ML18086B409
| ML18086B409 | |
| Person / Time | |
|---|---|
| Site: | Salem, Hope Creek  |
| Issue date: | 04/08/1982 |
| From: | Fryling R Public Service Enterprise Group |
| To: | Office of Nuclear Reactor Regulation |
| Shared Package | |
| ML18086B410 | List: |
| References | |
| NUDOCS 8204150363 | |
| Download: ML18086B409 (138) | |
Text
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- Public Service Electric and Gas Company 80 Park Plaza, Newark, NJ 07101 I 201 430-6468 MAI LING ADD RESS I P.O. Box 570, Newark, NJ 07101 Richard Fryling, Jr. Assistant General Solicitor -T5E April 8, 1982 Salem Generating Station Docket Nos. 50-272 & 50-311 Operating License Hope Creek Generating Station Docket No. 50-354 Construction Permit Nos. DPR-70 & DPR-75 Off ice of the Director Off ice of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, D.C.
20555
Dear Sir:
No. CPPR-120 Pursuant to the NRC Rules and Regulations, enclosed please find ten copies each of the 1981 Annual Report of Public Service Electric and Gas Company, Atlantic City Electric Company, Delmarva Power and Light Company and Philadelphia Electric Company in the Salem Generating Station dockets.
Please accept same *reports of Public Service Electric and Gas Company and Atlantic City Electric Company in the Hope Creek Generating Station docket.
RF:mbb Enclosures Richard Assista ng, Jr.
eral Solicitor 8204150363 820408 PDR ADOCK 05000272 I
PDR 95-4981 (2M) 12-81
NOTICE*" ~
THE ATTACHED FILES ARE OFF.ICIAL RECORDS OF THE DIVISION OF DOCUMENT CONTROL. THEY HAVE BEEN CHARGED TO YOU FOR. A LIMITED TIME PERI.OD AND MUST BE RETURNED TO THE RECORDS FACILITY BRANCH 018.
PLEASE DO NOT SEND *DOCUMENTS CHARGED OUT THROUGH THE MAIL. REMOVAL OF ANY PAGE(S) FROM DOCUMENT FOR REPRODUCTION MUST.
BE REFERRED TO FILE PERSONNEL.
DEADLINE RETURN DATE RECORDS FACILITY BRANCH
Contents 2
Letter to Shareholders 4
Financial Matters 6
Electric Operations 10 Nuclear Activities 12 Gas Operations 14 Customer Activities
~Technology
~Communications 20 Personnel
~Financ i a l Section 40 Shareholder Information 41 Officers and Directors Financial Highlights Operating Revenues Operating Expenses Taxes Charged to Operations Operating Income Earnings Applicable to Common Stock Earnings per Average Common Share Cash Dividends Paid per Common Share Average Shares of Common Stock Outstanding Construction Expenditures Total Assets Dollars 1981
$2,433,425,000
$2, 110,432,000
$ 274,796,000
$ 322,993,000
$ 223, 761,000
$2.25
$1.90 99,557,000
$ 793,959,000
$6,304, 195,000 Earnings and Dividends Paid Per Share 77 78 79 80 81 Earnings Dividends Percent 1980 Change
$2, 123,394,000 15%
$1,857,428,000 14%
$ 227,434,000 21%
$ 265,966,000 21 %
$ 17 4,950,000 28%
$2.00 13%
$1.80 6%
87,302,000 14%
$ 586,481,000 35%
$5,702,549,000 11 %
Construction Expenditures Million Dollars 1000--------
77 78 79 80 81 Funds Provided by New Financing Internal and Other Sources
2 To Our Shareholders:
Our centennial year, 1981, was a year of accomplishment, challenge and oppor-tunity for Philadelphia Electric Company.
A number of milestones were achieved during the year including encouraging financial results. Earnings per share showed an increase of 13% to $2.25, primarily as a result of higher electric rates granted in April. However, the return on our common shareholders' equity was still only 12%, substantially below the 16%
return allowed by the Pennsylvania Public Utility Commission (PUC).
Effective September 30, the quarterly dividend rate on common stock was increased 11 % to 50 cents, or $2.00 per share on an annual basis. The dividend improvement was the first increase in four years and was warranted by improved earnings.
Unit No. 2 at the Salem Nu-clear Generating Station in Salem, New Jersey began commercial operation on October 13.
PECo owns 42.59 percent of the Salem Station.
Construction and operation of the plant is the responsibility of Public Service Electric & Gas Company of New Jersey. Our share of the output and capacity of Salem Unit No. 2 is being sold to Jersey Central Power & Light Company, a sub-sidiary of General Public Utilities Corporation, under an agreement signed in 1979 and effective through 1984.
Our capital needs were met by raising more than $618 million of new capital, a record amount. These funds were applied primar-ily to three major projects in 1981-the Limerick nuclear plant, the flue gas clean-up systems at Eddystone and Cromby, and the Salem Unit No. 2.
Limerick is our plant of the future. Its two units will add low fuel-cost, modern base-load capacity permitting the retirement of old, oil-burning plants. Although its capital cost will be in excess of $4 billion, estimated annual fuel savings will approach one billion dollars per year when it is fully opera-tional in the late 1980's.
Work on the flue gas clean-up systems, or S02 scrubbers, for our coal-burning plants at Eddystone and Cromby progressed dur-ing 1981. The continued use of coal as a major John H.
Austin, Jr.
Robert F.
Gilkeson James L.
Everett
source of power, while fully complying with clean air regulations as required by law, is the goal of this project. The scrubbers will be in full compliance with all air quality regulations by December, 1982 for Eddystone and early 1983 for Cromby.
The year 1981 also presented us with a number of serious challenges which impacted us in many ways. Continuing inflation resulted in escalating costs of construction, fuel, wages, operating and maintenance expenses, and in higher costs of money to finance construc-tion and environmental programs.
As a result of declining finan-cial ratios, our security ratings were downgraded again by the rating agencies. A lower rating raises the interest rate we must pay to sell our securities. In September, we sold mortgage bonds rated BBB with a coupon of 183/4%, a record high interest rate for the Company.
Clearly, improved financial performance will continue to be a top priority in the days ahead.
With this in mind, in July the Company filed a request with the PUC for an annual electric rate increase of $344 million. The PUC is expected to reach a decision in the case by June I, 1982. Our ability to improve financial performance, increase the return on sharehold-ers ' investment and continue to provide funds for the construction program will depend upon that decision. A steam increase was filed in 1981 and was settled for $3 million in mid-January 1982.
Also, a gas rate increase request was filed in 1981 and is pending.
In other PUC matters,
hearings on the need for and economics of the Limerick project concluded in mid-November with a final determination expected in 1982. The Company's testimony clearly demonstrated the benefit of completing Limerick as planned.
We continued many projects to operate the Company more efficiently, to im-prove productivity, and to reduce costs. Our ex-cellent employee organization responded dili-gently to these challenges.
The future is one of opportu-nity for your Company. With the completion of Limerick and the planned retirement of older oil-fired facilities, our electric production plant will be modern and efficient. We should require no additional capacity until the late 1990's. Our electric generation fuel supply will increasingly rely on domestic uranium and coal, thus mini-mizing our use of costly oil.
As we review the first 100 years of Company operations, the past prepares us for the future. Development and application of new technology, adherence to sound economics in design and operation of our system, and superior services to our customers will continue to be the keys to success.
Our Company has a proud heritage. At the beginning of our second hun-dred years, we again express our appreciation to our investors, employees and customers.
Robert F. Gilkeson Chairman of the Board James L. Everett President and Chief Executive Officer John H. Austin, Jr.
Executive Vice President and Chief Operating Officer 3
4 Financial Matters Earnings Increase. Common stock earnings in 1981 were $2.25 per share, an increase of 13% above 1980 earnings of
$2.00. Total common stock earnings were
$224 million, up $49 million or 28% from 1980.
Average shares outstanding increased 14%
to 100 million shares.
The increase in earnings was due primarily to the $188 million electric rate increase, which became effective in April, and higher gas sales. Electric sales to retail customers were off 2% due to poor economic conditions.
Operating and maintenance expenses were up 13%, interest charges rose 26%, and depreciation charges were 6% higher.
Common Stock Dividend Raised.
On June 22, the Board of Directors voted to increase the quarterly common stock dividend from forty-five to fifty cents per share effective with the third quarter payment. As a result, divi-dends per share paid in 1981 amounted to $1. 90 as compared to $1.80 in 1980.
This increase, the first in four years, recognizes the necessity of providing a competitive return on the common shareholders '
investment. In this period of continuing infla-tion, the Company must be able to continue to attract the capital necessary to complete its large construction program.
Electric, Gas Sales Rise. Total electric sales increased by 2% to 28.3 billion kWh. The increase was due to the sale of power equivalent to the Company's share of the output from Salem Unit No. 2 to Jersey Central Power and Light.
Sales to regular customers, excluding Salem Unit No. 2, declined by 2% to 27 billion kWh. Sluggish economic conditions resulted in depressed kilowatt-hour sales to large commercial and industrial customers, while sub-stantially cooler summer weather in 1981* held down air conditioner usage.
Gas sales increased by 6% to 73 billion cubic feet as a result of more custom-ers and colder weather this year. Steam sales dropped 9% to five billion pounds as a result of continuing conservation by our steam customers and conversion to other fuels.
Revenue, Expenses Increase.
Total operating revenue amounted to $2.4 billion,
15% above 1980. Electric operating revenue rose to $2.0 billion, an increase of $235 million or 13% over 1980. This increase reflects higher base rates, the recovery of higher fuel costs through adjustment clauses and $46 million of revenue from the sale of Salem Unit No. 2 output and capacity. Gas revenue amounted to $356 million, an increase of 23% over 1980, and steam revenue reached $75 million.
Total operating expenses amounted to $2.1 billion, an increase of $253 million, or 14%, over 1980. The major factors contributing to this increase were higher fuel costs and increased operating and maintenance expenses, including those related to the new Salem Unit No. 2. Your management continued to hold fontrollable costs to the minimum, con-sistent with good service. Interest charges in-creased $61 million and preferred dividends increased $2 million.
Rate Increases. As with any business in an inflationary period, Philadelphia Electric Company must regularly raise the prices of its products to reflect their current costs and value. A continuing and active program of rate increases is necessary to offset the effects of in-flation, to improve the Company 's financial per-formance, to maintain its ability to attract new capital, to balance supply and demand, and to encourage consumer conservation.
In July, 1980 the Company applied for a $304 million electric rate request and the Pennsylvania Public Utility Commission (PUC) granted $188 million or 62% of the re-quest, effective April 25, 1981. The major item disallowed by the PUC was a request by the Company to begin collecting certain interest charges which are now deferred to the future.
On July 29, 1981 application was made for a $344 million, or 17.7%, increase in electric rates. The PUC hearings began on Oc-tober 13 and were concluded in February, 1982.
A PUC decision is expected by June 1, 1982.
On September 28, the Com-pany filed a request for a $39 million, or 11.3%,
increase in gas rates which has been suspended to June 27, 1982 pending hearings. A request for a
$6 million steam rate increase filed on September 28 was settled for $3.4 million, effective January 15, 1982, about 5 months prior to the maximum suspension period.
The Federal Energy Regu-latory Commission accepted a settlement for wholesale electric rate increases to Conowingo Power Company, a wholly-owned subsidiary, and to the Borough of Lansdale, effective Febru-ary 27, 1981. The rates were increased by $1.9 million, or 8.4%, for Conowingo and $524 thousand, or 9.5%, for service to Lansdale.
On August 18, Conowingo Power Company filed a request for a $3.6 mil-lion electric rate increase. The request has been suspended by the Maryland Public Service Commission pending an investigation.
Also, on February I, 1981 this subsidiary was permitted to implement an Energy Cost Rate which collects from customers any additional cost of fuel above the amount previously allowed in the electric base rates prior to that date.
Limerick Investigation. In Oc-tober 1980, the PUC instituted an investigation into various aspects of the Limerick Generating Station, including its necessity, economic justifi-cation, and the reasons for increases in project costs and for delays in the anticipated completion date. During the proceedings, which ran from March to November 1981, 39 days of hearings
Major Financings 4/81 4/81 6/81 7/81 9/81 9/81 Total 1981 Retail Rate Increases Electric-Pennsylvania Pennsylvania Maryland Gas Steam were held and the record contained almost 4,000 pages of testimony. The Company presented 17 witnesses while the intervening parties presented 20 witnesses.
The economics of Limerick as presented by the Company showed that complet-ing Limerick would provide customers with sav-ings ranging from about $200 million to almost
$1 billion per year when compared to the alterna-tives of building a series of small coal plants to replace Limerick or cancelling Limerick without replacement. The Administrative Law Judge 's Recommended Decision is expected soon.
Financing Highlights. Dur-ing 1981, the Company successfully raised more than $618 million, a record amount of new capital, to meet the needs of our construction program and refundings.
In addition, to the major financings shown above, arrangements were completed in April for a $100 million, two-year revolving Line of Credit through a group of European banks. In November, the Company finalized arrangements to finance its portion of the Salem Generating Station nuclear fuel through a lease with an independent fuel com-pany in an amount up to $125 million. In De-cember, the Company received $54 million by selling, for Federal income tax purposes only, the tax depreciation and investment tax credit as-sociated with its share of the Salem Generating Station Unit No. 2. This transaction was permit-Millions of Dollars Common Stock-5,000,000 shares Mortgage Bonds-Private Placement 15 1,4 % Series due 1996
$52.5 million 15% Series due 1996
$21.0 million Pollution Control Bonds (tax exempt)
Average Yield, 12.6%
Mortgage Bonds 175/so/o Series due 2011 Mortgage Bonds 183,4% Series due 2009 Common Stock-7,800,000 shares Dividend Reinvestment and Employee
$ 59 73.5 100 125 125 96 Stock Purchase Plans-3,074,526 shares 40 Application Date 7/29/80 7/29/81 8/18/8 l 9/28/81 9/28/81 Approved 4/25/81 Pending Pending Pending l/15/82
$618.5 Millions of Dollars Annual Revenue
$187.6 344.0 3.6 38.7 3.4 ted by the Economic Recovery Tax Act of 1981 and it allowed the Company to receive cash pro-ceeds now which would otherwise have been de-ferred to the future.
Ratings on the Company's mortgage bonds, preferred stocks, debentures and pollution control notes were lowered during the year due to inadequate earnings and cash flow in the face of the need to raise large amounts of capital for our construction program. This ac-tion has the effect of increasing the cost of bor-rowing new funds and reducing the potential for marketing the Company's securities.
Our 1982 financing program will require the sale of approximately $670 mil-lion of new debt and equity securities. A satis-factory conclusion to the present electric rate case is essential to assure adequate access to the capital markets.
Construction Program. Ex-penditures for new plant and equipment in 1981 amounted to $794 million. Estimated construc-tion outlays are $881 million for 1982and $3. l billion for the entire 1982-85 period. Approxi-mately 60% of these construction funds are ear-marked for completion of the two nuclear units at Limerick and flue gas clean-up systems at the Eddystone and Cromby coal-fired units.
5
6 Electric Operations Coal Strike. On March 28,
1981, the United Mine Workers began a nation-wide strike which lasted 10 weeks. However, service to PE customers was not affected because of adequate coal inventories which were increased in anticipation of the strike, the availability of the Company 's nuclear plants and the purchase of energy from other utilities.
New Transmission Line Ener-gized. A 17.4 mile, 500 kV line between PECo 's new Elroy Substation in Montgomery County and Pennsylvania Power & Light 's Hosensack Substation was energized on March 22, 1981 after nearly five years of regulatory delays and extensive litigation. The connection was de-signed to reinforce our transmission system and to achieve economies of operation.
The total cost of the project, including Elroy Substation, was $17.2 million but the project will result in annual savings to Philadelphia Electric of $4 million in reduced system losses and lower-cost generation.
Eddystone and Cromby Stations-Environmental Projects. Construction continues on the flue gas scrubbing systems being installed for the coal-fired boilers at the David Wallin, a Power Director in System Operation, monitors Eddystone and Cromby Generating Stations.
Eddystone Unit No. 1 now operates with particu-late scrubbers to maintain the stack emission for particulate and visible emissions within the Federal and state standards. The full program of implementation of S02 removal systems at Eddystone and Cromby Stations is expected to remove 90% of all S02 and particulate emissions discharged at these sites. The Company, through valuable expertise gained in recent years, has be-come a leader in the use of the magnesium oxide regenerative air pollution control technology.
The scrubbing system installa-tions are proceeding on schedule and are ex-pected to be in full compliance with all Federal and state air quality regulations by December 1982 for Eddystone and early 1983 for Cromby.
The projected final cost for the environmental systems, including scrubbers and an upgraded waste water treatment facility at Eddystone Sta-tion and scrubbers and a new waste water treat-ment facility at Cromby Station, is approxi-mately $300 million.
The operation of the scrubbing system produces magnesium sulfite. In order to convert magnesium sulfite into its usable com-the power system in the Com-pany's control center.
Construction of pollution-control equipment at Eddy-stone, a coal-fired station, progressed in 1981.
ponent compounds, the Company is constructing two magnesium oxide regeneration facilities which will be located at the Allied Chemical Company Sulfuric Acid Plant in Claymont, Delaware and at the Essex Chemical Company Sulfuric Acid Plant in Clifton, New Jersey. The regeneration facilities will convert magnesium sulfite to magnesium oxide and sulfur dioxide.
The magnesium oxide will then be reused in the scrubbing systems of the Company's generating facilities. The sulfur dioxide will be used to pro-Annual Savings from PE Interchange and Power Purchases Million Dollars 77 78 79 80 81 duce sulfuric acid. These facilities are expected to cost approximately $75 million.
Power Purchases from Allegheny Power System and Central Hudson. The Company was a pioneer in developing intercon-nections with other systems to provide high-quality service at the lowest possible cost. Never has this effort been more beneficial in reducing the cost of power to PE customers than during 1981.
A decade ago, the Company converted five of its major generating plants from coal to low-sulphur oil to meet air quality regu-lations. The major escalation in the price of oil in the past several years has dictated that PE should now avoid operating these high-cost plants whenever a lower-cost alternative source of power was available.
Beginning in February 1981, PE has purchased coal-fired electricity from sys-tems in West Virginia, Ohio, Indiana and Illinois.
The savings produced by these purchases amounted to $96 million in 1981.
An additional $3 million was saved by continuing the arrangements made in 1980 to purchase lower-cost, oil-fired power dur-ing summer peak load hours from Central Hud-son Gas and Electric Corporation in New York.
These advantageous power purchases from other systems have been possible because of the strong interconnected transmis-sion system that PE has developed with neighboring syste~
Electric T&D Manpower Reduc-tion Program. In the early 1970's, more than 2,500 Electric Transmission and Distribution (T&D)
Department employees and over 1,000 contract forces were needed to construct and maintain facilities or perform other functions involved in delivering power from generating stations to cus-tomers. When the 1974 oil embargo and escalat-ing fuel costs resulted in reduced growth in energy use, the construction program was re-duced accordingly. The resulting reduction in personnel requirements was met first by reducing contract forces. As further reductions became necessary, the number of employees was reduced through attrition and by two early retirement in-centive programs.
During 1980, an additional program for Electric T&D employees was initi-ated providing incentives for employees to trans-fer to fi ll needs in other Company departments, or to retire early. This plan was completed dur-ing 1981 and reduced T&D manpower by an additional 132 people.
These programs have been ef-fective in reducing the total number of Electric T&D employees by 700 without any layoffs to keep the department's manpower and workload in balance.
~
8 Panoramic view of Limerick Generating Station, a nuclear facility under construction in Limerick Township, Mont-gomery County, Pennsylvania.
lh the center are two natural-draft cooling towers which will prevent overheating of the nearby Schuylkill River.
The Schuylkill and Delaware Rivers will provide cooling water for plant operation. One tower is essentially complete and the second tower is nearly 60% complete. The completed shell of the reactor and turbine building is seen to the right.
9
10 Construction Engineers Jonathan Moffitt (center) and Joseph Brozonis (right) dis-cuss low pressure turbine Nuclear Activities Limerick Construction. Con-struction continues at a rapid pace at Limerick Generating Station. In 1981, the Company spent
$423 million at Limerick bringing the total ex-penditures through December 31, 1981 on the project to $2.0 billion. Total construction cost upon completion in 1987 is estimated at about
$4.2 billion. Unit No. I was 68% complete and Unit No. 2 was 30% complete as of December 31, 198 l. Commercial service dates for the two units are 1985 and 1987.
Highlights during 1981 include completion of the Unit No. I cooling tower structure, excavation of the IO-acre spray pond, and completion of the Administration Building.
Erection of the Unit No. I turbine-generator nears completion. Over 70,000 feet of small pipe and over 1,000,000 feet of cable were installed in 198 l. Pressure testing of piping systems com-menced in preparation for start-up testing in 1983. The workforce reached 3,950.
Unit No. 2 milestones include setting the generator stator and installation of the 70,000 condenser tubes. An interesting side light occurred during the year when excavation for the spray pond uncovered rocks bearing dinosaur tracks estimated to be over 200 million years old.
Application to the Nuclear Regulatory Commission (NRC) for an operating installation at Limerick Station with manufacturer represent-ative Charles Bruck (left).
license was made in March, 1981. Following a preliminary review, the NRC accepted the appli-cation for docketing in July, 1981.
Nuclear Training/Limerick Training Center. The Limerick Training Center began formal nuclear training on January 5, 1981, with a group of licensed operators from Peach Bottom receiving requalification training in the simulator. Use of the simulator makes it possible for operators to be trained in a short period of time without disrupting normal plant operations.
The center 's training person-nel also instructed a group of operator trainees for the Limerick plant, selected from the Com-In July, a derailed flat car from an 89-car freight train severed two legs of a 66kV transmis-sion tower in Philadelphia.
Sixteen Transmission and Distribution men completed the repairs within two days without any customer service interruptions.
\\I II II
~. - ti
pany 's Electric Production Department. The trainees underwent an 18-week course in funda-mentals and theory as the beginning of training which will ultimately lead to certification as licensed operators.
In addition, various engineer orientation courses, laboratory courses and other short non-operator courses have been conducted throughout the year. In September, a series of college level evening courses, con-ducted by Drexel University, were started at the training center.
Peach Bottom. During 1981 Peach Bottom Unit No. 3 underwent a scheduled outage for refueling and completion of a number of major NRC mandated modifications. In order to increase the level of safety and improve the ability of equipment and personnel to respond properly to plant malfunctions, significant changes were made to the reactor pressure sup-pression system, the reactor vessel feedwater inlet nozzles, the emergency control rod insertion system and specific safety-related piping and in-strumentation. These modifications to the facility were the result of the TMI experience as well as on-going PE and NRC concerns.
The cost of these modifica-tions on Unit No. 3 amounted to more than $35 million (PE share $15 mi llion) toward improved nuclear safety and were completed in seven months. Much of this work has already been completed on Peach Bottom Unit No. 2.
Even with the extended outage of Peach Bottom Unit No. 3, it is esti-mated that the net fuel savings to PECo custom-ers from the operation of Peach Bottom was over
$185 million in 1981.
Salem Unit No. 2 in Service. The second unit of the Salem, New Jersey nuclear generating station was placed in commercial op-eration on October 13. PE owns 42.59 percent of the jointly-owned, 1,115 megawatt station which is operated by Public Service Electric and Gas Company of New Jersey which owns a similar percentage of the plant. Delmarva Power &
Light Company and Atlantic City Electric Company each own 7.41 percent.
Lee Mine Construction. Dur-ing 1981, construction started on the Lee Mine Uranium Project located in New Mexico, 60 miles west of Albuquerque, under an agreement which PE entered into with Kerr-McGee Nuclear Corporation during 1980. This is a joint venture operation in which Kerr-McGee is the construc-tor and will operate the mine. The uranium will be shared equally between Kerr-McGee and the Peach Bottom owners.
The mine shaft now under construction is 14 feet in diameter and will extend into the earth to a depth of 1,665 feet. The first uranium from this mine will be produced in 1985 and, at full production, the mine will have a 600 ton per day capacity. Uranium from this mine will supply a portion of the requirements for the Peach Bottom reactors until at least 1993.
This uranium mining venture is another of PE's efforts to obtain an assured and diverse supply of uranium for our nuclear plants.
Pooled Inventory Management Service. In January, 1981, Philadelphia Electric Company and seven other utilities initiated a cost-sharing program for stocking spare common nuclear components for similar nuclear plants owned by this group of utilities. The program,
called Pooled Inventory Management Service (PIMS), provides valuable protection to our cus-tomers against lengthy outages at Peach Bottom caused by the unavailability of a nuclear compo-nent at a fraction of what it would cost the Com-pany to stock this equipment independently.
Peach Bottom Station engineer inspects the reactor pressure suppression system during modifications at Unit No. 3. The system provides cooling water for emergency shut-down.
Unit No. 2 at Salem was placed in service during 1981 by PSE&G. PE owns 42.59% of the station.
11
12 Gas Operations Peak Gas Sendouts. During the 1980-81 heating season, total gas sendout surpas-sed the previous recorded peak day total on five days. Prior to Christmas Day, 1980, the record daily sendout had been 441 million cubic feet, which occured on January 17, 1977. Total send-out for December 25, 1980 established a peak of 444 million cubic feet, when the average temper-ature was 4°F. Continued cold weather produced a series of records in early 198 1 and the final peak daily total amounted to 486 million cubic feet on Monday, January 12 when the average tempera-ture was 7°F.
On January 17, 1982, a new daily sendout record of 529 million cubic feet of natural gas was established as the temperature averaged minus 2°F.
Record Gas Sales. Gas sales increased 6% in 1981 to a record 73 billion cubic feet. This amount surpassed the previous yearly sales record of 70 billion cubic feet set in 1972.
Gas Supplies Increased for 1982 and 1983. Natural gas availability from the Company 's interstate pipeline suppliers con-tinued to improve in 1981 and is expected to remain at the current level through 1982.
William Fulmer (center},
Assistant Supervisor-Mains and Services, and Street-Mechanics Joseph Gambino (left) and Steven Allen (right) inspect the gauge on a hy-draulic pump used to com-press a coupling in making a final connection for a six-inch, plastic gas main extension for service to a new business area.
The Company has increased its winter supply from underground storage by contracting for an additional 3% of normal winter natural gas supplies for the 198 1-82 heating season. The next phase of this storage expansion project is ex-pected to provide a further increase of 2% for the 1982-83 winter heating season.
Two New Gate Stations for Natural Gas Distribution. The increase in new gas sales experienced by the Company over the past two years has been greater than in any similar period in the Company's history. The sharp in-crease in new load required the construction of two additional supply points to feed the Com-pany 's natural gas distribution system. The sup-ply points, known as gate stations, are locations where the Company purchases gas from two natural gas transmission companies.
When placed in service during the winter of 198 1-82, one of the new gate stations, located in Chester County, will re-inforce the gas distribution system in the Paoli-Downingtown-West Chester areas. The second station, located in Bucks County, will pro-vide similar reinforcement to the Morrisville-Levittown-Bristol areas. With the add ition of the new stations, which have a total expected cost of $ 1. 8 mill ion, the Company 's natural gas dis-tribution system wi ll have a total of thirteen supply points feeding a network of 4,475 miles of mains. These mains cover an area of 1,475 square miles serving 293,000 customers.
Operation of the thirteen sup-ply points is directed from the Gas System Con-trol Center in King of Prussia where distribution system pressures and sendout requirements are constantly being monitored and updated through a computerized network of supervisory control equipment.
During 198 1, gas operations continued to expand as new gas connections were completed. In order to supply this new load, 88 miles of new main were installed at a cost of $15 million.
l\\velve-inch gas main is welded for crossing the Schuylkill River at the Betzwood Bridge, near Valley Forge.
13
14 Home energy audits identify costs and savings of home conservation measures. A customer observes Mark Thompson, Home Energy Customer Activities Cogeneration and Alternate Energy Sources. Alternative methods of generat-ing electricity are gaining wider attention through the media and government programs aimed at conserving non-renewable energy resources.
In April, 1981, the Company established an Alternative Energy Section to coordinate the increasing involvements of co-Auditor, operating a portable computer terminal.
generation and alternate energy sources. This group is involved with the applications of solar energy, wind energy and cogeneration facilities.
For over three years the Com-pany has had a policy concerning the purchase of electric energy from private generating facilities and will continue to extend every cooperation to those customers who desire to operate their pri-vate facilities. A process for the implementation of the Federal rules and regulations governing the manner in which we contract with a private gen-eration customer is now being prepared by Penn-sylvania, while Maryland has its rules in effect.
Home Energy Audits. In con-formance with the Residential Conservation Service (RCS) Program of the National Energy Conservation Policy Act, Philadelphia Electric Company began offering residential energy audits to its customers last summer. The charge for this service is $15 per residence.
All residential customers were advised of the availability of audits by bill en-closures. By the end of the year 11,400 custom-ers had applied for audits of their homes, and 1,400 audits had been completed.
The Company trained a team of ten Customers Service employees in the skills required to inspect homes and identify places where adding weatherization improvements-insulation, sealing, caulking, glazing-or im-proving the efficiency and operation of the heat-ing system can save energy and money for the customer. At the conclusion of each audit, the customer receives a print-out from a portable computer terminal. This informs the customer of the approximate cost and savings of each con-servation step that can be taken in his home.
Residential Space Heating.
During 1981, 19,700 additional residential units chose PECo supplied electricity and gas for space heating as oil prices increased to $1.25/gallon.
Electric space heating was selected for 9,900 units, 7,000 of which were new and 2,900 were conversions from other heating systems, mostly oil-fired. Of these units, 5,500 or 56% chose heat pumps, an efficient source for year-round comfort. At year end, there were 94,200 electrically heated homes on our lines.
Gas space heating was in-PECo Residential Space Heating Market Penetration Percent of total new residential construction 77 78 79 80 81 PECoGas PECo Electric (Other Than Heat Pumps)
Electric Heat Pumps stalled in 9,800 additional units, of which 1,600 were new construction while 8,200 converted from oil.
While gas prices are expected to rise further with complete deregulation, at year end the cost of gas was equivalent to 74" per gallon of oil.
In the new construction mar-ket, 69% chose electric heat while 16% chose gas for a total penetration in 1981 of 85% for PECo energy.
Area Development. In spite of the high interest rates and the nation 's depressed economy, the downtown Philadelphia construc-tion boom, which started in the last decade, con-tinued during 1981. The construction of office buildings and new hotels is apparent throughout the city.
A 40-story office building joins three other office buildings in various stages of construction on Philadelphia's Market Street. Another 30-story office building is under construction at Logan Circle on the Parkway. In the suburbs, along the Turnpike and Expressway, there is also growth in office construction.
The growth of the hotel indus-try indicates the confidence investors have in Philadelphia 's future. Construction is underway on a 25-story, 450-room Hershey Philadelphia Hotel on Broad Street. An 8-story, 375-room, luxury hotel to be operated by Four Seasons is under construction on the Parkway at Logan Cir-cle. A 33-story luxury hotel and condominium has been topped out on Rittenhouse Square, and a 350-room Best Western Hotel is underway in City Line 's Golden Mile area. Since 1975, almost 400 new restaurants have opened.
The new office buildings, hotels, restaurants, other commercial develop-ment and cultural activities have stimulated resi-dential development in downtown Philadelphia.
During the past year, ten ships were assigned to the Navy Yard for refurbish-ing. Including the aircraft carrier Saratoga which arrived in late 1980, almost $800 million in con-tracts have been involved in these projects.
The Stock Exchange Building on Market Street features a multi-tiered atrium.
15
16 The Great Hall of the newly-renovated Bourse Building across from Independence Hall Park in center city.
The Bourse is an 88-year old, historically-certified building which has undergone exten-sive reconstruction and is now a retail complex and office center.
17
18 Technology Cleaning Up PCB's. The Com-pany is field-testing a unique process designed to detoxify and destroy the suspected cancer-causing chemicals known as polychlorinated biphenals (PCB 's). The Company is cooperating with the Franklin Institute Research Labs (FIRL) in this demonstration program, which involves a process developed by FIRL chemists. This process reduces PCB 's to harmless table salt, thereby eliminating the hazards associated with handling and transporting this material.
Previously, the Company shipped transformer oils long distances to in-cinerators or landfills. This is now prevented by PE Is field-testing a unique process to destroy polychlor-inated biphenals, or PCBs.
George Raudenbush, an Assistant Foreman in Main-tenance Division, checks the PCB processing.
government regulation. PCB 's were manufac-tured on a large scale between 1929 and 1977 and were used in numerous products, including adhe-sives, inks, lubricants, paints and plastics. In the utility industry, PCB 's were used as an insulat-ing fluid in capacitors and transformers.
The process has been effec-tive in laboratory trials and has the approval of the Environmental Protection Agency (EPA),
the city of Philadelphia, and the Pennsylvania Department of Environmental Resources. Once the field trials are proven successful, the Com-pany will seek the EPA 's permission to con-tinue batch processing. This project is another Bud Lockwood, a Senior Engi-neer in Construction Division, inspects the coupling equip-ment for the new microwave communication system which was completed in August 1981.
The system provides voice and data communications b tween the main office and t Peach Bottom-Muddy Run-Conowingo area as well as intermediate points.
example of how modem technology is being applied effectively.
Electric Vehicles. Philadelphia Electric Company was selected by the Depart-ment of Energy to participate in the Electric and Hybrid Vehicle Demonstration Program. The goal of the program is to advance electric vehicle technology and market potential.
Under the cost-sharing agree-ment between Philadelphia Electric and the De-partment of Energy, Philadelphia Electric pur-chased 6 vans and trucks and 14 passenger cars for use in its transportation fleet. Each electric vehicle will replace a petroleum-fueled vehicle.
During the three-year pro-gram, the Company will collect data on perform-ance, reliability and safety, vehicle maintenance and public awareness. Periodic reports to the Department of Energy will record the Company 's experience for use in a national data base.
Acoustic Stress Monitoring.
Acoustic Emission Testing techniques, which were initially developed by the Company to in-spect buried gas pipe lines, have been recently applied to other Company structures. The most recent successful application of acoustic emis-sion by PE engineers is the development of a system to continuously monitor the stress of fiber-glas booms on aerial lift trucks. This system measures the energy waves produced by the fiber-glas material indicating any deterioration of the material well before failure, assuring the integrity and safety of the boom.
In a Research and Testing pro-gram now underway, Acoustic Emission Testing techniques are being used to determine the in-tegrity of fiberglas ladders. An examination rig and associated instrumentation have been developed to test and qualify all Company fiberglas ladders.
The Company is participating in an electric vehicle demon-stration program sponsored by the Department of Energy.
One of the electric cars is shown at Head House Square, Philadelphia.
Communications Community Outreach Program.
The Corporate Communications Department is carrying out a community outreach program, de-signed to bring the personal touch to meeting customers ' needs. The key to the program is let-ting people know that PE is really thousands of individuals trained and willing to help our cus-tomers. The program also serves the Company by opening a dialogue with many customers, giving the Company a better insight into cus-tomer thinking.
Among the best ways to achieve this give-and-take communication with the public was to get groups of customers with similar broad interests together with Company people to talk over mutual concerns. Eight cus-tomer councils were formed by the suburban di-vision managers and by the Philadelphia district managers. The councils meet regularly on mat-ters of topical and timely interest. Members of these councils live in the same geographic area and reflect broadly the opinions of their varied communities. A Clergy Council is made up of 40 members of the Philadelphia clergy who have arranged for PE representatives to speak at church meetings and after church services, primarily on energy conservation. A Social Ser-vices Council is composed of over 50 members representing public and private social service agencies. An Hispanic Council is composed of 41 members who represent business, social agen-cies, civic and community groups and organ-izations in the growing Hispanic community. An Energy Education Advisory Council (EEAC) was established in 1976 to broaden the base of public understanding on energy. The EEAC, composed of teachers, administrators, cur-riculum and environmental specialists, has de-veloped extensive curricula materials on energy as well as debates, seminars, in-service training ranging the entire education spectrum. A Profes-sional Advisory Council on Energy was estab-lished recently composed of professionals in sci-ence, engineering and technology.
19
20 Personnel Management Training Programs. During 1981, the third phase of an in-depth development program for management/
supervisory employees began. This third phase provides training in managing performance and will be offered to about 1,800 employees.
Since 1976, all levels of the Company 's management team have under-gone training to improve and upgrade managerial skills. It is the aim of Philadelphia Electric Com-pany to provide managerial personnel with the tools to develop to the fullest extent of their capabilities.
In addition, the Company continued training in problem-solving and decision-making techniques. This program,
which began in 1976, has been offered to 1,300 employees including both managerial/
supervisory personnel and key non-supervisory employees.
C P R Program. Cardio-pulmonary Resuscitation (CPR) training, a life saving method of resuscitation which combines mouth-to-mouth respiration and closed chest heart compressions, was introduced by the Com-pany in 1976. Over the past five years Company instructors-all volunteers and Red Cross certified-have trained over 9,000 employees in the use of CPR.
The value of this training was realized within a few months of its introduction on the system. In June of 1976 one of the original instructors successfully applied CPR to save a neighborhood child. Since this first success-ful effort, fifteen employees have received recognition from the National Safety Council or the American Red Cross for their use of CPR to save or attempt to save lives of victims of cardiac arrest.
Customers Service Represent-atives, such as Debby Morgan, are assisted by modern com-puter technology to respon rapidly to customer questi
Financial Section Contents
~Management 's Discussion and Analysis of Financial Condition and Results of Operations 23 Consolidated Statements of Income 24 Consolidated Balance Sheets 26 Consolidated Statements of Retained Earnings 26 Consolidated Statements of Changes in Financial Position 27 Notes to Financial Statements
~Accountants ' Report 36 Financial Statistics
~Operating Statistics Management's Discussion and Analysis of Financial Condition and Results of Operations General. The revenue growth of recent years has been accompanied by substantial increases in operating costs and carrying charges on increased investment in_ plant and equipment. Any future increases in such costs and charges may be expected to affect future net income and earnings per average common share adversely unless periodic rate relief is obtained to offset them. See Note 14 of Notes to Financial Statements for the estimated effects of inflation. In addition, the capital carrying charges associated with the construction of the Limerick station and other projects which are capitalized by crediting income with an allowance for funds used during construction (AFUDC) and recovered through future depreciation now represents a major portion of net income and will continue to increase until the first Limerick unit goes into service unless prior to that time, some of the carrying charges are recovered in revenue.
Sluggish economic conditions in the Company's service area also are having an adverse effect on operating results. Although the return on average common equity has increased slightly during the past three years, the return on investment is still substantially below what the Pennsylvania Public Utility Commission (PUC) allowed as a fair rate of return in the Company's last rate order.
Effective April 25, 1981, the Company put into effect a rate increase for electric operations amounting to $188 million.
On January 15, 1982, the Company put into effect a rate increase for steam operations amounting to $3.4 million. On July 29, 1981, the Company filed a request with the PUC for an additional $344 million in electric revenue.
Hearings have been completed with briefing, oral argument and decision to follow. The PUC has suspended the rate increase under agreement with the Company to May 21, 1982 when a final order is expected. On September 28, 1981, the Company filed with the PUC for an additional
$38.7 million in gas revenue. The PUC has suspended the rate increase until June 27, 1982.
Hearings on the gas increase began in January, 1982. The total $383 million of requested increases in revenue is designed to improve the Company's earnings and cash flow to enable the Company to attract the capital necessary to finance its construction program. The Company has no assurance that all or any portion of the requested increases will be granted.
The Company estimates that 56 percent of the $1. 90 per share dividend paid to common shareholders in 1981 represents a return of capital which is not taxable as dividend income for Federal income tax putposes.
21
Electric Operating Revenue.
Increases in 1981 and 1980 reflect both higher base rates and the recovery of higher fuel costs through fuel or energy adjustment clause billings. In addition, the increase in 1981 over 1980 reflects the sale of the energy and capacity equivalent of Salem Unit No. 2 to Jersey Central Power and Light Company during the second half of 1981. Kilowatt-hour sales of electricity to retail customers declined slightly throughout the period.
Gas Operating Revenue.
Increases in 1981 and 1980 primarily reflect the recovery of higher fuel costs. Mcf sales of gas increased 5.5 percent in 1981 over 1980 and 8.9 percent in 1980 over 1979, due to increased house heating and small commercial customers.
Fuel and Energy Interchange Expense. Fuel and interchange expense increased 8.9 percent in 1981over1980 and 64.8 per-cent in 1980 over 1979 as a result of higher prices for all fuels_. __
Other Operation and Maintenance Expenses. Other operation and maintenance expenses have increased in the last two years due to inflation and to growth in utility plant.
Depreciation. Increases in depreciation in the last two years result from additions to plant in service. The increase of 6.0% in 1981 over 1980 is due primarily to Salem Unit No. 2 being placed in commercial operation.
Taxes on Income. Taxes on operating income increased in 1981 and 1980 as the result of higher income. Income tax credits, net, included in other income, have increased in the last two years as a result of the higher Allowance for Borrowed Funds Used During Construction.
Ratio of Earnings to Mortgage Interest Times Covered 2.so----------
2.25 2.00 1.75 1.50 1.25 1.00
. 75 0
77 78 79 80 81 22 Return on Average Common Equity Percentage 77 78 79 80 81 Alic>Ned by PUC Actual Taxes, Other than Income.
Taxes, other than income, have increased due to increases in revenue, which is subject to a gross receipts tax, and due to higher capital stock, realty and social security taxes.
Allowance for Funds Used During Construction. The increases in AFUDC for the last two years resulted from a higher cost of capital for construction and increases in construction work in progress.
Interest Charges. Interest charges on long-and short-term debt increased in the last two years because of higher costs of money and additional debt outstanding. The ratio of earnings to mortgage interest, which is a measure of the Company 's ability to issue additional long-term debt, has remained only slightly above 2.0 times, which is the minimum required for the issuance of new mortgage debt.
Capital Expenditures and Changes in Financial Position. The Company is carrying on a construction program which is estimated to require expenditures of $881 million in 1982 and $2.3 billion from 1983 to 1985. Of these expenditures, approximately $1.9 billion relates to the construction of the Company 's two, 1055-mw nuclear generating units at Limerick, which are scheduled for commercial oper-ation in 1985 and 1987. The final costs of these units are currently estimated to be $4.2 billion.
Successful completion of this program is dependent on the Company 's ability to obtain external financing, primarily through sales of new debt and equity securities which are subject to market conditions and certain earnings tests.
The program also is subject to the licensing requirements of the Nuclear Regulatory Commission, financing approvals by the PUC and changes due to litigation. The Company cannot predict the outcome of such regulatory reviews, but believes the safety requirements have been or will be met and that the economic desirability of the program has been demonstrated and that the program will be successfully completed.
Placing the Limerick units into service will enable the Company to retire some of its older, less-efficient fossil units and to lessen its dependence on high-cost oil. In addition, when the units are completed, it is expected that the Company will realize fuel savings estimated to be from $250 million to
$1.0 billion per year as compared with obtaining electricity from alternative generating sources.
Interim financing of the construction program is provided by commercial paper borrowings and short-and intermediate-term bank loans, which are also dependent on the Company 's financial position.
Philadelphia Electric Company and Subsidiary Companies Consolidated Statements of Income Operating Revenues Electric Gas Steam Total Operating Revenues Operating Expenses Fuel and Energy Interchange Other Operation Expense Maintenance Depreciation Taxes on Income Taxes, Other than Income Total Operating Expenses Operating Income Other Income Allowance for Other Funds Used During Construction Income Tax Credits, net Other, net Total Other Income Income Before Interest Charges Interest Charges Long-Term Debt Short-Term Debt Allowance for Borrowed Funds Used During Construction Net Interest Charges Net Income Preferred Stock Dividends Earnings Applicable to Common Stock Average Shares of Common Stock Outstanding (Thousands)
Earnings Per Average Common Share (Dollars)
Dividends Per Common Share (Dollars)
See notes to financial statements.
For the Year Ended December 31 1981 1980 1979 (Thousands of Dollars)
$2,002,063
$1,766,956
$1,311,891 356,431 290,743 221, 135 74,931 65,695 45,479 2,433,425 2,123,394 1,578,505 1,187,635 1,090,497 661,724 360,840 279,587 247,152 156,878 136,963 117,491 130,283 122,947 120,608 129,484 93,673 79,055 145,312 133,761 106,676 2,110,432 1,857,428 1,332,706 322,993 265,966 245,799 65,013 50,483 46,008 63,164 49,025 33,884 2,457 3,425 1,710 130,634 102,933 81,602 453,627 368,899 327,401 266,691 224,970 192,990 33,155 13,865 7,315 (1 23,784)
(97,067)
(67,375) 176,062 141,768 132,930 277,565 227, 131 194,471 53,804 52,181 44,773
$ 223,761
$ 174,950
$ 149,698 99,557 87,302 80,529
$2.25
$2.00
$1.86
$1.90
$1.80
$1.80 23
Philadelphia Electric Company and Subsidiary Companies Consolidated Balance Sheets ASSETS Total 24 Utility Plant, at original cost In Service Electric Gas Steam Common, used in all services Less: Accumulated Depreciation Net Utility Plant in Service Construction Work in Progress Nonutility Property and Other Investments Current Assets Cash and Temporary Cash Investments Accounts Receivable Customers Other Materials and Supplies, at average cost Fuel (coal, oil and gas)
Operating and Construction Deferred Fuel Expense Prepayments Deferred Debits See notes to financial statements.
December 31 1981 1980 (Thousands of Dollars)
$4,163,088
$3,708,715 371,239 332,599 54,152 53,955 118,701 118,387 4,707,180 4,213,656 1,330,611 1,235,715 3,376,569 2,977,941 2,337,517 2,202,100 5,714,086 5, 180,041 77,780 58,697 30,678 6,678 277,292 262,447 65,131 37,910 83,612 82,216 48,581 38,870 (31,299) 11,048 6,819 6,180 480,814 445,349 31,515 18,462
$6,304,195
$5,702,549
December 31 LIABILITIES 1981 1980 Capitalization (Thousands of Dollars)
Common Shareholders ' Equity Common Stock
$1,572,388
$1,377,463 Other Paid-In Capital 3,888 2,581 Retained Earnings 387,251 353,570 1,963,527 1,733,614 Preferred Stock Series Without Mandatory Redemption Requirements 372,472 372,472 Series With Mandatory Redemption Requirements 266,929 274,330 Long-Term Debt 2,745,723 2,371,933 5,348,651 4,752,349 Current Liabilities Short-Term Debt Bank Loans 54,225 5,900 Commercial Paper 46,690 Current Maturities of Long-Term Debt 36,062 130,789 Accounts Payable 165,485 164,637 Taxes Accrued 68,421 72, 121 Deferred Income Taxes-Fuel (17,052) 5,717 Interest Accrued 82,294 64,943 Dividends Declared 23,380 22,969 Other 18,130 17,372 430,945 531, 138 Deferred Credits Accumulated Deferred Income Taxes 273,528 224,953 Accumulated Deferred Investment Tax Credits 204,061 163,422 Other 47,010 30,687 524,599 419,062 Total
$6,304,195
$5,702,549 See notes to financial statements.
25
Philadelphia Electric Company and Subsidiary Companies Consolidated Statements of Retained Earnings Balance, January 1 Net Income Cash Dividends Declared Preferred Stock (at specified annual rates)
Common Stock ($1. 90 per share in 1981 and
$I. 80 per share in 1980 and 1979)
Expenses of Capital Stock Issues Balance, December 31 Consolidated Statements of Changes in Financial Position Sources of Funds Net Income Charges (Credits) Not Affecting Funds Depreciation, Amortization and Spent Fuel Costs Deferred Income Taxes, net Investment Tax Credits, net of Amortization Allowance for Other Funds Used During Construction Total from Operations Sales of Securities Long-Term Debt Preferred Stock Common Stock Increase (Decrease) in Short-Term Debt Sale of Salem Station Nuclear Fuel Sale of Tax Benefits Total from Financings Total Sources Uses of Funds Additions to Utility Plant Allowance for Other Funds Used During Construction Dividends on Preferred and Common Stock Increase (Decrease) in Deferred Fuel Expense Retirement of Long-Term Debt Increase (Decrease) in Other Items of Working Capital Other, net Total Uses See notes to financial statements.
26 For the Year Ended December 31 1981 1980 1979 (Thousands of Dollars)
$ 353,570
$338,154
$333,649 277,565 227,131 194,471 631,135 565,285 528,120 53,762 52,973 44,760 189,476 157,423 144,984 646 1,319 222 243,884 21 1,715 189,966
$ 387,251
$353,570
$338,154
$ 277,565
$227,1 31
$194,471 144,031 130,354 123,066 2,01 1 (12,121) 44,854 25,049 28,135 (3,019)
(65,013)
(50,483)
(46,008) 383,643 323,016 313,364 423,500 275,000 200,000 72,000 194,925 137,816 99,988 1,635 (32,597) 68,968 100,166 53,743 773,969 452,219 368,956
$1,157,612
$775,235
$682,320 787,075 579,802 421,615 (65,013)
(50,483)
(46,008) 243,238 210,396 189,744 (42,347)
(72,464) 79,285 137,470 140,671 56,169 62,144 (36,286)
(28,114) 35,045 3,599 9,629
$1,157,612
$775,235
$682,320
- - --------------------------------------~
Notes to Financial Statements 1, Significant Accounting Policies:
General. All utility subsidiary companies of Philadelphia Electric Company are wholly-owned and are included in the consolidated financial statements. Non-utility subsidiaries are included in investments and accounted for by the equity method. The accounts are maintained in accordance with the uniform systems of accounts prescribed by the regulatory authorities having jurisdiction.
Revenues. Revenues are recorded in the accounts upon billing to the customer. Rate increases are billed from dates authorized or permitted to become effective by the regulatory authorities.
Fuel Expenses. For financial reporting purposes, the Company defers the under or over collection of fuel expense which is recoverable under energy adjustment clauses until it is subsequently billed. For income tax purposes, fuel expense is considered an expense when incurred.
The Company leases nuclear fuel for use in its nuclear generating stations. Nuclear fuel costs are charged to fuel expense on the basis of the number of units of thermal energy produced as they relate to the estimated total thermal units to be produced over the life of the fuel. Commencing in May, 1981, the estimated disposal costs of spent fuel are being charged to operations as permitted for rate making purposes. Such amounts, net of related deferred income taxes, are deposited in an escrow account for funding of future costs. The Company believes that any additional costs, which may be significant, would be recoverable through adjustments of rates charged to its customers.
Depreciation. For financial reporting purposes, depreciation is provided over the estimated service lives of the plant on a straight-line basis. Commencing in May, 1980, the estimated decommissioning costs of portions of the nuclear plants are being charged to operations as permitted for rate making purposes. Such amounts, net of deferred income taxes, are deposited in an escrow account for funding of future costs. The Company believes that any additional costs, which may be significant, would be recoverable through adjustments of rates charged to its customers. The annual depreciation provisions, expressed as a percent of average depreciable utility plant in service, were approximately 3.01% for 1981, 3.06% for 1980 and 3.11% for 1979.
Income Taxes. Deferred income taxes are provided for differences between book and taxable income to the extent permitted for rate making purposes. Investment tax credits, other than credits resulting from contributions to the Tax Reduction Act Stock Ownership Plan for employees which do not affect income, are deferred and amortized by credits to income over the estimated useful life of the related utility plant.
Allowance for Funds Used During Construction (AFUDC). AFUDC is a non-cash item which is defined in the uniform systems of accounts as "the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on Other funds when so used." AFUDC is recorded as a charge to Construction Work In Progress, and the equivalent credits are to "Interest Charges " for the pre-tax cost of borrrowed funds and to "Other Income " for the remainder as the allowance for equity funds. The rate used for capitalizing AFUDC, which averaged 8.65% in 1981, 7.85% in 1980, and 7.45% in 1979, is computed under a method prescribed by the regulatory authorities. The rate is a "net after-tax rate" and the current income tax reductions applicable to the interest charges capitalized, $63,875,000 in 1981, $50,083,000 in 1980 and $34,754,000 in 1979, are recorded in "Other Income. " AFUDC is not included in taxable income and the depreciation of capitalized AFUDC is not a tax-deductible expense.
Retirement Plan. The Company has a non-contributory trusteed retirement plan applicable to all regular employees. Pension costs include normal cost for the year and amortization of unfunded prior service costs, over ten to twenty-year periods (see Note 10). Approximately 79% of such co ts were charged to operating expense and the remainder, associated with construction labor, to the cost of new utility plant.
Gas Exploration and Development Costs. The Company has invested in several joint ventures for exploring and drilling for gas. These costs are capitalized under the full cost method and charged to operations commensurate with the use of gas produced by these ventures. Non-utility property and other investments at December 31, 1981, and 1980, include unamortized capitalized costs of $46,294,000 and $32,224,000, respectively.
27
- 2. Common Stock:
At December 31, 1981 and 1980, Common Stock, without par value consisted of 160,000,000 shares authorized and 108,507,097 shares and 92,632,571 shares, respectively, outstanding. At December 31 1981, there were 4,787,024 shares reserved for issuance under stock purchase plans.
Number of Shares Amounts Common Stock issued:
1981 1980 1979 1981 1980 1979 (Thousands of Dollars)
Public Sales 12,800,000 7,000,000 4,000,000
$154,786
$101,360
$63,460 Dividend Reinvestment and Stock Purchase Plan 2,667,081 2,399,418 1,740,991 34,809 31,593 26,389 Employee Stock Purchase Plan 407,445 349,937 279,315 5,330 4,863 4,416 Tax Reduction Act Stock Ownership Plan 350,225 5,723 Totals 15,874,526 9,749,355 6,370,531
$194,925
$137,816
$99,988
- 3. Preferred Stock,
$100 par, cumulative, at December 31, 1981 and 1980:
Number of Shares Amount Current Refunding Redemption Restricted Authorized Outstanding Price (a)
Prior to (b )
1981 1980 1981 1980 (Thousands of Dollars)
Series (without mandatory redemption requirements):
9.50%
$106.50 750,000 750,000 750,000
$ 75,000
$ 75,000 8.75%
107.00 650,000 650,000 650,000 65,000 65,000 7.85%
105.00 500,000 500,000 500,000 50,000 50,000 7.80%
105.50 750,000 750,000 750,000 75,000 75,000 7.75%
103.00 200,000 200,000 200,000 20,000 20,000 4.68%
104.00 150,000 150,000 150,000 15,000 15,000 4.4%
112.50 274,720 274,720 274,720 27,472 27,472 4.3%
102.00 150,000 150,000 150,000 15,000 15,000 3.8%
106.00 300,000 300,000 300,000 30,000 30,000 3,724,720 3,724,720 3,724,720 372,472 372,472 Series (with mandatory redemption requirements)
(c ) and (d):
15.25% (Sold 1980) 115.25 5-1-90 500,000 500,000 500,000 50,000 50,000 10% (Sold 1980) 104.44 5-1-85 220,000 220,000 220,000 22,000 22,000 '
9.52%
106.25 5-1-86 500,000 453,920 490,210 45,392 49,021 8.75%
108.75 5-1-88 500,000 500,000 500,000 50,000 50,000 7.325%
104.98 750,000 660,000 690,000 66,000 69,000 7%
104.00 400,000 335,370 343,090 33,537 34,309 2,870,000 2,669,290 2,743,300 266,929 274,330 Unclassified 3,405,280 Total Preferred Stock 10,000,000 6,394,010 6,468,020
$639,401
$646,802 (a) Redeemable, at the option of the Company, at the indicated dollar amounts per share, plus accrued dividends.
(b) Prior to the date specified, none of the shares of each series indicated may be redeemed through refunding at an interest cost or dividend rate which is less than the dividend rate of such series.
(c ) Redemption requirements (par value) in the period 1982-1986 are as follows: 1982-$3,000,000; 1983-$5, 129,000; 1984-$5,800,000; 1985-$5,800,000; and 1986-$12,700,000.
(d) The excess of the aggregate par value of reacquired shares, 74,010 shares in 1981, 45,210 shares in 1980 and 40,490 shares in 1979, over the aggregate purchase price is reflected in Other Paid-In Capital: $1,307,000 in 1981, $378,000 in 1980 and $235,000 in 1979.
28
- 4. Long Term Debt,
- 5. Short-Term Debt:
at December 31, 1981 and 1980:
Philadelphia Electric Company Series First Refunding Mo11gage Bonds (a )
23/4%
3%%
3Vs%
31/a%
43/a%
33/4%-5%
41/2%-15%%
61/a%-1 15/a%
81/2%-121/2%
6%-183/4%
Total First and Refunding Mortgage Bonds Notes Payable-Banks (b)
Pollution Control Notes 5.5%-13%
Debentures Debentures Debentures Debentures 123/4%
4.85%
141/a%
143/4%
Due 1981 1982 1983 1985 1986 1987-1989 1992-1996 1997-2001 2002-2006 2007-2011 1984-1987 1982-2011 1981 1986 1990 2005 1981 1980 (Thousands of Dollars) 30,000 35,000 35,000 20,000 20,000 50,000 50,000 50,000 50,000 130,000 130,000 455,256 383,007 559,988 565,089 500,000 500,000 448,500 198,500 2,248,744 1,961,596 225,000 225,000 130,205 31,250 100,000 22,710 22,710 50,000 50,000 100,000 100,000 Unamortized Debt Discount and Premium, Net (14,162)
(7,190)
Total Philadelphia Electric Company 2,762,497 2,483,366 Philadelphia Electric Power Company-a subsidiary:
Sinking Fund Debentures 41/2%
1995 19,356 19,429 Unamortized Debt Discount (68)
(73)
Total Long-Term Debt 2,781,785 2,502,722 Current Maturities included in Current Liabilities (c )
(36,062)
(130,789)
Long-Term Debt included in Capitalization
$2,745,723
$2,371,933 (a) Utility plant is subject to the lien of the Company's mortgage.
(b) At interest rates ranging from prime rate to l l2 1h % of prime rate.
(c ) Long-term debt maturities in the period of 1982-1986 are as follows: 1982-$36,062,000; 1983-$29,207,000; 1984-$85,300,000; 1985-$ 160,300,000, and 1986-$80,300,000.
The Company has an agreement with a group of banks for a $400 million revolving credit and term loan. The agreement provides a revolving credit avai lability through May 31, 1985 and repayment during the pe1iod Ju ne 1, 1985 to May 3 I, 1987. There is a commitment fee of Y2% on the $400 million during the credit availability period and thereafter 1/z % on outstanding balances. The interest rate during the credit availability period is l 05% of either the prime rate of a major bank or l % above the rate on 90-day certificates of deposit, whichever is higher, and 107% of such higher rate during the repayment period.
1981 1980 (Thousands of Dollars)
Average Short-Term Borrowings
$146,273
$54,716 Average Interest Rates, Computed on Daily Basis Maximum Short-Term Borrowings Outstanding 17.80%
15.07%
$266,512
$161, 143 Average Interest Rates on Short-Term Borrowings at December 31 :
Bank Loans 16.37%
20.53%
Commercial Paper 15.11 %
Included in Bank Loans as of December 31, 198 I is $50,000,000 at an interest rate of 16.5%,
under a $ I 00,000,000 Two-Year Euro Dollar revolving credit facility, effective April 6, 198 1. Such credit facility provides for a commitment fee of 3/8% on the unused amount of the credit facility.
As of December 31, 198 l the Company had borrowed $4,225,000 under informal lines of credit with domestic banks aggregating $239, 175,000. The Company generally does not have formal compensating balance arrangements with these banks.
29
- 6. Jointly-Owned Electric Utility Plant:
Operator Participating Interest Company's share of:
Plant in Service The Company's ownership interests in jointly-owned utility plant, at December 31, 1981 were as follows:
Peach Bottom Philadelphia Electric Company 42.49%
Production Plants Salem Keystone Public Service Electric and Gas Company 42.59%
Pennsylvania Electric Company 20.99%
(Thousands of Dollars)
$798,805
$47,015 Conemaugh Pennsylvania Electric Company 20.72%
Transmission Plant Various Companies 21% to 43%
Accumulated Depreciation Construction Work in Progress
$387,761 73,520 12,064 56,528 19,894 18,588 1,068
$57,163 16,388 761
$69,141 7,275
- 7. Taxes on Income:
30 The Company's participating interests are financed with Company funds and, when placed in service, all operations are accounted for as if such participating interests were wholly-owned facilities.
1981 1980 (Thousands of Dollars)
Included in operating expenses:
Current Federal
$ 75,558
$ 55,416 Current State 26,866 22,243 102,424 77,659 Deferred Federal 6,007 (4,653)
Deferred State (3,996)
(7,468) 2,011 (12,121)
Investment tax credits, net of amortization-Federal 25,049 28,135 Total Federal 106,614 78,898 Total State 22,870 14,775
$129,484
$ 93,673 Included in other income:
Current Federal (50,299)
(39, 132)
Current State (12,865)
(9,893)
$(63,164)
$(49,025)
Total income tax provisions:
Federal 56,315 39,766 State 10,005 4,882
$ 66,320
$ 44,648 1979
$ 29,844 7,376 37,220 41,058 3,796 44,854 (3,019) 67,883 11,172
$ 79,055 (27,021)
(6,863)
$(33,884) 40,862 4,309
$ 45,171 Investment tax credits reduced Federal income taxes currently payable by $29,817,000 in 1981, $32,428,000 in 1980 and $605,000 in 1979. Approximately $53,000,000 of additional investment tax credits available in 1981 have not been realized due to limitations based on taxable income. These credits may be used to reduce Federal income taxes in future years through 1996. Investment tax credits consist of (a) the basic credits allowable of 10% plus (b) a credit of I V2 % resulting from the Tax Reduction Act Stock Ownership Plan for employees
($6,200,000 in 1981, none realized in 1980 and 1979). The additional credits which are passed on to the employees of the Company in the form of Philadelphia Electric Company Common Stock have no effect on net income.
In December, 1981, the Company sold the tax benefits attributable to its ownership interest in the Salem Station Unit No. 2. This transaction was structured under the safe harbor lease provisions of the Economic Recovery Tax Act of 1981. The proceeds from the sale, $53,743,000, have been credited to Deferred Income Taxes
($24,759,000), Deferred Investment Tax Credits ($21,863,000) and other Deferred Credits ($7, 121,000) and will be amortized by credits to income over the estimated useful life of the plant.
Beginning May I, 1981, the normalization of income taxes associated with capitalized pension costs and payroll and realty taxes was adopted for both accounting and rate making purposes.
- 8. Taxes, Other than Income:
- 9. Leases:
Provisions for deferred income taxes consist of the following tax effects of timing differences between tax and book income:
1981 1980 1979 (Thousands of Dollars)
Depreciation and amortization
$ 25,452
$ 25,655
$ 26,981 Recoupment revenue (18,462)
Deferred fuel expense (21,804)
(37,369) 40,899 Other (1,637)
(407)
(4,564) 2,011
$(12,121)
$ 44,854 The total income tax provisions differ from amounts computed by applying the Federal statutory tax rate to income and adjusted income before income taxes for the following reasons:
Net income
$277,565
$227,131
$ 194,471 Total income tax provisions 66,320 44,648 45, 171 Income before income taxes 343,885 271,779 239,642 Deduct-allowance for funds used during construction (non-taxable) 188,797 147,550 113,383 Adjusted income before taxes
$155,088
$ 124,229
$ 126,259 Income taxes on above at Federal statutory rate of 46%
71,340 57,145 58,079 Increase (decrease) due to:
Excess of tax depreciation over book depreciation not normalized (551)
(1,338)
(2,987)
State income tax, net of Federal income tax benefits 5,436 2,636 2,327 Taxes and pension costs capitalized but expensed for tax purposes (3,226)
(7,028)
(6,382)
Amortization of investment tax credits previously deferred (4,769)
(4,293)
(3,624)
Other, net (1,910)
(2,474)
(2,242)
Total income tax provisions
$ 66,320
$ 44,648
$ 45,171 Provision for income taxes as a percent of:
Income before income taxes 19.3%
16.4%
18.8%
Adjusted income before income taxes 42.8%
35.9%
35.8%
Gross receipts
$100,912
$ 90,487
$ 67,385 Capital stock 19,600 19,046 17,030 Realty 9,555 9,398 8,819 Other, principally social security 15,245 14,830 13,442 Total
$145,312
$133,761
$106,676 Certain leases, including the nuclear fuel contracts for Peach Bottom and Salem, meet the criteria of a capital lease as defined by Financial Accounting Standards, but are accounted for as operating leases in accordance with the rate making process. If these leases were capitalized they would not have a material effect on assets, liabilities or related expenses.
The minimum rental commitments under all noncancelable agreements aggregated $378,5 14,000 at December 31, 1981. The annual rental commitments are estimated to be $83,020,000 for 1982; $89,459,000 for 1983; $89,995,000 for 1984; $46,034,000 for 1985; and $9, 155,000 for 1986.
Nuclear Fuel Other Total Rental payments charged to operating expenses were as follows:
1981 1980 1979 (Thousands of Dollars)
$26,709
$21,177 24,782 21,235
$51,491
$42,412
$21,747 19,912
$41,659 The Company 's proportionate share of the contractual liabilities to purchase nuclear fuel under lease agreements for the Peach Bottom Station and Salem Station as of December 3 I, 198 1 was $199,045,000.
Independent fuel companies have been authorized to acquire and own up to a maxi mum of $425,000,000 of nuclear fuel at any one time and have contracted to sell the energy therefrom to the Company.
31
- 10. Retirement Plan Costs:
- 11. Segment Information:
1981 December 31:
Total assets 1980 December 31:
Total assets 1979 December 31:
Total assets 32 Retirement plan costs, which are funded as accrued, aggregated $31, 700,000 in 1981,
$28,575,000 in 1980, and $25,713,000 in 1979. Plan data as of the dates of the most recent actuarial reports is as follows:
Januar:r l 1981 1980 Actuarial present value of accumulated plan benefits (based on 6.5%
(Thousands of Dollars) assumed rate of return):
Vested
$326,786
$295,999 Non vested 38,317 35,453
$365,103
$331,452 Net assets available for benefits
$332,027
$277,223 Electric Gas Steam Total (Thousands of Dollars)
Operating revenues
$2,002,063
$356,431
$74,931
$2,433,425 Operating expenses, excluding depreciation 1,586,506 322,008 71,635 1,980,149 Depreciation 117,270 11,294 1,719 130,283 Total operating expenses 1,703,776 333,302 73,354 2,110,432 Operating income
$ 298,287
$ 23,129
$ 1,577
$ 322,993 Utility plant additions
$ 746,535
$ 40,432 108
$ 787,075 Allocable assets Net utility plant(*)
5,372,240 314,652 27,194 5,714,086 Materials and Supplies 101,956 29,986 251 132,193
$5,474,196
$344,638
$27,445 5,846,279 Nonallocable assets 457,916
$6,304,195 Operating revenues
$1,766,956
$290,743
$65,695
$2,123,394 Operating expenses, excluding depreciation 1,414,038 258,063 62,380 1,734,481 Depreciation 111, 106 10,1 69 1,672 122,947 Total operating expenses 1,525,144 268,232 64,052 1,857,428 Operating income
$ 241,812
$ 22,51 1
$ 1,643
$ 265,966 Utility plant additions
$ 540,628
$ 38,833 341
$ 579,802 Allocable assets:
Net utility plant (*)
4,867,879 283,414 28,748 5,180,041 Materials and Supplies 102,193 18,582 311 121,086
$4,970,072
$301,996
$29,059 5,301, 127 Nonallocable assets 401,422
$5,702,549 Operating revenues
$1,311,891
$221, 135
$45,479
$1,578,505 Operating expenses, excluding depreciation 975,41 4 194,41 6 42,268 1,212,098 Depreciation 109,990 8,944 1,674 120,608 Total operating expenses 1,085,404 203,360 43,942 1,332,706 Operating income
$ 226,487
$ 17,775
$ 1,537
$ 245,799 Utility plant additions
$ 401,674
$ 19,490 451
$ 421,615 Allocable assets:
Net utility plant (*)
4,449,522 261,719 30, 141 4,741,382 Materials and Supplies 91,685 18,017 299 110,001
$4,541,207
$279,736
$30,440 4,851,383 Nonallocable assets 389,$77
$5,241,260
(*)Includes construction work in progress and allocated common utility property.
- 12. Commitments and Contingencies:
- 13. Quarterly Data (Unaudited):
Quarter Ended March 31 June 30 September 30 December 31 The Company has incurred substantial commitments in connection with its construction program.
Construction expenditures are estimated to be $881,000,000 for 1982 and $2,267,000,000 for 1983-1985. These estimates are reviewed and revised periodically to reflect changes in economic conditions, revised load forecasts and other appropriate factors. The nuclear plant faci lities under construction require numerous permits and licenses, which the Company cannot be assured will be issued at completion of the facilities.
The Price-Anderson Act places a "Limit of Liability" of $560,000,000 on each licensed nuclear facility for public liability claims that could arise from a nuclear incident involving any licensed facility in the nation.
The Company and its co-owners of the Peach Bottom and Salem Stations have insured for this exposure by purchasing private insurance in the maximum available amount of $160,000,000 and the remainder is provided by indemnity agreements with the Nuclear Regulatory Commission. In the event of a nuclear incident involving any licensed reactor in the United States, the Company could be assessed up to $8,500,000 per incident with a maximum amount of $17,000,000 in any one year.
The Company is insured for damage to its nuclear plant facilities at Peach Bottom and Salem.
This insurance provides coverage for losses up to $450,000,000 and an additional $247,000,000 for losses in excess of $500,000,000. Under the terms of the various insurance agreements the Company could be assessed up to $28,000,000 for losses incurred at any of the plants insured by the insurance companies. The Company is a self-insurer, to the extent of its ownership interests, for any property loss in excess of the insurance coverage.
The Company, along with other nuclear facility operators, formed an industry mutual insurance company to provide replacement power cost insurance coverage up to a maximum of $179,400,000 for a single unit loss over a two-year period in the event of a major outage at a nuclear station. The premium for this coverage is subject to an assessment for adverse loss experience, and the coverage currently applies to Peach Bottom Units 2 and 3, and Salem Units I and 2. The Company's maximum share of any assessment is $13,805,000.
Actions have been filed in the U.S. District Court against the Company with respect to alleged discrimination in its employment or promotion practices. Counsel is of the opinion that the ultimate outcome of these actions would not have a material adverse effect on the financial position of the Company.
The data shown below includes all adjustments (consisting of normal recurring accruals) which the Company considers necessary for a fair presentation of such amounts.
Earnings Average Shares Earnings Per Operating Applicable to Outstanding Average Share Revenues Net Income Common Stock (Thousands)
(Dollars)
(Thousands of Dollars) 1981 1980 1981 1980 1981 1980 1981 1980 1981 1980
$647,927 $564,353
$69,904
$53,605
$56,382
$42,1 25 92,706 82,944
$.61
$.51 543,612 455,326 58,475 43,891 45,017 30,308 98,383 83,649
.46
.36 620,697 567,810 79,198 78,620 65,763 65,052 99,227 90,557
.66
.72 621,1 89 535,905 69,988 51,015 56,599 37,465 107,749 91,970
.53
.41 Electric Sales Gas Sales Billion Kilowatt-hours Billion Cubic Feet 28 27 26 25 24 23 22 0
77 78 79 80 81 Salem #2 80 70 60 50 40 30 20 10 0
77 I I I
I I I I I
I I I I I I I I I I I I I I I I I I I
I I I I I I I I I I 78 79 80 81 33
34
- 14. Supplementary Information to Disclose the Estimated Effects of Inflation for the Year Ended December 31, 1981 (Unaudited):
The following supplementary information is supplied to show the estimated effects of inflation because the Company is required to do so, according to the Statement of Financial Accounting Standards No. 33.
The methods required to develop this information are approximate and complex, and may not necessarily reflect the true effects of inflation on the Company. Under existing regulatory law, the Company is permitted to recover actual operating and capital costs incurred to serve customers and a reasonable return on investment, and the Company believes it will be allowed to recover cost increases caused by inflation as such increases are actually incurred.
Effect of Inflation on Reported Income. In adjusting the Consolidated Statements of Income, as 1
shown below, only depreciation expense is required to be adjusted for the effect of inflation. The "constant dollad and "current cost" depreciation expenses were determined by applying the Company's depreciation rates to restated 1981 average depreciable plant in service. Fuel inventories have not been restated from their original cost because th1 operation of fuel adjustment clauses permits the automatic recovery of fuel costs.
If the Company had to replace its entire utility plant at this time, the costs to do so would great!~
- exceed the original costs incurred when the facilities were built because of the cumulative effect of inflation. Thes~
plant replacement costs, net of accumulated depreciation, are estimated at $10,225,000,000 as restated for "constant dollars" and $10,851,000,000 as restated for "current costs." Under the "constant dollar" method, the Company is required to restate the original costs in terms of dollars of equal purchasing power, as measured by the Consumer Price Index for all Urban Consumers. The "current cost" method uses Handy-Whitman Indices of Public Utility Construction Costs. Results from the two methods differ because construction costs have increased more rapidly than consumer prices in general. However, during 1981, 1980 and 1979, general inflation increased more rapid! y than specific prices. Under the "current cost" method, the effect ($856,000,000) of general inflation in 1981 on net utility plant exceeded the increase ($670,000,000) in specific prices by $186,000,000 and by $205,000,000 and
$85,000,000, for 1980 and 1979 expressed in average 1981 dollars. In the Company 's opinion, the "current cost"*
method is more appropriate for estimating the effect of inflation on utility plant.
Consolidated Statements of Income Adjusted for Inflation for the Year Ended December 31, 1981 (Thousands of Dollars)
As Adjusted For Constant Current Dollars Costs (Average (Average As Reported 1981 Dollars) 1981 Dollars)
Operating Revenues
$2,433,425
$2,433,425
$2,433,425 Depreciation 130,283 293,000 331,000 Other Operating Expenses 1,980,149 1,980,149 1,980,149 Operating Income 322,993 160,276 122,276 Other Income 130,634 130,634 130,634 Income Before Interest Charges and Preferred Stock Dividends 453,627 290,910 252,910 Interest Charges and Preferred Stock Dividends 229,866 229,866 229,866 Earnings Applicable to Common Stock*
$ 223,761 61,044 23,044 Earnings Per Average Share..
$2.25
$0.61
$0.23
- Earnings applicable to Common Stock for 1980 and 1979, restated in average 198 l dollars, amounted to $54,887 an
$46,633, respectively, for Constant Dollars and losses of $2,313 and $8,368, respectively, for Current Costs.
.. Earnings per average share for 1980 and 1979, based on the restated earnings were $0.63 and $0.58, respectively, fo; Constant Dollars and losses of $0.03 and $0.10, respectively, for Current Costs.
Effects of Inflation on Shareholders' Equity. The effect of inflation on the Company's actual original cost of net utility plant amounted to $456,000,000 for 1981, ($626,000,000 for 1980, and $699,000,000 for 1979 expressed in average 1981 dollars). These inflationary effects were not recovered because rates are based on depreciation of original cost plant. If the Company were required to charge these amounts against income in 1981, 1980 and 1979, earnings applicable to common stock would have become losses of $232,239,000, and
$433,455,000, and $511,628,000, respectively. The effect of inflation (8.9% for 1981, 12.4% for 1980 and
- 13. 3% for 1979) on the value of the Company 's debt and preferred stock approximated $308,000,000 for 1981,
$426,000,000 for 1980, and $480,000,000 for 1979 (1980 and 1979 expressed in average 198 1 dollars) and would partially offset the effect of inflation on utility plant.
If the Company had earned at the rate of inflation (8.9%) on its common shareholders' equity in 1981, earnings would have been approximately $165,000,000 compared with reported earnings of $223,761,000.
Thus, reported earnings applicable to common stock in 1981 were about $60,000,000 above the level necessary to offset the impact of inflation on shareholders' equity.
Adjustment of Selected Five Year Financial Information. In order to reflect the impact of general inflation on selected financial information for each of the years 1977 through 1981, the following table shows actual data compared with data adjusted to 1981 dollars.
Five Year Summary of Selected Financial Information Showing Adjustments to Reflect Inflation 1981 1980 1979 1978 1977 Development of Consumer Price Index Adjustment Factors Average During Year 272.4 246.8 217.4 195.4 181.5 Year End 281.5 258.4 229.9 202.9 186.1 Consumer Price Index Multiplier A=Average (272.4-dndex) 1.00 1.10 1.25 1.39 1.50 B = Year End (281.5-o-Index) 1.00 1.09 1.22 1.39 1.51 Actual and Adjusted Dividends Per Common Share Financial Information Actual Paid
$1.90
$1.80
$1.80
$1.80
$1.76 Adjusted (Actual x A)
$1.90
$1.98
$2.25
$2.50
$2.64 Market Price Per Common Share Actual year End
$13.63
$12.50
$13.75
$1 5.50
$19.63 Adjusted (Actual x B)
$13.63
$1 3.63
$1 6.78
$21.55
$29.64 Operating Revenues (thousands of dollars)
Actual
$2,433,425
$2,1 23,394
$1,578,505
$1,456,758
$1,394,762 Adjusted (Actual x A)
$2,433,425
$2,335,733
$1,973,131
$2,024,894
$2,092,143 Common Shareholders ' Equity (thousands of dollars)
Actual Year End
$1,963,527
$1,733,614
$1,580,004
$1,475,276
$1,437,202 Adjusted (Actual x B)
$1,963,527
$1,889,639
$1,927,605
$2,050,634
$2, 170, 175 Accountants' Report To the Shareholders and Board of Directors Philadelphia Electric Company We have examined the consolidated balance sheets of Philadelphia Electric Company and Subsidiary Companies as of December 31, 1981 and 1980, and the related consolidated statements of income, retained earnings, and changes in financial position for each of the three years in the period ended December 31, 1981. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly the financial position of Philadelphia Electric Company and Subsidiary Companies as of December 3 l, 1981 and 1980, and the results of their operations and the changes in their financial position for each of the three years in the period ended December 31, 1981, in conformity with generally accepted accounting principles applied on a consistent basis.
1900 Three Girard Plaza Philadelphia, Pennsylvania February 2, 1982 35
Financial Statistics Summary of Earnings (Millions of Dollars) 1981 1980 1979 1978 1977 Operating Revenues (for details see pages 23 and 32)
$2,433.4
$2, 123.4
$1,578.5
$1,456.8
$1,394.8 Operating Expenses Fuel and Energy Interchange 1, 187.6 1,090.5 661.7 573.9 575.3 Labor 256.8 232.1 209.3 195.0 179.2 Other Materials, Supplies and Services 260.9 184.5 155.4 135.0 121.4 Total Operation and Maintenance 1,705.3 1,507.1 1,026.4 903.9 875.9 Depreciation 130.3 122.9 120.6 116.5 107.8 Taxes 274.8 227.4 185.7 194.7 188.9 Total Operating Expenses 2,110.4 1,857.4 1,332.7 1,215.1 1,172.6 Operating Income 323.0 266.0 245.8 241.7 222.2 Other Income Allowance for Other Funds Used During Construction 65.0 50.5 46.0 37.6 36.2 Income Tax Credits, net 63.2 49.0 33.9 26.3 25.3 Other, net 2.5 3.4 1.7 4.6 3.5 Income Before Total Other Income 130.7 102.9 81.6 68.5 65.0 Interest Charges 453.7 368.9 327.4 310.2 287.2 Interest Charges Long-Term Debt 266.7 225.0 193.0 176.3 161.0 Short-Term Debt 33.2 13.9 7.3 2.5 2.6 Allowance for Borrowed Funds Used During Construction (123.8)
(97.1)
(67.4)
(53.4)
(49.8)
Net Interest Charges 176.1 141.8 132.9 125.4 113.8 Net Income 277.6 227.1 194.5 184.8 173.4 Preferred Stock Dividends 53.8 52.2 44.8 43.5 40.7 Earnings Applicable to 223.8 174.9 149.7 141.3 132.7 Common Stock Dividends on Common Stock 189.5 157.4 145.0 135.7 124.9 Earnings Retained 34.3 17.5 4.7 5.6 7.8 Earnings per Average Share (Dollars) 2.25 2.00 1.86 1.87 1.87 Dividends per Common Share (Dollars) 1.90 1.80 1.80 1 :80 1.76 Common Stock Equity (Per Share)
$ 18.10
$ 18.72
$ 19.06
$ 19.28
$ 19.26 Average Shares of Common Stock Outstanding (Millions) 99.6 87.3 80.5 75.4 70.8 See page 21 for Management's Discussion and Analysis of Financial Condition and Results of Operations.
0 ---
36 Comparison of Electric Fuel Costs Per Million BTU 71 81 71 81 71 81 Nudear Coal System Average Oil 71 81 Operation and Maintenance Expenses(Less Fuel and Interchange)
Million Dollars II
- II I
II I I I I I II
... 11 I
- J 11 T7 78 79 80 81 1976 1~71
$1,224.1
$6Q8.
480.7 189.8 161.9 108.
88.9
- 45.
731.5 343.
98.0
- 55.
183.2 80.~
1,012.7 480.5 211.4 127.6 30.1 14.~
24.2
( 1.
2.6 3.~
56.9 15.9 268.3 143.5 147.6 60.9 3.6 6.3 (47.5)
(17.3 103.7 49.9 164.6 93.6 39.0 15.3 125.6 78.2 107.7 60J 17.9
$ 17.6 1.91
$ 2.1 1.64
$ 1.6
$ 19.13
$19.5<1 65.6 37. ~
S1.*mmary of Financial Condition 1981 December 31 (Millions of Dollars)
Assets wt Total Liabilities Total Utility Plant, at original cost
$7,044.7 Less: Accumulated Depreciation 1,330.6 Net UtiJjty Plant 5,714.1 Nonutility Property and Other Investments 77.8 Current Assets Cash and Temporary Cash Investments 30.7 Accounts Receivable 342.4 Materials and Supplies 132.2 Deferred Fuel Expense (31.3)
Other 6.8 Deferred Debits 31.5
$6,304.2 Common Stock
$1,572.4 Other Paid-In Capital 3.9 Retained Earnings 387.2 Common Shareholders' Equity 1,963.5 Preferred Stock:
Series Without Mandatory Redemption Requirements 372.5 Series With Mandatory Redemption Requirements 266.9 Long-Term Debt Total Capitalization Current Liabilities Short-Term Debt Current Maturities of Long-Term Debt Accounts Payable and Dividends Declared Taxes Accrued and Deferred Interest Accrued Other Deferred Credits Billion Dollars 2,745.7 5,348.6 54.2 36.1 188.9 51.4 82.3 18.1 524.6
$6,304.2 Capital Investment 1980
$6,415.7 1,235.7 5,180.0 58.7 6.7 300.3 121.1 11.0 6.2 18.5
$5,702.5
$1,377.4 2.6 353.6 1,733.6 372.5 274.3 2,371.9 4,752.3 52.6 130.8 187.6 77.8 64.9 17.4 419.1
$5,702.5 77 78 79 80 81 Common Stock Preferred Stock Bonds 1979 1978 1977 1976 1971
$5,885.5
$5,502.5
$5,121.1
$4,747.2
$2,851.0 1,144.1 1,053.3 955.3 860.3 585.7 4,741.4 4,449.2 4,165.8 3,886.9 2,265.3 47.4 30.0 27.4 13.2 6.0 10.6 38.6 30.8 23.8 25.2 230.9 223.5 184.0 168.0 63.0 110.0 93.3 102.3 88.3 34.2 83.5 4.2 23.0 19.9 4.6 4.3 3.8 2.6 2.0 12.9 7.5 10.9 14.7 6.6
$5,241.3
$4,850.6
$4,548.0
$4,217.4
$2,402.3
$1,239.6
$1,139.7
$1,106.7
$1,002.8
$ 528.2 2.2 2.0 1.8 1.7 1.2 338.2 333.6 328.7 321.2 254.7 1,580.0 1,475.3 1,437.2 1,325.7 784.1 372.5 372.5 372.5 372.5 222.5 206.8 210.9 161.7 162.6 40.0 2,241.9 2,173.2 2,078.3 1,936.4 1, 161.8 4,401.2 4,231.9 4,049.7 3,797.2 2,208.4 85.2 16.2 14.9 7.2 49.3 127.8 52.9 28.7 36.9 17.1 133.5 120.3 92.4 83.9 40.7 65.1 44.5 36.7 30.7 22.3 58.1 51.0 48.6 43.2 17.5 13.9 7.9 4.1 4.6 15.2 356.5 325.9 272.9 213.7 31.8
$5,241.3
$4,850.6
$4,548.0
$4,217.4
$2,402.3 37
Operating Statistics ELECTRIC OPERATIONS Total Electric Output Total Electric Sales Output (millions of kilowatt-hours) s team Nuclear Hydraulic Pumped Storage Output Pumped Storage Input Purchase and Net Interchange Internal Combustion Other Sales (millions of kilowatt-hours)
Residential Small Commercial and Industrial Large Commercial and Industrial AU Other Number of Customers, December31 Residential Small Commercial and Industrial Large Commercial and Industrial All Other Total Electric Customers Operating Revenues (millions of dollars)
Residential Small Commercial and Industrial Large Commercial and Industrial All Other Total Electric Revenues Operating Expenses (millions of dollars)
Operating expenses excluding depreciation Depreciation Total Operating Expenses Electric Operating Income (millions of dollars)
Net Electric Utility Plant (millfons of dollars)
Average Use per Residential Customer (kilowatt-hours)
Without Electric Heating With Electric Heating Total Electric Peak Load, Demand (thous. kw)
Net Electric Generating Capacity-Year End 1981 1980 1979 9931 11 234 11 279 7,464 7,333 7,104 1,397 1,240 2,155 1,101 1,050 1,270 (1,624)
(1,526)
(1,847) 11,173 9,973 9,180 283 442 454 528 30,253 29,746 29,595 8,014 8,341 7,968 3,115 3,065 2,928 14,916 15,056 15,428 2,223 1,159 1,277 28,268 27,621 27,601 1,200,238 1, 190,312 1,173,514 117,016 116,808 115,724 5,790 5,820 5,798 746 736 1,919 1,323,790 1,313,676 1,296,955
$ 643.7
$ 607.8
$ 461.0 285.9 249.8 189.0 917.1 813.9 587.4 155.4 95.4 74.5
$2,002.1
$1,766.9
$1,311.9
$1,586.5
$1,414.0
$ 975.4 117.3 111.1 110.0
$1,703.8
$1,525.1
$1,085.4
$ 298.3
$ 241.8
$ 226.5
$5,372.2
$4,867.9
$4,449.5 6,022 6,411 6,227 18,054 19,482 20,760 6,699 7,058 6,829 5,731 6,095 5,641 Summer rating (thous. kw) 8,006 7,698 7,727 Cost of Fuel per Million Btu
$2.10
$1.90
$1.55 Btu per Net Kilowatt-hour Generated 10,930 10,787 10,810 38 1978 1977 1976 197*1 3160 1 '
11 468 13 385 19 8.
' 49 7,769 4,596 4,937 206 1,700 1,997 2,065 1,738 1,109 1,223 1,062 1,639 (1,606)
(1,761)
(1,506)
(2,302) 6,651 9,759 7,666 2,889 704 847 792 940 716 36 86 29,487 28,845 28,437 25,045 7,875 8,110 7,585 6,649 2,888 2,825 2,755 2,428 15,302 14,912 14,662 13,296 1,329 1,350 1,271 1,085 27,394 27,197 26,273 23,458 1, 158,853 1, 148, 171 1, 137,544 1,079,585 115,945 115,883 115,422 119,203 5,780 5,772 5,747 5,517 2,413 2,381 2,345 2,130 1,282,991 1,272,207 1,261,058 1,206,435
$ 430.8
$ 427.6
$ 373.2
$ 198.3 176.5 168.4 149.3 78.6 544.0 513.4 442.9 198.2 73.1 68.3 59.4 31.6
$1,224.4
$1,177.7
$1,024.8
$ 506.7
$ 896.3
$ 881.2
$ 750.2
$ 344.2 106.3 97.9 88.0 50.4
$1,002.6
$ 979.1
$ 838.2
$ 394.6
$ 221.8
$ 198.6
$ 186.6
$ 112.1
$4,167.1
$3,883.9
$3,604.5
$2,017.9 6,290 6,584 6,298 5.968 21,884 23,593 22,154 24,837 6,833 7,097 6,710 6,187 5,667 5,888 5,346 5,313 7,727 8,198 7,742 6,366
$1.29
$1.40
$1.24
$0.59 10,773 10,882 10,529 10,782
GAS OPERATIONS 1981 1980 1979 1978 1977 1976 1971 Sales (millions of cubic feet)
Residential 2,446 2,461 2,327 2,316 2,394 2,342 2,441 House Heating 24,675 23,671 23,593 24,974 26,335 24,540 25,165 Commercial and Industrial 45,670 42,890 37,452 32,784 31,017 33,390 40,624 All Other 127 92 93 94 86 89 102 Total Gas Sales 72,918 69, 114 63,465 60,168 59,832 60,361 68,332 Number of Customers, December31 Residential 78,426 81,346 85,315 87,715 88,775 89,459 95,478 House Heating 193,038 182,246 168,905 163,469 162,978 162,993 154,902 Commercial and Industrial 21,578 20,197 19,065 19,207 19,422 19,669 19,778 Total Gas Customers 293,042 283,789 273,285 270,391 271,175 272, 121 270,158 Operating Revenues (millions of dollars)
Residential
$ 15.4
$ 14.0
$ 10.7 9.9 9.6 8.7 6.2 House Heating 128.5 108.5 91.2 86.6 84.1 73.3 45.8 Commercial and Industrial 209.7 166.7 118.4 92.2 80.4 76.1 34.8 All Other 0.5 0.3 0.2 0.2 0.2 0.2 0.1 Subtotal
$354.1
$289.5
$220.5
$188.9
$174.3
$158.3
$ 86.9 Other Revenues 2.3 1.2 0.6 0.6 0.5 0.6 0.4 Total Gas Revenues
$356.4
$290.7
$221.1
$189.5
$174.8
$158.9
$ 87.3 Operating Expenses (millions of dollars)
Operating expenses excluding depreciation
$322.0
$258.0
$194.4
$163.0
$145.7
$128.1
$ 67.1 Depreciation 11.3 10.2 8.9 8.6 8.2 8.4 4.5 Total Operating Expenses
$333.3
$268.2
$203.3
$171.6
$153.9
$136.5
$ 71.6 Gas Operating Income (millions of dollars)
$ 23.1
$ 22.5
$ 17.8
$ 17.9
$ 20.9
$ 22.4
$ 15.7 Net Gas Utility Plant (millions of dollars)
$314.7
$283.4
$261.7
$250.5
$248.1
$247.5
$220.2 STEAM OPERATIONS Sales (millions of pounds) 5,484 6,044 6,581 7,336 7,165 7,735 8,223 Number of Customers, December 31 593 618 638 660 670 679 733 Operating Revenues (millions of dollars)
$ 74.9
$ 65.8
$ 45.5
$ 42.9
$ 42.3
$ 40.4
$ 14.1 Operating Expenses (millions of dollars)
Operating expenses excluding depreciation
$ 71.6
$ 62.4
$ 42.3
$ 39.3
$ 38.0
$ 36.5
$ 13.3 Depreciation 1.7 1.7 1.7 1.6 1.6 1.5 1.0 Total Operating Expenses
$ 73.3
$ 64.1
$ 44.0
$ 40.9
$ 39.6
$ 38.0
$ 14.3 Steam Operating Income (millions of dollars) 1.6 1.7 1.5
$ 2.0 2.7 2.4
$ (0.2)
Net Steam Utility Plant (millions of dollars)
$ 27.2
$ 28.7
$ 30.2
$ 31.6
$ 33.8
$ 34.9
$ 27.2 39
Shareholder Information 40 Stock Exchange Listings. Most PECo Securities are listed on the New York Stock Exchange an the Philadelphia Stock Exchange. Philadelphia Electric Power Company Debentures are listed on the Philadelphi Stock Exchange.
Dividends. The Company has paid dividends on its common stock continually since 1902.'
The Board of Directors normally considers common stock dividends for payment in March, June, September and December.
The Company estimates that 56% of the $1. 90 per share dividend paid to common shareholden in 1981 represents a return of capital which is not taxable as dividend income for Federal income tax purposes.
1 Dividend Reinvestment and Stock Purchase Plan. Shareholders may use their dividends to purchase additional shares of common stock through the Company 's Dividend Reinvestment and Stock Purcha ~
Plan. Philadelphia Electric pays all brokerage and service fees.
1 All common and preferred shareholders have the opportunity to invest additional funds in common stock of the Company, whether or not they have their dividends reinvested-also with all fees borne by the Company.
The Plan has been amended to enable eligible individual participants in the Plan to elect to deft; Federal income tax on up to $1,500 of reinvested dividends per year as provided by the Economic Recovery Tax Act of 1981.
Nearly 22% of the common shareholders are participants. In 1981, they invested more than $3~
million through the Plan, including cash payments. Information concerning this Plan may be obtained from M. "
Rimerman, Treasurer, Philadelphia Electric Company, 2301 Market Street, P.O. Box 8699, Philadelphia, PA 19101.
Comments Welcomed. The Company always is pleased to answer questions and provide info1 mation. Please address your comments to Mrs. L. S. Binder, Secretary, Philadelphia Electric Company, 2301 Market Street, P.O. Box 8699, Philadelphia, PA 19101.
Inquiries relating to shareholder accounting records, stock transfer and change of address shoul be directed to Philadelphia Electric Company, 230 I Market Street, P.O. Box 8699, Philadelphia, PA 19101, Att Stock Transfer Section. (215) 841-5795 Annual Meeting. The Annual Meeting of the Shareholders of the Company will be held on Apri 14, 1982, at 10:30 A.M. at the Franklin Plaza Hotel, 17th & Race Streets, Philadelphia, PA.
Common stock shareholders of record at the close of business on March 5, 1982 are entitled 1 vote at this meeting.
Notice of the meeting, proxy statement, and proxy will be mailed under separate cover. Promp return of the proxies will be appreciated.
Form 10-K. Form 10-K, the annual report filed with the Securities and Exchange Commission, available to shareholders upon written request to Philadelphia Electric Company, 2301 Market Street, P.O. Bo 8699, Philadelphia, PA 19101, Attn: Financial Division.
Shareholders. The Company has 266,613 shareholders of record of common stock, a 20%
increase in 5 years_. __
Transfer Agents and Registrars.
PHILADELPHIA ELECTRIC COMPANY-Preferred and Common St0cks Registrars:
Girard Bank, One Girard Plaza, Philadelphia, PA 19101 Morgan Guaranty Trust Co. of NY, 30 West Broadway, New York, NY 100 I 5 Transfer Agents: Philadelphia Electric Company, 2301 Market Street, Philadelphia, PA 19101 Morgan Guaranty Trust Co. of NY, 30 West Broadway, New York, NY 10015 PHILADELPHIA ELECTRIC COMPANY-First and Refu nding Mortgage Bonds Trustee:
The Fidelity Bank, Broad and Walnut Streets, Philadelphia, PA 19 109 New York Agent: Morgan Guaranty Trust Co. of NY, 23 Wall Street, New York, NY 10015 PHILADELPHIA ELECTRIC COMPANY-Debentures PHILADELPHIA ELECTRIC POWER COMPANY (A Subsidiary)-Debentures Trustee:
The Philadelphia National Bank, Broad and Chestnut Streets, Philadelphia, PA 19101 New York Agent: Irving Trust Company, One Wall Street, New York, NY 10015 General Office. 2301 Market Street, P.O. Box 8699, Philadelphia, PA 19101. (2 15) 841-400\\
NYSE-Composite Common Stock Prices, Earnings and Dividends by Quarters (Per Share) 1981 1980 Fourth Third Second First Fourth Third Second Fil Quarter Quarter Quarter Quarter Quarter Quarter Quarter ~
High Price
$14%
$143/s
$135/s
$14
$133/4
$15Va
$153/4 4
Low Price
$12%
$12%
$1H's
$11 1/s
$1 13/a
$12'l'a
$12%
i11 Earnings 53¢ 66¢ 46¢ 61 ¢ 41 ¢ 72¢ 36¢ 5
Dividends 50¢ 50¢ 45¢ 45¢ 45¢ 45¢ 45¢ 4
( Merctianilising)
Chief Executive Office~
1\\ssistant Secretary Co~orate Communications
Philadelphia Electric Company 2301 Market Street PO Box 8699 Philadelphia PA 19101 BULK RATE U.S. POSTAGE PAID Philadelphia PA Permit No. 378
NOTICE THE ATTACHED FILES ARE OFFICIAL RECORDS OF THE DIVISION OF DOCUMENT CONTROL. THEY HAVE BEEN CHARGED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETURNED TO THE RECORDS FACILITY BRANCH 016.
PLEASE DO NOT SEND DOCUMENTS CHARGED OUT THROUGH THE MAIL. REMOVAL OF ANY PAGE(S) FROM DOCUMENT FOR REPRODUCTION MUST BE REFERRED TO FILE PERSONNEL.
DEADLINE RETURN DATE RECORDS FACILITY BRANCH
Items of Special Interest Net Income and AFUDC (Millions of Dollars) 1981 1980 1979 1978 1977 0
10 20 30 40 50 Net Income Allowance for Funds Used During Construction Earnings per share increased 11.3% to $1.78 Dividends increased 6¢ to an indicated annual rate of $1.58 Internally generated funds increased 91% to $72.3 million Salem 2 placed in commercial operation New banking law adopted in Delaware Full PJM membership attained Oil-fired generation reduced 37.5% since 1979 Construction Expenditures and Internally Generated Funds (Millions of Dollars) 1984 I
Generation Fuel Mix (Percent) 1984 I
~~
1983 1982 1981 1980 60 0
30 I
60 90 120 Internally Generated Funds Construction Expenditures Excluding AFUDC 1982-1984 Projected 1983 -----~--'--
1982 ------""--
1981 1979 - ----
150 0
25 50 75 Coal Nuclear Oil/Gas 1982-1984 Projected 100
Delmarva Power & Light Company The Year in Review Financial Highlights Revenues Net Income Earnings Per Share Dividends Declared Common Stock Outstanding (Average Shares)
Common Stock Book Value Construction Expenditures Internally Generated Funds Electric Sales Electric Customers (Average)
Average Residential Usage Gas Sales Gas Customers (Average)
Average Residential Usage 1981 608.5 million 58.7 million 1.78 1.535 25,747.441 15.66 84.2 million 72.3 million 7.40 billion kwh 280,769 7,967 kwh 16.52 million met 73,299 89.4 met 1980 520.5 million 49.0 million 1.60 1.49 24,681,768 15.87 110.7 million 37.9 million 7.46 billion kwh 274,934 8,337 kwh 15.69 million met 72,363 92.3 met Percent Increase (Decrease) 16.9 19.9 11.3 3.0 4.3 (13)
(240) 90.8 (0 9) 2.1 (4.4) 5.3 1.3 (3 1)
Earnings and Dividends Per Share (Cents)
Operating and Fuel Revenues 1981 1980 1979 1978 1977 0
50 100 150 Dividends Declared Earnings 200 (Millions of Dollars) 1981 1980 1979 1978 1977 0
125 250 375 500 625 Fuel
__ Revenue
Our Service Territory Delmarva Power provides energy that is safe, reliable, and economical for the people, businesses, and industries of the Delmarva Peninsula.
To service a diverse area encompassing urban, rural, and recreational settings, Delmarva maintains an electric system with 2,355 megawatts of generation capacity, 1,300 miles of transmission lines, and 8,300 miles of distribution lines and a natural gas system with 1,000 miles of gas main.
Delmarva Power owns and operates four major fossil fuel power plants within the service territory and shares owner-ship of two coal plants and two nuclear plants outside the service territory.
Our 286,000 electric customers and 74,000 natural gas customers are served by 2,645. employees working in 25 customer service locations on the peninsula, division headquarters in Christiana, Delaware, and Salisbury, Maryland, and corporate headquarters in Wilmington, Delaware.
Delmarva Power & Light Company Contents About the Cover To Our Stockholders 2
Financial Review 4
Electric Operations 6
Gas Operations 8
Customer Activities 9
Employee Relations 10 Toward The Future 11 Financial Section Contents 12 Swans and oyster boats find safe harbor at sunset in St. Michaels, Maryland.
In 1981, Delmarva Power began serving customers directly in St. Michaels and Centreville, Maryland. They had previously been served by their municipal govern-ments which bought electricity at wholesale rates from Delmarva Power.
To the people who live and work in those two towns, Delmarva Power extends the same commitment it gives to all our customers: energy for business and indus-try, energy for homes and communities as reliably and as economically as we can produce it.
1b Our Stockholders Financial progress was made in 1981.
Earnings per share were $1.78 as compared to $160 for 1980, an 11.3%
increase even though electric sales declined slightly We view 1981 as a positive year and look forward to continued improvement.
The two major factors producing these results in 1981 were timely and significant rate action and continuing aggressive cost control of operating expenses. Rates filed in 1980 were effective in 1981 in all jurisdictions. In addition, all jurisdictions authorized new base rates to cover capital and operating expenses of the company's 82 megawatt share of the Salem 2 nuclear power plant when it became commercial on October 13, 1981. These actions plus reasonably prompt review of fuel and gas adjustment clauses made 1981 prices more nearly reflect 1981 costs.
The second factor was effective control of operating and maintenance costs through increased productivity and deferral of some maintenance and construction projects We recognize that deferral is a short run action and the plans for 1982 and 1983 reflect the need to complete deferred projects The quality of the company's earnings improved substantially in 1981 because of higher internally generated funds The improvement was accomplished through more timely collection of fuel costs, a cash return on power plants placed into service in late 1980 and 1981, and a modest construc-tion program 2
The start of the Salem 2 nuclear unit was another positive event in 1981 and represents one further step in the plan to reduce the amount of oil burned for generating electricity. The target is to reduce the amount of oil burned from 53% in 1979 to 12% in 1984.
It is encouraging that 1981 showed earnings growth even though electric sales declined, largely due to a reflec-tion of sluggish national economic conditions as well as to continued and significant reduction in use by many residential customers. Gas sales did improve substantially with the increased sales mostly to non-firm customers.
We look to continued financial growth in the years ahead. Our optimism is tempered with the knowledge and experience that major economic and social forces may substantially affect earnings. We must make every effort to anticipate such forces and be flexible in responding to them.
From today's perspective, those major forces which will affect us include reduced usage of energy by many existing residential customers; con-tinued environmental concerns and costs which may reduce management options; continued economic uncer-tainty due to the underlying structural changes occurring in the economy; and continued intrusion of government
Robert D. Weimer (left), Chairman of the
. Board of Directors and Nevius M. Curtis, President and Chief Executive Officer and consumer groups into our busi-ness. We think it unlikely that there will be a major technological break-through in the generation of electricity in the foreseeable future nor do we foresee reduction of financial costs to the low levels of a decade ago. On the other hand, we see an increasing awareness in our service area of the need for economic development as the cornerstone for more jobs, a reduced governmental burden, and an expanding residential electric space heating market.
Within this framework, our strategic plan during the balance of the eighties is to make electric rates more compet-itive regionally and at the same time, improve the return on your invest-ment. Our focus is three-pronged.
First, raw material represents 43%
of total cost. We will continue to con-vert from burning oil to coal. However, we shall retain some oil-fired capacity so that the company is not overly dependent on coal. While our gen-erating units have a better-than-average operating record, we will work to further improve their relia-bility and efficiency Second, capital costs are 32% of total cost. Every effort will be made to utilize lowest cost financing, to minimize capital projects, and to utilize assets fully. Thus, additional major facilities will not be undertaken until it is reasonably assured that a full return will be earned on those capital dollars.
We will continue aggressively to seek to price electricity and gas to reflect the then current cost of providing these products, to promote their sale in a way to improve utilization of facilities and to support efforts to attract new '
industry and aid the expansion of existing industry within our service territory.
Third, operating, maintenance, and administrative expenses represent 25%
of total cost. The strategic approach toward improvement in this area focuses on employee productivity and efficient use of facilities and equipment. This involves allocating additional resources to operational and safety training; upgrading data processing facilities to assist managers in better monitoring and controlling expenses; and providing a challenging and rewarding work environment for employees.
None of these strategies is really new.
However, we restate them so that you can understand the basis of our opti-mism in believing the years ahead will show continued positive financial growth.
There has been much discussion about diversification for the utility industry.
Delmarva has two subsidiaries Delmarva Energy and Delmarva Industries. Although both of these efforts have value in terms of poten-tially-higher returns on capital, it is quite clear that for Delmarva the main effort will remain in the generation, production and distribution of elec-tricity and in the distribution of gas.
The intent of the subsidiaries is to improve earnings through diversifi-cation efforts, but for the foreseeable future, their contribution will be rela-tively minor.
In the final analysis, a very large measure of the success of your company is dependent upon the hard work of all those people who work at Delmarva to accomplish corporate goals We wish to thank them for their efforts.
Robert D. Weimer Chairman of the Board Nevius M. Curtis President and Chief Executive Officer February 5, 1982
Financial Review Earnings per share increased 11.3%
in 1981 to $1. 78 primarily because of timely rate decisions and tight bud-get control. With this improved finan-cial position, the board of directors increased dividends to an indicated annual rate of$1.58, continuing its policy of regular moderate dividend increases.
Sales and Revenues Electric sales in 1981 were 7,395 mil-lion kilowatt-hours, a 0.9% decrease compared to 1980. Decreased electric sales reflect primarily conservation in response to price, use of alternative fuels by residential customers and a sluggish national economy. A slight increase in industrial, commercial, and residential space heating sales was more than offset by declines in the res-idential and resale areas. The 1981 electric peak of 1,575 megawatts was less than in 1980, although summer weather was considered normal.
Status of 1981 Rate Cases (Dollars in Millions) 4 Natural gas sales totaled 16,520 mcf. a 5.3% increase. A new all-time winter send out record was set on January 12, 1981. Residential space heating sales decreased by 1.9%. The overall sales increase was made possible because of additional gas supplies available for sales to industrial customers.
Rate Matters The company pursued needed rate relief in all jurisdictions. The table below presents the status of this activity.
Applications filed with FERC in 1978 and 1980 are still pending, although settlements have been reached with eleven resale customers in the 1978 case and twelve resale customers in the 1980 case.
Rate redesigns filed with the Maryland Public Service Commission and the Virginia State Corporation Commission in 1980 are still before those agencies.
Requested Granted Jurisdiction Amount Date Amount Date Delaware Electric
$58.9 31 3180
$46.0 21 1/81 Electric 49.9 5/ 8/81 37.6 12/15/81 Gas 5.3 5/ 8/81 3.6 12/15/81 Maryland Electric 18.5 6/19/81 10.2 1/19/82 Virginia Electric 3.4 4/30/80 2.7 3/20/81 Electric 0.4 7/21/81 0.4 10/13/81 FERC 0.8 5/29/81 0.8*
12/29/81
- Subject to refund
The coal handling facilities at the Edge Moor power plant will soon be operational again. The conversion from oil to coal of unit 4 is expected to be completed by fall, 1982 and unit 3, by
- spring, 1983.
Operating Expenses Operation and maintenance expenses increased during 1981 by $12.9 million or 11.4%. Taxes, however, increased 76.9% to $65.8 million.
Construction Program Construction expenditures for 1981 were $84.2 million, of which $30.7 million were used for major production projects to reduce the company's dependence on oil. With 1982 and 1983 construction budgets estimated at $126.5 million and $96.9 million respectively, continued improvement in financial results is expected.
Late in the year, the company announced a two-year postponement in the con-struction schedule of the 500 megawatt coal-fired Vienna 9 unit due to a pro-jected decrease in load growth. The company now projects an average peak load growth of 2.0% to 3 0% annually for the 1980s. The plant is now sched-uled for commercial operation in 1990.
The earnings and cash flow improve-ment during 1981 has lessened the company's reliance on capital markets by making more funds available from internal sources. This improvement in the level and quality of earnings has resulted from the start-up and subsequent rate increases for Indian River unit 4 and Salem unit 2. With rates in effect to reflect the operating and maintenance costs of these units, the burden of carrying charges for capital investment without rates to cover the investment is eliminated.
Financing and Capitalization A sale of 2.2 million shares of common stock, originally scheduled for June, took place on November 17. The sale was postponed because of concern about the depressed price of company stock and uncertainty in the capital market. When the sale was held, the price of stock had increased 13.6%
over the June value.
In July, $50 million of tax-exempt revenue bonds were sold to provide funds for pollution control facilities at Edge Moor and Indian River and for other construction projects. In August
$12 million of short-term tax-exempt notes were sold at an average interest rate of 73/4 % through a loan agreement with the Delaware Economic Development Authority.
Economic Recovery Tax Act of 1981 This new tax law offers Delmarva Power additional tax savings which may increase internally generated cash. Also, the law encourages the reinvestment of dividends by deferring income taxes on re-invested dividends up to $750 for individuals and $1,500 for joint returns.
Organization Changes Nevius M. Curtis was promoted to president and chief executive officer on November 1, 1981. He had served as president and chief operating offi-cer. Robert D. Weimer will continue to serve as chairman of the board on a full-time basis.
John R. Cooper and William G. Simeral were elected directors at the annual meeting held April 28, 1981, to replace Irenee du Pont and Earl C Jackson, Jr.,
who have retired.
Electric Operations Progress was made during 1981 to further control costs, to reduce dependence on foreign oil, and to develop electric heating markets.
PJM In June, Delmarva Power became a full member of the Pennsylvania-New Jersey-Maryland Interconnection (PJM), the oldest power pool in the United States.
The full membership allows the company and its customers greater benefit from its operations. This advantage is expected to save up to $2 million annually in addition to the benefits of lower cost and reliability previously realized as an associate member.
Delmarva is also realizing additional savings by buying coal-fired power from a neighboring power grid These purchases saved approximately $6.7 million in 1981 in avoided fuel costs, which directly reduced customers bills.
Reducing Dependence on Oil Following a two-year delay in the federal licensing process as a result of the Three Mile Island nuclear incident, Salem nuclear unit 2 was declared in commercial operation on October 13.
Customers received the immediate benefit of decreased fuel costs which more than offset increases in base rates associated with the capital and operating costs of the plant. This resulted in a net decrease in customer bills. The start of Salem unit 2 marked the completion of a key step in Del-marva Power's plan to reduce the use of expensive, foreign oil as a major generating fuel 6
In 1979, 53% of the electricity Delmarva Power generated came from oil, making the company and its customers vulnerable to world oil prices By 1984, oil-fired generation is ex-pected to be reduced to 12% through the operation of Salem nuclear unit 2 and Indian River coal unit 4, which began commercial operation in late 1980, and the conversion to coal of two oil-fired units underway at Edge Moor.
The first-year performance of the Indian River unit 4 exceeded industry standards considered acceptable for a new coal unit in spite of typical problems associated with start-up.
The conversion of Edge Moor unit 4 is expected to be completed by late 1982 and unit 3, by spring 1983. Two long-term contracts for 1 % sulfur coal have been signed in preparation for the conversion, and deliveries will begin in early 1982. When coal conversion is completed, Delmarva Power's fuel mix in 1984 will be 66% coal, 12% oil, and 22% nuclear.
Control room operators monitor the
_performance of Indian River units 3 and 4.
Agreements Smooth transitions marked the purchase of the Centreville, Maryland electric light, heat, and power system on June 1, 1981, and the lease of the St. Michaels, Maryland, electric system on October 15, 1981. These agreements brought 5, 178 new retail customers to Delmarva Power and streamlined operations in that part of the ser-vice territory. The Centreville and St. Michaels customers had been served previously by their municipal governments which had purchased electricity from Delmarva Power at wholesale rates for resale to them.
Productivity A major effort in the operations area has been a program to provide managers with tools to improve their ability to recognize changes needed in work force, work methods, and equipment. By analyzing and adjusting work methods and procedures, the company can take advantage of oppor-tunities in a changing business climate.
Growth of Electric Space Heating Market More than 14% of new residential construction used electric heat in 1981, with the heat pump accounting for 45%. Electric heating systems were chosen for all major new office build-ings in Wilmington. Market growth for 1982 is projected at 75% for electric heat, 49% of that for heat pumps.
To continue the promotion of heat source and design efficiency planning on the Delmarva Peninsula, Delmarva's marketing department has developed the Super E+ Program It sets rigorous energy cost-saving stan-dards for new homes. The energy standards were developed by the company working with realtors, builders, and architects.
Continuity of Service With the design and purchase of a 25 NfVA mobile distribution substation transformer, the company is improving its ability to maintain an acceptable level of service reliability while controlling capital costs.
The versatile, trailer-mounted transformer, to be placed in service in 1982, will eliminate the need for back-up transformers at many substations, thereby avoiding the need for capital investment for spare units.
The unit can be transported and installed at any needed location in the service territory in twelve hours or less and will be centrally located near Delmar, Delaware. The unit also will allow greater flexibility in planning and implementing necessary major maintenance at substations.
Reductions in the capital budget of about $5 million over the next ten years already have been realized, and more can be expected. The transformer will cost approximately $750,000.
Getty Expansion A major project to provide additional capability to serve the Getty oil refinery complex from Delaware City Power Plant and Reybold Substation is underway by Substation Design and Substation Construction and Maintenance groups With the addition of a 50 NfV A transformer and associated switch gear, Delmarva will be able to support a 30 Nf\\JA load increase when the Getty plant completes a major expansion in early 1983.
Gas Operations Increased availability of natural gas-through reduced usage by existing customers and increased supply through the pipeline in 1981-triggered a return to relative normalcy in the gas business. The Delaware Public Service Commission approved the company's request to again add residential and small commercial natural gas customers using 1000 met or less annually on existing transmis-sion and distribution systems. More than 900 gas residential space heating customers were added in 1981.
Moderate growth by firm industrial customers is expected to continue, requiring no major investment to the system while gaining maximum use of it.
The increased availability of natural gas enabled the company to continue burning some of it at the Edge Moor power station, primarily in units 3 and 4, to displace 627,000 barrels of oil. Fuel savings of approximately $5.2 million were passed on to gas and electric customers through the gas production cost adjustment and the electric fuel adjustment charge.
Gas distribution crews work together to repair a broken main. They are Joe Dorsey on the Ditch Witch, Bob Waclo (from right), Harry Wessell and Philip Rendina.
8 As the federal deregulation of natural gas prices continues, supplies are expected to remain stable or to improve slightly with a conservation response from customers. Delmarva Power reduced a May 1981 gas price increase request after the U.S. Supreme Court voided a Louisiana natural gas tax, resulting in a refund from our supplier, Transco, Inc, and because Transco's rates to Delmarva were lower than anticipated. However, a substan-tial price increase from Transco is expected in 1982 as deregulation progresses.
Colder than normal temperatures in January created a supply emergency for Philadelphia Gas Works, and Delmarva Power was able to provide the equivalent of 80, 181 mcf from January through March.
Customer Activities L
Linda Burris, customer information specialist, uses the customer infor-mation system to help a customer.
Delmarva Power employees work hard to provide the safest, most reliable service at the lowest reasonable cost.
They also go beyond the basic service business to help customers recognize the value of electricity and natural gas so they can use them wisely Where the company has the special capabilities to do so, it will promote the best use of its products and contribute to the solution of energy problems Helping Customers Handle Change Summer of 1981 marked the first year of operation under mandatory time-of-use rates for more than 482 Delaware general service customers.
The acceptance level is high for those who are able to shift load from on-peak to off-peak hours.
Delmarva Power marketing engineers and representatives have provided direct input to the engineering deci-sions of industries and businesses on the Delmarva Peninsula, resulting in the smooth accomplishment of a major rate restructuring Residential customer reaction to higher energy prices has brought a healthy response to Delmarva Power's Home Energy Saver Program More than 4, 100 audits, in accordance with the federal Residential Conservation Service requirements, were completed in 1981.
Comments offered by customers whose homes received energy audits demonstrate that the Home Energy Saver Program is one of the most positive contacts Delmarva Power has with its customers.
Special Efforts Because Delmarva Power recognizes that cold weather offers potential danger to people and property and that disconnections and reconnections are inefficient business practices, the company makes special efforts to provide assistance for those customers who have difficulty paying their bills.
Company representatives meet as needed with representatives of various state and social agencies serving the counties in our service territory to provide information about Delmarva's special programs such as the cold weather policy, third-party notification, installment payment plan, budget bil-ling, and automatic bank payment plan.
District, division, and corporate personnel strive to maintain a dialogue with the social service agencies who provide service for the disadvantaged.
This face-to-face communication has benefited the company and its customers who may need help
Employee Relations Delmarva's recognition of employees as its most valuable asset is the cor -
nerstone of a comprehensive training, development, education, and safety program. Programs that support the achievement of corporate goals and help individuals experience profes-sional growth are offered to employees in all levels and departments.
Training and Development The Customer Service Orientation Program is an example of a general training course that yields solid benefits for employees, the company, and customers. It is a twelve-week program in which customer infor-mation specialists-those employees who respond to customer inquiries-receive an overview of Delmarva and its corporate goals, a background in the important issues facing the company and the industry, and training and experience in job situations. This program includes presentations from 22 departments.
Safety Safety programs have been on-going for many years at Delmarva Power. However, a special 1981 corporate-wide safety incentive program aimed at reducing all per-sonal injuries and fleet accidents and recognizing good performance by employees was implemented in 1981.
Additionally in 1981, more than 1,200 employees received training in cardio-pulmonary resuscitation and first aid. Such training has been on-going and will continue in 1982.
Progress has been made in measuring safety performance. Greater interest and participation by employees in the area of safety has been noted.
John Bridgers works to provide reliable electric service to the customers of St. Michaels, Maryland.
10 The increasing complexity of all aspects of the business makes the commitment of Delmarva Power's management in providing employees with the appropriate tools, knowledge, and safety procedures essential to the company's success. Corporate goals can be met by well-trained and motivated people working efficiently and safely.
TRASOP Through the TRASOP federal tax program, 42.8 shares of Delmarva Power common stock were placed in a trust account for each of 2,383 eligi-ble employees. Under federal law, a company is allowed to reduce its taxes by 1 % of its investment in a year if the amount of savings is passed on to employees in common stock.
Also the TBASOP program allows the company to match employee contri-bution with stock up to a specified amount. More than 90% of eligible Delmarva Power employees signed up to participate in this program in 1982.
Tuward the Future The skyline of Wilmington will be changing with new office buildings under construction and others planned.
A catalyst was a new Delaware law which provides incentives for financial operations centers to locate in the state.
Delmarva Power supports well-planned development activities by agencies and councils in its service territory.
While the national overall economic conditions remain sluggish, there are indications of some positive develop-ments in the Delmarva Peninsula business community.
Economic Development The passing of the Financial Center Development Act by the Delaware legislature has provided a strong incentive for the movement of financial operation centers into the state. Ten banks, including CitiBank, Chase Manhattan, The First National Bank of Maryland, and Morgan Guaranty and two investment companies have announced plans to come to Delaware.
This is expected to create jobs for at least 1,100 people initially.
In Wilmington, a redevelopment project encompassing the area from the Brandywine River to the Christina River is underway. The Brandywine Gateway will consist of shops, restau-rants, condominiums, a new home office complex for the Hercules Corporation and the new Wilmington Trust Company building. Plans for the Christina Gateway include office condominiums for the expected growth of banking and insurance companies and the renovation of the historic Wilmington train station which regu-larly serves the Northeast Corridor.
The American Life Insurance Company has announced plans to build in the Christina Gateway.
The Department of Economic Develop-ment in the State of Delaware has been reorganized under a cabinet-level secretary who reports directly to the state's governor. The department's purpose is to bring industry to the state and promote growth. New Castle County has also formed an economic development corporation.
In Maryland, the Chesapeake Country Economic Development Corporation has been formed to provide economic development impetus for the nine counties of Maryland's Eastern Shore and three counties of Southern Maryland.
Investment at a record rate continued in condominium, second home, and motel markets. The Southern Division added some 2,500 new residential customers in 1981, most of them in the Ocean City area. Of these new customers, 83% chose electric heat.
Delmarva Industries, Inc.
The Delmarva Power Board of Directors approved in October the formation of Delmarva Industries, Inc. a subsidiary corporation which will evaluate appro-priate business opportunities.
Delmarva Power & Light Company 12 Financial Section Contents Management's Discussion and Analysis 13 Selected Financial Data 15 Report of Management 16 Report of Independent Certified Public Accountants and Quarterly Common Stock Dividends and Price Ranges 17 Consolidated Statements of Income 18 Consolidated Statements of Sources of Funds for Construction Expenditures 19 Consolidated Balance Sheets 20 Consolidated Statements of Capitalization 22 Consolidated Statements of Changes in Common Stockholders' Equity 23 Notes To Consolidated Financial Statements 24 Consolidated Statistics 34
Delmarva Power & Light Company 13 Management's Discussion and Analysis Results of Operations Impact of Inflation Earnings per share of common stock were $1.78 in 1981 as compared to $1.60 in 1980 and $1.91in1979. The return on average common equity in 1981 increased to 11.2% from 10.0% in 1980, which is still below the rate of return authorized by the company's regulatory authorities.
The reasons for the 1981 earnings rise can be attributable primarily to (1) higher base rates being in effect to cover the capital and operating expenses of the Indian River unit 4 and Salem unit 2 plants placed in service in October 1980 and September 1981, respectively, and (2) continuing aggressive cost control of operating expenses. Rate increases which became effective in late 1981 and early 1982 should provide additional revenues needed to continue the earnings growth in 1982.
Electric revenues net of fuel costs increased $71.7 million in 1981 and $17.1 million in 1980. The principal factor affecting these net revenues was rate relief in all jurisdictions (see Status ofRate Cases, page 4). Sales have slightly decreased in 1981and1980 by 0.9%
and 0.4%, respectively, due to customer conservation, price elasticity and a recessionary economy. Future electric sales will continue to be affected by the overall economic sit-uation and level of business activity in the company's service territory, as well as by weather conditions, use of alternate fuels for heating and customer conservation efforts.
Electric sales have been forecasted to increase approximately 3% annually through 1986.
Gas sales volumes increased 5.3% in 1981 compared to a 12.4% increase in 1980. The increase in sales is due to greater usage by the industrial firm and interruptible customers resulting from improved availability of gas from the company's pipeline supplier. Partially offsetting the increases is lower residential-space heating usage resulting principally from conservation. Future sales will be affected by the availability of gas and the scheduled deregulation of gas prices, in addition to the ongoing impact of such factors as weather conditions, gas conversions and conservation efforts by our customers.
Other operation, maintenance and depreciation expenses have increased since 1979 primarily as a result of higher payroll and related costs, general inflation and increased production expenses associated with the commercial operation of two major generating facilities, Indian River unit 4 and Salem unit 2 which were placed in service in October 1980 and September 1981, respectively. Increases in operating taxes are largely due to higher property taxes resulting from the addition of new plant and increased property tax rates, as well as higher state and local gross receipts and franchise taxes on increased revenues.
Inflation continues to have an adverse impact on the company because rates are generally set on a historical basis. The company is addressing inflation in the ratemaking process by utilizing a forecast "test year" and attrition allowances in its rate filings, so that rates will reflect costs anticipated for the period that they are in effect. For a further discussion of the effects of inflation on the company, see Note 12 of the Financial Statements.
Delmarva Power & Light Company
}
14 Management's Discussion and Analysis (Continued)
Liquidity and Capital Resources For the period 1979-1981, the company had total capital requirements of $402.9 million, including $307.0 million for construction (excluding AFUDC). During the same period
$163.6 million was generated internally which represents 41 % of the capital requirements and 53% of the construction requirements. Capital requirements for the period 1982-1984 are estimated to be $422.7 million, including $290.4 million for construction (excluding AFUDC). Assuming timely and adequate rate relief and continued improvements in the level and quality of earnings, the company presently anticipates that, for the period 1982-1984, internally generated funds will be $303.8 million which equals 72% of the total capital requirements and 105% of its construction requirements. The remaining capital require-ments will be financed through the issuance of first mortgage bonds, common stock from dividend reinvestment and deposits from pollution control obligations issued in 1981.
The company continually reviews its capital requirements, conditions in the financial markets and its capitalization goals to determine the amounts, timing and types of external financings. At December 31, 1981, the company's capitalization goals were 48-50% long-term debt, 10-12% preferred stock and 38-40% common equity.
The construction program and related expenditures may vary from the estimates set forth above as a result of, among other factors, higher than anticipated inflation, regulation and legislation, rates of load growth, licensing and construction delays, results of rate pro-ceedings, as well as the cost and availability of capital.
Working capital decreased by $48.6 million inJ981, and increased $5.3 million in 1980 and $47.3 million in 1979. See page 19, Statement of Sources of Funds for Construction Expenditures for the components of and the changes in working capital. The company issues commercial paper supported by adequate bank lines of credit to meet seasonal fluctuations in working capital requirements as well as the interim financing necessary for construction projects. Additional working capital requirements will result from the payment of the Summit tax liability (See Note 2 of Financial Statements). Despite the increase in interest rates in 1981, the company has maintained its Bond and Preferred Stock ratings of "A" by both major rating agencies. In addition, the company's Commercial Paper rating was maintained at A-1/P-1.
Delmarva Power & Light Company 15 Selected Financial Data (Dollars in Thousands)
For the Years Ended December 31 1981 1980 1979 1978 1977 Operating Operating Revenues $ 608,504
$ 520,470
$ 424,699
$ 378,702
$. 337,818 Operating Income 107,325 80,716 74,859 71,563 62,027 Net Income 58,711 48,957 53,376 47,448 39,328 Earnings and Dividends Earnings Per Share 1.78 1.60 1.91 1.85 1.65 Dividends Declared on Common Stock 1.531/2 1.49 1.40112 1.30112 1..22 Average Shares Outstanding (000) 25,747 24,682 23,215 21,582 19,403 Total Assets 1,445,694 1,380,922 1,249,606 1,120,305 1,033,378 Construction Expenditures<l) 84,206 110,739 112,061 130,272 130,371 Internal Generation of Funds 72,346 37,866 53,435 41,900 33,384 Capitalization Long Term Debt<2>
596,219 569,724 536,779 478,955 428,905 Preferred Stock without mandatory redemption 105,000 105,000 105,000 105,000 105,000 Preferred Stock with mandatory redemption 50,000 50,000 20,000 20,000 Common Equity 437,080 395,546 385,616 343,257 326,439 Total
$1,188,299
$ 1,120,270
$ 1,047,395
$ 947,212
$ 860,344 Capitalization Ratios Long Term Debt 50%
51%
51%
51%
50%
Preferred Stock without mandatory redemption 9%
9%
10%
11%
12%
Preferred Stock with mandatory redemption 4%
5%
2%
2%
Common Equity 37%
35%
37%
36%.
38%
Total 100%
100%
100%
100%
100%
Electric/Gas Sales Electric Sales (Kwh 000) 7,395,324 7,460,380 7,491,800 7,248,249 6,906,090 Gas Sales (Mcf 000) 16,520 15,693 13,962 13,172 12,099 mExcludes Allowance for Funds Used During Construction.
c2>Includes long-term debt due within one year.
Delmarva Power & Light Company 16 Report of Management on the Financial Statements Report of Management The consolidated financial statements of Delmarva Power & Light Company have been prepared by Company personnel in conformity with generally accepted accounting principles, based upon currently available facts and circumstances and management's best estimates and judgements of the expected effects of events and transactions. It is the responsibility of management to assure the integrity and objectivity of such financial statements and to assure that these statements fairly report the financial position of the Company and the results of its operations.
Delmarva Power & Light Company maintains a system of internal controls designed to provide reasonable, but not absolute, assurance of the reliability of the financial records and the protection of assets. The internal control system is supported by written administrative policies, a program of internal audits, and procedures to assure the selection and training of qualified personnel.
These financial statements have been examined by Coopers & Lybrand, independent certified public accountants. Their examination was conducted in accordance with generally accepted auditing standards which include a review of internal accounting controls to determine the nature, timing and extent of auditing procedures, as well as such other procedures they deem necessary to produce reasonable assurance as to the fairness of the Company's financial statements and to enable them to express an opinion thereon.
The audit committee of the Board of Directors, composed of outside Directors only, meets with management, internal auditors and the independent accountants to review accounting, auditing and financial reporting matters. The independent accountants are appointed by the Board on recommendation of the audit committee, subject to shareholder approval.
~~~-
Nevius M. Curtis President and Chief Executive Officer Howard E. Cosgrove Vice President and Chief Financial Officer
Delmarva Power & Light Company 17 Report of Independent Certified Public Accountants and
- Quarterly Common Stock Dividends and Price Ranges
'lb the Board of Directors and Stockholders Wilmington, Delaware Common Stock We have examined the consolidated balance sheets and statements of capitalization of Delmarva Power & Light Company and subsidiary companies as of December 31, 1981 and 1980, and the related consolidated statements of income, changes in common stockholders' equity and sources of funds for construction expenditures for each of the three years in the period ended December 31, 1981. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the financial statements referred to above present fairly the consolidated financial position of Delmarva Power & Light Company and subsidiary companies at December 31, 1981 and 1980, and the consolidated results of their operations and sources of funds for construction expenditures for each of the three years in the period ended December 31, 1981, in conformity with generally accepted accounting principles applied on a consistent basis.
COOPERS & LYBRAND 1900 Three Girard Plaza Philadelphia, Pennsylvania February 5, 1982 The company's common stock is listed on the New York and Philadelphia Stock Exchanges and has unlisted trading privileges on the Cincinnati, Midwest and Pacific Stock Exchanges.
The company had 69,980 holders of common stock as of December 31, 1981.
The company's Certificate of Incorporation and the Mortgage and Deed of Trust securing the company's outstanding bonds contain restrictions on the payment of dividends on common stock which would become applicable if its capital and retained earnings fall below certain specified levels or if preferred stock dividends become in arrears.
The retained earnings available for dividends on common stock as of December 31, 1981 were approximately $60,000,000 under the most restrictive of these provisions.
1981 1980 Dividend Price Price Dividend Price Price Declared High Low Declared High Low First Quarter
$.38 12%
11Ys
$.37 125/s 10114 Second Quarter
.38 125/s 101/z
.37 141/s 105/s Third Quarter
.38 123/s 11
.37 141/s 121/s Fourth Quarter
.395 12%
111/s
.38 12%
10%
Delmarva Power & Light Company 18 Consolidated Statements of Income (Dollars in Thousands)
For the Years Ended December 31 1981 1980 1979 Operating Revenues Electric
$ 504,119
$ 443,927
$ 363,666 Gas 83,070 59,040 49,322 Steam 21,315 17,503 11,711 608,504 520,470 424,699 Operating Expenses Operation:
Fuel for electric generation 284,646 236, 139 199,797 Net interchange and purchased power (97,950)
(24,178)
(35,701)
Purchased gas 56,662 42,252 28,078 Def err al of energy costs 18,679
( 3,173)
(12,250)
Other operation 89,172 79,569 66,623 Maintenance 37,316 33,986 28,475 Depreciation 46,833 37,955 33,866 Taxes on income 39,903 14,483 23,304 Taxes other than income 25,918 22,721 17,648 501,179 439,754 349,840 Operating Income 107,325 80,716 74,859 Other Income Allowance for other funds used during construction 4,090 12,540 12,576 Other, net 1,250 569 94 5,340 13,109 12,670 Income Before Interest Charges 112,665 93,825 87,529 Interest Charges Long-term debt 51,622 46,997 36,399 Short-term debt and other 5,355 3,862 2,166 Allowance for borrowed funds used during construction
( 3,023)
( 5,991)
( 4,412) 53,954 44,868 34,153 Earnings Net Income 58,711 48,957 53,376 Dividends on Preferred Stock 12,818 9,427 9,050 Earnings Applicable to Common Stock
$ 45,893
$ 39,530
$ 44,326 Common Stock Average shares outstanding (thousands) 25,747 24,682 23,215 Earnings per average share 1.78 1.60 1.91 Dividends declared per share 1.531/z $
1.49 1.401/z See accompanying Notes to Consolidated Financial Statements.
Delmarva Power & Light Company 19 Consolidated Statements of Sources of Funds for Construction Expenditures (Dollars in Thousands)
For the Years Ended December 31 1981 1980 1979 Sources of Funds Provided from operations:
Net income
$ 58,711
$ 48,957
$ 53,376 Less-Preferred dividends declared 12,818 9,427 9,050
-Common dividends declared 39,857 36,805 33,124 Earnings reinvested during the year 6,036 2,725 11,202 Items not requiring (providing) funds:
Depreciation 46,833 37,955 33,866 Amortization of nuclear fuel 3,187 1,549 596 Allowance for funds used during construction
( 7, 113)
(18,531)
(16,988)
Investment tax credit adjustments, net 17,198 1,795 10,155 Deferred income taxes, net 6,205 12,373 14,604 Funds provided from operations 72,346 37,866 53,435 External financing:
Long-term debt:
First mortgage bonds 50,000 45,000 18,200 Term loan (23,450) 50,000 Common stock 35,521 7,730 31,436 Pref erred stock 30,000 Change in short-term debt (28,475) 11,525 16,950 Redemption of long-term debt.
(12,000)
(10,000)
Externally financed funds 33,596 82,255 106,586 Other sources (uses):
Decrease (increase) in working capital*
48,604
( 5,266)
(47,290)
Net (increase) in pollution control funds held by trustee (35,422)
( 3,463)
( 1,794)
Credit arising from sale of contracts (36,088) 99
(
634)
Other, net 1,170 752) 1,758 Other (uses)
(21,736)
( 9,382)
(47,960)
Construction Expenditures (excluding allowance for funds used during construction)
$ 84,206
$ 110,739
$ 112,061 Decrease (increase) in working capital*
Accounts receivable
$ (15,064)
$ ( 9,064)
$ ( 5,685)
Deferred fuel costs, net 18,781
( 3,173)
(13,266)
Inventories 11,482 (20,603)
(19,356)
Accounts payable
( 7,896) 19,634 2,724 Tuxes accrued 34,386 5,347 (17,858)
Interest accrued 15,082 3,322 (137)
Other, net
( 8, 167)
(
729) 6,288 Total
$ 48,604
$ ( 5,266)
$ (47,290)
- Other than short-term debt, long-term debt due within one year and current deferred income taxes relating to deferred fuel costs.
See accompanying Notes to Consolidated Financial Statements.
Delmarva Power & Light Company 20 Consolidated Balance Sheets (Dollars in Thousands)
ASSETS As of December 31 1981 1980 Utility Plant-at original cost Electric
$ 1,364, 113
$ 1,252,330 Gas 66,031 63,720 Steam 24,008 23,880 Common 46,194 46,302 1,500,346 1,386,232 Less: Accumulated depreciation 362,270 322,340 Net utility plant in service 1,138,076 1,063,892 Construction work in progress 64,915 107,467 Nuclear fuel, at amortized cost 15,252 14,303 1,218,243 1,185,662 Nonutility Property and Net nonutility property-at cost 3,324 3,058 Other Investments Pollution control funds held by trustee 42,111 6,689 Other 25 371 45,460 10,118 Current Assets Cash 15,474 12,763 Accounts Receivable:
Customers 43,001 40,278 Other 20,449 8,108 Deferred fuel costs, net (4,632) 14,149 Inventories, at average cost:
Fuel (coal, oil and gas) 50,164 65,449 Materials and supplies 20,973 17,170 Prepayments 3,683 3,629 149,112 161,546 Deferred Charges and Refundable taxes and interest 25,877 Other Assets Deferred income taxes relating to the credit arising from sale of contracts 18, 123 Unamortized debt expense 5,415 4,050 Other 1,587 1,423 32,879 23,596 Total
$ 1,445,694
$ 1,380,922 See accompanying Notes to Consolidated Financial Statements.
LIABILITIES Capitalization (see Statements of Capitalization)
Current Liabilities Deferred Credits Other (Dollars in Thousands)
As of December 31 Common stock Additional paid-in capital Retained earnings Total common stockholders' equity Preferred stock-without mandatory redemption Preferred stock-with mandatory redemption Long-term debt Short-term debt Accounts payable Taxes:
Accrued Deferred Interest accrued Dividends declared Other Credit arising from sale of contracts Accumulated deferred income taxes, net Accumulated deferred investment tax credits Other Commitments (Note 7) and Contingencies (Note 9)
Total See accompanying Notes to Consolidated Financial Statements.
1981 94,191 203,534 139,355 437,080 105,000 50,000 596,219 1,188,299 27,723 40,159 (10,203) 29,570 11,024 4,454 102,727 40,760 49,799 53,920 10, 189 154,668 1980 84,142 178,085 133,319 395,546 105,000 50,000 569,724 1,120,270 28,475 35,619 5,773 6,955 14,488 9,474 3,600 104,384 76,848 34,242 36,722 8,456 156,268
$ 1,445,694
$ 1,380,922 21
Delmarva Power & Light Company 22 Consolidated Statements of Capitalization
. (Dollars in Thousands)
As of December 31 1981 1980 Common Stockholders' Common stock, par value $3.375 per share Equity authorized 35,000,000 shares, outstanding 27,908,345 and 24,931,006 shares 94,191 84,142 Additional paid-in capital 203,534 178,085 Retained earnings 139,355 133,319 Total Common Stockholders' Equity 437,080 37%
395,546 35%
Cumulative Preferred Par value $25 per share, 3,000,000 shares authorized, none outstanding Stock Par value $100 per share, 1,800,000 shares authorized Without Mandatory Outstanding Redemption:
4.00% Series 40,000 shares 4,000 4,000 3.70% Series 50,000 shares 5,000 5,000 4.28% Series 50,000 shares 5,000 5,000 4.56% Series 50,000 shares 5,000 5,000 4.20% Series 50,000 shares 5,000 5,000 5.00% Series 80,000 shares 8,000 8,000 7.84% Series 100,000 shares 10,000 10,000 8.96% Series 130,000 shares 13,000 13,000 7.52% Series 150,000 shares 15,000 15,000 7.88% Series 200,000 shares 20,000 20,000 8.00% Series 150,000 shares 15,000 15,000 105,000 9%
105,000 9%
With Mandatory 9.00% Series 200,000 shares 20,000 20,000 Redemption:*
12.56% Series 300,000 shares 30,000 30,000 50,000 4%
50,000 5%
Long-Term Debt First Mortgage and Collateral 'Ihl.st Bonds:
9:Ys% Series-issued 1/14175 due 1/1/83 30,000 30,000 31/s% Series-issued 5/11/54 due 5/1/84 10,000 10,000 91/2% Series-issued 7 /16/81 due 8/1/84 10,000 31/2% Series-issued 12/20/55 due 12/1/85 10,000 10,000 37/s% Series-issued 6/17/58 due 6/1/88 25,000 25,000 4EVs% Series-issued 9/22/64 due 10/1/94 25,000 25,000 63/s% Series-issued 9/13/67 due 9/1/97 25,000 25,000 7 % Series-issued 10/28/68 due 11/1/98 25,000 25,000 83/4% Series-issued 1112/70 due 1/1/00 30,000 30,000 83/s% Series-issued 11/30/70 due 12/1/00 30,000 30,000 113/4% Series-issued 7/16/81 due 8/1/01 8,100 75/s% Series-issued 11/30171 due 12/1/01 35,000 35,000 71/2% Series-issued 8/ 3/72 due 8/1/02 30,000 30,000 8 % Series-issued 6/27173 due 711103 25,000 25,000 10 % Series-issued 6/13/74 due 6/1/04 33,950 33,950 6.6% Series-issued 7/ 1/79 due 711/04 18,200 18,200 101/4% Series-issued 4/17/80 due 4/1/05 15,000 15,000 11 % Series-issued 7 I 2/75 due 7 /1/05 29,100 29,100 95/s% Series-issued 6/22178 due 711108 50,000 50,000 113/4% Series-issued 7/ 2/80 due 711110 30,000 30,000 12 % Series-issued 7/16/81 due 8/1/11 31,900 526,250 476,250 Pollution Control Notes:
Series 1973, 5.9% effective rate, due 1983-1998 8,000 8,000 Series 1976, 7.3% effective rate, due 1992-2006 34,500 34,500 42,500 42,500 Term Loan, due 1987, interest at prime rate 26,550 50,000 Unamortized premium and discount, net 919 974 Total Long-Term Debt 596,219 50%
569,724 51%
Total Capitalization
- $ 1,188,299 100%
$ 1,120,270 100%
- Redemption prices at December 31, 1981 are $110 (9% Series) and $113 (12.56% Series).
See accompanying Notes to Consolidated Financial Statements.
Delmarva Power & Light Company 23 Consolidated Statements of Changes in Common Stockholders' Equity (Dollars in Thousands)
Additional For the Three Years Ended Common Par Paid-in Retained December 31, 1981 Shares Value Capital Earnings Total Balance as of January 1, 1979 21,750,139 $ 73,407
$ 150,458
$ 119,392
$ 343,257 Net income 53,376 53,376 Cash dividends declared:
Common stock (33, 124)
(33, 124)
Preferred stock
( 9,050)
( 9,050)
Issuance of common stock:
Public offering 2,000,000 6,750 18,500 25,250 TRASOP 74,557 252 757 1,009 Dividend Reinvestment Plan 476,062 1,606 4,531 6, 137 Capital stock expense:
Common
{1,174)
( 1,174)
Preferred
(
- 65)
(
- 65)
Balance as of December 31, 1979 24,300,758 82,015 173,007 130,594 385,616 Net income 48,957 48,957 Cash dividends declared:
Common stock (36,805)
(36,805)
Pref erred stock
( 9,427)
( 9,427)
Issuance of common stock:
Dividend Reinvestment Plan 630,248 2,127
.5,603 7,730 Capital stock expense:
Common
( 127) 127)
Preferred
( 398) 398)
Balance as of December 31, 1980 24,931,006 84,142 178,085 133,319 395,546 Net income 58,711 58,711 Cash dividends declared:
Common stock (39,857)
(39,857)
Pref erred stock
{12,818)
(12,818)
Issuance of common stock:
Public ottering 2,200,000 7,425 20,350 27,775 TRASOP 101,947 344 882 1,226 Dividend Reinvestment Plan 675,392 2,280 5,460 7,740 Capital stock expense:
Common (1,220)
( 1,220)
Preferred
(
- 23)
(
- 23)
Balance as of December 31, 1981 27,908,345 $ 94,191
$ 203,534
$ 139,355 $ 437,080 See accompanying Notes to Consolidated Financial Statements.
Delmarva Power & Light Company 24 Notes to Consolidated Financial Statements
- 1. Significant Accounting Policies Financial Statements The consolidated financial statements include the accounts of the company and its totally-held subsidiaries, Delmarva Energy Company and Delmarva Industries Inc. (formed in 1981). Accounting policies are in accordance with those prescribed by the regulatory commissions having jurisdiction with respect to accounting matters.
Certain minor reclassifications have been made to amounts reported in 1980 and 1979 to conform to the presentations used in 1981.
Revenues Revenues are recorded at the time billings are rendered to customers on a monthly cycle basis and include rate increases permitted to be billed subject to refund pending final approval. At the end of each month, there is an amount of unbilled electric and gas service which has been rendered from the last meter reading to the month-end.
Fuel Costs Fuel costs (electric and gas) are deferred and charged to operations on the basis of fuel costs included in customer billings under the company's tariffs, which are subject to periodic regulatory review and approval.
The company's share of nuclear fuel costs relating to jointly-owned nuclear generating stations (including estimated costs of storing spent fuel) is charged to fuel expense on a unit of production basis.
Depreciation and Maintenance The annual provision for depreciation is computed on the straight-line basis using composite rates by classes of depreciable property. Provision for decommissioning costs relating to jointly-owned nuclear generating units is made to the extent of the net cost of removal allowed for rate purposes (approximately 20% of the plant cost). The relationship of the annual provision for depreciation for financial accounting purposes to average depreciable property was 3.5% for 1981, 3.2% for 1980 and 3.3% for 1979.
The cost of maintenance and repairs, including renewals of minor items of property, is charged to operating expenses. A replacement of a unit of property is accounted for as an addition to and a retirement from utility plant. The original cost of the property retired is charged to accumulated depreciation together with the net cost of removal. For income tax purposes, the cost of removing retired property is deducted as an expense.
Income Tuxes Deferred income taxes result from timing differences in the recognition of certain expenses for tax and financial accounting purposes. The principal items accounting for deferred income taxes are: (1) use of accelerated depreciation methods for income tax purposes, (2) unbilled fuel and gas purchased costs deducted currently for income tax purposes, and (3) other timing differences involving spent nuclear fuel storage costs and the capitalization of certain taxes and overhead costs.
Notes to Consolidated Financial Statements (Continued) 25
- 2. Taxes on Income Investment tax credits utilized to reduce federal income taxes are deferred and generally amortized over the useful lives of the related utility plant. An additional investment tax credit of 1 V2 % ( 1 % in 1980 and 1979) related to the Tux Credit Employees Stock Ownership Plan (a TRASOP plan) does not affect net income and is recorded as a liability until the contribution is made to the TRASOP Plan.
Allowance for Funds Used During Construction Allowance for funds used during construction (AFUDC) is a noncash item and is defined in the regulatory system of accounts as "the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds so used." AFUDC is segregated into two components: (1) the interest on debt component
("allowance for borrowed funds used during construction"), which is net of taxes and classified as a credit to interest charges, and (2) the common stock equity and preferred dividend component ("allowance for other funds used during construction"), which is classified as an item of other income. AFUDC is considered a cost of utility plant with a concurrent credit to income. It is excluded from taxable income for tax purposes. The rate used in determining AFUDC, which includes semi-annual compounding, was 8.7% in 1981, 8.0% in 1980 and 7.7% in 1979.
Income tax expense for 1981, 1980 and 1979 is as follows:
(Dollars in Thousands) 1981 1980 1979 Operations:
Federal:
Current
$ 10,234
$ (1,351)
$ (4,457)
Deferred 5,301 10,439 12,674 State:
Current 4,936 441 1,859 Deferred 1,048 1,934 1,930 Investment tax credit adjustments, net 18,384 3,021 ll,298 Other income:
Current 1,654 693 346 Deferred (144)
Total
$ 41,413
$ 15,177
$ 23,650 Investment tax credits utilized to reduce federal income taxes payable amounted to
$20,917,000 in 1981, $5,516,000 in 1980 and $14,000,000 in 1979. The amounts for 1981 (including a carryforward from 1980) and 1979 include TRASOP credits of$3,281,000, and
$1,060,000, respectively.
The following is a reconciliation of the difference between income tax expense and the amount computed by multiplying income before tax by the federal statutory rate:
(Dollars in Thousands) 1981 1980 1979 Amount Rate Amount Rate Amount Rate Statutory income tax expense
$ 46,057 46% $ 29,502 46% $ 35,432 46%
Reduction in taxes resulting from:
Exclusion of AFUDC for income tax purposes (3,272)
(3)
(8,524)
(13)
(7,815)
(10)
Excess of tax depreciation over book depreciation not normalized (1,349)
(1)
(3,324)
( 5)
(2,931)
( 4)
Investment tax credits amortized to income (2,533)
(3)
(2,495)
( 4)
(2,646)
( 3)
State income taxes, net of federal tax benefit 3,365 3
1,295 2
2,064 3
Other, net
( 855)
(1)
(1,277)
( 2)
( 454)
( 1)
Income tax expense
$ 41,413 41% $ 15,177 24% $ 23,650 31%
Notes to Consolidated Financial Statements (Continued) 26
- 3. Taxes Other Than Income
- 4. Pension Plan The components of deferred income taxes relate to the following tax effects of timing differences between book and tax income:
(Dollars in Thousands) 1981 1980 1979 Depreciation
$ 14,951
$10,097
$ 6,907 Def erred fuel costs (9,352) 1,656 6,081 Capitalized overhead costs 992 1,176 1,103 Nuclear fuel storage costs (1,332)
(997)
(1,007)
Pennsylvania gross receipts tax 1,284 Other, net 946 441 236 Total
$ 6,205
$ 12,373
$ 14,604 In connection with an audit of Delmarva's tax returns for the years 1974 through 1976, the Internal Revenue Service issued, in 1981, a revised notice of deficiency assessing the company $32.3 million in additional taxes and $15.5 million in applicable interest. The assessment and interest results predominantly from the taxability, on an ordinary income basis, of the net proceeds from the sale of contracts for a nuclear steam supply system in 1975. The impact of additional state income taxes and interest resulting from the IRS audit would be $5.6 and $4.0 million, respectively. Management is appealing the ordinary income treatment of the net proceeds, and in the opinion of management and outside tax counsel, it appears probable that this issue will ultimately be resolved as taxable on a capital gains basis. Accordingly, the company has accrued federal taxes on a capital gains basis and state taxes aggregating $26. 7 million and related interest of $14.1 million (See Note 8). Since 1975, the company has treated the sale of these contracts
- as non taxable contributions of capital, and accordingly reduced the tax basis of the depreciable property in 1976 by approximately $77 million. Taxation of the 1net proceeds would result in a reversal of the basis reduction, a reduction of taxable income for 1976 through 1980 and a refund of taxes originally paid during that period.
Accordingly, refundable federal and state taxes and interest income of $16.3 and $4.4 million, respectively, resulting from the overpayments have been recorded, and deferred taxes of approximately $18.0 million related to the basis adjustment were reversed (See Note 8). The remaining issues in the revised notice of deficiency would not have a material effect on the company's financial position or results of operations.
(Dollars in Thousands) 1981 1980 1979 Delaware utility
$ 11,437
$ 9,873
$ 8,090 Pennsylvania gross receipts tax (2,445)*
Property 5,811 5,5!:)0 5,860 Other gross receipts 3,444 3,068 2,560 Payroll 3,216 2,598 2,332 Franchise and other 2,010 1,632 1,251 Total
$ 25,918
$ 22,721
$ 17,648
- The company had accrued, but not paid, the Pennsylvania gross receipts tax on energy generated within the state but sold outside for the years 1977-1979. In December 1979, the tax was repealed beginning in 1980 and accordingly, the company reversed prior years' accruals in the fourth quarter of 1979. The effect of the reversal increased earnings applicable to common stock for the twelve months ended December 31, 1979 by
$1, 161,000 (5¢ per share).
The company has a trusteed noncontributory pension plan covering all regular employees.
Pension contributions for 1981, 1980 and 1979 were $4,371,000, $6,421,000 and $6,839,000 including $717,000, $1,253,000 and $1,236,000 charged to construction, respectively. The contributions provide for normal cost and amortization of prior service costs over periods of ten to twenty-five years. Net income for 1981and1980 was increased by approximately
$938,000 (4¢ per share) and $603-,000 (2¢ per share), respectively, principally as a result of changed actuarial assumptions.
Notes to Consolidated Financial Statements (Continued) 27
- 5. Capitalization The actuarial present value of accumulated plan benefits, determined as of January 1, 1981 using an assumed rate of return of8%, was $51, 175,000 for vested benefits and
$8,915,000 for accrued nonvested benefits. The net assets, at market value, available for plan benefits were $121,957,000. The actuarial present value of accumulated plan benefits, determined as of January 1, 1980 using an assumed rate of return of7.0%, was $50,749,000 for vested benefits and $7,919,000 for accrued nonvested benefits. The net assets, at market value, available for 1980 plan benefits were $96,741,000. As a result of current plan experience, the assumed rate of return was increased from 7% to 8% for the January 1, 1981 valuation.
Common Stock At December 31, 1981 there were 3,455,863 shares of common stock reserved for issuance under the Dividend Reinvestment Plan and the TRASOP.
Retained Earnings The current first mortgage bond indenture restricts the amount of consolidated retained
- earnings available for cash dividend payments on common stock to $35,000,000 plus accumulations after June 30, 1978, which available amount at December 31, 1981 was approximately $60,000,000.
Preferred Stock The annual preferred dividend requirements on all outstanding preferred stock at December 31, 1981 are $12,818,000. If preferred dividends are in arrears the company may not declare common stock dividends or acquire its common stock.
Without Mandatory Redemption These series may be redeemed at the option of the company at any time, in whole *or in part, at the various redemption prices fixed for each series (ranging from $103 to $107 at December 31, 1981).
With Mandatory Redemption (1) The 9% series, issued in 1978, has a sinking fund requirement, commencing in December, 1984, to redeem 8,000 shares annually at $100 per share plus accrued and unpaid dividends. At the option of the company, an additional 8,000 shares may be redeemed on any sinking fund date, without premium. (2) The 12.56% series, issued in 1980, has a sinking fund requirement, commencing in December, 1986, to redeem 9,000 shares annually at $100 per share plus accrued and unpaid dividends. At the option of the company, an additional 9,000 shares may be redeemed on any sinking fund date, without premium. (3) Under certain conditions, these series may also be redeemed at the option of the company. (4) Aggregate mandatory sinking fund redemptions during the next five years are $800,000 in both 1984 and 1985 and $1,700,000 in 1986.
Capital Stock Expenses Capital stock expenses relating to the issuance of common and preferred stock have been reflected as a reduction of additional paid-in capital.
Long-Term Debt (1) On July 16, 1981, the company issued, in total, $50,000,000 of First Mortgage and Collateral Trust Bonds to collateralize pollution control revenue bonds issued by the Delaware Economic Development Authority. The issue consisted of $31,900,000 12%
Series Bonds due August 1, 2011, $8,100,000 11314 % Series Bonds due August 1, 2001 and
$10,000,000 91/2 % Series Bonds due August 1, 1984. The proceeds of the issue were deposited in a construction fund held by a Trustee and are disbursed to reimburse the
Notes to Consolidated Financial Statements (Continued) 28
- 6. Short-Tenn Debt and Lines of Credit
- 7. Commitments company for the cost of constructing certain pollution control facilities. (2) Sinking fund provisions with respect to substantially all issues of the First Mortgage and Collateral Trust Bonds require that there be deposited annually with the Trustee cash equal to one percent ( 1 % ) of the greatest aggregate principal amount at any one time outstanding.
There shall be credited against such cash requirements (a) an amount not exceeding sixty percent (60%) of the bondable value of property additions which the company then elects to make the basis of this credit, and (b) the aggregate principal amount of bonds which might then be made the basis of the authentication and delivery of bonds and which the company then elects to make the basis of this credit. For the years 1979-1981, the company elected to certify property additions to satisfy its sinking fund requirements equal to 1 % of each series as permitted by the indenture. (3) Substantially all utility plant of the company now or hereafter owned is subject to the lien of the related Mortgage and Deed of Trust. (4) Pursuant to a bank loan agreement, which was Amended and Restated on November 1, 1981, the company has a $50,000,000 revolving credit commitment through December 31, 1984, convertible into a term loan due December 31, 1987. Any loan may be prepaid at any time without penalty and would bear interest at the prime rate through December 31, 1983 and 105% of prime rate thereafter, and a commitment fee of 3/a% on any unused portion of the revolving credit. From time to time, the company issues commercial paper to repay borrowings under the revolving credit commitment. In 1981, the company sold $12 million of short-term tax-exempt revenue notes at an average rate of 7% %. In recognition of the long-term financing commitment, these borrowings and
$14.5 million of commercial paper have been classified as long-term debt. (5) Maturities of long-term debt during the next five years are 1982-none; 1983-$30, 100,000; 1984-$20, 100,000; 1985-$10, 100,000; and 1986-$100,000. (6) The annual interest requirements on all borrowings classified as long-term debt, at December 31, 1981 are $49,927,000.
Unamortized Debt Discount, Premium and Expense These amounts are amortized on a straight-line basis over the lives of the long-term debt issues to which they pertain.
As of December 31, 1981, the company had unused bank lines of credit of $75,750,000 and is required to pay commitment fees or maintain compensating balances ranging from 7-10% for these lines. Such lines of credit are periodically reviewed by the company, at which time they may be renewed or cancelled.
The company estimates that approximately $126,500,000, excluding AFUDC, will be expended for construction purposes in 1982, in connection with which substantial commitments have been incurred. The company also has commitments under long-term fuel supply cont!acts.
Minimum commitments as of December 31, 1981 under all non-cancellable lease agreements are as follows:
1982 1983 1984 1985 1986 Remainder Total
$ 6,290,000 6,125,000 5,823,000 5,690,000 949,000 5,686,000
$ 30,563,000 The total minimum rental commitments are applicable to the following types of property:
company's share of Peach Bottom nuclear fuel, $17,820,000; railroad coal cars, $2,427,000; distribution facilities, $5,739,000; other, principally computer equipment, $4,577,000.
Rentals charged to operating expenses aggregated $9,986,000 in 1981, $9,463,000 in 1980 and $9, 120,000 in 1979 including $5,282,000, $5,357,000 and $5,646,000 for nuclear fuel respectively.
The aforementioned leases are principally operating leases. Leases that meet the criteria of capital leases are not accounted for as such in the ratemaking process and, if capitalized, would not have a significant effect on assets, liabilities or expenses.
Notes to Consolidated Financial Statements (Continued) 29
- 8. Sale of Contracts for Nuclear Plant
- 9. Contingencies In 1973, the company entered into an agreement providing for the availability of fuel storage and pipeline facilities through 1999. Under the agreement, the company must make specified minimum payments monthly, which totaled $2,591,000 in 1981. The amount of required payments is $2,595,000 in 1982, $2,241,000 in 1983, $2,040,000 in 1984, $1,795,000 in 1985, $2, 138,000 in 1986 and $16,872,000 between 1987 and 1999.
The proceeds received by the company for the sale in 1975 of the contracts for a nuclear steam supply system and related fuel, net of related plant expenditures which are considered of no future value to the company, are classified as a deferred credit in the balance sheet. In 1981, the credit was reduced by income taxes of $26.7 million, related interest of $14.1 million and deferred taxes of $18 million, net of refundable taxes of $16.3 million and related interest of $4.4 million (see Note 2). In addition, the credit was increased by approximately $6. 0 million representing the net tax benefits of the state taxes and net interest payable. The company has obtained regulatory approval for this accounting treatment. The recording of the above transactions did not affect net income.
It is the intention of the company, subject to regulatory approval, to reduce the cost of subsequent replacement plant capacity by the amount of the net credit, or alternatively amortize the balance to income.
The company has determined that certain additional expenditures for environmental and engineering studies totalling $9.4 million, incurred in connection with the nuclear steam supply system project, are of no future value. Accordingly, in 1981, the company charged these costs, net of related income taxes, to the deferred credit.
See Nate 2 for possible payment of taxes.
The company is a defendant in two anti-trust suits filed in 1977 in the U.S. District Court for Delaware by four Delaware municipal electric wholesale customers who seek declaratory, injunctive and treble damage relief under the Sherman and Clayton Acts.
These actions are in their earliest stages and, until plaintiffs have articulated a theory of damages for their allegations, it is not possible to quantify the company's exposure to liability, if any, or to comment on the validity, as a matter oflaw, of the damage claims.
The company believes the suits to be without merit and legal counsel believes the company has material substantive defenses available to it.
Based upon settlements with resale customers, revenues recorded pursuant to interim rate increases effective December 1, 1978 and December 1, 1980 are approximately $5.1 million and $3.6 million, respectively. These increases are subject to refund pending FERC approval, and the company believes that substantially all such revenues will be realized.
The company is involved in certain other legal and administrative proceedings before various courts and governmental agencies concerning rates, environmental issues, taxes, nuclear and other licensing, fuel contracts and other matters. In the opinion of manage-ment, the ultimate disposition of these proceedings will not have a material effect on the financial position or results of operations of the company.
The company is a member of Nuclear Electric Insurance Limited (NEIL) which provides insurance coverage against the extra expense incurred in obtaining replacement power during prolonged accidental outages of nuclear power units. After the deductible period of 26 weeks, weekly indemnity of up to $2.3 million is provided for 52 weeks and $1.1 million for an additional 52 weeks, for each insured unit. Insured members are contingently liable for payment of a retrospective. premium adjustment of up to five times the annual pre-mium if losses exceed accumulated funds available to NEIL. The company's maximum share of retrospective premium adjustments currently approximates $2.4 million.
The Price-Anderson Act places a limit of liability of $560 million on each nuclear generating facility for public liability claims that arise from a nuclear incident. Public liability insurance on the nuclear generating units in which the company has an ownership participation is currently provided by a combination of private insurance and
.i} I I
Notes to Consolidated Financial Statements (Continued) 30
- 10. Jointly-Owned Plant indemnity agreements with an agency of the federal government. Under the indemnity agreements, the company, to the extent of its ownership participation, could be assessed
$5 million per incident for each nuclear operating unit, subject to a maximum of $10 million per licensed reactor in any one year. The company is currently a joint owner of 4 reactors and its maximum assessment would be $1.5 million per incident and
$3.0 million in any one year.
For property damage to the Peach Bottom nuclear plant facilities, the company and its co-owners have private insurance up to $450 million. The company and the Salem nuclear facility co-owners are members of Nuclear Mutual Limited (NML), which provides insurance coverages up to $450 million for property damage to nuclear plant facilities.
In the event of losses at any plant covered by NML, the company would be subject to a maximum assessment of fourteen times its annual premium. Such maximum assessment would currently approximate $3.7 million. In addition, each of the facilities are insured for
$247 million by Nuclear Electric Insurance Limited (NEIL II) for losses in excess of $500 million. In the event of losses at any plant covered by NEIL II, the company would be subject to a maximum assessment of seven and a half times the annual premiums. Such maximum assessment would currently approximate $.5 million for both plants. The company is a self-insurer, tq the extent of its ownership interest, for any property loss in excess of the aforementioned amounts.
The company has entered into a five-year contract, effective October 1, 1980, with Atlantic City Electric Company to sell one-eighth of the electricity generated by Indian River unit 4. The major provisions of the contract allow for the company to receive, irrespective of the availability of electric generation, one-eighth of all operation and maintenance expenses incurred and a fixed return on the plant investment. Approval of this agreement was received from the FERG and the Delaware Public Service Commission (DPSC) in 1980. In connection with the decision of the DPSC, it was determined that profits from the contract up to the company's projection of $8.6 million be passed on to the customers, any losses be absorbed by the stockholders and profits above $8.6 million be passed to the stockholders. Because the decision could result in an adverse rate impact over the term of the agreement, the company has requested a rehearing of the decision.
Information with respect to the company's share of jointly owned plant, including nuclear fuel for the Salem plant, as of December 31, 1981 is as follows:
(Dollars in Thousands)
Construction Ownership Plant in Accumulated Work in Share Service Depreciation Progress Nuclear:
Peach Bottom 7.51%
$ 65,957
$16,300
$ 4,318 Salem 7.41%
153,873 20,324 14,200 Coal-Fired:
Keystone 3.70%
8,265 3,246 224 Conemaugh 3.72%
12,538 3,900 128 Total
$ 240,633
$ 43,770
$ 18,870 The company provides its own financing during the construction period for its share of jointly-owned plant. In addition, the company is a joint guarantor ofloans ($1, 193,000 proportionate share) advanced for operating of the coal mines that supply the Keystone plant. The company's share of operating and maintenance expenses of the jointly-owned plant is included in the corresponding expenses in the statements of income.
Notes to Consolidated Financial Statements (Continued) 31
- 11. Segment Information
- 12. Supplementary Information to Disclose the Effects of Changing Prices (Unaudited)
Segment information with respect to electric, gas and steam operations was as follows:
(Dollars in Thousands) 1981 1980 Operating Revenues:
Electric
$ 504,119
$ 443,927 Gas 83,070 59,040 Steam-21,315 17,503 Total
$ 608,504
$ 520,470 Operating Income:
Electric
$ 100,836 74,461 Gas 5,294 5,155 Steam 1,195 1,100 Total
$ 107,325 80,716 Utility Plant: 0 > <2>
Electric
$ 1,166,376
$ 1,132,992 Gas 45,608 45,711 Steam 6,259 6,959 1,218,243 1,185,662 Other Identifiable Assets:
Electric 120,914 93,060 Gas 13, 160 10,005 Stearn 420 343 134,494 103,408 Assets Not Allocated 92,957 91,852 Total Assets
$ 1,445,694
$ 1,380,922 Depreciation Expense:
Electric 43,238 34,321 Gas 2,703 2,775 Steam 892 859 Total 46,833 37,955 Construction Expenditures: <3>
Electric 81,651
$ 107,063 Gas 2,531 3,500 Steam 24 176 Total 84,206
$ 110,739 mrncludes construction work in progress and allocation of common utility property.
mstated net of the respective accumulated provisions for depreciation.
<3>Excludes allowance for funds used during construction.
1979
$ 363,666 49,322 11,711
$ 424,699 69,503 4,425 931 74,859
$ 1,045,133 44,087 7,264 1,096,484 71,958 3,927 332 76,217 76,905
$ 1,249,606 30,672 2,441 753 33,866
$ 108,938 2,629 494
$ 112,061 Operating income by segments is reported in accordance with generally accepted accounting and ratemaking practices within the utility industry and, accordingly, includes each segment's proportionate share of taxes_bn income and general corporate expenses.
The following supplementary financial information, as prescribed by the Financial Accounting Standards Board in Statement No. 33, is supplied for the purpose of providing information about the effects of changing prices on the company's operations. The information should be viewed as an estimate of the approximate effect of inflation rather than as a precise measure.
Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing power, as measured by the Consumer Price Index for All Urban Consumers.
Current cost amounts reflect the change in specific prices of plant from the date the plant was acquired to the present and differ from constant dollar amounts to the extent that specific prices have increased more or less rapidly than prices in general. The current cost of utility plant represents the estimated cost of replacing existing plant assets and was
Notes to Consolidated Financial Statements (Continued) determined by indexing existing plant by the Handy-Whitman Index of Public Utility Construction Costs.
Supplementary Financial Data Adjusted for the Effects of Changing Prices (Dollars in Thousands)
Historical Cost Constant Dollar Current Cost For the Year Ended December 31 (Average 1981 Dollars)
Operating Revenues
$ 608,504
$ 608,504
$ 608,504 Operating Expenses:
Operation and Maintenance 388,525 388,525 388,525 Depreciation 46,833 85,214 90,517 Tuxes 65,821 65,821 65,821 Other Income-Net (5,340)
(5,340)
(5,340)
Interest Charges 53,954 53,954 53,954 549,793 588,174 593,477 Net Income<n
$ 58,711
$ 20,330
$ 15,027 Earntngs per common share (after pref erred dividend requirements)<2>
$ 1.78
$.29
$.09 Increase in current cost of utility plant held during the year<3>
$181,749 Reduction to net recoverable cost
$ (65,512)
(54, 168)
Effect of increase in general price level (187,790)
Excess of increase in general price level over increase in current costs after reduction to net recoverable cost (60,209)
Purchasing power gain on net amounts owed 55,514 55,514 Net
$ (9,998)
$ (64,904) m Including the reduction to net recoverable cost, the loss on a constant dollar and current cost basis for 1981 would have been $45,182 and $39,141, respectively.
<2> Excluding reduction to net recoverable cost.
<3> At December 31, 1981, current cost of net utility plant was $2,277,874 while historical cost was $1,221,567.
32 As required by Statement No. 33, the current provisions for depreciation on the constant dollar and current cost amounts of utility plant were determined by applying the com-pany's depreciation rates to the indexed plant amounts, even though depreciation is limited to recovery of historical costs as further discussed below. Other operating expenses were either not required to be adjusted or were not adjusted due to rate-making considerations.
The company, by holding monetary assets such as cash and receivables, loses purchasing power during periods of inflation because these items can purchase less at a future date.
Conversely, by holding monetary liabilities, primarily long-term debt, payments in the future will be made with dollars having less purchasing power. For the years 1979-1981, the company's monetary liabilities exceeded monetary assets which resulted in a purchasing power gain on net amounts owed during the year.
The rate regulatory process limits the company to the recovery of the historical cost of plant. Therefore, the excess of the cost of plant stated in terms of constant dollars or current cost over the historical cost of plant is not presently recoverable in rates as depreciation and is reflected as a reduction to net recoverable cost. Based on past practices, however, the company believes it will be allowed to earn on the increased cost of its facilities when replacement actually occurs.
Notes to Consolidated Financial Statements (Continued) 33
- 13. Quarterly Financial Information (Unaudited)
Since the gain from the decline in purchasing power is attributable to long-term debt which has been used to finance utility plant, the reduction of utility plant to net recoverable amount is netted against the purchasing power gain on net amounts owed during the year.
Supplementary Five-Year Comparison of Selected Financial Data Adjusted for the Effects of Changing Prices (In Thousandsm of Average 1981 Dollars)
For the Years Ended December 31 1981 1980 1979 Operating revenues Historical cost dollars
$ 608,504
$ 520,470 $ 424,699 Constant dollars 608,504 574,457 532,144 Net income Constant dollars 20,330 17,683 36,468 Current costs 15,027 9,230 25,092 Earnings per common share Constant dollars
.29
.29 1.08 Current costs
.09
(.05)
.59 Net assets at year end<2l Historical cost dollars 542,080 500,546 490,616 Constant dollars and current costs 524,556 527,665
- 581,313 Excess of increase in general price level over increase in current costs<3l (60,209)
(103,282)
(123,170)
Purchasing power gain on net amounts owed 55,514 73,540 79,384 Cash dividends declared per common share Historical cost dollars 1.531/z $
1.49 1.401/z Constant dollars 1.531/z 1.641/z 1.76 Market price per common share at year-end Historical cost dollars 12.63 11.75 12.63 Constant dollars 12.22 12.39 14.96 Average Consumer Price Index (1967 = 100) 272.4 246.8 217.4 mExcept per share amounts.
<2>At net recoverable cost.
<3>After reduction tQ net recoverable cost.
1978 1977
$ 378,702
$ 337,818
. 527,935 507,006 1.301/z 1.22 1.82 1.83 13.25 14.38 17.79 21.05 195.4 181.5 The quarterly data presented below reflect all adjustments necessary in the opinion of the company for a fair presentation of the interim results. Quarterly data normally vary seasonably with temperature variations, differences between summer and winter rates, the timing of rate increases and the scheduled downtime and maintenance of electric generating units.
Earnings Earnings Applicable Average per Quarter Operating Operating Net to Common Shares Average Ended Revenue Income Income Stock Outstariding Share (Dollars in Thousands) 1981 March31
$ 160,919
$ 27,061
$ 14,266
$ 11,062 25,078
$.44 June30 137,445 24,547 12,098 8,893 25,247
.35 September 30 164,359 31,464 19,772 16,568 25,514
.65 December 31 145,781 24,253 12,575 9,370 27,150
.34
$ 608,504
$ 107,325
$ 58,711
$ 45,893 25,747
$ 1.78 1980 March31
$ 134,909
$ 21,248
$ 14,634
$ 12,372 24,460
$.51 June30 113,729 16,432 10,004 7,741 24,605
.31 September 30 138,290 22,686 16,391 14,129 24,748
.57 December 31 133,542 20,350 7,928 5,288 24,914
.21
$ 520,470
$ 80,716
$ 48,957
$ 39,530 24,682
$ 1.60
Delmarva Power & Light Company 34 Consolidated Statistics 10 Years of Review 1981 1980 1979 1978 Electric Revenues (thousands):
Residential
$ 164,919
$ 144,637
$ 115,381
$ 105,237 Commercial 123,099 112,166 91,798 82,796 Industrial 129,601 116,401 98,023 83,972 Other utilities, etc.
73,602 63,698 53,782 40,840 Miscellaneous revenues 12,898 7,025 4,682 5,261 Total electric revenues
$ 504,119
$ 443,927
$ 363,666
$ 318, 106 Electric Sales (1,000 kilowatt~hours):
Residential 1,996,647 2,046,546 1,968,452 1,979,624 Commercial 1,660,147 1,648,776 1,598,299 1,568,600 Industrial 2,454,685 2,429,842 2,624,438 2,418,527 Other utilities, etc.
1,283,845 1,335,216 1,300,611 1,281,498 Total electric sales 7,395,324 7,460,380 7,491,800 7,248,249 Electric Customers (end of period):
Residential 255,646 246,887 242,745 237,925 Commercial 29,450 28,162 27,998 28,421 Industrial 788 821 874 858 Other utilities, etc.
434 440 478 480 Total electric customers 286,318 276,310 272,095 267,684 Gas Revenues (thousands):
Residential
$ 34,123
$ 26,525
$ 25,719
$ 28,370 Commercial 14,344 10,342 8,954 10, 154 Industrial 22,259 12,404 9,884 10, 191 Interruptible 11,711 9,293 4,440 716 Other utilities, etc.
61 46 55 93 Miscellaneous revenues 572 430 270 116 Total gas revenues
$ 83,070
$ 59,040
$ 49,322
$ 49,640 Gas Sales (million cubic feet):
Residential 6,193 6,321 6,423 6,941 Commercial 2,704 2,683 2,415 2,593 Industrial 4,809 3,937 3,388 3,290 Interruptible 2,802 2,738 1,720 319 Other utilities, etc.
12 14 16 29 Total gas sales 16,520 15,693 13,962 13,172 Gas Customers (end of period):
Residential 69,865 69,024 67,823 67,550 Commercial 3,967 3,846 3,712 3,773 Industrial 167 155 131 163 Interruptible 16 16 16 21 Other utilities, etc.
1 1
1 1
Total gas customers 74,016 73,042 71,683 71,508 Refinery Service Electricity delivered 343,063 328,420 262,159 270,006 (1,000 kilowatt-hours)
Steam delivered 7,673,420 7,570,944 6,378,705 6,016,095 (1,000 pounds)
35 Average Annual Compound%
1977 1976 1975 1974 1973 1972 1971 Rate of Growth
$ 97,691
$ 80,416
$ 77,069
$ 68,730
$ 51,799
$ 43,878
$ 36, 198 16.37 74,641 60,111 58,169 51,192 37,888 31,810 25,468 17.06 76,801 64,458 64,141 66,381 41,284 35,962 28,903 16.19 38,974 34,896 35,606 32,976 21,518 16,833 12,964 18.96 3,461 2,398 4,370 9,194 5,287 2,857 1,209 26.71
$ 291,568
$ 242,279
$ 239,355
$ 228,473
$ 157,776
$ 131,340
$ 104,742 17.01 1,924,723 1,787,663 1,672,180 1,597,472 1,629,641 1,463,821 1,380,763 3.76 1,495,796 1,412,259 1,359,673 1,303,053 1,360,216 1,227,230 1,099,897 4.20 2,277,630 2,260,661 2,142,151 2,461,303 2,512,877 2,412,239 2,252,219 0.86 1,207,941 1,199,t55 1,218,785 1,230,528 1,252,977 1,137,272 1,014,972 2.38 6,906,090 6,659,738 6,392,789 6,592,356 6,755,711 6,240,562 5,747,851 2.55 233,106 230,579 221,780 215,516 208,073 200,595 193,282 2.84 29,648 28,345 27,345 27,132 26,708 25,856 25,139 1.60 921 1,002 923 891 867 869 810 (0.27) 561 550 545 501 506 496 460 (0.58) 264,236 260,476 250,593 244,040 236, 154 227,816 219,691 2.68
$ 21,829
$ 18,826
$ 15,365
$ 14,298
$ 13,018
$ 12,944
$ 11,948 11.06 7,133 6,062 4,676 4,201 3,715 3,532 3,126
. 16.46 6,950 5,984 4,343 3,726 3,505 3,265 2,998 22.20 169 1,301 1,211 1,532 1,363 1,035 1,153 26.09 49 44 33 26 30 25 16 14.32 103 31 45 96 22 18 39 30.81
$ 36,233
$ 32,248
$ 25,673
$ 23,879
$ 21,653
$ 20,819
$ 19,280 15.73 6,751 6,956 6,540 6,863 7,134 7,737 7,583 (2.00) 2,439 2,586 2,429 2,526 2,614 2,696 2,534 0.65 2,811 3,264 2,849 3,215 3,653 3,875 3,797 2.39 81 953 1,073 2,257 2,346 2,134 2,708 0.34 17 20 18 16 23 20 13 (0.80) 12,099 13,779 12,909 14,877 15,770 16,462 16,635 (0.07) 67,400 68,978 69,418 69,525 69,833 69,891 69,604 0.04 3,738 4,154 4,189 4,356 4,418 4,407 4,426 (1.09) 163 198 198 195 197 195 204 (1.98) 21 21 21 21 21 21 21 (2.68) 1 1
1 1
1 1
1 71,323 73,352 73,827 74,098 74,470 74,515 74,256 (0.03) 289,049 318,389 297,282 350,021 341,700 295,236 272,649 2.32 4,888,366 5,301,421 5,517,000 5,921,000 5,926,000 7,261,000 7,564,000 0.14
Delmarva Power & Light Company Trustees Transfer Agents Registrars Stock Symbol Regulatory Commissions Corporate Address
.Annual Meeting First Mortgage and Collateral Trust Bonds, Chemical Bank, New York, New York.
Pollution Control Revenue Bonds, Girard Bank Delaware (formerly Farmers Bank of the State of Delaware), Wilmington, Delaware, Bank of Delaware, Wilmington, Delaware, and Wilmington Trust Company, Wilmington, Delaware.
Preferred Stock-Wilmington Trust Company, Wilmington, Delaware.
36 Common Stock-Wilmington Trust Company, Wilmington, Delaware, and Manufacturers Hanover Trust Company, New York, New York.
Preferred Stock-Delaware Trust Company, Wilmington, Delaware.
Common Stock-Delaware Trust Company, Wilmington, Delaware, and Manufacturers Hanover Trust Company, New York, New York.
Common Stock, DEW-listed on the New York and Philadelphia Stock Exchanges.
Federal Energy Regulatory Commission, 825 North Capitol Street, N.E., Washington, D.C. 20426 Delaware Public Service Commission, 1560 S. du Pont Highway, Dover, Delaware 19901 Maryland Public Service Commission, American Building, 231 East Baltimore Street, Baltimore, Maryland 21202 Virginia State Corporate Commission, P.O. Box 1197, Richmond, Virginia 23209 Delmarva Power, 800 King Street, P. 0. Box 231, Wilmington, Delaware 19899. Telephone (302) 429-3011 Will be held on April 27 at 12:30 p.m., in the Grand Opera House, 818 Market Street Mall, Wilmington, Delaware To supplement information in this Annual Report, a Financial and Statistical Review (1971-1981) and the Form 10-K are available upon request. Please write to Stockholder Relations, Delmarva Power, 800 King Street, P. 0. Box 231, Wilmington, Delaware 19899
Delmarva Power & Light Company Officers Robert D. Weimer Chairman of the Board Nevius M. Curtis President and Chief Executive Officer H. Ray Landon Senior Vice President William G. Price Senior Vice President Frank A Cook Vice President Howard E. Cosgrove Vice President and Chief Financial Officer Harland M Wakefield, Jr.
Vice President Donald E. Cain Division Vice President, Northern Division Wayne A Lyons Division Vice President, Southern Division James A Clark, Jr.
Vice President, Energy Supply Alfred C. Thawley, Jr.
Secretary and Treasurer Charles Marchyshyn Comptroller Executive Committee Robert D. Weimer, Chairman; Werner C. Brown; Oscar L. Carey; Nevius M. Curtis; James M. Tunnell, Jr.
Audit Committee James M. Tunnell, Jr., Chairman; Werner C Brown; Oscar L Carey Nominating Committee Dr. E. Arthur Trabant, Chairman; Sally V. Hawkins; Robert D. Weimer Compensation Committee Werner C. Brown, Chairman;
.Oscar L. Carey; Nevius M. Curtis; William G. Simeral Board of Directors Werner C Brown Director and Retired Chairman of the Board of Hercules, Incorporated (chemical manufacturer) Wilmington, Delaware Mrs. Henry P Cannon, II Director of H. P Cannon & Son, Inc. (food processing firm) Bridgeville, Delaware Oscar L. Carey President and Director of Larmar Cor-poration (general real estate and home builders) Salisbury, Maryland John R Cooper Manager of Environmental Affairs and Occupational Health, Petrochemicals Department of E. I. du Pont de Nemours
& Company (chemical manufacturer)
Wilmington, Delaware Nevius M. Curtis President and Chief Executive Officer of the Company Sally V Hawkins Director and President of Delaware Broadcasting Company and General Manager of Station WILM (radio broadcasting), Wilmington, Delaware William G. Price Senior Vice President of the Company William G. Simeral Director and Senior Vice President and a member of the Executive Committee of E. I. du Pont de Nemours & Company (chemical manufacturer) Wilmington, Delaware Dr. E. Arthur Trabant President of the University of Delaware Newark, Delaware James M Tunnell, Jr.
Professor of Law, Delaware Law School Wilmington, Delaware Robert D. Weimer Chairman of the Board of the Company
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DEADLINE RETURN DATE RECORDS FACILITY BRANCH
1981 Annual Report Contents 1 Financial Highlights 2 Message to Shareholders 5 Financial Results 7 Construction Expenditures 9 Production and Distribution 14 Computerization 20 Customer and Marketing Services 21 Looking to the Future 23 Attracting Business 24 Community and Employee Relations 25 Financial Statement Responsibility 25 Accounting Policies 27 Financial Statements 31 Independent Accountants' Opinion 34 Notes to Financial Statements 40 Operating Statistics 42 Financial Statistics 44 Management's Discussion and Analysis of the Financial Condition and Results of Operations 48 Officers and Directors About the Cover PSE&G's growing utilization of computers to improve efficiency and productivity is symbolized in this computerization of the photograph of an employee's hands at the console of a video terminal. An ever-increasing number of the Company's oper-ations involve use of computer systems.
Paterson NY.1
0 PS~G Public Service Electric and Gas Company 80 Park Plaza, Newark, New Jersey 07101 (201) 430-7000 Stockholder Information - Toll Free New Jersey residents Outside New Jersey (800) 242-0813 (800) 526-8050 About the Company Public Service Electric and Gas Company, the largest utility in New Jersey, serves some 5.4 million people, about three-quarters of the state's population. The Company's service area (shown in green on map) stretches across the industrial corridor running from the New York state line on the north to below Camden in the south. The territory, a center of transpor-tation, contains a well-balanced mixture of industrial, commercial and residential development. Included in the area are New Jersey's six largest cities and nearly 300 smaller suburban and rural communities.
Annual Meeting Please note that the Annual Meeting of Stockholders of the Company will be held at the Governor Morris Inn, Two Whippany Road, Morristown, New Jer-sey, Tuesday, April 20, 1982, at 2 00 p.m.
A summary of the meeting will be sent to all stockholders of record at a later date.
Financial Highlights Earnings per average share of Common Stock Shares of Common Stock Average Year-end Dividends paid per share of Common Stock Book Value per share of Common Stock 1981
$2.63 80,962,000 86,089,000
$2.44
$25.66 Total Operating Revenues
$3,471,652,000 Total Operating Expenses
$3, 117,385,000 Earnings Available for Common Stock
$ 212,599,000 Gross Additions to Utility Plant
$ 683,849,000 Total Utility Plant
$7,320,764,000 1980
$3.13
- 73,069,000 76,615,000
$2.29
$26.38
$2,994,054,000
$2,616,902,000
$ 229,060,000 *
$ 625,530,000
$6,881,209,000
- Excludes net extraordinary gain of $6,316,000 equal to $.09 per share.
See Notes 3 and 5, page 35.
Increase (Decrease)
(16) 11 12 7
(3) 16 19 (7) 9 6
The move into the new corpo-rate headquarters at 80 Park Plaza, Newark was completed in 1981. During the year the work of razing the former headquarters included demoli-tion by an implosion in June.
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Ill The year 1981 was difficult -
and, at times, discouraging -
as weakness in the economy, accompanied by high inflation and interest rates, con-tinued to exact a toll on the utility industry. Progress was made by your Company, however, in a number of areas that hold promise for the future.
H A highlight of the year was the placing in service of the second nu-clear unit at Salem Generating Sta-tion after two years of delays Stemming from additional require-Robert I. Smith, Chairman of the Board, (left) and Harold W. Sonn, President, reply to questions of ments of the Nuclear Regulatory shareholdersattheCompany'sl981annualmeeting.
Commission following the Three Mile Island accident in Pennsylvania. The unit will be a major asset in our effort to stabilize electric rates by reducing dependence on high-cost foreign oil for the production of electricity. II Earnings Decline As a consequence of the bleak economic climate and erosion of the rate relief received in 1980, earnings declined in 1981 to $2.63 a Common Share from $3.22 a share in 1980. The 1980 earnings had benefited by a net gain of 9 cents a share as a result of two extraordinary, non-recurring items, and there were 7.9 million fewer average shares outstanding in 1980.
II Revenues in 1981 increased to $3.47 billion from $2.99 billion, while expenses -
swelled by inflation -
rose from $2.62 billion to $3.12 billion. H The recessionary economy, conservation and cooler, less humid summer weather adversely affected our electric sales. Total electric sales were down 0.8 per cent from 1980. Ample supplies of natural gas at a continuing price advantage over oil helped to increase overall gas sales by 4. 4 per cent over the prior year. II Dividend Increased The quarterly dividend on Common Stock was increased in the first quarter of 1981 to 61 cents a share from 58 cents paid in the fourth quarter of 1980. The increase was in line with management's 2
goal of raising the dividend on a regular basis to adequately compensate stockholders and to maintain a competitive return in attracting new capital. This was the sixth con-secutive year in which the dividend was raised. II Rate Relief Received The need for additional rate relief was recognized early in the year and in February 1981 we filed a petition with the New Jersey Board of Public Utilities (BPU) requesting an increase of
$536 million in annual revenues. Of this amount, $465 million was for electric service and $71 million for gas. II Hearings were held on the request during the year and on February 11, 1982, the BPU granted an increase of $390 million. This included $338 million in electric revenues, and $52 million in gas revenues. II Hope Creek No. 2 Cancelled One of the most significant actions taken by the Company in 1981 was the decision to cancel construction of the second of two nuclear units planned for Hope Creek Generating Station. The cancellation was approved at a meeting of the Board of Directors on December 23. II We had been evaluating the Hope Creek project, espe-cially the need for the second unit, for more than a year as part of the continuous review of our construction program. The project also had been the subject of hearings by the BPU. H The main reasons for the cancellation were the lack of need for the unit in the 1990's, due to lower than previously antici-pated growth in electric demand, coupled with the substantial financial burden of raising the necessary capital for construction. Further, even though our studies still showed this nu-clear unit to be economic in the long-run, uncertainties with regard to future fuel costs, interest rates and inflation made it imprudent, in our judgment, to continue the project. II Cancellation of the unit does not indicate any change in our support of nuclear power as being essential to meet the nation's energy needs, but was based on today's economic realities. H The Company will recover through rates all abandonment costs relating to Hope Creek No. 2. The recovery, beginning in July 1982, was authorized by the BPU in a decision on March 4, 1982. II Oil Usage Reduced During the year we were able to re-duce our use of heavy oil for the generation of electricity by 28.2 per cent compared with 1980. This was accomplished by increasing our nuclear power generation to a record level, and View of Hope Creek Generating Station shows in foreground the No. 2 unit which has been can-celled. Construction is continuing on No. 1 unit. At left are the domed containment structures of the Salem Generating Station.
3
by purchasing lower-cost coal-generated power from neighboring utilities. II Salem No. 2 unit in the second half of the year was a significant factor in boosting nuclear power production to 25 percent of total output for 1981, up from 22 per cent in 1980. A full power operating license for the unit was received in May and, after extensive testing, commercial operation began on October 13. II Approximately 17 per cent of our elec-tric output was fueled by natural gas as we continue to be encouraged by the federal government to use gas and thereby reduce oil imports. II Nuclear Department Formed As a result of experience gained in the operation of the Salem station and in response to assessments of the nuclear industry, we announced in September plans to create a separate nuclear department headed by a vice president. II Headquarters of the department will be in a facility adjacent to the Salem and Hope Creek generating stations. Approximately 200 employees will be transferred initially from the Newark corporate headquarters to the Salem site. II Research Continues A high point of our research and development program during 1981 was the completion and dedication of the Battery Energy Storage Test (BEST) facility in the Company's service area. At this national center large-scale advanced battery systems will be tested as energy storage devices. II As a result of one facet of the Company's research program -
a three-year solar demonstration project - it is planned in 1982 to begin offering to customers whose homes meet certain criteria an opportunity to purchase solar water heating systems.
The systems will use electricity or gas for backup service. II Computers Improving Productivity In attempting to cope with the continuing unfavorable economic atmos-phere, we have redoubled our efforts to curtail expenses and to improve operating efficiencies. II Improved productivity in practically all areas of the Company's opera-tions is being realized through the greater utilization of computers. Some of the ad-vances made in the computerization of operations during the year are discussed and illustrated in this report. II As we begin the new year, problems -
especially high inflation and money costs -
continue to plague the utility industry. Any abatement in their intensity will have a beneficial effect on our Company's future. II We anticipate challenging problems in the future and we are optimistic about the ability of Company employees to meet and overcome them. In all our efforts, we appreciate the continuing support of the Company shareholders.
4 Robert I. Sm ith Chairman of the Board and Chief Executive Officer Harold W. Sonn President and Chief Operating Officer March 4, 1982
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1111 Ill Ill 1111 I Ill Dividends and Earnings per Share 4.00 3.00 2.00 1977 78 79 80
- Dividends
- Earnings 81 II Financial Results Revenues in 1981 passed the $3 bil-lion mark for the first time as they rose by $478 million, or 16.0 per cent, over the 1980 figure to $3.47 billion.
Electric revenues increased 11.4 per cent to $2.32 billion, ac-counting for 67 per cent of the total.
Gas revenues went up 26.3 per cent to $1.15 billion and made up the other 33 per cent.
A major part of the increase in revenues - $414 million -
was at-tributable to increases in electric energy adjustment and gas raw materials adjustment charges from which earnings do not benefit. A rise in base rates in April 1980 and improvement in gas sales were fac-tors to a lesser degree.
The sources of 1981 revenues by customer classification were:
Electric Gas Combined Residential 31 %
53 %
38%
Commercial 38 %
26 %
34%
Industrial 29 %
21 %
27%
Street Lighting and other 2%
1%
Total 100% 100% 100%
II Expenses Rise Fueled by persistent high inflation, operating expenses in 1981 climbed
$500 million, or 19.1 per cent, from
$2.6 billion in 1980.
Expenses for production in-creased $418 million, a 26.9 per cent rise. Of this total, electric costs rose
$227 million, equal to 21.8 per cent, and gas expenses rose $192 million, or 37.1 per cent.
Power production costs in-creased but the amount was limited somewhat by a reduction in the use of oil as fuel for generation. The reduction was made possible by higher nuclear production partly as a result of Salem No. 2 output, and power purchases from other utilities at lower costs than would have been available from the Pennsylvania-New Jersey-Maryland Interconnection.
Nuclear units produced electri-cal energy more economically be-cause of lower fuel costs compared with conventional steam units and combustion turbines. Comparative fuel costs in 1981 per million British Thermal Units were: nuclear 47 cents; coal $1.92 and oil $5.81.
Prices paid pipeline suppliers for natural gas continued to rise be-cause of escalations provided for in the Natural Gas Policy Act of 1978 and were mainly responsible for higher costs of gas production. The costs of raw materials to manufac-ture gas also were higher.
Maintenance expenses increased by 13. 5 per cent for the year. The rise was largely attributa-ble to major rehabilitation and over-haul work at a number of generating stations.
Labor costs increased $15.8 million, mainly because of wage in-creases provided for in union con-tracts.Two-year labor agreements negotiated in 1980 provided for a wage increase of 9%, effective May 1, 1981.
New Jersey gross receipts taxes increased by 15. 5 per cent, from $400 million to $462 million, be-cause of the Company's higher revenues.
II Earnings Decline Earnings per share of Common Stock in 1981 declined to $2.63 from
$3.22 in 1980. The decline was at-tributable largely to the eroding effect inflation had on the rate in-crease the Company was granted in April 1980. Other factors were lower electric sales resulting from the eco-nomic recession, cooler, less humid summer weather and conservation by customers.
The 1980 earnings included a net gain of 9 cents a share as a result of two extraordinary, non-recurring items. There was a gain of 27 cents a share that resulted from the sale of Transport of New Jersey, which was partially offset by a write-off of 18 cents a share representing unrecov-ered costs associated with abandon-ment of the Company's offshore generating project.
In 1981 there were 81.0 million average shares outstanding com-pared with 73.1 million in 1980, an increase of 7.9 million, or 10.8 per cent.
II Dividend Increased The quarterly dividend on Common Stock was raised in the first quarter of 1981 by 3 cents a share to 61 cents from the 58 cents paid in the fourth quarter of 1980. The increase re-5
suited in dividends paid in 1981 totaling $2.44 compared with $2.29 in 1980, a 6.6 per cent increase.
II Rate Increase of 11.5 Per Cent Received On February 11, 1982, the New Jer-sey Board of Public Utilities (BPU),
the state regulatory agency, granted the Company an 11. 5 per cent in-crease in revenues totaling $390 mil-hon, effective February 14. Of the amount, $338 million, an increase of 14.8 per cent, was for electric ser-vice and $52 million, an increase of
- 4. 7 per cent, was for gas.
Based on the 12-month period ended October 31, 1981 as a test year, the Company was allowed a re-turn on rate base of 10.67 per cent and on common equity of 16 per cent. This was an increase over the rates of return authorized in the previous rate case which were 9.46 per cent on rate base and 13.75 per cent on common equity.
The BPU also granted an in-crease of $125 million of Construc-tion Work in Progress that will earn a current return. The amount, one half of the Company's request, is in addi-tion to $250 million previously authorized.
The rate increase resulted from a petition filed on February 13, 1981, requesting an overall increase of
$536 million in annual revenues or about 15 per cent. Of the amou~t
$465 million was in electric reve-'
nues, an increase of 20 per cent, and
$71 million was in gas revenues, or 6 per cent.
The New Jersey Public Advo-cate, a participant in the rate case has requested the BPU to reconsid~r its rate order.
6
- = Adjustment Charges Increased Effective August 1, the BPU ap-proved an increase in the Company's levehzed energy adjustment charge for electricity to provide $160. 5 mil-lion in additional annual revenues.
The amount is designed to cover projected fuel and purchased energy costs m the 11-month period which began August 1, and to recover under-collections from previous periods.
As part of the decision, the BPU also ruled that $5.78 million of energy replacement costs associ-ated with a prolonged outage of the Salem No. 1 nuclear unit in the 12-month period ended June 30 1980 should be shared equally by ~usto~
ers and stockholders. The Com-pany's portion, $2.89 million, or $1.6 million, net of taxes, was written off in August 1981.
The BPU also approved an increase in the Company's levelized raw materials adjustment charge for gas customers to provide additional annual revenues of$136 million. The charge, effective November 16, 1981 through September 30, 1982, is to cover projected increased costs of natural gas and the materials to manufacture gas.
In May the U. S Supreme Court ruled as unconstitutional a tax by the State of Louisiana on natural gas produced in the Gulf of Mexico and transported through that state. The tax had been collected since April 1, 1979. As a result of this ruling, the Company recovered and distributed to gas customers refunds related to the tax of$23.8 million.
The Company also refunded to electric customers $5. 5 million which resulted from a settlement be-tween the U. S Department of Energy and one of the Company's oil suppliers for alleged over charging.
These refunds in each case were made through adjustment charges.
II Nuclear Unit Cancelled The Company on December 23 can-celled the No. 2 unit of the Hope Creek Generating Station which had been scheduled for commercial operation in 1989. The unit was about 18% complete and approxi-mately $335 million had been ex-pended by the Company on the unit including $50 million of Allowance '
for Funds Used During Construction.
The decision to cancel was based largely on current estimates of projected load growth, which indi-cated a lack of need for the unit, and the financial burden of construction.
On March 4, 1982, the BPU approved recovery by the Company through rates of all abandonment costs, amounting to $172 million, after tax considerations, over 15 years, beginning in July 1982.
The Company's latest forecast indicates that electric peak demand will increase at a 1.3 per cent annual rate through 1995, a growth rate below that of earlier projections and far below the rate expected when the Hope Creek units were planned.
Mainly as a result of the can-cellation, the Company's construc-tion expenditures are expected to be reduced by $1 billion over the next nine years. This amount does not re-flect $68 million of estimated cancellation and closeout costs. It was doubtful that the Company could have raised the necessary capital to complete both units. The completion of Hope Creek No. 1 unit alone as scheduled in 1986 will be difficult without substantial addi-tional rate relief.
Capitalization Ratios (Year-End) 100 80 60 40 20 1977 78 79 80 81 Long-Term Debt Preferred Stock Common Equity
Although the Company's studies indicate that the No. 2 unit would have been economic on the basis of fuel savings, they contain uncertainties. These include the fu-ture price of oil and coal, the rate of inflation, the cost of capital, load growth in the 1980's and 1990's, and future Federal and state regulations.
The uncertainties also were factors in the decision to cancel.
Cancellation of the No. 2 unit does not indicate that the Company has changed its mind about nuclear power as the best way to meet energy needs in New Jersey The Company's nuclear units in opera-tion are saving consumers hundreds of millions of dollars. However, the Company could not afford to spend the funds which would have been required to finish the No. 2 unit since the capacity will not be needed to meet customer demands.
Because of such lack of demand, the Company has no present plans to construct additional nuclear capacity beyond Hope Creek No. l The Hope Creek station was to have consisted of the two, 1,067-megawatt, nuclear units. The Company owns 95 per cent of the station, and Atlantic City Electric Company the other 5 per cent.
- Taxability of Dividends As a consequence of the cancella-tion of the Hope Creek No. 2 unit, the Company estimates, subject to Internal Revenue Service approval, that 88.3 per cent of the dividends paid on Common Stock in 1981 is nontaxable for current Federal in-come tax purposes. The nontaxable portion constitutes a return of capi-tal which should be applied to re-duce the cost of shares owned in computing a gain or loss on a subse-quent disposition 11 Construction Expenditures Rise Construction expenditures in 1981 totaled $717 million, up $37 million, or 5. 4 percent from $680 million in 1980. Included in the figures are Allowance for Funds Used During Construction (AFDC), nuclear fuel payments, and advances to subsidiaries.
In 1982 construction outlays are estimated at $799 million and in the five years through 1986 at $3. 9 billion. These amounts include
$92 million and $772 million of AFDC, respectively. During the five-year period spending for nuclear generating units and the fuel to operate them will be about $2.6 bil-lion, 67 per cent of the five-year expenditure estimate.
Estimated Construction Expenditures (Including AFDC)
Year
- 1982 1983 1984 1985 1986 (Millions)
Totals
$799 $818 $835 $774 $644 The Company anticipates that it will generate internally approxi-mately 50 per cent of its construc-tion expenditures, excluding AFDC, over the next five years. This as-sumes receipt of sufficient rate relief.
Inadequate rate relief would require the deferral of various construction projects in order to reduce expendi-tures. Mortgage Bonds, Preferred Stock and Common Stock will be is-sued to finance the balance.
- Securities Sold During 1981 the Company raised more than $320 million through the sale of Mortgage Bonds, Preferred Stock and Common Stock.
In March, 500, 000 shares of 13.44% Cumulative Preferred Stock,
$100 par value.were sold. Net pro-ceeds to the Company from the sale of this stock totaled $49,569,500.
Six million shares of Common Stock were sold in June to a group of underwriters at $18.60 a share. Pro-ceeds to the Company from this sale totaled $1116 million.
In August, the Company sold
$100 million principal amount of 157/s per cent, 10-year First and Re-funding Mortgage Bonds at an annual interest cost to the Company of 15.968 per cent.
The Company also raised $54.8 million through the sale of 3.17 mil-lion shares of Common Stock under the Dividend Reinvestment and Stock Purchase Plan, and $5.3 mil-lion through issuance of shares under the Employee Stock Purchase Plan the Tax Reduction Act Em-ploy~e Stock Ownership Plan, and the Thrift Plan.
Proceeds from the sale of these securities in 1981 were used to repay short-term debt incurred in con-nection with the Company's construction program.
Short-term needs were financed through the sale of com-mercial paper. There was $207.6 mil-lion in short-term commercial paper outstanding at year end.
11 Stockholders At the end of 1981. stockholders of record totaled 273,132. They in-cluded 233,224 owners of Common Stock, 12,299 holders of$l40 Divi-dend Preference Common Stock, and 27,609 holders of Preferred Stock.
11 Dividend Reinvestment Plan Qualifies for Tax Benefits The Company's Dividend Reinvest-ment and Stock Purchase Plan quali-fies for tax deferred treatment beginning in 1982 under the Eco-nomic Recovery Tax Act of 1981 Under the Act, participants in the Plan, other than non-resident aliens, trusts, estates, partnerships and corporations, are eligible for tax deferment on dividends reinvested in shares of Common Stock for the years 1982 through 1985.
Those participating may elect on their 1982 tax returns to exclude from gross income, and therefore defer Federal income taxes on, up to a total of$750 per year ($1,500 on a joint return) of their reinvested divi-dends received from the Company and other qualified public utilities.
Federal income taxes will be deferred until the stock purchased with reinvested dividends is sold. If the stock is held more than one year, any proceeds from the sale will be treated as a long-term capital gain.
7
Proceeds from the disposition of any stock (including stock ac-quired through dividend reinvest-ment) within one year after such dividend will be taxed as ordinary income to the extent of the shares acquired through tax-deferred divi-dend reinvestment during the one year period.
A prospectus describing the Dividend Reinvestment and Stock Purchase Plan and its tax deferred feature was distributed in February 8
1982, in time for interested share-holders to enroll prior to the March 1982 dividend. Holders of record of
$1.40 Dividend Preference Common Stock and Preferred Stock are now eligible to participate in the Plan, as well as holders of record of Common Stock.
At the end of 1981, 53,435, or 23 per cent of the holders of Com-mon Stock were participating in either full or partial dividend rein-vestment, up from 47,780 at the close of 1980. Investments through optional cash payments also in-creased 9µbstantially during the year.
II Nuclear Insurance Increased The Company in 1981 increased in-surance coverage for direct physical damage to its nuclear facilities.
Effective in August 1981, Nuclear Mutual Limited (NML}, an industry-owned mutual insurance firm of which the Company is a member, increased nuclear property The 1981 Income Dollar Where It Came From Electric Revenues Gas Revenues Allowance for Funds Used During Construction
$.65
.32
.03
$1.00 coverage to $450 million, up from
$375 million in 1980.
In November, Nuclear Electric Insurance Limited (NEIL), another industry-owned organization of which the Company also is a mem-ber, began providing excess nuclear property insurance with initial coverage of $118 million. As of Janu-ary 15, 1982, this coverage was in-creased to $247 million. This is in addition to the $450 million provided byNML.
The Company anticipates that in the future NEIL will increase its excess coverage to $500 million which would provide for total cover-age approaching $1 billion.
NEIL also provides insurance against the extra expense of obtain-ing replacement power during pro-longed outages of nuclear power plants. This coverage also was in-creased during the year. After the first 26 weeks of an outage a weekly indemnity of up to $2.3 million is provided for 52 weeks, and $1.15 mil-lion for an additional 52 weeks.
Where It Went Fuel, Purchased Power
&Gas Salaries & Wages Materials & Services Taxes Interest Dividends Reinvested in Business
$.49
.07
.09
.16
.06
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11 I I **** 1..... 1 The Company's electric output dipped slightly in 1981, the first de-cline since 1975. The decline was at-tributable to lower sales caused by the economic recession, cooler weather which reduced demand for air-conditioning and greater conser-vation by customers.
Total megawatthours pro-duced, purchased and interchanged for the year amounted to 32.2 mil-lion, a decrease of 15 per cent from 1980.
Peak demand of 7,034 mega-watts occurred on July 9 which was 17 per cent below the all-time mark of7,159 megawatts reached on July 21, 1980. The maximum output of 136,133 megawatthours for a day was on July 9, which was 3.2 per cent less than the record figure of 140,591 megawatthours on July 21, 1980.
At the time of the system peak load, the Company had an installed generating capacity of 9,023 mega-watts, or a capacity reserve of 22 per cent. Installed capacity was 9,101 megawatts at year end.
On the accompanying table are shown the planning peak electric loads, installed generating capaci-ties and per cent reserves anticipated for the next ten years.
Generating Capacity Forecast Planning Installed Per Cent Year Peak Load Capacity Reserve (Megawatts) 1982 7135 8995 26 1983 7285 8995 23 1984 7440 8995 21 1985 7605 9115 20 1986 7690 9165 19 1987 7815 10004 28 1988 7930 9994 26 1989 8045 9994 24 1990 8150 9994 23 1991 8245 9988 21 II Salem No. 2 Begins Commercial Operation The full power operating license for Salem No. 2 unit was received on May 20 and after a power ascension testing program, it was placed in commercial operation on October 13.
Prior to the receipt of the full power license, an emergency exer-cise with the states of New Jersey and Delaware was held on April 8 as required by the Nuclear Regulatory Commission and the Federal Emer-gency Management Agency. The exercise demonstrated the emer-gency preparedness capabilities of the Company as well as those of the two states.
Salem No. 1 was taken out of service for refueling and mainte-nance on January 1, 1982. During the outage the three low pressure turbine rotors will be replaced by others of an advanced design.
High density fuel rack installa-tions in the spent fuel storage pools for both Salem units were completed during the year. As a result, spent fuel capacity at the station was in-creased from 264 elements to 1,170 at each of the two pools. There now is sufficient spent fuel storage ca-pacity at Salem until the late 1990's.
H Hope Creek No. 1 Work Progresses Construction work at the Hope Creek Generating Station during the year focused on the No. 1 unit which reached 38 per cent of completion by year end. Efforts are being con-centrated on achieving fuel loading in early 1986.
Significant steps included in-stallation of the reactor pressure vessel, completion of the turbine-generator pedestal and enclosure of the turbine building.
Only minimal work was carried out on the No. 2 unit as its need was being evaluated. The unit, which was about 18 per cent completed, was cancelled in December and is discussed on Page 6.
The Company owns 95 per cent of the Hope Creek station and Atlantic City Electric Company holds the other 5 per cent.
II Construction Begun on Training Center In April, construction was started on the Nuclear Training Center in Salem, N.J. Included in the center will be simulators to train control room operating personnel* for the Salem and Hope Creek generating stations. Site of the center is about eight miles from the stations.
An order for the Hope Creek simulator was placed in June for delivery in mid-1984. A simulator for Salem station training was ordered in 1980 and is scheduled to be deliv-ered in 1982.
The center will house class-rooms, a shop and laboratories for training, as well as other facilities.
Courses will extend from a few days to over a year.
Construction of the center emphasizes the importance the Company places on thoroughly trained and qualified nuclear plant personnel.
II Nuclear Department Created A review of the Company's nuclear operations and support organiza-tions, together with the experience gained in the operation of the Salem station, led to the formation in 1981 of a Nuclear Department. Consid-ered in the review were assessments of the nuclear industry made follow-ing the Three Mile Island accident in Pennsylvania. Requirements and recommendations of the Nuclear Regulatory Commission and the Institute of Nuclear Power Opera-tions, an industry organization, also were taken into account.
9
Ground-breaking ceremony was held in April for the Nu-clear Training Center shown under construction at Salem, N.J. At ceremony, Robert I.
Smith, Company chairman; Henry J. Midura, general man-ager - nuclear operations and H. Denis Hanson, manager -
nuclear training displayed drawing of center. Included in center will be simulators to train control room operating personnel of Salem and Hope Creek generating stations.
The headquarters of the new department will be established adja-cent to the site of the Salem and Hope Creek stations and will involve the transfer of personnel from the Newark headquarters. Creation of the department, headed by a vice president and separate from the existing Production Department, more clearly established the respon-sibility for the safe and efficient operation of the Company's nuclear facilities.
H Oil Use Minimized The Company continued in its ef-forts to minimize the use of oil as a fuel for electric generation. A total of 631 million therms of natural gas, equivalent to 10.3 million barrels of oil, was used for production at a cost saving of approximately $116 million.
An additional $1. 54 million was saved through oil purchases made outside of long-term contractual agreements. Further reductions in 10 the use of oil were achieved by in-creased nuclear generation, up 9 per cent in 1981, and lower-cost outside electricity purchases, 32 per cent above 1980's level.
During the year, 7.5 million bar-rels of oil, down 27.7 per cent from 1980, and 2.0 million tons of coal, up 15.4 per cent from 1980, were pur-chased for the New Jersey electric production facilities. Coal use was up despite the 72-day miners' strike which caused curtailment of deliveries.
The average price of low sulfur heavy fuel oil purchased to generate electricity during 1981 was $35.55 per barrel, 18. 5 per cent higher than during 1980. Coal prices for the New Jersey facilities increased 11. 6 per cent above the level of 1980, pri-marily as a result of labor cost increases resulting from the settle-ment of the miners' strike.
Uranium mining operation at Key Lake in Saskatchewan, Canada. During 1981 the Company contracted for ura-nium from this deposit which is of extremely high grade and at shallow depth. About 425,000 pounds of uranium will be received annually.
The Company's electric output by source of energy in 1981 com-pared with 1980 follows:
Source 1981 1980 Coal 27%
29%
Oil 13 18 Natural Gas 17 17 Nuclear 25 22 Purchased and Interchanged 18 14 Total 100%
100%
H Uranium Plentiful During 1981, the uranium market was characterized by some further reductions in price as demand declined. Major U.S. producers curtailed mining and exploration ac-tivities and purchased from stock-piles of users to meet their existing commitments.
The Company executed con-tracts with several major uranium producers which will provide ap-proximately 60 per cent of estimated requirements through the early 1990's. One of these was the first
major contract for uranium from a deposit of high grade ore at a shal-low depth at Key Lake in Saskatche-wan, Canada. Domestic supplies also were obtained to provide diver-sity for assurance of supply As a result of these efforts and related ones for nuclear fuel ser-vices, the Company's fuel supply has been expanded to match the in-creased nuclear production capacity The Company is currently re-ceiving reduced deliveries of Gas Peak Sendout and Daily Capacity at Time of Peak (Millions of Therms) 20 19 18 17 16 15 14 13 12 11 10 9
8 7
6 5
4 3
2 0
Heating 1971 72 73 74 75 76 77 78 79 80 Season 72 73 74 75 76 77 78 79 80 81 High Load Factor Natural Gas
- Winter Storage Natural Gas
- Manufactured Gas 0 24-Hour Peak Sendout uranium under a long-term contract with Kerr-McGee Nuclear Corpora-tion as a result of an amendment to the contract entered into in 1980 be-cause of the availability of uranium concentrates in the open market at lower prices. Under the contract with Kerr-McGee, $40. 5 million had been advanced as of December 31, 1981 to finance mining and milling facilities for this long-term project.
The Company advanced 70 per cent of this amount, and the co-owners of Salem and Hope Creek stations ad-vanced the other 30 per cent.
Of these advances, $14.3 mil-lion, including $4.7 million of interest, has been recovered through credits against the purchase price of uranium concentrates delivered by Kerr-McGee.
Resumption of uranium production under the Kerr-McGee contract after November 1982 will be at the option of the Company Under the contract, recovery of advance payments not already recouped will depend upon the sale of uranium by Electric Peak Load and Installed Capacity at Time of Peak (Millions of Kilowatts) 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0
1972 73 74 75 76 77 78 79 80 81
- Installed Capacity
-0 PeakLoad Kerr-McGee to the Company or other buyers, or Kerr-McGee's sale of the project properties.
II Gas Sendout Higher An improvement in gas supply and additional customer connections helped to increase total sendout for the year to 2.15 billion therms, 3. 3 per cent higher than the 2.08 billion therms in 1980.
An all-time record peak day sendout of 14,812,000 therms was set on January 12, 1981 when the average temperature was 6°F. This surpassed the previous record of 14,444,000 therms set on December 25, 1980, when the average tem-perature was 2° F.
On January 17, 1982 a new sendout record of 16,201,000 therms was set when the average tempera-ture was -4°F.
The number of interruptible customers served increased by 22 to 110, and their peak day consumption rose by 10.7 per cent to l1 million therms. The number of days of inter-ruption increased to 22 from 11 days in 1980 because of extremely cold weather during January 1981 II Improvement in Supply Continues The improved supply situation which followed the passage of the Natural Gas Policy Act of 1978 con-tinued during 1981 The amount of natural gas purchased for distribution to cus-tomers totaled 2.02 billion therms, compared to l 97 billion therms in 1980.
Deliveries of pipeline gas by interstate suppliers were curtailed 0.7 per cent or 17.2 million therms compared with 12 per cent or 29.5 million therms in 1980. The maxi-mum monthly curtailment to the Company was 3 0 per cent, while most of the year full contract amounts were delivered. Curtail-ments have decreased markedly since 1976 when they peaked at
- 30. 7 per cent.
The cost of natural gas in-creased by 19 per cent to $2.95 a million BTU's in 1981 The higher prices were attributable to allowable increases under Federal gas pricing policies as well as increased quanti-ties of higher-cost deregulated gas and Canadian imports.
11
The Iris-Stop, developed in England, was utilized for first time in U.S. to isolate a section of 36-inch gas main during re-location work. Installed under pressure so customer service can be maintained, the me-chanically-operated steel shut-ter expands to block gas flow.
II Daily Capacity Increased The Company's effective daily gas capacity, excluding the effect of cur-tailments, increased by 571,000 therms during 1981. The increase was made possible by the purchase of a firm transportation service for storage gas from Texas Eastern Transmission Corporation The daily capacity of 19,010,000 therms on December 31 was composed of:
Type of Gas Natural Gas Liquefied Petroleum Gas Synthetic Natural Gas Oil Gas Refinery Gas Total 12 Therms per Day 14,463,000 1,981,000 1,125,000 1,186,000 255,000 19,010,000 Offshore drilling operations in the Gulf of Mexico make up a significant part of the explo-ration program of Energy Development Corporation, the Company's exploration subsidiary.
II Supplemental Gas Supplies Natural gas supplies were supple-mented with gas purchased from Exxon's Bayway Refinery as well as with gas manufactured in Company-owned facilities.
Exxon supplied 92.3 million therms of refinery gas at an average cost of $6.04 a million BTU's during the year compared with 84. 3 million therms at an average cost of $5.13 a million BTU's in 1980.
During the coldest parts of the winter, manufactured gas consisting of synthetic natural gas produced from *naphtha, oil gas produced from kerosene and liquefied petroleum gas produced from propane were supplied to Company customers.
The total production of this gas amounted to 29.0 million therms compared with 22. 7 million therms in 1980.
II Subsidiary Scores Gains Energy Development Corporation (EDC), the Company's exploration subsidiary, continued to show sub-stantial gains in natural gas deliv-eries and earnings in 1981. Deliveries of gas totaled 186 million therms during 1981, an increase of 82 per cent over 1980.
The substantial increase in deliveries by EDC in 1981 made the subsidiary the third largest source of gas supply to the Company.
EDC revenues and earnings reached record levels in 1981. Reve-nues from the sale of gas and oil totaled
$75.2 million, compared with $44.1 million in 1980. Net income was
$ 1l 4 million in 1981, an increase of 99 per cent over 1980. The increases for the year were due to greater gas and oil production, up 65 per cent and 43 per cent, respectively, and higher prices for natural gas EDC continued its search for natural gas in the Southwest and the Gulf of Mexico. Exploration activity in 1981 was carried out through five separate programs, four onshore and one offshore.
Onshore operations involved the drilling of 11 successful wells with 14 wells abandoned. At year end five wells were being drilled.
Offshore drilling and leasing activity continued to play the major role in EDC's exploration program During the year 33 wells were suc-cessfully completed, nine were abandoned and four were being drilled at year end.
Two federal lease sales were held for Gulf of Mexico offshore blocks during the year. EDC, as part of a group, bid $33.6 million on 32 blocks and placed high bids on seven blocks totaling $9.6 million.
EDC's interest in these blocks ranges from 15 per cent to 20 per cent. Testing of the new blocks will begin in 1982.
II LNG Applications Conferences were held in December at the Federal Energy Regulatory Commission (FERC) on applications concerning placing in use two lique-fied natural gas tanks and related facilities on Staten Island, New York.
The tanks, owned by Energy Terminal Services Corporation (ETSC), a Company subsidiary, would be used to store domestic natural gas for use by the Company and others during periods of peak demand. Operation of the tanks will require construction of a liquefac-tion unit and other facilities as well as a pipeline under the Arthur Kill to transport gas to and from New Jersey.
The tanks were originally con-structed as a terminal for imported liquefied natural gas (LNG). How-ever, due to uncertainties and delays relating to the project, including the lack of regulatory approvals which resulted in loss of a supply of LNG, the terminal has not been placed in operation. At December 31. 1981. the Company's investment in ETSC amounted to $82.6 million.
The FERC staff in February 1981 issued a draft supplement to its Environmental Impact Statement which said that it had ".... reached the preliminary conclusion that the existing and planned ETSC facilities can be constructed and operated safely."
II Interconnections Strengthened After several years of construction, the Company and Consolidated Edison Company in 1981 were near-ing completion of a comprehensive project to reinforce interconnections between their electric transmission systems.
The project's major features are a second 345,000-volt interconnec-tion between the Waldwick Switch-ing Station in Bergen County and Con Edison's Ramapo Substation in Rockland County, New York, and a second 345,000-volt interconnection beneath the Hudson River linking the Hudson Generating Station in Jersey City and Con Edison's Farra-gut Substation in Brooklyn.
These two new interconnec-tions and associated 230,000-volt reinforcements within the Company system will permit increased inter-change of power between the two companies and facilitate more reliable and economic operation.
A three-leg 340,000-volt cable is fed into pipe for the longest PSE&G cable pull at this volt-age. Cable runs 4,600 feet from manhole to manhole under Jersey City through Conrail tunnel as part of new inter-connection between PSE&G's Hudson Generating Station and Con Edison's Farragut Substation in Brooklyn.
Two other new interconnec-tions were placed in service in 1981.
One, a 500,000-volt circuit, connects with Jersey Central Power & Light Company, and the other, a 230,000-volt connection, ties with Atlantic City Electric Company.
The Company now has 24 inter-connections with other systems.
II New Substations The Company's distribution system was expanded during the year with the installation of two new substa-tions and five new 13,000-volt circuits.
In May a 138,000-volt service was energized for a new treatment plant of the Passaic Valley Sewage Commission in Newark. The facility, which contains numerous large motors to operate compressors and pumps, will reach a total electrical demand of 47,000 kilowatts.
II Capacity Purchased During July negotiations were completed with Allegheny Power Systems (APS) for the purchase of a portion of the capacity and energy from the APS Pleasants Power Station in West Virginia. The agree-ment, effective August 1. will continue until December 31, 1984, and provides for the Company to re-ceive 400 megawatts in 1981. 300 in 1982, and, tentatively, 200 and 100 megawatts in 1983 and 1984, respectively.
Since the Pleasants Power Station is coal-fired, the Company estimates it will be able to save about $120 million over the four-year term of the agreement by displacing higher-cost generation, mainly oil-fired.
The Company also has two-party agreements with other utilities for purchase of power, when it is available, at a lower cost than that available from the Pennsylvania-New Jersey-Maryland Interconnection.
II Gas Lines Expanded In order to meet the needs of new gas customers and those converting to gas heat, 310 miles of new gas mains and service lines were in-stalled during 1981. Although this was less than 1980, it was the sec-ond highest new piping mileage installed since 1969.
13
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Greater Productivity through Co1nputerization
As part of an overall program to in-crease efficiency and productivity, the Company in 1981 significantly expanded the utilization of com-puter systems and services in its operations.
A new computer-based cus-tomer service system was placed in operation during the year. Two computerized customer inquiry and accounting centers were estab-lished, one in the Newark head-quarters for the northern part of the Company's service area and the other in a newly-constructed facility in Bordentown for the southern area.
The centers provide a more efficient and effective means of handling telephone inquiries from customers regarding billing ques-tions, service orders, repair requests or other problems.
Telephone calls from customers are answered 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day at one of the two centers which are equipped with a sophisticated tele-phone traffic management system.
Accounting data and service orders are entered through terminals and transmitted to the computers. Ter-minals at appropriate field locations provide printouts of service orders.
At year end, inquiry and ac-counting functions for nearly half of the Company's customers were being handled by the two centers.
This centralization of service and accounting constitutes a third phase in the modernization of the
Company's customer system.
The first phase was the central-ization of bill payment processing.
The second was the establishment of customer master record data in computers for terminal display when responding to inquiries.
Future phases will involve im-provements to pinpoint areas af-fected during electric outages, the production of customer bills on the computer system, and manpower scheduling.
H System Expanding Computerization of customer ser-vice is only one facet of the applica-tion of computers. Few aspects of the Company's operations do not employ computers in some measure.
More than 1,200 terminals -
video display screens, printers and graphic devices -
are now part of the computer system. By the end of 1982, some 2,000 are expected to be in use.
A computerized stockholder accounting system has expedited processing of the Company's shareholder accounts, and improved the ability to respond to inquiries Corporate models for the next five years -
or the next 30 -
cover-ing financial and other data are available from the computer system as well as current information on such routine items as accounts pay-able or inventories.
- A user information center in the corporate headquarters enables professional employees to have ac-cess to the main computer system.
Over 250 employees currently use the system in carrying out their work for the Company.
Mini-computers are used ex-tensively in word processing, the forerunner of office automation which is expected to lead to in-creased productivity by professional employees and managers.
- Energy Dispatching Computerized Computers also have increased efficiency and productivity at production and distribution facilities.
Advanced computer technol-ogy is employed in a new gas sys-tem operating center which was.
completed and placed in service m 1981 at the Newark headquarters.
The center utilizes the latest micro-processor technology for remote control and data collection at all major metering and regulating stations.
As the second part of the new Corporate Energy Management Center, the gas complex comple-ments the electric system operatmg center which went into service in 1980.
The electric operations center utilizes one of the most sophisti-
cated computer systems for bulk electric dispatching in the nation.
The system is actually three sepa-rate computers, each with a twin that functions as its backup The system provides the opera-tions center staff with the means of readily monitoring and obtaining data from electric facilities through-out the Company territory for display and review on video screens.
Various components of the electric system can be operated remotely.
Staff members are able to con-tinuously analyze the bulk electric system for potential problems and plan corrective actions with the as-sistance of computer-suggested options.
Center support personnel use the computer to perform studies that help economically plan mainte-nance work on the electrical system and simulate situations that might occur if particular events occurred.
- Linked with P JM The center computers exchange data with those of the Pennsylvania-New Jersey-Maryland Interconnection of which PSE&G is a member, ensuring efficient oper-ation with the power grid.
Further improvements in electric dispatching, as well as telemetering, will be realized with the installation of mini-computers at each of the Company's fossil-fueled generating stations. The first unit is
bein.g installed at the Mercer Gener-ating Station and work on the others will follow Communication with the station operator is by a keyboard lmked to a seven-color graphic video monitor.
A computerized experimental Energy Management Standards Pro-gram which proved itself at the Bergen Generating Station will be implemented on the new mini-com-puters. The program improves oper-ating efficiency and reduces fuel costs.
- Graphic Planning System The transmission and distribu-tion department utilizes a Graphic Planning System computer which stores diagrams of electric facilities.
The diagrams can be displayed on video screens with normal and emergency circuit flows or short cir-cuit conditions being simulated and compared with ratings. This enables engineers to run more studies in a shorter time to determine when and where system expansions or rein-forcements are required.
Numerical data can be dis-played automatically as graphs, bar or pie charts at substantial savings over manual drafting methods. The displays can be transformed into a four-color hard copy print in minutes using the system's high-speed plotter.
The combined electric and gas computenzed facilities represent the most modern installations in the utility industry.
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I 1111 Ill I ** I I I I HI 11111 1111 1111 Reorganization of customer and marketing operations, begun in 1980, continued during the year. The reorganization is designed to im-prove efficiency of operations and provide better customer service.
The program includes replace-ment oflarge antiquated commercial offices with smaller modern service facilities. The old offices are being sold and the new quarters leased.
Implementation of a new cus-tomer service system is part of the reorganization. The new centralized inquiry and accounting centers opened in Newark and Bordentown in 1981 are an integral part of the new system.
On completion of the reorgan-ization, three field divisions will oversee nine district offices, 16 cus-tomer service centers and two meter reading offices. The two inquiry and accounting centers and a payment processing center are supervised by a centralized customer services division.
At the close of 1981, the Company was serving 1,693,776 electric customers and 1,309,793 gas customers.
II Conversions to Gas Continue As a result of expanded marketing activities, customer requests for gas heating service were bolstered in the last quarter of 1981 despite a 20 weak economy, high interest rates and stabilized oil prices.
During 1981, the Company con-nected 33,009 new gas heating cus-tomers, of whom 30,216 were residential, 2,501 commercial and 292 industrial. The residential cus-tomers included 24,387 conversions from oil to gas heating, the second highest annual number on record. Of these conversions, 11,164 were in the last three months of 1981 as custom-ers responded to additional sales efforts.
Emphasis on the electric space heating market continued in 1981 as this type of business provides sig-nificant off-peak revenue. A total of 2,327 new electric heating custom-ers were connected. Of these, 1,950 were residential and 377 were indus-trial and commercial. The primary effort in this market was the encour-agement of builders and customers to install electric heat pumps be-cause of their efficient use of energy.
As a result, 1,570 heat pumps were installed during the year.
Sales efforts in the street light-ing and dusk-to-dawn lighting markets also were emphasized in 1981. These installations benefit the Company by increasing the amount of electricity used during off-peak periods. A total of 6,835 high pres-sure sodium and mercury vapor lights were installed in 1981 as the State and municipalities continued to upgrade street lighting. In addi-tion, 4,629 dusk-to-dawn units were installed, bringing the total number to more than 84,000.
The new gas and electric con-nections will provide approximately
$70 million in additional revenues annually.
II Energy Conservation Promoted The marketing services staff and consumer advisers throughout the year promoted conservation of energy. The Company seeks new or additional uses of energy while at the same time attempting to assure that it is used efficiently.
A major consumer-oriented ac-tivity was the Home Energy Savings Program, revised March 1 in accord-ance with requirements of the Na-tional Energy Conservation Policy Act. During the year 3,027 residen-tial audits were performed which provided customers information on how to improve the energy effi-ciency of their homes. A do-it-your-self workbook was sent to 4,629 customers so they could perform their own audits.
Marketing engineers and representatives conducted 994 audits for industrial and commercial customers. A five-session Energy Management Action Course was held for representatives of large industrial and commercial cus-tomers to instruct them in energy A 30-minute film featuring Laurel and Hardy characters was produced by the Company to deliver a conservation message with a comic touch.
The film, which combines humor with important facts about energy conservation in the home, has become a valu-able addition to Company presentations for community and school groups.
management so as to reduce waste and increase efficiencies.
Every opportunity was taken to encourage energy conservation.
Company representatives made numerous appearances on radio and television programs, addressed vari-ous groups and conducted semi-nars. A wide range of exhibits on energy conservation was made available for use in consumer, trade and professional programs.
II Load Management and Conservation Planning The Company has been in the fore-front of the electric utility industry in developing methodologies for plan-ning and assessing customer activities involving load manage-ment and conservation.
Under study are options de-signed to improve overall system efficiency to stabilize costs for the benefit of the Company and its cus-tomers. By influencing customers' use of electricity by means of spe-cialized devices, control equipment or new rates, it is possible to exer-cise beneficial management of elec-tric loads on the system. A program has been developed which could re-sult in an estimated reduction in peak electric capacity requirements of about 1,000 megawatts by 1995.
For several years the Company has had an interruptible service electric rate available for large indus-trial and commercial customers.
Under this rate customers agree to reduce their electric use at times of peak system demand when notified to do so by the Company. This has resulted in nearly 200 megawatts of controllable load.
Load management through rate provisions now includes a new voluntary rate schedule for storage water heating with low off-peak nighttime pricing. In addition, mandatory time-of-use pricing was approved for an additional 900 large industrial and commercial custom-ers and to residential customers using more than 24,000 kilowatt-hours annually.
Studies are being made of the load management potential of de-vices which can store energy at night for space heating or air condi-tioning during the following day.
Equipment for the cycling of cus-tomer appliances such as air conditioners and electric water heaters by remote control also is being investigated.
H Solar Water Heating Program Approved Among the components of the load management program is the Company's plan to offer residential customers an opportunity to pur-chase solar water heating systems.
In September the New Jersey Board of Public Utilities and the State Department of Energy ap-proved a proposal under which customers whose homes meet certain criteria will be able to buy systems installed under Com-pany supervision.
The units will use either elec-tricity or gas for backup service.
Those that use electricity will have available a new lower off-peak solar electric rate.
Approximately 1,000 custom-ers have expressed interest in the units. Installations in the homes which meet criteria for the units are expected in mid-1982.
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In 1981 the Company's research and development program continued to seek solutions for near and long-term energy problems. The program, carried out by PSE&G Research Cor-poration, a subsidiary, includes projects to reduce dependence on conventional fuel sources, to de-velop alternate energy technologies, to conserve energy, and to make innovative use of wasted heat.
The Company's total R&D expenditures in 1981 amounted to
$14.5 million of which $3.7 million was obtained from outside sources.
Actual cost to the Company for internal R&D activities was $4.5 million and support of research per-formed by industry organizations was $6. 3 million.
The Research Advisory Coun-cil, composed of prominent citizens who represent a broad public inter-est in energy matters, continued in 1981 to advise PSE&G Research Corporation. Formed in 1979, the council reviews research and devel-opment programs, including the level of funding, from an economic and social viewpoint. The council also serves as a communications link with the public.
II Testing of Advanced Batteries Set The Battery Energy Storage Test (BEST) facility was dedicated on May 14 as a national center for test-ing large-scale advanced battery systems and power conversion equipment for energy storage.
The project is a cooperative effort of the Company, the U.S. De-partment of Energy (DOE), and the Electric Power Research Institute (EPRI), the research organization of the nation's electric utilities.
The facility was designed and built by the Company to support the national load-leveling battery devel-opment program. At year end the Company signed a modification to an ongoing contract with DOE and EPRI which provides $2.3 million over a period of 18 months for facility operation and installation of the first advanced battery system.
PSE&G Research Corporation will operate the facility, as well as plan and conduct tests for evaluat-ing battery performance Development of such batteries would permit power produced by nuclear and coal generating units during nighttime periods of low de-mand to be stored and used during daytime hours of peak electric load.
This would mean fewer oil-burning generating units would be needed to meet peak electric requirements.
In testing the advanced bat-teries, which will be produced by several manufacturers, alternating current from the Company system will be converted to direct current for storage at the facility. The power will be subsequently discharged from the large battery modules and converted back to alternating cur-rent for transmission by the Company system.
During initial operation of the facility a large 1.8 megawatthour lead-acid battery was used to train the operating staff and gain experi-ence in the use of batteries as load-21
The Battery Energy Storage Test (BEST) facility, dedicated in 1981, will be a national cen-ter for testing advanced bat-teries as electric load-leveling devices. Initial operation of the facility is providing training and experience for the staff.
The project is a joint effort of the Company, the U.S. Depart-ment of Energy and the Elec-tric Power Research Institute.
leveling devices. The first advanced battery set for testing is a zinc-chlo-ride system scheduled during 1983 H Fish Farming An aquaculture project at the Mer-cer Generating $tation continued during the year to explore the possi-bility of raising fish in commercial quantities in pools utilizing waste heat in water discharged from the plant The pools at the station were stocked in November with 200,000 seven-inch trout reared at the Lime-stone Springs Fishing Preserve in Pennsylvania, which the Company began operating in 1980. Approxi-mately 800,000 rainbow trout were hatched and reared at Limestone Springs.
In 1982 fish production at Mercer is expected to amount to over 270,000 pounds and at Lime-stone Springs, about 560,000 pounds.
22 II Landfill Gas Heating Greenhouse Studies were begun in 1981 on the use of methane gas from landfills for heating greenhouses. The gas is being tested as a fuel for two 75,000-Btu-an-hour space heaters. The heaters and related equipment are in a 24-by-40-foot plastic-covered greenhouse where they are being tested for combustion performance, corrosion and efficiency.
Data obtained will enable the Company to evaluate the commer-cial possibilities and future uses of landfill gas The experimental greenhouse uses gas from a landfill in Cinnamin-son, N.J. Since 1979 the Company has been obtaining methane from this landfill and selling it to a large industrial customer adjacent to the site. Other sites also are being evaluated for their potential of sup-plying methane for commercial use.
H Electric Vehicle Tested Initial trial and evaluation of a Lec-tric Leopard passenger electric vehicle was completed The vehicle was driven 1,600 miles under a vari-ety of road, weather and traffic conditions on public roads and high-ways. The maximum range was found to be 40 miles and the top speed 50 miles an hour The second phase of evalua-tion will be a three-month trial under commuter conditions. The auto is the latest of a number of vehicles that have been tested Improvement in range, cost performance and de-sign have been found to be essential before these vehicles will be ac-cepted by the public as a viable mode of transportation.
H Biofouling Control Studied A major problem in power plant condenser operation is biofouling -
the deposit of organic material on cooling-system surfaces. Chlorine is widely used as a means of biofouling control to achieve improved plant efficiency.
While laboratory studies have demonstrated the ability of ozone to prevent biofouling on heat ex-changer surfaces, practical ap-plications made more detailed infor-mation necessary. A current Company research project uses a mobile test facility with three pilot-scale condensers to simulate actual once-through water cooling operations.
Testing showed that ozone was effective while at the same time less offensive to the environment than chlorine at the Bergen Generating Station. The testing facility has been improved and moved to Mercer Generating Station. Testing there will be expanded to study the effec-tiveness of low chlorine dosage levels and dechlorinization required to meet stringent water quality standards.
H Laboratory Work Expands PSE&G's Research and Testing Laboratory continued in 1981 to pro-vide testing and analysis programs for the Company. The laboratory, part of PSE&G Research Corpora-tion, also experienced increased demand for its commercial services.
Utilizing its experience and technical resources, the Laboratory met specialized testing needs of out-side clients, including utilities, industries, hospitals and other institutions.
The Laboratory assisted in the work of getting Salem No. 2 on line by carrying out numerous tests dur-ing the unit's startup, evaluating the chemical, mechanical and electrical characteristics of the items tested.
The Laboratory's radiological moni-toring program in the area of the Salem station was expanded to in-clude emergency response activities for the State of Delaware as well as of PSE&G.
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1111 Ill Ill Construction of new office facilities and relocations were at a high level in 1981, particularly in the northern portion of the Company's service area, spurred by higher costs in New York City There also was a notable increase in office relocations in the southern section from the Philadel-phia area.
Although higher interest rates and the economic slowdown re-duced industrial expansion, there were some manufacturing gains, particularly in the pharmaceutical field and container manufacturing.
The Company's territory con-tinued to attract foreign firms.
Among countries represented were Japan, West Germany, Republic of China, the United Kingdom and France.
During the year 209 major industrial and commercial firms, employing approximately 15,370 persons, relocated or expanded in the Company's area. A total of 47 companies, employing 4,860, moved or closed operations, leaving a net gain of approximately 10,510 jobs.
Company area development representatives provided assistance to firms in obtaining locations or planning expansions.
Development was promoted in an advertising program which in-cluded several television commer-cials. The program emphasized the advantages of the Company's ser-vice area for the location of corpo-rate offices and as a good place for employees to live.
Completion and opening in 1981 of the 20,000-seat indoor arena of the New Jersey Sports and Exposition Authority in the meadow lands in East Rutherford provided another at-traction for the public. The arena, home of the New Jersey Nets of the National Basketball Association, complements Giants Stadium and the Meadowlands Racetrack. Other sports events, as well as concerts, conventions and exposi-tions, are held at the arena. Development of the complex has served as a catalyst in the commercial and residential growth of the meadowlands area that has meant millions of dollars in additional revenues for the Company.
The Hackensack Meadow-lands Development Commission ap-proved plans for the $1 billion Berry's Creek Center to be located south of Route 3 in East Rutherford. The pro-posed center will include a shopping mall, several large office buildings, 4,000 housing units and a hotel.
Another major developer, Hartz Mountain Industries, broke ground for a $1 billion commercial develop-ment to be called Harmon Meadow, off Route 3 in Secaucus. The project will include as many as nine office buildings, a retail center, and an eight-story, 156-room hotel. In addi-tion, 4,000 residential units will be built in an area designated as Harmon Meadow Village.
The 20,000-seat arena of the New Jersey Sports and Exposition Authority was opened during the year in the complex that includes Giants Stadium and the Meadow-lands Race Track Redevelopment efforts in Newark and New Brunswick also made substantial progress.
Renaissance Newark, Inc., a non-profit group formed by govern-ment and business leaders, served as catalyst in moves to revive the city's downtown area.
Construction was begun on a
$33 million, 18-story office building to be known as One Washington Park in which New Jersey Bell Telephone Company will be the major tenant. Prudential Insurance Company announced plans for a third office building in the Gateway complex, and Mutual Benefit Life In-surance Company revealed plans for a $30 million, 12-story building to adjoin its present headquarters.
In New Brunswick, Johnson &
Johnson's new $73 million corporate headquarters and a $20 million hotel neared completion in the downtown area.
23
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I Ill II Community Involvement I.. *.
As in the past, various departments as well as individual employees par-ticipated during 1981 in community activities throughout the Company's service area. Employees served in voluntary positions in many civic, cultural, charitable and educational organizations.
The Company maintained its commitment to agencies that seek to improve the social, economic educational and living conditions in the communities and urban areas it serves.
Urban activities were focused on strengthening ties with organiza-tions working on inner-city prob-lems. Particular emphasis was placed on increasing educational and job opportunities for urban youth.
Company officials filled key roles in Renaissance Newark as it sought to revitalize the city's com-mercial district.
II Communications Emphasized A broad-range communications pro-gram was conducted that provided information about the Company and its activities to the public, stockholders and the financial com-munity. Information was supplied to the media on a regular basis.
24 A new employee information program will provide monthly videotapes that will be shown on television sets installed at various locations throughout the Company. Employees will have an opportunity to view the tapes in small groups. A meeting of the Communica-tions Coordinating Committee is shown being videotaped.
More than 300 presentations attended by over 17,000 persons were given by the Company's Speakers' Bureau. Generating sta-tion tours were held for over 3,900 persons.
Over 19,000 persons visited the Second Sun, the Company's energy information center at the Salem Generating Station.
There were presentations on a wide variety of timely energy-related topics and other subjects of com-munity interest to civic, social and school groups totaling more than 198,000 persons. A wide variety of audiences were reached through film, slide and lecture programs.
Community concerns of many types were reviewed and assistance pro-vided where appropriate.
Company representatives appeared on numerous television and radio interview programs.
Company advertising empha-sized the need for conservation and nuclear power, and sought to en-courage business and industry to lo-cate in the Company's service area.
II Employee Relations A pilot study in which employees participated was carried out during the year to help solve problems shown in the 1980 employee attitude survey. The program proved effec-tive and was expanded in the Fall to include representatives of employ-ees throughout the Company.
At the end of the year.about 1,000 employees serving in more than 100 Local Action Groups were attempting to solve problems at all levels to make the Company a better place in which to work A management succession planning program was instituted on a Company-wide basis to insure that qualified replacements are available for key employees. Personnel devel-opment activities, including on-going training sessions for all mana-gerial levels, were expanded.
During the year 561 manage-ment employees attended supervi-sory and managerial skills training programs In addition, 553 em-ployees attended job-related college courses under the Company's tuition-aid plan.
The number of Company em-ployees at the end of 1981 was 12,782 compared with 12,326 at the close of 1980. Wages and salaries for the year totaled $341 million, includ-ing $10 million for disability benefits and workers compensation.
Affirmative Action Programs continued to be emphasized in the employment of women and mem-bers of minority groups. At the end of 1981 there were 1,924 female em-ployees and 1,859 minority group employees.
The Company participated as a corporate partner of the U. S Council for the International Year of Disabled Persons.
Financi~l Statement Responsibility The management of PSE&G is responsible for the integrity and objectivity of the financial statements of the Com-pany. These statements are prepared by the Company in accordance with generally accepted accounting principles applied on a consistent basis and include the use of informed estimates where appropriate. Manage-ment believes that they present fairly the Company's financial condition. Information in other parts of this Annual Report is consistent with these financial statements.
The Company maintains an accounting system estab-lished with sound accounting and business policies which are communicated to the appropriate personnel.
The system is designed to provide reasonable assurance that transactions are executed in accordance with man-agement's authorizations and that assets are safe-guarded. The concept of reasonable assurance recognizes that the costs of internal controls should not exceed the related benefits. The system, together with its related internal controls, is continually reviewed by the Com-pany's staff of internal auditors.
Summary of Significant Accounting Policies Accounting Principles Financial statements are presented in accordance with generally accepted accounting principles (GAAP). As a result of accounting requirements imposed under rate-making decisions by the Board of Public Utilities of the State of New Jersey (BPU), the applications of GAAP by the Company differ in certain respects from applica-tions by non-regulated businesses. The Company is under the jurisdiction of the Federal Energy Regulatory Commission (FERC) and the BPU and maintains its ac-counts in accordance with their prescribed Uniform Systems of Accounts, which are the same.
Investments in Subsidiaries The Company's investments in its subsidiaries, which in the aggregate are not significant as defined by the Sec-urities and Exchange Commission, are reported in the accompanying financial statements on the equity method of accounting. Under this method, investments in sub-sidiaries are reported under Other Property and Invest-ments in the Balance Sheets, and earnings or losses of such subsidiaries are reported under Other Income in the Statements of Income.
Revenues Revenues are recorded based on estimated service ren-dered, but are billed to customers through monthly cycle billings on the basis of actual usage.
Management believes the effectiveness of this system is enhanced by a program of continuous and selective training of employees. In addition, management has communicated to all employees its Policies on Business Conduct, Company Assets and Internal Control.
The firm ofDeloitte Haskins & Sells, *independent certi-fied public accountants, is engaged to examine the Company's financial statements and issue an opinion thereon. Their examination is conducted in accordance with generally accepted auditing standards and includes a review of internal controls and tests of transactions.
The Board of Dire.ctors carries out its responsibility of financial disclosure through the Audit Committee cur-rently consisting of five directors who are not employees of the Company. The Audit Committee meets periodically with management as well as representatives of the inter-nal auditors and independent certified public account-ants and reviews the work of each to ensure that their respective responsibilities are being carried out, and to discuss related matters. Both groups have full and free access to the Audit Committee.
Amortization of Deferred Items Deferred debits are amortized and recovered through rates as prescribed by the BPU. Prior to 1981, portions of such amounts estimated to be recoverable within one year, together with related taxes, were classified as cur-rent items in the balance sheets. All financial statements presented herein reflect appropriate reclassifications to conform with the current presentation.
Fuel Costs The Company projects the costs of fuel for electric genera-tion, purchased and interchanged power, gas purchased and materials for gas produced for twelve-month periods.
Adjustment clauses in the Company's rate structure allow the recovery of the excess of such projected costs over those included in the Company's base rates through level-ized monthly charges over the period of projection. Any under or overrecoveries are deferred and charged to operations in the period in which they are recovered. Prior to 1981, such under or overrecoveries were classified as current items in the balance sheets. All financial state-ments presented herein reflect appropriate reclassifica-tions to conform with the current presentation.
In addition, the BPU has allowed the Company to amor-tize and recover through base rates the balance of electric energy costs which had not been recovered prior to July 1, 1977. The Commission has also authorized the recovery through the levelized electric energy adjustment clause of underrecovered costs from the 1979-1980 levelized period over a period ending June 30, 1982.
25
Utility Plant and Related Depreciation and Amortization The cost of replacements of units of property is charged to utility plant. The cost of maintenance, repairs and re-placements of minor items of property is charged to appropriate expense accounts. At the time depreciable properties are retired or otherwise disposed of, the origi-nal cost less net salvage value is charged to the appropriate provision for accumulated depreciation.
Depreciation and Amortization, for financial reporting purposes, are computed under the straight-line method.
Depreciation is based on estimated average remaining lives of the several classes of depreciable property. Amor-tization of leasehold improvements is based on the term of the lease. Depreciation applicable to nuclear plant pro-vides for estimated costs of dismantling or decommis-sioning. These estimates are reviewed continuously and necessary adjustments are made as approved by the BPU.
Depreciation provisions stated in percentages of original cost of depreciable property are 3.49% for 1981and3.48%
for 1980 and 1979.
Amortization of Nuclear Fuel Nuclear energy burn up costs are charged to fuel expense on the basis of the number of units of thermal energy pro-duced as they relate to total thermal units expected to be produced over the life of the fuel. The rate calculated for fuel used at the Company's Salem Unit No. 1 includes a provision for estimated spent fuel disposal costs. The rates for fuel used at Salem Unit No. 2 and the Peach Bot-tom units do not include such a provision. By rate order effective February 14, 1982 such disposal costs related to these units will be recovered through the levelized energy adjustment clause.
Income Taxes The Company and its subsidiaries file a consolidated Federal income tax return and income taxes are allocated, for reporting purposes, to the Company and its subsidi-aries based on taxable income or loss of each.
26 Deferred income taxes are provided for differences be-tween book and taxable income to the extent permitted for rate-making purposes.
Investment tax credits are deferred and amortized over the useful life of the related property including nuclear fuel.
For rate-making and financial reporting purposes the Company's tax normalization practices are in compliance with the requirements of the Economic Recovery Tax Act of 1981.
Allowance for Funds Used During Construction Allowance for funds used during construction (AFDC) is a cost accounting procedure whereby the cost of financing construction (interest and equity costs) is transferred from the income statement to construction work in progress (CWIP) in the balance sheet. This results in treating such cost in the same manner as construction labor and ma-terial costs. The rate used for calculating AFDC was 8%
for 1981, 1980 and 1979 which was within the limits set by the FERG. Effective February 14, 1982, the BPU has is-sued a new rate order which requires the Company to raise the rate used for calculating AFDC to 8Yz %, also within the limits set by FERG.
As a result of BPU rate orders the Company is allowed to include $250,000,000 of CWIP in rate base on which a cur-rent return is permitted to be recovered through operating revenues. Therefore no AFDC has been accrued on that amount for the years shown. In addition, by order effec-tive February 14, 1982, the BPU is allowing the Company to include in rate base an additional $125,000,000 of CWIP raising the total amount to $375,000,000.
Pension Plan Pension costs are determined on the basis of an accept-able actuarial method and are charged to operating ex-penses, utility plant and other accounts. The Company's policy is to fund pension costs accrued. Prior service costs are being funded over a period of 35 years which began January 1, 1967.
Statements of Income For the Years Ended December 31, Operating Revenues Electric Gas Total Operating Revenues Operating Expenses Operation Fuel for Electric Generation and Interchanged Power - net Gas Purchased and Materials for Gas Produced Other Maintenance Depreciation and Amortization Amortization of Property Losses (note 5)
Taxes Other than Federal Income Taxes Federal Income Taxes (note 1)
Total Operating Expenses Operating Income Other Income Allowance for Funds Used During Construction -
Equity Earnings of Subsidiaries -
net (note 2)
Miscellaneous -
net Total Other Income Income Before Interest Charges Interest Charges Long-Term Debt Short-Term Debt Other Allowance for Funds Used During Construction - Debt Net Interest Charges Income Before Extraordinary Items Extraordinary Items. net of income tax:
Unrecoverable costs of Atlantic Project (note 5)
Gain on sale of Transport of New Jersey (note 3)
Net Extraordinary Items Net Income Dividends on Cumulative Preferred Stock and
$1.40 Dividend Preference Common Stock Earnings Available for Common Stock Shares of Common Stock Outstanding End of Year Average for Year Earnings per average share of Common Stock before Extraordinary Items Extraordinary Items, net of income tax:
Unrecoverable costs of Atlantic Project (note 5)
Gain on sale of Transport of New Jersey (note 3)
Net Extraordinary Items Earnings per average share of Common Stock Dividends paid per share of Common Stock See Summary of Significant Accounting Policies and Notes to Financial Statements.
1981
$2,322,042 1,149,610 3,471,652 1,059,539 692,319 385,149 192,768 178,532 15,362 474,979 118,737 3,117,385 354,267 51,877 9,490 6,290 67,657 421,924 184, 133 16,574 882 (43,802) 157,787 264,137 264, 137 51,538
$ 212,599 86,089,491 80,962,344
$ 2.63
$ 2.63
$ 2.44 1980 (Thousands of Dollars)
$2,083,900 910,154 2,994,054 866,802 513,988 322,220 169,813 169,987 11,024 431,890 131,178 2,616,902 377,152 45,655 4,831 5,428 55,914 433,066 173,199 11,236 5,127 (31,897) 157,665 275,401 (13,219) 19,535 6,316 281,717 46,341
$ 235,376 76,614,995 73,068,848
$ 3.13
(.18)
.27
.09
$ 3.22
$ 2.29 1979
$1,689,857 726,850 2,416,707 620,546 384,759 287,086 149,027 162,989 303 364,411 123,965 2,093,086 323,621 36,887 1,721 4,542 43,150 366,771 146,673 2,448 4,027 (19,706) 133,442 233,329 233,329 46,799
$ 186,530 68,914,349 65,409,325
$ 2.85
$ 2.85
$ 2.20 27
Balance Sheets December 31, Assets Utility Plant - original cost Electric Plant Gas Plant Common Plant Nuclear Fuel Utility Plant in Service Less Accumulated Depreciation and Amortization Net Utility Plant in Service Construction Work in Progress Plant Held for Future Use Net Utility Plant Other Property and Investments Nonutility Property, net of accumulated depreciation -
1981, $204; 1980, $199 Investments in and Advances to Subsidiaries (note 2)
Total Other Property and Investments Current Assets Cash (note 4)
Working Funds Accounts Receivable, net of allowance for doubtful accounts -
1981, $12,563; 1980, $10,678 Unbilled Revenues Fuel, at average cost Materials and Supplies, at average cost Prepayments Total Current Assets Deferred Debits (note 5) :
Extraordinary Property Losses:
Hope Creek Unit 2 Atlantic Project Other Gross Receipts Tax Deferred Electric Energy and Gas Fuel Costs - net Unamortized Debt Expense Total Deferred Debits Total Certain reclassifications have been made of previously reported 1980 amounts in order to conform to current classifications.
See Summary of Significant Accounting Policies and Notes to Financial Statements.
28 1981 1980 (Thousands of Dollars)
$4,459,245
$4,042,035 1,020,236 963,876 126,561 101,111 55,445 26,473 5,661,487 5, 133,495 1,874,668 1,703,956 3,786,819 3,429,539 1,637,277 1,720,912 21,997 26,798 5,446,093 5,177,249 8,408 261,010 269,418 5,595 10,665 377,924 176,948 218,223 40,071 8,646 838,072 290,750 275,472 3,632 31,867 98,146 23,639 723,506
$7,277,089 8,245 220,494 228,739 3,751 9,377 351,995 163,346 183,059 30,424 6,704 748,656 290,532 3,934 48,915 202,345 24,490 570,216
$6,724,860
Liabilities Capitalization Common Equity:
Common Stock (see statements, page 32)
Premium on Capital Stock Paid-In Capital Retained Earnings (see statements, page 31)
Total Common Equity Preferred Stock without mandatory redemption (see statements, page 32)
Preferred Stock with mandatory redemption (see statements, page 32)
Long-Term Debt (see statements, page 33)
Total Capitalization Current Liabilities Long-Term Debt due within one year Preferred Stock to be redeemed within one year Commercial Paper (note 6)
Accounts Payable Taxes Accrued, including New Jersey gross receipts tax -
1981, $475,856; 1980, $399,996 Deferred Income Taxes -
Unbilled Revenues (note 1)
Interest Accrued Gas Purchased Other Total Current Liabilities Deferred Credits Accumulated Deferred Income Taxes (note 1):
Deferred Electric Energy and Gas Fuel Costs - net Extraordinary Property Losses:
Hope Creek Unit 2 Atlantic Project Depreciation and Amortization Other Accumulated Deferred Investment Tax Credits (note 1)
Other Total Deferred Credits Commitments and Contingent Liabilities (note 8)
Total 1981 1980 (Thousands of Dollars)
$1,423,739
$1,252, 103 557 557 26,143 26,093 827,497 813, 181 2,277,936 2,091,934 554,994 554,994 77,913 29,750 2,410,823 2,319,346 5,321,666 4,996,024 2,230 33,065 930 207,551 180,865 262,734 205,896 492,010 436,150 81,396 75,139 47,750 45,956 83,641 74,879 45,111 44,294 1,222,423 1,097,174
('
45,619 93,807 126,327 115,896 122,232 312,595 274,879 11,577 16,217 113,890 108,889 7,096 15,638 733,000 631,662
$7,277,089
$6,724,860 29
Statements of Changes in Financial Position For the Years Ended December 31, 1981 1980 1979 Sources of Funds (Thousands of Dollars)
Income before Extraordinary Items
$264,137
$275,401
$233,329 Add (Deduct) Items not affecting Working Capital:
Depreciation and Amortization of Utility Plant 199,021 181,847 169,927 Amortization of Atlantic Project Abandonment 15,060 10,753 Amortization of Gross Receipts Taxes 17,048 14,747 11,872 Recovery (Deferral) of Electric Energy and Gas Fuel Costs -
net 104,199 (28,068)
(123,626)
Provision for Deferred Income Taxes - Hope Creek Unit 2 (note 1) 126,327 Provision for Deferred Income Taxes - Other - net (note 1)
(21,448) 43,937 101,362 Investment Tax Credits - net 4,998 5,844 10,419 Allowance for Funds Used During Construction (AFDC)
(95,679)
(77,552)
(56,593)
Equity in Net Earnings of Subsidiaries (9,490)
(8,610)
(3,002)
Other (1,117) 444 147 Total Funds from Operations 603,056 418,743 343,835 Income from Extraordinary Items - net (notes 3 and 5) 6,316 Related Items not affecting Working Capital:
Sale of Transport of New Jersey (note 3) 18, 155 Unrecoverable Costs of Atlantic Project (note 5) 13,219 Total Funds from Extraordinary Items 37,690 Total Funds from Internal Sources 603,056 456,433 343,835 Net proceeds from sales of:
Long-Term Debt 99,320 99,042 268,073 Preferred Stock 49,456 Common Stock 171,420 144,839 92,459 Total Security Sales 320,196 243,881 360,532 Total Funds Provided
$923,252
$700,314
$704,367 Applications of Funds Additions to Utility Plant, excluding AFDC
$588,170
$547,978
$481,542 Cash Dividends 249,061 215, 158 190,981 Advances to Subsidiaries 31,026 45,154 28,743 Reductions of Long-Term Debt 5,572 34,345 28,342 Hope Creek Unit 2 Abandonment (note 5):
Total Construction Costs, including AFDC of$33,000 (223,000)
Recoverable Costs, including deferred cancellation costs 290,750 Miscellaneous 17,506 (6,011) 10,365 Total Funds Applied 959,085 836,624 739,973 Changes in Working Capital -
Increase (Decrease):
Short-Term Debt (26,686)
(85,990)
(94,875)
Long-Term Debt due within one year 30,835 (8,866) 32,888 Accounts Receivable 25,929 118,811 19,727 Unbilled Revenues 13,602 49,469 (4,728)
Fuel 35,164 7,363 41,025 Accounts Payable (56,838)
(84,580) 10,281 Taxes Accrued (55,860)
(73,500)
(28,927)
Deferred Income Taxes (note 1)
(6,257)
(22,756) 2,175 Gas Purchased (8,762)
(25,934)
(9,562)
Other 13,040 (10,327)
(3,610)
Net Decrease in Working Capital (35,833)
(136,310)
(35,606)
Total Funds Applied and Changes in Working Capital
$923,252
$700,314
$704,367 Certain reclassifications have been made of previously reported 1979 and 1980 amounts in order to conform to current classifications.
See Summary of Significant Accounting Policies and Notes to Financial Statements.
30
Statements of Retained Earnings For the Years Ended December 31, Balance January 1 Add Net Income Total Deduct Cash Dividends Preferred Stock, at required rates
$1. 40 Dividend Preference Common Stock Common Stock*
Total Cash Dividends Capital Stock Expenses Total Deductions Balance December 31 1981
$ 813, 181 264,137 1,077,318 49,657 1,881 197,523 249,061 760 249,821
$ 827,497 1980 1979 (Thousands of Dollars)
$ 747,076
$704,909 281,717 233,329 1,028,793 938,238 44,414 44,954 1,881 1,881 168,863 144, 146 215, 158 190,981 454 181 215,612 191,162
$ 813,181
$747,076
- Restrictions on the payment of dividends are contained in the Charter, certain of the supplemental indentures to the Company's Mortgage, and certain debenture bond indentures. However, none of these restrictions presently limits the payment of dividends out of current earnings. The amount of retained earnings free of these restrictions at December 31, 1981 was $817,497,000.
See Summary of Significant Accounting Policies and Notes to Financial Statements.
Independent Accountants' Opinion Deloitte Haskins Sells Certified Public Accountants 550 Broad Street Newark, New Jersey 07102 To the Stockholders and Board of Directors of Public Service Electric and Gas Company:
We have examined the balance sheets and state-ments of capital stock and long-term debt of Public Service Electric and Gas Company as of December 31, 1981 and 1980 and the related statements of in-come, retained earnings, and changes in financial position for each of the three years in the period ended December 31, 1981. Our examinations were made in accordance with generally accepted audit-ing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, such financial statements, appearing on pages 25 to 39, inclusive, present fairly the financial position of Public Service Electric and Gas Company as of December 31, 1981 and 1980 and the results of its operations and the changes in its financial position for each of the three years in the period ended December 31, 1981, in conformity with generally accepted accounting principles applied on a consistent basis.
March 4, 1982 31
Statements of Capital Stock Current Certain Outstanding Redemption Refundings Shares Price Restricted December 31, (note A)
Per Share Prior to 1981 1980 Nonparticipating Cumulative Preferred Stock (note B)
(Thousands of Dollars)
With Mandatory Redemption (note C)
$100 par value -
Series :
12.25%
279, 128
$112.00 2/ 1/ 85
$ 27,913
$ 30,680 13.44% (500,000 shares issued in 1981) 500,000 113.44 4/ 1/ 86 50,000 Less amount to be redeemed within one year 930 Preferred Stock with Mandatory Redemption
$ 77,913
$ 29,750 Without Mandatory Redemption (note D)
$25 par value-Series:
9.75%
1,600,000
$ 26.50
$ 40,000
$ 40,000 8.70%
2,000,000 26.50 50,000 50,000
$100 par value-Series:
408%
250,000 103.00 25,000 25,000 4.18%
249,942 103.00 24,994 24,994 4.30%
250,000 102.75 25,000 25,000 505%
250,000 103.00 25,000 25,000 5.28%
250,000 103.00 25,000 25,000 6.80%
250,000 102.00 25,000 25,000 9.62%
350,000 107.00 35,000 35,000 7.40%
500,000 103.00 50,000 50,000 7.52%
500,000 106.00 50,000 50,000 8.08%
150,000 106.00 15,000 15,000 7.80%
750,000 106.00 75,000 75,000 7.70%
600,000 106.56 60,000 60,000 8.16%
300,000 108.90 10/ 1/ 82 30,000 30,000 Preferred Stock without Mandatory Redemption (no changes in 1980 and 1979)
$554,994
$554,994 Dividend Preference Common Stock and Common Stock
$140 Dividend Preference Common Stock (no par) -
1,343,999 shares authorized, issued and outstanding; current redemption price $35.00 per share (note E)
Common Stock (no par) -
authorized 100,000,000 shares (note F) ; issued and outstanding as of December 31, 1981, 86,089,491 shares and as of December 31, 1980, 76,614,995 shares (9,474,496 shares issued for $171,636 in 1981 ; 7,700,646 shares issued for $145,279 in 1980; and 4,793,916 shares issued for $92,640 in 1979)
$1,423,739
$1,252,103 Notes :
A In addition, there are 2,070,930 shares of$100 par value and 6,400,000 shares of $25 par value Cumulative Preferred Stock which are authorized and unissued, and which upon issuance may or may not provide for mandatory annual sinking fund re-demption provisions.
B. As of December 31, 1981 the annual dividend requirement and embedded dividend costs were $10,139,000 and 13.27%, re-spectively, for Preferred Stock with mandatory redemption and
$40,629,000 and 7.38%, respectively, for Preferred Stock without mandatory redemption If dividends upon any shares of such stock are in arrears to an amount equal to the annual dividend thereon, voting rights for the election of a majority of the Board of Directors become opera-tive and continue until all accumulated and unpaid dividends thereon have been paid, whereupon all such voting rights cease, subject to being again revived from time to time.
C. The 12.25% series is sub1ect to a mandatory annual sinking fund redemption of 17,500 shares which is cumulative, plus re-demption of up to an additional 17,500 shares at the opt10n of the Company, all at a redemption price of $100 per share. An aggre-gate of 27,672 shares and 43,200 shares of the 12.25% series were purchased and redeemed in 1981 and 1980, respectively. On March 31, 1987, the 13.44% series will become subject to a 32 mandatory annual sinking fund redemption of 25,000 shares which is cumulative, plus redemption of up to an additional 25,000 shares at the option of the Company, all at a redemption price of $100 per share. Both series are subject to optional re-demption upon payment of the applicable optional redemption price A redemption of shares of either series also requires pay-ment of all accumulated and unpaid dividends to the date fixed for redemption.
D. Preferred Stock without mandatory redemption is subject to redemption solely at the option of the Company upon payment of the applicable redemption price plus accumulated and unpaid dividends to the date fixed for redemption.
E. Each share of $1. 40 Dividend Preference Common Stock is entitled to cumulative dividends, to two votes, and, on liquida-tion or dissolution to twice as much as each share of Common Stock. There were no changes in outstanding shares in 1981, 1980 or 1979.
F. Includes 7,528,567 shares of Common Stock reserved for possible issuance under the Company's Dividend Reinvestment and Stock Purchase Plan, Tax Reduction Act Employee Stock Ownership Plan, Employee Stock Purchase Plan and Thrift Plan.
See Summary of Significant A ccounting Policies and Notes to Financial Statements.
St~tem~nts of Long-Term Debt December 31, First and Refunding Mortgage Bonds (note A)
Series:
3% % October 1, 1983 3% % May 1, 1984 43/s% November 1, 1986 47/s % September 1, 1987 4%% August 1. 1988 51/s % June 1, 1989 43/4 % September 1, 1990 43/s% August 1. 1992 43/s % June 1. 1993 45/s % September 1, 1994 43/4 % September 1, 1995 6% % June 1, 1997 7
% June 1, 1998 75/s % April 1. 1999 91/s % March 1, 2000 83/s % A May 15, 2001 75/s % B November 15, 2001 71/2 % C April 1, 2002 81/2 % D March 1, 2004 12
% E October 1, 2004 8% % F April 1, 2006 8.45% G September 1, 2006 8% % H June 1, 2007 81/s % I September 1. 2007 93/s % J November 1. 2008 9% % K July 1. 2009 12
% L November 1, 2009 121/s % M June 1. 2010 157/s % N August 1, 1991 8
% June 1, 2037 5
% July 1. 2037 Pollution Control Series:
6.30% A October 1, 2006 6.90% B September 1, 2009 6.90% C September 1, 2009 Total First and Refunding Mortgage Bonds Notes:
1981 1980 (Thousands of Dollars) 21,304 50,000 50,000 60,000 60,000 50,000 50,000 40,000 40,000 60,000 60,000 75,000 75,000 75,000 98,000 69,300 80,000 125,000 90,000 10,730 60,000 60,000 125,000 59,900 100,000 100,000 125,000 100,000 100,000 7,463 7,538 14,300 42,620 2,990
$2,144,145 21,556 50,000 50,000 60,000 60,000 50,000 50,000 40,000 40,000 60,000 60,000 75,000 75,000 75,000 98,000 69,300 80,000 125,000 90,000 10,730 60,000 60.000 125,000 59,900 100,000 100,000 125.000 100,000 7,463 7,538 14,300 42,620 2,990
$2,044.397 A The Company's Mortgage, securing the First and Refunding Mortgage Bonds, constitutes a direct first mortgage lien on substantially all property and franchises.
B. As of December 31, 1981 the annual interest requirement on Long-Term Debt was $191.902,000 of which $171,729,000 was the requirement for First and Refunding Mortgage Bonds. The embedded interest cost on Long-Term Debt was 8.08%.
C. As of December 31. 1981, the Company had unexercised commitments under a Credit Agreement with a group of banks for issuance of up to an aggregate amount of$125.000,000 to be outstanding at any time to April 1, 1982. The Company is re-1981 1980 Debenture Bonds unsecured (Thousands of Dollars) 43/4 % October 1, 1981 31,000 4% % October 1, 1983 24,832 25,742 53/4 % June 1, 1991 40,557 41,904 7% % December 1, 1993 29,329 30,140 9
% November 1, 1995 56,145 57,154 73/ 4 % August 15, 1996 59,040 60,046 8%% November 1, 1996 43,059 45,103 6
% July 1, 1998 18,195 18, 195 Total Debenture Bonds 271,157 309,284 Other Long-Term Debt 61/2 % Note due serially to November 15, 1983 1,200 1,680 Total Long-Term Debt Principal amount out-standing (notes B and C) 2,416,502 2,355,361 Less amount due within one year (note D) 2,230 33,065 Long-Term Debt excluding amount due within one year (note D) 2,414,272 2,322,296 Net Unamortized Discount (3,449)
{2,950)
Long-Term Debt less Net Unamortized Discount
$2,410,823
$2,319,346 quired to pay commitment fees of 112 of 1 % per annum on any unused portion. The Company may at any time terminate the commitments, in whole or in part, without penalty or premium.
The banks also agreed to make term loans, at the Company's option, on or about April 1, 1982 up to the commitment then in effect, which term loans would be due April 1. 1985.
D. The aggregate principal amounts of requirements for sinking funds and maturities for each of the five years following Decem-ber 31, 1981 is as follows:
Sinking Year Funds Maturities Total (Thousands of Dollars) 1982
$ 1,750 480 2,230 1983 5,816 46,820 52,636 1984 6,200 50,000 56,200 1985 6,200 6,200 1986 6,200 50,000 56.200
$26,166
$147,300
$173,466 For sinking fund purposes, certain First and Refunding Mortgage Bond issues require annually the retirement of
$20,400,000 principal amount of bonds or the utilization of bond-able property additions at 60% of cost. The portion expected to be met by property additions has been excluded from the table above. Also. the Company may, at its bption, retire additional amounts up to $6,200,000 annually through sinking funds of cer-tain debenture bonds. The election of any such option is included in long-term debt due within one year.
See Summary of Significant Accounting Policies and Notes to Financial Statements.
33
Notes to Financial Statements
- 1. Federal Income Taxes A reconciliation of reported Net Income with pre-tax in-come and of Federal income tax expense with the amount computed by multiplying pre-tax income by the statutory Federal income tax rate of 46% is as follows:
1981 1980 1979 (Thousands of Dollars)
Net Income
$264,137 $281,717 $233,329 Federal income taxes included in Operating income Current provision 2,603 58,641 14,359 Provision for deferred income taxes - net*
111,136 66,693 99, 187 Investment tax credits - net 4,998 5,844 10.419 Total included in operating income 118,737 131.178 123,965 Miscellaneous other income - net 3,586 1,703 1,952 Extraordinary Items (54,885)
Total Federal income tax provisions 122,323 77,996 125,917 Subtotal 386,460 359,713 359,246 Earnings of subsidiaries -
net (9.490)
(4,831)
(1,721)
Pre-tax income
$376,970 $354,882 $357,525 Tax expense at the statutory rate
$173,406 $163,246 $164.462 Adjustments to pre-tax income, computed at statutory rate, for which deferred taxes are not provided under current rate-making policies:
Tax depreciation under book depreciation 18,608 16, 161.
11,357 Allowance for funds used during construction
. (44,012)
(35,674)
(26,033)
Overhead costs capitalized (8,858)
(7,262)
(6,935)
Extraordinary Items (32,543)
Other 445 (2,890)
(1,276)
Subtotal (33,817)
(62,208)
(22,887)
Amortization of deferred tax items (17,266)
(23,042)
(15,658)
Subtotal (51,083)
(85,250)
(38,545)
Total Federal income tax provisions
$122,323
$77,996 $125,917
- The provision for deferred income taxes represents the tax effects of the following items:
C.urrent Ll<iliilities Unbilled revenues
$ 6,257
$22,756 $ (2,175)
Deferred Credits Hope Creek Abandonment 126,327 Atlantic Ab;;mdonment (6,336)
(4,587)
Additional tax depreciation 41,479 31,799 32,287 Repair allowance property (5,236) 6,362 6,701 Gross receipts tax (2,033)
(985) 5,924 Deferred fuel costs - net (48, 188) 12,634 56,859 Loss on reacquired debt (571)
(570)
(572)
Other (563)
(716) 163 Subtotal 104,879 43,937 101,362 Total
$111.136
$66,693 $ 99,187 34 The balance of investment tax credits not utilized as of December 31, 1981 in the amount of $173 million is avail-able as a carryover to future years and will expire as fol-lows 1993 -$16 million, 1994-$47 million, 1995-$42 million, and 1996-$68 million. For the years 1979 and 1980 investment tax credits can be utilized to offset 70% of tax liability and for 1981. 80% of tax liability, before investment credit.
The Company has a Tax Reduction Act Employee Stock Ownership Plan (TRASOP) under provisions of the Inter-nal Revenue Code. Such provisions permit the Company to elect an additional 1 % investment tax credit if the Company transfers to the TRASOP an equivalent amount of cash for the purchase of shares of Common Stock. The Company may also claim an additional V2 % investment t~ credit if it contributes an equivalent amount of cash to the TRASOP, but only to the extent that such amount is matched by contributions by participants.
- 2. Investments in and Advances to Subsidiaries Investments in and advances to subsidiaries (including the Company's equity in undistributed earnings or losses) are summarized as follows:
December 31, Energy Development Corporation Investment Advances Transport of New Jersey*
Investment Other Subsidiaries, primarily LNG Project Advances Total 1981 1980 1979 (Thousands of Dollars)
$ 25,663 $ 14,245 $ 8,514 151, 168 123,034 80,554 12,732 84,179 83,215 82,494
$261,010 $220.494 $184,294
- On October 14, 1980, the Company sold Transport of New Jersey.
See note 3.
The major subsidiary included in "Other Subsidiaries" above is Energy Terminal Services Corporation (ETSC)
Its principal asset, which has not been placed in opera-tion, is a Liquefied Natural Gas (LNG) terminal on Staten Island in the New York City harbor area. Annual expendi-tures for protection and maintenance of the terminal, including local real estate taxes, are approximately
$3.5 million.
The Company had originally intended to utilize the termi-nal for the importation of LNG. However, due to uncer-tainties and delays relating to the importation project, including lack of regulatory approvals which resulted in a loss of a supply of LNG, the terminal has not been placed in operation. ETSC is now pursuing the utilization of the two storage tanks at the terminal to provide an LNG peak-ing service for the Company and others. This will necessi-tate the construction of a liquefaction facility at the site.
The additional construction will not proceed until the necessary permits are obtained from the appropriate federal, state and local regulatory agencies. The proposed service will increase the Company's capability to store supplies of domestic natural gas in order to meet the de-mands of its customers for gas on the coldest winter days.
If necessary permits are not received and the facilities are not placed in service, the Company would anticipate seeking favorable rate treatment from the BPU for any loss which may occur. Any loss not provided for, in the opinion
of management, would not have a material effect on the financial position or results of operations of the Company.
- 3. Sale of Transport of New Jersey On October 14, 1980, the Company sold all of the out-standing capital stock of Transport of New Jersey (TNJ) to New Jersey Transit Corporation (NJTC), an agency of the State of New Jersey, for $32.1 million incurring a pre-tax loss of $30.0 million. As a result of such sale, control of Maplewood Equipment Company (MEC), a wholly-owned subsidiary of TNJ, was also transferred to NJTC. As re-quired by the Stock Purchase Agreement between the Company and NJTC, the purchase price paid by NJTC, together with pension fund assets of TNJ and MEC and other funds, were combined with a net contribution by the Company of $11. 4 million to purchase pension annui-ties for employees and pensioners of TNJ and MEC to pro-vide benefits accrued as of June 30, 1980. The net cash contribution by the Company of$11.4 million was more than offset by income tax benefits to the Company of
$49.5 million arising from the immediate deductibility of pension contributions and by the deductibility of the tax basis of the TNJ stock which was in excess of the book in-vestment. Such tax benefits resulted in a non-recurring credit to earnings for 1980 of $19. 5 million or 27¢ per aver-age share of Common Stock.
- 4. Compensating Balances Cash at December 31, 1981 and December 31, 1980 consisted primarily of compensating balances under informal arrangements with various banks to compensate them for services and to support lines of credit of$178.2 million and $170.8 million, respectively There are no legal restrictions placed on the withdrawal or other use of these bank balances. In addition, as of both dates, the Company had $30.0 million of credit lines compensated by fees.
- 5. Deferred Debits Abandonment of Hope Creek Unit No. 2 On December 23. 1981, the Company abandoned the con-struction of Hope Creek Generating Station Unit No. 2 in Lower Alloways Creek Township, New Jersey Total un-recovered costs of$290.8 million, including an estimated
$67.8 million of cancellation and close-out costs, were charged to Extraordinary Property Losses and the associ-ated tax reduction of $126.3 million was included in Accu-mulated Deferred Income Taxes.
On March 4, 1982, the BPU authorized the transfer of $112 million of Hope Creek 2 costs to Hope Creek 1 and recov-ery of all after-tax abandonment costs for Hope Creek 2 from customers through rates. The recovery will be over 15 years on an accelerated method commencing July 1, 1982. During 1982 the amount of amortization will be
$18.2 million, less related taxes of $7.4 million.
Abandonment of Atlantic Project In December 1978, the Company cancelled its floating nuclear plant project and terminated its contract with Offshore Power Systems for the construction of four generating units. At the time of the Company's decision to abandon the Atlantic Project, total unrecovered costs of
$319.9 million, before tax reduction, was charged to Ex-traordinary Property Losses and the associated tax reduction of $132.2 million was included in Accumulated Deferred Income Taxes.
The BPU rendered a decision, effective April 17, 1980, per-mitting the Company to recover, over a period of 20 years,
$174.5 million of the $187.7 million of net costs, after tax reduction, incurred prior to the abandonment. Following this decision the Company recorded a loss of$18.6 million which, after a related tax reduction of $5.4 million, re-sulted in a net extraordinary charge to income in 1980 of
$13.2 million or 18¢ per average share of Common Stock.
Costs are being amortized in the amount of$15.1 million annually, less related taxes of$6.3 million.
Gross Receipts Tax Effective January 1, 1973, the Company began accruing New Jersey gross receipts tax on current revenues rather than on the previous basis of taxes paid. The gross re-ceipts tax on 1972 revenues was deferred arid is being charged to operations by an amount equiv:alent to Yz % of revenues subject to the gross receipts tax and is currently expected to become fully amortized during 1983. During 1982 the Company expects to amortize approximately
$19.6 million, less related taxes of $9.0 million.
Deferred Electric Energy and Gas Fuel Costs - net A substantial portion of deferred electric energy costs,
$58.3 million, will be recovered during 1982 and an addi-tional $12.5 million will be recovered by February 1984.
The remaining costs are recoverable through the Com-pany's levelized electric energy and gas raw materials adjustment clauses.
Unamortized Debt Expense These costs, associated with the issuance or reacquisi-tion of debt, are deferred and amortized over the lives of the related issues. Amounts shown in the Balance Sheets consist principally of costs associated with the Compa-ny's tender offer for its 12% Series E Mortgage Bonds which will mature in October 2004. The Company ex-pects to amortize $1.1 million of these costs in 1982.
- 6. Bank Loans and Commercial Paper Bank loans represent the Company's unsecured promis-sory notes issued under informal credit arrangements with various banks and have a term of eleven months or less. Such notes were issued to a limited extent in 1981 and 1980.
Commercial paper represents the Company's unsecured bearer promissory notes sold to dealers at a discount with a term of nine months or less. Certain information regard-ing short-term debt follows:
Maximum amount outstanding at any month end Average daily outstanding (A)
Weighted average annual interest rate (B)
Weighted average interest rate for commercial paper outstanding at year end rnsi 19ao (Thousands of Dollars)
$207,551
$180,865
$101,226 $ 79,516 16.27%
13.90%
12.72%
19.37%
(A) Computed by dividing the sum of the daily principal amounts outstanding during the year by the total number of days in the year.
(B) Computed by dividing short-term interest expense by the average daily short-term net proceeds.
35
- 7. Pension Plan The Company has a non-contributory, trusteed plan covering all employees who complete one year of service.
As of December 31, 1981, the unfunded prior service cost was approximately.$299,029,000. Information on accumulated plan benefits and net assets follows :
December 31, Actuarial present value of accumulated plan benefits:
Vested Non vested Market value of Plan Net Assets 1981 1980 (Thousands of Dollars)
$326,343 33,616
$335,353 32,528
$359,959
$367,881
$282,991
$269,039 The assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 10.5% for 1981and9% for 1980. The market value of the plan's net assets increased during 1981 as a result of contributions (net of pension payments) and net invest-ment income.
The Company's annual contribution is actuarially deter-mined to provide for full funding by December 31, 2001.
Pension costs for the past three years were charged as follows :
Operating Expenses Utility Plant and Other Accounts Total Pension Costs 1981 1980 1979 (Thousands of Dollars)
$47,505
$38,042
$34,452 10,954 10,284 9,662
$58,459
$48,326
$44, 114 The Company offered a special early retirement program during the period from June 1, 1980 to October 1, 1980 to employees meeting certain age and service require-ments. Under the program, 1,367 employees retired.
Employees who retired under the program are paid an unreduced pension under the Company's Pension Plan and a special supplement, initially $500 per month and in-creasing to $650 per month, payable out of the Company's general funds. The special supplement ceases at age 65, upon death, or upon re-employment by the Company. It is estimated that the special supplement will cost the Company $50 million over ten years beginning 1980. The unreduced pension provision under the Plan requires additional funding which is included in the unfunded prior service cost.
- 8. Commitments and Contingent Liabilities 36 The Company has substantial commitments as part of its construction program as well as commitments to obtain sufficient sources of fuel for electric generation and ade-quate gas supplies Construction expenditures of $3. 9 bil-lion, including $772 million of AFDC, are expected to be incurred during the years 1982 through 1986.
In September 1980, a contract with Kerr-McGee Nuclear Corporation to supply uranium concentrates was amended to substantially curtail open pit mine operations until November 1. 1982. As of December 31, 1981, the Company and the co-owners of the Salem and Hope Creek Generating Stations had advanced $40.4 million to Kerr-McGee against deliveries of uranium concentrates.
Credits have been received amounting to $14.3 million, including interest of $4. 7 million. The recoupment of
$30.8 million, the balance of such advances, of which ap-proximately 30% is the responsibility of the other co-owners, is dependent upon the sale of uranium concen-trates by Kerr-McGee to the Company or other buyers or upon the sale by Kerr-McGee of the project properties.
The Company cannot presently predict the extent to which such advance payments will ultimately be recov-ered. For additional information see page 11.
The Company's insurance coverages for its nuclear opera-tions are as follows :
Maximum Type and Source of Coverage Public Liability Private Federal government (A)
Property Damage:
Nuclear Mutual Limited (D)
Nuclear Electric Insurance Limited(D)
Replacement Power:
Nuclear Electric Insurance Limited{D)
Retrospective Maximum Assessment for a Coverage single incident (Millions of Dollars)
$160 None 400
$ 8.5(B)
$560(C)
$450
$26.7
$247
$ 7.0
$ 2.3(E)
$13.9 (A) Combined retrospective premium program under the Price-Anderson liability provisions of the Atomic Energy Act of 1954 and indemnity agreements with the Nuclear Regulatory Commission. Subject to retrospective assessment with respect to loss from incident at any licensed nuclear reactor in the United States.
(B) Maximum assessment would be $17.0 million in the event of more than one incident in any year.
(C) Limit of liability under the Atomic Energy Act of 1954 for each nuclear incident.
(D) Utility-owned mutual insurance company of which the Company is a member. Subject to retrospective assessment with respect to loss at any nuclear generating station covered by such insurance.
(E) Maximum weekly indemnity for 52 weeks which commences after the first 26 weeks of an outage. Also provides
$1.15 million weekly for an additional 52 weeks.
- 9. Accounting for Leases The Company has certain leases for property and equip-ment which meet the criteria for capitalization, but in ac-cordance with rate-making treatment are accounted for as operating leases. The capitalization of such leases would not have a significant effect on assets, liabilities or expenses.
- 10. Supplementary Information Concerning the Effects of Inflation (Unaudited)
The Company's financial statements are prepared in ac-cordance with generally accepted accounting principles and are stated ori the basis of historical costs, namely, the prices that were in effect when the underlying transac-tions occurred. The following supplementary financial information, prepared in accordance with Financial Ac-counting Standards Board Statement No. 33 (FASB No.
33), is an estimate of the effects on the Company of general inflation (Constant Dollar) and changes in specific prices (Current Cost).
The Company advises readers of the imprecise nature of this data and of the many subjective judgments required in the restatement of selected historical costs to Constant Dollar and Current Cost. This data should not be used to make adjustments to the Company's primary financial statements and the related earnings per average share of Common Stock other than those adjustments shown in the following supplementary financial data.
Constant Dollar costs were determined by adjusting his-torical costs of Utility Plant and certain other items into dollars of the same general purchasing power by using the Consumer Price Index for All Urban Consumers (CPI-U).
Current Cost data purports to show the estimated cost of currently replacing existing Utility Plant and was mea-sured by applying primarily the Handy-Whitman Index of Public Utility Construction Costs to the historical costs of Utility Plant.
Depreciation and Amortization expense, and Amortiza-tion of Nuclear Fuel (included in Electric Fuel, Inter-changed Power and Gas) were adjusted for Constant Dollar and Current Cost using the rates and methods for com-puting book depreciation and amortization applied to the appropriate inflation adjusted Utility Plant balances. In accordance with FASB No. 33, income tax expense was not adjusted.
FASB No. 33 requires the disclosure of the amount re-quired to reflect Net Utility Plant at its Recoverable Cost if that cost is lower than the inflation adjusted amounts.
Also required under Current Cost is the disclosure of the increase in Current Cost of Net Utility Plant held during the year and the related effect of general inflation. The amounts shown in the following table, which reflect the increase in general inflation over the increase in Current Cost of Net Utility Plant and the adjustment to net recov-erable cost, illustrate that during 1981 the rate of general inflation was greater than the increase in the Current Cost of Net Utility Plant. In addition, the amounts shown as Adjustments of Net Utility Plant to Recoverable Cost (both Constant Dollar and Current Cost) are adjustments to Historical Cost in average 1981 dollars. Historical Cost is the amount permitted to be recovered under the rate regulatory process for utilities in New Jersey.
During inflationary periods, holders of monetary assets, such as cash and receivables, suffer losses of general pur-chasing power while holders of monetary liabilities ex-perience gains. In 1981 the Company's monetary liabilities, primarily long-term debt, exceeded its mone-tary assets resulting in a gain in purchasing power. Since this gain is primarily attributable to long-term debt which has been used to finance Utility Plant, it is netted against the excess of the increase in general inflation over the in-crease in Current Cost of Net Utility Plant after adjustment to recoverable cost in the following table.
Supplem entary Financial Data Adjusted for the Effects of Changing Prices for the Year Ended December 31, 1981 (Unaudited)
Operating Revenues Operating Expenses Electric Fuel, Interchanged Power and Gas Other Operation and Mamtenance Depreciation and Amortization Taxes Total Operatmg Expenses Operating Income Other (including Interest Expenses)
Income (Loss) from Continumg Operations (excluding Ad1ustment of Net Utility Plant to Recoverable Cost)
Increase in Current Cost of Net Utihty Plant held durmg the year**
Ad1ustment of Net Utihty Plant to Recoverable Cost Effect of the increase in General Inflation Excess of increase in general inflation over mcrease in Current Cost of Net Utility Plant after ad1ustment to Recoverable Cost Purchasmg Power Gain on Net Monetary Liabilities Owed Durmg the Year Net Histoncal Cost (Condensed from the Financial Statements)
$3,471,652 1,751,858 593,279 178,532 593.716 3, 117,385 354,267 (90.130)
$ 264, 137 Constant Dollar (Average 1981 Dollars)
(Thousands of Dollars)
$3.471.652 1,754,782 593,279 395,526 593,716 3,337,303 134,349 (90.130) 44,219*
$ (236,638) 221,567
{15,071)
Current Cost (Average 1981 Dollars)
$3,471,652 1,764.171 593,279 442,984 593,716 3,394, 150 77,502
{90, 130)
$ (12,628)
$ 695,994 (113,074)
(762,711)
(179,791) 221,567 41,776
- lncludmg Ad1ustment of Net Ullhty Plant to Recoverable Cost. Income (Loss) from Conunumg Operations adiusted for Constant Dollar would have been $(192,419,000).
- At December 31. 1981. the Current Cost of Net Utility Plant was $9,247.762.000, while historical (net recoverable) cost was $5.446.093,000 37
38 Supplementary Five-Year Comparison of Selected Financial Data Adjusted for Effects of Changing Prices (Unaudited)
(000 omitted where applicable and all adjusted figures are in average 1981 dollars)
For the Years Ended December 31, 1981 1980 1979 1978 1977 Operating Revenues Historical
$3,471,652
$2,994,054
$2,416,707
$2,219,785
$2,032,795 Adjusted for General Inflation
$3,471,652
$3,304,620
$3,028,109
$3,094,521
$3,050,872 Income (Loss) From Continuing Operations (excluding Adjustment of Net Utility Plant to Recoverable Cost)
Historical
$ 264, 137
$ 275,401
$ 233,329 Adjusted for General Inflation 44,219
$ 108,882 97,152 Adjusted for Current Cost (12,628) 37,228 18,991 Income (Loss) From Contmuing Operations per Average Common Share (excluding Adjustment of Net Utility Plant to Recoverable Cost)
- Historical
$ 2.63
$ 3.13
$ 2.85 Adjusted for General Inflation
$ (09)
.79
$.58 Adjusted for Current Cost
$ (79)
$ (19)
$ (61)
Excess of increase in general inflation over increase in Current Cost of Net Utility Plant after adjustment to Recoverable Cost
$ (179,791)
$ (374,038)
$ (439,982)
Purchasing Power Gain on Net Monetary Liabilities Owed During the Year
$ 221,567
$ 312,022
$ 341,415 Net Assets at Year End **
Hist0rical
$2,832,930
$2,646,928
$2,435,516 Adjusted for General Inflation and Current Cost
$2,741,350
$2.790,337
$2,885,752 Cash Dividends Declared per Common Share Historical
$ 2.44
$ 2.29
$ 2.20
$ 2.08
$ 1.92 Adjusted for General Inflation
$ 2.44
$ 2.53
$ 276
$ 2.90
$ 2.88 Market Price per Common Share at Year End Historical
$18.00
$17.00
$19.25
$20.25
$22.88 Adjusted for General Inflation***
$18.00
$18.52
$23.57
$28.10
$34.61 Consumer Price Index (1967=100)
Average 272.4 246.8 217.4 195.4 181.5 Year End 281.5 258.4 229.9 202.9 186.1
- After deducting Cumulative Preferred Stock and $1 40 D1v1dend Preference Common Stock d1V1dends on a historical basis m 1981 and in Average 1981 Dollars for pnor years.
- Equals Common Equity and Preferred Stock without mandatory redemption.
- Year-end 1981 Dollars.
Inflation has been increasing over the last five years. The average CPI-U Index increased from 1815 in 1977 to 272.4 in 1981, an average annual increase of 10. 7%. The increase from 1980 to 1981 was 10.4 %.
Revenues for the five-year period increased from $2.033 billion in 1977 to $3.472 billion in 1981, an average annual increase of 14.3%. Restated in average 1981 dollars, reve-nues for the same period would have increased from
$3.051 billion to $3.472 billion, an average annual increase of only 3.3%.
Cash Dividends Declared per Common Share went from
$192 in 1977 to $2.44 in 1981 or an average annual in-crease of 6.2%. However, such dividends would have decreased at an average annual rate of 4.1 % or from $2.88 in 1977 to $2.44 in 1981 when restated in average 1981 dollars.
Market Price per Common Share at Year End from 1977 to 1981 had an average annual decrease of 5.8% or from
$22.88 to $18.00. Restated in year-end 1981 dollars the Market Price would have been $34.61 instead of $18.00 re-flecting an average annual decrease of 15.1 % for the same period.
As shown in the tables above, the purchasing power gain on net monetary liabilities was not enough to offset the significant effect of inflation on capital costs (utility plant),
nuclear fuel costs and depreciation.
Lack of adequate recognition of inflation in rate-making in addition to delayed rate relief accelerates attrition, thereby contributing to poorer cash flow. By the time increased costs are included in rates, the related funds have already been expended.
.--------------~~~~~~~~--,
- 11. Jointly-Owned Facilities The Compahy has an ownership interest and is responsi-ble for providing its share of the necessary financing for the following jointly-owned facilities. All amounts reflect the Company's share of each jointly-owned project and the corresponding direct expenses are included in the Statements of Income as an operating expense.
Plant Ownership Interest Amount of Utility Plant In Service Accumulated Provision for Depreciation Amount of Plant Under Construction Coal Generating Conemaugh Keystone Nuclear Generating Peach Bottom Salem Hope Creek Nuclear Training Center Pumped Storage Generating Yards Creek Transmission Facilities Merrill Creek Reservoir Linden Synthetic Natural Gas 22.50 %
22.84 %
42.49 %
42.59 %
95.00 %
various 5000 %
various 13.906%
90.00 %
- 12. Financial Information by Business Segments Electric For the Years Ended December 31, Operating Revenues Depreciation and Amortization Operating Income Before Income Taxes Gross Additions to Utility Plant December 31, Net Utility Plant Gas Exploration Subsidiary and LNG Project Other Corporate Assets Total Assets 1981 1980
$2,322,042
$2,083,900 134,050 127,655 378,082 407,662 615,976 551, 110
$4,813,875
$4,570,355
- 13. Selected Quarterly Data (Unaudited) 1979
$1,689,857 122,953 369,409 484,356
$4, 156, 122 The information shown below in the opinion of the Company includes all adjustments, consisting only (Thousands of Dollars)
$ 65,304 53,516 390,465 696,053 16,293 65.112 65,538 1981 Gas 1980 (Thousands of Dollars)
$1, 149,610
$910.154 44.482 42,332 94,937 101.147 67,873 74,420
$632,218
$606,894 261,000 220,484
$ 16,428 17,031 95,938 70,469 3, 171 5,192 29.443 1979 1981
$726,850
$3,471,652 40,036 178,532 78,468 473,019 53,779 683,849
$579,862
$5,446,093 171,552 261,000 1,569,996
$7,277,089
$1,349,598 5,592 2,319 Total 1980 1979
$2,994,054
$2,416,707 169,987 162,989 508,809 447,877 625,530 538,135
$5, 177,249
$4,735,984 220,484 171,552 1,327, 127 1, 181,230
$6,724,860
$6,088,766 of normal recurring accruals, (except for the extraordinary items incurred in 1980 resulting from the abandonment of the Atlantic Project and the sale of Transport of New Jersey) necessary to a fair presentation of such amounts.
Due to the seasonal nature of the business, quarterly amounts vary significantly during the year.
Calendar Quarter Ended Operating Revenues Operating Income Income Before Extraordinary Item Extraordinary Item Net Income Earnings Available for Common Stock Before Extraordinary Item Earnings Available for Common Stock Earnings per Average Share of Common Stock Before Extraordinary Item Effect of Extraordinary Item Earnings per Average Share of Common Stock Average Shares of Common Stock Outstanding 1981
$982,938 101,669 77,404 77.404 65,865
$ 65,865
$.86
$.86 76,680 March 31, 1980
$757,530 87,409 59,465 59,465 47,837
$ 47,837
$.69
$.69 68,945 June 30, September 30, December 31, 1981 1980 1981 1980 1981 1980 (Thousands where applicable)
$733,255
$611,087
$809,805
$776, 190
$945,654
$849,247 74.183 90,838 94,677 114,997 83,738 83,908 52,941 68, 181 71,665 88,778 62.127 58,977 (13,219) 19,535 52,941 54,962 71,665 88,778 62, 127 78,512 39,339 56,603 58,447 77,211 48,948 47,409
$ 39,339
$ 43,384
$ 58.447
$ 77,211
$ 48,948
$ 66,944
$. 51
$.78
$.69
$103
$.57
$.62 (18)
.26
$.51
$.60
$.69
$1.03
$.57
$.88 77, 526 72, 180 84,252 75.179 85,261 75,917 39 I
Operating Statistics
% Annual Increase -
1981 compared with (000 omitted where applicable) 1981 1980 1980 1971 Electric Revenues from Sales of Electricity (a)
Residential
$ 728,642
$ 684,343 6.47 12.74 Commercial 871,377 765,356 13.85 15.55 Industrial 684,976 598,716 14.41 14.76 Public Street Lighting 33,249 32,693 1.70 8.32 Tutal Revenues from Sales to Customers 2,318,244 2,081, 108 11.39 14.23 Interdepartmental 1,612 1,720 (6.28) 10.30 Tutal Revenues from Sales of Electricity 2,319,856 2,082,828 11.38 14.23 Other Electric Revenues 2,186 1,072 103.92 5.74 Total Operating Revenues
$2,322,042
$2,083,900 11.43 14.22 Sales of Electricity - kilowatthours (a)
Residential 7,795,988 8, 129,198 (4.10)
.82 Commercial 10,940,609 10,726,086 2.00 3.67 Industrial 10,923,042 11,049,642 (1.15)
(.15)
Public Street Lighting 275,489 265,126 3.91 1.33 Total Sales to Customers 29,935,128 30, 170,052
(.78) 1.36 Interdepartmental 25,567 27,684 (7.65)
.03 Total Sales of Electricity 29,960,695 30,197,736
(.78) 1.36 Kilowatthours Produced, Purchased and Interchanged - net 32,204,191 32,703,504 (1.53) 1.39 Load Factor 52.3%
52.0%
Capacity Factor 33.2 %
35.6%
Heat Rate - Btu of fuel per net kwh generated 10,725 10,713
.11
.08 Net Installed Generating Capacity at December 31 - kilowatts 9,101 9,242 (1.53) 1.98 Net Peak Load -
kilowatts (60-minute integrated) 7,034 7,159 (1.75) 1.73 Cooling Degree Hours 8,615 9,869 (12.71)
(.12)
Tumperature Humidity Index Hours 15,494 16,526 (6.24)
(.81)
Average Annual Use per Residential Customer -
kwh 5,261 5,443 (3.34)
.15 Meters in Service at December 31 1,739 1,732
.40
.57 Gas Revenues from Sales of Gas (a)
Residential
$ 604,521
$ 515,013 17.38 13.50 Commercial 302,281 228,577 32.24 16.95 Industrial 240,711 164,762 46.10 20.65 Street Lighting 290 282 2.84 13.06 Total Revenues from Sales to Customers 1,147,803 908,634 26.32 15.55 Interdepartmental 1,075 925 16.22 12.43 Thtal Revenues from Sales of Gas 1,148,878 909,559 26.31 15.55 Other Gas Revenues 732 595 23.03 25.42 Thtal Operating Revenues
$1,149,610
$ 910, 154 26.31 15.55 Sales of Gas -
therms (a)
Residential 993,527 1,023,027 (2.88)
(.21)
Commercial 555,806 506,550 9.72 2.04 Industrial 514,136 447,474 14.90
.55 Street Lighting 334 335
(.30)
(2.81)
Tutal Sales to Customers 2,063,803 1,977,386 4.37
.54 Interdepartmental 2,430 2,322 4.65 (2.08)
Total Sales of Gas 2,066,233 1,979,708 4.37
.53 Gas Produced and Purchased -
- therms 2,145,326 2,077,653 3.26
.68 Effective Daily Capacity at December 31 -
therms 19,010 18,439 3.10 1.51 Maximum 24-hour Gas Sendout -
therms 14,812 14,444 2.55 1.41 Heating Degree Days (a) 5,082 5,256 (3.31)
.50 Average Annual Use per Residential Customer - therms 857 875 (2.06)
(.58)
Meters in Service at December 31 1,378 1,370
.58
.36 (a) Starting in 1973, revenues and sales by customer classification reflect temperature effect on these recorded sales, heating degree include accrued and unbilled dollar amounts and sales volumes days are also reported on a calendar-year basis effective with 1973.
from meter reading date to the end of the calendar year. To better For 1971, heating degree days remain on a sales-year basis.
40
1979 1978 1977 1976 1971
$ 545,049
$ 512,071
$ 492,473
$ 443,531
$ 219,614 625,596 574,557 531,118 474,791 205,318 484,037 444,595 414,058 367,470
- 172,902 31,437 29,925 27,622 25,863 14,947 1,686,119 1,561,148 1,465,271 1,311,655 612,781 1,559 1,670 1,916 1,585 605 1,687,678 1,562,8-18 1,467,187 1,313,240 613,386 2,179 2,016 2,931 2,837 1,251
$1,689,857
$1,564,834
$1,470,118
$1,316,077
$ 614,637 7,777,369 7,760,868 7,769,629 7,711,953 7,183,821 10,336,445 10, 152,827 9,747,908 9,514,574 7,633,053 11,185,952 11,134,634 10,627,734 10,472,054
. 11,091,985 260,915 260,922 259,277
. 259,151 241,449 29,560,681 29,309,251 28,404,548 27,957,732 26,150,308 26,629 32,638 38,331 34,996 25,500 29,587,310 29,341,889 28,442,879 27,992,728 26,175,808 32,021,737 31,628,876 30,771,719 30,376,187 28,055,190 54.3%
54.6%
50.9%
55.9%
54.0%
31.8%
34.4%
32.7%
32.0%
45.6%
10,566 10,599 10,677 10,593 10,642 9,023
- 9,061 9,247 8,741 7,483 6,736 6,615 6,895 6,190 5,925 7,201 7,188 8,269 6,513 8,717 14,545 13,899 14,883 12,701 16,814 5,233 5,378 5,403 5,395 5,184 1,724 1,713 1,704 1,697 1,643
$ 415,157
$ 399, 134
$ 344,444
$ 342,524
$ 170,380 179,970 163,931 137,811 140,809 63, 164 129,665 90,240 78,474 68,341 36,831 274 248 178 159 85 725,066 653,553 560,907 551,833 270,460 790 802 572 476 333 725,856 654,355 561,479 552,309 270,793 994 596 1,198 1,149 76
$ 726,850
$ 654,951
$ 562,677
$ 553,458
$ 270,869 970,462 1,013,043 980,570 1,045,627 1,014,887 456,902 447,923 432,810 468,761 454,237 410,605 306,672 329,211 307,949 486,685 350 367 376 389 444 1,838,319 1,768,005 1,742,967 1,822,726 1,956,253 2,328 2,490 2,064 1,764 2,999 1,840,647 1,770,495 1,745,031 1,824,490 1,959,252 1,931,549
. 1,852,869 1,811,019 1,895,041 2,004,791
. 18,639 18,639 18,933 19,449 16,372 13,349 12,235 14,006 12,803 12,872 4,677 5,317 5,155 5,349 4,833 833 893 862 924 908 1,357 1,350 1,350 1,354 1,330 41
Financial Statistics (000 omitted where applicable)
Condensed Statements ofincome (a)
Operating Revenues Electric Gas Total Operating Revenues Operating Expenses Fuel for Electric Generation and Interchanged Power - net Gas Purchased and Materials for Gas Produced Other Maintenance Depreciation and Amortization Amortization of Property Losses Taxes Other than Federal Income Taxes Federal Income Taxes Total Operating Expenses Operating Income Electric Gas Total Operating Income Allowance for Funds Used During Construction (Debt.and Equity)
Other Income - net Interest Charges Income before Extraordinary Items Extraordinary Items, net of income tax:
Unrecoverable costs of Atlantic Project Gain on sale of Transport of New Jersey Net Extraordinary Items Net Income Preferred and Preference Stock Dividends Earnings Available for Common Stock Shares of Common Stock Outstanding End of Year Average for Year Amount
$2,322,042 1,149,610 3,471,652 1,059,539 692,319 385,149 192,768 178,532 15,362 474,979 118,737 3, 117,385 288,087 66,180 354,267 95,679 15,780 (201,589) 264,137 264,137 51,538
$ 212,599 86,089 80,962 1981 1980 Amount 67
$2,083,900 70 33 910,154 30 100 2,994,054 100 31 866,802 29 20 513,988 17 11 322,220 11 6
169,813 6
5 169,987 6
11,024 14 431,890 14 3
131,178 4
90 2,616,902 87 8
307,372 10 2
69,780 3
10 377, 152 13 3
77,552 2
10,259 (6)
(189,562)
(6) 7 275,401 9
(13,219) 19,535 6,316 7
281,717 9
1 46,341 1
6
$ 235,376 8
76,615 73,069 Earnings per average share of Common Stock Dividends Paid per Share
$2.63
$2.44
$3.13 (b)
$2.29 Payout Ratio 93%
73% (b)
Rate of Return on Average Common Equity ( c)
Ratio of Earnings to Fixed Charges Before Income Taxes (d)
Book Value per Common Share (e)
Utility Plant Accumulated Depreciation and Amortization Total Assets Capitalization Mortgage Bonds Debenture Bonds Other Long-Term Debt Total Long-Term Debt Preferred Stock with Mandatory Redemption Preferred Stock without Mandatory Redemption
$1.40 Dividend Preference Common Stock and Common Stock Premium on Capital Stock Paid-In Capital Retained Earnings Total Common Equity Total Capitalization 9.82%
2.95
$25.66
$7,320,764
$1,874,668
$7,277,089
$2,140,835 269,268 720 2,410,823 77,913 554,994 1,423,739 557 26,143 827,497 2,277,936
$5,321,666 11.95%
3.19
$26.38
$6,881,209
$1,703,960
$6,724,860 40
$2,041,556 5
276,590 1,200 45 2,319,346 2
29,750 10 554,994 27 1,252,103 557 26,093 16 813, 181 43 2,091,934 100
$4,996,024 (a) See Summary of Significant Accounting Policies, page 25, Notes to Financial Statements, page 34, and Management's Discussion and Analysis of Financial Condition and Results of Operations, page 44.
(b) Excludes the net extraordinary gain of $6,316,000 or $.09 per share.
(c) Balance available for $1.40 Dividend Preference Common Stock and Common Stock divided by the average of beginning and end-of-year Total Common Equity.
42 41 5
46 1
11 25 1
16 42 100
1979 1978 1977 1976 1971 Amount Amount Amount Amount Amount
. $1,689,857 70
$1,564,834 70
$1,470,118 72
$1,316,077 70
$ 614,637 69 726,850 30 654,951 30 562,677 28 553,458 30 270,869 31 2,416,707 100 2,219,785 100 2,032,795 100 1,869,535 100 885,506 100 620,546 26 541,802 24 538,916 27 484, 194 26 171,963 19 384,759 16 327,990 15 257,897 13 261,190 14 100,296 11 287,086 12 267,731 12 250,531 12 226,175 12 151,952 17 149,027 6
127,423 6
124,876 6
99,617 5
66,789 8
162,989 7
158,248 7
147,652 7
133,087 7
84,474 10 303 1,038 1,185 1,200 774 364,411 15 328,216 15 293,796 14 275,254 15 112,576 13 123,965 5
146,937 7
120,969 6
100,380 6
18, 166 2
2,093,086 87 1,899,385 86 1,735,822 85 1,581,097 85 706,990 80 269,443 11 266,513 12 250,385 13 236,359 12 142,585 16 54,178 2
53,887 2
46,588 2
52,079 3
35,931 4
323,621 13 320,400 14 296,973 15 288,438 15 178,516 20 56,593 3
41,305 2
49,540 2
43,547 3
33,465 4
6,263 4,515 1,447 2,654 (1,278)
(153, 148)
(6)
(137,434)
(6)
(133,718)
(7)
(130,615)
(7)
(87,204) (10) 233,329 10 228,786 10 214,242 10 204,024 11 123,499 14 233,329 10 228,786 10 214,242 10 204,024 11 123,499 14 46,799 2
46,799 2
45,065 2
41,257 2
15,445 2
$ 186,530 8
$ 181,987 8
$ 169,177 8
$ 162,767 9
$ 108,054 12 68,914 64, 120 59,806 58,976 39,475 65,409 61,783 59,243 58,308 36,876
$2.85
$2.95
$2.86
$2.79
$2.93
$2.20
$2.08
$1.92
$178
$1.64 77%
71%
67%
64%
56%
10.39%
11.00%
10.96%
11.18%
12.09%
3.36 3.77 3.52 3.34 2.60
$26.26
$26.13
$25.57
$24.71
$23.14
$6,325,033
$5,810,329
$5,654,097
$5,255,286
$3,577,248
$1,589,049
$1,447,039
$1,314,916
$1, 194,467
$ 765,642
$6,088,766
$5,518,778
$5,130,399
$4,748,782
$3,016,585
$1,940,513 41
$1,692,642 39
$1,647,445 40
$1,549,579 39
$1, 116, 127 40 314,726 7
322,682 7
330,812 8
341,511 9
440,028 16 1,680 2,160 2,640 3,120 2,256,919 48 2,017,484 46 1,980,897 48 1,894,210 48 1,556,155 56 31,500 35,000 1
35,000 1
35,000 1
554,994 12 554,994 13 554,994 13 524,994 13 234,994 9
1, 106,824 23 1,014, 184 23 919,752 22 900,384 22 528,577 19 557 557 557 550 252 26,065 1
26,065 1
26,065 26,065 1
26,065 1
747,076 16 704,909 16 651,885 16 596,745 15 420,919 15 1,880,522 40 1,745,715 40 1,598,259 38 1,523,744 38 975,813 35
$4,723,935 100
$4,353,193 100
$4, 169, 150 100
$3,977,948 100
$2,766,962 100 (d) Net Income plus Income Taxes, Deferred Income Taxes, (e) Total Common Equity divided by year-end Common Stock Investment Tax Credits and Fixed Charges divided by Fixed shares plus double the $1.40 Dividend Preference Common Stock Charges. Fixed Charges include Interest on Long-Term and shares.
Short-Tenp Debt ai;d Other Interest Expense.
43
Management's Discussion and Analysis of Financial Condition and Results of Operations By order effective February 14, 1982, the BPU has granted the Company a $389.9 million increase in rates. Of this amount, $337.8 million was for electric service and $52.1 million for gas (see page 6) However, certain problems discussed below will continue to impact PSE&G as well as the utility industry as a whole. Additional rate relief will be required from time to time to finance construction, maintain reliability of service, keep pace with inflation, and pay a fair rate of return to the shareholders.
A more detailed discussion of the Company's operat-ing results, liquidity and capital resources follows.
Earnings and Dividends Earnings per average share of Common Stock were $2.63 for 1981, a decline of 50c or 16% from 1980 before giving ef-fect to the net extraordinary gain of 9c in 1980. After extraordinary items, earnings were lower by 59c per share. Revenues did not keep pace with operating costs as a result of continuing inflation, minimal sales growth due to customer conservation and the sluggish economy, and the lack of additional rate relief.
As a result of Salem 2 being placed in commercial operation on October 13, 1981, annual depreciation charges will increase by approximately $10.9 million and AFDC will decrease by approximately $20.3 million per year:
Earnings per share of $3.13 for 1980 before the 9C gain from extraordinary items improved 28c or 9.8% over 1979, as rate increases and moderate sales growth outpaced inflation, record-high money rates, and a sluggish eco-nomic climate. The extraordinary gain in 1980 consisted of the effects, after taxes, of the write-off of unrecoverable costs due to the abandonment of the Atlantic nuclear generating station pro1ect (see Note 5 of Notes to Finan-cial Statements) which reduced earnings by 18c per share, and the gain on the sale of Transport of New Jersey (see Note 3 of Notes to Financial Statements) which added 27c per share.
Dividends per share paid to holders of Common Stock have grown over the last three years rising from $2.20, paid in 1979, to $2.29 in 1980 and then to the level of $244 for 1981. Such amounts, compared to earnings before ex-traordinary items, resulted in payout ratios of 77%, 73%
and 93%, respectively Total dividend payments in 1981 in-creased 37% over 1979 due in large part to the 24%
increase in common shares outstanding as well as the higher dividend rates.
R0 venues and Sales Total revenues increased in 1981 and 1980 due primarily to greater recoveries of electric energy and gas fuel costs and higher rates. There is no element of profit on recov-eries of electric energy and gas fuel costs, and hence they do not affect earnings.
44 Electric revenues increased 11 % in 1981 and 23% in 1980. The components of these changes are highlighted in the table below:
Changes in base rates Recoveries of higher energy costs Kilowatthour sales Increase or (Decrease) 1981 VS. 1980 1980 VS. 1979 (MiU1ons of Dollars)
$ 36
$102 218 254 (16) 38
$238
$394 In 1981, total electric sales decreased 1 %. Despite an increase in customers, Residential sales decreased 4%
primarily due to the cooler and less humid weather during the summer. The 1 % decline irl Industrial sales was due to a drop in production levels as a result of the sluggish economy during the year. Commercial sales increased 2%, principally due to a slight increase in customers. All classes of sales continue to reflect the overall impact of the economic slump throughout the Company's service area during the year and the effect of continued energy conservation.
In 1980, electric sales increased 2% led by Residential and Commercial sales which rose 5% and 4%, respec-tively Those gains were partially due to air conditioning demands during the hotter and more humid weather in the summer of 1980. Also, the heating needs of these cus-tomers in the closing months of 1980 contributed to the increases for the year.
Gas revenues rose 26% irl 1981and25% in 1980. The principal factors are shown below Changes in base rates Recoveries of higher gas costs Therm sales Increase or (Decrease) 1981 VS. 1980 1980 VS. 1979 (MiUions of Dollars)
$ 24
$ 34 196 108 19 41,
$239
$183 In 1981. total gas sales increased 4%. Commercial and Industrial sales increased 10% and 15%, respectively These gairls came about as the price advantage and availability of gas continued to spur conversions from oil during the year. Over 300 large Commercial and Industrial customers were added in 1981. Despite an increase in customers, Residential therm sales decreased 3% from last year as winter temperatures were less severe and customers continued to conserve.
In 1980, sales of gas increased 8% as customer usage, especially in the firm classes of sales, increased due to colder weather in the closing months of 1980. Also con-tributing to the increase in sales was the large number of conversions from oil to gas heat, particularly in the Resi-dential class. In addition, over 250 large Commercial and Industrial customers were added during 1980.
Substantially all revenues are subject to New Jersey Gross Receipts tax and as a result the amount of this tax varies irl direct proportion to revenues. The effective rate is approximately 13%.
Energy Costs The costs of fuel for electric generation as well as pur-chased and interchanged power continued to rise in 1981 though somewhat less severely than in previous years.
The Company exerted successful efforts to counter the in-creasing prices of heavy oil by a 28% reduction in use, thereby cutting expenditures for oil by $38 million in 1981 The curtailment in oil-fired generation was compensated for by a 9% increase in lower-priced nuclear* generation and a higher level of purchases of largely coal-fired gener-ation from other utilities. The Company anticipates that nuclear generation from Salem 2, which was placed in commercial operation late in 1981, will further moderate energy costs.
The Company is a member of the Pennsylvania-New Jersey-Maryland Interconnection and is a party to several agreements which provide for the purchase of available power from neighboring utilities. These arrangements enable the Company to optimize its mix of internal and external sources using the lowest cost energy available at any given time. Energy costs are adjusted to match amounts permitted to be recovered through revenues and, to the extent so allowed, have no effect on earnings.
Total energy costs increased 22% and 40% in 1981 and 1980, respectively, as described below:
Higher prices paid for fuel sup-plies and power purchases Kilowatthour output Adjustment of actual costs to match recoveries through revenues Replacement energy costs for which recovery was disallowed by BPU Increase or (Decrease}
1981 vs. 1980 1980 vs. 1979
~
(Millions of Dollars}
$110
$103 (13) 16 93 127 3
$193
$246 Gas costs are adjusted to match amounts recovered through revenues and do not affect earnings. Costs were 35% higher in 1981and34% higher in 1980. Contributing factors are shown below:
Increase or (Decrease}
1981 VS. 1980 1980 VS. 1979 (Millions of Dollars}
Higher prices paid for gas supplies
$141
$132 Refunds from pipeline suppliers (17)
(2)
Therm sendout 18 30 Adjustment of actual costs to match recoveries through revenues 36 (31)
$178
$129 Cash Position Heavy demands upon the Company's cash position have been brought about by problems which confront the en-tire utility industry, including the slowing of customer payments as electric and gas rates have increased.
Energy costs continue to rise, and the Company is still not able to benefit fully from the forward-looking, fuel-recov-
- ery mechanism built into its rate structure. As of Decem-ber 31, 1981, underrecovered electric energy costs were
$99 million, slightly more than half what they were a year ago. The reduction is due largely to recoveries allowed by the BPU of costs remaining from prior periods.
During 1981, the BPU issued an order effective August 1, 1981 designed to produce additional annual revenues of approximately $160 million through the levelized energy adjustment clause. All estimated underrecoveries at July 31, 1981 were included in the new levelized charge. The gas raw materials adjustment charge was also increased in November 1981 to produce approximately $108 million of additional revenues over the next 10% month period.
The Company anticipates that in 1982, in addition to recoveries of its projected current period expenditures, it will recover $58 million of deferred energy costs plus $54 million of other deferred charges.
The Company's average daily short-term debt during 1981 was $101 million -
$21 million over last year's aver-age. At year end the Company had $208 million of short-term debt outstanding.
The Company also needs to finance larger customer accounts receivable. As of the end of 1981 accounts receivable including unbilled revenues approached $555 million and were $40 million more than at the end of 1980.
Customer payments have slowed as the amounts of bills have increased. Furthermore, net write-off of uncollectible accounts this year was $9.5 million greater than the $17.5 million in 1980. The increases in accounts receivable and uncollectible accounts also reflect a requirement of the BPU prohibiting the termination of electric and gasser-vice in New Jersey during the winter months with respect to certain customers with financial need who are unable to pay utility bills. In an attempt to reverse these trends, the Company has recently implemented a com-prehensive program designed to reduce the backlog of unpaid customer accounts.
In order to continue its essential construction pro-gram, the Company will require significant amounts of capital See Construction Activities.
In addition to commitments for construction and fuel supplies over the coming years, the Company will be re-quired to pay an estimated $68 million of cancellation and close-out costs related to the abandonment of Hope Creek 2, principally during 1982. Funds must also be provided in the future for bond maturities and sinking fund require-ments. It is anticipated that low interest cost debt will have to be replaced at much higher current interest rates.
Certain mortgage bond sinking funds may be satisfied by the retirement of bonds or the utilization of property addi-tions and are expected to be satisfied by the latter. The annual sinking funds for debenture bonds are met by the retirement of bonds.
Construction Activities Utility plant, by far the largest item on the balance sheet, continues to increase as new construction, as well as capital improvements reflect the spiralling effects of infla-tion. See Note 10 of Notes to Financial Statements for the effects of inflation.
45
The Company maintains a continuous construction program, which includes payments for nuclear fuel and investments in and advances to energy resources subsidi-aries. Expenditures for construction were $717 million for 1981 and $680 million for 1980 including AFDC of $96 million and $78 million, respectively. This program is peri-odically revised as a result of changes in economic condi-tions, and the ability of the Company to finance construc-tion costs and to obtain timely rate relief. Changes in the Company's plans and forecasts as well as price changes and cost escalation under construction contracts, and re-quirements of regulatory authorities also result in revi-sions of the construction program.
Construction expenditures during the five years end-ing in 1986 are estimated at $3.9 billion including $772 million of AFDC and reflect the recent abandonment of Hope Creek Unit 2 (see page 6). While these estimates are based on certain expected completion dates and antici-pate escalation due to inflation of approximately 9. 5%,
any construction delays or inordinate inflation levels could cause significant increases in these amounts. The Company expects to generate internally approximately 50% of its construction expenditure requirements, exclud-ing AFDC. Such expectation is based in part upon receiv-ing future rate increases, as to which no assurance can be given. The balance will be provided by permanent financ-ing through the sale of securities.
Financing Activities The Company's interest rates and dividend requirements continue to climb reflecting higher rates for security issu-ances in the capital market. In 1981, the Company issued
$50 million of 13.44% Preferred Stock and $100 million of ten-year Mortgage Bonds at 157/e %.
During the year, the Company also issued 9. 5 million shares of Common Stock, including 6 million through an underwritten offering. The remainder was.issued pri-marily under the Dividend Reinvestment and Stock Pur-chase Plan.
Book value per share of $25.66 at year-end 1981 declined from $26.38 at December 31, 1980 and $26 26 at the end of 1979. The market value of common shares ex-pressed as a percentage of book value was 70.1 %, 64.4%,
and 73.3% at these respective dates.
The Company's expansion of the Dividend Reinvest-ment and Stock Purchase Plan to include holders of Preferred Stock and $1. 40 Dividend Preference Common Stock, and the tax deferral available for reinvestment of utility dividends under the new Economic Recovery Tax Act should help to bring in much needed capital in the_
future.
46 In addition to periodic sinking fund redemptioo re-quirements, four bond issues aggregating $146 million will mature and will require refinancing by the end of 1986.
For interim financing, the Company is authorized to have a total of $300 million of short-term obligations out-standing at any given time. The availability of short-term financing provides the Company greater timing flexibility in the issuance of long-term financing. At year end, the Company's Short-Term Debt balance was $208 million.
Under the terms of the Company's Mortgage and Re-stated Certificate of Incorporation the Company could issue an additional $478 million principal amount of Mortgage Bonds or $263 million of Preferred Stock as of December 31, 1981. Present plans for 1982 call for the issu-ance of Preferred Stock, Common Stock, and Mortgage Bonds.
In January 1982, the Company entered into a Letter Agreement establishing a $75 million Two-Year Revolving Credit Facility with a group of international banks, under which the Banks have agreed to make revolving loans of one month, three months or six months for up to an aggre-gate amount of $75 million as requested by the Company during the two-year period ending January 1984. The Company has paid a one-time management fee of% of 1 % of $75 million and will pay a commitment commission of % of 1 % per annum of the daily unused portion of the commitments. Any drawings made by the Company would bear interest at a rate equal to 3/a of 1 % plus a rate which approximates the London Interbank Offered Rate for deposits in United States Dollars.
Effects of Inflation High inflation continues to grip our national economy. In 1981 the Consumer Price Index jumped over 10%, the third consecutive year of double-digit inflation. As this re-lates to the Company, inflation has evidenced itself in record interest charges and dividend requirements at a time when hundreds of millions of dollars must be raised in the capital markets to finance needed construction, as well as in the effects of rising prices on construction, fuel and labor costs.
For additional information on the effects of changing prices, see Note 10 of Notes to Financial Statements.
Stock.Symbol PEG The Company's Common Stock and the $1.40 Dividend Preference Common Stock are traded on the New York Stock Exchange and the Phila-delphia Stock Exchange.
The following table shows the quarterly divi-dends paid for the periods indicated and the high and low sale prices of such stock as re-ported in the consolidated transaction reporting system.
Common Stock 1981 1980 Dividend 61C 58C*
Price First Quarter 19% -17 191/z-151/2 Second Quarter 19314-17 21
- 163/s Third Quarter 19% -161/z 21
-17%
Fourth Quarter 201/s -161/2 18~s-16
$1.40 Dividend Preference Common Stock 1981 1980 Dividend 35C 35C Price First Quarter 107/s --101/s 121/4 -103/4 Second Quarter 10%-10 12%-10314 Thlid Quarter 103/s -
91/2 123/4 - 11 314 Fourth Quarter 11 91/2 12
--10
- 55C First Quarter only.
Transfer Agents All Stocks Morgan Guaranty Trust Company of New York, 30 West Broadway, New York, NY 10015 Stockholder Services, Public Service Electric and Gas Company, 80 Park Plaza, PO. Box 570, Newark, N.J. 07101 Registrars All Stocks Fidelity Union Bank, 765 Broad Street, Newark, N.J. 07101 Morgan Guaranty Trust Company of New York, 30 West Broadway, New York, NY 10015 Form 10-K Available Stockholders or other interested persons wishing to obtain a copy of the Company's 1981 Annual Report to the Securities and Exchange Commission, filed on Form 10-K, may obtain one without charge by writing to the Vice President and Treasurer, Public Service Electric and Gas Company, PO. Box 570, Newark, New Jersey 07101.
The copy so provided will be without exhibits. Exhibits may be purchased for a specified fee.
Financial and Statistical Review A comprehensive statistical supplement to this report, containing financial and operating data for the years 1971-1981 will be available this Spring. If you wish to receive a copy, please write to the Vice President and Treasurer, Public Service Electric and Gas Company, PO. Box 570, Newark, N.J. 07101.
47
Officers Robert I. Smith Donald A Anderson Chairman of the Board and Chief Executive Officer Vice President - Computer Systems and Services Harold W. Sonn President and Chief Operating Officer Edward G. Outlaw Executive Vice President -Corporate Planning William E. Scott Executive Vice President -Finance Stephen A Mallard Frederick M. Broadfoot Vice President - Law Robert M. Crockett Vice President-Fuel Supply and President of Energy Pipeline Corporation and Energy Terminal Services Corporation Fredrick R. DeSanti Vice President - Rates and Load Management Senior Vice President-Planning and Research and President of PSE&G Research Corporation Carroll D. James James B. Randel, Jr.
Senior Vice President of the Company and President of Energy Development Corporation Richard M. Eckert Senior Vice President -Energy Supply and Engineering Robert W. Lockwood Senior Vice President-Administration John F. McDonald Senior Vice President-Governmental Affairs Everett L. Morris Senior Vice President, Customer Operations Changes in Organization In accordance with the Company's retirement policy for Directors, John F Betz, former President and Chief Operating Officer, Reynold E. Burch and Nathan H. Wentworth retired as Directors effective April 21, 1981.
James R Cowan, Robert R Fer-guson, Jr. and Irwin Lerner were elected Directors for the first time at the Company's Annual Meeting held on April 21, 1981.
48 Vice President-Administrative Planning Edward J. Lenihan Vice President -Public Relations Charles E. Maginn, Jr.
Vice President-Human Resources Wallace A Maginn Vice President and Treasurer Winthrop E. Mange, Jr.
Vice President -Corporate Services Thomas J. Martin Vice President - Engineering and Construction Parker C. Peterman Vice President and Comptroller Louis L. Rizzi Vice President -Customer and Marketing Services Frederick W. Schneider Vice President - Production and Assistant to the
- Senior Vice President - Energy Supply and Engineering
', Robert J. Selbach Vice President - Transmission and Distribution RudolphD. Stys Vice President - System Planning Richard A Uderitz Vice President - Nuclear Robert S. Smith Secretary Malcolm Carrington, Jr., Vice President and Secretary, retired effective May 31, 1981, after more than 42 years of service. The Board of Directors elected Robert S Smith, Secretary, effective June 1, 1981.
Gifford Griffin retired as ViCe President -:-,Interconnections on July 20, 1981, after 43 years of service.
Effective October 1, 1981, Rich-ard A Uderitz, General Manager -
Nuclear Production, was elected Vice President -
Nuclear.
In addition to being Vice Presi-dent -
Production, Frederick W.
Schneider was also named Assis-tant to the Senior Vice President -
Energy Supply and Engineering, effective October 1, 1981.
Directors James R. Cowan, M.D.
President and Chief Executive Officer, United Hospitals Medical Center, Newark, New Jersey.
Member of Audit Committee.
W. Robert Davis Former Chairman of the Board and Chief Executive Officer, Bancshares of New Jersey, Moorestown, New Jersey.
Chairman of Audit Committee and Member of Nominating Committee.
T.J. Dermot Dunphy President, Chief Executive Officer and director, Sealed Air Corporation (manufacturer of protective packaging systems), Saddle Brook, New Jersey Member of Nominating Committee and Organization and Compensation Committee.
Robert R. Ferguson, Jr.
President, Chief Executive Officer and director, First National State Bancorporation, Newark, New Jersey.
Member of Finance Committee.
Margery Somers Foster Professor of Economics Emeritus, and former Dean of Douglass College, Rutgers, The State University of New Jersey, New Brunswick, New Jersey.
Member of Audit and Nominating Committees.
D. Wayne Hallstein Director and former President, Ingersoll-Rand Company (diversified manufacturer of machinery, equipment and tools), Woodcliff Lake, New Jersey.
Member of Finance Committee and Organization and Compensation Committee.
Irwin Lerner President, Chief Executive Officer and director, Hoffmann-La Roche Inc. (manufacturer of pharmaceuticals and fine chemicals), Nutley, New Jersey.
Member of Organization and Compensation Committee.
William E. Marfuggi Chairman of the Board and director, Victory Optical Manufacturing Company (manufacturer of ophthalmic frames) and Chairman of the Board and director, Plaza Sunglasses, Inc. (manufacturer of sunglasses), both of Newark, New Jersey.
Member of Finance Committee.
Marilyn M. Pfaltz Partner of P and R Associates (public relations and publicity specialists), Summit, New Jersey.
Member of Audit Committee.
James C. Pitney Partner in the law firm of Pitney, Hardin, Kipp &
Szuch, Newark and Morristown, New Jersey.
Member of Audit and Executive Committees Kenneth C. Rogers President, Stevens Institute of Technology, Hoboken, New Jersey.
Chairman of Nominating Committee and Member of Organization and Compensation Committee.
William E. Scott Executive Vice President - Finance of the Company.
Member of Executive Committee and Chairman of Finance Committee.
Robert I. Smith Chairman of the Board and Chief Executive Officer of the Company.
Chairman of Executive Committee and Member of Finance Committee.
Harold W. Sonn President and Chief Operating Officer of the Company.
Member of Executive and Finance Committees.
Robert V Van Fossan Chairman of the Board, Chief Executive Officer and director, The Mutual Benefit Life Insurance Company, Newark, New Jersey.
Member of Executive and Finance Committees and Chairman of Organization and Compensation Committee.
PS~G Public Service Electric and Gas Company 80 Park Plaza, Newark, New Jersey 07101 Mailing Address:
PO. Box 570, Newark, New Jersey 07101 U.S. Postage
~AID Bulk Rate Public Service Electric and Gas Company