of short-term investments. * * * * The Company's Ratio of Earnings to Fixed Charges (Mortgage Method) for the twelve months ended March 31, 1995 was 3.42 times compared to 4.21 times for the corresponding period ended March 31, 1994. The Company's Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Articles of Incorporation PAGE Method) for the twelve months ended March 31, 1995, was 2.02 times compared to 2.44 times for the corresponding period ended March 31, 1994. These ratios, although significantly above minimum requirements, will continue to be adversely affected through the third quarter of 1995 by the one-time charge in the third quarter of 1994 as a result of the voluntary retirement and separation programs approved by the Company's Board of Directors in April 1994. For the three months ended March 31, 1995, the Company's Ratio of Earnings to Fixed Charges (SEC Method) and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (SEC Method) were 3.27 times and 3.07 times, respectively. * * * * RESULTS OF OPERATIONS EARNINGS Common stock earnings for the three months ended March 31, 1995 were $0.66 per share, compared to $0.67 per share for the corresponding period ended March 31, 1994. The decline in first quarter 1995 earnings was due primarily to a decline in retail electric and gas sales resulting from milder winter weather conditions in 1995 which decreased earnings by $0.07 per share. This earnings decrease was partially offset by a $0.01 per share increase resulting from lower fuel and energy interchange expenses. * * * * PAGE OPERATING REVENUES Electric revenues decreased 4.4% for the three months ended March 31, 1995 compared to the corresponding period ended March 31, 1994 primarily due to decreased sales due to milder winter weather conditions in 1995 and lower fuel-clause revenues. Gas revenues decreased 14.3% for the three months ended March 31, 1995 compared to the corresponding period ended March 31, 1994 primarily due to a decrease in retail sales resulting from milder winter weather conditions in 1995. This decrease was partially offset by increased revenues from gas transported for others. * * * * FUEL AND ENERGY INTERCHANGE EXPENSES Fuel and energy interchange expenses decreased 22.9% for the three months ended March 31, 1995 compared to the corresponding period ended March 31, 1994. The decrease was primarily due to decreased electric output and gas sendout resulting from milder winter weather conditions, the retention by the Company of energy savings resulting from the operation of the Company's Limerick Generating Station and net credits to expense resulting from certain energy sales to other utilities. * * * * OPERATION AND MAINTENANCE EXPENSES Operation and maintenance expenses were substantially unchanged for the three months ended March 31, 1995 compared to the corresponding period ended March 31, 1994. Transmission and distribution operation and maintenance expenditures decreased along with other operation and maintenance expenses. This PAGE decrease was offset by higher process-reengineering costs and higher nuclear generating station charges related to the extended outage at Salem Nuclear Generating Station (Salem) in the first quarter of 1995. * * * * DEPRECIATION Depreciation expense increased 2.7% for the three months ended March 31, 1995 compared to the corresponding period ended March 31, 1994 primarily due to additions to plant in service. * * * * INCOME TAXES Income taxes charged to operating expenses decreased 5.5% for the three months ended March 31, 1995 compared to the corresponding period ended March 31, 1994 primarily due to lower operating income and higher interest expense allocated to operations. * * * * OTHER TAXES Other taxes charged to operating expenses decreased by 4.3% for the three months ended March 31, 1995 compared to the corresponding period ended March 31, 1994 primarily due to lower Pennsylvania gross receipts tax resulting from lower operating revenues subject to the tax and lower real estate taxes. * * * * PAGE OTHER INCOME AND DEDUCTIONS Other income and deductions decreased 27.7% for the three months ended March 31, 1995 compared to the corresponding period ended March 31, 1994, primarily due to revenues recorded in 1994 from the receipt of nuclear fuel from Shoreham Nuclear Power Station. * * * * TOTAL INTEREST CHARGES Total interest charges increased 1.9% for the three months ended March 31, 1995 compared to the corresponding period ended March 31, 1994 primarily due to the July 1994 issuance of Monthly Income Preferred Securities (reflected on the balance sheet as Guaranteed Interest on Preferred Securities of Partnership) and higher interest rates on floating-rate borrowings. These increases were partially offset by lower interest charges due to reductions in total debt and the refinancing of higher-cost, long-term fixed-rate debt. * * * * PREFERRED DIVIDENDS Preferred stock dividends decreased 43.5% for the three months ended March 31, 1995 compared to the corresponding period ended March 31, 1994 due to reductions in the amount of preferred stock outstanding. * * * * PAGE PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 12, 1995, the Company held its 1995 Annual Meeting of Shareholders. The following Class II directors of the Company were re- elected for terms expiring in 1998:
Votes For Votes Withheld Susan W. Catherwood 181,538,135 3,308,226 Nelson G. Harris 181,680,351 3,166,080 Edithe J. Levit 181,511,556 3,334,805 John M. Palms 181,443,947 3,402,414 Joseph F. Paquette, Jr. 181,565,357 3,281,004
The incumbent Class I directors, with terms expiring in 1997, are Richard G. Gilmore, Richard H. Glanton, Joseph J. McLaughlin and Corbin A. McNeill, Jr. The incumbent Class III directors, with terms expiring in 1996, are M. Walter D'Alessio, James A. Hagen, Joseph C. Ladd, Kinnaird R. McKee and Ronald Rubin. Other items voted on by holders of common stock at the Annual Meeting were as follows: (1) The appointment of the firm of Coopers & Lybrand L.L.P., independent certified public accountants, as auditors of the Company for 1995, which was approved with 181,626,790 common shares (81.9% of common shares PAGE outstanding) voting for; 1,577,256 common shares (0.7% of common shares outstanding) voting against; and 1,642,315 common shares (0.7% of common shares outstanding) abstaining; (2) A shareholder proposal to require the Company to institute a salary and compensation ceiling, which was defeated with 18,882,042 common shares (8.5% of common shares outstanding) voting for; 138,273,397 common shares (62.4% of common shares outstanding) voting against; 7,976,395 common shares (3.6% of common shares outstanding) abstaining; and 19,774,527 common shares (8.9% of common shares outstanding) broker non-votes; and (3) A shareholder proposal requiring lawyers deriving compensation from a law firm providing legal services to the Company not be selected for the slate of endorsed candidates for director, which was defeated with 21,755,714 common shares (9.8% of common shares outstanding) voting for; 135,352,172 common shares (61.1% of common shares outstanding) voting against; 7,956,618 common shares (3.6% of common shares outstanding) abstaining; and 19,781,777 common shares (8.9% of common shares outstanding) broker non-votes. * * * * ITEM 5. OTHER INFORMATION As previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (1994 Form 10-K), the Company has been informed by Public Service Electric & Gas PAGE Company (PSE&G) that, on March 21, 1995, representatives of the Nuclear Regulatory Commission (NRC) staff met with the Boards of Directors of PSE&G and its parent company, Public Service Enterprise Group, Incorporated, to reiterate the previously expressed concerns with regard to Salem's operations, including plant materiel conditions that required operators to operate various systems manually, maintenance backlog, root cause analysis, quality assurance, engineering, repeat equipment failures, procedure adherence, four events over the past four years causing the NRC to conduct four Augmented Inspection Team reviews, leadership, employee concerns, attention to balance of plant, management oversight and vertical communication with employees and oversight of contractors. The NRC staff acknowledged that PSE&G had made efforts to improve Salem's operations, including making senior management changes, but indicated that demonstrated sustained results have not yet been achieved. Also, in March 1995, the Institute of Nuclear Power Operations (INPO) reported an assessment of Salem's operations that indicated that improvement was needed in a wide range of areas, with significant improvement required in areas such as equipment performance and plant materiel conditions, management and supervision, engineering activities and training. On April 21, 1995, the NRC commenced an inspection, expected to take about four weeks, to assess how effectively Salem is performing from a safety perspective in the areas of problem identification, prioritizing and conducting work on plant PAGE equipment, and management oversight of plant performance. This inspection is currently ongoing. The Company has been informed by PSE&G that PSE&G is in agreement with the assessment by the NRC staff, as well as that of INPO, that Salem's operations must be further improved in order to assure continued reliable operation. PSE&G has stated that it is fully committed to take whatever action is needed to improve Salem's operations and is committed to safe and conservative operations before production. PSE&G cannot predict what further action, if any, the NRC may take regarding of Salem's operations. * * * * The Company has been notified by PSE&G that an NRC enforcement conference is scheduled to be held on June 1, 1995 pertaining to valves that were incorrectly positioned after a plant modification in May 1993 and several examples of inadequate root cause determination of events, which led to insufficient corrective actions at Salem. During this enforcement conference, PSE&G will address the issues identified and ensure they are clearly understood, establish the safety significance of the issues and discuss mitigating factors. PSE&G cannot predict what action, if any, the NRC may take as a result of this enforcement conference. * * * * The Company has been informed by PSE&G that, on April 12, 1995, PSE&G received notification of a Level II violation, including an $80,000 civil penalty for an incident that occurred in December 1992 in which two former Salem managers did not PAGE properly respond to safety concerns raised by two employees. The incident was thoroughly investigated by PSE&G and brought to the NRC's attention. PSE&G has agreed to pay the penalty and has instituted measures to reassure personnel that their concerns about safety and nuclear operations can be openly brought to management's attention. * * * * As previously reported in the 1994 Form 10-K, the Company has been informed by PSE&G that PSE&G is implementing the final water discharge permit for Salem. In March 1995, the State of Delaware agreed to withdraw its hearing request related to the final permit in return for PSE&G funding a number of environmental projects in Delaware similar to and including certain permit conservation measures which is not expected to materially increase the cost of compliance. In May 1995, PSE&G resolved all issues with the remaining intervenors, thus eliminating a hearing and any further challenge to the final permit. * * * * Effective April 1, 1995, the Energy Cost Adjustment was changed from a credit value of 5.627 mills per kilowatthour (Kwh) to a credit value of 5.086 mills per Kwh, which represents an increase in annual revenue of approximately $18 million. * * * * As previously reported in the 1994 Form 10-K, on March 6, 1995, the Commonwealth Court of Pennsylvania (Commonwealth Court) denied the Applications for Reargument filed by the Pennsylvania PAGE Public Utility Commission (PUC) and other parties of the incentive and "lost revenue" portion of the Commonwealth Court's decision on Demand-Side Management. On April 6, 1995, the PUC appealed the decision to the Supreme Court of Pennsylvania. * * * * On March 29, 1995, the FERC issued a Notice of Proposed Rulemaking entitled "Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities," together with a supplemental Notice of Proposed Rulemaking on Recovery of Stranded Costs by Public Utilities and Transmitting Utilities (collectively, the "NOPR") and other associated orders. The rules proposed in the NOPR, if adopted, would require that all public utilities have on file with FERC non- discriminatory open-access transmission tariffs for network and point-to-point services, including separate rates for ancillary services. These tariffs would be available to wholesale buyers and sellers of electricity. The FERC would set initial tariff rates for transmission and ancillary services based on cost information previously filed by the utilities. Utilities would be required to accept service under these tariffs for their own new wholesale transactions and must rely on the same electronic network that its transmission customers rely to obtain transmission information when buying or selling power at wholesale. Under the rules proposed in the NOPR, utilities would be entitled to recover their legitimate and verifiable "stranded costs" from wholesale customers (including former retail customers) which decide to stop purchasing electricity from the utility and instead use the utility's transmission system to purchase power from another source. The PAGE NOPR also expresses the FERC's strong expectation that the states will provide for similar full recovery of legitimate and verifiable stranded costs that would result if states ordered retail wheeling and direct access. Initial public comments on the NOPR are due in August 1995, and reply comments are due in October 1995. The Company cannot predict at this time what effect, if any, the final rules in this proceeding will have on future operations. * * * * As previously reported in the 1994 Form 10-K, the Clean Air Act Amendments of 1990 subject existing sources in ozone nonattainment areas to nitrogen oxides (NOx) Reasonably Available Control Technology (RACT). To comply with this requirement, units at the Company's Conemaugh and Keystone Stations were retrofitted with low-NOx burners with separated overfired air at a cost to the Company of approximately $17 million. In addition, the most recent estimate of the Company's share of the capital costs to construct a flue-gas desulfurization system (scrubbers) and make other related improvements at Conemaugh Station is $70 million. * * * * On May 1, 1995, the Company filed with the PUC an update of the Company's 20-year Annual Resource Planning Report (Resource Plan). The Resource Plan represents the Company's assessment of the most economic way to meet customer electric needs while maintaining service reliability. The Resource Plan addresses a range of variables such as changing customer demand, economic growth and fuel costs among other factors and proposes a comprehensive strategy that includes continued operation of existing generation; productivity improvements to existing base- PAGE load units; conversation and DSM programs; and new energy resources. Although peak customer demand is expected to grow by 22% during the forecast period, the Company projects no need for new energy resources until 2010. * * * * PAGE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 12-1 - Statement regarding computation of ratio of earnings to fixed charges. 12-2 - Statement regarding computation of ratio of earnings to combined fixed charges and preferred stock dividends. 27 - Financial Data Schedule (b) Reports on Form 8-K (filed during the reporting period): Report, dated February 2, 1995, reporting information under "ITEM 5. OTHER EVENTS" relating to the announcement of management changes. Reports on Form 8-K (filed subsequent to the reporting period): None. PAGE Signatures Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PECO ENERGY COMPANY /s/ Kenneth G. Lawrence -------------------------- Kenneth G. Lawrence Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date May 15, 1995 EX-27 2 FINANCIAL DATA SCHED.
UT 0000078100 PECO ENERGY COMPANY 1,000,000 3-MOS DEC-31-1994 MAR-31-1995 PER-BOOK 10,986 243 566 2,805 579 15,179 3,495 1 866 4,362 93 278 4,602 0 0 0 376 0 110 60 5,297 15,179 1,059 98 704 802 257 5 261 109 152 6 146 90 99 242 .66 .66
EX-12 3 PECO ENERGY CO EX 12-1
EXHIBIT 12-1 PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES SEC METHOD ($000) 3 MONTHS ENDED 03/31/95 -------- NET INCOME $152,013 ADD BACK: - - INCOME TAXES: OPERATING INCOME 98,035 NON-OPERATING INCOME 1,274 ------- NET TAXES 99,309 - - FIXED CHARGES: INTEREST APPLICABLE TO DEBT 104,063 ANNUAL RENTALS 2,649 ------- TOTAL FIXED CHARGES 106,712 ADJUSTED EARNINGS INCLUDING AFUDC $358,034 ========== RATIO OF EARNINGS TO FIXED CHARGES 3.36 ====
EX-12 4 PECO ENERGY CO EX 12-2
EXHIBIT 12-2 PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS SEC METHOD ($000) 3 MONTHS ENDED 03/31/95 -------- NET INCOME $152,013 ADD BACK: - - INCOME TAXES: OPERATING INCOME 98,035 NON-OPERATING INCOME 1,274 ------- NET TAXES 99,309 - - FIXED CHARGES: INTEREST APPLICABLE TO DEBT 104,063 ANNUAL RENTALS 2,649 ------- TOTAL FIXED CHARGES 106,712 EARNINGS REQUIRED FOR PREFERRED DIVIDENDS: DIVIDENDS ON PREFERRED STOCK 6,063 ADJUSTMENT TO PREFERRED DIVIDENDS* 3,961 ------- 10,024 FIXED CHARGES AND PREFERRED DIVIDENDS $116,736 ======== EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES $358,034 ======== RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS 3.07 ==== * ADDITIONAL CHARGE EQUIVALENT TO EARNINGS REQUIRED TO ADJUST DIVIDENDS ON PREFERRED STOCK TO A PRE-TAX BASIS
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