Today Conectiv posted its quarterly filing with the SEC. I am a layman in reading utility reports and diciphering them. The report can be found on Edgar on page A-52,53...deep in the report.

There are three facts that concern me:

1. They have only spent three million out of the budgeted fifteen million. The problem here is that that is the same amount they reported last quarter.

2. They have only completed 30% of remediation and testing for their power systems, and only 10% of their remediation and testing for their distribution systems. (BTW, they are almost done their billing systems.)

3. They announced that only 21 of 141 systems are critical to supplying their customers. Does the 30% percent number refer to the 21 critical systems or all of the 141 systems?

Conectiv covers S. New Jersey, Delaware, part of Maryland and Pennsylvania. I realize this report is written for investors and stockholders. Is the glass half empty or half full?

My take is that it has taken them over a year to spend only one fifth of their budget. How can I expect them to spend the rest in the remaining ten months?

The percentages are sobering. How can they complete the fixes and testing in the remaining time? Do these numbers also include embedded systems?

Should I move? :0)

Thanks, BB

-- Anonymous, February 26, 1999

Answers

BB, what SEC form are you looking at? A 10Q, 10K, or some other? And what is the filing date? When I did an Edgar search for Conectiv I didn't see a recent quarterly report. I'm interested to know exactly where you found the info, though. Thanks for any further specifics you can provide!

-- Anonymous, February 26, 1999

The report is dated 2-24-99. It is listed on the fourth line down and is labeled DEF 14A. The y2k info is buried deep in the report on page A52 and 53. Thanks. Hope this helps. BB

-- Anonymous, February 26, 1999

BB, thanks for the further info. The DEF14A is a Proxy Statement, not an actual quarterly statement, but it does state it is for fiscal year end 12/31/1998. This does make the information three months more recent than the last quarterly filing.

I've compared the Year 2000 part of this Proxy Statement with the earlier 10Q quarterly report. I'll try to address your questions/concerns in order and specify exactly what has changed in those three months.

1. You're certainly right that the amounts spent versus projected expenses have remained the same. These sentences were added to the costs paragraph since the earlier report:

"The costs set forth above do not include several significant expenditures covering new systems, such as Conectiv's SAP business, financial and human resources management system and an Energy Control System. While the introduction of these new systems effectively remediated Year 2000 problems in the systems they replaced, Conectiv has not previously reported the expenditures on these systems in its costs for the Year 2000 Project."

The impression I get from these extra sentences, however, is that the systems mentioned were introduced earlier and not necessarily in the last three months -- but the costs were not included in the three million spent. Obviously they were not included this time either, since there has been no change. (It does let stockholders know more details of what they've spent money on, but effects no change in the actual Y2K project reporting.)

2. The completion percentage of Inventory and Assessment during the three months stayed at 95% for Business Systems. In Power Production the I&A went from 90% to 95%. The same (90& to 95%) for Electricity Distribution.

Corrective Action (Remediation) completion percentages went from 70% to 85% for Business Systems. For Power Production it went from 0% to 30%. For Electricity Distribution it went from 5% to 10%.

Under Testing and Compliance, the Business Systems went from 60% to 65%. The Power Production went from 0% to 30% and the Electricity Distribution stayed at 5%.

It is not specifically mentioned that these estimates include embedded systems, but in the earlier quarterly report it did state:

"A project team, originally started in 1996 by ACE, is assisting line management in addressing the issue of computer programs and embedded systems.."

3. The paragraph which mentions "approximately 140 different systems (some with numerous components)...originally identified as high or medium in criticality" and "only 21 are essential" was not in the earlier 10Q filing. That paragraph continues with, "The Year 2000 Project team will be focusing on these 21 systems, with additional work on the other systems continuing based on their relative importance to Conectiv's business."

Now, in the earlier statement we find this about how they are prioritizing their work: "Each identified item is given a criticality rating of high, medium or low. Those items rated as high or medium are believed to put the company's business operations and customers at substantial risk and are then subject to the second phase of the project. The second phase is determining and implementing corrective action for the systems, equipment and processes, and concludes with a test of the unit being remediated. The third phase is system testing and compliance certification."

I may be wrong in my comparison of these two statements, but I think the implication is that the original "triage" has undergone further triage with even more focus on specific systems.

The 30% estimated remediation for Power Production which you asked about does include all of the 140 different systems. In the Proxy statement it says, "The following chart sets forth the current estimated completion percentage of the 140 different systems..."

If, as the 10Q stated, a Year 2000 project team was started in 1996, then it's taken at least two years, not one, for that $3 million to be spent, unless they are not counting what ACE did or spent before it became Conectiv on March 1, 1998.

One statement which remained exactly the same for both the earlier 10Q and the recent Proxy form is this:

"Since the project team is still in the process of assessing and correcting impacted systems, equipment and processes, Conectiv cannot with certainty determine whether the Year 2000 issue might cause disruptions to its operations and have impacts on related costs and revenues."

You asked if the glass is half empty or half full. Since Conectiv stated that those 140 systems were originally identified as being of high or medium priority, and the earlier statement said that, "Those items rated as high or medium are believed to put the company's business operations and customers at substantial risk..", I'm not sure the glass is up to half full in the first place. It's also not pleasant to know that Conectiv could not say they were done with the Assessment phase for any of their system areas.

I think you already know that Conectiv's status is not an optimistic one. I can tell you that I have seen other utility's Year 2000 statements which were quite a bit better, but there are also others on the same approximate level as Conectiv. I know you put a big smile to your question about moving, and you undoubtedly realize that's not a decision anyone but yourself should make to begin with. The only advice I'd give you would be to make preparations for a possible power outage, wherever you live. I personally think it's a wise and common sense precaution to take. Conectiv's stated progress is certainly not very encouraging - I had hoped for better. All best wishes to you!

-- Anonymous, February 26, 1999

Am I gonna get billed for that analysis? ...I should...thanks BC.

You are quite right that I am not optimistic. I am the y2k action leader for Cape May County and find myself in the position of having to be involved in making the media aware of reports like this. The Conectiv spokesperson, Ms. Kennedy, continually counters the facts with optimistic forecasts. In a county of 85k in the winter, we only have 30 that come to our meeting. The word in public is that utility problems will be no worse than a bad storm. You have taken the FEW facts they shared and confirmed my suspicion that their progress is unacceptable and does encourage preparations.

A question. The 30% they reported under 'action taken' is as you have stated, work done on all 140 systems. It would have been a little more impressive if the 30% was directed only on the 21 critical systems. Correct?

Rumor has it that Conectiv was not aware of the embedded chip problem until October of 1998. That is hard to believe, but their Nov. 10Q I think proves that point. So, the possible good news is that they accomplished the 30% in the three months after they heard of the EC problem. June's report should tell the story.

I have a generator, fuel etc. but most here are unconcerned.

Do you analyze portfolios? :~)

BB

-- Anonymous, February 26, 1999

BB, it's really impossible to tell if the progress that was reported as being for the 140 systems was indeed representative of work done on all those systems. If, as they stated, they are concentrating basically on just the "essential" 21 systems, then a higher percentage of progress in those 21 would not appear as great in the overall 140 percentage. I would think, however, that if very good progress was being made in those essential systems, that the company would have chosen to make mention of that and not lump them in with the rest. It would seemingly be in their best interest to report substantial progress in essential systems, even if they did categorize the 140 as having a "substantial risk" to business operations and customers.

There's only so much which can be extrapolated from these reports, unfortunately, and some things we just can't know for sure. And as for my analyzing portfolios, if I had a crystal ball I might try it. *laughing* The only economic statement I'd make is to say that the histories I've read show the global economy and various banking indicators at this point in time have a lot of similarities to the situation in the late 1920's -- and that's regardless of Y2K. I've always found that studying history is a pretty good way to learn about a lot of things!

Good luck with your community awareness work. After months of basically ignoring Y2K (and citizen inquiries), our town's Mayor and Council members finally met with reps from the two local utilities. Less than two weeks later they announced they were going to be coordinating with the college, other schools, the Red Cross, etc. to organize emergency heated shelters for the community. So you never know what might happen if you keep trying!

-- Anonymous, February 27, 1999