-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KtDjOwHszO8yESBOn6MljXrhqiTb6VJk9mZwgfZFDLJJtMo4GIjczNn/1mjB3Dw+ DQXQ2iFj05tBrKtBUXPuzw== 0000079732-97-000026.txt : 19970506 0000079732-97-000026.hdr.sgml : 19970506 ACCESSION NUMBER: 0000079732-97-000026 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970502 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970505 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POTOMAC ELECTRIC POWER CO CENTRAL INDEX KEY: 0000079732 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 530127880 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01072 FILM NUMBER: 97594964 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 8-K 1 CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 8-K CURRENT REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) May 2, 1997 POTOMAC ELECTRIC POWER COMPANY (Exact name of registrant as specified in its charter) District of Columbia and Virginia 1-1072 53-0127880 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation) File Number) 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) 872-3526 (Former Name or Former Address, if Changed Since Last Report) PEPCO Form 8-K Item 5. Other Events. Exhibits 99.1 and 99.2 attached hereto are hereby incorporated by reference. Item 7. Financial Statements and Exhibits. (c) Exhibits Exhibit No. Description of Exhibit Reference 99.1 News Release of Potomac Electric Power Company and Baltimore Gas and Electric Company dated May 2, 1997........Filed herewith. 99.2 Letter of Potomac Electric Power Company and Baltimore Gas and Electric Company dated May 2, 1997................Filed herewith. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Potomac Electric Power Company (Registrant) By /s/ D. R. WRAASE Dennis R. Wraase Senior Vice President and Chief Financial Officer May 5, 1997 DATE -2- EX-99 2 PRESS RELEASE [BGE logo here] [PEPCO logo here] N E W S R E L E A S E ======================================================================== FOR IMMEDIATE RELEASE Contact: Art Slusark (BGE) 410-234-7436 May 2, 1997 Nancy Moses (PEPCO) 202-872-2680 BGE/PEPCO File Application for Rehearing of Maryland Public Service Commission's Merger Order Baltimore Gas and Electric Company (BGE) and Potomac Electric Power Company (PEPCO) today officially filed an Application for Rehearing of Maryland Public Service Commission Order 73405. Issued on April 16, the order approved the merger of the two companies to form Constellation Energy Corporation, but imposed conditions that eliminated any reasonable opportunity for shareholders of the new company to share in the merger benefits. In their application the companies detailed areas of the order that need to be revised for the merger to proceed. BGE and PEPCO proposed a modified plan to address these concerns. The highlights of this modified plan include: - - a $26 million rate reduction for Constellation Energy's Maryland customers upon completion of the merger, followed by a four-year base-rate freeze; - - a comprehensive surcharge that permits full cost recovery of power purchase contracts the Commission has previously approved; - - a synergy sharing mechanism that splits merger benefits on a 50/50 basis between customers and investors, allowing further customer rate reductions if the new company's operations result in additional savings; and - - recovery of merger costs over the four-year, base-rate freeze period for synergy sharing purposes. -- more -- PAGE 2-2-2 "We believe that the fundamental objectives of our merger can be achieved with this revised regulatory framework, and that the proposed merger still offers tremendous benefits to customers and shareholders of BGE and PEPCO," said BGE's Christian H. Poindexter and PEPCO's Edward F. Mitchell, Chairmen of the Boards and CEOs of the two companies. "We are hopeful that the Maryland Public Service Commission will agree this modified regulatory plan provides an equitable sharing of the savings arising from the creation of Constellation Energy. These modifications to the PSC's order, combined with a similar regulatory approval from the District of Columbia, will allow us to proceed with the merger on solid financial ground." -- ### -- (To view a copy of BGE and PEPCO's complete Application for Rehearing, visit the News & Information page on the BGE website at www.bge.com) EX-99 3 LETTER TO FINANCIAL COMMUNITY [BGE logo here] [PEPCO logo here] May 2, 1997 To the Financial Community: Baltimore Gas and Electric Company and Potomac Electric Power Company remain committed to their proposed merger to form Constellation Energy Corporation. We are encouraged that we recently received unanimous unconditional approval for the merger from the Federal Energy Regulatory Commission. However, much work remains to be done to obtain an acceptable final approval from the Maryland Public Service Commission for our proposed merger to proceed. We are also awaiting an order from the District of Columbia Public Service Commission. Among our goals in creating Constellation Energy Corporation was to provide substantial benefits to customers and shareholders of BGE and Pepco. We have stated from the outset that we could not proceed with our merger unless the regulatory approvals provided for an equitable sharing of the savings that will result from the creation of Constellation Energy Corporation. Our stance on this critical issue is unwavering - we cannot go forward with our merger unless shareholders of BGE and Pepco have a reasonable opportunity to share the benefits of this merger with customers in the District of Columbia and Maryland. The Maryland Public Service Commission recently agreed with us that the creation of Constellation Energy Corporation through the merger of BGE and Pepco was in the public interest. However, the Commission's Order contained several key provisions which must be revised in order for the merger to proceed. The fundamental problem with the Maryland Commission's Order is that it does not provide an equitable sharing of the benefits of the merger between shareholders and customers. This inequity results from the combined impacts of: - a large up-front rate reduction, - denial of recovery of the costs associated with two previously-approved purchased power contracts, and - imposition of a series of earnings tests that imperil recovery of other operating costs, including the costs for a third purchased power contract which begins in 1998. In order to simplify and expedite the process, BGE and Pepco have streamlined their Application for Reconsideration of Maryland Public Service Commission Order 73405 to challenge only those components of the Order which directly imperil our proposed merger. While we disagree with various other provisions contained in the Order, we will not challenge these less critical issues at the present time so as to minimize the required revisions to the Maryland Commission's Order. There are three key changes to Maryland Public Service Commission Order 73405 that BGE and Pepco need for the merger to proceed: 1. The Order must provide for an equitable sharing of the benefits of the merger between customers and shareholders. We are requesting that the Maryland Commission adopt the companies' proposal for 50/50 sharing of the merger benefits. The Commission Order currently provides customers with an up-front rate reduction based on 75% of the merger benefits going to customers. While BGE and Pepco's original proposal provided for a customer refund at the end of the year in order to share the merger benefits, we have modified our proposal in order to provide an up-front customer rate reduction of $26 million based on a 50/50 split of the net merger savings. In addition, we remain committed to sharing additional money with our electric customers at the end of each year by sharing equally any dollars above the level necessary to achieve an 11.9% return on equity. While this threshold for synergy sharing is 50 basis points higher than the Maryland Commission's recommended return on equity of 11.4%, it represents a significant reduction from the 13% threshold used by the companies in their original application. 2. BGE and Pepco must be granted the opportunity to recover the costs associated with three existing purchased capacity contracts. These previously-approved contracts represent significant future outlays for BGE and Pepco, and failure to provide for recovery of these costs as a condition of the merger is extremely detrimental to the companies' shareholders. 3. All supplemental earnings tests proposed by the Maryland Commission must be replaced by the comprehensive Synergy Sharing Mechanism proposed by the companies. As noted above, the companies have substantially reduced the return on equity that serves as a threshold for sharing under this mechanism from 13% to 11.9%. The companies believe that this concession dramatically improves the potential customer benefits of our proposal and eliminates the need for the supplemental earnings tests proposed by the Maryland Commission. In their Application for Reconsideration, BGE and Pepco have extended the rate freeze period from three years to four years. This extended rate freeze period would begin with the effective date of the merger. This will further improve the customer benefits stemming from the creation of Constellation Energy Corporation while providing a reasonable sharing of these benefits with Constellation shareholders. A comparative summary of the Maryland Commission's Order and the original and revised requests of BGE and Pepco follows on the next page. We are hopeful that the Maryland Public Service Commission will agree with us that our modified regulatory plan provides an equitable sharing of the cost savings arising from the creation of Constellation Energy Corporation. These modifications to the Commission's Order, combined with a similar regulatory approval from the District of Columbia, will allow us to proceed with the merger on solid financial ground. We believe that the fundamental objectives of our merger can be achieved with this revised regulatory framework, and that the proposed merger still offers tremendous benefits to customers and shareholders of BGE and Pepco. However, we are firmly committed to protecting the interests of our shareholders, and we will not be able to proceed with the merger unless the regulatory approvals conform to our fundamental requirement that shareholders have a reasonable opportunity to share in the expected benefits of the merger. You may download a copy of the BGE/Pepco Application for Reconsideration to the Maryland Public Service Commission by visiting BGE's Website at http://www.bge.com. Please direct any questions to the following BGE and Pepco personnel: BGE Pepco David A. Brune Dennis R. Wraase Vice President, Finance & Accounting, Senior Vice President and Chief Financial Officer and Secretary Chief Financial Officer (410) 234-5511 (202) 872-2695 Kevin J. Miller Peyton G. Middleton Director - Financial Planning Manager - Investor Relations (410) 234-5434 (202) 872-2797 Comparative Summary of Key Provisions (All Dollars in Millions) BGE/Pepco Filing
Application for MPSC Order Original Reconsideration Up-Front Rate Reduction $56 $0 $26 (75% of savings) (SSM giveback at year-end) (50/50 Sharing) Base Rate Freeze 3 years January 1, 2000 4 years (From merger date) (Approximately 2.5 years) (From merger date) Purchased Capacity Surcharge None for Panda and Ohio Surcharge for all MPSC Surcharge for all MPSC (Approx. $100 million combined annual Edison contracts approved contracts approved contracts increase by 1999 in Maryland and the District of Columbia in purchased capacity costs) Surcharge subject to No earnings tests No earnings tests earnings test Return on Equity Threshold for 11.4% 13% 11.9% Synergy Sharing Mechanism (SSM) Cost to Achieve Reflected in 5 years for employee 3 years 4 years Calculation for SSM Purposes termination costs, 10 years (Rate Freeze Period) (Rate Freeze Period) for all other costs
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