ML18082A351

Annual Financial Rept 1979

ML18082A351
Person / Time
Site:	Salem, Hope Creek, 05000355
Issue date:	02/15/1980
From:	Feehan J, Linkletter A ATLANTIC ELECTRIC OF NEW JERSEY
To:
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ML18082A342	List: ML18082A340 ML18082A343 ML18082A348 ML18082A351 ML18082A353
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NUDOCS 8005090416
Download: ML18082A351 (36)

Text

80 05 0 9 0 1'/~ :j:'

1979 Annual Report REGULATORY DOCKU FILE tOPf. Docket# so 7 2 Control# 8t>o .;o1ol/t>!..

Date ~foe> f8o of Docume REGULA OR DOCKET f'tlE

Contents Letter to Shareholders 2 Construction Program 4 Financi ng 5 Earnings and Dividends 6 Revenues 6 Community Involvement 6 Environment 6 Conservation 7 Rate Matters 8 Fuel and Fuel Costs 8 Employees 10 Company Facilities 11 Our Service Area 12 Ene rgy Sales 12 Information for Investors 14 Financial Statements 15-26 Management's Discussion and Analysis of the Statements of Income 27 Supplementary Information Concerning the Effects of Changing Prices 28 1979-1969 Statistical Review and Summary of Operations 30 Directors 32 Other Information for Investors 32 Officers Inside Back Cover I

L__

The control room of the Systems Operations Department is Rf *u fORY DOCKET FILE COPY the Company 's "nerve center, cons tantly monitoring the generation of electricity to help assure reliable service to our customers.

Advance Notice The 1980 Annual Meeting of Shareholders will be held Tuesday, April 22, 1980, at the Company 's Customer In August the Company began conversion of its computer Service Center, Black Horse Pike and Fire Road , near system to the highly advanced IBM 370/ 158. Th e Pleasantville, New Jersey . A Notice of Meeting will be conversion will be completed in 1982 and will greatly mailed in March to those shareholders entitled to vote . expand our data processing capabilities. It also will enable us to provide even better service to customers and shareholders and will result in elimin ation of some outside service costs.

Our Cover At lantic Electric is Reliable Electric! The symbolic photo-graphs on the cover of this Report depict just a few of the employees and types of equipment needed to insure that reliable service is a reality in Southern New Jersey .

Results of Operations 1979-1975 1979 1978 1977 1976 1975 Sales of Electricity (Billions of Kilowatt-hours) .. ... ....... ..... . ..... .... . 5.308 5.275 4.979 4.664 4.378 Electric Operating Revenues (Millions) ....... . $ 283 .1 $ 255 .1 $ 235 .0 $ 212.0 $ 199.1 Net Income (Millions) . ... .... . ........ . . .... . $ 34.3 $ 30 .1 $ 27.4 $ 30 .8 $ 28.3 Earnings per Share ......... . . . ... . . .. ...... . $ 2.36 $ 2.21 $ 2.06 $ 2.60 $ 2.41 Dividends Paid per Share ... . .. . .......... . . . $ 1.765 $ 1.67 $ 1.62 $ 1.56 $ 1.51 Gross Additions to Utility Plant (M ill ion s) .... . $ 72 .8 $ 58.1 $ 48 .7 $ 41 .7 $ 46 .7 Generating Capacity (Kilowatts) ... . ... . ..... . 1,384 ,700 1,414,700 1,414,700 1,334,700 1,334,700 Utility System Peak Load (Kilowatts) ........ . . 1,192,600 1,177,400 1,176,000 1,030 ,300 1,069,400 Average Annual Residential Kilowatt-hour Use .. ... .... ..... ... .... .. . . 7,849 7,951 7,653 7,320 7,018 Electrically Heated Dwelling Units (Year-end ) ......................... . ...... . 51,930 48 ,778 45 ,389 42 ,878 41 ,026 Customer Service Installations (Year-end) .. . . . 371 ,362 362 ,131 352 ,205 343 ,147 336,105

To Our Shareholders In this period of international unrest and energy uncertainty, Atlantic Electric has made progress . We have made progress on a number of fronts and as a result we are in a better position to cope with whatever the future may bring .

Over the years since the 1973-74 oil embargo, we have made progress in moving away from overseas oil as a fuel for our generating stations. At the time of the embargo, approximately 73% of the electricity serving our Southern New Jersey region was produced from oil.

By shifting to coal and nuclear we now have that dependence on oil down to approximately 35% and we are addressing measures which would lower that de-pendence even further .

We have made progress in arranging for the generating capacity to meet the electric energy needs of the future.

Such capacity will be a mix of coal and nuclear energy which will further reduce our dependence on overseas oil. Coal and nuclear are basically domestic energy sources and as such are less subject to international pressure.

Mr. Alfred C. Linkletter, Chairman of the Board of Directors, and Mr. John 0 . Feeh an, President and Chief The Company has been making gradual but steady Executive Officer. improvement in its financial strength including improved earnings and dividends and improved capitalization and debt protection . Such financial strengthening and in-creasingly responsive regulators are essential if your Company is to continue to serve its customers well. In the face of high inflation and serious concern about oil 's availability , your Company must be financially strong in order to cope with the future .

Atlantic Electric has been working hard over the years to forge a strong team and a strong Company to meet these challenges . That team is in place and it is forging the strength we need as a Company .

Atlantic Electric has been emphasizing preparedness and we have made progress . Looking beyond the Company to the Nation, we have grave concern over the country's preparedness. While Atlantic Electric was reducing its dependence on overseas oil , the Nation was doubling its dependence . We are now all keenly aware of the implications of such dependence on foreign oil.

In searching for words of advice for our Country at this time, we would find none more appropriate than the very words we used in our 1974 Annual Report to you.

"Our nation is in the most important struggle of its 200-year history, short of war and the Great Depres-sion. The problem is the threat of world dominance by the oil producing nations-dominance in fuel supplies and the resultant dominance in the finan-cial world as a result of the massive payments being exacted from the user nations for the oil they need.

The projected increase in U.S . imports of oil, if allowed to go unchecked, will almost bankrupt this nation in the next decade or two. Weaker user nations could fall or fail even sooner.

Our entire nation needs to perceive this threat very quickly and put its united strength behind its leadership to launch an aggressive program to minimize our dependence on overseas oil. Here's what we must do as a nation:

2

(Per Share of Common Stock)

$3.00-

$2.60 2.50- $2.41 $2.36

1. Develop more of our own domestic energy re- $2.21 sources, such as : $2 .06 A. Oil and natural gas from the Alaskan pipeline, 2.00-from further drilling in the Gulf of Mexico , and $1765 1.50- $1.62 $1.67 from the Outer Continental Shelf off the A ti antic $1.51 $1.56 and Pacific coasts .

B. Nuclear power, our most abundant, clean and 1.00-completely self-sufficient energy source.

C. Coal, our most abundant fossil fuel. .50-

2. Develop a better balance between our environ-mental aspirations and our energy needs. Our .0-indiv id ual , corporate , local , state and national 1975 1976 1977 1978 1979 budgets just cannot afford all that we would like to do environmentally and all that we must do to Earnings and Dividends provide the energy needs of the nation.

3. Conserve energy in all forms by utilizing it more

• Earnings per share Dividends paid per share efficiently and wisely whether it be in our homes ,

offices , factories or automobiles . We have switched 80-Percent from a nation of 'Haves' to a nation of 'Have Nots' 70-and we must start acting accordingly.

4. Recognize that we will have to pay more for energy in all forms in order to have sufficient quantities and that without it our economy will grind to a halt.

Massive amounts of capital will be required to develop our domestic resources , and the rate of return on such capital must be sufficient to attract investors .

20 There are more things that we can do as a nation ,

but in our view these are the most important. 10-01~

What can you do as a shareholder? You can add your voice to that of the leadership in the nation in attempting to get public understanding of the enor- 1973 1974 1975 1976 I

1977 II 1978 1979 mity of the need . Because many sacrifices will be required , the nation cannot move forward until the Percent of Kilowatt-hours Produced from Various Fuels public understands and then puts its resources and dedication behind the program. Only by pulling

• Oil

• Coal

• Nuclear

• Gas together during what will be an extended struggle can we protect our national integrity from this threat of world dominance. We strongly urge that you speak out."

In the five years since we wrote those thoughts , the problem for the Nation has not gone away-only time has .

We believe Atlantic Electric has used that time well and that with the combination of coal , nuclear and conservation we can meet our responsibilities in the future.

For the Board of Directors

a. c . ~

A. C. Linkletter Chairman of the Board

~~ President 3

Our Customers-The People We Serve Reliability has a different meaning to different groups of people. To shareholders it means an adequate reliable return on their investment , to customers it means reliable service and reliable benefits in the form of prosperity and progress for the service area, to em-ployees it means an opportunity for continuous em ploy-ment. We at Atlantic Electric strive to ensure reliability in every aspect of our business. Pages4 through 9 respond to questions we believe are most often asked by three groups of people-the young , the mature worker, and senior citizens on fixed incomes . We hope that after reading this Annual Report, you will agree that Atlantic Electric is reliable electric.

During 1979, your Company made several important decisions which will help to provide reliable electric service during the 1980's and beyond. We have made arrangements to obtain generating capacity from two units being constructed by Delmarva Power & Light Company and from two units being constructed by Models are fine (such as this model of our proposed coal-fired Pennsylvania Power & Light Company . We also pro-station) but what these and other young people are asking is ceeded with a siting study and with other plans to enable "Will there be enough electricity for our generation and us to construct a coal-fired unit in Southern New Jersey .

those of the future? . .. What is Atlantic Electric doing to We continued discussions with other utilities as to the insure safe and reliable service to its customers?"

possibility of our sharing in their capacity additions scheduled for service in the late 1980's or early 1990's. A list of expected major generating capacity additions in which we will participate during the next decade is shown below:

MAJOR GENERATING CAPACITY ADDITIONS A.C.E. Co.

Scheduled Share of In-Service Capacity Unit and Location Fuel Year (Megawatts)

Salem Unit No. 2 (N.J .) . .... . . . ..... Nuclear 1980 83 (a)

Indian River Unit No. 4 (Del.) ............. Coal 1980 50 (b) (d)

Susquehanna Unit No. 1 (Pa .) .. .... ....... Nuclear 1982 62 (c) (e)

Susquehanna Unit No. 2 (Pa. ) ........ . .... Nuclear 1983 63 (c) (e)

Hope Creek Unit No. 1 (N.J.) . . .. ... . . . . . . Nuclear 1985 53 (a)

Hope Creek Unit No. 2 (N .J .) ...... ....... Nuclear 1987 54 (a)

Vienna Unit No. 9 (Md .) . .. . ..... . ... Coal 1987 125 (b )

(Not yet designated)

(N .J .) .... .. .. .. ....... . Coal 1988 250 740 mw (a) Publi c Service Electric & Gas Company in charge of con -

struction and operation.

(b) Delmarva Power & Light Company in charge of construc-tion and operation.

(c) Pennsylvania Power & Light Company in charge of con -

struction and operation.

(d) Company will not have direct ownership but will purchase capacity from service date through May 31 , 1985.

(e) Company will not have direct ownership but will purchase capacity from service date through September 30 , 1991 .

4

Substantial amounts of capital will be required to finance the construction of new generating stations ,

transmission , distribution and other facilities in order to serve the growing energy needs of the people of Southern New Jersey. In 1979 cash construction expen-ditures amounted to $66.4 million , and allowance for funds used during construction totaled $6.4 million . The cash construction estimate for 1980 is $115 .6 million .

That amount includes (1) $44.9 million for production facilities , (2) $65 .3 million for construction of additional substations , improvements to the transmission and distribution system and general plant and , (3) $5 .4 m ii lion for nuclear fuel. Allowance for funds used du ring construction in 1980 is expected to total $7.3 million.

Securities issued during 1979 consisted of 1,000,000 shares of Common Stock issued in January and 233,599 To help me:t the increased demand for energy in the shares of Common Stock issued during the year through 19BO's, the Company will be receiving 5.94% of the net the Company 's Dividend Reinvestment and Stock Pur- capacity and energy output of each of two 1,050 MW units chase Plan and the Employee Stock Ownership Plan . of the Susquehanna Steam Electric Station, presently under Short- term loans , which were negotiated during the construction.

year to help finance construction, amounted to $39 .5 million at year-end. In January , 1980 the Company sold

$75 million principal amount of 12%% First Mortgage Bonds to the public. The proceeds are to be used to repay short- term debt, to retire First Mortgage Bonds maturing in 1980, and for other corporate purposes .

About 70% of the cash construction requirements in 1980 are expected to be generated internally through retained earnings , depreciation accruals and similar items . The balance is to be obtained from the issuance of shares of Common Stock under the Dividend Reinvest-ment and Stock Purchase Plan , the Employee Stock Ownership Plan and from short-term loans. No sales of additional long-term securities are expected until 1981.

In 1979 we continued to provide safe and reliable service to our customers. We're proud that our custo-mers receive uninterrupted service more than 99 .98% of the time. One of the principal reasons for this good record of reliability is the excellent performance of our The Company will purchase 50,000 kilowatts of the capacity own generating units and the adequacy of our transmis- and output of the 400 MW coal-fired Indian River Station to sion and distribution systems. Another is the progress help serve our customer 's needs during the first five years we have made in interconnecting our power system with of this decade.

those of neighboring utilities . The Company has , for many years , been an associate member of the Pennsyl- (Millions of dollars-Projected for 1980-1982) vania-New Jersey-Maryland Interconnection (PJM) which provides for the interchange of energy and capacity $125-through pooling arrangements. PJM integrates the genera-tion and transmission power supply operations of eleven 100-electric utilities serving an area of about 48,700 square miles with a population in excess of 21 ,000 ,000. We have 75-applied for and have been accepted for full membership 111 status in PJM . We expect to attain this no later than June 50-1, 1981 at which time additional operating and economic benefits will become available. Also , 1979 marked the 25-first full year of service of the entire Lower Delaware Valley Transmission System (LDVTS) which is part of 0-the PJM. LDVTS is owned by the Company and three 1977 1978 1979 1980 1981 1982 other utilities and strengthens our ability to provide reliable service to our customers and to withstand Cash Construction Expenditures emergency situations .

5

Our Customers-The People We Serve Our primary responsibility to the shareholders , or owners, of Atlantic Electric is to endeavor to provide a fair return on the investment that they have made. This can be a difficult task , particularly in the face of double-digit inflation and regulatory lag (the amount of time between when an increase is required and when it is granted). In addition, the regulatory climate must con-tinue to be responsive to our needs. Over the years , we have been able to establish a record of which we are proud : dividends have been paid for sixty-two consecu-tive years and the cash dividend has increased in twenty-seven consecutive years.

Earnings available for Common Stock amounted to

$2 .36 per average share outstanding in 1979 as com-pared to $2.21 in 1978 when there were fewer average shares ou tstanding . Dividends paid on Common Stock during 1979 amounted to $1.765 per share, compared with $1.67 per share paid in 1978. The quarterly dividend rate was increased by two and one-half cents per share with the October 1979 dividend paymen t and the new "What responsibilities does Atlantic Electric have to its rate is equiva lent to $1.84 on an annual basis .

shareholders and communities in its service area?" Electric operating revenues totaled $283 million , an increase of 11 % over 1978. These additional revenues can be attributed to (1) the increases in base rates granted to the Compan y in 1978 and 1979, (2) the modest increase in kilowatt-hour sales and (3) higher fuel costs recovered through base rates and the level-ized energy adjustment .

An important part of our responsibility to the share-holder and customer is to provide them with in formation about their elect ric energy supply and the Company's efforts on th eir behalf. O ur people are active in telling Atlantic Electric 's " story" to the public and to t he financia l community. O ur Speakers Bureau made over 200 presen tations in 1979 on topics coveri ng every aspect of our business as well as providing information on conservation and safety. Teams of Company of ficers made presentations to the New York Soci ety of Security A nalysts in May, to the Philadelphia Securities Associa-tion in July, and met with representatives of securities rating agencies. Many key financial representatives were in attendance at these three meetings .

While we are always aware of the need to safeguard the interests of our shareholders and our customers , we strongly believe in the need to protect our environment .

In keeping with this philosophy, Atlantic Electric as-sembled a 21 member advisory board comprised of members of professional groups , political representa-tives, Company employees and other interested persons who gave us t heir views on the siting of the proposed new generating station. Issues of primary concern were discussed, including air quality, water quality and avail-ability, site accessibility and community sensitivity.

6

Follow-up meetings were held with key segments of the public . We are pleased with the results of this action and know it has helped create greater awareness of our concern for the environment and our desire to listen to and , whenever practical, adopt the ideas and sugges-tions of our customers.

In accord with our environmental concerns, the instal-lation of more efficient electrostatic precipitators on Units No. 1 and No. 2 at the B. L. England Generating Station has begun and completion is expected by December 31 , 1980 and June 1, 1982 respectively . The Company President John 0. Feehan addressed the Philadelphia Securities Association in July to inform the installation of this new equipment is expected to cost financial community about the progress of the Company

$30.8 million and will enable us to satisfy particulate and the challenges it face s.

emission standards. It also will enable us to continue to burn coal in those units. Based on the current cost of fuel, using coal instead of oil will save about $43.5 million per year for our customers. Over the next three years approximately $ 33 million will be spent by the Company for capital purposes relating to improvement of the environment.

Your Company intensified its efforts in 1979 to pro-mote energy conservation . We continue to believe that conserving energy and increasing use of nuclear fuel and coal are the best ways to achieve independence from foreign oil. Our energy conservation program was a strong one:

- Our popular Energy Conservation Van made many appearances on behalf of the Company at various locations in Southern New Jersey .

- During Energy Awareness Week , we sponsored an Ex tensive wetland areas in the Southern New Jersey area

" Energy Exposition " at a local shopping mall. In all , require that Company employees use extreme caution to 28 exhibitors participated in this event which was protect the delicate ecology of the area.

seen by about 10,000 persons .

- Over 1,000 customers took advantage of our Energy Audit Program and learned how to hold the line on energy-related costs .

- An intensive newspaper advertisement campaign was undertaken to encourage the wise use of energy at times of peak demand .

- The Company launched a major customer usage-pattern study. Data from the study will help us better utilize our facilities , forecast future demand and design electric rates for each class of customers .

More efficient ele ctrosta tic precipitators are being constructed on two units at B. L. England Generating Station.

7

Our Customers-The People We Serve Reliability is the answer again. Based on current and projected operating conditions, periodic and timely rate relief will be required if we are to remain financially viable and sound . Substantial amounts of money will be needed to finance the construction of new generating ,

transmission, distribution and other service facilities as wel I as to pay for fuel and other operating expenses. The new facilities are necessary to meet the steady growth of our customers ' demands and to replace equipment as it wears out. Here is a summary of events in 1979 related to our efforts to obtain adequate rate relief :

-On June 27 , 1979 the New Jersey Board of Public Utility Commissioners (BPU) approved a $10 million increase in the Company's base rates , effective July 1, 1979. This was the result of the final segment of a two- part rate request originally filed in March, 1978.

-On August 6, 1979 we filed a request with the BPU to raise the Levelized Energy Adjustment Charge.

Effective December 1, 1979, the BPU granted us a

$64.3 million increase to recover unexpectedly high "Why does Atlantic Electric ask for rate increases? ... In 1979 fuel costs and to meet anticipated energy view of the escalating costs of electricity, is aid available expenses in 1980. This was our first energy adjust-to people on fixed incomes?" ment charge increase in 20 months . The principal cause of the major change in the Levelized Energy Adjustment Charge has been the spiraling cost of oil used in our generating units. During 1979 the cost per barrel of oil increased 98%. Oil was used to produce 35% of the electric energy generated for our customers during 1979, coal produced 37%,

nuclear fuel produced 23% and natural gas pro-duced 5%.

-On November'30, 1979 we filed an application for an increase in our base rates in the amount of $85.7 million to be received in two parts over a 15 month period. Our request calls for $45 .2 million by July 1, 1980 with the balance becoming effective before March 1, 1981.

A number of steps are being taken to conserve fuel, control energy costs and improve reliability through changes and improvements in operating procedures at our generating stations . We were able to obtain some natural gas in 1979 for use in a steam unit and in a combustion turbine at Deepwater Generating Station.

The gas displaced foreign oil (about 60% Iranian) , and it saved our customers about $1 .7 million . Unfortunately, natural gas cannot be expected to be available over the long-term , and current national policy will prevent any long-term use of gas in boilers to generate electric energy .

Late in 1979 we conducted a 30 day test of burning a mixture of coal and oil in one of the Deepwater Station boilers and the results are being evaluated .

8

A long-term contract has been signed assuring a What Price Oil?

reliable supply and some stability in the price of coal we Up66%*

burn at our B. L. England Generating Station . In view of Up66%

Up~%

the fact that the Iranian situation threatens the supply of Up~%

oil , plans are being formulated to burn coal in some of Up69%

the generating units at the Deepwater Station.

While adding nothing to reliability , another factor serving to escalate customer bills is the New Jersey Gross Receipts and Franchise Tax . This tax alone accounts for about $8 million of the $64 .3 million rise in the energy adjustment charge. This added burden only serves to compound the effects of inflation and tremen-dous fuel costs. Efforts are being made to have legisla-tion enacted in New Jersey which would limit the gross receipts and franchise tax which we must collect from our customers.

We have agreed to participate in an alternative fuel program to be sponsored by the United States Depart-ment of Energy which would convert coal to liquid fuel and gas. A number of eastern utility companies will be participating in this research project. A demonstration The se communications ca rried imp orta nt message s to our plant, capable of producing as much as 12,000 barrels of customers.

synthetic liquid fuel each day , should be ready for operation by 1984. The plant is to be constructed in Morgantown, West Virginia and part of the fuel it (Based on a Residential Bill for 500 KWH) produces will be used for testing and evaluation as a $50-boiler and combustion turbine fuel to produce elec-tricity. We also have initiated a research and develop- 40 - $37 .38 ment program involving the installation , testing and $31.25 evaluation of solar hot water heaters . 30- $25.79 $25.94 $26.30 $27.32 Utilities and governments must continue to investi-

$20.99 gate all potential alternate sources of energy . Yet we 20-must also be realistic . Based on current scientific 15.12 knowledge , it does not appear that alternate energy 10- 11.38 9.84 10.17 sources will provide substantial amounts of reliable 8.46 9.50 5.81 electric energy during this century. 0-Although efficient fuel utilization has always been a Dec. Dec. Dec. Dec. Dec. Dec. Dec.

prime goal of Atlantic Electric, the rapid increase of oil 1973 1974 1975 1976 1977 1978 1979 prices has caused an even greater emphasis on im-proved generating unit efficiency. While the controls Increased Fuel Cost Effect and reviews instituted in previous years have been Qn Customers' Electric Bills at Year-End.

maintained , we have embarked on a new program to

• Total amount of bill T otal fuel represented in t he bill further reduce the fuel we use to make electricity for our customers. An 0 perator Incentive Program , adopted Cents early in 1979, has proven successful. Its major goals (Cents per gallon or equivalent) 60-*

were to reduce the amount of fuel used per unit of electricity generated by 2% from the prior year and to 50-improve the reliability of our generators.

One form of aid for those on fixed incomes is the 40-Lifeline Credit Program which was approved by the State of New Jersey in August , 1979. Lifeline provided 30-

$1 .6 million in discounts to more than 20,000 elderly and handicapped electric customers in Southern New Jer-sey who qualified under the program . The d iscount, 20-currently $50 on el ectr ic and $50 on gas bills (or $100 on electric if they do not have gas) , is to rise to $125 in 10-October, 1980. An increase in the tax on the gross revenue of the casino hotels in Atlantic City provided the 0-Dec. Dec. Dec. Dec. Dec. Dec. Dec.

funds for this aid. 1973 1974 1975 1976 1977 1978 1979 Avera ge Cost of Fuels

• Oil

• coal

• Nu c lear

• Gas 9

Our Employees-The People Who Serve

" Reliability of service"-such few words to describe a twenty-four-hour-a-day , seven-day-a-week responsi-bility . Our employees are dedicated to providing reliable service at the lowest possible cost to our customers .

They are constantly aware of our customers ' depen-dence on electricity at all hours and take this responsi-bility seriously. This was evident on February 19, 1979 when one of the worst snow storms in our area in many years disrupted electrical service to almost one- fourth of our customers. Our operating and customer service employees worked long hours to restore service as quickly as possible . We know it was appreciated since we received many compliments about the performance of employees during the storm .

Under the two year agreement entered into between the Company and the International Brotherhood of Electrical Workers , a general wage increase of 8.3%

became effective as of Decembe r 10, 1979. An additional general wage increase of 7.77% becomes effective December 8, 1980. This increase, together with im-Reliable electric service is the product of dedicated employees proved benefits will add approximately $3 .3 million to and dependable equipment. the Company 's 1980 payroll costs.

Two new incentive programs were instituted in 1979to encourage improved productivity and safety among employees.

In addition to the Operator Incentive Program de-scribed on page 9, a new Safety Incentive Program was conducted for both physical and non-physical workers .

Prizes were awarded to employees who met personal and departmental safety goals.

The Company is pleased with the safety record achieved by employees in 1979. First , and most important , there were no fatalities in 1979. We recorded the best safety record (st atist ically) in more than ten years. The accident incidence rate was 4.28, about 16%

better than the prior year. The re was a 47% decline in the number of hours lost as a result of disabling injuries. We have worked hard to improve our safety record and have shown gradual but consistent improvement . During 1979 the number of motor vehicle accidents increased from the prior year , although most were minor in nature- we will be taking steps in 1980 to improve that record.

10

We are proud of our family of 1,900 employees. Their total payroll and benefit costs amounted to $50. 7 million in 1979-a significant contribution to the economy of our area.

While 30% of our employees have more than 25 years of service, over 50% have been with us less than 10 years.

In light of the many challenges we face, fully one-fourth of our employees participated in some type of company-sponsored training program in 1979.

SUPPORT FACILITIES WHICH AID RELIABILITY A new Company Transportation Center was dedicated in October 1979 and houses the Transportation , Heavy Hauling and Communications Departments . Located in Cologne, next to our Central Stores Center, the new In a boiler cyclone, a stud-welder applies his craft during a facility will more efficiently provide the vital service of scheduled maintenance outage at B. L. England Generating Station.

keeping all of Atlantic Electric's vehicles , communica-tions systems and heavy construction equipment in tip-top condition.

Construction of a new building which will contain all of the operations of our Meter Department has been started recently. This facility also will be located next to the Central Stores Center.

Our Atlantic City Operations Building was sold in November to Atlantic County for use by Atlantic Com-munity College. We've occupied this building since the turn of th e century and will lease back a portion of the building to house operating personnel until a new and more efficient facility is constructed .

In December we entered into an agreement for the sale of our Main Office Building , located in the midst of the casino-related construction area. Construction of a new facility on the site of the Customer Service and Engineering Centers , Pleasantville will enable achieve-ment of one of our long-term objectives-consolidation A new transportation center was opened in 1979, and of important administrative functions. provides the Company with a modern facility for vehicle maintenance.

Relocation of overhead electric wires was required so that one of the Company 's industrial customers could transport some large equipment.

11

The Area We Serve ...

One Third of the State of New Jersey For close to a century , Atlantic Electric has had the privilege of providing the Southern New Jersey area with reliable electricity. Ours is a region of great diversity and potential , and is close to some of the largest metropolitan areas in the Nation .

We continued to meet our obligation to serve new customers as well as provide service to meet the needs of current customers. During the year, 7,335 new dwell-ing units were added to our lines; 6,708 of these were single family dwelling units. The number of electric heat installations in our service area continued to increase .

There were 3,152 such installations in 1979, including 3,018 newly constructed homes and 134 units which were converted from other types of fuel.

Th e number of commercial and industrial customers we serve increased by 561 during the year. Although this growth in numbers was experienced , total kilowatt-hour sales to the commercial and industrial sector decreased

.04% during the year. And , for the first year since 1974, the average annual kilowatt-hour use by our residential This artist's representation of Southern New Jersey portrays customers declined from the prior year. This can be the uniqueness of our service area . . . a blend of important attributed to the weather and to the conservation efforts industrial and commercial complexes, productive farms , pop- of our customers.

ular resort areas and unique forest preserves. During 1979, our Company experienced a utility system peak load of 1,193 megawatts compared with 1,177 megawatts the prior year.

Projections for growth in demand show an average annual rate of 4.2% for the next five years, but over the long-haul an average of 2.9% for the next fifteen years .

Casino hotels and related area development will account for about 20% of the increase in demand over the next ten years. Three casino hotels are currently in operation and several more are expected to begin operating in 1980.

Atlant ic Electric continues to positively interact with the communities that we serve through a Colleg e Presi -

dents' Roundtable, monthly Roundtable discussions with consumers, and a newly instituted County Round-table which provides a forum for an exchange of ideas and opinions between a Company Offic er and the leaders and residents of counties in our service area.

One of the most unique events of our year occurred in December when Atlantic Electric presented a play entitled The Idea of Edison which was shown on New Jersey Public Television (NJPTV) and presented to other audiences in Southern New Jersey. The script was prepared and produced by us in collaboration with NJPTV, to celebrate the 100th anniversary of Edison 's invention of the incandescent light. This joint production was one of the first projects of its kind in New Jersey.

12

Our efforts to improve communications with our customers, shareholders and employees were wide-ranging over the past year. Energy Rush Hour and Energy Adjustment Information campaigns were launched , using both print and broadcast media , to emphasize our advocacy of load management and to increase awareness of the dramatic change in the world oil situation which so aggravated our fuel costs in 1979 and beyond.

NEWS LINE, a new and expanded employee news-paper, has enhanced internal communications by giving our people an understanding of Company policies and There She Is . . . Atlantic City 's resurgence as the Queen of good employee relations. Resorts continues to stun visitors. Approximately $2.5 In October, we held an Open House at B. L. England billion of new construction was underway at year-end 1979.

Station and, over the course of two days, played host to approximately 3,500 visitors. The combination of the tour and slide program provoked a lively question and answer session . Schools were invited the first day with the second being opened to the public at large. In light of the heightened public interest in energy matters another Open House is planned for 1980. We believe it is critically important that the public understand the tre-mendous investment and effort that goes into providing them with reliable and economic electric energy day-in and day-out.

Reliable electric energy does not come from wishful dreams about new, exotic or magical energy sources that will solve our problems over-night. It comes from the studied and steady application of modern tech-nology over an extended period of time. It comes from the commitment of vast amounts of capital and facilities not only for today's customer but for the future. Reliable electric energy comes from dedicated people doing These all-electric condominiums, in Longport, are an hard work , work which is sometimes dirty and sometimes example of the variety of types of homes comprising difficult. Atlantic Electric, its Directors, management growth in residential development in our service area.

and employees are dedicated to providing safe and reliable electric energy to the people of Southern New Jersey at the lowest reasonable cost with acceptable environmental impact while providing a fair return to the owners (the shareholders) for their investment in this Company.

The new $50 million headquarters building of The National Aviation Facilities Experimental Center, where research will be done on air traffic safety and efficiency.

13

Common Stock, Price Range and Dividends The Common Stock of the Company is traded on the New York Stock Exchange (Principal Market) and the Philadelphia Stock Exchange . The high and low sales prices of the Common Stock as reported in the Wall Street Journal as New York Stock Exchange-Composite Transactions for the periods indicated were as follows :

Dividends Paid 1979 1978 Per Share High Low High Low 1979 1978 First Quarter 197/s 18 23 20 43 112<!: 40112<!:

Second Quarter 197/s 17112 22 112 20% 43 112<!: 41 112<!:

Third Quarter 203/a 18% 23 7/s 20 7/s 43 112<!: 41 112<!:

Fourth Quarter 19% 16 3/4 21 7/s 17% 46<!: 43 V2<!:

10-K Report Available The Annual Report to the Securities and Exchange Commission on Form 10-K is available to shareholders and may be obtained by writing to the Company : Attention: Mr. C. F. Morgan , Sen ior Vice President.

Information for Investors 1979 1978 1977 1976 1975 Number of holders of Common Stock (year-end) .. . ..... 48 ,194 44,490 43,826 42 ,516 39 ,279 Total cash dividends paid per share on Common Stock .. $1 .765 $1 .67 $1 .62 $1.56 $1 .51 Pay-out ratio ............... . ... . .. ... . . ... . . ........... 75% 76% 79% 60% 63%

Book value per share (year-end) ................. ..... .. $21 .63 $21.27 $20.71 $20 .25 $19.34 Price Earnings Ratio (year-end) .. . .. .................. . . 7 8 11 9 7 Times fixed charges earned (before income taxes) ....... 3.64 3.66 3.14 3.14 2.84 For your convenience, listed below are the proposed 1980 record dates and payable dates, for dividends on Common Stock:

Record Dates Payabl e Dates March 13, 1980 September18 , 1980 Ap ri I 15, 1980 October 15, 1980 June 12, 1980 December 18, 1980 July 15, 1980 January 15, 1981 Shareholder Records: Communications regarding stock transfer requirements or lost certificates should be directed to the appropriate Transfer Agent. Changes of address , inquiries on dividends or matters concerning the Dividend Reinvestment and Stock Purchase Plan should be addressed to:

Atlantic City Electric Company Shareholder Records Departm ent 1600 Pacific Avenu e Atlantic City, New Jersey 08404 or telephone Area Code 609-645- 4506 or 4507 .

TRANSFER AGENTS REGISTRARS SHARE LISTINGS For Common Stock For Common Stock Common Stock of the Company Irving Trust Company Irving Trust Company is listed on the New York Stock 1 Wall Street 1 Wall Street Exchang e and the Philad elphia N ew York , N.Y. 10015 New York , N.Y. 10015 Stock Exchange. Th e 5%%

Cumulative Convertible Preferred First National Bank of South Jersey Guarantee Bank Stock of the Company is listed Atlantic City , N.J. 08404 Atlantic City , N.J . 08404 on the New Yo rk Stock Exc hange.

For Cumulative Preferred Stock For Cumulative Preferred Stock Record-keeping and Chemical Bank Irving Trust Company Dividend Disbursing Agent 20 Pine Street New York , N.Y. 10015 Atlantic City El ectric Company.

New York , N.Y. 10015 See address on this page .

For Cumulative Convertible For Cumulative Convertible Preferred Stock Preferred Stock Morgan Guaranty Trust Company Irving Trust Company of New York New York , N.Y. 10015 New York , N.Y. 10015 14

48¢ Reside ntial Fuel Taxes Commerc ial I

I 35¢ Cost of Invested Fund s Materials and Supplies 31 Q; Industri al Labor Depreciation I

1 7¢ Oth er Revenue 19¢ Reinvested 15¢ Fu nds 1979 Revenue Dollar I

• 4¢ Where it came from I Iii -

Where it went 8¢ I 2¢ Report of Management The financial statements presented herein have been prepared by management in conformity with *Generally Accepted Accounting Principles applicable to rate- regulated public utilities. Such Accounting Principles are consistent in all material respects with the accounting prescribed by the Federal Energy Regulatory Commission and the New Jersey Department of Energy, Board of Public Utilities. In preparing the financial statements, management makes informed judgments and estimates relating to events and transactions that are currently being reported .

In an effort to insure the integrity and objectivity of the financial data presented , the Company has established a system of internal accounting and financial controls and procedures. Such system is designed to insure that the books and records re fl ect the transactions of the Company and that estab lished policies and procedures are followed . Th e Company's system of internal accounting control is examined by managemen t on a con ti nu ing basis for effectiveness and eff iciency. Further, th e system of internal accounting control is reviewed on a regu lar basis by an intern al audit staff that reports directly to the Audit Committee of the Board of Directors.

The financial statements have been examined by Deloitte Haskins & Sells, Certified Public Accountants, whose report thereon appears below. The independent auditors provide an objective, independent review as to management's discharge of its responsibilities insofar as they relate to the fairness of reported operating results and financial condition . Their examination includes procedures believed by them to provide reasonable assu ranee that the financial statements are not misleading and includes a review of the Company's system of internal accounting and financial controls and a test of transactions .

The Board of Directors, acting through its Audit Committee , which is composed solely of outside directors, has oversight responsibility for determining that management has fulfilled its obligation in the preparati on of financial statements and the ongoing examination of the Company 's system of internal accounting control. Th e Audit Committee meets regularly with management, Deloitte Haskins & Se lls and the internal audit staff to discuss accounting , auditing and financial reporting matters . T he Audit Committee reviews the program of audit work performed by the internal audit staff. To insure the auditors ' independence, both Deloitte Haskins & Sells and the internal audit staff have complete and free access to the Audit Committee .

Auditors' Opinion Deloitte Haskins & Sells 550 Broad Street Certified Public Accountants Newark, New Jersey 07102 At lantic C ity Elect ric Com pany:

We have exa min ed the balance sheets of Atlantic City Electric Compan y as of December 31 , 1979 and 1978 and the re-lated statements of income and retained earn ing s and of changes in financial position for each of the five years in the period ended December 31 , 1979. Our examinations were made in accordance with generally accepted auditing standards a.nd , accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances .

In our opinion , the accompanying financial statements present fairly th e financial position of the Company at December 31, 1979 and 1978 and the results of its operations and the changes in its financial posit ion for each of the five years in the period ended December 31 , 1979 in conformity with generally accepted accounting principles applied on a consistent basis.

January 31 , 1980 15

1 -

Statements of Income and Retained Earnings Yea r Ended December 31 ,

1979 1978 1977 1976 1975 (In Thousands)

OPERATING REVENUES - ELECTRIC (Notes 1 and 3) ............................. . $283,106 $255 ,058 $234,995 $212 ,027 $199,079 OPERATI NG EXPENSES:

Energy (Note 1):

Fuel ........................... .. ......... . 100,472 84 ,735 82 ,735 69 ,234 71,644 Inte rc hang e . .. ... . .. .. . ... . ... . ... . . . ... .. . 19,098 2,171 3,735 4,819 2,855 Deferred Costs ....... . .... . ......... . ... . . . (20,340)

Net Energy .. ............ . ... . ... . ...... . 99 ,230 86 ,906 86,470 74,053 74 ,499 Powe r Production-Operation and Ma intenance 24 ,717 20,716 17,782 13,498 10,268 Oth er Operation and Maintenance ........... . 36,145 31 ,719 29 ,263 26,334 24,632 Dep rec iation (Note 1) . .................... . . . 22 ,590 21 ,614 19,369 17,395 16,846 Ta xes Other Than Fede ral Incom e Taxes (Note 11) ..... . ... .... ......... . . . . . . .. . ... . 35 ,860 31 ,999 29 ,069 26,342 23,394 Federal Income Tax Expense (Notes 1 and 2) .. 17,886 18,956 13,188 11,495 8,689 Total Operating Ex penses . ..... . .... ... . . 236,428 211 ,910 195,141 169,117 158,328 OPERATING INCOME ... . ...... . .. . ........... . 46,678 43 ,148 39,854 42 ,910 40 ,751 OTHER INCOME:

Allowance fo r Funds Used During Construction (Note1 ) ... ... .. .......... . ... . ........... . 7,457 7,230 Allowance fo r Equity Funds Used Du ri ng Construction (Note 1) . .... .. .............. . 3,669 3,238 3,906 M iscellan eous Non-Operating Income Less Incom e Deductions ..... . . . .. .. .. . . . . . . . . . . . 1,611 112 (25 ) 386 517 Total Other Incom e .. . .. . ............... . 5,280 3,350 3,881 7,843 7,747 INCOME BEFORE INTEREST CHARGES ....... . 51 ,958 46 ,498 43,735 50 ,753 48,498 INTEREST CHARGES:

Interest on Long Term Debt .... ... . . . . .. .. . . . 18,094 18,179 18,489 18,949 18,403 Amortization of Debt Expense and Prem ium-Net 41 40 63 52 25 Interest on Short Term Debt ... . .... . .. . ..... . 1,632 230 434 801 1,695 Other Interest Expense .. . ........ . . ... . . . . . . . 493 288 162 155 95 Total Inte rest Charges ...... . . . ...... . . .. . 20 ,260 18,737 19,148 19,957 20 ,218 Allowance for Debt Funds Used During Construction (Note 1) .... . ... .. ... . .. .. ... . (2 ,609) (2 ,303) (2 ,771)

Net Interest Charges . . .... .. .. . .. . ...... . 17,651 16,434 16,377 19,957 20,218 NET INCOME .. . ....... .. ..... ... . . .... . ...... . 34 ,307 30 ,064 27 ,358 30,796 28 ,280 RETAINED EARNINGS AT BEGINNING OF YEAR 94 ,052 88 ,601 84 ,028 74,166 65 ,765 128,359 118,665 111 ,386 104,962 94 ,045 DIVIDENDS DECLARED :

Dividends on Cumulative Preferred Stock ..... . 6,039 6,241 5,550 5,484 5,484 Dividends on Common Stock (per share 1979-1975, $1.79, $1 .70, $1.62 , $1 .58 and

$1.52) ..... . ................ . . .. . . .... . ... . 21 ,623 18,372 17,235 15,450 14,395 Total Dividends Declared ................ . 27 ,662 24 ,613 22 ,785 20 ,934 19,879 RETAINED EARNINGS AT END OF YEAR ...... . $100 ,697 $ 94 ,052 $ 88,601 $ 84,028 $ 74 ,166 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ... . .. .. ... . .... . ......... . .. . 11 ,980 10,791 10,630 9,747 9,470 EARNINGS PER SHARE OF COMMON STOCK (Note 1) . ....... . . . . ... .... . ... . .. .. ........ . $2 .36 $2 .21 $2 .06 $2 .60 $2.41 See Notes to Financial Statements 16

Statements of Changes in Financial Position Year Ended December 31, SOURCE OF FUNDS 1979 1978 1977 1976 1975 Funds from Operations : (In Thousands)

Net Income ......................... . ...... . ...... . $ 34,307 $ 30 ,064 $27 ,358 $30,796 $28,280 Principal Non-Cash Charges (Credits) to Income:

Depreciation .................................... . 22 ,590 21 ,614 19,369 17,395 16,846 Amortization of Nuclear Fu el ................. . .. . 732 1,376 1,038 Allowance for Funds Used During Construction .. . (6,363) (5, 541) (6, 677) (7,457) (7 ,230)

Federa l Income Taxes-Deferred-Net ............ . 6,281 8,116 7,866 4,697 3,962 Investment Tax Credit Adjustments-Net ......... . 4,354 4,963 2,850 6,420 3,736 Other-Net .......................... . .......... . 308 (200) (167) 132 472 Total Funds from Operations .... . .. . . . ..... ... . 62 ,209 60,392 51,637 51 ,983 46,066 Funds from Outside Sources :

Long Term Debt .......... . ............... . ....... . 15,000 2,500 51 ,500 Sale of Common Stock ..... .. ...... .. .. .. . ..... ... . 24,934 5,023 3,350 20,791 Sale of Preferred Stock ..... . .. ... .. . .. . .. ..... . ... . 10,000 Capital Stock Purchase Plan ....................... . 14 24 Increase in Short Term Debt .................... . .. . 39,475 Total Funds from Outside Sources . ..... . ...... . 64,423 5,024 28 ,374 23,291 51 ,500 Hope Creek Transfer- Net .... .. . ....... . .. .. .. .... . 3,262 Other Sources-Net ............................... . 619 1,252 23 (127) (793)

Total Source of Funds ....................... . . . $127,251 $ 66,668 $80,034 $78,409 $96,773 APPLICATION OF FUNDS Gross Additions to Utility Plant .. . . .... . .. . ... . .. .... . $ 72 ,773 $ 58,073 $48 ,733 $41 ,702 $46,745 Allowance for Funds Used During Construction ...... . (6,363) (5 ,541) (6 ,677) (7,457) (7,230)

Property Abandonment Costs . .............. ..... . ... . (12) (4,888)

Net ..... . .............. ... . .... ...... .. . . . . . .. . 66,398 47 ,644 42 ,056 34,245 39,515 Divid ends on Preferred Stock ..................... . .. . 6,039 6,241 5,550 5,484 5,484 Dividends on Common Stock .......... . .. . ... ....... . 21,623 18,372 17 ,235 15,450 14,395 Retirement and Maturity of Long Term Debt ... . .... . . . 3,222 228 15,400 10,592 15,125 Conversion of Preferred Stock ... .. .. .. .. . . .. . ... .... . 1,331 1,729 512 25 Redemption of Preferred Stock ....... ... ..... . ...... . 1,600 Decrease in Short Term Debt ........................ . 13,650 23,650 Property Abandonm ent Costs ... ............ . .... .. .. . 12 4,888 Investments in Subsidiary Companies .... .... . .. ..... . 391 135 (2,803) 1,161 895 Increase (Decrease) in Working Capital . ..... .... . . .. . 26,635 (12,569) 2,084 (2, 198) (2 ,291)

Total Application of Funds . .. ....... .. ... . ..... . $127 ,251 $ 66,668 $80,034 $78,409 $96,773 NET INCREAS E (DECREASE) IN COMPONENTS OF WORKING CAPITAL

• Current Assets :

Cash and Cash Items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,064 $(3,334) $ 2,253 $ (994) $(2,812)

Accounts Receivable ... . .......................... . 2,392 3,906 95 1,367 158 Fuel . .... ..... . ................................... . 3,240 753 3,389 (2,082) 2,392 Materials and Supplies ......... ..... .............. . 3,030 1,450 1,029 69 (71)

Prepayments . ............................. .. ..... . . 2,211 242 319 134 207 Deferred Energy Costs ........... .. .... . ..... .. . . . . 18,540 Other .. .. ... . . .. ......... . . .... . .... .. . . ...... . ... . (3,262) 3,262 (2,106)

Total .. . .. ... . ........ . ............ . ......... . . 30,477 3,017 3,823 1,756 (2,232)

Current Lia bi I ities :

Accounts Payable ...... .... ........... . . . .. .. .. ... . 1,789 983 (193) 2,527 (1,633)

Taxes Accrued .................................... . (7,509) 4,601 3,662 336 252 Interest Accrued .. . ....... .. ...... . .... . .... ... . .. . 146 32 35 (291) (32)

Deferred Energy Costs ..... . ........ .. ... . ... . .... . (4,989) 4,989 Accumulated Deferred Ta xes- Deferred Energy Costs . .. ......... .. ... . .......... . ... . .. . 8,528 Other . .......... .. . ........ . ................ . . .... . 5,877 4,981 (1 ,765) 1,382 1,472 Total . . . .. ................... . .. . . . . . ....... .. . 3,842 15,586 1,739 3,954 59 Net Increase (Decrease) in Working Capital .......... . $ 26,635 $(12 ,569) $ 2,084 $ (2,198) $ (2,291)

• Excludes Short Term Debt , Notes and Current Maturiti es of Long Term Debt and Cumulative Preferred Stock Subject to Mandatory Redemption.

See Notes to Financial Statements 17

Balance Sheets December 31 ,

Assets 1979 1978 (In T housa nd s)

ELECTRIC UTILI T Y PLANT (Notes 1 and 4):

In Service :

Product ion . . . .. ......... . ... .. .... . . . . . ........... . .. . .. .... ........... . ...... . $333 ,860 $3 28 ,563 Transm ission .... . . . ....... . . .. ..... . ........ . ...... . .... .. .. .. ..... . ......... . . 125,075 120,362 Distribution .. .. .. .. . . ........... . .......... . . . ... . .. . .... .. . . . .. . .. ........... . 243 ,961 226,657 General . ......... . ............................... .. .............. . .. . .... . .... . 17,333 16,764 Total . . .. ..... ...... . .................... . .. .... ........ .. .. .. .. . ... . ... . ... . . 720,229 692 ,346 Less Accumu lated Depreciation ............... . .... .. .............. . .. . .... . 187,608 169,361 Net . .. . . . .... ......... . .. .. . * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

• 532 ,621 522 ,985 Construction Work in Progress .. . . .. ..... . . . ............ .. . . ..................... . 132,684 97 ,538 Nuclear Fuel .. . . . . .. ............ ... ........ ... ....... . .......................... . 17 ,162 12,589 Less Accumulated Amortization . . .... .. .. . .. ....... . .............. . ........ . 3,146 2,414 Net ......... . .... ... ... . .. *. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

• 14,016 10,175 Electric Utility Plant-Net . ... . .. .. . ....... . ... .. .... .. . . ... . ....... .. ........ . 679,321 630 ,698 INVESTMENTS:

Investment in Subsidiary Compani es, at Equity (Note 5 ) .... . ............... . ...... . 3,437 3,081 Land Purchase Contracts ...... .. ... . .. .... ...... . . . ............ . . .. .... .. ....... . 813 794 Othe r ............... . .............. . . ... ........... . .. .. ....................... . . 681 561 Total Investme nts ...... . ...... . .... . ................ . ..... .. .... . ........... . . 4 931 4,436 CURRENT ASSETS :

Cash (Note 8) . .. ... . .. ............ . ........ . ..................... . ....... .. .. . .. . 2,829 3,657 Temporary Cash Investments ... . ....... . ... . ... .. .... . ............ . .. . .......... . 1,800 Special Deposits and Working Funds ...... . . .. ..... . ............ . ..... . .......... . 1,130 1,038 Accounts Receivable :

Utility Services .............. . ...... .. ..... . ..... . .......... . ........ . ..... . ... . 19,776 17,409 Miscellaneous .. ... . .. . . .. . .... .. . . . . . ... . .. . ... . .. . . .. . .... ... . . . ... ... ... . . . . . 3,036 3,011 Allowance for Doubtfu l Accounts ........ . ........... . ............... . ........ . . . (200) (200)

Fuel (at average cost) .. ............. . . .. ... . . . ........... . ................ . ...... . 22 ,264 19,024 Materials and Supplies (at average cost ) .... .. ...... ... . . . . .. . . .. . .. . . . .. ... ... . . . . 12,776 9,746 Prepaym ents . . ... . . ... ........................................ . .............. . .. . 4,480 2,269 Deferred Energy Costs (Note 1) ... . . . . . ... . .. . . . .. ........ . . . . . . . ... .. . ..... .. . . . . 18,540 Total Current Assets .. ... .. . ..... . .. . . . ......... .. .. . ................... . . . . . . 86,431 55 ,954 DEFERRED DEBITS :

Property Abandonment Costs (Note 1) . ......... . ..... ... . . . ..... .. .. . . . .. ....... . 4,684 4,888 Unamortized Debt Expense (Note 1) .. . . . . .. .... ... ........... .... ...... .. .... . ... . 1,727 1,878 Other ......... .. .......... .. . . .. . . . ......... . .... . ......... .. ......... . . . ...... . . 2,358 2,007 Total Deferred Debits .. . .. ... .. .. .... . ...... .. .... . ... .. . .... . . .. . .......... . . 8,769 8,773 TOTAL ASSETS .. . . .. .... . .... .. ... .. .. . . . ... .. . .. ..... . .................. . $779,452 $699,861 See N otes to Finan cial Stateme nts 18

December 31 ,

Liabilities and Capitalization 1979 1978 (In Thousands)

CAPITALIZATION:

Common Shareholders' Equity:

Common Stock (Note 6) ................................ . ... . ......... .. . .. . ... . $ 36,589 $ 32 ,749 Premium on Capital Stock ...... . . . .. . .. .. . . . ... ............... ....... ... ...... . 128,285 107,171 Capital Stock Purchase Plan .. .. .......... . ... . .. *. ........ ............. . ....... . 40 25 Capital Stock Expense ...... . ............... . .......... . ... . ................... . (1,781) (1 ,832)

Retained Earnings ............................................................. . 100,697 94 ,052 Total Common Shareholders' Equity .... .... . ....... . ............ .. .... ..... . 263 ,830 232 ,165 Cumulative Preferred Stock Not Subject to Mandatory Redemption (Note 6) ........ . 46 ,401 47 ,732 Cumulative Preferred Stock Subject to Mandatory Redemption (Note 6) .... ...... . . . 37,600 39 ,200 Long Term Debt (Note 7) . ... .............. .. . . . ..................... . ... .... ... . . 263,448 286 ,781 Total Capitalization (less long term debt due, and cumulative preferred stock subject to mandatory redemption , within one year) ... . . .... ... ....... ... .. . 611,279 605 ,878 CURRENT LIABILITIES :

Current Portion:

Cumulative Preferred Stock Subject to Mandatory Redemption (Note 6) ...... .. .. . 800 800 Long Term Debt (Note 7) ............. .. . . ... ..... .. .... . .................. . ... . 23,000 3,000 Notes Payable to Banks (Note 8) ..... . .... .... .. . .. ... .. .... . .. ... .... . ..... ... .. . 7,500 Commercial Paper (Note 8) . . ... .. .. ... . .. .... . . . ....... ...... . .. . . .... .. . .... .. . . 31 ,975 Accounts Payable .. ... . . .......... ........... ... ................. . .............. . 6,819 5,030 Customer Deposits ........ ...... ... . .... .... .......... .. . . .. ... ............ . .... . 3,240 2,819 Taxes Acc rued .... .......................... . . ... . . ........ . .... .... .... ... ... .. . 3, 108 10,617 Interest Accrued ............. . .. ...... ... ..... .. . . ......... . ..... .......... .. .... . 3,743 3,597 Dividends Declared . .. .. ... ...... ... . . . . . ...... .............. .. .. . ............. . . . 7,100 6,292 Deferred Energy Costs (Note 1) ... .... ......... . ......... .... . . .................. . 4,989 Accumulated Deferred Taxes-Defe rred Energy Costs (Notes 1 and 2) ...... ....... .. . 8,528 Other ..... ..... ........... . . .. .. ....... .. . . ... ... .. ......... .......... .. . .... . . . . 12,752 8,103 Total Current Liabilities .. ... .. ......... .. .. .. .. . . . . ....... . ... . .. ..... ..... . 108,565 45 ,247 DEFERRED CREDITS :

Customer Advances for Construction ..... ....... . ................................ . 792 726 Accumulated Deferred Investment Tax Credits (Notes 1 and 2) ..................... . 24,539 20,185 Accumulated Deferred Income Taxes (Notes 1 and 2) ... ..... ..... .... . . ... ...... . . 32 ,703 26 ,422 Operating Reserves .... .. .. ... .... .... . .... .. ................... . . .. .. . ... . . . .. .. . 755 740 Other Deferred Credits . ........ .. .... . . . .................. .. ........... ....... . . . . 819 663 Total Deferred Credits . ....... .. .. .... ... ...... . .. . ... .. ...... . ....... . .... . 59 ,608 48,736 COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)

TOTAL LIABILITIES AND CAPITALIZATION ...... . ................ . .. . .. . . . . $779,452 $699 ,861 See Notes to Financia l Statements 19

Notes to Financial Statements NOTE 1. SIGNIFICANT ACCOUNTING POLICIES: Nuclear fuel requirements for Peach Bottom Units No .

REGULATION-The accounting and rates of the Com- 2 and 3 are being provided by the operating company for pany are subject to the requirements of the State of New Peach Bottom through a fuel purchase contract. Pres-Jersey , Department of Energy, Board of Public Utilities ently, such costs are calculated using a zero net salvage (BPU) and in certain respects to the Federal Energy value . The Company is responsible for payment of its Regulatory Commission (FERG) . proportionate interest (7 .51%) of the cost of the fuel ELECTRIC UTILITY PLANT -Property is stated at origi- consumed and of certain operating costs and interest nal cost (cost to the person first devoting the plant to expense during the term of the contract.

public service) . Generally the plant is subject to a first The costs of nuclear fuel consumed is included in the mortgage lien . The cost of property additions , including Statements of Income as a charge to Fuel Expense .

replacement of units of property and betterments , is FEDERAL INCOME TAXES-Deferred Fed eral Income capitalized . Included in certain additions is an Allow- Taxes are provided in amounts equal to the tax effect of ance for Funds Used During Construction (AFDC) the difference between tax depreciation computed on which is defined in the applicable regulatory systems of depreciable property added after 1973 using accele-accounts as the net cost , during the period of construc- rated methods under the ADR System and the straight-tion, of borrowed f un ds used for construction purposes line method using asset guideline periods. Tax reduc-and a reasonable rate on other funds when so used. tions relating to the differences between book deprecia-Effective January 1, 1977, in accordance with a FERG tion and straight-line asset guideline depreciation are order, AFDC is computed and shown in the Statements reflected in Federal Income Tax Expense currently as of Income as other income (equity) and borrowed funds allowed by the current ratemaking policy of the BPU . In (debt) . AFDC has not been reclassified in the financial addition , the Company provides deferred Federal In-statements into equity and debt components for years come Taxes relating to the deferral of energy costs and prior to January 1, 1977, since prior period financial data to the use of the repair allowance provisions of ADR would not be comparable. AFDC has been calculated (See Note 2) . Investment tax credits are deferred on the using a rate of 8% for all years reported . Such rate is less balance sheet and are restored to income over the life of than the maximum allowed under the FERG order forthe the related property.

years 1979, 1978 and 1977.

PENSION PLAN-The Company and Deepwater, refer-DEFERRED ENERGY COSTS- The Company has a red to in Note 5, have in effect a noncontributory insured Levelized Energy Clause (LEG) which utilizes projected retirement annuity plan covering all regular employees .

energy costs which are based on a thirteen-month The cost of the plan , determined under the aggregate period ending December 31, 1980 and include prior cost actuarial method was as follows :

period under or over recoveries . Under this Clause , the recovery of energy costs is made through levelized Company Cost

• Amount monthly charges over the period of projection. Any Including Charged to Deepwater under or over recoveries are deferred in balance sheet Construction Cont ruction Cost accounts as a current asset or current liability as (In Thousands) appropriate. Such deferrals are recognized in the State-1979 .. . . $3,740 $857 $609 ments of Income in the period in which they are 1978 .... 3,529 799 573 subsequently recovered through the clause.

1977 .... 3,076 678 498 DEPRECIATION AND MAINTENANCE- The Company 1976 . . .. 2,544 582 414 provides for depreciation on the basis of the estimated 1975 . .. . 2,164 510 362 service lives of depreciable property on a straight-line

• Excludes Deepwater basis. Depreciation applicable to nuclear plant provides for estimated cost of dismantling or decommissioning . Based on an actuarial study as of Decemb er 31 , 1978, The overall composite rate of depreciation was approxi- the vested benefits computed under the Plan were in mately 3.3% for 1979, 1978 and 1977, and 3.2% for 1976 excess of pension fund assets by approximately and 1975. In addition to the provisions for depreciation , $2,181,000. The Company's Plan is in compliance with income is charged with the cost of labor, material , the Employee Retirement Income Security Act of 1974.

supervision and other expenses incurred in making PROPERTY ABANDONMENT COSTS -These costs, repairs and minor replacements and in maintaining the principally the Company 's investment in four off-shore properties in efficient condition. Accumulated deprecia- nuclear units which were cancelled by Public Service tion is charged with the cost of depreciable property Electric & Gas Company in December 1978, are being units retired, together with removal costs less salvage and other recoveries.

NUCLEAR FUEL-The Company's amortization of the Salem nuclear fuel is based on a rate using the number of units of thermal energy produced over the estimated total thermal units to be produced during the life of the fuel, plus a factor representing the estimated future costs (storage and disposal) for the disposition of spent nuclear fuel.

- 20

amortized for book purposes, with the concur rence of OTHER-Cap ital Stock expense is being amoritzed on a the BPU , over a 20 year period subject to the BPU 's fina l ratable basis over 20 years.

order with respect to disposition of these costs . Debt issuance expense and premium are being amor-EARNINGS PER SHARE- These earnings have been tized over the lives of the issues to which they pertain . In computed for Common Stock by dividing net income conformity with allowed BPU ratemaking accounting ,

less applicable preferred stock dividend requ irements all gains or losses relating to reacquired d ebt are

($6 ,065 ,900, $6,253, 193, $5,484 ,691 , $5,483 ,936 and recognized currently.

$5,483,936 in 1979 to 1975, respectively) by the average Certain prior-year amounts have been reclassified to common shares outstanding during the year. conform with current classifications.

NOTE 2. FEDERAL INCOME TAXES:

Federal income tax expense applicable to current operations is less than the amount computed by applying the statu-tory rate on book income subject to tax for the following reas ons :

Year Ended December 31 ,

1979 1978 1977 1976 1975 (In Thousands)

Net Income ... .. . ...... . . . ...... . ....... . .. . . ...... .. . $34 ,307 $30,064 $27 ,358 $30,796 $28,280 Federal Income Tax Expense (as below) ....... . .... ... . 18,868 19,064 14,130 11 ,825 8,772 Book Income Subject to Tax .......................... . $53 ,175 $49,128 $41,488 $42,621 $37 ,052 Income Tax at Statutory Rate (46%-1979, 48%-Prio r) ... . $24,461 $23,581 $19 ,914 $20,458 $17 ,785 Less :

Excess of Tax over Book Depreciation (flow-through portion) ... ...... . .. . .... ........ . .................... . 89 666 1,788 3,656 3,844 Allowance for Funds Used During Construction . ..... . 2,888 2,659 3,205 3,579 3,470 Capitalized Overheads .............................. . 1,041 927 796 730 745 Investment Tax Credits-Used ...................... . 735 610 379 289 426 Other .. ... ....... . ... . .. .. .............. . ..... . . . . . . 840 (345) (384) 379 528 Total Federal Income Tax Expense . .. ... . ... .... . $18,868 $19 ,064 $14 ,130 $11 ,825 $ 8,772 Federal Income Tax Expense is comprised of the following:

Federal Income Tax Currently Payable . . . . . . . . . . . . . . . . . $ (1 ,550) $ 5,414 $ 1,850 $ 378 $ 991 Deferred Federal Income Taxes (as below) .. . ........... 14,383 8, 116 7,866 4,697 3,962 Investment Tax Credit - Earned ................. .... .... 5,788 6,036 3,851 6,709 4,162 Investment Tax Credit - Used . . . . . . . . . . . . . . . . . . . . . . . . . . (735) (610) (379) (289) (426)

Federal Income Tax Expense .......... . .. . ... .. ........ 17,886 18,956 13,188 11,495 8,689 Federal Income Tax - Other Income . . . . . . . . . . . . . . . . . . . . 982 108 942 330 83 Total Federal Income Tax Expense . . . . . . . . . . . . . . . $18,868 $19 ,064 $14 ,130 $11 ,825 $ 8,772 Deferred Federal Income Taxes result from the following timing differences :

Deferred Credits :

Li beralized Depreciation ......... . ...... . .... . ...... . . . $ 3,830 $ 3,925 $ 4,138 $ 3,264 $ 2,256 Repair Allowance ........ .. .............. . . . .... . . . ... . 2,967 2,994 4,062 1,920 1,845 Property Abandonment Costs ........ . . ... . ....... .... . 6 1,467 Amortization-Accelerated Depreciation , Repair Allow-ance and Property Abandonment Costs ..... . .... . ... . (516) (391) (315) (247) (139)

Other ......... ..... ..... ... ......... . ...... . ... . ..... . (6) 121 (19) (240)

Total ..... . ........ . ......... . .. ... . ........... . . 6,281 8, 116 7,866 4,697 3,962 Current Liabilities:

Deferred Energy Costs ............ .. ......... .. ..... . . . 8,528 Other ................................................ . (426)

Total Deferred Federal Income Taxes-Net ........ . $14,383 $ 8, 116 $ 7,866 $ 4,697 $ 3,962 Investment tax credit earned in 1979 and 1978 includes $699,000 and $463 ,000 respectively, representing th e Company 's use of the additional investment tax credit available under th e Tax Reduction Act of 1975.

21

Notes to Financial Statements NO TE 3 . RA TE INCREASES:

During the period indicated below , rate increases have been approved by the BPU designed to increase annual revenues f ro m electric service, based in each case on the applicable test year, as follows :

Increase Date of Amount Date Amount In Test Petition Requested Effective Approved Revenue Year (M illions ) (Millions )

Augu st, 1975 ...... . ........ . . . .. .. ........... $28 .0 February 5, 1976 $ 9.3 4.7% 1975 Februa ry , 1977 .... . . . ..... ................ . . . 16.5 January 27 , 1978 8.0 3.8 1976 March, 1978 (preliminary) ..... . .. . . . ... . .. . .. 35.7 July 19, 1978 14.8 6.2 1978 March , 1978 (final ) ......... . .. . .......... . .. . July 1,1979 10.0 4.0 1978 On November 28 , 1979 the BPU appro ved an in crease in the Company 's LEC from 0.0322<1:/ kwh to 1.1019<1:/ kwh ,

ef fective Decem ber 1, 1979. This will represent an estimated increase of $64 ,300 ,000 in revenues over the thirteen-mo nth peri od end ing December 31 , 1980 (See Note 1 of Notes to Financial Statements).

On November 30 , 1979 the Company filed an application with the BPU for a rate increase of $85,700,000, based upon a projected 1980 test year. The requested amount represents an increase of approximately 25% of estimated 1980 reven ues. Th e Company proposed an in itial increase of $45 ,200,000 to be effective by July 1, 1980 and that the balance of $40 ,500 ,000 be acted upon by the BPU on or before February 28 , 1981 . The Company cannot presently p redic t ei the r the amo unts , if any, of the increase which might be granted o r the tim ing of the decisions by the BPU.

NOTE 4. JO/NTL Y-OWNED GENERA TING STATIONS:

Th e Company's ownership interests in jointly-owned generating stations at December 31 are as follows :

Electric Plant Construction Work Company 's In Service In Progress (a)

Station Share 1979 1978 1979 1978 (In Thousands) (In Thousands)

Keystone . .. . ......... . 2.47% $ 5,594 $ 5,605 $ 90 $ 69 Conemaugh .. . .. ... . . . 3.83% 10,358 9,837 679 925 Peach Bottom .. . . .... . 7.51 % 60,413 60,413 3,256 1,757 Salem . . . .......... . .. . 7.41 % 75 ,029 71 ,219 49 ,937 44,243 Hope Creek . . . . .. . .. . . 5.00% 49 ,534 34,721 (a) Am ounts shown include allowance for funds used during construction .

The Company provides its own financing for its proportionate share of the cost of each station and includes its share of direct expenses in its statements of income . The dollar amounts shown above represent only those portions of the units own ed by the Company .

NOTE 5. INVESTMENT IN SUBSIDIARY COMPANIES:

The Company 's investment in Deepwater Operating Company (Deepwater) , a wholly-owned subsidiary which operates generating and process steam units owned by the Company , was $2 ,641 ,000 and $2 ,301 ,000 at December 31 ,

1979 and 1978, respectively . T he assets of Deepwater principally consist of working capital in wh ich the equity of the Company is fairly represented by its investment in Deepwater. The net production costs of Deepwater (after deducting contract charges) are charged to the Company . These costs are included in the Company 's accounts classified as to operation , maintenance and taxes .

The Company also has an investment in Atlantic Housing , Inc. (Housing) , a wholly-owned subisidary , which amounted to $796,480 and $779 ,692 at December 31 , 1979 and 1978 respectively . Housing's principal investment is a 20% undivided interest as tenant in common in a future generating station and industrial site .

NOTE 6. CAPITAL STOCK :

COMMON STOCK-As of December 31 , 1979 and 1978, the Company's Common Stock included 14,000 ,000 authorized sh ares of Common Stock ($3 par valu e), of which 12,196,486 and 10,916 ,308 shares , respectively , were outstanding .

Shares of common stock issued in 1979 and 1978 consisted of the following :

1979 1978 Sale of Common Stock ... . ... . . . . ..... ... . ... . ... ....... . 1,000 ,000 Dividend Reinvestment and Stock Purchase .... ... . ...... . . 184,889 126,680 Employee Stock Own ership Plan . ... ... .. . .. . . . .. .. .. . . .. . 48,710 26,547 Conversion of Preferred Stock .. ... . ..... .. ... . .. ........ . 46 ,579 60,524 Total .... .... . . . ..... . . .. ........ ... . .. . . . ... . ... .... . 1,280, 178 213 ,751 Premium on Capital Stock was credited in 1979 and 1978 with $21 ,114,141 and $4 ,382 ,108 respectively , re pres enting the excess of proceeds over the par valu e of shares of Common Stock issued , so ld and converted. At December 31 ,

1979, there were 100,590 shares of Common Stock authoriz ed for issuance pu rsuan t to its Dividend Reinvestment and 22

Stock Purchase Plan which became effective in 1976 and 148,895 shares of Common Stock authorized for issuance pursuant to its Employee Stock Ownership Plan which became effective in 1977. At December 31 , 1979, 224 ,029 shares of Common Stock were reserved for the conversion of 5%% Convertible Series of Preferred Stock .

CUMULATIVE PREFERRED STOCKS-The Company has authorized 799,979 shares of Cumulative Preferred Stock, Par Value $100, and 2,000,000 shares of cumulative preferred stock , No Par Value. Unissued shares may , or may not ,

possess mandatory redemption characteristics upon issuance. In certain circumstances , if dividends on issued Cumulative Preferred Stock are in arrears voting rights for the election of a majority of the Board of Directors becomes operative.

Cumulative Preferred Stock Not Subject to Mandatory Redemption :

Premium Current on Redemption

$100 Par Value-Cumulative and Non-participating shares December 31 , Capital Price Per issued and outstanding : 1979 1978 Stock Share (In Thousands)

Series:

4% 77 ,000 Shares .. .. ... . .... .. .... ..... . . . . $ 7,700 $ 7,700 $93 $ 105.50 4.10% 72 ,000 Shares . . .. . .. . . . .... .. ..... ..... . 7,200 7,200 101 .00 4.35% 15,000 Shares . . .......... . . . .. .. .... . . . . 1,500 1,500 101 .00 4.35% 36,000 Shares . ... .. . .. . ... . . .. ... .. . . .. . 3,600 3,600 101.00 4.75% 50,000 Shares . . ........ . ... . .... . .... . . . 5,000 5,000 101.00 5.0% 50 ,000 Shares ... . . .. ..... .. . . .. ..... .. . . 5,000 5,000 100.00 5-718% Convertible Series 64,007 Shares (1979) . .. . .... . .. . .. .. ... . 6,401 103.00 77,316 Shares (1978) .. ... .. . . . ..... . ... . 7,732 7 .52 % 100,000 Shares .. . ... . .. ...... . .. .... ... . 10,000 10,000 106.77 Total . . .. ... . ........... ... ..... . . . ... . .. . . $46,401 $47 ,732 Cumulative Preferred Stock Not Subject to Mandatory Redempt ion is redeemable solely at the option of the Com-pany upon payment of the redemption price plus accumulated and unpaid dividends to the date fixed for redemption.

The 5-718% Convertible Series is convertible (subject to adjustment in certain events) into Common Stock at the rate of 3.5 shares of Common Stock for each share of Preferred .

Cumulative Preferred Stock Subject to Mandatory Redemption :

Current Refunding Par December 31 , Redemption Restricted Issued and Outstand ing : Value 1979 1978 Price Per Share Prior to Series : (In Thousands) 8.40% 100,000 Shares . ...... .. . . .. . $100 $10,000 $10 ,000 $115.00 9.96% 184,000 Shares (1979) ...... . 100 18,400 108.21 Aug . 1, 1984 200,000 Shares (1978) . . .... . 100 20 ,000

$8.25 100,000 Shares . . .. .. . . ..... . None 10,000 10,000 107.83 Nov. 1, 1987 38,400 40 ,000 Less Portion due within one year . .. .. . . 800 800 Total . . . . ... . .. ..... .... . .... . . $37 ,600 $39 ,200 On February 1, 1985, and annually thereafter, 4,000 shares of th e 8.40% Series must be redeemed through the operation of a sinking fund at a redemption price of $100 .00 per share. At the option of the Company, an additional 4, 000 shares may be red eemed on any si nking fund date, without premium , up to 32 ,000 shares in the aggregate .

On August 1, annually 8,000 shares of the 9.96% Series must be redeemed through the operation of a sinking fund at a redemption price of $100 .00 per share. At the option of the Company, an additional 8,000 shares may be redeemed on any sinking fund date, without premium , up to 40,000 shares in the aggregate. In August 1979, the Company redeemed 16,000 shares at par.

On November 1, 1983, and annually thereafter, 2,500 shares of the $8 .25 No Par Preferred Stock Series must be red eemed through the operation of a sinking fund at a redemption price of $100.00 per share . At the option of the Company , an add it ional number of sha res, not to exceed 2,500 may be redeemed , on any sinking fund date, without premium .

The minimum sinking fund provisions of the above series aggregate $800,000 in each of the years 1980, 1981 and 1982, and $1,050,000 in 1983 and 1984.

23

Notes to Financial Statements NOTE 7. LONG TERM DEBT:

December 31 1979 1978 (In Thousands)

First Mortgage Bonds:

2-7/ 8% Series due (June 1) 1979 . .. . ... .. . ... ............ . ........ . ........ . $ - $ 3,000 2-3/ 4% Series due (July 1) 1980 ......... .. ... ........ . . .. .... . . . . . .... .. ... . 4,600 4,600 2-7/ 8% Series A due (Nov. 1) 1980 ....... ... ............................... . 18,400 18,400 3-1/4°io Series due (March 1) 1982 ....... .. ..... ...... ... .. . ........... . ... . . 4,620 4,620 3-1/ 4% Series due (Jan. 1) 1983 .. . ........... . .... .. .... .. . .. . ............. . 4,050 4,050 9-1 / 4% Series due (May 1) 1983 ............................................ . 35,000 35,000 3% Series due (March 1) 1984 .... . .. . .. .... ........ . . ......... . . . ..... .. ... . 5,000 5,000 3-1 / 4% Series due (March 1) 1985 .. . .... ... .............. . ......... .... .... . 10,000 10,000 4-1/ 2% Series due (Jan . 1) 1987 ......... .. .. . .... ............ . ... .... ... .. . . 10,000 10,000 3-7/ 8% Series due (April 1) 1988 . .. .................... .. ... .. ............. . 10,000 10,000 4-1 / 2% Series due (April 1) 1989 ...... . ................ . ....... . ..... ..... . . 5,000 5,000 4-1 / 2% Series due (March 1) 1991 ....................... . . .. . ........... ... . 10,000 10,000 4-1 / 2% Series due (July 1) 1992 .. .. .... .. .. . ... ...................... ..... . . 15,000 15,000 4-3/ 8% Series due (March 1) 1993 ....... .. .. ............... . .. ............. . 15,000 15,000 5-1 / 8% Series due (Feb . 1) 1996 .......... ... .... . ....................... ... . 10,000 10,000 8-7 / 8% Series due (Sept. 1) 2000 .... .. .................. .. .. .. . ............ . 20 ,000 20,000 8% Series due (May 1) 2001 ... .... ... . ........ . ................... ... .. . .. . . 27 ,000 27 ,000 7-1 / 2% Series due (April 1) 2002 ....... .. ....... ............... .. .. . . .. .... . 20 ,000 20,000 7-3/ 4% Series due (June 1) 2003 ................................ . ..... . .. .. . 30 ,000 30,000 7-5/ 8% Pollution Control Series due (Jan . 1) 2005 ... . ...... ........ ...... . .. . 6,500 6,500 6-3/ 8% Pollution Control Series due (Dec. 1) 2006 .... . ..................... . 2,500 2,500 262,670 265,670 Debentures :

5-1 / 4% Sinking Fund Debentures due (Feb. 1) 1996 .. .. ..................... . 3,612 3,732 7-1 / 4% Sinking Fund Debentures due (May 1) 1998 ............ . . . .......... . 3,800 3,902 7,412 7,634 Notes-7.90% Notes due (Dec. 15) 1982 ...... ......... .... .. ..... .. .. . . ........ . 15,000 15,000 Add Unamortized Premium (Note 1) .. .. . .. .................... , ................ . 1,366 1,477 286,448 289,781 Deduct Series due within one year ... .. .. ... .. . ... .. .... ... ... .. ............... . 23,000 3,000

$263,448 $286,781 Deposits in sinking funds for retirement of debentures are required on February 1 of each year from 1980through 1995 for the 5-1 /4% debentures , and on May 1 of each year from 1980 to 1997 for the 7-1/ 4% debentures, in amounts in each case sufficient to redeem $100,000 principal amount plus , at the election of the Company , up to an additional

$100,000 principal amount in each year. At December 31 , 1979, the Company had reacquired and cancelled $488,000 principal amount of the 5-1 / 4% debentures and $500,000 principal amount of the 7-1 / 4% debentures toward its requirements for 1980 and subsequent periods .

Annual sinking fund requirements of $1 ,246,700, in connection with certain first mortgage bonds outstanding , are being satisfied by certification of property additions as provided for in the related mortgage indentures.

In January 1980, the Company issued $75 ,000,000 principal amount of new First Mortgage Bonds 12-5/ 8% Series due 201 O. The proceeds will be used in connection with the Company's ongoing construction program , the retirement of indebtedness and for other corporate purposes.

24

NOTE 8. SHORT TERM DEBT AND COMPENSATING Commission . Accordingly , in the event of a nuclear BALANCES: incident involving any licensed nuclear reactor in the The Company had arrangements for short term debt as United States which was not covered by the $160,000,000 follows : private insurance, the Company could be assessed ,

1979 1978 based on the three nuclear reactors now in service, a (Dollars in Thousands) maximum amount in relation to its own~rship participa-Maximum amount of short tion (approximately $1 ,100,000 for any such incident but term debt outstanding not more than $2,200,000 in any year).

at any month-end Due to the suspension of construction of the Forked during the year: River Nuclear Generating Station and the resultant delay Notes Payable to Banks $ 7,500 $- in the commercial operation of that unit, the Company Commercial Paper ..... . $31 ,975 $7 ,000 has terminated negotiations with Jersey Central Power &

Light regarding the purchase of a 10% ownership in the Average daily amount of short Forked River unit. The Company and Pennsylvania term debt outstanding Power & Light Company (PPL) , have entered into an during the year: agreement whereby the Company will purchase 5.94% of Notes Payable to Banks $ 2,260 $ 88 the net capacity and energy output of each of two PPL Commercial Paper . ... . . $ 9,352 $1 ,599 1050 MW nuclear generating units, scheduled to be Weighted daily average placed in service January 1982 and January 1985, interest rate of short term respectively. The purchase of power from PPL will debt du ring the year: commence with commercial operation of the stations Notes Payable to Banks 13.0% 8.5% and continue through September 30, 1991 . Also , the Commercial Paper .... . . 12.4% 7.9% Company on December 11 , 1979, signed an agreement with Delmarva Power & Light Company (DPL) for the Weighted average interest purchase of 50 MW of power from the output of DPL's rates for short term debt coal-fired Indian River Station, which is scheduled to be outstanding at year-end: placed in service during the fall of 1980. The purchase of Notes Payable to Banks 14.7% 50 MW of power from DPL will commence with commer-Commercial Paper ..... . 13.2% cial operation of the station and continue through May The unused lines of credit available at December 31 , 31, 1985. In addition , the Company, on October 10, 1979, 1979 and 1978 were $20,525 ,000 and $40,000 ,000 , re- signed a letter of intent with DPL for a 25% ownership in spectively. Demand deposits are maintained with lend- the 500 MW coal-fired Vienna No. 9 Generating Station ,

ing banks, *certain of which are deemed to constitute which is scheduled to be placed in commercial operation compensating balances which are not legally restricted . in 1987.

Based on lines of credit and loans outstanding at NOTE 10. LEASES:

December 31 , 1979 and 1978 respectively , such com- Rents, principally charged to operations, amounted to:

pensating balances approximated $1 ,581,000 and $4 , 182,000, $3,805,000 , $3 ,600,000 , $3,500 ,000 and

$1 ,550,000. $3 ,380,000 for the years 1979 to 1975, respectively . In NOTE 9. COMMITMENTS AND CONTINGENCIES: accordance with ratemaking treatment, the Company 's Construction expenditures , including nuclear fuel but capital leases are accounted for as operating leases.

excluding production plant, are estimated at $71,000,000 Such leases, if capitalized , would have increased the for 1980. Commitments for the construction of produc- Company 's assets and liabilities by approximately tion plant amount to approximately $245,000,000 of $17,000,000 and would not have had a material impact which it is estimated that $45,000,000 will be expended in on the Company's net income.

1980. Future minimum rental commitments under capital The Price-Anderson Act places a liability limit of leases and noncancelable operating leases as of Decem-

$560,000,000 on each nuclear generating unit for public ber 31, 1979 are approximately:

liability claims that could arise from a nuclear incident. In Year Capital Operating Total the event of any such incident, all owners of nuclear (In Thousands) generating units licensed to operate would be required to 1980 ... .. . $ 2,000 $500 $ 2,500 contribute toward satisfaction of such claims. The Com - 1981 . . . .. . 2,000 400 2,400 pany , as a co-owner of the Peach Bottom and Salem 1982 .. ... . 2,000 300 2,300 Stations, has partially insured for this exposure by 1983 .. ... . 2,000 300 2,300 purchasing , through the principal owners, private insur- 1984 . .... . 2,000 100 2,100 ance in the maximum available amount of $160,000,000. Thereafter 24,100 800 24,900 The remainder ($400,000,000) is provided by a combina-tion of a mandatory program of retrospective premiums The total minimum rental commitments for capital to be assessed against owners of nuclear reactors after a leases as of December 31, 1979 are applicable to nuclear incident (up to $5,000,000 per incident but not combustion turbine generating units (69%), fuel storage more than $10,000,000 in any calendar year, for each facilities (19%) and general plant (12%). Minimum rental licensed nuclear reactor in the United States) and by commitments for operating leases are applicable to indemnity agreements with the Nuclear Regulatory steam production (55%) and general plant (45%) .

25

Notes to Financial Statements NOTE 11 . SUPPLEMENTARY INCOME STATEMENT INFORMATION:

Operating expenses include taxes and oth er items not separately identified in the Statements of Income, as fo llows:

Year Ended December 31 ,

1979 1978 1977 1976 1975 (In Thousands)

Taxes Other Than Income Taxes:

Real and Personal Property Taxes . .. . .. .... . $ 1,266 $ 646 $ 825 $ 890 $ 861 State Gross Sales, Excise and Franchise Taxes and Miscellaneous State and Local Taxes . ........ .. .. .. . .. .. ...... . . . . 33 ,149 30,165 27 ,209 24,548 21 ,652 Social Security Taxes - Federal and State .. . . 1,445 1,188 1,035 904 881 Total .. . .. . . .......... . . . .. .. . . . . .. ... . $35 ,860 $31,999 $29,069 $26 ,342 $23,394 Maintenance Expenses . . .... .. .. . ..... .. .. . . .. . $20 ,565 $17,217 $15,038 $11 ,663 $ 8,867 Charges to income for royalties and advertising are less than 1% of gross revenue .

NOTE 12. QUARTERLY FINANCIAL RESULTS ( UNAUDITED ):

Quarterly financial data which reflect all adjustments (which consist of only normal recurring accruals) necessary in the opinion of the Company for a fair presentation of such amounts are as follows :

Operating Operating Net Earnings For Earnings Quarter Revenues Income Income Common Stock Per Share (In Thousands) 1979 1st .. . ... . . . . . .... ... . .. . $ 65,532 $10,578 $ 7,503 $ 5,965 $ .51 2nd ..... ... . ... .. ...... . 62,526 9,413 6,418 4,883 .41 3rd .. . .. ........ .. .. ... . . 85,001 17, 148 13,833 12,328 1.02 4th . .. ... .. .. . .... . .. .... 70,047 9,539 6,553 5,065 .42

$283 ,106 $46 ,678 $34,307 $28,241 $2 .36 1978 1st ... . .. ..... .. ... . . .... $ 60,575 $ 8,603 $ 5,274 $ 3,705 $ .35 2nd ..... . .... .. . . . ... . .. 58,198 8,240 4,991 3,422 .32 3rd . . .... .. . . . . . . .. . .. . .. 75 ,238 16,708 13,374 11 ,811 1.09 4th ... ... .. . ......... ... . 61 ,047 9,597 6,425 4,873 .45

$255 ,058 $43 ,148 $30 ,064 $23 ,811 $2 .21 The revenues of the Company are subject to seasonal fluctuations due to in creased sales and higher residential rates during the summer months .

26

Management's Discussion and Analysis of the Statements of Income The Statements of Income reflect the results of past operations and are not intended as any representat ion as to results of operations for any future period.

The following summary reflects the year-to-year changes , increase or *(decrease) , in the principal items of the I Statements of Income (amounts stated in thousands):

1979 and 1978 Comparison of 1978 and 1977 I Operating Revenues . . . . . .. .. . .... . ...... . . . . .. . .. .. . .. . .. . .

Net Energy ... . . . . . . .... . .. .. . .. . . ....... .. ..... . ...... . ... .

$28 ,048 12,324 11 .0%

14.2

$20,063 436 8.5%

0.5 Power Production - Operations and Maintenance ... . .... .... . 4,001 19.3 2,934 16.5 Other Operations and Maintenance .... . ... . .. . .. . .. . ...... . . 4,426 14.0 2,456 8.4 Depreciation . . .... . .. . . . . . . . .. ... . .... . . . .. ...... . . . ... .... . 976 4.5 2,245 11.6 Taxes Other than Federal Income Taxes . . . . . . ... . . .... .. ... . 3,861 12.1 2,930 10.1 Federal Income Tax Expense ... . . . ... . .... . .. . . . . . .. . ...... . {1 ,070) (5 .6) 5,768 43.7 Other Income .. . . . . ... . .... .. . . . . . . . . ........ . ..... ... . . . .. . 1,930 57 .6 (531) (13 .7)

Net Interest Charges . . . .. . . .... . ...... . .... . . ... ... ... ..... . 1,217 7.4 57 0.4 OPERAT ING REVENUES - Increases are principally at- OTHER OPERATION AND MAINTENANCE- Increases tributable to increases in energy sales in 1979and1978, in 1979 and 1978 are due principally to higher transmis-rate increases in January and July of 1978 and July and sion and distribution maintenance expenses and in-December of 1979. creased administration and general costs . The in-NET EN ERGY : creased charges continue to result from inflationary FU EL-Although generation increased 1.8% in 1979, pressures, including higher costs of material, supplies the significant increase in fuel of $15 ,737 ,000 (18.6%) and wages.

is principal ly attributable to an increase in the cost of DE PRECIATION-The increases in 1979 and 1978 are fuel. principally attributable to higher depreciable plant bal-INTERCHANGE-Interchange reflects the net cost of ances and , as to 1978, the placing in service of the Salem energy interchanged to and from other utilities within Nuclear Generating Unit in June of 1977.

the PJM. The almost eight-fold increase in 1979 of TAXES OTHER THAN FEDERAL INCOME TAX

$16,927 ,000 generally reflects the Company 's ability EXPENSE-These taxes are principally taxes on the to acquire (import) energy at a lower cost than if the Company 's gross receipts . The increases in 1979 and Company had generated the energy . The Company 1978 are a direct result of increases in the Company 's was also a net importer of energy in 1978. operating revenues .

DEF ERRED COSTS-These costs represent energy FEDERAL INCOME TAX EXPENSE-The decrease in costs incurred by the Company which were not re- 1979 includes the effect of a lower statutory tax rate in covered in 1979 under the Company's LEG (see Note 1 1979. See Note 3 of Notes to Financial Statements for a of Notes to Financial Statements). Accordingly , such reconc iliation of actual Federal Income taxes to such costs have been deferred on the Company 's balanc e taxes computed at statutory rates .

sheet to be recovered in future periods . OTHER INCOME- Other Income, principally AFDC ,

POWER PRODUCTION-OPERATION AND increased in 1979 as a result of higher equity AFDC MAINTENANCE-The increases in 1979 and 1978 are resulting from higher construction work in progress principally attributable to increased operational charges balances . The decrease in 1978 results primarily from and major maintenance at our jointly-owned facilities th e exclusion of the debt portion of AFDC from other and to higher operational and maintenance costs at our income (See Note 1 of Notes to Financial Statements) wholly-owned facilities. and the transfer of the Salem Nuclear Generating Unit into service in June , 1977.

N ET INTEREST CHARG ES-The increase in 1979 is principally attributable to increases in short term debt incu rred in c onn ection with th e Company 's construc-ti o n pro gram .

27

Supplementary Information Concerning the Effects of Changing Prices (Unaudited).

The following supplementary information is supplied in accordance with the requirements of the Financial Accounting Standards Board for the purpose of providing certain information about the effects of changing prices . It should be viewed as an estimate of the approximate effect of inflation , rather than as a precise measure.

Constant dollar amounts in the statement that follows represent historical costs stated in terms of average 1979 dollars. The current cost amounts shown reflect changes in specific prices of ut ility plant from the date such plant was acquired to 1979, and differ from constant dollar amounts to the extent that specific prices have increased more or less rapidly than prices in general.

Statement of Income From Continuing Operations Adjusted for Changing Prices Year Ended December 31 , 1979 Actual at In Constant Dollars At Current Cost Historical Average Average Cost 1979 Dollars 1979 Doi lars (In Thousands)

Operating Revenues . ............ . $283,106 $283,106 $283,106 Operating Expenses :

Net Energy .. . . ......... . . . ... . 99 ,230 99,581 99,602 Depreciation (Note d) ...... . ... . 22 ,590 44,378 49 ,536 Other Operating & Maintenance 86 ,162 86,162 86,162 Income Tax Expense . .... . .... . 17,886 17,886 17,886 Interest Expense . . .. ........ . . . 17,651 17,651 17,651 Other Income . ........ .... . . .. . 5,280 5,280 5,280 248,799 270 ,938 276 ,117 Income from Continuing Operations (changing price columns exclude a reduction to net recoverab le cost) (Notes a and e) . .... . . ... . $ 34,307 $ 12,168 $ 6,989 Increase in Specific Prices of Utility Plant Held During the Year (Note b) .. . ....... . ...... . $101 ,964 Reduction to Net Recoverable Cost (Note e) . .. . . ..... . . . ......... . $ (5 0,664)

Effect of Increases in Genera l Price Level ..... ... ..... .. . . ....... . . (147,449)

Subtotal . . .... . . .. ....... . ...... . (45,485)

Gain from Decline in Purchasing Power of Net Amounts Owed (Note e) ...................... . 47,551 47,551 Net . .. .... . .... ... ........ . ... . . . $ (3 ,113 ) $ 2,066 (a) Including a reduction to net recoverable cost, the results of continuing operations on a constant dollar basis would have been a loss of $38,496,000 for 1979.

(b) At December 31, 1979, current cost of utility plant, net of accumulated depreciation , was $1,257,311 ,000, while historical cost or net cost recoverable through depreciation was $679 ,321,000.

(c) Constant dollar costs were determined by converting historical costs of utility plant and certain other items into average 1979 dollars by using the Consumer Price Index for All Urban Consumers (CPl-U). The current cost of utility plant was measured by using th e Handy-Whitman Index of Public Utility Construction Costs applied to historical costs by vintage years.

In compliance with Statement of Financial Accounting Standards N o. 33, items in the income statement, other than depreciation and amortization of nuclear fuel were not adjusted.

(d) The estimated data for utility plant , comprising plant in service, construction work in progress, plant held for future use and nuclear fuel , determined using the indices specified above, are not indicative of the value of existing utility plant nor of the Company's future capital requirements. The actual replacement of ex isting utility plant will take place over many years and not necessarily in the same manner as the presently existing assets .

28

The accumulated provisions for depreciation and amortization under both constant dollar and current cost methods described above were estimated for each major class of utility plant-nuclear, fos sil or other production; transmission ; distribution and general plant. The method used was to multiply the respective cost data by a percentage representing the expired li fe of existing f acilities of each class at December 31 , 1979 . Depreciation and amortization expen se for both methods were determined using the rates and methods used for comp uting book depreciation and amortization applied to utility plant balances re-expressed in terms of constant dollars and current costs.

(e) Under rate-making prescribed by the regulatory commissions to which the Company is subject, only the historical cost of utility plant is recoverable in revenues as depreciation . Therefore, the excess of the cost of utility plant stated in terms of constant dollars or current cost over the historical cost of plant is not presently recoverable . Due to this feature , the value of utility plant under both methods must be reduced to net recoverable cost which is historical cost. While the rate-making process gives no recognition to the current cost of replacing utility plant ,

based on past pract ices the Company believes it wi II be al lowed to earn on the increased cost of its net investment when replacement of facilities actually occurs.

To properly reflect the economics of rate regulation in the Statement of Income from Continuing Operations, the reduction of net utility plant should be offset by the gain that results from the decline in purchasing power of the net amounts owed by the Company. During a period of inflation, holders of monetary assets such as cash and receivables suffer a loss of general purchasing power while holders of monetary liabilities , generally long term debt, experience a gain because debt will be repaid in dollars having less purchasing power. The Company's gain from the decline in purchasing power of its net amounts owed is primarily attributable to the substantial amount of debt and cumulative preferred stock subject to mandatory redemption which has been used to finance utility plant . This gain, however, should not be considered as providing funds to the Company . Since depreciation on utility plant is limited to the recovery of historical costs, as explained above, the Company does not have the opportunity to realize the holding gain and is limited to recovery only of its embedded cost of debt capital.

(f) Fuel inventories, the cost of fossil fuels used in generation , have not been restated from their hi storical cost.

New Jersey regulation controls fuel costs through the operation of a levelized energy cl ause such that recovery is ultimately limited to actual cost. For this reason fuel inventories are effectively monetary assets.

Five Yea r Comparison of Selected Supplementa ry Financial Data Adjusted for Changing Prices (In Thousands of Average 1979 Dollars)

Years Ended December 31, 1979 1978 1977 1976 1975 Operating Revenue'!' ............................. . $283,106 $285,211 $282 ,900 $271,717 $269,843 Historical cost information adjusted for genera l inflation Income from continuing operations (excluding reduction to net recoverable cost) ............ . 12, 168 Income per common share (after dividend requirements on preferred stock) ............ . .51 Net assets at year-end at net recoverab le cost .. . 293,444 Current cost information Income fro m co nt inui ng operati o ns (exc ludi ng red uc t io n to net recoverable co st ) ...... . ..... . 6, 989 In co me per co mmon share (after di vidend requireme nts on prefe rred stock) . . ......... . . .08 Excess o f increase in general price leve l over increase in spec ific prices (after reduction to net recoverable cost) ................ . .... . 45,485 Net assets at year-end at net recoverable cost .. . 293,444 General Information G ain from decli ne in purchasing power of net am o un ts ow ed .... . ....... . . . .... . .......... . $ 47, 55 1 D ividend s dec la red per co m mon share": .... . ... . $ 1.79 $ 1.90 $ 1.95 $ 2.02 $ 2.06 Ma rket price per co m mo n share at ye a r-e nd~ ... . $ 17.1 25 $ 20 .128 $ 27 .689 $ 30.436 $ 23. 212 Average c o nsumer price index . ....... . ... . .... . 218. 5 (est.) 195.4 181.5 170.5 161 .2

• (T rended) 29

Statistical Review and Summary of Operations 1979-1969 Facilities for Service 1979 1978 1977 1976 Total Utility Plant (Thousands) .. . ............. $ 870 ,075 $ 802,473 $ 753,269 $ 710,343 Gross Additions to Utility Plant (Thousands) ... $ 72 ,773 $ 58,073 $ 48,733 $ 41,702 Pole Miles of Transmission and Distribut ion Lines 6,831 6,786 6,735 6,696 Generating Capacity (Kilowatts) (a) ............ 1,384,700 1,414,700 1,414,700 1,334,700 Maximum Utility System Demand - Kw ........... 1,192,600 1,177,400 1,176,000 1,030,300 Source of Energy (Thousands of Kwh)

Net Generation ... ..... . . ................ . . ... 5,397 ,338 5,625 ,988 5,293,019 4,918,906 Pu re hased and Interchanged - Net ........... . . 464, 143 130,037 224 ,169 324,196 Total .... . . . .. .. .. .. ... . ........... . ... . 5,861,481 5,756,025 5,517 ,188 5,243 ,102 Electric Sales (Thousands of Kwh)

Residential .. .. . . . . ... . .. . ... .. ... .. .......... 2,411 ,732 2,377 ,202 2,221 ,250 2,070 ,766 Commercial .......... .. . ... ..... . ........... . 1,580,384 1,586,097 1,478,559 1,392 ,029 Industrial .............. . .. ... .. . . . ...... .... .. 1,255,304 1,250 ,636 1,220,260 1,143,170 All Others ..... . . . ............ . ...... . ..... . .. 60 ,799 60,705 58,866 57 ,667 Total . ......... . .. ... .. . .... ... ....... .. 5,308 ,219 5,274 ,640 4,978 ,935 4,663 ,632 Gross Revenue (Thousands of Dollars )

En ergy Sales Residential . . . . .... .. ...... . .. . ....... ...... $ 135, 178 $ 121,440 $ 109,818 $ 98,904 Commercial . .............. .. ........ . ...... 88 ,819 80,539 73,354 66,354 Industrial ... .. ... ..... . ... .. .. .. .. .. . .. ..... 47 ,590 42 ,185 40,885 36,438 All Others ....... .... .. ...... .. ..... .. .... . . 6,624 5,973 5,630 5,406 Total . . ...................... . .......... 278 ,211 250,137 229 ,687 207, 102 Other Electric Revenue .. . . . .. ....... . . . . .. .... 4,895 4,921 5,308 4,925 Total ..... .... .. . ... .......... ..... ..... $ 283 , 106 $ 255,058 $ 234,995 $ 212 ,027 Resident ial Electric Service (Average per Customer)

Amount of Electricity used during the year (Kwh) 7,849 7,951 7,653 7,320 Amount paid for a year's service . . ...... . ... .. . $ 439.92 $ 406.18 $ 378 .36 $ 349 .64 Price paid per Kilowatt-hour . ... . ............. . 5.61 c 5.11 < 4.94c 4.78" Customer Service Locations - Electric (Year-End ). 371 ,362 362,131 352 ,205 343, 147 Population Served ............... . .... .. . ..... 1,015 ,000 990,000 961 ,000 937 ,000 Summary of Operations (Thousands of Dolla rs)

Operating Revenues-Electric ................. $ 283 ,106 $ 255 ,058 $ 234,995 $ 212,027 Operating Expenses Fuel ............... .. .... . ........ .. ........ 100,472 84,735 82 ,735 69,234 Interchange .... .. ... ........... . ... . ....... 19,098 2, 171 3,735 4,819 Deferred En ergy (Costs) .................... (20 ,340)

Power Production .. . .. . . ...... . ............. 24 ,717 20 ,716 17,782 13,498 Other Operating and Maintenance Expenses . 36 ,145 31 ,719 29 ,263 26,334 Depreciation ... ... . .. .. . . . ... ... . . .. . ... . .. . 22 ,590 21 ,614 19,369 17,395 Taxes . ... . . . . .. .. .......................... 53, 746 50 ,955 42 ,257 37,837 Total Operating Expenses . ........... .. . 236,428 211 ,910 195,141 169,117 Operating Income ...... ... ... . ........ 46,678 43 ,148 39,854 42 ,910 Other Income and Deductions-Net ............ 5,280 3,350 3,881 7,843 Income before interest charges ....... . 51 ,958 46,498 43,735 50,753 Interest Charges-Net . . ..... ... .. ... .. .. . ... .. 17 ,651 16,434 16,377 19,957 Net Income ... .. ........ . .. ... ....... . 34 ,307 30,064 27 ,358 30,796 Dividends Paid or Accrued on Preferred Stock 6,066 6,253 5,485 5,484 Earn ings for Common Stock ...... ..... $ 28 ,241 $ 23 ,811 $ 21 ,873 $ 25 ,3 12 Average Shares of Common Stock Outstanding .. 11 ,979,607 10,790,977 10,629,930 9,747 ,012 Earnin gs Per Share of Common Stock ......... . . $2 .36 $2.21 $2.06 $2.60 Dividends Declared Per Share of Common Stock . $1 .79 $1.70 $1 .62 $1 .58 Div idends Paid on Common Stock (Cash) .... .... $1 .765 $1 .67 $1.62 $1.56 (a) Excludes capacity al located to a large industrial customer.

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o*A!t~n!i££t~~!1c IN SOUTHERN NEW JERSEY 1975 1974 1973 1972 1971 1970 1969

$ 675,617 $ 637 ,250 $ 572 ,555 $ 511,274 $ 455,956 $ 404,364 $ 357,863

$ 46 ,745 $ 71 ,200 $ 67 ,864 $ 58,434 $ 54, 151 $ 48,200 $ 35,306 6,645 6,580 6,506 6,408 6,333 6,252 6,187 1,334,700 1,278,700 1,013,500 965,900 897 ,600 821,400 757,800 1,069,400 1,004,400 1,051,400 920,400 829 ,300 755 ,500 721 ,800 4,715 ,357 4,651,334 4,236,083 4,071,225 4,262 ,062 4,294,352 4,227 ,315 190,852 229 ,197 665 ,558 458,050 -74,395 -358,203 - 566,932 4,906,209 4,880 ,531 4,901 ,641 4,529,275 4,187 ,667 3,936,149 3,660 ,383 1,938,724 1,882,560 1,899,122 1,741 ,895 1,624,793 1,520,939 1,375,546 1,346,216 1,298 ,858 1,351 ,974 1,183,668 1,059,498 977 ,210 879,916 1,036,755 1,136,935 1,119,478 1,061 ,932 990,363 954,111 911 ,138 56,465 57,477 58,129 64,531 88,963 101,703 116,021 4,378, 160 4,375,830 4,428 ,703 4,052,026 3,763,617 3,553,963 3,282,621

$ 90,956 $ 78 ,512 $ 59 ,856 51 ,544 $ 42 ,623 $ 36,979 $ 32 ,672 63 ,544 55 ,713 42 ,804 35,868 28 ,648 23,933 20,584 34,974 33,565 22 ,008 19,350 16,529 13,036 11 ,303 4,881 4,207 3,861 3,763 3,919 3,795 3,753 194,355 171 ,997 128,529 110,525 91 ,719 77,743 68,312 4,724 4,614 4,365 4,128 3,687 3,648 3,731

$ 199,079 $ 176,611 $ 132,894 $ 114,653 $ 95,406 $ 81 ,391 $ 72,043 7,018 6,982 7,303 7,008 6,793 6,542 6,072

$ 329.25 $ 291.21 $ 230.19 $ 207.37 $ 178.19 $ 159.06 $ 144.22 4.69" 4.17" 3.15" 2.96" 2.62" 2.43" 2.38¢ 336,105 330 ,758 320 ,834 309,393 297,437 288 ,538 282,274 915 ,000 894,000 865 ,000 828,000 796 ,000 773 ,000 753,000

$ 199,079 $ 176,611 $ 132,894 $ 114,653 $ 95,406 $ 81,391 $ 72,043 71 ,644 73,167 37 ,144 29,944 28 ,705 22,457 15,691 2,855 5,862 8,1 55 3,979 (815) (2,941) (3,165) 10,268 11 ,360 8,810 8,060 6,686 5,111 5,074 24 ,632 21 ,730 21,119 19,388 17,462 15,692 14,194 16,846 12,946 11 ,749 11 , 190 10,355 9,632 9,043 32 ,083 16,203 16,616 15,359 10,603 11 ,129 12,292 158,328 141 ,268 103,593 87,920 72 ,996 61,080 53 ,129 40 ,751 35 ,343 29 ,301 26,733 22,410 20,311 18,914 7,747 10,755 8,745 6,647 5,164 3,520 1,773 48 ,498 46,098 38,046 33,380 27,574 23,831 20,687 20,218 19,088 15,129 13,297 11 ,641 9,276 6,302 28 ,280 27 ,010 22,917 20,083 15,933 14,555 14,385 5,484 4,233 2,652 2,456 1,900 1,900 1,900

$ 22 ,796 $ 22 ,777 $ 20 ,265 $ 17,627 $ 14,033 $ 12,655 $ 12,485 9,470,073 8,973,400 8,453,400 7,810,073 7,436 ,740 6,920 ,073 6,817 ,083

$2.41 $2 .54 $2 .40 $2 .26 $1 .89 $1 .83 $1 .83

$1 .52 $1 .50 $1.4766 $1.4316 $1 .37 $1.345 $1 .31

$1 .51 $1.50 $1.4688 $1.4144 $1 .36 $1.34 $1 .30 This An nua l Report has been prepared for the purpose of providing general and statistical information concerning the Company and not in connectio n with any sale ,

offer for sale or solicitation of an offer to buy any securities .

Print ed in U .S.A.

31

Directors: Board of Directors Committee Listings Eleanor S. Daniel Mr. Linkletter, Chairman of the Board , serves as an ex-Self employed . Vice President and Director of several officio member of all committees and Mr. Feehan ,

real estate corporations. President , serves as an ex-officio member of all com-mittees except the Audit Committee .

Richard M. Dicke Counselor at law. Senior Partner of the law fi rm of Audit Committee Pension and Insurance Simpson Thacher and Bartlett. John M. Miner, Cha irman Committee Eleano r S. Dan iel Richard M. Dicke, Cha irman John D. Feehan Joseph M. Galvin, J r. Jo hn M. Miner President and Chief Executive Officer of the Company . Mack C. Jones Frank H. Wheaton , J r.

Richard M. Wilson Joseph M. Galvin, Jr.

Corporate Development Executive Directo r and Chief Executive Officer of Salem Committee Personnel Committee County Memorial Hospital. Frank H.Wheaton ,Jr.,Chairman Richard M. Dicke, Chairman Mack C. Jones Eleanor S. Daniel Eleanor S. Daniel Engineer. Retired . Mack C. Jones Frank H. Wheaton , Jr.

John M. Miner Alfred C. Linkletter Shareholder, Consultant, Chairman of the Board of Directors of the Energy, Operations and Community and Company . Research Committee Government Relations Mack C. Jones, Cha irman Eleano r S. Daniel , Chairman John M. Miner Richard M. Dicke Joseph M. Galvin , J r.

Senior Vice President of Crocker National Bank . Richard M. Wilson Frank H. Wheaton , J r.

Frank H. Wheaton, Jr. Richard M. Wilson President of Wheaton Industries. Manufacturer of glass Finance Committee and plastic containers . John M. Miner, Chairman Eleanor S. Daniel Richard M . Wilson Richard M . Dicke Senior Vice President of the Company . Mack C. Jones Dividend Reinvestment and Stock Purchase Plan The Company continues to offer a Dividend Reinvest-ment and Stock Purchase Plan which enables share-holders and employees to automatically invest their cash dividends in Company Stock , and also make optional cash payments without paying brokerage com-missions or service charges . About 185,000 shares were purchased through the Plan in 1979 with proceeds to the Company in excess of $3.4 million . There were 9,122 participants in the Plan at year-end. To enroll , please contact our Shareholder Records Department.

Regional Information Meeting Atlantic Electric held a Regional Information Meeting for Southern New Jersey Shareholders on November 27 ,

The Company was awarded the 1979 Nicholson Award by 1979. President and Chief Executive Officer John D.

the National Association of Investment Clubs for "Best 1978 Annual Report for the Individual Investor ".

Feehan spoke to the 150 persons in attendance on a number of topics affecting the Company . Chairman of the Board Alfred C . Linkletter and oth er Directors and Officers were in attendance and offered expert com-mentary on such topics as rate relief, dividends , nuclear power, construction an d fuel costs and casino-hotel development .

32

Officers Michael A . Jarrett John D. Feehan Frank J. Ficadenti Vice President- President and Chief Senior Corporate Services Executive Officer Vice President Jerrold L. Jacobs John F. Born Richard M. Wilson Vice President- Vice President- Senior Production Electric Operations Vice President David V. Boney William S. Cowart, Jr. William F. Symons Vice President- Senior Vice President-Customer and Vice President Personnel and Community Services Public Relations Brian A. Parent Charles F. Morgan Martin R. Meyer Assistant Treasurer Senior Secretary and and Vice President and Assistant Treasurer Assistant Secretary Treasurer Ernest D. Huggard Joseph G. Salomone Joseph T. Kelly, Jr.

Vice President- Controller Assistant Control Vice President-Rates and Regulations

BULK RATE U.S. POSTAGE PAID ATLANTIC CITY ELECTRIC COMPANY 1

~~

L..... Atlciilttc Electric SERVING A MILLION PEOPLE

. . IN SOUTHERN NEW JERSEY

• , 1600 Pacific Avenue Atlantic City , N .J . 08~04 .