-----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, BvcOfA9oKGiO73lSXuF2THSdVT53u43dSzveztHr9EYI3Do79UQ8EKFdyMl8qjoJ JXjisYCnFL7FbHvgsAC1Ww== 0000008192-97-000033.txt : 19970815 0000008192-97-000033.hdr.sgml : 19970815 ACCESSION NUMBER: 0000008192-97-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: AMEX 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: 97662960 BUSINESS ADDRESS: STREET 1: 6801 BLACK HORSE PIKE CITY: EGG HARBOR TOWNSHIP STATE: NJ ZIP: 08232 BUSINESS PHONE: 6096454100 MAIL ADDRESS: STREET 1: PO BOX 1264 CITY: PLEASANTVILLE STATE: NJ ZIP: 08232 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: 97662961 BUSINESS ADDRESS: STREET 1: 6801 BLACK HORSE PIKE CITY: EGG HARBOR TOWNSHIP STATE: NJ ZIP: 08234 BUSINESS PHONE: 6096454518 MAIL ADDRESS: STREET 1: 6801 BLACK HORSE PIKE CITY: EGG HARBOR TOWNSHIP STATE: NJ ZIP: 08234 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 June 30, 1997 ( ) 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 Egg Harbor Township, NJ 08234 (609) 645-4500 1-3559 Atlantic City Electric Company 21-0398280 (New Jersey) 6801 Black Horse Pike Egg Harbor Township, NJ 08234 (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. 52,504,479 shares (as of August 8, 1997) All of the outstanding shares of Common Stock of Atlantic City Electric Company are owned by Atlantic Energy, Inc. Atlantic Energy, Inc. and Atlantic City Electric Company Form 10-Q For the Quarter Ended June 30, 1997 INDEX Page No. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Atlantic Energy, Inc. Consolidated Statement of Income and Retained Earnings 1 Consolidated Statement of Cash Flows 3 Consolidated Balance Sheet 4 Atlantic City Electric Company Consolidated Statement of Income and Retained Earnings 6 Consolidated Statement of Cash Flows 8 Consolidated Balance Sheet 9 Notes to Financial Statements Atlantic Energy, Inc. and Atlantic City Electric Company 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Atlantic Energy, Inc. and Atlantic City Electric Company 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings 32 Item 5. Other Information 33 Item 6. Exhibits and Reports on Form 8-K 35 Signatures 36 Atlantic Energy, Inc and Subsidiaries CONSOLIDATED STATEMENT OF INCOME (Thousands of Dollars, except per share data) Quarter Ended June 30, 1997 1996 (unaudited) Operating Revenues-Electric $225,556 $225,678 Operating Expenses: Energy 45,756 46,495 Purchased Capacity 49,066 47,903 Operations 32,881 39,455 Maintenance 7,487 11,735 Depreciation and Amortization 20,737 19,973 State Excise Taxes 24,284 24,193 Federal Income Taxes 10,191 5,810 Other Taxes 2,309 2,429 Total Operating Expenses 192,711 197,993 Operating Income 32,845 27,685 Other Income: Allowance for Equity Funds Used During Construction 281 272 Other-Net 2,956 1,879 Total Other Income 3,237 2,151 Interest Charges: Interest on Long Term Debt 14,944 15,041 Other Interest Expense 1,725 1,831 Total Interest Charges 16,669 16,872 Allowance for Borrowed Funds Used During Construction (286) (295) Net Interest Charges 16,383 16,577 Less Preferred Securities Dividend Requirements of Subsidiary 2,854 3,009 Net Income $ 16,845 $ 10,250 Average Number of Shares of Common 52,502 52,702 Stock Outstanding (in thousands) Per Common Share: Earnings $ .32 $ .20 Dividends Declared $ .385 $ .385 Dividends Paid $ .385 $ .385 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Atlantic Energy, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (Thousands of Dollars, except per share data) Year-to-Date June 30, 1997 1996 (unaudited) Operating Revenues-Electric $460,955 $471,003 Operating Expenses: Energy 102,495 105,278 Purchased Capacity 97,321 97,232 Operations 62,338 75,168 Maintenance 13,881 22,450 Depreciation and Amortization 41,300 40,224 State Excise Taxes 49,025 50,998 Federal Income Taxes 21,938 13,615 Other Taxes 5,228 5,372 Total Operating Expenses 393,526 410,337 Operating Income 67,429 60,666 Other Income: Allowance for Equity Funds Used During Construction 544 492 Other-Net 5,146 2,785 Total Other Income 5,690 3,277 Interest Charges: Interest on Long Term Debt 29,650 30,136 Other Interest Expense 2,833 2,630 Total Interest Charges 32,483 32,766 Allowance for Borrowed Funds Used During Construction (548) (626) Net Interest Charges 31,935 32,140 Less Preferred Securities Dividend Requirements of Subsidiary 5,708 6,019 Net Income 35,476 25,784 Retained Earnings at Beginning of Period 227,630 249,741 Dividends Declared on Common Stock (40,428) (40,580) Retained Earnings at End of Period $222,678 $234,945 Average Number of Shares of Common 52,503 52,702 Stock Outstanding (in thousands) Per Common Share: Earnings $ .68 $ .49 Dividends Declared $ .77 $ .77 Dividends Paid $ .77 $ .77 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Atlantic Energy Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of Dollars) Year-to-Date Ended June 30, 1997 1996 Cash Flows Of Operating Activities: (unaudited) Net Income $ 35,476 $ 25,784 Unrecovered Purchased Power Costs 8,563 8,206 Deferred Energy Costs (1,983) (4,244) Preferred Securities Dividends of ACE 5,708 6,019 Depreciation and Amortization 41,300 40,224 Deferred Income Taxes-Net (791) (514) Prepaid State Excise Taxes (46,865) (45,409) Unrecovered State Excise Taxes 4,780 4,780 Changes - Net Working Capital Components: Accounts Receivable & Unbilled Revenues (12,500) (7,244) Accounts Payable (15,154) (7,473) Inventory 2,133 2,798 Other 14,330 21,565 Other-Net (9,481) (3,665) Net Cash Provided by Operating Activities 25,516 40,827 Cash Flows Of Investing Activities: Utility Cash Construction Expenditures (39,265) (40,220) Nonutility Construction Expenditures (27,101) (3,154) Partnership Distribution 4,420 10,729 Nuclear Decommissioning Trust Fund Deposits (3,212) (3,212) Other-Net (4,795) (4,104) Net Cash Used in Investing Activities (69,953) (39,961) Cash Flows Of Financing Activities: Retirement and Maturity of Long Term Debt (100) (19,266) Proceeds from Long Term Debt 55,925 1,000 Proceeds from Short Term Debt 35,950 76,720 Redemption of Preferred Stock - (12,120) Dividends Declared-ACE Preferred Securities (5,708) (6,019) Dividends Declared on Common Stock (40,428) (40,580) Other-Net 1,086 3,790 Net Cash Provided by Financing Activities 46,725 3,525 Net Increase in Cash and Temporary Investments 2,288 4,391 Cash and Temporary Investments: beginning of period 15,278 5,691 end of period $ 17,566 $ 10,082 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Atlantic Energy, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEET June 30, December 31, (Thousands of Dollars) 1997 1996 (unaudited) Assets Electric Utility Plant In Service $2,540,498 $2,508,220 Less Accumulated Depreciation 894,176 871,531 Utility Plant in Service-Net 1,646,322 1,636,689 Construction Work in Progress 102,360 117,188 Land Held for Future Use 5,604 5,604 Leased Property-Net 36,795 39,914 Electric Utility Plant-Net 1,791,081 1,799,395 Investments and Nonutility Property: Investment in Leveraged Leases 80,080 79,687 Nuclear Decommissioning Trust Fund 76,528 71,120 Nonutility Property and Equipment-Net 73,252 46,147 Other Investments and Funds 53,276 53,550 Total Investments and Nonutility Property 283,136 250,504 Current Assets: Cash and Temporary Investments 17,566 15,278 Accounts Receivable: Utility Service 63,334 64,432 Miscellaneous 38,171 32,547 Allowance for Doubtful Accounts (3,500) (3,500) Unbilled Revenues 41,289 33,315 Fuel (at average cost) 27,887 29,682 Materials and Supplies (at average cost) 23,477 23,815 Working Funds 15,071 15,517 Deferred Energy Costs 35,512 33,529 Prepaid Excise Tax 53,990 7,125 Other 14,545 11,354 Total Current Assets 327,342 263,094 Deferred Debits: Unrecovered Purchased Power Costs 74,837 83,400 Recoverable Future Federal Income Taxes 85,858 85,858 Unrecovered State Excise Taxes 49,934 54,714 Unamortized Debt Costs 43,482 44,423 Other Regulatory Assets 61,386 59,575 License Fees 26,761 17,733 Other 14,464 12,066 Total Deferred Debits 356,722 357,769 Total Assets $2,758,281 $2,670,762 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Atlantic Energy, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEET (Thousands of Dollars) June 30, December 31, 1997 1996 (unaudited) Liabilities and Capitalization Capitalization: Common Shareholders' Equity: Common Stock $ 562,686 $ 562,746 Retained Earnings 222,678 227,630 Unearned Compensation (2,676) (2,982) Total Common Shareholders' Equity 782,688 787,394 Preferred Securities of Atlantic Electric: Preferred Stock: Not Subject to Mandatory Redemption 30,000 30,000 Subject to Mandatory Redemption 43,950 43,950 Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company 70,000 70,000 Long Term Debt 786,187 829,745 Total Capitalization (excluding current portion) 1,712,825 1,761,089 Current Liabilities: Preferred Stock Redemption Requirement 10,000 10,000 Capital Lease Obligation-Current Portion 729 702 Long Term Debt-Current Portion 197,675 98,250 Short Term Debt 100,900 64,950 Accounts Payable 51,354 66,508 Taxes Accrued 30,593 7,504 Interest Accrued 21,133 20,241 Dividends Declared 21,624 21,701 Deferred Income Taxes 3,013 3,190 Provision for Rate Refunds - 13,000 Other 30,791 24,696 Total Current Liabilities 467,812 330,742 Deferred Credits and Other Liabilities: Deferred Income Taxes 433,494 434,108 Deferred Investment Tax Credits 45,310 46,577 Capital Lease Obligations 36,066 39,212 Other Post-Retirement Benefits 35,608 32,608 Other 27,166 26,426 Total Deferred Credits and Other Liabilities 577,644 578,931 Total Liabilities and Capitalization $2,758,281 $2,670,762 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Atlantic City Electric Company and Subsidiaries CONSOLIDATED STATEMENT OF INCOME (Thousands of Dollars) Quarter Ended June 30, 1997 1996 (unaudited) Operating Revenues-Electric $227,237 $226,035 Operating Expenses: Energy 45,756 46,495 Purchased Capacity 49,066 47,903 Operations 32,886 39,479 Maintenance 7,491 11,746 Depreciation and Amortization 20,737 19,973 State Excise Taxes 24,284 24,193 Federal Income Taxes 10,191 5,810 Other Taxes 2,309 2,429 Total Operating Expenses 192,720 198,028 Operating Income 34,517 28,007 Other Income: Allowance for Equity Funds Used During Construction 281 272 Miscellaneous Income-Net 1,705 1,762 Total Other Income 1,986 2,034 Interest Charges: Interest on Long Term Debt 14,944 15,041 Other Interest Expense 1,725 1,831 Total Interest Charges 16,669 16,872 Allowance for Borrowed Funds Used During Construction (286) (295) Net Interest Charges 16,383 16,577 Less Company-Obligated Mandatorily Redeemable Preferred Securities Dividends of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company 1,444 - Net Income 18,676 13,464 Less Preferred Dividend Requirements 1,410 3,009 Balance Available for Common Shareholder $ 17,266 $ 10,455 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Atlantic City Electric Company and Subsidiaries CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (Thousands of Dollars) Year-to-Date June 30, 1997 1996 (unaudited) Operating Revenues-Electric $463,363 $471,507 Operating Expenses: Energy 102,495 105,278 Purchased Capacity 97,321 97,232 Operations 62,303 75,239 Maintenance 13,887 22,466 Depreciation and Amortization 41,300 40,224 State Excise Taxes 49,025 50,998 Federal Income Taxes 21,938 13,615 Other Taxes 5,228 5,372 Total Operating Expenses 393,497 410,424 Operating Income 69,866 61,083 Other Income: Allowance for Equity Funds Used During Construction 544 492 Miscellaneous Income-Net 3,460 3,345 Total Other Income 4,004 3,837 Interest Charges: Interest on Long Term Debt 29,650 30,136 Other Interest Expense 2,833 2,630 Total Interest Charges 32,483 32,766 Allowance for Borrowed Funds Used During Construction (548) (626) Net Interest Charges 31,935 32,140 Less Company-Obligated Mandatorily Redeemable Preferred Securities Dividends of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company 2,888 - Net Income 39,047 32,780 Retained Earnings at Beginning of Period 234,948 252,484 273,995 285,264 Dividends Declared: Cumulative Preferred Stock (2,820) (6,019) Common Stock (40,428) (40,580) Total Dividends Declared (43,248) (46,599) Capital Stock Expense and Other - (83) Retained Earnings at End of Period $230,747 $238,582 Earnings for Common Stock: Net Income $ 39,047 $ 32,780 Less Preferred Dividend Requirements 2,820 6,019 Balance Available for Common Shareholder $ 36,227 $ 26,761 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Atlantic City Electric Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of Dollars) Year-to-Date Ended June 30, 1997 1996 Cash Flows Of Operating Activities: (unaudited) Net Income $ 39,047 $ 32,780 Unrecovered Purchased Power Costs 8,563 8,206 Deferred Energy Costs (1,983) (4,244) Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company 2,888 - Depreciation and Amortization 41,300 40,224 Deferred Federal Income Taxes-Net (752) (1,121) Prepaid State Excise Taxes (46,865) (45,409) Unrecovered State Excise Taxes 4,780 4,780 Changes - Net Working Capital Components: Accounts Receivable & Unbilled Revenues (8,888) (5,214) Accounts Payable (12,290) (7,446) Inventory 2,144 2,810 Other 9,890 10,774 Other-Net 4,503 (1,362) Net Cash Provided by Operating Activities 42,337 34,778 Cash Flows Of Investing Activities: Cash Construction Expenditures (39,265) (40,220) Leased Property (1,499) (1,832) Nuclear Decommissioning Trust Fund Deposits (3,212) (3,212) Other-Net (978) 864 Net Cash Used in Investing Activities (44,954) (44,400) Cash Flows Of Financing Activities: Proceeds from Long Term Debt 15,000 - Retirement and Maturity of Long Term Debt (100) (12,266) Proceeds from Short Term Debt 35,950 76,720 Redemption of Preferred Stock - (12,120) Dividends Declared on Preferred Stock (2,820) (6,019) Dividends on Company-Obligated Mandatory Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company (2,888) - Dividends Declared on Common Stock (40,428) (40,580) Other-Net (1,535) 3,738 Net Cash Provided by Financing Activities 3,179 9,473 Net Increase (Decrease) in Cash and Temporary Investments 562 (149) Cash and Temporary Investments: beginning of period 7,927 3,987 end of period $ 8,489 $ 3,838 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Atlantic City Electric Company and Subsidiaries CONSOLIDATED BALANCE SHEET (Thousands of Dollars) June 30, December 31, 1997 1996 (unaudited) Assets Electric Utility Plant In Service $2,540,498 $2,508,220 Less Accumulated Depreciation 894,176 871,531 Utility Plant in Service-Net 1,646,322 1,636,689 Construction Work in Progress 102,360 117,188 Land Held for Future Use 5,604 5,604 Leased Property-Net 36,795 39,914 Electric Utility Plant-Net 1,791,081 1,799,395 Investments and Nonutility Property: Nuclear Decommissioning Trust Fund 76,528 71,120 Other 9,724 9,750 Total Investments and Nonutility Property 86,252 80,870 Current Assets: Cash and Temporary Investments 8,489 7,927 Accounts Receivable: Utility Service 63,334 64,432 Miscellaneous 23,662 21,650 Allowance for Doubtful Accounts (3,500) (3,500) Unbilled Revenues 41,289 33,315 Fuel (at average cost) 27,797 29,603 Materials and Supplies (at average cost) 23,477 23,815 Working Funds 15,071 15,517 Deferred Energy Costs 35,512 33,529 Prepaid Excise Tax 53,990 7,125 Other Prepayments 10,605 10,089 Total Current Assets 299,726 243,502 Deferred Debits: Unrecovered Purchased Power Costs 74,837 83,400 Recoverable Future Federal Income Taxes 85,858 85,858 Unrecovered State Excise Taxes 49,934 54,714 Unamortized Debt Costs 42,400 43,579 Other Regulatory Assets 61,386 59,575 Other 12,463 9,848 Total Deferred Debits 326,878 336,974 Total Assets $2,503,937 $2,460,741 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Atlantic City Electric Company and Subsidiaries CONSOLIDATED BALANCE SHEET (Thousands of Dollars) June 30, December 31, 1997 1996 (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 259,960 259,078 Capital Stock Expense (1,645) (1,645) Retained Earnings 230,747 234,948 Total Common Shareholder's Equity 775,106 778,425 Preferred Securities: Preferred Stock: Not Subject to Mandatory Redemption 30,000 30,000 Subject to Mandatory Redemption 43,950 43,950 Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company 70,000 70,000 Long Term Debt 758,687 802,245 Total Capitalization (excluding current portion) 1,677,743 1,724,620 Current Liabilities: Preferred Stock Redemption Requirement 10,000 10,000 Capital Lease Obligations-Current 729 702 Long Term Debt-Current 58,675 175 Short Term Debt 100,900 64,950 Accounts Payable 51,354 63,644 Federal Income Taxes Payable-Affiliate 24,393 7,398 Other Taxes Accrued 6,668 7,494 Interest Accrued 20,383 19,619 Dividends Declared 21,624 21,701 Deferred Income Taxes 3,013 3,190 Provision for Rate Refunds - 13,000 Other 28,415 22,980 Total Current Liabilities 326,154 234,853 Deferred Credits and Other Liabilities: Deferred Income Taxes 357,006 357,580 Deferred Investment Tax Credits 45,310 46,577 Capital Lease Obligations 36,066 39,212 Other Post-Retirement Benefits 35,608 32,608 Other 26,050 25,291 Total Deferred Credits and Other Liabilities 500,040 501,268 Total Liabilities and Capitalization $2,503,937 $2,460,741 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Organizational and Other Matters of AEI and Subsidiaries Atlantic Energy, Inc. (AEI or the Company) is the parent of Atlantic City Electric Company (ACE), Atlantic Energy Enterprises, Inc. (AEE) and Atlantic Energy International, Inc. (AEII) which are wholly-owned subsidiaries. ACE is a public utility primarily engaged in the generation, transmission, distribution and sale of electric energy. AEE is a holding company which is responsible for the management of the investments in nonutility companies consisting of: Atlantic Generation, Inc. (AGI), ATE Investment, Inc. (ATE), Atlantic Southern Properties, Inc. (ASP), Atlantic Thermal Systems, Inc. (ATS), CoastalComm, Inc. (CCI) and Atlantic Energy Technology, Inc. (AET). AEE also has a 50% equity interest in Enerval, LLC. ATE also has a 94% equity interest in Enertech Capital Partners, L.P. AEII provided utility consulting services and equipment sales to international markets and is in the process of winding down its business. On January 7, 1997 ATS formed Atlantic Paxton Cogeneration, Inc. (APC) and ATS-EPC, L.P. APC incorporated in the State of Delaware, is the general partner for the acquisition of Paxton Creek Cogeneration Associates, Inc. ATS-EPC, L.P. is the limited partnership that will own and operate the Paxton Creek Cogeneration facility located in Harrisburg, Pa. ACE is the principal subsidiary of AEI. The consolidated financial information of AEI is principally the financial information of ACE unless indicated otherwise. Certain prior year amounts have been reclassified to conform to the current year reporting. On August 12, 1996, the Boards of Directors of AEI and Delmarva Power & Light Company (DP&L) jointly announced an agreement to merge the companies into Conectiv, Inc. The merger is expected to be a tax-free, stock-for-stock transaction accounted for as a purchase. Under the terms of the agreement, DP&L shareholders will receive one share of the Conectiv common stock for each share of DP&L common stock held. AEI shareholders will receive 0.75 shares of the Conectiv common stock and 0.125 shares of the Conectiv Class A common stock for each share of AEI common stock held. On January 30, 1997, the merger was approved by the shareholders of both companies. The Maryland Public Service Commission gave its approval on the merger on July 16, 1997, the Federal Energy Regulatory Commission approved the merger on July 30, 1997, and the Virginia State Corporation Commission approved the merger on August 7, 1997. In order for the merger to become effective, approval is still required from several other Federal and state regulatory agencies. The Company expects the regulatory approval process to be completed in late 1997 or early 1998. New Accounting Standards - The Financial Accounting Standards Board (FASB) issued two new Statements of Financial Accounting Standards in 1997 - Statement No. 128 (SFAS 128) "Earnings Per Share" and Statement No. 129 (SFAS 129) "Disclosure of Information about Capital Structure", which are effective for financial statements presented for periods ending after December 15, 1997. SFAS 128 specifies the computation, presentation and disclosure requirements of earnings per share for entities with publicly held common stock and potential common stock. The Company has not fully assessed the impacts of this standard on its financial statements. SFAS 129 relates to disclosures of the Company's capital structure and is not expected to change current disclosure practices of the Company with regard to capital structure. In June 1997, the FASB issued Statement No. 130 "Reporting Comprehensive Income" and Statement No. 131 "Disclosure About Segment of an Enterprise and related Information". These statements are effective for fiscal years beginning after December 15, 1997. Since these statements are primarily disclosure related, the Company currently believes that they will not have a significant effect on the Financial Statements. NOTE 2. RATE MATTERS OF ACE On March 29, 1996, ACE filed with the New Jersey Board of Public Utilities (BPU) a petition requesting a $49.7 million increase in annual Levelized Energy Clause (LEC) revenues to be effective June 1, 1996. A stipulation was reached among ACE, New Jersey Division of the Ratepayer Advocate and the Staff of the BPU and approved by the BPU on July 17, 1996, allowing ACE to implement provisional rates resulting in an increase of annual LEC revenues of $27.6 million. The stipulation provided for the continuation of BPU hearings to decide on the following LEC rate issues: $27.8 million for the estimated replacement power costs related to the Salem Units 1 and 2 outages; $1.7 million in deferred replacement power costs associated with a 1994 Salem Unit 1 outage and $1.7 million in New Jersey emission fees. The provisional LEC rates also included the deferral of $6.4 million in 1996/97 LEC costs to be recovered without carrying costs in the next LEC period. On December 19, 1996 and December 31, 1996 the BPU issued Orders approving two stipulations reached on October 22, 1996 settling the outstanding issues regarding the replacement power costs related to the current Salem outage and the 1994 Salem Unit 1 outage. The stipulations provided that ACE's replacement power costs for the current Salem outage, up to each Salem Unit's agreed-upon return-to-service date (June 30, 1997 for Unit 1 and December 31, 1996 for Unit 2), and the 1994 Salem Unit 1 outage will be recoverable in LEC rates implemented in ACE's next LEC filing (See Note 5). On April 23, 1997, the Administrative Law Judge (ALJ) submitted his decision on the recovery of the $1.7 million in emission fees and found that the emission fees are fuel related and should be recovered through ACE's LEC. On July 30, 1997, the BPU rejected the ALJ's recommendation that emission fees be included in the current LEC and ordered that the present LEC rate be continued without recovery of the emission fees. On February 28, 1997, ACE filed a petition with the BPU requesting an increase in annual LEC revenues of $20.0 million to be made effective for service rendered on and after June 1, 1997. The $20.0 million proposed increase includes recovery of Salem replacement power costs up to the agreed-upon return-to-service date for each Salem unit, in accordance with the stipulation settling the BPU's investigation into the continuing outage of the Salem Nuclear Generating Station. The proposed increase also permits recovery of $1.7 million in replacement power costs related to a 1994 outage at Salem Unit 1. ACE agreed to forego recovery of this amount in the 1996 LEC period in order to implement the provisional 1996 LEC rates. The Stipulation of Partial Settlement of ACE's 1996 LEC permits recovery of the $1.7 million. In April 1997, ACE's filing was transferred to the Office of Administrative Law. Public hearings have been scheduled for mid-September, 1997. ACE cannot predict the outcome of this matter. On January 8, 1997, the BPU approved a stipulation related to its generic proceeding for methods of implementing Statement of Financial Accounting Standard No. 106 - "Employers' Accounting for Post-retirement Benefits Other Than Pensions" (SFAS 106). SFAS 106 required publicly held companies to change from the practice of accounting for post-retirement benefits such as medical benefits, hospitalization and life insurance (OPEB), on a pay-as-you-go basis to an accrual basis of accounting. SFAS 106 required that companies recognize a transition obligation composed of the present value of OPEB obligations for retirees and current employees incurred as of the date of adoption. Statement of Financial Accounting Standards No. 71 - "Accounting for the Effects of Certain Types of Regulation" (SFAS 71) allows for the recognition of a regulatory asset relating to costs for which rate recovery has been deferred. In December 1992, the BPU approved ACE's request for the application of deferred accounting to OPEB costs. These deferred costs are recorded as a regulatory asset consistent with SFAS 71. Under the terms of the stipulation, on August 1, 1997, ACE filed its request for ratemaking treatment of OPEB expenses including an amortized recovery of the regulatory assets. In its filing, ACE requested a $6.8 million increase in annual base rate revenues for the recovery of OPEB expenses. On July 15, 1997 ACE filed its electric industry restructuring plan with the BPU as required by Energy Master Plan proposing how ACE plans to move to retail access and the possible effect on rates. (See Note 5) NOTE 3. DEBT AND PREFERRED SECURITIES AEI At June 30, 1997 and December 31, 1996, AEI had $51.5 million and $37.6 million, respectively, outstanding under its $75.0 million revolving credit and term loan facility. Proceeds have been used for general corporate purposes. ACE ACE's Cumulative Preferred Securities and long term debt securities are not widely held and generally trade infrequently. Their estimated aggregate fair market values at June 30, 1997 and December 31, 1996 are approximately $978.4 million and $975.2 million, respectively. With regard to short term debt, ACE had outstanding $100.9 million at June 30, 1997 and $65.0 million at December 31, 1996. On May 1, 1997 ACE satisfied the sinking fund requirements of $0.1 million for its 7 1/4% Debentures. On July 30, 1997, ACE issued $22.6 million aggregate amount of variable rate, tax-exempt pollution control notes. The principal amount of $22.6 million represents two separate series of notes: $18.2 million Pollution Control Revenue Refunding Bonds, 1997 Series A due April 15, 2014 (Series A) and $4.4 million Pollution Control Revenue Refunding Bonds, 1997 Series B due July 15, 2017 (Series B). The Series A and the Series B notes initially will bear interest at a weekly rate of 3.4% and 3.5%, respectively. Each subsequent rate will be determined by a remarketing agent. The rates of interest of each series may be changed from time to time to a daily mode, a flexible mode for periods of any duration up to 270 days or a multi-annual mode for periods of not less than 365 days. The proceeds from the sale of the Series A and Series B notes will be applied to the redemption of $18.2 million aggregated principal amount of Pollution Control Revenue Bonds of 1984, Series A and $4.4 million aggregate principal amount of Pollution Control Revenue Bonds of 1987, Series B. On August 1, 1997 ACE redeemed 200,000 shares of its $8.20 Series No Par Preferred Stock, 100,000 shares were required to be redeemed under a mandatory sinking fund requirement and ACE elected to redeem an optional 100,000 additional shares, both at $100 per share, for a total of $20.0 million. AEE At June 30, 1997 and December 31, 1996, ATE had outstanding $9.5 million and $18.5 million, respectively, under its $25.0 million revolving credit and term loan facility. The estimated aggregate fair market value of ATE's $15 million in 7.44% Senior Notes at June 30, 1997 and December 31, 1996 was approximately $15.4 million and $15.5 million, respectively. In June, 1997, ATS's revolving credit and term loan facility was amended and increased to $175.0 million from $100.0 million. Under the restated agreement $40.0 million can be used to establish letters of credit. At June 30, 1997 and December 31, 1996, ATS had outstanding $78.0 million and $42.0 million, respectively, under its revolving credit and term loan facility. Commitment fees on the unused credit line were not significant. This facility has been used for funding the construction of the Midtown Energy Center in Atlantic City, New Jersey which began in November, 1996 and is expected to be completed in September, 1997. This facility has also been used to satisfy certain associated company payables and for other general corporate purposes. In December 1995, ATS, through a partnership arrangement, borrowed from the New Jersey Economic Development Authority (NJEDA) $12.5 million from the proceeds of the sale of special, limited obligation bonds issued by the NJEDA. Proceeds from the bond issuance remain restricted in trust pending resolution of certain release conditions. The bonds paid an initial rate of 3.7% for the 120 day period ending on April 30, 1996. The bonds have been remarketed five times at fixed rates ranging from 3.5% to 3.8%. They may be remarketed for one or more additional periods not to exceed 120 days, but in no event later than December 1, 1998 at which time the bonds must be redeemed if the escrow conditions are not satisfied. ATS expects to satisfy all the escrow release conditions in the fourth quarter of 1997. NOTE 4. COMMON STOCK OF AEI As of June 30, 1997, and December 31, 1996, 52,504,479 and 52,502,479 shares of common stock were outstanding, respectively. NOTE 5. CONTINGENCIES The BPU issued final findings and recommendations on the electric industry restructuring in New Jersey to the Governor and the State Legislature for their consideration on April 30, 1997. The recommendation for the implementation of a phase-in plan for retail competition would span a twenty-one month period providing choice to 10% of all customers beginning October 1, 1998 and to 100% by July 1, 2000. The plan required each electric utility in the state to file complete restructuring plans, stranded cost filings and unbundled rate filings by July 15, 1997. The plan would allow utilities the opportunity to recover stranded costs on a case-by-case basis, with no guarantee of 100 percent recovery of eligible stranded costs. ACE filed its response to the BPU on July 15, 1997. ACE's restructuring filing met the BPU's recommendations for phase-in of retail electric access based on a first-come, first-served basis, proposing choice to 10% of all customers beginning October 1, 1998 and to 100% by July 1, 2000. Customers remaining with ACE will be charged the market-based electricity price beginning October 1, 1998. The restructuring filing included a two-phased approach to future rate reductions of approximately five percent. The first phase is a projected rate reduction of approximately one percent upon consummation of the merger of AEI and DP&L into Conectiv, Inc. (see Note 1). The second phase projects an additional rate reduction of approximately four percent beginning in 2001. Under the restructuring filing ACE specified its total stranded cost estimated to be approximately $1.3 billion, of which $965 million is attributable to above-market Non-Utility Generation (NUG) Contracts. The remaining amount, approximately $340 million, is related to wholly and jointly-owned generation investments. The restructuring filing supports full recovery of stranded costs, which ACE believes are necessary to move to a competitive environment. On June 26, 1997, the Company and DP&L jointly announced an enhanced retirement offer (ERO) and separation programs that will be utilized to achieve workforce reductions as a result of the merger. (Refer to Note 1 for merger discussion.) The total cost to the Company for these programs, as well as, the cost of executive severance, employee relocation and facilities integration is estimated to range from $38 million to $48 million. These costs are contingent upon the consummation of the merger. ACE will be required to recognize these costs through expense in accordance with the generally accepted accounting principles (GAAP). The actual cost to the Company and ACE will depend on the number of factors related to the employee mix as well as the actual number of employees who will be separated. ACE currently accounts for the economic effects of regulation as specified by SFAS 71 which provides guidance on circumstances when the economic effect of a regulator's decision warrants different application of GAAP as a result of the ratemaking process. At this time, ACE continues to meet the criteria set forth in SFAS 71 and has presented these financial statements in accordance therewith. FASB, through the Emerging Issue Task Force (EITF), has recently set forth guidance necessary for clarifying the accounting treatment of specific issues associated with the restructuring of the electric utility industry through EITF Issue No. 97-4, "Deregulation of the Pricing of Electricity-Issues Related to the Application of FASB Statements No. 71, Accounting for the Effects of Certain Types of Regulation, and No. 101, Regulated Enterprises-Accounting for the Discontinuation of application of FASB Statement No. 71." At the July 24, 1997 EITF meeting a consensus was reached that as to SFAS 71 "when deregulatory legislation or a rate order (whichever is necessary to effect change in the jurisdiction) that contains sufficient detail for the enterprise to reasonably determine how the transition plan will effect the separable portion of its business" (e.g. generation) "whose pricing is being deregulated is issued, the enterprise should stop applying Statement 71 to that separable portion of its business." As to SFAS 101, consensus were also reached "that the regulatory assets and regulatory liabilities that originated in the separable portion of an enterprise to which Statement 101 is being applied should be evaluated on the basis of where (that is, the portion of the business in which) the regulated cash flows to realize and settle them, respectively, will be derived", and that the "source of the cash flow approach adopted in the consensus should be used for recoveries of all costs and settlements of all obligations (not just for regulatory assets and regulatory liabilities that are recorded at the date Statement 101 is applied) for which regulated cash flows are specifically provided in the deregulatory legislation or rate order". At this time ACE cannot predict with certainty when it will stop applying SFAS 71 for its generation business. ACE also cannot predict the impacts on its financial condition as a result of applying SFAS 101. The outcome will be dependent upon when a plan is approved and the level of recovery of stranded costs allowed by the BPU. If assets require a write-down as a result of the application of SFAS 101, ACE may need to record an extraordinary noncash charge to operations that could have a material impact on the financial position and results of operations of ACE. On April 1, 1997, the Pennsylvania-New Jersey-Maryland Interconnections Association (PJM) began implementing interim guidelines approved by FERC on February 28, 1997. The guidelines created, among other things, an independent system operator (ISO), an open access tariff, a spot energy market open to utilities, nonutilities, power generators and wholesale energy brokers with comparable pool-wide transmission service and new rules governing generation and transmission activities. After extensive discussions, the seven supporting companies of PJM submitted a package of proposals that would advance the current market design, allow for market based rates for generation, move to a traditional pricing model for handling transmission congestion and would position the PJM pool operator as an ISO. Other market participants have subsequently filed separate proposals. The timing of a decision from FERC is not known. The BPU's Energy Master Plan has suggested that the establishment of an ISO, or its functional equivalent, is critical to the functioning of a fully competitive, retail power market that retains the current high degree of system reliability. In the BPU's judgment there should be a reasonable transition period for the ISO to fully implement its open access responsibilities at the wholesale level before adding the additional complexities associated with competitive retail transactions. On July 14, 1997 the Governor signed a bill into law eliminating the Gross Receipts and Franchise Tax (GR&FT) paid by electric, natural gas and telecommunication public utilities. In its place, utilities will be subject to the State's corporate business tax. In addition, the State's existing sales and use tax will be expanded to include retail sales of electric power and natural gas, and a transitional energy facility assessment tax (TEFA) will be applied for a limited time on electric and natural gas utilities and will be phased-out over a five year period. The law will take effect January 1, 1998 and on January 1 of each of the years thereafter, the TEFA will be reduced by 20%. By the year 2003, the TEFA will be fully phased-out and the savings will be passed through to ACE's customers. ACE is a 7.41% owner of the Salem Nuclear Generating Station operated by Public Service Electric and Gas Company (PS). Salem Units 1 and 2 were taken out of service on May 16, 1995 and June 7, 1995, respectively. PS has advised ACE that the Salem restart plan, which encompassed a comprehensive review and improvement of personnel, process and equipment issues has been completed for Salem Unit 2. On August 6, 1997, the NRC authorized the restart of Salem 2 and stated that it would continue to closely monitor activities at Salem. Three planned hold points were established and the NRC plans to perform a final assessment after approximately two months of full power operations. The NRC's June 9, 1995 Confirmatory Action letter was amended to include the planned hold points of the final assessment. The restart process is underway. PS has advised ACE that the installation of Salem Unit 1 steam generators has been completed and the unit is expected to return to service around the end of the year. Restart of Salem Unit 1 is also subject to NRC approval. The outage of each Salem unit causes ACE to incur replacement power costs of approximately $700 thousand per unit per month. As previously discussed, ACE's replacement power costs for the current outage for each unit, up to the agreed-upon return-to- service dates (June 30, 1997 for Unit 1 and December 31, 1996 for Unit 2), will be recoverable in rates in ACE's 1997 LEC proceeding. Replacement power costs incurred after the respective agreed-upon return-to-service dates for the Salem Units will not be recoverable in rates. Effective December 31, 1996, ACE entered into an agreement with PS for the purpose of limiting ACE's exposure to Salem's 1997 operation and maintenance (O&M) expenses. Pursuant to the terms of the Agreement, ACE will pay to PS $10 million of O&M expense, as a fixed charge payable in twelve equal installments beginning February 1, 1997. ACE's obligation for any contributions, above the $10 million, to Salem 1997 O&M expenses up to ACE's estimated share of $21.8 million, is based on performance and directly related to the timely return and operation of Salem Units 1 and 2. Contingent upon the return of Salem 2 to full power in September 1997, total O&M expenses related to the Salem Units are expected to be $12.8 million for 1997. ACE has a trust to fund the future costs of decommissioning each of the five jointly-owned nuclear units. The current annual funding amount of this trust is based on estimates of the future costs of decommissioning each unit derived from studies performed in 1987. In accordance with BPU requirements, updated site specific studies were completed as of September 1996. ACE is currently evaluating the results of the studies and has not fully assessed the impact, if any, upon amounts to be recognized and recovered in rates as a result of these updated studies. ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY Notes to Consolidated Financial Statements Information pertaining specifically to ACE and its subsidiaries is included in Note 1, Note 2, Note 3 and Note 5 of the Consolidated Financial Statements of AEI and is incorporated by reference. ITEM 2: 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 Atlantic Energy, Inc. (AEI or the Company) interim financial condition and results of operations. Atlantic City Electric Company (ACE) is the principal subsidiary of AEI and the following discussion focuses on ACE unless indicated otherwise. 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 AEI's 1997 proxy statement for the annual meeting of shareholders and the 1996 AEI Annual Report on Form 10-K. LIQUIDITY AND CAPITAL RESOURCES AEI The operating needs of AEI, representing those of the consolidated group, are dependent upon the results of its subsidiaries, principally ACE. At June 30, 1997 and December 31, 1996, AEI had $51.5 million and $37.6 million, respectively, outstanding under its $75.0 million revolving credit and term loan facility. Proceeds have been used for general corporate purposes. ACE At June 30, 1997 ACE had $100.9 million outstanding in short term debt, compared to $65.0 million outstanding at December 31, 1996. Short term debt consisted of notes payable to banks. Proceeds were used for general corporate purposes and to fund the annual remittance of the state excise tax payment in the amount of $91.1 million. ACE's Cumulative Preferred Securities and long term debt securities are not widely held and generally trade infrequently. Their estimated aggregate fair market values at June 30, 1997 and December 31, 1996 are approximately $978.4 million and $975.2 million, respectively. With regard to short term debt, ACE had outstanding $100.9 million at June 30, 1997 and $65.0 million at December 31, 1996. On May 1, 1997 ACE satisfied the sinking fund requirements of $0.1 million for its 7 1/4% Debentures. On July 30, 1997, ACE issued $22.6 million aggregate amount of variable rate, tax-exempt pollution control notes. The principal amount of $22.6 million represents two separate series of notes: $18.2 million Pollution Control Revenue Refunding Bonds, 1997 Series A due April 15, 2014 (Series A) and $4.4 million Pollution Control Revenue Refunding Bonds, 1997 Series B due July 15, 2017 (Series B). The Series A and the Series B notes initially will bear interest at a weekly rate of 3.4% and 3.5%, respectively. Each subsequent rate will be determined by a remarketing agent. The rates of interest of each series may be changed from time to time to a daily mode, a flexible mode for periods of any duration up to 270 days or a multi-annual mode for periods of not less than 365 days. The proceeds from the sale of the Series A and Series B notes will be applied to the redemption of $18.2 million aggregated principal amount of Pollution Control Revenue Bonds of 1984, Series A and $4.4 million aggregate principal amount of Pollution Control Revenue Bonds of 1987, Series B. On August 1, 1997 ACE redeemed 200,000 shares of its $8.20 Series No Par Preferred Stock, 100,000 shares were required to be redeemed under a mandatory sinking fund requirement and ACE elected to redeem an optional 100,000 additional shares, both at $100 per share, for a total of $20.0 million. Atlantic Energy Enterprises, Inc. (AEE) At June 30, 1997 and December 31, 1996, ATE Investment, Inc. (ATE) had outstanding $9.5 million and $18.5 million, respectively, under its revolving credit and term loan facility. In June, 1997, the Atlantic Thermal Systems, Inc. (ATS) revolving credit and term loan facility was amended and increased to $175.0 million from $100.0 million. At June 30, 1997 and December 31, 1996, ATS had outstanding $78.0 million and $42.0 million, respectively, under its revolving credit and term loan facility. Commitment fees on the unused credit line were not significant. This facility has been used for funding the construction of the Midtown Energy Center in Atlantic City, New Jersey which began in November 1996 and is expected to be completed by September 1997. ATS's capital expenditures have been approximately $54.0 million for this project to date. This facility has also been used to satisfy certain associated company payables and for other general corporate purposes. The increase in Nonutility Property and Equipment-Net on the Consolidated Balance Sheet is mainly due to the construction of the Midtown Energy Center. In December 1995, ATS, through a partnership arrangement, borrowed from the New Jersey Economic Development Authority (NJEDA) $12.5 million from the proceeds of the sale of special, limited obligation bonds issued by the NJEDA. Proceeds from the bond issuance remain restricted in trust pending resolution of certain release conditions. The bonds paid an initial rate of 3.7% for the 120 day period ending on April 30, 1996. The bonds have been remarketed five times at fixed rates ranging from 3.5% to 3.8%. They may be remarketed for one or more additional periods not to exceed 120 days, but in no event later than December 1, 1998 at which time the bonds must be redeemed if the escrow conditions are not satisfied. ATS expects to satisfy all the escrow release conditions in the fourth quarter of 1997. RESULTS OF OPERATIONS Changes in net income and earnings per share for the periods ended June 30, 1997 versus the corresponding periods of the previous year are as follows: Periods Ended June 30, 1997 Quarter Year-to-Date Net Income 64.3% 37.6% Earnings Per Share 60.0% 38.8% The change in net income and earnings per share primarily reflect decreased operations and maintenance expenses, related to Salem and increased nonutility income, primarily ATS, for the periods. Utility Revenues of ACE Changes in Operating Revenues-Electric, exclusive of inter- company sales, are disclosed in the following table: Periods Ended June 30, 1997 Quarter Year-to-Date (Thousands of Dollars) Base Revenues $(3,054) $ (3,432) Levelized Energy Clause 6,159 12,936 Kilowatt-hour Sales (5,268) (22,849) Unbilled Revenues 7,766 11,330 Sales for Resale (4,778) (6,123) Other Revenues 377 (6) Total $ 1,202 $ (8,144) The decrease in Base Revenues reflects ACE's BPU approved Off- Tariff Rate Agreements (OTRAs). OTRAs are special reduced rates that are being offered, for periods ranging from 5 to 7 years, by ACE to at-risk customers which reduced Base Revenues $2.6 million, or $1.7 million, net of tax, for the current quarter and $4.4 million, or $2.9 million, net of tax for the year-to-date. LEC revenues for the periods increased due to an annual rate increase in July 1996 of $27.6 million. Changes in Kilowatt-hour Sales are explained in the 'Billed Sales to Ultimate Utility Customers' section. The changes in Unbilled Revenues are a result of the amount of kilowatt-hours consumed by, but not yet billed to, ultimate customers at the end of the respective periods, which are affected by weather, economic conditions and the corresponding price per kilowatt-hour. The changes in Sales for Resale to wholesale customers 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. In addition, changes in Sales for Resale are dependent on adjacent power pool resources and prices of energy available. Billed Sales to Ultimate Utility Customers of ACE 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 June 30, 1997 Quarter Year-To-Date Average Average Customer Class Sales Use Cust Sales Use Cust Residential (7.4%) (8.3%) 1.0% (9.7%) (10.5%) 0.9% Commercial (0.7) (2.4) 1.8 (2.1) (3.5) 1.6 Industrial 5.4 4.3 1.1 0.9 0.1 0.8 Total (2.4) (3.5) 1.1 (5.0) (6.0) 1.0 The decreases in the current periods sales were due primarily to reduced electric heating usage, as a result of milder weather in 1997 compared to 1996. Operating Expenses Total Operating Expenses decreased by 2.7% for the current quarter and 4.1% for the year-to-date when compared to the same periods of the prior year. Excluding depreciation and taxes, Total Operating Expenses decreased by 7.1% for the current quarter and 8.0% for the year-to-date, when compared to the same periods of the prior year, largely due to decreases in operations and maintenance costs of ACE. 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 LEC. Changes in costs reflect the availability of low-cost generation from ACE-owned and purchased energy sources, the unit prices of the energy sources used and 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 LEC. Generally, earnings are not affected by energy costs because these costs are adjusted to match the associated LEC revenues. Otherwise, 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 deferred on the Consolidated Balance Sheet as a liability or asset as appropriate. Amounts on 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 LEC. ACE was underrecovered by $35.5 million at June 30, 1997 and by $33.5 million at December 31, 1996. Energy expense decreased by 1.6% for the current quarter, when compared to the same period of the prior year. Excluding deferred energy costs, Energy expense increased by 1.1%, for the current quarter, when compared to the same period of the prior year. Sources of ACE's energy for the current period are as follows: Periods Ended June 30, 1997 Quarter Year-to-Date Coal 26% 26% Nuclear 20 18 Interchanged and Purchased 26 32 Nonutility Purchased 25 22 Oil and Natural Gas 3 2 Total 100% 100% Operations expense decreased by 16.7% for the quarter ended and 17.1% for the year-to-date, when compared to the same periods of the previous year, which was the result of reduced expenses resulting from the operations and maintenance agreement with PS regarding the Salem Units, as discussed in Note 5, and other cost saving measures instituted by ACE. Maintenance expense decreased by 36.2% for the quarter ended and 38.2% for the year-to-date, when compared to the same periods of the previous year, as a result of reduced expenses associated with the Salem Station stipulation. Federal Income Tax expense increased by 75.4% for the current quarter and 61.1% for the year-to-date, when compared to the same periods of the previous year, and Taxes Accrued on the Consolidated Balance Sheet increased significantly due to the decrease in operations and maintenance expense, which resulted in an increase of taxable income for the year-to-date period. Other Income Other Income increased by 50.5% for the current quarter and 73.6% for the year-to-date, when compared to the same periods of the previous year, due primarily to an increase in nonutility earnings. Other Matters The BPU issued final findings and recommendations on the electric industry restructuring in New Jersey to the Governor and the State Legislature for their consideration on April 30, 1997. The recommendation for the implementation of a phase-in plan for retail competition would span a twenty-one month period providing choice to 10% of all customers beginning October 1, 1998 and to 100% by July 1, 2000. The plan required each electric utility in the state to file complete restructuring plans, stranded cost filings and unbundled rate filings by July 15, 1997. The plan would allow utilities the opportunity to recover stranded costs on a case-by-case basis, with no guarantee of 100 percent recovery of eligible stranded costs. ACE filed its response to the BPU on July 15, 1997. ACE's restructuring filing met the BPU's recommendations for phase-in of retail electric access based on a first-come, first-served basis, proposing choice to 10% of all customers beginning October 1, 1998 and to 100% by July 1, 2000. Customers remaining with ACE will be charged the market-based electricity price beginning October 1, 1998. The restructuring filing included a two-phased approach to future rate reductions of approximately five percent. The first phase is a projected rate reduction of approximately one percent upon consummation of the merger of AEI and DP&L into Conectiv, Inc. (see Note 1). The second phase projects an additional rate reduction of approximately four percent beginning in 2001. Under the restructuring filing ACE specified its total stranded cost estimated to be approximately $1.3 billion, of which $965 million is attributable to above-market Non-Utility Generation (NUG) Contracts. The remaining amount, approximately $340 million, is related to wholly and jointly-owned generation investments. The restructuring filing supports full recovery of stranded costs, which ACE believes are necessary to move to a competitive environment. On June 26, 1997, the Company and DP&L jointly announced an enhanced retirement offer (ERO) and separation programs that will be utilized to achieve workforce reductions as a result of the merger. (Refer to Note 1 for merger discussion.) The total cost to the Company for these programs, as well as, the cost of executive severance, employee relocation and facilities integration is estimated to range from $38 million to $48 million. These costs are contingent upon the consummation of the merger. ACE will be required to recognize these costs through expense in accordance with the generally accepted accounting principles (GAAP). The actual cost to the Company and ACE will depend on the number of factors related to the employee mix as well as the actual number of employees who will be separated. On April 1, 1997, the Pennsylvania-New Jersey-Maryland Interconnections Association (PJM) began implementing interim guidelines approved by FERC on February 28, 1997. The guidelines created, among other things, an independent system operator (ISO), an open access tariff, a spot energy market open to utilities, nonutilities, power generators and wholesale energy brokers with comparable pool-wide transmission service and new rules governing generation and transmission activities. After extensive discussions, the seven supporting companies of PJM submitted a package of proposals that would advance the current market design, allow for market based rates for generation, move to a traditional pricing model for handling transmission congestion and would position the PJM pool operator as an ISO. Other market participants have subsequently filed separate proposals. The timing of a decision from FERC is not known. The BPU's Energy Master Plan has suggested that the establishment of an ISO, or its functional equivalent, is critical to the functioning of a fully competitive, retail power market that retains the current high degree of system reliability. In the BPU's judgment there should be a reasonable transition period for the ISO to fully implement its open access responsibilities at the wholesale level before adding the additional complexities associated with competitive retail transactions. On July 14, 1997 the Governor signed a bill into law eliminating the Gross Receipts and Franchise Tax (GR&FT) paid by electric, natural gas and telecommunication public utilities. In its place, utilities will be subject to the State's corporate business tax. In addition, the State's existing sales and use tax will be expanded to include retail sales of electric power and natural gas, and a transitional energy facility assessment tax (TEFA) will be applied for a limited time on electric and natural gas utilities and will be phased-out over a five year period. The law will take effect January 1, 1998 and on January 1 of each of the years thereafter, the TEFA will be reduced by 20%. By the year 2003, the TEFA will be fully phased-out and the savings will be passed through to ACE's customers. ACE is a 7.41% owner of the Salem Nuclear Generating Station operated by Public Service Electric and Gas Company (PS). Salem Units 1 and 2 were taken out of service on May 16, 1995 and June 7, 1995, respectively. PS has advised ACE that the Salem restart plan, which encompassed a comprehensive review and improvement of personnel, process and equipment issues has been completed for Salem Unit 2. On August 6, 1997, the NRC authorized the restart of Salem 2 and stated that it would continue to closely monitor activities at Salem. Three planned hold points were established and the NRC plans to perform a final assessment after approximately two months of full power operations. The NRC's June 9, 1995 Confirmatory Action letter was amended to include the planned hold points of the final assessment. The restart process is underway. PS has advised ACE that the installation of Salem Unit 1 steam generators has been completed and the unit is expected to return to service around the end of the year. Restart of Salem Unit 1 is also subject to NRC approval. The outage of each Salem unit causes ACE to incur replacement power costs of approximately $700 thousand per unit per month. As previously discussed, ACE's replacement power costs for the current outage for each unit, up to the agreed-upon return-to- service dates (June 30, 1997 for Unit 1 and December 31, 1996 for Unit 2), will be recoverable in rates in ACE's 1997 LEC proceeding. Replacement power costs incurred after the respective agreed-upon return-to-service dates for the Salem Units will not be recoverable in rates. Effective December 31, 1996, ACE entered into an agreement with PS for the purpose of limiting ACE's exposure to Salem's 1997 operation and maintenance (O&M) expenses. Pursuant to the terms of the Agreement, ACE will pay to PS $10 million of O&M expense, as a fixed charge payable in twelve equal installments beginning February 1, 1997. ACE's obligation for any contributions, above the $10 million, to Salem 1997 O&M expenses up to ACE's estimated share of $21.8 million, is based on performance and directly related to the timely return and operation of Salem Units 1 and 2. Contingent upon the return of Salem 2 to full power in September 1997, total O&M expenses related to the Salem Units are expected to be $12.8 million for 1997. ACE has a trust to fund the future costs of decommissioning each of the five jointly-owned nuclear units. The current annual funding amount of this trust is based on estimates of the future costs of decommissioning each unit derived from studies performed in 1987. In accordance with BPU requirements, updated site specific studies were completed as of September 1996. ACE is currently evaluating the results of the studies and has not fully assessed the impact, if any, upon amounts to be recognized and recovered in rates as a result of these updated studies. Nonutility Activities-AEI, AEII and AEE Nonutility operations, which include AEI parent and AEII, resulted in net losses of $0.8 million for the year-to-date compared to losses of $1.0 million for the same period of the prior year. Of these amounts, operations of AEE and subsidiaries resulted in net income of $0.9 million for the year-to-date compared to net income of $0.3 million for the same period of the prior year. The current net income is primarily due to ATS's casino heating and cooling service contracts. In March and April of 1997, ATS signed agreements with two additional casinos in Atlantic City, New Jersey to operate their heating and cooling systems, bringing the total number of agreements to six. As part of these new agreements, ATS has paid $9.5 million in license fees for the right to operate and service these systems for a period of 20 years. These license fees are recorded on the Consolidated Balance Sheet as License Fees and are amortized to expense over the life of the contracts. Also contributing to the nonutility income was a reduction of ATE's interest expenses. AEI parent only resulted in net losses of $1.3 million for the year-to-date of both the current year and the prior year. The 1997 and 1996 losses are largely due to interest expense associated with the borrowings from AEI's revolving credit and term loan facility. AEI's credit facility is used to support general corporate purposes. ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY The information required by this item is incorporated herein by reference from the following portions of AEI's Management's Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to ACE and its subsidiary: Liquidity and Capital Resources-ACE; Results of Operations and Other Matter of ACE. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (Litigation Reform Act) provides a "safe harbor" for forward-looking statements to encourage such disclosures without the threat of litigation, provided those statements are identified as forward- looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Forward-looking statements have been made in this report. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used herein, the words "will", "anticipate," "estimate," "expect", "objective", and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: deregulation and the unbundling of energy supplies and services; and increasingly competitive energy marketplace; sales retention and growth; federal and state regulatory actions; costs of construction; operating restrictions; increased costs and construction delays attributable to environmental regulations; nuclear decommissioning and the availability of reprocessing and storage facilities for spent nuclear fuel; and credit market concerns. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors pursuant to the Litigation Reform Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of the Litigation Reform Act. Part II. OTHER INFORMATION Item 1. Legal Proceedings The following information updates certain matters previously reported under Part I, Item 1 - Business of the Annual Report on Form 10-K for 1996 and Part II, Item 1-Legal Proceedings and Item 5-Other Information on Form 10-Q for the quarter ended March 31, 1997 for Atlantic Energy, Inc. and Atlantic City Electric Company (ACE). In addition, certain new information is contained herein. Rate Matters As previously reported, the Rate Intervention Steering Committee (RISC) submitted a brief of its appeal with the Superior Court of New Jersey on April 11, 1997, pertaining to the BPU's Decision and Order on ACE's Levelized Energy Clause filing dated April 24, 1996. In the brief, RISC argues that the BPU did not follow the rules of the FERC or the Public Utility Regulatory Act in its approval of non utility generation contracts and the stipulation approving these contracts were without public notice or the opportunity for public hearings. RISC argues that the BPU should order a hearing to reconsider the contracts, recalculate the contract prices and give the public the opportunity to participate in the hearings. RISC further argues that ACE's customers should not pay for above current market costs and that ACE should not be permitted to recover costs relating to the maintenance of excess capacity. On July 14, 1997 ACE submitted its response to the Appellate Court on the RISC appeal. RISC will have a chance to rebut the Company's response before the matter is determined by the Court. ACE is unable to predict the outcome of this appeal. On April 24, 1997, the BPU issued a generic order in the matter of its investigation regarding the policy issues relating to whether customers who cease to take electric service from a utility, going to on-site generation as an alternative supply choice, should be charged an exit fee. In its order, the BPU determined that a further examination of the policy issue of whether electric utilities should have the ability to collect stranded costs from customers in the form of an exit fee is necessary in conjunction with electric restructuring, with a view towards applying any decision: 1) on an interim basis, if necessary; and 2) during any proposed stranded cost recovery period commencing with the start of retail competition. On July 30, 1997 the BPU held a hearing in which they deferred a decision on this matter. ACE is unable to predict the outcome of this matter. NONUTILITY SUBSIDIARIES As previously reported in the 1996 Form 10-K, in April 1995, ATS filed a petition with the BPU for an Order declaring that ATS is not a public utility subject to the BPU's jurisdiction by reason of its business activities in Atlantic City. It is ATS' position that its service to a limited number of large use energy consumers does not invoke the requisite public interest that is a prerequisite to public utility classification. Proceedings on the petition are currently pending before an Administrative Law Judge. ATS is working to resolve relevant issues with the Staff of the BPU and other parties thereto. Item 5. Other Information Environmental Matters As previously reported in the 1996 Form 10-K, on January 23, 1997, the EPA issued Compliance Order 113-97-001 (Order) for failure to comply with emission monitoring requirements on a combustion turbine unit at the Sherman Avenue Generating Station. The Order carries a potential penalty of $25,000 a day, retroactive to May 30, 1991. On June 19, 1997 ACE completed all actions specified in the Order within the time limits set forth in the Order and believes it is in full compliance with all applicable requirements. ACE is awaiting a response from the EPA and cannot predict the outcome of this matter. On August 1, 1997, the New Jersey Department of Environmental Protection (NJDEP) announced that it intends to introduce rules to reduce nitrogen oxide (NOx) emissions by 90% from the 1990 levels by the year 2003. These rules have not yet been promulgated. New Jersey is a member of the Ozone Transport Commission, a coalition of twelve northeastern states, that agreed to achieve a 75% reduction in NOx by that time. Both Atlantic Electric's B.L. England and Deepwater generating stations will be affected by the NJDEP's proposed NOx standards. ACE has taken reasonable steps to significantly reduce its NOx levels and has engaged in an aggressive program of NOx reduction. ACE will undertake to represent its interests in pursuing remedies in the event such proposal is ultimately promulgated into law. ACE cannot predict the impact upon its facilities or predict its ability to comply with the regulations until such time as ACE has had an opportunity to evaluate the, yet to be promulated, NOx regulations. Pending Merger As previously reported, the proposed merger between AEI and DP&L, is conditioned upon, the approval of a number of Federal and State regulatory agencies, including Maryland, New Jersey, Delaware, Pennsylvania, Virginia, FERC, the NRC and the SEC. The shareholders of AEI and DP&L have approved such merger, and in mid-July the Maryland Public Service Commission approved a settlement in connection with the merger. Under the terms of the settlement, Maryland ratepayers will receive an annual reduction of $3.5 million and Conectiv will make contributions for three years to the State's economic development and social programs. On July 30, 1997, FERC approved the merger and on August 7, 1997 the Virginia State Corporation Commission also approved the merger. The BPU has begun hearings and has granted a motion to intervene by South Jersey Gas Company on the Company's merger application. Additional hearings and testimony are scheduled in August, with an initial decision by the Office of Administrative Law scheduled for early November. A final BPU decision is expected by year-end, as well as approvals in Delaware, and Pennsylvania, and by the NRC and SEC. On August 14, 1997, the parties to the Agreement and Plan of Merger, dated as of August 9, 1996 as Amended and Restated as of December 26, 1996 (the "Merger Agreement") by and among AEI, DP&L, Conectiv, Inc. and DS Sub, Inc., took action to amend section 7.14 of the Merger Agreement to replace Michael J. Chesser as President and Chief Operating Officer with Meredith I. Harlacher, Jr. as President, to be effective at the time of the merger. This management change has been made as a result of a decision by Michael J. Chesser to pursue other professional and personal alternatives. Nuclear Generating Station Developments Salem Nuclear Generating Station ACE is a 7.41% owner of the Salem Nuclear Generating Station (Salem) operated by PS. Salem consists of two 1,106 megawatt (MW) pressurized water nuclear reactors representing 164 MWs of ACE's total installed capacity of 2,385.7 MWs. As previously reported, Salem Units 1 and 2 were taken out of service in the second quarter of 1995. ACE has been advised by PS that the Salem Restart Plan, which encompassed a comprehensive review and improvement of personnel, process and equipment issues, has been completed for Salem Unit 2. On August 6, 1997 the NRC authorized the restart of Salem Unit 2 and stated that it would continue to closely monitor activities at Salem. Three planned hold points were established and the NRC plans to perform a final assessment after approximately two months of full power operations. The NRC's June 9, 1995 Confirmatory Action letter was amended to include the planned hold points and the final assessment. The restart process is underway. PS has advised ACE that the installation of Salem Unit 1 steam generators has been completed and the unit is expected to return to service around the end of the year. PS has advised ACE that on July 8, 1997, a predecisional enforcement conference was held with the NRC to discuss apparent violations at Salem. These apparent violations were identified in May and June, 1997, and concern emergency core cooling system switchover and related residual heat removal system flow issues and Appendix R (fire protection) issues. It is unknown what further actions the NRC may take in this matter. Hope Creek Station PS has advised ACE that a predecisional enforcement conference was held with the NRC on August 12, 1997, to discuss apparent violations at Hope Creek Station (Hope Creek) relating to the installation of cross-tie valves in the residual heat removal system at Hope Creek in 1994. It is unknown what further actions the NRC may take in this matter. Peach Bottom Nuclear Generating Station PECO Energy (PE), operator of the Peach Bottom Atomic Power Station (Peach Bottom), has advised ACE that on July 17, 1997, the NRC issued its periodic SALP Report for Peach Bottom for the period October 15, 1995 to June 7, 1997. Peach Bottom achieved ratings of "1", in the areas of Plant Operations, Maintenance and Plant Support. The area of Engineering achieved a rating of "2". Overall, the NRC observed excellent performance at Peach Bottom during the assessment period. PE has advised ACE that the NRC stated that station management provided excellent oversight and control of engineering activities throughout the period. The NRC noted that, while overall engineering performance was good, there were several instances where operating procedures, surveillance, and tests were not consistent with the design and licensing basis. Item 6. Exhibits and Reports on 8-K Exhibits: See Exhibit Index Attached Reports on Form 8-K: Current Reports on Form 8-K were filed dated July 15, 1997 describing the Company's restructuring filing as required by the BPU's Energy Master Plan. *************************************************** 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: August 14, 1997 By: /s/ M. J. Barron M. J. Barron Vice President and Chief Financial Officer of Atlantic Energy, Inc. and Senior Vice President and Chief Financial Officer of Atlantic City Electric Company Date: August 14, 1997 By: /s/ L. M. Walters L. M. Walters Treasurer of Atlantic Energy, Inc. and Vice President, Treasurer and Assistant Secretary of Atlantic City Electric Company EXHIBIT INDEX 2 Amendment dated August 14, 1997 to Agreement and Plan of Merger, dated as of August 9, 1996 as amended and restated as of December 26, 1996. 27 Financial Data Schedules for Atlantic Energy, Inc. and Atlantic City Electric Company for periods ended June 30, 1997. EX-27 2
UT 0000008192 ATLANTIC CITY ELECTRIC COMPANY 6-MOS DEC-31-1997 JUN-30-1997 PER-BOOK 1,791,081 86,252 299,726 326,878 0 2,503,937 54,963 489,396 230,747 775,106 43,950 100,000 758,687 100,900 0 0 58,675 10,000 36,066 729 619,824 2,503,937 463,363 21,938 371,559 393,497 69,866 4,004 73,870 31,935 39,047 2,820 36,227 40,428 0 42,337 0 0
EX-27 3
UT 0000806393 ATLANTIC ENERGY, INC. 6-MOS DEC-31-1997 JUN-30-1997 PER-BOOK 1,791,081 283,136 327,342 356,722 0 2,758,281 562,686 0 220,002 782,688 43,950 100,000 786,187 100,900 0 0 197,675 10,000 36,066 729 700,086 2,758,281 460,955 21,938 371,588 393,526 67,429 5,690 73,119 31,935 35,476 0 35,476 40,428 0 25,516 0.68 0.68
EX-2 4 AMENDMENT NUMBER 1 to AGREEMENT AND PLAN OF MERGER dated as of August 9, 1996 as amended and restated as of December 26, 1996 by and among DELMARVA POWER & LIGHT COMPANY ATLANTIC ENERGY, INC. CONECTIV, INC. and DS SUB, INC. AMENDMENT NUMBER 1 TO THE AGREEMENT AND PLAN OF MERGER AMENDMENT NUMBER 1 TO THE AGREEMENT AND PLAN OF MERGER, dated as of 1997 (this "Amendment"), by and among Delmarva Power & Light Company, a corporation formed under the laws of the State of Delaware and the Commonwealth of Virginia ("Delmarva"), Atlantic Energy, Inc., a corporation formed under the laws of the State of New Jersey ("Atlantic"), CONECTIV, INC., a corporation formed under the laws of the State of Delaware, 50% of whose outstanding capital stock is owned by Delmarva and 50% of whose capital stock is owned by Atlantic (the "Company"), and DS Sub, Inc., a corporation formed under the laws of the State of Delaware and a wholly owned subsidiary of the Company. ("DS Sub"). WHEREAS, the parties hereto entered into an Agreement and Plan of Merger dated as of August 9, 1996 as amended and restated as of December 26, 1996 (the "Agreement of Merger"); WHEREAS, the parties desire to amend the Agreement of Merger in accordance with the terms hereof in order to provide that following the consummation of the merges contemplated by the Agreement of Merger Michael J. Chesser shall no longer be appointed as the President and Chief Operating Officer of the Company and that Meredith I. Harlacher, Jr. shall be the President of the Company. NOW THEREFORE, in consideration of the premises and the covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agrees as follows: Section 1. Amendment. Section 7.14 of the Agreement of Merger is hereby amended by deleting the following language therefrom "Michael J. Chesser shall be the President and Chief Operating Officer of the Company" and inserting in lieu thereof the following language "Meredith I. Harlacher, Jr. shall be the President of the Company". Section 2. No Other Amendment. The parties hereto agree that except as amended by this Amendment, the Agreement of Merger shall remain in full force and effect. Section 3. Governing Law; Waiver of Jury Trial; Etc. This amendment shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts executed in and to be fully performed in such state, without giving effect to its conflicts of laws statutes, rules or principles. Each party hereto acknowledges and agrees that any controversy that may arise under this Amendment is likely to involve complicated and difficult issues, and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Amendment or the transactions contemplated hereby. Section 4. Counterparts; Effect. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. IN WITNESS WHEREOF, Delmarva, Atlantic, the Company and DS Sub have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first above written. DELMARVA POWER & LIGHT COMPANY By ___________________________ Name: Title: ATLANTIC ENERGY, INC. By ___________________________ Name: Title: CONECTIV, INC. By ___________________________ Name: Title: And By _______________________ Name: Title: DS SUB, INC. By ___________________________ Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----