-----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, CiottOgiEGuKwUy7tyhbd/lSqYFV3tHc4aW0BEfeKtmD163lj0pwBXwlTPy+MFXT E6C56B8e4fMI79cRoLghkQ== 0001036050-00-000902.txt : 20000515 0001036050-00-000902.hdr.sgml : 20000515 ACCESSION NUMBER: 0001036050-00-000902 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 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: SEC FILE NUMBER: 001-03559 FILM NUMBER: 628474 BUSINESS ADDRESS: STREET 1: 800 KING STREET STREET 2: PO BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 BUSINESS PHONE: 6096454100 MAIL ADDRESS: STREET 1: 800 KING STREET STREET 2: PO BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 10-Q 1 FORM 10-Q FOR ATLANTIC CITY ELECTRIC UNITED STATES 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 the quarterly period ended March 31, 2000 -------------- OR - -- / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-3559 ATLANTIC CITY ELECTRIC COMPANY ------------------------------ (Exact name of registrant as specified in its charter) New Jersey 21-0398280 - ------------------------------ ----------------- (State of incorporation) (I.R.S. Employer Identification No.) 800 King Street, P.O. Box 231, Wilmington, Delaware 19899 - ----------------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 302-429-3114 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: All 18,320,937 issued and outstanding shares of Atlantic City Electric Company common stock, $3 per share par value, are owned by Conectiv. ATLANTIC CITY ELECTRIC COMPANY ------------------------------ Table of Contents ----------------- Page ---- Part I. Financial Information: Item 1. Financial Statements Consolidated Statements of Income for the three months ended March 31, 2000, and March 31, 1999.................. 1 Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999......................................... 2-3 Consolidated Statements of Cash Flows for the three months ended March 31, 2000, and March 31, 1999.................. 4 Notes to Consolidated Financial Statements................ 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 8-11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 Part II. Other Information Item 1. Legal Proceedings......................................... 13 Item 6. Exhibits and Reports on Form 8-K.......................... 13 Signature............................................................ 14 i Part 1. FINANCIAL INFORMATION Item 1. Financial Statements ATLANTIC CITY ELECTRIC COMPANY ------------------------------ CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands) (Unaudited)
Three Months Ended March 31, ----------------------------- 2000 1999 ------------- ------------ OPERATING REVENUES $ 208,886 $244,839 ------------- ------------ OPERATING EXPENSES Electric fuel and purchased energy and capacity 89,955 114,906 Operation and maintenance 61,042 53,230 Depreciation and amortization 25,695 28,694 Taxes other than income taxes 9,514 9,975 ------------- ------------ 186,206 206,805 ------------- ------------ OPERATING INCOME 22,680 38,034 ------------- ------------ OTHER INCOME 1,622 2,244 ------------- ------------ INTEREST EXPENSE Interest charges 19,866 14,647 Allowance for borrowed funds used during construction and capitalized interest (176) (167) ------------- ------------ 19,690 14,480 ------------- ------------ PREFERRED DIVIDEND REQUIREMENTS ON PREFERRED SECURITIES OF SUBSIDIARY TRUSTS 1,905 1,920 ------------- ------------ INCOME BEFORE INCOME TAXES 2,707 23,878 INCOME TAXES 1,134 8,787 ------------- ------------ NET INCOME 1,573 15,091 DIVIDENDS ON PREFERRED STOCK 533 533 ------------- ------------ EARNINGS APPLICABLE TO COMMON STOCK $ 1,040 $ 14,558 ============= ============
See accompanying Notes to Consolidated Financial Statements. -1- ATLANTIC CITY ELECTRIC COMPANY ------------------------------ CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
March 31, December 31, 2000 1999 --------------- --------------- ASSETS Current Assets Cash and cash equivalents $ 11,300 $ 7,924 Accounts receivable, net of allowances of $3,500 and $3,500, respectively 130,211 133,879 Intercompany loan receivable 69,663 73,532 Inventories, at average cost Fuel (coal and oil) 13,511 19,598 Materials and supplies 9,799 8,890 Prepaid income taxes 19,752 88,483 Deferred income taxes, net 25,553 6,245 Other prepayments 594 2,223 --------------- --------------- 280,383 340,774 --------------- --------------- Investments Funds held by trustee 107,113 105,268 Other investments 114 103 --------------- --------------- 107,227 105,371 --------------- --------------- Property, Plant and Equipment Electric generation 257,536 256,899 Electric transmission and distribution 1,233,529 1,224,644 Other electric facilities 126,473 128,388 Other property, plant, and equipment 5,772 5,772 --------------- --------------- 1,623,310 1,615,703 Less: Accumulated depreciation 637,709 626,080 --------------- --------------- Net plant in service 985,601 989,623 Construction work-in-progress 37,445 46,025 Leased nuclear fuel, at amortized cost 27,817 30,391 --------------- --------------- 1,050,863 1,066,039 --------------- --------------- Deferred Charges and Other Assets Recoverable stranded costs 981,188 988,273 Unrecovered purchased power costs 25,318 28,923 Deferred recoverable income taxes 21,867 21,867 Unrecovered New Jersey state excise taxes 19,600 22,567 Deferred debt refinancing costs 13,137 13,574 Deferred other postretirement benefit costs 31,855 32,479 Unamortized debt expense 13,824 14,197 Other 21,939 20,595 --------------- --------------- 1,128,728 1,142,475 --------------- --------------- Total Assets $2,567,201 $2,654,659 =============== ===============
See accompanying Notes to Consolidated Financial Statements. -2- ATLANTIC CITY ELECTRIC COMPANY ------------------------------ CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
March 31, December 31, 2000 1999 --------------- -------------- CAPITALIZATION AND LIABILITIES Current Liabilities Short-term debt $ - $ 30,000 Long-term debt due within one year 75 46,075 Variable rate demand bonds 22,600 22,600 Accounts payable 48,575 62,169 Interest accrued 15,378 20,182 Dividends payable 18,107 18,071 Current capital lease obligation 15,480 15,480 Deferred energy supply costs 55,542 46,375 Above-market purchased energy contracts and other electric restructuring liabilities 7,308 7,992 Other 38,187 31,893 --------------- -------------- 221,252 300,837 --------------- -------------- Deferred Credits and Other Liabilities Deferred income taxes, net 403,346 389,594 Regulatory liability for New Jersey income tax benefit 49,262 49,262 Above-market purchased energy contracts and other electric restructuring liabilities 17,431 16,921 Deferred investment tax credits 38,975 39,608 Long-term capital lease obligation 12,310 14,911 Pension benefit obligation 21,765 20,309 Other postretirement benefit obligation 41,537 42,952 Other 19,201 22,381 --------------- -------------- 603,827 595,938 --------------- -------------- Capitalization Common stock, $3 par value; shares authorized: 25,000,000; shares outstanding: 18,320,937 54,963 54,963 Additional paid-in capital 493,007 493,007 Retained earnings 114,194 129,981 --------------- -------------- Total common stockholder's equity 662,164 677,951 Preferred stock subject to mandatory redemption 23,950 23,950 Preferred stock not subject to mandatory redemption 6,231 6,231 Preferred securities of subsidiary trusts subject to mandatory redemption 95,000 95,000 Long-term debt 954,777 954,752 --------------- -------------- 1,742,122 1,757,884 --------------- -------------- Commitments and Contingencies (Note 5) Total Capitalization and Liabilities $ 2,567,201 $2,654,659 =============== ==============
See accompanying Notes to Consolidated Financial Statements. -3- ATLANTIC CITY ELECTRIC COMPANY ------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Three Months Ended March 31, --------------------------- 2000 1999 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,573 $ 15,091 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 29,071 28,083 Investment tax credit adjustments, net (633) (634) Deferred income taxes, net (5,556) (9,860) Deferred energy supply costs 7,303 20,344 Net change in: Accounts receivable 12,150 10,470 Inventories 5,178 (5,669) Prepaid New Jersey sales & excise taxes 2,287 19,437 Accounts payable (13,594) (18,289) Taxes accrued 68,731 18,489 Other current assets and liabilities (1) 832 (5,558) Other, net 855 3,929 ------------ ------------ Net cash provided by operating activities 108,197 75,833 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Intercompany loan receivable 3,869 - Capital expenditures (11,882) (6,100) Deposits to nuclear decommissioning trust funds - (1,606) Other, net (108) 2,620 ------------ ------------ Net cash used by investing activities (8,121) (5,086) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Common dividends paid (16,827) (20,304) Preferred dividends paid (497) (533) Long-term debt redeemed (46,000) - Principal portion of capital lease payments (3,376) (3,120) Net change in short-term debt (30,000) - Other, net - (468) ------------ ------------ Net cash used by financing activities (96,700) (24,425) ------------ ------------ Net change in cash and cash equivalents 3,376 46,322 Cash and cash equivalents at beginning of period 7,924 28,767 ------------ ------------ Cash and cash equivalents at end of period $ 11,300 $ 75,089 ============ ============
(1) Other than debt and deferred income taxes classified as current. See accompanying Notes to Consolidated Financial Statements. -4- ATLANTIC CITY ELECTRIC COMPANY ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Unaudited) NOTE 1. FINANCIAL STATEMENT PRESENTATION - ------- -------------------------------- The consolidated condensed interim financial statements contained herein include the accounts of Atlantic City Electric Company (ACE) and its wholly-owned subsidiaries and reflect all adjustments necessary in the opinion of management for a fair presentation of interim results. In accordance with regulations of the Securities and Exchange Commission (SEC), disclosures which would substantially duplicate the disclosures in ACE's 1999 Annual Report on Form 10-K have been omitted. Accordingly, ACE's consolidated condensed interim financial statements contained herein should be read in conjunction with ACE's 1999 Annual Report on Form 10-K and Part II of this Quarterly Report on Form 10-Q for additional relevant information. Within the Consolidated Statements of Income, amounts previously reported for the three months ended March 31, 1999 as "Electric fuel and purchased power" and "Purchased electric capacity" have been combined and reported as "Electric fuel and purchased energy and capacity." Certain other reclassifications of prior period data have been made to conform with the current presentation. NOTE 2. PLANNED ASSET SALES - ------- ------------------- For information concerning agreements for the sale of the nuclear and non- strategic baseload fossil electric generating plants of ACE, see Note 11 to the Consolidated Financial Statements included in Item 8 of Part II of ACE's 1999 Annual Report on Form 10-K. NOTE 3. RATE MATTERS - ------- ------------ An update to the information previously reported in Note 7 to the Consolidated Financial Statements included in Item 8 of Part II of ACE's 1999 Annual Report on Form 10-K is presented below. NEW JERSEY ELECTRIC UTILITY INDUSTRY RESTRUCTURING As previously disclosed, the New Jersey Board of Public Utilities (NJBPU) issued a Summary Order to ACE in July 1999 concerning restructuring ACE's electricity supply business and indicated that a more detailed order would be issued at a later time. The NJBPU's final order for ACE has been delayed due to appeals of the NJBPU's final order concerning restructuring the electricity supply business of Public Service Electric and Gas Company (PSE&G). In April 2000, the appeals of the NJBPU's restructuring order for PSE&G were denied by the Appellate Division of the New Jersey Superior Court. On May 2, 2000, one of the appellants filed a notice of its intention to request the New Jersey Supreme Court to exercise its discretion to review the unanimous Appellate Division decision. NOTE 4. DEBT - ------- ---- ACE redeemed $46.0 million of 6.83% Medium Term Notes at maturity on January 26, 2000. -5- NOTE 5. CONTINGENCIES - ------- -------------- Environmental Matters ACE is subject to regulation with respect to the environmental effects of its operations, including air and water quality control, solid and hazardous waste disposal, and limitation on land use by various federal, regional, state, and local authorities. Costs may be incurred to clean up facilities found to be contaminated due to past disposal practices. Federal and state statutes authorize governmental agencies to compel responsible parties to clean up certain abandoned or uncontrolled hazardous waste sites. ACE is a potentially responsible party at a state superfund site and has agreed, along with other responsible parties, to remediate the site pursuant to an Administrative Consent Order with the New Jersey Department of Environmental Protection. ACE is also a defendant in an action to recover costs at a federal superfund site in Gloucester County, New Jersey. There is $1.0 million included in ACE's current liabilities as of March 31, 2000 and December 31, 1999 for remediation activities at these sites. ACE does not expect such future costs to have a material effect on its financial position or results of operations. Nuclear Insurance In conjunction with ACE's ownership interests in Peach Bottom Atomic Power Station (Peach Bottom), Salem Nuclear Generating Station (Salem), and Hope Creek Nuclear Generating Station (Hope Creek), ACE could be assessed for a portion of any third-party claims associated with an incident at any commercial nuclear power plant in the United States. Under the provisions of the Price Anderson Act, if third party claims relating to such an incident exceed $200 million (the amount of primary insurance), ACE could be assessed up to $30.7 million on an aggregate basis for such third-party claims. In addition, Congress could impose a revenue-raising measure on the nuclear industry to pay such claims. The co-owners of Peach Bottom, Salem, and Hope Creek maintain property insurance coverage of approximately $2.8 billion for each unit for loss or damage to the units, including coverage for decontamination expense and premature decommissioning. In addition, ACE is a member of an industry mutual insurance company, which provides replacement power cost coverage in the event of a major accidental outage at a nuclear power plant. Under these coverages, ACE is subject to potential retrospective loss experience assessments of up to $3.9 million. NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION - ------- ----------------------------------
THREE MONTHS ENDED MARCH 31, ------------------ 2000 1999 -------- ------- (Dollars in thousands) CASH PAID (RECEIVED) FOR: Interest, net of amounts capitalized $ 23,527 $15,213 Income taxes, net of refunds $(61,444) $ 63
As shown above, ACE received a $61.4 million income tax refund during the three months ended March 31, 2000. The income tax refund was related to the tax benefit associated with ACE's payment of $228.5 million on December 28, 1999 to terminate ACE's purchase of electricity under a contract with the Pedricktown Co-generation Limited Partnership (Pedricktown). For additional information concerning the contract termination, see Note 8 to the Consolidated Financial Statements included in Item 8 of Part II of ACE's 1999 Annual Report on Form 10- K. -6- NOTE 7. BUSINESS SEGMENTS - ------- ----------------- Conectiv's organizational structure and management reporting information are aligned with Conectiv's business segments, irrespective of the subsidiary, or subsidiaries, through which a business is conducted. Businesses are managed based on lines of business, not legal entity. Business segment information is not produced, or reported, on a subsidiary by subsidiary basis. Thus, as a Conectiv subsidiary, no business segment information (as defined by Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information") is available for ACE on a stand-alone basis. -7- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 "intend," "will," "anticipate," "estimate," "expect," "believe," 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: the effects of deregulation of energy supply and the unbundling of delivery services; the ability to enter into purchased power agreements on terms acceptable to ACE; market demand and prices for energy, capacity, and fuel; weather variations affecting energy usage; operating performance of power plants; an increasingly competitive marketplace; results of any asset dispositions; sales retention and growth; federal and state regulatory actions; future litigation results; 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. ACE 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 list of factors pursuant to the Litigation Reform Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made prior to the effective date of the Litigation Reform Act. EARNINGS RESULTS SUMMARY - ------------------------- In the first quarter of 2000, earnings applicable to common stock were $1.0 million, which was a $13.5 million decrease compared to earnings for the first quarter of 1999. The earnings decrease was mainly due to lower electric revenues, reflecting the effect of customer rate decreases and a lower volume of electricity delivered, and higher operation and maintenance expenses. PLANNED DIVESTITURE OF ELECTRIC GENERATING PLANTS - ------------------------------------------------- As previously disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) under "Deregulated Generation and Power Plant Divestiture" on page II-6 of ACE's 1999 Annual Report on Form 10-K, Conectiv is building mid-merit electric generating plants and is selling the nuclear and non-strategic baseload fossil electric generating plants of ACE. The strategic electric generating plants of ACE which are being retained by Conectiv are expected to be transferred to another Conectiv subsidiary during mid-2000. In anticipation of this transaction, ACE plans to form a new subsidiary, Conectiv Atlantic Generation LLC (CAG), which will be a subsidiary of ACE REIT, Inc, which is currently an inactive ACE subsidiary. After the necessary regulatory approvals are obtained, management expects to transfer the strategic electric generating plants of ACE, with approximately 502 MW of capacity to CAG. After the electric generating plants are transferred to CAG, the ownership of ACE REIT, Inc. and CAG will be transferred to a Conectiv subsidiary that will hold subsidiaries engaged in non-regulated electricity production and sales, and energy trading and marketing. -8- As a result of the transfers and expected sales of electric generating plants, the principal business of ACE is expected to be the transmission and distribution of electricity by late-2000. The businesses of ACE will also include supplying electricity to customers who do not choose an alternative electricity supplier (Basic Generation Service or "BGS"); power purchased by ACE will be the source of the electricity supplied to its BGS customers. ACE expects to enter into additional long-term purchased power agreements in the third quarter of 2000 in order to supply its BGS customers. ACE's exit from the business of electricity production is expected to cause a decrease in ACE's earnings capacity. ELECTRIC UTILITY INDUSTRY RESTRUCTURING - ---------------------------------------- An update to the information previously reported in the MD&A under "Electric Utility Industry Restructuring," beginning on page II-4 of ACE's 1999 Annual Report on Form 10-K is presented below. NEW JERSEY ELECTRIC UTILITY INDUSTRY RESTRUCTURING As previously disclosed, the NJBPU issued a Summary Order to ACE in July 1999 concerning restructuring ACE's electricity supply business and indicated that a more detailed order would be issued at a later time. The NJBPU's final order for ACE has been delayed due to appeals of the NJBPU's final order concerning restructuring the electricity supply business of PSE&G. In April 2000, the appeals of the NJBPU's restructuring order for PSE&G were denied by the Appellate Division of the New Jersey Superior Court. On May 2, 2000, one of the appellants filed a notice of its intention to request the New Jersey Supreme Court to exercise its discretion to review the unanimous Appellate Division decision. OPERATING REVENUES - ------------------
THREE MONTHS ENDED MARCH 31, -------------- 2000 1999 ------ ------ (Dollars in millions) Regulated electric revenues $196.8 $242.4 Non-regulated electric revenues 9.1 - Other revenues 3.0 2.4 ------ ------ Total operating revenues $208.9 $244.8 ====== ======
The table above shows the amounts of electric revenues earned which are subject to price regulation (Regulated) and which are not subject to price regulation (Non-regulated). "Regulated electric revenues" include revenues for delivery (transmission and distribution) service and BGS. Regulated electric revenues decreased by $45.6 million due to the following: (a) a $13.7 million revenue decrease due to rate decreases for electric utility industry restructuring and savings resulting from termination of the Pedricktown purchased power contract; (b) a $5.6 million revenue decrease due to customers choosing alternative electricity suppliers; (c) a $6.3 million revenue decrease due to over-recoveries of BGS costs; and (d) a $20.0 million decrease primarily due to lower volumes of electricity delivered, including the effect of the shutdown of two major customers. The gross margin (revenues less related fuel and purchased power costs) earned from regulated electricity sales, decreased by approximately $16.9 million. -9- Non-regulated electric revenues of $9.1 million for the first quarter of 2000 resulted primarily from the sale of the electricity generated by ACE's deregulated electric generating plants. Under the terms of the Summary Order issued by NJBPU on July 15, 1999, the electricity generated by ACE's combustion turbines (502 MW of capacity) and the Deepwater electric generating plant (239 MW of capacity), may be sold in deregulated markets; ACE's other electric generating plants are dedicated to supplying BGS until they are sold. For additional information concerning commodity market risk associated with ACE's deregulated generation, see "Item 3. Quantitative and Qualitative Disclosures About Market Risk," included herein. OPERATING EXPENSES - ------------------- Electric Fuel and Purchased Energy and Capacity "Electric fuel and purchased energy and capacity" decreased $25.0 million in the first quarter of 2000 primarily due to costs which were recorded in the first quarter of 1999 pursuant to the energy adjustment clause which was eliminated effective August 1, 1999, in connection with restructuring the electric utility industry. Operation and Maintenance Expenses Operation and maintenance expenses increased $7.8 million in the first quarter of 2000 primarily due to increases in the operating expenses of jointly-owned power plants and customer care expenses associated with electric delivery customers. Depreciation and amortization Depreciation and amortization expenses decreased $3.0 million mainly due to the write-downs in the third and fourth quarters of 1999 of electric generating plants in connection with restructuring the electric utility industry in New Jersey. Amortization of "Recoverable stranded costs" partly offset the decrease from lower depreciation of power plants. INCOME TAXES - ------------ Income taxes decreased $7.7 million mainly due to lower income before income taxes. INTEREST EXPENSE - ---------------- Interest charges increased $5.2 million primarily due to $4.1 million of interest charges on the $228.5 million borrowing in December 1999 to finance the payment to terminate the Pedricktown purchased power contract, and $1.0 million of interest expense accrued on ACE's regulatory liability related to BGS. -10- LIQUIDITY AND CAPITAL RESOURCES - -------------------------------- Due to $108.2 million of cash provided by operating activities, $8.1 million of cash used by investing activities, and $96.7 million of cash used by financing activities, cash and cash equivalents increased by $3.4 million during the first quarter of 2000. Net cash provided by operating activities for the first quarter of 2000 included positive cash flow from a $61.4 million income tax refund, which was related to the tax benefit associated with the December 1999 payment to terminate the Pedricktown purchased power contract. In the first quarter of 1999, $0.1 million of income taxes were paid. Excluding the $61.5 million positive variance in cash flow attributed to income taxes, net cash flow from operations decreased by $29.1 million primarily due to prior-year over-collections of energy costs from customers, lower electricity sales, higher interest expense payments, and slower collections of accounts receivable. As of March 31, 2000, ACE had prepaid income taxes of $19.8 million in comparison to prepaid income taxes of $88.5 million as of December 31, 1999. The $68.7 million decrease in prepaid income taxes was mainly due to the $61.4 million income tax refund received in the first quarter of 2000. Capital expenditures of $11.9 million for the first quarter of 2000 were primarily for electric transmission and distribution system upgrades. Financing activities used cash of $96.7 million primarily due to redemption of $46.0 million of 6.83% Medium Term Notes at maturity on January 26, 2000, the repayment of $30.0 million of short-term debt, and the payment of a $16.8 million common dividend to Conectiv. ACE's capital structure, including short-term debt, variable rate demand bonds and current maturities of long-term debt, is shown below as of March 31, 2000 and December 31, 1999, expressed as a percentage of total capitalization.
March 31, December 31, 2000 1999 ---- ---- Common stockholder's equity 37.5% 36.5% Preferred stock and preferred trust securities 7.1% 6.7% Long-term debt, including current maturities, variable rate demand bonds, and short-term debt 55.4% 56.8%
ACE's ratio of earnings to fixed charges under the SEC Methods are shown below. See Exhibit 12-A, Ratio of Earnings to Fixed Charges, and Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends, for additional information.
12 Months Ended Year Ended December 31, March 31, ---------------------------- 2000 1999 1998 1997 1996 1995 --------- ---- ---- ---- ---- ---- Ratio of Earnings to Fixed Charges (SEC Method) 2.19 2.57 1.66 2.84 2.59 3.19 Ratio of Earnings to Fixed Charges and Preferred Dividends (SEC Method) 2.09 2.44 1.55 2.58 2.16 2.43
-11- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------- ---------------------------------------------------------- As previously disclosed under "Quantitative and Qualitative Disclosures About Market Risk" on pages II-13 to II-14 of ACE's 1999 Annual Report on Form 10-K, ACE is subject to market risks, including interest rate risk, equity price risk, and commodity price risk. An update concerning ACE's commodity price risk is below. Effective August 1, 1999, 741 MW of capacity of ACE's electric generating plants was deregulated. The megawatt-hour (MWH) output of these plants is sold in markets not subject to price regulation. ACE hedges the MWH output of the deregulated portion of its electric generating units primarily through forward contracts, which are used to lock-in selling prices for electricity. ACE also writes (or sells) options for sale of the electric generating plants' MWH output. ACE uses a value-at-risk model to assess the market risk of the electricity output of its deregulated generating units. The model includes fixed price sales commitments, physical forward contracts, and commodity derivative instruments. Value-at-risk represents the potential gain or loss on instruments or portfolios due to changes in market factors, for a specified time period and confidence level. ACE estimates value-at-risk using a delta-normal variance/covariance model with a 95 percent confidence level and assuming a five-day holding period. ACE's calculated value-at-risk with respect to its commodity price exposure was approximately $12.7 million as of March 31, 2000, in comparison to $6.4 million as of December 31, 1999. The increase in value-at-risk was primarily due to increased hedging, with forward contracts, of the deregulated portion of the electricity output of ACE's power plants. -12- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - -------------------------- The municipal utility within the City of Vineland has built electric distribution facilities to a previously undeveloped area that is both within the city limits and ACE's franchised service area. After unsuccessful negotiations with the City of Vineland, ACE has initiated litigation before the NJBPU to defend its franchise right to serve. Because the area has previously been undeveloped, the outcome of the litigation, even if negative, will have no immediate effects on revenue. In addition, the City of Vineland has recently initiated a process to appraise all of ACE's electric distribution property located within the municipal boundaries. This process may or may not lead to an effort by the City of Vineland to condemn ACE's electric distribution property. ACE intends to oppose any involuntary condemnation and, alternatively, to ensure that there is adequate compensation for any property condemned. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------ Exhibits - --------- Exhibit 12-A, Ratio of Earnings to Fixed Charges Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends Exhibit 27, Financial Data Schedule Reports on Form 8-K - -------------------- On January 31, 2000, ACE filed a Current Report on Form 8-K dated January 18, 2000 reporting on Item 5, Other Events, and Item 7, Financial Statements and Exhibits. On March 22, 2000, ACE filed a Current Report on Form 8-K dated March 22, 2000 reporting on Item 5, Other Events. -13- SIGNATURE 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 thereunto duly authorized. Atlantic City Electric Company ------------------------------ (Registrant) Date: May 12, 2000 /s/ John C. van Roden ------------ --------------------- John C. van Roden, Senior Vice President and Chief Financial Officer -14- Exhibit Index ------------- Exhibit 12-A, Ratio of Earnings to Fixed Charges Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends Exhibit 27, Financial Data Schedule EX-12.A 2 RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12-A Atlantic City Electric Company Ratio of Earnings to Fixed Charges ---------------------------------- (Dollars in Thousands)
12 Months Ended Year Ended December 31, March 31, ----------------------------------------------------- 2000 1999 1998 1997 1996 1995 ------------- --------- -------- -------- -------- -------- Income before extraordinary item $ 50,412 $ 63,930 $ 30,276 $ 85,747 $ 75,017 $ 98,752 ------------- --------- -------- -------- -------- -------- Income taxes 41,673 49,326 18,178 50,442 36,958 48,277 ------------- --------- -------- -------- -------- -------- Fixed charges: Interest on long-term debt including amortization of discount, premium and expense 65,781 60,562 63,940 64,501 64,847 62,879 Other interest 3,916 3,837 3,435 3,574 4,019 4,364 Preferred dividend require- ments of subsidiary trusts 7,619 7,634 6,052 5,775 1,428 - ------------- --------- -------- -------- -------- -------- Total fixed charges 77,316 72,033 73,427 73,850 70,294 67,243 ------------- --------- -------- -------- -------- -------- Earnings before extraordinary item, income taxes and fixed charges $ 169,401 $ 185,289 $121,881 $210,039 $182,269 $214,272 ============= ========= ======== ======== ======== ======== Ratio of earnings to fixed charge 2.19 2.57 1.66 2.84 2.59 3.19
For purposes of computing the ratio, earnings are income before extraordinary item plus income taxes and fixed charges. Fixed charges consist of interest on long- and short-term debt, amortization of debt discount, premium, and expense, dividends on preferred securities of subsidiary trusts, and the estimated interest component of rentals. EX-12.B 3 RATIO OF EARNINGS TO FIXED CHARGES AND DIVIDENDS Exhibit 12-B Atlantic City Electric Company Ratio of Earnings to Fixed Charges and Preferred Dividends ---------------------------------------------------------- (Dollars in Thousands)
12 Months Ended Year Ended December 31, March 31, ---------------------------------------------------------- 2000 1999 1998 1997 1996 1995 --------------- ---------- ---------- ---------- ---------- ---------- Income before extraordinary item $ 50,412 $ 63,930 $ 30,276 $ 85,747 $ 75,017 $ 98,752 --------------- ---------- ---------- ---------- ---------- ---------- Income taxes 41,673 49,326 18,178 50,442 36,958 48,277 --------------- ---------- ---------- ---------- ---------- ---------- Fixed charges: Interest on long-term debt including amortization of discount, premium and expense 65,781 60,562 63,940 64,501 64,847 62,879 Other interest 3,916 3,837 3,435 3,574 4,019 4,364 Preferred dividend require- ments of subsidiary trusts 7,619 7,634 6,052 5,775 1,428 - --------------- ---------- ---------- ---------- ---------- ---------- Total fixed charges 77,316 72,033 73,427 73,850 70,294 67,243 --------------- ---------- ---------- ---------- ---------- ---------- Earnings before extraordinary item, income taxes and fixed charges $ 169,401 $ 185,289 $ 121,881 $ 210,039 $ 182,269 $ 214,272 =============== ========== ========== ========== ========== ========== Fixed charges $ 77,316 $ 72,033 $ 73,427 $ 73,850 $ 70,294 $ 67,243 Preferred dividend requirement 3,894 3,777 5,289 7,506 14,214 20,839 --------------- ---------- ---------- ---------- ---------- ---------- $ 81,210 $ 75,810 $ 78,716 $ 81,356 $ 84,508 $ 88,082 =============== ========== ========== ========== ========== ========== Ratio of earnings to fixed charges and preferred dividends 2.09 2.44 1.55 2.58 2.16 2.43
For purposes of computing the ratio, earnings are income before extraordinary item plus income taxes and fixed charges. Fixed charges consist of interest on long- and short-term debt, amortization of debt discount, premium, and expense, dividends on preferred securities of subsidiary trusts, and the estimated interest component of rentals. Preferred dividend requirements represent annualized preferred dividend requirements multiplied by the ratio that pre-tax income bears to net income. EX-27 4 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME FROM ACE'S FIRST QUARTER 2000 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 PER-BOOK 980,702 112,126 280,383 1,128,728 65,262 2,567,201 54,963 493,007 114,194 662,164 118,950 6,231 954,777 0 0 0 75 0 12,310 15,480 797,214 2,567,201 208,886 1,134 186,206 187,340 21,546 1,622 23,168 21,595 1,573 533 1,040 16,827 0 108,197 0 0
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