OPENING STATEMENT OF BLOSSOM A. PERETZ, ESQ.

I/M/O THE PETITION OF ATLANTIC CITY ELECTRIC COMPANY,
CONECTIV COMMUNICATIONS, INC. And
NEW RC, Inc. FOR APPROVAL UNDER N.J.S.A. 48:2-51.1 and N.J.S.A. 48:3-10
OF A CHANGE IN OWNERSHIP AND CONTROL

BPU DOCKET NO. EM01050308
OAL DOCKET NO. PUC-04036-01

NOVEMBER 13, 2001

Good morning, Judge Sukovich and counsel. My name is Blossom A. Peretz, and I am the Ratepayer Advocate for the State of New Jersey. We are here today to begin the evidentiary hearings to consider the proposal to merge Atlantic City Electric Company ("Atlantic Electric"), Conectiv Communications, Inc., subsidiaries of Conectiv, Inc. ("Conectiv"), and New RC, Inc.("New RC") a newly formed subsidiary of the Potomac Electric Power Company ("Pepco"). If this petition is granted, New RC, Inc. will become a registered public utility holding company and the owner of Conectiv and Pepco.

Our primary focus in reviewing a merger petition is determining whether and how the merger results in positive benefits to New Jersey ratepayers. If parties to a merger can demonstrate positive benefits, then my office will recommend that the Board of Public Utilities ("Board") approve the merger. After carefully reviewing the petition, we conclude that the Administrative Law Judge recommend, at this time, that the Board not approve the merger proposed by Conectiv and Pepco (collectively, the "Petitioners") unless the Ratepayer Advocate’s conditions are met.

We have analyzed a number of issues to determine whether positive benefits for New Jersey ratepayers would result from approving the merger. I’d like to highlight a few of the issues that we believe the Petitioners must address to demonstrate that the proposed merger will result in positive benefits for New Jersey ratepayers.

The first issue is whether the proposed merger will benefit competition in the New Jersey electric market. The Petitioners have not proved that the merger will benefit competition, or even that competition will not be harmed by the merger. We recommend that before approving the proposed merger, the Board require the Petitioners to present a detailed assessment of market concentration and market power, including the use of an energy system simulation model to look at the hourly behavior of the market under a wide variety of external conditions and bidding behaviors.

The second issue is that of financial benefits for Conectiv’s New Jersey customers. After reviewing the petition, we have concluded that the Petitioners have not quantified the specific benefits to be achieved and have not stated a plan for achieving the benefits. The Petitioners, likewise, have not quantified all the Transaction and Transition costs to achieve the merger. Assuming net merger benefits can be achieved, the Petitioners have not quantified the expected impact of the merger on regulated rates and have not stated a plan for integrating merger benefits into the rate structure for New Jersey ratepayers, either today or in 2003 when rate caps will be terminated in New Jersey.

The Board should require the Petitioners to prepare a definitive calculation, with supporting documentation, of what financial costs and benefits will come from the merger. If there is a net positive benefit, Conectiv’s New Jersey customers should certainly benefit as they have in previous energy merger cases and have their rates reduced by the full amount of the cost savings.

Third, New Jersey ratepayers should not subsidize New RC’s unregulated or regulated operations in other states. In order to protect New Jersey ratepayers, we recommend that the Board set the overall cost of capital for a post-merger New RC’s New Jersey regulated subsidiary based upon either the capital structure of the consolidated company or the regulated subsidiary, whichever of the two has the lowest percentage of common equity.

Fourth, although the Petitioners have stated that there will be a corporate presence in New Jersey, specific details of that commitment are not provided. We are concerned that out-of-state utility management will not place sufficient emphasis on the local issues of providing high quality service and affordable rates to New Jersey customers. Although Atlantic City Electric Company’s parent is largely based in Delaware, there is still an issue concerning local service quality and rates when the parent company is moved even further away. Therefore, we recommend to the Board that New RC, Inc. should be required to maintain a corporate office in New Jersey, and that the corporate office should be maintained and staffed with high level decision makers knowledgeable in New Jersey affairs. Furthermore, Conectiv should be granted proportional representation on New RC’s Board of Directors.

We are of course concerned about what will happen to Conectiv’s New Jersey employees after a merger. The Petitioners have made numerous representations that Atlantic City Electric and Conectiv will maintain substantially the same employees as they have today and the merger will require few if any involuntary terminations. Therefore, we recommend that the merger be conditioned on no significant changes in New Jersey employees and employment levels.

Fifth, to ensure improved service reliability, we recommend that the Board approve a Reliability and Service Quality Index (SQI) as a condition of the merger in addition to the service guarantees proposed by Conectiv. Adoption of a SQI will prevent a system wide deterioration of service quality and reliability for New Jersey ratepayers following the merger. The SQI should impose firm baseline performance standards as well as system wide customer restitution payments for failure to maintain the performance standards.

Finally, we believe the Petitioners should offer a commitment to assist low income ratepayers and customers in financial need. Mindful that the BPU has recently voted to put in place an Interim Universal Service Fund proposal for this year, to be implemented for the winter of 2003, we have not seen a Board Order reflecting the details. We therefore recommend that the Board require New RC, Inc. to adopt as a condition of the merger a universal service program similar to the Customer Assistance Program, or CAP, implemented in Pennsylvania by GPU Energy and agreed to by FirstEnergy in its recent merger with GPU, Inc. That program provides eligible customers with a monthly subsidy and debt forgiveness. Under this program, an eligible customer’s bills are based on a certain percentage of household income for electric service. Low income customers should be automatically considered for participation in Conectiv’s existing payment assistance programs, as well as arrearage forgiveness programs by financial assistance agencies. Furthermore, the Board should require New RC, Inc. to explore and implement a heat-related moratorium on disconnection in severe summer weather for New Jersey customers. The Board should also require New RC, Inc. to explore and implement a low income aggregation program so that low income customers participating in universal service programs can obtain access to the lowest cost electric service.

In sum, the current proposal filed by the Petitioners does not clearly establish that this merger is in the public interest. We have, in the direct and surrebuttal testimonies of our consultants filed on September 21, 2001 and November 5, 2001, respectively, made various proposals that, if implemented, could bring positive benefits to New Jersey ratepayers, thereby making the proposed merger in the public interest. We ask the Board to order the Petitioners to implement these proposals as conditions of approval, so that the merger will be in the public interest and will benefit Conectiv’s New Jersey customers.

Thank you.

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