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As filed with the Securities and Exchange Commission on August 16, 2001 |
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File No. 70- |
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United States Washington, D.C. 20549 ________________________________________ |
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FORM U-1 APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ________________________________________ |
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New RC, Inc. |
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New RC, Inc. (Name of top registered holding company) ________________________________________ |
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Dennis R. Wraase 1900 Pennsylvania Avenue, NW Washington, DC 20068 |
William T. Torgerson, Esq. 1900 Pennsylvania Avenue, NW Washington, DC 20068 |
Peter F. Clark, Esq. 800 King Street Wilmington, DE 19801 |
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(Names and addresses of agents for service) |
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The Commission is also requested to send copies |
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Sheri E. Bloomberg, Esq. 125 West 55th Street New York, NY 10019-5389 Telephone: (212) 424-8000 Facsimile: (212) 424-8500 |
Judith A. Center, Esq. 1440 New York Avenue, NW Washington, DC 20005 Telephone: (202) 371-7000 Facsimile: (202) 371-5760 |
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TABLE OF CONTENTS |
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Page |
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Item 1. |
Description of Proposed Transactions |
1 |
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A. |
Introduction and General Request |
1 |
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1. |
Introduction |
1 |
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2. |
General Request |
2 |
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B. |
Description of the Parties to the Transaction |
3 |
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C. |
Current Financing Authorization of Conectiv |
4 |
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D. |
Overview of the Financing Request |
4 |
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E. |
Parameters for Financing Authorization |
6 |
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1. |
Effective Cost of Money |
6 |
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2. |
Maturity of Debt and Final Redemption on Preferred Securities |
6 |
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3. |
Issuance Expenses |
6 |
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4. |
Use of Proceeds |
6 |
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5. |
Financial Condition |
7 |
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F. |
Description of Specific Types of Financing |
8 |
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1. |
New RC External Merger Financing |
8 |
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2. |
New RC External Financing after the Merger |
8 |
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(a) |
Common Stock |
9 |
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(i) |
General |
9 |
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(ii) |
Acquisitions |
10 |
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(iii) |
Stock-Based Management Incentive and Employee Benefit Plans |
10 |
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(iv) |
Stock Purchase/Dividend Reinvestment Plan |
10 |
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(b) |
Preferred Securities |
10 |
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(c) |
Long-Term Debt |
11 |
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(d) |
Short-Term Debt |
12 |
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(e) |
Guarantees |
13 |
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(f) |
Financing Risk Management Devices |
14 |
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(i) |
Interest Rate Risk |
14 |
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(ii) |
Anticipatory Hedges |
14 |
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3. |
Utility Subsidiary Financing |
15 |
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(a) |
Short-Term Debt |
15 |
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(b) |
Long-Term Debt Securities and Preferred Securities |
15 |
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(c) |
Acquisition of Utility Property and Internal Financing Thereof |
16 |
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(d) |
Guarantees |
16 |
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(e) |
Financing Risk Management Devices |
16 |
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4. |
CEH Financing |
17 |
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(a) |
External Genco Financing |
17 |
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(i) |
Preferred Securities |
17 |
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(ii) |
Long-Term Debt |
17 |
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(iii) |
Short-Term Debt |
18 |
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(b) |
Guarantees |
18 |
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(c) |
Financing Risk Management Devices |
18 |
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(d) |
Financing of Nonutility Subsidiaries of CEH |
19 |
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5. |
Conectiv Financing |
19 |
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(a) |
Existing Financing Arrangements |
19 |
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(b) |
Guarantees |
19 |
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(c) |
Financing of Nonutility Subsidiaries of Conectiv |
19 |
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6. |
Nonutility Subsidiary Financings |
19 |
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7. |
Guarantees by Nonutility Subsidiaries, Money Pool and Intrasystem Advances |
20 |
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(a) |
Nonutility Subsidiary Guarantees |
20 |
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(b) |
Authorization and Operation of the New RC System Money Pool |
21 |
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(i) |
Money Pool |
21 |
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(ii) |
Operation of the Money Pools and Administrative Matters |
23 |
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(c) |
Use of Proceeds |
23 |
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(d) |
Intrasystem Financing |
23 |
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8. |
Financing Subsidiaries |
24 |
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9. |
Changes in Capital Stock of Majority Owned Subsidiaries |
24 |
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G. |
Investments in EWGs and FUCOs |
25 |
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1. |
Conectiv Investments in EWGs |
25 |
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2. |
Pepco Investments in EWGs and FUCOs |
25 |
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3. |
New RC Investments in EWGs and FUCOs and Compliance with Rules 53 and 54 |
25 |
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H. |
Payment of Dividends Out of Capital or Unearned Surplus |
29 |
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1. |
Reauthorization of Previous Authorization for Conectiv, ACE and Delmarva |
29 |
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2. |
Payment of Dividends by New RC and Pepco Out of Capital or Unearned Surplus |
30 |
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3. |
Payment of Dividends by CEH and Subsidiaries Out of Capital or Unearned Surplus |
30 |
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4. |
Payment of Dividends by Nonutility Subsidiaries Out of Capital or Unearned Surplus |
30 |
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I. |
Filing of Certificates of Notification |
30 |
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Item 2. |
Fees, Commissions and Expenses |
32 |
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Item 3. |
Applicable Statutory Provisions |
32 |
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Item 4. |
Regulatory Approval |
32 |
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Item 5. |
Procedure |
32 |
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Item 6. |
Exhibits and Financial Statements |
33 |
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Item 7. |
Information as to Environmental Effects |
34 |
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Item 1. Description of Proposed Transactions
A. Introduction and General Request
1. Introduction
New RC, Inc., a Delaware corporation ("New RC"), and Conectiv, a Delaware corporation and a
registered public utility holding company, filed an Application-Declaration on Form U-1 (File No.
70-9915) on July 20, 2001 (the "Merger U-1") with the Securities and Exchange Commission (the
"Commission") under Sections 9(a)(2) and 10 of the Public Utility Holding Company Act of 1935,
as amended (the "Act"), seeking approvals relating to the proposed acquisition by New RC of all of
the common stock of Conectiv and Potomac Electric Power Company, a Washington, D.C. and
Virginia corporation ("Pepco") (the "Merger"). Prior to the Merger, New RC will be renamed. Upon
consummation of the Merger, New RC will register with the Commission under the Act.
Upon completion of the Merger, New RC will own, directly or indirectly, all of the issued and
outstanding common stock of five public utility subsidiary companies.1 These include Pepco,
Atlantic City Electric Company, a New Jersey corporation ("ACE"), Delmarva Power & Light
Company, a Delaware and Virginia corporation ("Delmarva"), Conectiv Atlantic Generation L.L.C.,
a Delaware limited liability company ("CAG") and Conectiv Delmarva Generation, Inc., a
Delaware corporation ("CDG"). Collectively, ACE, Delmarva, CAG, CDG and any New Utility
Subsidiary that may be established are referred to as the "Conectiv Utility Subsidiaries", and
together with Pepco, are referred to as the "Utility Subsidiaries." Pepco, ACE and Delmarva are
sometimes collectively referred to as the "Operating Utility Companies."
Upon completion of the Merger, New RC also will hold, directly or indirectly, all of the nonutility
subsidiaries and investments currently owned by Pepco and Conectiv (collectively, the "Nonutility
Subsidiaries").
New RC will maintain Conectiv as a direct wholly owned subsidiary after the Merger. Conectiv,
which will remain a registered holding company, will hold, directly or indirectly, all of the voting
securities of the Conectiv Utility Subsidiaries and its investments in other direct and indirect
Nonutility Subsidiaries.
In addition to Conectiv, the New RC System (as defined below) is expected to include two other
registered holding companies: CEH, the parent of CDG, and ACE REIT, Inc. ("ACE REIT"), a
direct subsidiary of CEH and the parent of CAG until such time as CDG and CAG achieve exempt
wholesale generator ("EWG") status.2
1Pursuant to the Order of the Commission (HCAR No. 35-27415; 70-9095) dated June 7, 2001,
Conectiv Energy Holding Company ("CEH") is authorized to establish additional direct subsidiaries
("the "New Utility Subsidiaries") which will be considered utility companies under the Act.
2Pursuant to the Order of the Commission (HCAR No. 35-27415; 70-9095) dated June 7, 2001,
CEH and ACE REIT will be required to register as public utility holding companies under Section 5
of the Act upon the occurrence of certain events. All reporting requirements under the Act for CEH
and ACE REIT will be subsumed in the reporting requirements for Conectiv. After the Merger, all
reporting requirements under the Act for Conectiv, CEH and ACE REIT will be subsumed in the
reporting requirements for New RC.
Each of the entities that will be directly or indirectly owned subsidiaries of New RC upon
consummation of the acquisition described in the Merger U-1 is referred to herein individually as a
"Subsidiary" and collectively as "Subsidiaries." For purposes hereof, "Subsidiary" and
"Subsidiaries" also include other direct or indirect subsidiaries that New RC may form after the
Merger with the approval of the Commission, pursuant to the Rule 58 exemption or pursuant to
Sections 32, 33 or 34 of the Act. New RC and the Subsidiaries are sometimes hereinafter
collectively referred to as the "New RC System." For purposes of Item 1.F.7(b)(i) of this
Application-Declaration, "Money Pool," the term "Subsidiary" or "Subsidiaries" shall include only
the companies specifically referred to on the cover and named on the signature page of this
Application-Declaration (excluding EWGs, foreign utility companies ("FUCOs") and exempt
telecommunications companies ("ETCs"), which will not participate in the money pool). The
Commission is asked to reserve jurisdiction over the participation in the money pool by existing
companies not currently participating in the money pool and by future companies formed by New
RC until a specific post-effective amendment is filed naming the subsidiary to be added as a
participant in the money pool.
A more complete description of New RC, Pepco and Conectiv, and their respective subsidiaries, is
contained in the Merger U-1.
2. General Request
This Application-Declaration seeks the authorization and approval of the Commission with respect
to ongoing financing activities, the provision of guarantees, and other matters pertaining to New RC
and its Subsidiaries after giving effect to the Merger and registration of New RC as a holding
company. Specifically, this Application-Declaration seeks, among other things, the following
authorizations and approvals of the Commission:
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In order to ensure that the New RC System is able to meet its capital requirements immediately following registration and plan its future financing, New RC and its Subsidiaries hereby request authorization for financing transactions for the period beginning with the effective date of an order issued pursuant to this filing and continuing to and including March 31, 2005 (the "Authorization Period"); |
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New RC requests that the Commission approve the aggregate financing request in the amount of $3.5 billion representing financing authorizations relating to equity securities, preferred securities and debt securities (the "New RC Financing Limit"), of which no more than $2.5 billion will be short-term debt outstanding at any point in time (the "New RC Short-Term Debt Limit") and of which no more than $1.5 billion will be used to provide external Genco financing (the "Genco Financing Limit") as more fully described below; |
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New RC requests that the Commission approve the issuance of long-term debt securities and preferred securities by Pepco in an aggregate amount not to exceed $800 million during the Authorization Period and the issuance of short-term debt securities by Pepco and Delmarva in amounts not to exceed $300 million and $275 million, respectively, outstanding at any time during the Authorization Period as more fully described below; |
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New RC requests that the Commission approve the issuance of up to 20 million shares of common stock under stock purchase/dividend reinvestment plans and stock-based management incentive and employee benefit plans pursuant to Sections 6(a) and 7 of the Act, all as more specifically described below (the "Common Stock Plan Limit"); |
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o |
New RC requests that the Commission approve the issuance by New RC, Pepco, CEH, Conectiv and the Nonutility Subsidiaries of guarantees in an aggregate amount not to exceed $3.5 billion outstanding at any time as more fully described below (the "New RC Guarantee Limit"); |
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o |
New RC requests that the Commission authorize and approve under other sections of the Act and applicable rules and regulations of the Commission promulgated thereunder the intrasystem guarantees, the formation and operation of the New RC System money pool ("Money Pool") and the payment of dividends out of capital or unearned surplus by New RC and certain Subsidiaries as more fully described below; and |
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o |
New RC requests that the Commission approve the use of the proceeds of financings in an amount not to exceed 100% of New RC's consolidated retained earnings plus $3.5 billion (the "New RC Exempt Project Limit") for investments in EWGs and FUCOs as more fully described below. |
B. Subscription of the Parties to the Transaction
Immediately following the consummation of the Merger, New RC will have up to four direct
subsidiaries:
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Pepco, a public utility company engaged in the transmission, distribution and sale of electricity in the District of Columbia and major portions of Prince George's and Montgomery counties in suburban Maryland; |
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Conectiv, a registered holding company under the Act; |
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If deemed appropriate based on tax considerations, Pepco Holdings, Inc., the holding company for all of Pepco's non-regulated business activities; and |
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o |
If deemed appropriate based on tax and regulatory considerations, the service company for the New RC System, which may be either Conectiv Resource Partners, Inc. ("CRP") or its successor, or a newly formed subsidiary company (see the Merger U-1 for a discussion of the options for the establishment of a service company for the New RC System). |
Conectiv will have as its principal direct subsidiaries:
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o |
ACE, a public utility company engaged in the supply and delivery of electricity in the southern one-third of New Jersey; |
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o |
Delmarva, a public utility company engaged in the supply and delivery of electricity through its systems in Delaware and portions of Maryland and Virginia and the delivery of natural gas in northern Delaware; and |
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o |
CEH, an intermediate holding company that holds Conectiv's interest in entities that hold energy and related projects (both exempt projects and utility facilities which comprise the "Genco") or that engage in energy trading activities.3 |
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o |
External issuances by New RC of common stock, preferred stock and preferred stock equivalent securities (preferred stock and preferred stock equivalent securities are hereinafter referred to as "Preferred Securities"), long-term debt, short-term debt, and other securities, guarantees by New RC of obligations of affiliated or unaffiliated persons in favor of other unaffiliated persons, and the entering into by New RC of transactions to manage interest rate risk ("Hedging Transactions").7 |
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o |
Issuances of securities by Pepco and Delmarva and the entering into of Hedging Transactions by the Utility Subsidiaries to the extent not exempt pursuant to Rule 52; |
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o |
the acquisition of up to $1.5 billion of utility property by the direct and indirect utility subsidiaries of CEH and the internal financing thereof; |
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o |
External issuances by CEH, a subsidiary of CEH or a financing entity established by CEH (including an entity established to construct and finance generation assets), of Preferred Securities, long-term debt, short-term debt, and other securities, guarantees by CEH of obligations of affiliated or unaffiliated persons in favor of other unaffiliated persons, and the entering into by CEH, or a financing subsidiary of CEH, of Hedging Transactions; |
|
o |
Guarantees by Conectiv of obligations of affiliated or unaffiliated persons in favor of other unaffiliated persons; |
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o |
Issuances by Nonutility Subsidiaries of securities and the entering into of Hedging Transactions that are not exempt pursuant to Rule 52; |
|
o |
the establishment of the Money Pool and the issuance of intrasystem guarantees by the Nonutility Subsidiaries on behalf of the Subsidiaries; |
|
o |
the formation of financing entities and the issuance by such entities of securities otherwise authorized to be issued and sold pursuant to this Application-Declaration or pursuant to applicable exemptions under the Act, including intrasystem guarantees of such securities and the retention of existing financing entities; |
|
o |
the ability of 50% or more owned Subsidiaries to alter their capital stock in order to engage in financing transactions with their parent company; |
|
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the use of proceeds from financings to invest in EWGs and FUCOs; and |
7"Hedging Transactions" include only those transactions relating to financing activities. Engaging in
futures and other commodity related risk management by New RC and the Subsidiaries constitutes
part of their normal business activities and, as such, does not require Commission approval. See
Southern Energy, Inc., HCAR No. 35-27020 (May 13, 1999); Entergy Corp., HCAR No. 35-26812
(Jan. 6, 1998); New Century Energies, HCAR No. 35-26748 (Aug. 1, 1997); and National Fuel Gas
Co., HCAR No. 35-2666 (Feb. 12, 1997).
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the ability of New RC and the Subsidiaries to pay dividends out of capital or unearned surplus. |
E. Parameters for Financing Authorization
Authorization is requested herein to engage in certain financing transactions during the
Authorization Period for which the specific terms and conditions are not at this time known, and
which may not be covered by Rule 52, without further prior approval by the Commission. The
following general terms will be applicable where appropriate to the financing transactions requested
to be authorized hereby:
1. Effective Cost of Money
The effective cost of money on long-term debt borrowings occurring pursuant to the authorizations
granted under this Application-Declaration will not exceed the greater of (a) 500 basis points over
the comparable-term U.S. Treasury securities or (b) a gross spread over U.S. Treasuries that is
consistent with similar securities of comparable credit quality and maturities issued by other
companies. The effective cost of money on short-term debt borrowings pursuant to authorizations
granted under this Application-Declaration will not exceed the greater of (a) 500 basis points over
the comparable-term London Interbank Offered Rate ("LIBOR") or (b) a gross spread over LIBOR
that is consistent with similar securities of comparable credit quality and maturities issued by other
companies.8 The dividend rate on any series of Preferred Securities will not exceed the greater of
(a) 500 basis points over the yield to maturity of a U.S. Treasury security having a remaining term
equal to the term of such series of Preferred Securities or (b) a rate that is consistent with similar
securities of comparable credit quality and maturities issued by other companies.
2. Maturity of Debt and Final Redemption on Preferred Securities
The maturity of indebtedness will not exceed 50 years. Preferred Securities may have a finite
maturity of up to 50 years or may be perpetual in term.
3. Issuance Expenses
The underwriting fees, commissions or other similar remuneration paid in connection with the non-
competitive issue, sale or distribution of a security pursuant to this Application-Declaration (not
including any original issue discount) will not exceed 5% of the principal or total amount of the
security being issued.
4. Use of Proceeds
The proceeds from the sale of securities in external financing transactions (excluding transactions
required to effect the Merger) will be used for general corporate purposes including:
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the financing, in part, of the capital expenditures of the New RC System; |
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the financing of working capital requirements of the New RC System; |
8See Entergy Corporation, HCAR No. 35-27371 (April 3, 2001).
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the acquisition, retirement or redemption pursuant to Rule 42 of securities previously issued by New RC or the Subsidiaries without the need for prior Commission approval; and |
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other lawful purposes, including direct or indirect investment in companies authorized under the Merger U-1, including Rule 58 companies, other subsidiaries approved by the Commission, EWGs, FUCOs and ETCs. 9 New RC and the Subsidiaries represent that no such financing proceeds will be used to acquire or form a new subsidiary unless such financing is consummated in accordance with an order of the Commission or an available exemption under the Act. |
5. Financial Condition
New RC's principal utility operating subsidiaries, Pepco, ACE and Delmarva, are financially sound
and each has investment-grade ratings from major national rating agencies. New RC will also be a
financially sound company. New RC commits that it will maintain a common equity ratio (common
equity divided by the sum of common equity, preferred stock, long-term debt and short-term debt)
(the "Common Equity Ratio") during the Authorization Period of at least 30%. Additionally, New
RC commits that it will maintain during the Authorization Period at least an investment-grade
corporate or senior unsecured debt rating by at least one nationally recognized rating agency.
Further, Pepco, ACE,10 and Delmarva each commits that it will maintain a Common Equity Ratio of
at least 30% of its capitalization (calculated in the same manner as described above) and at least an
investment-grade senior unsecured debt rating by at least one nationally recognized rating agency.
Below are listed the long-term unsecured debt ratings for Pepco, ACE and Delmarva as of June 30,
2001:
9New RC will make additional investments in EWGs and/or FUCOs during the Authorization
Period. Accordingly, Rules 53 and 54 apply to this Application-Declaration. Compliance with these
rules is addressed below.
10As previously noted herein, Conectiv and ACE requested authorization in File No. 70-9899 for
ACE Transition Funding to issue up to $1.7 billion of securitization bonds. In such filing it was
stated that ACE's Common Equity Ratio would decline to approximately 11% if all of the
securitization bonds were issued and ACE used certain of the proceeds to retire debt and/or equity.
The issuance of securitization bonds would not adversely affect the respective cash flows of New
RC or ACE. The securitization bonds will be rated separately by credit rating agencies. The
securitization bonds will not impact the credit ratings of New RC or ACE. The credit rating
agencies recognize that the securitization bonds will be serviced by a transition bond charge
approved by the New Jersey Board of Public Utilities ("NJBPU") and, therefore, are independent of
New RC or ACE's credit. Bonds similar to these securitization bonds that have been issued by other
utility companies have been rated AAA. It is expected that a AAA rating will be achieved for the
securitization bonds to be issued by ACE Transition Funding. It is requested that ACE be permitted
to exclude the securitization bonds from the calculation of its Common Equity Ratio, or, alternately,
it is requested that ACE's required Common Equity Ratio be reduced to 10%.
Senior Unsecured Debt Ratings (as of June 30, 2001)
|
Company |
Moody's |
Standard & Poor's |
|
Pepco |
A2 |
A- |
|
ACE |
A3 |
BBB+ |
|
Delmarva |
A3 |
A- |
New RC, Pepco, ACE, Delmarva and CEH each requests that the Commission authorize the
continued issuance of securities as described herein through the Authorization Period in
circumstances where the issuer is not in compliance with one or more of such requirements but will
comply with terms described in a post-effective amendment hereto. New RC, Pepco, ACE,
Delmarva and CEH each request that the Commission reserve jurisdiction over the approval sought
in this paragraph pending completion of the record.
F. Description of Specific Types of Financing
1. New RC External Merger Financing
To consummate the Merger, New RC will issue up to 170,000,000 shares of its common stock in
exchange for the common stock of Pepco and Conectiv. This estimate is based on the number of
shares outstanding on the record date established prior to the date of mailing of the proxy statement
related to the Merger and the assumption that Conectiv stockholders will receive 50% of the Merger
consideration in cash and 50% in New RC common stock. New RC common stock issued to effect
the Merger will be excluded from the calculation of the New RC Financing Limit.
Before completing the Merger, New RC will evaluate various sources and methods of financing the
amount necessary to fund a portion of the cash consideration to be paid to Conectiv stockholders
(the total amount of cash consideration is approximately $1.1 billion). Currently, New RC
anticipates funding a portion of the cash consideration by using up to $400 million of proceeds that
Pepco received from the recent sale of its generation assets with the remaining portion being
financed at the New RC level through external sources (the "Merger Financing"). Such financings,
however, will be offset by reductions since the date of its generation asset sale in a like amount of
Pepco's borrowings. Sources of financing under consideration include, but are not limited to,
commercial and investment banks, institutional lenders and public securities markets. Methods of
financing may include, but are not limited to, commercial paper, bank lines of credit, debt and/or
Preferred Securities of various maturities and types. The Merger Financing, or any subsequent
refinancing, refunding or extension of the Merger Financing, will not be included in the calculation
of the New RC Financing Limit.
See "Financing the Transaction" in the Merger U-1.
2. New RC External Financing after the Merger
New RC requests authorization to obtain funds externally through sales of common stock, Preferred
Securities and debt securities in an aggregate amount up to the New RC Financing Limit.
Outstanding short-term debt will be included in the calculation of the New RC Financing Limit but
will not exceed the New RC Short-Term Debt Limit at any point in time. With respect to common
stock, New RC also requests authority to issue common stock to third parties in consideration for
the acquisition by New RC or a Nonutility Subsidiary of equity or debt securities of a company
being acquired pursuant to Rule 58 or Sections 32, 33 or 34 of the Act. Also, New RC requests
authorization to issue common stock under stock purchase/dividend reinvestment plans and stock-
based management incentive and employee benefit plans. In addition, New RC seeks the flexibility
to enter into certain Hedging Transactions to manage interest rate risk and for other lawful
purposes.
(a) Common Stock
New RC is authorized under its restated articles of incorporation to issue 400,000,000 shares of
common stock ($.01 par value per share). As discussed above, New RC will issue up to
170,000,000 shares of common stock in connection with the Merger. The aggregate amount of
financing obtained by New RC during the Authorization Period from the issuance and sale of
common stock (other than for stock purchase/dividend reinvestment plans and stock-based
management incentive and employee benefit plans as discussed below and other than shares issued
in connection with the Merger), when combined with the long-term debt and Preferred Securities
issued during the Authorization Period and short-term debt issued during the Authorization Period
then outstanding, as described in this section, shall not exceed the New RC Financing Limit for the
uses set forth in Item 1.E.4 above. New RC common stock issued in any of the circumstances
described in Item 1.F.2(a)(ii) below relating to acquisitions of companies shall be valued, for
purposes of determining compliance with the aggregate financing limitation set out herein, at its
market value as of the date of issuance (or, if appropriate, at the date of a binding contract providing
for the issuance thereof). In addition, authorization is requested to issue shares of New RC common
stock (or options to purchase shares) pursuant to stock purchase/dividend reinvestment plans and
stock-based management incentive and employee benefit plans up to the Common Stock Plan
Limit.
(i) General
Subject to the foregoing, New RC may issue and sell common stock or options, warrants or other
stock purchase rights exercisable for common stock. New RC may also buy back shares of such
stock or such options during the Authorization Period in accordance with Rule 42.
Common stock financings may be effected pursuant to underwriting agreements of a type generally
standard in the industry. Public distributions may be pursuant to private negotiation with
underwriters, dealers or agents as discussed below or effected through competitive bidding among
underwriters. In addition, sales may be made through private placements or other non-public
offerings to one or more persons. All such common stock sales will be at rates or prices and under
conditions negotiated or based upon, or otherwise determined by, competitive capital markets.
New RC may sell common stock covered by this Application-Declaration in any one of the
following ways: (i) through underwriters or dealers; (ii) through agents; (iii) directly to a limited
number of purchasers or a single purchaser; or (iv) directly to employees (or to trusts established for
their benefit), shareholders and others through its stock purchase/dividend reinvestment plans and
stock-based management incentive and employee benefit plans. If underwriters are used in the sale
of the securities, such securities will be acquired by the underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale. The securities may be
offered to the public either through underwriting syndicates (which may be represented by a
managing underwriter or underwriters designated by New RC) or directly by one or more
underwriters acting alone. The securities may be sold directly by New RC or through agents
designated by New RC from time to time. If dealers are utilized in the sale of any of the securities,
New RC will sell such securities to the dealers as principals. Any dealer may then resell such
securities to the public at varying prices to be determined by such dealer at the time of resale. If
common stock is being sold in an underwritten offering, New RC may grant the underwriters
thereof a "green shoe" option permitting the shares then being offered solely for the purpose of
covering over-allotments.
(ii) Acquistions
Under Rule 58 and Sections 32, 33 and 34 of the Act, New RC is or will be authorized to acquire
securities of companies engaged in functionally related businesses, "energy-related businesses" as
described in Rule 58, EWGs, FUCOs and ETCs. New RC may also issue common stock or options,
warrants or other stock purchase rights exercisable for common stock in public or privately
negotiated transactions as consideration for the equity securities or assets of other companies,
provided that the acquisition of any such equity securities or assets has been authorized in the
Merger U-1 or in a separate proceeding or is exempt under the Act or the rules thereunder.11
(iii) Stock-Based Management Incentive and Employee Benefit Plans
New RC proposes, from time to time during the Authorization Period, to issue and/or acquire in
open market transactions or by some other method that complies with applicable law and
Commission interpretations then in effect, shares of New RC common stock under stock-based
management incentive and employee benefit plans and under a stock purchase/dividend
reinvestment plan, as described below, in an amount not to exceed the Common Stock Plan Limit.
New RC common stock issued pursuant to the Common Stock Plan Limit will not be included in
the calculation of the New RC Financing Limit.
(iv) Stock Purchase/Dividend Reinvestment Plan
New RC will establish a stock purchase/dividend reinvestment plan that is expected to incorporate
the existing features of the plans currently offered by Pepco and Conectiv. Upon consummation of
the Merger, the stock purchase/dividend reinvestment plans of Pepco and Conectiv will be
terminated (or one company's plan will be adopted by New RC) and participants will be eligible to
become participants in New RC's new or adopted plan. New RC common stock issued to
participants in the existing Pepco and Conectiv plans at the time of the Merger will not be included
in the calculation of the Common Stock Plan Limit.
(b) Preferred Securities
New RC seeks to have the flexibility to issue Preferred Securities (including, without limitation, its
authorized preferred stock, trust preferred securities or monthly income preferred securities) directly
or indirectly through one or more special-purpose financing subsidiaries organized by New RC
specifically for such purpose as discussed below. The aggregate amount of financing obtained by
New RC during the Authorization Period from issuance and sale of Preferred Securities, when
combined with the amount of common stock (other than for benefit plans or stock purchase and
dividend reinvestment plans and other than shares issued in the Merger) and long-term debt issued
11The Commission has previously approved the issuance of common stock as consideration for the
acquisition of a new business in an exempt transaction or a transaction that has been approved in a
separate proceeding. See e.g., SCANA Corp., HCAR No. 35-27135 (Feb. 14, 2000).
and short-term debt then outstanding, as described in this section, shall not exceed the New RC
Financing Limit for the uses set forth in Item 1.E.4 above. The proceeds of Preferred Securities
would provide an important source of future financing for the operations of and investments in
nonutility businesses that are exempt under the Act or have been approved by the Commission.12
Preferred Securities may be issued in one or more series with such rights, preferences, and priorities
as may be designated in the instrument creating each such series, as determined by New RC's board
of directors. Dividends or distributions on Preferred Securities will be made periodically and to the
extent funds are legally available for such purpose, but may be made subject to terms that allow the
issuer to defer dividend payments for specified periods. Preferred Securities may be convertible or
exchangeable into shares of New RC common stock or indebtedness. Preferred Securities may be
sold directly through underwriters or dealers in connection with an acquisition in a manner similar
to that described for common stock in Item 1.F.2(a)(i) and Item 1.F.2(a)(ii) above.
(c) Long-Term Debt
The aggregate amount of financing obtained by New RC during the Authorization Period from
issuance and sale of long-term debt securities, when combined with common stock (other than for
benefit plans or stock purchase and dividend reinvestment plans and other than shares issued in
connection with the Merger), Preferred Securities and short-term debt issued and then outstanding,
as described in this section, shall not exceed the New RC Financing Limit for the uses set forth in
Item 1.E.4 above.
Types of long-term debt securities may include, but not be limited to, bonds, notes, medium-term
notes or debentures under one or more indentures or long-term indebtedness under agreements with
banks or other institutional lenders.
Any long-term debt security would have such designation, aggregate principal amount, maturity,
interest rate(s) or methods of determining the same, terms of payment of interest, redemption
provisions, sinking-fund terms and other terms and conditions as New RC may determine at the
time of issuance. Any long-term debt (a) may be convertible into any other securities of New RC,
(b) will have maturities ranging from one to 50 years, (c) may be subject to optional and/or
mandatory redemption, in whole or in part, at par or at various premiums above the principal
amount thereof, (d) may be entitled to mandatory or optional sinking-fund provisions, (e) may
provide for reset of the coupon pursuant to a remarketing arrangement, (f) may be subject to tender
or the obligation of the issuer to repurchase at the election of the holder or upon the occurrence of a
12The Commission has approved a similar financing application filed by Southern Company in
which Southern Company requested approval to issue preferred securities and long-term debt,
directly or indirectly through special-purpose financing entities. See The Southern Company,
HCAR No. 35-27134 (Feb. 9, 2000). In that case, the Commission took account of the changing
needs of registered holding companies for sources of capital other than common equity and short-
term debt brought about primarily by the elimination of restrictions under the Act on investments in
various types of non-core businesses (e.g., EWGs, FUCOs, ETCs and businesses allowed by Rule
58). The Commission noted that, without the ability to raise capital in the external markets
appropriate for such investments, registered holding companies would be at a competitive
disadvantage to other energy companies that are not subject to regulation under the Act. See also
Progress Energy, HCAR No. 35-27297 (Dec. 12, 2000) and KeySpan Corporation, HCAR No. 35-
27272 (Nov. 8, 2000).
specified event, (g) may be called from existing investors by a third party, and (h) may be entitled to
the benefit of financial or other covenants.
Long-term debt may be unsecured or secured by property of New RC. Specific terms of any
borrowings, such as maturity dates, interest rates, redemption and sinking fund provisions, tender or
repurchase and conversion features, if any, with respect to the long-term securities of a particular
series, will be determined by New RC at the time of issuance and will comply in all regards with the
parameters for financing authorization set forth in Item 1.E above. Associated placement,
underwriting or selling agent fees, commissions and discounts, if any, will be established by
negotiation or competitive bidding.
(d) Short-Term Debt
New RC seeks authority to issue short-term debt to provide for the reissuance of pre-Merger letters
or lines of credit or commercial paper and to provide financing for general corporate purposes,
working capital requirements and temporary financing of Subsidiary capital expenditures. The
aggregate amount of financing obtained by New RC during the Authorization Period from then
outstanding short-term debt, when combined with common stock (other than for employee benefit
plans or stock purchase and dividend reinvestment plans and other than shares issued in connection
with the Merger), long-term debt and Preferred Securities issued, as described in this section, shall
not exceed the New RC Financing Limit for the uses set forth in Item 1.E.4. above. Further, at no
point in time shall the amount of short-term debt then outstanding exceed the New RC Short-Term
Debt Limit, regardless of the level of capacity remaining under the New RC Financing Limit.
Any short-term debt outstanding or credit facility of Conectiv, Pepco, ACE or Delmarva existing at
the time of the Merger may be assumed by New RC.
Types of short-term debt securities will include, but not be limited to, borrowings under one or
more revolving credit facilities or bank loans, commercial paper, short-term notes and bid notes.
Specific terms of any short-term borrowings will be determined by New RC at the time of issuance
and will comply in all regards with the parameters for financing authorization set forth in Item 1.E
above. The maturity of any short-term debt issued will not exceed 364 days or, if the notional
maturity is greater than 364 days, the debt security will include put options at appropriate points in
time to cause the security to be accounted for as a current liability under United States generally
accepted accounting principles.
New RC anticipates entering into one or more revolving credit facilities. The credit facilities may be
used for general corporate purposes, to support letters of credit issued by New RC or the
Subsidiaries, or to serve as back-up for the commercial paper programs of New RC and its
Subsidiaries. It is expected that the credit facilities will contain covenants consistent with those
covenants required by bank lenders for comparable bank facilities.
New RC may sell commercial paper, from time to time, in established domestic or European
commercial paper markets. Such commercial paper would be sold directly to investors or sold to
dealers at the discount rate or the coupon rate per annum prevailing at the date of issuance for
commercial paper of comparable quality and maturities sold to commercial paper dealers generally.
It is expected that the dealers acquiring commercial paper from New RC will reoffer such paper at a
discount to corporate, institutional and, with respect to European commercial paper, individual
investors. Institutional investors are expected to include commercial banks, insurance companies,
pension funds, investment trusts, foundations, colleges and universities and finance companies.
Specific terms of any borrowings will be determined by New RC at the time of issuance and will
comply in all regards with the parameters for financing authorization set forth in Item 1.E above.
New RC may sell short-term notes through one or more private placements or public offerings
primarily to traditional money market investors. Specific terms of any borrowings will be
determined by New RC at the time of issuance and will comply in all regards with the parameters
for financing authorization set forth in Item 1.E above.
New RC may enter into individual agreements ("Bid Note Agreements") with one or more
commercial banks that may or may not be lenders under New RC credit facilities. The Bid Note
Agreements would permit New RC to negotiate with one or more banks (each a "Bid Note Lender")
on any given day for such Bid Note Lender, or any affiliate or subsidiary of such lender, to purchase
promissory notes ("Bid Notes") directly from New RC. Specific terms of any borrowings will be
determined by New RC at the time of issuance and will comply in all regards with the parameters
for financing authorization set forth in Item 1.E above.
New RC may issue other types of short-term debt securities generally available in the credit
markets, money markets or capital markets. In all cases, specific terms of any borrowings will
comply in all regards with the parameters for financing authorization set forth in Item 1.E above.
(e) Guarantees
Authorization is requested for New RC during the Authorization Period to enter into guarantees to
third parties, obtain letters of credit, enter into support or expense agreements or otherwise provide
credit support with respect to the obligations of the Subsidiaries as may be appropriate to carry on in
the ordinary course of their respective businesses and to enter into guarantees of non-affiliated third
parties' obligations in the ordinary course of New RC's business in an aggregate amount not to
exceed the New RC Guarantee Limit. Excluded from the New RC Guarantee Limit are obligations
exempt pursuant to Rule 45. The issuance of any guarantees will be subject to the limitations of
Rule 53(c) or Rule 58(a)(1), as applicable.
A portion of the guarantees proposed to be issued by New RC (or by CEH or Conectiv as described
below) may be in connection with the business of Conectiv Energy Supply, Inc. ("CESI") or Pepco
Energy Services, Inc. ("PES"), wholly owned indirect subsidiaries of New RC. CESI conducts
power marketing and trading operations. PES provides energy efficiency contracting, building and
systems operation and maintenance as well as conducting gas and electric marketing. New RC may
wish to provide credit support in connection with the trading positions of CESI and PES entered
into in the ordinary course of CESI's and PES's energy marketing and trading businesses. In
addition, New RC may wish to provide credit support for PES's construction obligations entered
into in the ordinary course of PES's energy contracting business. The provision of parent guarantees
by holding companies to affiliates in the generation, power marketing and energy contracting
business is standard business practice.
Certain of the guarantees may be in support of obligations that are not capable of exact
quantification. In such cases, New RC will determine the exposure under a guarantee for purposes
of measuring compliance with the New RC Guarantee Limit by appropriate means, including
estimation of exposure based on loss experience or potential payment amounts.
New RC proposes to charge each Subsidiary a fee for any guarantee provided on its behalf that is
not greater than the cost, if any, of obtaining the liquidity necessary to perform the guarantee (for
example, bank line commitment fees or letter of credit fees, plus other transactional expenses) for
the period of time the guarantee remains outstanding.
(f) Financing Risk Management Devices
(i) Interest Rate Risk
New RC requests authority to enter into, perform, purchase and sell financial instruments intended
to reduce or manage the volatility of interest rates, including but not limited to interest rate swaps,
caps, floors, collars and forward agreements or any other similar agreements. Hedges may also
include the issuance of structured notes (i.e., a debt instrument in which the principal and/or interest
payments are indirectly linked to the value of an underlying asset or index), or transactions
involving the purchase or sale, including short sales, of U.S. Treasury or Agency (e.g., FNMA)
obligations or LIBOR based swap instruments (collectively referred to as "Hedge Instruments").
The transactions would be for fixed periods and stated notional amounts. New RC would employ
interest rate derivatives as a means of prudently managing the risk associated with any of its
outstanding debt issued pursuant to this authorization or an applicable exemption by, in effect,
synthetically (i) converting variable-rate debt to fixed-rate debt, (ii) converting fixed-rate debt to
variable-rate debt and (iii) limiting the impact of changes in interest rates resulting from variable-
rate debt. In no case will the notional principal amount of any interest rate swap exceed the greater
of the value of the underlying debt instrument or the present market value of the underlying debt
instrument and related interest rate exposure. Transactions will be entered into for a fixed or
determinable period. Thus, New RC will not engage in speculative transactions unassociated with
its financing needs and activities. New RC will only enter into agreements with counterparties
whose senior debt ratings, as published by a national recognized rating agency are greater than or
equal to "BBB," or an equivalent rating ("Approved Counterparties").
(ii) Anticipatory Hedges
In addition, New RC and the Subsidiaries request authorization to enter into interest rate Hedging
Transactions with respect to anticipated debt offerings ("Anticipatory Hedges"), subject to certain
limitations and restrictions. Such Anticipatory Hedges would only be entered into with Approved
Counterparties, and would be utilized to fix and/or limit the interest rate risk associated with any
new issuance through (i) a forward sale of exchange-traded Hedge Instruments (a "Forward Sale"),
(ii) the purchase of put options on Hedge Instruments (a "Put Options Purchase"), (iii) a Put Options
Purchase in combination with the sale of call options Hedge Instruments (a "Zero Cost Collar"), (iv)
transactions involving the purchase or sale, including short sales, of Hedge Instruments, or (v) some
combination of a Forward Sale, Put Options Purchase, Zero Cost Collar and/or other derivative or
cash transactions, including, but not limited to structured notes, caps and collars, appropriate for the
Anticipatory Hedges. Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades")
with brokers through the opening of futures and/or options positions traded on the Chicago Board of
Trade, the opening of over-the-counter positions with one or more counterparties ("Off-Exchange
Trades"), or a combination of On-Exchange Trades and Off-Exchange Trades. New RC or the
Subsidiary will determine the optimal structure of each Anticipatory Hedge transaction at the time
of execution. New RC or a Subsidiary may decide to lock in interest rates and/or limit its exposure
to interest rate increases.13
3. Utility Subsidiary Financing
As indicated on Exhibits K-1 and K-2 hereto, certain Utility Subsidiaries currently have financing
arrangements in place. These arrangements will remain in place following the Merger and are
described in more detail in such Exhibits.
Rule 52 provides an exemption from the prior authorization requirements of the Act for most of the
issuances and sales of securities by the Utility Subsidiaries because they must be approved by the
relevant state public utility commissions. For Pepco, the issuance of long-term debt and equity
securities is regulated by the District of Columbia Public Service Commission ("DC Commission").
Pepco is also regulated by the Virginia State Corporation Commission ("VSCC") but the VSCC
does not have jurisdiction over its securities issuances. For ACE, the issuance of short-term debt,
long-term debt and equity securities is regulated by the NJBPU. For Delmarva, the issuance of long-
term debt and equity securities is regulated by the Delaware Public Service Commission ("DPSC")
and the issuance of short-term debt, long-term debt and equity securities is regulated by the VSCC.
As discussed more fully below, CAG, CDG and any New Utility Subsidiary that may be established
are considered utility companies for purposes of the Act but are not subject to regulation by any
state public utility commission.
Certain external financings by the Utility Subsidiaries for which authorization is requested herein
may be outside the Rule 52 exemption. The authority herein sought excludes financings exempt
under Rule 52. Authorized financings may be made under instruments in place at the time of the
Merger or new agreements so long as any such instrument or agreement complies with the
limitations described herein. The proceeds from the sale of securities in external financings will be
used for general corporate purposes including the financing of working capital requirements.
(a) Short-Term Debt
Authority is requested for Pepco and Delmarva to have outstanding short-term debt securities in
amounts not to exceed $300 million and $275 million for Pepco and Delmarva, respectively, at any
point in time during the Authorization Period. Pepco and Delmarva request authority to issue the
same types of short-term debt securities under the same terms as requested for New RC above.
Pepco and Delmarva may, without counting against the limit set forth above, maintain back-up lines
of credit. Pepco and Delmarva also request authorization to participate in the New RC System
Money Pool as more fully described below.
(b) Long-Term Debt Securities and Preferred Securities
Authority is requested for Pepco to issue an aggregate of up to $800 million of long-term debt
securities and Preferred Securities during the Authorization Period. Pepco requests authority to
13The proposed terms and conditions of the Interest Rate Hedges and Anticipatory Hedges are
substantially the same as the Commission has approved in other cases. See Exelon Corporation,
HCAR No. 35-27266 (November 2, 2000); SCANA Corporation, HCAR No. 35-27135 (Feb. 14,
2000); New Century Energies, Inc., et al., HCAR No. 35-27000 (April 7, 1999); and Ameren Corp.,
et al., HCAR No. 35-27053 (July 23, 1999).
issue the same types of long-term debt securities and Preferred Securities under the same terms as
requested for New RC above.
(c) Acquisition of Utility Property and Internal Financing Thereof
Pursuant to the Conectiv Financing Orders, CAG, CDG and the New Utility Subsidiaries were
authorized to acquire up to $1 billion of utility property. Authorization was granted (1) for Conectiv
to fund CEH, the subsidiary formed to hold CDG and ACE REIT, an intermediate holding company
parent of CAG; (2) for CEH in turn to fund CDG, ACE REIT and any established New Utility
Subsidiary; and (3) for ACE REIT to fund CAG through the issuance of debt or equity securities to,
and the acquisition of those securities by, the respective parent companies in an aggregate amount
not to exceed $1 billion. Further, authorization was granted for CAG, CDG and the New Utility
Subsidiaries to borrow up to $1 billion (less any debt or equity securities issued to their respective
parent companies) from the Conectiv money pool to fund such acquisitions of utility property.
New RC requests that CAG, CDG and the New Utility Subsidiaries be authorized in this file to
acquire during the Authorization Period or, if sooner, until CAG, CDG and the New Utility
Subsidiaries achieve EWG status, up to $1.5 billion of utility property14 and for such acquisitions up
to $1.5 billion to be funded in similar fashion to the process described in the preceding paragraph
with additional authorizations for New RC to acquire debt and equity securities from Conectiv and
for the New RC System Money Pool to replace the Conectiv money pool. Any acquisition of utility
property made pursuant to the Conectiv Financing Orders will not count against the authorization
for the acquisition of utility property sought herein.
(d) Guarantees
Authority is sought for Pepco to enter into guarantees ("Pepco Guarantees") as set forth above for
New RC in Item 1.F.2(e). The Pepco Guarantees, together with New RC Guarantees, Conectiv
Guarantees (as defined below), CEH Guarantees (as defined below) and Nonutility Subsidiary
Guarantees (as defined below), will not exceed the New RC Guarantee Limit at any time during the
Authorization Period, exclusive of any guarantees and other forms of credit support that are exempt
pursuant to Rule 45(b) and Rule 52(b); provided however, that the amount of Nonutility Guarantees
in respect of obligations of any Rule 58 Subsidiaries shall remain subject to the limitation of Rule
58(a)(1).
Certain of the guarantees may be in support of obligations that are not capable of exact
quantification. In such cases, Pepco will determine the exposure under a guarantee for purposes of
measuring compliance with the New RC Guarantee Limit by appropriate means including
estimation of exposure based on loss experience or potential payment amounts.
Pepco may charge its associate company a fee for each guarantee provided on its behalf determined
in the same manner as specified above for guarantees issued by New RC.
(e) Financing Risk Management Devices
14Once acquired, the utility property may be transferred or sold to another direct utility subsidiary of
CEH. Such internal transfer or sale will not count against the authorization sought herein nor will it
count as a sale of utility assets under the Act.
Rule 45(b) and Rule 52(b); provided however, that the amount of Nonutility Guarantees in respect
of obligations of any Rule 58 Subsidiaries shall remain subject to the limitation of Rule 58(a)(1).
The Nonutility Subsidiary providing any such credit support may charge its associate company a fee
for each guarantee provided on its behalf determined in the same manner as specified above for
guarantees issued by New RC.
(b) Authorization and Operation of the New RC System Money Pool
New RC and the Subsidiaries hereby request authorization to establish the Money Pool, and the
Subsidiaries, to the extent not exempted by Rule 52, also request authorization to make unsecured
short-term borrowings from the Money Pool, to contribute surplus funds to the Money Pool and to
lend and extend credit to (and acquire promissory notes from) one another through the Money Pool.
New RC is requesting authorization to contribute surplus funds and to lend and extend credit to the
Money Pool.16
New RC and the Subsidiaries believe that the cost of the proposed borrowings through the Money
Pool will generally be more favorable to the borrowing participants than the comparable cost of
external short-term borrowings, and the yield to the participants contributing available funds to the
Money Pool will generally be higher than the typical yield on short-term investments.
(i) Money Pool
Under the proposed terms of the Money Pool, short-term funds would be available from the
following sources for short-term loans to the Subsidiaries from time to time: (1) surplus funds in the
treasuries of Money Pool participants other than New RC, (2) surplus funds in the treasury of New
RC ((1) and (2) comprise "Internal Funds"), and (3) proceeds from the issuance of short-term debt
securities by Money Pool participants or by New RC for loan to the Money Pool ("External
Funds"). Funds would be made available from such sources in such order as the administrator of the
Money Pool (CRP or its successor) may determine would result in a lower cost of borrowing,
consistent with the individual borrowing needs and financial standing of the companies providing
funds to the pool. The determination of whether a Money Pool participant at any time has surplus
funds to lend to the Money Pool or shall lend funds to the Money Pool would be made by such
participant's chief financial officer or treasurer, or by a designee thereof, on the basis of cash flow
projections and other relevant factors, in such participant's sole discretion. See Exhibit I-1 for a
copy of the Form of Money Pool Agreement.
Money Pool participants that borrow would borrow pro rata from each company that lends, in the
proportion that the total amount loaned by each such lending company bears to the total amount
then loaned through the Money Pool. On any day when more than one fund source, e.g., surplus
treasury funds of New RC and other Money Pool participants and External Funds, with different
rates of interest, are used to fund loans through the Money Pool, each borrower would borrow pro
rata from each such fund source in the Money Pool in the same proportion that the amount of funds
provided by that fund source bears to the total amount of short-term funds available to the Money
Pool. No party would be required to effect a borrowing through the Money Pool if it is determined
that it could (and had authority to) effect a borrowing at lower cost directly from other lenders. No
16As registered holding companies, New RC, Conectiv, CEH and ACE REIT would not borrow
funds contributed by their respective subsidiaries.
loans through the Money Pool would be made to, and no borrowings through the Money Pool
would be made by, New RC.
The cost of compensating balances, if any, and fees paid to banks to maintain credit lines and
accounts by Money Pool participants lending External Funds to the Money Pool would initially be
paid by the participant maintaining such line. A portion of such costs, or all of such costs in the
event a Money Pool participant establishes a line of credit solely for purposes of lending any
External Funds obtained thereby into the Money Pool, would be retroactively allocated every month
to the companies borrowing such External Funds through the Money Pool in proportion to their
respective daily outstanding borrowings of such External Funds.
If only Internal Funds make up the funds available in the Money Pool, the interest rate applicable
and payable to or by Subsidiaries for all loans of such Internal Funds will be the rates for high-grade
unsecured 30-day commercial paper sold through dealers by major corporations as quoted in The
Wall Street Journal.
If only External Funds comprise the funds available in the Money Pool, the interest rate applicable
to loans of such External Funds would be equal to the lending company's weighted average of the
cost for such External Funds (or, if more than one Money Pool participant had made available
External Funds on such day, the applicable interest rate would be a composite rate equal to the
weighted average of the cost incurred by the respective Money Pool participants for such External
Funds).
In cases where both Internal Funds and External Funds are concurrently borrowed through the
Money Pool, the rate applicable to all loans comprised of such "blended" funds would be a
composite rate equal to the weighted average of the cost of all such External Funds (as determined
pursuant to the immediately preceding paragraph above).
Funds not required by the Money Pool to make loans (with the exception of funds required to
satisfy the Money Pool's liquidity requirements) would ordinarily be invested in one or more short-
term investments, including: (i) interest-bearing accounts with banks; (ii) obligations issued or
guaranteed by the U.S. government and/or its agencies and instrumentalities, including obligations
under repurchase agreements; (iii) obligations issued or guaranteed by any state or political
subdivision thereof, provided that such obligations are rated not less than "A" by a nationally
recognized rating agency; (iv) commercial paper rated not less than "A-1" or "P-1" or their
equivalent by a nationally recognized rating agency; (v) money market mutual funds; (vi) bank
certificates of deposit, (vii) Eurodollar funds; and (viii) such other investments as are permitted by
Section 9(c) of the Act and Rule 40 thereunder.
The interest income earned on investments in the Money Pool would be allocated among the
participants in the Money Pool in accordance with the weighted average proportion each
participant's contribution of funds bears to the total amount of funds in the Money Pool.
The investment income earned on investments of surplus funds external to the Money Pool will be
applied to the service company of the New RC System, as agent for the Money Pool.
Each Subsidiary receiving a loan through the Money Pool would be required to repay the principal
amount of such loan, together with all interest accrued thereon, on demand and in any event not
later than one year after the date of such loan. All loans made through the Money Pool may be
prepaid by the borrower without premium or penalty.
Pepco and Delmarva may have up to $300 million and $275 million, respectively, borrowed at any
one time from the Money Pool. Amounts borrowed by Pepco and Delmarva from the Money Pool
would count against the short-term borrowing authority for Pepco and Delmarva referred to in Item
1.F.3(a) above.
(ii) Operation of the Money Pools and Administrative Matters
Operation of the Money Pool, including record keeping and coordination of loans, will be handled
by CRP, or its successor, or a newly formed subsidiary company established to serve as the service
company for the New RC system, under the authority of the appropriate officers of the participating
companies. The Money Pool will be administered on an "at cost" basis.
(c) Use of Proceeds
Proceeds of any short-term borrowings by the Nonutility Subsidiaries may be used by each such
Nonutility Subsidiary (i) for the interim financing of its construction and capital expenditure
programs; (ii) for its working capital needs; (iii) for the repayment, redemption or refinancing of its
debt and equity; (iv) to meet unexpected contingencies, payment and timing differences, and cash
requirements; and (v) to otherwise finance its own business and for other lawful general corporate
purposes. The use of proceeds from the financings would be limited to use in the operations of the
respective businesses in which such Subsidiaries are already authorized to engage.17
(d) Intrasystem Financing
Generally, New RC, CEH, Conectiv or the lending Subsidiary's loans to, and purchase of capital
stock from, such borrowing Subsidiaries will be exempt under Rule 52, and capital contributions
and open account advances without interest will be exempt under Rule 45(b). Loans by New RC,
CEH, Conectiv or a Nonutility Subsidiary to a Nonutility Subsidiary generally will have interest
rates and maturity dates that are designed to parallel the lending company's effective cost of capital,
in accordance with Rule 52(b). To the extent that any intrasystem loans or extensions of credit are
not exempt under Rule 45(b) or Rule 52, as applicable, the company making such loan or extending
such credit may charge interest at the same effective rate of interest as the daily weighted average
effective rate of commercial paper, revolving credit and/or other short-term borrowings of such
company, including an allocated share of commitment fees and related expenses. If no such
borrowings are outstanding, then the interest rate shall be predicated on the Federal Funds effective
rate of interest as quoted daily by the Federal Reserve Bank of New York. In the limited
circumstances where the Nonutility Subsidiary effecting the borrowing is not wholly owned by New
RC, CEH, Conectiv or a Nonutility Subsidiary, directly or indirectly, authority is requested under
the Act for New RC, CEH, Conectiv or a Nonutility Subsidiary to make such loans to such
subsidiaries at interest rates and maturities designed to provide a return to the lending company of
not less than its effective cost of capital. If such loans are made to a Nonutility Subsidiary, such
Nonutility Subsidiary will not provide any services to any associate Nonutility Subsidiary except a
17The authorization sought herein is substantially the same as that given in recent cases. See
SCANA Corporation, HCAR No. 35-27135 (Feb. 14, 2000); New Century Energies, Inc., HCAR
No. 35-26750 (Aug. 1, 1997) and Conectiv, HCAR No. 35-26833 (Feb. 26, 1998).
company that meets one of the conditions for rendering of services on a basis other than at cost as
described in the Merger U-1. In the event any such loans are made, New RC will include in the next
certificate filed pursuant to Rule 24 substantially the same information as required on Form U-6B-2
with respect to such transaction.
New RC will comply with the requirements of Rule 45(c) regarding tax allocations except as
otherwise approved by the Commission to alter such requirements.18
8. Financing Subsidiaries
New RC and the Subsidiaries request authority to acquire, directly or indirectly, the equity
securities of one or more corporations, trusts, partnerships or other entities created specifically for
the purpose of facilitating the financing of the authorized and exempt activities (including exempt
and authorized acquisitions) of New RC and the Subsidiaries through the issuance of short-term
debt, long-term debt, Preferred Securities or equity securities to third parties and the transfer of the
proceeds of such financings to New RC or such Subsidiaries. New RC or a Subsidiary may, if
required, guarantee or enter into support or expense agreements in respect of the obligations of any
such financing subsidiaries. Subsidiaries may also provide guarantees and enter into support or
expense agreements, if required, on behalf of such entities pursuant to Rules 45(b)(7) and 52, as
applicable. Each of the Subsidiaries also requests authorization to enter into an expense agreement
with its respective financing entity, pursuant to which it would agree to pay all expenses of such
entity. Any amounts issued by such financing entities to third parties pursuant to this authorization
will be included in the overall external financing limitation authorized herein for the immediate
parent of such financing entity. However, the underlying intrasystem mirror debt and parent
guarantee shall not be included.19
9. Changes in Capital Stock of Majority Owned Subsidiaries
The portion of an individual Subsidiary's aggregate financing to be effected through the sale of
stock to New RC or other immediate parent company during the Authorization Period pursuant to
Rule 52 and/or pursuant to an order issued pursuant to this file cannot be ascertained at this time. It
may happen that the proposed sale of capital securities (i.e., common stock or preferred stock) may
in some cases exceed the then-authorized capital stock of such Subsidiary. In addition, the
Subsidiary may choose to use capital stock with no par value.
As needed to accommodate such proposed transactions and to provide for future issues, request is
made for authority to change the terms of any 50% or more owned Subsidiary's authorized capital
stock capitalization or other equity interests by an amount deemed appropriate by New RC or other
intermediate parent company. This request for authorization is limited to New RC's 50% or more
18In the Merger U-1, New RC has requested an exception to Rule 45(c)(5) to permit New RC to
retain certain payments for tax losses that it would otherwise be required to allocate to its
subsidiaries without payment.
19The authorization sought herein with respect to financing entities is substantially the same as that
given to New Century Energies, Inc., HCAR No. 35-26750 (Aug. 1, 1997); Conectiv, HCAR No.
35-26833 (Feb. 26, 1998); Cinergy Corp., HCAR No. 35-26984 (Mar. 1, 1999); Dominion
Resources, Inc., HCAR No. 35-27112 (Dec. 15, 1999); SCANA Corporation, HCAR No. 35-27135
(Feb. 14, 2000); Exelon Corporation, HCAR No. 35-27266 (November 2, 2000) and Progress
Energy, HCAR No. 35-27297 (Dec. 12, 2000).
owned Subsidiaries and will not affect the aggregate limits or other conditions contained herein. A
Subsidiary would be able to change the par value, or change between par value and no-par stock,
without additional Commission approval. Any such action by a Utility Subsidiary (other than CAG,
CDG and the New Utility Subsidiaries) would be subject to and would only be taken upon the
receipt of any necessary approvals by the state commission in the state or states where the Utility
Subsidiary is incorporated and doing business.20 New RC will be subject to all applicable laws
regarding the fiduciary duty of fairness of a majority shareholder to minority shareholders in any
such 50% or more owned Subsidiary and will undertake to ensure than any change implemented
under this paragraph comports with such legal requirements.
G. Investments in EWGs and FUCOs
1. Conectiv Investments in EWGs
Pursuant to the Conectiv Financing Orders, Conectiv has authorization to invest proceeds of
securities issuances in EWGs in amounts not to exceed $350 million (the "Conectiv EWG Project
Limit"). As of June 30, 2001, Conectiv had investments in EWGs of $156.3 million. Conectiv has
no investments in FUCOs. As of June 30, 2001, Conectiv was in compliance with the requirements
of the Conectiv Financing Orders as they relate to investments in EWGs.
It is requested that the authorizations to invest in EWGs contained in the Conectiv Financing Orders
be rescinded upon consummation of the Merger and replaced by an authorization granted in this file
on behalf of New RC as described below.
2. Pepco Investments in EWGs and FUCOs
As of June 30, 2001, Pepco had investments in EWGs of $31.2 million. These investments
consisted of investments in the Benning Road and Buzzard Point power generation plants.
As of the same date, Pepco had investments of $478.5 million in FUCOs. These investments consist
of interests in projects located in the Netherlands and Australia and were made under long-term
leveraged leases.
3. New RC Investments in EWGs and FUCOs and Compliance with Rules 53 and 54
As noted above, Conectiv was authorized under the Financing Orders to invest the proceeds of
securities issuances in EWGs in an amount not to exceed the Conectiv EWG Project Limit. In this
filing, New RC requests authorization to apply proceeds from proposed financing transactions to
make additional investments in both EWGs and FUCOs (together, "Exempt Projects"). Specifically,
New RC requests authorization to invest the proceeds of financings in Exempt Projects in an
amount not to exceed the New RC Exempt Project Limit.
As of June 30, 2001, New RC, on a proforma basis, had investments of $666.0 million in Exempt
Projects consisting of $509.7 million of investments by Pepco and $156.3 million of investments by
Conectiv.
20See New Century Energies, Inc., HCAR No. 35-26750 (Aug. 1, 1997); Conectiv, HCAR No. 35-
6833 (Feb. 26, 1998); Dominion Resources, Inc., HCAR No. 35-27112 (Dec. 15, 1999); and
SCANA Corporation, HCAR No. 35-27135 (Feb. 14, 2000).
In December, 2000, Pepco executed its business plan to exit the electricity generating business by
completing the divestiture of substantially all its generation assets pursuant to deregulation
legislation. All of Pepco's retained generating assets are EWGs.
In May, 1999, Conectiv announced its intention to restructure its portfolio of electricity generation
assets. Conectiv's strategic plan called for the retention and development of flexible, low-cost
generation to back Conectiv's merchant capabilities. As the result of restructuring legislation
enacted in New Jersey, Delaware, Maryland and Virginia, ACE and Delmarva exited the electricity
generation industry. A substantial portion of the generating assets of ACE and Delmarva have been
sold or are under contract to be sold to third parties. On July 1, 2000, pursuant to the Order of the
Commission dated June 29, 2000 (HCAR No. 35-27192) (the "Genco Order"), ACE transferred net
generating assets of approximately 502 megawatts to CAG. Concurrently, and pursuant to the
Genco Order, Delmarva transferred net generating assets of approximately 1,364 megawatts to
CDG. As noted above, CAG and CDG are public utility companies for purposes of the Act but are
not subject to state regulation.
The other part of Conectiv's strategic plan involves the construction of mid-merit generating
projects. The mid-merit market is the segment between base load and peak generation, where
flexibility is more important than size. The mid-merit market consists of electric generating plants
that are fuel-flexible with the ability to start up and shut down quickly based on customer demand,
weather conditions and price fluctuations.
It is the intention of New RC that all of the generation assets owned by the merged company
ultimately will become Exempt Projects. Conectiv estimates that its total investment in generating
assets (including Exempt Projects and generation assets held as utility property by CAG and CDG
as noted above) was approximately $836 million as of June 30, 2001. The Conectiv EWG Project
Limit is insufficient to accommodate New RC's current holdings and future growth strategy.
New RC's proposal to make investments in Exempt Projects in an amount not to exceed the New
RC Exempt Project Limit is consistent with rule 53(c). Investing at that level will not have a
substantial adverse impact upon the financial integrity of the New RC holding company system,
will not have an adverse impact on the Operating Utility Companies (the Utility Subsidiaries in the
New RC System subject to state regulation) or their customers or on the ability of any affected state
commission to protect such Utility Subsidiaries or their customers.
New RC's retained earnings will be substantially greater than Conectiv's. Based on the New RC
proforma financial statements, New RC's retained earnings are projected to be approximately $960
million. New RC's proforma retained earnings are artificially low because of the effects of merger
accounting. New RC will not be able to consolidate Conectiv's retained earnings which were $178
million as of June 30, 2001. In the merger between ACE and Delmarva that created Conectiv,
ACE's retained earnings of $225 million were excluded from Conectiv's retained earnings. Further,
as a result of electric industry restructuring, ACE and Delmarva discontinued applying Statement of
Financial Accounting Standards ("SFAS") No. 71 to their electricity supply businesses in the third
quarter of 1999 and applied the requirements of SFAS No. 101 and Emerging Issues Task Force
Issue No. 97-4. Pursuant to the newly adopted accounting standards, ACE and Delmarva recorded a
combined reduction to earnings of $312 million, net of income taxes. As a result of deregulation
and divestiture, Pepco transferred two generating stations to its subsidiary PES. Pepco determined
that the carrying amounts of the generating stations were not recoverable and the assets were written
down to their fair value, and recognized a net of tax impairment loss of $24 million in the fourth
quarter of 2000. Absent the effects of merger accounting and electric industry restructuring, New
RC's retained earnings would be approximately $739 million higher at the date of the Merger.
New RC will be a substantially larger company than Conectiv. New RC's total capitalization at the
time of the Merger is projected to be $8.9 billion compared to Conectiv's total capitalization of $4.5
billion as of June 30, 2001.
Further, New RC notes that the Commission recently authorized other registered holding
companies, Exelon Corporation21 and Cinergy Corporation,22 to invest up to $4 billion and $2.7
billion, respectively, in Exempt Projects. The Commission has recognized that registered companies
should not be penalized in the independent power market due to the effects of merger accounting
and state-mandated restructuring.23 As the Commission has previously noted, merger accounting for
the effects of state restructuring artificially and drastically reduced the level of Conectiv's retained
earnings, without affecting the underlying financial integrity of the Conectiv system.24 As explained
above, merger accounting will also severely understate the level of New RC's consolidated retained
earnings. For these reasons, the relationship of the proposed level of Exempt Project investment to
New RC's retained earnings would not provide an accurate measure of the impact of such
investment on the overall financial strength of the holding company system.
Additionally, New RC, like many other registered companies, must have financing flexibility to
capitalize on opportunities in the fast-moving independent power industry, as well as to
accommodate the restructuring of generation assets and their eventual ownership of EWG affiliates.
In this regard, it should be emphasized that the Commission has granted Conectiv authority to
invest up to $1 billion in utility property in order to pursue its strategy of developing low-cost mid-
merit generation in the Mid-Atlantic region. It is New RC's intention to secure EWG status for such
projects as soon as practicable.
For the following reasons, in addition to those noted above, New RC believes that its present
proposal satisfies the criteria of rule 53(c), including as applied in Exelon and Cinergy:
1.Project review procedures/risk mitigation
New RC will subject potential investments in Exempt Projects to a series of rigorous project review
screens before committing any funds, and once funds have been invested, New RC will closely
monitor project performance, using effective techniques to mitigate project risks. Wherever
practicable, New RC will finance Exempt Projects with non-recourse debt.
New RC's portfolio diversification approach serves to mitigate the risks presented by any single
project. Open access transmission service and the growing demand for new generating capacity also
mitigate risks of domestic EWG projects.
21See Exelon Corporation, et al., HCAR No. 35-27296, (Dec. 8, 2000).
22See Cinergy Corporation, et al., HCAR No. 35-27400, (May 18, 2001).
23See Cinergy Corporation, et al., HCAR No. 35-27400, (May 18, 2001) (lifting reservation of
jurisdiction and permitting investment of 100% of consolidated retained earnings plus $2 billion,
excluding investments in generation assets transferred by utility subsidiaries).
24See Conectiv, et al., HCAR No. 35-27213 (August 17, 2000).
2. Prior investments
Through Conectiv and Pepco, New RC has considerable experience with generation projects and
foreign utility investments, including both Exempt Projects and non-exempt projects.
3. Current financial condition
Credit ratings, capitalization ratios, and other financial factors attest that New RC and the Operating
Utility Companies are in sound financial condition.
As of June 30, 2001, the senior unsecured debt of the Operating Utility Companies was rated
"investment grade" by both of the major rating agencies. It is anticipated that New RC will receive
an investment grade rating. See Item 1.E.5 above for a summary of the debt ratings for the
Operating Utility Companies.
Pursuant to the terms and conditions applicable to the general financing authorization sought herein,
restrictions are triggered if New RC's senior unsecured debt would fall below investment grade.
Specifically, New RC has committed that without further authorization from the Commission, it
will not issue any additional debt to finance investments in Exempt Projects if, upon original
issuance, New RC's senior unsecured debt obligations are not rated investment grade by at least one
of the major ratings agencies.
As of the date of the Merger, the Common Equity Ratios of New RC, Pepco, ACE,25 and Delmarva
will exceed the Commission's traditional 30% standard. Pursuant to the terms and conditions
applicable to the general financing authorization sought herein, significant restrictions come into
play if New RC's Common Equity Ratio would fall below 30%. In that event, without a further
order from the Commission, New RC would be precluded from issuing any additional debt.
Additional investments in Exempt Projects will not have a negative impact on the Operating Utility
Companies' abilities to fund their operations since the Operating Utility Companies will not depend
on New RC for capital. It is anticipated that the Operating Utility Companies will finance their
capital needs entirely with their own internal funds and proceeds of external financings by them
during the Authorization Period. New RC does not currently anticipate a need to make any equity
investments in the Operating Utility Companies over the course of the Authorization Period.
4. Protection of Operating Utility Companies; state letters
The Operating Utility Companies will remain insulated from the direct effects of EWG and FUCO
investments.
All of New RC's Exempt Projects will be legally and structurally separate from the Operating
Utility Companies. Consequently, any losses in connection with Exempt Projects would have no
direct effect on the wholesale or retail electric or gas rates of the Operating Utility Companies.
25As discussed above under "Financial Condition", the Common Equity Ratio for ACE excludes
securitization debt issued by, or to be issued by, ACE Transition Funding.
New RC affirms that it will not seek recovery through higher rates to the Operating Utility
Companies' utility customers in order to compensate New RC for any losses it may sustain on
investments in any Exempt Projects or for any inadequate returns on those investments.
New RC affirms that it will comply with the other conditions of rule 53(a) conferring specific
protections on customers of the Operating Utility Company and their state commissions, namely:
|
o |
the requirements of rule 53(a)(2) regarding the preparation and making available of books and records and financial reports regarding Exempt Projects; |
|
o |
the requirements of rule 53(a)(3) regarding the limitation on the use of Operating Utility Company employees in connection with providing services to Exempt Projects; and |
|
o |
the requirement of rule 53(a)(4) regarding filing of copies of applications and reports. |
With respect to relevant financial benchmarks specifically contemplated by the terms of rule 53,
none of the conditions enumerated in paragraph (b) thereof is applicable. New RC affirms that it
will notify the Commission in writing if any of the circumstances described in rule 53(b) arise
during the Authorization Period.
New RC will remain in compliance with the requirements of Rule 53(a), other than Rule 53(a)(1), at
all times during the Authorization Period.
Further, in addition to providing the affected state commissions with copies of FUCO notices filed
with this Commission and EWG applications filed with the FERC apprising the state commissions
of each specific project in which New RC invests, New RC will furnish to these state commissions,
concurrently with submission to the Commission, copies of the quarterly reports New RC files in
this docket pursuant to rule 24.
Finally, New RC will obtain letters from the state commissions to the Commission stating that,
based on the commitments of New RC and subject to the qualifications referred to or stated in the
letters, New RC's investment in Exempt Projects up to the New RC Exempt Project Limit would not
have an adverse impact on the respective state Commission's ability to protect New RC's Operating
Utility Companies or their retail customers. New RC hereby affirms that it will abide by the
restrictions and commitments set forth in such letters.
H. Payment of Dividends Out of Capital or Unearned Surplus
1. Reauthorization of Previous Authorization for Conectiv, ACE and Delmarva
Pursuant to the orders of the Commission in File No. 70-9499 dated September 9, 1999 (HCAR No.
35-27079), January 28, 2000 (HCAR No. 35-27126) and April 27, 2000 (HCAR No. 35-27173)
(collectively, the "Conectiv Dividend Orders"), Conectiv, ACE and Delmarva were granted various
authorizations to pay dividends out of capital or unearned surplus, subject to a reservation of
jurisdiction over each such payment.
Pursuant to the Conectiv Dividend Orders, Conectiv was authorized to pay dividends from capital
or unearned surplus over six quarterly periods aggregating up to approximately $144 million. As of
June 30, 2001, Conectiv had paid dividends out of capital or unearned surplus totaling $46 million
for two quarterly dividends. Thus, Conectiv has remaining authorization to pay dividends out of
capital or unearned surplus over four additional quarters pursuant to the Conectiv Dividend Orders.
Pursuant to the Conectiv Dividend Orders, ACE was authorized to pay dividends out of capital or
unearned surplus over four quarterly periods aggregating up to $52 million and Delmarva was
authorized to pay dividends out of capital or unearned surplus over four quarterly periods
aggregating up to $52.4 million. As of June 30, 2001, neither ACE nor Delmarva had paid any
dividends out of capital or unearned surplus pursuant to the Conectiv Dividend Orders.
The Applicants request that the remaining capacity for Conectiv, ACE and Delmarva to pay
dividends out of capital or unearned surplus be reauthorized in this file and that the Conectiv
Dividend Orders be deemed replaced by the order issued in this file. Further, the Applicants request
that the Commission reserve jurisdiction over any future payments of dividends out of capital or
unearned surplus by Conectiv, ACE or Delmarva pending completion of the record.
2. Payment of Dividends by New RC and Pepco Out of Capital or Unearned Surplus
The Applicants request that New RC and Pepco be permitted to pay dividends, from time to time
through the Authorization Period, out of capital and unearned surplus subject to a reservation of
jurisdiction by the Commission over any future payments of dividends out of capital or unearned
surplus by New RC and Pepco pending completion of the record.
3. Payment of Dividends by CEH and Subsidiaries Out of Capital or Unearned Surplus
The Applicants request that CEH, ACE REIT, CAG, CDG and the New Utility Subsidiaries be
permitted to pay dividends, from time to time through the Authorization Period, out of capital and
unearned surplus subject to a reservation of jurisdiction by the Commission over any future
payments of dividends out of capital or unearned surplus by CEH, ACE REIT, CAG, CDG and the
New Utility Subsidiaries pending completion of the record.
4. Payment of Dividends by Nonutility Subsidiaries Out of Capital or Unearned Surplus
The Applicants propose that Nonutility Subsidiaries (including CEH, ACE REIT, CAG, CDG and
the New Utility Subsidiaries upon the receipt of EWG status) be permitted to pay dividends, from
time to time through the Authorization Period, out of capital and unearned surplus, to the extent
permitted under applicable corporate law.
I. Filing of Certificates of Notification
It is proposed that, with respect to New RC, the reporting systems of the Securities Act of 1933, as
amended (the "1933 Act") and the Securities Exchange Act of 1934, as amended (the "1934 Act")
be integrated with the reporting system under the Act. This would eliminate duplication of filings
with the Commission that cover essentially the same subject matters, resulting in a reduction of
expense for both the Commission and New RC. To effect such integration, the portion of the 1933
Act and 1934 Act reports containing or reflecting disclosures of transactions occurring pursuant to
the authorizations granted in this proceeding would be incorporated by reference into this
proceeding through Rule 24 certificates of notification. The certificates would also contain all other
information required by Rule 24, including the certification that each transaction being reported on
had been carried out in accordance with the terms and conditions of and for the purposes
represented in this Application-Declaration. Such certificates of notification would be filed within
60 days after the end of the first three calendar quarters and 90 days after the end of the last
calendar quarter. The initial Rule 24 certificate of notification will be filed as of the last day of the
first full calendar quarter following the date of the Merger.
A copy of relevant documents (e.g., underwriting agreements, indentures, bank agreements) for the
relevant quarter will be filed with, or incorporated by reference from 1933 Act or 1934 Act filings
in such Rule 24 certificates.
The Rule 24 certificates will contain the following information:
|
o |
The sales of any common stock or preferred securities by New RC and the purchase price per share and the market price per share at the date of the agreement of sale; |
|
o |
The total number of shares of New RC common stock issued or issuable pursuant to options granted during the quarter under employee benefit plans and dividend reinvestment plans including any employee benefit plans or dividend reinvestment plans hereafter adopted; |
|
o |
If New RC common stock has been transferred to a seller of securities of a company being acquired, the number of shares so issued, the value per share and whether the shares are restricted in the hands of the acquirer; |
|
o |
If a guarantee is issued during the quarter, the name of the guarantor, the name of the beneficiary of the guarantee and the amount of the guarantee; |
|
o |
The amount and terms of any New RC indebtedness or Genco debt issued during the quarter; |
|
o |
The amount and terms of any short-term debt issued by any jurisdictional Utility Subsidiary during the quarter; |
|
o |
The amount and terms of any financings consummated by any Nonuility Subsidiary that are not exempt under Rule 52; |
|
o |
The notional amount and principal terms of any Hedge Instruments or Anticipatory Hedges entered into during the quarter and the identity of the other parties thereto; |
|
o |
The name, parent company and amount invested in any intermediate subsidiary or financing subsidiary during the quarter and the amount and terms of any securities issued by such subsidiaries during the quarter; |
|
o |
A list of U-6B-2 forms filed with the Commission during the quarter, including the name of the filing entity and the date of filing; |
|
o |
Consolidated balance sheets as of the end of the quarter and separate balance sheets as of the end of the quarter for each company, including New RC, that has engaged in jurisdictional financing transactions during the quarter; |
|
o |
A table showing, as of the end of the quarter, the dollar and percentage components of the capital structure of New RC on a consolidated basis and CEH and each Operating Utility Company; |
|
o |
A retained earnings analysis of New RC on a consolidated basis and CEH and each Utility Subsidiary detailing gross earnings, goodwill amortization, dividends paid out of each capital account and the resulting capital account balances at the end of the quarter; and |
|
o |
Future registration statements filed under the 1933 Act with respect to securities that are subject of the Application-Declaration will be filed or incorporated by reference as exhibits to the next certificate filed pursuant to Rule 24. |
Item 2. Fees, Commissions and Expenses
|
Estimated legal fees and expenses |
* |
|
Estimated miscellaneous expenses and fees |
* |
|
Total |
* |
|
A-1 |
Form of Amended and Restated Certificate of Incorporation of New RC, Inc., incorporated by reference to Annex B to New RC, Inc.'s Registration Statement in Exhibit B-2, hereto |
|
A-2 |
Form of Amended and Restated Bylaws of New RC, Inc., incorporated by reference to Annex C to New RC, Inc.'s Registration Statement in Exhibit B-2 hereto |
|
A-3 |
Charter of Potomac Electric Power Company, incorporated by reference to Potomac Electric Power Company's Annual Report on Form 10-K, filed on March 27, 2000, SEC File No. 1-1072 |
|
A-4 |
Bylaws of Potomac Electric Power Company, as amended through January 25, 2001, incorporated by reference to Pepco's 2000 Annual Report on Form 10-K, filed on March 23, 2001, SEC File No. 1-1072 |
|
A-5 |
Restated Certificate of Incorporation of Conectiv, incorporated by reference to Conectiv's Current Report on Form 8-K, filed on March 6, 1998, SEC File No. 1-13895 |
|
A-6 |
Conectiv's Bylaws as amended October 26, 1999, incorporated by reference to Conectiv's 2000 Annual Report on Form 10-K filed on March 15, 2001, SEC File No. 1-13895 |
|
B-1 |
Agreement and Plan of Merger, dated as of February 9, 2001 among Potomac Electric Power Company, New RC, Inc. and Conectiv, incorporated by reference to Annex A to New RC, Inc.'s Registration Statement in Exhibit B-2 hereto |
|
B-2 |
New RC, Inc. Registration Statement on Form S-4, filed on May 30, 2001, incorporated by reference to SEC File No. 333-57042 |
|
C |
Not applicable |
|
D |
Not applicable |
|
E |
Not applicable |
|
F-1 |
Opinion of Counsel - Pepco (to be filed by amendment) |
|
F-2 |
Opinion of Counsel - Conectiv (to be filed by amendment) |
|
G-1 |
Pepco's 2000 Annual Report on Form 10-K, filed on March 23, 2001, incorporated by reference to SEC File No. 1-1072 |
|
G-2 |
Conectiv's 2000 Annual Report on Form 10-K filed on March 15, 2001, incorporated by reference to SEC File No. 1-13895 |
|
G-3 |
Pepco's Quarterly Reports on Form 10-Q, filed on May 2, 2001 and August 10, 2001, incorporated by reference to SEC File No. 1-1072 |
|
G-4 |
Conectiv's Quarterly Reports on Form 10-Q, filed on May 10, 2001 and August 14, 2001, incorporated by reference to SEC File No. 1-13895 |
|
H-1 |
Proposed Form of Notice. (filed herewith) |
|
I-1 |
Form of Money Pool Agreement (to be filed by amendment) |
|
J-1 |
New RC Long-Term Incentive Plan incorporated by reference to Annex I to New RC, Inc.'s Registration Statement in Exhibit B-2 hereto |
|
K-1 |
Description of Existing Financing Arrangements of Pepco (to be filed by amendment) |
|
K-2 |
Description of Existing Financing Arrangements of Conectiv (to be filed by amendment) |
|
(b) Financial Statements: |
|
|
FS-1 |
Balance Sheets as of June 30, 2001 |
|
1. Potomac Electric Power Company |
|
|
2. Conectiv |
|
|
3. New RC (proforma for Merger) |
|
|
4. New RC (proforma for financing authorization requested in this Application-Declaration) |
|
|
FS-2 |
Income Statement for the Twelve Months Ended June 30, 2001 |
|
1. Potomac Electric Power Company |
|
|
2. Conectiv |
|
|
3. New RC (proforma for Merger) |
|
|
4. New RC (proforma for financing authorization requested in this Application-Declaration) |
|
|
FS-3 |
Notes to Balance Sheets as of June 30, 2001 and Income Statement for the Twelve Months Ended June 30, 2001 |
Item 7. Information as to Environmental Effects
The proposed Acquisition involves neither a "major federal action" nor "significantly affects the
quality of the human environment" as those terms are used in Section 102(2)(C) of the National
Environmental Policy Act, 42 U.S.C. Sec. 4321 et seq. No federal agency is preparing an
environmental impact statement with respect to this matter.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned
companies have duly caused this Form U-1 to be signed on their behalf by the undersigned
thereunto duly authorized.
The signatures of the applicants and of the persons signing on their behalf are restricted to the
information contained in this application that is pertinent to the application of the respective
companies.
|
DATE: August 16, 2001 |
New RC, Inc. |
|
Potomac Electric Power Company |
|
|
Pepco Holdings, Inc. |
|
|
Edison Capital Reserves Corporation |
|
|
By: /s/ Dennis R. Wraase |
|
|
Dennis R. Wraase |
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President and Chief Operating Officer |
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DATE: August 16, 2001 |
Potomac Capital Investment Corporation |
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American Energy Corporation |
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Edison Place, LLC |
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PCI Energy Corporation |
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Pepco Enterprises, Inc. |
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Energy and Telecommunications Services, LLC |
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Pepco Technologies, LLC |
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Potomac Capital Markets Corporation |
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Potomac Harmans Corporation |
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Potomac Capital Joint Leasing Corporation |
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PCI Holdings, Inc. |
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Potomac Delaware Leasing Corporation |
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PCI Nevada Investments |
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Potomac Leasing Associates, LP |
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Pepco Energy Company |
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Potomac Land Corporation |
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Redland Tech Center, LLC. |
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Harmans Building Associates |
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PepMarket.com |
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PCI Air Management Corporation |
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Potomac Aircraft Leasing Corporation |
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Potomac Nevada Corporation |
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Potomac Nevada Leasing Corporation |
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Potomac Equipment Leasing Corporation |
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Potomac Nevada Investment, Inc. |
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Friendly Skies, Inc. |
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PCI Engine Trading, Ltd. |
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By: /s/ John D. McCallum |
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John D. McCallum |
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President and Chief Executive Officer |
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DATE: August 16, 2001 |
Severn Cable LLC |
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Severn Construction, LLC |
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By: /s/ T. Scott Agnor |
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T. Scott Agnor |
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President and Chief Executive Officer |
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DATE: August 16, 2001 |
W.A. Chester, LLC |
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W.A. Chester Corporation |
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By: /s/ Robert L. Thompson, Jr. |
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Robert L. Thompson, Jr. |
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President and Chief Executive Officer |
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DATE: August 16, 2001 |
Pepco Energy Services, Inc. |
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Pepco Building Services, Inc. |
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MET Electrical Testing Company, Inc. |
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Substation Test Company, Inc. |
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Engineered Services, Inc. |
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G&L Mechanical Services, Inc. |
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Pepco Uni Newco, Inc. |
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PES Home Services of Virginia |
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Potomac Power Resources, Inc. |
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By: /s/ E. R. Mayberry |
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E. R. Mayberry |
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President and Chief Executive Officer |
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DATE: August 16, 2001 |
Conectiv |
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ACE REIT, Inc. |
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ATE Investment, Inc. |
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ATS Operating Services, Inc. |
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Atlantic City Electric Company |
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Atlantic Generation, Inc. |
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Atlantic Jersey Thermal Systems, Inc. |
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Atlantic Southern Properties, Inc. |
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Binghamton General, Inc. |
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Binghamton Limited, Inc. |
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Conectiv Atlantic Generation, L.L.C. |
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Conectiv Communications, Inc. |
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Conectiv Bethlehem, Inc. |
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Conectiv Delmarva Generation, Inc. |
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Conectiv Energy Holding Company |
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Conectiv Energy Supply, Inc. |
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Conectiv Mid-Merit, Inc. |
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Conectiv Operating Services Company |
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Conectiv Plumbing, L.L.C. |
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Conectiv Properties and Investments, Inc. |
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Conectiv Resource Partners, Inc. |
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Conectiv Services, Inc. |
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Conectiv Solutions LLC |
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Conectiv Thermal Systems, Inc. |
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DCI I, Inc. |
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DCI II, Inc. |
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DCTC-Burney, Inc. |
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Delmarva Power & Light Company |
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King Street Assurance Ltd. |
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Pedrick Gen., Inc. |
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Vineland Limited, Inc. |
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Vineland General, Inc. |
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By: /s/ Philip S. Reese |
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Philip S. Reese |
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Vice President and Treasurer |
Exhibit H-1
Proposed Form of Notice
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-_____)
Filings under the Public Utility Holding Company Act of 1935, as amended ("Act")
Notice is hereby given that the following filing(s) has/have been made with the Commission
pursuant to provisions of the Act and rules promulgated thereunder. All interested persons are
referred to the application(s) and/or declaration(s) for complete statements of the proposed
transaction(s) summarized below. The application(s) and/or declaration(s) and any amendments
thereto is/are available for public inspection through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing on the application(s) and/or
declaration(s) should submit their views in writing by __, 2001 to the Secretary, Securities and
Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549, and serve a copy on the
relevant applicant(s) and/or declarant(s) at the address(es) as specified below. Proof of service (by
affidavit or, in case of an attorney at law, by certificate) should be filed with the request. Any
request for hearing shall identify specifically the issues of fact or law that are disputed. A person
who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or
order issued in the matter. After __, 2001, the application(s) and/or declaration(s), as filed or as
amended, may be granted and/or permitted to become effective.
* * *
New RC (70-_____)
New RC, Inc., a Delaware corporation ("New RC"), and Conectiv, a Delaware corporation and a
registered public utility holding company, filed an Application-Declaration on Form U-1 (File No.
70-9915) on July 20, 2001 (the "Merger U-1") with the Securities and Exchange Commission (the
"Commission") under Sections 9(a)(2) and 10 of the Public Utility Holding Company Act of 1935,
as amended (the "Act"), seeking approvals relating to the proposed acquisition by New RC of all of
the common stock of Conectiv and Potomac Electric Power Company, a Washington, D.C. and
Virginia corporation ("Pepco") (the "Merger"). Prior to the Merger, New RC will be renamed. Upon
consummation of the Merger, New RC will register with the Commission under the Act.
Upon completion of the Merger, New RC will own, directly or indirectly, all of the issued and
outstanding common stock of five public utility subsidiary companies1. These include Pepco,
Atlantic City Electric Company, a New Jersey corporation ("ACE"), Delmarva Power & Light
Company, a Delaware and Virginia corporation ("Delmarva"), Conectiv Atlantic Generation L.L.C.,
a Delaware limited liability company ("CAG") and Conectiv Delmarva Generation, Inc., a
Delaware corporation ("CDG"). Collectively, ACE, Delmarva, CAG, CDG and any New Utility
Subsidiary that may be established are referred to as the "Conectiv Utility Subsidiaries", and
together with Pepco, are referred to as the "Utility Subsidiaries." New RC also will hold, directly or
indirectly, all of the nonutility subsidiaries and investments currently owned by Pepco and Conectiv
(collectively, the "Nonutility Subsidiaries").
1Pursuant to the Order of the Commission (HCAR No. 35-27415; 70-9095) dated June 7, 2001,
Conectiv Energy Holding Company ("CEH") is authorized to establish additional direct subsidiaries
which will be considered utility companies under the Act.
New RC will maintain Conectiv as a direct wholly owned subsidiary after the Merger. Conectiv,
which will remain a registered holding company, will hold, directly or indirectly, all of the voting
securities of the Conectiv Utility Subsidiaries and its investments in other direct and indirect
Nonutility Subsidiaries. In addition to Conectiv, the New RC System is expected to include two
other registered holding companies: CEH, the parent of CDG, and ACE REIT, Inc. ("ACE REIT"),
a direct subsidiary of CEH and the parent of CAG.2
General Request
This Application-Declaration seeks the authorization and approval of the Commission with respect
to ongoing financing activities, the provision of guarantees, and other matters pertaining to New RC
and its Subsidiaries after giving effect to the Merger and registration of New RC as a holding
company. Specifically, this Application-Declaration seeks, among other things, the following
authorizations and approvals of the Commission:
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New RC and its Subsidiaries hereby request authorization for financing transactions for the period beginning with the effective date of an order issued pursuant to this filing and continuing to and including March 31, 2005 (the "Authorization Period"); |
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New RC requests that the Commission approve the aggregate financing request in the amount of $3.5 billion representing financing authorizations relating to equity securities, preferred securities and debt securities, of which no more than $2.5 billion will be short-term debt outstanding at any point in time and of which no more than $1.5 billion will be used to provide external Genco financing; |
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New RC requests that the Commission approve the issuance of long-term debt securities and preferred securities by Pepco in an aggregate amount not to exceed $800 million during the Authorization Period and the issuance of short-term debt securities by Pepco and Delmarva in amounts not to exceed $300 million and $275 million, respectively, outstanding at any time during the Authorization Period; |
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New RC requests that the Commission approve the issuance of up to 20 million shares of common stock under stock purchase/dividend reinvestment plans and stock-based management incentive and employee benefit plans pursuant to Sections 6(a) and 7 of the Act; |
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New RC requests that the Commission approve the issuance by New RC, Pepco, CEH, Conectiv and the Nonutility Subsidiaries of guarantees in an aggregate amount not to exceed $3.5 billion outstanding at any time during the Authorization Period; |
2Pursuant to the Order of the Commission (HCAR No. 35-27415; 70-9095) dated June 7, 2001,
CEH and ACE REIT will be required to register as public utility holding companies under Section 5
of the Act upon the occurrence of certain events. All reporting requirements under the Act for CEH
and ACE REIT will be subsumed in the reporting requirements for Conectiv. After the Merger, all
reporting requirements under the Act for Conectiv, CEH and ACE REIT will be subsumed in the
reporting requirements for New RC.
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New RC requests that the Commission authorize and approve under other sections of the Act and applicable rules and regulations of the Commission promulgated thereunder the intrasystem guarantees, the formation and operation of the New RC System money pool ("Money Pool") and the payment of dividends out of capital or unearned surplus by New RC and certain Subsidiaries; and |
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New RC requests that the Commission approve the use of the proceeds of financings in an amount not to exceed 100% of New RC's consolidated retained earnings plus $3.5 billion for investments in EWGs and FUCOs. |