[Federal Register Volume 63, Number 42 (Wednesday, March 4, 1998)]
[Notices]
[Pages 10657-10667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5488]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-26832; 70-9069]


Conectiv, Inc.; Order Authorizing Acquisition of Public Utility 
Companies and Related Transactions; Approving Organization of Service 
Company Subsidiary; Authorizing Certain Affiliate Transactions; 
Approving Service Agreements; and Reserving Jurisdiction

February 25, 1998.
    Conectiv, Inc. (``Conectiv''), a Delaware corporation not currently 
subject to the Public Utility Holding Company Act of 1935, as amended 
(``Act''), has filed an application-declaration, as amended, under 
sections 6(a), 7, 9, 10, 11 and 13 of the Act, and rules 80 through 91, 
93 and 94, seeking approvals related to the proposed combination of 
Delmarva Power & Light Company (``Delmarva''), a Delaware and Virginia 
public utility company, and Atlantic Energy, Inc. (``Atlantic''), a New 
Jersey public utility holding company exempt by order under section 
3(a)(1) from all provisions of the Act, except section 9(a)(2). 
Conectiv requests, among other things, an order under sections 9(a)(2) 
and 10 of the Act authorizing its acquisition of all of the issued and 
outstanding common stock of Delmarva and Atlantic by means of the 
mergers described below. Following the transactions, Conectiv will 
register as a holding company under section 5 of the Act.\1\
---------------------------------------------------------------------------

    \1\ Conectiv will file a notification of registration on Form 
U5A within 30 days of the merger and will file a registration 
statement on Form U5B within 90 days.
---------------------------------------------------------------------------

    The Commission issued a notice of the filing on October 3, 1997 
(Holding Co. Act Release No. 26763). The Commission received a request 
for a hearing dated October 27, 1997, from South Jersey Gas Company 
(``South Jersey''), a New Jersey public utility company engaged in the 
transmission, distribution, transportation and sale of natural and 
mixed gases in New Jersey.

[[Page 10658]]

South Jersey filed supplemental comments on November 7, 1997. By letter 
dated December 22, 1997, South Jersey withdrew its request for a 
hearing.

I. Background

    Delmarva provides electric service in Delaware, Maryland and 
Virginia and gas service in Delaware. As of June 30, 1997, Delmarva 
provided electric utility service to approximately 445,000 customers in 
an area encompassing about 6,000 square miles in Delaware (255,000 
customers), Maryland (170,000 customers) and Virginia (20,000 
customers), and gas utility service to approximately 102,000 customers 
in an area of about 275 square miles in northern Delaware.
    Delmarva's gas facilities are located exclusively in New Castle 
County, Delaware. Delmarva owns gas property consisting of a liquefied 
natural gas plant in Wilmington, Delaware with a storage capacity of 
3.045 million gallons and a maximum daily sendout capacity of 49,898 
Mcf per day.\2\ Delmarva also owns four natural gas city gate stations 
at various locations in its gas service territory. The stations have a 
total contract sendout capacity of 125,000 Mcf per day. Delmarva has 
111 miles of transmission mains (including 11 miles of joint-use gas 
pipelines that are used 10% for gas distribution and 90% for 
electricity production), 1,539 miles of distribution mains and 1,091 
miles of service lines.
---------------------------------------------------------------------------

    \2\ The facility is used primarily as a peak-shaving facility 
for Delmarva's gas customers.
---------------------------------------------------------------------------

    Delmarva is engaged indirectly, through subsidiaries and 
affiliates, in various nonutility activities. In general, these 
activities include: acquisition and operation of service businesses 
primarily involving heating, ventilation and air conditioning sales, 
installation and servicing, and other energy-related activities; 
provision of a full-range of retail and wholesale telecommunications 
services; ownership and financing of an office building that its leased 
to Delmarva and/or its affiliates; oil and gas exploration and 
development; ownership of approximately 2.9% of the common stock of 
Chesapeake Utilities Corporation, a publicly traded gas utility company 
with gas utility operations in Delaware, Maryland and Florida;\3\ gas-
related activities; and a variety of unregulated investments. These 
activities, and the subsidiaries through which they are engaged, are 
described in detail in Appendix A to this order. On June 30, 1997, 
Delmarva's nonutility subsidiaries and investments constituted 
approximately 7.5% of the consolidated assets of Delmarva and its 
subsidiaries.
---------------------------------------------------------------------------

    \3\ The application requests the Commission to reserve 
jurisdiction over Conectiv's acquisition of the common stock of 
Chesapeake Utilities Corporation for a period of three years from 
the date of this order to permit Conectiv to effect an orderly 
disposition of the stock or otherwise comply with the requirements 
of the Act.
---------------------------------------------------------------------------

    On June 30, 1997, there were 61,269,320 shares of Delmarva Common 
Stock, par value $2.25 per share, outstanding and 1,253,548 shares of 
Delmarva preferred stock outstanding. For the fiscal year ended June 
30, 1997, Delmarva's operating revenues on a consolidated basis were 
approximately $1,256 million, of which approximately $1,018 million 
were derived from electric operations, $134 million from gas operations 
and $104 million from other operations. Consolidated assets of Delmarva 
and its subsidiaries at June 30, 1997 were approximately $2,992 
million, consisting of approximately $2,531 million in electric utility 
property, plant and equipment; approximately $236 million in gas 
utility property, plant and equipment; and approximately $225 million 
in other corporate assets.
    Atlantic's principal subsidiary is Atlantic City Electric Company 
(``ACE''), a public utility company engaged in the generation, 
transmission, distribution and sale of electric energy. ACE serves a 
population of approximately 476,000 customers in a 2,700 square-mile 
area of Southern New Jersey.\4\
---------------------------------------------------------------------------

    \4\ ACE is also a holding company by reason of its ownership of 
Deepwater Operating Company (``Deepwater''), a public utility 
company. Deepwater owns no physical assets. It operates generating 
facilities in New Jersey for ACE.
    ACE claims exemption from registration under section 3(a)(1) of 
the Act by rule 2. Prior to the consummation of the proposed 
mergers, Deepwater will be either merged into ACE or made a 
subsidiary of Atlantic Energy Enterprises, Inc., a holding company 
for Atlantic's nonutility subsidiaries.
---------------------------------------------------------------------------

    Delmarva and ACE have undivided ownership interests in two nuclear 
plants: Peach Bottom Nuclear Generating Station, a Pennsylvania 
facility in which each company holds a 7.51 percent interest, and Salem 
Nuclear Generating Station, a New Jersey facility in which each company 
holds a 7.41 percent interest. Delmarva and ACE also hold undivided 
ownership interests in two Pennsylvania coal-fired thermal units, the 
Keystone and Conemaugh generating stations.\5\
---------------------------------------------------------------------------

    \5\ The application states that the four plants in which ACE and 
Delmarva hold ownership interests will account for a substantial 
proportion of Conectiv's generation resources, although the plants 
are located outside the utilities' traditional service areas.
---------------------------------------------------------------------------

    Atlantic is engaged indirectly, through subsidiaries and 
associates, in a variety of nonutility activities. In general, these 
activities include: brokering of used utility equipment to developing 
countries; provision of utility consulting services related to the 
design of substations and other utility infrastructure; investment in 
leveraged leases of commercial aircraft and container ships; 
development and operation of independent power production projects; 
ownership and operation of thermal heating and cooling system; and 
provision of other energy-related services to business and 
institutional energy users. These activities, and the subsidiaries 
through which they are engaged, are described in detain in Appendix B 
to this order. As of June 30, 1997, Atlantic's nonutility subsidiaries 
and investments constituted approximately 8.9% of the consolidated book 
value of the assets of Atlantic and its subsidiaries.
    As of June 30, 1997, there were 52,502,479 shares of Atlantic 
Common Stock, no par value, outstanding and no shares of preferred 
stock outstanding. For the year ended June 30, 1997, Atlantic had 
operating revenues on a consolidated basis of approximately $987 
million. Total assets as of June 30, 1997 were approximately $2,758 
million.
    The electric service territories of ACE and Delmarva are not 
contiguous, and the companies are not directly interconnected. However, 
Delmarva and ACE, together with other members of PJM Interconnection, 
LLC (``PJM''), a regional power pool described below, have undivided 
interests in, or joint rights to use, certain 500 kv transmission 
facilities that are used to import power from the west and to deliver 
power from jointly owned power plants to their owner's systems. These 
facilities include a transmission line over the Delaware River and 
other extra-high voltage lines that directly connect the jointly owned 
power plant with lower voltage lines of PJM.
    PJM is a ``tight'' power pool.\6\ The application describes PJM as 
the largest

[[Page 10659]]

and most sophisticated centrally dispatched electric control area in 
North America, and the third largest in the world.\7\ The PJM service 
territory includes all or part of Pennsylvania, New Jersey, Maryland, 
Delaware, Virginia and the District of Columbia. PJM's objectives are 
to ensure reliability of the bulk power transmission system and to 
facilitate an open-competitive wholesale electric market.
---------------------------------------------------------------------------

    \6\ The Commission noted in Untili Corp., Holding Co. Act 
Release No. 25524 (April 24, 1992):
    Generally, a tight power pool consists of two or more electric 
systems which coordinated the planning and/or operation of their 
bulk power facilities for the purpose of achieving greater economy 
and reliability in accordance with a contractual agreement that 
establishes each member's responsibilities.
    Tight power pools have centralized dispatch of generating 
facilities, whereby energy and operating reserves are interchanged 
among the participant systems and transferred over facilities owned 
by the individual participants. Participants have contractual 
requirements relating to generating capacity and operating reserves, 
together with specific financial penalties if these requirements are 
not met. Sufficient transmission capacity is made available to 
realize the full value of operating and planning coordination.
    Id. at 10, n.22.
    \7\ Comparable tight pools are the New York Power Pool and the 
New England Power Pool (``NEPOOL'').
---------------------------------------------------------------------------

    PJM became the first operational Independent System Operator \8\ in 
the United States on January 1, 1998, managing the PJM Open Access 
Transmission Tariff and facilitating the Mid-Atlantic spot market. With 
the implementation of the Tariff, PJM began operating the nation's 
first regional, bid-based energy market.
---------------------------------------------------------------------------

    \8\ Independent system operators are generally established to 
coordinate access to and delivery of electric power generated by a 
number of sources. The U.S. Department of Energy in an August 1997 
report entitled Electricity Prices in a Competitive Environment: 
Marginal Cost Pricing of Generation Services and Financial Status of 
Electric Utilities, defines an ``Independent System Operator'' as 
``[a] neutral operator responsible for maintaining an instantaneous 
balance of the grid system. The Independent System Operator performs 
its function by controlling the dispatch of flexible plants to 
ensure that loads match resources available to the system.'' Id. at 
106.
---------------------------------------------------------------------------

    In order to achieve economy and reliability in the bulk power 
supply within the PJM region, PJM members coordinate the planning and 
operation of their systems, share installed and operating reserves to 
reduce installed generator requirements, and participate in centralized 
unit commitment, coordinated bilateral transactions, and instantaneous 
real-time dispatch of energy resources to meet customer load 
requirements throughout PJM. Within the PJM pool, there is a wholesale 
energy market based on a ``split-the-savings'' energy exchange. There 
is also a reciprocal sharing of capacity resources and a competitive 
market is transmission entitlements to import energy.
    Delmarva's generation and bulk transmission, and ACE's generation 
and transmission facilities are operated on an integrated basis with 
those of other PJM members. The PJM staff centrally forecasts, 
schedules and coordinates the operation of generating units, bilateral 
transactions and the spot energy market to meet load requirements.\9\ 
To maintain a reliable and secure electric system, PJM monitors, 
evaluates and coordinates the operation of over 8,000 miles of high-
voltage transmission lines. Operations are closely coordinated with 
neighboring control areas, and information is exchanged to enable real-
time security assessments of the transmission grid. PJM provides 
accounting services for energy, ancillary services, transmission 
services, and capacity reserve obligations.
---------------------------------------------------------------------------

    \9\ The PJM staff coordinates the planning of generation to meet 
combined peak loads of the control area. They coordinate planning of 
the interconnected bulk power transmission system to deliver energy 
reliably and economically to customers. PJM conducts many 
specialized planning studies within the pool and with surrounding 
entities.
---------------------------------------------------------------------------

    Conectiv was formed to become a holding company for Delmarva and 
Atlantic following consummation of the proposed mergers, as 
contemplated by a merger agreement dated as of August 9, 1996, as 
amended and restated as of December 26, 1996 (``Merger Agreement''). At 
present, Conectiv's common stock, consisting of 1,000 issued and 
outstanding shares, is owned by Delmarva and Atlantic, each of which 
owns 500 shares. The shareholders of Delmarva and Atlantic approved the 
proposed mergers at their respective meetings held on January 30, 1997.
    Conectiv will serve approximately 921,000 electric customers in New 
Jersey, Delaware, Maryland and Virginia, and 102,000 gas customers in 
Delaware. The service territory of the Conectiv system will extend from 
the Virginia portion of the Delmarva Peninsula north to Atlantic City, 
New Jersey and west to Wilmington, Delaware. As of, and for the fiscal 
year ended, June 30, 1997, the combined assets of Delmarva and Atlantic 
would have totalled approximately $5.75 billion, the combined operating 
revenues would have totaled approximately $2.24 billion and the 
combined installed generating capacity would have totaled 4417 MW.
    Conectiv believes that the mergers will lead to economies of scale 
through the elimination of duplicate facilities and positions, 
integration of corporate and administrative programs, improved 
purchasing and production capacity and reserves, and generally more 
efficient operations. Conectiv estimates that the mergers could result 
in net cost savings of more than $500 million during the ten-year 
period following the mergers. Conectiv expects approximately 59.55% of 
the savings to occur through labor reductions in redundant positions, 
4.48% from reduced facilities, 21.51% from economies of scale and cost 
avoidance in corporate and administrative programs, 9,64% from 
purchasing economies for non-fuel materials and supplies, and 4.82% 
from purchasing economies for fuel and power purchases.
    Under the Merger Agreement, DS Sub, Inc., a Delaware direct 
subsidiary of Conectiv formed for purposes of the merger,\10\ will be 
merged with and into Delmarva, with Delmarva as the surviving 
corporation (``Delmarva Merger''), and Atlantic will be merged with and 
into Conectiv, with Conectiv as the surviving corporation (``Atlantic 
Merger'' and, together with Delmarva Merger, ``Mergers''). As a result 
of the Mergers, Delmarva and its direct subsidiaries and certain direct 
subsidiaries of Atlantic will become direct subsidiaries of Conectiv, 
and Conectiv will be a holding company within the meaning of the Act.
---------------------------------------------------------------------------

    \10\ The authorized capital stock of DS Sub consists of 1000 
shares of common stock, $0.01 par value, all of which is held by 
Conectiv.
---------------------------------------------------------------------------

    Upon consummation of the Mergers, each issued and outstanding share 
of Delmarva Common Stock will be converted into the right to receive 
one share of Conectiv common stock (``Conectiv Common Stock'') 
(``Delmarva Conversion Ratio''). Each issued and outstanding share of 
Atlantic common stock (``Atlantic Common Stock'') will be converted 
into the right to receive 0.75 shares of Conectiv Common Stock 
(``Atlantic Conversion Ratio'') and 0.125 shares of Class A common 
stock of Conectiv (``Conectiv Class A Common Stock'').\11\ Based on the 
capitalization and the Delmarva Conversion Ratio and the Atlantic 
Conversion Ratio, the shareholders of Delmarva and Atlantic would own 
securities representing approximately 60.6% and 39.4%, respectively, of 
the outstanding shares of the Conectiv Common Stock, and the 
shareholders of Atlantic would own 100% of the outstanding shares of 
the Conectiv Class A Common Stock.
---------------------------------------------------------------------------

    \11\ The outstanding shares of preferred stock of Delmarva and 
Atlantic will not be affected.
---------------------------------------------------------------------------

    The Conectiv Class A Common Stock is a ``letter'' or ``tracking'' 
stock, designed to track the performance of the currently regulated 
electric utility business of ACE (``Targeted Business'').\12\ The 
application states that the Conectiv Class A Common Stock, which will 
be issued only to the holders

[[Page 10660]]

of the Atlantic Common Stock, allocates proportionately more of the 
risks associated with the Targeted Business to Atlantic's current 
stockholders and, at the same time, provides them the opportunity to 
participate in proportionately more of the growth prospects of the 
Targeted Business. The Merger Agreement provides, subject to 
declaration by the Conectiv Board of Directors, and its obligation to 
react to the financial condition and regulatory environment of the 
company and its results of operations, that the dividends declared and 
paid on the Conectiv Class A Common Stock will be maintained at a level 
of $3.30 per share per annum until the earlier of July 1, 2001, or the 
end of the twelfth calendar quarter in which the Mergers become 
effective (``Initial Period''). The application-declaration states, 
that after the Initial Period, Conectiv intends to pay dividends to the 
holders of the Conectiv Class A Common Stock at a rate equal to 90% of 
net earnings attributable to the Targeted Business in excess of $40 
million.\13\ Through the use of the tracking stock, the holders of 
Atlantic Common Stock will retain more than half the benefits and risks 
relating to the Targeted Business after the Mergers.
---------------------------------------------------------------------------

    \12\ In conjunction with the Mergers and the findings and 
recommendations of the New Jersey Commission on April 30, 1997, on 
the restructuring of the New Jersey electric industry, ACE expects 
to move all of its currently nonregulated operations out of ACE. ACE 
would retain only the Targeted Business.
    \13\ The Merger Agreement further provides that if, and to the 
extent that, the annual dividends, paid on the Conectiv Class A 
Common Stock during the Initial Period exceeds 100% of Conectiv's 
earnings attributable to the Targeted Business in excess of $40 
million per year during the Initial Period, the Conectiv Board may 
consider this fact in determining the appropriate annual dividend 
rate on the Conectiv Class A Common Stock following the Initial 
Period.
---------------------------------------------------------------------------

    Holders of the Conectiv Class A Common Stock will not have any 
specific rights or claims against the businesses, assets and 
liabilities of the Targeted Business, other than as common stockholders 
of Conectiv. Holders will be subject to risks associated with an 
investment in Conectiv and all of its businesses, assets and 
liabilities. Both holders of Conectiv Common Stock and holders of 
Conectiv Class A Common Stock will be entitled to one vote per share on 
all matters submitted to a vote at any meetings of stockholders, 
subject to the rights, if any, of holders of any outstanding class of 
preferred stock. The holders of Conectiv Common Stock and the holders 
of Conectiv Class A Common Stock will vote as one class for all 
purposes, except as may otherwise be required by the laws of 
Delaware.\14\
---------------------------------------------------------------------------

    \14\ There are also special provisions governing the conversion 
and redemption of the Conectiv Class A Common Stock, either at the 
discretion of Conectiv or in the event of a merger, tender offer or 
disposition of all or substantially all of the assets of the 
Targeted Business. A more complete description of the Conectiv Class 
A Common Stock is provided in the ``Description of the Company's 
Capital Stock'' on pages 75 to 97 of the Joint Proxy filed as 
Exhibit C-2 to the application. Risk factors associated with the 
dual class capital structure are also discussed extensively in the 
Joint Proxy on pages 14 to 22 under the heading ``Risk Factors.''
---------------------------------------------------------------------------

    Both the Class A Common Stock and the Common Stock will be publicly 
traded, will have full voting rights and will be able to be evaluated 
through regular periodic filings under the Securities Exchange Act of 
1934.\15\ The Conectiv Class A Common Stock will have no preference or 
accrual rights. Further, the Conectiv Class A Common Stock will have 
the same priority in liquidation as the Common Stock.
---------------------------------------------------------------------------

    \15\ The notes to the consolidated financial statements of 
Conectiv will include condensed financial information of ACE. 
Complete financial statements of ACE will continue to be filed with 
the Commission under the Securities Exchange Act of 1934 and will be 
available to Conectiv stockholders upon request.
---------------------------------------------------------------------------

    The application explains that the use of two classes of Conectiv 
common stock was proposed during the merger negotiations as a means to 
address the merger partners' differing evaluations of the growth 
prospects of, and uncertainties associated with deregulation of, ACE's 
regulated electric utility business. The Boards of Delmarva and 
Atlantic determined that the use of tracking stock was necessary to 
bridge the companies' differing views concerning the appropriate 
conversion ratio for a business combination.
    Delmarva currently has in place a long-term incentive plan and 
Atlantic has in place an equity incentive plan. Upon completion of the 
Mergers, a Conectiv plan will replace both plans.\16\ The Conectiv plan 
provides for a maximum number of five million shares of Conectiv Common 
Stock available for issuance under the plan.
---------------------------------------------------------------------------

    \16\ On January 30, 1997, the shareholders of Delmarva and 
Atlantic approved the Conectiv Incentive Compensation Plan, a 
comprehensive cash and stock compensation plan providing for the 
grant of annual incentive awards as well as long-term incentive 
awards such as restricted stock, stock options, stock appreciation 
rights, performance units, dividend equivalents and other types of 
awards as the committee of the Conectiv Board that will administer 
the plan deems appropriate.
---------------------------------------------------------------------------

    Prior to the consummation of the Mergers, Conectiv will form a 
subsidiary service company, Conectiv Resource Partners, Inc. 
(``Conectiv Resource'') (formerly Support Conectiv, Inc.), to serve the 
Conectiv system companies.\17\ Conectiv Resource will provide a variety 
of administrative, management, engineering, construction, environmental 
and support services, including services relating to electric power 
planning, electric system operations, materials management, facilities 
and real estate, accounting, budgeting and financial forecasting, 
finance and treasury, rates and regulation, legal, internal audit, 
corporate communications, environmental matters, fuel procurement, 
corporate planning, investor relations, human resources, marketing and 
customer services, information systems and general administrative and 
executive management services.\18\
---------------------------------------------------------------------------

    \17\ Conectiv Resource's authorized capital stock will consist 
of up to 3,000 shares of common stock, $1 par value per share. 
Conectiv requests authorization to acquire the voting securities of 
Conectiv Resource as part of the Mergers. Conectiv will hold all 
issued and outstanding shares of Conectiv Resource common stock.
    \18\ No change in the organization of Conectiv Resource, the 
type and character of the companies to receive services, the methods 
of allocating costs to associate companies, or the scope or 
character of services shall be made unless and until Conectiv 
Resource has given the Commission written notice of the proposed 
change not less than 60 days prior to the proposed effectiveness of 
the change. If, upon receipt of such notice, the Commission notifies 
Conectiv Resource within the 60-day period that a question exists as 
to whether the proposed change is consistent with the provisions of 
section 13 of the Act or related rules, Conectiv Resource will be 
required to file a declaration and the proposed change shall not 
become effective until authorized by order of the Commission.
---------------------------------------------------------------------------

    Conectiv Resource will enter into a service agreement with each 
associate company to which it renders services (``Service 
Agreement'').\19\ In accordance with the Service Agreement, services 
provided by Conectiv Resource will be directly assigned, distributed or 
allocated to an associate company by activity, project, program, work 
order or other appropriate basis. Employees of Conectiv Resource will 
record transactions utilizing the existing data capture and accounting 
systems of each client associate company. Costs of Conectiv Resource 
will be accumulated in accounts of Conectiv Resource and directly 
assigned, distributed and allocated to the appropriate client company 
in accordance with the guidelines set forth in the Service Agreement.
---------------------------------------------------------------------------

    \19\ See Exhibit B-2 to the application.
---------------------------------------------------------------------------

    It is anticipated that Conectiv Resource will be staffed by the 
transfer of current personnel of Delmarva, Atlantic and their 
subsidiaries. Conectiv Resource's accounting and cost allocation 
methods and procedures will be structured so as to comply with the 
Commission's standards for service companies in registered holding 
company systems. Conectiv states that the Service Agreement is 
structured so as to comply with section 13 of the Act and the 
Commission's rules and regulations under the Act. Thus, charges for all 
services provided by Conectiv Resource to associate companies will be

[[Page 10661]]

on an at-cost basis, as determined under rules 90 and 91 under the Act.
    The interested state regulatory authorities have approved the 
proposed Mergers and/or related matters. The Virginia State Corporation 
Commission approved the Mergers by order dated August 6, 1997. The 
Delaware Public Service Commission approved the Mergers by order dated 
September 23, 1997, the Pennsylvania Public Utility Commission, by 
order dated October 2, 1997, authorized the transfer of control of ACE 
and Delmarva to Conectiv through a transfer of stock. The New Jersey 
Board of Public Utilities approved the Mergers by order dated December 
30, 1997. The Maryland Public Service Commission approved the Mergers 
by order dated July 16, 1997. The Federal Energy Regulatory Commission 
(``FERC'') approved the proposed Mergers on July 30, 1997.\20\ The 
Nuclear Regulatory Commission approved the transfer of the nuclear 
power licenses to Conectiv by order dated December 18, 1997. Delmarva 
and Atlantic filed Premerger Notification and Report Forms with the 
Antitrust Division of the U.S. Department of Justice and the Federal 
Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act 
of 1976. The applicable waiting period expired on August 25, 1997 
without any comments being provided on the filing.
---------------------------------------------------------------------------

    \20\ See Atlantic City Power Electric Company and Delmarva Power 
& Light Company, Dkt. No. EC97-7-01 (July 30, 1997).
---------------------------------------------------------------------------

    Fees and expenses in the estimated amount of $19,318,060 are 
anticipated in connection with the proposed transaction.

II. Discussion

    The proposed acquisition by Conectiv of all of the issued and 
outstanding common stock of Delmarva and of Atlantic requires prior 
Commission approval under sections 9(a)(2) and 10 of the Act. The 
various issuances and sales of securities,\21\ and related acquisitions 
of securities, involved in the Mergers are subject to sections 6(a) and 
7, and 9(a)(1) and 10 respectively, of the Act.The proposed service 
agreements are subject to section 13 of the Act and rules 80-91, 93 and 
94. The Commission has reviewed the proposed transactions and finds 
that the requirements of the Act are satisfied, except as to the matter 
over which jurisdiction is reserved.
---------------------------------------------------------------------------

    \21\ These transactions include the issuance of Conectiv Common 
Stock in exchange for shares of Delmarva and Atlantic Common Stock 
and the issuance of Conectiv Class A Common Stock for Atlantic 
Common Stock.
---------------------------------------------------------------------------

A. Statutory Integration Requirements

    As a preliminary matter, it is necessary to determine the extent to 
which the proposed principal system of Conectiv, i.e., the combined 
electric properties of Delmarva and Atlantic, is an integrated public 
utility system within the meaning of section 2(a)(29)(A) of the Act. 
The Commission's application of the integration requirements of section 
10(c)(1) of the Act, and by reference, section 11(b)(1), is central to 
its authorization of the proposed acquisition by Conectiv of Delmarva 
and Atlantic. Once this question is decided, it is necessary to 
consider whether Conectiv may own the Delmarva gas integrated system as 
an additional system.
1. Integration Standards
    Section 10(c)(1) requires the Commission not to approve an 
acquisition that ``would be detrimental to the carrying out of the 
provisions of section 11.'' \22\ Section 11(b)(1) of the Act, in turn, 
generally confines the utility properties of a registered holding 
company to a ``single integrated public-utility system,'' either gas or 
electric, as discussed below.\23\
---------------------------------------------------------------------------

    \22\ The Commission has interpreted this provision to bar a 
utility acquisition by a registered (or to-be-registered) holding 
company that would not be permissible under section 11(b)(1) of the 
Act. See, e.g., Electric Bond and Share Co., 33 S.E.C. 21, 31, 
(1952).
    Section 10(c)(1) further prohibits Commission approval of an 
acquisition that ``is unlawful under the provisions of section 8.'' 
Section 8 prohibits an acquisition by a registered holding company 
of an interest in an electric utility and a gas utility serving 
substantially the same territory without the express approval of the 
state commission when the state's law prohibits or requires approval 
of the acquisition.
    New Jersey, Virginia, Delaware and Pennsylvania law do not 
prohibit the proposed ownership by Conectiv of both gas and electric 
properties. As previously noted, all of the interested state utility 
commissions have approved the proposed merger and/or related 
matters.
    \23\ The limitation in intended to eliminate evils that Congress 
found to exist ``when the growth and extension of holding companies 
bears no relation to * * * the integration and coordination of 
related operating properties.'' Section 1(b)(4) of the Act. Congress 
believed that, ``in the absence of clearly overriding considerations 
a utility system should have a management single-mindedly devoted to 
advancing the interests of its investors and consumers and not 
engaged, through the means of the holding company device, in 
operating other utility or non-utility businesses.'' New England 
Electric System, 41 S.E.C. 888 (1964), rev'd, SEC v. New England 
Electric System, 346 F.2d 399 (1st Cir. 1966), rev'd and remanded, 
384 U.S. 176 (1965), on remand, 376 F.2d 107 (1st Cir. 1967), rev'd, 
390 U.S. 207 (1968).
    The ``other business'' clauses of section 11(b)(1) further limit 
the nonutility businesses of a registered holding company to those 
that are ``reasonably incidental, or economically necessary or 
appropriate to the operations of such integrated public-utility 
system,'' on a finding by the Commission that the interests are 
``necessary or appropriate in the public interest or for the 
protection of investors of consumes and not detrimental to the 
proper functioning'' of the integrated system.
---------------------------------------------------------------------------

    Section 2(a)(29)(A) defines an integrated public-utility system, as 
applies to electric utility properties, to mean:

a system consisting of one or more units of generating plants and/or 
transmission lines or distributing facilities, whose utility assets, 
whether owned by one or more electric utility companies, are 
physically interconnected or capable of physical interconnection and 
which under normal conditions may be economically operated as a 
single interconnected and coordinated system confined in its 
operations to a single area or region, in one or more States, not so 
large as to impair * * * the advantages of localized management, 
efficient operations, and the effectiveness of regulation.

Section 2(a)(29)(B) defines an integrated public-utility system, as 
applied to gas utility properties, to mean:

a system consisting of one or more gas utility companies which are 
so located and related that substantial economies may be effectuated 
by being operated as a single coordinated system confined in its 
operations to a single area or region, in one or more States, not so 
large as to impair * * * the advantages of localized management, 
efficient operations, and the effectiveness of regulation: Provided, 
That gas utility companies deriving natural gas from a common source 
of supply may be deemed to be included in a single area or region.

In view of the separate definitions and their differing criteria, the 
Commission has long held that gas and electric properties do not 
together constitute an integrated system.\24\
---------------------------------------------------------------------------

    \24\SEC v. New England Electric System, 384 U.S. at 178, n.7 and 
the cases cited in the decision.
---------------------------------------------------------------------------

2. The Combined Electric Properties
    On the basis of the statutory definition of an electric integrated 
public utility system, the Commission has established four standards 
that must be met before the Commission will find that an integrated 
public system will result from a proposed acquisition of securities:

    (1) The utility assets of the system are physically 
interconnected or capable of physical interconnection;
    (2) The utility assets, under normal conditions, may be 
economically operated as a single interconnected and coordinated 
system;
    (3) The system must be confined in its operations to a single 
area or region; and
    (4) The system must not be so large as to impair (considering 
the state of the art and the area or region affected) the advantages 
of

[[Page 10662]]

localized management, efficient operation, and the effectiveness of 
regulation.\25\

    \25\ Environmental Action, Inc. v. SEC, 895 F.2d 1255, 1263 (9th 
Cir. 1990), citing Electric Energy, Inc., 38 S.E.C. 658, 668 (1958).
---------------------------------------------------------------------------

The combined electric properties satisfy each of these four 
requirements.
    The Commission has previously determined that the physical 
interconnection requirement of the Act can be satisfied on the basis of 
contractual rights to use third parties' transmission lines, when the 
merging companies are members of a tight power pool.\26\ In addition, 
Delmarva and ACE are interconnected through their undivided ownership 
interests in, and/or rights to use, the same regional generation 
facilities and extra-high voltage facilities, as well as through their 
contractual rights to use the transmission facilities of other members 
of the PJM regional power pool. Although it would be possible to 
construct a transmission line directly interconnecting Delmarva and 
ACE, Conectiv believes that such action is unnecessary because present 
transmission arrangements provide adequate service.\27\
---------------------------------------------------------------------------

    \26\ Unitil Corp., Holding Co. Act Release No. 25524 (Apr. 24, 
1992).
    \27\ See Unitil Corp., Holding Co. Act Release No. 25524, citing 
Electric Energy Inc., 38 S.E.C. at 669 (direct interconnection not 
required in circumstances that would have resulted in an uneconomic 
duplication of transmission facilities).
---------------------------------------------------------------------------

    The proposed Mergers also satisfy the requirement that the utility 
assets, under normal conditions, may be ``economically operated as a 
single interconnected and coordinated system.'' \28\ The Commission has 
interpreted this language to refer to the physical operation of utility 
assets as a system in which, among other things, the generation and/or 
flow of current within the system may be centrally controlled and 
allocated as need or economy directs.\29\ In approving the acquisition 
of Public Service Company of New Hampshire by Northeast Utilities, the 
Commission noted that ``the operation of generating and transmitting 
facilities of PSNH and the Northeast operating companies is coordinated 
and centrally dispatched under the NEPOOL Agreement.'' \30\ Similarly, 
in Unitil Corp., the Commission concluded that the combined electric 
utility assets of the companies may be operated as a single 
interconnected and coordinated system through their participation in 
NEPOOL.\31\ In this matter, in addition to coordinated operation 
through PJM, Conectiv will have a central operating transmission and 
generation control center in Newark, Delaware. For these reasons, 
Conectiv will be able to operate its combined electric utility assets 
as a single interconnected and coordinated system.
---------------------------------------------------------------------------

    \28\ See Cities Services Co., 14 S.E.C. 28, 55 (1943) (Congress 
intended that the utility properties be so connected and operated 
that there is coordination among all parts, and that those parts 
bear an integral operating relationship to one other).
    \29\ North American Co., 11 S.E.C. 194, 242 (1942), aff'd on 
constitutional issues, 327 U.S. 686 (1946). The Commission explained 
that ``even though we find physical interconnection exists or may be 
effected, evidence is necessary that in fact the isolated 
territories are or can be so operated in conjunction with the 
remainder of the system that central control is available for the 
routing of power within the system.'' Id.
    \30\ Northeast Utilities, Holding Co. Act Release No. 25221 at 
n.85, modified, Holding Co. Act Release No. 25273 (Mar. 15, 1991), 
aff'd sub nom. City of Holyoke v. SEC, 972 F.2d 358 (D.C. Cir. 
1992).
    \31\ Unitil Corp., Holding Co. Act Release No. 25524.
---------------------------------------------------------------------------

    The Commission's third and fourth requirements are also satisfied. 
The Conectiv electric system will operate in a single area or region in 
four contiguous states in the Mid-Atlantic region.\32\ The system will 
not be so large as to impair ``the advantages of localized management, 
efficient operations, and the effectiveness of regulation.'' After the 
Mergers, Conectiv will maintain system headquarters in Wilmington, 
Delaware. This structure will preserve the benefits of localized 
management and the system, as described above, will facilitate 
efficient operations. Delmarva and ACE will continue to exist as 
subsidiaries of Conectiv, and their utility operations will remain 
subject to their respective state commissions. Delmarva and Atlantic 
have received the requisite orders from these regulators as a condition 
precedent to consummating the proposed Mergers.
---------------------------------------------------------------------------

    \32\ While Conectiv will have ownership interests in 
Pennsylvania, its service area will be limited to Virginia, 
Maryland, Delaware and New Jersey.
---------------------------------------------------------------------------

    The Commission finds that the combined electric properties of 
Delmarva and Atlantic will constitute an integrated public utility 
system. The Commission has further determined that the proposed 
acquisition by Conectiv of this electric integrated system will 
``ten[d] towards the economical and efficient development of an 
integrated public-utility system,'' and so satisfy the requirement of 
section 10(c)(2) of the Act.

B. Proposed Ownership of Delmarva's Gas Operations

    In addition to the principal electric integrated electric system, 
Conectiv proposes to acquire and retain the integrated gas public 
utility system of Delmarva.\33\ Although section 11(b)(1) generally 
limits a registrant to ownership of a single integrated system, an 
exception to this requirement is provided in section 11(b)(1)(A)-(C) 
(``ABC clauses''). A registered holding company may own one or more 
additional systems, if each system meets the criteria of these clauses. 
Specifically, the Commission must find that (A) the additional system 
``cannot be operated as an independent system without the loss of 
substantial economies which can be secured by the retention of control 
by such holding company of such system,'' (B) the additional system is 
located in one or adjoining states, and (C) the combination of systems 
under the control of a single holding company is ``not so large * * * 
as to impair the advantages of localized management, efficient 
operation, or the effectiveness of regulation.''\34\ The Commission has 
repeatedly held that a registered holding company cannot own properties 
that are not part of its principal integrated system unless they 
satisfy the ABC clauses.\35\ Only clause A is at issue here.\36\
---------------------------------------------------------------------------

    \33\ As noted previously, Conectiv requests the Commission to 
reserve jurisdiction over Conectiv's acquisition of the Chesapeake 
Utilities Corporation stock for a period of three years from the 
date of this order to permit Conectiv to effect an orderly 
disposition of the stock or otherwise comply with the requirements 
of the Act.
    \34\ North American Co., 11 S.E.C. at 206; and New Century 
Energies, Inc., Holding Co. At Release No. 26748 (Aug. 1, 1997).
    \35\ See, e.g. United Gas International Co., 9 S.E.C. 52, 65 
(1941) (section 11(b)(1) permits more than one integrated system 
only if the additional system or systems meets the standards of the 
ABC clauses; a utility subsidiary is not retainable as part of an 
additional system unless those clauses are satisfied). See also 
Philadelphia Co., 28 S.E.C. 35, 46 (1948), aff'd, 177 F.2d 720 (D.C. 
Cir. 1949). Accord New Century Energies, Inc., Holding Co. Act 
Release No. 26748.
    \36\ As explained below, the proposed acquisition of the gas 
integrated system does not raise any issues under clauses B or C.
---------------------------------------------------------------------------

1. Requirements of Clause A
    The Commission has construed the provisions of clause A to require 
an affirmative showing by a registrant that an additional system could 
not be operated under separate ownership without a loss of economies 
``so important as to cause a serious impairment of that system,'' and 
``substantial in the sense that they were important to the ability of 
the additional system to operate soundly.''\37\ The Commission has 
applied this standard

[[Page 10663]]

to the additional system in question, in light of the relevant facts 
and circumstances. In his matter, based on the relevant facts and 
circumstances, the Commission finds that the additional system may be 
owned and operated by Conectiv after the Mergers are consummated.\38\
---------------------------------------------------------------------------

    \37\ New England Electric System, 41 S.E.C. at 892-93. The 
Commission has variously phrased the rule under clause A. See SEC v. 
New England Electric System, 384 U.S. at 181 (citing, among other 
orders, Philadelphia Co., 28 S.E.C. at 46 (``For the economies to be 
`substantial,' they must be `important' in the sense that they are 
of such nature that their loss would cause a serious economic 
impairment of the system.'').
    \38\ See New England Electric System, 41 S.E.C. at 893 (``a 
registrant seeking to retain an additional system has the burden of 
showing by clear and convincing evidence that such additional system 
cannot be operated under separate ownership without the loss of 
economies so important as to cause a serious impairment of that 
system'').
---------------------------------------------------------------------------

    Conectiv prepared and submitted a supplemental severance study 
(``Severance Study'') with respect to the gas operations. The analysis 
focuses upon the increases in operating costs that would result from 
divestiture.
    In New England Electric System and earlier cases, the Commission 
took the approach of examining the substantiality of the estimated loss 
in relation to total revenues, expenses and income resulting from 
divestiture. The Commission suggested in an early leading decision that 
cost increases resulting in a 6.78% loss of operating revenues, a 9.72% 
increase in operating revenue deductions, a 25.44% loss of gross income 
and a 42.46% loss of net income would afford an ``impressive basis for 
finding a loss of substantial economies.''\39\ The Severance Study 
indicates that the ratios in this matter are significantly higher than 
guidelines established in Commission precedent and thus would result in 
greater loss of economies if the gas system were severed. The record 
indicates that the cost increases that would result from severance of 
the gas operations here would satisfy, and in all instances exceed, 
those thresholds.\40\ As set forth in the Severance Study, divestiture 
of the gas operation into a stand-alone company would result in lost 
economies of $14.7 million. On a percentage basis, the Severance Study 
indicates that divestiture of the gas operations would amount to 14.07% 
of gas operating revenues, 17.4% of gas operating revenue deductions, 
73.42% of gross gas income and 105.88% of net gas income.
---------------------------------------------------------------------------

    \39\ Engineers Public Service Co., 12 S.E.C. 41 (1942), rev'd on 
other grounds and remanded. 138 F.2d 936 (D.C. Cir. 1943), vacated 
as moot, 332 U.S. 788 (1947).
    \40\ See Exhibit J-I to the application.
---------------------------------------------------------------------------

    In order to recover these lost economies, the Severance Study 
indicates that the new stand-alone company would need to increase 
customer rates by about 14.8% ($15.5 million) in order to provide an 
9.36% rate of return on rate base.\41\ In the absence of rate relief, 
the Severance Study concludes that the lost economies would result in a 
3.35% rate of return on rate base for the gas operations, a rate 
greater than the 2.01% projected stand-alone rate of return in Unitil 
Corp., where retention was authorized.\42\
---------------------------------------------------------------------------

    \41\ 9.36% is the effective cost of capital for the stand-alone 
gas business, based on use of the weighted average approximate costs 
for capital of Delmarva as of September 30, 1996.
    \42\ See Unitil Corp., Holding Co. Act Release No. 25524.
---------------------------------------------------------------------------

    To the extent that competition between competing sources of energy 
remains a concern, the Commission notes that section 10(b)(1) of the 
Act, among other things, prohibits an acquisition that would result in 
``the concentration of control of public-utility companies, of a kind 
or to an extent detrimental to the public interest or the interest of 
investors or consumers.'' The Commission's analysis under section 
10(b)(1) includes consideration of federal antitrust policies. In 
addition, the FERC and the Antitrust Division of the U.S. Department of 
Justice, which typically have concomitant jurisdiction over merger 
transactions, consider the anticompetive consequences of the proposed 
transaction.\43\ As previously noted, the FERC gas approved the 
proposed Mergers and no comments were received in conjunction with the 
Hart-Scott-Rodino filing.
---------------------------------------------------------------------------

    \43\ Under section 203 of the Federal Power Act, the FERC 
``shall approve'' a merger if it is ``consistent with the public 
interest.'' See Gulf States Utilities Co. v. FPC, 422 U.S. 747, 758 
(1973).
---------------------------------------------------------------------------

    The Commission finds that the requirements of clause A are 
satisfied with respect to Conectiv's ownership of the Delmarva gas 
operations as an additional integrated system.
2. Requirements of Clauses B and C
    The proposed acquisition of the gas integrated system does not 
raise any issues under clauses B or C. With respect to clause B, the 
principal electric system to Conectiv will be located in New Jersey, 
Delaware, Maryland and Virginia; the additional gas system will be 
located in an adjoining state--Delaware. As required by clause C, the 
combination of systems under the ownership of Connectiv will not be 
``so large * * * as to impair the advantages of localized management, 
efficient operation, or the effectiveness of regulation.''

C. Proposed Nonutility Interests of Conectiv

    Section 11 (b)(1) limits the nonutility interests of a registered 
holding company to those that are ``reasonably incidental, or 
economically necessary or appropriate to the operations of such 
integrated public-utility system.'' The Commission must find that the 
interests are ``necessary or appropriate in the public interest or for 
the protection of investors or consumers and not detrimental to the 
proper functioning'' of the integrated system. The Commission has 
interpreted these provisions to require the existence of an operating 
or functional relationship between the utility operations of the 
registered holding company and its nonutility activities.\44\ With 
respect to new acquisitions, the Commission has interpreted section 
10(c)(1) of the Act to mean that ``any property whose disposition would 
be required under section 11(b)(1) may not be acquired.''\45\
---------------------------------------------------------------------------

    \44\ See generally Michigan Consolidated Gas Co., 444 F.2d 913 
(D.C. Cir. 1971).
    \45\ Texas Utilities Co., 21 S.E.C. 827, 829 (1946) (denying 
approval to acquisition of transportation company by registered 
holding company).
---------------------------------------------------------------------------

    The Commission has examined the various nonutility interests that 
Conectiv seeks to acquire and has concluded that the statutory 
requirements for ownership are satisfied. The Commission has further 
concluded that Delmarva's and Atantic's existing investments in these 
activities, as of the date of consummation of the Mergers, should be 
disregarded for purposes of calculating the dollar limitation upon 
investment in energy-related companies under new rule 58.\46\ As in 
previous similar matters involving to-be-registered holding companies, 
the Commission reaches this conclusion in view of the fact that the 
Mergers partners were not subject to the restrictions that section 
11(b)(1) and relevant Commission precedent places upon the nonutility 
investments of registered system companies.\47\
---------------------------------------------------------------------------

    \46\ See Holding Co. Act Release No. 26667 (Feb. 14, 1997), 62 
FR 7900 (Feb. 20 1997) (adopting rule 58).
    \47\ See, e.g., New Century Energies, Inc., Holding Co. Act 
Release No. 26748 (proposed combination of utility and exempt 
holding company and stand-along utility). The Act is silent 
concerning nonutility diversification by exempt holding companies, 
such as Atlantic, and the Commission has never determined the limits 
upon diversification by these companies. See, e.g., Pacific Lighting 
Corp., 45 S.E.C. 152 (1973) (two commissioners held that the 
nonutility activities of exempt holding companies should complement 
the utility operations; two other commissioners proposed guidelines 
under which utility activities would be separated from nonutility 
activities).
---------------------------------------------------------------------------

D. Proposed Dual Class of Equity Stock of Conectiv

    As discussed previously, the Merger Agreement contemplates that 
Delmarva stockholders will receive one share of Conectiv Common Stock 
in exchange for each share of Delmarva Common Stock. Atlantic 
stockholders will receive 0.75 shares of Conectiv Common Stock and 
0.125 shares of a tracking stock,

[[Page 10664]]

Conectiv Class A Common Stock, in exchange for each share of Atlantic 
Common Stock.
    As explained above, the proposed issuance of tracking stock in this 
matter represents a means by which Delmarva and Atlantic addressed the 
difference in their evaluations of the overall impact of the growth 
prospects of, and uncertainties associated with deregulation of, the 
regulated electric utility business of Atlantic. The use of tracking 
stock in connection with the Mergers addresses the concerns of the 
managements of the merger partners and allows the respective 
stockholders of Delmarva and Atlantic to gain, as shareholders of 
Conectiv, the level of exposure that the companies' managements have 
deemed advisable to the growth prospects of the regulated utility 
business of Atlantic and the uncertainties associated with deregulation 
of that business.
    Conectiv seeks authorization for issuance of the Conectiv Class A 
Common Stock under Section 7(c)(2)(A) of the Act. Section 7(c)(2)(A) 
provides for the issuance of securities ``solely * * * for the purpose 
of effecting a merger.'' \48\ Section 7(d) of the Act provides in 
pertinent part, that if the requirements of section 7(c) are satisfied, 
the Commission shall permit a declaration regarding the issue or sale 
of a security to become effective unless the Commission finds that:

    \48\ The Commission notes that section 7(c)(1) provides that a 
declaration regarding the issuance of securities by a registered 
holding company cannot become effective unless it relates to certain 
specified types of securities including ``a common stock * * * being 
without preference as to dividends or distribution over * * * any 
outstanding security of the [holding company].'' Because 
authorization of the issuance of the Class A Common Stock is sought 
under section 7(c)(2), the Commission does not have to reach the 
question of whether the dividend rate of the stock constitutes a 
``preference as to dividends'' for purposes of section 7(c)(1).
---------------------------------------------------------------------------

    (1) The security is not reasonably adapted to the security 
structure of the declarant and other companies in the same holding 
company system;
    (2) The security is not reasonably adapted to the earning power 
of the declarant;
    (3) Financing by the issue and sale of the particular security 
is not necessary or appropriate to the economical and efficient 
operation of a business in which the applicant lawfully is engaged 
or has an interest; [or]
* * * * *
    (6) The terms and conditions of the issue or sale of the 
security are detrimental to the public interest or the interest of 
investors or consumers.\49\
---------------------------------------------------------------------------

    \49\ Section 7(d)(4) requires the Commission to find that the 
fees, commissions, or other remuneration, to whomsoever paid, 
directly or indirectly, in connection with the issue, sale, or 
distribution of the security are not reasonable. Section 7(c)(5) 
addresses the issuance of a guarantee or other assumption of 
liability.

    The Commission has also considered whether the Class A Common Stock 
would give rise to any abuse that the Act is intended to prevent.\50\ 
Various provisions of the Act are intended to ensure that a holding 
company system does not have an unnecessarily complicated capital 
structure or that voting power is unfairly or inequitably distributed 
among system security holders.\51\ In these respects, it does not 
appear that the issuance of the Class A Common Stock would be 
detrimental to the interests of investors or consumers. There will be 
no effect on the legal title to Conectiv assets or the responsibilities 
for the liabilities of Conectiv or its subsidiaries.\52\ The Class A 
Common Stock will be directly linked to the performance of the Targeted 
Business and thus adapted to the earning power of Conectiv. The Class A 
Common Stock will be subject to the requirements of the other federal 
securities laws and will be listed on the New York Stock Exchange.\53\ 
The Class A Common Stock has all of the attributes of common stock, 
particular voting rights.\54\ The only voting securities of Conectiv 
that will be publicly held after the Mergers will be Common Stock and 
Class A Common Stock. In addition to common stock of Delmarva, all of 
which will be held by Conectiv, Delmarva will continue to have 
1,253,548 shares of outstanding voting preferred stock (not including 
2.8 million shares of Quarterly Income Preferred Securities). The only 
class of voting securities of Conectiv's direct and indirect nonutility 
subsidiaries will be common stock. The shareholders of both Delmarva 
and Atlantic approved the proposed Mergers.
---------------------------------------------------------------------------

    \50\ Section 1(c) of the Act directs the Commission to interpret 
all the provisions of the Act to meet the problems and eliminate the 
evils enumerated in section 1(a).
    \51\ See sections 10(b) of the Act (Commission is not to approve 
an acquisition that ``will unduly complicate the capital structure 
of the holding-company system'' or be ``detrimental to the public 
interest, the interests of investors or consumers or the proper 
functioning of [the] holding-company system''); 10(c)(1) (Commission 
is not to approve an acquisition that would be detrimental to the 
carrying out of the provisions of section 11''); and 11(b)(2) 
(Commission is to ensure that the corporate structure of a 
registered holding company ``does not unduly complicate the 
structure, or unfairly or inequitably distribute voting power among 
security holders''). See, e.g., American Power & Light Co. v. SEC, 
329 U.S. 90 (1946) (upholding constitutionality of section 11(b)(2) 
and affirming orders requiring the dissolution of two subholding 
company subsidiaries of a registered holding company on the grounds 
of undue capital complexity).
    \52\ Pennsylvania was the only state to exercise jurisdiction 
over the transfer of stock involved in the Mergers. The order of the 
Pennsylvania Public Utility Commission approved the issuance of the 
Conectiv Class A Common Stock.
    \53\ The Commission has noted that: Concerns with respect to 
investors have been largely addressed by developments in the federal 
securities laws and in the securities markets themselves. Registered 
holding companies are subject to extensive reporting requirements 
under the Act. In addition, the securities of those companies are 
publicly held and are registered under the Securities Act of 1933. 
The companies are subject to the continuous disclosure requirements 
of the Securities Exchange Act of 1934. * * * The interest of 
investors is protected not only by the requirements of this Act but 
also by the disclosure requirements of these other statutes.
    Southern Co., Holding Co. Act Release No 25639 (Sept. 23, 1992).
    \54\ Compare Cities Service Co., 34 S.E.C. 28, 33-34 (1956) 
(Commission found an unfair and inequitable distribution of voting 
power in conflict with the standards of section 11(b)(2) where Class 
A stock represented approximately 46% of the combined common and 
Class A equity of the company, and the public holdings of Class A 
stock alone amounted to 35% of the combined equity, but the Class A 
had no voting power).
---------------------------------------------------------------------------

    Set forth below are summaries of the historical capital structure 
of Delmarva and Atlantic as of June 30, 1997 and the pro forma 
consolidated capital structure of Conectiv as of June 30, 1997:

    Delmarva and Atlantic Historical Consolidated Capital Structures    
                         [Dollars in thousands]                         
------------------------------------------------------------------------
                                                  Delmarva     Atlantic 
------------------------------------------------------------------------
Common Stock Equity...........................     $942,322     $782,688
Preferred stock not subject to mandatory                                
 redemption...................................       89,703       30,000
Preferred stock subject to mandatory                                    
 redemption...................................       70,000      113,950
Long-term Debt................................      923,710      786,187
                                               -------------------------
      Total...................................    2,025,735   1,712,825.
------------------------------------------------------------------------


            Conectiv Pro Forma Consolidated Capital Structure           
                    [Dollars in thousands, unaudited]                   
------------------------------------------------------------------------
                                                               Conectiv 
------------------------------------------------------------------------
Common Stock (incl. additional paid in capital)............   $1,461,721
Class A Common Stock.......................................      136,840
Retained Earnings..........................................     *266,630
Preferred stock not subject to mandatory redemption (of                 
 subsidiaries).............................................      119,703
Preferred stock subject to mandatory redemption (of                     
 subsidiaries).............................................      183,950
Long-term Debt.............................................    1,709,897
                                                            ------------

[[Page 10665]]

                                                                        
      Total................................................    3,878,741
------------------------------------------------------------------------
* The pro forma consolidated capital structure of Conectiv has been     
  adjusted to reflect future nonrecurring charges directly related to   
  the Mergers, which result in, among other things, the recognition of  
  additional current liabilities and a reduction in retained earnings.  

Conectiv's pro forma consolidated common equity to total capitalization 
ratio of 48% comfortably exceeds the ``traditionally acceptable 30% 
level.'' \55\
---------------------------------------------------------------------------

    \55\ Northeast Utilities, Holding Co. Act Release No. 25221.
---------------------------------------------------------------------------

    In view of all these considerations, the Commission has concluded 
that sections 7(d), 10(b) and 10(c) of the Act do not require any 
negative findings.

III. Conclusion

    The Commission has carefully examined the application under the 
applicable standards of the Act, and has concluded that the proposed 
issuances, sales and acquisitions and related transactions are 
consistent with those standards. The Commission has reached these 
conclusions on the basis of the complete record before it.
    Due notice of the filing of the application-declaration has been 
given in the manner prescribed in rule 23 under the Act, and no hearing 
has been requested of or ordered by the Commission. Upon the basis of 
the facts in the record, it is hereby found that, except as to the 
matter over which jurisdiction has been reserved, the applicable 
standards of the Act and rules are satisfied, and that no adverse 
findings are necessary:
    It is ordered, under the applicable provisions of the Act and rules 
under the Act, that, except as to the matter over which jurisdiction 
has been reserved, the application-declaration, as amended, is, granted 
and become effectively immediately, subject to the terms and conditions 
prescribed in rule 24 under the Act;
    It is further ordered, that jurisdiction is reserved over 
Conectiv's ownership of Chesapeake Utilities Corporation for up to 
three years from the date of this order; and
    It is further ordered, that Conectiv will file a post-effective 
amendment no later than the end of that three-year period requesting 
the Commission to dispose of the matter over which jurisdiction is 
reserved, in the event that the matter is not moot.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.

Appendix A

Delmarva

    Delmarva has seven direct nonutility subsidiaries: Delmarva 
Services Company, Delmarva Energy Company (``DEC''), Conectiv 
Services, Inc. (``CSI''), Conectiv Communications, Inc., Delmarva 
Capital Investments, Inc. (``DCI''), Conectiv Solutions LLC 
(``Solutions'') and East Coast Natural Gas Cooperative, L.L.C. 
(``ECNG'').
    1. Delmarva Services Company. Delmarva Services Company, a 
Delaware corporation and a direct subsidiary of Delmarva, was formed 
in 1986 to own and finance an office building that it leases to 
Delmarva and/or its affiliates.\1\ Delmarva Services Company also 
owns approximately 2.9% of the common stock of Chesapeake Utilities 
Corporation, a publicly-traded gas utility company with gas utility 
operations in Delaware, Maryland and Florida.\2\
---------------------------------------------------------------------------

    \1\ See UNITIL Corp., Holding Co. Act Release No. 25524 (Apr. 
24, 1992) (subsidiary that had acquired real estate to support the 
system's utility operations deemed to be retainable under the 
standards of section 11(b)(1)).
    \2\ As noted previously, Conectiv has requested that the 
Commission reserve jurisdiction over the Chesapeake stock for a 
period of three years from the date of this order to permit Conectiv 
to effect an orderly disposition of the Chesapeake stock.
---------------------------------------------------------------------------

    2. DEC. DEC, a Delaware corporation and a direct subsidiary of 
Delmarva, was formed in 1975. It is currently engaged, directly and 
through its subsidiary, in rule 58 energy marketing activities.
    Conectiv/CNE Energy Services LLC, a Delaware limited liability 
company in which DEC holds a 50% interest,was formed in 1997 to 
engage in rule 58 energy marketing activities in the New England 
states.\3\
---------------------------------------------------------------------------

    \3\ See rule 58(b)(1)(v) (subject to certain conditions, no 
Commission approval is required for a registered holding company to 
acquire the securities of a company that derives substantially all 
of its revenues from ``the brokering and marketing of energy 
commodities, including but not limited to electricity or natural or 
manufactured gas or other combustible fuels''). See also New Century 
Energies, Inc., Holding Co. Act Release No. 26784 (Aug. 1, 1997).
---------------------------------------------------------------------------

    3. CSI, directly and through subsidiaries, provides a wide range 
of energy-related goods and services to industrial, commercial and 
residential customers. CSI is engaged in the design, construction 
and installation, and maintenance of new and retrofit heating, 
ventilating, and air conditioning (``HVAC''), electrical and power 
systems, motors, pumps, lighting, water and plumbing systems, and 
related structures as approved by the Commission.\4\
---------------------------------------------------------------------------

    \4\ See Cinergy Corp., Holding Co. Act Release No. 26662 (Feb. 
7, 1997) (``Cinergy Solutions Order'').
---------------------------------------------------------------------------

    a. Power Consulting Group, Inc., a Delaware corporation, was 
formed in 1997 to provide electrical engineering, testing and 
maintenance services to large commercial and industrial 
customers.\5\
---------------------------------------------------------------------------

    \5\ Subject to certain conditions, rule 58(b)(1)(ii) exempts the 
acquisition of the securities of a company that derives 
substantially all of its revenues from ``[t]he development and 
commercialization of electrotechnologies related to energy 
conservation, storage and conversion, energy efficiency, waste 
treatment, greenhouse gas reduction, and similar innovations.'' See 
also Allegheny Power System, Inc., Holding Co. Act Release No. 26085 
(July 14, 1994) (investments in technologies related to power 
conservation and storage, conservation and load management, 
environmental and waste treatment, and power-related electronic 
systems and components).
---------------------------------------------------------------------------

    b. Conectiv Plumbing, L.L.C., a Delaware limited liability 
company owned 90% by CSI, provides plumbing services primarily in 
connection with the CSA HVAC business. Conectiv Plumbing, L.L.C. was 
formed in 1998 in connection with the acquisition of an HVAC 
company. Under New Jersey law, an individual with a New Jersey 
master plumbing license must hold at least a 10% equity interest in 
a company providing plumbing services in New Jersey. To meet this 
requirement, the bulk of the acquired company's HVAC business was 
retained within CSI but the related and incidental plumbing services 
were spun down to a new subsidiary, Conectiv Plumbing, L.L.C., that 
is 10% owned by a master plumber.
    4. Conectiv Communications, Inc., A Delaware corporation and a 
direct sibsidiary of Delmarva, was formed in 1996 to provide a full-
range of retail and wholesale telecommunications services.\6\
---------------------------------------------------------------------------

    \6\ Section 34 of the Act provides an exemption from the 
requirement of prior Commission approval for the ownership by a 
registered holding company of interests in companies engaged in a 
broad range of telecommunications activities and businesses. Section 
34 permits ownership of interests in telecommunications companies 
engaged exclusively in the business of providing telecommunications 
service upon application to the Federal Communications Commission 
for a determination of ``exempt telecommunications company'' status. 
Conectiv Communications, Inc. is an exempt telecommunications 
company under section 34 of the Act.
---------------------------------------------------------------------------

    5. DCI, a Delaware corporation and a direct subsidiary of 
Delmarva, was formed in 1985 to be a holding company for the 
following unregulated investments. In addition DCI acts as a vehicle 
for the development and sale of properties that are not currently 
used or useful in the utility business.\7\
---------------------------------------------------------------------------

    \7\ DCI is managing real estate that was acquired for an 
intended utility purpose that has ceased to exist, to enable the 
utility to obtain the necessary rights of way for transmission lines 
and other utility operations. Unlike many other states, Delaware 
does not provide a right of condemnation for a franchised electric 
utility. Rather, the utility is often forced to acquire the 
underlying fee simple for a larger parcel in order to obtain an 
easement or right of way. The development and sale of these 
properties is a means of recovering the costs associated with their 
acquisition.
---------------------------------------------------------------------------

    a. DCI I, Inc., a Delaware corporation and a wholly owned 
subsidiary of DCI formed in 1985 to invest in leveraged leases.\8\
---------------------------------------------------------------------------

    \8\ See Central and South West Corp., Holding Co. Act Release 
No. 23578 (Jan. 22, 1985) (approving leveraged lease investments by 
a registered holding company)
---------------------------------------------------------------------------

    b. DCI II, Inc., a Virgin Islands corporation and a wholly owned 
foreign sales subsidiary of DCI formed in 1985 to be involved in 
equity investments in leveraged leases.\9\
---------------------------------------------------------------------------

    \9\ Id.

---------------------------------------------------------------------------

[[Page 10666]]

    c. DCTC-Burney, Inc., a Delaware corporation and a wholly owned 
subsidiary of DCI formed in 1987 to invest in ``qualifying 
facilities.'' \10\
---------------------------------------------------------------------------

    \10\ A ``qualifying facility'' is defined under the Public 
Utility Regulatory Policies Act of 1978, as amended (``PURPA''). 
Subject to certain conditions, Rule 58( b)(1)(viii) exempts the 
acquisition of the securities of a company that is primarily engaged 
in ``the development, ownership or operation of `qualifying 
facilities'* * *, and any integrated thermal, steam host, or other 
necessary facility constructed, developed or acquired primarily to 
enable the qualifying facility to satisfy the useful thermal output 
requirements under PURPA.'' See also New Century Energies, Inc., 
Holding Co. Act Release No. 26748 (Aug. 1,1997); Entergy Corp., 
Holding Co. Act Release No. 26322 (June 30, 1995); Southern Co., 
Holding Co. Act Release No. 26212 (Dec. 30, 1994); Central and South 
West Corp., Holding Co. Act Release No. 26156 (Nov. 3, 1994); 
Central and South West Corp., Holding Co. Act Release No. 26155 
(Nov. 2, 1994); and Northeast Utilities, Holding Co. Act Release No. 
25977 (Jan. 24, 1994).
---------------------------------------------------------------------------

    i. Forest Products, L.P., a Delaware limited partnership, in 
which DCTC-Burney, Inc. is the sole 1% general partner, and which is 
a general partner in Burney Forest Products, A Joint Venture.
    ii. Burney Forest Products, A Joint Venture, a California 
general partnership which is owned by DCTC-Burney, Inc. and Forest 
Products, L.P. The partnership owns a wood-burning qualifying 
facility in Burney, CA. DCTC-Burney, Inc.'s total direct and 
indirect ownership interest is 45%.
    d. Luz Solar Partners, Ltd. IV, a California limited partnership 
which owns a solar-powered generating station in Southern California 
in which DCI owns a 4.7% limited partnership interest.\11\
---------------------------------------------------------------------------

    \11\ Id.
---------------------------------------------------------------------------

    e. UAH-Hydro Kennebec, L.P., a New York limited partnership 
which owns a hydro-electric project in which DCI owns a 27.5% 
limited partnership interest.\12\
---------------------------------------------------------------------------

    \12\ Id.
---------------------------------------------------------------------------

    f. Christiana Capital Management, Inc., a Delaware corporation 
and a wholly owned subsidiary formed in 1987, which owns an office 
building leased to associates.\13\
---------------------------------------------------------------------------

    \13\ See Unitil Corp., Holding Co. Act Release No. 25524 (Apr. 
24, 1992).
---------------------------------------------------------------------------

    g. Delmarva Operating Services Company, a Delaware corporation 
and a wholly owned subsidiary of DCI formed in 1987, operates and 
maintains the following qualifying facilities under contracts with 
the plants' owners: the Delaware City Power Plant in Delaware City, 
DE; a qualifying facility in Burney, CA; and a qualifying facility 
in Sacramento, California, owned by the Sacramento Power Authority 
under a subcontract with Siemens Power Corporation.\14\
---------------------------------------------------------------------------

    \14\ See supra note 9.
---------------------------------------------------------------------------

    6. Solutions, a Delaware limited liability company, is jointly 
owned by Delmarva and Atlantic. Solutions was formed in 1997 to 
provide, directly or through subsidiaries, power systems consulting, 
end use efficiency services, customized on-site systems services and 
other energy services to large commercial and industrial 
customers.\15\ Solutions, directly or through subsidiaries, provides 
energy management services, often on a turnkey basis. Energy 
management services may involve the marketing, sale, installation, 
operation and maintenance of various products and services related 
to the business of energy management and demand-side management, and 
may include energy audits; facility design and process enhancements; 
construction, maintenance and installation of, and training client 
personnel to operate energy conservation equipment; design, 
implementation, monitoring and evaluation of energy conservation 
programs; development and review of architectural, structural and 
engineering drawings for energy efficiencies; design and 
specification of energy consuming equipment; and general advice on 
programs.\16\ Solutions also provides conditioned power services, 
that is, services designed to prevent, control, or mitigate adverse 
effects of power disturbances on a customer's electrical system to 
ensure the level of power quality required by the customer, 
particularly with respect to sensitive electronic equipment, again 
as approved by the Commission.\17\
---------------------------------------------------------------------------

    \15\ Upon consummation of the proposed transactions, Solutions 
will become a wholly-owned subsidiary of Conectiv.
    \16\ Subject to certain conditions, rule 58(b)(1)(i) exempts the 
acquisition of the securities of a company that derives 
substantially all of its revenues from ``[t]he rendering of energy 
management services and demand-side management services'' See also 
Eastern Utilities Associates, Holding Co. Act Release No. 26232 
(Feb. 15, 1995); Northeast Utilities, Holding Co. Act Release No. 
25114-A (July 27, 1990) and New England Electric System, Holding Co. 
Act Release No. 22719 (Nov. 19, 1982).
    \17\ See supra note 4.
---------------------------------------------------------------------------

    Solutions also markets comprehensive asset management services, 
on a turnkey basis or otherwise, in respect of energy-related 
systems, facilities and equipment, including distribution systems 
and substations, transmission facilities, electric generation 
facilities (stand-by generators and self-generation facilities), 
boilers, chillers (refrigeration and coolant equipment), HVAC and 
lighting systems, located on or adjacent to the premises of a 
commercial or industrial customer and used by that customer in 
connection with its business activities, as previously permitted by 
the Commission.\18\ Solutions also provides these services to 
qualifying and non-qualifying cogeneration and small power 
production facilities under the Public Utility Regulatory Policies 
Act of 1978 (``PURPA'').\19\
---------------------------------------------------------------------------

    \18\ Id.
    \19\ See rule 58(b)(1)(viii) (an energy-related company can 
engage in the development, ownership or operation of ``qualifying 
facilities,'' as defined under PURPA, and any integrated thermal, 
steam host, or other necessary facility constructed, developed or 
acquired primarily to enable the qualifying facility to satisfy the 
useful thermal output requirements of PURPA). Solutions will not 
undertake any Asset Management Service without further Commission 
approval if, as a result thereof, Solutions would become a public 
utility company within the meaning of the Act.
---------------------------------------------------------------------------

    Solutions provides consulting services to associate and 
nonassociate companies. The consulting services may include: 
technical and consulting services involving technology assessments, 
power factor correction and harmonics mitigation analysis, meter 
reading and repair, rate schedule design and analysis, environmental 
services, engineering services, billing services, risk management 
services, communications systems, information systems/data 
processing, system planning, strategic planning, finance, 
feasibility studies, and other similar or related services.\20\ 
Solutions also offer marketing services to nonassociate business in 
the form of bill insert and automated meter-reading services, as 
well as other consulting services, such as how to set up a marketing 
program.\21\
---------------------------------------------------------------------------

    \20\ See The Cinergy Solutions Order; see also rule 
58(b)(1)(vii) (relating to the sale of technical, operational, 
management, and other similar kinds of services and expertise, 
developed in the course of utility operations).
    \21\ See Consolidated Natural Gas Co., Holding Co. Act Release 
No. 26757 (Aug. 27, 1997) (the ``1997 CNG Order'').
---------------------------------------------------------------------------

    Solutions provides service Line repair and extended warranties 
with respect to all of the utility or energy-related services lines 
that enter a customer's house, as well as utility bill insurance and 
other similar or related services.\22\ Solutions may also provide 
centralized bill payment centers for ``one stop'' payment of all 
utility and municipal bills, and annual inspection, maintenance and 
replacement of any appliance.\23\ Solutions also is engaged in the 
marketing and brokering of energy commodities, including retail 
marketing activities.\24\
---------------------------------------------------------------------------

    \22\ See the Cinergy Solutions Order.
    \23\ See Consolidated Natural Gas Co., Holding Co. Act Release 
No. 26363 (Aug. 28, 1995).
    \24\ See supra note 3.
---------------------------------------------------------------------------

    Solutions also provides other goods and services, from time to 
time, related to the consumption of energy and maintenance of 
property by those end-users, where the need for the service arises 
as a result of, or evolves out of, the above services and the 
incidental services do not differ materially from the enumerated 
services.\25\
---------------------------------------------------------------------------

    \25\ See the 1997 CNG Order.
---------------------------------------------------------------------------

    In connection with its activities, Solutions from time to time 
may form new subsidiaries to engage in the above activities, or 
acquire the securities or assets of nonassociate companies that 
derive substantially all of their revenues from the above 
activities.
    Provision of the above goods and services, which are closely 
related to the system's core energy business, is intended to further 
Conectiv's goal of becoming a full-service energy provider.
    7. ECNG, a Delaware limited liability company in which Delmarva 
holds a 1/7th interest, is engaged in gas-related activities. 
Delmarva participates in ECNG to make bulk purchases of gas in order 
to improve the efficiency of its natural gas local distribution 
operations.\26\
---------------------------------------------------------------------------

    \26\ ECNG members provide emergency backup natural gas supplies 
to other members and jointly undertake the bulk purchase and storage 
of natural gas for use in their local distribution business. Because 
these activities are functionally related to the operations of the 
gas utility business of Delmarva, ECNG is retainable by Conectiv 
under section 11(b)(1). Further, upon Commission approval of the 
Mergers, ECNG will be exempt from all obligations, duties or 
liabilities imposed upon it by the Act as a subsidiary company or as 
an affiliate of a registered holding company or of a subsidiary 
company. See rule 16 under the Act.

---------------------------------------------------------------------------

[[Page 10667]]

    Delmarva also has a nonutility subsidiary trust, Delmarva Power 
Financing I (``DPFI''), which was formed in 1996 in connection with 
the issuance by Delmarva of Cumulative Quarterly Income Preferred 
Securities.

Appendix B

Atlantic

    Atlantic has three direct nonutility subsidiaries, Atlantic 
Energy International, Inc. (``AEII''), Atlantic Energy Enterprises, 
Inc. (``AEE''), and Solutions.\1\
---------------------------------------------------------------------------

    \1\ ACE has a very small home security business, with annual 
revenues of less than $10,000, that is located exclusively in its 
service territory. The business incurs few costs at this point. 
Accordingly, Conectiv seeks to retain this business under section 
11(b)(1). Although it is currently operated within ACE, it may be 
moved to a separate subsidiary of Conectiv. If this occurs, the 
subsidiary will apply for exempt telecommunications company status 
under section 34.
---------------------------------------------------------------------------

    1. AEII, a Delaware corporation, is a direct subsidiary of 
Atlantic formed in 1996 to broker used utility equipment to 
developing countries and to provide utility consulting services 
related to the design of sub-stations and other utility 
infrastructure. This subsidiary will wind down its business by June 
30, 1998.
    2. AEE, a New Jersey corporation, is a direct subsidiary of 
Atlantic formed in 1995 to be a holding company for Atlantic's non-
regulated subsidiaries. Through its six wholly owned subsidiaries, 
and 50% equity interest in Enerval, LLC, a natural gas marketing 
venture, AEE has pursued growth opportunities in energy-related 
fields, that will complement Atlantic's existing businesses and 
customer relationships.
    a. ATE, a New Jersey corporation and a wholly owned subsidiary 
of AEE formed in 1986, holds and manages capital resources for AEE. 
ATE's primary investments are equity investments in leveraged leases 
of three commercial aircraft and two container ships.\2\ ATE owns a 
94% limited partnership interest in EnerTech Capital Partners L.P., 
a limited partnership that will invest in and support a variety of 
energy technology growth companies.\3\
---------------------------------------------------------------------------

    \2\ See Central and South West Corp., Holding Co. Act Release 
No. 23588 (Jan. 22, 1985).
    \3\ Activities involving ``the development and commercialization 
of electrotechnologies related to energy conservation, storage and 
conversion, energy efficiency, waste treatment, greenhouse gas 
reduction, and similar innovations'' are energy-related activities 
within the meaning of rule 58(b)(1)(ii). See also New Century 
Energies, Holding Co. Act Release No. 26748 (Aug. 1, 1997).
---------------------------------------------------------------------------

    b. AGI, a New Jersey corporation and a wholly owned subsidiary 
of AEE formed in 1986. AGI develops, owns and operates independent 
power production projects.\4\
---------------------------------------------------------------------------

    \4\ See supra note 9.
---------------------------------------------------------------------------

    i. Pedrick Ltd., Inc., a New Jersey corporation and a wholly 
owned subsidiary of AGI, formed in 1989 to hold a 35% limited 
partnership interest in Pedricktown Cogeneration Limited 
Partnership.
    ii. Pedrick Gen., Inc., a New Jersey corporation and a wholly 
owned subsidiary of AGI, formed in 1989 to hold a 15% general 
partnership interest in Pedricktown Cogeneration Limited 
Partnership.
    iii. Vineland Limited, Inc., a Delaware corporation and a wholly 
owned subsidiary of AGI, formed in 1990 to hold a 45% limited 
partnership interest in Vineland Cogeneration Limited Partnership.
    iv. Vineland General, Inc., a Delaware corporation and a wholly 
owned subsidiary of AGI, formed in 1990 to hold a 5% general 
partnership interest in Vineland Cogeneration Limited Partnership.
    v. Binghamton General, Inc., a Delaware corporation and a wholly 
owned subsidiary of AGI, formed in 1990 to hold a 10% general 
partnership interest in Binghamton Cogeneration Limited Partnership, 
whose assets have been sold to a third party.
    vi. Binghamton Limited, Inc., a Delaware corporation and a 
wholly owned subsidiary of AGI, formed in 1990 to hold a 35% limited 
partnership interest in Binghamton Cogeneration Limited Partnership, 
whose assets have been sold to a third party.
    c. ATS, a Delaware corporation and a wholly owned subsidiary of 
AEE, formed in 1994. ATS and its subsidiaries develop, own and 
operate thermal heating and cooling systems. ATS also provides other 
energy-related services to business and institutional energy users. 
ATS has made investments in capital expenditures related to district 
heating and cooling systems to serve the business and casino 
district in Atlantic City, NJ. ATS is also pursuing the development 
of thermal projects in other regions of the U.S.\5\
---------------------------------------------------------------------------

    \5\ Subject to certain conditions, rule 58(b)(1)(vi) exempts the 
acquisition of the securities of a company that derives 
substantially all of its revenues from ``the production, conversion, 
sale and distribution of thermal energy products, such as process 
steam, heat, hot water, chilled water, air conditioning, compressed 
air and similar products; alternative fuels; and renewable energy 
resources; and the servicing of thermal energy facilities.'' See 
also New Century Energies, Holding Co. Act Release No. 26748 (Aug. 
1, 1997); Cinergy Corp., Holding Co. Act Release No. 26474 (Feb. 20, 
1996).
---------------------------------------------------------------------------

    i. Atlantic Jersey Thermal Systems, Inc., a Delaware corporation 
and wholly owned subsidiary formed in 1994, that owns a 10% general 
partnership interest in TELPI (as defined below).
    ii. ATS Operating Services, Inc., a Delaware corporation and a 
wholly owned subsidiary formed in 1995 that provides thermal energy 
operating services.
    iii. Thermal Energy Limited Partnership I (``TELPI''), a 
Delaware limited partnership wholly owned by Atlantic Thermal and 
Atlantic Jersey Thermal Systems, that holds an investment in the 
Midtown Energy Center. The Midtown Energy Center, which produces 
steam and chilled water, represents the initial principal operations 
of ATS. Currently, TELPI is operating the heating and cooling 
equipment of several businesses in Atlantic City, NJ. Some of these 
businesses will be served by the ATS district system once it is in 
commercial operation and others will continue to be served 
independently by ATS.
    iv. Atlantic Paxton Cogeneration, Inc., a wholly owned 
subsidiary that is currently inactive and expected to be dissolved 
sometime in 1998.
    v. Atlantic-Pacific Glendale, LLC, a Delaware limited liability 
company in which ATS holds a 50% interest, was formed in 1997 to 
construct, own and operate an integrated energy facility to provide 
heating, cooling and other energy services to DreamWorks Animation, 
LLC in Glendale, California.
    vi. Atlantic-Pacific Las Vegas, LLC, a Delaware limited 
liability company in which ATS holds a 50% interest, was formed in 
1997 to finance, own and operate an integrated energy plant to 
provide heating and cooling services to three affiliated customers 
in Las Vegas, Nevada.
    d. CCI, a Delaware corporation and a wholly owned subsidiary of 
AEE formed in 1995 to pursue investments and business opportunities 
in the telecommunications industry.\6\
---------------------------------------------------------------------------

    \6\ It is contemplated that CCI will be merged with and into 
Conectiv Communications, Inc. See supra note 5.
---------------------------------------------------------------------------

    e. ASP, a New Jersey corporation and a wholly owned subsidiary 
of AEE formed in 1970 that owns and manages certain investments in 
real estate, including a 280,000 square-foot commercial office and 
warehouse facility in southern New Jersey. Approximately fifty 
percent of the space in this facility is currently leased to system 
companies and fifty percent is leased to nonaffiliates.\7\
---------------------------------------------------------------------------

    \7\ See Central Power and Light Co., Holding Co. Act Release No. 
26408 (Nov. 13, 1995).
---------------------------------------------------------------------------

    f. AET, a Delaware corporation and a wholly owned subsidiary of 
AEE formed in 1991. AET is currently winding up its sole investment 
in technology. The Earth Exchange, Inc., which is nominal. There are 
no future plans for investment activity at this time by AET.
    g. Enerval, a Delaware limited liability company. In 1995, AEE 
and Cenerprise, Inc., a subsidiary of Northern States Power 
established Enerval, formerly known as Atlantic CNRG Services, LLC. 
AEE and Cenerprise each own 50 percent of Enerval. Enerval provides 
energy management services, including natural gas procurement, 
transporation and marketing. Disucssions are underway for the 
purchase of AEE of Cenerprise's interest.\8\
---------------------------------------------------------------------------

    \8\ See supra note 15.
---------------------------------------------------------------------------

    3. Solutions, a Delaware limited liability company that is 
jointly owned by Delmarva and Atlantic, was formed in 1997 to 
provide, directly or through subsidiaries, power systems consulting, 
end use efficiency services, customized on-site systems services and 
other energy services to large commercial and industrial 
customers.\9\
---------------------------------------------------------------------------

    \9\ Upon consummation of the proposed transactions, Solutions 
will become a wholly owned subsidiary of Conectiv.
---------------------------------------------------------------------------

    ACE also has a nonutility subsidiary trust, Atlantic Capital I 
(``ACT''), which was formed in 1996 in connection with the issuance 
by ACE of Cumulative Quarterly Income Preferred Securities.

[FR Doc. 98-5488 Filed 3-3-98; 8:45 am]
BILLING CODE 8010-01-M