ML18078B029

Annual Rept 1978

ML18078B029
Person / Time
Site:	Salem
Issue date:	12/31/1978
From:	PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC
To:
Shared Package
ML18078B026	List: ML18078B025 ML18078B027 ML18078B028 ML18078B029 ML19282B822
References
NUDOCS 7903160232
Download: ML18078B029 (36)

Text

L..r' _____

ANNUAL REPORT 1978 7 90 3 16 OA3~ J

r LOOKING TO THE FUTURE Philadelphia Electric Company will celebrate its lOOth anniversary in 1981 with pride in its record as a reliable veteran and confidence in its still youthful ability to meet the future.

Congratulations are already in order for the first class performance shown this year by PE's most modern production units, the nuclear power station at Peach Bottom. Other indications of the Company's farsighted planning and purpose are its work with solar energy in space and water heating and its concern for the development of electric vehicles -

private automobiles and mass transit vehicles -

that will be both commercially viable and energy efficient. PE's readiness for new uses for electric power is by now taken for granted.

Every day a new entertainment device, a new computer, a new medical machine or a new industrial process is plugged into our system with faith in the Company's ability to provide it with the power it needs to make it go.

An almost fully electric world lies ahead of us.

Philadelphia Electric is on the job helping it to come into being even while it continues to protect our present world from the chill of winter, the heat of summer and the darkness of night.

Toda u 's electric reh icles: ready to roll i Ap11roachi11a the future with an enerm;-liternte population.

Limerick Genernting Station*.~ nuclea1* mzils under construction: A 11ower source to bridae the aap bet1cee11 the fossil.fuels of today and the ;!Isl Century.

Marriaae u*ith a future: so /ar-a.~s is t ed heal pump.

FINANCIAL HIGHLIGHTS WHERE THE INCOME DOLLAR CAME FROM C'O~TENTS RETURN TO REACTOR DOCKET FILES Operating Revenue..........

Operating Expenses.........

Operating Income...........

Earnings for Common Stock Earnings per Common Share.

Cash Dividends Paid per Common Share...........

Average Common Shares Outstanding..............

Construction Expenditures...

Total Assets................

Operating Revenues:.................... 96¢ Electric.......................... 80¢ Gas.............................. 13¢ Steam............................ 3¢ Other Income.......................... H 1978

$1,456,758,000

$1,215,110,000

$ 241,648,000

$ 141,349,000

$1.87

$1.80 75,391,000

$ 411,716,000

$4,850,625,000 WHERE THE INCOME DOLLAR WENT 1977 Percent Change

$1,394, 762,000 4.4%

$1,172,599,000 3.6%

$ 222,163,000 8.8%

$ 132,734,000 6.5%

$1.87

$1.76 2.3%

70,844,000 6.5%

$ 399,112,000 3.2%

$4,54 7,997,000 6.7%

Compensation to Investors for Use of Their Funds............ 20¢ Interest........................ 8¢ Preferred Stock Dividends...... 3¢ Common Dividends............. 9¢ Fuel.............................. 37¢ Taxes............................ 13¢ Materials, etc...................... 9¢ Depreciation....................... 8¢ Other............................. 1¢ Wages & Benefits................. 12¢ TO RE

• CTOR on C ET 1

3 4

5 6

9 9

FU.ES Financial Highlights Letter to Shareholders Elect1;c Rate Case Customer Growth & Reserve Capacity Ice Storm Nuclear Performance Gas Operations 10 11 13 15 18 22 27 Customer Affairs Business Outlook Management Changes Financial Section Financial Statements Notes to Financial Statements Report of Auditors 1

Limerick Generating Station.

TO OUR SHAREHOLDERS 1978 turned out to be a little better than we thought it would. Our significant accomplishments during the year were that we:

• Earned $1.87 per share.

• Received final approval for an electric rate increase of $78.9 million.

• Paid $1.80 per share in dividends.

• Continued to deliver electric service with a 99.99% reliability.

• Spent $412 million on construction.

• Operated our nuclear units at Peach Bottom at better than 75% capacity factor, a near record performance for the industry.

• Rescheduled the service dates for the two Limerick nuclear units from 1983-1985 to 1985-1987 which enabled us to reduce construction expenditures by $250 million for the years 1979-1981.

• Held expenses to a 3.6% increase through continued tight cost controls, while revenue increased 4.4%.

• Realigned top management.

• Held two regional shareholder information meetings in addition to our annual meeting.

• Reduced Company employment by 311 to 9416 people principally through an early retirement program.

• Received about 4% more natural gas from our pipeline suppliers.

• Began to receive gas from our own wells in the gu If states as a result of our exploration program.

• Reopened gas sales to residential customers and made plans to reopen them to commercial and industrial customers in 1979.

• Generated and transmitted substantial amounts of power to utilities hard hit by a national coal miners' strike.

• Recovered quickly from massive outages caused by a major ice storm and dispatched crews to assist in storm restoration on Long Island, New York.

A most important reason for our progress in 1978 was the performance of our people. They continue to be our greatest asset.

The rest of this report describes in more detail our activities during the year, what we were up against, and how we responded.

We are gratefu I for the support and confidence of our shareholders, and we look forward to the future with confidence.

February 26, 1979 Chairman of the Board Executive Vice President President and Chief Executive Officer

The year 1978 was a year of progress for the Com-pany. Rate increases necessary to recover higher costs, to improve earnings and to continue attracting new capital were obtained. Cost control programs were successfully continued and financing needs were met. Planning and construction to meet future needs continued.

In 1978 PE's basic strengths withstood the impact of a sluggish local economy, continuing inflation, high interest rates and regulatory delay in granting a vitally needed rate increase. Despite these mount-ing difficulties, the Company was able to earn $1.87 per share in 1978, the same as the previous year although average shares outstanding increased by 6.5 percent.

Earnings During the second half of the year, 12 months earnings per share were reported at levels below the dividend rate. This was due to delay in the rate relief to reflect the investment cost of the Salem No.

1 nuclear generating unit even though the unit was in operation. The Pennsylvania Public Utility Com-mission (PUC) rendered its final decision on December 28, 1978 on the $116 million electric rate request, originally filed in August 1977. The Com-pany was granted an increase of $78.9 million per year to cover the capital and operating costs of Salem and other cost increases. The increase is ret-roactive to July 4, 1978, and will be billed during 1979. Financial results for calendar year 1978 include the estimated retroactive effects of the PUC's final order and are subject to possible change since the PUC order, entered February 5, 1979, is subject to appeal.

The $78.9 million rate increase is offset by the fuel savings from Salem No. 1, estimated to approach $55 million per year, which are automati-cally passed on to customers through lower fuel adjustment charges.

PE achieved total earnings of $141 million in 1978, highest in the Company's 97-year history and 6.5 percent over 1977. Several important factors contributed to the results:

4

• The electric rate order added $21 million to 1978 earnings.

• During the first quarter of 1978, sales to other utilities during the coal strike aided earnings by

$8 million.

• The new electric Energy Clause, which became effective July 1, has had a beneficial effect on earnings by recovering the actual cost of all fuels, including nuclear fuel and interchange energy.

• Earnings were penalized in the first half of the year by approximately 26<r per share as a result of the Salem unit being in service but not in the rate base. However, the recent rate increase corrected this situation for the second half of the year.

• Operating expenses were up only 3.6 percent over 1977 due mainly to higher electric output, higher gas fuel costs and increased depre-ciation, which were offset by the savings from increased nuclear generation. The Peach Bottom nuclear plant achieved a more than 75 percent capacity factor -

a good performance in the industry.

The dividend was increased in mid-1977 and a full $1.80 dividend was paid in 1978. PE has paid its regular common stock dividend since 1902.

Forty-one percent of dividends paid on common stock during 1978 represents a return of capital for federal income tax purposes, and, therefore, is not taxable as ordinary dividend income.

In 1978, operating revenue was $1.5 billion or 4.4 percent over the previous year due to higher elec-tric, gas and steam sales and rate increases. Elec-tric sales were one percent higher than last year and gas sales were up one percent. This sluggish growth is indicative of the economic problems of the region.

The Company is adjusting to a slower growth rate by reducing its construction program and gearing operations to these reduced levels, while at the same time, an area development program is working to hold existing customers and to attract new business to the area.

Electric Rate Case Management continues to have as an objective the establishment of prices for Company utility services that are equitable both to the rate payers and the shareholders. The Company will continue to employ all cost cutting efficiencies as long as they do not result in a reduction in the service reliability our customers desire and expect. Such policies should enable the Company to keep the price of its product at levels that are reasonable when compared to alternative energy sources and to general inflation, and will also earn a fair return for shareholders on their investment.

To secure such a return, on August 5, 1977 the Company filed for a $116 million electric rate increase to provide for the cost associated with the

$600 million of additional plant installed since the completion of prior rate proceedings, and also to reimburse the Company for the inflationary increases in other expense categories.

The PUC granted an interim $12 million increase which became effective on March 3, 1978, but the

remainder of the $116 million request was sus-pended to July 4, 1978, the maximum suspension period allowed under the Law.

Hearings were concluded during June 1978, and the Administrative Law Judge in mid-November issued a recommendation for a $73 million increase.

The Company, in its exceptions to that proposed order, argued that the total increase was required to guarantee the future quality of service and that allowable 1977 expenses should not be denied by "after the fact" judgments.

On December 28, 1978 the PUC came to a final decision which granted a $78.9 million increase retroactive to July 4, 1978.

Customer Growth and Reserve Capacity In the late 60's, because of rapid load growth, the fear of "blackouts" was prevalent. Long lead times were needed to plan and build nuclear units which were the most economic source of energy available.

Capacity planning to meet this anticipated load growth was prudently initiated, and in fact was encouraged by the Public Utility Commission in 1968. The Commission told the industry at that time to plan for a 10 percent per year load growth. How-ever, the Company could not justify this high rate of growth and planned on the basis of approximately a 7 percent increase in yearly peak.

To meet this expected growth in customers' usage of electricity, the Company embarked on the largest expansion program in its history. From 1970 to 1978, $2 billion was invested in new facilities which more than doubled plant investment.

The oil embargo of 1973-74 caused a significant and unpredicted change in world-wide economic growth and demand for energy which immediately affected customers' usage. As fuel prices soared, electric bills increased rapidly and customer conser-vation also became significant. As early as 1974 the Company realized that the lower load growth being experienced was not temporary in nature and the capacity planned would not be needed when origi-nally scheduled. However, the high cost of oil made it economic to complete construction of the Peach Bottom and Salem nuclear units. The two Peach Bottom units went into service in 1974 and the first Salem unit in 1977. The second unit is scheduled for completion in 1979. Long range plans to build two nuclear units at Fulton were cancelled.

The availability of nuclear capacity has many advantages for customers. It produces substantial fuel cost savings and reduces dependence on imported oil. Today, the Company has the ability to serve existing customers with greater reliability and has the ability to accommodate new customer growth without concern for blackouts or brownouts.

The continued sluggish growth in the economy of the eastern seaboard and conservation by customers has caused the Company to reduce the estimated rate of growth of electric kilowatt-hour sales and of kilowatt peak load to about 3 percent annually. Due to the reduced growth rate, the two Limerick nuclear generating units have been rescheduled to go in service in 1985 and 1987. The rescheduling of Limerick enabled the Company to reduce total construction expenditures for the next three years (1979-1981) from $1.65 billion to $1.40 billion, a reduction of $250 million. At the end of 1978, the Limerick Station was approximately 42 percent complete.

In 1978, $412 million was spent on the Company's construction program. Although expenditures for nuclear generating capacity accounted for about two-thirds of the construction dollar, the Company continues to provide additions and improvements to the transmission and distribution systems. The Company is dedicated, as in the past, to provide its customers with quality service at a high level of reliability.

The construction program also includes expend-itures for uranium and gas exploration. Future sources of energy have been strengthened this year as the Company obtained uranium commitments to supply its nuclear units into the early 1990's. In addition, gas supplies have become more plentiful.

Coal Strike The impact of the national strike by coal miners during the opening three months of 1978 was borne largely by the Company's Electric Production Department and the Purchasing and General Ser-vices Department. Coal supplies for the Eddystone Units 1 and 2 and Cromby Unit 1 had been stock-piled through the autumn in anticipation of the miners' strike. When the threat became reality the Company had a stockpile good for 100 days of coal-fired generation for the three units.

The availability of nuclear units at Peach Bottom and Salem, and the operation of oil-fired units, enabled the Company to operate during the coal strike without curtailments.

As the strike went on, Philadelphia Electric, normally a purchaser of economic coal-fired power from the Pennsylvania-New Jersey-Maryland Inter-connection (PJM), supplied energy to the Intercon-nection. On January 10, with coal piles frozen solid on neighboring power systems, PE and PJM both set new winter peaks on a day of 50 MPH winds and near zero temperatures. PE's participation in 5

PE's diversified power generation as.~isted other utilities con-fronted with strike emptied coal cars.

6 the PJM Interconnection and PJM's contributions in transferring power to other systems hard-hit by the coal strike are credited with helping avert indus-trial shutdowns and large scale layoffs in areas normally dependent upon coal-fired electricity.

During the coal strike, yeoman duty was per-formed by the Peach Bottom nuclear units. Unit No.

3 had been scheduled for refueling early in March, but the demands for power made by the coal strike delayed the shutdown. Both Peach Bottom units stayed on through the duration of the strike, hus-banding available coal supplies and averting the need for hundreds of thousands of barrels of imported low sulphur oil that would have been needed to avert strike-caused power outages.

Nuclear power proved itself again. Without it, the early months of 1978 might have been a grim time for the Northeast.

Ice Storm The ice storm that struck Southeastern Pennsyl-vania on the weekend of January 13-15, 1978 caused service interruptions to more than 180,000 PE customers. Twenty years had passed since "Snow-drop" -

the wet, clinging snow of March 1958 -

which caused massive, extended power outages.

Although many emergency situations had occurred in the past two decades, the limited damage of the 1978 storm was a demonstration of the effectiveness of the Company's distribution line reinforcement work.

With many scattered outages reported, the crisis quickly became a question of manpower allo-cation. Twenty-two hundred operating employees were on duty, working sixteen hour schedules. With travel hampered by the icy road conditions, our employees were spending as much time clearing roads of fallen limbs as they did actually restoring power. On January 15, neighboring utilities sent 24 crews to augment our field forces. By Monday, January 16, virtually all service was restored.

The same storm had caused near disaster condi-tions on Long Island, New York. On January 16, Philadelphia Electric was able to send 35 crews with 100 linemen to aid Long Island Lighting Company restore service to its customers.

Winter didn't end with the ice storm of mid-J anuary. Blizzard conditions came later in the month without causing any major outages, but the number of underground cable failures rose rapidly. Frozen ground, and unusually large accumulations of water in underground equipment enclosures, hampered restoration work on the underground circuits. Adding to the difficulty of

underground restoration was the problem of locating manhole covers under deep snow and heavy ice. The storm demonstrated how swiftly the Com-pany was able to respond, despite severe weather conditions, to restore service to customers.

On January 10, 1978, the near zero temperatures had a significant impact on electric and gas use. A new winter electric system peak of 4,627,000 kilo-watts was set, and on the same date, gas sendout was 404 million cubic feet, the Company's third highest on record.

Susquehanna Ice Jam Throughout February and March, some measure of the Company's attention was directed to watching winter developments on the Lower Susquehanna River. Fourteen miles above the Company's Cono-wingo Dam, and in between the hydroelectric dams of two neighboring utilities, an ice jam formed and grew. Reaching ten miles in length and as deep as 45 feet, the ice threatened not only the Conowingo Dam but also the transmission towers in mid-river linking the Muddy Run Pumped Storage Plant to the PE system. For two months the ice buildup was monitored around the clock and preparations were made so that if the boxcar-sized pieces of ice began moving, the PE transmission lines would be brought down without disrupting the transmission network. Loss of the Jines could have meant a shut-down of Muddy Run for as long as six months. In late March the suspense broke as a benign and gradual thaw sent the ice down river without dam-age to the PE towers or dam.

PE linemen, along with other field and s11pporl personnel. succes.~fu lly f ought last 1l'i11ter"s serere ice storm and then boarded trucks lo help 16th restoration 011 storm-struck Long fa/and.

7

Nuclear Performance The role of nuclear power during the coal strike and throughout 1978 illustrated beyond any reason-able doubt the wisdom of the Company's long jour-ney into nuclear technology.

For nuclear power and for Philadelphia Electric Company the results of 1978 are in, and they are conclusive. The fuel savings to PE customers since the 1974 service dates of the two Peach Bottom nuclear units now exceed $415 million. The PE share of the capital cost of the plant was $346 mil-lion. Nuclear generation fights inflation by reducing the use of higher priced fossil fuels. These facts satisfy the promises made for nuclear power many years ago.

The Company's operations at Peach Bottom set another enviable mark in 1978. These two units achieved 75.3 percent of maximum possible output for the year.

"This record is consistent with our belief that as we gained operating and maintenance experience, Peach Bottom would realize its expected capacity factors," said Shields L. Daltroff, Vice President, Electric Production.

Moreover, both units were shut down during the year for refueling. The refueling of the two Peach Bottom units was completed in 50 and 40 days respectively, although the national average time required is more than 80 days.

With a complete year of the Salem nuclear unit No. 1 in service and full capacity operations at Peach Bottom, the Company's nuclear generation reached 26 percent of output during 1978. Public Service Electric and Gas of New Jersey expects the second Salem unit to come on line this year. The Company's share in the new No. 2 unit is 42 percent.

During 1978, additional supplies of uranium were placed under contract. Philadelphia Electric now has its full nuclear fuel requirements under firm contract into the early 1990's.

Gas Operations For Gas Operations, 1978 marked the turnaround in a six-year pattern of zero to negative sales growths. Declining gas supply forecasts in 1972 had led the Pennsylvania Public Utility Commission to order a ban on new or additional gas sales. How-ever, the PUC rules did permit the one-to-one re-placement of residential gas customers lost through demolitions or abandonments.With improve-ments in gas supplies, the Company notified the PUC in April 1978 of its intention to replace the 6,000 residential gas customers lost through demolition and abandonment since 1972. Gas supply forecasts have subsequently improved to the point that the Company in January of 1979 asked the Commission to approve the resumption of gas sales to new customers of all classes.

In addition to favorable forecasts from the pipe-line suppliers of natural gas, the Company's partici-pation in joint venture drilling in the Southwest has Concern with obtaining sufficient natural gas supplies resulted in Compa1111 participation in succe.~sfu l drilling 1'entures.

9

Installations for first new gas customers since 1972 PUC prohibition.

Customer communication is a multi-! aceted activity.

Automated equipment facilitates the handling of more than two million telephone calls annually from our customers.

10 resulted in deliveries of approximately one million cubic feet of natural gas per day. Gas Operations' first joint venture drilling in the Appalachians in Randolph County, West Virginia, began in December, 1978 with the promise of more wells to be drilled in that area. Through 1978 the Company has participated in the drilling of 144 natural gas wells. The record to date is 42 productive wells, 102 dry holes, and 20 drillings still in progress. The ratio of successful wells to dry holes is considered about normal in the gas production industry.

Increased underground storage capacities and the daily delivery of nine million cubic feet of refinery gas from the Sun Oil Company also added to the Company's ability to handle new gas sales.

Customer Affairs and Conservation Conservation was the subject of more than 200 talks given by the Speakers' Bureau during 1978, and more than 50,000 booklets containing conserva-tion hints were distributed to customers on request.

In addition, approximately four million bill enclo-sures on energy conservation were mailed with cus-tomers' monthly bills. These enclosures provide useful information to customers on the efficient use of energy.

Throughout the year, Corporate Communications Department coordinated PE participation in a number of community projects concerned with energy problems and the effect of conservation.

Energy Education Week was celebrated with spe-cial presentations and exhibits throughout the PE service area. Similar activity saluted Sun Week and Save Energy Day. More than 33 energy workshops were conducted for about 800 area teachers, and a series of Youth Debates on Energy was sponsored.

Commercial Operations held seminars for appliance dealers, realtors, heating and air condi-tioning contractors, in addition to an annual seminar for builders and architects -

all of which stressed the use of energy-efficient equipment and the value of proper insulation in buildings.

Customers Service Many years ago, the Company was a pioneer in the development of a Customers Service Depart-ment designed to offer a sympathetic ear to cus-tomer inquiries regarding service, billing problems and other matters. Thousands of letters have been received commending departmental representatives

for their consideration and helpfulness. The Com-pany is proud of its fine reputation in this depart-ment and intends to maintain it.

Representatives of the department are given a thorough, thirteen-week training program that includes proper telephone technique and the obtain-ing and appropriate use of information from cus-tomers' files. After training, the employees have a firm knowledge of their role, and the ability to determine quickly each customer's problem and its solution.

To facilitate the answering of inquiries, an elec-tronic telephone monitoring system was introduced.

Its most useful function is to permit forecasting of manpower requirements, so management can act in advance rather than react to changing traffic patterns.

A Brightening Business Outlook Major portents of economic growth are clearly visible in the developments now moving forward in the City of Philadelphia. In 1978, work began on the center city tunnel that will link the commuter lines of the former Penn Central and Reading railroads.

This project will not only expedite commuter travel and ease automobile traffic, but attract more shoppers to its downtown areas, such as the Gallery, center city's super-shopping center.

Important elements of Franklin Town, "A City Within a City," are under construction. These include the new Franklin Plaza Convention Hotel and a new office building for the world headquar-ters of SmithKline Corporation and other tenants.

Renaissance of Penn's Landing on the Delaware River continues; additional meeting rooms and exhibit areas have been added to the Civic Center; the old Bellevue-Stratford Hotel is being refur-bished to reopen as the Fairmont; construction has begun for a high-speed rail line to connect center city and the railroads with Philadelphia Interna-tional Airport; and the establishment of a free-trade zone is about to reach fruition.

Indications of renewed economic growth are also evident in the suburban counties adjoining the City of Philadelphia. The Company's Area Development Department participated in commercial and indus-trial development projects which involved 12,500 jobs within our suburban service area. A total of 97 suburban industrial parks are supplied by Company lines.

Penn's Landing sparks Delaware rive1jront development and becomes major Philadelphia tourist attraction.

Huge Prndential business complex typifies exploding commercial development in PE's suburban service area.

Franklin Plaza complex is under construction in central Philadelphia.

11

Other Regulatory Items Company interaction with regulatory agencies was not restricted to rate filings. Both the gas and the electric fuel adjustment charges were modern-ized and improved during the year. Public Utility Commission approval was received to implement an Electric Energy Charge that is based on the actual cost of all fuels including nuclear fuel and inter-Skilled work force and modern equipment make possible "same dau" procp.~si11 g and deposit of customers' pa11menls.

12 change energy. The new Gas Cost Rate will reflect the annual cost of gas to the Company, and will remain constant over a twelve month period, thus avoiding the month-to-month fluctuations that appeared on gas bills previously. Both the electric and gas clauses have a built-in feature which will insure that the Company will neither overcollect nor undercollect actual costs.

The contradictory government policies on envi-ronmental conditions and coal utilization became apparent in November when the Federal Environ-mental Protection Agency (EPA) issued a notice of violation for the Company's coal-fired generating units at the Eddystone and Cromby Stations. The Federal Clean Air Act amendments of 1977 limited the duration of an EPA consent order that permit-ted operation of the plants while the Company was constructing and testing an innovative and techni-cally complex pollution control system. The EPA concluded that the consent order expired in August 1978. Whereas, PE contended that it extended to July 1, 1979. Unable to reach agreement and unwill-ing to operate in violation of the law, the Company shut the units down on December 16.

Court action by the Company was successful in establishing the July 1, 1979 deadline and in bring-ing the coal-fired units back on line within two weeks. The Company is continuing negotiations with EPA on a new consent decree which would extend the operation of the units beyond July 1, 1979 until the new pollution control system is operative. But unresolved is the obvious conflict and confusion between EPA air standards and a Federal energy policy that calls for increasing coal-fired electric generation. Over 300 million gallons of low sulphur oil would be needed annually to replace the coal used at Eddystone and Cromby. The Company has already spent $32 million on a magnesium oxide scrubber system, and is committed to an additional

$120 million on the Eddystone project, depending on successful conclusion of the testing program. Other-wise, an alternate scrubber technology will be considered.

Regional Shareholder Meetings On an experimental basis, management held two regional meetings for shareholders in September, which were attended by more than 1,000 owners of PE stock. Quite informal, the sessions were regarded as highly successful, with questions cover-ing virtually all phases of Company operations.

Management found the meetings to be useful exten-

sions of the annual shareholders' meeting and looks forward to a continuation of this activity during 1979.

Management Changes Company management underwent changes in 1978. While the Chairmanship was retained by Robert F. Gilkeson, the title of Chief Executive Officer passed to President J. L. Everett.

John H. Austin, Jr., was elected Executive Vice President and was succeeded by Joseph F. Paquette, Jr., as Vice President of Finance and Accounting.

John L. Hankins, Vice President, Electric Pro-duction retired after nearly 39 years of service, and was succeeded by Shields L. Daltroff.

With the retirement of T. S. Fetter as Secretary of the Company, Lucy S. Binder was elected Secre-tary. Alfred M. Newill retired as Assistant Treas-urer. William M. Lennox and J. Robert Causton were elected Assistant Treasurers during 1978.

Employees A personnel program attracting wide attention is the "employee assistance program." The program, developed by the Company's medical department in 1971, provides counseling on a confidential basis for employees with alcoholism, drug abuse or other problems. The program has been particularly suc-cessful in reaching employees with alcohol abuse problems and the current recovery rate after in-patient treatment is almost 90 percent. In 1978, 43 employees received in-patient treatment for alco-holism at local rehabilitation centers bringing the total of those who had in-patient treatment to 167 since 1971. The dollar savings to the Company in reducing lost time and increasing productivity and other factors is approximately $900,000 per year, but the real success of the program lies in keeping many long-term, well-trained employees who might otherwise be lost to the Company. Philadelphia Electric Company is one of the pioneers in establish-ing an effective program which has been set up as a "model" by many other corporations.

The initial phase of an in-depth development pro-gram for management/supervisory employees was completed in 1978. Since May 1976, 1,830 members of the Company's management team have under-gone training to improve and upgrade managerial skills. The second phase of the program has already begun, and the exposure to new concepts of manage-ment will encourage fresh approaches to job per-formance by supervisory employees.

While not a part of any wage or benefit package, the training and equipment of PE employees is designed to assist every employee to do the best pos-sible job under the best and safest possible conditions.

PE expands the use of "hot stick " techniques lo pe1:fon11 lire line H'ork on.'34.000 110/t distribution circuits.

13

PE celebrates anniversaries for two stations in 1978 1978 was the Golden Anniversary for Conowingo Hydroelectric Plant located on the lower Susquehanna River at Conowingo, Maryland. On March 1, 1928, Conowingo was placed in operation with the delivery of power at 220,000 volts to Plymouth Meeting Substation. The 252,000 kilowatt capacity of the station was increased to 512,000 kilowatts in 1964. In 1978 the dam was also upgraded structurally to present day design standards through a post-tension anchoring process that ran 538 steel tendon cables 70 feet into the foundation rock of the dam.

In September, more than 1,100 guests helped celebrate the 75th Anniversary of the Company's Schuylkill Generating Station located on the Schuyl-kill River in South Philadelphia. Throughout these years, the equipment and facilities at the station have been continually rebuilt and modernized. At Schuylkill Station, Philadelphia Electric Company has been utilizing "cogeneration" since 1950. Today "cogeneration" is a popular word among energy experts, and means using the waste heat in exhaust steam from electric turbine generators for other purposes. At Schuylkill, steam created to drive tur-bine generators has been fed into the Company's center city steam heating system for over 25 years.

14

Financial Section 1978 FINANC ING PROGRAM Inte rn a lly ge ne rated fund s provided about 47 pe rcent of our 1978 constl'uction expenditures of

$412 million wit h the bala nce su pplied by exte rnal financin g sources.

Our 1978 fina ncing program con sist ed of the sale of Bonds, Preferred Stock, Ba nk Notes, and Com-mon Stock through the Divide nd Reinvest ment and Employee Stock Purchase Pl a n s.

In March 1978, $100 million of First a nd Refund-ing Mortgage Bond s due 2008 were sold with a co upon rate of 91/s percent. In May, 500,000 shares of$100 par value 8.75 percent Preferred Stock were sold privately to institutional investors.

In 1978, arrangements we re completed to borrow

$100 million by use of7 year te rm bank loans. Under this arrangement, $50 million of Bank Notes were iss ued with the remaining $50 million available for use in 1979.

A public sale of additional shares of common stock originally planned for th e Fall of 1978 was postponed to 1979 due to the uncertainties caused by the delay in receiving a final order on our electri c rate case.

During 1978, a total of 1.9 million shares of Com-mon Stock were issued for $33 million through our Di vide nd R e investm e nt and Emp loyee Stock Purchase Plans. Of these shares 1.4 million shares we re bought by th e 35,600 share holders that pa r-ticipate in our Divide nd Reinvestm ent and Stock Purchase Plan. The plan expe ri e nced a 35 pe rcent increase in participation durin g th e year wh ich de monstrates a strnng ex pression of co nfid ence in the future of t he Co mpany. Over 215,000 s hares we re sold to e mployee sha reh olders through th e Employee Stock Purchase Plan, wh ich enables e mployees t o purchase stock at market prices. A total of239,000 shares were iss ued at ma rket pri ce~

for th e individual acco unt s of participatin g e mployees unde r the Company's Tax Red uction Act Stock Ownership Plan (TRASOP).

1979 FINANCING PROGRAM Construction s pe nding, includ ing the acqu is ition of nuclear fu el, is ex pected t o be $412 million in 1979, the same as 1978. Our prelimina ry fin a ncing plans for 1979 co nsist of the public sale of 4 million shares of Common Stock and the sale of $100 mil lion in debt. The remainde r ofour needs will be provided by internal sources, t e rm bank loan s, and th e Dividend Reinvestme nt a nd Employee Stock Pur-chase Plans.

Total Spending Millions of Dollars Construction Spending and Sources of Financing

$500

$400

$300

$200

$100 1973 1974 1975 Funds provided from:

D New financings 1976 1977 Internal Sources 1978 1979 Estimated Despite inflation, the Compa ny's constrnction ex penditures have been 1*educed from $500 million in 1973 to $412 million in 1978. Internal sources of constrnction funds, which a re prima rily depreciation, deferred taxes and investment tax c1*ed its, have increased from $94 mi llion in 1973 to apprnxi mately $200 mi llion. The increase in internal funds e nables the Company to reduce new finan cings which holds down our carrying* cha rges and prnvides our custome rs with facilities at a lower cost.

Our ability to finance abo ut 50 pe rcent of construction expenditures from internal sources demonstrates the strong*

financ ial position of Philadelphia Electric Company.

15

MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED STATEMENTS OF INCOME Common Stock Earnings Earnings for Common Stock increased from $126 million in 1976 to $133 million in 1977 and to $141 million in 1978. Because of the sale of additional shares of common stock, the average number of shares outstanding increased by 8 percent in 1977 and 6.5 percent in 1978. Earnings per share de-creased from $1.91 in 1976 to $1.87 in 1977 and re-mained at $1.87 in 1978.

In 1977, earnings were penalized by approxi-mately 20" per share as a result of the Salem Unit 1 being placed in service on June 30, 1977, with the resultant discontinuance of Allowance for Funds Used During Construction (AFUDC) and the ac-crual of related depreciation charges, while the unit was not reflected in rate base. A non-recuning revenue increase from the conversion of residential and small commercial customers from bi-monthly to monthly meter reading and billing added 11" per share to 1977 earnings.

Energy sales to other utilities during the coal strike in the first quarter added approximate ly 11" per share to 1978 earnings. Our 1978 earnings were reduced by appl'Oximately 26" per share as a result of Salem Unit 1 being in service but not in rate base until July 4, 1978. The 1978 earnings reflect approx-imately 28" per share as a result of the retroactive application of the electric rate increase and changes in accounting practices to conform with the rate making pl'Ocess used by the Pennsylvania Public Utility Commission (PUC) in its order adopted December 28, 1978 and entered February 5, 1979. The order is subject to appeal until March 7, 1979. In addition, earnings increased 6" per share as a result of the $12 million electric rate increase which became effective in March 1978.

Operating Revenue Electric-Electric operating revenue increases of $152.9 million in 1977 over 1976 and $46. 7 million in 1978 over 1977 principally reflect higher rates.

Included in the 1978 revenues is $34.6 million of recoupment i*evenue which the Company is author-ized to collect as a result of the PUC rate decision on December 28, 1978, allowing an annual electric rate increase of $78.9 million, which was retroac-tive to July 4, 1978.

Sales of electricity excluding the effect in 1977 of a change from bi-monthly to monthly meter read-ing and billing, increased 2.2 percent in 1977 over 1976, and 2.0 percent in 1978 over 1977.

Gas-Gas operating revenue increases of $16.0 16 million in 1977 over 1976 and $14.7 million in 1978 over 1977 principally reflect the recovery of higher fuel costs. Sales of gas, excluding the effect in 1977 of a change from bi-monthly to monthly meter read-ing and billing, decreased 2. 7 percent in 1977 as compared with 1976 due to curtailments by the Company's pipeline suppliers, but increased 4.3 percent in 1978 over 1977 due to increased sales to large industrial and commercial customers.

Fuel and Energy Interchange Expense Fuel and energy interchange expense decreased

$1.4 million in 1978 from 1977 as nuclear generation increased significantly which replaced higher priced interchange purchases. The higher nuclear generation is the result of improved performance in nuclear units and the addition of Salem Un it 1 in 1977. In 1977 an increase of $94.6 million over 1976 was due to higher fuel prices and decreased coal generation.

Other Operation and Maintenance Expenses Other operation and maintenance expenses have increased in 1978 and 1977 due to gl'Owth in utility plant and inflationary pressures. Operation and maintenance expenses have increased in each period due to Salem Unit 1 being placed in comme r-cial operation on June 30, 1977.

Depreciation Increases in depreciation in 1978 and 1977 reflect major additions to new plant in service. Beginning July 1, 1977, depreciation charges increased by ap-proximately $950,000 per month as a result of Salem Unit 1 being placed in commercial operation on June 30, 1977.

Taxes on Income The Company's total income tax obligation (Fed-eral and state) was $73 million for 1978 and $72 million for 1977. Of this obligation, $61 million in 1978 and $57 million in 1977 represents our Federal income tax obligation.

As shown in the calculation below, the income tax rate is applied to the Company's income after de-ducting certain allowable expenses. And, as tax laws allow, an investment tax credit is applied which reduces the Federal income tax obligation.

For accounting purposes, the current investment tax credit is deferred and amortized over the life of the facilities as a current credit to Federal income taxes charged.

Operating Revenue Less:

Operating Expenses Interest Expense Other Deductions Taxable Income Income Taxes on above at 48%

statutory rate Amo1tization of Investment Tax Credit Federal Income Tax 1978 (Millions)

$1,457

$1,116 179 28 1,323 134 64 (3) 61 1977 (Millions)

$1,395

$1,075 164 32 1,271 124 59 (2) 57 Because of tax laws a llowing for the normali za-tion of the tax deferrals resulting from accelerated depreciation, th e current tax obligation is reduced.

However, this obligation will eventually be paid by the Company in the future. The investment tax credits and tax defenals we1*e provided by Con-gress to stimulate the economy and increase em-ployment.

The Company's obligation for state income taxes was $12 million for 1978 and $15 million for 1977.

Through defened tax p1*ocedures (see Note 2 of Notes to Financial Statements), the Company's cu rrent obligation for state inco me taxes was re-duced by $5 million in 1978 and $7 million in 1977.

Investment tax credits and deferred taxes a re part of the internally generated funds that provide a substantial portion of funds for the construction prngram.

Taxes Other Than Income Taxes, other than income taxes, have escalated primarily due to increases in revenue, which is sub-ject to a gross receipts tax.

Allowance for Funds Used During Construction The increase in AFUDC for 1978 over 1977 and 1977over1976 resulted from a hig her cost of capital for construction, although AFUDC was reduced beginn ing August 1, 1977 by apprnximately $2 mil-lion per month due to the commercial ope ration of Salem Unit 1.

Interest Charges and Preferred Stock Dividends Inte rest charges on long-term debt and dividends on preferred stock have increased substantially in recent years because of higher costs of money a nd the sale of additional issues of debt and prefened stock to help finan ce the Compan y's construction program.

Common Stock Dividends The 1978 common stock dividends paid were $1.80 per share as compared to $1.76 in 1977, and $1.64 in 1976. Quarte rly dividends were increased from $.41 per share to $.45 per share beginning the econd quarter of 1977.

17

CONSOLIDATED STATEMENTS OF INCOME Philadelphia Electi;c Company and Subsidiai*y Companies Operating Revenue Operating Expenses Electric..................................................

Gas......................................................

Steam Total Operating Revenue Fuel and Energy Interchange.............................

Other Operation Expense..................................

Maintenance.............................................

Depreciation..............................................

Taxes on Inco1ne..........................................

Taxes, Other than Income.................................

Total Operating Expenses Operating Income Other Income Income Before Interest Charges Interest Charges Allowance for Other Funds Used During Construction......

Income Tax Credits, net...................................

Other, net................................................

Total Other Income Interest on Long-Term Debt...............................

Interest on Short-Term Debt..............................

Allowance for Borrowed Funds Used During Construction...

Net Interest Charges Net Income..............................................................

Preferred Stock Dividends................................................

Earnings Applicable to Common Stock.....................................

Shares of Common Stock-Average (Thousands)..............................

Earnings Per Average Share (Dollars)......................................

Dividends Per Share (Dollars).............................................

. 'ee notes and schedules to financial state ments.

18 For the Year Ended December 31 1978 1977 (Thousands of Dollars)

$1,224,404 189,522 42,832 1,456,758 573,905 220,543 109,407 116,527 98,896 95,832 1,215,110 241,648 37,617 26,355 4,605 68,577 310,225 176,290 2,454 (53,380) 125,364 184,861 43,512

$ 141,349 75,391

$1.87

$1.80

$1,177,689 174,818 42,255 1,394,762 575,272 201,231 99,398 107,761 97,267 91,670 1,172,599 222,163 36,230 25,282 3,544 65,056 287,219 161,055 2,573 (49,848) 113,780 173,439 40,705

$ 132,734 70,844

$1.87

$1.76

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Philadelphia Electric Company and Subsidia ry Companies Balance January 1........................................

Net Income (from page 18).................................

Cash Dividends Declared Preferred Stock.........................................

Con1mon Stock..........................................

Expenses of Capital Stock Issues...........................

Balance, December 31 See notes a nd schedu les to fin a ncial state me nts.

CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITIO.'.'J Philadelphia Elect1ic Company and Sub idiary Companies Source of Funds Use of Funds Net Income...............................................

Charges (Credits) Not Affecting Funds Depreciation..........................................

Deferred Income Taxes, net...........................

Investment Tax Credits, net...........................

Allowance for Other Funds Used During Construction...

Total from Operations Sale of Long-Tenn Debt........................................

Preferred Stock.........................................

Com1non Stock..........................................

Increase in Short-Term Debt Total Additions to Utility Plant..................................

Allowance for Other Funds Used During Construction (Deduction).............................................

Dividends on Preferred and Common Stock.................

Retirement of Long-Term Debt............................

Increase (Decrease) in Other Items of Working Capital......

Other, net................................................

Total See notes and schedules to fin a ncial sta tements.

For the Year Ended December 31 1978 1977 (Th ousands of Dollars)

$328,699 184,861 513,560 43,877 1:35,687 347 179,911

$333,649

$184,861 11 6,527 39,340 31,717 (37,617) 334,828 150,000 50,000 32,975 1,344

$569, 14 7

$405,606 (37,617) 179,564 31,422 (13,345) 3,517

$569,14 7

$321,190 173,439 494,629 40,712 124,893 325 165,930

$328,699

$173,439 107,761 37,237 26,488 (36,230) 308,695 173,500 103,917 7,649

$593,761

$393,134 (36,230) 165,605 38,945 23,433 8,874

$593,761 19

CONSOLIDATED BALANCE SHEETS Philadelphia Elect1; c Company and Subsidiary Companies ASSETS Utility Plant, at original cost In Service Electric................................................

Gas....................................................

Steam.................................................

Common, used in all services...........................

Less: Accumulated Depreciation.....................

Net Utility Plant in Service............................

Construction Work in Progress...........................

Nuclear Fuel, at amortized cost..........................

Nonutility Property and Other Investments.................................

Current Assets Deferred Debits Cash and Temporary Investments.........................

Accounts Receivable Custon1ers.............................................

Other...................................................

Def erred Fuel Expense..................................

Materials and Supplies, at average cost Fuel (coal, oil and gas)...................................

Operating and Construction..............................

Prepayn1ents.............................................

Total Sl'l' note:-: and :-;ehedule:-- to tinaneial :-;tatt'tnl'nt:-;.

20 December 31 1978 1977 (Thousands of Dollars)

$3,580,178

$3,485,102 289,954 282,123 52,434 52,177 117,639 118,570 4,040,205 3,937,972 1,053,284 955,301 2,986,921 2,982,671 1,345,931 1,094,157 116,320 89,019 4,449,172 4,165,847 29,963 27,431 38,644 30,771 151,718 163,254 71,812 20,761 4,227 23,008 60,535 69,811

32, 769 32,424 4,270 3,796 363,975 343,825 7,515 10,894

$4,850,625

$4,547,997

LIABILITIES Capitalization Common Shareholders' Equity Current Liabilities Deferred Credits Common Stock-See Schedule, Page 27...................

Other Paid-In Capital...................................

Retained Earnings......................................

Preferred Stock-See Schedule, Page 27....................

Long-Term Debt-See Schedule, Page 26...................

Short-Term Debt Bank Loans............................................

Commercial Paper......................................

Current Maturities of Long-Term Debt.....................

Accounts Payable.........................................

Taxes Accrued................................................

Deferred...............................................

Interest Accrued..........................................

Dividends Declared.......................................

Other....................................................

Accumulated Deferred Income Taxes.......................

Accumulated Deferred Investment Tax Credits.............

Other....................................................

Total See notes and schedules to financial statements.

December 31 1978 1977 (Thousands of Dollars)

$1,139,659

$1,106,684 1,968 1,819 333,649 328,699 1,475,276 1,437,202 583,372 534,268 2,173,226 2,078,273 4,231,874 4,049,743 4,650 2,200 11,569 12,675 52,934 28,653 106,864 82,193 23,881 24,480 20,650 12,217 50,958 48,597 13,409 10,174 7,977 4,150 292,892 225,339 177,286 146,378 138,421 110,709 10,152 15,828 325,859 272,915

$4,850,625

$4,547,997 21

NOTES TO FINANCIAL STATEMENTS

l. Significant Accounting Policies:

General: All utility subsidiary companies of Philadel-phia Electric Company are wholly-owned and are in-cluded in the consolidated financial statements. Non-utility subsidiaries, which are not significant, are in-cluded in investments and accounted for by the equity method. The accounts are maintained in accordance with the uniform system of accounts prescribed by the regulatory authorities having jurisdiction.

Revenues: Revenues are recorded in the accounts upon billing to the customer. Rate increases are billed from dates authorized or permitted to become effective by regulatory authorities. (See Note 2 for explanation of recording the recent electric rate increase prior to bill-ing.) Due to the use of cycle billing there is an amount of unbilled revenue at the end of any period. See Common Stock Earnings in "Management's Discussion and Analysis of the Consolidated Statements of Income" for effect of the non-recurring benefit to earnings per aver-age share for 1977 as a result of a change from bi-monthly to monthly meter reading and billing.

Fuel Expenses: For financial reporting purposes the Company defers that portion of fuel expense which is recoverable under energy adjustment clauses until it is subsequently billed. For income tax purposes, fuel ex-pense is considered an expense when incurred.

Nuclear fuel costs are calculated at a zero net sal-vage value (assuming reprocessing facilities will be available for spent fuel as needed) and charged to fuel expense on the basis of the number of units of thermal energy produced as they relate to the estimated total thermal units to be produced over the approximate four-year life of the fuel. If such reprocessing facilities are not available, the Company would incur additional costs to dispose of spent fuel. The Company cannot estimate these costs but it believes that any such addi-tional costs would be recoverable through adjustments of rates charged to its customers.

Depreciation: For financial reporting purposes, de-preciation is provided over the estimated service lives of the plant on a straight-line basis. No provision is pres-ently provided for the potential decommissioning cost of the nuclear plants. The Company cannot estimate these costs but it believes that any such additional costs, which may be significant, would be recoverable through adjustments of rates charged to its customers.

The annual depreciation provisions, expressed as a per-cent of average depreciable utility plant in service, were approximately 2.99% for 1978 and 1977.

Income Taxes: Deferred income taxes are provided for differences between book and taxable income to the extent permitted by the regulatory authorities for rate-making purposes. (See Note 3.)

Investment tax credits, other than credits resulting from contributions to the Tax Reduction Act Stock Ownership Plan for employees which do not affect in-come, are deferred and amortized by credits to income over the estimated useful life of the related utility plant.

22 Allowance for Funds Used Dur ing Construction (AFUOC): AFUDC is defined in the applicable regula-tory system of accounts as "the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used." AFUDC is recorded as a charge to construction work in progress (CWIP) and the equivalent credits are to "Interest Charges" for the cost of borrowed funds, excluding the related income tax benefits, and to "Other Income" for the cost of other funds. For income tax purposes, AFUDC is not included in taxable income nor is the depreciation of capitalized AFUDC a tax deductible expense. The rate used for capitalizing AFUDC, which averaged 7.2% in 1978, is computed under a new method prescribed by the regulatory au-thorities which provides for its application to the CWIP base including prior AFUDC and is compounded semi-annually. The AFUDC in 1978 amounts to approxi-mately the same under the new method as the amount which would have been accrued under the previous method utilizing a higher average rate (8.65% in 1977) applied to the CWIP base, excluding prior AFUDC, and without compounding. The rates are "net after-tax rates" whereby the current income tax reductions aris-ing from interest charges associated with debt used to finance construction, $28,346,000 in 1978 and

$26,237,000 in 1977, were allocated from "Operating Ex-pense" to "Other Income."

Retirement Plan: The Company has a non-contributory trusteed retirement plan applicable to all regular em-ployees. Pension costs include normal cost for the year and amortization of unfunded prior service costs, if any, over a twenty year period. Approximately 77% of such costs are charged to operating expense and 23%, as-sociated with construction labor, to the cost of new utility plant.

Gas Exploration and Development Costs: The Company has invested in several joint ventures for exploring and drilling for gas. In accordance with the accounting practice prescribed by the Federal Energy Regulatory Commission these costs are capitalized under the full cost method. Such costs will be charged to operations commensurate with the use of gas arising from these ventures. At December 31, 1978, investments included capitalized costs of $14,496,000.

2. Rate Matters:

On December 28, 1978, the Pennsylvania Public Util-ity Commission (PUC) authorized the Company to in-crease its rates for electric service, retroactive to July 4, 1978, in order to realize additional annual revenue of

$78,900,000, including the $11,900,000 interim increase which went into effect on March 3, 1978. Electric recoupment revenue of $34,571,000 applicable to the period July 4, 1978 to December 31, 1978 has been re-flected in the consolidated financial statements.

In its order the PUC, for rate making purposes, disal-lowed t he normalization of state income tax deferrals associated with the use of accelerated depreciation for tax purposes and in conformance therewith, beginning

July 1, 1978, such state income tax benefits ($3,614,000) have been flowed through to income.

The retroactive effect of the aforementioned rate order increased net income by $21,119,000 and earnings per share by $.28 for 1978.

3. Taxes on Income:

Included in operating expenses:

Current income taxes Federal..................

State....................

Total..................

Deferred income taxes, net Federal..................

State....................

Total..................

Investment tax credits, net Federal..................

Total Federal..................

State....................

Total..................

Included in other income:

Current income taxes Federal..................

State....................

Total..................

Total income tax provisions:

Federal..................

State....................

Total

• See ote 2.

1978 1977 (Thousands of Dollars)

$15,710

$ 21,413 12,129 12,129 27,839 33,542 34,484 29,778 4,856*

7,459 39,340 37,237 31,717 26,488 81,911 77,679 16,985 19,588

$98,896

$ 97,267 (21, 189)

(20,225)

(5,166)

( 5,057)

$(26,355)

$(25,282) 60,722 57,454 11,819 14,531

$72,541

$ 71,985 Investment tax credits consist of (a) the basic credits allowable at the Federal statutory rate (10%) plus (b) an additional (1 W fo) $4,005,000 in 1978 and $3,708,000 in 1977 allowed the Company to offset Federal income taxes providing such amounts are passed on to the employees of the Company in the form of Philadelphia Electric Company common stock. Such additional cred-its have no effect on net income.

For Federal income tax purposes the 1978 invest-ment tax credits will reduce current Federal income taxes payable by $23,343,000, and result in a claim for refund of prior year's Federal income taxes of

$11,775,000 which is reflected in other accounts receiv-able.

The aforementioned income tax provisions differ from amounts computed by applying the Federal statutory tax rate to adj usted income before income taxes for the following reasons:

Net income..................

Total income tax provisions Income before income taxes Deduct-allowances for funds used during construction (non-taxable)

Adjusted income before income taxes...............

Income taxes on above at Federal statutory rate (48%)......................

Increase (decrease) due to:

Excess of tax depreciation over book depreciation not normalized.............

State income tax, net of Federal income tax benefit Taxes and pension costs capitalized but expensed for tax purposes............

Amortization of investment tax credits previously deferred...................

Other, net...................

1978 1977 (Thousands of Dollars)

$184,861 72,541 257,402 (90,997)

$166,405

$79,874 (2,210) 6,146 (5,407)

(3,401)

(2,461)

$173,439 71,985 245,424 (86,078)

$159,346

$ 76,486 (4,702) 7,556 (4,602)

(2,183)

(570)

Total income tax provisions

$72,541

$ 71,985 Provision for income taxes as a percent of:

Income before income taxes 28.2'fr 29.39(

Adjusted income before income taxes...............

43.6'fr 45.2o/c Provisions for deferred income taxes consist of the following tax effects of timing differences between tax and book income:

Depreciation.................

Recoupment revenue *.........

Deferred fuel expense........

Other.......................

4. Taxes, Other than Income:

Gross receipts................

Capital stock.................

Realty.......................

Other, principally socia l security..............

1978 1977 (Thousands of Dolla rs)

$32,849 18,462 (10,029)

(1,942)

$39,340 1978

$37,492 1,687 (1,942)

$37,237 1977 (Thousands of Dolla rs)

$62,115 15, 102 6,873 11,742

$95,832

$59,545 13,002 9,467 9,656

$91,670 23

5. Short-Term Debt:

The average short-term borrowings during 1978 aggregated $20,356,000 at an average rate of 10.55%

and during 1977 aggregated $33,595,000 at an average rate of 7.66%. The maximum short-term borrowings outstanding were $60,484,000 in 1978 and $94,326,000 in 1977. The average rate of interest on short-te1*m bor-rowings at December 31, 1978 was 11.31 % for bank loans and 10.20% for commercial paper. As of December 31, 1978 the Company had informal lines of credit with banks aggregating $214,875,000. The Company gen-erally does not have formal compensating balance ar-rangements with these banks. The Company maintains deposits with banks for working funds for normal oper-ations.

6. Retirement Plan Costs:

Retirement plan costs, which are funded as accrued, aggregated $21,396,000 in 1978 and $18,708,000 in 1977.

During 1978 an early retirement amendment to the plan, was in effect until June 30, 1978, and the resulting early retirements had the effect of increasing prior service cost of the plan by approximately $17,000,000.

The Company intends to amortize this increase in prior service cost over a ten-year period by making supple-mental annual contributions of approximately

$2,400,000, which includes interest, beginning in 1979.

Based on the most recent available actuarial report as of January 1, 1978, (not including the effect of early retirement) the actuarially computed vested benefits were substantially equivalent to the value of the plan assets.

7. Jointly-Owned Electric Utility Plants:

The Company's ownership interests in jointly-owned electric utility plants, excluding nuclear fuel, at De-cember 31, 1978 were as follows:

Electric Utility Plant Peach Bottom Salem Keystone Conemaugh Participating Interest 42.49%

42.59%

20.99%

20.72%

Company's Share of Utility Plant, Net

$307,525,000

$642,500,000

$ 33,567,000

$ 45,103,000 The Company's participating interests are financed with Company funds and when placed in service all open~tions are accounted for as if such participating interests were wholly-owned facilities.

8. Commitments and Contingent Liabilities:

The Company has incurred substantial commit-ments in connection with its construction program.

Construction expenditures are estimated to be

$412,000,000 for 1979 and $1,579,000,000 for 1980-1982.

The nuclear plant facilities under construction require numerous permits and licenses culminating in an operating license for a facility. The Company cannot be assured that such operating licenses will be issued at completion of the facilities; to date, management 24

~nows of no developments which would preclude such issuance.

The Price-Anderson Act places a "Limit of Liability" of $560,000,000 on each nuclear plant facility for public liability claims that could arise from a nuclear incident.

The Company and its co-owners of the Peach Bottom and Salem Stations have insured for this exposure by purchasing private insurance in the maximum avail-able amount of $140,000,000 and the remainder is pro-vided by indemnity agreements with the Nuclear Reg-ulatory Commission (NRC); however, since August 1977, the indemnity by the NRC has decreased and in the event of a nuclear incident, the Company to the extent of its ownership participation, could be assessed

$5,000,000 per incident for each reactor owned (maximum $10,000,000 per reactor in a year).

For damage to the nuclear plant facilities which could arise from an incident at the Peach Bottom Sta-tion, the Company and its co-owners have private in-surance up to $220,000,000; for the Salem Station, the Company through the operator of the Station is a member of Nuclear Mutual Limited (NML) which pro-vides for coverage up to $175,000,000. In the event of a loss at any plant insured by NML, the Company may be subject to a maximum of fourteen times its annual premium (currently not material for any one incident).

The Company is a self-insurer, to the extent of its own-ership interests, for any property loss in excess of the aforementioned amounts.

The Company's proportionate share of a commit-ment to purchase nuclear fuel for the Peach Bottom Station as of December 31, 1978 was $67,891,000. An independent fuel company has been authorized to ac-quire and own up to a maximum of $150,000,000 of nuclear fuel at any one time and has contracted to sell the energy therefrom to the Company, as the operator of the Station.

The minimum rental commitments under all non-cancelable agreements aggregated $168,699,000 at De-cember 31, 1978. Annual rental commitments are esti-mated to be $26,078,000 fOl' 1979; $22,867,000 for 1980;

$23,719,000 for 1981; $20,716,000 foi* 1982 and $6,771,000 for 1983. Rentals charged to operating expenses were

$36,232,000 in 1978 and $26,470,000 in 1977.

Certain leases, including the nuclear fuel contract, meet the criteria of a capital lease as defined by State-ment No. 13 of the Financial Accounting Standards Board, but are not accounted for as such in accordance with the rate making process. If such leases were capitalized, the amounts thereof would not have a material effect on assets, liabilities, or related expenses.

Actions have been filed in the U.S. District Comt against the Com pan.v with respect to alleged discri mi-nation in its employment or promotion practices. Coun-sel fo1* the Company is of the opinion that the Company has meritorious defenses to these suits.

9. Replacement Cost Information (Unaudited):

Inflation has resulted in replace ment costs of utility plant in service that are significantly greater than the recorded original cost. The current replacement cost of the gross utility plant in service at December 31, 1978 and 1977, is estimated at $9.5 billion and $8.8 billion which compares to recorded cost of $4.0 billion and $3.9 billion, respectively.

The estimated replacement cost of utility plant, de-termined by applying indices to recorded cost, does not necessai1ly reflect the current value of these assets, nor does the excess of replacement cost over recorded cost

10. Segment Information:

1978 Elect11c Gas Steam

('('lwu:-;and:-; of Dollar:->)

Operating revenue..... $1,224,404 Operating expenses,

$189,522

$42,832 excluding depreciation 896,339 Depreciation...........

106,253 Total operating expenses............. 1,002,592 Operating income...... $ 221,812 Utility plant additions............ $ 395,271 December 31:

Allocable assets:

Net utility plant(*)... $4,167,122 Materials and supplies 78,452

$4,245,574 Nonallocable assets Total assets..........

162,983 39,261 8,618 1,656 171,601

.t0,917

$ 17,921

$ 1,915

$ 10,010 325

$250,466

$31,584 14,456 396

$264,922

$31,980 represent additional equity for the Company's common shareholders. Replacement cost of utility plant is the Company's es ti mate of the cul'!"ent cost to replace exist-ing plant with similar plant of most recent design.

This replacement cost information should not be used to evaluate the effect of inflation upon the Com-pany's financial position and results of operations, as repo1ted.

In compliance with rep01ting requirements addi-tional replacement cost information is disclosed in the Company's annual repo1t to the Secui1ties and Ex-change Commission on Form 10-K.

1977 Total Electi1c Gas Steam Total

( T hou:-;and~ of I >nllar:-o)

$1,456,758

$1,177,689

$174,818

$42,255

$1,394,762 1,098,583 881,168 145,713 37,957 1,064,838 116,527 97,916 8,243 1,602 107,761 1,215, l l 0 979,084 153,956 39,559 1,172,599

$ 241,648

$ 198,605

$ 20,862

$ 2,696

$ 222,163

$ 405,606

$ 382,992

$ 8,941

$ 1,201

$ 393,134

$4,449,172

$3,883,906

$248,054

$33,887

$4,165,847 93,304 90,056 11,990 189 102,235 4,542,476

$3,973,962

$260,044

$34,076 4,268,082 308,149 279,915

$4,850,625

$4,547,997

(*) Includes construction work in progress and allocated com mon ut ilit,- property.

11. quarterly Data:

The quaiterly data shown below is unaudited but in the opinion of the Company includes all adjustments (consisting of normal recun1ng accruals) necessary for a fair presentation of such amounts.

Earnings Earnings Average Per Applicable Shares Average Quarter Operating Net to Common Outstanding Share Ended Revenue Income Stock (Thousands)

(Dollars)

(Thousands of Dollars) 1978 1977 1978 1977 1978 1977 1978 1977 1978 1977 Mar 31 $402,012

$365,822

$55,625

$49,559

$45,473

$39,379 74,661 69,336

$.61

$.57 Jun 30 326,100 318,772 29,455 39,683 18,586 29,503 75,084 69,676

.25

.42 Sep 30 384,275 380,356 57,581 50,168 46,336 39,990 75,697 70,112

.61

.57 Dec 31 344,371 329,812 42,200 34,029 30,954 23,862 76,102 74,206

.41

.32 The data for the quarter ended September 30, 1978 has been restated from that previously repo1ted to include the effects of a retroactive rnte increase, which increased operating revenue by $17,378,000, net income and earnings applicable to common stock by $10,472,000 and earnings per average share by $.14. (See Note 2).

25

26 SCHEDULE OF LONG-TERM DEBT-DECEMBER :H, 1978 Philadelphia Electric Company First and Refunding Mortgage Bonds (A):

Series 11%

2%%

31;4%

31/go/o 31/go/o 43/so/o 4%%

3%%

5%

61/2%

41/2%

9%

81;4 %

61/so/o 71/2%

71/2%

7%%

11%

115/so/o 73/so/o 9%%

8%%

81/2%

91/so/o 6%

8%%

91/go/o Due 1980..........................................

1981..........................................

1982..........................................

1983..........................................

1985..........................................

1986..........................................

1987..........................................

1988..........................................

1989..........................................

1993..........................................

1994..........................................

1995..........................................

1996..........................................

1997..........................................

1998..........................................

1999..........................................

2000..........................................

2000..........................................

2000..........................................

2001..........................................

2002..........................................

2003 (Sold 1977)...............................

2004..........................................

2006..........................................

2007 (Sold 1977)...............................

2007 (Sold 1977)...............................

2008 (Sold 1978)...............................

Total First and Refunding Mortgage Bonds..........................

Notes Payable-Banks... (B) 1979-85 ($50,000 sold 1978).........

Pollution Control Note.... 5.5%

1979-97..........................

Debentures.............. 12%%

1981 Debentures.............. 4.85%

1986 Unamortized Debt Discount and Premium, Net.........................

Total Philadelphia Electric Company.................................

Philadelphia Electric Power Company-a subsidiary:

Sinking Fund Debentures 41/2 %

1995 Unamortized Debt Discount...........................................

Total Long-Term Debt (Annual interest requirements $184,545,000)........................................

Current Maturities included in Current Liabilities (C).................

Long-Term Debt included in Capitalization...........................

(A) Utility plant is subject to the lien of the Company's mortgage.

(B) At interest rates ranging from prime rate to 112% of prime rate.

Amount (Thousands of Dollars)

$ 125,000 30,000 35,000 20,000 50,000 50,000 40,000 40,000 50,000 60,000 50,000 72,000 80,000 75,000 100,000 100,000 73,240 80,000 65,000 80,000 100,000 75,000 125,000 100,000 23,500 75,000 100,000 1,873,740 175,000 35,000 100,000 26,294 (5,571) 2,204,463 21,791 (94) 2,226,160 (52,934)

$2,173,226 (C) Long-term debt maturities in the period 1979-1983 are as follows: 1979-$52,934,000; 1980-$130,791,000; 1981-$140,30Q,OOO; 1982-$70,300,000; and 1983-$55,300,000.

SCHEDULE OF CAPITAL STOCK-DECE:VIHER :H. 1978 Common Stock-no par (A)........................................

Preferred Stock ($100 par) cumulative:

Series (without mandatory redemption requirements):

9.50%.......................

8.75o/o 7.85%.......................

7.80%

7.75%

4.68%

4.4%........................

4.3%

3.8%

Series (with mandatory redemption requirements):

9.52%.......................

8.75% (Sold 1978).............

7.325%......................

7% ******************* * ******

Unclassified..................

Total Preferred Stock.....

Current Redemption Price (B)

$109.50 110.00 107.00 105.50 105.50 104.00 112.50 102.00 106.00 109.52 108.75 105.86 107.00 Number of Shares Authorized 100,000,000 750,000 650,000 500,000 750,000 200,000 150,000 274,720 150,000 300,000 500,000 500,000 750,000 400,000 4,125,280 10,000,000 Outstanding 76,512,685 750,000 650,000 500,000 750,000 200,000 150,000 274,720 150,000 300,000 500,000(C) 500,000(D) 750,000(E) 359,000(F) 5,833,720 Amount (Thousands of Dollars)

$1,139,659

$ 75,000 65,000 50,000 75,000 20,000 15,000 27,472 15,000 30,000 50,000 50,000 75,000 35,900

$583,372 (A) At December 31, 1978 there were 2,152,392 shares reserved for issua nce under stock purchase plans. Com mon Stock issued in 1978 and 1977 was as follows:

1978-Shares Proceeds 1977-Shares Proceeds Public Sales 4,000,000

$78,340,000 Dividend Reinvestment Plan 1,433,489

$24,852,000 882,793

$17,159,000 Employee Purchase Plan 215,198

$3,871,000 179,618

$3,483,000 Tax Reduction Act Stock Ownership Plan 239,481

$4,252,000 255,541

$4,935,000 Total 1,888,168

$ 32,975,000 5,317,952

$103,917,000 (B) Redeemable at the option of the Company, at the indicated dollar amounts per share, plus accrued dividends.

(C) 20,000 shares to be redeemed annually at $100 per share commencing May 1, 1981.

(D) 33,300 shares to be redeemed annually at $100 per share commencing May 1, 1984.

(E) 30,000 shares to be redeemed annually at $100 per share commencing May 1, 1979.

(F) 8,000 shares are being redeemed annually at $100 per share. The Company purchased 8,960 sha res in 1978 and 8,040 shares in 1977 for this purpose and at December 31, 1978 had applied 1,000 shares to future redemption require-ments. The excess of the aggTegate par value of such shares over the aggregate purchase price is reflected in Other Paid-In Capital ($149,000 in 1978 and $106,000 in 1977).

REPORT OF AUDITORS To Shareholders and the Board of Directors Philadelphia Electric Company Philadelphia, Pennsylvania We have examined the consolidated balance sheets of Philadelphia Electric Company and Subsidiary Companies as of December 31, 1978 and 1977, and the related consolidated statements of income, retained ea rnings, and chang*es in financial position fo1* the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing* prncedures as we considered necessary in the circumstances.

In our opinion, the consolidated financial statements 1*eferred to above present faidy the financial position of Philadel-phia Electric Company and Subsidiary Companies as of Dece mber 31, 1978 and 1977, and the results of their ope rations and the changes in their finan cial position for the years then ended, in conformity with g*ene rally accepted accounting*

pr;nciples applied on a consistent basis.

1900 Three Girard Plaza Philadelphia, Pennsylvania February 9, 1979 COOPERS & LYBIU.:\\TD 27

FINANCIAL STATISTICS Summary of Earnings (Millions of dollars)

Operating Revenue (for details see pages 30 and 31)....................

Operating Expenses Fuel and Energy Interchange.......

Labor..............................

Other Materials, Supplies and Services..........................

Total Operation and Maintenance Depreciation Taxes..............................

Total Operating Expenses.......

Operating Income....................

Other Income Allowance for Other Funds Used During Construction..............

Income Tax Credits, net.............

Other, net..........................

Total Other Income.............

Income Before Interest Charges.....

Interest Charges Interest on Long-Term Debt........

Interest on Short-Term Debt........

Allowance for Borrowed Funds Used During Construction.........

Net Interest Charges...........

Net Income...........................

Preferred Stock Dividends.............

Earnings Applicable to Common Stock..

Dividends on Common Stock...........

Earnings Retained....................

Earnings per Average Share (dollars)...

Dividends Paid per Share (dollars)

Common Stock Equity (Per Share)......

Shares of Common Stock-Average (Millions)...................

1978

$1,456.8 573.9 195.0 135.0 903.9 116.5 194.7 1,215.l 241.7 37.6 26.3 4.6 68.5 310.2 176.3 2.5 (53.4) 125.4 184.8 43.5 141.3 135.7 5.6

$1.87

$1.80

$19.28 75.4 1977

$1,394.8 575.3 179.2 121.4 875.9 107.8 188.9 1,172.6 222.2 36.2 25.3 3.5 65.0 287.2 161.0 2.6 (49.8) 113.8 173.4 40.7 132.7 124.9 7.8

$1.87

$1.76

$19.26 70.8 1976

$1,224.1 480.7 161.9 88.9 731.5 98.0 183.2 1,012.7 211.4 30.1 24.2 2.6 56.9 268.3 147.6 3.6 (4 7.5) 103.7 164.6 39.0 125.6 107.7 17.9

$1.91

$1.64

$19.13 65.6 1975

$1,134.8 457.8 152.2 72.6 682.6 91.2 163.9 937.7 197.1 23.3 22.3 2.0 47.6 244.7 136.5 7.9 (43.6) 100.8 143.9 36.0 107.9 95.4 12.5

$1.86

$1.64

$19.05 58.1 See page 16 for Discussion and Analysis of the Consolidated Statements of Income.

1974

$1,011.7 439.2 134.0 73.4 646.6 77.8 134.3 858.7 153.0 25.3 25.5 0.3 51.1 204.1 106.3 14.2 (45.5) 75.0 129.1 33.7 95.4 86.4 9.0

$1.81

$1.64

$20.21 52.7

\\fYSE-Composite Common Stock Prices, Earnings and Dividends by Quarters (Per Share) 28 Fourth Quarter High Price

$17%

Low Price.........

$15 Earnings..........

41" Dividends.........

45' 1978 1977 Third Quarter

$18-Vs

$17Vs 61" 45" Second Quarter

$19

$16-Vs 25" 45c First Quarter

$19%

$183/s 61<

45c Fourth Quarter

$20 1/<i

$19Vs 32" 45' Third Quarter

$211,4

$185/s 57" 45" 1973

$766.6 260.3 125.6 65.5 451.4 64.3 102.5 618.2 148.4 28.1 3.4 2.7 34.2 182.6 84.8 5.5 (30.6) 59.7 122.9 27.6 95.3 78.4

$ 16.9

$1.99

$1.64

$20.22 47.8 Second Quarter

$203/s

$181/2 42c 45" 1968

$405.2 102.4 86.3 29.3 218.0 45.4 49.6 313.0 92.2 1.0 4.9 0.6 6.5 98.7 33.6 2.6 (3.1) 33.1 65.6 3.7 61.9 47.6

$ 14.3

$2.13

$1.60

$18.95 29.0 First Quarter

$185/s

$171/s 57" 41<

FINANCIAL STATISTICS Summary of Financial Condition-December ;31 (Millions of dollars) 1978 1977 1976 1975 1974 1973 1968 Assets Utility Plant, at Original Cost.....................

$5,502.5

$5,121.1

$4,747.2

$4,445.6

$4,123.9

$3,672.1

$1,951.2 Less: Accumulated Depreciation.............

1,053.3 955.3 860.3 775.8 717.8 665.4 491.4 Total Utility Plant......

4,449.2 4,165.8 3,886.9 3,669.8 3,406.1 3,006.7 1,459.8 Nonutility Property and Other Investments.......

30.0 27.4 13.2 12.3 12.7 11.5 4.0 Current Assets Cash and Temporary Investments...........

38.6 30.8 23.8 17.4 16.0 16.2 15.4 Accounts Receivable......

223.5 184.0 168.0 139.8 111.9 87.8 41.3 Deferred Fuel Expense...

4.2 23.0 19.9 17.9 21.7 Materials and Supplies...

93.3 102.3*

88.3 88.0 72.5 40.2 26.0 Other....................

4.3 3.8 2.6 2.5 21.1 3.8 1.9 Deferred Debits............

7.5 10.9 14.7 13.8 6.0 9.9 5.2 Total Assets...........

$4,850.6

$4,548.0

$4,217.4

$3,961.5

$3,668.0

$3,176.1

$1,553.6 Liabilities Common Stock.............

$1,139.7

$1,106.7

$1,002.8

$ 916.6

$ 782.9

$ 771.8

$ 298.3 Other Paid-In Capital.......

2.0 1.8 1.7 1.5 1.3 1.3 1.2 Retained Earnings.........

333.6 328.7 321.2 304.7 293.7 286.2 227.4 Common Shareholders' Equity...............

1,475.3 1,437.2 1,325.7 1,222.8 1,077.9 1,059.3 526.9 Preferred Stock............

583.4 534.2 535.1 485.9 486.4 412.0 87.5 Long-Term Debt...........

2,173.2 2,078.3 1,936.4 1,776.9 1,597.7 1,319.1 778.7 Total Capitalization.....

4,231.9 4,049.7 3,797.2 3,485.6 3,162.0 2,790.4 1,393.1 Current Liabilities Short-Term Debt.........

16.2 14.9 7.2 108.0 177.9 147.7 61.0 Current Maturities Of Long-Term Debt.......

52.9 28.7 36.9 60.9 91.9 67.3 15.6 Accounts Payable and Dividends Declared.....

120.3 92.4 83.9 80.1 78.8 67.4 28.0 Taxes Accrued and Deferred...............

44.5 36.7 30.7 44.2 28.0 18.1 7.2 Interest Accrued.........

51.0 48.6 43.2 37.8 30.5 21.9 8.6 Other....................

7.9 4.1 4.6 3.5 3.8 5.5 3.0 Deferred Credits...........

325.9 272.9 213.7 141.4 95.1 57.8 37.1 Total Liabilities......

$4,850.6

$4,548.0

$4,217.4

$3,961.5

$3,668.0

$3,176.1

$1,553.6 29

OPERATING STATISTICS 1978 1977 1976 1975 1974 1973 1968 ELECTRIC OPERATIONS Output (millions of kilowatt-hours)

Steam.............................

13,160 11,468 13,385 12,814 16,649 18,536 17,865 Nuclear............................

7,769 4,596 4,937 4,387 1,745 176 124 Hydraulic..........................

1,700 1,997 2,065 2,275 1,938 2,132 1,586 Pumped Storage Output............

1,109 1,223 1,062 1,275 1,075 1,318 1,429 Pumped Storage Input..............

(l,606)

(1,761)

(1,506)

(1,785)

(1,515)

(1,876)

(1,971)

Purchase and Net Interchange......

6,651 9,759 7,666 7,363 5,300 7,094 2,917 Internal Combustion................

704 847 792 914 1,200 688 126 Other..............................

716 36 1,016 27 33 Total Electric Output.............

29,487 28,845 28,437 27,243 27,408 28,095 22,109 Sales (millions of kilowatt-hours)

Residential.........................

7,875 8,110 7,585 7,424 7,159 7,493 5,330 Small Commercial and Industrial....

2,888 2,825 2,755 2,624 2,558 2,663 2,256 Large Commercial and Industrial....

15,302 14,912 14,662 14,060 14,622 14,953 11,961 All Other...........................

1,329 1,350 1,271 1,227 1,217 1,192 1,075 Total Electric Sales...............

27,394 27,197 26,273 25,335 25,556 26,301 20,622 Number of Customers, December 31 Residential.........................

1,158,853 1,148,171 1,137,544 1,120,981 1,113,036 1,103,163 1,034,393 Small Commercial and Industrial....

115,945 115,883 115,422 114,896 117,237 118,009 136,917 Large Commercial and Industrial....

5,780 5,772 5,747 5,719 5,724 5,663 5,204 All Other...........................

2,413 2,381 2,345 2,305 2,248 2,207 2,009 Total Electric Customers..........

1,282,991 1,272,207 1,261,058 1,243,901 1,238,245 1,229,042 1,178,523 Operating Revenue (millions of dollars)

Residential.........................

$ 430.8

$ 427.6

$ 373.2

$ 364.7

$ 314.4

$ 254.4

$ 121.3 Small Commercial and Industrial....

176.5 168.4 149.3 138.9 122.0 97.5 56.5 Large Commercial and Industrial....

544.0 513.4 442.9 418.3 388.1 257.5 126.2 All Other...........................

73.1 68.3 59.4 56.5 49.0 37.4 21.9 Total Electric Revenue............

$1,224.4

$1,177.7

$1,024.8

$ 978.4

$ 873.5

$ 646.8

$ 325.9 Operating Income Before Income Taxes (millions of dollars)..................

$ :309.7

$ 284.1

$ 273.8

$ 261.5

$ 196.5

$ 170.1

$ 106.2 Average Use per Residential Customer (kilowatt-hours).....................

6,833 7,097 6,710 6,645 6,460 6,829 5,187 Electric Peak Load, Net Hourly Demand (thous. kw).................

5,667 5,888 5,346 5,530 5,431 5,760 4,375 Net Electric Generating Capacity-Summer Rating (thous. kw).........

7,727 8,198 7,742 7,186 7,808 6,650 5,111 Cost of Fuel per Million Btu...........

$1.29

$1.40

$1.24

$1.23

$1.42

$0.71

$0.32 Btu per Net Kilowatt-hour Generated..........................

10,773 10,882 10,529 10,523 10,676 10,523 10,867 30

OPER:\\TI.\\'G STATISTICS 1978 1977 1976 1975 1974 GAS OPERATIONS Sales (millions of cubic feet)

Residential.........................

2,316 2,394 2,342 2,334 2,281 House Heating.....................

24,974 26,335 24,540 20,817 23,793 Commercial and Industrial..........

32,784 31,017 33,390 30,012 35,913 All other...........................

94 86 89 74 79 Total Gas Sales.................

60,168 59,832 60,361 53,237 62,066 Number of Customers, December 31 Residential.........................

87,715 88,775 89,459 90,117 90,870 House Heating.....................

163,469 162,978 162,993 162,914 163,093 Commercial and Industrial..........

19,207 19,422 19,669 19,874 20,276 Total Gas Customers............

270,391 271,175 272,121 272,905 274,239 Operating Revenue (millions of dollars)

Residential.........................

$ 9.9

$ 9.6

$ 8.7

$ 8.1

$ 7.1 House Heating.....................

86.6 84.1 73.3 54.8 55.4 Commercial and Industrial..........

92.2 80.4 76.1 54.5 45.7 All other...........................

0.2 0.2 0.2 0.1 0.1 Subtotal.......................

$188.9

$174.3

$158.3

$117.5

$108.3 Other Revenue.....................

0.6 0.5 0.6 0.5 0.6 Total Gas Revenue.............

$189.5

$174.8

$158.9

$118.0

$108.9 Operating Income Before Income Taxes (millions of dollars)..................

$ 28.0

$ 30.9

$ 34.4

$ 19.6

$ 26.9 STEAM OPERATIONS Sales (millions of pounds)............

7,:336 7,165 7,735 7,117 7,600 Number of Customers, December 31 660 670 679 689 710 Total Steam Revenue (millions of dollars)...........................

$ 42.8

$ 42.3

$ 40.5

$ 38.5

$ 29.3 Operating Income Before Income Taxes (millions of dollars).........

$ 2.8

$ 4.5

$ 3.8

$ 2.3

$ (3.2)

FISC.\\L.\\(;E:\\'TS FOR STOCl\\S. \\~D HO~DS PHrLADELPHIA ELECTRIC COMPANY-Preferred and Common Stocks Registra1*s GIRARD BANK One Ginwd Plaza, Philadelphia, Pa. 19101 CHE:VIICAL BANK

20 Pine Street, New York, N.Y. 10015 Transfer Agents PHILADELPHIA ELECTRIC COMPANY

2:301 Market Street, Philadelphia, Pa. 19101 MORGAN GUARANTY TRUST CO. of N.Y.

30 West Broadway, New York, N.Y. 10015 PHILADELPHIA ELECTRIC COMPANY-Fi rst and Refunding Mortgage Bonds Trnstee THE FIDELITY BANK Broad & Walnut Streets, Philadelphia, Pa. 19109 New York Agent MORGAN GUARANTY TRUST CO. of N.Y.

2:3 Wall Street, New York, N.Y. 10015 PHILADELPHIA ELECTRIC COMPANY-Sinking Fund Debentures PHILADELPHIA ELECTRIC POWER COMPANY (A Subsidiary)-Debentures Trustee THE PHILADELPHIA NATIONAL BANK Broad & Chestnut Streets, Philadelphia, Pa. 19101 New York Agent IRVING TRUST COMPANY One Wall Street, New York,

.Y. 10015 1973 1968 2,317 2,341 24,125 22,447 37,868 36,711 90 72 64,400 61,571 91,682 97,971 163,096 140,792 20,518 21,078 275,296 259,841

$ 6.7

$ 5.7 51.3 38.0 42.0 26.1 0.1 0.1

$100.1

$ 69.9 0.4 0.3

$100.5

$ 70.2

$ 22.8

$ 19.3 7,762 7,578 723 1,180

$ 19.4

$ 9.1

$ 0.7

$ 0.6 All Philadelphia Electric Company securities, except the Sinking Fund Debentures and those series of First and Refunding Mortgage Bonds and Preferred Stock which were sold privately to Institutional investors, are listed on the Philadelphia Stock Exchange and the New York Stock Exchange. Philadelphia Electric Power Company Debentures are listed on the Philadelphia Stock Exchange.

31

DIRECTORS

• Gustave G. Amsterdam Chairman of the Board and Chief Executive Officer Bankers Securities Corporation (Merchandising and Real Estate)

• John H. Austin, Jr.

Executive Vice President of the Company William T. Coleman, Jr., Esq.

Senior Partner of the law firm of O'Melveny & Myers

• James L. Everett President and Chief Executive Officer of the Company OFFICERS Robert F. Gilkeson Chairman of the Board James L. Everett President and Chief Executive Officer John H. Austin, Jr.

Executive Vice President Wayne C. Astley Vice President General Administration Edward G. Bauer, Jr.

Vice President and General Counsel Vincent S. Boyer Vice President Engineering and Research Clifford Brenner Vice President Corporate Communications GENERAL OFFICE William S. Fishman Chairman and Chief Executive Officer ARA Services, Inc.

(Service Management)

• Robert F. Gilkeson Chairman of the Board of the Company

• William W. Hagerty President, Drexel University Robert D. Harrison Vice Chairman John Wanamaker, Philadelphia, Inc.

(Merchandising)

Shields L. Dal troff Vice President Electric Production Charles L. Fritz Vice President Personnel and Industrial Relations Martin F. Gavet Vice President Gas Operations William L. Maruchi Vice President Electric Transmission and Distribution William B. Morlok Vice President Commercial Operations Clair V. Myers Vice President Purchasing and General Services 2301 Market Street, P.O. Box 8699, Philadelphia, Pennsylvania 19101 ANNUAL MEETING Paul R. Kaiser Chairman of the Board and Chief Executive Officer Tasty Baking Company (Diversified Manufacturing)

Joseph C. Ladd President, Fidelity Mutual Life Insurance Company

• Joseph J. McLaughlin President, Beneficial Mutual Savings Bank

• Member of Executive Committee Joseph F. Paquette, Jr.

Vice President Finance and Accounting Lucy S. Binder Secretary Morton W. Rimerman Treasurer James D. Lynch Assistant Secretary J. Robert Causton Assistant Treasurer George G. Eppright Assistant Treasurer William M. Lennox Assistant Treasurer Joseph W. Ruff Assistant Treasurer The annual meeting of the shareholders of the Company will be held on April 4, 1979, at eleven a.m. in the Peale Ballroom, Holiday Inn, 18th and Market Streets, Philadephia, Pennsylvania.

Shareholders of record at the close of business February 26 are entitled to vote at this meeting.

Notice of the meeting, proxy statement and proxy will be mailed under separate cover. Prompt return of the proxies will be appreciated.

FORM 10-K A copy of the Company's report for 1978 filed with the Securities and Exchange Commission on Form 10-K will be provided to shareholders upon written request to Philadelphia Electric Company, 2301 Market Street, P.O. Box 8699, Philadelphia, PA 19101, Attn: Financial Division.

32

COMP ANY PROFILE Philadelphia Electric Company is an operating util-ity which provides electric, gas and steam service in southeastern Pennsylvania. Two subsidiaries own, and a third subsidiary operates, the Conowingo Hydroelectric Project, and one distribution subsid-iary provides electric service in two counties in northeastern Maryland.

The total area served by the Company and subsid-

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I Lancaster iaries covers 2,475 square miles. Electric service is supplied in an area of 2,340 square miles with a population of about 3,900,000, including 1,950,000 in the City of Philadelphia. Approximately 95 percent of the electric service area and 60 percent of kilowatt-hour sales are in the suburbs around Phila-delphia and in northeastern Maryland, and 5 per-cent of the service area and 40 percent of such sales are in the City of Philadelphia. Natural gas service is supplied to a population of 1,800,000 in a 1,475 square mile area of southeastern Pennsylvania adjacent to Philadelphia. Steam service is supplied in the central and west Philadelphia areas.

Legend Electric and Gas Service Electric Service only Gas Service only Steam Service Electric Generating Station Coal-fired II Oil-fired

~ Nu c l ea r

~ H ydro and Pumped Storage

~ Gas Plant O Steam Plant

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....r PHILADELPHIA ELEC'I 2301 Market Street P.O. Box 8699 Philadelphia, PA 19101 I

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