-----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, Npz+p/tpe+A7FnJYfQW7HvRN+IICU1lnTLmW60GCVtlpaJZw0RcPMQ5pGzRt5l7L RDTDWLvkjj6Qdv/MJ0i7KA== 0000008192-95-000059.txt : 19951121 0000008192-95-000059.hdr.sgml : 19951121 ACCESSION NUMBER: 0000008192-95-000059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19951116 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC ENERGY INC CENTRAL INDEX KEY: 0000806393 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 222871471 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09760 FILM NUMBER: 95594371 BUSINESS ADDRESS: STREET 1: 6801 BLACK HORSE PIKE CITY: PLEASANTVILLE STATE: NJ ZIP: 08232 BUSINESS PHONE: 6096454500 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC CITY ELECTRIC CO CENTRAL INDEX KEY: 0000008192 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 210398280 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03559 FILM NUMBER: 95594372 BUSINESS ADDRESS: STREET 1: 6801 BLACK HORSE PIKE CITY: PLEASANTVILLE STATE: NJ ZIP: 08232 BUSINESS PHONE: 6096454100 MAIL ADDRESS: STREET 1: PO BOX 1264 CITY: PLEASANTVILLE STATE: NJ ZIP: 08232 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (x) Quarterly Report Pursuant to Section 13 OR 15 (d) of The Securities Exchange Act of 1934 For Quarter ended September 30, 1994 ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission Registrant; State of Incorporation; IRS Employer File No. Address; and Telephone No. Identification No. 1-9760 Atlantic Energy, Inc. 22-2871471 (New Jersey) 6801 Black Horse Pike Pleasantville, NJ 08232 (609) 645-4500 1-3559 Atlantic City Electric Company 21-0398280 (New Jersey) P.O. Box 1264 6801 Black Horse Pike Pleasantville, NJ 08232 (609) 645-4100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date: Atlantic Energy, Inc. 54,376,945 (as of November 14, 1994) All of the outstanding shares of Common Stock of Atlantic City Electric Company are owned by Atlantic Energy, Inc. Part I. Financial Information Item 1. Financial Statements CONSOLIDATED STATEMENT OF INCOME Thousands of Dollars Quarter Ended September 30, 1994 1993 (unaudited) Operating Revenues-Electric $272,708 $268,883 Operating Expenses: Energy 67,714 45,243 Purchased Capacity 30,171 29,457 Operations 40,197 43,552 Maintenance 9,136 9,341 Depreciation and Amortization 18,351 15,840 State Excise Taxes 24,695 26,160 Federal Income Taxes 21,400 28,136 Other Taxes 2,613 2,574 Total Operating Expenses 214,277 200,303 Operating Income 58,431 68,580 Other Income: Allowance for Equity Funds Used During Construction 975 396 Other-Net 5,334 3,073 Total Other Income 6,309 3,469 Interest Charges: Interest on Long Term Debt 14,243 15,446 Other Interest Expense 645 311 Total Interest Charges 14,888 15,757 Allowance for Borrowed Funds Used During Construction (780) (357) Net Interest Charges 14,108 15,400 Less Preferred Stock Dividend Requirements of Subsidiary 4,309 4,320 Net Income $ 46,323 $ 52,329 Average Number of Shares of Common 54,353 53,034 Stock Outstanding (in thousands) Per Common Share: Earnings $ .85 $ .99 Dividends Declared $ .385 $ .385 Dividends Paid $ .385 $ .385 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS Thousands of Dollars Year-to-Date September 30, 1994 1993 (unaudited) Operating Revenues-Electric $710,629 $665,078 Operating Expenses: Energy 158,581 120,589 Purchased Capacity 97,840 84,118 Operations 115,419 118,773 Maintenance 27,184 26,820 Depreciation and Amortization 55,117 51,558 State Excise Taxes 75,786 78,120 Federal Income Taxes 43,394 45,240 Other Taxes 8,737 8,453 Total Operating Expenses 582,058 533,671 Operating Income 128,571 131,407 Other Income: Allowance for Equity Funds Used During Construction 2,697 1,592 Other-Net 9,512 8,373 Total Other Income 12,209 9,965 Interest Charges: Interest on Long Term Debt 42,862 44,368 Other Interest Expense 1,024 1,623 Total Interest Charges 43,886 45,991 Allowance for Borrowed Funds Used During Construction (2,018) (1,132) Net Interest Charges 41,868 44,859 Less Preferred Stock Dividend Requirements of Subsidiary 12,928 13,096 Net Income 85,984 83,417 Retained Earnings at Beginning of Period 256,549 242,768 342,533 326,185 Dividends Declared on Common Stock (62,581) (60,746) Capital Stock Expense and Other - (170) Retained Earnings at End of Period $279,952 $265,269 Average Number of Shares of Common Stock Outstanding (in thousands) 54,082 52,721 Per Common Share: Earnings $1.59 $1.58 Dividends Declared $1.155 $1.150 Dividends Paid $1.155 $1.145 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS Thousands of Dollars Quarter Ended September 30, 1994 1993 (unaudited) Cash Flows Of Operating Activities: Net Income $ 46,323 $ 52,329 Deferred Purchased Power Costs 3,880 3,489 Deferred Energy Costs 10,882 (7,800) Depreciation and Amortization 18,351 15,840 Deferred Income Taxes-Net (6,045) 7,366 Prepaid State Excise Taxes 24,695 25,024 Net Decrease in Other Working Capital 10,604 20,935 Preferred Stock Dividend Requirements of Subsidiary 4,309 4,320 Other-Net (4,721) (648) Net Cash Provided by Operating Activities 108,278 120,855 Cash Flows Of Investing Activities: Utility Cash Construction Expenditures (26,540) (27,742) Leased Property (1,452) (3,987) Nuclear Decommissioning Trust Fund Deposits (1,606) (1,606) Utility Plant Removal Costs (2,082) 1,315 Other-Net 4,243 (1,840) Net Cash Used by Investing Activities (27,437) (33,860) Cash Flows Of Financing Activities: Proceeds from Long Term Debt - 249,879 Retirement and Maturity of Long Term Debt (11,029) (207,760) Decrease in Short Term Debt (23,700) (60,500) Proceeds from Capital Lease Obligations 1,452 3,987 Proceeds from Common Stock Issued 81 4,097 Dividends Declared on Preferred Stock (4,309) (4,320) Dividends Declared on Common Stock (20,870) (16,886) Other-Net (759) (393) Net Cash Used by Financing Activities (59,134) (31,896) Net Increase in Cash and Temporary Investments 21,707 55,099 Cash and Temporary Investments, beginning of period 16,657 21,791 Cash and Temporary Investments, end of period $ 38,364 $ 76,890 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS Thousands of Dollars Year-to-Date September 30, 1994 1993 (unaudited) Cash Flows Of Operating Activities: Net Income $ 85,984 $ 83,417 Deferred Purchased Power Costs 11,170 10,461 Deferred Energy Costs (11,919) (7,059) Depreciation and Amortization 55,117 51,558 Deferred Income Taxes 18,099 24,652 Prepaid State Excise Taxes (61,724) (61,006) Net Increase in Other Working Capital (19,457) (175) Preferred Stock Dividend Requirements of Subsidiary 12,928 13,096 Other-Net (5,407) (720) Net Cash Provided by Operating Activities 84,791 114,224 Cash Flows Of Investing Activities: Utility Cash Construction Expenditures (79,592) (86,031) Leased Property (3,925) (5,000) Nuclear Decommissioning Trust Fund Deposits (4,818) (4,818) Utility Plant Removal Costs (3,585) (1,448) Other-Net (253) (8,595) Net Cash Used by Investing Activities (92,173) (105,892) Cash Flows Of Financing Activities: Proceeds from Long Term Debt 22,693 460,686 Retirement and Maturity of Long Term Debt (36,023) (370,439) Increase (Decrease) in Short Term Debt 40,400 (14,600) Proceeds from Capital Lease Obligations 3,925 5,000 Proceeds from Common Stock Issued 9,917 11,626 Dividends Declared on Preferred Stock (12,928) (13,096) Dividends Declared on Common Stock (55,000) (50,293) Other-Net (873) (5,973) Net Cash (Used)Provided by Financing Activities (27,889) 22,911 Net (Decrease)Increase in Cash and Temporary Investments (35,271) 31,243 Cash and Temporary Investments, beginning of period 73,635 45,647 Cash and Temporary Investments, end of period $ 38,364 $ 76,890 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET Thousands of Dollars September 30, December 31, 1994 1993 (unaudited) ASSETS Electric Utility Plant: In Service $2,270,833 $2,193,656 Less Accumulated Depreciation 713,163 668,832 Net 1,557,670 1,524,824 Construction Work in Progress 149,417 156,590 Land Held for Future Use 6,949 6,901 Leased Property-Net 38,544 45,268 Electric Utility Plant-Net 1,752,580 1,733,583 Nonutility Property and Investments: Investment in Leveraged Leases 78,005 77,268 Nuclear Decommissioning Trust Fund 49,750 43,163 Nonutility Property and Equipment-Net 15,043 14,535 Other Investments and Funds 25,336 18,102 Total Nonutility Property and Investments 168,134 153,068 Current Assets: Cash and Temporary Investments 38,364 73,635 Accounts Receivable: Utility Service 64,980 51,502 Miscellaneous 9,041 11,420 Allowance for Doubtful Accounts (3,300) (3,000) Unbilled Revenues 36,141 39,309 Fuel (at average cost) 25,933 14,635 Materials and Supplies (at average cost) 28,142 28,230 Working Funds 14,678 14,315 Prepaid State Excise Taxes 27,592 8,386 Other Prepayments 7,041 7,410 Deferred Energy Costs 19,099 7,180 Deferred Income Taxes 2,261 3,283 Total Current Assets 269,972 256,305 Deferred Debits: Unrecovered Purchased Power Costs 119,288 130,458 Recoverable Future Federal Income Taxes 85,854 85,855 Unrecovered State Excise Taxes 76,224 33,706 Unamortized Debt Costs 38,464 39,306 Property Abandonment Costs-Net 9,633 10,325 Other Regulatory Assets 36,201 31,380 Other 20,917 13,522 Total Deferred Debits 386,581 344,552 Total Assets $2,577,267 $2,487,508 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET Thousands of Dollars September 30, December 31, 1994 1993 (unaudited) LIABILITIES AND CAPITALIZATION Capitalization: Common Shareholders' Equity: Common Stock $ 596,941 $ 579,443 Retained Earnings 279,952 256,549 Total Common Shareholders' Equity 876,893 835,992 Preferred Stock of Atlantic Electric: Not Subject to Mandatory Redemption 40,000 40,000 Subject to Mandatory Redemption 173,750 173,750 Long Term Debt 753,980 766,101 Total Capitalization (excluding current portion) 1,844,623 1,815,843 Current Liabilities: Cumulative Preferred Stock Redemption Requirement 12,250 12,250 Capital Lease Obligations 911 861 Short Term Debt 40,400 - Accounts Payable 51,897 63,847 Taxes Accrued 41,114 16,020 Interest Accrued 15,464 22,149 Dividends Declared 25,236 24,910 Other Customer Deposits 2,952 2,890 Other 15,735 21,875 Total Current Liabilities 205,959 164,802 Deferred Credits and Other Liabilities: Deferred Income Taxes 402,303 383,347 Deferred Investment Tax Credits 52,280 54,180 Capital Lease Obligations 37,633 44,407 Other 34,469 24,929 Total Deferred Credits and Other Liabilities 526,685 506,863 Total Liabilities and Capitalization $2,577,267 $2,487,508 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Atlantic Energy, Inc. (the Company) is a public utility holding company. Its principal subsidiary is Atlantic City Electric Company (ACE), an electric utility. Other subsidiaries of the Company, which are nonutility companies, are Atlantic Generation, Inc. (AGI), ATE Investment, Inc. (ATE), Atlantic Southern Properties, Inc. (ASP), Atlantic Energy Technology, Inc. (AET), and Atlantic Thermal Systems, Inc., (ATS). The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations of the nonutility companies are not significant and are classified under Other Income in the Consolidated Statement of Income. These consolidated financial statements reflect all normal, recurring adjustments and accruals which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements presented. The notes to the consolidated financial statements accompanying the Company's 1993 Annual Report to Shareholders and on Form 10- K filed with the Securities and Exchange Commission should be read in conjunction with this report. Note 1 of these annual reports specifically identifies the significant accounting policies of the Company. The consolidated balance sheet contained in the financial statements presented herein that is labeled December 31, 1993 was derived from the audited consolidated balance sheet presented in the 1993 Annual Report to Shareholders and Form 10-K. 2. The components of Federal Income Tax expense are as follows (in thousands of dollars): Quarter Ended September 30, 1994 1993 (unaudited) Current $29,685 $21,743 Deferred (6,095) 7,340 Investment Tax Credits Recognized on Leverage Leases - (2) Total Federal Income Tax Expense 23,590 29,081 Less Amounts Included in Other Income 2,190 945 Federal Income Taxes Included in Operating Expenses $21,400 $28,136 A reconciliation of the expected Federal income taxes compared to the reported Federal Income Tax expense computed by applying the statutory rate follows: Tax Computed at the Statutory Rate of 35% $25,978 $30,006 Utility Plant Basis Differences 113 106 Investment Tax Credits (634) (636) Deferred Tax Adjustments - (197) Other-Net (1,867) (198) Total Federal Income Tax Expense $23,590 $29,081 Effective Federal Income Tax Rate 32% 34% Year-to-Date September 30, 1994 1993 (unaudited) Current $28,479 $21,654 Deferred 18,104 23,509 Investment Tax Credits Recognized on Leverage Leases - (25) Total Federal Income Tax Expense 46,583 45,138 Less Amounts Included in Other Income 3,189 (102) Federal Income Taxes Included in Operating Expenses $43,394 $45,240 Tax Computed at the Statutory Rate of 35% $50,923 $49,578 Utility Plant Basis Differences 1,347 1,789 Investment Tax Credits (1,901) (1,926) Deferred Tax Adjustments (375) (2,575) Other-Net (3,411) (1,728) Total Federal Income Tax Expense $46,583 $45,138 Effective Federal Income Tax Rate 32% 32% Certain prior year reconciliation amounts have been reclassified to conform to the current year reporting. 3. On February 8, 1994, ACE filed a petition with the New Jersey Board of Public Utilities (BPU) requesting an increase in Levelized Energy Clause (LEC) revenues of $63 million for the period June 1, 1994 through May 31, 1995. The increase is due primarily to the costs to be incurred from the purchase of 388 megawatts of capacity and energy from two new independent power producers scheduled to begin commercial operation during the 1994/1995 LEC period. Incorporated into the requested amount is utilization of $56 million of current base rate revenue associated with a utility power purchase contract that expired on May 31, 1994, and the Southern New Jersey Economic Initiative, a voluntary rate reduction by ACE of $28 million over the LEC period designed to keep its rates competitive. On June 27, 1994, ACE filed a motion requesting an interim increase in LEC revenues in order to avoid the effects of rate compression on customers. On July 19, 1994 the BPU approved a provisional increase in annual LEC revenues of $55 million effective July 26, 1994. On September 9, 1994, the Administrative Law Judge issued its Initial Decision that recommends an increase in annual LEC revenues of approximately $54 million. On October 12, 1994, the BPU extended the time period by which it must render its decision. Presently, the BPU is expected to render its final decision with regard to the LEC increase in December 1994. On June 23, 1994, the BPU approved a stipulation to allow casino customers to take service under existing commercial base rate schedules. Prior to BPU approval, casino customers were served under the Hotel Casino Service (HCS) rate schedule, the highest rate for service of all ACE's service classes. Effective July 1, 1994, all casino customers began taking service under the AGS-TOU, or Annual General Service-Time of Use, rate schedule which could reduce annual base rate revenues by approximately $6.7 million. Original estimates of annual base rate revenue reductions of $5 million were based on the Transmission General Service rate schedule. Effective July 25, 1994, the Hotel Casino Service tariffs were no longer offered as tariffs for electric service. Pursuant to a February 18, 1994 ruling supporting the investigation of the "double recovery" of capacity costs from nonutility generation projects, the BPU issued its written Order dated September 16, 1994. The Order confirms the establishment of a generic proceeding to review the utility power purchase cost recovery methodology and ordered this matter be transferred to the Office of Administrative Law for evidenciary hearings. The BPU ordered that this matter be reviewed in a two phase proceeding. The scope of the issues to be resolved during the first phase of the proceeding will include: 1) the determination of the existence, or lack of existence, of the double recovery as a result of the traditional LEC pass-through of nonutility generation capacity costs; 2) the quantification of any such double recovery found to exist for each utility for the relevant periods; and 3) a determination of an appropriate remedy or adjustment if and when such double recovery is found to occur and the periods of time over which such an adjustment would be applicable. Following the conclusion of the first phase of the proceeding, the BPU, in the second phase, will render a final decision regarding the specific findings of the Office of Administrative Law and address the broader issues relating to the appropriate prospective purchased power cost recovery methods. ACE cannot estimate the impact that the double recovery issue may have on future rates. The Ratepayer Advocate has not proposed a standard methodology for quantifying the double recovery issue. 4. During the third quarter of 1994, ACE acquired and retired $10.5 million principle amount of 9-1/4% First Mortgage Bonds due 2019. The aggregate cost of these redemptions was $409,000, net of related Federal income taxes. At September 30, 1994, ACE had outstanding $40.4 million of short term debt with maturities of one to four months. ACE's Cumulative Preferred Stock and long term debt securities are not widely held and generally trade infrequently. The estimated aggregate fair market value at September 30, 1994 is approximately $214.1 million and $685.5 million, respectively. The estimated aggregate fair market value at September 30, 1994 of ATE's senior notes was approximately $14.7 million. 5. As of September 30, 1994 and December 31, 1993, 54,355,137 and 53,506,786 shares of common stock were outstanding, respectively. Shares issued during 1994 were through the Dividend Reinvestment and Stock Purchase Plan and ACE employee benefit plans. On October 27, 1994, the Company's Board of Directors authorized the acquisition of up to 3 million shares or approximately 5.5% of its outstanding common stock. Under the plan, the Company will retire these shares. There is no schedule or specific share price target associated with the acquisition program. 6. ACE has been identified as one of a number of responsible parties at two sites which are the subject of clean-up and remediation activity. The first site involves a property in Gloucester County, New Jersey. Notwithstanding the joint and several liability imposed by law, sufficient discovery has been conducted to establish that the contribution of ACE to the clean-up and remediation activity would be in the lower tiers of financial participation. Primary responsibility will be apportioned among others, including the Federal and State agencies and private parties. This matter is pending in the Federal court. ACE is a member of a joint defense group in that proceeding. The second site involves a sanitary landfill in Atlantic County, New Jersey which is the subject of an Administrative Consent Order (ACO) which has been executed and delivered to the New Jersey Department of Environmental Protection (NJDEP) by ACE and at least four other identified potentially responsible parties. A remedy, which will include a soil cover of the site, has been developed and will be implemented. While ACE is subject to joint and several liability pursuant to the terms of the ACO, ACE has joined with three other parties to implement the terms of the ACO. Recovery will be pursued against those persons who were named as potentially responsible parties who do not execute and deliver the ACO and against other persons not named by the NJDEP. ACE's responsibility for such claims is not expected to exceed $1,000,000 in the aggregate. ACE believes that insurance coverage should be available to satisfy any amounts in excess of the self-insured limits associated with these particular claims. 7. A contract with a large industrial concern whereby ACE delivered process steam, water and by-product electricity was terminated by the concern effective June 30, 1994. The steam and electricity needs of this concern is now being provided by a nonutility cogeneration facility. ACE received approximately $4 million from this concern in 1993 for these services. In addition, ACE also received approximately $8 million from sales of energy to this concern in 1993. By terms of the termination agreement, the industrial concern is to make certain payments to ACE over a period of time, and ACE must also perform certain activities. As a result of this termination agreement, ACE received $4.2 million in cash proceeds and recognized again of $2.4 million net of tax in other income. CONSOLIDATED STATEMENT OF INCOME Thousands of Dollars Quarter Ended September 30, 1994 1993 (unaudited) Operating Revenues-Electric $272,769 $268,927 Operating Expenses: Energy 67,714 45,243 Purchased Capacity 30,171 29,457 Operations 40,346 43,731 Maintenance 9,158 9,365 Depreciation and Amortization 18,351 15,840 State Excise Taxes 24,695 26,160 Federal Income Taxes 21,400 28,136 Other Taxes 2,613 2,574 Total Operating Expenses 214,448 200,506 Operating Income 58,321 68,421 Other Income: Allowance for Equity Funds Used During Construction 975 396 Miscellaneous Income-Net 4,491 2,060 Total Other Income 5,466 2,456 Interest Charges: Interest on Long Term Debt 14,243 15,446 Other Interest Expense 645 311 Total Interest Charges 14,888 15,757 Allowance for Borrowed Funds Used During Construction (780) (357) Net Interest Charges 14,108 15,400 Net Income 49,679 55,477 Less Preferred Dividend Requirements 4,309 4,320 Balance Available for Common Shareholder $ 45,370 $ 51,157 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS Thousands of Dollars Year-to-Date September 30, 1994 1993 (unaudited) Operating Revenues-Electric $710,765 $665,161 Operating Expenses: Energy 158,581 120,589 Purchased Capacity 97,840 84,118 Operations 115,860 119,304 Maintenance 27,249 26,891 Depreciation and Amortization 55,117 51,558 State Excise Taxes 75,786 78,120 Federal Income Taxes 43,394 45,240 Other Taxes 8,737 8,453 Total Operating Expenses 582,564 534,273 Operating Income 128,201 130,888 Other Income: Allowance for Equity Funds Used During Construction 2,697 1,592 Miscellaneous Income-Net 8,416 6,510 Total Other Income 11,113 8,102 Interest Charges: Interest on Long Term Debt 42,862 44,368 Other Interest Expense 1,024 1,623 Total Interest Charges 43,886 45,991 Allowance for Borrowed Funds Used During Construction (2,018) (1,132) Net Interest Charges 41,868 44,859 Net Income 97,446 94,131 Retained Earnings at Beginning of Period 256,961 246,883 354,407 341,014 Dividends Declared: Cumulative Preferred Stock 12,928 13,096 Common Stock 62,581 60,746 Total Dividends Declared 75,509 73,842 Capital Stock Expense - (193) Retained Earnings at End of Period $278,898 $266,979 Earnings for Common Stock: Net Income $ 97,446 $ 94,131 Less Preferred Dividend Requirements 12,928 13,096 Balance Available for Common Shareholder $ 84,518 $ 81,035 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS Thousands of Dollars Quarter Ended September 30, 1994 1993 (unaudited) Cash Flows Of Operating Activities: Net Income $ 49,679 $ 55,477 Deferred Purchased Power Costs 3,880 3,489 Deferred Energy Costs 10,882 (7,800) Depreciation and Amortization 18,351 15,840 Deferred Federal Income Taxes-Net (6,977) 6,574 Prepaid State Excise Taxes 24,695 25,024 Net Decrease in Other Working Capital 10,758 21,056 Other-Net (1,932) 1,966 Net Cash Provided by Operating Activities 109,336 121,626 Cash Flows Of Investing Activities: Cash Construction Expenditures (26,540) (27,742) Leased Property (1,452) (3,987) Nuclear Decommissioning Trust Fund Deposits (1,606) (1,606) Plant Removal Costs (2,082) 1,315 Other-Net 5,060 (2,964) Net Cash Used by Investing Activities (26,620) (34,984) Cash Flows Of Financing Activities: Proceeds from Long Term Debt - 249,879 Retirement and Maturity of Long Term Debt (11,029) (207,760) Decrease in Short Term Debt (23,700) (60,500) Proceeds from Capital Lease Obligations 1,452 3,987 Dividends Declared on Preferred Stock (4,309) (4,320) Dividends Declared on Common Stock (20,928) (20,459) Other-Net (1,920) (393) Net Cash Used by Financing Activities (60,434) (39,566) Net Increase in Cash and Temporary Investments 22,282 47,076 Cash and Temporary Investments, beginning of period 13,631 8,892 Cash and Temporary Investments, end of period $ 35,913 $ 55,968 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS Thousands of Dollars Year-to-Date September 30, 1994 1993 (unaudited) Cash Flows Of Operating Activities: Net Income $ 97,446 $ 94,131 Deferred Purchased Power Costs 11,170 10,461 Deferred Energy Costs (11,919) (7,059) Depreciation and Amortization 55,117 51,558 Deferred Federal Income Taxes 16,201 20,864 Prepaid State Excise Taxes (61,724) (61,006) Net (Increase)Decrease in Other Working Capital (20,202) 2,334 Other-Net (2,168) 3,952 Net Cash Provided by Operating Activities 83,921 115,235 Cash Flows Of Investing Activities: Cash Construction Expenditures (79,592) (86,031) Leased Property (3,925) (5,000) Nuclear Decommissioning Trust Fund Deposits (4,818) (4,818) Plant Removal Costs (3,585) (1,448) Other-Net 3,782 (5,224) Net Cash Used by Investing Activities (88,138) (102,521) Cash Flows Of Financing Activities: Proceeds from Long Term Debt 22,693 460,686 Retirement and Maturity of Long Term Debt (36,023) (360,316) Increase(Decrease) in Short Term Debt 40,400 (14,600) Proceeds from Capital Lease Obligations 3,925 5,000 Capital Contributions 25,270 991 Dividends Declared on Preferred Stock (12,928) (13,096) Dividends Declared on Common Stock (62,581) (60,746) Other-Net (869) (5,974) Net Cash (Used)Provided by Financing Activities (20,113) 11,945 Net (Decrease)Increase in Cash and Temporary Investments (24,330) 24,659 Cash and Temporary Investments, beginning of period 60,243 31,309 Cash and Temporary Investments, end of period $ 35,913 $ 55,968 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET Thousands of Dollars September 30, December 31, 1994 1993 (unaudited) ASSETS Electric Utility Plant: In Service $2,270,833 $2,193,656 Less Accumulated Depreciation 713,163 668,832 Net 1,557,670 1,524,824 Construction Work in Progress 149,417 156,590 Land Held for Future Use 6,949 6,901 Leased Property-Net 38,544 45,268 Electric Utility Plant-Net 1,752,580 1,733,583 Nonutility Property and Investments: Nuclear Decommissioning Trust Fund 49,750 43,163 Other Property, Investments and Funds 1,297 1,297 Total Nonutility Property and Investments 51,047 44,460 Current Assets: Cash and Temporary Investments 35,913 60,243 Accounts Receivable: Utility Service 64,980 51,502 Miscellaneous 9,596 10,940 Allowance for Doubtful Accounts (3,300) (3,000) Unbilled Revenues 36,141 39,309 Fuel (at average cost) 25,933 14,635 Materials and Supplies (at average cost) 28,142 28,230 Working Funds 14,678 14,313 Prepaid State Excise Taxes 27,592 8,386 Other Prepayments 6,889 7,196 Deferred Energy Costs 19,099 7,180 Deferred Income Taxes 2,122 2,945 Total Current Assets 267,785 241,879 Deferred Debits: Unrecovered Purchased Power Costs 119,288 130,458 Recoverable Future Federal Income Taxes 85,854 85,855 Unrecovered State Excise Taxes 76,224 33,706 Unamortized Debt Costs 38,358 39,185 Property Abandonment Costs-Net 9,633 10,325 Other Regulatory Assets 36,201 31,380 Other 20,031 12,753 Total Deferred Debits 385,589 343,662 Total Assets $2,457,001 $2,363,584 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET Thousands of Dollars September 30, December 31, 1994 1993 (unaudited) LIABILITIES AND CAPITALIZATION Capitalization: Common Shareholder's Equity: Common Stock $ 54,963 $ 54,963 Premium on Capital Stock 231,081 231,081 Contributed Capital 262,749 237,479 Capital Stock Expense (2,470) (2,470) Retained Earnings 278,898 256,961 Total Common Shareholder's Equity 825,221 778,014 Cumulative Preferred Stock: Not Subject to Mandatory Redemption 40,000 40,000 Subject to Mandatory Redemption 173,750 173,750 Long Term Debt 738,980 751,101 Total Capitalization (excluding current portion) 1,777,951 1,742,865 Current Liabilities: Cumulative Preferred Stock Redemption Requirement 12,250 12,250 Capital Lease Obligations 911 861 Short Term Debt 40,400 - Accounts Payable 51,890 63,819 Federal Income Taxes Payable-Affiliate 36,276 10,339 Other Taxes Accrued 6,768 6,873 Interest Accrued 15,074 22,038 Dividends Declared 25,236 24,910 Other Customer Deposits 2,952 2,890 Other 15,070 21,336 Total Current Liabilities 206,827 165,316 Deferred Credits and Other Liabilities: Deferred Income Taxes 350,130 332,852 Deferred Investment Tax Credits 52,280 54,180 Capital Lease Obligations 37,633 44,407 Other 32,180 23,964 Total Deferred Credits and Other Liabilities 472,223 455,403 Total Liabilities and Capitalization $2,457,001 $2,363,584 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Atlantic City Electric Company (ACE) is a wholly-owned subsidiary of Atlantic Energy, Inc. The consolidated financial statements include the accounts of the ACE and its subsidiary, which is wholly-owned. All significant intercompany accounts and transactions have been eliminated in consolidation. These consolidated financial statements reflect all normal, recurring adjustments and accruals which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements presented. The notes to the consolidated financial statements accompanying the Company's 1993 Annual Report on Form 10-K filed with the Securities and Exchange Commission should be read in conjunction with this report. Note 1 of these annual reports specifically identifies the significant accounting policies of the company. The consolidated balance sheet contained in the financial statements presented herein that is labeled December 31, 1993 was derived from the audited consolidated balance sheet presented in the 1993 Form 10-K. 2. The components of Federal Income Tax expense are as follows (in thousands of dollars): Quarter Ended September 30, 1994 1993 (unaudited) Current $30,184 $22,050 Deferred (6,977) 6,574 Total Federal Income Tax Expense 23,207 28,624 Less Amounts Included in Other Income 1,807 488 Federal Income Taxes Included in Operating Expenses $21,400 $28,136 A reconciliation of the expected Federal income taxes compared to the reported Federal Income Tax expense computed by applying the statutory rate follows: Tax Computed at the Statutory Rate of 35% $25,510 $29,435 Utility Plant Basis Differences 113 106 Investment Tax Credits (634) (634) Deferred Tax Adjustments - (187) Other-Net (1,782) (96) Total Federal Income Tax Expense $23,207 $28,624 Effective Federal Income Tax Rate 32% 34% Year-to-Date September 30, 1994 1993 (unaudited) Current $29,997 $27,074 Deferred 16,201 19,617 Total Federal Income Tax Expense 46,198 46,691 Less Amounts Included in Other Income 2,804 1,451 Federal Income Taxes Included in Operating Expenses $43,394 $45,240 Tax Computed at the Statutory Rate of 35% $50,275 $49,288 Utility Plant Basis Differences 1,347 1,789 Investment Tax Credits (1,901) (1,901) Deferred Tax Adjustments (375) (562) Other-Net (3,148) (1,923) Total Federal Income Tax Expense $46,198 $46,691 Effective Federal Income Tax Rate 32% 33% Certain prior year reconcilation amounts have been reclassified to conform to the current year reporting. 3. On February 8, 1994, ACE filed a petition with the New Jersey Board of Public Utilities (BPU) requesting an increase in Levelized Energy Clause (LEC) revenues of $63 million for the period June 1, 1994 through May 31, 1995. The increase is due primarily to the costs to be incurred from the purchase of 388 megawatts of capacity and energy from two new independent power producers scheduled to begin commercial operation during the 1994/1995 LEC period. Incorporated into the requested amount is utilization of $56 million of current base rate revenue associated with a utility power purchase contract that expired on May 31, 1994, and the Southern New Jersey Economic Initiative, a voluntary rate reduction by ACE of $28 million over the LEC period designed to keep its rates competitive. On June 27, 1994, ACE filed a motion requesting an interim increase in LEC revenues in order to avoid the effects of rate compression on customers. On July 19, 1994 the BPU approved a provisional increase in annual LEC revenues of $55 million effective July 26, 1994. On September 9, 1994, the Administrative Law Judge issued its Initial Decision that recommends an increase in annual LEC revenues of approximately $54 million. On October 12, 1994, the BPU extended the time period by which it must render its decision. Presently, the BPU is expected to render its final decision with regard to the LEC increase in December 1994. On June 23, 1994, the BPU approved a stipulation to allow casino customers to take service under existing commercial base rate schedules. Prior to BPU approval, casino customers were served under the Hotel Casino Service (HCS) rate schedule, the highest rate for service of all the ACE's service classes. Effective July 1, 1994, all casino customers began taking service under the AGS-TOU, or Annual General Service-Time of Use, rate schedule which could reduce annual base rate revenues by approximately $6.7 million. Original estimates of annual base rate revenue reductions of $5 million were based on the Transmission General Service rate schedule. Effective July 25, 1994, the Hotel Casino Service tariffs were no longer offered as tariffs for electric service. Pursuant to a February 18, 1994 ruling supporting the investigation of the "double recovery" of capacity costs from nonutility generation projects, the BPU issued its written Order dated September 16, 1994. The Order confirms the establishment of a generic proceeding to review the utility power purchase cost recovery methodology and ordered this matter be transferred to the Office of Administrative Law for evidenciary hearings. The BPU ordered that this matter be reviewed in a two phase proceeding. The scope of the issues to be resolved during the first phase of the proceeding will include: 1) the determination of the existence, or lack of existence, of the double recovery as a result of the traditional LEC pass-through of nonutility generation capacity costs; 2) the quantification of any such double recovery found to exist for each utility for the relevant periods; and 3) a determination of an appropriate remedy or adjustment if and when such double recovery is found to occur and the periods of time over which such an adjustment would be applicable. Following the conclusion of the first phase of the proceeding, the BPU, in the second phase, will render a final decision regarding the specific findings of the Office of Administrative Law and address the broader issues relating to the appropriate prospective purchased power cost recovery methods. ACE cannot estimate the impact that the double recovery issue may have on future rates. The Ratepayer Advocate has not proposed a standard methodology for quantifying the double recovery issue. 4. During the third quarter of 1994 ACE acquired and retired $10.5 million principle amount of 9-1/4% First Mortgage Bonds due 2019. The aggregate cost of these redemptions was $409,000, net of related Federal income taxes. At September 30, 1994, ACE had outstanding $40.4 million of short term debt with maturities of one to four months. The ACE's Cumulative Preferred Stock and long term debt securities are not widely held and generally trade infrequently. The estimated aggregate fair market value at September 30, 1994 is approximately $214.1 million and $685.5 million, respectively. 5. ACE has been identified as one of a number of responsible parties at two sites which are the subject of clean-up and remediation activity. The first site involves a property in Gloucester County, New Jersey. Notwithstanding the joint and several liability imposed by law, sufficient discovery has been conducted to establish that the contribution of the Company to the clean-up and remediation activity would the in the lower tiers of financial participation. Primary responsibility will be apportioned among others, including the Federal and State agencies and private parties. This matter is pending in the Federal Court. ACE is a member of a joint defense group in that proceeding. The second site involves a sanitary landfill in Atlantic County, New Jersey which is the subject of an Administrative Consent Order (ACO) which has been executed and delivered to the New Jersey Department of Environmental Protection (NJDEP) by the Company and at least four other identified potentially responsible parties. A remedy, which will include a soil cover of the site, has been developed and will be implemented. While the Company is subject to joint and several liability pursuant to the terms of the ACO, the Company has joined with three other parties to implement the terms of the ACO. Recovery will be pursued against those persons who were named as potentially responsible parties who do not execute and deliver the ACO and against other persons not named by the NJDEP. ACE's responsibility for such claims is not expected to exceed $1,000,000 in the aggregate. ACE believes that insurance coverage should be available to satisfy any amounts in excess of the self-insured limits assoicated with these particular claims. 6. A contract with a large industrial concern whereby the Company delivered process steam, water and by-product electricity was terminated by the concern effective June 30, 1994. The steam and electricity needs of this concern is now being provided by a nonutility cogeneration facility. ACE received approximately $4 million from this concern in 1993 for these services. In addition, the Company received approximately $8 million from sales of energy to this concern in 1993. By terms of the termination agreement, the industrial concern is to make certain payments to the Company over a period of time, and the Company must also perform certain activities. As a result of the termination agreement, the Company received $4.2 million in cash proceeds and recognized again of $2.4 million net of tax in Other Income. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited) The following is management's discussion and analysis of significant factors which affected the Company's interim financial condition and results of operations. To properly assess and evaluate the Company's performance one should read, in conjunction with this report, the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 1993 Annual Report to Shareholders (pages 41-49). ACE is the principal subsidiary of the Company and the following discussion focuses primarily on ACE. LIQUIDITY AND CAPITAL RESOURCES The Company customarily raises capital by issuance of common stock as part of its overall financial strategy to fund activities and development of its subsidiaries. In July 1994, the Company discontinued the issuance of common stock through the Dividend Reinvestment and Stock Reinvestment Plan, except for certain employee benefit plans. On October 27, 1994, the Company's Board of Directors authorized the Company to acquire up to three million shares of common stock. The Company will retire these shares but there is no schedule or specific share price targeted with this acquisition program. During the third quarter, ACE acquired and retired, $10.5 million of 9-1/4% First Mortgage Bonds that were due in 2019. RESULTS OF OPERATIONS Changes in net income and earnings per share for the periods ended September 30, 1994 versus the corresponding periods of the prior year are as follows: Periods Ended September 30, 1994 Quarter Year-to-Date Net Income (11.5)% 3.1% Earnings Per Share (14.1)% .6% Year-to-date earnings have increased on the strength of improved sales of electricity and Sales for Resale in the current year when compared to the same period of 1993. Results for the quarter have decreased compared to the same period of 1993 due to lower energy sales and the adoption of the Southern New Jersey Economic Initiative which is explained below. Significant factors contributing to these changes are explained below. Unless otherwise specified, changes are in terms of the current year period compared to the corresponding prior year period. Utility Revenues Changes in Operating Revenues-Electric are disclosed in the following table: Periods Ended September 30, 1994 (Thousands of Dollars) Quarter Year-to-Date Base Revenues $ 195 $ (47) Levelized Energy Clauses 12,083 17,593 Kilowatt-hour Sales (2,579) 10,665 Unbilled Revenues (4,286) (1,792) Sales for Resale (2,570) 18,300 Other Revenues 982 832 Total $ 3,825 $45,551 Levelized Energy Clause (LEC) Revenues for the periods increased due to rate increases in July 1994 and October 1993. Changes in Kilowatt-hour Sales are explained in the following section 'Billed Sales to Ultimate Utility Customers'. The changes in Unbilled Revenues are a result of the amount of kilowatt-hours consumed by ultimate customers at the end of the respective periods, which are affected by weather and economic conditions and the corresponding price per kilowatt-hour. The changes in Sales for Resale are a function of ACE's energy mix strategy, which in turn is dependent upon ACE's needs for energy, the energy needs of other utilities participating in the regional power pool of which ACE is a member, and the sources and prices of energy available. The year-to-date increase in Sales for Resale was the result of meeting the demands of the regional power pool due to the extreme weather conditions the first six months of 1994. Effective July 1, 1994, the BPU permitted the casino customers to take service under existing commercial rate schedules. ACE now anticipates that this could reduce annual revenues by approximately $6.7 million from the previous estimate of $5.0 million. Billed Sales to Ultimate Utility Customers Changes in billed kilowatt-hour sales are generally due to changes in the average number of customers and average customer use, which is affected by economic and weather conditions. Energy sales statistics, stated as percentage changes from the corresponding periods of the prior year, are shown below. Periods Ended September 30, 1994 Quarter Year-to-Date Average Average Customer Class Sales Use Cust Sales Use Cust Residential (.3)%(1.5)% 1.2% 2.8% 1.6% 1.1% Commercial .6 (1.4) 2.0 2.5 .4 2.1 Industrial (7.9) (9.7) 2.0 (3.1) (3.8) .7 Total (1.0) (2.3) 1.3 1.8 .6 1.2 The decline in the current quarter's residential sales was due to cooler than normal weather in August and September. Year-to-date residential average use was higher due to more extreme winter weather conditions than last year and increased number of billing days. Commercial sales for the quarter and the year-to-date increased due mostly to growth in public sector consumption and several small casino expansions. The difference between the quarter and year-to-date sales growth was the result of the weather contrast noted above. Approximately one-half of the increase in commercial customers is due to ACE's Night Light Program. All of the quarter's industrial sales decline is due to ACE's largest customer now being served by an independent power producer unrelated to ACE. Expenses Total Operating Expenses for the quarter and year-to-date periods increased by 7.0% and 9.1%, respectively. Excluding depreciation and taxes, Total Operating Expenses year-to-date increased by 15.4% and 13.9% in each of the respective periods. Energy expense reflects the amount of energy needed to meet load requirements, as well as the various fuel and purchased energy sources used and the operation of the LECs. Changes in costs reflect the varying availability of low-cost generation from ACE- owned and purchased energy sources and in the unit prices of the energy sources used, as well as changes in the needs of other utilities participating in the regional power pool. The cost of energy is recovered from customers primarily through the operation of the LECs. Earnings generally are not affected by Energy expense because these costs are adjusted to match the associated LEC revenues. This relationship will be altered by ACE's economic initiative included in its most recent LEC filing, as discussed below. In any period, the actual amount of LEC revenue recovered from customers will be greater or less than the actual amount of energy cost incurred and eligible for recovery in that period. Such respective overrecovery or underrecovery of energy costs is recorded on the consolidated balance sheet as a liability or asset as appropriate. Amounts in the balance sheet are recognized in the consolidated statement of income within Energy expense during the period in which they are subsequently recovered through the LECs. ACE was underrecovered by $19.1 million at September 30, 1994, as compared to $7.2 million at December 31, 1993. As a result of implementing the Southern New Jersey Economic Initiative in rates, effective July 19, 1994, ACE will forego recovery of future energy costs in LEC rates of $28 million through May 31, 1995. After tax income will be reduced by approximately $18 million on an annual basis. Quarter ended and year-to-date September 1994 after tax income has been reduced by $5.0 million. Energy expense for the quarter and year-to-date increased 49.7% and 31.5%, respectively, due to the adoption of the Southern New Jersey Economic Initiative, and the increase in the levelized energy clauses that reduced underrrecovered fuel costs. Also contributing to the increase was the higher cost of energy from nonutility sources. Purchased Capacity expense reflects contract payments for generating capacity owned by others. Purchased Capacity increased for the year-to-date period due to capacity supplied by a nonutility power producer that became operational this year. Sources of Energy by Fuel Source for the periods ended September 30, 1994 are as follows: Quarter Year-to-Date Coal 29% 30% Nuclear 24 22 Interchanged and Purchased 21 25 Nonutility Purchased 20 15 Oil and Natural Gas 6 8 Total 100% 100% Note: Energy purchased that has been specifically contracted as to source of energy is included under its respective fuel type. The decrease in Operations Expense for the quarter ended period reflects the reorganization expenses recorded by the Company in the third quarter of 1993. Federal Income Taxes expense decreased for the current quarter and year-to-date periods. The decrease for the quarter was due to lower taxable income in 1994 versus 1993. The increase in Other Income for the quarter and year-to-date periods reflect a $2.4 million after tax gain as a result of the contract termination of ACE's largest industrial customer. NONUTILITY ACTIVITIES Operations of nonutility subsidiaries for the quarter were virtually unchanged from last year. Year-to-date September 30, 1994 and 1993 resulted in net income of $1.9 million and $2.5 million respectively. The decrease in current year results is primarily due to decreased operation of a cogeneration facility in which a subsidiary of AGI has a partnership interest. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited) The following is management's discussion and analysis of significant factors which affected the Company's interim financial condition and results of operations. To properly assess and evaluate the Company's performance one should read, in conjunction with this report, the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 1993 Annual Report on Form 10-K filed with the Securities and Exchange Commission. LIQUIDITY AND CAPITAL RESOURCES During the third quarter, ACE acquired and retired $10.5 million of 9-1/4% First Mortgage Bonds that were due in 2019. RESULTS OF OPERATIONS Net Income decreased for the quarter by 10.5% from the corresponding period of 1993 due to lower energy sales and the adoption of the Southern New Jersey Economic Initiative which is explained below. Year-to-date Net Income increased 3.5% from the prior year on the strength of improved sales of electricity and Sales for Resale in the current year when compared to the same period of 1993. Significant factors contributing to these changes are explained below. Unless otherwise specified, changes are in terms of the current year period compared to the corresponding prior year period. Revenues Changes in Operating Revenues-Electric are disclosed in the following table: Periods Ended September 30, 1994 (Thousands of Dollars) Quarter Year-to-Date Base Revenues $ 212 $ 6 Levelized Energy Clauses 12,083 17,593 Kilowatt-hour Sales (2,579) 10,665 Unbilled Revenues (4,286) (1,792) Sales for Resale (2,570) 18,300 Other Revenues 982 832 Total $ 3,842 $45,604 Levelized Energy Clause (LEC) Revenues for the periods increased due to rate increases in July 1994 and October 1993. Changes in Kilowatt-hour Sales are explained in the following section 'Billed Sales to Ultimate Customers'. The change in Unbilled Revenues are a result of the amount of kilowatt-hours consumed by ultimate customers at the end of the respective periods, which are affected by weather and economic conditions and the price per kilowatt-hour in effect. The changes in Sales for Resale are a function of the Company's energy mix strategy, which in turn is dependent upon its needs for energy, the energy needs of other utilities participating in the regional power pool of which the Company is a member, and the sources and prices of energy available. The year-to-date increase in Sales for Resale was the result of meeting the demands of the regional power pool due to extreme weather conditions in the first six months of 1994. Effective July 1, 1994, the BPU permitted the casino customers to take service under existing commercial rate schedules. The Company now anticipates that this could reduce annual revenues by approximately $6.7 million from the previous estimate of $5.0 million. Billed Sales to Ultimate Customers Changes in billed kilowatt-hour sales are generally due to changes in the average number of customers and average customer use, which is affected by economic and weather conditions. Energy sales statistics, stated as percentage changes from the corresponding period of the prior year, are shown below. Periods Ended September 30, 1994 Quarter Year-to-Date Average Average Customer Class Sales Use Cust Sales Use Cust Residential (.3)% (1.5)% 1.2% 2.8% 1.6% 1.1% Commercial .6 (1.4) 2.0 2.5 .4 2.1 Industrial (7.9) (9.7) 2.0 (3.1) (3.8) .7 Total (1.0) (2.3) 1.3 1.8 .6 1.2 The decline in the current quarter's residential sales was due to cooler than normal weather in August and September. Year-to-date residential average use was higher due to more extreme weather conditions than last year and increased number of billing days. Commercial sales for the quarter and the year-to-date increased due mostly to growth in public sector consumption and several small casino expansions. The difference between the quarter and year-to-date sales growth was the result of the weather contrast noted above. Approximately one-half of the increase in commercial customers is due to ACE's Night Light Program. All of the quarter's industrial sales decline is due to the loss of the Company's largest customer now being served by an independent power producer unrelated to the Company. Expenses Total Operating Expenses for the quarter and year-to-date periods ended September 30, 1994 increased by 7.0% and 9.0%, respectively, compared to the same periods of the prior year. Excluding depreciation and taxes, Total Operating Expenses increased by 15.3% and 13.9% over each of the respective periods. Energy expense reflects the amount of energy needed to meet load requirements, as well as the various fuel and purchased energy sources used and the operation of the LECs. Changes in costs reflect the varying availability of low-cost generation from Company-owned and purchased energy sources and in the unit prices of the energy sources used, as well as changes in the needs of other utilities participating in the regional power pool. The cost of energy is recovered from customers primarily through the operation of the LECs. Earnings generally are not affected by Energy expense because these costs are adjusted to match the associated LEC revenues. This relationship will be altered by the Company's economic initiative included in its most recent LEC filing, as discussed below. In any period, the actual amount of LEC revenue recovered from customers will be greater or less than the actual amount of energy cost incurred and eligible for recovery in that period. Such respective overrecovery or underrecovery of energy costs is recorded on the consolidated balance sheet as a liability or asset as appropriate. Amounts in the balance sheet are recognized in the consolidated statement of income within Energy expense during the period in which they are subsequently recovered through the LECs. The Company was underrecovered by $19.1 million at September 30, 1994, as compared to $7.2 million at December 31, 1993. As a result of implementing the Southern New Jersey Economic Initiative in rates, effective July 19, 1994, the Company will forego recovery of future energy costs in LEC rates of $28 million through May 31, 1995. After tax income will be reduced by approximately $18 million on an annual basis. Quarter ended and year-to-date September 1994 after tax income has been reduced by $5.0 million. Energy Expense for the quarter and year-to-date increased 49.7% and 31.5%, respectively, due to the adoption of the Southern New Jersey Economic Initiative, and the increase in the levelized energy clauses that reduced underrecovered fuel costs. Also contributing to the increase was the higher cost of energy from nonutility sources. Purchased Capacity expense reflects contract payments for generating capacity owned by others. Purchased Capacity increased in the year-to-date period due to capacity supplied by a nonutility power producer that became operational this year. Sources of Energy by Fuel Source for the periods ended September 30, 1994 are as follows: Quarter Year-to-Date Coal 29% 30% Nuclear 24 22 Interchanged and Purchased 21 25 Nonutility Purchased 20 15 Oil and Natural Gas 6 8 100% 100% Note: Energy purchased that has been specifically contracted as to source of energy is included under its respective fuel type. The decrease in Operating Expenses for the quarter ended period reflects the reorganization expenses recorded by the Company in the previous year. Federal Income Taxes expense decreased for the current quarter and year-to-date periods. The decrease for the quarter was due to lower taxable income in 1994 versus 1993. The increase in Other Income for the quarter and year-to-date periods reflect a $2.4 million after tax gain as a result of the contract termination of the Company's largest industrial customer. Part II. Other Information Item 1. Legal Proceedings Certain developments have occurred in connection with matters previously reported under Part I, Item 1-Business in the Annual Report on Form 10-K for the fiscal year ended December 31, 1993 for the Company and ACE; Part II, Other Information in the Quarterly Report on Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994; and Part II, Item 5 in the Current Report on Form 8-K dated June 17, 1994, October 3, 1994 and October 11, 1994 for AEI and ACE. In addition, certain new information is contained herein. Rate Matters ACE's rates for electric service at retail are subject to the approval of the New Jersey Board of Public Utilities (BPU), formerly referred to as the New Jersey Board of Regulatory Commissioners. Reference is made to Note 3 of the Notes to Financial Statements for AEI and ACE filed herewith for information pertaining to changes in the hotel casino tariff, the issue of double recovery of capacity costs and the pending request before the BPU for changes in Levelized Energy Clause (LEC) revenues. Further information concerning the LEC filing follows: The original terms of a contract between ACE and an independent power producer recently renegotiated, required that fixed rate, long term financing be arranged during the project's construction. Interest rates on funds borrowed to finance the project averaged at about 10%. In an effort to reduce the cost of borrowing, interest rate swap agreements to which the project developer was a party were terminated, the cost of such termination amounting to $43 million. ACE agreed to pay $20 million of such termination costs, for which ACE received the right to make interest rate selections until the unit commenced commercial operation. To date, such interest rate selections have reduced financing costs by approximately $17 million. ACE expects that financing costs will be reduced by the full amount of the swap termination payment by the time the unit begins commercial operation. The terms of this contract amendment were approved by the BPU on August 12, 1993. In the provisional LEC rates approved by the BPU effective July 26, 1994 and referenced in Note 3, ACE is currently recovering this swap termination payment over a 20-year amortization period. The Initial Decision of the Administrative Law Judge supports recovery through LEC rates of the $20 million payment. As previously reported in the Form 10-K for the year ended December 31, 1993, the expected savings from changes to nonutility power purchase agreements were estimated to be between $15 million and $20 million annually in the first five years of the contracts. Such estimation is net of the $20 million termination payment. Item 5. Other Information On October 14, 1994, ACE was advised that a rating agency had downgraded ACE's credit rating to "A-" from "A" for ACE's debt securities, to "BBB+" from "A-" for ACE's preferred stock and debentures and to "D-1-" for ACE's commercial paper. The agency cited intensifying competition, pricing pressures and regulatory uncertainty as reasons for its action. ACE's debt securities are currently rated "A-/A3/A-", its preferred stock is rated "BBB+/Baa1/BBB+" and its commercial paper is rated "A-2/P2/D-1-". No assurances can be given that the current ratings of ACE's securities will be maintained or continue at their present levels. Downward revisions or changes in ratings of a company's securities could have an adverse effect on the market price of such securities and could increase the Company's cost of capital. On November 11, 1994, ACE announced a reorganization plan to better position itself for a competitive environment. The plan includes staff reductions of up to 350 employees or up to 20% of its workforce. Included is a voluntary separation program scheduled to take effect during the first quarter of 1995. At this time, ACE cannot estimate the amount of such reorganization expenses. However, ACE anticipates that it will be able to quantify such amount later in the fourth quarter of 1994 as the number of employees participating in the program is determined, and will reduce 1994 earnings by such amount. On August 17, 1994, the BPU approved ACE's Demand Side Management Resource Plan (Plan). There are 16 programs identified in the Plan which covers residential, commercial and industrial customers and all major end-users. The costs of implementing the Plan are expected to be $13.5 million over a two year period. Currently, $4.8 million is included in base rates to cover such costs. When fully implemented, ACE expects to reduce peak demand by 5.6 megawatts. Nonutility Generation The Pedricktown Cogeneration Limited Partnership (PCLP) generating plant, a 116 megawatt gas-fired cogeneration facility located in Pedricktown, New Jersey, began commercial operation in March 1992. The facility supplies 10 megawatts of electricity and byproduct steam to an industrial customer and, under the terms of an existing purchased power agreement, supplies 106 megawatts of capacity and energy to ACE. Atlantic Generation, Inc., a subsidiary of the Company, is a partner in this project. On July 15, 1994, an amendment to the contract was executed. If approved, the contract amendments will result in reduced pricing and greater operating efficiencies. The terms of the contract amendment are subject to the approval of the BPU and others. BPU approval is currently scheduled for November 18, 1994. Under contract arrangements with Keystone Energy Services Company, LP (Keystone), ACE is scheduled to begin purchasing energy and capacity effective April 1, 1995. Construction of Keystone's 200 megawatt coal-fired cogeneration facility located in Logan Township, New Jersey was completed in September 1994. On October 21, 1994, ACE began purchasing energy from this facility. Nonutility Subsidiaries Vineland Cogeneration Limited Partnership (VCLP), a special purpose limited partnership, was formed by subsidiaries of Atlantic Generation, Inc. and The Columbia Gas System, Inc. for the development of a gas-fired cogeneration facility located in Vineland, New Jersey. VCLP, which has a power purchase agreement with the City of Vineland for the sale of 46.5 megawatts of capacity and energy for a term of 25 years, began commercial operation on June 1, 1994. Nuclear Peach Bottom ACE has been advised by PECO Energy Company (PECO) that initial examinations of Unit No. 2 at Peach Bottom Atomic Power Station for core shroud seam weld cracks were planned for the Unit's September 1994 refueling outage. During the refueling outage, Peach Bottom Unit No. 2 was examined and PECO has advised ACE that no corrective actions were determined necessary to operate Unit No. 2 for another two-year cycle. ACE has been advised by PECO that, by letter dated October 18, 1994, the Nuclear Regulatory Commission (NRC) has approved PECO's request to rerate the authorized maximum reactor core power levels of Peach Bottom Units No. 2 and 3 by 5% to 3,458 megawatts thermal (Mwt) from the current limits of 3,293 Mwt. The amendment of the Peach Bottom Unit No. 2 facility operating license was effective upon the date of the NRC approval letter. The amendment of the Unit No. 3 facility operating license will be effective upon completion of the implementation of associated hardware changes, which are to be completed during Unit No. 3's next refueling outage scheduled for the fall of 1995. Salem As previously reported in the 1993 Form 10-K, ACE has been informed by Public Service Electric and Gas Company (PS) that on June 24, 1993, the New Jersey Department of Environmental Protection (NJDEP) issued a revised draft discharge to surface water permit that would allow Salem to continue with once-through cooling and would also require certain plant modification in addition to certain other actions to enhance the ecology of the affected water body. The final permit, with essentially the same provisions as the revised draft permit, was issued on July 20, 1994. Certain environmental groups and other entities, including the State of Delaware, have filed requests for hearings with the NJDEP challenging the final permit. The NJDEP granted the hearing requests on certain of the issues and PS has been named as a respondent along with the NJDEP in these matters which are pending in the Office of Administrative Law. PS has advised ACE that PS is implementing the final permit. As previously reported in ACE's Form 10-Q for the quarters ending March 31, 1994 and June 30, 1994 and in ACE's Current Reports on Form 8-K dated June 17, 1994 and October 11, 1994, PS has advised ACE that Unit 1 of the Salem Nuclear Generating Station (Salem) experienced an automatic reactor shutdown which occurred on April 7, 1994 due to excessive grass from the Delaware River clogging the station's water intake structure. Salem remained out of service while PS and the NRC investigated the event and PS implemented remedial action. Following the event, Salem was returned to service on June 4, 1994. On April 7, 1994, the NRC sent an augmented inspection team (AIT) to Salem to investigate the event. The AIT presented its preliminary findings, concluding that the event had challenged the reactor coolant system pressure boundary, that operator error had occurred which complicated the event, that management had allowed equipment problems to exist which made operations difficult for plant operators, and that some equipment was degraded by the event, but overall the plant performed as designed. The AIT further concluded that operator use of emergency operating procedures was good and that investigation and trouble-shooting efforts were good. PS's investigation of the event resulted in conclusions similar to those of the AIT. On May 9, 1994, PS and the NRC staff presented their findings to the NRC Commissioners, and PS described the actions it had taken to prepare Salem for restart. ACE has been advised by PS that PS has continued to address matters to improve Salem's operations identified by itself, the NRC and the Institute of Nuclear Power Operations (INPO), an independent industry group consisting of utilities, including PS, that provides self-critical analysis of nuclear operations to member utilities. Actions are being taken to improve the plant's material condition, to upgrade procedures and to enhance personnel performance, as well as other efforts to such end, including appointment of a new station manager and senior plant staff. In addition, PS, effective September 29, 1994, established its nuclear operations as a separate business unit reporting directly to the Chairman and Chief Executive Officer of PS and hired Leon R. Eliason as its Chief Nuclear Officer and President of its new Nuclear Business Unit. PS has advised ACE that on October 5, 1994, the NRC, as a result of the AIT inspection, as well as a follow-up inspection, issued a Notice of Violation and Proposed Imposition of Civil Penalty to PS advising that it proposed to impose an aggregate fine of $500,000 for violations relating to the April 7, 1994 event, including: the failure to identify and correct significant conditions adverse to quality at the facility related to spurious steam flow signals and inoperable atmospheric relief valves, both of which, it concluded, led to unnecessary safety injections during the event; the failure to identify and correct significant conditions adverse to quality at the facility related to providing adequate training, guidance and procedures for the operators to cope with the event; and the failure by supervisors to exercise appropriate command and control of the operations staff and the reactor during the event. In assessing its fine, the NRC advised PS that it "expects an aggressive and prompt response to this matter as neither PS nor the NRC can accept (1) such performance in the future and (2) the large number of equipment related events that have recently occurred at Salem." The NRC has stated, that after reviewing PS's response to the Notice, including PS's proposed corrective actions and the results of future inspections, it will determine whether further NRC enforcement action is necessary to ensure compliance with NRC regulatory requirements. ACE is further advised that PS's own assessments, as well as those by the NRC and INPO, indicate that additional efforts are required to further improve operating performance, and PS is committed to taking the necessary actions to address Salem's performance needs. PS has indicated that the proposed $500,000 fine will be paid without challenge. No assurance can be given as to what, if any, further or additional actions may be taken by the NRC or what further or additional actions may be taken by PS, or required by the NRC, to improve Salem's performance. Item 6. Exhibits and Reports on 8-K Exhibits: See Exhibit Index Attached Reports on Form 8-K: A Current report on Form 8-K was filed on October 3, 1994 and containing a Statement of Computations of Ratio of Earnings to Fixed Charges for the twelve months ended June 30, 1994. A Current report on Form 8-K was filed October 11, 1994 relating to the events of April 7th at the Salem Nuclear Generating Station and the subsequent penalty imposed by the Nuclear Regulatory Commission. 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. Atlantic Energy, Inc. Atlantic City Electric Company (Registrant) Date: November 14, 1994 By: /s/ J. L. Jacobs J. L. Jacobs President and Chief Executive Officer of Atlantic Energy, Inc. Chairman, President and Chief Executive Officer of Atlantic City Electric Company Date: November 14, 1994 By: /s/ J. G. Salomone J. G. Salomone Vice President, Treasurer and Secretary of Atlantic Energy,Inc. Senior Vice President-Finance and Administration of Atlantic City Electric Company EXHIBIT INDEX 4 Mortgage and Deed of Trust, dated January 15, 1937, between Atlantic City Electric company and The Bank of New York (formerly Irving Trust Company) and Supplemental Indentures through November 1, 1993 (File No. 2-66820-Exhibit No. 2(b); File No. 1- 33599, Form 10-K for year ended December 31, 1980-Exhibit No. 4(d); Form 10-Q for quarter ended June 30, 1981-Exhibit No. 4(a); Form 10-K for year ended December 31, 1983-Exhibit No. 4(d); Form 10-Q for quarter ended March 31, 1984-Exhibit No. 4(a); Form 10-Q for quarter ended June 30, 1984-Exhibit 4(a); Form 10-Q for quarter ended September 30, 1985-Exhibit 4; Form 10-Q for quarter ended March 31, 1986-Exhibit No. 4; Form 10-K for year ended December 31, 198-Exhibit No. 4(d); Form 10-Q for quarter ended September 30, 1989-Exhibit No. 4(a); Form 10-K for year ended December 31, 1990-Exhibit 4(c); File No. 33-49279-Exhibit No. 4(b); File No. 1-3559, Form 10-Q for the quarter ended September 30, 1993-Exhibit Nos. 4(a) & 4(b); Form 10-K for year ended December 31, 1993-Exhibit No. 4c(1); File No. 1-3559, Form 10-Q for the quarter ended June 30, 1994-Exhibit No. 4(a). 4a Indenture Supplemental dated as of October 1, 1994 to Mortgage and Deed of Trust dated January 15, 1937 between Atlantic City Electric Company and The Bank of New York. 12 Statement of Computations of Ratio of Earnings to Fixed Charges for the twelve months ended September 30, 1994. 27 Financial Data Schedules for Atlantic Energy, Inc. and Atlantic City Electric Company for periods ended September 30, 1994. EX-4 2 INDENTURE SUPPLEMENTAL TO MORTGAGE AND DEED OF TRUST (Dated January 15, 1937) Executed By ATLANTIC CITY ELECTRIC COMPANY TO THE BANK OF NEW YORK, Trustee. Dated as of November 1, 1994 This instrument was prepared by James E. Franklin II, Esq. James E. Franklin II, Esq. SUPPLEMENTAL INDENTURE, dated as of November 1, 1994 for convenience of reference, and effective from the time of execution and delivery hereof, made and entered into by and between ATLANTIC CITY ELECTRIC COMPANY, a corporation of the State of New Jersey (hereinafter sometimes called the "Company"), party of the first part, and THE BANK OF NEW YORK (formerly Irving Trust Company), a corporation of the State of New York, as Trustee (hereinafter sometimes called the "Trustee"), party of the second part. WHEREAS, the Company has heretofore executed and delivered to the Trustee its Mortgage and Deed of Trust, dated January 15, 1937 (hereinafter referred to as the "Mortgage"), for the security of all bonds of the Company outstanding thereunder, and by said Mortgage conveyed to the Trustee, upon certain trusts, terms and conditions, and with and subject to certain provisos and covenants therein contained, all and singular the property, rights and franchises which the Company then owned or should thereafter acquire, excepting any property expressly excepted by the terms of the Mortgage; and WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture Supplemental to Mortgage and Deed of Trust, dated as of June 1, 1949, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of July 1, 1950, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of November 1, 1950, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of March 1, 1952, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of January 1, 1953, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of March 1, 1954, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of March 1, 1955, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of January 1, 1957, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of April 1, 1958, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of April 1, 1959, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of March 1, 1961, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of July 1, 1962, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of March 1, 1963, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of February 1, 1966, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of April 1, 1970, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of September 1, 1970, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of May 1, 1971, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of April 1, 1972, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of June 1, 1973, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of January 1, 1975, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of May 1, 1975, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of December 1, 1976, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of January 1, 1980, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of May 1, 1981, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of November 1, 1983, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of April 15, 1984, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of July 15, 1984, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of October 1, 1985, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of May 1, 1986, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of July 15, 1987, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of October 1, 1989, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of March 1, 1991, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of May 1, 1992, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of January 1, 1993, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of August 1, 1993, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of September 1, 1993, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of November 1, 1993, an Indenture Supplemental to Mortgage and Deed of Trust, dated as of June 1, 1994, and an Indenture Supplemental to Mortgage and Deed of Trust, dated as of October 1, 1994, such instruments amending and supplementing the Mortgage in certain respects (the Mortgage, as so amended and supplemented, being hereinafter called the "Original Indenture") and conveying to the Trustee, upon certain trusts, terms and conditions, and with and subject to certain provisos and covenants therein contained, certain property rights and property therein described; and WHEREAS, the Company represents that no default has occurred under any of the provisions of the Original Indenture; and WHEREAS, the Original Indenture provides that bonds issued thereunder may be issued in one or more series and further provides that, with respect to each series, the rate of interest, the date or dates of maturity, the dates for the payment of interest, the terms and rates of optional redemption, and other terms and conditions shall be determined by the Board of Directors of the Company prior to the authentication thereof; and WHEREAS, Section 121 of the Original Indenture provides that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Original Indenture, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and that the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued under the Original Indenture and provide that a breach thereof shall be equivalent to a default under the Original Indenture, or the Company may cure any ambiguity or correct or supplement any defective or inconsistent provisions contained in the Original Indenture or in any indenture supplemental to the Original Indenture, by an instrument in writing, properly executed, and that the Trustee is authorized to join with the Company in the execution of any such instrument or instruments; and WHEREAS, the Company has heretofore from time to time, in accordance with the provisions of the Original Indenture, as at the time in effect, issued bonds of various series and in various amounts and, of the bonds so issued, $737,413,000 aggregate principal amount is outstanding at the date hereof; and WHEREAS, the Company, by appropriate corporate action in conformity with the terms of the Original Indenture, has duly determined to create two new series of bonds under the Original Indenture (herein sometimes referred to collectively as the "New Bonds"); and WHEREAS, each of the New Bonds is to be substantially in the form set forth in Schedule I hereto; and WHEREAS, each of the New Bonds (whether in temporary or definitive form) is to bear a certificate of authentication substantially in the form set forth in Schedule I hereto; and WHEREAS, the Company, in the exercise of the powers and authorities conferred upon and reserved to it under and by virtue of the provisions of the Original Indenture, and pursuant to 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, the Company represents that all conditions and requirements necessary to make this supplemental indenture (hereinafter sometimes referred to as the "Third 1994 Supplemental Indenture") a valid, binding and legal instrument in accordance with its terms, 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 Atlantic City Electric Company, in consideration of the premises and the sum of One Dollar ($1.00) and other good and valuable consideration paid to it by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, for itself and its successors and assigns, hereby covenants and agrees to and with the Trustee, and its successor or successors in trust, as follows: SECTION 1. The terms defined in this Section 1 shall, for all purposes of this Third 1994 Supplemental Indenture and the Original Indenture, have the meanings herein specified, unless the context otherwise requires: Plant: The term "Plant" shall mean the B.L. England Generating Station located in Beesley's Point, Cape May County, New Jersey. Series A Project Facilities: The term "Series A Project Facilities" shall have the meaning set forth in the Cape May Facilities Agreement. Series B Project Facilities: The term "Series B Project Facilities" shall have the meaning set forth in the Cape May Facilities Agreement. Cape May Authority: The term "Cape May Authority" shall mean the Pollution Control Financing Authority of Cape May County (New Jersey) and any successor thereto. Cape May 1994 Series A Bonds: The term "Cape May 1994 Series A Bonds" shall mean the 7.20% Pollution Control Revenue Bonds of 1994, Series A (Atlantic City Electric Company Project) to be issued in 1994 under and pursuant to the Cape May Indenture. Cape May 1994 Series B Bonds: The term "Cape May 1994 Series B Bonds" shall mean the 7% Pollution Control Revenue Refunding Bonds of 1994, Series B (Atlantic City Electric Company Project) to be issued in 1994 under and pursuant to the Cape May Indenture. Cape May Indenture: The term "Cape May Indenture" shall mean the Trust Indenture, dated as of November 1, 1994, by and between the Cape May Authority and United Jersey Bank, as Trustee, pursuant to which the Cape May 1994 Series A Bonds and the Cape May 1994 Series B Bonds are issued. Cape May Trustee: The term "Cape May Trustee" shall mean, at any time in question, the person and/or corporation acting as trustee at any time under the Cape May Indenture. Cape May Facilities Agreement: The term "Cape May Facilities Agreement" shall mean the Pollution Control Facilities Agreement, dated as of November 1, 1994, between the Cape May Authority and the Company, and any and all modifications, supplements and amendments thereof. SECTION 2. The Company hereby creates a forty-fifth series of bonds to be issued under and secured by the Original Indenture and this Third 1994 Supplemental Indenture, to be designated and to be distinguished from the bonds of all other series by the title "First Mortgage Bonds, 7.20% Pollution Control Series A of 1994" (herein sometimes referred to as the "bonds of the Forty-fifth Series"). Bonds of the Forty-fifth Series shall mature on the maturity date of the Cape May 1994 Series A Bonds and shall be issued in temporary or definitive form, only as fully registered bonds, without coupons, in denominations of $5,000 and any multiple or multiples of $5,000 authorized by the Company; they shall bear interest at the rate of seven and twenty one-hundredths per centum per annum payable semiannually on the interest payment dates of the Cape May 1994 Series A Bonds; and the principal of, premium, if any, and interest on each said bond shall be payable at the office or agency of the Company, in Hackensack, New Jersey, and, at the option of the Company, at the office or agency of the Company in the City of New York, in lawful money of the United States of America; provided, however, that the Company shall receive the credits in respect of interest on and principal of bonds of the Forty-fifth Series as set forth in Section 5 hereof. Every bond of the Forty-fifth Series shall be dated and shall bear interest as provided in Section 10 of the Original Indenture; provided, however, that bonds of the Forty-fifth Series authenticated by the Trustee prior to the first interest payment date shall bear interest from November 1, 1994; and provided further, that if and to the extent that the Company shall default in the payment of interest due on any interest payment date, then any such bond of the Forty-fifth Series shall bear interest from the interest payment date next preceding the date of such bond to which interest has been paid, unless such interest payment date is the first interest payment date, in which case from November 1, 1994. Bonds of the Forty-fifth Series shall be subject to redemption prior to maturity, but if in part only in integral multiples of $5,000, under the conditions and upon the payment of the amounts specified in the following subsections, together in each case with interest accrued to the redemption date: (a) at the option of the Company, on any date on or after November 1, 2004, either as a whole or in part from time to time on any date, at the following redemption prices, expressed in percentages of the principal amount of the bonds to be redeemed: REDEMPTION PERIOD REDEMPTION PRICE November 1, 2004 through October 31, 2005 102% November 1, 2005 through October 31, 2006 101% November 1, 2006 and thereafter 100% (b) at the option of the Company, as a whole at any time at 100% of the principal amount thereof, if any of the following events shall have occurred: (1) any federal, state or local body exercising governmental or judicial authority has taken any action which results in the imposition of unreasonable burdens or excessive liabilities with respect to the Series A Project Facilities (or the facilities serviced thereby) or the Plant, rendering impracticable or uneconomical or enjoining or restraining the operation of all or a substantial portion of the Series A Project Facilities (or the facilities serviced thereby) or the Plant, including without limitation the condemnation or taking by eminent domain of all or a substantial portion of the Series A Project Facilities (or the facilities serviced thereby) or the Plant; or (2) changes in the cost or availability of raw materials, operating supplies, or facilities or technological or other changes have made the continued operation of all or a substantial portion of the Series A Project Facilities (or the facilities serviced thereby) or the Plant, uneconomical; or (3) all or a substantial portion of the Series A Project Facilities (or the facilities serviced thereby) or the Plant have been damaged or destroyed to such an extent that it is not practicable or desirable to rebuild, repair or restore the Series A Project Facilities (or the facilities serviced thereby) or the Plant; or (4) as a result of any change in the Constitution of the State of New Jersey or the Constitution of the United States of America, or as a result of any legislative or administrative action (whether state or federal) or any final decree, judgment or order of any court or administrative body (whether state or federal) after any contest thereof by the Company in good faith, the Cape May Indenture, the Cape May Facilities Agreement, the bonds issued under the Original Indenture, as supplemented, in accordance with the Cape May Facilities Agreement, or the Bonds issued under the Cape May Indenture, as supplemented, shall become void or unenforceable or impossible to perform in accordance with the intent and purposes of the parties as expressed in the Cape May Facilities Agreement. Any such redemption shall be on any date within one year following the determination by the Company as evidenced by the adoption of the resolution of the Board of Directors of the Company described below that one of the events listed above permitting the exercise of the option has occurred. (c) in whole (or in part, as hereinafter provided), at 100% of the principal amount thereof, plus interest accrued to the redemption date, in the event that it is finally determined by the Internal Revenue Service or by a court of competent jurisdiction that, as a result of the failure by the Company to observe any covenant, agreement or representation in the Cape May Facilities Agreement, the interest payable on the Cape May 1994 Series A Bonds is includable for federal income tax purposes in the gross income of any owner for federal income tax purposes of a Cape May 1994 Series A Bond, other than an owner who is a "substantial user" of the Series A Project Facilities or a "related person", as provided in Section 147(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the applicable regulations thereunder. Any such determination will not be considered final for this purpose until the expiration of all periods for judicial review or appeal, as the case may be, nor will such a determination be deemed final unless (i) the Cape May Trustee shall have been advised by one or more owners for federal income tax purposes of the Cape May 1994 Series A Bonds that the Internal Revenue Service has notified such owner or owners in writing that it proposes to include the interest on the Cape May 1994 Series A Bonds in gross income as a result of such a failure by the Company and (ii) the Company has been afforded by the tribunal the opportunity to participate in and to direct any administrative proceeding or litigation resulting therefrom, either directly or in the name of any such owner of a Cape May 1994 Series A Bond. Any such redemption of bonds of the Forty-fifth Series shall be in an amount necessary to redeem the Cape May 1994 Series A Bonds on any date within 180 days from the time of such final determination that the Cape May 1994 Series A Bonds are to be redeemed. Bonds of the Forty-fifth Series shall be redeemed in whole after such final determination unless it is decided in such determination that redemption of a portion of the Cape May 1994 Series A Bonds outstanding would have the result that interest payable on the Cape May 1994 Series A Bonds remaining outstanding after such redemption would not be includable for federal income tax purposes in the gross income of any owner for federal income tax purposes of a Cape May 1994 Series A Bond (other than an owner who is a "substantial user" of the Series A Project Facilities or a "related person" within the meaning of Section 147(a) of the Code and the applicable regulations thereunder), and in such event bonds of the Forty- fifth Series shall be redeemed (in the principal amount of $5,000 or any integral multiple thereof) in such amount so as to accomplish that result. The election of the Company under subsections (a) or (b) above to redeem any of the bonds of the Forty-fifth Series shall be evidenced by a resolution of the Board of Directors of the Company calling for the redemption on a stated date of all or a stated principal amount thereof. To exercise its option to redeem the bonds of the Forty-fifth Series under subsection (a) or (b) above, the Company shall deliver to the Trustee, the Cape May Authority and the Cape May Trustee a certified copy of said resolution calling all or a stated principal amount of the bonds of the Forty- fifth Series for redemption on a date not more than 90 days from the date said resolution is delivered (in the case of a redemption under subsection (a) above) or not more than one year from the date of adoption of said resolution (in the case of a redemption under subsection (b) above). The delivery to the Cape May Trustee of a certified copy of such resolution shall constitute notice to the Cape May Trustee of the redemption referred to therein, on the terms specified therein. The Company shall on or before such redemption date deposit with the Cape May Trustee, as paying agent hereunder, the total applicable redemption price of all the bonds so called, with interest accrued thereon to the redemption date, less any credits to which the Company may be entitled pursuant to Section 5 hereof, and the Cape May Trustee, as such paying agent, shall apply such funds on the redemption date to the redemption of the bonds so called. The Cape May Trustee shall deliver to the Trustee prompt written notice of the occurrence of a "final determination" under subsection (c) above. Such notice shall be executed on behalf of the Cape May Trustee by its President or a Vice President or Trust Officer and shall fix a redemption date for the appropriate amounts of bonds of the Forty-fifth Series not more that 180 days after the occurrence of such "final determination". On or before such redemption date, the Company shall deposit with the Cape May Trustee, as paying agent hereunder, the total redemption price of the bonds so called, with interest accrued thereon to the redemption date, less any credits to which the Company may be entitled pursuant to Section 5 hereof, and the Cape May Trustee, as such paying agent, shall apply such funds, on the redemption date, to the redemption of the bonds so called. The delivery to the Trustee of a certified copy of such notice shall constitute notice to the Trustee of the redemption referred to therein on the terms specified therein. Whenever the Trustee shall receive a written demand for redemption (hereinafter called "Redemption Demand") from the Cape May Trustee, stating that the principal of all Cape May 1994 Series A Bonds then outstanding under the Cape May Indenture has been declared to be immediately due and payable pursuant to the provisions of Section 10.02 thereof and that such declaration of maturity has not been rescinded, the Trustee shall within 10 days of receiving such Redemption Demand mail a copy to the Company stamped or otherwise marked to show the date of receipt by the Trustee, and, in such event, the Company shall fix a redemption date for the redemption so demanded and shall mail to the Trustee notice of such date at least 30 days prior thereto. Such redemption date may be any day fixed by the Company which shall be not more than 180 days after the receipt of the Redemption Demand by the Company from the Trustee. If the Trustee does not receive such notice from the Company within 150 days after the Redemption Demand shall have been received by the Trustee, then the redemption date shall be the 180th day after such receipt of the Redemption Demand by the Company and the bonds of the Forty-fifth Series shall become due, together with accrued interest thereon, on such 180th day. The Trustee shall mail notice of the redemption date (hereinafter called the "Demand Redemption Notice") to the Cape May Trustee as hereinafter provided, provided however, that the Trustee shall not mail any Demand Redemption Notice (and no such redemption shall be made) if the Trustee shall have received a written cancellation of the Redemption Demand from the Cape May Trustee prior to the mailing of the Demand Redemption Notice. Anything in this paragraph contained to the contrary notwithstanding, if, after mailing of the Demand Redemption Notice and prior to the date fixed for redemption, the Trustee shall have been advised in writing by the Cape May Trustee that the Redemption Demand has been rescinded or that the declaration of maturity of the Cape May 1994 Series A Bonds has been rescinded, the Demand Redemption Notice shall thereupon, without further act of the Trustee or the Company, be rescinded and become null and void for all purposes hereunder and no redemption of the bonds of the Forty-fifth Series and no payments in respect thereof shall be effected or required. Any such redemption shall be at the redemption price equal to the principal amount of the bonds of the Forty-fifth Series to be redeemed, together with accrued interest to the date fixed for redemption. For the purposes of this Section 2, a demand or notice from the Cape May Trustee shall be executed on behalf of such trustee by its President or a Vice President or a Trust Officer, and shall be deemed received by the Trustee when delivered at its corporate trust office in the Borough of Manhattan, the City of New York. The Trustee may conclusively rely, as to the truth of the statements contained therein, upon any such demand. Notwithstanding the provisions of Section 52 of the Original Indenture, any Demand Redemption Notice shall be given by mail to the registered holder(s) of bonds of the Forty-fifth Series, not more than 10 or less than 5 days prior to the date fixed for redemption, and the registered holders of bonds of the Forty-fifth Series, by the acceptance of such bonds, waive any additional or further notice of redemption provided in the Original Indenture. Each bond or portion thereof of the Forty-fifth Series called for redemption under this Section 2 shall be due and payable at the office of the Cape May Trustee, as paying agent hereunder, at the applicable redemption price and on the specified redemption date, anything herein or in such bond to the contrary notwithstanding; provided, however, that notwithstanding the foregoing or any provisions of the Original Indenture, this Third 1994 Supplemental Indenture, the bonds of the Forty-fifth Series, or any notice of redemption of the bonds of the Forty-fifth Series to the contrary, in the case of bonds of the Forty-fifth Series to be redeemed pursuant to subsections (a) or (b) above, the notice of redemption in respect of such bonds shall, without further act of the Trustee or the Company, be rescinded and become null and void for all purposes hereunder and no redemption of such bonds and no payments in respect thereof shall be effected or required unless an equal principal amount of Cape May 1994 Series A Bonds are due and payable on such redemption date. From and after the date when each bond or portion thereof of the Forty-fifth Series shall be due and payable as aforesaid (unless upon said date the full amount due thereon shall not be held by the Cape May Trustee, as paying agent hereunder, and be immediately available for payment), all further interest shall cease to accrue on such bond or on such portion thereof, as the case may be. If only a portion of any bond of the Forty-fifth Series shall be called for redemption pursuant to this Section 2, the notice of redemption hereinbefore provided for shall specify the portion of the principal amount thereof to be redeemed. Upon payment of the portion so called for redemption, the Cape May Trustee shall make an appropriate notation upon the bond of the principal amount so redeemed. Bonds of the Forty-fifth Series shall not be transferable except as provided in the Cape May Indenture and then only upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, the City of New York, by the registered holders thereof, in person or by duly authorized attorney, in the manner prescribed in the Original Indenture. In the manner prescribed in the Original Indenture, bonds of the Forty-fifth Series may be exchanged for a like aggregate principal amount of fully registered bonds, without coupons, of the Forty-fifth Series of other authorized denominations, upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the borough of Manhattan, the City of New York. SECTION 3. The Company hereby creates a forty-sixth series of bonds to be issued under and secured by the Original Indenture and this Third 1994 Supplemental Indenture, to be designated and to be distinguished from the bonds of all other series by the title "First Mortgage Bonds, 7% Pollution Control Series B of 1994" (herein sometimes referred to as the "bonds of the Forty-sixth Series"). Bonds of the Forty-sixth Series shall mature on the maturity date of the Cape May 1994 Series B Bonds and shall be issued in temporary or definitive form, only as fully registered bonds, without coupons, in denominations of $5,000 and any multiple or multiples of $5,000 authorized by the Company; they shall bear interest at the rate of seven per centum per annum payable semiannually on the interest payment dates of the Cape May 1994 Series B Bonds; and the principal of, premium, if any, and interest on each said bond shall be payable at the office or agency of the Company, in Hackensack, New Jersey, and, at the option of the Company, at the office or agency of the Company in the City of New York, in lawful money of the United States of America; provided, however, that the Company shall receive the credits in respect of interest on and principal of bonds of the Forty-sixth Series as set forth in Section 6 hereof. Every bond of the Forty-sixth Series shall be dated and shall bear interest as provided in Section 10 of the Original Indenture; provided, however, that bonds of the Forty-sixth Series authenticated by the Trustee prior to the first interest payment date shall bear interest from November 1, 1994; and provided further, that if and to the extent that the Company shall default in the payment of interest due on any interest payment date, then any such bond of the Forty-sixth Series shall bear interest from the interest payment date next preceding the date of such bond to which interest has been paid, unless such interest payment date is the first interest payment date, in which case from November 1, 1994. Bonds of the Forty-sixth Series shall be subject to redemption prior to maturity, but if in part only in integral multiples of $5,000, under the conditions and upon the payment of the amounts specified in the following subsections, together in each case with interest accrued to the redemption date: (a) at the option of the Company, on any date on or after November 1, 2004, either as a whole or in part from time to time on any date, at the following redemption prices, expressed in percentages of the principal amount of the bonds to be redeemed: REDEMPTION PERIOD REDEMPTION PRICE November 1, 2004 through October 31, 2005 102% November 1, 2005 through October 31, 2006 101% November 1, 2006 and thereafter 100% (b) at the option of the Company, as a whole at any time at 100% of the principal amount thereof, if any of the following events shall have occurred: (1) any federal, state or local body exercising governmental or judicial authority has taken any action which results in the imposition of unreasonable burdens or excessive liabilities with respect to the Series B Project Facilities (or the facilities serviced thereby) or the Plant, rendering impracticable or uneconomical or enjoining or restraining the operation of all or a substantial portion of the Series B Project Facilities (or the facilities serviced thereby) or the Plant, including without limitation the condemnation or taking by eminent domain of all or a substantial portion of the Series B Project Facilities (or the facilities serviced thereby) or the Plant; or (2) changes in the cost or availability of raw materials, operating supplies, or facilities or technological or other changes have made the continued operation of all or a substantial portion of the Series B Project Facilities (or the facilities serviced thereby) or the Plant, uneconomical; or (3) all or a substantial portion of the Series B Project Facilities (or the facilities serviced thereby) or the Plant have been damaged or destroyed to such an extent that it is not practicable or desirable to rebuild, repair or restore the Series B Project Facilities (or the facilities serviced thereby) or the Plant; or (4) as a result of any change in the Constitution of the State of New Jersey or the Constitution of the United States of America, or as a result of any legislative or administrative action (whether state or federal) or any final decree, judgment or order of any court or administrative body (whether state or federal) after any contest thereof by the Company in good faith, the Cape May Indenture, the Cape May Facilities Agreement, the bonds issued under the Original Indenture, as supplemented, in accordance with the Cape May Facilities Agreement, or the bonds issued under the Cape May Indenture, as supplemented, shall become void or unenforceable or impossible to perform in accordance with the intent and purposes of the parties as expressed in the Cape May Facilities Agreement. Any such redemption shall be on any date within one year following the determination by the Company as evidenced by the adoption of the resolution of the Board of Directors of the company described below that one of the events listed above permitting the exercise of the option has occurred. (c) in whole (or in part, as hereinafter provided), at 100% of the principal amount thereof, plus interest accrued to the redemption date, in the event that it is finally determined by the Internal Revenue Service or by a court of competent jurisdiction that, as a result of the failure by the Company to observe any covenant, agreement or representation in the Cape May Facilities Agreement, the interest payable on the Cape May 1994 Series B Bonds is includable for federal income tax purposes in the gross income of any owner for federal income tax purposes of a Cape May 1994 Series B Bond, other than an owner who is a "substantial user" of the Series B Project Facilities or a "related person", as provided in Section 147(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the applicable regulations thereunder. Any such determination will not be considered final for this purpose until the expiration of all periods for judicial review or appeal, as the case may be, nor will such a determination be deemed final unless (i) the Cape May Trustee shall have been advised by one or more owners for federal income tax purposes of the Cape May 1994 Series B Bonds that the Internal Revenue Service has notified such owner or owners in writing that it proposes to include the interest on the Cape May 1994 Series B Bonds in gross income as a result of such a failure by the Company and (ii) the Company has been afforded by the tribunal the opportunity to participate in and to direct any administrative proceeding or litigation resulting therefrom, either directly or in the name of any such owner of a Cape May 1994 Series B Bond. Any such redemption of bonds of the Forty-sixth Series shall be in an amount necessary to redeem the Cape May 1994 Series B Bonds on any date within 180 days from the time of such final determination that the Cape May 1994 Series B Bonds are to be redeemed. Bonds of the Forty-sixth Series shall be redeemed in whole after such final determination unless it is decided in such determination that redemption of a portion of the Cape May 1994 Series B Bonds outstanding would have the result that interest payable on the Cape May 1994 Series B Bonds remaining outstanding after such redemption would not be includable for federal income tax purposes in the gross income of any owner for federal income tax purposes of a Cape May 1994 Series B Bond (other than an owner who is a "substantial user" of the Series B Project Facilities or a "related person" within the meaning of Section 147(a) of the Code and the applicable regulations thereunder), and in such event bonds of the Forty-sixth Series shall be redeemed (in the principal amount of $5,000 or any integral multiple thereof) in such amount so as to accomplish that result. The election of the Company under subsections (a) or (b) above to redeem any of the bonds of the Forty-sixth Series shall be evidenced by a resolution of the Board of Directors of the Company calling for the redemption on a stated date of all or a stated principal amount thereof. To exercise its option to redeem the bonds of the Forty-sixth Series under subsection (a) or (b) above, the Company shall deliver to the Trustee, the Cape May Authority and the Cape May Trustee a certified copy of said resolution calling all or a stated principal amount of the bonds of the Forty- sixth Series for redemption on a date not more than 90 days from the date said resolution is delivered (in the case of a redemption under subsection (a) above) or not more than one year from the date of adoption of said resolution (in the case of a redemption under subsection (b) above). The delivery to the Cape May Trustee of a certified copy of such resolution shall constitute notice to the Cape May Trustee of the redemption referred to therein, on the terms specified therein. The Company shall on or before such redemption date deposit with the Cape May Trustee, as paying agent hereunder, the total applicable redemption price of all the bonds so called, with interest accrued thereon to the redemption date, less any credits to which the Company may be entitled pursuant to Section 6 hereof, and the Cape May Trustee, as such paying agent, shall apply such funds on the redemption date to the redemption of the bonds so called. The Cape May Trustee shall deliver to the Trustee prompt written notice of the occurrence of a "final determination" under subsection (c) above. Such notice shall be executed on behalf of the Cape May Trustee by its President or a Vice President or Trust Officer and shall fix a redemption date for the appropriate amounts of bonds of the Forty-sixth Series not more that 180 days after the occurrence of such "final determination". On or before such redemption date, the Company shall deposit with the Cape May Trustee, as paying agent hereunder, the total redemption price of the bonds so called, with interest accrued thereon to the redemption date, less any credits to which the Company may be entitled pursuant to Section 6 hereof, and the Cape May Trustee, as such paying agent, shall apply such funds, on the redemption date, to the redemption of the bonds so called. The delivery to the Trustee of a certified copy of such notice shall constitute notice to the Trustee of the redemption referred to therein on the terms specified therein. Whenever the Trustee shall receive a written demand for redemption (hereinafter called "Redemption Demand") from the Cape May Trustee, stating that the principal of all Cape May 1994 Series B Bonds then outstanding under the Cape May Indenture has been declared to be immediately due and payable pursuant to the provisions of Section 10.02 thereof and that such declaration of maturity has not been rescinded, the Trustee shall within 10 days of receiving such Redemption Demand mail a copy to the Company stamped or otherwise marked to show the date of receipt by the Trustee, and, in such event, the Company shall fix a redemption date for the redemption so demanded and shall mail to the Trustee notice of such date at least 30 days prior thereto. Such redemption date may be any day fixed by the Company which shall be not more than 180 days after the receipt of the Redemption Demand by the Company from the Trustee. If the Trustee does not receive such notice from the Company within 150 days after the Redemption Demand shall have been received by the Trustee, then the redemption date shall be the 180th day after such receipt of the Redemption Demand by the Company and the bonds of the Forty-sixth Series shall become due, together with accrued interest thereon, on such 180th day. The Trustee shall mail notice of the redemption date (hereinafter called the "Demand Redemption Notice") to the Cape May Trustee as hereinafter provided, provided however, that the Trustee shall not mail any Demand Redemption Notice (and no such redemption shall be made) if the Trustee shall have received a written cancellation of the Redemption Demand from the Cape May Trustee prior to the mailing of the Demand Redemption Notice. Anything in this paragraph contained to the contrary notwithstanding, if, after mailing of the Demand Redemption Notice and prior to the date fixed for redemption, the Trustee shall have been advised in writing by the Cape May Trustee that the Redemption Demand has been rescinded or that the declaration of maturity of the Cape May 1994 Series B Bonds has been rescinded, the Demand Redemption Notice shall thereupon, without further act of the Trustee or the Company, be rescinded and become null and void for all purposes hereunder and no redemption of the bonds of the Forty-sixth Series and no payments in respect thereof shall be effected or required. Any such redemption shall be at the redemption price equal to the principal amount of the bonds of the Forty-sixth Series to be redeemed, together with accrued interest to the date fixed for redemption. For the purposes of this Section 3, a demand or notice from the Cape May Trustee shall be executed on behalf of such trustee by its President or a Vice President or a Trust Officer, and shall be deemed received by the Trustee when delivered at its corporate trust office in the Borough of Manhattan, the City of New York. The Trustee may conclusively rely, as to the truth of the statements contained therein, upon any such demand. Notwithstanding the provisions of Section 52 of the Original Indenture, any Demand Redemption Notice shall be given by mail to the registered holder(s) of bonds of the Forty-sixth Series, not more than 10 or less than 5 days prior to the date fixed for redemption, and the registered holders of bonds of the Forty-sixth Series, by the acceptance of such bonds, waive any additional or further notice of redemption provided in the Original Indenture. Each bond or portion thereof of the Forty-sixth Series called for redemption under this Section 3 shall be due and payable at the office of the Cape May Trustee, as paying agent hereunder, at the applicable redemption price and on the specified redemption date, anything herein or in such bond to the contrary notwithstanding; provided, however, that notwithstanding the foregoing or any provisions of the Original Indenture, this Third 1994 Supplemental Indenture, the bonds of the Forty-sixth Series, or any notice of redemption of the bonds of the Forty-sixth Series to the contrary, in the case of bonds of the Forty-sixth Series to be redeemed pursuant to subsections (a) or (b) above, the notice of redemption in respect of such bonds shall, without further act of the Trustee or the Company, be rescinded and become null and void for all purposes hereunder and no redemption of such bonds and no payments in respect thereof shall be effected or required unless an equal principal amount of Cape May 1994 Series B Bonds are due and payable on such redemption date. From and after the date when each bond or portion thereof of the Forty-sixth Series shall be due and payable as aforesaid (unless upon said date the full amount due thereon shall not be held by the Cape May Trustee, as paying agent hereunder, and be immediately available for payment), all further interest shall cease to accrue on such bond or on such portion thereof, as the case may be. If only a portion of any bond of the Forty-sixth Series shall be called for redemption pursuant to this Section 3, the notice of redemption hereinbefore provided for shall specify the portion of the principal amount thereof to be redeemed. Upon payment of the portion so called for redemption, the Cape May Trustee shall make an appropriate notation upon the bond of the principal amount so redeemed. Bonds of the Forty-sixth Series shall not be transferable except as provided in the Cape May Indenture and then only upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, the City of New York, by the registered holders thereof, in person or by duly authorized attorney, in the manner prescribed in the Original Indenture. In the manner prescribed in the Original Indenture, bonds of the Forty-sixth Series may be exchanged for a like aggregate principal amount of fully registered bonds, without coupons, of the Forty-sixth Series of other authorized denominations, upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the borough of Manhattan, the City of New York. SECTION 4. In accordance with and in compliance with the provisions of Article V of the Original Indenture, $25,000,000 principal amount of bonds of the Forty-fifth Series and $6,500,000 principal amount of bonds of the Forty-sixth Series may be executed on behalf of the Company and delivered to the Trustee, and shall be authenticated by the Trustee and delivered (without awaiting the filing or recording of this Third 1994 Supplemental Indenture) from time to time in accordance with the order or orders of the Company, evidenced by a writing or writings signed in the name of the Company by its President, or one of its Vice Presidents and its Treasurer or one of its Assistant Treasurers. The bonds of the Forty-fifth and Forty-sixth Series shall be executed in the name of the Company by the manual or facsimile signature of its President or one of its Senior Vice Presidents or Vice Presidents, and its corporate seal, or a facsimile thereof, to be impressed or imprinted thereon and attested by the signature, or a facsimile thereof, of its Secretary or one of its Assistant Secretaries. SECTION 5. The Company shall be entitled to credits against amounts otherwise payable in respect of the bonds of the Forty- fifth Series in an amount or amounts corresponding to (i) the principal amount of any Cape May 1994 Series A Bond surrendered to the Cape May Trustee by the Company or the Cape May Authority, or purchased by the Cape May Trustee, for cancellation and (ii) the amount of moneys held by the Cape May Trustee and available and designated for the payment of principal or redemption price of, and/or interest on, the Cape May 1994 Series A Bonds, from any other source of payment to the Cape May Trustee of such moneys other than payments of principal of, premium, if any, or interest on bonds of the Forty-fifth Series. A certificate of the Company signed by its President or any Vice President, and by the Secretary or any Assistant Secretary, and consented to in writing by the Cape May Trustee, stating that the Company is entitled to a credit under this Section 5, and setting forth the basis therefor in reasonable detail, shall be conclusive evidence of such entitlement and, in the case of a credit with respect to the principal amount of the bonds of the Forty-fifth Series, of the discharge of the Company's obligation with respect to the payment of such principal amount, and the Trustee shall accept and shall be entitled to rely upon such certificate as such evidence without further investigation or verification of the matters stated therein. SECTION 6. The Company shall be entitled to credits against amounts otherwise payable in respect of the bonds of the Forty- sixth Series in an amount or amounts corresponding to (i) the principal amount of any Cape May 1994 Series B Bond surrendered to the Cape May Trustee by the Company or the Cape May Authority, or purchased by the Cape May Trustee, for cancellation and (ii) the amount of moneys held by the Cape May Trustee and available and designated for the payment of principal or redemption price of, and/or interest on, the Cape May 1994 Series B Bonds, from any other source of payment to the Cape May Trustee of such moneys other than payments of principal of, premium, if any, or interest on bonds of the Forty-sixth Series. A certificate of the Company signed by its President or any Vice President, and by the Secretary or any Assistant Secretary, and consented to in writing by the Cape May Trustee, stating that the Company is entitled to a credit under this Section 6, and setting forth the basis therefor in reasonable detail, shall be conclusive evidence of such entitlement and, in the case of a credit with respect to the principal amount of the bonds of the Forty-sixth Series, of the discharge of the Company's obligation with respect to the payment of such principal amount, and the Trustee shall accept and shall be entitled to rely upon such certificate as such evidence without further investigation or verification of the matters stated therein. SECTION 7. The approval by the Board of Public Utilities, State of New Jersey of the execution and delivery of this Third 1994 Supplemental Indenture shall not in anywise be construed as approval by said Board of any other act, matter or thing which requires the approval of said Board under the laws of the State of New Jersey; nor shall said approval bind said Board or any other public body or authority of the State of New Jersey having jurisdiction in the premises in any future application for the issue of bonds under the Original Indenture or any indenture supplemental thereto or otherwise. SECTION 8. As supplemented by this Third 1994 Supplemental Indenture, the Original Indenture is in all respects ratified and confirmed and the Original Indenture and this Third 1994 Supplemental Indenture shall be read, taken and construed as one and the same instrument. Nothing in this Third 1994 Supplemental Indenture contained shall, or shall be construed to, confer upon any person other than the holders of bonds issued under the Original Indenture and this Third 1994 Supplemental Indenture, the Company and the Trustee, any right to avail themselves of any benefit of any provision of the Original Indenture or of this Third 1994 Supplemental Indenture. The Trustee assumes no responsibility for the correctness of the recitals of facts contained herein and makes no representations as to the validity of this Third 1994 Supplemental Indenture. This Third 1994 Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, ATLANTIC CITY ELECTRIC COMPANY, party of the first part, has caused this instrument to be signed in its name and behalf by its President or a Vice President, and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary, and THE BANK OF NEW YORK, party hereto of the second part, has caused this instrument to be signed in its name and behalf by a Vice President or an Assistant Vice President and its corporate seal to be hereunto affixed and attested by an Assistant Vice President or an Assistant Treasurer. Executed and delivered by Atlantic City Electric Company in the Township of Egg Harbor, New Jersey, the 3rd day of November, 1994. ATLANTIC CITY ELECTRIC COMPANY SEAL By: /s/ L. M. Walters (L. M. Walters) Vice President ATTEST: /s/ F. F. Frankowski (F. F. Frankowski) Assistant Secretary Signed, sealed and delivered by ATLANTIC CITY ELECTRIC COMPANY in the presence of: /s/ R. K. Marshall (R. K. Marshall) /s/ E. L. Kaminsky (E. L. Kaminsky) THE BANK OF NEW YORK SEAL By:/s/ Mary Jane Morrissey (Mary Jane Morrissey) Assistant Vice President ATTEST: /s/ Lucille Firrincieli (Lucille Firrincieli) Assistant Vice President Signed, sealed and delivered by THE BANK OF NEW YORK in the presence of: STATE OF NEW JERSEY ss: COUNTY OF ATLANTIC BE IT REMEMBERED that on this 3rd day of November, in the year of our Lord one thousand nine hundred and ninety-four before me, a Notary Public in and for the State and County aforesaid, personally appeared F. F. Frankowski, who being by me duly sworn on his oath says that he is Assistant Secretary of Atlantic City Electric Company, the grantor in the foregoing Indenture Supplemental to Mortgage and Deed of Trust, and that L. M. Walters is a Vice President; that deponent knows the common or corporate seal of said grantor, and the seal annexed to the said Indenture Supplemental to Mortgage and Deed of Trust is such common or corporate seal; that the said Indenture Supplemental to Mortgage and Deed of Trust was signed by the said Vice President and the seal of said grantor affixed thereto in the presence of deponent; that said Indenture Supplemental to Mortgage and Deed of Trust was signed, sealed and delivered as and for the voluntary act and deed of said grantor for the uses and purposes therein expressed, pursuant to a resolution of the Board of Directors of said grantor; and at the execution thereof this deponent subscribed his name thereto as witness. Sworn and subscribed the day and year aforesaid. STEPHANIE M. SCOLA NOTARY PUBLIC OF NEW JERSEY My Commission Expires October 13, 1999 [ SEAL ] STATE OF NEW YORK ss: COUNTY OF NEW YORK BE IT REMEMBERED that on this 4th day of November, in the year of our Lord one thousand nine hundred and ninety-four before me, a Notary Public in and for the State and County aforesaid, personally appeared Lucille Firrincieli, who being by me duly sworn on her oath says that she is an Assistant Vice President of THE BANK OF NEW YORK, the Trustee named in the foregoing Indenture Supplemental to Mortgage and Deed of Trust, and that Mary Jane Morrissey is an Assistant Vice President; that deponent knows the common or corporate seal of said Trustee, and that the seal annexed to the said Indenture Supplemental to Mortgage and Deed of Trust is such common or corporate seal; that the said Indenture Supplemental to Mortgage and Deed of Trust was signed by the said Assistant Vice President and the seal of said Trustee affixed thereto in the presence of deponent; that said Indenture Supplemental to Mortgage and Deed of Trust was signed, sealed and delivered as and for the voluntary act and deed of said Trustee for the uses and purposes therein expressed, pursuant to authority of the Board of Directors of said Trustee; and at the execution thereof this deponent subscribed his name thereto as witness. Sworn and subscribed the day and year aforesaid. [SEAL] WILLIAM J. CASSELS NOTARY PUBLIC STATE OF NEW YORK No. 01CA5027729 My Commission Expires May 16, 1996 CERTIFICATE OF RESIDENCE THE BANK OF NEW YORK, Mortgagee and Trustee within named, hereby certifies that its precise residence is 101 Barclay Street, in the Borough of Manhattan, in The City of New York, in the State of New York. THE BANK OF NEW YORK By:/s/ Lucille Firrinciel Lucille Firrincieli Assistant Vice President SCHEDULE I This Bond is not transferable except as provided in the Trust Indenture dated as of November 1, 1994 of the Pollution Control Financing Authority of Cape May County (New Jersey) to United Jersey Bank, as Trustee. ATLANTIC CITY ELECTRIC COMPANY First Mortgage Bond % Pollution Control Series of 1994 Due November 1, 2029 No. $ ATLANTIC CITY ELECTRIC COMPANY, a corporation of the State of New Jersey (hereinafter called the Company), for value received, hereby promises to pay to United Jersey Bank, as trustee under the Trust Indenture dated as of November 1, 1994, of the Pollution Control Financing Authority of Cape May County (New Jersey) to United Jersey Bank, as trustee, or registered assigns, on November 1, 2029, at the office or agency of the Company in Hackensack, New Jersey, Dollars in lawful money of the United States of America, and to pay to the person in whose name this bond is registered interest thereon from November 1, 1994 or, if interest to any November 1 or May 1 has been paid, from the November 1 or May 1, as the case may be, next preceding the date of this bond to which interest has been paid, unless such interest payment date is May 1, 1995, in which case from November 1, 1994, at the rate of __________________ per centum per annum, in like money, at said office or agency on May 1 and November 1 in each year, until the Company's obligation with respect to the payment of such principal shall have been discharged. This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its First Mortgage Bonds, of the series designated in its title, all bonds of all series issued and to be issued under and equally secured (except insofar as any sinking fund, established in accordance with the provisions of the Mortgage hereinafter mentioned, may afford additional security for the bonds of any particular series) by a Mortgage and Deed of Trust (herein, together with any indentures supplemental thereto, called the Mortgage), dated January 15, 1937, executed by the Company to THE BANK OF NEW YORK, as Trustee, to which Mortgage reference is made for a description of the property mortgaged and pledged, the nature and I-1 extent of the security, the rights of the holders of the bonds in respect thereof, the duties and immunities of the Trustee, and the terms and conditions upon which the bonds are secured. With the consent of the Company and to the extent permitted by and as provided in the Mortgage, the rights and obligations of the Company and/or of the holders of the bonds and/or coupons and/or the terms and provisions of the Mortgage and/or of any instruments supplemental thereto may be modified or altered by affirmative vote of the holders of at least seventy-five per centum (75%) in principal amount of the bonds affected by such modification or alteration then outstanding under the Mortgage (excluding bonds disqualified from voting by reason of the Company's interest therein as provided in the Mortgage); provided that no such modification or alteration shall permit the extension of the maturity of the principal of this bond or the reduction in the rate of interest hereon or any other modification in the terms of payment of such principal or interest without the consent of the holder thereof. The principal hereof may be declared or may become due prior to the express date of the maturity hereof on the conditions, in the manner and at the time set forth in the Mortgage, upon the occurrence of a completed default as in the Mortgage provided. The bonds of this series are issuable in temporary or definitive form, only as fully registered bonds, without coupons, in denominations of $5,000 and authorized multiples thereof. In the manner prescribed in the Mortgage, registered bonds of this series may be exchanged for a like aggregate principal amount of registered bonds of other authorized denominations of the same series, upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner hereof for the purpose of receiving payment of or on account of principal or (subject to the provisions of the Mortgage) interest hereon and for all other purposes and the Company and the Trustee shall not be affected by any notice to the contrary. The bonds of this series are redeemable as provided in the Indenture Supplemental to Mortgage and Deed of Trust, dated as of November 1, 1994, creating the bonds of this series. Reference is made to the applicable provisions of said Supplemental Indenture, and such provisions shall for all purposes have the same effect as though fully set forth in this place. I-2 No recourse shall be had for the payment of the principal of or interest on this bond against any incorporator or any past, present or future subscriber to the capital stock, shareholder, officer or director, as such of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, subscribers, shareholders, officers and directors, as such, being released by the holder or owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Mortgage. This bond shall not become valid or obligatory for any purpose until THE BANK OF NEW YORK, the Trustee under the Mortgage, or its successor thereunder, shall have signed the form of authentication certificate endorsed hereon. IN WITNESS WHEREOF, ATLANTIC CITY ELECTRIC COMPANY has caused this bond to be executed in its name by the signature, or a facsimile thereof, of its President or one of its Senior Vice Presidents or Vice Presidents, and its corporate seal, or a facsimile thereof, to be impressed or imprinted hereon and attested by the signature, or a facsimile thereof, of its Secretary or one of its Assistant Secretaries. Dated, ATLANTIC CITY ELECTRIC COMPANY By (Title) ATTEST: (Title) TRUSTEE'S AUTHENTICATION CERTIFICATE This bond is one of the bonds, of the series herein designated, described in the within-mentioned Mortgage. Dated, THE BANK OF NEW YORK, Trustee By Authorized Signatory I-3 EX-12 3 EXHIBIT 12 ATLANTIC CITY ELECTRIC COMPANY STATEMENT OF COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES (Amounts in Thousands of Dollars, except Ratios) Year Ended December 31 Twelve Months Ended 1989 1990 1991 1992 1993 September 30, 1994 Net Income $ 91,743 $ 80,176 $107,428 $107,446 $109,026 $112,340 Federal Income Taxes Current 20,389 24,714 37,759 33,661 29,680 32,589 Deferred 6,724 6,709 3,957 16,064 18,747 15,344 Investment Tax Credits - Net (2,449) (2,349) (2,537) (2,534) (2,534) (2,534) $ 24,664 $ 29,074 $ 39,179 $ 47,191 $ 45,893 $ 45,399 Fixed Charges Interest on Long Term Debt $ 44,776 $ 52,370$ 49,081 $ 50,719 $ 56,279 $ 54,392 Amortization of Debt Expense, Discount and Premium. Net 2,355 2,433 2,520 2,565 3,106 3,486 Interest on Short Term Debt 5,231 1,510 1,946 1,579 1,421 1,624 Other Interest Expense 909 109 1,179 1,099 212 (590) Interest Factors Associated with Rental Exp 4,777 6,167 5,551 4,177 3,884 4,062 $ 58,048 $ 62,589$ 60,277 $ 60,139 $ 64,902 $ 62,974 Earnings Before Income Taxes and Fixed Charges (a) $172,762 $169,773 $205,279 $213,716 $218,950 $219,775 Ratio of Earnings to Fixed Charges 2.98 2.71 3.41 3.55 3.37 3.49 __________________ (a) Excludes the amount of capitalized interest associated with fixed charges.
EX-27.1 4
UT 0000008192 ATLANTIC CITY ELECTRIC COMPANY 9-MOS 9-MOS DEC-31-1994 DEC-31-1993 jan-01-1994 jan-01-1993 SEP-30-1994 SEP-30-1993 PER-BOOK PER-BOOK 1,752,580 1,733,583 51,047 44,460 267,785 241,879 385,589 343,662 0 0 2,457,001 2,363,584 54,963 54,963 491,360 466,090 278,898 256,961 825,221 778,014 173,750 173,750 40,000 40,000 738,980 751,101 40,400 0 0 0 0 0 0 0 12,250 12,250 37,633 44,407 911 861 587,856 563,201 2,457,001 2,363,584 710,765 665,161 43,394 45,240 539,170 489,033 582,564 534,273 128,201 130,888 11,113 8,102 139,314 138,990 41,868 44,859 97,446 94,131 12,928 13,096 84,518 81,035 62,581 60,746 0 0 83,921 115,235 0 0 0 0
EX-27.2 5
UT 0000806393 ATLANTIC ENERGY INC 9-MOS 9-MOS DEC-31-1994 DEC-31-1993 SEP-30-1994 sep-30-1993 PER-BOOK PER-BOOK 1,752,580 1,733,583 168,134 153,068 269,972 256,305 386,581 344,552 0 0 2,577,267 2,487,508 596,941 579,443 0 0 279,952 256,549 876,893 835,992 173,750 173,750 40,000 40,000 753,980 766,101 40,400 0 0 0 0 0 0 0 12,250 12,250 37,633 44,407 911 861 641,450 614,147 2,577,267 2,487,508 710,629 665,078 43,394 45,240 538,664 488,431 582,058 533,671 128,571 131,407 12,209 9,965 140,780 141,3720 41,868 44,859 98,912 96,513 12,928 13,096 85,984 83,417 62,581 60,746 0 0 84,791 114,224 1.59 1.58 1.59 1.58
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