-----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, AuLbi95FsZ7T1WaWF9bntgjpzBwBmKjTRXj+xwtVX0guMkVhKJDKFVauIJ80lzsg BoE014h6cPbbE5JHuTH+tA== 0000079732-94-000048.txt : 19940328 0000079732-94-000048.hdr.sgml : 19940328 ACCESSION NUMBER: 0000079732-94-000048 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940325 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POTOMAC ELECTRIC POWER CO CENTRAL INDEX KEY: 0000079732 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 530127880 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-01072 FILM NUMBER: 94517843 BUSINESS ADDRESS: STREET 1: 1900 PENNSYLVANIA AVE NW STREET 2: C/O M T HOWARD RM 841 CITY: WASHINGTON STATE: DC ZIP: 20068 BUSINESS PHONE: 2028722456 10-K 1 ANNUAL REPORT ON FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1993 Commission file number 1-1072 ----------------- ------ Potomac Electric Power Company - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) District of Columbia and Virginia 53-0127880 - --------------------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1900 Pennsylvania Avenue, N. W. Washington, D. C. 20068 - --------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (202) 872-2456 ------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ----------------------------- First Mortgage Bonds, ) New York Stock Exchange, Inc. 9-3/4% Series due 2019 - ) due May 1, 2019 ) 7% Convertible Debentures due 2018 - ) due January 15, 2018 ) 5% Convertible Debentures due 2002 - ) due September 1, 2002 ) Continued Name of each exchange on Title of each class which registered ------------------- ----------------------------- Serial Preferred Stock, ) New York Stock Exchange, Inc. $50 par value (entitled to ) cumulative dividends) ) $3.37 Series of 1987 ) $3.89 Series of 1991 ) $2.44 Convertible ) Series of 1966 ) Common Stock, $1 par value ) (The registrant's Common Stock is ) also listed on the Tokyo Stock ) Exchange) ) Securities registered pursuant to Section 12(g) of the Act: None. 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. . --- As of March 8, 1994, Potomac Electric Power Company had 117,915,691 shares of its $1 par value Common Stock outstanding, and the aggregate market value of these common shares (based upon the closing price of these shares on the New York Stock Exchange on that date) held by nonaffiliates was approximately $2.7 billion. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's 1993 Annual Report to shareholders are incorporated by reference into Parts II and IV of this Form 10-K. Portions of the Notice of Annual Meeting of Shareholders and Proxy Statement, dated March 18, 1994, are incorporated by reference into Part III of this Form 10-K. 2 POTOMAC ELECTRIC POWER COMPANY Form 10-K - 1993 TABLE OF CONTENTS PART I Page Item 1 - Business ---- General ............................................................ 5 Sales .............................................................. 6 Capacity Planning .................................................. 7 Construction Program ............................................... 9 Fuel ............................................................... 11 Regulation ......................................................... 14 Rates .............................................................. 15 Environmental Matters .............................................. 19 Labor .............................................................. 23 Nonutility Subsidiary .............................................. 23 Item 2 - Properties .................................................. 25 Item 3 - Legal Proceedings ........................................... 26 Item 4 - Submission of Matters to a Vote of Security Holders ......... 27 PART II Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters ....................................... 27 Item 6 - Selected Financial Data ..................................... 28 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations ................................. 28 Item 8 - Financial Statements and Supplementary Data ................. 28 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .................................. 28 PART III Item 10 - Directors and Executive Officers of the Registrant ......... 29 Item 11 - Executive Compensation ..................................... 31 Item 12 - Security Ownership of Certain Beneficial Owners and Management................................................ 32 Item 13 - Certain Relationships and Related Transactions ............. 32 PART IV Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K ................................................. 32 Exhibit 11 - Computation of Earnings Per Common Share ........... 39 Exhibit 12 - Computation of Ratios .............................. 40 Exhibit 22 - Subsidiaries of the Registrant ..................... 42 Exhibit 24 - Consent of Independent Accountants ................. 43 Report of Independent Accountants on Consolidated Financial Statement Schedules .............................................. 44 Schedule V - Property, Plant and Equipment ...................... 45 Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment ................. 48 Schedule VIII - Valuation and Qualifying Accounts .................. 51 Schedule IX - Short-Term Borrowings .............................. 52 Signatures ........................................................... 53 PAGE LEFT BLANK INTENTIONALLY 4 Part I - ------ Item 1 BUSINESS - ------ -------- GENERAL - ------- Potomac Electric Power Company (Company), which was incorporated in the District of Columbia in 1896 and in the Commonwealth of Virginia in 1949, is engaged in the generation, transmission, distribution and sale of electric energy in the Washington, D.C. metropolitan area. The Company's retail service territory includes the District of Columbia and major portions of Montgomery and Prince George's counties in suburban Maryland. The area served at retail covers approximately 640 square miles and had a population of approximately 1.9 million at the end of 1993 and 1992. The Company also sells electricity, at wholesale, to Southern Maryland Electric Cooperative Inc. (SMECO), which distributes electricity in Calvert, Charles, Prince George's and St. Mary's counties in southern Maryland. During 1993, approximately 59% of the Company's revenues were derived from Maryland sales (including wholesale) and 41% from sales in the District of Columbia. About 30% of the Company's revenues were derived from residential customers, 64% from sales to commercial and government customers and 6% from sales at wholesale. Approximately 14% and 3% of 1993 revenues were derived from sales to the U.S. and D.C. governments, respectively. The Company holds valid franchises, permits and other rights adequate for its business in the territory it serves, and such franchises, permits and other rights contain no unduly burdensome restrictions. The Company is a member of the Pennsylvania-New Jersey-Maryland Interconnection (PJM) pursuant to an agreement under which its generating and transmission facilities are operated on an integrated basis with those of the other PJM member utilities in Pennsylvania, New Jersey, Maryland, Delaware and a small portion of Virginia. The purpose of PJM is to improve the operating economy and reliability of the systems in the group and to provide capital economies by permitting lower reserve requirements than would be required on a system basis. The Company also has direct high voltage connections with the Potomac Edison Company and Virginia Electric and Power Company, neither of which is a member of PJM. 5 SALES - ----- The following data presents the Company's sales and revenue by class of service and by customer type, including data as to sales to the United States and District of Columbia governments. 1993 1992 1991 ---------- ---------- ---------- Electric Energy Sales (Thousands of Kilowatt-hours) --------------------- Kilowatt-hours Sold - Total 25,693,999 24,484,444 24,796,279 ========== ========== ========== By Class of Service - Residential service 6,739,987 6,155,793 6,503,105 General service 10,860,437 10,491,222 10,418,003 Large power service 5,232,380 5,183,560 5,261,308 Street lighting 163,827 163,739 161,577 Rapid transit 370,428 360,432 343,470 Wholesale 2,326,940 2,129,698 2,108,816 By Type of Customer - Residential 6,726,520 6,142,414 6,488,294 Commercial 11,750,542 11,391,337 11,321,344 U.S. Government 3,986,149 3,947,611 4,016,129 D.C. Government 903,848 873,384 861,696 Wholesale 2,326,940 2,129,698 2,108,816 Electric Revenue (Thousands of Dollars) ---------------- Sales of Electricity - Total* $1,696,435 $1,556,098 $1,542,571 ========== ========== ========== By Class of Service - Residential service $ 506,096 $ 433,648 $ 451,048 General service 747,237 705,178 681,182 Large power service 297,228 286,645 280,307 Street lighting 13,605 12,363 12,424 Rapid transit 24,107 22,914 20,913 Wholesale 108,162 95,350 96,697 By Type of Customer - Residential $ 505,173 $ 432,797 $ 450,103 Commercial 791,357 748,550 724,039 U.S. Government 238,192 229,586 223,723 D.C. Government 53,551 49,815 48,009 Wholesale 108,162 95,350 96,697 * Exclusive of Other Electric Revenues of $6,007 in 1993, $6,069 in 1992 and $9,495 in 1991. 6 The Company's sales of electric energy are seasonal, and, accordingly, rates have been designed to closely reflect the daily and seasonal variations in the cost of producing electricity, in part by raising summer rates and lowering winter rates. Mild weather during the summer billing months of June through October, when base rates are high to encourage customer conservation and peak load shifting, has an adverse effect on revenues and, conversely, hot weather during these months has a favorable effect. Effective January 1, 1992, the Company changed its method of revenue recognition to provide for the accrual of revenue for service rendered but unbilled as of the end of the month. This change in accounting method has no significant effect on revenue over a 12-month period. It affects the timing of revenue recognition within the year, principally increasing revenues in the second quarter and decreasing revenues in the fourth quarter. The Company includes in revenues the amounts received for sales to other utilities related to pooling and interconnection agreements. Amounts received for such interchange deliveries are a component of the Company's fuel rates. CAPACITY PLANNING - ----------------- General - ------- During the period 1994 through 2003 the Company estimates that its peak demand will grow at a compound annual rate of approximately 1%. Based upon average weather conditions, the Company expects its compound annual growth in kilowatt-hour sales to range between 1% and 2% over the next decade. The Company's ongoing strategies to meet the increasing energy needs of its customers include conservation and energy use management programs which are designed to curb growth in peak demand. The need for new capacity has been further reduced by programs to maintain older generating units to ensure their continued efficiency over an extended life and the cost-effective purchase of capacity and energy. Conservation and Energy Use Management Programs - ----------------------------------------------- Cost-effective conservation programs have been a major component of the Company's success in limiting the need for new construction during the past decade. The Company's conservation and energy use management programs are designed to curb growth in demand in order to defer the need for construction of additional generating capacity and to cost-effectively increase the efficiency of energy use. The Company offers an extensive array of comprehensive conservation programs for its customers in the District of Columbia and Maryland. 7 The Company's programs for residential customers include various types of incentives to encourage the design of energy-efficient homes and the purchase and installation of energy-efficiency measures. These incentives include customer rebates for energy efficient appliances, bonuses to contractors who build homes that meet high energy-efficiency standards, coupons which offer significant discounts to customers who purchase energy- efficient lights and water heater conservation measures and, commencing in 1993, a program to directly install, at no cost to the customer, lighting and water heater tank wraps in single-family, apartment and condominium residences. During 1993, the Company also initiated an appliance recycling program for customers, by offering payments for inefficient, but still functioning, refrigerators, air conditioners and freezers. The Company's programs for commercial customers offer a variety of approaches to encourage conservation, including design consultation and technical assistance at no fee, equipment rebates to developers and designers, cash incentives to customers who install energy-efficiency measures ranging from lighting to efficient motors and equipment, and, for small commercial customers, direct installation of efficient lighting and other measures at no- cost to the customer. During 1993, as part of the Custom Rebate program, the Company encouraged customers with older chillers to replace them with new high efficiency chillers. Also, the Company began offering loans on a pilot basis to commercial customers for efficiency improvements. The Company continues to aggressively identify, design, and test additional energy efficient conservation measures and technologies. The Company receives rate recognition for the cost of its conservation programs in its Maryland jurisdiction through a rate surcharge which permits the Company to earn a return on its conservation investment while receiving compensation for lost revenues. The cost recovery mechanism also allows the Company to earn a performance bonus for exceeding established goals. The surcharge is adjusted periodically to reflect the Company's growing conservation commitment. The District of Columbia Public Service Commission has established a framework which provides for a return on approved conservation investments and incentives for achieving demand side management goals within base rate cases. During 1993, the Company also continued to operate and expand its energy use management programs. In 1993, approximately 134,000 customers participated in programs which cycle air conditioners and water heaters during peak periods. In addition, the Company operates a commercial load program which provides incentives to customers for reducing energy use during peak periods. Time-of-use rates have been in effect since the early 1980s and currently approximately 60% of the Company's revenues are based on time-of-use rates. 8 It is estimated that peak load reductions of approximately 390 megawatts have been achieved to date from conservation and energy use management programs and that additional peak load reductions of over 500 megawatts will be achieved in the next five years. The Company also estimates that energy savings of more than 450 million kilowatt-hours have been realized through operation of its conservation and energy use management programs through 1993. During the next five years, the Company plans to expend an estimated $525 million to encourage the efficient use of electric energy and to reduce the need to build new generating facilities. Although the Company is expanding its conservation and energy use management efforts, new sources of supply will be needed to assure the future reliability of electric service to the Washington area. These new sources of supply will be provided through the Company's plans for purchases of capacity and energy and through its ongoing construction program. Purchase of Capacity and Energy - ------------------------------- Pursuant to the Company's 1987 long-term capacity purchase agreements with Ohio Edison and Allegheny Power System, the Company is purchasing 450 megawatts of capacity and associated energy through the year 2005. In addition, the Company has a 25-year agreement with SMECO, which began in 1990, to purchase 84 megawatts of capacity supplied by a combustion turbine installed and owned by SMECO at the Company's Chalk Point Generating Station. The Company is responsible for all costs associated with operating and maintaining the facility. The Company has been exploring other cost-effective sources of energy and has entered into contracts for two nonutility generation projects which total 270 megawatts of capacity. In 1991, the Company signed an agreement with Panda Energy Corporation for a 230-megawatt gas-fueled combined-cycle cogeneration project in Prince George's County, Maryland, which is scheduled for service in 1996. The project is currently before the Maryland Public Service Commission for issuance of a certificate of convenience and necessity. In addition, the Company has signed a contract for a 40-megawatt resource recovery facility which is now under construction in Montgomery County, Maryland. In November 1993, after failing to obtain final building permits from the District of Columbia, Dominion Energy terminated its contract to build a 56-megawatt combined-cycle cogeneration facility at Georgetown University. CONSTRUCTION PROGRAM - -------------------- The Company carries on a continuous construction program, the nature and extent of which is determined by the Company's strategic planning process which integrates supply-side and demand-side resource options. 9 From January 1, 1991 to December 31, 1993, the Company made property additions, net of an Allowance for Funds Used During Construction (AFUDC), of $1 billion (of which $300 million were made in 1993) and had property retirements of $122 million (of which $40 million were made in 1993). The Company's current construction program calls for estimated expenditures, excluding AFUDC, of $290 million in 1994, $280 million in 1995, $240 million in 1996, $210 million in 1997 and $245 million in 1998, an aggregate of $1.3 billion for the five-year period. AFUDC is estimated to be $24 million in 1994, $11 million in 1995, $14 million in 1996, $19 million in 1997 and $23 million in 1998. The 1994-1998 construction program includes approximately $618 million for generating facilities (including $203 million for Clean Air Act compliance), $66 million for transmission facilities, $558 million for distribution, service and other facilities, and $23 million associated with the Company's energy use management programs. Making use of the flexibilities in its long-term construction plan, the Company reduced projected expenditures for the five years 1994 through 1998 by a total of $315 million from amounts previously planned. The construction reductions and deferrals were associated with lower rates of projected growth in usage of electricity resulting in large part from implementing economical conservation programs. The Company plans to finance its construction program through funds provided by operations and external financing. The construction program includes amounts for the construction of facilities that will not be completed until after 1998. Although the program includes provision for escalation of construction costs, generally at an annual rate of 4%, the aggregate budget for long lead time projects will increase or decrease depending upon the actual rates of inflation in construction costs. The program is reviewed continuously and revised as appropriate to reflect changes in projections of demand, consumption patterns and economic trends. On June 1, 1993, the Company placed in service the second element of a combined-cycle unit, consisting of a 139-megawatt combustion turbine generating unit, at the Dickerson Generating Station located in Montgomery County, Maryland. The first 139-megawatt combustion turbine generating unit was placed in service on June 1, 1992. The total cost of the two combustion turbine units currently in service was $162 million. These generating units are primarily fueled by natural gas but can also burn No. 2 fuel oil. The Dickerson project plan provides for two combined-cycle units with the capability of adding a coal gasification facility, should future unit price differentials among coal, oil and gas make gasification economically attractive. The Company's construction schedule is flexible in order to accommodate changes in future growth and the addition of nonutility generation. Currently, no additional units are scheduled for the Dickerson combined-cycle project until after the year 2003. The Clean Air Act Amendments of 1990 (CAA) requires utilities to reduce emissions of sulfur dioxide and nitrogen oxides in two phases, January 1995 (Phase I) and January 2000 (Phase II). The Company has developed plans for complying with the CAA to achieve prescribed standards in Phases I and II. 10 The Company anticipates capital expenditures totaling $203 million over the next five years pursuant to these plans. The plans call for replacement of boiler burner equipment for nitrogen oxides emissions control, the use of lower-sulfur fuel and cofiring with natural gas at selected baseload plants. The CAA allows companies to achieve required emission levels by using a market-based emission allowance trading system. If economical, emission allowances may be purchased in lieu of burning lower-sulfur fuel. The Company owns a 9.72% undivided interest in the Conemaugh Generating Station located in western Pennsylvania. As a result of installing flue gas scrubbing equipment to meet Phase I requirements of the CAA, this station will receive additional allowances. The Company's share of these "bonus" allowances may be used to reduce the need for lower-sulfur fuel at its other plants. The Company's share of the construction cost for the flue gas scrubbing equipment is approximately $38 million. Installation of scrubbers is not contemplated for the Company's wholly owned plants. Both the District of Columbia and Maryland commissions have approved the Company's plans for meeting Phase I requirements including cost recovery of investment and inclusion of emission allowance expenses in the Company's fuel adjustment clause. The Company is participating in the construction of the final segments of a 500,000 volt transmission line providing further links in the transmission systems of the Company, Baltimore Gas and Electric Company and Virginia Electric and Power Company (Virginia Power). The Company's construction schedule contemplates completion of the final segments in 1994. FUEL - ---- For customer billing purposes, all of the Company's kilowatt-hour sales are covered by separately stated fuel rates (see Item 8 - Note 2 of "Notes to Consolidated Financial Statements"). 11 The Company's generating units burn only fossil fuels. The principal fuel is coal. The Company owns no nuclear generation facilities and none are planned. The following table sets forth the quantities of each type of fuel used by the Company in the years 1993, 1992 and 1991 and the contribution, on the basis of Btus, of each fuel to energy generated. 1993 1992 1991 -------------- -------------- -------------- % of % of % of Quantity Btu Quantity Btu Quantity Btu -------- ----- -------- ----- -------- ----- Coal (000s net tons) 6,010 79.4 5,926 82.9 6,471 81.7 Residual oil (000s barrels) 4,835 15.9 3,294 11.4 3,895 12.2 Natural gas (000s dekatherms) 6,090 3.2 8,200 4.5 9,933 4.9 No. 2 fuel oil (000s barrels) 480 1.5 376 1.2 407 1.2 The following table sets forth the average cost of each type of fuel burned, for the years shown. 1993 1992 1991 ------ ------ ------ Coal: per ton $43.69 $43.66 $45.37 per million Btu 1.72 1.72 1.78 Residual oil: per barrel 15.09 14.35 15.99 per million Btu 2.39 2.28 2.54 Natural gas: per dekatherm 2.88 2.32 2.18 per million Btu 2.88 2.32 2.18 No. 2 fuel oil: per barrel 24.98 26.70 29.07 per million Btu 4.30 4.60 5.01 The average cost of fuel burned per million Btu was $1.90 in 1993, compared with $1.85 in 1992 and $1.93 in 1991. The increase of approximately 3% in the 1993 system average unit fuel cost compared with the 1992 system average resulted from increased use of major cycling and peaking generation units which burn higher cost fuels. The Company's major cycling and certain peaking units can burn natural gas or oil, adding flexibility in selecting the most cost-effective fuel mix. Ten of the Company's sixteen steam-electric generating units can burn only coal; two can burn only residual oil; two can burn either coal or residual oil or a combination of both and two units can burn either residual oil or natural gas. Those units capable of burning either coal or residual oil normally burn coal as their primary fuel. The Company also has combustion 12 turbines, some of which can burn only No. 2 fuel oil, and others which can burn natural gas or No. 2 fuel oil. During 1993, the new Dickerson combustion turbine units resulted in the displacement of generation from older, less cost-effective units. The following table provides details of the Company's generating capability from the standpoint of plant configuration as well as actual energy generation (see "Item 2 -Properties" for additional information on type of fuel used in generating facilities). Net Generating Net Capability and Energy Purchased Capacity Generated ------------------ ------------------ 1993 1992 1991 1993 1992 1991 ---- ---- ---- ---- ---- ---- Steam Generation Dual fuel units, capable of burning coal, residual oil or a combination of coal and residual oil.... 18% 18% 19% 29% 27% 29% Units capable of burning coal only................ 28% 29% 30% 45% 50% 47% Units capable of burning residual oil only........ 8% 9% 9% 1% - 1% Units capable of burning residual oil or natural gas...................... 19% 19% 19% 10% 9% 10% Combustion Turbines Units capable of burning No. 2 fuel oil only...... 9% 9% 9% ) Units capable of burning ) 2% 1% 1% No. 2 fuel oil or natural ) gas...................... 11% 9% 7% ) Purchased capacity........... 7% 7% 7% 13%(a) 13%(a) 12%(a) (a) Includes purchases under cogeneration agreements. The Company's fuel mix objective is to obtain a minimum unit cost of energy through the use of its generating facilities. The actual use of coal, oil and natural gas is influenced by the availability of the generating units, the relative cost of the fuels, energy and demand requirements of other utilities with which the Company has interconnection arrangements, regulatory requirements (for future units), weather conditions and fuel supply constraints, if any. 13 The Company has several intermediate and long-term coal contracts with various expiration dates through 2003 for aggregate annual deliveries of approximately 4.3 million tons. Deliveries under these contracts are expected to provide approximately 75% of the estimated system coal requirements in 1994. Approximately 25% of the estimated system coal requirements in 1994 will be purchased under shorter term agreements and on a spot basis from a variety of suppliers. Prices under the Company's intermediate and long-term coal contracts are generally determined by reference to base amounts adjusted to reflect provisions for changes in suppliers' costs, which in turn are determined by reference to published indices and limited by current market prices. Most of the coal currently used by the Company is surface mined in Pennsylvania, West Virginia and Maryland. The Company believes that it will be able to continue to obtain the quantities of coal needed to operate at its current fuel mix objective. The costs of coal to the Company may be affected by increases in the costs of production, including the costs of complying with federal legislation (such as amendments to the CAA, discussed above, the costs of surface mining reclamation and black lung benefits), the imposition of (or changes in) state severance taxes and by modification of contracts with Conrail, CSX Transportation and Norfolk Southern which cover all of the coal movements to the Company's generating stations. The Company purchases both domestically refined and imported residual oil. Residual oil is being obtained under one two-year and one one-year contract. Prices under the contracts are determined by reference to base contract prices, as adjusted to reflect current market prices. Prior to expiration of the contracts, the Company expects to solicit bids for new contracts to supply its residual oil requirements. The Company also purchases No. 2 fuel oil under two one-year contracts. Certain units at the Company's Chalk Point Generating Station and the new Dickerson combustion turbine units are capable of burning natural gas as well as oil. The Company has a contract with Washington Gas Light Company for Chalk Point extending through April, 1995. The Company has a one-year contract with Consolidated Natural Gas for the Dickerson combustion turbine units through March 31, 1994. Competitive proposals are currently under review for a one year term contract to commence April 1, 1994. Both contracts are for an interruptible supply of natural gas with provisions for price review and adjustment each month. The actual use of natural gas for these units will be dependent upon operational requirements, the relative costs of natural gas and oil, and the availability of natural gas. REGULATION - ---------- The Company's utility operations are regulated by the Maryland and District of Columbia public service commissions and, as to its wholesale business, the Federal Energy Regulatory Commission (FERC). In addition, in certain limited respects relating to its participation in the Conemaugh Generating Station and related transmission lines, the Company is subject to regulation by the Pennsylvania Public Utility Commission. 14 The Company's operations are subject to certain portions of the National Energy Act designed to promote the conservation of energy and the development and use of more plentiful domestic fuels through various regulatory and tax provisions. The legislation, among other things, requires states to develop residential energy conservation plans and requires utilities to enter into cogeneration purchases with operators of qualified facilities. To date, this legislation has fostered nonutility generation (cogeneration and solid waste fired generation) supplying the Company with approximately 8 megawatts. As noted above under "Purchase of capacity and energy," the Company is planning additional cost-effective nonutility generation projects. RATES - ----- General - ------- The Company's retail rates for electric service in Maryland and the District of Columbia are based on allowed rates of return to the Company's jurisdictional original cost rate base investments as determined in base rate proceedings before the regulatory commissions by reference to the test periods used in setting rates. Rate base in each of these jurisdictions generally has included (1) the Company's full investments in Electric Plant in Service (net of depreciation, certain pre-1981 investment tax credits and plant related deferred income taxes), Electric Plant Held for Future Use and the pollution control portion of Construction Work in Progress (CWIP), (2) inventories of fuels and other materials and supplies and (3) an allowance for cash working capital. The Company has employed, since 1978, Allowance for Funds Used During Construction (AFUDC) accounting. In general, the Company capitalizes AFUDC with respect to investments in CWIP with the exception of expenditures required to comply with federal, state or local environmental regulations (pollution control projects), which are included in rate base without capitalization of AFUDC. In 1992, pursuant to orders from both the Maryland and District of Columbia commissions, the Company commenced the accrual of a capital cost recovery factor on the retail jurisdictional portion of certain pollution control projects related to compliance with the CAA. The base for calculating this return is the amount by which the retail jurisdictional CAA expenditure balance exceeds the CAA balance included in rate base in the Company's most recently completed base rate proceeding. The jurisdictional AFUDC capitalization rates are determined on a gross basis pursuant to formulas prescribed by the FERC. The effective capitalization rates were approximately 8.7% in 1993 and 9.1% in 1992 and 1991, compounded semiannually. 15 Rate orders received by the Company during the past three years provided for increases (decreases) in annual base rate revenues as shown in the table below. Rate Increase (Decrease) % Effective Regulatory Jurisdiction ($000) Change Date -------------------------- ---------- ---------- --------------- District of Columbia $25,400 3.8% March/June 1994 Federal-Wholesale 2,600 2.3 January 1994 Maryland 27,000 3.0 November 1993 Federal-Wholesale 3,801 3.1 January 1993 Maryland 25,300 3.0 1992/1993 (a) District of Columbia 30,380 4.6 July 1992 Federal-Wholesale 2,814 2.6 January 1992 District of Columbia 19,740 3.3 October 1991 Maryland 19,724 2.6 June 1991 Federal-Wholesale (502) (.5) January 1991 (a) See Maryland discussion below. Fuel Rates - ---------- The Company has separately stated fuel rates in each jurisdiction. Such rates include the delivered cost of fuel and the applicable costs and/or credits from the interchange of energy with other electric utilities, to the extent not provided for in base rates (see Item 8 - Note 2 of "Notes to Consolidated Financial Statements"). Maryland - -------- In October 1993, pursuant to a settlement agreement, the Commission authorized a $27 million, or 3%, increase in base rate revenues effective November 1, 1993. The settlement included a new system composite depreciation rate of approximately 3.1%, up from the 3% rate previously in effect. Prior to the settlement, the Company had filed updated cost of service data which demonstrated a need for a $49.9 million increase in Maryland base rate revenue, based upon the requested return of 9.89% on average rate base including a 12.75% return on common stock equity, 1993 federal tax legislation and the completed separate depreciation case. In connection with the settlement agreement, no determination was made with respect to rate of return. The rate of return on common stock equity most recently determined for the Company in a fully litigated rate case was 12.75% established by the Commission in a June 1991 rate increase order. In October 1992, pursuant to a settlement agreement, the Commission authorized an increase in base rate revenues of approximately 3% with $18 million effective December 1, 1992, and $7.3 million effective June 1, 1993. No determination with respect to rate of return was specified. 16 District of Columbia - -------------------- On March 4, 1994, the Commission authorized a $25.4 million, or 3.8%, increase in base rate revenues. Of the total increase, $23.2 million became effective March 16, 1994. The remaining $2.2 million is scheduled to become effective on June 5, 1994, contingent on the June 1, 1994 in-service date of the final segment of a 500-kilovolt transmission line between the Company and Baltimore Gas & Electric Company. The authorized rates are based on a 9.05% rate of return on average rate base, including an 11% return on common stock equity. The Commission approved the Company's proposal for including future changes in purchased capacity costs in fuel adjustment clause billings. In addition, the Commission reversed its longstanding practice of including Electric Plant Held for Future Use in rate base and ordered the Company to accrue AFUDC on plant held for future use. The order increased test period revenues by $3 million, which reduced the Company's revenue requirement, to reflect 20% of the cumulative effect of a 1992 accounting change related to unbilled revenues applicable to the District of Columbia. The Commission rejected the Company's proposed Demand Side Management (DSM) surcharge. Consistent with prior decisions, the order included $5.3 million in base rates to recognize DSM program costs without provision for lost revenues between rate cases. In addition, the Commission found that the Company had not adequately supported $5.5 million, or 25% of conservation expenditures during the test year. Subsequent to the test period in the case, the Company has expended approximately $20 million on conservation in the District of Columbia. The Company is considering available alternatives, including reconsideration of the decision. A Commission decision on reconsideration would be expected by early May 1994. The Company had been seeking a $55.4 million, or 8.2%, increase in base rate revenue, based upon a return of 9.46% on average rate base including an 11.8% return on common stock equity. On June 4, 1993, the Company had filed a base rate application requesting a $72.6 million increase in base rate revenue based upon a requested return of 9.84% on average rate base including a 12.35% return on common stock equity. The Company updated its initial June 1993 cost of service data filing to reflect subsequent events such as final federal tax legislation changes, the effects of a new three year labor agreement with its union employees, the settlement of the United Mine Workers strike as it related to the Company's coal inventory, cost of service revisions and an updated cost of capital study. The requested increase in annual base rate revenues was predicated on adoption by the Commission of the Company's ratemaking proposal with respect to the demand side management program costs, including treatment of lost revenues. In June 1992, the Commission authorized a $30.4 million, or 4.6%, increase in base rate revenues effective July 7, 1992. The authorized rates are based on a 9.96% rate of return on average rate base, including a 12.35% return on common stock equity. The Commission also approved a procedure for deferring purchased capacity cost increases between rate cases, accruing a return on the deferred amounts, and including such deferred amounts in determining revenue requirements in future rate proceedings. In February 17 1993, the Commission adopted a surcharge mechanism, to become effective following the Company's next base rate case discussed above, for recovery of the capital cost carrying charges on CAA compliance costs between rate proceedings. The Company is authorized to accrue a capital cost recovery factor on applicable CAA costs while the surcharge rate is effective. Wholesale - --------- The Company has a 10-year full service power supply contract with SMECO, a wholesale customer. The contract period is to be extended for an additional year on January 1 of each year, unless notice is given by either party of termination of the contract at the end of the 10-year period. The full service obligation can be reduced by SMECO by up to 20% of its annual requirements with a five-year advance notice for each such reduction. SMECO rates were increased by $3.8 million and $2.8 million effective January 1, 1993 and 1992, respectively. In November 1993, the Company amended its contract with SMECO to provide for rate increases of $2.6 million, $2.3 million and $4.2 million effective January 1, 1994, 1995 and 1996, respectively. Interchange of Power - -------------------- The Company's generating and transmission facilities are interconnected with the other members of PJM and other utilities. The pricing of most PJM internal economy energy transactions is based upon "split savings" so that the price of such energy is halfway between the cost that the purchaser would incur if the energy were supplied by its own sources and the cost of production to the company actually supplying the energy. The Company has interconnection agreements with Allegheny Power System (APS) and Virginia Power. These agreements provide a mechanism and the flexibility to purchase power from these parties or from others with whom they are interconnected on an as-needed basis in amounts mutually agreed to from time-to-time pursuant to negotiated rates, terms and conditions. Pursuant to the Company's long-term capacity purchase agreements with Ohio Edison and APS, the Company is purchasing 450 megawatts of capacity and associated energy through the year 2005. The cost of capacity under these agreements increased from $12,380 per megawatt, per month, in 1993 to $18,060 per megawatt, per month, effective January 1, 1994, plus an allocation of fixed operating and maintenance expenses, with provision for escalation in 1999. The Company began a 25-year purchase agreement in 1990 with SMECO for 84 megawatts of capacity supplied by a combustion turbine installed and owned by SMECO at the Company's Chalk Point Generating Station. The Company is responsible for all costs associated with operating and maintaining the facility. The capacity payment to SMECO is approximately $462,000 per month. 18 ENVIRONMENTAL MATTERS - --------------------- General - ------- The Company is subject to federal, state and local legislation and regulation with respect to environmental matters, including air and water quality and the handling of solid and hazardous waste. Air quality requirements relate to both ambient air quality and emissions from facilities, including particulate matter, sulfur dioxide, nitrogen oxides, carbon monoxide, volatile organic compounds and visible emissions. Water quality requirements relate to intake and discharge of water from facilities, including water used for cooling purposes in electric generating facilities. Waste requirements relate to the generation, treatment, storage, transportation and disposal of specified wastes. Compliance with such requirements may limit or prevent certain operations or substantially increase the cost of construction and operation of the Company's existing and future generating installations. The Company has expended approximately $462 million through December 31, 1993, for the construction of pollution control facilities. The $618 million 1994-1998 construction program for generating facilities includes estimated provision for pollution control facilities, including expenditures for CAA compliance, of $78 million for 1994, $67 million for 1995, $44 million for 1996, $45 million for 1997 and $56 million for 1998. The Company is unable to predict the future course of environmental regulations generally, the manner in which compliance with such regulations will be required, the availability of technology to meet such regulations and any budget amendments which may be required to recognize the costs which may ultimately be associated with such compliance. Air Quality - ----------- Under authority of the Clean Air Act of 1970, as amended, the U.S. Environmental Protection Agency (EPA) has issued national primary and secondary standards for the following air pollutants: sulfur dioxide, nitrogen dioxide, particulate matter, carbon monoxide, ozone and lead. EPA has also enacted regulations designed to prevent significant deterioration of air quality in areas where air quality levels are better than the secondary ambient air quality standards. The appropriate agencies in Maryland, the District of Columbia and Virginia have issued regulations designed to implement EPA's standards and regulations. In 1990, Congress enacted amendments to the CAA that require the reduction of sulfur dioxide and nitrogen oxides emissions from electric generating units. The Company cannot fully predict the financial and operating effects of this new legislation until all of the related implementing regulations are adopted by EPA and by appropriate agencies in each of the jurisdictions where the Company's generating facilities are located. However, the Company has developed cost-effective plans for complying with the CAA to achieve prescribed standards in two phases. 19 The Company anticipates capital expenditures totaling $203 million over the next five years. The plans call for replacement of boiler burner equipment for nitrogen oxides emissions control, the use of lower-sulfur fuel and cofiring with natural gas at selected baseload plants. The CAA allows companies to achieve sulfur dioxide emission reduction requirements by using a market-based emission allowance trading system. If economical, emission allowances may be purchased in lieu of burning lower-sulfur fuel. Maryland, the District of Columbia and Northern Virginia are members of the Ozone Transport Commission, established by the CAA for the purpose of developing a regional solution to attainment of the ambient ozone standard in the northeastern United States. Those states are currently preparing rules under Title I of the CAA which will require the retrofit of existing generating units with Reasonably Available Control Technology (RACT) for nitrogen oxides control by mid-1995. The Company has developed a plan whereby the nitrogen oxides reductions already planned to be achieved by PEPCO under Title IV of the CAA will also satisfy the states' requirements for RACT. This plan will be undergoing regulatory review during 1994. The Company is unaware in any respect in which its generating stations are not presently in compliance with federal and state air quality regulations, with the exception of visible emissions from the Dickerson Station and Chalk Point Units 1, 2 and 4. The State of Maryland has adopted a regulation which allows a case-by-case exception to visible emissions limits. Recognizing that the specified units cannot continuously satisfy a standard requiring no visible emissions, the Company is working with Maryland regulators to establish revised visible emissions standards for the subject units. Water Quality - ------------- The Company's generating stations operate under National Pollutant Discharge Elimination System (NPDES) permits. NPDES renewal applications submitted in March 1991 for the Morgantown station, December 1991 for the Dickerson station, March 1992 for the Chalk Point station, April 1993 for the Buzzard Point station, and July 1993 for the Benning station, are all pending. An NPDES permit for the Potomac River Station was issued and effective as of February 24, 1994. The Maryland Department of the Environment promulgated regulations effective April 16, 1990 that, among other things, set numeric criteria for toxic substances in surface waters. These regulations are applicable to the Company's Chalk Point, Morgantown and Dickerson generating stations. None of the numeric criteria have been incorporated into the NPDES permits for these stations at this time. While it is not known whether the criteria will be included in the Company's permits in the future, or, if included, what the economic impact will be, it has been preliminarily estimated that if the regulations are interpreted in the manner most detrimental, the Company could incur capital costs of as much as $810 million and annual operating and 20 maintenance expenses of $224 million in order to comply with these regulations. The Company, in conjunction with other utilities, industrial companies, and the Maryland Chamber of Commerce, filed a suit in May 1990 that challenges the validity of the regulations. The suit is pending in the Circuit Court for Baltimore City. The parties have reached settlement of the suit contingent upon the outcome of subsequent rulemaking proceedings. Revised regulations were adopted on May 6, 1993 in accordance with the settlement agreement. EPA approval of the revised regulations is pending. On March 18, 1993, the Company brought to the attention of state and federal authorities information discovered in an internal Company investigation to the effect that one of the Company's NPDES permits may have been violated by the pumping of water from a settlement pond at a Company- owned flyash storage facility. Further investigation both internally and by the governmental authorities has continued, including issuance of, and response by the Company to, a federal grand jury subpoena for documents germane to the investigation and testimony of two Company employees before the grand jury. Toxic Substances - ---------------- The Company was notified by the EPA on December 18, 1987, that it, along with five other utilities and eight non-utilities, is a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA or Superfund), in connection with the polychlorinated biphenyl compounds (PCBs) contamination of soil, ground water and surface water occurring at a Philadelphia, Pennsylvania site owned by an unaffiliated company. Additional PRPs have since been identified and the number is continuously subject to change. In the early 1970s, the Company sold scrap transformers, some of which may have contained some level of PCBs, to a metal reclaimer operating at the site. The Company and nine other PRPs executed an Administrative Order by Consent (ACO) with the EPA and the performance of a Remedial Investigation/ Feasibility Study (RI/FS) is in progress. Pursuant to an agreement among the participating PRPs, the Company is responsible for 12% of the costs of the RI/FS. It is currently estimated that the PRPs' cost of compliance with the ACO, including the RI/FS and legal fees, will be approximately $6.5 million. The Company has paid $548,000 to date. The Company cannot estimate the extent of the EPA's administrative and oversight costs or the expense associated with a site remedy ultimately acceptable to the EPA. On September 19, 1989, an unaffiliated company, the Richmond, Fredericksburg and Potomac Railroad (RF&P), requested the Company to participate in the investigation and remediation of a 3-acre site in Arlington, Virginia owned by RF&P at which it is alleged that soil and groundwater have been contaminated by PCB compounds. Subsequently, the Virginia Department of Waste Management requested information from the Company related to transformers which may have been sold or sent to the site operator. 21 On December 7, 1990, a Summons and Complaint filed by RF&P in the United States District Court for the Eastern District of Virginia against the Company and seven other defendants was received. The Complaint alleges that the defendant site operator released PCBs and other hazardous substances at the site during the course of its operation, and that the sole source of PCBs and other hazardous substances is from the defendant operator's operations and from transformers and capacitors supplied by other defendants. Subsequently, additional defendants were added to the Complaint. The Complaint seeks contribution and other equitable remedies for remediation of the site. In October 1993, the parties reached a settlement which was approved by the Court on October 25, 1993 subject to confirmation by additional site testing that remediation can be accomplished at or below, and that no regulatory authority will require a remediation which exceeds, approximately $4 million. During 1993, the Company participated with two other PRPs in a removal action at a site in Harmony, West Virginia pursuant to an Administrative Order (AO) issued by the EPA. Approximately $3 million (of which the Company has paid one-third, subject to possible reallocation) was expended on the removal action, which the EPA has stated is in compliance with the AO. Approximately $1.9 million of this cost has now been recovered from third parties. EPA oversight costs, which are not expected to be material, have not yet been assessed. While compliance with the AO has been completed, the Company cannot determine whether it will be subject to any future liability with respect to the site. In August 1993, the Company was served with Amended Complaints filed in three jurisdictions (Prince George's County, Baltimore City, and Baltimore County) in separate ongoing, consolidated proceedings each denominated "In re: Personal Injury Asbestos Cases." The Company (and other defendants) were brought into these cases on a theory of premises liability under which plaintiffs argue that the Company was negligent in not providing a safe work environment for employees of its contractors who allegedly were exposed to asbestos while working on the Company's property. Initially, a total of approximately four hundred and forty-eight (448) individual plaintiffs added the Company to their Complaints. While the pleadings are not entirely clear, it appears that each plaintiff seeks $2 million in compensatory damages and $4 million in punitive damages from each defendant. In a related proceeding in the Baltimore City case, the Company was served, in September 1993, with a third party complaint by Owens Corning Fiberglass, Inc. (Owens Corning) alleging that Owens Corning was in the process of settling approximately 700 individual asbestos-related cases and seeking a judgment for contribution against the Company on the same theory of alleged negligence set forth above in the plaintiffs' case. Subsequently, Pittsburgh Corning Corp. (Pittsburgh Corning) filed a third party complaint against the Company, seeking contribution for the same plaintiffs involved in the Owens Corning third party complaint. Since the filings, a number of the individual suits have been disposed of without any payment by the Company. On March 14, 1994, the Company and Pittsburgh Corning filed a Joint Stipulation of Dismissal of the Pittsburgh Corning third party complaint, which dismissal would require no payment by the Company. While the aggregate amount specified in the remaining suits would exceed $1 billion, the Company believes the amounts are greatly 22 exaggerated as were the claims already disposed of. The amount of total liability, if any, and any related insurance recovery cannot be precisely determined at this time; however, based on information and relevant circumstances known at this time, the Company does not believe these suits will have a material adverse effect on its financial position. Solid and Hazardous Waste - ------------------------- The Resource Conservation and Recovery Act of 1976 (RCRA) provides federal mandates and authority for dealing with the generation, treatment, storage, transportation and disposal of solid or hazardous waste. The principal utility wastes of fly ash, bottom ash and scrubber sludge are exempt from EPA regulation as hazardous waste. The Company sends its wastes designated as hazardous to appropriately licensed facilities for hazardous waste treatment, storage and disposal. The current impact of regulations under RCRA is not substantial. The only permit which will be required at this time is for the Morgantown Generating Station, where the Company burns certain amounts of PCB-contaminated mineral oil. Maryland regulations provide for a special "limited facility permit" for this activity and the Company's application for such permit is pending. LABOR - ----- A new three-year Agreement between the Company and Local 1900 of the International Brotherhood of Electrical Workers (IBEW) was ratified on July 20, 1993 by Union members. The total package, including wage and benefit changes, will increase costs by 6.1% over the three-year period. The Agreement includes several changes that will reduce the Company's cost of its post-retirement benefit obligations. At December 31, 1993, 2,940 of the Company's 4,893 employees were represented by the IBEW. NONUTILITY SUBSIDIARY - --------------------- Potomac Capital Investment Corporation (PCI), the Company's principal wholly-owned subsidiary, was formed in late 1983 to provide a vehicle for ongoing nonutility investment business. PCI's objective is to provide an annual supplement to utility earnings and to build long-term shareholder value. At December 31, 1993, PCI's assets totaled $1.7 billion, including $924 million in finance and operating equipment leases and $466.2 million in marketable securities, principally investment grade sinking fund preferred stock. The Company's equity investment in PCI was $290.9 million, including $145.2 million of subsidiary retained earnings. Additional financial information concerning assets, income, expenses and net earnings is presented in the consolidated financial statements incorporated by reference in Item 8. 23 PCI's equipment-leasing portfolio consists primarily of wide-body commercial aircraft and satellite communications equipment. Income from leasing activities includes rental and interest income, gains on asset sales and service fees. Additional information concerning leasing activities is presented in Management's Discussion and Analysis incorporated by reference in Item 7. PCI's real estate activity consists of real estate projects and holdings in the Washington metropolitan area. PCI also owns leasehold interests in oil and natural gas producing properties in Texas. 24 Part I - ------ Item 2 PROPERTIES - ------ ----------
Megawatts of Net Capability Steam --------------------------- Net Megawatt- Generation Steam Combustion Hours Generated Generating Station Location Primary Fuel Generation Turbine in 1993 ---------- - -------- --------------------------------------- -------------- ------------ - ------------ --------------- (Thousands) Benning Benning Road and Anacostia River, N.E. No. 4 Oil 550 - 185 Washington, D.C. Buzzard Point 1st and V Streets, S.W. - - 256 4 Washington, D.C. Potomac River Bashford Lane and Potomac River Coal 482 - 2,090 Alexandria, Virginia Dickerson Potomac River, South of Little Monocacy Coal 546 291 3,516 River, Dickerson, Maryland Chalk Point Patuxent River at Swanson Creek Coal/ 1,907 516 5,851 Aquasco, Maryland Residual Oil/ Natural Gas Morgantown Potomac River, South of Route 301 Coal/ 1,164 248 6,443 Newburg, Maryland Residual Oil ----------- ----------- ----------- Total - Wholly owned Units 4,649 1,311 18,089 Conemaugh Indiana County, Pennsylvania Coal 165 1 1,056 ----------- ----------- ---------- - - Total - All Stations Operated 4,814 1,312 19,145 =========== Purchased Capacity 450 - 2,926 ----------- ----------- =========== Total System 5,264 1,312 =========== =========== All of the above properties are held in fee, but as to Conemaugh, the Company holds a 9.72% undivided interest as a tenant in common. Combustion turbines burn No. 2 fuel oil and certain units can also burn natural gas. Generating capacity under long-term agreement with the Ohio Edison System. Includes 84 megawatts supplied by a combustion turbine owned by SMECO and operated by the Company. 25
The five steam-electric generating stations, together with combustion turbines, had an aggregate net capability at December 31, 1993, of 5,960 megawatts (including the 84 megawatt combustion turbine owned by SMECO at the Company's Chalk Point Generating Station), assuming all units are available for service at the time and for the usual duration of the system peak (which occurs in the summer). The Company also has 166 megawatts of net capability available from its 9.72% undivided interest in a mine-mouth, steam- electric generating station known as the Conemaugh Generating Station, located in Indiana County, Pennsylvania, which it owns with eight other utilities as tenants in common. The Company also receives generating capacity and associated energy from Ohio Edison under its 1987 long-term agreements with Ohio Edison and APS. The agreements, which provide for 450 megawatts of capacity and associated energy, are expected to continue at that level through the year 2005. The net 60-minute peak load in 1993 was 5,754 megawatts, which occurred on July 9, 1993, and was .3% below the all-time summer peak demand of 5,769 megawatts. To meet the 1993 summer peak demand, the Company also had 201 megawatts available from its dispatchable energy use management programs. For additional information regarding the Company's net generating capability, see "Construction Program" and "Fuel" under Item 1 "Business." The Company owns the transmission and distribution facilities serving its customers. As stated above, the Company's interest in the Conemaugh Generating Station and its associated transmission lines is that of a tenant in common with eight other owners. Substantially all of such Conemaugh transmission lines, substantially all of the Company's transmission and distribution lines of less than 230,000 volts, small portions of its 230,000 volt transmission lines and certain of its substations are located on land owned by others or in public streets and highways. Substantially all of the Company's property and plant is subject to the mortgage which secures its bonded indebtedness. Item 3 LEGAL PROCEEDINGS - ------ ----------------- For information regarding pending environmental legal proceedings, see "Environmental Matters" under Item 1 "Business." The Company was a defendant in employment discrimination litigation which was pending in the United States District Court for the District of Columbia. In February 1993, the parties to the case reached tentative settlement of the claims and, in April 1993, the Company paid $38.26 million into a trust fund pursuant to the terms of the agreement. The funds will be disbursed from the trust fund to certain covered classes of current and former employees and applicants for employment and to cover the plaintiffs' legal and expert fees and costs. The Court approved the settlement agreement effective July 1993. The Company received insurance payments of $13.5 million in October 1993 and $24 million in January 1994, bringing the total recovered from insurance companies to $37.5 million. At December 31, 1993, approximately $.8 million was charged to non-operating expense. 26 Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ --------------------------------------------------- None. Part II - ------- Item 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER - ------ ----------------------------------------------------------------- MATTERS ------- The following table presents the dividends per share of Common Stock and the high and low of the daily Common Stock transaction prices as reported in The Wall Street Journal during each period. The New York Stock Exchange is the principal market on which the Company's Common Stock is traded. The Company's Common Stock is also traded on the Tokyo Stock Exchange. Dividends Price Range Period Per Share High Low --------------------- --------------- -------- --------- 1993: First Quarter...... $.41 $26-1/2 $23-7/8 Second Quarter..... .41 27-3/8 25-5/8 Third Quarter...... .41 28-7/8 27-1/8 Fourth Quarter..... .41 $1.64 28-3/4 24-5/8 1992: First Quarter...... $.40 $25-1/8 $22-3/4 Second Quarter..... .40 26 23 Third Quarter...... .40 27-1/2 25-1/8 Fourth Quarter..... .40 $1.60 26-3/4 22-5/8 The number of holders of Common Stock was 98,312 at March 8, 1994 and 98,892 at December 31, 1993. There were 117,915,691 and 117,797,652 shares of the Company's $1 par value Common Stock outstanding at March 8, 1994, and December 31, 1993, respectively. A total of 200 million shares is authorized. At its January 1994 meeting, the Company's Board of Directors declared a quarterly dividend on Common Stock of 41 1/2 cents per share, an increase of 1/2 cent per share over the quarterly dividend of 41 cents paid during 1993. The increased dividend is payable March 31, 1994, to shareholders of record on February 25, 1994. 27 Item 6 SELECTED FINANCIAL DATA - ------ ----------------------- The information required by Item 6 is incorporated herein by reference to "Selected Consolidated Financial Data" in the Financial Information of the Company's 1993 Annual Report to shareholders. Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------ --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- The information required by Item 7 is incorporated herein by reference to the "Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition" in the Financial Information section of the Company's 1993 Annual Report to shareholders. See "Rates" under Item 1 "Business" for an update to the discussion of the Company's base rate proceeding in the District of Columbia. Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------ ------------------------------------------- The consolidated financial statements, together with the report thereon of Price Waterhouse dated January 21, 1994, and supplementary data from the Company's 1993 Annual Report to shareholders are incorporated herein by reference. With the exception of the aforementioned information and the information incorporated in Items 5, 6, 7, 8 and 9, the 1993 Annual Report to Shareholders is not deemed filed as part of this Form 10-K Annual Report. Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------ --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. 28 Part III - -------- Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------- -------------------------------------------------- The information required by Item 10 with regard to Directors of the registrant is incorporated herein by reference to the Company's Notice of Annual Meeting of Shareholders and Proxy Statement dated March 18, 1994. Information with regard to the executive officers of the registrant as of March 8, 1994, is as follows: Served in such position Name Position Age since - -------------------- -------------------------------- --- ------------- Edward F. Mitchell Chairman of the Board and Chief Executive Officer 62 1992 (1) John M. Derrick Jr. President and Chief Operating Officer 53 1992 (2) H. Lowell Davis Vice Chairman and Chief Financial Officer and Director 61 1983 Paul Dragoumis Executive Vice President 59 1989 (3) Dennis R. Wraase Senior Vice President - Finance and Accounting 49 1992 (4) Iraline G. Barnes Vice President - Corporate 46 1990 (5) Relations Earl K. Chism Vice President and Treasurer 58 1989 (6) Susann D. Felton Vice President - Materials 45 1992 (7) William R. Gee Jr. Vice President - System Engineering 53 1991 (8) Robert C. Grantley Vice President - Customer Services 45 1989 (9) Anthony S. Macerollo Vice President - Human Resources 52 1989 (10) Eddie R. Mayberry Vice President - Market Planning and Policy 46 1993 (11) John D. McCallum Vice President - Corporate Tax 44 1992 (12) 29 Served in such position Name Position Age since - -------------------- -------------------------------- --- ------------- James S. Potts Vice President - Environment 48 1993 (13) William J. Sim Vice President - Operations and Construction 49 1991 (14) William T. Torgerson Vice President and General Counsel 49 1989 (15) Andrew W. Williams Vice President - Energy Policy and Development 44 1989 (16) None of the above persons has a "family relationship" with any other officer listed or with any director or nominee for director. The term of office for each of the above persons is from April 28, 1993 to April 27, 1994. (1) Mr. Mitchell was elected to the position of Chairman of the Board on December 21, 1992. He was elected Chief Executive Officer effective September 1, 1989. Prior to that time he held the position of President and Chief Operating Officer, since 1983. (2) Mr. Derrick was elected to the position of President on December 21, 1992. He was elected Executive Vice President and Chief Operating Officer on July 27, 1989. Prior to that time he held the position of Vice President - Customer Services, since 1981. (3) Mr. Dragoumis was elected to his present position on July 27, 1989. Prior to that time he held the position of Senior Vice President. (4) Mr. Wraase was elected to his present position on April 22, 1992. He was elected Senior Vice President and Comptroller on July 27, 1989. Prior to that time he held the position of Vice President and Comptroller, since 1985. (5) Mrs. Barnes was elected to her present position effective April 1, 1990. Prior to that time she served as Associate Judge of the Superior Court of the District of Columbia for ten years. (6) Mr. Chism was elected to his present position on July 27, 1989. Prior to that time he held the positions of Treasurer from 1988 to 1989, and of Assistant Treasurer from 1987 to 1988. (7) Ms. Felton was elected to her present position on April 22, 1992. Prior to that time she held the position of Manager, Materials. 30 (8) Mr. Gee was elected to his present position on April 24, 1991. Prior to that time he held the position of Vice President - Generating Engineering and Construction, since 1989. Prior to 1989, he held the position of Manager, Generating Engineering. (9) Mr. Grantley was elected to his present position on July 27, 1989. Prior to that time he held the position of Manager, Customer Services, since 1987. (10) Mr. Macerollo was elected to his present position on July 27, 1989. Prior to that time he held the position of Manager, Human Resources, since 1986. (11) Dr. Mayberry was elected to his present position on April 28, 1993. Prior to that time he held the position of Manager, Market Planning and Policy, since 1989. Prior to 1989 he held the position of Manager, Rate and Economic Analysis. (12) Mr. McCallum was elected to his present position on April 22, 1992. Prior to that time he held the position of Assistant Comptroller, since 1987. (13) Mr. Potts was elected to his present position on April 28, 1993. Prior to that time he held the position of Manager, Generating Strategic Support since 1991. Prior to 1991 he held the position of Manager, Production Performance. (14) Mr. Sim was elected to his present position on April 24, 1991. Prior to that time he was President of the American Energy division of the Company's nonutility subsidiary, Potomac Capital Investment Corporation, since 1988. Prior to 1988, he held the position of Manager, Generating Construction. (15) Mr. Torgerson was elected to his present position effective January 1, 1989. Prior to that time he held the position of Vice President and Deputy General Counsel, since 1986. (16) Mr. Williams was elected to his present position on July 27, 1989. Prior to that time he held the position of Manager, Financial Planning and Analysis, since 1985. Item 11 EXECUTIVE COMPENSATION - ------- ---------------------- The information required by Item 11 is incorporated herein by reference to the Company's Notice of Annual Meeting of Shareholders and Proxy Statement dated March 18, 1994. 31 Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------- -------------------------------------------------------------- The information required by Item 12 is incorporated herein by reference to the Company's Notice of Annual Meeting of Shareholders and Proxy Statement dated March 18, 1994. Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------- ---------------------------------------------- None. Part IV - ------- Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------- --------------------------------------------------------------- (a) Documents List -------------- 1. Financial Statements The following documents are filed as part of this report as incorporated herein by reference from the indicated pages of the Company's 1993 Annual Report. Reference (Page) ---------------- Form 10-K Annual Report Annual Report to Shareholders Exhibit 13 --------------- ------------- Consolidated Statements of Earnings - for the years ended December 31, 1993, 1992 and 1991 15 24 Consolidated Balance Sheets - December 31, 1993 and 1992 16-17 25-26 Consolidated Statements of Cash Flows - for the years ended December 31, 1993, 1992 and 1991 18 27 Notes to Consolidated Financial Statements 19-31 28-60 Report of Independent Accountants 14 23 32 2. Financial Statement Schedules Unaudited supplementary data entitled "Quarterly Financial Summary (Unaudited)" is incorporated herein by reference in Item 8 (included in "Notes to Consolidated Financial Statements" as Note 15). The following financial statement schedules are submitted under Item 14 (d): Report of Independent Accountants on Consolidated Financial Statement Schedules Schedule V - Property, Plant and Equipment Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment Schedule VIII - Valuation and Qualifying Accounts Schedule IX - Short-Term Borrowings All other schedules are omitted because they are not applicable, or the required information is presented in the financial statements. 3. Exhibits required by Securities and Exchange Commission Regulation S-K (summarized below). Exhibit No. Description of Exhibit Reference* - ------- ---------------------- ---------- 3-A Charter of the Company.............. Filed herewith. 3-B By-Laws of the Company.............. Exh. 3-B to Form 10-K, 3/26/93. 4 Mortgage and Deed of Trust dated July 1, 1936, of the Company to The Riggs National Bank of Washington, D.C., as Trustee, securing First Mortgage Bonds of the Company, and Supplemental Indenture dated July 1, 1936........................ Exh. B-4 to First Amendment, 6/19/36, to Registration Statement No. 2-2232. 33 Exhibit No. Description of Exhibit Reference* - ------- ---------------------- ---------- 4 Supplemental Indentures, to the (cont.) aforesaid Mortgage and Deed of Trust, dated - December 1, 1939 and December 10, 1939.......................... Exhs. A & B to Form 8-K, 1/3/40. August 1, 1940...................... Exh. A to Form 8-K, 9/25/40. July 15, 1942 and August 10, 1942................................ Exh. B-1 to Amendment No. 2, 8/24/42, and B-3 to Post- Effective Amendment, 8/31/42, to Registration Statement No. 2-5032. August 1, 1942...................... Exh. B-4 to Form 8-A, 10/8/42. October 15, 1942.................... Exh. A to Form 8-K, 12/7/42. October 15, 1947.................... Exh. A to Form 8-K, 12/8/47. January 1, 1948..................... Exh.7-B to Post-Effective Amendment No. 2, 1/28/48, to Registration Statement No. 2-7349. December 31, 1948................... Exh. A-2 to Form 10-K, 4/13/49. May 1, 1949......................... Exh. 7-B to Post-Effective Amendment No. 1, 5/10/49, to Registration Statement No. 2-7948. December 31, 1949................... Exh. (a)-1 to Form 8-K, 2/8/50. May 1, 1950......................... Exh. 7-B to Amendment No. 2, 5/8/50, to Registration Statement No. 2-8430. February 15, 1951................... Exh. (a) to Form 8-K, 3/9/51. March 1, 1952....................... Exh. 4-C to Post-Effective Amendment No. 1, 3/12/52, to Registration Statement No. 2-9435. February 16, 1953................... Exh. (a)-1 to Form 8-K, 3/5/53. May 15, 1953........................ Exh. 4-C to Post-Effective Amendment No. 1, 5/26/53, to Registration Statement No. 2-10246. 34 Exhibit No. Description of Exhibit Reference* - ------- ---------------------- ---------- 4 March 15, 1954 and March 15, (cont.) 1955................................ Exh. 4-B to Registration Statement No. 2-11627, 5/2/55. May 16, 1955........................ Exh. A to Form 8-K, 7/6/55. March 15, 1956...................... Exh. C to Form 10-K, 4/4/56. June 1, 1956........................ Exh. A to Form 8-K, 7/2/56. April 1, 1957....................... Exh. 4-B to Registration Statement No. 2-13884, 2/5/58. May 1, 1958......................... Exh. 2-B to Registration Statement No. 2-14518, 11/10/58. December 1, 1958.................... Exh. A to Form 8-K, 1/2/59. May 1, 1959......................... Exh. 4-B to Amendment No. 1, 5/13/59, to Registration Statement No. 2-15027. November 16, 1959................... Exh. A to Form 8-K, 1/4/60. May 2, 1960......................... Exh. 2-B to Registration Statement No. 2-17286, 11/9/60. December 1, 1960 and April 3, 1961................................ Exh. A-1 to Form 10-K, 4/24/61. May 1, 1962......................... Exh. 2-B to Registration Statement No. 2-21037, 1/25/63. February 15, 1963................... Exh. A to Form 8-K, 3/4/63. May 1, 1963......................... Exh. 4-B to Registration Statement No. 2-21961, 12/19/63. April 23, 1964...................... Exh. 2-B to Registration Statement No. 2-22344, 4/24/64. May 15, 1964........................ Exh. A to Form 8-K, 6/2/64. May 3, 1965......................... Exh. 2-B to Registration Statement No. 2-24655, 3/16/66. April 1, 1966....................... Exh. A to Form 10-K, 4/21/66. June 1, 1966........................ Exh. 1 to Form 10-K, 4/11/67. April 28, 1967...................... Exh. 2-B to Post-Effective Amendment No. 1 to Registration Statement No. 2-26356, 5/3/67. May 1, 1967......................... Exh. A to Form 8-K, 6/1/67. 35 Exhibit No. Description of Exhibit Reference* - ------ ---------------------- ---------- 4 July 3, 1967........................ Exh. 2-B to Registration (cont.) Statement No. 2-28080, 1/25/68. February 15, 1968................... Exh. II-I to Form 8-K, 3/7/68. May 1, 1968......................... Exh. 2-B to Registration Statement No. 2-31896, 2/28/69. March 15, 1969...................... Exh. A-2 to Form 8-K, 4/8/69. June 16, 1969....................... Exh. 2-B to Registration Statement No. 2-36094, 1/27/70. February 15, 1970................... Exh. A-2 to Form 8-K, 3/9/70. May 15, 1970........................ Exh. 2-B to Registration Statement No. 2-38038, 7/27/70. August 15, 1970..................... Exh. 2-D to Registration Statement No. 2-38038, 7/27/70. September 1, 1971................... Exh. 2-C to Registration Statement No. 2-45591, 9/1/72. September 15, 1972.................. Exh. 2-E to Registration Statement No. 2-45591, 9/1/72. April 1, 1973....................... Exh. A to Form 8-K, 5/9/73. January 2, 1974..................... Exh. 2-D to Registration Statement No. 2-49803, 12/5/73. August 15, 1974..................... Exhs. 2-G and 2-H to Amendment No. 1 to Registration Statement No. 2-51698, 8/14/74. June 15, 1977....................... Exh. 4-A to Form 10-K, 3/19/81. July 1, 1979........................ Exh. 4-B to Form 10-K, 3/19/81. June 16, 1981....................... Exh. 4-A to Form 10-K, 3/19/82. June 17, 1981....................... Exh. 2 to Amendment No. 1, 6/18/81, to Form 8-A. December 1, 1981.................... Exh. 4-C to Form 10-K, 3/19/82. August 1, 1982...................... Exh. 4-C to Amendment No. 1 to Registration Statement No. 2-78731, 8/17/82. October 1, 1982..................... Exh. 4 to Form 8-K, 11/8/82. April 15, 1983...................... Exh. 4 to Form 10-K, 3/23/84. November 1, 1985.................... Exh. 2-B to Form 8-A, 11/1/85. 36 Exhibit No. Description of Exhibit Reference* - ------ ---------------------- ---------- 4 March 1, 1986....................... Exh. 4 to Form 10-K, 3/28/86. (cont.) November 1, 1986.................... Exh. 2-B to Form 8-A, 11/5/86. March 1, 1987....................... Exh. 2-B to Form 8-A, 3/2/87. September 16, 1987.................. Exh. 4-B to Registration Statement No. 33-18229, 10/30/87. May 1, 1989......................... Exh. 4-C to Registration Statement No. 33-29382, 6/16/89. August 1, 1989...................... Exh. 4 to Form 10-K, 3/23/90. April 5, 1990....................... Exh. 4 to Form 10-K, 3/29/91. May 21, 1991........................ Exh. 4 to Form 10-K, 3/27/92. May 7, 1992......................... Exh. 4 to Form 10-K, 3/26/93. September 1, 1992................... Exh. 4 to Form 10-K, 3/26/93. November 1, 1992.................... Exh. 4 to Form 10-K, 3/26/93. March 1, 1993....................... Exh. 4 to Form 10-K, 3/26/93. March 2, 1993....................... Exh. 4 to Form 10-K, 3/26/93. July 1, 1993........................ Exh. 4.4 to Registration Statement No. 33-49973, 8/11/93. August 20, 1993..................... Exh. 4.4 to Registration Statement No. 33-50377, 9/23/93. September 29, 1993.................. Filed herewith. September 30, 1993.................. Filed herewith. October 1, 1993..................... Filed herewith. February 10, 1994................... Filed herewith. February 11, 1994................... Filed herewith. 4-A Indenture, dated as of January 15, 1988, between the Company and Centerre Trust Company of St. Louis (now known as Boatmen's Trust Company), Trustee for the Company's $75,000,000 issue of 7% Convertible Debentures due 2018 ................ Exh. 4-A to Form 10-K, 3/25/88. 4-B Indenture, dated as of July 28, 1989, between the Company and The Bank of New York, Trustee, with respect to the Company's Medium-Term Note Program............ Exh. 4 to Form 8-K, 6/21/90. 37 Exhibit No. Description of Exhibit Reference* - ------ ---------------------- ---------- 4C Indenture, dated as of August 15, 1992, between the Company and the Bank of New York, Trustee, for the Company's $115,000,000 issue of 5% Convertible Debentures due 2002..... Exh. 4-C to Form 10-K, 3/26/93. 10 Agreement, effective July 23, 1993, between the Company and the International Brotherhood of Electrical Workers (Local Union #1900).............................. Exh. 10 to Form 10-Q, 7/30/93. **11 Computation of Earnings Per Common Share...................... Filed herewith. **12 Computation of Ratios............... Filed herewith. 13 Financial Information Section of Annual Report .................... Filed herewith. **22 Subsidiaries of the Registrant...... Filed herewith. **24 Consent of Independent Accountants.. Filed herewith. * The exhibits referred to in this column by specific designations and date have heretofore been filed with the Securities and Exchange Commission under such designations and are hereby incorporated herein by reference. The Forms 8-A, 8-K and 10-K referred to were filed by the Company under the Commission's File No. 1-1072 and the Registration Statements referred to are registration statements of the Company. ** These exhibits are submitted under Item 14(c). (b) Reports on Form 8-K ------------------- None. 38 POTOMAC ELECTRIC POWER COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E Col. F ------ ------ ------ ------ ------ ------ Other Balance Balance at changes at end beginning Additions add of Description of period at cost Retirements (deduct) period - --------------------------------------- ---------- --------- --------- - -- --------- ---------- (Thousands of Dollars) Electric Utility Plant: Production plant (steam generation) $1,638,725 $ 61,645 $ 19,828 $ - $1,680,542 Production plant (other generation) 371,671 54,814 131 - 426,354 Transmission plant 515,097 9,535 1,613 - 523,019 Distribution plant 2,171,213 129,785 12,999 - 2,287,999 General plant and other 317,575 8,110 5,618 14,755 334,822 Construction work in progress 314,855 58,810 - - - 373,665 Electric plant held for future use 34,766 (1,122) - - - 33,644 ---------- --------- --------- - -- --------- ---------- Total Electric Utility Plant 5,363,902 321,577 40,189 14,755 5,660,045 Nonoperating Property 3,722 1,374 - - - 5,096 ---------- --------- --------- - -- --------- ---------- Total Property and Plant $5,367,624 $ 322,951 $ 40,189 $ 14,755 $5,665,141 ========== ========= =========== ========= ========== Nonutility Property Operating lease equipment, principally aircraft $ 620,982 $ 6,695 $ - - $ 23,068 $ 650,745 ========== ========= =========== ========= ========== Reclassification of computer software costs from Deferred charges. Purchase of remaining interest and subsequent consolidation of airplane engine leasing subsidiary. Additions to Electric Utility Plant include an Allowance for Funds Used During Construction (AFUDC). 39
POTOMAC ELECTRIC POWER COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1992
Col. A Col. B Col. C Col. D Col. E Col. F ------ ------ ------ ------ ------ ------ Other Balance Balance at changes at end beginning Additions add of Description of period at cost Retirements (deduct) period - --------------------------------------- ---------- --------- --------- - -- --------- ---------- (Thousands of Dollars) Electric Utility Plant: Production plant (steam generation) $1,596,114 $ 59,745 $ 17,134 $ - $1,638,725 Production plant (other generation) 229,825 142,068 222 - 371,671 Transmission plant 470,462 47,607 2,972 - 515,097 Distribution plant 2,067,047 116,215 12,049 - 2,171,213 General plant and other 310,658 12,769 5,852 - 317,575 Construction work in progress 349,239 (34,384) - - - 314,855 Electric plant held for future use 21,995 12,771 - - - 34,766 ---------- --------- --------- - -- --------- ---------- Total Electric Utility Plant 5,045,340 356,791 38,229 - 5,363,902 Nonoperating Property 2,781 941 - - - 3,722 ---------- --------- --------- - -- --------- ---------- Total Property and Plant 5,048,121 $ 357,732 $ 38,229 $ - $5,367,624 ========== ========= =========== ========= ========== Nonutility Property Operating lease equipment, principally aircraft $ 743,014 $ 29,911 $ - - $(151,943)$ 620,982 ========== ========= =========== ========= ========== Sale of aircraft lease equipment and aircraft ($105,000,000) transferred to finance leases. Additions to Electric Utility Plant include an Allowance for Funds Used During Construction (AFUDC). 40
POTOMAC ELECTRIC POWER COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1991
Col. A Col. B Col. C Col. D Col. E Col. F ------ ------ ------ ------ ------ ------ Other Balance Balance at changes at end beginning Additions add of Description of period at cost Retirements (deduct) period - --------------------------------------- ---------- --------- --------- - -- --------- ---------- (Thousands of Dollars) Electric Utility Plant: Production plant (steam generation) $1,558,842 $ 62,024 $ 24,752 $ - $1,596,114 Production plant (other generation) 70,791 161,636 2,602 - 229,825 Transmission plant 445,663 25,519 720 - 470,462 Distribution plant 1,916,028 162,433 11,414 - 2,067,047 General plant and other 275,749 38,723 3,814 - 310,658 Construction work in progress 374,437 (25,198) - - - 349,239 Electric plant held for future use 14,381 7,614 - - - 21,995 ---------- --------- --------- - -- --------- ---------- Total Electric Utility Plant 4,655,891 432,751 43,302 - 5,045,340 Nonoperating Property 3,389 (608) - - - 2,781 ---------- --------- --------- - -- --------- ---------- Total Property and Plant $4,659,280 $ 432,143 $ 43,302 $ - $5,048,121 ========== ========= =========== ========= ========== Nonutility Property Operating lease equipment, principally aircraft $ 438,177 $ 393,395 $ - - $ (88,558)$ 743,014 ========== ========= =========== ========= ========== Sale of aircraft lease equipment and aircraft ($84,356,000) transferred to partnership. Additions to Electric Utility Plant include an Allowance for Funds Used During Construction (AFUDC). 41
POTOMAC ELECTRIC POWER COMPANY SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E Col. F ------ ------ ------ ---- - -- ------ ------ Additions Balance charged Other Balance at to costs changes at end beginning and add of Description of period expenses Retirements (deduct) period - --------------------------------------- ----------- --------- - -------------- ---------- ---------- (Thousands of Dollars) Accumulated Depreciation: - ------------------------- Electric Utility Plant: Production plant (steam generation) $ 579,826 $ 52,060 $ 30,060 $ - $ 601,826 Production plant (other generation) 66,174 16,666 346 - 82,494 Transmission plant 152,032 10,961 (363) - 163,356 Distribution plant 560,143 58,573 23,135 - 595,581 General plant and other 72,375 15,223 4,473 - 83,125 ----------- --------- - -------------- ---------- ---------- 1,430,550 153,483 57,651 - 1,526,382 Nonoperating Property 414 63 - - 477 ----------- --------- - -------------- ---------- ---------- Total Accumulated Depreciation 1,430,964 153,546 57,651 - 1,526,859 ----------- --------- - -------------- ---------- ---------- Accumulated Amortization: - ------------------------- Electric Utility Plant: Production plant (other generation) 116 53 - - 169 General plant and other 5,287 482 - 1,202 6,971 ----------- --------- - -------------- ---------- ---------- Total Accumulated Amortization 5,403 535 - 1,202 7,140 ----------- --------- - -------------- ---------- ---------- Total Accumulated Depreciation and Amortization $ 1,436,367 $ 154,081 $ 57,651 $ 1,202 $1,533,999 =========== ========= ============== ========== ========== Nonutility Accumulated Depreciation - ----------------------------------- Operating lease equipment, principally aircraft $ 55,981 $ 29,321 $ - $ - $ 85,302 =========== ========= ============== ========== ========== Includes depreciation of "Production plant (steam generation)" ($501,000) and "General plant" ($4,079,000) charged to clearing accounts and subsequently redistributed to appropriate operating and construction accounts. Charged to Other Income. After deduction of net salvage. Reclassification of computer software costs from Deferred charges. 42
POTOMAC ELECTRIC POWER COMPANY SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1992
Col. A Col. B Col. C Col. D Col. E Col. F ------ ------ ------ ---- - -- ------ ------ Additions Balance charged Other Balance at to costs changes at end beginning and add of Description of period expenses Retirements (deduct) period - --------------------------------------- ----------- --------- - -------------- ---------- ---------- (Thousands of Dollars) Accumulated Depreciation: - ------------------------- Electric Utility Plant: Production plant (steam generation) $ 553,037 $ 53,230 $ 26,441 $ - $ 579,826 Production plant (other generation) 52,261 13,141 (772) - 66,174 Transmission plant 144,876 10,580 3,424 - 152,032 Distribution plant 522,104 51,939 13,900 - 560,143 General plant and other 63,746 14,457 5,828 - 72,375 ----------- --------- - -------------- ---------- ---------- 1,336,024 143,347 48,821 - 1,430,550 Nonoperating Property 351 63 - - 414 ----------- --------- - -------------- ---------- ---------- Total Accumulated Depreciation 1,336,375 143,410 48,821 - 1,430,964 ----------- --------- - -------------- ---------- ---------- Accumulated Amortization: - ------------------------- Electric Utility Plant: Production plant (other generation) 63 53 - - 116 General plant and other 4,817 470 - - 5,287 ----------- --------- - -------------- ---------- ---------- Total Accumulated Amortization 4,880 523 - - 5,403 ----------- --------- - -------------- ---------- ---------- Total Accumulated Depreciation and Amortization $ 1,341,255 $ 143,933 $ 48,821 $ - $1,436,367 =========== ========= ============== ========== ========== Nonutility Accumulated Depreciation - ----------------------------------- Operating lease equipment, principally aircraft $ 36,018 $ 29,322 $ - $ (9,359)$ 55,981 =========== ========= ============== ========== ========== Includes depreciation of "Production plant (steam generation)" ($527,000) and "General plant" ($4,253,000) charged to clearing accounts and subsequently redistributed to appropriate operating and construction accounts. Charged to Other Income. After deduction of net salvage. Principally sale of aircraft lease equipment and transfer of aircraft to finance leases. 43
POTOMAC ELECTRIC POWER COMPANY SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1991
Col. A Col. B Col. C Col. D Col. E Col. F ------ ------ ------ ---- - -- ------ ------ Additions Balance charged Other Balance at to costs changes at end beginning and add of Description of period expenses Retirements (deduct) period - --------------------------------------- ----------- --------- - -------------- ---------- ---------- (Thousands of Dollars) Accumulated Depreciation: - ------------------------- Electric Utility Plant: Production plant (steam generation) $ 533,535 $ 51,825 $ 32,323 $ - $ 553,037 Production plant (other generation) 49,167 6,482 3,388 - 52,261 Transmission plant 135,977 9,827 928 - 144,876 Distribution plant 483,998 48,793 10,687 - 522,104 General plant and other 53,941 13,248 3,443 - 63,746 ----------- --------- - -------------- ---------- ---------- 1,256,618 130,175 50,769 - 1,336,024 Nonoperating Property 291 60 - - 351 ----------- --------- - -------------- ---------- ---------- Total Accumulated Depreciation 1,256,909 130,235 50,769 - 1,336,375 ----------- --------- - -------------- ---------- ---------- Accumulated Amortization: - ------------------------- Electric Utility Plant: Production plant (other generation) 17 46 - - 63 General plant and other 4,362 455 - - 4,817 ----------- --------- - -------------- ---------- ---------- Total Accumulated Amortization 4,379 501 - - 4,880 ----------- --------- - -------------- ---------- ---------- Total Accumulated Depreciation and Amortization $ 1,261,288 $ 130,736 $ 50,769 $ - $1,341,255 =========== ========= ============== ========== ========== Nonutility Accumulated Depreciation - ----------------------------------- Operating lease equipment, principally aircraft $ 13,942 $ 23,647 $ - $ (1,571)$ 36,018 =========== ========= ============== ========== ========== Includes depreciation of "Production plant (steam generation)" ($525,000) and "General plant" ($4,504,000) charged to clearing accounts and subsequently redistributed to appropriate operating and construction accounts. Charged to Other Income. After deduction of net salvage. Principally transfer of aircraft lease equipment to partnership. 44
POTOMAC ELECTRIC POWER COMPANY SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Col. A Col. B Col. C Col. D Col. E ------ ------ ------ ------ ------ Additions Balance - ------------------------- Balance at Charged to Charged to at Beginning Costs and Other End Description of Period Expenses Accounts Deductions of Period - ------------------------------------------- --------- ---------- - ----------- ------------- --------- (Thousands of Dollars) Year Ended December 31, 1993 Allowance for uncollectible accounts - customer and other accounts receivable $ 2,709 $ 6,451 $ 658 $ (6,770) $ 3,048 Year Ended December 31, 1992 Allowance for uncollectible accounts - customer and other accounts receivable $ 3,115 $ 5,753 $ 836 $ (6,995) $ 2,709 Year Ended December 31, 1991 Allowance for uncollectible accounts - customer and other accounts receivable $ 3,189 $ 4,861 $ 663 $ (5,598) $ 3,115 Collection of accounts previously written off. Uncollectible accounts written off. 45
POTOMAC ELECTRIC POWER COMPANY SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Col. A Col. B Col. C Col. D Col. E Col. F ------ ------ ------ ------ - - ----- ------ Maximum Average Weighted Aggregate Aggregate Weighted Balance Average Face Amount Face Amount Average At End Effective Outstanding Outstanding Effective Category of Aggregate Of Interest During During the Interest Short-Term Borrowings Period Rate the Period Period Rate - ------------------------------ ---------- --------- ----------- --- - -------- --------- (000s) (000s) (000s) Year Ended December 31, 1993 Payable to Holders of Commercial Paper $ 274,615 3.34 % $ 274,615 $ 105,777 3.12 % Payable to Banks $ 20,000 3.01 % $ 20,000 $ 20,000 3.00 % Year Ended December 31, 1992 Payable to Holders of Commercial Paper $ 41,600 3.48 % $ 199,980 $ 80,948 3.92 % Payable to Banks $ 20,000 3.16 % $ 20,000 $ 20,000 3.54 % Year Ended December 31, 1991 Payable to Holders of Commercial Paper $ 66,800 5.19 % $ 262,760 $ 120,205 6.34 % Payable to Banks $ 20,000 4.44 % $ 20,000 $ 20,000 5.72 % Non-Utility Subsidiary: - ----------------------- Year Ended December 31, 1993 Payable to Holders of Commercial Paper $ 126,250 3.53 % $ 339,900 $ 156,400 3.26 % Year Ended December 31, 1992 Payable to Holders of Commercial Paper $ 263,515 3.62 % $ 342,000 $ 255,000 3.76 % Year Ended December 31, 1991 Payable to Holders of Commercial Paper $ 270,905 5.20 % $ 349,300 $ 303,381 5.96 % Calculation of average amounts have been weighted by the dollar amounts of the notes outstanding. 46
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Washington, District of Columbia, on the 25th day of March, 1994. POTOMAC ELECTRIC POWER COMPANY (Registrant) By /s/ E. F. Mitchell -------------------------- (Edward F. Mitchell, Chairman of the Board and Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signature Title Date --------- ----- ---- (i) Principal Executive Officer /s/ E. F. Mitchell --------------------------- Chairman of the Board and (Edward F. Mitchell) Chief Executive Officer (ii) Principal Financial Officer /s/ H. L. Davis --------------------------- Vice Chairman and Chief (H. Lowell Davis) Financial Officer and Director (iii) Principal Accounting Officer /s/ D. R. Wraase --------------------------- Senior Vice President (Dennis R. Wraase) Finance and Accounting March 25, 1994 47 Signature Title Date --------- ----- ---- (iv) Directors: /s/ Roger R. Blunt ------------------------- Director (Roger R. Blunt Sr.) /s/ A. J. Clark ------------------------- Director (A. James Clark) /s/ Richard E. Marriott ------------------------- Director (Richard E. Marriott) /s/ David O. Maxwell ------------------------ Director (David O. Maxwell) /s/ Floretta D. McKenzie ------------------------- Director (Floretta D. McKenzie) /s/ Ann D. McLaughlin ------------------------- Director (Ann D. McLaughlin) /s/ Peter F. O'Malley ------------------------- Director (Peter F. O'Malley) /s/ Louis A. Simpson ------------------------- Director (Louis A. Simpson) /s/ W. Reid Thompson ------------------------- Director (W. Reid Thompson) 48 Signature Title Date --------- ----- ---- (iv) Directors: /s/ Charls E. Walker ------------------------- Director (Charls E. Walker) March 25, 1994 49 EX-3.A 2 ARTICLES OF INCORPORATION RESTATED ARTICLES OF INCORPORATION AND ARTICLES OF RESTATEMENT OF POTOMAC ELECTRIC POWER COMPANY These Restated Articles of Incorporation and Articles of Restatement were duly adopted on December 21, 1992 by the Board of Directors of Potomac Electric Power Company (hereinafter sometimes called the "Company"), a District of Columbia corporation and a domestic corporation of the Commonwealth of Virginia, in accordance with the provisions of Section 58a of the District of Columbia Business Corporation Act, D.C. Code Section 29-358.1, and Chapter 522 of the Virginia State Corporation Act, Va. Code Section 13.1-711 (1989 Replacement Volume). The Company's Articles of Incorporation were originally filed in the District of Columbia on April 28, 1896, and Articles of Reincorporation of an Existing Domestic Corporation were filed in the District of Columbia on January 20, 1957. The Restated Articles of Incorporation and Articles of Restatement only restate and integrate and do not further amend the provisions of the Company's articles of incorporation as previously amended or supplemented, and there is no discrepancy between those provisions and the provisions of these restated articles. The Restated Articles of Incorporation and Articles of Restatement of the Company are as follows: I. The name of the Company is POTOMAC ELECTRIC POWER COMPANY. II. The duration of the Company shall be perpetual. III. The purposes for which the Company is organized are: (A) To manufacture, produce, generate, buy, sell, lease, deal in, transmit and distribute (i) power, light, energy and heat in the form of electricity or otherwise, (ii) by-products thereof and (iii) appliances, facilities and equipment for use in connection therewith; (B) To acquire (by construction, purchase, condemnation, lease or otherwise), use, maintain, operate, deal in and dispose of, power plants, dams, substations, office buildings, service buildings, transmission lines, distribution lines, and all other buildings, machinery, property (real, personal or mixed) and facilities (including water power and other sites), and all fixtures, equipments and appliances, necessary, appropriate, incidental or convenient for its corporate purposes; and (C) To conduct business as a public service company, which business is briefly described as the purchase, manufacture, generation, transmission, distribution and sale, both at wholesale and at retail, of electricity or other power or energy for light, heat and power purposes in the District of Columbia, the Commonwealth of Virginia, the State of Maryland and elsewhere. IV. The aggregate number of shares which the Company shall have authority to issue is 215,042,227 divided into three classes: the first consisting of 6,242,227 shares of the par value of $50 each; the second consisting of 8,800,000 shares of the par value of $25 each; and the third consisting of 200,000,000 shares of the par value of $1 each. V. Said 6,242,227 shares of the par value of $50 each are designated as Serial Preferred Stock; said 8,800,000 shares of the par value of $25 each are designated as Preference Stock; and said 200,000,000 shares of the par value of $1 each are designated as Common Stock. Such of said authorized shares of Serial Preferred Stock, Preference Stock and Common Stock as are unissued at any time may be issued, in whole or in part, at any time or from time to time by action of the Board of Directors of the Company, subject to the laws in force in the District of Columbia and the Commonwealth of Virginia and the terms and conditions set forth in the Articles of Incorporation, as amended, of the Company. The preferences, qualifications, limitations, and restrictions, the special or relative rights, and the voting power in respect of the shares of each said class are as follows: (A) SERIAL PREFERRED STOCK (a) Subject to the provisions hereafter in this subdivision (A) set forth, the Serial Preferred Stock may be divided into and issued, from time to time, in one or more series as the Board of Directors may determine, and the Board of Directors is hereby expressly authorized to adopt from time to time resolutions, in respect of any unissued shares of Serial Preferred Stock, to fix and determine: (1) The division of such shares into series and the designation and authorized number of the shares of the particular series; (2) The rate of dividend for the particular series; (3) The price or prices at and the terms and conditions on which shares of the particular series may be redeemed; (4) The amount payable upon shares of the particular series in the event of voluntary liquidation; (5) Sinking fund provisions (if any) for the redemption or purchase of shares of the particular series; and (6) The terms and conditions (if any) on which the shares of the particular series may be converted into other classes of stock of the Company; All shares of Serial Preferred Stock shall be of equal rank with each other, regardless of series, and all shares thereof shall be identical except as to the above listed relative rights and preferences, in respect of any or all of which there may be variations between different series as fixed and determined by the Board of Directors in said resolutions. All shares of the Serial Preferred Stock of any one series shall be identical with each other in all respects. (b) The following terms, as used in this subdivision (A), shall have the following meanings: (1) The term senior stock shall mean any class of stock ranking in its claim to assets or dividends prior to the 1,600,000 shares of Serial Preferred Stock created hereby; (2) The term parity stock shall mean any class of stock ranking in its claim to assets or dividends on a parity with the Serial Preferred Stock, but shall not include any of the 1,600,000 shares of Serial Preferred Stock created hereby, nor shall it include any increase in the authorized amount of the Serial Preferred Stock; and (3) The term junior stock shall mean the Common Stock and any other class of stock ranking in its claim to assets or dividends junior to the Serial Preferred Stock. (c) The holders of the Serial Preferred Stock shall be entitled to receive, but only when and as declared by the Board of Directors, cumulative cash dividends in the case of each series at the annual rate for such series theretofore fixed by the Board of Directors as hereinbefore provided, payable quarter-yearly on the first days of March, June, September and December in each year to stockholders of record on the respective dates fixed for the purpose by the Board of Directors as dividends are declared. No dividend shall be declared on any shares of the Serial Preferred Stock unless there shall likewise be declared on all shares of the Serial Preferred Stock at the time outstanding like dividends, ratably in proportion to the respective annual dividend rates fixed therefor. The dividends on shares of the Serial Preferred Stock shall be cumulative from the quarter-yearly dividend payment date next preceding the date of issue of such shares, unless such shares shall have been issued after the record date and before the payment date for a particular dividend, in which case the dividends shall be cumulative from the quarter-yearly dividend payment date next ensuing after the date of issue of such shares. Unless dividends on all outstanding shares of the Serial Preferred Stock, at the annual dividend rate or rates fixed therefor, shall have been paid for all past quarter-yearly dividend periods to which they are entitled, and the full dividend thereon at said rate or rates for the quarter-yearly dividend period current at the time shall have been paid or declared and set apart for payment, but without interest on accumulated dividends, and unless all sinking fund payments, if any, theretofore required to have been made shall have been made or provided for, no dividends shall be declared and no other distribution shall be made on any junior stock, and no junior stock shall be purchased, retired or otherwise acquired for value by the Company. No dividend shall be declared on any junior stock payable more than 120 days after the date of declaration. The holders of the Serial Preferred Stock shall not be entitled to receive any dividends thereon other than the dividends referred to in this subdivision (c). (d) The Company, at the option of the Board of Directors or by the operation of the sinking fund, if any, provided for the Serial Preferred Stock of any series, may, from time to time, subject to such terms and conditions, if any, as may be fixed by the Board of Directors with respect to any series as hereinbefore provided, redeem the whole or any part of such series at any time outstanding, by paying in cash the applicable redemption price therefor theretofore fixed by the Board of Directors as hereinbefore provided. Notice of every such redemption shall be given by publication at least once in each of two calendar weeks in each of two daily newspapers printed in the English language, one published and of general circulation in the City of Washington, District of Columbia, and the other in the Borough of Manhattan, The City of New York, the first publication to be at least thirty days and not more than sixty days prior to the date fixed for such redemption. At least thirty days' and not more than sixty days' previous notice of every such redemption shall also be mailed to the holders of record of the shares so to be redeemed, at their respective addresses as the same shall appear on the books of the Company; but failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the proceedings for the redemption of any shares so to be redeemed. In case of the redemption of a part only of any series of the Serial Preferred Stock at the time outstanding, the Company or its duly authorized agent shall select by lot the shares so to be redeemed. The Board of Directors shall have full power and authority, subject to the limitations and provisions herein contained, to prescribe the manner in which the drawings by lot shall be conducted and the terms and conditions upon which the Serial Preferred Stock shall be redeemed from time to time. If such notice of redemption shall have been duly given by publication, and if on or before the redemption date specified therein the funds necessary for such redemption shall have been set aside by the Company, separate and apart from its other funds, in trust for the account of the holders of the shares so called for redemption, so as to be and continue to be available therefor, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed to be outstanding on and after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable upon redemption thereof, without interest. Provided, however, in the alternative, that, after giving notice by publication of any such redemption as hereinbefore provided or after giving to the bank or trust company referred to below irrevocable authorization to give or complete such notice by publication, and prior to the redemption date specified in such notice, the Company may deposit in trust, for the account of the holders of the shares of Serial Preferred Stock so to be redeemed, the funds necessary for such redemption with a bank or trust company in good standing, organized and doing business under the laws of the United States or of any state or territory or of the District of Columbia and having its principal office in the City of Washington, District of Columbia, or in the Borough of Manhattan, The City of New York, having capital, surplus and undivided profits aggregating at least Ten Million Dollars, designated in such notice of redemption, and thereupon all shares of the Serial Preferred Stock with respect to which such deposit shall have been made shall no longer be deemed to be outstanding, and all rights with respect to such shares of Serial Preferred Stock shall forthwith upon such deposit in trust cease and terminate, except only the right of the holders thereof to receive from such bank or trust company at any time after the time of such deposit the funds so deposited, without interest and the right to exercise, on or before such redemption date privileges of conversion or exchange, if any, not theretofore expiring. Shares of Serial Preferred Stock purchased or redeemed pursuant to any obligation of the Company to purchase or redeem shares for a sinking fund, shares redeemed pursuant to the provisions hereof or purchased and for which credit shall have been taken against any sinking fund obligation, and shares surrendered pursuant to any conversion right, shall not be reissued or otherwise disposed of and shall be canceled. Any other shares of Serial Preferred Stock redeemed or otherwise acquired by the Company shall continue to be part of the authorized capital stock of the Company and may thereafter, in the discretion of the Board of Directors and to the extent permitted by law, be sold or reissued from time to time, as part of the same or another series, subject to the terms and conditions herein set forth. If and so long as the Company shall be in default in the payment of any quarter-yearly dividend on shares of any series of the Serial Preferred Stock, or shall be in default in the payment of funds into or the setting aside of funds for any sinking fund created for any series of the Serial Preferred Stock, the Company may not (other than by the use of unapplied funds, if any, paid into or set aside for a sinking fund or funds prior to such default) (i) redeem any shares of the Serial Preferred Stock unless all shares thereof are redeemed, or (ii) purchase or otherwise acquire for a consideration any shares of the Serial Preferred Stock, except pursuant to offers of sale made by holders of the Serial Preferred Stock in response to an invitation for tenders given simultaneously by the Company by mail to the holders of record of all shares of the Serial Preferred Stock then outstanding. (e) In the event of any voluntary liquidation, dissolution or winding up of the Company, then, before any distribution or payment shall be made to the holders of any junior stock, the holder of each share of the Serial Preferred Stock shall be entitled to be paid in full in cash the amount fixed with respect to such share by the Board of Directors as hereinbefore provided, together with an amount computed at the annual dividend rate therefor from the date upon which dividends thereon became cumulative to the date fixed for the payment thereof, less the aggregate of the dividends theretofore paid thereon. If such payments shall have been made in full to the holders of the Serial Preferred Stock, the remaining assets and funds of the Company shall be distributed among the holders of the Common Stock and any other junior stock according to their respective rights, preferences, restrictions, qualifications and shares. In the event of any involuntary liquidation, dissolution or winding up of the Company, then, before any distribution or payment shall be made to the holders of any junior stock, the holder of each share of the Serial Preferred Stock shall be entitled to be paid in full the par value thereof in cash, together with an amount computed at the annual dividend rate therefor from the date upon which dividends thereon became cumulative to the date fixed for the payment thereof, less the aggregate of the dividends theretofore paid thereon. If such payments shall have been made in full to the holders of the Serial Preferred Stock, the remaining assets and funds of the Company shall be distributed among the holders of the Common Stock and any other junior stock according to their respective rights, preferences, restrictions, qualifications and shares. With respect to the payments to be made in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company, all series of the Serial Preferred Stock shall rank ratably according to their respective interests without preference of any series thereof over any other series. (f) Subject to the limitations hereinafter specified, whenever the full dividends on the Serial Preferred Stock at the time outstanding for all past quarter-yearly dividend periods shall have been paid and the full dividend thereon for the quarter-yearly dividend period then current shall have been paid or declared and a sum sufficient for the payment thereof set apart, then such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors may be declared on the Common Stock and any other junior stock, and the Serial Preferred Stock shall not be entitled to participate in any such dividends. (g) So long as any shares of the Serial Preferred Stock are outstanding, no amendment to the Articles of Incorporation of the Company which would (i) create, change any junior stock into, or increase the rights and preferences of, any senior or parity stock, (ii) increase the authorized amount of the Serial Preferred Stock in excess of the 1,600,000 shares created hereby or the authorized amount of any senior or parity stock, or (iii) change the express terms of the outstanding shares of Serial Preferred Stock in any manner substantially prejudicial to the holders thereof, shall be made without the affirmative consent (given in writing without a meeting or by a vote at a meeting duly called for the purpose) of the holders of more than two thirds of the aggregate number of shares of the Serial Preferred Stock then outstanding; but any such amendment may be made with such affirmative consent, together with such additional vote or consent of stockholders as from time to time may be required by law; provided, however, that if any such amendment would change the express terms of the outstanding shares of Serial Preferred Stock of any particular series in any manner substantially prejudicial to the holders thereof without correspondingly affecting the holders of the outstanding shares of Serial Preferred Stock of all series, then, in lieu of such consent of the holders of Serial Preferred Stock (or, if such consent of the holders of the outstanding shares of Serial Preferred Stock is required by law, in addition thereto), a like affirmative consent of the holders of more than two thirds of the Serial Preferred Stock of the affected series at the time outstanding shall be necessary for making such amendment. (h) So long as any shares of the Serial Preferred Stock are outstanding, the Company shall not, without the affirmative consent (given in writing without a meeting or by a vote at a meeting duly called for the purpose) of the holders of at least a majority of the aggregate number of shares of the Serial Preferred Stock then outstanding: (1) issue any shares of the Serial Preferred Stock, in excess of 300,000 shares thereof at any one time outstanding, or issue any shares of senior or parity stock (either directly or by reclassification), unless for a period of twelve consecutive calendar months within the fifteen calendar months next preceding the date on which such shares are to be issued net earnings (after depreciation and taxes but before deducting interest) have been at least one and one-half times the annual interest charges and dividend requirements on all indebtedness of the Company and on all shares of Serial Preferred Stock and senior and parity stock which shall then be outstanding; for the purpose of such computation, the shares and any indebtedness proposed to be issued in connection with such issue shall be included, but any indebtedness or shares proposed to be retired in connection with such issue shall be excluded, and in determining such net earnings, the Board of Directors of the Company shall make such adjustments, by way of increase or decrease in such net earnings, as shall in their opinion be necessary to give effect, for the entire twelve months for which such net earnings are determined, to any acquisition or disposition of property the earnings of which can be separately ascertained, and to any issue, sale, assumption or retirement of securities, which shall have occurred after the commencement of such twelve months' period and prior to or in connection with the issue of the shares of the Serial Preferred Stock or senior or parity stock; or (2) issue any shares of the Serial Preferred Stock, in excess of 300,000 shares thereof at any one time outstanding, or issue any shares of senior or parity stock (either directly or by reclassification), unless immediately after such proposed issue the aggregate of (i) the capital of the Company applicable to its stock ranking junior as to assets and dividends and (ii) the surplus of the Company shall be not less than the aggregate amount payable upon involuntary liquidation to the holders of the Serial Preferred Stock and of senior and parity stock then to be outstanding, excluding from such computation all stock to be retired through such proposed issue; or (3) issue any unsecured notes, debentures or other securities representing unsecured indebtedness, or assume or guarantee any such unsecured securities, other than for the extension, renewal or refunding of outstanding debt securities theretofore issued or assumed, or for the redemption or retirement of shares of the Serial Preferred Stock or of any senior or parity stock, if immediately after such issue or assumption the total principal amount of such unsecured securities then outstanding would exceed twenty-five per cent of the aggregate of (i) the total principal amount of all bonds or other securities representing secured indebtedness issued, assumed or guaranteed by the Company and then to be outstanding and (ii) the capital and surplus of the Company as then stated on its books less any known excess of book value of the Company's physical property which is devoted to public use over (I) the actual cost thereof to the Company and (II) as to such property as was not acquired as the result of arm's length negotiations, the actual cost thereof to the one first devoting the same to public use; or (4) merge or consolidate with or into any other corporation or corporations or sell or lease all or substantially all of its assets, unless such merger, consolidation, sale or lease, or the issue and assumption of all securities to be issued or assumed in connection with any such merger, consolidation, sale or lease shall have been ordered, approved or permitted by the regulatory authority or authorities having jurisdiction in the premises; provided that the provisions of this clause (4) shall not apply to a purchase, lease or other acquisition by the Company of the franchises or assets of another corporation, or otherwise apply in any manner which does not involve a merger or consolidation or sale or lease by the Company of all or substantially all of its assets. (i) So long as any shares of the Serial Preferred Stock are outstanding, the Company shall not pay any dividends on its Common Stock (other than dividends payable in Common Stock) or make any distribution on, or purchase or otherwise acquire for value, any of its Common Stock (each such payment, distribution, purchase and/or acquisition being herein referred to as a "Common Stock dividend"), except to the extent permitted by the following provisions: (1) No Common Stock dividend shall be declared or paid in an amount which, together with all other Common Stock dividends declared in the year ending on (and including) the date of the declaration of such Common Stock dividend, would in the aggregate exceed 50% of the net earnings of the Company for the period consisting of the twelve consecutive calendar months ending on the last day of the calendar month next preceding the declaration of such Common Stock dividend, after deducting from such net earnings dividends accruing on any stock other than Common Stock of the Company during such period, if at the end of such period, the ratio (herein referred to as the "capitalization ratio") of the sum of (i) the capital represented by the Common Stock (including premiums on Common Stock) and (ii) the surplus accounts of the Company, to the sum of (I) the total capital and (II) the surplus accounts of the Company (after adjustment in each case of the surplus accounts to reflect payment of such Common Stock dividend) would be less than 20%. (2) If such capitalization ratio, determined as aforesaid, shall be 20% or more, but less than 25%, no Common Stock dividend shall be declared or paid in an amount which, together with all other Common Stock dividends declared in the year ending on (and including) the date of the declaration of such Common Stock dividend, would in the aggregate exceed 75% of the net earnings of the Company for the period consisting of the twelve consecutive calendar months ending on the last day of the calendar month next preceding the declaration of such Common Stock dividend after deducting from such net earnings dividends accruing on any stock other than the Common Stock of the Company during such period; and (3) If such capitalization ratio, determined as aforesaid, shall be in excess of 25%, no Common Stock dividend shall be declared or paid which would reduce such capitalization ratio to less than 25% except to the extent permitted by the next preceding subparagraphs (1) and (2). For the purposes of this subdivision (i) the total capital of the Company shall be deemed to consist of the aggregate of (x) the principal amount of all outstanding indebtedness of the Company represented by bonds, notes or other evidences of indebtedness maturing by their terms one year or more after the date of the issue thereof and (y) the par or stated value of all outstanding capital stock (including premiums on capital stock) of all classes of the Company. All indebtedness and shares of stock of the Company acquired by the Company and held in its treasury shall be excluded in determining total capital. Purchases or other acquisitions of Common Stock shall be deemed, for the purposes of the foregoing provisions of this subdivision (i), to have been declared as dividends as of the date on which such purchases or acquisitions are consummated. (j) No holder of Serial Preferred Stock shall be entitled as such as a matter of right to subscribe for or purchase any part of any new or additional issue of stock, or securities convertible into, or carrying or evidencing any right to purchase, stock, of any class whatever, whether now or hereafter authorized, and whether issued for cash, property, services or otherwise. (k) Except as otherwise in subdivisions (g) and (h) of this subdivision (A) or by statute specifically provided, the Serial Preferred Stock shall have no voting power unless and until dividends payable thereon are in default in an amount equivalent to four full quarter-yearly dividends on the Serial Preferred Stock at the time outstanding. In such event and until such default shall have been remedied as hereinafter provided, the holders of Serial Preferred Stock, voting separately, shall become entitled to elect twenty-five percent of the Board of Directors, or the smallest number of directors that exceeds twenty-five percent of the Board, but in no event less than two directors, and the other stockholders then entitled to vote for the election of directors, voting separately by classes if so required by the provisions applicable to such classes, shall be entitled to elect the remaining directors of the Company. Upon the accrual of such special right to the holders of Serial Preferred Stock a meeting of the stockholders then entitled to vote for the election of directors shall be held upon notice promptly given, as provided in the By-Laws for a special meeting, by the President or the Chairman of the Board of the Company. If within fifteen days after the accrual of such special right to the holders of Serial Preferred Stock, the President and the Chairman of the Board of the Company shall fail to call such meeting, then such meeting shall be held upon notice, as provided in the By-Laws for a special meeting, given by the holders of not less than five hundred shares of Serial Preferred Stock after filing with the Company notice of their intention so to do. The terms of office of all persons who may be directors of the Company at the time shall terminate upon the election of directors by the holders of Serial Preferred Stock, whether or not at the time of such termination the remaining directors of the Company shall have been elected; and thereafter and during the continuance of such special right of the holders of Serial Preferred Stock, the Board of Directors shall be divided into two or more classes, one class consisting of the directors to be elected by the holders of Serial Preferred Stock and the other class or classes consisting of the directors to be elected by the other stockholders entitled to vote for the election of directors, and the directors of each such class elected at such meeting, or at any adjournment thereof, and the directors of each such class elected at any subsequent annual meeting for the election of directors, held during the continuance of such special right, shall hold office until the next succeeding annual election and until their respective successors by classes are elected and qualified. However, if and when all dividends then in default on the Serial Preferred Stock shall be paid (and such dividends shall be declared and paid as soon as reasonably practicable out of surplus or net profits, but without diminishing the amount of capital of the Company), the holders of Serial Preferred Stock shall be divested of such special right, but subject always to the same provisions for the revesting of such special right in the holders of Serial Preferred Stock in the case of any similar future default or defaults. Whenever the holders of Serial Preferred Stock shall be so divested of such special right, the method of election of the Board of Directors by the vote of the other stockholders entitled to vote for the election of directors exclusively shall be restored, and the election of directors shall take place at the next succeeding annual meeting for the election of directors, or at any adjournment thereof. (l) Except as hereinafter provided, during the continuance of the special right of the holders of Serial Preferred Stock to elect directors as provided in subdivision (k) of this subdivision (A), at all meetings for the election of directors the presence in person or by proxy of the holders of record of a majority of the outstanding shares of Serial Preferred Stock shall be necessary to constitute a quorum for the election of directors whom the holders of Serial Preferred Stock are entitled to elect, and the presence in person or by proxy of the holders of record of a majority of the outstanding shares of each other class of stock then entitled to vote for the election of directors shall be necessary to constitute a quorum for the election of the directors whom the holders of such class of stock are entitled to elect. In the absence of such a quorum of the holders of stock of any particular class then entitled to vote for the election of directors, the holders of a majority of the shares of the stock of such class so present in person or represented by proxy may adjourn from time to time the meeting for the election of directors to be elected by such stock, without notice other than announcement at the meeting, until the requisite quorum of holders of such stock shall be obtained. However, at the first meeting for the election of directors after any accrual of the special right of the holders of Serial Preferred Stock, and at any subsequent annual meeting for the election of directors held during the continuance of such special right, if there shall not be such a quorum of the holders of Serial Preferred Stock the meeting shall be adjourned from time to time as above provided until such quorum shall have been obtained; provided that, if such quorum shall not have been obtained within ninety days from the date of such meeting as originally called (or, in the case of any annual meeting held during the continuance of such special right, from the date fixed for such annual meeting), the presence in person or by proxy of the holders of record of one third of the outstanding shares of Serial Preferred Stock shall then be sufficient to constitute a quorum for the election of the directors whom the holders of Serial Preferred Stock are then entitled to elect. The absence of a quorum of the holders of any class of stock then entitled to vote for the election of directors shall not, except as hereinafter provided, prevent or invalidate the election by the other class or classes of stockholders of the directors which they are entitled to elect, if the necessary quorum of stockholders of such other class or classes is present in person or represented by proxy at any such meeting or any adjournment thereof. However, at the first meeting for the election of directors after any accrual of the special right of the holders of Serial Preferred Stock to elect directors as provided in subdivision (k) of this subdivision (A), the absence of a quorum of the holders of Serial Preferred Stock shall prevent the election of directors by the holders of Common Stock until the election of directors by the holders of Serial Preferred Stock after a quorum of the holders of Serial Preferred Stock shall have been obtained. (B) PREFERENCE STOCK (a) Subject to the provisions hereafter in this subdivision (B) set forth, the Preference Stock may be divided into and issued, from time to time, in one or more series as the Board of Directors may determine, and the Board of Directors is hereby expressly authorized to adopt from time to time resolutions, in respect of any unissued shares of Preference Stock, to fix and determine: (1) The division of such shares into series and the designation and authorized number of shares of the particular series; (2) The rate of dividend and the time of payment for the particular series and the dates from which dividends on all shares of such series issued prior to the record date for the first dividend on shares of such series shall be cumulative; (3) The price or prices at and the terms and conditions on which shares of the particular series may be redeemed; (4) The amount payable upon shares of the particular series in the event of voluntary liquidation; (5) Sinking fund provisions (if any) for the redemption or purchase of shares of the particular series; and (6) The terms and conditions (if any) on which the shares of the particular series may be converted into other classes of stock of the Company. All shares of Preference Stock shall be of equal rank with each other, regardless of series, and all shares thereof shall be identical except as to the above listed relative rights and preferences, in respect of any or all of which there may be variations between different series as fixed and determined by the Board of Directors in said resolutions. All shares of the Preference Stock of any one series shall be identical with each other in all respects. All shares of the Preference Stock shall be subject to the prior rights and preferences of the Serial Preferred Stock as defined in subdivision (A) above and any other senior stock as defined in subdivision (b) (1) below hereafter authorized. (b) The following terms, as used in this subdivision (B), shall have the following meanings: (1) The term senior stock as used in this subdivision (B) shall mean the Serial Preferred Stock and any other class of stock ranking in its claim to assets or dividends prior to the 5,000,000 shares of Preference Stock created hereby; (2) The term parity stock as used in this subdivision (B) shall mean any class of stock ranking in its claim to assets or dividends on a parity with the Preference Stock, but shall not include any of the 8,800,000 shares of Preference Stock provided for hereby, nor shall it include any increase in the authorized amount of the Preference Stock; and (3) The term junior stock as used in this subdivision (B) shall mean the Common Stock and any other class of stock ranking in its claim to assets or dividends junior to the Preference Stock. (c) The holders of the Preference Stock shall be entitled, subject to the prior rights and preferences of senior stock, to receive, but only when and as declared by the Board of Directors, cumulative cash dividends in the case of each series at the annual rate for such series theretofore fixed by the Board of Directors as hereinbefore provided, payable quarter-yearly on the first days of March, June, September and December (or such other quarter- yearly dates for a particular series as the Board of Directors may determine prior to the issue thereof as hereinbefore provided) in each year to stockholders of record on the respective dates fixed for the purpose by the Board of Directors as dividends are declared. No dividend shall be declared on any shares of Preference Stock of any series for any particular dividend period unless dividends in full have been paid or declared and set apart for payment or are contemporaneously declared and set apart for payment on the Preference Stock of all series then outstanding for all dividend periods terminating at or before the end of the particular dividend period. When dividends at the respective annual dividend rates are not paid in full on any shares of Preference Stock, the shares of all series of Preference Stock shall share ratably in the payment of dividends including accumulations, if any, in accordance with the sums which would be payable on such shares if all dividends were declared and paid in full. The dividends on shares of Preference Stock shall be cumulative in the case of all shares of each particular series (a) if issued prior to the record date for the first dividend on shares of such series, then from the date theretofore fixed for the purpose by the Board of Directors as hereinbefore provided, or, if no such date is so fixed, then from the date on which the shares of such series shall have been originally issued, (b) if issued after the record date for a dividend on shares of such series and before the payment date for such dividend then from such dividend payment date; and (c) otherwise from the quarterly dividend payment date next preceding the date of issue of such shares. Unless dividends on all outstanding shares of the Preference Stock, at the annual dividend rate or rates fixed therefor, shall have been paid for all past quarter-yearly dividend periods to which they are entitled, and the full dividend thereon at said rate or rates for the quarter-yearly dividend periods current at the time shall have been paid or declared and set apart for payment, but without interest on accumulated dividends, and unless all sinking fund payments, if any, theretofore required to have been made shall have been made or provided for, no dividends shall be declared and no other distribution shall be made on any junior stock, and no junior stock shall be purchased, retired or otherwise acquired for value by the Company. No dividend shall be declared on any junior stock payable more than 120 days after the date of declaration. The holders of the Preference Stock shall not be entitled to receive any dividends thereon other than the dividends referred to in this subdivision (c). (d) The Company, at the option of the Board of Directors or by the operation of the sinking fund, if any, provided for the Preference Stock of any series, may, from time to time, subject to such terms and conditions, if any, as may be fixed by the Board of Directors with respect to any series as hereinbefore provided, and subject to the prior rights and preferences of senior stock, redeem the whole or any part of such series at any time outstanding, by paying in cash the applicable redemption price theretofore fixed by the Board of Directors as hereinbefore provided. Notice of every such redemption shall be given by publication at least once in each of two calendar weeks in each of two daily newspapers printed in the English language, one published and of general circulation in the City of Washington, District of Columbia, and the other in the Borough of Manhattan, The City of New York, the first publication to be at least thirty days and not more than sixty days prior to the date fixed for such redemption. At least thirty days' and not more than sixty days' previous notice of every such redemption shall also be mailed to the holders of record of the shares so to be redeemed, at their respective addresses as the same shall appear on the books of the Company; but failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the proceedings for the redemption of any shares so to be redeemed. In case of the redemption of a part only of any series of the Preference Stock at the time outstanding, the Company or its duly authorized agent shall select by lot the shares so to be redeemed. The Board of Directors shall have full power and authority, subject to the limitations and provisions herein contained, to prescribe the manner in which the drawings by lot shall be conducted and the terms and conditions upon which the Preference Stock shall be redeemed from time to time. If such notice of redemption shall have been duly given by publication, and if on or before the redemption date specified therein the funds necessary for such redemption shall have been set aside by the Company, separate and apart from its other funds, in trust for the account of the holders of the shares so called for redemption so as to be and continue to be available therefor, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed to be outstanding on and after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable upon redemption thereof, without interest. Provided, however, in the alternative, that after giving notice by publication of any such redemption as hereinbefore provided or after giving to the bank or trust company referred to below irrevocable authorization to give or complete such notice by publication, and prior to the redemption date specified in such notice, the Company may deposit in trust, for the account of the holders of the shares of Preference Stock so to be redeemed, the funds necessary for such redemption with a bank or trust company in good standing, organized and doing business under the laws of the United States or of any state or territory or of the District of Columbia and having its principal office in the City of Washington, District of Columbia, or in the Borough of Manhattan, The City of New York, having capital, surplus and undivided profits aggregating at least Ten Million Dollars, designated in such notice of redemption, and thereupon all shares of the Preference Stock with respect to which such deposit shall have been made shall no longer be deemed to be outstanding, and all rights with respect to such shares of Preference Stock shall forthwith upon such deposit in trust cease and terminate, except only the right of the holders thereof to receive from such bank or trust company at any time after the time of such deposit the funds so deposited, without interest and the right to exercise, on or before such redemption date privileges of conversion or exchange, if any, not theretofore expiring. Shares of Preference Stock purchased or redeemed pursuant to any obligation of the Company to purchase or redeem shares for a sinking fund, shares redeemed pursuant to the provisions hereof or purchased and for which credit shall have been taken against any sinking fund obligation, and shares surrendered pursuant to any conversion right, shall not be reissued or otherwise disposed of and shall be cancelled. Any other shares of Preference Stock redeemed or otherwise acquired by the Company shall continue to be part of the authorized capital stock of the Company and may thereafter, in the discretion of the Board of Directors and to the extent permitted by law, be sold or reissued from time to time, as part of the same or another series, subject to the terms and conditions herein set forth. If and so long as the Company shall be in default in the payment of any quarter-yearly dividend on shares of any series of the Preference Stock, or shall be in default in the payment of funds into or the setting aside of funds for any sinking fund created for any series of the Preference Stock, the Company may not (other than by the use of unapplied funds, if any, paid into or set aside for a sinking fund or funds prior to such default) (i) redeem any shares of the Preference Stock unless all shares thereof are redeemed, or (ii) purchase or otherwise acquire for a consideration any shares of the Preference Stock, except pursuant to offers of sale made by holders of the Preference Stock in response to an invitation for tenders given simultaneously by the Company by mail to the holders of record of all shares of the Preference Stock then outstanding. (e) In the event of any voluntary liquidation, dissolution or winding up of the Company, then, before any distribution or payment shall be made to the holders of any junior stock, the holder of each share of the Preference Stock shall be entitled, subject to the prior rights and preferences of senior stock, to be paid in full in cash the amount fixed with respect to such share by the Board of Directors as hereinbefore provided, together with an amount computed at the annual dividend rate therefor from the date upon which dividends thereon became cumulative to the date fixed for the payment thereof, less the aggregate of the dividends theretofore paid thereon. If such payments shall have been made in full to the holders of the Preference Stock, the remaining assets and funds of the Company shall be distributed among the holders of the Common Stock and any other junior stock according to their respective rights, preferences, restrictions, qualifications and shares. In the event of any involuntary liquidation, dissolution or winding up of the Company, then, before any distribution or payment shall be made to the holders of any junior stock, the holder of each share of the Preference Stock shall be entitled, subject to the prior rights and preferences of senior stock, to be paid in full the par value thereof in cash, together with an amount computed at the annual dividend rate therefor from the date upon which dividends thereon became cumulative to the date fixed for the payment thereof, less the aggregate of the dividends theretofore paid thereon. If such payments shall have been made in full to the holders of the Preference Stock, the remaining assets and funds of the Company shall be distributed among the holders of the Common Stock and any other junior stock according to their respective rights, preferences, restrictions, qualifications and shares. With respect to the payments to be made in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company, all series of the Preference Stock shall rank ratably according to their respective interests without preference of any series thereof over any other series. (f) Whenever the full dividends on the Preference Stock at the time outstanding for all past quarter-yearly dividend periods shall have been paid and the full dividend thereon for the quarter-yearly dividend period then current shall have been paid or declared and a sum sufficient for the payment thereof set apart, then such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors may be declared on the Common Stock and any other junior stock, and the Preference Stock shall not be entitled to participate in any such dividends. (g) So long as any shares of the Preference Stock are outstanding, no amendment to the Articles of Incorporation of the Company which would (i) create, change any junior stock into, or increase the rights and preferences of, any senior or parity stock, (ii) increase the authorized amount of the Preference Stock in excess of the 5,000,000 shares created hereby or the authorized amount of any senior or parity stock, or (iii) change the express terms of the outstanding shares of Preference Stock in any manner substantially prejudicial to the holders thereof, shall be made without the affirmative consent (given in writing without a meeting or by a vote at a meeting duly called for the purpose) of the holders of more than two thirds of the aggregate number of shares of the Preference Stock then outstanding; but any such amendment may be made with such affirmative consent, together with such additional vote or consent of stockholders as from time to time may be required by law; provided, however, that if any such amendment would change the express terms of the outstanding shares of Preference Stock of any particular series in any manner substantially prejudicial to the holders thereof without correspondingly affecting the holders of the outstanding shares of Preference Stock of all series, then, in lieu of such consent of the holders of Preference Stock (or, if such consent of the holders of the outstanding shares of Preference Stock is required by law, in addition thereto), a like affirmative consent of the holders of more than two thirds of the Preference Stock of the affected series at the time outstanding shall be necessary for making such amendment. (h) So long as any shares of the Preference Stock are outstanding, the Company shall not, without the affirmative consent (given in writing without a meeting or by a vote at a meeting duly called for the purpose) of the holders of at least a majority of the aggregate number of shares of the Preference Stock then outstanding, merge or consolidate with or into any other corporation or corporations or sell or lease all or substantially all of its assets, unless such merger, consolidation, sale or lease, or the issue and assumption of all securities to be issued or assumed in connection with any such merger, consolidation, sale or lease shall have been ordered, approved or permitted by the regulatory authority or authorities having jurisdiction in the premises; provided that the provisions of this subdivision (h) shall not apply to a purchase, lease or other acquisition by the Company of the franchises or assets of another corporation, or otherwise apply in any manner which does not involve a merger or consolidation or sale or lease by the Company of all or substantially all of its assets. (i) No holder of Preference Stock shall be entitled as such as a matter of right to subscribe for or purchase any part of any new or additional issue of stock, or securities convertible into, or carrying or evidencing any right to purchase, stock, of any class whatever, whether now or hereafter authorized, and whether issued for cash, property, services or otherwise. (j) Except as otherwise in subdivisions (g) and (h) of this subdivision (B) or by statute specifically provided, the Preference Stock shall have no voting power unless and until dividends payable thereon are in default in an amount equivalent to six full quarter-yearly dividends on the Preference Stock at the time outstanding. In such event and until such default shall have been remedied as hereinafter provided, the holders of Preference Stock, voting separately, shall become entitled to elect two directors of the Company at the next meeting of stockholders for the election of directors (unless all dividends then in default on the Preference Stock shall have been paid), and the other stockholders then entitled to vote for the election of directors, voting separately by classes if so required by the provisions applicable to such classes, shall be entitled to elect the remaining directors of the Company. During the continuance of such special right of the holders of Preference Stock, the Board of Directors shall be divided into two or more classes, one consisting of the directors to be elected by the holders of Preference Stock and the other class or classes consisting of the directors to be elected by the other stockholders entitled to vote for the election of directors, and the directors of each such class elected at any meeting for the election of directors, held during the continuance of such special right, shall hold office, subject to the rights of any senior stock, until the next succeeding annual election and until their respective successors by classes are elected and qualified. However, if and when all dividends then in default on the Preference Stock shall be paid (and such dividends shall be declared and paid as soon as reasonably practicable out of surplus or net profits, but without diminishing the amount of capital of the Company), the holders of Preference Stock shall be divested of such special right, but subject always to the same provisions for the revesting of such special right in the holders of Preference Stock in the case of any similar future default or defaults. Whenever the holders of Preference Stock shall be so divested of such special right, the method of election of the Board of Directors by the vote of the other stockholders entitled to vote for the election of directors exclusively shall be restored and the election of directors shall take place at the next succeeding annual meeting for the election of directors, or at any adjournment thereof. (k) Except as hereinafter provided, during the continuance of the special right of the holders of Preference Stock to elect directors as provided in subdivision (j) of this subdivision (B), at all meetings for the election of directors the presence in person or by proxy of the holders of record of a majority of the outstanding shares of Preference Stock shall be necessary to constitute a quorum for the election of directors whom the holders of Preference Stock are entitled to elect, and the presence in person or by proxy of the holders of record of a majority of the outstanding shares of each other class of stock then entitled to vote for the election of directors shall, except as otherwise provided in subdivision (1) of subdivision (A), be necessary to constitute a quorum for the election of the directors whom the holders of such class of stock are entitled to elect. In the absence of such a quorum of the holders of stock of any particular class then entitled to vote for the election of directors, the holders of a majority of the shares of the stock of such class so present in person or represented by proxy may adjourn from time to time the meeting for the election of directors to be elected by such stock, without notice other than announcement at the meeting, until the requisite quorum of holders of such stock shall be obtained. The absence of a quorum of the holders of any class of stock then entitled to vote for the election of directors shall not, except as hereinbefore provided, prevent or invalidate the election by the other class or classes of stockholders of the directors which they are entitled to elect, if the necessary quorum of stockholders of such other class or classes is present in person or represented by proxy at any such meeting or any adjournment thereof. (C) COMMON STOCK (a) No holder of Common Stock shall be entitled as such as a matter of right to subscribe for or purchase any part of any new or additional issue of stock, or securities convertible into, or carrying or evidencing any right to purchase, stock, of any class whatever, whether now or hereafter authorized, and whether issued for cash, property, services or otherwise. (b) Except as otherwise provided by statute or by this Article V, voting rights for all purposes shall be vested exclusively in the holders of the Common Stock, who shall have one vote for each share held by them. VI. The following provisions are set forth herein for the regulation of the internal affairs of the Company: At the date hereof, the Company has issued and outstanding $120,000,000 aggregate principal amount of First Mortgage Bonds issued under and secured by the lien of the Company's Mortgage and Deed of Trust dated July 1, 1936, as amended and supplemented, heretofore made by the Company to The Riggs National Bank of Washington, D.C., as Trustee, which Mortgage and Deed of Trust, as amended and supplemented, constitutes a lien on substantially all the properties and franchises of the Company, other than cash, accounts receivable and other liquid assets, securities, leases by the Company as lessor, equipment and materials not installed as part of the fixed property, and electric energy and other materials, merchandise or supplies produced or purchased by the Company for sale, distribution or use. The Board of Directors of the Company may from time to time cause to be issued additional First Mortgage Bonds to be secured by said Mortgage and Deed of Trust, as heretofore or hereafter amended and supplemented, without limitation as to principal amount and without action by or approval of the Company's shareholders, and in connection therewith may cause to be executed and delivered by the Company such supplemental indentures, containing such additional covenants, as the Board may approve. Without the assent of the shareholders of any class the stated capital of the Company may, from time to time, be reduced in respect of shares of its Serial Preferred Stock reacquired in conversion and cancelled. VII. The address of the Company's registered office in the District of Columbia is 1900 Pennsylvania Avenue, N. W.; and the name of its registered agent at such address is Jack E. Strausman. The address of the Company's registered office in Virginia is 8280 Greensboro Drive, #900, P.O. Box 9346, Tyson's Corner, McLean, Virginia 22102; and the name of its registered agent at such address is John S. Stump, who is a resident of Virginia and a member of the Virginia State Bar. VIII. Unless otherwise provided in the By-Laws, the number of directors of the Company shall be twelve (12). IX. The business and affairs of the Company shall be managed by or under the direction of the Board of Directors. The number of directors shall be determined in accordance with the provisions of Article VIII. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 1987 annual meeting of shareholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term, and Class III directors for a three-year term. At each succeeding annual meeting of shareholders beginning in 1988, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed in accordance with the provisions of Article VIII, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, age and service limitations as may be set forth in the By-Laws, disqualification or removal from office. Any vacancy on the Board of Directors that results from other than an increase in the number of directors may be filled by a majority of the Board of Directors then in office even if less than a quorum, or by a sole remaining director. The term of any director elected by the Board of Directors to fill a vacancy not resulting from an increase in the number of directors shall expire at the next shareholders' meeting at which directors are elected, and the remainder of such term, if any, shall be filled by a director elected at such meeting. Notwithstanding the foregoing, whenever the holders of any class of stock issued by the Company shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Articles of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article IX unless expressly provided by such terms. Subject to the provisions of the preceding paragraphs, directors elected pursuant to this Article IX may be removed only for cause. X. In addition to any other vote that may be required by law or these Articles of Incorporation or the By-Laws of the Company, the affirmative vote of the holders of four-fifths of all the capital stock entitled to vote shall be required to amend, alter, or repeal Articles IX and X of these Articles of Incorporation, and Article I, Section 1, the second through the fourth paragraphs, Article I, Section 2, and Article II, Section 1 of the By-Laws of the Company; provided, however, that the power of the Board of Directors to amend, alter, or repeal the By-Laws shall not be affected by this Article X. XI. (A) In addition to any affirmative vote required by law or these Articles of Incorporation or the By-Laws of the Company, and except as otherwise expressly provided in Paragraph (B) of this Article XI, a Business Combination (as hereinafter defined) shall require the affirmative vote of not less than sixty-six and two-thirds percent (66-2/3%) of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock (as hereinafter defined), voting together as a single class, excluding Voting Stock beneficially owned by any Interested Shareholder (as hereinafter defined). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified, by law or in any agreement with any national securities exchange or otherwise. (B) The provisions of the preceding Paragraph (A) shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law or by any other provision of these Articles of Incorporation or the By- Laws of the Company, or any agreement with any national securities exchange, if all of the conditions specified in either of the following Paragraphs (1) or (2) are met or, in the case of a Business Combination not involving the payment of consideration to the holders of the Company's outstanding Capital Stock (as hereinafter defined), if the condition specified in the following Paragraph (1) is met: (1) The Business Combination shall have been approved by a majority (whether such approval is made prior to or subsequent to the acquisition of beneficial ownership of the Voting Stock that caused the Interested Shareholder to become an Interested Shareholder) of the Continuing Directors (as hereinafter defined). (2) All of the following conditions shall have been met with respect to every class or series of outstanding Capital Stock, whether or not the Interested Shareholder has previously acquired beneficial ownership of any shares of a particular class or series of Capital Stock: (a) The aggregate amount of cash and the Fair Market Value (as hereinafter defined), as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest amount determined under clauses (i), (ii), (iii), and (iv) below: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Shareholder for any share of Common Stock in connection with the acquisition by the Interested Shareholder of beneficial ownership of shares of Common Stock (x) within the two-year period immediately prior to the first public announcement of the proposed Business Combination (the "Announcement Date") or (y) in the transaction in which it became an Interested Shareholder, whichever is higher, in either case as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock; (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder (the "Determination Date"), whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock; (iii) (if applicable) the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to the immediately preceding clause (ii), multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Shareholder for any share of Common Stock in connection with the acquisition by the Interested Shareholder of beneficial ownership of shares of Common Stock within the two-year period immediately prior to the Announcement Date, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock to (y) the Fair Market Value per share of Common Stock on the first day in such two-year period on which the Interested Shareholder acquired beneficial ownership of any share of Common Stock, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock; and (iv) the Company's net income per share of Common Stock for the four full consecutive fiscal quarters immediately preceding the Announcement Date, multiplied by the higher of the then price/earnings multiple (if any) of such Interested Shareholder or the highest price/earnings multiple of the Company within the two-year period immediately preceding the Announcement Date (such price/earnings multiples being determined by dividing the highest price per share during a day as reported in the Wall Street Journal from the Composite Tape for the New York Stock Exchange by the immediately preceding publicly reported twelve-months earnings per share). (b) The aggregate amount of cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of shares of any class or series of outstanding Capital Stock, other than Common Stock, shall be at least equal to the highest amount determined under clauses (i), (ii), (iii), and (iv) below: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Shareholder for any share of such class or series of Capital Stock in connection with the acquisition by the Interested Shareholder of beneficial ownership of shares of such class or series of Capital Stock (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Shareholder, whichever is higher, in either case as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock; (ii) the Fair Market Value per share of such class or series of Capital Stock on the Announcement Date or on the Determination Date, whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock; (iii) (if applicable) the price per share equal to the Fair Market Value per share of such class or series of Capital Stock determined pursuant to the immediately preceding clause (ii), multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Shareholder for any share of such class or series of Capital Stock in connection with the acquisition by the Interested Shareholder of beneficial ownership of shares of such class or series of Capital Stock within the two-year period immediately prior to the Announcement Date, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock to (y) the Fair Market Value per share of such class or series of Capital Stock on the first day in such two-year period on which the Interested Shareholder acquired beneficial ownership of any share of such class or series of Capital Stock, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock; and (iv) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Capital Stock would be entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company regardless of whether the Business Combination to be consummated constitutes such an event. (c) The consideration to be received by holders of a particular class or series of outstanding Capital Stock shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Shareholder in connection with its direct or indirect acquisition of beneficial ownership of shares of such class or series of Capital Stock. If the consideration previously paid by the Interested Shareholder to acquire shares of any class or series of Capital Stock varied among the recipients thereof as to form, the form of consideration to be paid for such class or series of Capital Stock in connection with the Business Combination shall be either cash or the form used to acquire beneficial ownership of the largest number of shares of such class or series of Capital Stock previously acquired by the Interested Shareholder. (d) After the Determination Date and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding Capital Stock; (ii) there shall have been no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any stock split, stock dividend or subdivision of the Common Stock), except as approved by a majority of the Continuing Directors; (iii) there shall have been an increase in the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors; and (iv) such Interested Shareholder shall not have become the beneficial owner of any additional shares of Capital Stock except as part of the transaction that results in such Interested Shareholder becoming an Interested Shareholder and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Shareholder's percentage of beneficial ownership of any class or series of Capital Stock. (e) After the Determination Date, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder of the Company), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Company, whether in anticipation of or in connection with such Business Combination or otherwise. (f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Act") (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all shareholders of the Company at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent place, any statement as to the advisability (or inadvisability) of the Business Combination that the Continuing Directors, or any of them, may choose to make and, if deemed advisable by a majority of the Continuing Directors, the opinion of an investment banking firm selected by a majority of the Continuing Directors as to the fairness (or not) of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Capital Stock other than the Interested Shareholder and its Affiliates or Associates (as hereinafter defined), such investment banking firm to be paid a reasonable fee for its services by the Company. (g) Such Interested Shareholder shall not have made any major change in the Company's business or equity capital structure without the approval of a majority of the Continuing Directors. (C) The following definitions shall apply with respect to this Article XI: (1) The term "Business Combination" shall mean: (a) any merger or consolidation of the Company or any Subsidiary (as hereinafter defined) with (i) any Interested Shareholder or (ii) any other company (whether or not itself an Interested Shareholder) which is or after such merger or consolidation would be an Affiliate or Associate of an Interested Shareholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security arrangement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of transactions) with or for the benefit of any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder involving any assets, securities or commitments of the Company or any Subsidiary having an aggregate Fair Market Value and/or involving aggregate commitments of $10,000,000 or more or constituting more than 5 percent of the book value of the total assets (in the case of transactions involving assets or commitments other than Capital Stock) or 5 percent of the shareholders' equity (in the case of transactions in Capital Stock) of the entity in question (the "Substantial Part"), as reflected in the most recent fiscal year- end consolidated balance sheet of such entity existing at the time the shareholders of the Company would be required, pursuant to Paragraph A of this Article XI, to approve or authorize the Business Combination involving the assets, securities and/or commitments constituting any Substantial Part; or (c) the adoption of any plan or proposal for the liquidation or dissolution of the Company which is voted for or consented to by any Interested Shareholder or any Affiliate or Associate thereof; or (d) any reclassification of securities (including any reverse stock split), or recapitalization of the Company, or any merger or consolidation of the Company with any of its Subsidiaries or any other transaction (whether or not with or otherwise involving an Interested Shareholder) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of Capital Stock, or any securities convertible into Capital Stock or into equity securities of any Subsidiary, that is beneficially owned by any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder; or (e) any agreement, contract or other arrangement providing for any one or more of the actions specified in the foregoing clauses (a) to (d). (2) The term "Capital Stock" shall mean all capital stock of the Company authorized to be issued from time to time under Article IV of these Articles of Incorporation, and the term "Voting Stock" shall mean all Capital Stock that by its terms may be voted on all matters submitted to shareholders of the Company generally. (3) The term "person" shall mean any individual, firm, company or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Capital Stock. (4) The term "Interested Shareholder" shall mean any person (other than the Company or any Subsidiary and other than any profit- sharing, employee stock ownership or other employee benefit plan of the Company or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who (a) is the beneficial owner of Voting Stock representing ten percent (10%) or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or (b) is an Affiliate or Associate of the Company and at any time within the two-year period immediately prior to the Announcement Date was the beneficial owner of Voting Stock representing ten percent (10%) or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock. (5) A person shall be a "beneficial owner" of any Capital Stock (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (b) which such person or any of its Affiliates or Associates has, directly or indirectly, (i) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (c) which is beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Capital Stock. For purposes of determining whether a person is an Interested Shareholder pursuant to Paragraph (4) of this Section (C), the number of shares of Capital Stock deemed to be outstanding shall include shares deemed beneficially owned by such person through application of this Paragraph (5) of Section (C), but shall not include any other shares of Capital Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (6) The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Act as in effect on the date that Article XI is approved by the Board (the term "registrant" in said Rule 12b-2 meaning in this case the Company). (7) The term "Subsidiary" means any company of which a majority of any class of equity security is beneficially owned by the Company; provided, however, that for the purposes of the definition of Interested Shareholder set forth in Paragraph (4) of this Section (C), the term "Subsidiary" shall mean only a company of which a majority of each class of equity security is beneficially owned by the Company. (8) The term "Continuing Director" means any member of the Board of Directors of the Company (the "Board of Directors"), while such person is a member of the Board of Directors, who is not an Affiliate or Associate or representative of the Interested Shareholder and was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder, and any successor of a Continuing Director while such successor is a member of the Board of Directors, who is not an Affiliate or Associate or representative of the Interested Shareholder and is recommended or elected to succeed the Continuing Director by a majority of Continuing Directors. (9) The term "Fair Market Value" means (a) in the case of cash, the amount of such cash; (b) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Act on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any similar system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Continuing Directors in good faith; and (c) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the Continuing Directors. (10) In the event of any Business Combination in which the Company survives, the phrase "consideration other than cash to be received" as used in Paragraphs (2)(a) and (2)(b) of Section (B) of this Article XI shall include the shares of Common Stock and/or the shares of any other class or series of Capital Stock retained by the holders of such shares. (D) A majority of the Continuing Directors shall have the power and duty to determine for the purposes of this Article XI, on the basis of information known to them after reasonable inquiry, (a) whether a person is an Interested Shareholder, (b) the number of shares of Capital Stock or other securities beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another, (d) whether the assets that are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Company or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $10,000,000 or more, and (e) whether the assets or securities that are the subject of any Business Combination constitute a Substantial Part. Any such determination made in good faith shall be binding and conclusive on all parties. (E) Nothing contained in this Article XI shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. (F) The fact that any Business Combination complies with the provisions of Section (B) of this Article XI shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the shareholders of the Company, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination. (G) Notwithstanding any other provisions of these Articles of Incorporation or the By-Laws of the Company (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, these Articles of Incorporation or the By-Laws of the Company), the affirmative vote of the holders of not less than four-fifths of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article XI; provided, however, that this Section (G) shall not apply to, and such four-fifths vote shall not be required for, any amendment, repeal or adoption unanimously recommended by the Board of Directors if all of such directors are persons who would be eligible to serve as Continuing Directors within the meaning of Section (C), Paragraph (8) of this Article XI. IN WITNESS WHEREOF, Potomac Electric Power Company has duly caused these Restated Articles of Incorporation to be duly executed (in duplicate) in its name by Dennis R. Wraase, one of its Senior Vice Presidents, and by Betty K. Cauley, its Secretary, and its corporate seal to be hereunto affixed and duly attested by Betty K. Cauley, its Secretary, all as of the 22nd day of December, 1992. POTOMAC ELECTRIC POWER COMPANY [Corporate Seal] Attest: By /s/ D. R. WRAASE Dennis R. Wraase Senior Vice President /s/ BETTY K. CAULEY By /s/ BETTY K. CAULEY Betty K. Cauley Betty K. Cauley Secretary Secretary DISTRICT OF COLUMBIA, ss.: I, Indiana C. Shepp, a notary public, do hereby certify that on this 22nd day of December, 1992, personally appeared before me Dennis R. Wraase, who, being by me first duly sworn, declared that he is a Senior Vice President of Potomac Electric Power Company, that he signed the foregoing document as Senior Vice President of the corporation, and that the statements therein contained are true. /s/ INDIANA C. SHEPP [NOTARIAL SEAL] Notary Public, D. C. My commission expires: June 14, 1994. CERTIFICATE OF POTOMAC ELECTRIC POWER COMPANY Pursuant to Virginia Code Section 13.1-711 D., Potomac Electric Power Company, through Betty K. Cauley, its Secretary and Associate General Counsel, hereby certifies that the accompanying Restated Articles of Incorporation and Articles of Restatement do not contain an amendment to the Articles of Incorporation requiring shareholder approval and were duly adopted by teh Board of Directors of the Company on December 21, 1992. WHEREFORE, this Certificate has been duly executed this 22nd day of December, 1992. POTOMAC ELECTRIC POWER COMPANY By: /s/ BETTY K. CAULEY Betty K. Cauley Secretary and Associate General Counsel ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF POTOMAC ELECTRIC POWER COMPANY Pursuant to the provisions of Section 29-356 of Title 29 of the District of Columbia Code (Section 56 of the District of Columbia Business Corporation Act, as amended) and Section 13.1-710 of the Code of Virginia (chapter 522 of the Virginia Stock Corporation Act), the undersigned corporation adopts these Articles of Amendment to its Articles of Incorporation. FIRST: The name of the Company is Potomac Electric Power Company. SECOND: The following amendment to the Articles of Incorporation was adopted by the shareholders of the corporation in the manner prescribed by the District of Columbia Business Corporation Act and the Virginia State Corporation Act: Article IV of the Articles of Incorporation is hereby amended to read as follows: IV. The aggregate number of shares which the Company shall have authority to issue is 220,042,227 divided into three classes: the first consisting of 11,242,227 shares of the par value of $50 each; the second consisting of 8,800,000 shares of the par value of $25 each; and the third consisting of 200,000,000 shares of the par value of $1 each. The first paragraph of Article V of the Articles of Incorporation is hereby amended to read as follows: V. Said 11,242,227 shares of the par value of $50 each are designated as Serial Preferred Stock; said 8,800,000 shares of the par value of $25 each are designated as Preference Stock; and said 200,000,000 shares of the par value of $1 each are designated as Common Stock. Such of said authorized shares of Serial Preferred Stock, Preference Stock and Common Stock as are unissued at any time may be issued, in whole or in part, at such time, or from time to time, by action of the Board of Directors of the Company, subject to the laws in force in the District of Columbia and the Commonwealth of Virginia and the terms and conditions set forth in the Articles of Incorporation, as amended of the Company. The number of shares of Serial Preferred Stock appearing in Article V, Section (A), subparagraphs (b)(1) and (2) and (g) is hereby amended to read 11,242,227. THIRD: The amendment to increase by 5,000,000 shares the authorized number of shares of Serial Preferred Stock was proposed and recommended by the Board of Directors of the corporation and submitted to and approved by its shareholders in accordance with the corporation's Articles of Incorporation and applicable law. FOURTH: The amendment was adopted by the shareholders on May 20, 1993. The number of shares of the corporation outstanding at the time of such adoption was 120,430,936. The number of shares entitled to vote at such time on the amendment was 119,962,841, the designation and number of which shares of each class were as follows: Class Number of Shares Common Stock 114,471,011 Serial Preferred Stock 5,491,830 The number of shares of each class entitled to vote on the amendment that were voted for and against the amendment were: Number of Shares Voted Class For Against Common Stock 78,854,276 7,415,274 Serial Preferred Stock 4,263,996 234,178 FIFTH: The amendment does not provide for an exchange, reclassification, or cancellation of issued shares. SIXTH: The amendment does not effect a change in the amount of stated capital, or paid-in surplus, or both, of the corporation. IN WITNESS WHEREOF, the Potomac Electric Power Company has caused these Articles of Amendment to be duly executed (in duplicate) in its name by William T. Torgerson, one of its Vice Presidents, and by Mary T. Howard, one of its Assistant Secretaries, and its corporate seal to be hereunto affixed and duly attested by Mary T. Howard, one of its Assistant Secretaries, all as of the 20th day of May, 1993. POTOMAC ELECTRIC POWER COMPANY (Corporate Seal) By: /s/ WILLIAM T. TORGERSON Vice President ATTEST: /s/ M. T. HOWARD By: /s/ M. T. HOWARD Assistant Secretary Assistant Secretary DISTRICT OF COLUMBIA, ss.: I, Indiana C. Shepp, a notary public, do hereby certify that on this 20th day of May, 1993, personally appeared before me William T. Torgerson, who, being by me first duly sworn, declared that he is a Vice President of Potomac Electric Power Company, that he signed the foregoing document as Vice President of the corporation, and that the statements therein are true. /s/ INDIANA C. SHEPP Notary Public, D. C. [NOTARIAL SEAL] My commission expires: June 14, 1995 DISTRICT OF COLUMBIA STATEMENT OF CANCELLATION OF REDEEMABLE SHARES OF POTOMAC ELECTRIC POWER COMPANY Under the provisions of Section 29-359 of Chapter 3 of Title 29 of the District of Columbia Code, 1981 Edition (Section 59 of the District of Columbia Business Corporation Act, as amended), the undersigned corporation submits this statement of cancellation, pursuant to the provisions of its articles of incorporation, of redeemable shares of the corporation reacquired by it subsequent to the close of business on December 17, 1992, and prior to the close of business on December 16, 1993, through their conversion, in accordance with their terms, into shares of its common stock, and through redemption subsequent to the close of business on December 17, 1992, and prior to the close of business on December 16, 1993 of 30,000 shares of Serial Preferred Stock, $3.37 Series of 1987: FIRST: The name of the corporation is Potomac Electric Power Company. SECOND: The aggregate number of shares which the corporation had authority to issue is 220,042,227, itemized as follows: CLASS SERIES NUMBER OF SHARES Common Stock - 200,000,000 Preference Stock Undesignated as to series 8,800,000 Serial Preferred Stock $2.44 Series of 1957 300,000 $2.46 Series of 1958 300,000 $2.28 Series of 1965 400,000 $2.44 Convertible Series of 1966 10,027 $3.82 Series of 1969 500,000 $3.37 Series of 1987 982,200 Auction Series A 1,000,000 $3.89 Series of 1991 1,000,000 $3.40 Series of 1992 1,000,000 Undesignated as to series 5,750,000 THIRD: The number of shares of the corporation so cancelled is 31,183 itemized as follows: CLASS SERIES NUMBER OF SHARES Serial Preferred Stock $2.44 Convertible Series of 1966 1,183 $3.37 Series of 1987 30,000 FOURTH: The number of shares which the corporation has authority to issue after giving effect to such cancellation is 220,011,044, itemized as follows: CLASS SERIES NUMBER OF SHARES Common Stock - 200,000,000 Preference Stock Undesignated as to series 8,800,000 Serial Preferred Stock $2.44 Series of 1957 300,000 $2.46 Series of 1958 300,000 $2.28 Series of 1965 400,000 $2.44 Convertible Series of 1966 8,844 $3.82 Series of 1969 500,000 $3.37 Series of 1987 952,200 Auction Series A 1,000,000 $3.89 Series of 1991 1,000,000 $3.40 Series of 1992 1,000,000 Undesignated as to series 5,750,000 FIFTH: The aggregate number of issued shares of the corporation after giving effect to such cancellation is 122,926,152 itemized as follows: CLASS SERIES NUMBER OF SHARES Common Stock - 117,465,108 Preference Stock - NONE Serial Preferred Stock $2.44 Series of 1957 300,000 $2.46 Series of 1958 300,000 $2.28 Series of 1965 400,000 $2.44 Convertible Series of 1966 8,844 $3.82 Series of 1969 500,000 $3.37 Series of 1987 952,200 Auction Series A 1,000,000 $3.89 Series of 1991 1,000,000 $3.40 Series of 1992 1,000,000 SIXTH: After giving effect to such cancellation, the amounts of the stated capital and paid-in surplus of the corporation, computed in accordance with the provisions of the District of Columbia Business Corporation Act, as amended, are $390,517,308 and $989,419,430.89, respectively. DATED: December 21, 1993 POTOMAC ELECTRIC POWER COMPANY By /s/ H. L. DAVIS H. Lowell Davis Vice Chairman and Chief Financial Officer [Corporate Seal] Attest: /s/ M. T. HOWARD M. T. Howard Assistant Secretary DISTRICT OF COLUMBIA, ss.: I, Lisa A. Poole, a Notary Public, do hereby certify that on this 21st day of December, 1993, personally appeared before me H. Lowell Davis, who, being by me first duly sworn, declared that he is Vice Chairman and Chief Financial Officer of Potomac Electric Power Company, that he signed the foregoing document as Vice Chairman and Chief Financial Officer of the corporation, and that the statements therein contained are true. /s/ LISA A. POOLE Notary Public, D. C. ARTICLES OF AMENDMENT OF POTOMAC ELECTRIC POWER COMPANY Under the provisions of Section 13.1-652 of the Code of Virginia, as amended, the undersigned corporation submits these Articles of Amendment. FIRST: The name of the corporation is Potomac Electric Power Company. SECOND: The reduction in the number of authorized shares of the corporation is 31,183, itemized as follows: CLASS SERIES NUMBER OF SHARES Serial Preferred Stock $2.44 Convertible Series of 1966 1,183 $3.37 Series of 1987 30,000 THIRD: The total number of authorized shares of the corporation remaining after giving effect to such reduction is 220,011,044, itemized as follows: CLASS SERIES NUMBER OF SHARES Common Stock - 200,000,000 Preference Stock Undesignated as to series 8,800,000 Serial Preferred Stock $2.44 Series of 1957 300,000 $2.46 Series of 1958 300,000 $2.28 Series of 1965 400,000 $2.44 Convertible Series of 1966 8,844 $3.82 Series of 1969 500,000 $3.37 Series of 1987 952,200 Auction Series A 1,000,000 $3.89 Series of 1991 1,000,000 $3.40 Series of 1992 1,000,000 Undesignated as to series 5,750,000 The Articles of Incorporation prohibit the reissuance of acquired shares. FOURTH: The reduction in the number of authorized shares was duly authorized by the Board of Directors on December 20, 1993. DATED: December 21, 1993 POTOMAC ELECTRIC POWER COMPANY By /s/ H. L. DAVIS H. Lowell Davis Vice Chairman and Chief Financial Officer [Corporate Seal] Attest: /s/ M. T. HOWARD M. T. Howard Assistant Secretary EX-4 3 9/29/93 SUPPLEMENTAL INDENTURE ================================================================================ POTOMAC ELECTRIC POWER COMPANY 1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C. TO THE RIGGS NATIONAL BANK OF WASHINGTON, D.C. 800-17TH STREET, N.W., WASHINGTON, D.C. AS TRUSTEE ------------------ Supplemental Indenture DATED AS OF SEPTEMBER 29, 1993 ------------------ SUPPLEMENTAL TO MORTGAGE AND DEED OF TRUST DATED JULY 1, 1936 ------------------ FIRST MORTGAGE BONDS, 5 5/8% SERIES DUE 2003 ================================================================================ POTOMAC ELECTRIC POWER COMPANY SUPPLEMENTAL INDENTURE DATED AS OF SEPTEMBER 29, 1993 TABLE OF CONTENTS* ------------------
PAGE Parties.................................................................. 1 Recitals................................................................. 1 PART I Description of Bonds Section 1. General description of Bonds of 2003 Series.................. 5 Section 2. Form of face of Bond of 2003 Series.......................... 7 Form of Trustee's certificate................................ 9 Text appearing on reverse side of Bond of 2003 Series........ 9 Section 3. Denominations of Bonds of 2003 Series........................ 11 Section 4. Execution and form of temporary Bonds........................ 12 PART II Issue of Bonds Section 1. Limitation as to principal amount............................ 12 Section 2. Issue of Bonds............................................... 12 PART III Redemption Bonds of 2003 Series not redeemable prior to maturity ................... 13 PART IV Additional Particular Covenants of the Company Section 1. Company not to withdraw moneys pursuant to Section 2 of Article VIII in excess of an amount equal to principal amount of issued refundable bonds........................... 13 Section 2. No property additions made on or prior to December 31, 1946 to be used for any purpose under the Indenture.............. 13
- --------- * The Table of Contents is not part of the Supplemental Indenture and should not be considered as such. It is included herein only for purposes of convenient reference. ii
PART V PAGE Amendment of Indenture to Permit Qualification Under Trust Indenture Act of 1939................................................................. 13 PART VI Amendment of Original Indenture.......................................... 14 PART VII The Trustee Acceptance of trusts by the Trustee...................................... 14 Trustee not responsible for validity of the Supplemental Indenture....... 14 PART VIII Miscellaneous Provisions Execution of Supplemental Indenture in counterparts...................... 15 Appointment of attorneys-in-fact by parties.............................. 15 Testimonium.............................................................. 15 Execution................................................................ 16 Company's Acknowledgments................................................ 17 Trustee's Acknowledgments................................................ 19
SUPPLEMENTAL INDENTURE, dated as of the twenty-ninth day of September, nine- teen hundred and ninety-three (1993), made by and between Potomac Electric Power Company, a corporation organized and existing under the laws of the Dis- trict of Columbia and a domestic corporation of the Commonwealth of Virginia (hereinafter sometimes called the "Company"), party of the first part, and The Riggs National Bank of Washington, D.C., a national banking association orga- nized and existing under the laws of the United States of America (hereinafter sometimes called the "Trustee"), as Trustee under the Mortgage and Deed of Trust dated July 1, 1936, hereinafter mentioned, party of the second part; Whereas, The Company has heretofore executed and delivered its Mortgage and Deed of Trust, dated July 1, 1936 (hereinafter sometimes referred to as the "Original Indenture"), to the Trustee, to secure an issue of First Mortgage Bonds of the Company, issuable in series; and Whereas, pursuant to the terms and provisions of the Original Indenture, in- dentures supplemental thereto dated as of July 1, 1936, December 1, 1939, Au- gust 1, 1940, August 1, 1942, January 1, 1948, May 1, 1949, May 1, 1950, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, December 1, 1958, November 16, 1959, December 1, 1960, February 15, 1963, May 15, 1964, April 1, 1966, May 1, 1967, February 15, 1968, March 15, 1969, February 15, 1970, August 15, 1970, September 15, 1972, April 1, 1973, January 2, 1974, August 15, 1974, Au- gust 15, 1974, June 15, 1977, July 1, 1979, June 16, 1981, June 17, 1981, De- cember 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993 and Au- gust 20, 1993, have been heretofore entered into between the Company and the Trustee to provide, respectively, for the creation of the first through the fifty-third series of Bonds thereunder and, in the case of the supplemental indentures dated January 1, 1948, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, September 15, 1972, July 1, 1979, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992, July 1, 1993 and one of the supplemental indentures dated August 15, 1974, to convey addi- tional property; and 2 Whereas, $20,000,000 principal amount of Bonds of the 3 1/4% Series due 1966 (the first series), $5,000,000 principal amount of Bonds of the 3 1/4 Series due 1974 (the second series), $10,000,000 principal amount of Bonds of the 3 1/4% Series due 1975 (the third series), $5,000,000 principal amount of Bonds of the 3 1/4% Series due 1977 (the fourth series), $15,000,000 principal amount of Bonds of the 3% Series due 1983 (the fifth series), $10,000,000 principal amount of Bonds of the 2 7/8% Series due 1984 (the sixth series), $30,000,000 principal amount of Bonds of the 2 3/4% Series due 1985 (the sev- enth series), $15,000,000 principal amount of Bonds of the 3 1/4% Series due 1987 (the eighth series), $10,000,000 principal amount of Bonds of the 3 7/8% Series due 1988 (the ninth series), $10,000,000 principal amount of Bonds of the 3 3/8% Series due 1990 (the tenth series), $10,000,000 principal amount of Bonds of the 3 5/8% Series due 1991 (the eleventh series), $35,000,000 princi- pal amount of Bonds of the 8.85% Series due 2005 (the twenty-first series), $70,000,000 principal amount of Bonds of the 9 1/2% Series due August 15, 2005 (the twenty-second series), $100,000,000 principal amount of Bonds of the 8 3/8% Series due 2009 (the twenty-fifth series), $50,000,000 principal amount of Bonds of the 10 1/4% Series due 1981 (the twenty-sixth series), $50,000,000 principal amount of Bonds of the 10 3/4% Series due 2004 (the twenty-seventh series), $30,000,000 principal amount of Bonds of the Floating Rate Series due 2010 (the thirty-second series), $50,000,000 principal amount of Bonds of the 14 1/2% Series due 1991 (the thirty-third series), $60,000,000 principal amount of Bonds of the 14 1/4% Series due 1992 (the thirty-fifth series), $50,000,000 principal amount of Bonds of the 11 7/8% Series due 1989 (the thirty-sixth series), $37,000,000 principal amount of Bonds of the 8 3/4% Se- ries due 2010 (the thirty-seventh series), $75,000,000 principal amount of Bonds of the 11 1/4% Series due 2015 (the thirty-eighth series), $75,000,000 principal amount of Bonds of the 9 1/4% Series due 2016 (the thirty-ninth se- ries), $75,000,000 principal amount of Bonds of the 8 3/4% Series due 2016 (the fortieth series) and $75,000,000 principal amount of Bonds of the 9% Se- ries due 1990 (the forty-second series) have been heretofore redeemed and re- tired and there are now issued and outstanding under the Original Indenture and under the supplemental indentures referred to above: $25,000,000 principal amount of Bonds of the 4 5/8% Series due 1993 (the twelfth series); $15,000,000 principal amount of Bonds of the 5 1/4% Series due 1994 (the thir- teenth series); $40,000,000 3 principal amount of Bonds of the 5% Series due 1995 (the fourteenth series); $50,000,000 principal amount of Bonds of the 4 3/8% Series due 1998 (the fif- teenth series); $45,000,000 principal amount of Bonds of the 4 1/2% Series due 1999 (the sixteenth series); $15,000,000 principal amount of Bonds of the 5 1/8% Series due 2001 (the seventeenth series); $35,000,000 principal amount of Bonds of the 5 7/8% Series due 2002 (the eighteenth series); $40,000,000 prin- cipal amount of Bonds of the 6 5/8% Series due 2003 (the nineteenth series); $45,000,000 principal amount of Bonds of the 7 3/4% Series due 2004 (the twen- tieth series); $50,000,000 principal amount of Bonds of the 7 3/4% Series due 2007 (the twenty-third series); $19,000,000 principal amount of Bonds of the 5 5/8% Series due 1997 (the twenty-fourth series); $38,300,000 principal amount of Bonds of the 6 1/8% Series due 2007 (the twenty-eighth series); $15,000,000 principal amount of Bonds of the 6 1/2% Series due 2004 (the twenty-ninth se- ries); $20,000,000 principal amount of Bonds of the 6 1/2% Series due 2007 (the thirtieth series); $7,500,000 principal amount of Bonds of the 6 5/8% Se- ries due 2009 (the thirty-first series); $50,000,000 principal amount of Bonds of the Adjustable Rate Series due 2001 (the thirty-fourth series); $75,000,000 principal amount of Bonds of the 8 1/4% Series due 2017 (the forty-first se- ries); $75,000,000 principal amount of Bonds of the 9 3/4% Series due 2019 (the forty-third series); $75,000,000 principal amount of Bonds of the 8 5/8% Series due 2019 (the forty-fourth series); $100,000,000 principal amount of Bonds of the 9% Series due 2000 (the forty-fifth series); $100,000,000 princi- pal amount of Bonds of the 9% Series due 2021 (the forty-sixth series); $75,000,000 principal amount of Bonds of the 8 1/2% Series due 2027 (the for- ty-seventh series); $30,000,000 principal amount of Bonds of the 6% Series due 2022 (the forty-eighth series); $37,000,000 principal amount of Bonds of the 6 3/8% Series due 2023 (the forty-ninth series); $78,000,000 principal amount of Bonds of the 6 1/2% Series due 2008 (the fiftieth series); $40,000,000 princi- pal amount of Bonds of the 7 1/2% Series due 2028 (the fifty-first series); $100,000,000 principal amount of Bonds of the 7 1/4% Series due 2023 (the fif- ty-second series); and $100,000,000 principal amount of Bonds of the 6 7/8% Series due 2023 (the fifty-third series); and Whereas, for the purpose of conforming the Original Indenture to the stan- dards prescribed by the Trust Indenture Act of 1939 or otherwise modifying certain of the provisions of the Original Indenture, indentures 4 supplemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, Novem- ber 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993 and August 20, 1993 have been here- tofore entered into between the Company and the Trustee, and for the purpose of conveying additional property, indentures supplemental thereto dated July 15, 1942, October 15, 1947, December 31, 1948, December 31, 1949, February 15, 1951, February 16, 1953, March 15, 1954, March 15, 1955, March 15, 1956, April 1, 1957, May 1, 1958, May 1, 1959, May 2, 1960, April 3, 1961, May 1, 1962, May 1, 1963, April 23, 1964, May 3, 1965, June 1, 1966, April 28, 1967, July 3, 1967, May 1, 1968, June 16, 1969, May 15, 1970, September 1, 1971, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992 and July 1, 1993 have been heretofore entered into between the Company and the Trustee, and for the purpose of better securing and protecting the Bonds then or thereafter issued and confirming the lien of the Original Inden- ture, an indenture dated October 15, 1942 supplemental thereto has been here- tofore entered into between the Company and the Trustee; the Original Inden- ture as heretofore amended and supplemented being hereinafter referred to as the "Original Indenture as amended"; and Whereas, the Company is entitled to have authenticated and delivered addi- tional Bonds on the basis of the net bondable value of property additions, upon compliance with the provisions of Section 4 of Article III of the Origi- nal Indenture as amended; and Whereas, the Company has determined to issue a fifty-fourth series of Bonds under the Original Indenture as amended in the principal amount of $50,000,000, to be known as First Mortgage Bonds, 5 5/8% Series due 2003 (hereinafter called "Bonds of 2003 Series"); and Whereas, the Original Indenture as amended provides that certain terms and provisions, as determined by the Board of Directors of the Company, of the Bonds of any particular series may be expressed in and provided by the execu- tion of an appropriate supplemental indenture; and 5 Whereas, the Original Indenture as amended provides that the Company and the Trustee may enter into indentures supplemental thereto to add to the covenants and agreements of the Company contained therein other covenants and agreements thereafter to be observed; and to surrender any right or power reserved to or conferred upon the Company in the Original Indenture as amended; and Whereas, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Original Indenture as amended and pursuant to appropriate resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled, and the execution and delivery hereof have been in all respects duly authorized; Now, Therefore, This Indenture Witnesseth: That Potomac Electric Power Company, in consideration of the premises and of One Dollar to it duly paid by the Trustee at or before the ensealing and de- livery of these presents, and for other valuable considerations, the receipt whereof is hereby acknowledged, hereby covenants, declares and agrees with the Trustee and its successors in the trust under the Original Indenture as amend- ed, for the benefit of those who hold the Bonds and coupons, or any of them, issued or to be issued hereunder or under the Original Indenture as amended, as follows: PART I. Description of Bonds. Section 1. The Bonds of 2003 Series shall, subject to the provisions of Sec- tion 1 of Article II of the Original Indenture as amended, be designated as "First Mortgage Bonds, 5 5/8% Series due 2003" of the Company. The Bonds of 2003 Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be 6 subject to, all of the terms, conditions and covenants of the Original Inden- ture as amended, except in so far as the terms and provisions of the Original Indenture as amended are amended or modified by this Supplemental Indenture. The Bonds of 2003 Series shall mature October 15, 2003, and shall bear inter- est at the rate of five and five-eighths per cent (5 5/8%) per annum, payable semiannually, commencing April 15, 1994, on the fifteenth day of April and the fifteenth day of October in each year (each such April 15 and October 15 being hereinafter called an "interest payment date"). The Bonds of 2003 Series shall be payable as to principal and interest in lawful money of the United States of America, and shall be payable (as well the interest as the principal there- of) at the Agency of the Company in the City of Washington, D.C., or at the Agency of the Company in the Borough of Manhattan, The City of New York. The interest so payable on any interest payment date shall be paid to the persons in whose names the Bonds of 2003 Series are registered at the close of business on the last business day (hereinafter called the "record date") which is more than ten days prior to such interest payment date, a "business day" being any day that is not a day on which banks in the City of Washington, D.C., are authorized by law to close; except that if the Company shall default in the payment of any interest due on such interest payment date, such de- faulted interest shall be paid to the persons in whose names the Bonds of 2003 Series are registered on the date of payment of such defaulted interest, or in accordance with the regulations of any securities exchange on which the Bonds of 2003 Series are listed. Except as provided hereinafter, every Bond of 2003 Series shall be dated as of the date of its authentication and delivery, or if that is an interest pay- ment date, the next day, and shall bear interest from the interest payment date next preceding its date or October 13, 1993, whichever is later. Notwith- standing Section 6 of Article II of the Original Indenture, any Bond of 2003 Series authenticated and delivered by the Trustee after the close of business on the record date with respect to any interest payment date and prior to such interest payment date shall be dated as of the date next following such inter- est payment date and 7 shall bear interest from such interest payment date; except that if the Com- pany shall default in the payment of any interest due on such interest payment date, such Bond shall bear interest from the next preceding interest payment date or October 13, 1993, whichever is later. Section 2. The Bonds of 2003 Series, and the Trustee's certificate to be en- dorsed on the Bonds of 2003 Series, shall be substantially in the following forms, respectively: [FORM OF FACE OF BOND OF 2003 SERIES] POTOMAC ELECTRIC POWER COMPANY (A District of Columbia and Virginia corporation) First Mortgage Bond, 5 5/8% Series Due 2003 No. $ Potomac Electric Power Company, a corporation organized and existing under the laws of the District of Columbia and a domestic corporation of the Com- monwealth of Virginia (hereinafter called the "Company", which term shall in- clude any successor corporation as defined in the Amended Indenture hereinaf- ter referred to), for value received, hereby promises to pay to ................... or registered assigns, the sum of .................. dol- lars, on the fifteenth day of October 2003, in lawful money of the United States of America, and to pay interest thereon in like money from the later of October 13, 1993 or the interest payment date April 15 or October 15 next pre- ceding the date of this Bond, or if the Company shall default in the payment of interest due on such interest payment date, then from the next preceding interest payment date or October 13, 1993, whichever is later, at the rate of five and five-eighths percent (5 5/8%) per annum, payable semiannually, com- mencing April 15, 1994, on the fifteenth day of April and October in each year until maturity, or, if the Company shall default in the payment of the princi- pal hereof, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Amended Indenture. The inter- est so payable on any April 15 or October 15 will, subject to certain excep- tions provided in the indenture dated as 8 of September 29, 1993 supplemental to the Amended Indenture, be paid to the person in whose name this Bond is registered at the close of business on the last business day which is more than ten days prior to such April 15 or Octo- ber 15. Both principal of, and interest on, this Bond are payable at the agency of the Company in the City of Washington, D.C., or, at the option of the holder, at the agency of the Company in the Borough of Manhattan, The City of New York. Reference is made to the further provisions of this Bond set forth on the re- verse hereof, and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Bond shall not be entitled to any benefit under the Amended Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until The Riggs National Bank of Washington, D.C., the Trustee under the Amended Indenture, or a successor trustee thereto under the Amended Indenture, shall have signed the form of certificate endorsed hereon. In Witness Whereof, Potomac Electric Power Company has caused this Bond to be signed in its name by the signature (or a facsimile thereof) of its President or a Vice President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by the facsimile signature of its Secretary or an Assistant Secretary. Dated, Potomac Electric Power Company By...................................... Vice President Attest: ................................... Secretary 9 [FORM OF TRUSTEE'S CERTIFICATE] This Bond is one of the Bonds, of the series designated therein, described in the within-mentioned Amended Indenture and the Supplemental Indenture dated as of September 29, 1993. The Riggs National Bank of Washington, D.C. Trustee. By................................... Authorized Officer [TEXT APPEARING ON REVERSE SIDE OF BOND OF 2003 SERIES] This Bond is one of a duly authorized issue of Bonds of the Company (herein- after called the "Bonds") in unlimited aggregate principal amount, of the se- ries hereinafter specified, all issued and to be issued under and equally se- cured (except in so far as any purchase or sinking fund or analogous provi- sions for any particular series of Bonds, established by any indenture supple- mental to the Amended Indenture hereinafter mentioned, may afford additional security for such Bonds) by a mortgage and deed of trust, dated July 1, 1936, executed by the Company to The Riggs National Bank of Washington, D.C. (herein called the "Trustee"), as trustee, as amended by indentures supplemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993 and August 20, 1993 (said mortgage and deed of trust, as so amended, being herein called the "Amended Indenture") and all in- dentures supplemental thereto, to which Amended Indenture and supplemental in- dentures reference is hereby made for a description of the properties mort- gaged and pledged, the nature and extent of the security, the rights of the owners of the Bonds and of the Trustee in respect thereto, and the terms and 10 conditions upon which the Bonds are, and are to be, secured. To the extent permitted by, and as provided in, the Amended Indenture, modifications or al- terations of the Amended Indenture, or of any indenture supplemental thereto, and of the rights and obligations of the Company and of the holders of the Bonds may be made with the consent of the Company by an affirmative vote of not less than 80% in amount of the Bonds entitled to vote then outstanding, at a meeting of Bondholders called and held as provided in the Amended Indenture, and by an affirmative vote of not less than 80% in amount of the Bonds of any series entitled to vote then outstanding and affected by such modification or alteration, in case one or more but less than all of the series of Bonds then outstanding under the Amended Indenture are so affected; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of, or interest on, this Bond, which are un- conditional, or which reduces the percentage of Bonds the affirmative vote of which is required for the making of such modifications or alterations. The Company is proposing an amendment to the Amended Indenture which would replace "80%" with "60%" in the preceding sentence, which amendment will become effec- tive upon the consent or agreement thereto of the holders of all the outstand- ing Bonds. The holder of this Bond will be deemed to have approved such amend- ment. The Bonds may be issued in series, for various principal sums, may ma- ture at different times, may bear interest at different rates and may other- wise vary as in the Amended Indenture provided. This Bond is one of a series designated as the "First Mortgage Bonds, 5 5/8% Series due 2003" (herein called the "Bonds of 2003 Series") of the Company, issued under and secured by the Amended Indenture and all indentures supple- mental thereto and described in the indenture (herein called the "New Supple- mental Indenture"), dated as of September 29, 1993, between the Company and the Trustee, supplemental to the Amended Indenture. The Bonds of 2003 Series are not subject to redemption prior to maturity. In case an event of default, as defined in the Amended Indenture, shall oc- cur, the principal of all the Bonds at any such time outstanding under 11 the Amended Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Amended In- denture. The Amended Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Bonds entitled to vote then outstanding. This Bond is transferable by the registered owner hereof, in person or by duly authorized attorney, on the books of the Company to be kept for that pur- pose at the agency of the Company in the City of Washington, D.C., or at the agency of the Company in the Borough of Manhattan, The City of New York, upon surrender and cancellation of this Bond and on presentation of a duly executed written instrument of transfer, and thereupon a new Bond or Bonds of the same series, of the same aggregate principal amount and in authorized denominations will be issued to the transferee or transferees in exchange therefor; and this Bond, with or without others of the same series, may in like manner be ex- changed for one or more new Bonds of the same series of other authorized de- nominations but of the same aggregate principal amount; all subject to the terms and conditions set forth in the Amended Indenture. No recourse shall be had for the payment of the principal of, or the interest on, this Bond, or for any claim based hereon or otherwise in respect hereof or of the Amended Indenture or any indenture supplemental thereto, against any incorporator, or against any stockholder, director or officer, past, present or future, of the Company or of any predecessor or successor corporation, ei- ther directly or through the Company or any such predecessor or successor cor- poration, whether for amounts unpaid on stock subscriptions or by virtue of any constitution, statute or rule of law, or by the enforcement of any assess- ment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stock- holders, directors or officers being released by every owner hereof by the ac- ceptance of this Bond and as part of the consideration for the issue hereof, and being likewise released by the terms of the Amended Indenture. Section 3. The Bonds of 2003 Series shall be registered Bonds without coupons in denominations of any multiple of $1,000, numbered consecutively upwards from R1. 12 Section 4. Until Bonds of 2003 Series in definitive form are ready for deliv- ery, the Company may execute, and upon its request in writing the Trustee shall authenticate and deliver, in lieu thereof, Bonds for such series in tem- porary form, as provided in Section 9 of Article II of the Original Indenture as amended. PART II. Issue of Bonds. Section 1. Except for Bonds of 2003 Series issued pursuant to Section 13 of Article II of the Original Indenture as amended, the principal amount of Bonds of 2003 Series which may be authenticated and delivered hereunder is limited to $50,000,000 aggregate principal amount. Section 2. Bonds of 2003 Series in the aggregate principal amount permitted in Section 1 of this Part II, may at any time subsequent to the execution hereof be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered (either before or after the record- ing hereof) to or upon the order of the Company evidenced by a writing or writings, signed by its President or one of its Vice Presidents and its Trea- surer or one of its Assistant Treasurers, at such time or times as may be re- quested by the Company subsequent to the receipt by the Trustee of (1) the certified resolution and the officers' certificate required by Sec- tion 3(a) and Section 3(b) of Article III of the Original Indenture as amended; (2) the opinion of counsel required by Section 3(c) of Article III of the Original Indenture as amended; (3) cash, if any, in the amount required to be deposited by Section 3(d) of Article III of the Original Indenture as amended, which shall be held and applied by the Trustee as provided in said Section 3(d); (4) the certificates, instruments, opinions of counsel, prior lien bonds and cash, if any, required by Section 4 of Article III of the Original In- denture as amended, except that, as required by Part IV of this Supplemental Indenture, property additions purchased, constructed or otherwise acquired on or before December 31, 1946 shall 13 not be made the basis for the authentication and delivery of Bonds of 2003 Series; and (5) the certificates and opinions required by Article XVIII of the Original Indenture as amended. PART III. Redemption. The Bonds of 2003 Series shall not be redeemable prior to maturity. PART IV. Additional Particular Covenants of the Company. The Company hereby covenants, warrants and agrees that so long as any Bonds of 2003 Series are outstanding: Section 1. The Company will not withdraw, pursuant to the provisions of Sec- tion 2 of Article VIII of the Original Indenture as amended, any moneys held by the Trustee as part of the trust estate in excess of an amount equal to the aggregate principal amount of such of the refundable Bonds as were theretofore issued by the Company; and that upon any such withdrawal by the Company re- fundable Bonds equal in aggregate principal amount to the amount so withdrawn shall be deemed to have been made the basis of such withdrawal. Section 2. Property additions purchased, constructed or otherwise acquired on or before December 31, 1946 shall not be made the basis for the authentication and delivery of Bonds, or the withdrawal of cash, or the reduction of the amount of cash required to be paid to the Trustee under any provision of the Indenture. PART V. Amendment of Indenture to Permit Qualification Under Trust Indenture Act of 1939. The Company and the Trustee, from time to time and at any time, without any vote or consent of the holders of the Bonds of 2003 Series, 14 may enter into such indentures supplemental to the Original Indenture as may or shall by them be deemed necessary or desirable to add to or modify or amend any of the provisions of the Original Indenture so as to permit the qualifica- tion of the Original Indenture under the Trust Indenture Act of 1939. Except to the extent specifically provided herein, no provision of this Sup- plemental Indenture is intended to modify, and the parties hereto do hereby adopt and confirm, the provisions of Section 318(c) of the Trust Indenture Act of 1939 which amend and supersede provisions of the Original Indenture, as supplemented, in effect prior to November 15, 1990. PART VI. Amendment of Original Indenture. Notwithstanding any other provisions of the Original Indenture as amended, the holders of the Bonds of 2003 Series, by their holding of such Bonds, are deemed to have approved the following amendment to the Original Indenture as amended and to have authorized the Trustee to take any action necessary to ev- idence or effectuate such approval: Sections 5 and 6 of Article XV of the Original Indenture as amended are hereby amended by changing the words and figures "eighty percent. (80%)" to the words and figures "sixty percent. (60%)" wherever in such Sections such words and figures occur. PART VII. The Trustee. The Trustee hereby accepts the trusts hereby declared and provided and agrees to perform the same upon the terms and conditions in the Original Indenture as amended set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in re- spect of the validity or sufficiency of this Supplemental Indenture 15 or the due execution hereof by the Company or for or in respect of the recit- als contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XIII of the Original Indenture as amended shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. PART VIII. Miscellaneous Provisions. This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an origi- nal; but such counterparts shall together constitute but one and the same in- strument. Potomac Electric Power Company hereby constitutes and appoints William R. Gee, Jr., one of its Vice Presidents, to be its true and lawful attorney-in- fact, for it and in its name to appear before any officer authorized by law to take and certify acknowledgments of deeds to be recorded in the District of Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and deliver these presents as the act and deed of said Potomac Electric Power Company. The Riggs National Bank of Washington, D.C., hereby constitutes and appoints Alexander C. Baker, one of its Senior Vice Presidents, to be its true and law- ful attorney-in-fact, for it and in its name to appear before any officer au- thorized by law to take and certify acknowledgments of deeds to be recorded in the District of Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and de- liver these presents as the act and deed of said The Riggs National Bank of Washington, D.C. 16 In Witness Whereof, said Potomac Electric Power Company has caused this Sup- plemental Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by its Secretary or one of its Assistant Secretaries; and said The Riggs National Bank of Washington, D.C., in evidence of its acceptance of the trust hereby created, has caused this Supplemental Indenture to be executed on its behalf by its President or one of its Senior Vice Presidents, and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by one of its Corpo- rate Trust Officers, all as of the 29th day of September, One thousand nine hundred and ninety-three. Potomac Electric Power Company (Corporate Seal) By................................... WILLIAM R. GEE, JR., Vice President Attested: ................................... MARY T. HOWARD, Assistant Secretary Signed, sealed and delivered by Potomac Electric Power Company in the presence of: ................................... ................................... As Witnesses The Riggs National Bank of Washington, D.C. (Corporate Seal) By................................... ALEXANDER C. BAKER, Senior Vice President Attested: ................................... BEVERLY MOFFETT, Senior Corporate Trust Officer Signed, sealed and delivered by The Riggs National Bank of Wash- ington, D.C. in the presence of: ................................... ................................... As Witnesses 17 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, whose commission as such will expire , do hereby certify that William R. Gee, Jr. and Mary T. Howard, whose names as Vice President and Assistant Secretary, respectively, of Potomac Electric Power Company, a corpo- ration, are signed to the foregoing and hereto attached deed, bearing date as of the 29th day of September, 1993, personally appeared this day before me in my District aforesaid and acknowledged themselves to be, respectively, a Vice President and an Assistant Secretary of Potomac Electric Power Company, and that they as such, being authorized so to do, executed the said deed by sign- ing the name of Potomac Electric Power Company by William R. Gee, Jr., as Vice President, and attested by Mary T. Howard, as Assistant Secretary, and ac- knowledged the same before me in my District aforesaid and acknowledged the foregoing instrument to be the act and deed of Potomac Electric Power Company. Given under my hand and official seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia 18 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that William R. Gee, Jr., a Vice Presi- dent of Potomac Electric Power Company, a corporation, one of the parties to the foregoing instrument bearing date as of the 29th day of September, 1993, and hereto annexed, this day personally appeared before me in the City of Washington, the said William R. Gee, Jr. being personally well known to me as the person who executed the said instrument as a Vice President of and on be- half of said Potomac Electric Power Company and known to me to be the attor- ney-in-fact duly appointed therein to acknowledge and deliver said instrument on behalf of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said Potomac Electric Power Company, and delivered the same as such. I further certify that the said William R. Gee, Jr., being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corpora- tion; and that he signed his name thereto by like order. My commission expires Given under my hand and official seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia 19 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Alexander C. Baker and Beverly Moffett, whose names as Senior Vice President and Senior Corporate Trust Officer, re- spectively, of The Riggs National Bank of Washington, D.C., a corporation, are signed to the foregoing and hereto attached deed, bearing date as of the 29th day of September, 1993, personally appeared before me this day in my District aforesaid and acknowledged themselves to be, respectively, a Senior Vice Pres- ident and a Senior Corporate Trust Officer of The Riggs National Bank of Wash- ington, D.C., and that they as such, being authorized so to do, executed the said deed by signing the name of The Riggs National Bank of Washington, D.C., by Alexander C. Baker as Senior Vice President, and attested by Beverly Moffett, as Senior Corporate Trust Officer, and acknowledged the same before me in my District aforesaid and acknowledged the foregoing instrument to be the act and deed of The Riggs National Bank of Washington, D.C., as therein set forth. Given under my hand and notarial seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia My Commission Expires . 20 ++ City of Washington, + District of Columbia, ++ ss.: + ++ Alexander C. Baker, of full age, being sworn according to law, on his oath deposes and says that he is a Senior Vice President of The Riggs National Bank of Washington, D.C., the Trustee named in the foregoing Supplemental Inden- ture, dated as of the 29th day of September, 1993, that he is the agent of said Trustee for the purpose of perfecting such Supplemental Indenture and that the consideration in the Original Indenture referred to therein and in all indentures supplemental to said Original Indenture, including the forego- ing Supplemental Indenture, is true and bona fide as therein set forth. ............................................ Alexander C. Baker Subscribed and sworn to before me this day of October, 1993. ................................... Notary Public District of Columbia My Commission Expires (Notarial Seal) 21 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Alexander C. Baker a Senior Vice President of The Riggs National Bank of Washington, D.C., a corporation, one of the parties to the foregoing instrument bearing date as of the 29th day of September, 1993, and hereto annexed, this day personally appeared before me in the City of Washington, the said Alexander C. Baker, being personally well known to me as the person who executed the said instrument as a Senior Vice President of and on behalf of said The Riggs National Bank of Washington, D.C., and known to me to be the attorney-in-fact duly appointed therein to ac- knowledge and deliver said instrument on behalf of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said The Riggs National Bank of Washington, D.C., and delivered the same as such. I further certify that the said Alexander C. Baker, being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. Given under my hand and official seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia My Commission Expires 22 CERTIFICATE OF RESIDENCE The Riggs National Bank of Washington, D.C., Mortgagee and Trustee within named, hereby certifies that its precise residence is 800-17th Street, N.W., Washington, D.C. 20006. The Riggs National Bank of Washington, D.C. By.......................................... Alexander C. Baker, Senior Vice President EX-4 4 9/30/93 SUPPLEMENTAL INDENTURE ================================================================================ POTOMAC ELECTRIC POWER COMPANY 1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C. TO THE RIGGS NATIONAL BANK OF WASHINGTON, D.C. 800-17TH STREET, N.W., WASHINGTON, D.C. AS TRUSTEE ------------------ Supplemental Indenture DATED AS OF SEPTEMBER 30, 1993 ------------------ SUPPLEMENTAL TO MORTGAGE AND DEED OF TRUST DATED JULY 1, 1936 ------------------ FIRST MORTGAGE BONDS, 5 7/8% SERIES DUE 2008 ================================================================================ POTOMAC ELECTRIC POWER COMPANY SUPPLEMENTAL INDENTURE DATED AS OF SEPTEMBER 30, 1993 TABLE OF CONTENTS* ------------------
PAGE Parties.................................................................. 1 Recitals................................................................. 1 PART I Description of Bonds Section 1. General description of Bonds of 2008 Series.................. 5 Section 2. Form of face of Bond of 2008 Series.......................... 7 Form of Trustee's certificate................................ 9 Text appearing on reverse side of Bond of 2008 Series........ 9 Section 3. Denominations of Bonds of 2008 Series........................ 11 Section 4. Execution and form of temporary Bonds........................ 12 PART II Issue of Bonds Section 1. Limitation as to principal amount............................ 12 Section 2. Issue of Bonds............................................... 12 PART III Redemption Bonds of 2008 Series are not redeemable prior to maturity................ 13 PART IV Additional Particular Covenants of the Company Section 1. Company not to withdraw moneys pursuant to Section 2 of Article VIII in excess of an amount equal to principal amount of issued refundable bonds........................... 13 Section 2. No property additions made on or prior to December 31, 1946 to be used for any purpose under the Indenture.............. 13
- --------- * The Table of Contents is not part of the Supplemental Indenture and should not be considered as such. It is included herein only for purposes of convenient reference. ii
PART V PAGE Amendment of Indenture to Permit Qualification Under Trust Indenture Act of 1939............................................................. 13 PART VI Amendment of Original Indenture.......................................... 14 PART VII The Trustee Acceptance of trusts by the Trustee...................................... 14 Trustee not responsible for validity of the Supplemental Indenture....... 14 PART VIII Miscellaneous Provisions Execution of Supplemental Indenture in counterparts...................... 15 Appointment of attorneys-in-fact by parties.............................. 15 Testimonium.............................................................. 15 Execution................................................................ 16 Company's Acknowledgments................................................ 17 Trustee's Acknowledgments................................................ 19
SUPPLEMENTAL INDENTURE, dated as of the thirtieth day of September, nineteen hundred and ninety-three (1993), made by and between Potomac Electric Power Company, a corporation organized and existing under the laws of the District of Columbia and a domestic corporation of the Commonwealth of Virginia (here- inafter sometimes called the "Company"), party of the first part, and The Riggs National Bank of Washington, D.C., a national banking association orga- nized and existing under the laws of the United States of America (hereinafter sometimes called the "Trustee"), as Trustee under the Mortgage and Deed of Trust dated July 1, 1936, hereinafter mentioned, party of the second part; Whereas, The Company has heretofore executed and delivered its Mortgage and Deed of Trust, dated July 1, 1936 (hereinafter sometimes referred to as the "Original Indenture"), to the Trustee, to secure an issue of First Mortgage Bonds of the Company, issuable in series; and Whereas, pursuant to the terms and provisions of the Original Indenture, in- dentures supplemental thereto dated as of July 1, 1936, December 1, 1939, Au- gust 1, 1940, August 1, 1942, January 1, 1948, May 1, 1949, May 1, 1950, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, December 1, 1958, November 16, 1959, December 1, 1960, February 15, 1963, May 15, 1964, April 1, 1966, May 1, 1967, February 15, 1968, March 15, 1969, February 15, 1970, August 15, 1970, September 15, 1972, April 1, 1973, January 2, 1974, August 15, 1974, Au- gust 15, 1974, June 15, 1977, July 1, 1979, June 16, 1981, June 17, 1981, De- cember 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993 and September 29, 1993 have been heretofore entered into between the Company and the Trustee to provide, respectively, for the creation of the first through the fifty-fourth series of Bonds thereunder and, in the case of the supplemental indentures dated January 1, 1948, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, September 15, 1972, July 1, 1979, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992, July 1, 1993 and one of the supplemental indentures dated August 15, 1974, to convey additional property; and 2 Whereas, $20,000,000 principal amount of Bonds of the 3 1/4% Series due 1966 (the first series), $5,000,000 principal amount of Bonds of the 3 1/4 Series due 1974 (the second series), $10,000,000 principal amount of Bonds of the 3 1/4% Series due 1975 (the third series), $5,000,000 principal amount of Bonds of the 3 1/4% Series due 1977 (the fourth series), $15,000,000 principal amount of Bonds of the 3% Series due 1983 (the fifth series), $10,000,000 principal amount of Bonds of the 2 7/8% Series due 1984 (the sixth series), $30,000,000 principal amount of Bonds of the 2 3/4% Series due 1985 (the sev- enth series), $15,000,000 principal amount of Bonds of the 3 1/4% Series due 1987 (the eighth series), $10,000,000 principal amount of Bonds of the 3 7/8% Series due 1988 (the ninth series), $10,000,000 principal amount of Bonds of the 3 3/8% Series due 1990 (the tenth series), $10,000,000 principal amount of Bonds of the 3 5/8% Series due 1991 (the eleventh series), $35,000,000 princi- pal amount of Bonds of the 8.85% Series due 2005 (the twenty-first series), $70,000,000 principal amount of Bonds of the 9 1/2% Series due August 15, 2005 (the twenty-second series), $100,000,000 principal amount of Bonds of the 8 3/8% Series due 2009 (the twenty-fifth series), $50,000,000 principal amount of Bonds of the 10 1/4% Series due 1981 (the twenty-sixth series), $50,000,000 principal amount of Bonds of the 10 3/4% Series due 2004 (the twenty-seventh series), $30,000,000 principal amount of Bonds of the Floating Rate Series due 2010 (the thirty-second series), $50,000,000 principal amount of Bonds of the 14 1/2% Series due 1991 (the thirty-third series), $60,000,000 principal amount of Bonds of the 14 1/4% Series due 1992 (the thirty-fifth series), $50,000,000 principal amount of Bonds of the 11 7/8% Series due 1989 (the thirty-sixth series), $37,000,000 principal amount of Bonds of the 8 3/4% Se- ries due 2010 (the thirty-seventh series), $75,000,000 principal amount of Bonds of the 11 1/4% Series due 2015 (the thirty-eighth series), $75,000,000 principal amount of Bonds of the 9 1/4% Series due 2016 (the thirty-ninth se- ries), $75,000,000 principal amount of Bonds of the 8 3/4% Series due 2016 (the fortieth series) and $75,000,000 principal amount of Bonds of the 9% Se- ries due 1990 (the forty-second series) have been heretofore redeemed and re- tired and there are now issued and outstanding under the Original Indenture and under the supplemental indentures referred to above: $25,000,000 principal amount of Bonds of the 4 5/8% Series due 1993 (the twelfth series); $15,000,000 principal amount of Bonds of the 5 1/4% Series due 1994 (the thir- teenth series); $40,000,000 3 principal amount of Bonds of the 5% Series due 1995 (the fourteenth series); $50,000,000 principal amount of Bonds of the 4 3/8% Series due 1998 (the fif- teenth series); $45,000,000 principal amount of Bonds of the 4 1/2% Series due 1999 (the sixteenth series); $15,000,000 principal amount of Bonds of the 5 1/8% Series due 2001 (the seventeenth series); $35,000,000 principal amount of Bonds of the 5 7/8% Series due 2002 (the eighteenth series); $40,000,000 prin- cipal amount of Bonds of the 6 5/8% Series due 2003 (the nineteenth series); $45,000,000 principal amount of Bonds of the 7 3/4% Series due 2004 (the twen- tieth series); $50,000,000 principal amount of Bonds of the 7 3/4% Series due 2007 (the twenty-third series); $19,000,000 principal amount of Bonds of the 5 5/8% Series due 1997 (the twenty-fourth series); $38,300,000 principal amount of Bonds of the 6 1/8% Series due 2007 (the twenty-eighth series); $15,000,000 principal amount of Bonds of the 6 1/2% Series due 2004 (the twenty-ninth se- ries); $20,000,000 principal amount of Bonds of the 6 1/2% Series due 2007 (the thirtieth series); $7,500,000 principal amount of Bonds of the 6 5/8% Se- ries due 2009 (the thirty-first series); $50,000,000 principal amount of Bonds of the Adjustable Rate Series due 2001 (the thirty-fourth series); $75,000,000 principal amount of Bonds of the 8 1/4% Series due 2017 (the forty-first se- ries); $75,000,000 principal amount of Bonds of the 9 3/4% Series due 2019 (the forty-third series); $75,000,000 principal amount of Bonds of the 8 5/8% Series due 2019 (the forty-fourth series); $100,000,000 principal amount of Bonds of the 9% Series due 2000 (the forty-fifth series); $100,000,000 princi- pal amount of Bonds of the 9% Series due 2021 (the forty-sixth series); $75,000,000 principal amount of Bonds of the 8 1/2% Series due 2027 (the for- ty-seventh series); $30,000,000 principal amount of Bonds of the 6% Series due 2022 (the forty-eighth series); $37,000,000 principal amount of Bonds of the 6 3/8% Series due 2023 (the forty-ninth series); $78,000,000 principal amount of Bonds of the 6 1/2% Series due 2008 (the fiftieth series); $40,000,000 princi- pal amount of Bonds of the 7 1/2% Series due 2028 (the fifty-first series); $100,000,000 principal amount of Bonds of the 7 1/4% Series due 2023 (the fif- ty-second series); $100,000,000 principal amount of Bonds of the 6 7/8% Series due 2023 (the fifty-third series); and $50,000,000 principal amount of Bonds of the 5 5/8% Series due 2003 (the fifty-fourth series); and Whereas, for the purpose of conforming the Original Indenture to the stan- dards prescribed by the Trust Indenture Act of 1939 or otherwise 4 modifying certain of the provisions of the Original Indenture, indentures sup- plemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993 and September 29, 1993 have been heretofore entered into between the Company and the Trustee, and for the purpose of conveying additional property, indentures supplemental thereto dated July 15, 1942, October 15, 1947, December 31, 1948, December 31, 1949, February 15, 1951, February 16, 1953, March 15, 1954, March 15, 1955, March 15, 1956, April 1, 1957, May 1, 1958, May 1, 1959, May 2, 1960, April 3, 1961, May 1, 1962, May 1, 1963, April 23, 1964, May 3, 1965, June 1, 1966, April 28, 1967, July 3, 1967, May 1, 1968, June 16, 1969, May 15, 1970, September 1, 1971, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992 and July 1, 1993 have been heretofore entered into be- tween the Company and the Trustee, and for the purpose of better securing and protecting the Bonds then or thereafter issued and confirming the lien of the Original Indenture, an indenture dated October 15, 1942 supplemental thereto has been heretofore entered into between the Company and the Trustee; the Original Indenture as heretofore amended and supplemented being hereinafter referred to as the "Original Indenture as amended"; and Whereas, the Company is entitled to have authenticated and delivered addi- tional Bonds on the basis of the net bondable value of property additions, upon compliance with the provisions of Section 4 of Article III of the Origi- nal Indenture as amended; and Whereas, the Company has determined to issue a fifty-fifth series of Bonds under the Original Indenture as amended in the principal amount of $50,000,000, to be known as First Mortgage Bonds, 5 7/8% Series due 2008 (hereinafter called "Bonds of 2008 Series"); and Whereas, the Original Indenture as amended provides that certain terms and provisions, as determined by the Board of Directors of the Company, of the Bonds of any particular series may be expressed in and provided by the execu- tion of an appropriate supplemental indenture; and 5 Whereas, the Original Indenture as amended provides that the Company and the Trustee may enter into indentures supplemental thereto to add to the covenants and agreements of the Company contained therein other covenants and agreements thereafter to be observed; and to surrender any right or power reserved to or conferred upon the Company in the Original Indenture as amended; and Whereas, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Original Indenture as amended and pursuant to appropriate resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled, and the execution and delivery hereof have been in all respects duly authorized; Now, Therefore, This Indenture Witnesseth: That Potomac Electric Power Company, in consideration of the premises and of One Dollar to it duly paid by the Trustee at or before the ensealing and de- livery of these presents, and for other valuable considerations, the receipt whereof is hereby acknowledged, hereby covenants, declares and agrees with the Trustee and its successors in the trust under the Original Indenture as amend- ed, for the benefit of those who hold the Bonds and coupons, or any of them, issued or to be issued hereunder or under the Original Indenture as amended, as follows: PART I. Description of Bonds. Section 1. The Bonds of 2008 Series shall, subject to the provisions of Sec- tion 1 of Article II of the Original Indenture as amended, be designated as "First Mortgage Bonds, 5 7/8% Series due 2008" of the Company. The Bonds of 2008 Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be 6 subject to, all of the terms, conditions and covenants of the Original Inden- ture as amended, except in so far as the terms and provisions of the Original Indenture as amended are amended or modified by this Supplemental Indenture. The Bonds of 2008 Series shall mature October 15, 2008, and shall bear inter- est at the rate of five and seven-eighths per cent (5 7/8%) per annum, payable semiannually, commencing April 15, 1994, on the fifteenth day of April and the fifteenth day of October in each year (each such April 15 and October 15 being hereinafter called an "interest payment date"). The Bonds of 2008 Series shall be payable as to principal and interest in lawful money of the United States of America, and shall be payable (as well the interest as the principal there- of) at the Agency of the Company in the City of Washington, D.C., or at the Agency of the Company in the Borough of Manhattan, The City of New York. The interest so payable on any interest payment date shall be paid to the persons in whose names the Bonds of 2008 Series are registered at the close of business on the last business day (hereinafter called the "record date") which is more than ten days prior to such interest payment date, a "business day" being any day that is not a day on which banks in the City of Washington, D.C., are authorized by law to close; except that if the Company shall default in the payment of any interest due on such interest payment date, such de- faulted interest shall be paid to the persons in whose names the Bonds of 2008 Series are registered on the date of payment of such defaulted interest, or in accordance with the regulations of any securities exchange on which the Bonds of 2008 Series are listed. Except as provided hereinafter, every Bond of 2008 Series shall be dated as of the date of its authentication and delivery, or if that is an interest pay- ment date, the next day, and shall bear interest from the interest payment date next preceding its date or the date of delivery of the initial Bonds of 2008 Series, whichever is later. Notwithstanding Section 6 of Article II of the Original Indenture, any Bond of 2008 Series authenticated and delivered by the Trustee after the close of business on the record date with respect to any interest payment date and prior to such interest payment date shall be dated as of the date next follow- 7 ing such interest payment date and shall bear interest from such interest pay- ment date; except that if the Company shall default in the payment of any in- terest due on such interest payment date, such Bond shall bear interest from the next preceding interest payment date or the date of delivery of the ini- tial Bonds of 2008 Series, whichever is later. Section 2. The Bonds of 2008 Series, and the Trustee's certificate to be en- dorsed on the Bonds of 2008 Series, shall be substantially in the following forms, respectively: [FORM OF FACE OF BOND OF 2008 SERIES] POTOMAC ELECTRIC POWER COMPANY (A District of Columbia and Virginia corporation) First Mortgage Bond, 5 7/8% Series Due 2008 No. $ Potomac Electric Power Company, a corporation organized and existing under the laws of the District of Columbia and a domestic cor- poration of the Com- monwealth of Virginia (hereinafter called the "Company", which term shall in- clude any successor corporation as defined in the Amended Indenture hereinaf- ter referred to), for value received, hereby promises to pay to ................... or registered assigns, the sum of .................. dol- lars, on the fifteenth day of October 2008, in lawful money of the United States of America, and to pay interest thereon in like money from the later of the date of delivery of the initial Bonds of 2008 Series or the interest pay- ment date April 15 or October 15 next preceding the date of this Bond, or if the Company shall default in the payment of interest due on such interest pay- ment date, then from the next preceding interest payment date or the date of delivery of the initial Bonds of 2008 Series, whichever is later, at the rate of five and seven-eighths percent (5 7/8%) per annum, payable semiannually, commencing April 15, 1994, on the fifteenth day of April and October in each year until maturity, or, if the Company shall default in the payment of the principal hereof, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the 8 Amended Indenture. The interest so payable on any April 15 or October 15 will, subject to certain exceptions provided in the indenture dated as of September 30, 1993 supplemental to the Amended Indenture, be paid to the person in whose name this Bond is registered at the close of business on the last business day which is more than ten days prior to such April 15 or October 15. Both princi- pal of, and interest on, this Bond are payable at the agency of the Company in the City of Washington, D.C., or, at the option of the holder, at the agency of the Company in the Borough of Manhattan, The City of New York. Reference is made to the further provisions of this Bond set forth on the re- verse hereof, and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Bond shall not be entitled to any benefit under the Amended Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until The Riggs National Bank of Washington, D.C., the Trustee under the Amended Indenture, or a successor trustee thereto under the Amended Indenture, shall have signed the form of certificate endorsed hereon. In Witness Whereof, Potomac Electric Power Company has caused this Bond to be signed in its name by the signature (or a facsimile thereof) of its President or a Vice President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by the facsimile signature of its Secretary or an Assistant Secretary. Dated, Potomac Electric Power Company By...................................... Vice President Attest: ................................... Secretary 9 [FORM OF TRUSTEE'S CERTIFICATE] This Bond is one of the Bonds, of the series designated therein, described in the within-mentioned Amended Indenture and the Supplemental Indenture dated as of September 30, 1993. The Riggs National Bank of Washington, D.C. Trustee. By.......................................... Authorized Officer [TEXT APPEARING ON REVERSE SIDE OF BOND OF 2008 SERIES] This Bond is one of a duly authorized issue of Bonds of the Company (herein- after called the "Bonds") in unlimited aggregate principal amount, of the se- ries hereinafter specified, all issued and to be issued under and equally se- cured (except in so far as any purchase or sinking fund or analogous provi- sions for any particular series of Bonds, established by any indenture supple- mental to the Amended Indenture hereinafter mentioned, may afford additional security for such Bonds) by a mortgage and deed of trust, dated July 1, 1936, executed by the Company to The Riggs National Bank of Washington, D.C. (herein called the "Trustee"), as trustee, as amended by indentures supplemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993 and September 29, 1993 (said mortgage and deed of trust, as so amended, being herein called the "Amended Indenture") and all indentures supplemental thereto, to which Amended Inden- ture and supplemental indentures reference is hereby made for a description of the properties mortgaged and pledged, the nature and extent of the security, the rights of the owners of the Bonds and of the Trustee in respect thereto, and the terms and conditions upon which the Bonds are, and are 10 to be, secured. To the extent permitted by, and as provided in, the Amended Indenture, modifications or alterations of the Amended Indenture, or of any indenture supplemental thereto, and of the rights and obligations of the Com- pany and of the holders of the Bonds may be made with the consent of the Com- pany by an affirmative vote of not less than 80% in amount of the Bonds enti- tled to vote then outstanding, at a meeting of Bondholders called and held as provided in the Amended Indenture, and by an affirmative vote of not less than 80% in amount of the Bonds of any series entitled to vote then outstanding and affected by such modification or alteration, in case one or more but less than all of the series of Bonds then outstanding under the Amended Indenture are so affected; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of, or interest on, this Bond, which are unconditional, or which reduces the percentage of Bonds the affirmative vote of which is required for the making of such modifi- cations or alterations. The Company is proposing an amendment to the Amended Indenture which would replace "80%" with "60%" in the preceding sentence, which amendment will become effective upon the consent or agreement thereto of the holders of all the outstanding Bonds. The holder of this Bond will be deemed to have approved such amendment. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as in the Amended Indenture provided. This Bond is one of a series designated as the "First Mortgage Bonds, 5 7/8% Series due 2008" (herein called the "Bonds of 2008 Series") of the Company, issued under and secured by the Amended Indenture and all indentures supple- mental thereto and described in the indenture (herein called the "New Supple- mental Indenture"), dated as of September 30, 1993, between the Company and the Trustee, supplemental to the Amended Indenture. The Bonds of 2008 Series are not subject to redemption prior to maturity. In case an event of default, as defined in the Amended Indenture, shall oc- cur, the principal of all the Bonds at any such time outstanding under 11 the Amended Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Amended In- denture. The Amended Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Bonds entitled to vote then outstanding. This Bond is transferable by the registered owner hereof, in person or by duly authorized attorney, on the books of the Company to be kept for that pur- pose at the agency of the Company in the City of Washington, D.C., or at the agency of the Company in the Borough of Manhattan, The City of New York, upon surrender and cancellation of this Bond and on presentation of a duly executed written instrument of transfer, and thereupon a new Bond or Bonds of the same series, of the same aggregate principal amount and in authorized denominations will be issued to the transferee or transferees in exchange therefor; and this Bond, with or without others of the same series, may in like manner be ex- changed for one or more new Bonds of the same series of other authorized de- nominations but of the same aggregate principal amount; all subject to the terms and conditions set forth in the Amended Indenture. No recourse shall be had for the payment of the principal of, or the interest on, this Bond, or for any claim based hereon or otherwise in respect hereof or of the Amended Indenture or any indenture supplemental thereto, against any incorporator, or against any stockholder, director or officer, past, present or future, of the Company or of any predecessor or successor corporation, ei- ther directly or through the Company or any such predecessor or successor cor- poration, whether for amounts unpaid on stock subscriptions or by virtue of any constitution, statute or rule of law, or by the enforcement of any assess- ment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stock- holders, directors or officers being released by every owner hereof by the ac- ceptance of this Bond and as part of the consideration for the issue hereof, and being likewise released by the terms of the Amended Indenture. Section 3. The Bonds of 2008 Series shall be registered Bonds without coupons in denominations of any multiple of $1,000, numbered consecutively upwards from R1. 12 Section 4. Until Bonds of 2008 Series in definitive form are ready for deliv- ery, the Company may execute, and upon its request in writing the Trustee shall authenticate and deliver, in lieu thereof, Bonds for such series in tem- porary form, as provided in Section 9 of Article II of the Original Indenture as amended. PART II. Issue of Bonds. Section 1. Except for Bonds of 2008 Series issued pursuant to Section 13 of Article II of the Original Indenture as amended, the principal amount of Bonds of 2008 Series which may be authenticated and delivered hereunder is limited to $50,000,000 aggregate principal amount. Section 2. Bonds of 2008 Series in the aggregate principal amount permitted in Section 1 of this Part II, may at any time subsequent to the execution hereof be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered (either before or after the record- ing hereof) to or upon the order of the Company evidenced by a writing or writings, signed by its President or one of its Vice Presidents and its Trea- surer or one of its Assistant Treasurers, at such time or times as may be re- quested by the Company subsequent to the receipt by the Trustee of (1) the certified resolution and the officers' certificate required by Sec- tion 3(a) and Section 3(b) of Article III of the Original Indenture as amended; (2) the opinion of counsel required by Section 3(c) of Article III of the Original Indenture as amended; (3) cash, if any, in the amount required to be deposited by Section 3(d) of Article III of the Original Indenture as amended, which shall be held and applied by the Trustee as provided in said Section 3(d); (4) the certificates, instruments, opinions of counsel, prior lien bonds and cash, if any, required by Section 4 of Article III of the Original In- denture as amended, except that, as required by Part IV of this Supplemental Indenture, property additions purchased, constructed or otherwise acquired on or before December 31, 1946 shall 13 not be made the basis for the authentication and delivery of Bonds of 2008 Series; and (5) the certificates and opinions required by Article XVIII of the Original Indenture as amended. PART III. Redemption. The Bonds of 2008 Series shall not be redeemable prior to maturity. PART IV. Additional Particular Covenants of the Company. The Company hereby covenants, warrants and agrees that so long as any Bonds of 2008 Series are outstanding: Section 1. The Company will not withdraw, pursuant to the provisions of Sec- tion 2 of Article VIII of the Original Indenture as amended, any moneys held by the Trustee as part of the trust estate in excess of an amount equal to the aggregate principal amount of such of the refundable Bonds as were theretofore issued by the Company; and that upon any such withdrawal by the Company re- fundable Bonds equal in aggregate principal amount to the amount so withdrawn shall be deemed to have been made the basis of such withdrawal. Section 2. Property additions purchased, constructed or otherwise acquired on or before December 31, 1946 shall not be made the basis for the authentication and delivery of Bonds, or the withdrawal of cash, or the reduction of the amount of cash required to be paid to the Trustee under any provision of the Indenture. PART V. Amendment of Indenture to Permit Qualification Under Trust Indenture Act of 1939. The Company and the Trustee, from time to time and at any time, without any vote or consent of the holders of the Bonds of 2008 Series, 14 may enter into such indentures supplemental to the Original Indenture as may or shall by them be deemed necessary or desirable to add to or modify or amend any of the provisions of the Original Indenture so as to permit the qualifica- tion of the Original Indenture under the Trust Indenture Act of 1939. Except to the extent specifically provided herein, no provision of this Sup- plemental Indenture is intended to modify, and the parties hereto do hereby adopt and confirm, the provisions of Section 318(c) of the Trust Indenture Act of 1939 which amend and supersede provisions of the Original Indenture, as supplemented, in effect prior to November 15, 1990. PART VI. Amendment of Original Indenture. Notwithstanding any other provisions of the Original Indenture as amended, the holders of the Bonds of 2008 Series, by their holding of such Bonds, are deemed to have approved the following amendment to the Original Indenture as amended and to have authorized the Trustee to take any action necessary to ev- idence or effectuate such approval: Sections 5 and 6 of Article XV of the Original Indenture as amended are hereby amended by changing the words and figures "eighty percent. (80%)" to the words and figures "sixty percent. (60%)" wherever in such Sections such words and figures occur. PART VII. The Trustee. The Trustee hereby accepts the trusts hereby declared and provided and agrees to perform the same upon the terms and conditions in the Original Indenture as amended set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in re- spect of the validity or sufficiency of this Supplemental Indenture 15 or the due execution hereof by the Company or for or in respect of the recit- als contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XIII of the Original Indenture as amended shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. PART VIII. Miscellaneous Provisions. This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an origi- nal; but such counterparts shall together constitute but one and the same in- strument. Potomac Electric Power Company hereby constitutes and appoints William R. Gee, Jr., one of its Vice Presidents, to be its true and lawful attorney-in- fact, for it and in its name to appear before any officer authorized by law to take and certify acknowledgments of deeds to be recorded in the District of Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and deliver these presents as the act and deed of said Potomac Electric Power Company. The Riggs National Bank of Washington, D.C., hereby constitutes and appoints Alexander C. Baker, one of its Senior Vice Presidents, to be its true and law- ful attorney-in-fact, for it and in its name to appear before any officer au- thorized by law to take and certify acknowledgments of deeds to be recorded in the District of Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and de- liver these presents as the act and deed of said The Riggs National Bank of Washington, D.C. 16 In Witness Whereof, said Potomac Electric Power Company has caused this Sup- plemental Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by its Secretary or one of its Assistant Secretaries; and said The Riggs National Bank of Washington, D.C., in evidence of its acceptance of the trust hereby created, has caused this Supplemental Indenture to be executed on its behalf by its President or one of its Senior Vice Presidents, and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by one of its Corpo- rate Trust Officers, all as of the 30th day of September, One thousand nine hundred and ninety-three. Potomac Electric Power Company (Corporate Seal) By......................................... WILLIAM R. GEE, JR., Vice President Attested: ................................... MARY T. HOWARD, Assistant Secretary Signed, sealed and delivered by Potomac Electric Power Company in the presence of: ................................... ................................... As Witnesses The Riggs National Bank of Washington, D.C. (Corporate Seal) By.......................................... ALEXANDER C. BAKER, Senior Vice President Attested: ................................... BEVERLY MOFFETT, Senior Corporate Trust Officer Signed, sealed and delivered by The Riggs National Bank of Wash- ington, D.C. in the presence of: ................................... ................................... As Witnesses 17 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, whose commission as such will expire , do hereby certify that William R. Gee, Jr. and Mary T. Howard, whose names as Vice President and Assistant Secretary, respectively, of Potomac Electric Power Company, a corpo- ration, are signed to the foregoing and hereto attached deed, bearing date as of the 30th day of September, 1993, personally appeared this day before me in my District aforesaid and acknowledged themselves to be, respectively, a Vice President and an Assistant Secretary of Potomac Electric Power Company, and that they as such, being authorized so to do, executed the said deed by sign- ing the name of Potomac Electric Power Company by William R. Gee, Jr., as Vice President, and attested by Mary T. Howard, as Assistant Secretary, and ac- knowledged the same before me in my District aforesaid and acknowledged the foregoing instrument to be the act and deed of Potomac Electric Power Company. Given under my hand and official seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia 18 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that William R. Gee, Jr., a Vice Presi- dent of Potomac Electric Power Company, a corporation, one of the parties to the foregoing instrument bearing date as of the 30th day of September, 1993, and hereto annexed, this day personally appeared before me in the City of Washington, the said William R. Gee, Jr., being personally well known to me as the person who executed the said instrument as a Vice President of and on be- half of said Potomac Electric Power Company and known to me to be the attor- ney-in-fact duly appointed therein to acknowledge and deliver said instrument on behalf of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said Potomac Electric Power Company, and delivered the same as such. I further certify that the said William R. Gee, Jr., being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corpora- tion; and that he signed his name thereto by like order. My commission expires Given under my hand and official seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia 19 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Alexander C. Baker and Beverly Moffett, whose names as Senior Vice President and Senior Corporate Trust Officer, re- spectively, of The Riggs National Bank of Washington, D.C., a corporation, are signed to the foregoing and hereto attached deed, bearing date as of the 30th day of September, 1993, personally appeared before me this day in my District aforesaid and acknowledged themselves to be, respectively, a Senior Vice Pres- ident and a Senior Corporate Trust Officer of The Riggs National Bank of Wash- ington, D.C., and that they as such, being authorized so to do, executed the said deed by signing the name of The Riggs National Bank of Washington, D.C., by Alexander C. Baker as Senior Vice President, and attested by Beverly Moffett, as Senior Corporate Trust Officer, and acknowledged the same before me in my District aforesaid and acknowledged the foregoing instrument to be the act and deed of The Riggs National Bank of Washington, D.C., as therein set forth. Given under my hand and notarial seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia My Commission Expires . 20 ++ City of Washington, + District of Columbia, ++ ss.: + ++ Alexander C. Baker, of full age, being sworn according to law, on his oath deposes and says that he is a Senior Vice President of The Riggs National Bank of Washington, D.C., the Trustee named in the foregoing Supplemental Inden- ture, dated as of the 30th day of September, 1993, that he is the agent of said Trustee for the purpose of perfecting such Supplemental Indenture and that the consideration in the Original Indenture referred to therein and in all indentures supplemental to said Original Indenture, including the forego- ing Supplemental Indenture, is true and bona fide as therein set forth. ............................................ Alexander C. Baker Subscribed and sworn to before me this day of October, 1993. ................................... Notary Public District of Columbia My Commission Expires (Notarial Seal) 21 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Alexander C. Baker a Senior Vice President of The Riggs National Bank of Washington, D.C., a corporation, one of the parties to the foregoing instrument bearing date as of the 30th day of September, 1993, and hereto annexed, this day personally appeared before me in the City of Washington, the said Alexander C. Baker, being personally well known to me as the person who executed the said instrument as a Senior Vice President of and on behalf of said The Riggs National Bank of Washington, D.C., and known to me to be the attorney-in-fact duly appointed therein to ac- knowledge and deliver said instrument on behalf of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said The Riggs National Bank of Washington, D.C., and delivered the same as such. I further certify that the said Alexander C. Baker, being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. Given under my hand and official seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia My Commission Expires 22 CERTIFICATE OF RESIDENCE The Riggs National Bank of Washington, D.C., Mortgagee and Trustee within named, hereby certifies that its precise residence is 800-17th Street, N.W., Washington, D.C. 20006. The Riggs National Bank of Washington, D.C. By.......................................... Alexander C. Baker, Senior Vice President EX-4 5 10/01/93 SUPPLEMENTAL INDENTURE ================================================================================ POTOMAC ELECTRIC POWER COMPANY 1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C. TO THE RIGGS NATIONAL BANK OF WASHINGTON, D.C. 800-17TH STREET, N.W., WASHINGTON, D.C. AS TRUSTEE ------------------ Supplemental Indenture DATED AS OF OCTOBER 1, 1993 ------------------ SUPPLEMENTAL TO MORTGAGE AND DEED OF TRUST DATED JULY 1, 1936 ------------------ FIRST MORTGAGE BONDS, 6 7/8% SERIES DUE 2024 ================================================================================ POTOMAC ELECTRIC POWER COMPANY SUPPLEMENTAL INDENTURE DATED AS OF OCTOBER 1, 1993 TABLE OF CONTENTS* ------------------
PAGE Parties.................................................................. 1 Recitals................................................................. 1 PART I Description of Bonds Section 1. General description of Bonds of 2024 Series.................. 5 Section 2. Form of face of Bond of 2024 Series.......................... 7 Form of Trustee's certificate................................ 9 Text appearing on reverse side of Bond of 2024 Series........ 9 Section 3. Denominations of Bonds of 2024 Series........................ 12 Section 4. Execution and form of temporary Bonds........................ 12 PART II Issue of Bonds Section 1. Limitation as to principal amount............................ 12 Section 2. Issue of Bonds............................................... 13 PART III Redemption Section 1. Bonds of 2024 Series redeemable ............................. 13 Section 2. Notice of Redemption, etc. .................................. 14 PART IV Additional Particular Covenants of the Company Section 1. Company not to withdraw moneys pursuant to Section 2 of Article VIII in excess of an amount equal to principal amount of issued refundable bonds........................... 14 Section 2. No property additions made on or prior to December 31, 1946 to be used for any purpose under the Indenture.............. 14
- --------- * The Table of Contents is not part of the Supplemental Indenture and should not be considered as such. It is included herein only for purposes of convenient reference. ii
PART V PAGE Amendment of Indenture to Permit Qualification Under Trust Indenture Act of 1939............................................................. 15 PART VI Amendment of Original Indenture.......................................... 15 PART VII The Trustee Acceptance of trusts by the Trustee...................................... 15 Trustee not responsible for validity of the Supplemental Indenture....... 16 PART VIII Miscellaneous Provisions Execution of Supplemental Indenture in counterparts...................... 16 Appointment of attorneys-in-fact by parties.............................. 16 Testimonium.............................................................. 16 Execution................................................................ 17 Company's Acknowledgments................................................ 18 Trustee's Acknowledgments................................................ 20
SUPPLEMENTAL INDENTURE, dated as of the first day of October, nineteen hun- dred and ninety-three (1993), made by and between Potomac Electric Power Com- pany, a corporation organized and existing under the laws of the District of Columbia and a domestic corporation of the Commonwealth of Virginia (hereinaf- ter sometimes called the "Company"), party of the first part, and The Riggs National Bank of Washington, D.C., a national banking association organized and existing under the laws of the United States of America (hereinafter some- times called the "Trustee"), as Trustee under the Mortgage and Deed of Trust dated July 1, 1936, hereinafter mentioned, party of the second part; Whereas, The Company has heretofore executed and delivered its Mortgage and Deed of Trust, dated July 1, 1936 (hereinafter sometimes referred to as the "Original Indenture"), to the Trustee, to secure an issue of First Mortgage Bonds of the Company, issuable in series; and Whereas, pursuant to the terms and provisions of the Original Indenture, in- dentures supplemental thereto dated as of July 1, 1936, December 1, 1939, Au- gust 1, 1940, August 1, 1942, January 1, 1948, May 1, 1949, May 1, 1950, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, December 1, 1958, November 16, 1959, December 1, 1960, February 15, 1963, May 15, 1964, April 1, 1966, May 1, 1967, February 15, 1968, March 15, 1969, February 15, 1970, August 15, 1970, September 15, 1972, April 1, 1973, January 2, 1974, August 15, 1974, Au- gust 15, 1974, June 15, 1977, July 1, 1979, June 16, 1981, June 17, 1981, De- cember 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993 and September 30, 1993 have been heretofore en- tered into between the Company and the Trustee to provide, respectively, for the creation of the first through the fifty-fifth series of Bonds thereunder and, in the case of the supplemental indentures dated January 1, 1948, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, September 15, 1972, July 1, 1979, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992, July 1, 1993 and one of the supplemental indentures dated August 15, 1974, to convey additional property; and 2 Whereas, $20,000,000 principal amount of Bonds of the 3 1/4% Series due 1966 (the first series), $5,000,000 principal amount of Bonds of the 3 1/4 Series due 1974 (the second series), $10,000,000 principal amount of Bonds of the 3 1/4% Series due 1975 (the third series), $5,000,000 principal amount of Bonds of the 3 1/4% Series due 1977 (the fourth series), $15,000,000 principal amount of Bonds of the 3% Series due 1983 (the fifth series), $10,000,000 principal amount of Bonds of the 2 7/8% Series due 1984 (the sixth series), $30,000,000 principal amount of Bonds of the 2 3/4% Series due 1985 (the sev- enth series), $15,000,000 principal amount of Bonds of the 3 1/4% Series due 1987 (the eighth series), $10,000,000 principal amount of Bonds of the 3 7/8% Series due 1988 (the ninth series), $10,000,000 principal amount of Bonds of the 3 3/8% Series due 1990 (the tenth series), $10,000,000 principal amount of Bonds of the 3 5/8% Series due 1991 (the eleventh series), $35,000,000 princi- pal amount of Bonds of the 8.85% Series due 2005 (the twenty-first series), $70,000,000 principal amount of Bonds of the 9 1/2% Series due August 15, 2005 (the twenty-second series), $100,000,000 principal amount of Bonds of the 8 3/8% Series due 2009 (the twenty-fifth series), $50,000,000 principal amount of Bonds of the 10 1/4% Series due 1981 (the twenty-sixth series), $50,000,000 principal amount of Bonds of the 10 3/4% Series due 2004 (the twenty-seventh series), $30,000,000 principal amount of Bonds of the Floating Rate Series due 2010 (the thirty-second series), $50,000,000 principal amount of Bonds of the 14 1/2% Series due 1991 (the thirty-third series), $60,000,000 principal amount of Bonds of the 14 1/4% Series due 1992 (the thirty-fifth series), $50,000,000 principal amount of Bonds of the 11 7/8% Series due 1989 (the thirty-sixth series), $37,000,000 principal amount of Bonds of the 8 3/4% Se- ries due 2010 (the thirty-seventh series), $75,000,000 principal amount of Bonds of the 11 1/4% Series due 2015 (the thirty-eighth series), $75,000,000 principal amount of Bonds of the 9 1/4% Series due 2016 (the thirty-ninth se- ries), $75,000,000 principal amount of Bonds of the 8 3/4% Series due 2016 (the fortieth series) and $75,000,000 principal amount of Bonds of the 9% Se- ries due 1990 (the forty-second series) have been heretofore redeemed and re- tired and there are now issued and outstanding under the Original Indenture and under the supplemental indentures referred to above: $25,000,000 principal amount of Bonds of the 4 5/8% Series due 1993 (the twelfth series); $15,000,000 principal amount of Bonds of the 5 1/4% Series due 1994 (the thir- teenth series); $40,000,000 3 principal amount of Bonds of the 5% Series due 1995 (the fourteenth series); $50,000,000 principal amount of Bonds of the 4 3/8% Series due 1998 (the fif- teenth series); $45,000,000 principal amount of Bonds of the 4 1/2% Series due 1999 (the sixteenth series); $15,000,000 principal amount of Bonds of the 5 1/8% Series due 2001 (the seventeenth series); $35,000,000 principal amount of Bonds of the 5 7/8% Series due 2002 (the eighteenth series); $40,000,000 prin- cipal amount of Bonds of the 6 5/8% Series due 2003 (the nineteenth series); $45,000,000 principal amount of Bonds of the 7 3/4% Series due 2004 (the twen- tieth series); $50,000,000 principal amount of Bonds of the 7 3/4% Series due 2007 (the twenty-third series); $19,000,000 principal amount of Bonds of the 5 5/8% Series due 1997 (the twenty-fourth series); $38,300,000 principal amount of Bonds of the 6 1/8% Series due 2007 (the twenty-eighth series); $15,000,000 principal amount of Bonds of the 6 1/2% Series due 2004 (the twenty-ninth se- ries); $20,000,000 principal amount of Bonds of the 6 1/2% Series due 2007 (the thirtieth series); $7,500,000 principal amount of Bonds of the 6 5/8% Se- ries due 2009 (the thirty-first series); $50,000,000 principal amount of Bonds of the Adjustable Rate Series due 2001 (the thirty-fourth series); $75,000,000 principal amount of Bonds of the 8 1/4% Series due 2017 (the forty-first se- ries); $75,000,000 principal amount of Bonds of the 9 3/4% Series due 2019 (the forty-third series); $75,000,000 principal amount of Bonds of the 8 5/8% Series due 2019 (the forty-fourth series); $100,000,000 principal amount of Bonds of the 9% Series due 2000 (the forty-fifth series); $100,000,000 princi- pal amount of Bonds of the 9% Series due 2021 (the forty-sixth series); $75,000,000 principal amount of Bonds of the 8 1/2% Series due 2027 (the for- ty-seventh series); $30,000,000 principal amount of Bonds of the 6% Series due 2022 (the forty-eighth series); $37,000,000 principal amount of Bonds of the 6 3/8% Series due 2023 (the forty-ninth series); $78,000,000 principal amount of Bonds of the 6 1/2% Series due 2008 (the fiftieth series); $40,000,000 princi- pal amount of Bonds of the 7 1/2% Series due 2028 (the fifty-first series); $100,000,000 principal amount of Bonds of the 7 1/4% Series due 2023 (the fif- ty-second series); $100,000,000 principal amount of Bonds of the 6 7/8% Series due 2023 (the fifty-third series); $50,000,000 principal amount of Bonds of the 5 5/8% Series due 2003 (the fifty-fourth series); and $50,000,000 princi- pal amount of Bonds of the 5 7/8% Series due 2008 (the fifty-fifth series); and 4 Whereas, for the purpose of conforming the Original Indenture to the stan- dards prescribed by the Trust Indenture Act of 1939 or otherwise modifying certain of the provisions of the Original Indenture, indentures supplemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993 and September 30, 1993 have been heretofore entered into between the Company and the Trustee, and for the purpose of conveying additional property, indentures sup- plemental thereto dated July 15, 1942, October 15, 1947, December 31, 1948, December 31, 1949, February 15, 1951, February 16, 1953, March 15, 1954, March 15, 1955, March 15, 1956, April 1, 1957, May 1, 1958, May 1, 1959, May 2, 1960, April 3, 1961, May 1, 1962, May 1, 1963, April 23, 1964, May 3, 1965, June 1, 1966, April 28, 1967, July 3, 1967, May 1, 1968, June 16, 1969, May 15, 1970, September 1, 1971, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992 and July 1, 1993 have been here- tofore entered into between the Company and the Trustee, and for the purpose of better securing and protecting the Bonds then or thereafter issued and con- firming the lien of the Original Indenture, an indenture dated October 15, 1942 supplemental thereto has been heretofore entered into between the Company and the Trustee; the Original Indenture as heretofore amended and supplemented being hereinafter referred to as the "Original Indenture as amended"; and Whereas, the Company is entitled to have authenticated and delivered addi- tional Bonds on the basis of the net bondable value of property additions, upon compliance with the provisions of Section 4 of Article III of the Origi- nal Indenture as amended; and Whereas, the Company has determined to issue a fifty-sixth series of Bonds under the Original Indenture as amended in the principal amount of $75,000,000, to be known as First Mortgage Bonds, 6 7/8% Series due 2024 (hereinafter called "Bonds of 2024 Series"); and Whereas, the Original Indenture as amended provides that certain terms and provisions, as determined by the Board of Directors of the 5 Company, of the Bonds of any particular series may be expressed in and pro- vided by the execution of an appropriate supplemental indenture; and Whereas, the Original Indenture as amended provides that the Company and the Trustee may enter into indentures supplemental thereto to add to the covenants and agreements of the Company contained therein other covenants and agreements thereafter to be observed; and to surrender any right or power reserved to or conferred upon the Company in the Original Indenture as amended; and Whereas, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Original Indenture as amended and pursuant to appropriate resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled, and the execution and delivery hereof have been in all respects duly authorized; Now, Therefore, This Indenture Witnesseth: That Potomac Electric Power Company, in consideration of the premises and of One Dollar to it duly paid by the Trustee at or before the ensealing and de- livery of these presents, and for other valuable considerations, the receipt whereof is hereby acknowledged, hereby covenants, declares and agrees with the Trustee and its successors in the trust under the Original Indenture as amend- ed, for the benefit of those who hold the Bonds and coupons, or any of them, issued or to be issued hereunder or under the Original Indenture as amended, as follows: PART I. Description of Bonds. Section 1. The Bonds of 2024 Series shall, subject to the provisions of Sec- tion 1 of Article II of the Original Indenture as amended, be des- 6 ignated as "First Mortgage Bonds, 6 7/8% Series due 2024" of the Company. The Bonds of 2024 Series shall be executed, authenticated and delivered in accor- dance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Original Indenture as amended, ex- cept in so far as the terms and provisions of the Original Indenture as amended are amended or modified by this Supplemental Indenture. The Bonds of 2024 Series shall mature October 15, 2024, and shall bear inter- est at the rate of six and seven-eighths per cent (6 7/8%) per annum, payable semiannually, commencing April 15, 1994, on the fifteenth day of April and the fifteenth day of October in each year (each such April 15 and October 15 being hereinafter called an "interest payment date"). The Bonds of 2024 Series shall be payable as to principal and interest in lawful money of the United States of America, and shall be payable (as well the interest as the principal there- of) at the Agency of the Company in the City of Washington, D.C., or at the Agency of the Company in the Borough of Manhattan, The City of New York. The interest so payable on any interest payment date shall be paid to the persons in whose names the Bonds of 2024 Series are registered at the close of business on the last business day (hereinafter called the "record date") which is more than ten days prior to such interest payment date, a "business day" being any day that is not a day on which banks in the City of Washington, D.C., are authorized by law to close; except that if the Company shall default in the payment of any interest due on such interest payment date, such de- faulted interest shall be paid to the persons in whose names the Bonds of 2024 Series are registered on the date of payment of such defaulted interest, or in accordance with the regulations of any securities exchange on which the Bonds of 2024 Series are listed. Except as provided hereinafter, every Bond of 2024 Series shall be dated as of the date of its authentication and delivery, or if that is an interest pay- ment date, the next day, and shall bear interest from the interest payment date next preceding its date or the date of delivery of the initial Bonds of 2024 Series, whichever is later. Notwithstanding Section 6 of Article II of the Original Indenture, any Bond of 2024 Series 7 authenticated and delivered by the Trustee after the close of business on the record date with respect to any interest payment date and prior to such inter- est payment date shall be dated as of the date next following such interest payment date and shall bear interest from such interest payment date; except that if the Company shall default in the payment of any interest due on such interest payment date, such Bond shall bear interest from the next preceding interest payment date or the date of delivery of the initial Bonds of 2024 Se- ries, whichever is later. Section 2. The Bonds of 2024 Series, and the Trustee's certificate to be en- dorsed on the Bonds of 2024 Series, shall be substantially in the following forms, respectively: [FORM OF FACE OF BOND OF 2024 SERIES] POTOMAC ELECTRIC POWER COMPANY (A District of Columbia and Virginia corporation) First Mortgage Bond, 6 7/8% Series Due 2024 No. $ Potomac Electric Power Company, a corporation organized and existing under the laws of the District of Columbia and a domestic cor- poration of the Com- monwealth of Virginia (hereinafter called the "Company", which term shall in- clude any successor corporation as defined in the Amended Indenture hereinaf- ter referred to), for value received, hereby promises to pay to ................... or registered assigns, the sum of .................. dol- lars, on the fifteenth day of October 2024, in lawful money of the United States of America, and to pay interest thereon in like money from the later of the date of delivery of the initial Bonds of 2024 Series or the interest pay- ment date April 15 or October 15 next preceding the date of this Bond, or if the Company shall default in the payment of interest due on such interest pay- ment date, then from the next preceding interest payment date or the date of delivery of the initial Bonds of 2024 Series, whichever is later, at the rate of six and seven-eighths percent (6 7/8%) per annum, payable semiannually, commencing April 15, 1994, on the fifteenth day of April and October in 8 each year until maturity, or, if the Company shall default in the payment of the principal hereof, until the Company's obligation with respect to the pay- ment of such principal shall be discharged as provided in the Amended Inden- ture. The interest so payable on any April 15 or October 15 will, subject to certain exceptions provided in the indenture dated as of October 1, 1993 sup- plemental to the Amended Indenture, be paid to the person in whose name this Bond is registered at the close of business on the last business day which is more than ten days prior to such April 15 or October 15. Both principal of, and interest on, this Bond are payable at the agency of the Company in the City of Washington, D.C., or, at the option of the holder, at the agency of the Company in the Borough of Manhattan, The City of New York. Reference is made to the further provisions of this Bond set forth on the re- verse hereof, and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Bond shall not be entitled to any benefit under the Amended Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until The Riggs National Bank of Washington, D.C., the Trustee under the Amended Indenture, or a successor trustee thereto under the Amended Indenture, shall have signed the form of certificate endorsed hereon. In Witness Whereof, Potomac Electric Power Company has caused this Bond to be signed in its name by the signature (or a facsimile thereof) of its President or a Vice President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by the facsimile signature of its Secretary or an Assistant Secretary. Dated, Potomac Electric Power Company By...................................... Vice President Attest: ................................... Secretary 9 [FORM OF TRUSTEE'S CERTIFICATE] This Bond is one of the Bonds, of the series designated therein, described in the within-mentioned Amended Indenture and the Supplemental Indenture dated as of October 1, 1993. The Riggs National Bank of Washington, D.C. Trustee. By.......................................... Authorized Officer [TEXT APPEARING ON REVERSE SIDE OF BOND OF 2024 SERIES] This Bond is one of a duly authorized issue of Bonds of the Company (herein- after called the "Bonds") in unlimited aggregate principal amount, of the se- ries hereinafter specified, all issued and to be issued under and equally se- cured (except in so far as any purchase or sinking fund or analogous provi- sions for any particular series of Bonds, established by any indenture supple- mental to the Amended Indenture hereinafter mentioned, may afford additional security for such Bonds) by a mortgage and deed of trust, dated July 1, 1936, executed by the Company to The Riggs National Bank of Washington, D.C. (herein called the "Trustee"), as trustee, as amended by indentures supplemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993 and September 30, 1993 (said mortgage and deed of trust, as so amended, being herein called the "Amended Indenture") and all indentures supplemental thereto, to which Amended Indenture and supplemental indentures reference is hereby made for a description of the properties mortgaged and pledged, the nature and extent of the security, the rights of the owners of the Bonds and of the Trustee in re- spect thereto, and the terms and conditions upon which the 10 Bonds are, and are to be, secured. To the extent permitted by, and as provided in, the Amended Indenture, modifications or alterations of the Amended Inden- ture, or of any indenture supplemental thereto, and of the rights and obliga- tions of the Company and of the holders of the Bonds may be made with the con- sent of the Company by an affirmative vote of not less than 80% in amount of the Bonds entitled to vote then outstanding, at a meeting of Bondholders called and held as provided in the Amended Indenture, and by an affirmative vote of not less than 80% in amount of the Bonds of any series entitled to vote then outstanding and affected by such modification or alteration, in case one or more but less than all of the series of Bonds then outstanding under the Amended Indenture are so affected; provided, however, that no such modifi- cation or alteration shall be made which will affect the terms of payment of the principal of, or interest on, this Bond, which are unconditional, or which reduces the percentage of Bonds the affirmative vote of which is required for the making of such modifications or alterations. The Company is proposing an amendment to the Amended Indenture which would replace "80%" with "60%" in the preceding sentence, which amendment will become effective upon the consent or agreement thereto of the holders of all the outstanding Bonds. The holder of this Bond will be deemed to have approved such amendment. The Bonds may be is- sued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as in the Amended In- denture provided. This Bond is one of a series designated as the "First Mortgage Bonds, 6 7/8% Series due 2024" (herein called the "Bonds of 2024 Series") of the Company, issued under and secured by the Amended Indenture and all indentures supple- mental thereto and described in the indenture (herein called the "New Supple- mental Indenture"), dated as of October 1, 1993, between the Company and the Trustee, supplemental to the Amended Indenture. The Bonds of 2024 Series are subject to redemption, at any time or from time to time after October 14, 2003 and prior to maturity, at the option of the Company, either as a whole or in part by lot, upon payment of the redemption prices applicable to the respective period set forth below, together, in each case, with accrued interest to the redemption 11 date, all subject to the conditions and as more fully set forth in the Amended Indenture and the New Supplemental Indenture:
REDEMPTION PRICE IF REDEEMED EXPRESSED AS DURING THE PERCENTAGE OF 12 MONTH PERIOD THE PRINCIPAL ENDING OCTOBER 14 AMOUNT OF BONDS - ----------------- ---------------- 2004............. 103.10% 2005............. 102.79 2006............. 102.48 2007............. 102.17 2008............. 101.86 2009............. 101.55
REDEMPTION PRICE IF REDEEMED EXPRESSED AS DURING THE PERCENTAGE OF 12 MONTH PERIOD THE PRINCIPAL ENDING OCTOBER 14 AMOUNT OF BONDS ----------------- ---------------- 2010.................... 101.24% 2011.................... 100.93 2012.................... 100.62 2013.................... 100.31 2014 and thereafter..... 100.00
Notice of any redemption shall be sent by the Company through the mails, postage prepaid, at least thirty days and not more than sixty days prior to the redemption date, to the registered owners of any of the Bonds to be re- deemed, at their addresses as the same shall appear on the transfer register of the Company, all subject to the conditions and as more fully set forth in the Amended Indenture and New Supplemental Indenture. Any notice so mailed shall be conclusively presumed to have been duly given, whether or not the owner receives it. In case an event of default, as defined in the Amended Indenture, shall oc- cur, the principal of all the Bonds at any such time outstanding under the Amended Indenture may be declared or may become due and payable, upon the con- ditions and in the manner and with the effect provided in the Amended Inden- ture. The Amended Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Bonds entitled to vote then outstanding. This Bond is transferable by the registered owner hereof, in person or by duly authorized attorney, on the books of the Company to be kept for that pur- pose at the agency of the Company in the City of Washington, D.C., or at the agency of the Company in the Borough of Manhattan, The City of New York, upon surrender and cancellation of this Bond and on presentation of a duly executed written instrument of transfer, and thereupon a new Bond or Bonds of the same series, of the same aggregate principal amount and in authorized denominations will be issued to the transferee or transferees in exchange therefor; and this Bond, with or without others of the same series, may in like manner be ex- changed 12 for one or more new Bonds of the same series of other authorized denominations but of the same aggregate principal amount; all subject to the terms and con- ditions set forth in the Amended Indenture. No recourse shall be had for the payment of the principal of, or the interest on, this Bond, or for any claim based hereon or otherwise in respect hereof or of the Amended Indenture or any indenture supplemental thereto, against any incorporator, or against any stockholder, director or officer, past, present or future, of the Company or of any predecessor or successor corporation, ei- ther directly or through the Company or any such predecessor or successor cor- poration, whether for amounts unpaid on stock subscriptions or by virtue of any constitution, statute or rule of law, or by the enforcement of any assess- ment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stock- holders, directors or officers being released by every owner hereof by the ac- ceptance of this Bond and as part of the consideration for the issue hereof, and being likewise released by the terms of the Amended Indenture. Section 3. The Bonds of 2024 Series shall be registered Bonds without coupons in denominations of any multiple of $1,000, numbered consecutively upwards from R1. Section 4. Until Bonds of 2024 Series in definitive form are ready for deliv- ery, the Company may execute, and upon its request in writing the Trustee shall authenticate and deliver, in lieu thereof, Bonds for such series in tem- porary form, as provided in Section 9 of Article II of the Original Indenture as amended. PART II. Issue of Bonds. Section 1. Except for Bonds of 2024 Series issued pursuant to Section 13 of Article II of the Original Indenture as amended, the principal amount of Bonds of 2024 Series which may be authenticated and delivered hereunder is limited to $75,000,000 aggregate principal amount. 13 Section 2. Bonds of 2024 Series in the aggregate principal amount permitted in Section 1 of this Part II, may at any time subsequent to the execution hereof be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered (either before or after the record- ing hereof) to or upon the order of the Company evidenced by a writing or writings, signed by its President or one of its Vice Presidents and its Trea- surer or one of its Assistant Treasurers, at such time or times as may be re- quested by the Company subsequent to the receipt by the Trustee of (1) the certified resolution and the officers' certificate required by Sec- tion 3(a) and Section 3(b) of Article III of the Original Indenture as amended; (2) the opinion of counsel required by Section 3(c) of Article III of the Original Indenture as amended; (3) cash, if any, in the amount required to be deposited by Section 3(d) of Article III of the Original Indenture as amended, which shall be held and applied by the Trustee as provided in said Section 3(d); (4) the certificates, instruments, opinions of counsel, prior lien bonds and cash, if any, required by Section 4 of Article III of the Original In- denture as amended, except that, as required by Part IV of this Supplemental Indenture, property additions purchased, constructed or otherwise acquired on or before December 31, 1946 shall not be made the basis for the authenti- cation and delivery of Bonds of 2024 Series; and (5) the certificates and opinions required by Article XVIII of the Original Indenture as amended. PART III. Redemption. Section 1. The Bonds of 2024 Series are not redeemable up to and including October 14, 2003. The Bonds of 2024 Series shall, in accordance with the pro- visions of Article V of the Original Indenture as amended, be redeemable, at any time or from time to time after October 14, 2003 and prior to maturity, at the option of the Board of Directors of the 14 Company, either as a whole or in part by lot, upon payment of the redemption prices applicable to the respective periods set forth in the form of Bond of 2024 Series contained in Section 2 of Part I hereof, together, in each case, with accrued interest to the redemption date. Section 2. In accordance with the provisions of Article V of the Original In- denture as amended, notice of any redemption shall be sent by the Company through the mails, postage prepaid, at least thirty days and not more than sixty days prior to the date of redemption, to the registered owners of any of the Bonds to be redeemed at their addresses as the same shall appear on the transfer register of the Company. Any notice so mailed shall be conclusively presumed to have been duly given, whether or not the owner receives it. All Bonds delivered to or redeemed by the Trustee pursuant to the provisions of this Part III shall forthwith be cancelled. PART IV. Additional Particular Covenants of the Company. The Company hereby covenants, warrants and agrees that so long as any Bonds of 2024 Series are outstanding: Section 1. The Company will not withdraw, pursuant to the provisions of Sec- tion 2 of Article VIII of the Original Indenture as amended, any moneys held by the Trustee as part of the trust estate in excess of an amount equal to the aggregate principal amount of such of the refundable Bonds as were theretofore issued by the Company; and that upon any such withdrawal by the Company re- fundable Bonds equal in aggregate principal amount to the amount so withdrawn shall be deemed to have been made the basis of such withdrawal. Section 2. Property additions purchased, constructed or otherwise acquired on or before December 31, 1946 shall not be made the basis for the authentication and delivery of Bonds, or the withdrawal of cash, or the reduction of the amount of cash required to be paid to the Trustee under any provision of the Indenture. 15 PART V. Amendment of Indenture to Permit Qualification Under Trust Indenture Act of 1939. The Company and the Trustee, from time to time and at any time, without any vote or consent of the holders of the Bonds of 2024 Series, may enter into such indentures supplemental to the Original Indenture as may or shall by them be deemed necessary or desirable to add to or modify or amend any of the pro- visions of the Original Indenture so as to permit the qualification of the Original Indenture under the Trust Indenture Act of 1939. Except to the extent specifically provided herein, no provision of this Sup- plemental Indenture is intended to modify, and the parties hereto do hereby adopt and confirm, the provisions of Section 318(c) of the Trust Indenture Act of 1939 which amend and supersede provisions of the Original Indenture, as supplemented, in effect prior to November 15, 1990. PART VI. Amendment of Original Indenture. Notwithstanding any other provisions of the Original Indenture as amended, the holders of the Bonds of 2024 Series, by their holding of such Bonds, are deemed to have approved the following amendment to the Original Indenture as amended and to have authorized the Trustee to take any action necessary to ev- idence or effectuate such approval: Sections 5 and 6 of Article XV of the Original Indenture as amended are hereby amended by changing the words and figures "eighty percent. (80%)" to the words and figures "sixty percent. (60%)" wherever in such Sections such words and figures occur. PART VII. The Trustee. The Trustee hereby accepts the trusts hereby declared and provided and agrees to perform the same upon the terms and conditions in the 16 Original Indenture as amended set forth and upon the following terms and con- ditions: The Trustee shall not be responsible in any manner whatsoever for or in re- spect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XIII of the Original Inden- ture as amended shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. PART VIII. Miscellaneous Provisions. This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an origi- nal; but such counterparts shall together constitute but one and the same in- strument. Potomac Electric Power Company hereby constitutes and appoints William R. Gee, Jr., one of its Vice Presidents, to be its true and lawful attorney-in- fact, for it and in its name to appear before any officer authorized by law to take and certify acknowledgments of deeds to be recorded in the District of Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and deliver these presents as the act and deed of said Potomac Electric Power Company. The Riggs National Bank of Washington, D.C., hereby constitutes and appoints Alexander C. Baker, one of its Senior Vice Presidents, to be its true and law- ful attorney-in-fact, for it and in its name to appear before any officer au- thorized by law to take and certify acknowledgments of deeds to be recorded in the District of Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and de- liver these presents as the act and deed of said The Riggs National Bank of Washington, D.C. 17 In Witness Whereof, said Potomac Electric Power Company has caused this Sup- plemental Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by its Secretary or one of its Assistant Secretaries; and said The Riggs National Bank of Washington, D.C., in evidence of its acceptance of the trust hereby created, has caused this Supplemental Indenture to be executed on its behalf by its President or one of its Senior Vice Presidents, and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by one of its Corpo- rate Trust Officers, all as of the 1st day of October, One thousand nine hun- dred and ninety-three. Potomac Electric Power Company (Corporate Seal) By......................................... WILLIAM R. GEE, JR., Vice President Attested: ................................... MARY T. HOWARD, Assistant Secretary Signed, sealed and delivered by Potomac Electric Power Company in the presence of: ................................... ................................... As Witnesses The Riggs National Bank of Washington, D.C. (Corporate Seal) By.......................................... ALEXANDER C. BAKER, Senior Vice President Attested: ................................... BEVERLY MOFFETT, Senior Corporate Trust Officer Signed, sealed and delivered by The Riggs National Bank of Wash- ington, D.C. in the presence of: ................................... ................................... As Witnesses 18 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, whose commission as such will expire , do hereby certify that William R. Gee, Jr. and Mary T. Howard, whose names as Vice President and Assistant Secretary, respectively, of Potomac Electric Power Company, a corpo- ration, are signed to the foregoing and hereto attached deed, bearing date as of the 1st day of October, 1993, personally appeared this day before me in my District aforesaid and acknowledged themselves to be, respectively, a Vice President and an Assistant Secretary of Potomac Electric Power Company, and that they as such, being authorized so to do, executed the said deed by sign- ing the name of Potomac Electric Power Company by William R. Gee, Jr., as Vice President, and attested by Mary T. Howard, as Assistant Secretary, and ac- knowledged the same before me in my District aforesaid and acknowledged the foregoing instrument to be the act and deed of Potomac Electric Power Company. Given under my hand and official seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia 19 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that William R. Gee, Jr., a Vice Presi- dent of Potomac Electric Power Company, a corporation, one of the parties to the foregoing instrument bearing date as of the 1st day of October, 1993, and hereto annexed, this day personally appeared before me in the City of Washing- ton, the said William R. Gee, Jr. being personally well known to me as the person who executed the said instrument as a Vice President of and on behalf of said Potomac Electric Power Company and known to me to be the attorney-in- fact duly appointed therein to acknowledge and deliver said instrument on be- half of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said Potomac Electric Power Company, and delivered the same as such. I further certify that the said William R. Gee, Jr., being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. My commission expires Given under my hand and official seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia 20 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Alexander C. Baker and Beverly Moffett, whose names as Senior Vice President and Senior Corporate Trust Officer, re- spectively, of The Riggs National Bank of Washington, D.C., a corporation, are signed to the foregoing and hereto attached deed, bearing date as of the 1st day of October, 1993, personally appeared before me this day in my District aforesaid and acknowledged themselves to be, respectively, a Senior Vice Pres- ident and a Senior Corporate Trust Officer of The Riggs National Bank of Wash- ington, D.C., and that they as such, being authorized so to do, executed the said deed by signing the name of The Riggs National Bank of Washington, D.C., by Alexander C. Baker as Senior Vice President, and attested by Beverly Moffett, as Senior Corporate Trust Officer, and acknowledged the same before me in my District aforesaid and acknowledged the foregoing instrument to be the act and deed of The Riggs National Bank of Washington, D.C., as therein set forth. Given under my hand and notarial seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia My Commission Expires . 21 ++ City of Washington, + District of Columbia, ++ ss.: + ++ Alexander C. Baker, of full age, being sworn according to law, on his oath deposes and says that he is a Senior Vice President of The Riggs National Bank of Washington, D.C., the Trustee named in the foregoing Supplemental Inden- ture, dated as of the 1st day of October, 1993, that he is the agent of said Trustee for the purpose of perfecting such Supplemental Indenture and that the consideration in the Original Indenture referred to therein and in all inden- tures supplemental to said Original Indenture, including the foregoing Supple- mental Indenture, is true and bona fide as therein set forth. ............................................ Alexander C. Baker Subscribed and sworn to before me this day of October, 1993. ................................... Notary Public District of Columbia My Commission Expires (Notarial Seal) 22 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Alexander C. Baker a Senior Vice President of The Riggs National Bank of Washington, D.C., a corporation, one of the parties to the foregoing instrument bearing date as of the 1st day of October, 1993, and hereto annexed, this day personally appeared before me in the City of Washington, the said Alexander C. Baker, being personally well known to me as the person who executed the said instrument as a Senior Vice President of and on behalf of said The Riggs National Bank of Washington, D.C., and known to me to be the attorney-in-fact duly appointed therein to ac- knowledge and deliver said instrument on behalf of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said The Riggs National Bank of Washington, D.C., and delivered the same as such. I further certify that the said Alexander C. Baker, being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. Given under my hand and official seal this day of October, 1993. (Notarial Seal) ............................................ Notary Public District of Columbia My Commission Expires 23 CERTIFICATE OF RESIDENCE The Riggs National Bank of Washington, D.C., Mortgagee and Trustee within named, hereby certifies that its precise residence is 800-17th Street, N.W., Washington, D.C. 20006. The Riggs National Bank of Washington, D.C. By.......................................... Alexander C. Baker, Senior Vice President EX-4 6 2/10/94 SUPPLEMENTAL INDENTURE ================================================================================ POTOMAC ELECTRIC POWER COMPANY 1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C. TO THE RIGGS NATIONAL BANK OF WASHINGTON, D.C. 800-17TH STREET, N.W., WASHINGTON, D.C. AS TRUSTEE ------------------ Supplemental Indenture DATED AS OF FEBRUARY 10, 1994 ------------------ SUPPLEMENTAL TO MORTGAGE AND DEED OF TRUST DATED JULY 1, 1936 ------------------ FIRST MORTGAGE BONDS, 5 3/8% SERIES DUE 2024 ================================================================================ POTOMAC ELECTRIC POWER COMPANY SUPPLEMENTAL INDENTURE DATED AS OF FEBRUARY 10, 1994 TABLE OF CONTENTS* ------------------
PAGE ---- Parties.................................................................. 1 Recitals................................................................. 1 PART I Definitions Facilities............................................................... 6 Loan Agreement........................................................... 6 Pollution Control Bond Indenture......................................... 6 Pollution Control Bonds.................................................. 7 Pollution Control Bond Trustee........................................... 7 PART II Description of Bonds of 2024 Series Section 1. General description of Bonds of 2024 Series.................. 7 Section 2. Denominations of Bonds....................................... 8 Section 3. Form of Bond................................................. 8 Form of Trustee's Certificate................................ 16 PART III Issue of Bonds of 2024 Series Section 1. Limitation as to principal amount............................ 17 Section 2. Issue of $42,500,000 principal amount of Bonds of 2024 Series................................................. 17 PART IV Redemption Section 1. Bonds of 2024 Series redeemable.............................. 18 Section 2. Bonds of 2024 Series redeemable in certain events............ 18 Section 3. Bonds of 2024 Series subject to mandatory redemption in cer- tain events................................................. 18 Section 4. Notice of redemption......................................... 19
- --------- * The Table of Contents is not part of the Supplemental Indenture and should not be considered as such. It is included herein only for purposes of convenient reference. ii
PAGE ---- PART V Amendment of Indenture to Permit Qualification under Trust Indenture Act of 1939................................................................ 19 PART VI Amendment of Original Indenture.......................................... 20 PART VII Additional Particular Covenants of the Company Section 1. Company not to withdraw money pursuant to Section 2 of Arti- cle VIII in excess of an amount equal to principal amount of issued refundable Bonds................................. 20 Section 2. No property additions made prior to December 31, 1946 to be used for any purpose under the Indenture................... 20 PART VIII The Trustee Acceptance of trusts by the Trustee...................................... 21 Trustee not responsible for validity of the Supplemental Indenture....... 21 PART IX Miscellaneous Provisions Payments due on non-business days........................................ 21 Credits on First Mortgage Bonds.......................................... 21 Execution of Supplemental Indenture in counterparts...................... 22 Appointment of attorneys-in-fact by parties.............................. 22 Testimonium.............................................................. 22 Execution................................................................ 23 Company's Acknowledgments................................................ 24 Trustee's Acknowledgments................................................ 26
SUPPLEMENTAL INDENTURE, dated as of the tenth day of February, nineteen hun- dred and ninety-four (1994), made by and between Potomac Electric Power Compa- ny, a corporation organized and existing under the laws of the District of Co- lumbia and a domestic corporation of the Commonwealth of Virginia (hereinafter sometimes called the "Company"), party of the first part, and The Riggs Na- tional Bank of Washington, D.C., a national banking association organized and existing under the laws of the United States of America (hereinafter sometimes called the "Trustee"), as Trustee under the Mortgage and Deed of Trust dated July 1, 1936, hereinafter mentioned, party of the second part; Whereas, The Company has heretofore executed and delivered its Mortgage and Deed of Trust, dated July 1, 1936 (hereinafter sometimes referred to as the "Original Indenture"), to the Trustee, to secure an issue of First Mortgage Bonds of the Company, issuable in series; and Whereas, pursuant to the terms and provisions of the Original Indenture, in- dentures supplemental thereto dated as of July 1, 1936, December 1, 1939, Au- gust 1, 1940, August 1, 1942, January 1, 1948, May 1, 1949, May 1, 1950, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, December 1, 1958, November 16, 1959, December 1, 1960, February 15, 1963, May 15, 1964, April 1, 1966, May 1, 1967, February 15, 1968, March 15, 1969, February 15, 1970, August 15, 1970, September 15, 1972, April 1, 1973, January 2, 1974, August 15, 1974, Au- gust 15, 1974, June 15, 1977, July 1, 1979, June 16, 1981, June 17, 1981, De- cember 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993, September 30, 1993 and October 1, 1993 have been heretofore entered into between the Company and the Trustee to provide, re- spectively, for the creation of the first through the fifty-sixth series of Bonds thereunder and, in the case of the supplemental indentures dated January 1, 1948, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, September 15, 1972, July 1, 1979, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992, July 1, 1993 and one of the supplemen- tal indentures dated August 15, 1974, to convey additional property; and 2 Whereas, $20,000,000 principal amount of Bonds of the 3 1/4% Series due 1966 (the first series), $5,000,000 principal amount of Bonds of the 3 1/4% Series due 1974 (the second series), $10,000,000 principal amount of Bonds of the 3 1/4% Series due 1975 (the third series), $5,000,000 principal amount of Bonds of the 3 1/4% Series due 1977 (the fourth series), $15,000,000 principal amount of Bonds of the 3% Series due 1983 (the fifth series), $10,000,000 principal amount of Bonds of the 2 7/8% Series due 1984 (the sixth series), $30,000,000 principal amount of Bonds of the 2 3/4% Series due 1985 (the sev- enth series), $15,000,000 principal amount of Bonds of the 3 1/4% Series due 1987 (the eighth series), $10,000,000 principal amount of Bonds of the 3 7/8% Series due 1988 (the ninth series), $10,000,000 principal amount of Bonds of the 3 3/8% Series due 1990 (the tenth series), $10,000,000 principal amount of Bonds of the 3 5/8% Series due 1991 (the eleventh series), $25,000,000 princi- pal amount of Bonds of the 4 5/8% Series due 1993 (the twelfth series), $45,000,000 principal amount of Bonds of the 7 3/4% Series due 2004 (the twen- tieth series), $35,000,000 principal amount of Bonds of the 8.85% Series due 2005 (the twenty-first series), $70,000,000 principal amount of Bonds of the 9 1/2% Series due August 15, 2005 (the twenty-second series), $50,000,000 prin- cipal amount of Bonds of the 7 3/4% Series due 2007 (the twenty-third series), $7,000,000 principal amount of Bonds of the 5 5/8% Series due 1997 (the twen- ty-fourth series), $100,000,000 principal amount of Bonds of the 8 3/8% Series due 2009 (the twenty-fifth series), $50,000,000 principal amount of Bonds of the 10 1/4% Series due 1981 (the twenty-sixth series), $50,000,000 principal amount of Bonds of the 10 3/4% Series due 2004 (the twenty-seventh series), $30,000,000 principal amount of Bonds of the Floating Rate Series due 2010 (the thirty-second series), $50,000,000 principal amount of Bonds of the 14 1/2% Series due 1991 (the thirty-third series), $60,000,000 principal amount of Bonds of the 14 1/4% Series due 1992 (the thirty-fifth series), $50,000,000 principal amount of Bonds of the 11 7/8% Series due 1989 (the thirty-sixth se- ries), $37,000,000 principal amount of Bonds of the 8 3/4% Series due 2010 (the thirty-seventh series), $75,000,000 principal amount of Bonds of the 11 1/4% Series due 2015 (the thirty-eighth series), $75,000,000 principal amount of Bonds of the 9 1/4% Series due 2016 (the thirty-ninth series), $75,000,000 principal amount of Bonds of the 8 3/4% Series due 2016 (the fortieth series), $75,000,000 principal amount of Bonds of the 8 1/4% Series due 2017 (the for- ty-first 3 series), $75,000,000 principal amount of Bonds of the 9% Series due 1990 (the forty-second series), $32,000,000 principal amount of Bonds of the 9 3/4% Se- ries due 2019 (the forty-third series) and $12,000,000 principal amount of Bonds of the 8 5/8% Series due 2019 (the forty-fourth series) have been here- tofore redeemed and retired and there are now issued and outstanding under the Original Indenture and under the supplemental indentures referred to above: $15,000,000 principal amount of Bonds of the 5 1/4% Series due 1994 (the thir- teenth series); $40,000,000 principal amount of Bonds of the 5% Series due 1995 (the fourteenth series); $50,000,000 principal amount of Bonds of the 4 3/8% Series due 1998 (the fifteenth series); $45,000,000 principal amount of Bonds of the 4 1/2% Series due 1999 (the sixteenth series); $15,000,000 prin- cipal amount of Bonds of the 5 1/8% Series due 2001 (the seventeenth series); $35,000,000 principal amount of Bonds of the 5 7/8% Series due 2002 (the eigh- teenth series); $40,000,000 principal amount of Bonds of the 6 5/8% Series due 2003 (the nineteenth series); $18,000,000 principal amount of Bonds of the 5 5/8% Series due 1997 (the twenty-fourth series); $38,300,000 principal amount of Bonds of the 6 1/8% Series due 2007 (the twenty-eighth series); $15,000,000 principal amount of Bonds of the 6 1/2% Series due 2004 (the twenty-ninth se- ries); $20,000,000 principal amount of Bonds of the 6 1/2% Series due 2007 (the thirtieth series); $7,500,000 principal amount of Bonds of the 6 5/8% Se- ries due 2009 (the thirty-first series); $50,000,000 principal amount of Bonds of the Adjustable Rate Series due 2001 (the thirty-fourth series); $43,000,000 principal amount of Bonds of the 9 3/4% Series due 2019 (the forty-third se- ries); $63,000,000 principal amount of Bonds of the 8 5/8% Series due 2019 (the forty-fourth series); $100,000,000 principal amount of Bonds of the 9% Series due 2000 (the forty-fifth series); $100,000,000 principal amount of Bonds of the 9% Series due 2021 (the forty-sixth series); $75,000,000 princi- pal amount of Bonds of the 8 1/2% Series due 2027 (the forty-seventh series); $30,000,000 principal amount of Bonds of the 6% Series due 2022 (the forty- eighth series); $37,000,000 principal amount of Bonds of the 6 3/8% Series due 2023 (the forty-ninth series); $78,000,000 principal amount of Bonds of the 6 1/2% Series due 2008 (the fiftieth series); $40,000,000 principal amount of Bonds of the 7 1/2% Series due 2028 (the fifty-first series); $100,000,000 principal amount of Bonds of the 7 1/4% Series due 2023 (the fifty-second se- ries); $100,000,000 principal amount of Bonds of the 6 7/8% Series due 4 2023 (the fifty-third series); $50,000,000 principal amount of Bonds of the 5 5/8% Series due 2003 (the fifty-fourth series); $50,000,000 principal amount of Bonds of the 5 7/8% Series due 2008 (the fifty-fifth series); and $75,000,000 principal amount of Bonds of the 6 7/8% Series due 2024 (the fif- ty-sixth series); and Whereas, for the purpose of conforming the Original Indenture to the stan- dards prescribed by the Trust Indenture Act of 1939 or otherwise modifying certain of the provisions of the Original Indenture, indentures supplemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993, September 30, 1993 and October 1, 1993 have been heretofore entered into between the Company and the Trustee, and for the purpose of conveying additional property, indentures supplemental thereto dated July 15, 1942, October 15, 1947, Decem- ber 31, 1948, December 31, 1949, February 15, 1951, February 16, 1953, March 15, 1954, March 15, 1955, March 15, 1956, April 1, 1957, May 1, 1958, May 1, 1959, May 2, 1960, April 3, 1961, May 1, 1962, May 1, 1963, April 23, 1964, May 3, 1965, June 1, 1966, April 28, 1967, July 3, 1967, May 1, 1968, June 16, 1969, May 15, 1970, September 1, 1971, June 17, 1981, November 1, 1985, Sep- tember 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992 and July 1, 1993 have been heretofore entered into between the Company and the Trustee, and for the purpose of better securing and protecting the Bonds then or thereafter issued and confirming the lien of the Original Indenture, an indenture dated October 15, 1942 supplemental thereto has been heretofore entered into between the Company and the Trustee; the Original Indenture as heretofore amended and sup- plemented being hereinafter referred to as the "Original Indenture as amend- ed"; and Whereas, the Company proposes to enter into a Loan Agreement (hereinafter de- fined) with Montgomery County, Maryland, a political subdivision of the State of Maryland (hereinafter called the "County"), to refinance a portion of the cost of the acquisition of the Facilities 5 (hereinafter defined) at the Company's Dickerson Generating Station in Mary- land (hereinafter called the "Plant"); and Whereas, the County proposes to issue its Pollution Control Bonds (hereinaf- ter defined) in the principal amount of $42,500,000; and Whereas, the Company is entitled to have authenticated and delivered addi- tional Bonds on the basis of the net bondable value of property additions, upon compliance with the provisions of Section 4 of Article III of the Origi- nal Indenture as amended; and Whereas, the Company has determined to issue to the Pollution Control Bond Trustee (hereinafter defined), as assignee of the County, pursuant to and as security for the Loan Agreement, a fifty-seventh series of Bonds under the Original Indenture as amended in the principal amount of $42,500,000, to be known as First Mortgage Bonds, 5 3/8% Series due 2024 (hereinafter called "Bonds of 2024 Series"); and Whereas, the Original Indenture as amended provides that certain terms and provisions, as determined by the Board of Directors of the Company, of the Bonds of any particular series may be expressed in and provided by the execu- tion of an appropriate supplemental indenture; and Whereas, the Original Indenture as amended provides that the Company and the Trustee may enter into indentures supplemental thereto to add to the covenants and agreements of the Company contained therein other covenants and agreements thereafter to be observed; and to surrender any right or power reserved to or conferred upon the Company in the Original Indenture as amended; and Whereas, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Original Indenture as amended and pursuant to appropriate resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled, and the execution and delivery hereof have been in all respects duly authorized; 6 Now, Therefore, This Indenture Witnesseth: That Potomac Electric Power Company, in consideration of the premises and of One Dollar to it duly paid by the Trustee at or before the ensealing and de- livery of these presents, and for other valuable considerations, the receipt whereof is hereby acknowledged, hereby covenants, declares and agrees with the Trustee and its successors in the trust under the Original Indenture as amend- ed, for the benefit of those who hold the Bonds, or any of them, issued or to be issued hereunder or under the Original Indenture as amended, as follows: PART I. Definitions. The terms defined in this Part I shall, for all purposes of this Supplemental Indenture, have the meanings herein specified, unless the context otherwise requires: Facilities: The term "Facilities" shall mean the pollution control project at the Plant, described in Exhibit A to the Loan Agreement, and related improvements and any substitutions therefor, acquired by the Company for operation by it as pollu- tion control facilities. The terms "acquisition" and "acquired," when used with regard to the Facili- ties, shall include, without limitation, the construction, installation and equipping of the Facilities. Loan Agreement: The term "Loan Agreement" shall mean the Loan Agreement dated as of February 15, 1994, entered into between the County and the Company, and any and all modifications, alterations, amendments and supplements thereto. Pollution Control Bond Indenture: The term "Pollution Control Bond Indenture" shall mean the Indenture of Trust, dated as of February 15, 1994, between the County and 7 the Pollution Control Bond Trustee, pursuant to which the Pollution Control Bonds are issued, and any indenture supplemental thereto. Pollution Control Bonds: The term "Pollution Control Bonds" shall mean the Pollution Control Revenue Refunding Bonds (Potomac Electric Project), 1994 Series of the County authen- ticated and delivered pursuant to the Pollution Control Bond Indenture. The term "Pollution Control Bonds, 1994 Series" shall mean the series of Pollution Control Revenue Refunding Bonds in the aggregate principal amount of $42,500,000 delivered initially. Pollution Control Bond Trustee: The term "Pollution Control Bond Trustee" shall mean Security Trust Company, N.A., a banking corporation organized under the laws of the State of Maryland, or its successors, as Trustee under the Pollution Control Bond Indenture. PART II. Description of Bonds of 2024 Series. Section 1. The fifty-seventh series of Bonds to be executed, authenticated and delivered under and secured by the Original Indenture as amended shall be Bonds of 2024 Series. The Bonds of 2024 Series shall, subject to the provi- sions of Section 1 of Article II of the Original Indenture as amended, be des- ignated as "First Mortgage Bonds, 5 3/8% Series due 2024" of the Company. The Bonds of 2024 Series shall be executed, authenticated and delivered in accor- dance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Original Indenture as amended, ex- cept in so far as the terms and provisions of the Original Indenture as amended are amended or modified by this Supplemental Indenture. The Bonds of 2024 Series shall mature February 15, 2024 and shall bear inter- est at the rate of five and three-eighths percent (5 3/8%) per annum, payable semiannually on the fifteenth day of February and the fifteenth day of August in each year (each such February 15 and 8 August 15 being hereinafter called an "interest payment date"). The Bonds of 2024 Series shall be payable as to principal and interest in lawful money of the United States of America in immediately available funds, and shall be pay- able (the interest as well as the principal thereof) at the address of the registered owner of such Bonds of 2024 Series appearing on the transfer regis- ter of the Company. Every Bond of 2024 Series shall be dated as of the date of its authentication and delivery, or if that is an interest payment date, the next day, and shall bear interest from the interest payment date next preceding its date or the date of delivery of the initial Bonds of 2024 Series, whichever is later. Section 2. The Bonds of 2024 Series shall be registered Bonds without coupons of denominations of any integral multiple of $5,000, numbered consecutively upwards from R1. Section 3. The Bonds of 2024 Series, and the Trustee's certificate to be en- dorsed on the Bonds of 2024 Series, shall be substantially in the following forms, respectively: [FORM OF BOND] This Bond is not transferable except as provided in the Pollution Control Bond Indenture, as defined herein. POTOMAC ELECTRIC POWER COMPANY (A District of Columbia and Virginia corporation) First Mortgage Bond, 5 3/8% Series Due 2024 No. R- $ Potomac Electric Power Company, a corporation organized and existing under the laws of the District of Columbia and a domestic corporation of the Common- wealth of Virginia (hereinafter called the "Company", which term shall include any successor corporation as defined in the Amended Indenture hereinafter re- ferred to), for value received, 9 hereby promises to pay to or registered assigns, the sum of dollars, on the fifteenth day of February, 2024, or on such other date as may be required herein, in lawful money of the United States of America in immedi- ately available funds, and to pay interest thereon in like money from the later of February 15, 1994 or the interest payment date (February 15 or August 15) next preceding the date of this Bond, or if the Company shall default in the payment of interest due on such interest payment date, then from the next preceding interest payment date to which interest has been paid or February 15, 1994, whichever is later, at the rate of five and three-eighths percent (5 3/8%) per annum, payable semiannually, on the fifteenth day of February and the fifteenth day of August in each year until maturity, or, if this Bond shall be duly called for redemption, until the redemption date, or, if the Company shall default in the payment of the principal hereof, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Amended Indenture. The principal of, premium, if any, and interest on, this Bond are payable at the address of the registered owner hereof appearing on the transfer register of the Company. To the extent permitted by law, the Company shall pay interest on any overdue installment of interest hereunder at the rate of five and three-eighths percent (5 3/8%) per annum, or at such lesser maximum rate of interest as is permitted by law at any such time. This Bond is one of a duly authorized issue of Bonds of the Company (herein- after called the "Bonds") in unlimited aggregate principal amount of the se- ries hereinafter specified, all issued and to be issued under and equally se- cured (except in so far as any purchase or sinking fund or analogous provi- sions for any particular series of Bonds, established by any indenture supple- mental to the Amended Indenture hereinafter mentioned, may afford additional security for such Bonds) by a Mortgage and Deed of Trust, dated July 1, 1936, executed by the Company to The Riggs National Bank of Washington, D.C. (herein called the "Trustee"), as trustee, as amended by indentures supplemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, No- 10 vember 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993, September 30, 1993 and October 1, 1993 (said Mortgage and Deed of Trust, as so amended, being herein called the "Amended Indenture") and all indentures supplemental thereto, to which Amended Indenture and supplemen- tal indentures reference is hereby made for a description of the properties mortgaged and pledged, the nature and extent of the security, the rights of the owners of the Bonds and of the Trustee in respect thereto, and the terms and conditions upon which the Bonds are, and are to be, secured. To the extent permitted by, and as provided in, the Amended Indenture, modifications or al- terations of the Amended Indenture, or of any indenture supplemental thereto, and of the rights and obligations of the Company and of the holders of the Bonds may be made with the consent of the Company by an affirmative vote of not less than 80% in amount of the Bonds entitled to vote then outstanding, at a meeting of Bondholders called and held as provided in the Amended Indenture, and by an affirmative vote of not less than 80% in amount of the Bonds of any series entitled to vote then outstanding and affected by such modification or alteration, in case one or more but less than all of the series of Bonds then outstanding under the Amended Indenture are so affected; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of, or premium, if any, or interest on, this Bond, which are unconditional, or which reduces the percentage of Bonds the affirmative vote of which is required for the making of such modifications or alterations. The Company is proposing an amendment to the Amended Indenture which would replace "80%" with "60%" in the preceding sentence, which amend- ment will become effective upon the consent or agreement thereto of the hold- ers of all the outstanding Bonds. The holder of this Bond will be deemed to have approved such amendment. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as in the Amended Indenture provided. This Bond is one of a series designated as the "First Mortgage Bonds, 5 3/8% Series due 2024" (herein called the "Bonds of 5 3/8% Series due 2024") of the Company, limited in aggregate principal amount to $42,500,000, issued under and secured by the Amended Indenture and all indentures supplemental thereto and described in the indenture (herein 11 called the "Supplemental Indenture of February 10, 1994") dated as of February 10, 1994, between the Company and the Trustee, supplemental to the Amended In- denture. Unless otherwise defined herein, the terms used herein shall have the same meanings as in the Supplemental Indenture of February 10, 1994. The Bonds of 5 3/8% Series due 2024 may not be called for redemption by the Company except as provided herein and in the Supplemental Indenture of Febru- ary 10, 1994. The Bonds of 5 3/8% Series due 2024 are subject to redemption in whole, but not in part, at any time, at the option of the Company upon payment of a redemption price equal to 100% of the principal amount thereof plus ac- crued interest to the redemption date, without premium, upon the occurrence of any of the following events: (a) damage or destruction to the Company's Dickerson Generating Station in Maryland (the "Plant") or the pollution control project at the Plant (the "Facilities") to such extent that in the opinion of both the Company's board of directors (expressed in a resolution) and an architect or engineer ac- ceptable to Security Trust Company, N.A. (the "Pollution Control Bond Trust- ee"), as trustee under the Indenture of Trust, dated as of February 15, 1994 (the "Pollution Control Bond Indenture") between Montgomery County, Maryland (the "County") and the Pollution Control Bond Trustee, both opinions filed with the County and the Pollution Control Bond Trustee, (1) the Plant or the Facilities, as the case may be, cannot be reasonably repaired, rebuilt or restored within a period of six months to its condition immediately preced- ing such damage or destruction, or (2) the Company is thereby prevented from carrying on its normal operations at the Plant for a period of six months; or (b) loss of title to or use of a substantial part of the Plant or the Fa- cilities as a result of the exercise of the power of eminent domain if, in the opinion of both the Company's board of directors (expressed in a resolu- tion) and an architect or engineer acceptable to the Pollution Control Bond Trustee, both opinions filed with the County and the Pollution Control Bond Trustee, the Company is thereby prevented or is likely to be prevented from carrying on its normal operations therein for a period of six months; or (c) a change in the Constitution of the State of Maryland or of the United States of America or legislative or administrative action (whether local, state or Federal) or a final decree, judgment or order of any court or ad- ministrative body (whether local, state or Federal) 12 which causes the Loan Agreement, dated as of February 15, 1994, between the Company and the County (the "Loan Agreement"), to become void or unenforce- able or impossible of performance in accordance with the intent and purpose of the parties as expressed therein or unreasonable burdens or excessive li- abilities to be imposed upon the County or the Company with respect to the Plant or the Facilities or the operation thereof, including but not limited to the imposition of Federal, state or other ad valorem property, income or other taxes other than ad valorem taxes presently levied upon privately owned property used for the same general purpose as the Facilities; or (d) changes in the economic availability of raw materials, operating sup- plies, energy sources or supplies, or facilities necessary for the operation of the Facilities for the purposes of pollution control "facilities" as de- fined in the Maryland Economic Development Revenue Bond Act or necessary for the operation of the Plant occur or such technological or other changes which the Company cannot reasonably overcome or control and which in the reasonable judgment of the Company's board of directors (expressed in a res- olution) render the Facilities or the Plant uneconomic or obsolete for such purposes; or (e) any court or administrative body shall enter a judgment, order or de- cree, or shall take administrative action, requiring the Company to cease all or any substantial part of its operation serviced by the Facilities to the extent the Company is or will be prevented from carrying on its normal operations at the Plant for a period of six months. To exercise its option to redeem the Bonds under the foregoing circumstances, the Company shall, as required under the Pollution Control Bond Indenture, file the required resolutions and opinions or a certificate, as the case may be, within nine months after the event permitting its exercise, giving notice to the County and the Pollution Control Bond Trustee, and shall specify a date not less than 45 nor more than 90 days thereafter for redemption. The Bonds of 5 3/8% Series due 2024 are subject to mandatory redemption at any time as a whole or, as hereinafter provided, in part at 100% of the prin- cipal amount thereof plus accrued interest to the redemption date, without premium, in the event that the Pollution Control Bond Trustee shall (a) de- liver a notification to the Trustee and the Company that it has been finally determined by the Internal Revenue Service or a court of competent jurisdic- tion that, as a result of any fact, condition or event constituting a failure by the Company to observe any covenant or 13 agreement in the Loan Agreement or contravenes any representation in the Loan Agreement, the interest payable on the Pollution Control Bonds issued pursuant to the Pollution Control Bond Indenture is includable for Federal income tax purposes in the gross income of any holder of a Pollution Control Bond, other than a holder who is or was a "substantial user" of the Facilities or a "re- lated person," as provided in Section 147(a) of the Internal Revenue Code of 1986 or any applicable predecessor statutory provisions and (b) in conjunction therewith, make a demand for such redemption. No such determination will be considered final for the purpose of any mandatory redemption pursuant to this paragraph unless the Company shall have been given written notice as provided in the Pollution Control Bond Indenture and, if it shall have so desired, been afforded the opportunity to contest the same at its expense, either directly or in the name of any holder of a Pollution Control Bond, and until conclusion of any appellate review with respect thereto, if sought. Any such redemption shall be on any date within 120 days from the time of such final determina- tion. Upon the finality of such determination, the Bonds of 5 3/8% Series due 2024 shall be redeemed in whole unless, as a result of an opinion rendered by Bond Counsel (as defined in the Pollution Control Bond Indenture) pursuant to Section 2.05(c) of the Pollution Control Bond Indenture, the Pollution Control Bonds shall be redeemed only in part, in which event an equal principal amount of Bonds of 5 3/8% Series due 2024 shall also be redeemed. If such redemption shall occur in accordance with the terms hereof, then such failure by the Com- pany to observe such covenant, agreement or representation in the Loan Agree- ment shall not in and of itself constitute an Event of Default under the Pol- lution Control Bond Indenture, the Bonds of 5 3/8% Series due 2024, the Amended Indenture or the Supplemental Indenture of February 10, 1994. The Bonds of 5 3/8% Series due 2024 are also subject to mandatory redemption at any time, as a whole, at 100% of the principal amount thereof plus accrued interest to the redemption date, without premium, in the event the Trustee shall receive a written demand (hereinafter called "Default Redemption De- mand") from the Pollution Control Bond Trustee for redemption stating that the principal of all Pollution Control Bonds then outstanding under the Pollution Control Bond Indenture has been declared to be immediately due and payable pursuant to the provi- 14 sions of Section 9.01 thereof. The Trustee shall within 10 days of receiving the Default Redemption Demand mail a copy to the Company stamped or otherwise marked to show the date of receipt by the Trustee. The Company shall fix a re- demption date and shall mail the Trustee notice of such selection at least 15 days prior to the date so selected. Such redemption date may be any day not more than 60 days after the receipt of the Default Redemption Demand by the Trustee. If the Trustee does not receive notice of such selection by the Com- pany within 45 days after the Default Redemption Demand was received by the Trustee, then the redemption date shall be the 60th day after such receipt. The Trustee shall mail notice of the redemption date (hereinafter called the "Default Redemption Notice") to the Pollution Control Bond Trustee not more than 10 nor less than 5 days prior to the date fixed for redemption. The Trustee shall not mail any Default Redemption Notice (and no such redemption shall be made) if the Trustee receives a written cancellation of the Default Redemption Demand from the Pollution Control Bond Trustee prior to the mailing of the Default Redemption Notice. Notwithstanding any other provision con- tained in this Bond, the Supplemental Indenture dated as of February 10, 1994, or the Amended Indenture, the holder of this Bond by the acceptance of such Bond hereby waives any longer notice of redemption. The Bonds of 5 3/8% Series due 2024 are subject to redemption by the Company prior to maturity in whole, or in part, at any time, on or after February 15, 2004, upon payment of the following redemption prices (expressed as a percent- age of principal amount of Bonds to be redeemed) plus accrued interest to the redemption date:
REDEMPTION DATE REDEMPTION (DATES INCLUSIVE) PRICE ----------------- ---------- February 15, 2004 through February 14, 2005....................... 102% February 15, 2005 through February 14, 2006....................... 101% February 15, 2006 and thereafter.................................. 100%
Any such redemption shall be subject to the conditions and as more fully set forth in the Amended Indenture and Supplemental Indenture of February 10, 1994. Notice of any such redemption (other than a redemption in the event of a Default Redemption Demand) shall be delivered at least forty-five days and not more than sixty days prior to the redemption date, to the registered owner of the Bonds, at its address as 15 the same shall appear on the transfer register of the Company, all subject to the conditions and as more fully set forth in the Amended Indenture and the Supplemental Indenture of February 10, 1994; provided, however, that such prior notice shall be deemed to have been duly given with respect to all or any part of the Bonds whenever the Company shall have complied with all of its obligations, as set forth in Article VII of the Pollution Control Bond Inden- ture, with respect to redemption of all or such part of the Pollution Control Bonds. In case an event of default, as defined in the Amended Indenture, shall oc- cur, the principal of all the Bonds at any such time outstanding under the Amended Indenture may be declared or may become due and payable, upon the con- ditions and in the manner and with the effect provided in the Amended Inden- ture. The Amended Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Bonds entitled to vote then outstanding. Subject to the restriction on transfer appearing hereon, this Bond is trans- ferable by the registered owner hereof, in person or by duly authorized attor- ney, on the books of the Company to be kept for that purpose at the agency of the Company in the City of Washington, D.C., upon surrender and cancellation of this Bond and on presentation of a duly executed written instrument of transfer, and thereupon a new Bond or Bonds of the same series, of the same aggregate principal amount and in authorized denominations will be issued to the transferee in exchange therefor; and this Bond, with or without others of the same series, may in like manner be exchanged for one or more new Bonds of the same series of other authorized denominations but of the same aggregate principal amount; all subject to the terms and conditions set forth in the Amended Indenture. No recourse shall be had for the payment of the principal of, premium, if any, or the interest on, this Bond, or for any claim based hereon or otherwise in respect hereof or of the Amended Indenture or any indenture supplemental thereto, against any incorporator, or against any stockholder, director or of- ficer, past, present or future, of the Company or of any predecessor or suc- cessor corporation, either directly or through the Company or any such prede- cessor or successor corporation, whether for amounts unpaid on stock subscriptions or by virtue of any 16 constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, di- rectors or officers being released by every owner hereof by the acceptance of this Bond and as part of the consideration for the issue hereof, and being likewise released by the terms of the Amended Indenture. This Bond shall not be entitled to any benefit under the Amended Indenture or any indenture supplemental thereto, or become valid or obligatory for any pur- pose, until The Riggs National Bank of Washington, D.C., the Trustee under the Amended Indenture, or a successor trustee thereto under the Amended Indenture, shall have signed the form of certificate endorsed hereon. In Witness Whereof, Potomac Electric Power Company has caused this Bond to be signed in its name by the signature (or a facsimile thereof) of its President or a Vice President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by the facsimile signature of its Secretary or an Assistant Secretary. Dated, Potomac Electric Power Company By ............................................ Vice President Attest: ................................... Secretary [FORM OF TRUSTEE'S CERTIFICATE] This Bond is one of the Bonds, of the series designated therein, described in the within-mentioned Amended Indenture and the Supplemental Indenture of Feb- ruary 10, 1994. The Riggs National Bank of Washington, D.C. Trustee By ............................................ Authorized Officer 17 PART III. Issue of Bonds. Section 1. Except for Bonds of 2024 Series issued pursuant to Section 13 of Article II of the Original Indenture as amended, the principal amount of Bonds of 2024 Series which may be authenticated and delivered hereunder is limited to the aggregate principal amount of Forty-Two Million Five Hundred Thousand Dollars ($42,500,000). Section 2. Bonds of 2024 Series in the aggregate principal amount of Forty- Two Million Five Hundred Thousand Dollars ($42,500,000) may at any time subse- quent to the execution hereof be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered (either before or after the recording hereof) to or upon the order of the Company evidenced by a writing or writings, signed by its President or one of its Vice Presi- dents and its Treasurer or one of its Assistant Treasurers, at such time or times as may be requested by the Company subsequent to the receipt by the Trustee of (1) the certified resolution and the officers' certificate required by Sec- tion 3(a) and Section 3(b) of Article III of the Original Indenture as amended; (2) the opinion of counsel required by Section 3(c) of Article III of the Original Indenture as amended; (3) cash, if any, in the amount required to be deposited by Section 3(d) of Article III of the Original Indenture as amended, which shall be held and applied by the Trustee as provided in said Section 3(d); (4) the certificates, instruments, opinions of counsel, prior lien bonds and cash, if any, required by Section 4 of Article III of the Original In- denture as amended, except that, as required by Part VII of this Supplemen- tal Indenture, property additions purchased, constructed or otherwise ac- quired on or before December 31, 1946 shall not be made the basis for the authentication and delivery of Bonds of 2024 Series; and (5) the certificates and opinions required by Article XVIII of the Original Indenture as amended. 18 PART IV. Redemption Section 1. The Bonds of 2024 Series may not be called for redemption by the Company except as provided herein. The Bonds of 2024 Series shall, in accor- dance with the provisions of Article V of the Original Indenture as amended, be redeemable, prior to maturity on or after February 15, 2004, at the option of the Board of Directors of the Company, either as a whole, or in part, at any time upon payment of the redemption prices applicable to the respective periods set forth in the form of Bond contained in Section 3 of Part II hereof together, in each case, with accrued interest to the redemption date. Section 2. Notwithstanding the provisions of Section 1 of this Part IV, in the event of (a) damage or destruction of the Company's Plant or the Facili- ties, (b) condemnation of the Company's Plant or the Facilities, (c) constitu- tional, legislative, judicial or administrative action voiding the Loan Agree- ment or imposing unreasonable burdens or excessive liabilities on the Company, including the imposition of certain taxes, (d) changes in the economic or technological status of the Plant or the Facilities rendering the Plant obso- lete or uneconomic or (e) court or administrative action requiring the Company to cease all or any substantial part of its operations serviced by the Facili- ties for a period of six months, all as provided in the form of Bond contained in Section 3 of Part II hereof, the Bonds of 2024 Series shall, in accordance with the provisions of Article V of the Original Indenture as amended, be re- deemable, as a whole at any time prior to maturity, in the manner and upon the conditions provided in said form of Bond, upon payment of a redemption price equal to 100% of the principal amount thereof together with accrued interest to the redemption date, without premium. Section 3. Notwithstanding the provisions of Section 1 of this Part IV, in the event the Trustee shall receive from the Pollution Control Bond Trustee either (a) a notification that the Bonds are subject to mandatory redemption pur- suant to Section 2.05(c) of the Pollution Control Bond Indenture; or 19 (b) a Default Redemption Demand (as defined in the form of Bond contained in Section 3 of Part II hereof); the Bonds of 2024 Series shall be subject to mandatory redemption, as a whole at any time prior to maturity, or, upon the occurrence of any of the events referred to in clause (a) above, in part at any time, in each case in the man- ner and upon the conditions provided in said form of Bond, at 100% of the principal amount thereof together with accrued interest to the redemption date, without premium. Section 4. In accordance with the provisions of Article V of the Original In- denture as amended, notice of redemption (other than in a redemption in the event of a Default Redemption Demand) shall be delivered at least forty-five days and not more than sixty days prior to the date of redemption, to the reg- istered owner of the Bonds of 2024 Series at its address as the same shall ap- pear on the transfer register of the Company; provided, however, that such prior notice shall be deemed to have been duly given with respect to all or any part of the Bonds whenever the Company shall have complied with all of its obligations, as set forth in Article VII of the Pollution Control Bond Inden- ture, with respect to redemption of all or such part of the Pollution Control Bonds. PART V. Amendment of Indenture to Permit Qualification Under Trust Indenture Act of 1939. The Company and the Trustee, from time to time and at any time, without any vote or consent of the holders of the Bonds of 2024 Series, may enter into such indentures supplemental to the Original Indenture as amended as may or shall by them be deemed necessary or desirable to add to or modify or amend any of the provisions of the Original Indenture so as to permit the qualifica- tion of the Original Indenture as amended under the Trust Indenture Act of 1939. Except to the extent specifically provided herein, no provision of this Sup- plemental Indenture is intended to modify, and the parties hereto do 20 hereby adopt and confirm, the provisions of Section 318(c) of the Trust Inden- ture Act of 1939 which amend and supersede provisions of the Original Inden- ture, as supplemented, in effect prior to November 15, 1990. PART VI. Amendment of Original Indenture. Notwithstanding any other provisions of the Original Indenture as amended, the holders of the Bonds of 2024 Series, by their holding of such Bonds, are deemed to have approved the following amendment to the Original Indenture as amended and to have authorized the Trustee to take any action necessary to ev- idence or effectuate such approval: Sections 5 and 6 of Article XV of the Original Indenture as amended are hereby amended by changing the words and figures "eighty percent. (80%)" to the words and figures "sixty percent. (60%)" wherever in such Sections such words and figures occur. PART VII. Additional Particular Covenants of the Company. The Company hereby covenants, warrants and agrees that so long as any Bonds of 2024 Series are outstanding: Section 1. The Company will not withdraw, pursuant to the provisions of Sec- tion 2 of Article VIII of the Original Indenture as amended, any moneys held by the Trustee as part of the trust estate in excess of an amount equal to the aggregate principal amount of such of the refundable Bonds as were theretofore issued by the Company; and that upon any such withdrawal by the Company re- fundable Bonds equal in aggregate principal amount to the amount so withdrawn shall be deemed to have been made the basis for such withdrawal. Section 2. Property additions purchased, constructed or otherwise acquired on or before December 31, 1946 shall not be made the basis for the authentication and delivery of Bonds, or the withdrawal of cash, or 21 the reduction of the amount of cash required to be paid to the Trustee under any provision of the Indenture. PART VIII. The Trustee. The Trustee hereby accepts the trusts hereby declared and provided and agrees to perform the same upon the terms and conditions in the Original Indenture as amended set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in re- spect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XIII of the Original Inden- ture as amended shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. PART IX. Miscellaneous Provisions. If any payment of principal of, premium, if any, or installment of interest on, the Bonds of 2024 Series shall be due and payable on any day which is not a business day, such payment shall become due and payable on the next suc- ceeding business day, a "business day" being any Monday, Tuesday, Wednesday, Thursday, or Friday other than any such day that is a legal holiday or a day on which commercial banking institutions in the State of Maryland are autho- rized or obligated to close. As provided in the Pollution Control Bond Indenture, any amounts of money held in the Bond Fund provided in the Pollution Control Bond Indenture and available for such purpose, which are at the request of the Company applied to the payment of the principal of and premium, if any, and interest on the Pol- lution Control Bonds on any payment or 22 redemption date, shall be applied as a credit on amounts otherwise due under the Bonds of 2024 Series and shall pro tanto discharge the Company's obliga- tions to pay such amounts otherwise due; provided that the amount of such credit shall be established by an officer's certificate (as defined in the Original Indenture as amended), concurred in by the Pollution Control Bond Trustee, which shall be delivered prior to the application of any such credit. This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an origi- nal; but such counterparts shall together constitute but one and the same in- strument. Potomac Electric Power Company hereby constitutes and appoints Dennis R. Wraase, its Senior Vice President, to be its true and lawful attorney-in-fact, for it and in its name to appear before any officer authorized by law to take and certify acknowledgments of deeds to be recorded in the District of Colum- bia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and deliver these presents as the act and deed of said Potomac Electric Power Company. The Riggs National Bank of Washington, D.C., hereby constitutes and appoints Alexander C. Baker, one of its Senior Vice Presidents, to be its true and law- ful attorney-in-fact, for it and in its name to appear before any officer au- thorized by law to take and certify acknowledgements of deeds to be recorded in the District of Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and de- liver these presents as the act and deed of said The Riggs National Bank of Washington, D.C. In Witness Whereof, said Potomac Electric Power Company has caused this Sup- plemental Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by its Secretary or one of its Assistant Secretaries; and said The Riggs National Bank of Washington, D.C., in evidence of its acceptance of the trust hereby created, has caused this Supplemental Indenture to be executed on its behalf by its President or one of its Senior Vice Presidents, 23 and its corporate seal to be hereto affixed and said seal and this Supplemen- tal Indenture to be attested by one of its Corporate Trust Officers, all as of the 10th day of February, One thousand nine hundred and ninety-four. Potomac Electric Power Company (Corporate Seal) By ......................................... DENNIS R. WRAASE, Senior Vice President Attested: ................................... MARY T. HOWARD, Assistant Secretary Signed, sealed and delivered by Potomac Electric Power Company in the presence of: ................................... ................................... As Witnesses The Riggs National Bank of Washington, D.C. (Corporate Seal) By ......................................... ALEXANDER C. BAKER, Senior Vice President Attested: ................................... BEVERLY MOFFETT Senior Corporate Trust Officer Signed, sealed and delivered by The Riggs National Bank of Washington, D.C. in the presence of: ................................... ................................... As Witnesses 24 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, a Notary Public in and for the District of Columbia, United States of America, whose commission as such will expire , do hereby certify that Dennis R. Wraase and Mary T. Howard, whose names as Senior Vice President and Assistant Secretary, respectively, of Potomac Electric Power Company, a corporation, are signed to the foregoing and hereto attached deed, bearing date as of the 10th day of February, 1994, personally appeared this day before me in my District aforesaid and acknowledged themselves to be, respectively, a Senior Vice President and an Assistant Secretary of Potomac Electric Power Company, and that they as such, being authorized so to do, executed the said deed by signing the name of Potomac Electric Power Company by Dennis R. Wraase, as Senior Vice President, and attested by Mary T. Howard, as Assistant Secretary, and acknowledged the same before me in my District aforesaid and acknowledged the foregoing instrument to be the act and deed of Potomac Elec- tric Power Company. Given under my hand and official seal this day of February, 1994. (Notarial Seal) ............................................ Notary Public District of Columbia 25 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Dennis R. Wraase, Senior Vice Presi- dent of Potomac Electric Power Company, a corporation, one of the parties to the foregoing instrument bearing date as of the 10th day of February, 1994, and hereto annexed, this day personally appeared before me in the City of Washington, the said Dennis R. Wraase being personally well known to me as the person who executed the said instrument as Senior Vice President of and on be- half of said Potomac Electric Power Company and known to me to be the attor- ney-in-fact duly appointed therein to acknowledge and deliver said instrument on behalf of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said Potomac Electric Power Company, and delivered the same as such. I further certify that the said Dennis R. Wraase, being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corpora- tion; and that he signed his name thereto by like order. My commission expires . Given under my hand and official seal this day of February, 1994. (Notarial Seal) ............................................ Notary Public District of Columbia 26 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Alexander C. Baker and Beverly Moffett, whose names as Senior Vice President and Senior Corporate Trust Offi- cer, respectively, of The Riggs National Bank of Washington, D.C., a corpora- tion, are signed to the foregoing and hereto attached deed, bearing date as of the 10th day of February, 1994, personally appeared before me this day in my District aforesaid and acknowledged themselves to be, respectively, a Senior Vice President and a Senior Corporate Trust Officer of The Riggs National Bank of Washington, D.C., and that they as such, being authorized so to do, exe- cuted the said deed by signing the name of The Riggs National Bank of Washing- ton, D.C. by Alexander C. Baker as Senior Vice President, and attested by Bev- erly Moffett, as Senior Corporate Trust Officer, and acknowledged the same be- fore me in my District aforesaid and acknowledged the foregoing instrument to be the act and deed of The Riggs National Bank of Washington, D.C., as therein set forth. Given under my hand and notarial seal this day of February, 1994. (Notarial Seal) ............................................ Notary Public District of Columbia My Commission Expires 27 ++ City of Washington, + District of Columbia, ++ ss.: + ++ Alexander C. Baker, of full age, being sworn according to law, on his oath deposes and says that he is a Senior Vice President of The Riggs National Bank of Washington, D.C., the Trustee named in the foregoing Supplemental Inden- ture, dated as of the 10th day of February, 1994, that he is the agent of said Trustee for the purpose of perfecting such Supplemental Indenture and that the consideration in the Original Indenture referred to therein and in all inden- tures supplemental to said Original Indenture, including the foregoing Supple- mental Indenture, is true and bona fide as therein set forth. ............................................ Alexander C. Baker Subscribed and sworn to before me this day of February, 1994. ................................... Notary Public District of Columbia My Commission Expires (Notarial Seal) 28 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Alexander C. Baker a Senior Vice President of The Riggs National Bank of Washington, D.C., a corporation, one of the parties to the foregoing instrument bearing date as of the 10th day of February, 1994, and hereto annexed, this day personally appeared before me in the City of Washington, the said Alexander C. Baker, being personally well known to me as the person who executed the said instrument as a Senior Vice President of and on behalf of said The Riggs National Bank of Washington, D.C., and known to me to be the attorney-in-fact duly appointed therein to ac- knowledge and deliver said instrument on behalf of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said The Riggs National Bank of Washington, D.C., and delivered the same as such. I further certify that the said Alexander C. Baker, being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. Given under my hand and official seal this day of February, 1994. (Notarial Seal) ............................................ Notary Public District of Columbia My Commission Expires 29 CERTIFICATE OF RESIDENCE The Riggs National Bank of Washington, D.C., Mortgagee and Trustee within named, hereby certifies that its precise residence is 800-17th Street, N.W., Washington, D.C. 20006. The Riggs National Bank of Washington, D.C. By.......................................... Alexander C. Baker, Senior Vice President EX-4 7 2/11/94 SUPPLEMENTAL INDENTURE ================================================================================ POTOMAC ELECTRIC POWER COMPANY 1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C. TO THE RIGGS NATIONAL BANK OF WASHINGTON, D.C. 800-17TH STREET, N.W., WASHINGTON, D.C. AS TRUSTEE ------------------ Supplemental Indenture DATED AS OF FEBRUARY 11, 1994 ------------------ SUPPLEMENTAL TO MORTGAGE AND DEED OF TRUST DATED JULY 1, 1936 ------------------ FIRST MORTGAGE BONDS, 5 3/8% SERIES DUE 2024 ================================================================================ POTOMAC ELECTRIC POWER COMPANY SUPPLEMENTAL INDENTURE DATED AS OF FEBRUARY 11, 1994 TABLE OF CONTENTS* ------------------
PAGE ---- Parties.................................................................. 1 Recitals................................................................. 1 PART I Definitions Facilities............................................................... 6 Loan Agreement........................................................... 6 Pollution Control Bond Indenture......................................... 6 Pollution Control Bonds.................................................. 7 Pollution Control Bond Trustee........................................... 7 PART II Description of Bonds of 2024 Series Section 1. General description of Bonds of 2024 Series.................. 7 Section 2. Denominations of Bonds....................................... 8 Section 3. Form of Bond................................................. 8 Form of Trustee's Certificate................................ 16 PART III Issue of Bonds of 2024 Series Section 1. Limitation as to principal amount............................ 17 Section 2. Issue of $38,300,000 principal amount of Bonds of 2024 Series................................................. 17 PART IV Redemption Section 1. Bonds of 2024 Series redeemable.............................. 18 Section 2. Bonds of 2024 Series redeemable in certain events............ 18 Section 3. Bonds of 2024 Series subject to mandatory redemption in cer- tain events................................................. 18 Section 4. Notice of redemption......................................... 19
- --------- * The Table of Contents is not part of the Supplemental Indenture and should not be considered as such. It is included herein only for purposes of convenient reference. ii
PAGE ---- PART V Amendment of Indenture to Permit Qualification under Trust Indenture Act of 1939................................................................ 19 PART VI Amendment of Original Indenture.......................................... 20 PART VII Additional Particular Covenants of the Company Section 1. Company not to withdraw money pursuant to Section 2 of Arti- cle VIII in excess of an amount equal to principal amount of issued refundable Bonds................................. 20 Section 2. No property additions made prior to December 31, 1946 to be used for any purpose under the Indenture................... 20 PART VIII The Trustee Acceptance of trusts by the Trustee...................................... 21 Trustee not responsible for validity of the Supplemental Indenture....... 21 PART IX Miscellaneous Provisions Payments due on non-business days........................................ 21 Credits on First Mortgage Bonds.......................................... 21 Execution of Supplemental Indenture in counterparts...................... 22 Appointment of attorneys-in-fact by parties.............................. 22 Testimonium.............................................................. 22 Execution................................................................ 23 Company's Acknowledgments................................................ 24 Trustee's Acknowledgments................................................ 26
SUPPLEMENTAL INDENTURE, dated as of the eleventh day of February, nineteen hundred and ninety-four (1994), made by and between Potomac Electric Power Company, a corporation organized and existing under the laws of the District of Columbia and a domestic corporation of the Commonwealth of Virginia (here- inafter sometimes called the "Company"), party of the first part, and The Riggs National Bank of Washington, D.C., a national banking association orga- nized and existing under the laws of the United States of America (hereinafter sometimes called the "Trustee"), as Trustee under the Mortgage and Deed of Trust dated July 1, 1936, hereinafter mentioned, party of the second part; Whereas, The Company has heretofore executed and delivered its Mortgage and Deed of Trust, dated July 1, 1936 (hereinafter sometimes referred to as the "Original Indenture"), to the Trustee, to secure an issue of First Mortgage Bonds of the Company, issuable in series; and Whereas, pursuant to the terms and provisions of the Original Indenture, in- dentures supplemental thereto dated as of July 1, 1936, December 1, 1939, Au- gust 1, 1940, August 1, 1942, January 1, 1948, May 1, 1949, May 1, 1950, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, December 1, 1958, November 16, 1959, December 1, 1960, February 15, 1963, May 15, 1964, April 1, 1966, May 1, 1967, February 15, 1968, March 15, 1969, February 15, 1970, August 15, 1970, September 15, 1972, April 1, 1973, January 2, 1974, August 15, 1974, Au- gust 15, 1974, June 15, 1977, July 1, 1979, June 16, 1981, June 17, 1981, De- cember 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993, September 30, 1993, October 1, 1993 and February 10, 1994 have been heretofore entered into between the Company and the Trustee to provide, respectively, for the creation of the first through the fifty-sev- enth series of Bonds thereunder and, in the case of the supplemental inden- tures dated January 1, 1948, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, September 15, 1972, July 1, 1979, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992, July 1, 1993 and one of the supplemental indentures dated August 15, 1974, to convey additional property; and 2 Whereas, $20,000,000 principal amount of Bonds of the 3 1/4% Series due 1966 (the first series), $5,000,000 principal amount of Bonds of the 3 1/4% Series due 1974 (the second series), $10,000,000 principal amount of Bonds of the 3 1/4% Series due 1975 (the third series), $5,000,000 principal amount of Bonds of the 3 1/4% Series due 1977 (the fourth series), $15,000,000 principal amount of Bonds of the 3% Series due 1983 (the fifth series), $10,000,000 principal amount of Bonds of the 2 7/8% Series due 1984 (the sixth series), $30,000,000 principal amount of Bonds of the 2 3/4% Series due 1985 (the sev- enth series), $15,000,000 principal amount of Bonds of the 3 1/4% Series due 1987 (the eighth series), $10,000,000 principal amount of Bonds of the 3 7/8% Series due 1988 (the ninth series), $10,000,000 principal amount of Bonds of the 3 3/8% Series due 1990 (the tenth series), $10,000,000 principal amount of Bonds of the 3 5/8% Series due 1991 (the eleventh series), $25,000,000 princi- pal amount of Bonds of the 4 5/8% Series due 1993 (the twelfth series), $45,000,000 principal amount of Bonds of the 7 3/4% Series due 2004 (the twen- tieth series), $35,000,000 principal amount of Bonds of the 8.85% Series due 2005 (the twenty-first series), $70,000,000 principal amount of Bonds of the 9 1/2% Series due August 15, 2005 (the twenty-second series), $50,000,000 prin- cipal amount of Bonds of the 7 3/4% Series due 2007 (the twenty-third series), $7,000,000 principal amount of Bonds of the 5 5/8% Series due 1997 (the twen- ty-fourth series), $100,000,000 principal amount of Bonds of the 8 3/8% Series due 2009 (the twenty-fifth series), $50,000,000 principal amount of Bonds of the 10 1/4% Series due 1981 (the twenty-sixth series), $50,000,000 principal amount of Bonds of the 10 3/4% Series due 2004 (the twenty-seventh series), $30,000,000 principal amount of Bonds of the Floating Rate Series due 2010 (the thirty-second series), $50,000,000 principal amount of Bonds of the 14 1/2% Series due 1991 (the thirty-third series), $60,000,000 principal amount of Bonds of the 14 1/4% Series due 1992 (the thirty-fifth series), $50,000,000 principal amount of Bonds of the 11 7/8% Series due 1989 (the thirty-sixth se- ries), $37,000,000 principal amount of Bonds of the 8 3/4% Series due 2010 (the thirty-seventh series), $75,000,000 principal amount of Bonds of the 11 1/4% Series due 2015 (the thirty-eighth series), $75,000,000 principal amount of Bonds of the 9 1/4% Series due 2016 (the thirty-ninth series), $75,000,000 principal amount of Bonds of the 8 3/4% Series due 2016 (the fortieth series), $75,000,000 principal amount of Bonds of the 8 1/4% Series due 2017 (the for- ty-first series), 3 $75,000,000 principal amount of Bonds of the 9% Series due 1990 (the forty- second series), $32,000,000 principal amount of Bonds of the 9 3/4% Series due 2019 (the forty-third series) and $12,000,000 principal amount of Bonds of the 8 5/8% Series due 2019 (the forty-fourth series) have been heretofore redeemed and retired and there are now issued and outstanding under the Original Inden- ture and under the supplemental indentures referred to above: $15,000,000 principal amount of Bonds of the 5 1/4% Series due 1994 (the thirteenth se- ries); $40,000,000 principal amount of Bonds of the 5% Series due 1995 (the fourteenth series); $50,000,000 principal amount of Bonds of the 4 3/8% Series due 1998 (the fifteenth series); $45,000,000 principal amount of Bonds of the 4 1/2% Series due 1999 (the sixteenth series); $15,000,000 principal amount of Bonds of the 5 1/8% Series due 2001 (the seventeenth series); $35,000,000 principal amount of Bonds of the 5 7/8% Series due 2002 (the eighteenth se- ries); $40,000,000 principal amount of Bonds of the 6 5/8% Series due 2003 (the nineteenth series); $18,000,000 principal amount of Bonds of the 5 5/8% Series due 1997 (the twenty-fourth series); $38,300,000 principal amount of Bonds of the 6 1/8% Series due 2007 (the twenty-eighth series); $15,000,000 principal amount of Bonds of the 6 1/2% Series due 2004 (the twenty-ninth se- ries); $20,000,000 principal amount of Bonds of the 6 1/2% Series due 2007 (the thirtieth series); $7,500,000 principal amount of Bonds of the 6 5/8% Se- ries due 2009 (the thirty-first series); $50,000,000 principal amount of Bonds of the Adjustable Rate Series due 2001 (the thirty-fourth series); $43,000,000 principal amount of Bonds of the 9 3/4% Series due 2019 (the forty-third se- ries); $63,000,000 principal amount of Bonds of the 8 5/8% Series due 2019 (the forty-fourth series); $100,000,000 principal amount of Bonds of the 9% Series due 2000 (the forty-fifth series); $100,000,000 principal amount of Bonds of the 9% Series due 2021 (the forty-sixth series); $75,000,000 princi- pal amount of Bonds of the 8 1/2% Series due 2027 (the forty-seventh series); $30,000,000 principal amount of Bonds of the 6% Series due 2022 (the forty- eighth series); $37,000,000 principal amount of Bonds of the 6 3/8% Series due 2023 (the forty-ninth series); $78,000,000 principal amount of Bonds of the 6 1/2% Series due 2008 (the fiftieth series); $40,000,000 principal amount of Bonds of the 7 1/2% Series due 2028 (the fifty-first series); $100,000,000 principal amount of Bonds of the 7 1/4% Series due 2023 (the fifty-second se- ries); $100,000,000 principal amount of Bonds of the 6 7/8% Series due 4 2023 (the fifty-third series); $50,000,000 principal amount of Bonds of the 5 5/8% Series due 2003 (the fifty-fourth series); $50,000,000 principal amount of Bonds of the 5 7/8% Series due 2008 (the fifty-fifth series); $75,000,000 principal amount of Bonds of the 6 7/8% Series due 2024 (the fifty-sixth se- ries); and $42,500,000 principal amount of Bonds of the 5 3/8% Series due 2024 (the fifty-seventh series); and Whereas, for the purpose of conforming the Original Indenture to the stan- dards prescribed by the Trust Indenture Act of 1939 or otherwise modifying certain of the provisions of the Original Indenture, indentures supplemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993, September 30, 1993, October 1, 1993 and February 10, 1994 have been heretofore entered into between the Company and the Trustee, and for the purpose of conveying ad- ditional property, indentures supplemental thereto dated July 15, 1942, Octo- ber 15, 1947, December 31, 1948, December 31, 1949, February 15, 1951, Febru- ary 16, 1953, March 15, 1954, March 15, 1955, March 15, 1956, April 1, 1957, May 1, 1958, May 1, 1959, May 2, 1960, April 3, 1961, May 1, 1962, May 1, 1963, April 23, 1964, May 3, 1965, June 1, 1966, April 28, 1967, July 3, 1967, May 1, 1968, June 16, 1969, May 15, 1970, September 1, 1971, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992 and July 1, 1993 have been heretofore entered into between the Company and the Trustee, and for the purpose of better securing and protecting the Bonds then or thereafter issued and confirming the lien of the Original Indenture, an in- denture dated October 15, 1942 supplemental thereto has been heretofore en- tered into between the Company and the Trustee; the Original Indenture as heretofore amended and supplemented being hereinafter referred to as the "Original Indenture as amended"; and Whereas, the Company proposes to enter into a Loan Agreement (hereinafter de- fined) with the Industrial Development Authority of the City of Alexandria, Virginia, a political subdivision of the Common- 5 wealth of Virginia (hereinafter called the "Authority"), to refinance a por- tion of the cost of the acquisition of the Facilities (hereinafter defined) at the Company's Potomac River Generating Station, Alexandria, Virginia (herein- after called the "Plant"); and Whereas, the Authority proposes to issue its Pollution Control Bonds (herein- after defined) in the principal amount of $38,300,000; and Whereas, the Company is entitled to have authenticated and delivered addi- tional Bonds on the basis of the net bondable value of property additions, upon compliance with the provisions of Section 4 of Article III of the Origi- nal Indenture as amended; and Whereas, the Company has determined to issue to the Pollution Control Bond Trustee (hereinafter defined), as assignee of the Authority, pursuant to and as security for the Loan Agreement, a fifty-eighth series of Bonds under the Original Indenture as amended in the principal amount of $38,300,000, to be known as First Mortgage Bonds, 5 3/8% Series due 2024 (hereinafter called "Bonds of 2024 Series"); and Whereas, the Original Indenture as amended provides that certain terms and provisions, as determined by the Board of Directors of the Company, of the Bonds of any particular series may be expressed in and provided by the execu- tion of an appropriate supplemental indenture; and Whereas, the Original Indenture as amended provides that the Company and the Trustee may enter into indentures supplemental thereto to add to the covenants and agreements of the Company contained therein other covenants and agreements thereafter to be observed; and to surrender any right or power reserved to or conferred upon the Company in the Original Indenture as amended; and Whereas, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Original Indenture as amended and pursuant to appropriate resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Supplemental Indenture in the form hereof for the purposes herein provided; and Whereas, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled, and the execution and delivery hereof have been in all respects duly authorized; 6 Now, Therefore, This Indenture Witnesseth: That Potomac Electric Power Company, in consideration of the premises and of One Dollar to it duly paid by the Trustee at or before the ensealing and de- livery of these presents, and for other valuable considerations, the receipt whereof is hereby acknowledged, hereby covenants, declares and agrees with the Trustee and its successors in the trust under the Original Indenture as amend- ed, for the benefit of those who hold the Bonds, or any of them, issued or to be issued hereunder or under the Original Indenture as amended, as follows: PART I. Definitions. The terms defined in this Part I shall, for all purposes of this Supplemental Indenture, have the meanings herein specified, unless the context otherwise requires: Facilities: The term "Facilities" shall mean the pollution control project at the Plant, described in Exhibit A to the Loan Agreement, and related improvements and any substitutions therefor, acquired by the Company for operation by it as pollu- tion control facilities. The terms "acquisition" and "acquired," when used with regard to the Facili- ties, shall include, without limitation, the construction, installation and equipping of the Facilities. Loan Agreement: The term "Loan Agreement" shall mean the Loan Agreement dated as of February 15, 1994, entered into between the Authority and the Company, and any and all modifications, alterations, amendments and supplements thereto. Pollution Control Bond Indenture: The term "Pollution Control Bond Indenture" shall mean the Indenture of Trust, dated as of February 15, 1994, between the Authority and 7 the Pollution Control Bond Trustee, pursuant to which the Pollution Control Bonds are issued, and any indenture supplemental thereto. Pollution Control Bonds: The term "Pollution Control Bonds" shall mean the Pollution Control Revenue Refunding Bonds (Potomac Electric Project), 1994 Series of the Authority au- thenticated and delivered pursuant to the Pollution Control Bond Indenture. The term "Pollution Control Bonds, 1994 Series" shall mean the series of Pol- lution Control Revenue Refunding Bonds in the aggregate principal amount of $38,300,000 delivered initially. Pollution Control Bond Trustee: The term "Pollution Control Bond Trustee" shall mean NationsBank of Virginia, N.A., a national banking association organized under the laws of the United States of America, or its successors, as Trustee under the Pollution Control Bond Indenture. PART II. Description of Bonds of 2024 Series. Section 1. The fifty-eighth series of Bonds to be executed, authenticated and delivered under and secured by the Original Indenture as amended shall be Bonds of 2024 Series. The Bonds of 2024 Series shall, subject to the provi- sions of Section 1 of Article II of the Original Indenture as amended, be des- ignated as "First Mortgage Bonds, 5 3/8% Series due 2024" of the Company. The Bonds of 2024 Series shall be executed, authenticated and delivered in accor- dance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Original Indenture as amended, ex- cept in so far as the terms and provisions of the Original Indenture as amended are amended or modified by this Supplemental Indenture. The Bonds of 2024 Series shall mature February 15, 2024 and shall bear inter- est at the rate of five and three-eighths percent (5 3/8%) per annum, payable semiannually on the fifteenth day of February and the fifteenth day of August in each year (each such February 15 and Au- 8 gust 15 being hereinafter called an "interest payment date"). The Bonds of 2024 Series shall be payable as to principal and interest in lawful money of the United States of America in immediately available funds, and shall be pay- able (the interest as well as the principal thereof) at the address of the registered owner of such Bonds of 2024 Series appearing on the transfer regis- ter of the Company. Every Bond of 2024 Series shall be dated as of the date of its authentication and delivery, or if that is an interest payment date, the next day, and shall bear interest from the interest payment date next preceding its date or the date of delivery of the initial Bonds of 2024 Series, whichever is later. Section 2. The Bonds of 2024 Series shall be registered Bonds without coupons of denominations of any integral multiple of $5,000, numbered consecutively upwards from R1. Section 3. The Bonds of 2024 Series, and the Trustee's certificate to be en- dorsed on the Bonds of 2024 Series, shall be substantially in the following forms, respectively: [FORM OF BOND] This Bond is not transferable except as provided in the Pollution Control Bond Indenture, as defined herein. POTOMAC ELECTRIC POWER COMPANY (A District of Columbia and Virginia corporation) First Mortgage Bond, 5 3/8% Series Due 2024 No. R- $ Potomac Electric Power Company, a corporation organized and existing under the laws of the District of Columbia and a domestic corporation of the Common- wealth of Virginia (hereinafter called the "Company", which term shall include any successor corporation as defined in the Amended Indenture hereinafter re- ferred to), for value received, 9 hereby promises to pay to or registered assigns, the sum of dollars, on the fifteenth day of February, 2024, or on such other date as may be required herein, in lawful money of the United States of America in immedi- ately available funds, and to pay interest thereon in like money from the later of February 15, 1994 or the interest payment date (February 15 or August 15) next preceding the date of this Bond, or if the Company shall default in the payment of interest due on such interest payment date, then from the next preceding interest payment date to which interest has been paid or February 15, 1994, whichever is later, at the rate of five and three-eighths percent (5 3/8%) per annum, payable semiannually, on the fifteenth day of February and the fifteenth day of August in each year until maturity, or, if this Bond shall be duly called for redemption, until the redemption date, or, if the Company shall default in the payment of the principal hereof, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Amended Indenture. The principal of, premium, if any, and interest on, this Bond are payable at the address of the registered owner hereof appearing on the transfer register of the Company. To the extent permitted by law, the Company shall pay interest on any overdue installment of interest hereunder at the rate of five and three-eighths percent (5 3/8%) per annum, or at such lesser maximum rate of interest as is permitted by law at any such time. This Bond is one of a duly authorized issue of Bonds of the Company (herein- after called the "Bonds") in unlimited aggregate principal amount of the se- ries hereinafter specified, all issued and to be issued under and equally se- cured (except in so far as any purchase or sinking fund or analogous provi- sions for any particular series of Bonds, established by any indenture supple- mental to the Amended Indenture hereinafter mentioned, may afford additional security for such Bonds) by a Mortgage and Deed of Trust, dated July 1, 1936, executed by the Company to The Riggs National Bank of Washington, D.C. (herein called the "Trustee"), as trustee, as amended by indentures supplemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, No- 10 vember 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993, September 30, 1993, October 1, 1993 and February 10, 1994 (said Mortgage and Deed of Trust, as so amended, being herein called the "Amended Indenture") and all indentures supplemental thereto, to which Amended Indenture and supplemental indentures reference is hereby made for a descrip- tion of the properties mortgaged and pledged, the nature and extent of the se- curity, the rights of the owners of the Bonds and of the Trustee in respect thereto, and the terms and conditions upon which the Bonds are, and are to be, secured. To the extent permitted by, and as provided in, the Amended Inden- ture, modifications or alterations of the Amended Indenture, or of any inden- ture supplemental thereto, and of the rights and obligations of the Company and of the holders of the Bonds may be made with the consent of the Company by an affirmative vote of not less than 80% in amount of the Bonds entitled to vote then outstanding, at a meeting of Bondholders called and held as provided in the Amended Indenture, and by an affirmative vote of not less than 80% in amount of the Bonds of any series entitled to vote then outstanding and af- fected by such modification or alteration, in case one or more but less than all of the series of Bonds then outstanding under the Amended Indenture are so affected; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of, or premium, if any or interest on, this Bond, which are unconditional, or which reduces the percentage of Bonds the affirmative vote of which is required for the mak- ing of such modifications or alterations. The Company is proposing an amend- ment to the Amended Indenture which would replace "80%" with "60%" in the pre- ceding sentence, which amendment will become effective upon the consent or agreement thereto of the holders of all the outstanding Bonds. The holder of this Bond will be deemed to have approved such amendment. The Bonds may be is- sued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as in the Amended In- denture provided. This Bond is one of a series designated as the "First Mortgage Bonds, 5 3/8% Series due 2024" (herein called the "Bonds of 5 3/8% Series due 2024") of the Company, limited in aggregate principal amount to $38,300,000, issued under and secured by the Amended Indenture and all indentures supplemental thereto and described in the indenture (herein 11 called the "Supplemental Indenture of February 11, 1994") dated as of February 11, 1994, between the Company and the Trustee, supplemental to the Amended In- denture. Unless otherwise defined herein, the terms used herein shall have the same meanings as in the Supplemental Indenture of February 11, 1994. The Bonds of 5 3/8% Series due 2024 may not be called for redemption by the Company except as provided herein and in the Supplemental Indenture of Febru- ary 11, 1994. The Bonds of 5 3/8% Series due 2024 are subject to redemption in whole, but not in part, at any time, at the option of the Company upon payment of a redemption price equal to 100% of the principal amount thereof plus ac- crued interest to the redemption date, without premium, upon the occurrence of any of the following events: (a) damage or destruction to the Company's Potomac River Generating Station in Alexandria, Virginia (the "Plant") or the pollution control project at the Plant (the "Facilities") to such extent that in the opinion of both the Company's board of directors (expressed in a resolution) and an architect or engineer acceptable to NationsBank of Virginia, N.A. (the "Pollution Control Bond Trustee"), as trustee under the Indenture of Trust, dated as of Febru- ary 15, 1994 (the "Pollution Control Bond Indenture") between the Industrial Development Authority of the City of Alexandria, Virginia (the "Authority") and the Pollution Control Bond Trustee, both opinions filed with the Author- ity and the Pollution Control Bond Trustee, (1) the Plant or the Facilities, as the case may be, cannot be reasonably repaired, rebuilt or restored within a period of six months to its condition immediately preceding such damage or destruction, or (2) the Company is thereby prevented from carrying on its normal operations at the Plant for a period of six months; or (b) loss of title to or use of a substantial part of the Plant or the Fa- cilities as a result of the exercise of the power of eminent domain if, in the opinion of both the Company's board of directors (expressed in a resolu- tion) and an architect or engineer acceptable to the Pollution Control Bond Trustee, both opinions filed with the Authority and the Pollution Control Bond Trustee, the Company is thereby prevented or is likely to be prevented from carrying on its normal operations therein for a period of six months; or (c) a change in the Constitution of the Commonwealth of Virginia or of the United States of America or legislative or administrative action (whether local, state or Federal) or a final decree, judgment or 12 order of any court or administrative body (whether local, state or Federal) which causes the Loan Agreement, dated as of February 15, 1994, between the Company and the Authority (the "Loan Agreement"), to become void or unen- forceable or impossible of performance in accordance with the intent and purpose of the parties as expressed therein or unreasonable burdens or ex- cessive liabilities to be imposed upon the Authority or the Company with re- spect to the Plant or the Facilities or the operation thereof, including but not limited to the imposition of Federal, state or other ad valorem proper- ty, income or other taxes other than ad valorem taxes presently levied upon privately owned property used for the same general purpose as the Facili- ties; or (d) changes in the economic availability of raw materials, operating sup- plies, energy sources or supplies, or facilities necessary for the operation of the Facilities for the purposes of pollution control "facilities" as de- fined in the Virginia Industrial Development and Revenue Bond Act or neces- sary for the operation of the Plant occur or such technological or other changes which the Company cannot reasonably overcome or control and which in the reasonable judgment of the Company's board of directors (expressed in a resolution) render the Facilities or the Plant uneconomic or obsolete for such purposes; or (e) any court or administrative body shall enter a judgment, order or de- cree, or shall take administrative action, requiring the Company to cease all or any substantial part of its operation serviced by the Facilities to the extent the Company is or will be prevented from carrying on its normal operations at the Plant for a period of six months. To exercise its option to redeem the Bonds under the foregoing circumstances, the Company shall, as required under the Pollution Control Bond Indenture, file the required resolutions and opinions or a certificate, as the case may be, within nine months after the event permitting its exercise, giving notice to the Authority and the Pollution Control Bond Trustee, and shall specify a date not less than 45 nor more than 90 days thereafter for redemption. The Bonds of 5 3/8% Series due 2024 are subject to mandatory redemption at any time as a whole or, as hereinafter provided, in part at 100% of the prin- cipal amount thereof plus accrued interest to the redemption date, without premium, in the event that the Pollution Control Bond Trustee shall (a) de- liver a notification to the Trustee and the Company that it has been finally determined by the Internal Revenue Service or a 13 court of competent jurisdiction that, as a result of any fact, condition or event constituting a failure by the Company to observe any covenant or agree- ment in the Loan Agreement or contravenes any representation in the Loan Agreement, the interest payable on the Pollution Control Bonds issued pursuant to the Pollution Control Bond Indenture is includable for Federal income tax purposes in the gross income of any holder of a Pollution Control Bond, other than a holder who is or was a "substantial user" of the Facilities or a "re- lated person," as provided in Section 147(a) of the Internal Revenue Code of 1986 or any applicable predecessor statutory provisions and (b) in conjunction therewith, make a demand for such redemption. No such determination will be considered final for the purpose of any mandatory redemption pursuant to this paragraph unless the Company shall have been given written notice as provided in the Pollution Control Bond Indenture and, if it shall have so desired, been afforded the opportunity to contest the same at its expense, either directly or in the name of any holder of a Pollution Control Bond, 1994 Series, and un- til conclusion of any appellate review with respect thereto, if sought. Any such redemption shall be on any date within 120 days from the time of such fi- nal determination. Upon the finality of such determination, the Bonds of 5 3/8% Series due 2024 shall be redeemed in whole unless, as a result of an opinion rendered by Bond Counsel (as defined in the Pollution Control Bond In- denture) pursuant to Section 2.5(c) of the Pollution Control Bond Indenture, the Pollution Control Bonds shall be redeemed only in part, in which event an equal principal amount of Bonds of 5 3/8% Series due 2024 shall also be re- deemed. If such redemption shall occur in accordance with the terms hereof, then such failure by the Company to observe such covenant, agreement or repre- sentation in the Loan Agreement shall not in and of itself constitute an Event of Default under the Pollution Control Bond Indenture, the Bonds of 5 3/8% Se- ries due 2024, the Amended Indenture or the Supplemental Indenture of February 11, 1994. The Bonds of 5 3/8% Series due 2024 are also subject to mandatory redemption at any time, as a whole, at 100% of the principal amount thereof plus accrued interest to the redemption date, without premium, in the event the Trustee shall receive a written demand (hereinafter called "Default Redemption De- mand") from the Pollution Control Bond Trustee for redemption stating that the principal of all Pollution Control 14 Bonds then outstanding under the Pollution Control Bond Indenture has been de- clared to be immediately due and payable pursuant to the provisions of Section 9.1 thereof. The Trustee shall within 10 days of receiving the Default Redemp- tion Demand mail a copy to the Company stamped or otherwise marked to show the date of receipt by the Trustee. The Company shall fix a redemption date and shall mail the Trustee notice of such selection at least 15 days prior to the date so selected. Such redemption date may be any day not more than 60 days after the receipt of the Default Redemption Demand by the Trustee. If the Trustee does not receive notice of such selection by the Company within 45 days after the Default Redemption Demand was received by the Trustee, then the redemption date shall be the 60th day after such receipt. The Trustee shall mail notice of the redemption date (hereinafter called the "Default Redemption Notice") to the Pollution Control Bond Trustee not more than 10 nor less than 5 days prior to the date fixed for redemption. The Trustee shall not mail any Default Redemption Notice (and no such redemption shall be made) if the Trustee receives a written cancellation of the Default Redemption Demand from the Pollution Control Bond Trustee prior to the mailing of the Default Redemp- tion Notice. Notwithstanding any other provision contained in this Bond, the Supplemental Indenture dated as of February 11, 1994, or the Amended Inden- ture, the holder of this Bond by the acceptance of such Bond hereby waives any longer notice of redemption. The Bonds of 5 3/8% Series due 2024 are subject to redemption by the Company prior to maturity in whole, or in part, at any time, on or after February 15, 2004, upon payment of the following redemption prices (expressed as a percent- age of principal amount of Bonds to be redeemed) plus accrued interest to the redemption date:
REDEMPTION DATE REDEMPTION (DATES INCLUSIVE) PRICE ----------------- ---------- February 15, 2004 through February 14, 2005....................... 102% February 15, 2005 through February 14, 2006....................... 101% February 15, 2006 and thereafter.................................. 100%
Any such redemption shall be subject to the conditions and as more fully set forth in the Amended Indenture and Supplemental Indenture of February 11, 1994. Notice of any such redemption (other than a redemption in the event of a Default Redemption Demand) shall be deliv- 15 ered at least forty-five days and not more than sixty days prior to the re- demption date, to the registered owner of the Bonds, at its address as the same shall appear on the transfer register of the Company, all subject to the conditions and as more fully set forth in the Amended Indenture and the Sup- plemental Indenture of February 11, 1994; provided, however, that such prior notice shall be deemed to have been duly given with respect to all or any part of the Bonds whenever the Company shall have complied with all of its obliga- tions, as set forth in Article VII of the Pollution Control Bond Indenture, with respect to redemption of all or such part of the Pollution Control Bonds. In case an event of default, as defined in the Amended Indenture, shall oc- cur, the principal of all the Bonds at any such time outstanding under the Amended Indenture may be declared or may become due and payable, upon the con- ditions and in the manner and with the effect provided in the Amended Inden- ture. The Amended Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Bonds entitled to vote then outstanding. Subject to the restriction on transfer appearing hereon, this Bond is trans- ferable by the registered owner hereof, in person or by duly authorized attor- ney, on the books of the Company to be kept for that purpose at the agency of the Company in the City of Washington, D.C., upon surrender and cancellation of this Bond and on presentation of a duly executed written instrument of transfer, and thereupon a new Bond or Bonds of the same series, of the same aggregate principal amount and in authorized denominations will be issued to the transferee in exchange therefor; and this Bond, with or without others of the same series, may in like manner be exchanged for one or more new Bonds of the same series of other authorized denominations but of the same aggregate principal amount; all subject to the terms and conditions set forth in the Amended Indenture. No recourse shall be had for the payment of the principal of, premium, if any, or the interest on, this Bond, or for any claim based hereon or otherwise in respect hereof or of the Amended Indenture or any indenture supplemental thereto, against any incorporator, or against any stockholder, director or of- ficer, past, present or future, of the Company or of any predecessor or suc- cessor corporation, either directly or 16 through the Company or any such predecessor or successor corporation, whether for amounts unpaid on stock subscriptions or by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any con- stitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Bond and as part of the consideration for the issue hereof, and being likewise re- leased by the terms of the Amended Indenture. This Bond shall not be entitled to any benefit under the Amended Indenture or any indenture supplemental thereto, or become valid or obligatory for any pur- pose, until The Riggs National Bank of Washington, D.C., the Trustee under the Amended Indenture, or a successor trustee thereto under the Amended Indenture, shall have signed the form of certificate endorsed hereon. In Witness Whereof, Potomac Electric Power Company has caused this Bond to be signed in its name by the signature (or a facsimile thereof) of its President or a Vice President, and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by the facsimile signature of its Secretary or an Assistant Secretary. Dated, Potomac Electric Power Company By ............................................ Vice President Attest: ................................... Secretary [form of trustee's certificate] This Bond is one of the Bonds, of the series designated therein, described in the within-mentioned Amended Indenture and the Supplemental Indenture of Feb- ruary 11, 1994. The Riggs National Bank of Washington, D.C. Trustee By ............................................ Authorized Officer 17 PART III. Issue of Bonds. Section 1. Except for Bonds of 2024 Series issued pursuant to Section 13 of Article II of the Original Indenture as amended, the principal amount of Bonds of 2024 Series which may be authenticated and delivered hereunder is limited to the aggregate principal amount of Thirty-Eight Million Three Hundred Thou- sand Dollars ($38,300,000). Section 2. Bonds of 2024 Series in the aggregate principal amount of Thirty- Eight Million Three Hundred Thousand Dollars ($38,300,000) may at any time subsequent to the execution hereof be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered (either before or after the recording hereof) to or upon the order of the Company evi- denced by a writing or writings, signed by its President or one of its Vice Presidents and its Treasurer or one of its Assistant Treasurers, at such time or times as may be requested by the Company subsequent to the receipt by the Trustee of (1) the certified resolution and the officers' certificate required by Sec- tion 3(a) and Section 3(b) of Article III of the Original Indenture as amended; (2) the opinion of counsel required by Section 3(c) of Article III of the Original Indenture as amended; (3) cash, if any, in the amount required to be deposited by Section 3(d) of Article III of the Original Indenture as amended, which shall be held and applied by the Trustee as provided in said Section 3(d); (4) the certificates, instruments, opinions of counsel, prior lien bonds and cash, if any, required by Section 4 of Article III of the Original In- denture as amended, except that, as required by Part VII of this Supplemen- tal Indenture, property additions purchased, constructed or otherwise ac- quired on or before December 31, 1946 shall not be made the basis for the authentication and delivery of Bonds of 2024 Series; and (5) the certificates and opinions required by Article XVIII of the Original Indenture as amended. 18 PART IV. Redemption Section 1. The Bonds of 2024 Series may not be called for redemption by the Company except as provided herein. The Bonds of 2024 Series shall, in accor- dance with the provisions of Article V of the Original Indenture as amended, be redeemable, prior to maturity on or after February 15, 2004, at the option of the Board of Directors of the Company, either as a whole, or in part, at any time upon payment of the redemption prices applicable to the respective periods set forth in the form of Bond contained in Section 3 of Part II hereof together, in each case, with accrued interest to the redemption date. Section 2. Notwithstanding the provisions of Section 1 of this Part IV, in the event of (a) damage or destruction of the Company's Plant or the Facili- ties, (b) condemnation of the Company's Plant or the Facilities, (c) constitu- tional, legislative, judicial or administrative action voiding the Loan Agree- ment or imposing unreasonable burdens or excessive liabilities on the Company, including the imposition of certain taxes, (d) changes in the economic or technological status of the Plant or the Facilities rendering the Plant obso- lete or uneconomic or (e) court or administrative action requiring the Company to cease all or any substantial part of its operations serviced by the Facili- ties for a period of six months, all as provided in the form of Bond contained in Section 3 of Part II hereof, the Bonds of 2024 Series shall, in accordance with the provisions of Article V of the Original Indenture as amended, be re- deemable, as a whole at any time prior to maturity, in the manner and upon the conditions provided in said form of Bond, upon payment of a redemption price equal to 100% of the principal amount thereof together with accrued interest to the redemption date, without premium. Section 3. Notwithstanding the provisions of Section 1 of this Part IV, in the event the Trustee shall receive from the Pollution Control Bond Trustee either (a) a notification that the Bonds are subject to mandatory redemption pur- suant to Section 2.5(c) of the Pollution Control Bond Indenture; or 19 (b) a Default Redemption Demand (as defined in the form of Bond contained in Section 3 of Part II hereof); the Bonds of 2024 Series shall be subject to mandatory redemption, as a whole at any time prior to maturity, or, upon the occurrence of any of the events referred to in clause (a) above, in part at any time, in each case in the man- ner and upon the conditions provided in said form of Bond, at 100% of the principal amount thereof together with accrued interest to the redemption date, without premium. Section 4. In accordance with the provisions of Article V of the Original In- denture as amended, notice of redemption (other than in a redemption in the event of a Default Redemption Demand) shall be delivered at least forty-five days and not more than sixty days prior to the date of redemption, to the reg- istered owner of the Bonds of 2024 Series at its address as the same shall ap- pear on the transfer register of the Company; provided, however, that such prior notice shall be deemed to have been duly given with respect to all or any part of the Bonds whenever the Company shall have complied with all of its obligations, as set forth in Article VII of the Pollution Control Bond Inden- ture, with respect to redemption of all or such part of the Pollution Control Bonds. PART V. Amendment of Indenture to Permit Qualification Under Trust Indenture Act of 1939. The Company and the Trustee, from time to time and at any time, without any vote or consent of the holders of the Bonds of 2024 Series, may enter into such indentures supplemental to the Original Indenture as amended as may or shall by them be deemed necessary or desirable to add to or modify or amend any of the provisions of the Original Indenture so as to permit the qualifica- tion of the Original Indenture as amended under the Trust Indenture Act of 1939. Except to the extent specifically provided herein, no provision of this Sup- plemental Indenture is intended to modify, and the parties hereto do 20 hereby adopt and confirm, the provisions of Section 318(c) of the Trust Inden- ture Act of 1939 which amend and supersede provisions of the Original Inden- ture, as supplemented, in effect prior to November 15, 1990. PART VI. Amendment of Original Indenture. Notwithstanding any other provisions of the Original Indenture as amended, the holders of the Bonds of 2024 Series, by their holding of such Bonds, are deemed to have approved the following amendment to the Original Indenture as amended and to have authorized the Trustee to take any action necessary to ev- idence or effectuate such approval: Sections 5 and 6 of Article XV of the Original Indenture as amended are hereby amended by changing the words and figures "eighty percent. (80%)" to the words and figures "sixty percent. (60%)" wherever in such Sections such words and figures occur. PART VII. Additional Particular Covenants of the Company. The Company hereby covenants, warrants and agrees that so long as any Bonds of 2024 Series are outstanding: Section 1. The Company will not withdraw, pursuant to the provisions of Sec- tion 2 of Article VIII of the Original Indenture as amended, any moneys held by the Trustee as part of the trust estate in excess of an amount equal to the aggregate principal amount of such of the refundable Bonds as were theretofore issued by the Company; and that upon any such withdrawal by the Company re- fundable Bonds equal in aggregate principal amount to the amount so withdrawn shall be deemed to have been made the basis for such withdrawal. Section 2. Property additions purchased, constructed or otherwise acquired on or before December 31, 1946 shall not be made the basis for the authentication and delivery of Bonds, or the withdrawal of cash, or 21 the reduction of the amount of cash required to be paid to the Trustee under any provision of the Indenture. PART VIII. The Trustee. The Trustee hereby accepts the trusts hereby declared and provided and agrees to perform the same upon the terms and conditions in the Original Indenture as amended set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in re- spect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XIII of the Original Inden- ture as amended shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. PART IX. Miscellaneous Provisions. If any payment of principal of, premium, if any, or installment of interest on, the Bonds of 2024 Series shall be due and payable on any day which is not a business day, such payment shall become due and payable on the next suc- ceeding business day, a "business day" being any Monday, Tuesday, Wednesday, Thursday, or Friday other than any such day that is a legal holiday or a day on which commercial banking institutions in the Commonwealth of Virginia are authorized or obligated to close. As provided in the Pollution Control Bond Indenture, any amounts of money held in the Bond Fund provided in the Pollution Control Bond Indenture and available for such purpose, which are at the request of the Company applied to the payment of the principal of and premium, if any, and interest on the Pol- lution Control Bonds on any payment or 22 redemption date, shall be applied as a credit on amounts otherwise due under the Bonds of 2024 Series and shall pro tanto discharge the Company's obliga- tions to pay such amounts otherwise due; provided that the amount of such credit shall be established by an officer's certificate (as defined in the Original Indenture as amended), concurred in by the Pollution Control Bond Trustee, which shall be delivered prior to the application of any such credit. This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an origi- nal; but such counterparts shall together constitute but one and the same in- strument. Potomac Electric Power Company hereby constitutes and appoints Dennis R. Wraase, its Senior Vice President, to be its true and lawful attorney-in-fact, for it and in its name to appear before any officer authorized by law to take and certify acknowledgments of deeds to be recorded in the District of Colum- bia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and deliver these presents as the act and deed of said Potomac Electric Power Company. The Riggs National Bank of Washington, D.C., hereby constitutes and appoints Alexander C. Baker, one of its Senior Vice Presidents, to be its true and law- ful attorney-in-fact, for it and in its name to appear before any officer au- thorized by law to take and certify acknowledgements of deeds to be recorded in the District of Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and de- liver these presents as the act and deed of said The Riggs National Bank of Washington, D.C. In Witness Whereof, said Potomac Electric Power Company has caused this Sup- plemental Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by its Secretary or one of its Assistant Secretaries; and said The Riggs National Bank of Washington, D.C., in evidence of its acceptance of the trust hereby created, has caused this Supplemental Indenture to be executed on its behalf by its President or one of its Senior Vice Presidents, 23 and its corporate seal to be hereto affixed and said seal and this Supplemen- tal Indenture to be attested by one of its Corporate Trust Officers, all as of the 11th day of February, One thousand nine hundred and ninety-four. Potomac Electric Power Company (Corporate Seal) By ......................................... DENNIS R. WRAASE, Senior Vice President Attested: ................................... MARY T. HOWARD, Assistant Secretary Signed, sealed and delivered by Potomac Electric Power Company in the .presence of: ................................... ................................... As Witnesses The Riggs National Bank of Washington, D.C. (Corporate Seal) By ......................................... ALEXANDER C. BAKER, Senior Vice President Attested: ................................... BEVERLY MOFFETT Senior Corporate Trust Officer Signed, sealed and delivered by The Riggs National Bank of Washington, D.C. in the presence of: ................................... ................................... As Witnesses 24 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, a Notary Public in and for the District of Columbia, United States of America, whose commission as such will expire , do hereby certify that Dennis R. Wraase and Mary T. Howard, whose names as Senior Vice President and Assistant Secretary, respectively, of Potomac Electric Power Company, a corporation, are signed to the foregoing and hereto attached deed, bearing date as of the 11th day of February, 1994, personally appeared this day before me in my District aforesaid and acknowledged themselves to be, respectively, a Senior Vice President and an Assistant Secretary of Potomac Electric Power Company, and that they as such, being authorized so to do, executed the said deed by signing the name of Potomac Electric Power Company by Dennis R. Wraase, as Senior Vice President, and attested by Mary T. Howard, as Assistant Secretary, and acknowledged the same before me in my District aforesaid and acknowledged the foregoing instrument to be the act and deed of Potomac Elec- tric Power Company. Given under my hand and official seal this day of February, 1994. (Notarial Seal) ............................................ Notary Public District of Columbia 25 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Dennis R. Wraase, Senior Vice Presi- dent of Potomac Electric Power Company, a corporation, one of the parties to the foregoing instrument bearing date as of the 11th day of February, 1994, and hereto annexed, this day personally appeared before me in the City of Washington, the said Dennis R. Wraase being personally well known to me as the person who executed the said instrument as Senior Vice President of and on be- half of said Potomac Electric Power Company and known to me to be the attor- ney-in-fact duly appointed therein to acknowledge and deliver said instrument on behalf of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said Potomac Electric Power Company, and delivered the same as such. I further certify that the said Dennis R. Wraase, being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corpora- tion; and that he signed his name thereto by like order. My commission expires . Given under my hand and official seal this day of February, 1994. (Notarial Seal) ............................................ Notary Public District of Columbia 26 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Alexander C. Baker and Beverly Moffett, whose names as Senior Vice President and Senior Corporate Trust Offi- cer, respectively, of The Riggs National Bank of Washington, D.C., a corpora- tion, are signed to the foregoing and hereto attached deed, bearing date as of the 11th day of February, 1994, personally appeared before me this day in my District aforesaid and acknowledged themselves to be, respectively, a Senior Vice President and a Senior Corporate Trust Officer of The Riggs National Bank of Washington, D.C., and that they as such, being authorized so to do, exe- cuted the said deed by signing the name of The Riggs National Bank of Washing- ton, D.C. by Alexander C. Baker as Senior Vice President, and attested by Bev- erly Moffett, as Senior Corporate Trust Officer, and acknowledged the same be- fore me in my District aforesaid and acknowledged the foregoing instrument to be the act and deed of The Riggs National Bank of Washington, D.C., as therein set forth. Given under my hand and notarial seal this day of February, 1994. (Notarial Seal) ............................................ Notary Public District of Columbia My Commission Expires 27 ++ City of Washington, + District of Columbia, ++ ss.: + ++ Alexander C. Baker, of full age, being sworn according to law, on his oath deposes and says that he is a Senior Vice President of The Riggs National Bank of Washington, D.C., the Trustee named in the foregoing Supplemental Inden- ture, dated as of the 11th day of February, 1994, that he is the agent of said Trustee for the purpose of perfecting such Supplemental Indenture and that the consideration in the Original Indenture referred to therein and in all inden- tures supplemental to said Original Indenture, including the foregoing Supple- mental Indenture, is true and bona fide as therein set forth. ............................................ Alexander C. Baker Subscribed and sworn to before me this day of February, 1994. ................................... Notary Public District of Columbia My Commission Expires (Notarial Seal) 28 ++ City of Washington, + District of Columbia, ++ ss.: + ++ I, , a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Alexander C. Baker a Senior Vice President of The Riggs National Bank of Washington, D.C., a corporation, one of the parties to the foregoing instrument bearing date as of the 11th day of February, 1994, and hereto annexed, this day personally appeared before me in the City of Washington, the said Alexander C. Baker, being personally well known to me as the person who executed the said instrument as a Senior Vice President of and on behalf of said The Riggs National Bank of Washington, D.C., and known to me to be the attorney-in-fact duly appointed therein to ac- knowledge and deliver said instrument on behalf of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said The Riggs National Bank of Washington, D.C., and delivered the same as such. I further certify that the said Alexander C. Baker, being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. Given under my hand and official seal this day of February, 1994. (Notarial Seal) ............................................ Notary Public District of Columbia My Commission Expires 29 CERTIFICATE OF RESIDENCE The Riggs National Bank of Washington, D.C., Mortgagee and Trustee within named, hereby certifies that its precise residence is 800-17th Street, N.W., Washington, D.C. 20006. The Riggs National Bank of Washington, D.C. By.......................................... Alexander C. Baker, Senior Vice President EX-11 8 COMPUTATION OF PER SHARE EARNINGS Exhibit 11 Computations of Earnings Per Common Share - ---------- ------------------------------------------ The following is the basis for the computation of primary and fully diluted earnings per common share for each of the years 1993, 1992 and 1991:
1993 1992 1991 ------------ - ------------ ------------ Average shares outstanding for computation of primary earnings per common share 115,639,668 112,389,698 105,911,450 ============ ============ ============ Average shares outstanding for fully diluted computation: Average shares outstanding 115,639,668 112,389,698 105,911,450 Additional shares resulting from: Conversion of Serial Preferred Stock, $2.44 Convertible Series of 1966 (the "Convertible Preferred Stock") 51,967 57,542 80,044 Conversion of 7% Convertible Debentures 2,546,858 2,603,912 2,657,451 Conversion of 5% Convertible Debentures 3,392,500 1,130,833 - ------------ - ------------ ------------ Average shares outstanding for computation of fully diluted earnings per common share 121,630,993 116,181,985 108,648,945 ============ ============ ============ Earnings applicable to common stock, before cumulative effect of accounting change $225,324,000 $186,368,000 $197,866,000 Cumulative effect of accounting change, net of income taxes - 16,022,000 - ------------ - ------------ ------------ Earnings applicable to common stock, as reported 225,324,000 202,390,000 197,866,000 Add: Dividends paid or accrued on Convertible Preferred Stock 22,000 24,000 35,000 Interest paid or accrued on Convertible Debentures, net of related taxes 6,548,000 4,303,000 3,163,000 ------------ - ------------ ------------ Earnings applicable to common stock, including cumulative effect of accounting change and assuming conversion of convertible securities $231,894,000 $206,717,000 $201,064,000 ============ ============ ============ Primary earnings per common share Before cumulative effect $1.95 $1.66 $1.87 Cumulative effect - 0.14 - ----- - ----- ----- Total $1.95 $1.80 $1.87 ===== ===== ===== Fully diluted earnings per common share Before cumulative effect $1.91 $1.64 $1.85 Cumulative effect - 0.14 - ----- - ----- ----- Total $1.91 $1.78 $1.85 ===== ===== =====
This calculation is submitted in accordance with Regulation S-K item 601 (b) (11) although not required by footnote 2 to paragraph 14 of APB No. 15 because it results in dilution of less than 3%. EX-12 9 STATEMENT RE COMPUTATION OF RATIOS Exhibit 12 Computation of Ratios - ---------- --------------------- The computations of the coverage of fixed charges, excluding the cumulative effect of the 1992 accounting change, before income taxes, and the coverage of combined fixed charges and preferred dividends for each of the years 1993 through 1989 on the basis of parent company operations only, are as follows.
For the Year Ended December 31, - ----------------------------------------------------- 1993 1992 1991 1990 1989 --------- --------- - --------- --------- --------- (Thousands of Dollars) Net income before cumulative effect of accounting change $216,478 $172,599 $186,813 $165,199 $183,487 Taxes based on income 107,223 76,965 80,988 70,962 92,593 -------- -------- -------- -------- -------- Income before taxes and cumulative effect of accounting change 323,701 249,564 267,801 236,161 276,080 -------- -------- -------- -------- -------- Fixed charges: Interest charges 141,393 138,097 138,512 127,386 113,305 Interest factor in rentals 5,859 6,140 5,690 4,237 4,338 -------- -------- -------- -------- -------- Total fixed charges 147,252 144,237 144,202 131,623 117,643 -------- -------- -------- -------- -------- Income before income taxes, cumulative effect of accounting change and fixed charges $470,953 $393,801 $412,003 $367,784 $393,723 ======== ======== ======== ======== ======== Coverage of fixed charges 3.20 2.73 2.86 2.79 3.35 ==== ==== ==== ==== ==== Preferred dividend requirements $16,255 $14,392 $12,298 $10,598 $9,235 -------- -------- -------- -------- -------- Ratio of pre-tax income to net income 1.50 1.45 1.43 1.43 1.50 ---- ---- ---- ---- ---- Preferred dividend factor $24,383 $20,868 $17,586 $15,155 $13,853 -------- -------- -------- -------- -------- Total fixed charges and preferred dividends $171,635 $165,105 $161,788 $146,778 $131,496 ======== ======== ======== ======== ======== Coverage of combined fixed charges and preferred dividends 2.74 2.39 2.55 2.51 2.99 ==== ==== ==== ==== ====
Exhibit 12 Computation of Ratios - ---------- --------------------- The computations of the coverage of fixed charges, excluding the cumulative effect of the 1992 accounting change, before income taxes, and the coverage of combined fixed charges and preferred dividends for each of the years 1993 through 1989 on a fully consolidated basis are as follows.
For the Year Ended December 31, - ----------------------------------------------------- 1993 1992 1991 1990 1989 --------- --------- - --------- --------- --------- (Thousands of Dollars) Net income before cumulative effect of accounting change $241,579 $200,760 $210,164 $170,234 $214,587 Taxes based on income 62,145 79,481 80,737 63,360 99,766 -------- -------- -------- -------- -------- Income before taxes and cumulative effect of accounting change 303,724 280,241 290,901 233,594 314,353 -------- -------- -------- -------- -------- Fixed charges: Interest charges 221,312 226,453 225,323 199,469 165,709 Interest factor in rentals 9,257 6,599 6,080 4,559 4,705 -------- -------- -------- -------- -------- Total fixed charges 230,569 233,052 231,403 204,028 170,414 -------- -------- -------- -------- -------- Nonutility subsidiary capitalized interest (2,059) (2,200) (6,542) - - -------- -------- -------- -------- -------- Income before income taxes, cumulative effect of accounting change and fixed charges $532,234 $511,093 $515,762 $437,622 $484,767 ======== ======== ======== ======== ======== Coverage of fixed charges 2.31 2.19 2.23 2.14 2.84 ==== ==== ==== ==== ==== Preferred dividend requirements $16,255 $14,392 $12,298 $10,598 $9,235 -------- -------- -------- -------- -------- Ratio of pre-tax income to net income 1.26 1.40 1.38 1.37 1.46 ---- ---- ---- ---- ---- Preferred dividend factor $20,481 $20,149 $16,971 $14,519 $13,483 -------- -------- -------- -------- -------- Total fixed charges and preferred dividends $251,050 $253,201 $248,374 $218,547 $183,897 ======== ======== ======== ======== ======== Coverage of combined fixed charges and preferred dividends 2.12 2.02 2.08 2.00 2.64 ==== ==== ==== ==== ====
EX-13 10 ANNUAL REPORT FINANCIAL SECTION Exhibit 13 Financial Information - --------------------- Potomac Electric Power Company and Subsidiaries Contents - -------- Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition...................................... 2 Management's Report on the Consolidated Financial Statements............................................... 22 Report of Independent Accountants.......................... 23 Consolidated Statements of Earnings........................ 24 Consolidated Balance Sheets................................ 25 Consolidated Statements of Cash Flows...................... 27 Notes to Consolidated Financial Statements................. 28 Selected Consolidated Financial Data....................... 61 Explanation of Graphic Material.................... Appendix A 1 Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition - ---------------------------------------------------- GENERAL - ------- As an investor-owned electric utility, Potomac Electric Power Company (the Company, PEPCO) is capital intensive, with a gross investment in property and plant of approximately $3 for each $1 of annual total revenue. The costs associated with property and plant investment amounted to 48% of the Company's total revenue in 1993. Fuel and purchased energy, capacity purchase payments and other operating expenses were 52% of total revenue. The Company's principal wholly-owned subsidiary, Potomac Capital Investment Corporation (PCI), conducts nonutility investment programs with the objective of supplementing current utility earnings and building long-term shareholder value. The information set forth below discusses the results of operations, capital resources and liquidity during the period 1991 through 1993 for the Company and PCI. The Company's earnings for common stock during 1993 totaled $225.3 million, as compared to $202.4 million in 1992. The 1992 earnings for common stock included the $16 million cumulative effect of the accounting change for unbilled revenues. See the discussion included in Note (1) of the Notes to Consolidated Financial Statements, Summary of Significant Accounting Policies. With a 1993 increase of 3.3 million in the average number of common shares outstanding, earnings per share for common stock increased from $1.80 in 1992 (including $.14 for the accounting change) to $1.95 for 1993. Earnings for 1993 reflect the effect on electricity sales and revenues of warmer than average weather during the 1993 summer cooling season, and the effects of the 1992 and 1993 base rate increases in Maryland and the 1992 base rate increase in the District of Columbia. 2 UTILITY - ------- Results of Operations - --------------------- Total Revenue - ------------- The changes in total revenue are shown in the following table. - ----------------------------------------------------------------- Increase (Decrease) from Prior Year 1993 1992 1991 - ----------------------------------------------------------------- (Millions of Dollars) Change in kilowatt-hour sales $ 87.0 $(39.1) $ 61.1 Change in base rate revenues 45.4 71.8 51.2 Change in fuel adjustment clause billings to cover cost of fuel and interchange 8.0 (19.2) 22.5 Change in other revenue (.1) (3.4) 5.6 ------ ----- ----- Change in Operating Revenue 140.3 10.1 140.4 ------ ------ ------ Change in interchange deliveries (16.7) (27.9) (22.8) ------ ------ ------ Change in Total Revenue $123.6 $(17.8) $117.6 ====== ====== ====== - ----------------------------------------------------------------- The $45.4 million change in 1993 base rate revenues compared to 1992 reflects the effects of Maryland rate increases of $7.3 million (effective June 1993) and $27 million (effective November 1993) and the continued effect of 1992 rate increases in both of the Company's retail jurisdictions. Also, 1993 revenues reflect warmer than average weather during the summer billing months of June through October, when base rates are high to encourage customer conservation and peak load shifting. Base rate revenues for 1992 compared to 1991 were increased by approximately $9 million from a gross receipts tax rate increase implemented in the District of Columbia in July 1991, and in effect throughout 1992, and approximately $14 million from higher fuel and energy taxes in Montgomery County, Maryland; also by a $30.4 million District of Columbia rate increase (effective July 1992) and a $25.3 million Maryland rate increase, of which $18 million became effective in December 1992. Mild weather during the peak period summer billing months June through October had an adverse effect 3 on 1992 revenues. Base rate revenues for 1991 compared to 1990 were increased by approximately $11 million as the result of a higher gross receipts tax rate in the District of Columbia and $12 million from higher fuel and energy taxes in Montgomery County, Maryland; also by a $19.7 million Maryland rate increase (effective June 1991) and by a $19.7 million District of Columbia rate increase (effective October 1991). Decreases in revenue from interchange deliveries for 1993, 1992 and 1991 reflect a decline in energy delivered to the Pennsylvania-New Jersey-Maryland (PJM) Interconnection. Interchange deliveries continue to be a component of the Company's fuel rates. (Graphic Material - 1993 Use of Revenue presented in pie chart format - See Appendix A 1.) Kilowatt-hour Sales - ------------------- - ----------------------------------------------------------------- 1993 1992 over over 1993 1992 1991 1992 1991 - ----------------------------------------------------------------- (Millions of Kilowatt-hours) By Customer Type Residential 6,727 6,142 6,488 9.5% (5.3)% Commercial 11,751 11,391 11,321 3.2 .6 U.S. Government 3,986 3,948 4,016 1.0 (1.7) D.C. Government 903 873 862 3.4 1.3 Wholesale 2,327 2,130 2,109 9.2 1.0 ------ ------ ------ Total energy sales 25,694 24,484 24,796 4.9 (1.3) ====== ====== ====== Interchange Energy deliveries 483 771 1,773 (37.4) (56.5) ====== ====== ====== By Geographic Area Maryland, including wholesale 15,319 14,441 14,601 6.1 (1.1) District of Columbia 10,375 10,043 10,195 3.3 (1.5) ------ ------ ------ Total energy sales 25,694 24,484 24,796 4.9 (1.3) ====== ====== ====== - ----------------------------------------------------------------- The increase in kilowatt-hour sales in 1993 reflects increased customer usage during the summer cooling season due to warmer than average weather. Cooling degree hours during 1993 were 97% above those in 1992 and 22% above the 20-year average. The decrease in kilowatt-hour sales in 1992, the first decline in sales since 1974, was primarily due to decreased customer usage, especially by residential customers, during the summer cooling 4 season due to cooler than average weather. Cooling degree hours during the 1992 summer billing months (June through October) were 41% below the corresponding period in 1991 and 35% below the 20-year average weather for this period. Assuming future weather conditions approximate historical averages, the Company expects its compound annual growth in kilowatt-hour sales to range between 1% and 2% over the next decade. The sales growth over the last three years is below the previous rates of growth due to the effects of the recession on the Company's service territory and the operation of the Company's conservation and energy use management programs. The Company's 1993 summer peak demand was 5,754 megawatts, 3.8% higher than the 1992 peak demand of 5,546 megawatts and .3% below the all-time summer peak demand of 5,769 megawatts which occurred in July 1991. The Company's present generation capability, including capacity purchase contracts, is 6,576 megawatts. To meet the 1993 summer peak demand, the Company had 201 megawatts available from its dispatchable energy use management programs. Based on average weather conditions, the Company estimates that its peak demand will grow at a compound annual rate of approximately 1%, reflecting continuing emphasis on conservation and energy use management programs and anticipated service area growth trends. A new winter peak demand of 5,010 megawatts was established in January 1994, which was 11.1% above the previous all-time winter peak demand of 4,511 megawatts which occurred in December 1989. Operating Expenses - ------------------ Fuel, Purchased Energy and Capacity Purchase Payments - ----------------------------------------------------- 1993 1992 1991 - ----------------------------------------------------------------- (Millions of Dollars) Fuel expense $354.3 $345.5 $387.1 ------ ------ ------ Purchased energy PJM receipts 108.9 94.6 62.9 Other purchases 64.5 72.0 113.6 ------ ------ ------ Total purchased energy 173.4 166.6 176.5 ------ ------ ------ Fuel and purchased energy $527.7 $512.1 $563.6 ====== ====== ====== Capacity purchase payments $ 96.3 $ 95.5 $ 94.8 ====== ====== ====== - ----------------------------------------------------------------- 5 Net System Generation and Purchased Energy were as follows. - ----------------------------------------------------------------- 1993 1992 1991 - ----------------------------------------------------------------- (Millions of Kilowatt-hours) Net system generation 19,145 18,274 20,296 ====== ====== ====== Purchased energy 8,448 8,251 7,856 ====== ====== ====== - ----------------------------------------------------------------- (Graphic Material - Cooling Degree Hours presented in bar chart format - See Appendix A 2.) The 1993 increase in fuel expense primarily reflects a 4.8% increase in net generation resulting from the increase in kilowatt-hour sales. The Company's ability to purchase low-cost economy energy from PJM helped keep the increase in fuel expense to a minimum. The 1992 and 1991 decreases in fuel expense primarily reflect decreases in net generation and increased purchases of low-cost economy energy from PJM. The Company's unit costs of fuel burned and the percentages of system fuel requirements obtained from coal, oil and natural gas were as shown in the following table. - ----------------------------------------------------------------- Percent of Unit Cost Fuel Burned of Fuel Burned ------------------- -------------------------------- System Coal Oil Gas Coal Oil Gas Average - ----------------------------------------------------------------- (Per Million Btu) 1993 79.4 17.4 3.2 $1.72 $2.55 $2.88 $1.90 1992 82.9 12.6 4.5 1.72 2.50 2.32 1.85 1991 81.7 13.4 4.9 1.78 2.76 2.18 1.93 - ----------------------------------------------------------------- The system average unit fuel costs continued a generally downward trend over the 1991-1993 period. The increase of approximately 3% in the 1993 system average unit fuel cost compared with the 1992 system average resulted from increased use of major cycling and peaking generation units which burn higher cost fuels. The Company's major cycling and certain peaking units can burn natural gas or oil, adding flexibility in selecting the most cost-effective fuel mix. In addition, the new Dickerson combustion turbine units resulted in the displacement of generation from older, less cost-effective units. 6 The Company's generating and transmission facilities are interconnected with the other members of PJM and other utilities. The pricing of most PJM internal economy energy transactions is based upon "split savings" so that the price of such energy is halfway between the cost that the purchaser would incur if the energy were supplied by its own sources and the cost of production to the company actually supplying the energy. In addition to PJM interchange activity, the Company has interconnection agreements with Allegheny Power System (APS) and Virginia Power. These agreements provide a mechanism and the flexibility to purchase power from these parties or from others with whom they are interconnected on an as-needed basis in amounts mutually agreed to from time-to-time pursuant to negotiated rates, terms and conditions. "Other Purchases" above includes the cost of this energy together with purchases of energy from Ohio Edison under the Company's 1987 long-term capacity purchase agreements with Ohio Edison and APS. The capacity purchase payments referred to in the table above include capacity costs incurred under agreements with Ohio Edison and Southern Maryland Electric Cooperative, Inc. (SMECO), which compare favorably with other long-term capacity and energy alternatives. Pursuant to the Company's long-term capacity purchase agreements with Ohio Edison and APS, the Company is purchasing 450 megawatts of capacity and associated energy through the year 2005. The cost of capacity under these agreements increased from $12,380 per megawatt, per month, in 1993 to $18,060 per megawatt, per month, effective January 1, 1994, plus an allocation of fixed operating and maintenance expenses, with provision for escalation in 1999. (Graphic Material - System Fuel Costs presented in line chart format - See Appendix A 3.) The Company began a 25-year purchase agreement in 1990 with SMECO for 84 megawatts of capacity supplied by a combustion turbine installed and owned by SMECO at the Company's Chalk Point Generating Station. The Company is responsible for all costs associated with operating and maintaining the facility. The capacity payment to SMECO is approximately $462,000 per month. Other Operation and Maintenance Expenses - ---------------------------------------- Other operation and maintenance expenses totaled $301.5 million for 1993. These expenses increased by $6.2 million (2.1%), $8.1 million (2.8%) and $11.8 million (4.3%) in 1993, 1992 and 1991, respectively. The relative stability in other operation and maintenance expense was achieved through the Company's budget and 7 cost control disciplines, which have resulted in a decline in the number of Company employees and other programs to curb increases in expenses. For 1993, other operation expense included $9.3 million for the accrual of postretirement expenses other than pensions, pursuant to Statement of Financial Accounting Standards (SFAS) No. 106. See the discussion of New Accounting Standards below. Depreciation and Amortization Expense, Income Taxes and Other Taxes - ------------------------------------------------------- Depreciation and amortization expense increased by $13.8 million (9.2%), $15.4 million (11.5%) and $10.5 million (8.5%) in 1993, 1992 and 1991, respectively, due to additional investment in property and plant and amortization of increased amounts of conservation program costs. Income taxes increased due to the higher federal income tax rate which became effective in 1993 and higher taxable income. Other taxes increased by $7.1 million (3.6%), $27.7 million (16.6%) and $32.6 million (24.4%) in 1993, 1992 and 1991, respectively. The increases reflect changes in the levels of operating revenues and plant investment upon which taxes are based. The substantial 1992 and 1991 increases resulted from increases in gross receipts and fuel and energy tax rates. Other Income, Net Utility Interest Charges and Allowance for Funds Used During Construction - -------------------------------------------------------- Other income reflects the net earnings from the Company's nonutility subsidiary of $25.1 million in 1993, $28.2 million in 1992 and $23.4 million in 1991. See the Nonutility Subsidiary discussion below and the discussion included in Note (14) of the Notes to Consolidated Financial Statements, Selected Nonutility Subsidiary Financial Information. Other income also reflects accrued capital cost recovery factor amounts in "Other, net" of $8 million and $2.9 million in 1993 and 1992, respectively, and $2.8 million in 1993 from the adoption of SFAS No. 109. See the discussion of New Accounting Standards below. Net utility interest charges were relatively stable during the three-year period 1991 through 1993, notwithstanding increased levels of borrowing. Short-term borrowing costs have remained relatively low and, with the refinancing of higher cost issues, the average cost of outstanding long-term utility debt declined from 8.24% at the beginning of 1991 to 7.68% at the end of 1993. Allowance For Funds Used During Construction (AFUDC) credits, which decreased in 1993 and 1992, and increased in 1991, relate to portions of the Company's Construction Work In Progress investment. See the Construction and Capacity Additions discussion below. 8 CAPITAL RESOURCES AND LIQUIDITY - ------------------------------- The Company's total investment in property and plant, at original cost, was $5.7 billion at year-end 1993. Investment in property and plant construction, net of AFUDC, was $1 billion for the period 1991 through 1993. Internally generated cash from utility operations, after dividends, totaled $287.8 million for the period 1991 through 1993. Sales of First Mortgage Bonds, Medium-Term Notes, Convertible Debentures, Serial Preferred Stock and Common Stock during the period 1991 through 1993 provided a total of $1.4 billion. During the years 1991 through 1993, the Company retired $779.9 million in outstanding long-term securities, including refinancings, scheduled debt maturities and sinking fund retirements. Interim financing was provided principally through the issuance of short-term commercial promissory notes. During the three-year period 1994 through 1996, capital resources of $71 million will be required to meet scheduled debt maturities and sinking fund requirements, and additional amounts will be required for working capital and other needs. Approximately $735 million is expected to be available from depreciation and amortization charges and income tax deferrals over the three-year period. During 1993, the Company sold $530 million principal amount of First Mortgage Bonds, $96 million of Common Stock and short- term borrowings increased by $233 million. Proceeds were used to meet construction requirements of $300 million and scheduled debt maturities, sinking fund requirements and the refinancing of higher cost debt totaling $628.4 million. On January 12, 1994, the Company sold, at par, $50 million of 6-1/4% Medium-Term Notes due in 2009 and, at 98.494%, $50 million of 7% Medium-Term Notes due in 2024. See the discussion included in Notes (7) and (10) of the Notes to Consolidated Financial Statements, Common Equity and Long-Term Debt, respectively, for details of these securities transactions. Reflecting the refinancings of debt and the respective principal amounts outstanding, total annualized interest costs for all utility long-term debt outstanding at December 31, 1993 was $114 million, compared with $131.9 million and $126.4 million at December 31, 1992 and 1991, respectively. Dividends on preferred stock were $16.3 million in 1993, $14.4 million in 1992 and $12.3 million in 1991. The embedded cost of preferred stock declined from 6.53% at December 31, 1990, to 6.2% at December 31, 1993. 9 The Company's capitalization ratios (excluding nonutility subsidiary debt), at December 31, 1993, are presented below. - ----------------------------------------------------------------- Excluding Including Amounts Due Amounts Due In One Year In One Year - ----------------------------------------------------------------- Long-term debt 41.7% 38.5% Redeemable serial preferred stock 3.8 3.6 Serial preferred stock 3.3 3.0 Common equity 51.2 47.3 Short-term debt and amounts due in one year - 7.6 ----- ----- Total capitalization 100.0% 100.0% ===== ===== - ----------------------------------------------------------------- Year-end 1993 outstanding utility short-term indebtedness totaled $294.6 million compared with $61.6 million and $86.8 million at the end of 1992 and 1991, respectively. At year-end 1993, the formula adopted by the Securities and Exchange Commission would have permitted the Company to issue, without registration, a total of $426 million in commercial promissory notes. The Company has, with respect to its utility operations, $90 million in revolving credit agreements with 11 banks and conventional bank line of credit agreements of $215.5 million with 21 banks. There were no outstanding borrowings under these arrangements during 1993, 1992 and 1991. Construction and Capacity Additions - ----------------------------------- Construction expenditures, excluding AFUDC, are projected to total $1.3 billion for the five-year period 1994 through 1998, which includes $203 million of estimated Clean Air Act expenditures. Making use of the flexibilities in its long-term construction plan, the Company reduced projected expenditures for the five years 1994 through 1998 by a total of $315 million from amounts previously planned. The construction reductions and deferrals were associated with lower rates of projected growth in usage of electricity resulting in large part from implementing economical conservation programs. The Company plans to finance its construction program through funds provided by operations and external financing. 10 On June 1, 1993, the Company placed in service the second element of a combined-cycle unit, consisting of a 139-megawatt combustion turbine generating unit, at the Dickerson Generating Station located in Montgomery County, Maryland. The first 139- megawatt combustion turbine generating unit was placed in service on June 1, 1992. The total cost of the two combustion turbine units currently in service was $162 million. These generating units are primarily fueled by natural gas but can also burn No. 2 fuel oil. The Dickerson project plan provides for two combined-cycle units with the capability of adding a coal gasification facility, should future unit price differentials among coal, oil and gas make gasification economically attractive. The Company's construction schedule is flexible in order to accommodate changes in future growth and the addition of nonutility generation. Currently, no additional units are scheduled for the Dickerson combined-cycle project until after the year 2003. In 1991, the Company signed an agreement with Panda Energy Corporation for a 230-megawatt gas-fueled combined-cycle cogeneration project in Prince George's County, Maryland, which is scheduled for service in 1996. The project is currently before the Maryland Public Service Commission for issuance of a certificate of convenience and necessity. In addition, the Company has signed a contract for a 40-megawatt resource recovery facility which is now under construction in Montgomery County, Maryland. In November 1993, after failing to obtain final building permits from the District of Columbia, Dominion Energy terminated its contract to build a 56-megawatt combined-cycle cogeneration facility at Georgetown University. The Company currently projects that contracted nonutility generation and the Company's commitment to conservation and energy use management will provide adequate reserve margins to meet customers' needs for the next decade. Although it is not possible to forecast specific impacts of the National Energy Act legislation enacted during 1992, the Company has substantial flexibility to anticipate and deal with changing conditions and increased competition in the generation and transmission of electricity. Since the early 1980s, the Company has pursued strategies which achieve flexibility through conservation and energy use management, extension of the useful life of generating equipment, cost-effective purchase of capacity and energy and preservation of scheduling flexibility to add new generating capacity in relatively small increments to meet changing requirements. The Company is a low-cost energy producer with customer prices which compare favorably with regional and national averages. (Graphics Material - Construction Expenditures presented in bar chart format - See Appendix A 4.) 11 Conservation and Energy Use Management - -------------------------------------- The Company's conservation and energy use management programs are designed to curb growth in demand in order to defer the need for construction of additional generating capacity and to cost-effectively increase the efficiency of energy use. The Company offers an extensive array of comprehensive conservation programs for its customers in the District of Columbia and Maryland. The Company's programs for residential customers include various types of incentives to encourage the design of energy-efficient homes and the purchase and installation of energy-efficiency measures. These incentives include customer rebates for energy efficient appliances, bonuses to contractors who build homes that meet high energy-efficiency standards, coupons which offer significant discounts to customers who purchase energy-efficient lights and water heater conservation measures and, commencing in 1993, a program to directly install, at no cost to the customer, lighting and water heater tank wraps in single-family, apartment and condominium residences. During 1993, the Company also initiated an appliance recycling program for customers, by offering payments for inefficient, but still functioning, refrigerators, air conditioners and freezers. The Company's programs for commercial customers offer a variety of approaches to encourage conservation, including design consultation and technical assistance at no fee, equipment rebates to developers and designers, cash incentives to customers who install energy-efficiency measures ranging from lighting to efficient motors and equipment, and, for small commercial customers, direct installation of efficient lighting and other measures at no-cost to the customer. During 1993, as part of the Custom Rebate program, the Company encouraged customers with older chillers to replace them with new high efficiency chillers. Also, the Company began offering loans on a pilot basis to commercial customers for efficiency improvements. The Company continues to aggressively identify, design, and test additional energy efficient conservation measures and technologies. The Company receives rate recognition for the cost of its conservation programs in its Maryland jurisdiction through a rate surcharge which permits the Company to earn a return on its conservation investment while receiving compensation for lost revenues. The cost recovery mechanism also allows the Company to earn a performance bonus for exceeding established goals. The surcharge is adjusted periodically to reflect the Company's growing conservation commitment. 12 The District of Columbia Public Service Commission has established a comprehensive framework which provides for a return on conservation investments, the receipt of compensation for lost revenues and incentives for achieving demand side management goals. The Company has proposed, in connection with its pending District of Columbia rate case, a surcharge mechanism similar to the Maryland surcharge and, with respect to future lost revenues, an adjustment mechanism which reconciles or decouples sales and revenues. During 1993, the Company also continued to operate and expand its energy use management programs. In 1993, approximately 134,000 customers participated in programs which cycle air conditioners and water heaters during peak periods. In addition, the Company operates a commercial load program which provides incentives to customers for reducing energy use during peak periods. Time-of-use rates have been in effect since the early 1980s and currently approximately 60% of the Company's revenues are based on time-of-use rates. It is estimated that peak load reductions of approximately 390 megawatts have been achieved to date from conservation and energy use management programs and that additional peak load reductions of over 500 megawatts will be achieved in the next five years. The Company also estimates that energy savings of more than 450 million kilowatt-hours have been realized through operation of its conservation and energy use management programs through 1993. During the next five years, the Company plans to expend an estimated $525 million to encourage the efficient use of electric energy and to reduce the need to build new generating facilities. CLEAN AIR ACT - ------------- The Company has developed cost-effective plans for complying with the Clean Air Act (CAA) which requires the reduction of sulfur dioxide and nitrogen oxides emissions in two phases to achieve prescribed standards. The Company anticipates CAA related capital expenditures totaling $203 million over the next five years. The plans call for replacement of boiler burner equipment for nitrogen oxides emissions control, the use of lower-sulfur fuel and cofiring with natural gas at selected baseload plants. The CAA allows companies to achieve required emission levels by using a market-based emission allowance trading system. If economical, emission allowances may be purchased in lieu of burning lower-sulfur fuel. 13 The Company owns a 9.72% undivided interest in the Conemaugh Generating Station located in western Pennsylvania. As a result of installing flue gas scrubbing equipment to meet Phase I requirements of the CAA, this station will receive additional allowances. The Company's share of these "bonus" allowances may be used to reduce the need for lower-sulfur fuel at its other plants. The Company's share of the construction cost for the flue gas scrubbing equipment is approximately $38 million. Installation of scrubbers is not contemplated for the Company's wholly-owned plants. Both the District of Columbia and Maryland commissions have approved the Company's plans for meeting Phase I requirements including cost recovery of investment and inclusion of emission allowance expenses in the Company's fuel adjustment clause. BASE RATE PROCEEDINGS - --------------------- The Company is subject to utility rate regulation based upon the historical costs of plant investment, using recent test years to measure the cost of providing service. The rate-making process does not give recognition to the current cost of replacing plant; however, the regulatory commissions are required by law to provide a reasonable opportunity to earn a fair rate of return on new plant investments which are required to replace existing plant at the time replacement of facilities actually occurs. The regulatory commissions have authorized fuel rates which provide for billing customers for the actual cost of fuel and interchange on a timely basis. The impact of inflation on the Company's future results of operations cannot be projected since it will be dependent, in part, on the timeliness of rate decisions and the extent to which rate changes are based upon current costs of providing service. Annual base rate increases and decreases which became effective during the period 1991 through 1993 are shown below. - ----------------------------------------------------------------- District of Year Total Maryland Columbia Wholesale - ----------------------------------------------------------------- (Millions of Dollars) 1993 $ 38.1 $34.3 $ - $3.8 1992 51.2 18.0 30.4 2.8 1991 38.9 19.7 19.7 (.5) ------ ----- ----- ---- $128.2 $72.0 $50.1 $6.1 ====== ===== ===== ==== - ----------------------------------------------------------------- 14 Maryland - -------- In October 1993, pursuant to a settlement agreement, the Commission authorized a $27 million, or 3%, increase in base rate revenues effective November 1, 1993. The settlement included a new system composite depreciation rate of approximately 3.1%, up from the 3% rate previously in effect. Prior to the settlement, the Company had filed updated cost of service data which demonstrated a need for a $49.9 million increase in Maryland base rate revenue, based upon the requested return of 9.89% on average rate base including a 12.75% return on common stock equity, 1993 federal tax legislation and the completed separate depreciation case. In connection with the settlement agreement, no determination was made with respect to rate of return. The rate of return on common stock equity most recently determined for the Company in a fully litigated rate case was 12.75% established by the Commission in a June 1991 rate increase order. In October 1992, pursuant to a settlement agreement, the Commission authorized an increase in base rate revenues of approximately 3% with $18 million effective December 1, 1992, and $7.3 million effective June 1, 1993. No determination with respect to rate of return was specified. District of Columbia - -------------------- In its pending base rate proceeding, the Company is currently seeking a $55.4 million, or 8.2%, increase in base rate revenue, based upon a return of 9.46% on average rate base including an 11.8% return on common stock equity. On June 4, 1993, the Company had filed a base rate application requesting a $72.6 million increase in base rate revenue based upon a requested return of 9.84% on average rate base including a 12.35% return on common stock equity. The Company updated its initial June 1993 cost of service data filing to reflect subsequent events such as final federal tax legislation changes, the effects of a new three year labor agreement with its union employees, the settlement of the United Mine Workers strike as it related to the Company's coal inventory, cost of service revisions and an updated cost of capital study. The requested increase in annual base rate revenues is predicated on adoption by the Commission of the Company's ratemaking proposal with respect to the demand side management program costs, including treatment of lost revenues. If the Commission concludes that this item should also be recovered in base rates, an additional $22.2 million must be added to the base rate revenue requirement for a total requested increase in base rate revenues of $77.6 million. Hearings have been completed, final briefs have been filed and the case is before the Commission for its decision, which is expected to be issued in early March 1994. 15 In June 1992, the Commission authorized a $30.4 million, or 4.6%, increase in base rate revenues effective July 7, 1992. The authorized rates were based on a 9.96% rate of return on average rate base, including a 12.35% return on common stock equity. The Commission also approved a procedure for deferring purchased capacity cost increases between rate cases, accruing a return on the deferred amounts, and including such deferred amounts in determining revenue requirements in future rate proceedings. In February 1993, the Commission adopted a surcharge mechanism, to become effective following the Company's next base rate case discussed above, for recovery of the capital cost carrying charges on CAA compliance costs between rate proceedings. The Company is authorized to accrue a capital cost recovery factor on applicable CAA costs while the surcharge rate is effective. Wholesale - --------- The Company has a 10-year full service power supply contract with SMECO, a wholesale customer. The contract period is to be extended for an additional year on January 1 of each year, unless notice is given by either party of termination of the contract at the end of the 10-year period. The full service obligation can be reduced by SMECO by up to 20% of its annual requirements with a five-year advance notice for each such reduction. SMECO rates were increased by $3.8 million and $2.8 million effective January 1, 1993 and 1992, respectively. In November 1993, the Company amended its contract with SMECO, pending federal regulatory approval, to provide for rate increases of $2.6 million, $2.3 million and $4.2 million effective January 1, 1994, 1995 and 1996, respectively. THE COVE POINT JOINT VENTURE - ---------------------------- Subsidiaries of the Company and the Columbia Gas System, Inc., have formed a joint venture partnership to own and operate natural gas storage and terminaling facilities at Cove Point, Maryland, and an 87-mile natural gas pipeline that extends from Cove Point to Loudoun, Virginia. These facilities are currently owned by Columbia LNG Corporation, a Columbia Gas subsidiary. In November 1993, the partnership filed a request with the Federal Energy Regulatory Commission (FERC) for approval of proposed natural gas peak-shaving services to local gas distribution companies and other natural gas users beginning with the winter heating season of 1995-96. With the recent 16 restructuring of the natural gas industry under FERC Order 636, this price-competitive service will provide supply security and operating flexibility to local distribution companies in meeting their customers' service obligations. One of the Company's principal strategic interests in the Cove Point project is to secure a reliable and cost-effective source of transportation for gas to fuel the generators at its Chalk Point Generating Station. The Cove Point pipeline is the sole means of delivering natural gas to southern Maryland where Chalk Point is located. The Company is currently expanding Chalk Point's fuel flexibility to burn increased amounts of gas to comply with the CAA and minimize customer costs. Under the agreement, Columbia LNG Corp. will contribute its Cove Point terminal and pipeline assets in exchange for an equity interest in the partnership, and the Company's subsidiaries will invest up to $25 million in the form of equity and debt. This investment will be used by the partnership to recommission certain existing facilities at the terminal and construct a new liquefaction unit that will be used in the peaking service. The transaction is subject to Columbia's receipt of regulatory and other approvals. NEW ACCOUNTING STANDARDS - ------------------------ Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109 entitled "Accounting for Income Taxes," and SFAS No. 106 entitled "Employers' Accounting for Postretirement Benefits Other Than Pensions." See the discussion included in Notes (1), (3) and (4) of the Notes to Consolidated Financial Statements, Summary of Significant Accounting Policies, Pensions and Other Postretirement Benefits and Income Taxes, respectively. In November 1992, the Financial Accounting Standards Board (FASB) issued SFAS No. 112 entitled "Employers' Accounting for Postemployment Benefits," which will become effective for the Company's 1994 consolidated financial statements. See the discussion included in Note (3) of the Notes to Consolidated Financial Statements, Pensions and Other Postretirement Benefits, for additional information. In May 1993, the FASB issued SFAS No. 115 entitled "Accounting for Certain Investments in Debt and Equity Securities," which will also become effective for the Company's 1994 consolidated financial statements. See the discussion included in Note (14) of the Notes to Consolidated Financial Statements, Selected Nonutility Subsidiary Financial Information. 17 ENVIRONMENTAL MATTERS - --------------------- The Company is subject to federal, state and local legislation and regulation with respect to environmental matters, including air and water quality and the handling of solid and hazardous waste. As a result, the Company is subject to environmental contingencies, principally related to possible obligations to remove or mitigate the effects on the environment of the disposal, effected in accordance with applicable laws at the time, of certain substances at various sites. During 1993, the Company was participating in environmental assessments and cleanups under these laws at two federal Superfund sites and a state site. While the total cost of remediation at these sites may be substantial, the Company shares liability with other potentially responsible parties. Based on the information known to the Company at this time, management is of the opinion that resolution of these matters will not have a material effect on the results of operations or financial position of the Company. In August 1993, the Company was served with Amended Complaints filed in three jurisdictions (Prince George's County, Baltimore City and Baltimore County) in separate ongoing, consolidated proceedings each denominated "In re: Personal Injury Asbestos Cases." The Company (and other defendants) were brought into these cases on a theory of premises liability under which plaintiffs argue that the Company was negligent in not providing a safe work environment for employees of its contractors who allegedly were exposed to asbestos while working on the Company's property. Since the filings, a number of the individual suits have been disposed of without any payment by the Company. While the aggregate amount specified in the remaining suits would exceed $1 billion, the Company believes the amounts are greatly exaggerated as were the claims already disposed of. The amount of total liability, if any, and any related insurance recovery cannot be precisely determined at this time; however, based on information and relevant circumstances known at this time, the Company does not believe these suits will have a material adverse effect on its financial position. See the discussion included in Note (12) of the Notes to Consolidated Financial Statements, Commitments and Contingencies, for additional information. 18 NONUTILITY SUBSIDIARY - --------------------- RESULTS OF OPERATIONS - --------------------- PCI's net earnings totaled $25.1 million in 1993 compared with $28.2 million in 1992 and $23.4 million in 1991. In 1993, PCI contributed $.22 per share to PEPCO's consolidated earnings of $1.95 per share. PCI contributed $.25, and $.22 per share to PEPCO's 1992 and 1991 consolidated earnings per share, respectively. PCI generates income primarily from its leasing activities and securities investments. Revenue from leasing activities, which includes rental income, gains on asset sales, interest income and fees, totaled $114.2 million in 1993 compared with $122.1 million and $128.7 million in 1992 and 1991, respectively. The decrease in income from leasing activities in 1993 as compared to 1992 was due to decreased rental income from operating leases which replaced leases for certain aircraft returned by three lessees. The decrease in operating lease rentals was partially offset by pre-tax gains from asset sales totaling $7.3 million in 1993 compared to $4 million and $17.7 million in 1992 and 1991, respectively. Fee income in 1993 totaled $13.2 million compared with $4 million and $5.1 million in 1992 and 1991, respectively. PCI's marketable securities portfolio contributed pre-tax income of $38.4 million in 1993 compared with $37.1 million and $21.1 million in 1992 and 1991, respectively, which results included net realized gains of $7 million in 1993 compared with $7.5 million in 1992 and net losses of $7.7 million in 1991. Other activities during 1993 resulted in a pre-tax loss of $13.3 million which was primarily the result of a writedown of approximately $13.5 million related to the termination of obligations with respect to a real estate limited partnership interest. The decrease in 1993 earnings from this writedown and from reduced operating lease income was partially offset by the completion of a partnership transaction, whereby PCI contributed aircraft, subject to direct finance leases, to a majority owned partnership resulting in future cash savings of $37.4 million. As a result of this transaction, PCI's obligation for previously accrued deferred taxes was reduced, resulting in after tax earnings of $21.3 million, after provision for all costs of the transaction. The excess deferred taxes were recognized as a reduction in income tax expense. 19 Expenses, before income taxes, which include interest, depreciation and operating, and administrative and general expenses totaled $159.3 million, $130.5 million and $122 million for the years ended December 31, 1993, 1992 and 1991, respectively. Of these expenses, interest was the largest single component, amounting to $77.9 million, $86.2 million and $80.3 million in 1993, 1992 and 1991, respectively. Depreciation and operating expenses totaled $66.8 million in 1993 as compared to $34.6 million and $27.7 million in 1992 and 1991, respectively. The increased 1993 expenses resulted from costs related to the partnership transaction referred to above, the annualization of depreciation on increased operating lease investment, and increased operating expenses incurred for aircraft under usage based leases or which were not under lease during part of the year. The 1993 reduction in deferred taxes resulting from the partnership transaction was partially offset by an August 1993 charge to earnings of $5.1 million to adjust PCI's deferred taxes for the higher rate contained in the Omnibus Budget Reconciliation Act of 1993. CAPITAL RESOURCES AND LIQUIDITY - ------------------------------- Investments in leased equipment of $32.4 million in 1993 reflect the purchase of a new MD-11 aircraft which was placed on long- term leveraged lease at the same time older equipment under lease by the same carrier was sold for proceeds of $108.1 million and a pre-tax gain of $6.2 million. The remaining investment was related to the refurbishment and modification of other aircraft under lease. At the end of 1993, PCI had no commitments for the purchase of additional aircraft or other equipment leasing assets. At December 31, 1993, PCI had two aircraft on lease to Hawaiian Airlines (Hawaiian) which, on September 21, 1993, filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. To date, Hawaiian has made all of its scheduled monthly rent payments. PCI's outstanding short-term debt totaled $126.2 million at December 31, 1993, a decrease of $137.3 million from the $263.5 million outstanding at December 31, 1992. During 1993, PCI issued $363.7 million in long-term debt, including non-recourse debt, and debt repayments totaled $247.1 million. PCI assumed $22.6 million in debt as a result of the purchase of minority interests and subsequent consolidation of two entities previously accounted for under the equity method. 20 PCI paid PEPCO a $14 million dividend in February 1993 and a $12 million dividend in January 1992. In January 1994, PCI declared and paid a $15 million dividend to PEPCO. PCI remains adequately capitalized to support future business plans, which are designed to supplement utility earnings and build long-term value. In addition to its investments in equipment leasing and securities, PCI has limited investments in Washington metropolitan area real estate and other business activities. 21 Management's Report on the Consolidated Financial Statements - ---------------------------------------- The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles and, with respect to its utility operations, the Uniform System of Accounts promulgated by the Federal Energy Regulatory Commission. The consolidated financial statements are the responsibility of management. The Company has established a system of internal accounting controls to provide reasonable, but not absolute, assurance as to the integrity of the consolidated financial statements. The system of internal controls is examined by management on a continuing basis for effectiveness and cost efficiency. The system is also reviewed on a regular basis by an internal audit staff which reports directly to the Chairman of the Board. The Company's independent accountants, Price Waterhouse, regularly evaluate the system of internal accounting controls and perform such tests and other procedures as it deems necessary to express an opinion on the fairness of the financial statements. The report of Price Waterhouse on its audits of the accompanying consolidated financial statements appears on this page. The report includes the accountants' opinion that the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries at December 31, 1993 and 1992, and the results of operations and cash flows for each of the three years in the period ended December 31, 1993. The consolidated financial statements have been reviewed by the Board of Directors of the Company. In addition, the Audit Committee of the Board of Directors, consisting of five outside directors, discusses accounting, auditing and financial reporting matters with management and Price Waterhouse on a regular basis and reviews the program of audit work performed by the internal audit staff. To ensure the auditors' independence, both Price Waterhouse and the internal audit staff have direct access to the Audit Committee. /s/ H. Lowell Davis Vice Chairman and Chief Financial Officer January 21, 1994 22 Report of Independent Accountants To the Shareholders and Board of Directors of Potomac Electric Power Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings and of cash flows present fairly, in all material respects, the financial position of Potomac Electric Power Company and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes 1 and 3 of the Notes to Consolidated Financial Statements, respectively, the Company changed its methods of accounting for income taxes and other postretirement benefits in 1993. As also discussed in Note 1, the Company changed its method of accounting for unbilled revenues in 1992. /s/ Price Waterhouse Washington, D.C. January 21, 1994 23 Consolidated Statements of Earnings Potomac Electric Power Company and Subsidiaries
- ------------------------------------------------------------------- - ------------------------------- For the year ended December 31, 1993 1992 1991 ---------------------------------------------- - ---------------------------------------------------- (Thousands of Dollars) Revenue (Note 2) Operating revenue $1,702,442 $1,562,167 $1,552,066 Interchange deliveries 22,763 39,391 67,249 ------- - --- ---------- ---------- Total Revenue 1,725,205 1,601,558 1,619,315 ---------- - ---------- ---------- Operating Expenses Fuel 354,282 345,549 387,061 Purchased energy 173,456 166,601 176,583 -------- - -- ---------- ---------- Fuel and purchased energy 527,738 512,150 563,644 Capacity purchase payments (Note 12) 96,288 95,481 94,798 Other operation 207,814 204,481 196,760 Maintenance 93,668 90,756 90,385 Depreciation and amortization 163,607 149,785 134,340 Income taxes (Note 4) 110,176 75,272 82,681 Other taxes (Note 5) 201,252 194,180 166,476 -------- - -- ---------- ---------- Total Operating Expenses 1,400,543 1,322,105 1,329,084 ---------- - - - --------- ----------Operating Income 324,662 279,453 290,231 ---------- ------- - --- ---------- Other Income Nonutility subsidiary (Note 14) Income 139,341 161,154 145,057 Expenses, including interest and income taxes (114,240) (132,993) (121,706) ------- - --- ---------- ---------- Net earnings from nonutility subsidiary 25,101 28,161 23,351 Allowance for other funds used during construction 13,242 16,089 13,514 Other, net 10,221 1,506 2,153 --------- - - ---------- ---------- Total Other Income 48,564 45,756 39,018 ---------- -- - -------- ----------Income Before Utility Interest Charges 373,226 325,209 329,249 ---------- -------- - -- ---------- Utility Interest Charges Interest on debt 141,393 138,097 138,512 Allowance for borrowed funds used during construction (9,746) (13,648) (19,427) ------- - --- ---------- ---------- Net Utility Interest Charges 131,647 124,449 119,085 ---------- - ---------- ---------- Income Before Cumulative Effect of Accounting Change 241,579 200,760 210,164 Cumulative Effect of Accounting Change for Unbilled Revenues (Net of Income Taxes of $9,458) (Note 1) - 16,022 - ---------- ---------- ----------Net Income 241,579 216,782 210,164 Dividends on Preferred Stock 16,255 14,392 12,298 ---------- ---- - ------ ----------Earnings for Common Stock $ 225,324 $ 202,390 $ 197,866 ========== ========== ========== Average Common Shares Outstanding (000s) 115,640 112,390 105,911 Earnings Per Common Share Before cumulative effect of accounting change $1.95 $1.66 $1.87 Cumulative effect of accounting change for unbilled revenues - .14 - ----- ----- ----- Total $1.95 $1.80 $1.87 ===== ===== ===== Cash Dividends Per Common Share $1.64 $1.60 $1.56
No material dilution would occur if all of the convertible preferred stock and debentures were converted into common stock. 24 Consolidated Balance Sheets Potomac Electric Power Company and Subsidiaries
- ------------------------------------------------------------------- - -------------------------- December 31, Assets 1993 1992 - ------------------------------------------------------------------- - -------------------------- (Thousands of Dollars) Property and Plant - at original cost (Notes 6 and 10) Electric plant in service $ 5,252,736 $ 5,014,281 Construction work in progress 373,665 314,855 Electric plant held for future use 33,644 34,766 Nonoperating property 5,096 3,722 ----------- ----------- 5,665,141 5,367,624 Accumulated depreciation (1,533,999) (1,436,367) ----------- -- - --------- Net Property and Plant 4,131,142 3,931,257 ----------- ----------- Current Assets Cash and cash equivalents 7,439 4,875 Customer accounts receivable, less allowance for uncollectible accounts of $2,748 and $2,409 100,973 86,857 Other accounts receivable, less allowance for uncollectible accounts of $300 53,454 37,040 Accrued unbilled revenues (Note 1) 71,497 66,628 Prepaid taxes 30,531 26,898 Other prepaid expenses 6,053 5,391 Material and supplies - at average cost Fuel 61,973 99,655 Construction and maintenance 70,262 77,089 ----------- - - - ---------- Total Current Assets 402,182 404,433 ----------- ----------- Deferred Charges Income taxes recoverable through future rates, net (Note 1) 233,431 - Other 233,573 143,072 ----------- -- - --------- Total Deferred Charges 467,004 143,072 ----------- ----------- Nonutility Subsidiary Assets Cash and cash equivalents 2,625 2,574 Marketable securities (Note 14) 466,153 397,183 Investment in finance leases (Note 14) 358,524 456,678 Operating lease equipment, net of accumulated depreciation of $85,302 and $55,981 (Note 14) 565,443 565,001 Receivables 84,726 74,151 Other investments 163,911 132,472 Other assets 23,750 35,449 ----------- --- - -------- Total Nonutility Subsidiary Assets 1,665,132 1,663,508 ----------- ----------- Total Assets $ 6,665,460 $ 6,142,270 =========== =========== 25
- ------------------------------------------------------------------- - -------------------------- December 31, Capitalization and Liabilities 1993 1992 -------------------------------------------------------------- - ------------------------------- (Thousands of Dollars) Capitalization Common equity (Note 7) Common stock, $1 par value - authorized 200,000,000 shares, issued 117,797,652 and 114,296,443 shares $ 117,798 $ 114,296 Premium on stock and other capital contributions 1,011,778 919,089 Capital stock expense (13,800) (13,267) Retained income 839,433 802,774 ----------- ----------- Total Common Equity 1,955,209 1,822,892 Preference stock, cumulative, $25 par value - authorized 8,800,000 shares, no shares issued or outstanding - -Serial preferred stock (Note 8) 125,442 125,489 Redeemable serial preferred stock (Note 9) 147,000 148,500 Long-term debt (Note 10) 1,589,621 1,579,109 ----------- ----------- Total Capitalization 3,817,272 3,675,990 ----------- ----------- Current Liabilities Long-term debt and preferred stock redemption due within one year 17,977 128,058 Short-term debt (Note 11) 294,615 61,600 Accounts payable and accrued payroll 137,321 130,034 Taxes accrued 25,840 27,342 Interest accrued 32,476 37,262 Customer deposits 22,296 21,832 Other 60,542 44,782 ----------- --- - -------- Total Current Liabilities 591,067 450,910 ----------- ----------- Deferred Credits Income taxes (Notes 1 and 4) 780,723 524,407 Investment tax credits (Note 4) 71,906 75,375 Other 28,916 28,814 ----------- ----------- Total Deferred Credits 881,545 628,596 ----- - ------ ----------- Nonutility Subsidiary Liabilities Long-term debt (Note 10) 1,027,705 888,526 Short-term notes payable (Note 11) 126,250 263,515 Deferred taxes and other (Note 4) 221,621 234,733 ----------- ----------- Total Nonutility Subsidiary Liabilities 1,375,576 1,386,774 ----------- ----------- Commitments and Contingencies (Note 12) Total Capitalization and Liabilities $ 6,665,460 $ 6,142,270 =========== =========== 26
Consolidated Statements of Cash Flows Potomac Electric Power Company and Subsidiaries
- ------------------------------------------------------------------- - ------------------------------------- For the year ended December 31, 1993 1992 1991 ------------------ - ------------------------------------------------------------------- - ------------------- (Thousands of Dollars) Operating Activities Income from utility operations $ 216,478 $ 188,621 $ 186,813 Adjustments to reconcile income to net cash from operating activities: Depreciation and amortization 163,607 149,785 134,340 Deferred income taxes and investment tax credits 27,711 43,414 15,170 Allowance for funds used during construction (22,988) (29,737) (32,941) Changes in materials and supplies 44,509 (11,144) 18,060 Changes in accounts receivable and accrued unbilled revenues (35,399) (46,483) (19,729) Changes in accounts payable (441) (5,716) (4,287) Changes in other current assets and liabilities 4,317 6,325 8,305 Changes in deferred conservation and energy use management costs (57,714) (26,421) (9,680) Net other operating activities (39,046) 7,872 (6,278) Nonutility subsidiary: Net earnings 25,101 28,161 23,351 Deferred income taxes (32,814) 1,055 13,778 Changes in other assets and net other operating activities 56,897 7,037 36,691 --------- - --------- ---------Net Cash From Operating Activities 350,218 312,769 363,593 ------ - --- --------- --------- Investing Activities Total investment in property and plant (322,951) (357,732) (432,143) Allowance for funds used during construction 22,988 29,737 32,941 --------- --------- --------- Net investment in property and plant (299,963) (327,995) (399,202) Nonutility subsidiary: Purchase of marketable securities (254,213) (266,696) (112,426) Proceeds from sale or redemption of marketable securities 194,295 195,752 130,609 Investment in leased equipment (32,360) (30,811) (538,291) Proceeds from sale or disposition of leased equipment 120,529 48,968 200,951 Purchase of other investments (44,628) (7,143) (17,928) Proceeds from sale or distribution of other investments - 42,513 8,222 Investment in promissory notes (1,628) - - - Proceeds from promissory notes 3,013 27,411 8,313 --------- --------- --- - ------Net Cash Used by Investing Activities (314,955) (318,001) (719,752) --------- -------- - - --------- Financing Activities Dividends on common stock (189,837) (179,823) (166,933) Dividends on preferred stock (16,255) (14,392) (12,298) Issuance of common stock 96,001 80,396 245,098 Issuance of preferred stock - 50,000 50,000 Redemption of preferred stock (1,500) (890) - Issuance of long-term debt 521,264 277,463 97,744 Reacquisition and retirement of long-term debt (628,448) (137,387) (11,651) Short-term debt, net 233,015 (25,200) (90,400) Other financing activities (26,199) (5,946) (1,709) Nonutility subsidiary: Issuance of long-term debt 363,653 242,637 399,127 Repayment of long-term debt (247,077) (274,991) (129,629) Short-term debt, net (137,265) (7,390) (22,495) --------- --- - ------ ---------Net Cash (Used by) From Financing Activities (32,648) 4,477 356,854 --------- --------- ---------Net Increase (Decrease) In Cash and Cash Equivalents 2,615 (755) 695 Cash and Cash Equivalents at Beginning of Year 7,449 8,204 7,509 --------- --------- -------- - -Cash and Cash Equivalents at End of Year (Note 13) $ 10,064 $ 7,449 $ 8,204 ========= ========= ========= 27
Notes to Consolidated Financial Statements - ------------------------------------------ (1) Summary of Significant Accounting Policies ------------------------------------------ The Company's utility operations are regulated by the Maryland and District of Columbia public service commissions and, as to its wholesale business, the Federal Energy Regulatory Commission (FERC). The Company complies with the Uniform System of Accounts prescribed by the FERC and adopted by the Maryland and District of Columbia regulatory commissions. In conformity with generally accepted accounting principles, the accounting policies and practices applied by the regulatory commissions in the determination of rates for utility operations are also employed for financial reporting purposes. A description of significant accounting policies follows. Principles of Consolidation - --------------------------- The consolidated financial statements combine the financial results of the Company and all majority-owned subsidiaries. The Company's principal subsidiary is Potomac Capital Investment Corporation (PCI). All material intercompany balances and transactions have been eliminated. Total Revenue - ------------- Effective January 1, 1992, the Company changed its method of revenue recognition to provide for the accrual of revenue for service rendered but unbilled as of the end of each month. Prior to 1992, revenues were recognized using the meters read method of accounting whereby annual revenues reflected 12 monthly meter readings for each customer. The new method was adopted to provide a better matching of revenues and expenses and to conform with the predominant practice within the utility industry. This change in the method of revenue recognition resulted in an increase in 1992 of approximately $16 million in net income or $.14 per common share. If the new accounting method had been in effect in 1991, net income would not have been materially different from that shown in the accompanying consolidated financial statements. This change in accounting method, which has no significant effect on revenue over a 12-month period, affects the timing of revenue recognition within the year, principally increasing revenues in the second quarter and decreasing revenues in the fourth quarter. 28 The Company includes in revenues the amounts received for sales to other utilities related to pooling and interconnection agreements. Amounts received for such interchange deliveries are a component of the Company's fuel rates. In each jurisdiction, the Company's rate schedules include fuel rates. The fuel rate provisions are designed to provide for separately stated fuel billings which cover applicable net fuel and interchange costs or changes in applicable net fuel and interchange costs from levels incorporated in base rates. Differences between applicable net fuel and interchange costs incurred and fuel rate revenues billed in any given period are accounted for as other current assets or other current liabilities in those cases where specific provision has been made by the appropriate regulatory commission for the resolution of such differences within one year. Where no such provision has been made, the differences are accounted for as other deferred charges or other deferred credits pending regulatory determination. Leasing Transactions - -------------------- Income from PCI investments in direct finance and leveraged lease transactions, in which PCI is an equity participant, is reported using the financing method. In accordance with the financing method, investments in leased property are recorded as a receivable from the lessee to be recovered through the collection of future rentals. For direct finance leases, unearned income is amortized to income over the lease term at a constant rate of return on the net investment. Income, including investment tax credits on leveraged equipment leases, is recognized over the life of the lease at a level rate of return on the positive net investment. PCI investments in equipment under operating leases are stated at cost less accumulated depreciation. Depreciation is recorded on a straight line basis over the equipment's estimated useful life. Property and Plant - ------------------ The cost of additions to, and replacements or betterments of, retirement units of property and plant is capitalized. Such cost includes material, labor, the capitalization of an Allowance for Funds Used During Construction (AFUDC) and applicable indirect costs, including engineering, supervision, payroll taxes and employee benefits. The original cost of depreciable units of plant retired, together with the cost of removal, net of salvage, is charged to accumulated depreciation. Routine repairs and maintenance are charged to operating expenses as incurred. 29 The Company uses separate depreciation rates for each electric plant account. The rates, which vary from jurisdiction to jurisdiction, were equivalent to a system-wide composite depreciation rate of approximately 3.1% for 1993 and 3% for 1992 and 1991. Conservation and Energy Use Management - -------------------------------------- In general, the Company accounts for energy conservation expenditures as a deferred charge, and amortizes the costs over five to ten years. District of Columbia conservation costs receive rate base treatment, with a capital cost recovery factor accrued on the unamortized balance in excess of amounts included in rate base. In Maryland, conservation costs are recovered currently through a surcharge included in base rates. Allowance for Funds Used During Construction - -------------------------------------------- In general, the Company capitalizes AFUDC with respect to investments in Construction Work in Progress with the exception of expenditures required to comply with federal, state or local environmental regulations (pollution control projects), which are included in rate base without capitalization of AFUDC. In 1992, pursuant to orders from both the Maryland and District of Columbia commissions, the Company commenced the accrual of a capital cost recovery factor on the retail jurisdictional portion of certain pollution control projects related to compliance with the Clean Air Act (CAA). The base for calculating this return is the amount by which the retail jurisdictional CAA expenditure balance exceeds the CAA balance included in rate base in the Company's most recently completed base rate proceeding. The jurisdictional AFUDC capitalization rates are determined as prescribed by the FERC. The effective capitalization rates were approximately 8.7% in 1993 and 9.1% in 1992 and 1991, compounded semiannually. Nonutility Subsidiary Receivables - --------------------------------- The Company's nonutility subsidiary uses the direct write-off method of accounting when a receivable is deemed to be uncollectible in lieu of an allowance for doubtful accounts. The amounts were not material. 30 Income Taxes - ------------ Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109 entitled "Accounting for Income Taxes" which, among other things, prohibits the use of net-of-tax accounting and requires the use of an asset and liability approach for financial reporting and accounting for deferred income taxes. Deferred taxes are being recorded for all temporary differences based upon currently enacted tax rates. The Company's utility net deferred tax liabilities totaled $789 million at December 31, 1993, of which $8.3 million was classified as a current liability. At December 31, 1993, the Company's nonutility subsidiary net deferred tax liability totaled $142.6 million. The adoption of SFAS No. 109 increased net income for the twelve months ended December 31, 1993 by $2.8 million which is reflected on the Consolidated Statements of Earnings in "Other, net." Certain provisions of SFAS No. 109 allow regulated enterprises to recognize regulatory assets and liabilities for income taxes to be recovered from or returned to customers in future rates. Accordingly, as of December 31, 1993, the Company has recorded additional deferred income taxes and a net regulatory asset of $233.4 million. No valuation allowance for deferred tax assets was required or recorded at December 31, 1993. 31 (2) Total Revenue ------------- The Company's retail service area includes all of the District of Columbia and major portions of Montgomery and Prince George's counties in suburban Maryland. The Company supplies electricity, at wholesale, under a contract with Southern Maryland Electric Cooperative, Inc. (SMECO), and also delivers economy energy to the Pennsylvania-New Jersey-Maryland Interconnection (PJM) of which the Company is a member. PJM is composed of eleven electric utilities which operate on a fully integrated basis. Total revenue for each year was comprised as shown below. - ----------------------------------------------------------------- 1993 1992 1991 ------------------------------------------------- Amount % Amount % Amount % - ----------------------------------------------------------------- (Thousands of Dollars) Residential $ 505,173 29.8 $ 432,797 27.8 $ 450,103 29.2 Commercial 791,357 46.6 748,550 48.1 724,039 46.9 U.S. Government 238,192 14.0 229,586 14.8 223,723 14.5 D.C. Government 53,551 3.2 49,815 3.2 48,009 3.1 Wholesale 108,162 6.4 95,350 6.1 96,697 6.3 ---------- ----- --------- ----- ---------- ----- Sales of electricity 1,696,435 100.0 1,556,098 100.0 1,542,571 100.0 ===== ===== ===== Other electric revenues 6,007 6,069 9,495 ---------- ---------- ---------- Operating revenue 1,702,442 1,562,167 1,552,066 Interchange deliveries 22,763 39,391 67,249 ---------- ---------- ---------- Total Revenue $1,725,205 $1,601,558 $1,619,315 ========== ========== ========== - ----------------------------------------------------------------- Sales of electricity include base rate revenues and fuel rate revenues. Fuel rate revenues were $487.9 million in 1993, $456.4 million in 1992 and $481.1 million in 1991. The Company's Maryland fuel rate is based on historical net fuel and interchange costs. The zero-based rate may not be changed without prior approval of the Maryland Public Service Commission. Application to the Commission for an increase in the rate may only be made when the currently calculated fuel rate, based on the most recent actual net fuel and interchange costs, 32 exceeds the currently effective fuel rate by more than 5%. If the currently calculated fuel rate is more than 5% below the currently effective fuel rate, the Company must apply to the Commission for a fuel rate reduction. The District of Columbia fuel rate is based upon an average of historical and projected net fuel and interchange costs and is adjusted monthly to reflect changes in such costs. Rates for service, at wholesale, to SMECO include a fuel adjustment charge based upon estimated applicable fuel and interchange costs for each billing month. The difference between the estimated costs and the actual applicable fuel and interchange costs incurred each month is reflected as an adjustment to the fuel rate in the succeeding month. Amounts received for interchange deliveries are a component of the Company's fuel rates. 33 (3) Pensions and Other Postretirement Benefits ------------------------------------------ The Company's General Retirement Program (Program), a noncontributory defined benefit program, covers substantially all full-time employees of the Company and its subsidiaries. The Program provides for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Company and their compensation rates for the three years preceding retirement. Annual provisions for accrued pension cost are based upon independent actuarial valuations. The Company's policy is to fund accrued pension costs. Pension expense included in net income was $13.7 million in 1993, $10.5 million in 1992 and $10.7 million in 1991. The net periodic pension cost was computed as follows. - ----------------------------------------------------------------- 1993 1992 1991 - ----------------------------------------------------------------- (Thousands of Dollars) Service cost-benefits earned $10,300 $ 9,100 $ 8,500 Interest cost on projected benefit obligation 25,100 23,500 22,000 Actual return on Program assets (24,300) (13,400) (28,500) Differences between actual and expected return on Program assets and net amortization 2,600 (8,700) 8,700 ------- ------- ------- Pension cost $13,700 $10,500 $10,700 ======= ======= ======= - ----------------------------------------------------------------- 34 Program assets are stated at fair value and were comprised of approximately 68% and 70% of cash equivalents and fixed income investments and the balance in equity investments at December 31, 1993 and 1992, respectively. The following table sets forth the Program's funded status and amounts recognized on the Consolidated Balance Sheets. - ----------------------------------------------------------------- 1993 1992 - ----------------------------------------------------------------- (Thousands of Dollars) Actuarial present value of benefit obligations: Program benefits: Vested benefits $(249,600) $(211,100) Nonvested benefits (35,300) (27,200) --------- --------- Accumulated benefit obligation $(284,900) $(238,300) ========= ========= Actuarial present value of projected benefit obligation $(358,600) $(293,000) Program assets at fair value 282,600 261,500 --------- --------- Projected benefit obligation in excess of Program assets (76,000) (31,500) Unrecognized actuarial loss 58,500 23,200 Unrecognized prior service cost 12,900 3,800 Unrecognized net obligation at January 1, 1987, being recognized over 18 years 400 400 --------- --------- Accrued pension liability $ (4,200) $ (4,100) ========= ========= - ----------------------------------------------------------------- The assumed weighted average discount rate and weighted average rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.75% and 5% in 1993 and 8.75% and 5% in 1992, respectively. The assumed long-term rate of return on Program assets was 9% in 1993 and 1992. In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees and inactive employees covered by disability plans. The health care plan pays stated percentages of most necessary medical expenses incurred by these employees, after subtracting payments by Medicare or other providers and after a stated deductible has been met. The life insurance plan pays benefits based on base salary at the time of retirement and age at the date of death. Participants become eligible for the benefits of these plans if they retire under the provisions of the Company's General Retirement Program with ten years of service or become inactive employees under the Company's disability plans. 35 Effective January 1, 1993, the Company adopted SFAS No. 106, entitled "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires "accrual basis" instead of "cash basis" accounting for postretirement health care and life insurance. The effect of this change in accounting was to decrease 1993 pre-tax income by $2.2 million. The Company is amortizing the unrecognized transition obligation measured at January 1, 1993 over a 20-year period. Postretirement benefit expense included in net income was $9.3 million in 1993. The cost of such benefits, recognized as an operating expense when paid, was $5 million in 1992 and $5.2 million in 1991. The 1993 postretirement expense includes the following components. (Thousands of Dollars) Service cost-benefits attributable to service during 1993 $ 2,500 Interest cost on accumulated postretirement benefit obligation 4,400 Actual return on Plan Assets (400) Amortization of transition obligation 2,800 ----------- Net postretirement benefit cost $ 9,300 =========== The accumulated postretirement benefit obligation is reconciled to the amount recognized in the Company's December 31, 1993 statement of financial position as follows. (Thousands of Dollars) Accumulated postretirement benefit obligation to Retirees and dependents $(29,700) Active employees fully eligible (10,300) Active employees not fully eligible (14,800) -------- Total accumulated postretirement benefit obligation (54,800) Plan assets at fair value 4,300 -------- Accumulated postretirement benefit obligation in excess of plan assets (50,500) Unrecognized transition obligation 47,700 Unrecognized actuarial loss 2,800 -------- Accrued postretirement benefit cost as of December 31, 1993 $ - ======== 36 The Company's SFAS No. 106 obligation at December 31, 1993 is based on a discount rate of 7.75% and a current health-care cost trend rate of 8.5% which declines to 5.5% after a six-year period. A one percentage point increase in the health-care cost trend rate would increase the Accumulated Postretirement Benefit Obligation by $2.3 million to approximately $57.1 million and postretirement expense by approximately $.4 million. In January 1993, the Company funded the 1993 portion of its estimated liability for post-retirement medical and life insurance costs through the use of an Internal Revenue Code (IRC) 401 (h) account, within the Company's pension plan, and an IRC 501 (c)(9) Voluntary Employee Beneficiary Association (VEBA). The Company plans to fund the 401(h) account and the VEBA annually. Assets were comprised of cash equivalents, fixed income investments and equity investments and the assumed return on plan assets is 9%. In July 1993, a new three-year Agreement between the Company and Local 1900 of the International Brotherhood of Electrical Workers was ratified by Union members. As a result of this Agreement, the Company will reduce the costs of its postretirement benefits by requiring all eligible employees who retire on or after January 1, 1994, to share in the cost of these benefits. These amendments have been reflected in 1993. The Company treats postretirement benefit costs as an operating expense and has not recorded a regulatory asset associated with these costs. The Company's Maryland tariff includes the cost of postretirement benefits. The District of Columbia Public Service Commission's decision is expected in February 1994. In November 1992, the Financial Accounting Standards Board (FASB) issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits," effective for fiscal years beginning after December 15, 1993. SFAS No. 112 requires the accrual of the expected cost of providing benefits to former or inactive employees after employment but before retirement. The Company is evaluating the effects of applying SFAS No. 112 and does not expect the statement to have a material effect on the Company's financial position or results of operation. 37 (4) Income Taxes ------------ The provision for income taxes charged to continuing operations, reconciliation of consolidated income tax expense and components of consolidated deferred tax liabilities (assets) are set forth below. Provisions for Income Taxes Charged to Continuing Operations ------ - ------------------------------------------------------
- ------------------------------------------------------------------- - -------------------------------- 1993 1992 1991 ---- - ------------------------------------------------------------------- - ---------------------------- (Thousands of Dollars) Utility current tax expense Federal $ 69,007 $ 50,900 $ 57,093 State and local 9,801 7,571 8,725 ------ - --- --------- ---------Total utility current tax expense 78,808 58,471 65,818 --------- --------- ---------Utility deferred tax expense Federal 26,784 26,584 15,046 State and local 5,100 4,682 3,375 Investment tax credits (3,469) (3,314) (3,251) --------- --------- --------- Total utility deferred tax expense 28,415 27,952 15,170 --------- --------- --------- Total utility income tax expense 107,223 86,423 80,988 --------- --------- --------- Nonutility subsidiary current tax expense Federal (13,022) 1,461 (14,029) --------- --------- --------- Nonutility subsidiary deferred tax expense Federal (31,360) 1,055 13,778 State and local (696) - - ------ - --- --------- ---------Total nonutility subsidiary deferred tax expense (32,056) 1,055 13,778 --------- --------- --------- Total nonutility subsidiary income tax expense (45,078) 2,516 (251) --------- --------- --------- Total consolidated income tax expense 62,145 88,939 80,737 Income taxes included in other income (48,031) 4,209 (1,944) Income taxes included in cumulative effect of accounting change - 9,458 - --------- --------- ---- - -----Income taxes included in utility operating expenses $ 110,176 $ 75,272 $ 82,681 ========= ========= ========= 38
Reconciliation of Consolidated Income Tax Expense - -------------------------------------------------
- ------------------------------------------------------------------- - -------------------------------- 1993 1992 1991 ---- - ------------------------------------------------------------------- - ---------------------------- (Thousands of Dollars) Income before income taxes (including cumulative effect of accounting change) $ 303,724 $ 305,721 $ 290,901 ========= ========= ========= Utility income tax at federal statutory rate $ 113,295 $ 93,515 $ 91,052 Increases (decreases) resulting from Depreciation 5,096 4,204 3,971 Removal costs (4,385) (5,109) (6,315) Allowance for funds used during construction (3,852) (4,854) (4,127) Other (6,477) (5,888) (7,954) State income taxes, net of federal effect 9,686 8,213 7,986 Tax credits (3,873) (3,658) (3,625) Cumulative effect of tax rate change (2,267) - - --------- --------- ---------Total utility income tax expense 107,223 86,423 80,988 --------- --------- --------- Nonutility subsidiary income tax at federal statutory rate (6,992) 10,430 7,854 Increases (decreases) resulting from Dividends received deduction (7,672) (6,750) (6,135) Reversal of previously accrued deferred taxes (35,904) - - Other (408) (1,164) (1,970) State income taxes, net of federal effect (696) - - - Cumulative effect of tax rate change 6,594 - - --------- --------- ---------Total nonutility subsidiary income tax expense (45,078) 2,516 (251) --------- --------- --------- Total consolidated income tax expense 62,145 88,939 80,737 Income taxes included in other income (48,031) 4,209 (1,944) Income taxes included in cumulative effect of accounting change - 9,458 - --------- --------- ---- - -----Income taxes included in utility operating expenses $ 110,176 $ 75,272 $ 82,681 ========= ========= =========
Components of Consolidated Deferred Tax Liabilities (Assets) ------ - ------------------------------------------------------ at December 31, 1993 (Thousands of Dollars) --------------------
Utility deferred tax liabilities (assets) Depreciation and other book to tax basis differences $ 672,625 Rapid amortization of certified pollution control facilities 31,090 Deferred taxes on amounts to be collected through future rates 88,787 Property taxes 10,218 Deferred fuel 4,644 Prepayment premium on debt retirement 11,215 Deferred ITC (27,435) Contributions in aid of construction (23,951) Other 21,825 --------- Total utility deferred tax liabilities (net) 789,018 Current portion of utility deferred tax liabilities (included in Other Current Liabilites) 8,295 ---------Total utility deferred tax liabilities (net) - noncurrent $ 780,723 ========= Nonutility subsidiary deferred tax liabilities (assets) Finance leases $ 130,833 Operating lease depreciation 114,134 Reversal of previously accrued taxes related to partnerships (16,969) Alternative minimum tax (75,610) Other (9,789) ---------Total nonutility subsidiary deferred tax liabilities (net), (included in Deferred taxes and other) $ 142,599 ========= 39
The Omnibus Budget Reconciliation Act of 1993, which was enacted on August 10, 1993, increased the federal corporate income tax rate from 34% to 35% for the periods beginning after December 31, 1992. The Tax Reform Act of 1986 repealed the Investment Tax Credit (ITC) for property placed in service after December 31, 1985, except for certain transition property. ITC previously earned on utility property continues to be normalized over the remaining service lives of the related assets. The Company and its subsidiaries file a consolidated federal income tax return. The Company's federal income tax liabilities for all years through 1991 have been finally determined. The Company is of the opinion that the final settlement of its federal income tax liabilities for subsequent years will not have a material adverse effect on its financial position. 40 (5) Other Taxes ----------- Taxes, other than income taxes, charged to utility operating expenses for each period are shown below. - ---------------------------------------------------------------- 1993 1992 1991 - ---------------------------------------------------------------- (Thousands of Dollars) Gross receipts $ 88,044 $ 81,266 $ 71,953 Property 58,193 55,965 52,938 Payroll 10,534 10,582 9,967 County fuel-energy 34,614 37,283 23,180 Environmental, use and other 9,867 9,084 8,438 -------- -------- -------- $201,252 $194,180 $166,476 ======== ======== ======== - ----------------------------------------------------------------- 41 (6) Jointly Owned Generating Facilities ----------------------------------- The Company owns a 9.72% undivided interest in the Conemaugh Generating Station located near Johnstown, Pennsylvania, consisting of two baseload units totaling 1,700 megawatts. The Company and other utilities own the station as tenants in common and share costs and output in proportion to their ownership shares. Each owner has arranged its own financing relating to its share of the facility. The Company's share of the operating expenses of the station is included in the Consolidated Statements of Earnings. The Company's investment in the Conemaugh facility of $67.1 million at December 31, 1993 and $51.8 million at December 31, 1992, includes $23.4 million and $11.6 million of Construction Work in Progress, respectively. The Conemaugh Generating Station is required to comply with certain provisions of the Clean Air Act by January 1, 1995. The construction of flue gas desulfurization equipment for both units began in 1992. The Company's share of the construction cost is approximately $38 million. 42 (7) Common Equity Changes in common stock, premium on stock and retained income are summarized below.
- ------------------------------------------------------------------- - -------------------- Common Stock Premium Retained Shares Par Value on Stock Income ---- - ------------------------------------------------------------------- - ---------------- (Thousands of Dollars) Balance, December 31, 1990 99,714,471 $ 99,714 $ 607,775 $ 739,236 Net income before net earnings from nonutility subsidiary - - - 186,813 Nonutility subsidiary: Net earnings - - - 23,351 Marketable equity securities valuation allowance, net of tax - - - 5,971 Dividends: Preferred stock - - - (12,298) Common stock - - - (166,933) Conversion of convertible debentures 370 - 10 - Conversion of preferred stock 10,581 11 81 - Sale of common stock through Shareholder Dividend Reinvestment Plan 1,571,880 1,572 33,285 - Issuance of common stock to Employee Savings Plans 382,595 383 7,903 - Sale of common stock through public offerings 9,425,900 9,426 192,529 - ---------- - - ---------- ---------- ----------Balance, December 31, 1991 111,105,797 111,106 841,583 776,140 Net income before net earnings from nonutility subsidiary - - - 188,621 Nonutility subsidiary: Net earnings - - - 28,161 Marketable equity securities valuation allowance, net of tax - - - 4,067 Dividends: Preferred stock - - - (14,392) Common stock - - - (179,823) Conversion of convertible debentures 2,220 2 58 - Conversion of preferred stock 22,318 22 169 - Gain on acquisition of preferred stock - - 24 - Other capital contributions - - - 25 - Sale of common stock through Shareholder Dividend Reinvestment Plan 1,787,724 1,788 42,414 - Issuance of common stock to Employee Savings Plans 378,384 378 9,028 - Sale of common stock through public offerings 1,000,000 1,000 25,788 - ---------- - - ---------- ---------- ----------Balance, December 31, 1992 114,296,443 114,296 919,089 802,774 Net income before net earnings from nonutility subsidiary - - - 216,478 Nonutility subsidiary: Net earnings - - - 25,101 Marketable equity securities valuation allowance, net of tax - - - 1,172 Dividends: Preferred stock - - - (16,255) Common stock - - - (189,837) Conversion of convertible debentures 3,480 4 93 - Conversion of preferred stock 5,534 6 42 - Loss on acquisition of preferred stock - - (24) - Other capital contributions - - - 69 - Sale of common stock through Shareholder Dividend Reinvestment Plan 1,638,227 1,638 42,655 - Issuance of common stock to Employee Savings Plans 362,468 362 9,277 - Sale of common stock through public offerings 1,491,500 1,492 40,577 - ---------- - - ---------- ---------- ----------Balance, December 31, 1993 117,797,652 $ 117,798 $1,011,778 $ 839,433 =========== ========== ========== ========== 43
During the period of July through October 1993, the Company sold 1,491,500 shares of Common Stock at an average price of $28.21 per share through a Continuous Offering Stock Program pursuant to a "shelf" registration statement filed with the Securities and Exchange Commission in June 1992. The Company's Shareholder Dividend Reinvestment Plan (DRP) provides that shares of common stock purchased through the plan may be original issue shares or, at the option of the Company, shares purchased in the open market. The DRP permits additional cash investments by plan participants limited to one investment per month of not less than $25 and not more than $5,000. As of December 31, 1993, 52,714 shares of common stock were reserved for issuance upon the conversion of convertible preferred stock, 2,771,633 shares for issuance upon the conversion of the 7% convertible debentures, 3,392,500 shares for issuance upon the conversion of the 5% convertible debentures, 2,838,420 shares for issuance under the DRP and 191,275 shares for issuance under the Employee Savings Plans. Certain provisions of the Company's corporate charter, relating to preferred and preference stock, would impose restrictions on the payment of dividends under certain circumstances. No portion of retained income was so restricted at December 31, 1993. 44 (8) Serial Preferred Stock ---------------------- The Company has authorized 11,211,044 shares of cumulative $50 par value Serial Preferred Stock. At December 31, 1993 and 1992, there were outstanding 5,461,038 shares and 5,491,986 shares, respectively. The various series of Serial Preferred Stock outstanding (excluding 2,952,200 shares of Redeemable Serial Preferred Stock - See Note 9) and the per share redemption price at which each series may be called by the Company are as follows. - ----------------------------------------------------------------- Redemption December 31, Price 1993 1992 - ----------------------------------------------------------------- (Thousands of Dollars) $2.44 Series of 1957, 300,000 shares $51.00 $15,000 $15,000 $2.46 Series of 1958, 300,000 shares $51.00 15,000 15,000 $2.28 Series of 1965, 400,000 shares $51.00 20,000 20,000 $3.82 Series of 1969, 500,000 shares $51.00 25,000 25,000 $2.44 Convertible Series of 1966, 8,838 and 9,786 shares, respectively $50.00 442 489 Auction Series A, 1,000,000 shares $50.00 50,000 50,000 -------- -------- $125,442 $125,489 ======== ======== - ----------------------------------------------------------------- The $2.44 Convertible Series of 1966 is convertible into common stock of the Company at a price based upon a formula that is subject to adjustment in certain events. At December 31, 1993, 5.88 shares of common stock could be obtained upon the conversion of each share of convertible preferred stock at the then effective conversion price of $8.51 per share of common stock. The number of shares of this series converted into common stock was 948 shares in 1993, 3,827 shares in 1992 and 1,804 shares in 1991. The estimated fair value of this series, based on quoted market prices was $1.4 million at December 31, 1993 and 1992. Dividends on the Serial Preferred Stock, Auction Series A, are cumulative and are based on the rate determined by auction procedures prior to each dividend period. The maximum rate can range from 110% to 200% of the applicable "AA" Composite Commercial Paper Rate. The annual dividend rate is 3.02% ($1.51) for the period December 1, 1993 through February 28, 1994. The average annual dividend rates were 2.8% ($1.40) in 1993 and 3.412% ($1.706) in 1992. The estimated fair value of this series at December 31, 1993 and 1992, was the carrying amount. 45 The estimated fair value at December 31, 1993 and 1992, for the remaining serial preferred stock (excluding the Redeemable Serial Preferred Stock) was $59.5 million and $55.7 million, respectively, based on current redemption prices and discounted cash flows using current rates for preferred stock with similar terms. (9) Redeemable Serial Preferred Stock --------------------------------- The outstanding series of $50 par value Redeemable Serial Preferred Stock are shown below. - ----------------------------------------------------------------- December 31, 1993 1992 - ----------------------------------------------------------------- (Thousands of Dollars) $3.37 Series of 1987, 952,200 and 982,200 shares, respectively $ 47,610 $ 49,110 $3.89 Series of 1991, 1,000,000 shares 50,000 50,000 $3.40 Series of 1992, 1,000,000 shares 50,000 50,000 -------- -------- 147,610 149,110 Redemption requirement due within one year (610) (610) -------- -------- $147,000 $148,500 ======== ======== - ---------------------------------------------------------------- The shares of the $3.37 (6.74%) Series are subject to mandatory redemption, at par, through the operation of a sinking fund. Beginning June 1993, not less than 30,000 nor more than 60,000 shares will be redeemed annually. The option to redeem in excess of 30,000 shares annually is not cumulative; however, shares which are acquired or redeemed by the Company other than through the operation of the sinking fund may, at the option of the Company, be applied toward the satisfaction of sinking fund requirements. Presently, the shares are callable for redemption at a per share price of $52.25, which is reduced in succeeding years, equaling par value beginning June 1, 2002. The shares of the $3.89 (7.78%) Series are subject to mandatory redemption, at par, through the operation of a sinking fund which will redeem not less than 165,000 nor more than 330,000 shares annually, beginning June 1, 2001 and 175,000 shares on June 1, 2006. The option to redeem in excess of 165,000 shares annually is not cumulative. The shares may be called for redemption at any time at a per share price of $53.89; however, the shares are not redeemable prior to June 1, 1996, through certain refunding operations. The redemption price is reduced in succeeding years, equaling $50.98 beginning June 1, 2003. 46 The shares of the $3.40 (6.80%) Series are subject to mandatory redemption, at par, through the operation of a sinking fund which will redeem 50,000 shares annually, beginning September 1, 2002 with the remaining shares redeemed on September 1, 2007. The shares are not redeemable prior to September 1, 2002; thereafter, the shares are redeemable at par. In the event of default with respect to dividends, or sinking fund or other redemption requirements relating to the serial preferred stock, no dividends may be paid, nor any other distribution made, on common stock. Payments of dividends on all series of serial preferred or preference stock, including series which are redeemable, must be made concurrently. The sinking fund requirements through 1998 with respect to the Redeemable Serial Preferred Stock are $.6 million in 1994 and $1.5 million annually thereafter. The estimated fair value of the Company's Redeemable Serial Preferred Stock was $164.1 million and $153.5 million based on quoted market prices at December 31, 1993 and 1992, respectively. 47 (10) Long-Term Debt Details of long-term debt are shown below.
- ------------------------------------------------------------------- - -----------------------------------Interest December 31, Rate Maturity 1993 1992 ----------------------------------- - ------------------------------------------------------------------- (Thousands of Dollars) First Mortgage Bonds Fixed Rate Series: 4-5/8% December 1, 1993 $ - $ 25,000 5-1/4% December 1, 1994 15,000 15,000 5% December 15, 1995 40,000 40,000 5-5/8% December 31, 1997 18,000 19,000 4-3/8% February 15, 1998 50,000 50,000 4-1/2% May 15, 1999 45,000 45,000 9% April 15, 2000 100,000 100,000 5-1/8% April 1, 2001 15,000 15,000 5-7/8% May 1, 2002 35,000 35,000 6-5/8% February 15, 2003 40,000 40,000 5-5/8% October 15, 2003 50,000 - 7-3/4% March 15, 2004 - 45,000 6-1/2% July 1, 2004 15,000 15,000 6-1/8% July 1, 2007 38,300 38,300 6-1/2% July 1, 2007 20,000 20,000 7-3/4% October 1, 2007 - 50,000 6-1/2% March 15, 2008 78,000 -5-7/8% October 15, 2008 50,000 -6-5/8% January 1, 2009 7,500 7,500 8-3/8% January 15, 2009 - 100,000 8-3/4% April 15, 2010 - - 37,000 9-1/4% March 1, 2016 - 75,000 8-3/4% November 15, 2016 - 75,000 8-1/4% March 1, 2017 - 75,000 9-3/4% May 1, 2019 43,000 75,000 8-5/8% August 15, 2019 63,000 75,000 9% June 1, 2021 100,000 100,000 6% September 1, 2022 30,000 30,000 6-3/8% January 15, 2023 37,000 -7-1/4% July 1, 2023 100,000 - -6-7/8% September 1, 2023 100,000 -6-7/8% October 15, 2024 75,000 -8-1/2% May 15, 2027 75,000 75,000 7-1/2% March 15, 2028 40,000 -Variable Rate Series: Adjustable rate December 1, 2001 50,000 50,000 ---------- -------- - -- Total First Mortgage Bonds 1,329,800 1,326,800 Convertible Debentures 5% September 1, 2002 115,000 115,000 7% January 15, 2018 68,834 70,376 Medium-Term Notes 8.61% to 8.72% October 15, 1993 - 100,000 9.08% July and August 1997 50,000 50,000 7.46% to 7.60% January 2002 40,000 40,000 7.64% January 17, 2007 35,000 35,000 ---------- ---------- Total Utility Long- Term Debt 1,638,634 1,737,176 Net unamortized discount (31,646) (30,619) Current portion (17,367) (127,448) ---------- ---------- Net Utility Long-Term Debt $1,589,621 $1,579,109 ========== ========== Nonutility Subsidiary Long-term Debt Varying rates through 2011 $1,027,705 $ 888,526 ========== ========== 48
Utility Long-Term Debt - ---------------------- The outstanding First Mortgage Bonds (bonds) are secured by a lien on substantially all of the Company's property and plant. Additional bonds may be issued under the mortgage as amended and supplemented in compliance with the provisions of the indenture. In January 1993, the Company issued $37 million of 6-3/8% First Mortgage Bonds due 2023, in conjunction with the sale at 99% by Prince George's County, Maryland, of a like amount of the County's Pollution Control Revenue Refunding Bonds. Proceeds were applied toward the redemption of the Company's $37 million 8-3/4% First Mortgage Bonds due 2010, at 102% of principal amount plus accrued interest, and a like amount of the County's Pollution Control Revenue Bonds. In February 1993, the Company sold, at 98.403%, $78 million of 6-1/2% First Mortgage Bonds due in 2008, and, at 99.385%, $40 million of 7-1/2% First Mortgage Bonds due in 2028. Proceeds from the sales were applied toward the March 1993 redemption, at 106.02% of principal amount plus accrued interest, of $75 million of 9-1/4% First Mortgage Bonds due in 2016. In June 1993, the Company sold, at 98.711%, $100 million of 7-1/4% First Mortgage Bonds due in 2023. A portion of the proceeds from the sale were applied to the August 1993 redemption, at 104.9% of principal amount plus accrued interest, of $75 million of 8-3/4% First Mortgage Bonds due in 2016. In August 1993, the Company sold, at 98.44%, $100 million of 6-7/8% First Mortgage Bonds due in 2023. Proceeds from the sale were applied to the September 1993 redemption, at 103.21% of principal amount plus accrued interest, of $100 million of 8-3/8% First Mortgage Bonds due in 2009. In September 1993, the Company sold, at 99.223%, $50 million of 5-5/8% First Mortgage Bonds due in 2003; at 98.968%, $50 million of 5-7/8% First Mortgage Bonds due in 2008; and, at 99.32%, $75 million of 6-7/8% First Mortgage Bonds due in 2024. Proceeds were applied to the November 1993 redemptions of $45 million of 7-3/4% First Mortgage Bonds due in 2004 at 102.1% of principal amount plus accrued interest, $50 million of 7-3/4% First Mortgage Bonds due in 2007 at 103.06% of principal amount plus accrued interest, and $75 million of 8-1/4% First Mortgage Bonds due in 2017 at 104.38% of principal amount plus accrued interest. On January 12, 1994, the Company sold, at par, $50 million of 6-1/4% Medium-Term Notes due in 2009 and, at 98.494%, $50 million of 7% Medium-Term Notes due in 2024. The notes were sold pursuant to a "shelf" registration statement filed with the Securities and Exchange Commission during September 1993, of which $225 million remains available. The interest rate on the $50 million Adjustable Rate series First Mortgage Bonds is adjusted annually on December 1, based upon 116% of the 10-year "constant maturity" United States Treasury bond rate for the preceding three-month period ended October 31. Effective December 1, 1993, the applicable interest rate is 6.657%. The applicable interest rate was 7.733% at 49 December 1, 1992 and 8.924% at December 1, 1991. The Bonds are nonredeemable prior to December 1, 1994. The estimated fair value of this bond series at December 31, 1993, based on the current market price was $54 million. The carrying value was considered to be the estimated fair value of this bond series at December 31, 1992. The 7% Convertible Debentures are convertible into shares of common stock at a conversion price of $27 per share. The 5% Convertible Debentures are convertible into shares of common stock at a conversion rate of 29-1/2 shares for each $1,000 principal amount. The aggregate amounts of maturities and sinking fund requirements for the Company's long-term debt outstanding at December 31, 1993 are $17.4 million in 1994, $44 million in 1995, $6 million in 1996, $56 million in 1997 and $50 million in 1998. The estimated fair value of the fixed rate First Mortgage Bonds, excluding amounts due within one year, in the aggregate, was $1.3 billion at December 31, 1993 and 1992; and the Convertible Debentures, excluding amounts due within one year, in the aggregate, was $177 million and $166 million, respectively. The estimated fair value at December 31, 1993 and 1992, was based on the current market price or for issues with no market price available, was based on discounted cash flows using current rates for bonds with similar terms and remaining maturities. At December 31, 1993 and 1992, the estimated fair value of the Medium-Term Notes, excluding amounts due within one year, in the aggregate, was $139 million and $132 million, respectively, based on discounted cash flows using current rates for notes with similar terms and remaining maturities. Nonutility Subsidiary Long-Term Debt - ------------------------------------ Long-term debt at December 31, 1993 consisted of $947.9 million of unsecured borrowings from institutional lenders maturing at various dates between January 1994 and July 2003. The interest rates of such borrowings ranged from 3.64% to 10.65%. The weighted average interest rate was 7.45% at December 31, 1993, 8.13% at December 31, 1992 and 8.9% at December 31, 1991. Annual aggregate principal repayments are $160.8 million in 1994, $181.8 million in 1995, $173.2 million in 1996, $103.8 million in 1997, $92.3 million in 1998 and $236 million thereafter. The remaining $79.8 million was non-recourse debt, $54.7 million of which was secured by aircraft currently under operating lease. The debt is payable in monthly installments at rates of LIBOR (London Interbank Offered Rate) plus 1.25% and LIBOR plus 1.375% with final maturity on March 15, 2002. The remaining non-recourse debt of $25.1 million is related to PCI's majority owned real estate partnerships of which $16.5 million is 50 due in consecutive monthly installments with maturity on February 28, 1994, at a floating rate of interest based on LIBOR plus 2%. The remaining non-recourse real estate debt consists of $8.6 million payable in monthly installments at a fixed rate of interest of 9.66% with final maturity on October 1, 2011. The estimated fair value of PCI's long-term debt, including non-recourse debt, was $1.1 billion and $925 million at December 31, 1993 and 1992, respectively, based on current rates offered to similar companies for debt with similar remaining maturities. 51 (11) Short-Term Debt --------------- The Company's short-term financing requirements have been satisfied principally through the sale of commercial promissory notes. The Company has $90 million in revolving credit agreements with a group of 11 banks and conventional bank line of credit agreements of $215.5 million with 21 banks to support its utility operations, all of which were unused during 1993, 1992 and 1991. Nonutility Subsidiary Short-Term Notes Payable - ---------------------------------------------- The nonutility subsidiary's short-term financing requirements have been satisfied principally through the sale of commercial promissory notes. The nonutility subsidiary maintains a minimum 100% line of credit back-up for its outstanding commercial promissory notes, all of which were unused during 1993, 1992 and 1991. 52 (12) Commitments and Contingencies ----------------------------- The Company leases its general office building and certain data processing and duplicating equipment, motor vehicles, communication system and construction equipment under long-term lease agreements. The lease of the general office building expires in 2002 and leases of equipment extend for periods of up to 6 years. Charges under such leases are accounted for as operating expenses or construction expenditures, as appropriate. Rents, including property taxes and insurance, net of rental income from subleases, aggregated approximately $13.6 million in 1993, $12.6 million in 1992 and $11.4 million in 1991. The approximate annual commitments under all leases, reduced by rentals to be received under subleases are $11.3 million in 1994, $8.8 million in 1995, $7 million in 1996, $4.7 million in 1997, $4.6 million in 1998 and a total of $19.5 million in the years thereafter. The Company's long-term capacity purchase agreements with Ohio Edison and APS commenced June 1, 1987 and are expected to continue at the 450 megawatt level through 2005. Under the terms of the agreement with Ohio Edison, the Company is required to make capacity payments, subject to certain contingencies, which include a share of Ohio Edison's fixed operating and maintenance cost. The approximate monthly capacity commitment under this agreement, excluding fixed operating and maintenance cost, was $12,380 per megawatt, per month, through 1993; increasing to $18,060 per megawatt, per month, effective January 1994 through 1998; and increasing to $25,620 per megawatt, per month, in 1999 through 2005. The Company began a 25-year purchase agreement in June 1990 with SMECO for 84 megawatts of capacity supplied by a combustion turbine installed and owned by SMECO at the Company's Chalk Point Generating Station. The Company is responsible for all costs associated with operating and maintaining the facility. The capacity payment to SMECO is approximately $462,000 per month. The Company was a defendant in employment discrimination litigation which was pending in the United States District Court for the District of Columbia. In February 1993, the parties to the case reached tentative settlement of the claims and, in April 1993, the Company paid $38.26 million into a trust fund pursuant to the terms of the agreement. The funds will be disbursed from the trust fund to certain covered classes of current and former employees and applicants for employment and to cover the plaintiffs' legal and expert fees and costs. The Court approved the settlement agreement effective July 1993. The Company received insurance payments of $13.5 million in October 1993 and $24 million in January 1994, bringing the total recovered from insurance companies to $37.5 million. At December 31, 1993, approximately $.8 million was charged to non-operating expense. 53 In August 1993, the Company was served with Amended Complaints filed in three jurisdictions (Prince George's County, Baltimore City, and Baltimore County), in separate ongoing, consolidated proceedings each denominated "In re: Personal Injury Asbestos Cases." The Company (and other defendants) were brought into these cases on a theory of premises liability under which plaintiffs argue that the Company was negligent in not providing a safe work environment for employees of its contractors who allegedly were exposed to asbestos while working on the Company's property. Initially, a total of approximately four hundred and forty-eight (448) individual plaintiffs added the Company to their Complaints. While the pleadings are not entirely clear, it appears that each plaintiff seeks $2 million in compensatory damages and $4 million in punitive damages from each defendant. In a related proceeding in the Baltimore City case, the Company was served, in September 1993, with a third party complaint by Owens Corning Fiberglass, Inc. (Owens Corning) alleging that Owens Corning was in the process of settling approximately 700 individual asbestos-related cases and seeking a judgment for contribution against the Company on the same theory of alleged negligence set forth above in the plaintiffs' case. Subsequently, Pittsburgh Corning Corp. (Pittsburgh Corning) filed a third party complaint against the Company, seeking contribution for the same plaintiffs involved in the Owens Corning third party complaint. Since the filings, a number of the individual suits have been disposed of without any payment by the Company. While the aggregate amount specified in the remaining suits would exceed $1 billion, the Company believes the amounts are greatly exaggerated as were the claims already disposed of. The amount of total liability, if any, and any related insurance recovery cannot be precisely determined at this time; however, based on information and relevant circumstances known at this time, the Company does not believe these suits will have a material adverse effect on its financial position. The Company is subject to contingencies associated with environmental matters, principally related to possible obligations to remove or mitigate the effects on the environment of the disposal of certain substances at the sites discussed below. During 1993, the Company participated with two other potentially responsible parties (PRPs) in a removal action at a site in Harmony, West Virginia pursuant to an Administrative Order (AO) issued by the Environmental Protection Agency (EPA). Approximately $3 million (of which the Company has paid one- third, subject to possible reallocation) was expended on the removal action, which the EPA has stated is in compliance with the AO. Approximately $1.9 million of this cost has now been recovered from third parties. EPA oversight costs, which are not expected to be material, have not yet been assessed. While compliance with the AO has been completed, the Company cannot determine whether it will be subject to any future liability with respect to this site. 54 The Company is currently participating with certain other PRPs in a Remedial Investigation/Feasibility Study (RI/FS) with respect to a site in Philadelphia, Pennsylvania. Pursuant to an agreement among the participating PRPs, the Company is responsible for 12% of the costs of the RI/FS. Total costs of the RI/FS, including legal fees, are currently estimated to be $6.5 million. The Company has paid $548,000 to date. The Company cannot estimate the extent of the EPA's administrative and oversight costs or the expense associated with a remedy ultimately acceptable to the EPA with respect to this site. The Company is involved in other legal and administrative (including environmental) proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Management is of the opinion that the final disposition of these proceedings will not have a material adverse effect on the Company's financial position or results of operations. 55 (13) Supplemental Cash Flow Information ---------------------------------- Listed below is supplemental disclosure of cash flow information. - ----------------------------------------------------------------- 1993 1992 1991 - ----------------------------------------------------------------- (Thousands of Dollars) Cash paid for: Interest, net of capitalized interest (including nonutility subsidiary interest of $76,556, $86,917 and $71,636) $206,955 204,657 181,311 Income taxes $ 67,741 52,764 59,318 Nonutility subsidiary noncash transactions: Promissory note received in exchange for equipment $ - 10,000 - Property transferred to partnership $ - - 84,356 Consolidation of majority-owned subsidiaries $ 35,320 - - - ----------------------------------------------------------------- For purposes of the consolidated financial statements, cash and cash equivalents include cash on hand, money market funds and commercial paper with maturities of three months or less. 56 (14) Selected Nonutility Subsidiary Financial Information ---------------------------------------------------- Selected financial information of the Company's principal consolidated nonutility investment subsidiary, Potomac Capital Investment Corporation (PCI) and its subsidiaries, is presented below. The Company's equity investment in PCI, which was reduced by a $14 million dividend in 1993 and a $12 million dividend in 1992, was $290.9 million and $278.6 million at December 31, 1993 and 1992, respectively. - ----------------------------------------------------------------- For the year ended December 31, 1993 1992 1991 - ----------------------------------------------------------------- (Thousands of Dollars) Income Leasing activities $114,226 $122,087 $128,714 Marketable securities 38,417 37,062 21,095 Other (13,302) 2,005 (4,752) -------- -------- -------- 139,341 161,154 145,057 -------- -------- -------- Expenses Interest 77,861 86,156 80,269 Administrative and general 14,640 9,762 14,021 Depreciation and operating 66,817 34,559 27,667 Income tax expense (45,078) 2,516 (251) -------- -------- -------- 114,240 132,993 121,706 -------- -------- -------- Net earnings from nonutility subsidiary $ 25,101 $ 28,161 $ 23,351 ======== ======== ======== 57 Marketable Securities - --------------------- At December 31, 1993, marketable securities consist primarily of preferred stocks with mandatory redemption features and corporate debt securities. Preferred stocks with mandatory redemption features and corporate debt securities are generally carried at cost and amortized cost, respectively. PCI has both the ability and intent to hold these securities until maturity. Certain of these securities which PCI believes have been permanently impaired have been carried at estimated net realizable value. Equity securities have been carried at the lower of cost or market and any unrealized losses thereon are recognized, net of tax, in common equity. At December 31, 1992, the cost of equity securities exceeded the carrying value by approximately $1.8 million. - ----------------------------------------------------------------- December 31, 1993 1992 - ----------------------------------------------------------------- (Thousands of Dollars) Carrying Market Carrying Market Value Value Value Value --------- -------- -------- -------- Mandatory redeemable preferred stock $465,034 $472,633 $365,029 $374,428 Debt securities 1,116 518 3,223 1,622 Equity securities 3 - 28,931 28,931 -------- -------- -------- -------- Total $466,153 $473,151 $397,183 $404,981 ======== ======== ======== ======== - ----------------------------------------------------------------- Net recognized gains or losses from marketable securities amounted to gains of $7 million and $7.5 million in 1993 and 1992, respectively, and a loss of $7.7 million in 1991. In May 1993, the FASB issued SFAS No. 115 entitled "Accounting for Certain Investments in Debt and Equity Securities," which will become effective for fiscal years beginning after December 15, 1993. The Company is evaluating the effects of applying SFAS No. 115 and does not expect implementation to have a material impact on the results of operations. 58 Investment in Finance Leases - ---------------------------- PCI's net investment in finance leases consists primarily of direct finance leases and are summarized below. - ----------------------------------------------------------------- December 31, 1993 1992 - ----------------------------------------------------------------- (Thousands of Dollars) Rents receivable $419,284 $601,084 Estimated residual values 155,187 162,646 Less: Unearned and deferred income (215,947) (307,052) -------- -------- Investment in finance leases 358,524 456,678 Less: Deferred taxes arising from finance leases (130,833) (167,555) -------- -------- Net investment in finance leases $227,691 $289,123 ======== ======== - ----------------------------------------------------------------- Minimum lease payments receivable from finance leases, primarily aircraft, for each of the years 1994 through 1998 are $29.5 million, $30.6 million, $29.4 million, $27.1 million and $31.2 million, respectively. Net income from leveraged leases was $1.1 million in 1993, $7.1 million in 1992 and $2.5 million in 1991. Operating Lease Equipment - ------------------------- Rent payments receivable from aircraft equipment operating leases for each of the years 1994 through 1998 are $51.8 million in 1994, $48.1 million in 1995, $46.6 million in 1996, $43.9 million in 1997 and $34.7 million in 1998. 59 (15) Quarterly Financial Summary (Unaudited)
- ------------------------------------------------------------------- - -------------------------------------------------- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total -- - ------------------------------------------------------------------- - ------------------------------------------------ (Thousands of Dollars except Per Share Data) 1993 Operating Revenue $ 331,236 416,152 610,540 344,514 1,702,442 Total Revenue $ 339,455 419,693 614,261 351,796 1,725,205 Operating Expenses $ 302,833 332,796 442,306 322,608 1,400,543 Operating Income $ 36,622 86,897 171,955 29,188 324,662 Net Income $ 13,044 77,022 144,671 6,842 241,579 Earnings for Common Stock $ 8,931 72,974 140,631 2,788 225,324 Earnings Per Common Share $ .08 .63 1.21 0.02 1.95 Dividends Per Share $ .41 .41 .41 .41 1.64 1992 Operating Revenue $ 321,119 381,294 544,753 315,001 1,562,167 Total Revenue $ 325,946 390,536 553,631 331,445 1,601,558 Operating Expenses $ 296,616 320,874 405,903 298,712 1,322,105 Operating Income $ 29,330 69,662 147,728 32,733 279,453 Income Before Cumulative Effect of Accounting Change $ 8,049 49,159 122,804 20,748 200,760 Cumulative Effect of Accounting Change, Net of Income Taxes $ 16,022 - - - 16,022 Net Income $ 24,071 49,159 122,804 20,748 216,782 Earnings for Common Stock $ 20,667 45,839 119,243 16,641 202,390 Earnings Per Common Share Before Cumulative Effect of Accounting Change $ .04 .41 1.06 .15 1.66 Cumulative Effect of Accounting Change $ .14 - - - .14 Total $ .18 .41 1.06 .15 1.80 Dividends Per Share $ .40 .40 .40 .40 1.60 1991 Operating Revenue $ 289,522 361,063 562,710 338,771 1,552,066 Total Revenue $ 311,342 374,466 572,317 361,190 1,619,315 Operating Expenses $ 285,775 308,992 418,973 315,344 1,329,084 Operating Income $ 25,567 65,474 153,344 45,846 290,231 Net Income $ 6,943 42,755 132,923 27,543 210,164 Earnings for Common Stock $ 4,253 40,047 129,463 24,103 197,866 Earnings Per Common Share $ .04 .38 1.21 .22 1.87 Dividends Per Share $ .39 .39 .39 .39 1.56
The Company's sales of electric energy are seasonal and, accordingly, comparisons by quarter within a year are not meaningful. The total of the four quarterly earnings per share may not equal the earnings per share for the year due to changes in the number of common shares outstanding during the year. 60 Stock Market Information
- ------------------------------------------------------------------- - ----------------------------------------------------------1993 High Low 1992 High Low ---------------------- - ------------------------------------------------------------------- - ------------------------------------ 2nd Quarter $27-3/8 $25-5/8 2nd Quarter $26 $23 3rd Quarter $28-7/8 $27-1/8 3rd Quarter $27-1/2 $25-1/8 4th Quarter $28-3/4 $24-5/8 4th Quarter $26-3/4 $22-5/8 (Close $26-3/4) (Close $23-7/8) Shareholders at December 31, 1993: 98,892 - ------------------------------------------------------------------- - ----------------------------------------------------------
Selected Consolidated Financial Data
- ------------------------------------------------------------------- - ---------------------------------------------------------- 1993 1992 1991 1990 1989 1988 1983 -------------------- - ------------------------------------------------------------------- - -------------------------------------- (Thousands except Per Share Data) Operating Revenue $1,702,442 1,562,167 1,552,066 1,411,713 1,394,909 1,349,811 1,169,729 Total Revenue $1,725,205 1,601,558 1,619,315 1,501,728 1,531,024 1,411,630 1,308,735 Operating Expenses $1,400,543 1,322,105 1,329,084 1,245,579 1,256,553 1,138,667 1,091,617 Net Earnings from Nonutility Subsidiary $ 25,101 28,161 23,351 5,035 31,100 27,938 181 Income Before Cumulative Effect of Accounting Change $ 241,579 200,760 210,164 170,234 214,587 211,073 140,051 Cumulative Effect of Accounting Change, Net of Income Taxes $ - 16,022 - - - - - Net Income $ 241,579 216,782 210,164 170,234 214,587 211,073 140,051 Earnings for Common Stock $ 225,324 202,390 197,866 159,636 205,352 201,832 123,805 Average Common Shares Outstanding 115,640 112,390 105,911 98,621 95,203 94,450 93,135 Earnings Per Common Share Before Cumulative Effect of Accounting Change $ 1.95 1.66 1.87 1.62 2.16 2.14 1.33 Cumulative Effect of Accounting Change $ - .14 - - - - - Total $ 1.95 1.80 1.87 1.62 2.16 2.14 1.33 Cash Dividends Per Common Share $ 1.64 1.60 1.56 1.52 1.46 1.38 0.89 Investment in Property and Plant $5,665,141 5,367,624 5,048,121 4,659,280 4,270,718 3,945,739 3,043,236 Net Investment in Property and Plant $4,131,142 3,931,257 3,706,866 3,397,992 3,097,532 2,857,006 2,282,748 Utility Assets $5,000,328 4,478,762 4,174,713 3,852,415 3,528,883 3,267,465 2,732,394 Nonutility Subsidiary Assets $1,665,132 1,663,508 1,679,079 1,387,247 1,113,827 878,990 30,195 Total Assets $6,665,460 6,142,270 5,853,792 5,239,662 4,642,710 4,146,455 2,762,589 Long-Term Utility Obligations (including redeemable preferred and preference stock) $1,736,621 1,727,609 1,662,157 1,516,073 1,286,429 1,243,490 1,133,621 - ------------------------------------------------------------------- - ---------------------------------------------------------- 61
Appendix A 1. The 1993 Use of Revenue pie chart presents the following information. Fuel and Purchased Energy 31% Wages and Benefits 10 Materials and Services 5 Capacity Purchase Payments 6 Taxes 17* Depreciation and Amortization 9* Interest 8* Preferred Stock Dividends 1* Common Stock Dividends 11* Retained Income 2* --- 100% === *Plant-Related Costs Appendix A 2. The Cooling Degree Hours bar chart presents the following information. % of 20-Year Average ------- 1989 94% 1990 85% 1991 123% 1992 62% 1993 122% Appendix A 3. The System Fuel Costs line chart presents the following information. Year Coal Oil Gas System ---- ------ ----- ----- ------ 1984 $1.85 $4.88 - $2.21 1985 $1.83 $4.50 - $2.22 1986 $1.74 $3.07 $2.76 $1.92 1987 $1.64 $2.97 $2.69 $1.81 1988 $1.67 $2.74 $2.32 $1.84 1989 $1.69 $2.78 $2.52 $1.95 1990 $1.77 $3.00 $2.34 $1.94 1991 $1.78 $2.76 $2.18 $1.93 1992 $1.72 $2.50 $2.32 $1.85 1993 $1.72 $2.55 $2.88 $1.90 Appendix A 4. The Construction Expenditures bar chart presents the following information. Construction Expenditures Total Construction (excluding AFUDC and Clean Air Act Expenditures Clean Air Act) Expenditures (excluding AFUDC) -------------------- ------------- ------------------ Actual: 1989 $329 - $329 1990 393 - 393 1991 391 $ 8 399 1992 298 30 328 1993 237 63 300 Forecast: 1994 226 64 290 1995 244 36 280 1996 215 25 240 1997 177 33 210 1998 200 45 245 EX-21 11 SUBSIDIARIES OF REG. SUB. TO VOTE OF SEC. HOLDERS Exhibit 21 Subsidiaries of the Registrant - ---------- ------------------------------ The Company has two wholly owned nonutility investment subsidiary companies, Potomac Capital Investment Corporation and PEPCO Enterprises, Inc., (PEI) both of which were incorporated in Delaware in 1983. Subsidiaries of PEI and Columbia Gas System, Inc. have formed the Cove Point joint venture partnership discussed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." EX-23 12 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23 Consent of Independent Accountants - ---------- ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Number 33-36798) and to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Forms S-3 (Numbers 33-48524, 33-58810, and 33-50377) of Potomac Electric Power Company of our report dated January 21, 1994 appearing in the Annual Report to shareholders which is also incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Consolidated Financial Statement Schedules, which appears under Item 14 (d) of this Form 10-K. /s/ Price Waterhouse Washington, D.C. March 25, 1994 Report of Independent Accountants on Consolidated - ------------------------------------------------- Financial Statement Schedules - ----------------------------- January 21, 1994 To the Board of Directors of Potomac Electric Power Company Our audits of the consolidated financial statements referred to in our report dated January 21, 1994 appearing in the 1993 Annual Report to shareholders of Potomac Electric Power Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the consolidated financial statement schedules listed in Item 14(a) of this Form 10-K. In our opinion, these consolidated financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse Washington, D.C. -----END PRIVACY-ENHANCED MESSAGE-----