ML18087A918

Forwards Annual Financial Repts for 1982

ML18087A918
Person / Time
Site:	Salem, Hope Creek, 05000000
Issue date:	05/17/1983
From:	Fryling R Public Service Enterprise Group
To:	Office of Nuclear Reactor Regulation
References
NUDOCS 8305200067
Download: ML18087A918 (186)

Text

-0 PS~G Publi.vice Electric and Gas Company 80 Park Plaza, Newark, NJ 07101I201 430-6462 MAILING ADDRESS I P.O. Box 570, Newark, NJ 07101 James R. Lacey General Solicitor - 5E May 17, 1983 Salem Generating Station Hope Creek Generating Station Docket Nos. 50-272 & 50-311

• Docket No. 50-354 Operating License Construction Permit No. CPPR-120 Nos. DPR-70 & DPR-75 Office of the Director Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, D.C. 20555

Dear Sir:

Pursuant to the NRC Rules and Regulations, enclosed please find ten copies each of the 1982 Annual Report of Public Service Electric and Gas Company, Atlantic City Electric Company, Delmarva Power and Light Company and Philadelphia Electric Company 1n 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.

Very truly yours,

~~,~

Richard Fryling, Jr.

Assistant Qeneral Solicitor RF:mbb Enclosures i~83o52ooo6i 830517-- - -- ----~.

I.\ PDR ADOCK 05000272

"\' I PDR The EnerQY People 95-4966 (2.5M) 2-83

PS~G 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.

So-)..7"J-DEADLINE RETURN DATE RECORDS FACILITY BRANCH

~

0 PS~G I

I I

Public Service Electric and Gas Company 80 Park Plaza. Newark. New Jersey 07101 (201 ) 430-7000 Stockholder Information - Toll Free New Jersey residents (800) 242-0813 Outside New Jersey (800) 526-8050 r able of Contents Public Service Electric and Gas

1. Financial Highlights Company is the largest utility in New Jersey and serves approximately 5.4

2. Message to Shareholders million people. nearly three-quarters of 5. Financial Review the state's population. The Company's 7. Construction Expenditures service area. covering some 2.600 10. Nuclear Operations Consolidated square miles. runs diagonally across 12. Production and Distribution the state's industrial and commercial 16. Customer and Marketing Services corridor from the New York state bor- 18. Conservation and Load Management der on the north to south of Camden. 20. Area Development This highly diversified and heavily 22. Research and Development populated area includes the six major 24. Community and Employee Relations cities of New Jersey as well as nearly

25. Financial Statement Responsibility 300 suburban and rural communities.

25. Accounting Policies

27. Financial Statements 31 . Independent Accountants' Opinion

34. Notes to Financial Statements

40. Operating Statistics

42. Financial Statistics Lh nut tho Cr\\/{ r 44. Management"s Discussion and Analysis of Financial Condition Panoramic air view of PSE&G's nuclear and Results of Operations complex on the lower Delaware River 48. Officers and Directors in southern New Jersey encompasses cover of this 1982 annual report. On the front. Salem Generating Station and its two containment structures are predominant with power transmission lines stretching out in the distance.

On the back. progress is shown on construction of the Hope Creek Gen-erating Station . During 1982. the Company's nuclear activities were con -

solidated at the site of these facilities.

1982 Annual Report Financial Highlights 1982 198 1 Increase Earnings per average share of Common Stock $3.24 $2.63 23 Shares of Common Stock Average 89,233,000 80,962,000 10 Year-end 94,845,000 86.089,000 10 Dividends paid per share of Common Stock $2.53 $2.44 4 Book Value per share of Common Stock $25.90 $25.66 Total Operating Revenues $3,873,976,000 $3.471 .652,000 12 Total Operating Expenses $3,419,517,000 $3.117.385.000 10 Earnings Available for Common Stock $ 288,962,000 $ 212.599.000 36 Gross Additions to Utility Plant $ 81 3,375,000 $ 683.849.000 19 Total Utility Plant $ 8.100,579,000 $7.320.764.000 11 Annual Meeting Please note that the Annua l Meeting of Stockholders of the Company will be held at Newark Symphony Hall. 1020 Broad Street. Newark. New Jersey, Tues-day. April 19. 1983, at 2:00 P.M . A summary of the meeting will be sent to all stockholders of record at a later date.

Robert I. Smith, Chairman, addresses shareholder informational meeting in West Palm Beach, Florida, one of three held in that state in November. More than 22,000 shareholders, about 9 per cent of the Company's total. live in Florida. These informa-t ional meetings are part of PSE&G's extensive investor relations program.

Message to Shareholders A major event during the The quarterly dividend on year was the signing of an common stock was increased to agreement designed to promote 64 cents a share in the second the timely completion of the quarter of 1982 from 61 cents.

Hope Creek I generating unit. This was the seventh consecutive Another important achievement year in which the dividend was was the establishment of the increased. It is management's newly-formed Nuclear Depart- objective to raise dividends on a ment at the site of our nuclear regular basis subject. of course.

generating stations. to adequate levels of earnings to A though it was a year Other noteworthy accom- support such dividends.

marked by economic reces- plishments were the completion sion, your Company made significant progress during 1982 with improvements of a reorganization of customer and marketing activities; the development of an accelerated S ales Decline Reflecting the recessionary realized in various phases of conservation and load manage-economy, overall electric kilo-operations and - more ment program; and an watthour sales declined 2.7 per importantly- in financial upgrading of production and cent for the year compared with results. distribution facilities. Overall.

1981 . Sales in the commercial 1982 was a year of improved category were an exception. ris-efficiency and customer service.

ing 1.6 per cent and providing A high degree of service evidence of strong growth in reliability was maintained service and distribution busi -

throughout the year despite a nesses in our territory.

41 -day strike by two unions Total gas therm sales de-representing approximately creased by 1.0 per cent. A gain 4.600 employees. The strike of 4.7 per cent in sales to com-began when contracts expired at mercial customers was not suffi-midnight on April 30 and ended cient to offset a decline of 9.4 in June when new two-year per cent in the industrial classi-agreements were reached .

fication that was mainly at-E arnings Increase Earnings per share of tributable to the economic recession. Sales to residential customers were virtually the same as in 1981. despite new Common Stock rose to $3.24 connections. as warmer weather from $2.63 in 1981 . Total reve-late in the year reduced demand nues increased to $3.87 billion for heating.

from $3.47 billion.

The gains in earnings and revenues were mainly attribu-table to an increase of $390 million in base rates on an N uclear Output Rises During the year 34 per cent annual basis effective in Febru- of our electric output came from ary 1982 that was approved by nuclear generation, up from 25 the New Jersey Board of Public per cent in 1981 . The nuclear Utilities (BPU) . production was bolstered by 2

Construction work on the Hope Creek I generating unit was intensified in 1982 after cancellation of the second unit at the station. Among high-lights of the year were the lifting of a 409-ton crane into the reactor building where it will be used for moving large pieces of equipment, and placement of the unit's 440-ton steel containment dome. At year end. the plant was more than 60 per cent completed.

excellent performance of No. 2 unit at Salem Generating Station in its first full year of commer-cial operation. The unit was available 97 per cent of the time in 1982. a remarkable record for a new unit.

Construction of the Hope Creek I generating unit. being built adjacent to Salem. was more than 60 per cent com-pleted at the end of the year. The unit is scheduled to go on line in late1986.

In August a cost-contain-ment agreement for Hope Creek was signed by the Company with the New Jersey Department of Energy and the state Public Advocate. As part of the agree-ment. the Public Advocate agreed not to challenge the need for the unit before any state or federal agency. The agreement requires the approval of the BPU which has held hearings prepa- ment costs of the second Hope tions. Most personnel involved in ratory to making a decision. Creek unit. which was cancelled nuclear power operations were The agreement provides a in December 1981. The recovery transferred from Newark to the targeted in-service date of will be over a 15-year period and department headquarters.

December 1986 and a targeted amounts to $172 million. after We are determined to make cost at the time of commercial tax considerations. This recovery certain that we have the most operation of $3.795 billion. is on an accelerated basis. so that thoroughly trained and qualified There would be a penalty in the about half of the amount will be nuclear plant operators and sup-form of reduced earnings to the recouped in the first five years port personnel. As part of this Company if costs exceed $3.795 and will provide additional cash effort. we completed construc-billion. unless the overruns were flow for the funding of Hope tion and opened a Nuclear due to extraordinary events be- Creek I. Training Center for employees of yond our control. On the other the Nuclear Department.

hand. there would be a benefit to earnings if the unit should be completed for less than $3.55 N uclear Operations Centralized C onservation Program billion. Nuclear operations were In line with our efforts to Our present estimate is that strengthened during the year by reduce the need for new facili -

the unit will cost between $3.55 the centralization of activities of ties - and consequently capital billion and $3.79 billion. the Nuclear Department in a expenditures - we developed a In June. the Company new headquarters at the site of broad plan to promote the con-began recovering the abandon - the Salem and Hope Creek sta - servation and efficient use of 3

energy by our customers. The have been unable to realize our plan includes subsidization of loans to finance home conserva-tion measures. the encourage-allowed rate of return.

On January 7, 1983, the Company filed a petition with the R esponsibilities Fulfilled Our Company-80 years old ment of energy audits, New Jersey Board of Public Utilities in 1983- has demonstrated its for an increase in base rates to pro-weatherization assistance. and ability to fulfill its responsibilities to vide additional annual revenues of rebates for the installation of customers. stockholders and em-

$464.5 million. The total includes high efficiency equipment. ployees throughout its history.

$397.4 million for electric service.

Because of the relatively Ever mindful of the contri-and $67.1 million for gas.

low rate of growth in the bution to our Company's success The BPU is presently consid-projected demand for electricity, by thousands of talented and dedi-ering a motion by the Public Advo-we do not foresee the need to cated employees, we appreciate cate of New Jersey to dismiss the the continuing support of Company construct any new generating Company's petition. New rates can shareholders in all our endeavors.

capacity.other than Hope Creek I. only be put in effect after required until the late 1990's. hearings.

C onsumer Panels A new dimension was added to our customer relations and information effort with the establishment of three consumer advisory panels. geographically situated to serve our three cus-tomer and marketing services divisions. Membership on the panels has been drawn from a cross-section of customer and consumer groups.

R ecession Impact Felt Even though inflation has subsided and interest rates have declined, the deep economic reces-sion continues to have a dampening effect on the Company's perfor-mance. We have intensified our efforts to reduce expenses wher- Robert I. Smith Harold W. Sonn Chairman of the Board President and ever possible. Budgets have been and Chief Executive Officer Chief Operating Officer severely cut and a cap has been placed on the number of employees.

Despite the most stringent measures. our cost of providing service continues to rise and we February 14, 1983 4

pinancial Review The gain in overall revenues to $3.87 billion from $3.47 billion E xpenses Continue in 1981 was due largely to the in- to Increase crease of $390 million in rates on Operating expenses rose to an annual basis that became effec- $3.42 billion. up $302 million. or tive on February 14. A $73.9 9.7 per cent from $3.12 billion in million rise in the gas raw materials 1981.

adjustment charge beginning in Production costs increased October also was a factor. These by $69.7 million. a rise of 3.5 per revenue increases were offset par- cent. Electric production expenses D spite a lingering tially by a lowering of the electric declined 4.9 per cent. mainly be-and deepening economic energy adjustment charge which cause of greater use of lower-cost will reduce revenues by $250 mil- nuclear and coal-fired generation.

recession in 1982, revenues lion for the 13-month period that Gas production costs. which include and earnings increased, began in June. the cost of natural gas. rose 18.5 although electric sales Electric revenues accounted per cent.

dropped 2. 7 per cent and gas for 66 per cent of the total, rising Prices of purchased natural sales fell 1.04 per cent, to $2.54 billion. an increase of 9.5 gas continued to increase mainly compared with 1981. Declines per cent. Gas revenues composed because of higher wellhead prices the other 34 per cent. increasing to permitted under the Natural Gas in the rate of inflation and in

$1.33 billion. or by 15.8 per cent. Policy Act of 1978. Costs of raw interest rates were positive The sources of the 1982 materials to manufacture gas also factors in an otherwise bleak revenues by customer classification increased.

economy that handicapped were: Electric Gas Combined Labor costs increased by performance. $40.8 million. or 15.9 per cent.

Residential 31% 54% 39% New two-year agreements reached Commercial 39 28 35 in June. which ended a 41 -day Industrial 28 18 25 strike by two unions representing Street Lighting 2 some 4.600 employees. provided 1

_ a_n_

d_o_th

_ e_

r _ _ _ __ _ _ _ _ 1 wage increases of 8.25 per cent in Tot al 100% 100% 100% the first year and 8.0 per cent in 1

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1 the second. Improvements in employee benefits made total Earnings and Capitalizat ion increases of 10.81 per cent in Dividends per Share Ratios (Year-End) the first year and 9.02 per cent 3.50 100 in the second. The total cost on a company-wide basis is estimated at 3.00

$38 million in the first year of the 80 contract and an additional $34 2.50 million in the second.

As a result of the Company"s 2.00 60 higher revenues. New Jersey gross receipts taxes increased to $514 1.50 million from $462 million. a rise of 40 11 .3 per cent.

20 1978 79 80 81 82 1978 79 80 81 82

• Earn ings

• Dividends Common Equity

• Preferred Stock

• Long -Term Debt 5

Such circumstances included the dismiss the Company's petition con-E arnings Rise cancellation of nuclear plant tending that a previous BPU order The Company's earnings per projects no longer needed and the requires the Company to show share of Common Stock in 1982 in- sale of the Company's transporta- "emergent" circumstances to be al-creased to $3.24 from $2.63. an tion subsidiary. Decisions on the lowed to file for rate relief before increase of 23.2 per cent. The im- taxability of dividends are governed July 1. 1983. The Company has provement reflected the $390 by Internal Revenue Service rules opposed the motion. which is million rate increase effective in and are based on calculations of the currently being considered by the February. The average number of Company's estimated tax liability. BPU. If the case is allowed to pro-common shares outstanding rose ceed. public hearings would be during the year to 89.2 million required. and the statutory review from 81.0 million in 1981. e ition Filed period would delay the effective for Increase of date of any new rates until late in 1983.

$465 Million in Rates In its order in the Company's D ividend Increased On January 7. 1983. the last rate case the BPU allowed a The quarterly dividend on Company petitioned the New Jer-10.67 per cent return on rate base Common Stock was increased in sey Board of Public Utilities (BPU) and 16 per cent on common equity.

the second quarter of 1982 to 64 for an annual increase of $464.5 The Company's actual return on cents a share from 61 cents paid in million in base rates. The request equity of 12.2 per cent during the first quarter. The increase was was necessary because the Compa-1982 was far short of the return the seventh in as many years. ny's cost of providing service con-allowed in the rate decision.

Total dividends paid for the tinues to increase. Of the amount.

year amounted to $2.53 per share $397.4 million would be in electric compared with $2.44 in 1981. revenues. a 15.6 per cent increase.

Dividends paid in 1982 on all and $67.1 million in gas revenues. a E lectric Acljustment classes of stock are fully taxable. 4.5 per cent increase. The petition Charge Lowered Due to special circumstances in asks for a return on rate base of In June. the Company some prior years. portions of divi- 11.66 per cent and 17 per cent on reduced its electric levelized energy dends were determined to be a common equity. adjustment charge by $250 million return on capital and therefore On January 18. the Public for the period through June 30.

non-taxable as current income. Advocate of New Jersey moved to 1983. The reduction. which did not The 1982 Income Dollar Where It Went

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• To

affect earnings, lessened the impact Public Advocate and Atlantic City would be included in the revenue-on customers of the $338 million Electric Company. which owns requirement calculation. Any such increase in electric base rates that 5 per cent of the unit. The agree- adjustment would have the effect became effective in February. ment is subject to approval by the of reducing earnings.

The reduction was made BPU which began hearings pre- Under the agreement. adjust-possible by additional nuclear gen- liminary to making a decision. ments would not be made for over-eration from the second Salem unit. There is a provision in the runs due to extraordinary events.

a decline in oil prices. purchases of agreement that the Public Advocate On the other hand. there power at lower cost. and comple- will not challenge the need for would be a benefit to the Company tion of the recovery of nearly all Hope Creek before any state or if the unit should be completed for electric energy costs from previous federal agency. Earl ier. the Advo- less than $3.55 billion. Revenue periods. cate had questioned the need for requirements for rate making On January 13. 1983 the and the ultimate cost of the unit. purposes would be calculated at Company requested permission The agreement provides a actual plant cost plus an additional from the BPU to lower the energy targeted in-service date of Decem- return on 20 per cent of the adjustment charge by an additional ber 1986 and a targeted cost at the amount under $3.55 billion. No ad-

$104 million for the 17-month time of commercial operation of justment to revenue requirements period beginning February 1. 1983 $3.795 billion, including approxi- would be made if the unit costs be-through June 30. 1984. The pro- mately $995 million of Allowance tween $3.55 billion and $3.795 posed reduction was based on for Funds Used During Construc- billion.

projections of a greater percentage tion (AFDC).

of nuclear generation than previ- The Company had estimated ously estimated and lower oil and the cost of the unit between $3.55 coal prices. The BPU took the re- billion and $3.795 billion. including C onstruction quest under consideration. $950 million of AFDC. The differ- Expenditures Up ence between the estimate and the Expenditures for construc-targeted amount represents poten- tion. including Allowance for Funds tial cost overruns that were Used During Construction (AFDC).

G as Adjustment indicated in an independent study payments for nuclear fuel and ad-Charge Increased the Company commissioned in vances to subsidiaries. increased to Effective September 30. the 1981. $842 million in 1982 from $717 BPU approved an increase in the At the end of 1982. Hope million in 1981 . Construction gas raw materials adjustment Creek was more than 60 per cent expenditures in 1983 are estimated charge to provide $73.9 million in completed and expenditures were at $904 million. including $129 additional revenues. The increase is closely tracking construction cost million of AFDC.

designed to cover higher prices the estimates. The Company's estimate Expenditures for all projects.

Company expects to pay for natural of the cost of the unit is still be- including Hope Creek I. in the five gas through September 1983. tween $3.55 billion and $3.795 years through 1987. are estimated Changes in federal regulation are billion. of which 5 per cent is the at $3.8 billion. including $736 permitting progressively higher share of Atlantic City Electric million of AFDC. Of the total.

natural gas prices. Company. expenditures for nuclear generating The agreement provides that facilities and fuel will be about the Company's rate base revenue $2.35 billion or 62 per cent of the requirements at the time of com- overall figure. As indicated in the C ost Containment mercial operation of the unit would accompanying table. annual expen-Agreement on be adjusted to reflect only 80 per ditures are projected to peak in Hope Creek Unit cent of any reasonable cost over- 1984. and then decline to less than A cost containment runs up to 10 per cent above the one-half in 1987 after completion agreement for the Hope Creek I targeted amount. Should the unit's of Hope Creek I.

nuclear generating unit was signed cost exceed the target figure by Over the next five years. the in August with the New Jersey more than 10 per cent. only 70 per Company expects with adequate Department of Energy, the state cent of the additional overruns rate relief to generate at least half 7

Activities of members of the Board of Directors are not limited to meet-ings and committee assignments but include inspection trips to various Company locations. In November 1982 the directors, accompanied by senior management, inspected the Company's nuclear facilities. The trip included tours of the Salem and Hope Creek stations and of the new Nuclear Training Center.

of its construction expenditures In April the Company issued amount of 12 1/a per cent. 30-year internally. excluding AFDC. The bal- $23.500,000 principal amount of First and Refunding Mortgage ance of the requi rements wi ll be 12 1/z per cent. 30-year First and Bonds.

provided through permanent fi - Refunding Mortgage Pollut ion Con - The Company also raised nancing by the issuance of Mort- trol Bonds. $80.7 million through the sale of gage Bonds. Preferred Stock and Four million shares of almost four million shares of Com -

Common Stock. Common Stock were sold in August man Stock under the Dividend Estimated Construction to a group of underwriters at Reinvestment and Stock Purchase Expenditures (Including AFDC) $22.53 a share. Proceeds to the Plan. and $16.4 million through Year 1983 1984 1985 1986 1987 Company from this sale totaled issuance of shares under the Em-

$90.120.000. ployee Stock Pu rchase Plan. the Tax (Millions)

Totals $904 $971 $884 $659 $401 In September. the Company Reduction Act Employee Stock sold $100.000.000 principal Ownership Plan. and the Thrift Plan .

amount of 14% per cent. 30-year Proceeds from the sale of S ecurities Sold During 1982 th e Company First and Refunding Mortgage Bonds. At the same ti me 350,000 shares of 12.80 per cent Cumula-these securities were used to repay short-term debt incurred in con -

nection with the Company's raised more than $443 million tive Preferred Stock. $100 par construction program. Short-term through the sa le of Mortgage value, were sold. needs were financed through the Bonds. Preferred St ock and Com - In December. the Company sale of commercial paper. At year man Stock. sold $100,000.000 principal end there was no short-term debt

_ _ _ _ _ _ _ _ _ _ _ ___,__ _ _ _ _ _ _ _ _ _ _ __, outstanding.

A venues Opened for Financing Abroad Early in the year the Company negotiated a $75 million revolving credit agreement with several major European banks to provide an alternative source of short-term capital. Subsequently, PSE&G Over-seas Finance N.V.. a wholly-owned Netherlands Antilles subsidiary. was formed . The financial subsidiary will be able to provide the Company with access to long-term capital markets abroad .

D ividend Reinvestment Plan Adds Participants There were 67.572 holders of Common Stock participating in the Company's Dividend Reinvest-ment and Stock Purchase Plan at the end of 1982. This was a 26.5 per cent increase from the 53,435 enrolled at year-end 1981.

8

Members of the Board of Directors and senior management were given an update on plant operations at the Salem Generating Station and a progress report on Hope Creek construction during their tour of the fa-cilities. Nuclear Department personnel conducted the tours. The November meeting of the Board was held at the Nuclear Training Center.

Effective January 1. 1983 greater flexibility was provided in the optional cash investment fea -

ture of the Plan. Stockholders may now make optional cash invest-ments at anytime up to $20.000 a year. The limit was previously set at

$5.000 in each quarter.

Holders of record of $1.40 Dividend Preference Common Stock and Preferred Stock. both

$100 and $25 par. also may partici-pate in the Plan. Dividends on these issues are used to purchase Com-mon Stock at 100 per cent of market price average. Common Stock dividends are reinvested at 95 per cent of the market price average.

Federal income tax rules pro-vide that individual stockholders may exclude from gross income.

and thereby defer taxes on divi-dends reinvested in Common Stock S tockholders At the end of 1982. stock-under provisions of the Plan. Indi -

holders of record totalled 268.696 viduals may defer taxes on up to

$750 in reinvested dividends and compared with 273.132 at the those filingjoint returns may defer close of 1981. a decrease of 1.6 per up to $1.500 of such dividends cent. They included 230.485 under qualified public utility plans owners of Common Stock; 11.806 each year. This provision will be in holders of $1.40 Dividend Prefer-effect for the years 1982 through ence Common Stock; 14.946 1985 inclusive. holders of Preferred Stock -

$1 00 Par; and 11.459 holders of Preferred Stock - $25 Par.

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Nuclear Operations Consolidated Q utstanding Performance Salem No. 2 was available 97 per cent of the time in 1982 and for the first eight months of the N uclear operations of by Salem No. 2 year led all U.S. nuclear units in An outstanding performance total output. an excellent record for the Company were consoli- a new unit. For all of 1982. the dated during the year at the by the No. 2 nuclear unit at the Salem Generating Station in its first unit's output was second in the na-site of the Salem and Hope tion only to Peach Bottom No. 3.

full year of commercial operation Creek Generating Stations was a major factor in boosting nu- one of two nuclear units at that with the establishment there clear production to 34 per cent of station.

of the headquarters of the total electric output in 1982. Salem No. 1 was shut down Overall nuclear production for refueling and maintenance on newly-formed Nuclear October 15. During the operating Department. came from four units in which the Company shares ownership with cycle between refuelings the unit The department, created was available nearly 98 per cent other utilities. The units are the in the Fall of 1981, has the two at the Salem station. which the of the time. Return of the unit to responsibility for the safe and Company built and operates. and service. originally scheduled for two at the Peach Bottom station in early January 1983. was delayed.

efficient operation of the Pennsylvania. The Company has a Repairs in a low pressure river Company's nuclear facilities. service water system that cools Most employees involved in 42.59 per cent interest in Salem and a 42.49 per cent interest in equipment in various support sys-nuclear activities were trans- tems required more extensive work Peach Bottom.

ferred from Newark to Salem than originally anticipated.

during the year.

N uclear Training Center Opened Construction was completed during the year on the Nuclear Training Center which is located in Salem. N.J., about eight miles from the Salem and Hope Creek stations. Classes for personnel of the stations, which previously had been held in temporary quarters.

were begun at the center.

In addition to classrooms. the center has laboratories. shops and other facilities to support a wide variety of training courses.

Major installations at the cen -

ter wi ll be the plant simulators to train control room operating per-sonnel of the stations. The Salem A broad curriculum that covers the various aspects of nuclear operations is simulator was delivered in early provided at the Nuclear Training Center. 1983. Delivery of the Hope Creek Dedication of the Center is planned to simulator is scheduled in 1984.

take place in April 1983.

10

P.roduction

& Distribution Peak demand of 7.042 mega- Generating Capacity watts occurred on July 19. an Forecast increase of 0.1 per cent from the peak of 7.034 megawatts on July Planning Instilled Per Cent Year Peak Load Capacity Reserve

9. 1981. The record high of 7.159 (Megawatts) megawatts was reached on July 21.

1983 7.025 8,999 28 1980.

1984 7,220 8.999 25 E

The maximum day*s output of 1985 7.390 8.999 22 134.654 megawatthours also 1986 7,555 9,099 20 occurred on July 19. The figure was 1987 7,740 10,013 29 lectric output de- 1.1 per cent less than the 136.113 1988 7.915 10,013 27 clined by 2.0 per cent in 1982 megawatthours output on July 9.

1989 8,070 10,0 13 24 1981. and 4.2 per cent below the as sales dropped because of all-time high of 140.591 mega- 1990 8,200 10,0 13 22 the continuing economic 1991 8.315 10.0 13 20 watthours on July 21. 1980.

recession , customer conser- 1992 8,395 10,329 23 At the time of the system vation , and cooler summer peak load. the Company had an weather that reduced de- installed generating capacity of mand for air conditioning. 8.995 megawatts, or an installed capacity reserve of 28 per cent. At L ess Oil Used Total megawatthours pro- the end of the year installed gener-duced , purchased and for Generation ating capacity also was 8.995 interchanged amounted to The Company continued to megawatts.

cut back its use of oil for electric 31 .6 million, compared with The accompanying table generation in 1982. As a result.

32.2 million in 1981 . shows the planning peak electric only 10 per cent of the year's elec-loads. installed operating capacities tric output was fueled by oil, down and per cent reserves anticipated from 13 per cent in 1981.

for the next ten years.

The reduction was achieved by increased nuclear and coal-fired Electric Peak Load and Installed Gas Peak Sendout and Daily generation. Nuclear provided 34 Capacity at Time of Peak Capacity at Time of Peak per cent of the electric output. up (Millions of Kilowatts) (Millions ofTherms) from 25 per cent in 1981. Coal ac-10.0 20 9.5 19 counted for 30 per cent compared 9.0 18 with 27 per cent the previous year.

8.5 8 .0 17 16 A total of 463 million therms 7.5 15 of natural gas. equivalent to 7.6 7.0 14 million barrels of oil, was used at a 6.5 13 6.0 12 cost savings of approximately $62 5.5 11 million. although gas use was lower 5.0 10 4.5 9 than in 1981. Additional savings of 4.0 8 $2.3 million were realized through 3.5 7 spot market purchases of coal 3.0 6 2.5 5 and oil.

2.0 4 During the year. 5.8 million 1.5 3 1.0 barrels of oil, down 23 per cent 0.5 1 from 1981. and 2.1 million tons of 0

1973 74 75 76 77 78 79 80 81 82 0

Heating 1972 73 74 75 76 77 78 79 80 81 coal, up 5 per cent. were purchased Season 73 74 75 76 77 78 79 80 81 82 for New Jersey electric production Peak Load 24 -Hour Peak Sendout

• Installed Capacity

• Manufactured Gas facilities.

• Winter Storage Natural Gas

• High Load Factor Natural Gas 12

PSE&G's capability to obt ain greater amounts of low-cost, coal-generated power from utilities in western Pennsylvania and the M idwest was improved with the installation of 230.000 - volt capacitor banks at two switching stations. Work was the fi rst phase of a Pennsylvania - New Jersey - Maryland Interconnection project to improve transmission capability.

to operate the two Salem units and E el Prices Stabilize Hope Creek I through the early Oil and coal prices were fairly 1990's.

stable. The average price of low The availability of lower cost sulfur heavy fuel oil purchased to uranium from these sources has generate electricity was $33.08 per resulted in the further deferment barrel. 7.0 per cent lower than in of deliveries under a long-term 1981. Coal prices for New Jersey contract with Kerr-McGee Nuclear facilities increased 4.6 per cent Corporation. It is anticipated that above the- 1981 level. The increase the project for supplying this was due to increased transporta- contract will remain in a standby tion costs and higher mine labor condition until January 1986.

costs. Resumption of production after Comparative fuel costs in that date will be at the option of 1982 per million British thermal the Company.

units were: oil $5.51; coal $2.28; Under the Kerr-McGee con -

gas $3.98 and nuclear 66 cents. tract. $40.5 million had been The Company's electric output advanced as of December 31. 1982 by sources in 1982 compared with to finance mining and milling facili-1981 follows: ties. The Company advanced 70 per cent of the amount and the co- Edison. In addition. the project Source 1982 1981 owners of the Salem and Hope included a second 345,000-volt Coal 30% 27% Creek stations advanced the bal - interconnection between the Oil 10 13 ance. Of these advances. $14.5 Company's Waldwick switching Natural Gas 12 17 million. including $4.7 million of station in Bergen County and Con Nuclear 34 25 interest. has been recovered Edison 's Ramapo substation in Purchased and through credits against the pur- Rockland County. NY.

Interchanged 14 18 chase price of uranium concen- The new interconnections and trates delivered by Kerr-McGee. associated 230,000-volt reinforce-100% 100% Recoupment of unrecovered ments within the Company system advanced payments will depend will permit increased interchange upon the sale of uranium to the of power between the two compa -

Company or other buyers. or Kerr- nies and provide more reliable and McGee's sale of the project economic operations.

U ranium Prices properties.

Continue to Decline During 1982. the demand for uranium on a national basis contin-ued to decline and prices on the M ercer Station spot market reached a low of $17 a C on Edison Link Among Most Efficient pound in August. Major U.S. Completed Mercer Generating Station.

producers purchased surplus After several years of con - which has two large coal -burning uranium to meet their obligations struction. a second 345.000-volt units each with a capacity of 306 rather than operating mining and cable connecting the Hudson megawatts. in 1982 ranked among milling facilities at a higher cost. Generating Station with Consoli- the most efficient facilities in the The Company has long term dated Edison Company's Farragut nation for the second consecutive contracts for the supply of substation in Brooklyn was placed year.

uranium. It is expected that suffi- in service in July. The 20-year old station had cient uranium will be provided The cable was part of a com - an overall heat rate efficiency of from these contracts and from con - prehensive project to reinforce 9.331 Btu/Kwhr. Heat rate is a tracts to be negotiated in the future existing interconnections with Con method employed to measure the 13

Critical maintenance has been expedited and costs reduced for work previously contracted outside the company through the operation of the Central Maintenance Shop. Work at the shop includes overhaul and repair of steam and gas turbines.

efficiency of the conve'rsion of . In 1981 the Company volun- previous record of 14,812,000 energy avai lable in fuel to electrical tarily initiated a program to elimi- therms set on January 12. 1981 energy. It is one of several factors nate all pole-top capacitors filled when the average temperature used to assess the economic opera- with polychlorinated biphenyls was 6°F.

tion of a generating unit or plant. (PCBs) over a ten-year period.

Mercer station achieved a heat rate The schedule was revised in 1982 efficiency of 9.272 Btu/Kwhr in to comply with the provisions 1981 and ranked fourth in the of a Federal law passed in August D aily Gas Capacity nation when figures were compiled requiring removal of the capacitors Improved in mid-1982. by 1988. The Company's daily gas Over the last several years the capacity increased by 129.000 Company has emphasized a pro- therms in 1982. This increase gram of maintenance and rehabili - reflected the additional purchase of tation of generating units and G asSendout firm pipeline transportation service stations. This rehabilitation. which Unchanged for deliveries of gas from storage.

included the Mercer station. has in- In 1982 the Company's total The daily capacity of 19,139.000 creased the capability of generating gas sendout was 2.15 billion therms on December 31 was com -

units in achieving higher levels of therms. virtually the same as that posed of:

efficiency. availability and reliability. sent out during 1981. The warmest Type of Gas Therms Per Day December on record offset gains Natur al Gas 14,592,000 due to customer conversions from Liquefi ed Petroleum Gas 1,981 .000 oil to gas heating and colder D istribution weather early in the year. Oil Gas 1,186,000 Synthetic Natur al Gas 1.1 25.000 System Expanded A new record peak day send-The Company's distribution Refi nery Gas 255.000 out of 16.201,000 therms was set system was expanded with the on January 17. 1982 when the Total 19,139,000 installation of a new substation and average temperature was - 4°F.

seven new 13.000-volt circuits. This was 9.4 per cent over the A dequate Supplies of Gas Continue Deliveries of pipeline gas by interstate suppliers were curtailed by only 0.2 per cent compared with 0.7 per cent in 1981 and 1.2 per cent in 1980. making three consec-utive years that virtually full con-tract amounts were available to the Company.

The natural gas supplies re-ceived in 1982 were obtained under long-term contracts with three interstate pipelines. from wells owned by Energy Develop-ment Corporation. a Company subsidiary. and t hrough several short-term arrangements with other gas companies.

14

The amount of natural gas facilities on Staten Island. New Deliveries of natural gas to purchased for distribution to cus- York. to store domestic natural gas the Company totaled 159 million tomers totaled 2.02 billion therms. for use by the Company and others therms in 1982. The subsidiary is approximately the same as in 1981. during periods of peak demand. the third largest source of gas sup-The average cost of natural Operation of the tanks. ply to the Company.

gas was $3.59 per million Btu in owned by Energy Terminal Services EDC operations reflected the 1982 compared to $2.95 per mil- Corporation (ETSC). a Company industry-wide slump in drilling lion Btu in 1981. This increase of subsidiary. will require construction activity. During the year EDC drilled 21 .7 per cent was attributable to of a liquefaction unit and other a total of 57 wells. a decline of 15 the higher wellhead prices allow- facilities including a pipeline under per cent from 1981. Of the total. 29 able under the Natural Gas Policy the Arthur Kill to New Jersey. The were onshore and 28 offshore.

Act of 1978 and rate increases put Company's investment in ETSC at Onshore operations were con-in effect by the Company's pipeline the end of 1982 was $76.3 million. centrated in the Gulf Coast region suppliers. During early 1982 the pro- of Texas and Louisiana. The result cessing of the applications before of onshore drilling was 14 success-FERC proceeded with the submis- ful wells and 15 that were aban-sion of evidence and hearings on doned. At year end three onshore S upplemental Supplies economic. need, environmental and wells were still being drilled.

The Company supplements its safety issues. The FERC staff issued Offshore activity included ex-natural gas supplies with gas pur- a Final Supplement to its Environ- ploratory drilling on six untested chased from Exxon's Bayway mental Impact Statement which lease blocks and development drill-Refinery and. in the coldest periods concluded that the proposed facility ing to delineate prior discoveries.

of the winter season. with gas would be designed with sufficient During the year 24 wells were manufactured in Company-owned safeguards to either prevent acci- classified as successful and four facilities. dents or reduce the impact of were abandoned. There were two Refinery gas purchases in credible accidents. offshore wells still being drilled at 1982 amounted to 93.8 million At year end. the FERC pro- year end.

therms. compared to 92.3 million ceedings were still pending. ETSC therms in 1981. The cost of this gas must also satisfy requirements of averaged $4.76 per million Btu the U.S. Department of Transporta-compared to $6.04 per million Btu in 1981. This reduction in cost was principally the result of a renegotia-tion relating to pipeline safety.

G as System Grows More than 280 miles of main tion of the pricing provisions in the and service lines were added to the contract. underground gas distribution sys-The total production of manu-R ecord Earnings tem during 1982. The total was factured gases amounted to 30.2 by Exploration Unit slightly less than in 1981 because of million therms in 1982 compared Energy Development Corpo- a decline in the number of custom-to 29.0 million therms in 1981. ration. (EDC). the Company's ex- ers who converted to gas from oil ploration subsidiary. achieved heat. The connection of nearly record earnings for the fourth con- 150,000 customers since 1978.

secutive year despite reduced natu- primarily conversions. necessitated ral gas and oil production. numerous reinforcement projects A pproval Sought Revenues from the sale of to insure adequate pressures and for LNG Facilities natural gas and oil totaled $73.2 supplies throughout the service The Company continued to million. a decrease of 2.7 per cent territory.

seek the required Federal Energy from 1981. Net income increased Regulatory Commission (FERC) ap- 4.8 per cent to $12.0 million as a proval to place in service two lique- result of reduced operating fied natural gas tanks and related expenses.

15

customer A computer-based system together with up-to-date facilities have pro-vided higher efficiency in operations and enhanced service to customers.

Representatives are able to respond more expeditiously to customer in-

&Marketing Services quiries with pertinent data, including records of customer accounts, readily available on video display screens. Service also has been stream-lined at centers in downtown urban areas.

Under a new field organiza- The modernization program.

tion there are three divisions - together with a new sophisticated northern. central and southern - computer system. has provided a which oversee nine district offices. major advance in the handling of 15 customer service centers and customer accounts. inquiries and two separate meter reading offices. work orders.

In addition. there is a centralized The first full year of opera-customer services division which is tion of the two customer inquiry responsible for two inquiry and ac- and accounting centers. opened A major reorganiza-tion and relocation of counting centers and a bi ll payment processing center.

Greater efficiency and pro-during 1981 in Newark and Bor-dentown. also has resulted in a significant improvement in service.

ductivity has been realized along More than 3.4 million cus-customer and marketing with improved customer service tomer service and billing ca lls were operations , begun in 1980, under the new arrangement which handled with an average response was virtually completed in reflects changing population pat- time of 51 seconds. Additional im-1982. terns. particularly growth of subur- provements in service will take ban areas. in the Company's service place over the next several years as territory. new developments are implemented.

Large. antiquated commercial Meter reading was improved offices have been replaced by leas- and costs were reduced by the use ing a lesser amount of office space of hand-held microprocessors in a in modern buildings. Customer ser- trial program. The microprocessors vice centers. conveniently located in will be used system-wide in 1983.

downtown urban areas. provide At the end of 1982. the places where customers can con- Company had 1.705.481 electric tinue to pay bills and make service customers and 1.319.745 gas inquiries. cust omers.

16

The Company formed three consumer advisory panels with representa-tives drawn from the northern, central and southern customer service divisions. The panels represent various social , economic and civic inter-ests and will serve as new communication links with customers. First meetings of the panels featured a slide presentation covering various facets of the Company's operations.

collection results until 1983 since G as Heating A quaS or Program they were fully operational only Program Accelerated Gets Under Way during the last half of 1982.

In t he fi rst three quarters of The Company's solar water A late payment charge for 1982. customer requests for gas heating program. an outgrowth of commercial and industrial custom-service declined because of the a three-yea r demonstration project. ers was approved by the New weak economy and a stabilization was implemented in 1982. The first Jersey Board of Public Utilities.

in oil prices. An accelerated ma rket- installation was completed late in effective in January 1983. The ing and advertising program was the year and the Company plans a charge places a portion of the rising undertaken that emphasized the promotional campaign in 1983. cost of collection on customers who advantages of gas for heating. The program. named "Aqua- pay bills late.

including the fact that gas contin- Sol ". offers residential customers ues to cost less than oil. whose homes meet certain criteria During the year. 24,761 new a choice of two systems at a cost of gas customers were connected of between $3.500 and $4.000. E fforts Expanded whom 22.335 were residential. One system uses electricity 2.183 commercial and 243 indus- for backup and the other uti lizes to Prevent Energy Theft The Company's energy theft trial. The residential cust omers in- natural gas. A family of five could prevention program was strength-cluded 17.267 who converted from expect a solar system to provide up ened during the year. In a pilot oil to gas heat. Of these. 9.329 to half of their annual hot water project. an eight-member team of were connected in the last quarter requirements.

specially-trained employees was of the year.

formed to coordinate efforts in the In the electric heating market.

growing customer acceptance of heat pumps continued to increase because of the cost effectiveness of Bm Collection Improvement Program prevention. detection and investiga-tion of thefts of energy. as well as the collection of revenues due.

A bill collection improvement The expanded program will these energy conserving systems.

During the yea r. 337 commercial program designed to reduce the include inspections of metering and number of late payments and service equipment. installation of and industrial and 2.021 residential heat pumps were installed. uncollectible accounts was initiated. security devices. computerized State and municipal author- Additional personnel were assigned statistical analysis designed to to collections and new procedures indicate abnormal usage. and legal ities continued to upgrade street lighting facilities which resu lted in were implemented. actions. The pilot project will pro-10.257 installations of efficient The full impact of these initia - vide a basis for a system-wide high sodium lights. In addition. tives is not expected to be seen in program.

5.837 dusk-to-dawn units were in-stal led. bringing the total to more than 89.000. These installati ons benefit customers by providing greater safety and security and the Company by the use of electricity in off-peak periods.

Total gas and electric connec-tions made in 1982 will provide an estimated $85 million annually in additional revenues.

17

conservation An associate marketing engineer checks a customer's boiler system to

& Load Management determine the feasibility of conversion to gas. Marketing engineers act as liai-sons between the Company and indus-trial and commercial customers.

The Company programs are high efficiency air conditioners and responsive to an increasing desire heat pumps. home sea l-up services of customers to conserve energy and the utilization of cogeneration.

and to help customers. especially Subsidized loans to customers those in low income brackets. to for financing the installation of deal with increasing energy costs. energy saving equipment will be I n 1982, the Company developed an accelerated plan for conservation, cogen-The potential cost-benefits of these programs are somewhat uncertain and each will be re -evaluated on a periodic basis so as to optimize conservation expenditures.

The programs include subsi -

made through banks. The loans are on a zero-interest basis for custom-ers with family incomes of less than

$30.000 a year. Loans to families with income from $30.000 to

$50.000 carry an interest subsidy eration and load manage- dization of loans to finance major equal to one-half the prevailing ment. The New Jersey Board home energy saving measures. consumer loan rate.

the promotion of low cost home The energy audits are pro-of Public Utilities (BPU) ap-energy audits and weatherization vided under the existing Home proved the plan in November assistance. Included also are Energy Savings Program (HESP).

and directed other utilities in rebates to customers who install The promotion includes additional the state to file similar programs.

The plan resulted from a BPU order in March providing for recovery by the Company of the abandonment costs of the No. 2 Hope Creek unit.

The Company worked with the BPU to develop a plan that would enhance conser-vation and energy efficiency.

Three Energy Update Seminars were con-ducted for management personnel of large industrial and commercial customers. These sessions provided energy information to assist customers in planning . budgeting and operating their facilities .

18

As part of the Company's conservation and load management activities a number of devices are being evaluated. In a coolness storage unit (left),

ice is made at night when demand for electricity is low, and then used for cooling during daytime periods of peak electric demand. Another device ,

a heat pump water heater, removes heat from air in home basements and utilizes it in water heating systems.

advertising and a complimentary the plan. A study also is being made Community Energy System. In insulation kit to those who have of the en.ergy savings potential of a addition. negotiations are under their home audited. refrigerator rebate program. way with others. including the Port Energy audits for small com - In addition. the Company will Authority of New York and New mercial and industrial businesses offer reports and graphs to large Jersey. for energy from proposed also are conducted for a nominal volume customers served under resource recovery facilities.

fee. Other facets of the program time-of-day large power and light Cogeneration is not new with will include a conservation center and high tension rate schedule the Company. Electricity and pro-staffed by experts with a toll-free classifications that will give them cess steam have been cogenerated number to handle customer in- analytical tools in determining how since 1957 at the Linden Generat-quiries. and a mobile energy con - to better manage their use of elec- ing Station. The steam from the servation exhibit. trical energy. cogeneration process is exchanged Weatherization assistance In the area of cogeneration. with the adjacent Exxon Bayway includes the offering of do-it- the Company is developing an Refinery for boiler fuel and water.

yourself kits to low-income cus- informational program for new and The Company already has de-tomers as well as grants through a existing customers to increase their veloped a load management pro-state agency. Weather stripping and awareness of this process. Included gram designed to result in a reduc-caulking are parts of the seal -up is a screening guide to assess tion in projected peak demand by services offered in the new pro- cogeneration feasibil ity. A some 1.000 megawatts by 1995.

gram. These will be provided at a computerized technical and eco- including interruptible load esti-nominal fee to gas or electric heat- nomic analysis program will be mates of about 465 megawatts.

ing customers. Certain weatheriza - made available to customers con- The program involves influencing tion services will be offered free sidering cogeneration projects. customer use of electricity through of charge to selected low-income The Company will purchase means of specialized devices. con-residents in the Company's service energy from cogenerators and trol equipment and innovative rate territory. small power producers. Contracts making. The interruptible service Rebates to customers who in - have been signed to purchase elec- rate now available to large indus-stall high efficiency air conditioners trical output from two projects. trial and commercial customers and heat pump equipment are part the Paterson Falls Hydroelectric already has resulted in about 130 of the load management aspect of Station and the Trenton Integrated megawatts of controllable load.

19

A promotional program was launched to attract high technology indus-Area tries to New Jersey. Television , radio and print media were utilized to fea-ture testimonials from leading business executives in the state . Shown Development during taping of a commercial is Robert H. Franklin, PSE&G Vice President - Public Relations, (left) and Josh Weston , President and Chief Executive Officer of Automatic Data Processing Company.

Recognizing the state*s strength. the Company has con-ducted highly-rewarding promotional campaigns that have attracted numerous office.

research. light industrial and distribution facilities of national Te and international corporations.

Demand for office space in New Jersey by domestic and trend in New Jersey. particularly in the Company's territory. toward a service-oriented economy from one with a heavy indus-trial base. continued during the year. Despite a somewhat soft market, the location and construction of new office facilities stayed at a high level, spurred by ever-increasing cost of space in New York City. Southern New Jersey also continued to attract firms seeking office space.

foreign firms remained relatively out of every ten private and federal strong in 1982. This was aided by a research dollars is spent in the campaign that promoted New Jer- state.

sey as the "'Headquarters State:

• High technology firms pro-vide the state with an opportunity to replace companies andjobs lost in the traditional manufacturing H igh Technology sector and to accelerate economic Firms Sought growth.

In the second ha lf of the year. During the year. 306 major efforts focused on attracting high industrial and commercial firms.

technology industries for which the employing approximately 17.700.

state has distinct advantages. New located or expanded in the Compa-Jersey has more scientists. engi- ny"s service territory. Lost were 44 neers and technicians per capita companies. employing 7.200. leav-than any other state in the nation. ing a net gain of about 10.500 jobs.

There are more than 650 academic and industrial laboratories and one 20

Typical of commercial development in PSE&G's service area is this project under construction in Teaneck. The complex, named Glenpointe, will in-clude a 14-story, 350 - room Loews hotel, two office buildings, 40 shops and 300 t own houses.

three million square feet of office 2.208 building permits that have R apid Meadowlands space; a 100.000-square-foot retail resulted in $493 million in con-Development complex; 4.000 residential units struction and the creation of more Major development continued and a 156-room Hilton Hotel. than 39,000 permanentjobs.

during the year in the Meadow- The Hackensack Development lands with the most significant Meadowlands Commission over-project being " Harmon Meadow." sees development of the 20.000-the newest project of Hartz acre district in Hudson and Bergen Mountain Industries. The $1 billion counties. Since its inception in U rban Revitalization Progress continued in urban development will include more than 1968. the Commission has issued revitalization in downtown Newark and New Brunswick during the year. Construction advanced in Newark on The Prudential Insur-ance Company's $53 million Gate-way Ill office building. and the $33 million One Washington Park build-ing neared completion. Johnson &

Johnson 's $73 million new corpo-rate headquarters was in the final construction stages and a $20 mil-lion Hyatt-Regency Hotel opened in New Brunswick.

The Port Authority of New York and New Jersey announced that. if legislative approval is ob-tained. it plans to provide $100 million in site improvements toward a proposed $500 million renewal project in Hoboken.

The project. to be located along the Hudson River. north of the former Erie Lackawanna Rail -

road Terminal. would include a 400-room hotel. 670 residential units. retail stores. 1.4 million square feet of office space and a large marina.

More than eight million persons at-tended events during 1982 at the New Jersey Sports and Exposition Authority's complex in the Meadowlands. Profes-sional hockey was added to the attrac-tions as the Meadowlands arena became the home of the New Jersey Devils of the National Hockey League. The complex also includes Giants Stadium and the Meadowlands Racetrack.

21

Research A significant step in PSE&G's aquaculture program was achieved in 1982 when "Pocono Springs" rainbow trout were sold in supermar-

& Development kets. Marketing followed about 10 years of research in aquaculture using the warm-water discharge from the Mercer Generating Sta-tion. Limestone Springs hatchery operations in Richland , Pa ., leased in 1979, expanded production of trout to a million pounds per year.

A major portion of the Company's research activities are carried out by PSE&G Research Corporation. a subsidiary estab-lished in 1977 to facilitate work on near and long-term energy projects.

Tai During the year. the Research Advisory Council. formed in 1979.

continued to provide advice to research and devel- PSE&G Research Corporation and opment expenditures in 1982 serve as a communications link with the public. The council. com -

were $16.8 million. Partially posed of 21 prominent citizens offsetting these costs was representing a broad public

$3.8 million obtained from interest. reviews research and sales and reimbursements. Of development programs. including the balance, $4. 7 million was the level of funding. from an eco-spent for internally-conducted nomic and social viewpoint.

activities and $8.3 million The Company also was went to support research by selected during the year to install a gas recovery system at a landfill industry-sponsored organizations.

W aste Energy adjacent to the new headquarters Applications and environmental center of the Since 1979. the Company has Hackensack Meadowlands Develop-operated an experimental system ment Commission. The system will to recover methane from a landfill supply gas to a generating unit in Cinnaminson. N.J. Methane is a which will feed power into the elec -

gas generated by decaying matter tric grid.

in the landfill. The gas is being sold to a metal processing plant near the site.

During the year. methane H ydrogen Generating from the landfill also was used to System Tested heat a small greenhouse in which A prototype advanced elec-vegetables and flowering plants trolyzer. a device for making hydro-were grown. The plants responded gen from water. was installed at well to the growing conditions in- Sewaren Generating Station during duced by heat prod uced by burning the year. The testing of the elec-the landfill gas. trolyzer is ajoint project of the Company. the Electric Power Research Institute. and the General Electric Company.

The project will seek to demonstrate. over a two-year period. the economic and technical feasibility of producing hydrogen for Company use instead of pur-chasing it from outside firms.

Hydrogen is used for cooling zz

Computerized scanning electron microscope at PSE&G Research and Test-ing Laboratory is vital for testing metal samples in evaluation of piping and other equipment utilized at Company facilities. Testing includes anal-ysis of failures. Metallurgical analysis is one of a number of services marketed commercially by the Laboratory.

generators during the production nomically competitive with conven - During the year the Company of electricity. tional peaking generation. was allocated an additional $1.9 Advanced design electrolyzers Photovoltaic generation million in funds to continue battery hold the promise of a more eco- would require extensive capital in- testing and to install an advanced nomic and reliable source of hydro- vestment and more land space than zinc-chloride battery system pro-gen. The prototype electrolyzer conventional alternatives but it duced by Energy Development utilizes a solid polymer electrolyte could make some contribution to Associates. a subsidiary of Gulf originally developed for fuel cells meeting future energy needs. + Western Industries. Funding of and oxygen generators used in the the project is provided principally space program. by the U.S. Department of Energy and the Electric Power Research E nergy Storage Institute. the research arm of the The Company has been a electric utility industry.

leader in the development of S olar Electric Study energy storage systems. These sys-The Company and RCA Lab- tems store electricity generated at oratories in Princeton. N.J. com - times of low demand when it is less pleted a study in 1982 on the expensive to produce for use later L aboratory Work potential long-range applications of at periods of peak demand. Expanded

_ _ _ _ _ _ _ _ _ _ _ __.__ _ _ _ _ _ _ _ _ _ _ ___, The Company's Research and Testing taboratory continued in 1982 to help insure a high level of operating efficiency and reliability in service for customers. The Lab-oratory provides testing and anal -

ysis programs that measure the quality of materials and equipment used throughout the Company's system.

These programs were expanded to emphasize the use of nondestructive examination and vibration analysis of equipment to monitor performance and lessen failures in energy production and distribution.

Laboratory services in testing

---

~--------------l and analysis are commercially avail -

photovoltaic generation as a central The major project in this area able to other utilities. industries station type of power plant in is the Battery Energy Storage Test and organizations. For the past New Jersey. RCA has been doing (BEST) facility which is located in several years this type of work has research work since 1974 on Hillsborough. N.J.. adjacent to a produced additional revenue for thin -film amorphous-silicon solar Company substation. Construction the Company. In 1982. such work cells which appear to have poten- of the facility was completed in included the testing and calibration tial for providing a major cost 1981 and testing operations began of power systems at industrial sites breakthrough. in 1982 using a 1.8 megawatt- as well as several municipally-Based on RCA projected costs hour lead-acid battery. the world's owned substations.

for a conceptual photovoltaic largest. Results of initial tests indi-power plant to be built in the cate that batteries can play a 1990's. electric power produced significant role in making electric from the sun could become eco- system operations more efficient.

23

community Two PSE&G financial specialists were among 900 men and women volun- ,

teers from across the nation who served during the 1982 summer on '

& Employee Relations President Reagan's Private Sector Survey on Cost Control in the federal government. The two PSE&G representatives were Eileen Moran, a senior J financial analyst. and Frank Cassidy, manager of engineering economics, shown in Washington during a break from their survey work.

Special programs emphasiz- November addressed the New York ing educational development for Society of Security Analysts.

youths in minority groups in urban The Company's Speakers*

areas received support. Bureau presented more than 295 Two training programs were talks before approximately 14.000 conducted for unemployed youth persons.

among minorities who were More than 17.600 persons T.

referred to the Company by the visited the Second Sun the Compa-Greater Newark Private Industry ny's energy information center at the Salem Generating Station.

Company during Presentations were made on energy-related topics and other 1982 continued to participate subjects of community interest to in various community activi- civic. social and school groups.

ties in its service territory. More than 190.000 persons at-Employees served in many tended these presentations.

volunteer positions in numer- An Energy Education Advisory ous civic, cultural and Committee consisting of 15 ele-educational organizations. mentary. secondary and college educators was formed by the Particular emphasis was Company during the year. The com-placed on maintaining the mittee will provide recommenda-Company's long-standing tions for the development of commitment to agencies and energy educational activities.

groups that work to improve Initially. the committee reviewed the quality of life of com- and evaluated educational texts and other materials on energy which munities, especially in urban resulted in the Company's pur-areas. chase of sets of appropriate material that will be made available to schools on a loan basis.

Council. The purpose of the pro-grams was to provide skills for the unemployed that are needed within E mployees the business community. Company employees at the end of 1982 totaled 13.118 com-pared with 12.782 at the close of 1981. Wages and salaries for the C ommunications year totaled $379 million including A wide-range communications $11 million of disability benefits program was conducted in 1982 to and workers compensation.

supply information about the The Company continued to Company and its activities to stock- stress its Affirmative Action holders. the financial community. Programs in the employment of the media and the public at large. women and members of minority Information was provided on groups.

a regular basis to the media and the At the end of the year there financial community. In addition. were 1.918 female employees and senior company executives in 1.903 minority group employees.

24

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 The management of PSE&G is responsible for the integrity and employees its Policies on Business Conduct. Company Assets objectivity of the financial statements of the Company. These and Internal Control.

statements are prepared by the Company in accordance with generally accepted accounting principles applied on a consistent The firm of Deloitte Haskins & Sells. independent certified pub-basis and include the use of informed estimates where appro- lic accountants. is engaged to examine the Company's financial priate. Management believes that they present fairly the statements and issue an opinion thereon . Their examination is Company's financial condition. Information in other parts of conducted in accordance with generally accepted auditing stan-this Annual Report is consistent with these financial statements. dards and includes a review of internal controls and tests of t ransactions.

The Company maintains an accounting system established with sound accounting and business policies which are communi- The Board of Directors carries out its responsibility of finan -

cated to the appropriate personnel. The system is designed to cial disclosure through the Audit Committee currently consist-provide reasonable assurance that transactions are executed in ing of five directors who are not employees of the Company.

accordance with management's authorizations and that assets The Audit Committee meets periodically with management as are safeguarded. The concept of reasonable assurance recog- well as with representatives of the internal auditors and inde-nizes that the costs of internal controls should not exceed the pendent certified public accountants and reviews t he work of related benefits. The system. together with its related internal each to ensure that their respective responsibilities are being controls. is continually reviewed by the Company's staff of carried out. and to discuss related matters. Both groups have internal auditors. full and free access to the Audit Committee.

Accounting Principles Fuel Costs Financial statements are presented in accordance with The Company projects the costs of fuel for electric genera-generally accepted accounting principles (GAAP). As a result tion. purchased and interchanged power. gas purchased and of accounting requirements imposed under rate-making materials for gas produced for twelve-month periods.

decisions by the Board of Public Utilities of the State of New Adjustment clauses in the Company's rate structure allow Jersey (BPU) and the Federal Energy Regulatory Commis- the recovery of the excess of such projected costs over sion (FERC). the applications of GAAP by the Company differ those included in the Company's base rates through levelized in certain respects from applications by non-regulated bu si- monthly charges over the period of projection. Any under or nesses. The Company is under the jurisdiction of the FERC over recoveries are deferred and charged to operations in and the BPU and mainta ins its accounts in accordance with the period in which they are reflected in rates.

their prescribed Uniform Systems of Accounts. which are the same.

Utility Plant and Related Depreciation and Investments in Subsidiaries Amortization The cost of replacements of units of property is charged to The Company's investments in its subsidiaries. which in the utility plant. The cost of maintenance. repairs and replace-aggregate are not significant as defined by the Securities and ments of minor items of property is charged to appropriate Exchange Commission. are reported in the accompanying expense accounts. At the time units of depreciable properties financial statements on the equity method of accounting.

are retired or otherwise disposed of. the original cost less The carrying value of investments in subsidiaries is reported net salvage value is charged to the appropriate provision for under Other Property and Investments in the Balance accumulated depreciation.

Sheets. and under the equity method of accounting is ad -

justed for earnings or losses of such subsidiaries as reported Depreciation and Amortization. for financial reporting pur-under Other Income in the Statements of Income. poses. are computed under the straight-line method .

Depreciation is based on estimated average remaining lives Revenues of the several classes of depreciable property. Amortization Revenues are recorded based on estimated service rendered . of leasehold improvements is based on the term of the but are billed to customers through monthly cycle billings on lease. Depreciation applicable to nuclear plant provides for the basis of actual usage. estimated costs of dismantling or decommissioning. These estimates are reviewed continuously and necessary adjust-Amortization of Deferred Items ments are made as approved by the BPU. Depreciation Deferred debits are amortized and recovered through rates provisions stated in percentages of original cost of depreci-as prescribed by the BPU. Also see note 5 of Notes to Finan - able property are 3.52% for 1982. 3.49% for 1981 and cial Statements for further information . 3.48% for 1980.

25

Amortization of Nuclear Fuel Allowance for Funds Used During Construction Nuclear energy burnup costs are charged to fuel expense on Allowance for funds used during construction (AFDC) is a the basis of the number of units of thermal energy produced cost accounting procedure whereby the cost of financing as they relate to total thermal units expected to be produced construction (interest and equity costs) is transferred from over the life of the fuel. The rate calculated for fuel used at the income statement to construction work in progress all of the Company's nuclear units includes a provision for (CW! P) in the balance sheet. This results in treating such cost estimated spent fuel disposal costs. By rate order effective in the same manner as construction labor and material costs.

February 14. 1982 amounts previously not permitted to be The rates used for calculating AFDC were 8 1/2% for 1982 recovered were recorded and are being recovered through and 8% for 1981 and 1980 which were within the limits set the levelized energy adjustment clause. by FERC.

Income Taxes As a result of BPU rate orders. the Company is allowed to The Company and its subsidiaries file a consolidated Federal include a portion of CWIP in rate base on which a current income tax return and income taxes are allocated. for return is permitted to be recovered through operating reve-reporting purposes. to the Company and its subsidiaries nues. Starting in 1982. the BPU allowed the Company to based on taxable income or Joss of each. include in rate base an additional $125.000.000 of CWIP.

raising the total amount to $375,000.000. No AFDC is Deferred income taxes are provided for differences between accrued on this level of CWIP which is included in rate base.

book and taxable income to the extent permitted for rate-making purposes. Pension Plan Investment tax credits are deferred and amortized over the Pension costs are determined on the basis of an acceptable useful life of the related property including nuclear fuel. actuarial method and are charged to operating expenses.

utility plant and other accounts. The Company's policy is to The Company's tax normalization practices are in compliance fund pension costs accrued. Prior service costs are being with the requirements of the Economic Recovery Tax Act of funded over a period of 35 years which began January 1.

1981. 1967.

26

For the Years Ended December 3 1. 1982 198 1 1980 Operating Revenues (Thousands of Dollars)

Elect ric $2.543.191 $2.322.042 $2.083.900 Gas 1.330.785 1. 149.610 9 10. 154 Tota l Operating Revenues 3.873.976 3.47 1.652 2.994.054 Operating Expenses Operation Fuel fo r El ectric Generation and Intercha nged Power - net 959.382 1.059.539 866.802 Gas Purchased and Materia ls fo r Gas Produced 821.479 692.3 19 5 13.988 Ot her 452.115 385. 149 322.220 Maintena nce 220.456 192.768 169.8 13 Depreciation and Amortization 192.860 178.532 169.987 Amortization of Property Losses (note 5) 43.345 15.362 11.024 Taxes Other than Federal Income Taxes 553.241 474.979 43 1.890 Federal Income Taxes (note 1) 176.639 11 8.737 13 1.1 78 Tota l Operating Expenses 3.419.517 3. 117.385 2.6 16.902 Operating Income 454.459 354.267 377.152 Other Income Allowance for Funds Used During Construction - Equ ity 58.367 5 1.877 45.655 Earnings of Subsidiaries - net (note 2) 10.460 9.490 4.83 1 Miscellaneous - net 7.118 6.290 5.428 Total Other Income 75.945 67.657 55.914 Income Before Interest Charges 530.404 42 1.924 433.066 Interest Charges Long -Term Debt 198.413 184.133 173.199 Short-Term Debt 13.978 16.574 11 .236 Other 8.246 882 5. 127 Allowance for Funds Used During Construction - Debt (33.060) (43.802) (3 1.897)

Net Interest Charges 187,577 157.787 157.665 Income Before Extraordinary Items 342.827 264.137 275.401 Extraordinary Items. net of income tax (notes 3 and 5) 6.3 16 Net Income 342.827 264 .137 28 1.7 17 Dividends on Cumu lative Preferred Stock and

$1 .40 Dividend Preference Common Stock 53.865 51.538 46.341 Earnings Available for Common Stock $ 288.962 $ 212.599 $ 235.376 Shares of Common Stock Outstanding End of Year 94.844.596 86.089.491 76.6 14.995 Average for Year 89.233.028 80.962.344 73.068.848 Earnings per average share of Common Stock before Extraordinary Items $ 3.24 $ 2.63 $ 3. 13 Extraordinary Items. net of income tax (notes 3 and 5) .09 Earnings per average share of Common Stock $ 3.24 $ 2.63 $ 3.22 Dividends paid per share of Common Stock $ 2.53 $ 2.44 $ 2.29 See Summary of Significant Accounting Policies and Notes to Financial Statements.

27

December 31 . 1982 1981 Assets Utility Plant Original cost (Thousands of Dollars)

Electric Plant $4.638.440 $4.459.245 Gas Plant 1.083.183 1.020.236 Common Plant 137,650 126.561 Nuclear Fuel 60,987 55.445 Utility Plant in Service 5.920,260 5.661.487 Less Accumulated Depreciation and Amortization 2.065.510 1.874,668 Net Utility Plant in Service 3.854,750 3.786.819 Construction Work in Progress 2.157,900 1.637.277 Plant Held for Future Use 22.416 21.997 Net Utility Plant 6.035.066 5.446.093 Other Property and Investments Nonutility Property. net of accumulated depreciation - 1982. $2.675: 1981. $204 11.702 8.408 Investments in and Advances to Subsidiaries (note 2) 287.934 261.010 Total Other Property and Investments 299.636 269.418 Current Assets Cash (note 4 ) 9.981 5.595 Working Funds 24.308 10.665 Pollution Control Bonds Escrow Funds 4.108 Temporary Cash Investments 49.900 Accounts Receivable. net of allowance for doubtful accounts -

1982. $13.291 : 1981 . $12.563 376.589 377.924 Unbilled Revenues 182.287 176.948 Fuel. at average cost 261 ,9 17 218.223 Materials and Supplies. at average cost 44.659 40.071 Prepayments 8 .743 8.646 Total Current Assets 962.492 838.072 Deferred Debits (note 5)

Extraordinary Property Losses Hope Creek Unit 2 262,767 290.750 Atlantic Project 260.412 275.472 Other 3.330 3 .632 Gross Receipts Taxes 12.899 31.867 Unamortized Nuclear Fuel Disposal Costs 47.269 Unamortized Debt Expense 23.096 23.639 Total Deferred Debits 609.773 625.360 Total $7.906,967 $7.178.943 See Summary of Significant Accounting Policies and Notes to Financial Statements.

28

1982 1981 Liabilities Capitalization (Thou sands of Dollars)

Common Equity Common Stock (see statements. page 32) $1.610.879 $1.423.739 Premium on Capital Stock 557 557 Paid-In Capital 26.185 26.143 Retained Earnings (see statements. page 31) 888.262 827.497 Total Common Equity 2,525.883 2.277.936 Preferred Stock without mandatory redemption (see statements. page 32) 554.994 554.994 Preferred Stock with mandatory redemption (see statements. page 32) 111.250 77.913 Long-Term Debt (see statements. page 33) 2.579.782 2.410.823 Total Capitalization 5.771.909 5.321.666 Current Liabilities Long -Term Debt due within one year 48.243 2.230 Preferred Stock to be redeemed within one year 381 Commercial Paper (note 6) 207.551 Accounts Payable 263.913 262.734 Taxes Accrued. including New Jersey Gross Receipts Taxes -

1982. $514.378: 1981 . $4 75.856 535.318 492.010 Deferred Income Taxes. Unbilled Revenues (note 1) 83.852 81.396 Interest Accrued 57.925 47.750 Gas Purchased 107.583 83.641 Other 49.927 45.111 Total Current Liabilities 1.147.142 1.222.423 Deferred Credits Accumulated Deferred Income Taxes (note 1)

Deferred Electric Energy and Gas Fuel Costs - net (32.595) 45.619 Extraordi nary Property Losses Hope Creek Unit 2 108.223 126.327 Atlantic Project 109.493 115.896 Depreciation and Amortization 358.545 312.595 Other (6.851) 11.577 Accumulated Deferred Investment Tax Credits (note 1) 301.420 113.890 Over (Under) recovered Electric Energy and Gas Fuel Costs - net (note 5) 66.672 (98.146)

Nuclear Fuel Disposal Costs (note 5) 58.622 Other 24.387 7.096 Total Deferred Credits 987.916 634.854 Commitments and Contingent Liabilities (note 8)

Total $7.906.967 $7.178.943 29

For the Years Ended December 31. 1982 1981 1980 Funds Provided (Thousands of Dollars)

Income before Extraordinary Items $ 342.827 $264.137 $275.401 Add (Deduct) Items not affecting Working Capital Depreciation and Amortization 304.319 23 1.43 1 207.650 Recovery (Deferral) of Electric Energy and Gas Fuel Costs - net 164.818 104. 199 (28.068)

Provision for Deferred Income Taxes (note 1)

Depreciation and Amortization - net 45,950 37,716 39.136 Extraordinary Property Losses - net (24.507) 119.991 (4.571)

Deferred Electric Energy and Gas Fuel Costs - net (78.214) (48.188) 12.634 Other - net (18.428) (4.640) (3.262)

Investment Tax Credits - net 205,261 4.998 5 .844 Allowance for Funds Used During Construction (AFDC) (91.427) (95.679) (77.552)

Equity in Net Earnings of Subsidiaries (10.460) (9.490) (8.610)

Other (963) (1.419) 141 Total Funds from Operations 839.176 603.056 418.743 Income from Extraordinary Items - net (notes 3 and 5) 6.316 Related Items not affecting Working Cap ital 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 839.176 603.056 456.433 Net proceeds from sales of Long-Term Debt 221.022 99.320 99,042 Preferred Stock 34.646 49.456 Common Stock 186,883 171.420 144.839 Total Security Sales 442.551 320.196 243.881 Total Funds Provided $1.281.727 $923.252 $700.314 Funds Applied Additions to Utility Plant. excluding AFDC $ 721.948 $588.170 $547.978 Cash Dividends 281.459 249.061 215.158 Advances to Subsidiaries 16.464 31.026 45.154 Reductions of Long-Term Debt 50.553 5.572 34.345 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 11.602 17.506 (6.011)

Total Funds Applied 1.082.026 959.085 836.624 Changes in Working Capital - Increase (Decrease)

Short-Term Debt 207,551 (26.686) (85.990)

Long -Term Debt due within one year (46.013) 30.835 (8.866)

Cash 4.386 1.844 (1.654)

Working Funds 13.643 1.288 1.154 Pollution Control Bonds Escrow Funds 4,108 (1 1.248)

Temporary Cash Investments 49,900 Accounts Receivable (1.335) 25.929 118.8 11 Unbilled Revenues 5,339 13.602 49.469 Fuel 43.694 35. 164 7 .363 Accounts Payable (1.179) (56.838) (84.580)

Taxes Accrued (43.308) (55.860) (73.500)

Deferred Income Taxes (note 1) (2.456) (6.257) (22 .756)

Gas Purchased (23.942) (8.762) (25.934)

Other * (10.687) 9 .908 1.42 1 Net Increase (Decrease) in Working Capital 199.701 (35.833) (136.310)

Total Funds Applied and Changes in Working Capital $1.281.727 $923.252 $700.314 See Summary of Significant Accounting Policies and Notes to Financial Statements.

30

For the Years Ended December 31 . 1982 1981 1980 (Thousands of Dollars)

Balance January 1 $ 827.497 $ 813.181 $ 747.076 Add Net Income 342.827 264.137 281.717 Total 1.170.324 1.077.318 1.028.793 Deduct Cash Dividends Preferred Stock. at required rates 51 .984 49.657 44.414

$1 .40 Dividend Preference Common Stock 1.881 1.881 1.881 Common Stock* 227.594 197.523 168.863 Total Cash Dividends 281.459 249.061 215.158 Capital Stock Expenses 603 760 454 Tota l Deductions 282.062 249.821 215.612 Balance December 31 $ 888.262 $ 827.497 $ 813.181

• Restrictions on the payment of dividends are contained in the Charter. certain of the indentures supplemental 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. 1982 was $878.262.000.

See Summary of Significant Accounting Policies and Notes to Financial Statements.

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 statements of In our opinion. such financial statements. appearing on capital stock and long-term debt of Public Service Electric pages 25 to 39. inclusive. present fairly the financial and Gas Company as of December 31. 1982 and 1981 and position of Public Service Electric and Gas Company as of the related statements of income. retained earnings. and December31.1982and 1981 andtheresultsofits changes in financial position for each of the three years in operations and the changes in its financial position for the period ended December 31. 1982. Our examinations each of the three years in the period ended December 31.

were made in accordance with generally accepted audit- 1982. in conformity with generally accepted accounting ing standards and. accordingly. included such tests of the principles applied on a consistent basis.

accounting records and such other auditing procedures as we considered necessary in the circumstances.

February 14. 1983 31

Current Certain Outstanding Redemption Refundings Shares Price Restricted December 31 . (note A) Per Share Prior to 1982 1981 (Thousands of Dollars)

Nonparticipating Cumulative Preferred Stock (note B)

With Mandatory Redemption (note C)

$100 par value - Series 12.25% 266.306 $112.00 2/1/85 $ 26.631 $ 27.913 13.44% (500.000 shares issued in 1981) 500.000 113.44 4/ 1/86 50,000 50.000 12.80% (350.000 shares issued in 1982) 350.000 112.80 10/ 1/87 35,000 Less amount to be redeemed within one year 381 Preferred Stock with Mandatory Redemption $111.250 $ 77.913 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 4.08% 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 5.05% 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% 500.000 103.00 50.000 50.000 8.08% 150.000 103.00 15.000 15.000 7.80% 750.000 103.00 75,000 75.000 7.70% 600.000 106.56 60.000 60.000 8.16% 300.000 106.86 30.000 30.000 Preferred Stock without Mandatory Redemption (no changes in 1981 and 1980) $554.994 $554 .994 Dividend Preference Common Stock and Common Stock

$ 1.40 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 150.000.000 shares (note F): issued and outstanding as $1.610.879 $1.423.739 of December 31. 1982. 94.844.596 shares and as of December 31. 1981 . 86.089.491 shares (8.755.105 shares issued for $187.140.000 in 1982: 9.474.496 shares issued for

$ 171.636.000 in 1981: and 7.700.646 shares issued for $ 145.279.000 in 1980)

Notes A. In addition. there are 1.733.752 shares of $100 par value and 25.000 shares annually at the option of the Company. all at a re-6.400.000 shares of $25 par value Cumulative Preferred Stock demption price of $100 per share. On September 30. 1988. the which are authorized and unissued. and which upon issuance may 12.80% series will become subject to a mandatory annual sinking or may not provide for mandatory sinking fund redemption. fund redemption of 17.500 shares which is cumulative. plus re-B. As of December 31. 1982 the annual dividend requirement and demption of up to an additional 17.500 shares annually at the embedded dividend costs were $14.462.000 and 13.18%. respec- option of the Company. all at a redemption price of $100 per share.

tively. for Preferred Stock with mandatory redemption and These series are subject to optional redemption upon payment of

$40.629.000 and 7.38%. respectively. for Preferred Stock with- the applicable optional redemption price. A redemption of shares of out mandatory redemption. any series also requires payment of all accumulated and unpaid divi-If dividends upon any shares of such stock are in arrears to an dends to the date fixed for redemption.

amount equal to the annual dividend thereon. voting rights for the D. Preferred Stock without mandatory redemption is subject to re-election of a majority of the Board of Directors become operative demption solely at the option of the Company upon payment of the and continue until all acccumulated and unpaid dividends thereon applicable redemption price plus accumulated and unpaid dividends have been paid . whereupon all such voting rights cease. subject to to the date fixed for redemption.

being again revived from time to time. E. Each share of $1.40 Dividend Preference Common Stock is enti-C. The 12.25% series is subject to a mandatory annual sinking fund tled to cumulative dividends. to two votes. and. on liquidation or redemption of 17.500 shares which is cumulative. plus redemption dissolution to twice as much as each share of Common Stock. There of up to an additional 17.500 shares at the option of the Company. were no changes in outstanding shares in 1982. 1981. or 1980.

all at a redemption price of $100 per share. An aggregate of F. Includes 18.273.462 shares of Common Stock reserved for 12.822 shares. 27.672 shares and 43.200 shares of the 12.25% possible issuance under the Company's Dividend Reinvestment and series were purchased and redeemed in 1982. 1981 and 1980. re- Stock Purchase Plan. Tax Reduction Act Employee Stock Ownership spectively. On March 31. 1987. the 13.44% series will become sub- Plan. Employee Stock Purchase Plan and Thrift Plan.

ject to a mandatory annual sinking fund redemption of 25.000 See Summary of Significant Accounting Policies and Notes to Financia l shares which is cumulative. plus redemption of up to an additional Statements.

32

December 31 , 1982 198 1 1982 1981 (Thousands of Dollars) (Thousands of Dollars)

First and Refunding Debenture Bonds unsecured Mortgage Bonds (note A) 4%% October 1. 1983 $ 24.800 $ 24.832 Series 5%% June 1. 199 1 39.597 40.557 7 1/40/o December 1. 1993 28.385 29.329 3 1/4% October 1. 1983 $ 21,294 $ 21.304 3 1/4% May 1. 1984 50,000 50.000 9 % November 1. 1995 54.694 56. 145 7%% August 15. 1996 57.340 59.040 4% % November 1. 1986 50,000 50.000 8%% November 1. 1996 42.010 43.059 4 7/aO/o September 1. 1987 60.000 60.000 6 % July 1. 1998 18,195 18, 195 4% % August 1. 1988 60.000 60.000 5 1/aO/o June 1. 1989 50,000 50.000 Total Debenture Bonds 265.021 271. 157 4%% September 1. 1990 50,000 50.000 Other Long -Term Debt 4%% August 1. 1992 40,000 40.000 6 1/2% Note due serially to 4%% June 1. 1993 40.000 40.000 November 15. 1983 720 1.200 4% % September 1. 1994 60.000 60.000 Total Long -Term Debt 4% % September 1. 1995 60,000 60.000 Principal amou nt out-6 1/4% June 1. 1997 75.000 75.000 standing (notes Band C) 2.633.376 2.4 16.502 7 % June 1. 1998 75.000 75.000 Less amount due within 7%% Apri l 1. 1999 75.000 75.000 one year (note D) 48.243 2.230 9 1/aO/o March 1. 2000 98.000 98.000 Long-Term Debt excluding 8%% A May 15. 200 1 69,300 69.300 amount due within one 7%% B November 15. 2001 80.000 80.000 year (not e D) 2.585.133 2.4 14.272 7 1/2% C Ap ril 1. 2002 125.000 125.000 Net Unamort ized Discou nt (5.351) (3.449) 8 1/2% 0 March 1. 2004 90.000 90.000 Long-Term Debt less 12 % E October 1. 2004 10,730 10.730 Net Unamortized 8%% F Ap ril 1. 2006 60.000 60.000 Discount $2.579.782 $2.4 10.823 8.45% G September 1. 2006 60.000 60.000 8 1/4% H June 1. 2007 125,000 125.000 8 1/aO/o I September 1. 2007 59,900 59.900 Company may terminate the commitments. in whole or in pa rt.

9%% J November 1. 2008 100,000 100.000 without penalty or premium. Under the agreement. any borrow-9%% K July 1. 2009 100.000 100.000 ings outstanding at Apri l 1. 1984 are convertible. at the Company"s option . into th ree year term loans. The Compa ny is required 12 % L November 1. 2009 125.000 125.000 to pay commitment fees of 3!a of 1% per annum on the first 12 1/aO/o MJune1.20 10 100,000 100.000 $125.000.000 and 1/s of 1% per annum on the next $75.000.000 157/aO/o N August 1. 1991 100.000 100.000 of any unused portion. The Company has the right. with the con-14%% 0 September 1. 2012 100.000 sent of the ba nks. to extend the agreement on a year to yea r basis.

12 1/aO/o P December 1. 20 12 100.000 D. The aggregate principa l amounts of requirements for sinking 7.463 funds and maturities for each of the five years following December 8 % June 1. 2037 7.463

31. 1982 is as fol lows:

5 % July 1. 2037 7.538 7.538 Sinking Pollution Control Ser ies Year Funds Maturities Total (Thousands of Dollars) 6.30% A October 1. 2006 14.300 14.300 1983 $1.429 $ 46.8 14 $ 48.243 6.90% B September 1. 2009 42,620 42.620 1984 6. 197 50.000 56 .1 97 6.90% C September 1. 2009 2.990 2.990 1985 6.200 6.200 12 1/2% D April 1. 20 12 23,500 1986 6.200 50.000 56.200 1987 6.200 60.000 66.200 Tota l First and Refunding Mortgage Bonds $2.367.635 $2.144 .1 45 $26.226 $206.8 14 $233.040 Notes For sinking fund pu rposes. certa in First and Refundi ng Mortgage A. The Company's Mortgage. securing t he First and Refunding Bond issues require annually the retirement of $22.400.000 pri nci-Mortgage Bonds. constitu tes a direct first mortgage lien on sub- pal amount of bonds or the utilization of bondable property addi -

stant ially all property and fra nchises. t ions at 60% of cost. The portion expected to be met by property additions has been excluded from the table above. Also. the B. As of December 31. 1982 t he annua l int erest requi rement on Company may. at its option . retire additional amounts up to Long-Term Debt was $220.828.000 of which $201.166.000 was $6.200.000 annually th rough si nking fu nds of certain debenture t he requirement for First and Refunding Mortgage Bonds. The bonds. The election of any such option is included in long-term debt embedded interest cost on Long-Term Debt was 8.60%. due with in one year C. As of December 31. 1982. the Company had unexercised com- See Summary of Significant Accounting Policies and Notes to Financial mitments under a Credit Ag reement with 12 domestic banks for Statements.

issuance of revolving loans up to an agg regate amou nt of

$200.000.000 to be outstand ing at any t ime to Apri l 1. 1984. The 33

As a result of an Internal Revenue Service (IRS) audit for tax-able years 1976 through 1978. the IRS has proposed an in -

1. Federal Income Taxes crease in taxable income which would increase tax liability by A reconciliation of reported Net Income with pre-tax income approximately $8 million. after using available investment and of Federal income tax expense with the amount computed credits of $44 million. This is primarily the result of including by mu lt iplying pre-tax income by the statutory Federal income unbilled revenues as taxable income in the year estimated tax rate of 46% is as follows : services were provided. The Company has not agreed to the 1982 1981 1980 results of this audit and is presently appealing the I RS (Thousands of Dollars) assessment.

Net Income $342.827 $264.137 $28 1.717 Investment tax credits - net for 1982 includes credits carried Federal income taxes forward from 1978 through 1981. The balance of investment included in: tax credits not utilized as of December 31. 1982. in the amount Operating income of $44 million. is available as a carryover to future years and Current provision 34.762 2.603 58.64 1 wi ll expire in 1997. Should the IRS prevail in its assessment.

Provision for deferred income taxes- net* (72.743) 111.136 66.693 this investment credit carryover would be eliminated. Invest-Investment tax credits - net 214.620 4.998 5.844 ment tax credits ca n be utilized to offset 90% of 1982 tax liability before investment credit. 80% of 1981 tax liability and Total included in operating 70% of 1980 tax liability.

income 176.639 118.737 131.178 Miscellaneous other The Company has a Tax Reduction Act Employee Stock Owner-income - net 3.265 3.586 1.703 Extraordinary Items (54 .885) ship Plan (TRASOP) under provisio ns of the Internal Reve nue Code of 1954, as amended (the Code). Such provisions permit Total Federal income tax the Company to elect an additional 1% investment tax credit provisions 179.904 122.323 77.996 ifthe Company transfers to the TRASOP an equivalent amount Subtotal 522.731 386.460 359.713 of cash for the purchase of shares of Common Stock. The Ea rnings of subsidiaries - Company may also claim an additional 1/2% investment tax net (10.460) (9.490) (4.83 1) credit if it contributes an equivalent amou nt of cash to the Pre-tax income $512.271 $376.970 $354.882 TRASOP. but only to the extent that such amount is matched by Tax expense at the contributions by participants.The Company presently estimates statutory rate $235.645 $ 173.406 $ 163.246 that all TRASOP credits claimed wi ll be utilized no later than in its 1983 tax return.

Adjustments to pre-tax income. computed at statutory rate.

for which deferred taxes are not provided under cu rrent rate -making policies: 2. Investments in and Advances to Subsidiaries Tax depreciation under book Investments in and advances to subsid iaries (including the depreciation 21 .837 18.608 16. 16 1 Company's equity in undistributed ea rnings or losses) are sum-Allowance for funds used marized as follows :

during construction (42.056) (44.012) (35.674 )

December 31. 1982 1981 1980 Overhead costs capitalized (11.500) (8.858) (7.262)

Extraordinary Items (32.543) (Thousands of Dollars)

Other (277) 445 (2 .890) Energy Development Corporation Subtotal (31.996) (33.817) (62 .208) Investment $ 37.628 $ 25.663 $ 14.245 Amortization of deferred tax Advances 172.368 151 .168 123.034 items (23.745) (17.266) (23.042) 209.996 176.831 137.279 Subtotal (55 .741) (5 1.083) (85.250) Other Subsidiaries. primarily LNG Project Advances 77.938 84.179 83.2 15 Total Federal income tax Total $287.934 $26 1.010 $220.494 provisions $179,904 $122.323 $ 77.996

• The provision for deferred income taxes represents the tax The major subsidiary included in "Other Subsidiaries" above is effects of the following items:

Energy Terminal Services Corporation (ETSC) . Its principal Current Liabilities asset. which has not been placed in operation. is a Liquefied Unbilled revenues $ 2.456 $ 6.257 $ 22 .756 Natural Gas (LNG) terminal on Staten Island in the New York Deferred Credits City harbor area. Annual expenditures for protection and main-Hope Creek Abandonment (18.104) 126.327 tenance of the terminal. including loca l real estate taxes. are Atlantic Abandonment (6.403) (6.336) (4.587) approximately $4.0 million.

Additional tax depreciation 48.791 41.479 31.799 Repair allowance property (4.524) (5.236) 6.362 The Company had originally intended to utilize the terminal for Gross receipts taxes (2.912) (2 .033) (985)

Deferred fuel costs - net (78.214) (48.188) 12.634 the importation of LNG. However. due to uncertainties and Nuclear Plant Decommissioning delays relating to the importation project. including lack of Costs (4.651) regulatory approvals which resulted in a loss of a supply of Nuclear Fuel Disposal Costs (10.150) (1.775) ( 1.492) LNG. the terminal has not been placed in operation. ETSC is Loss on reacquired debt (415) (571 ) (570) now pursuing the util ization of the two storage tanks at the Other 1.383 1.212 776 termina l to provide an LNG peaking service for the Company Subtotal (75.199) 104.879 43.937 and others. This wi ll necessitate the construction of a liquefac-tion facility at the site. The additional constructio n wi ll not pro-Tota l $ (72.743) $111.136 $66.693 ceed until the necessary permits are obtained from the 34

appropriate federal. state and local regulatory agencies. The Jersey gross receipts taxes on current revenues rather than on proposed service will increase the Company's capability to store the previous basis of taxes paid. The gross receipts taxes on supplies of domestic natural gas in order to meet the demands 1972 revenues were deferred and are being charged to opera-of its customers for gas on the coldest winter days. tions by an amount equ ivalent to 1/2% of revenues subject to the gross receipts tax. During 1983 the Company expects to If necessary permits are not received and the facilities are not amortize the remaining $ 12.9 million. less related taxes of $5.9 placed in service. the Company would anticipate seeking favora- million.

ble rate treatment from the BPU for any loss which may occur.

Any loss not provided for. in the opinion of management. would Unamortized Debt Expense not have a materia l effect on the fina ncia l position or results of These costs. associated with the issuance or reacquisition of operations of the Company. debt. are deferred and amortized over the lives of the related issues. Amounts shown in the Balance Sheets consist principally

3. Sale of Transport of New Jersey of costs associated with the Company's tender offer for its 12%

On October 14. 1980. the Company sold all of the outstanding Series E Mortgage Bonds which will mature in October 2004.

capital stock of Transport of New Jersey (TNJ) to New Jersey The Company expects to amortize $1.1 million of these costs in Transit Corporation (NJTC). an agency of the State of New Jer- 1983.

sey. for $32.1 million . This resulted in a pre-tax loss of $30.0 million which was more than offset by income tax benefits to Over (Under) recovered Electric Energy and the Company of $49.5 million. Such tax benefits resulted in a Gas Fuel Costs - net non-recurring credit to earnings for 1980 of $19.5 million or The net overrecovered costs as of December 31. 1982 consist 27C per average share of Common Stock. primarily of overrecovered electric costs of $45.2 million and overrecovered gas costs of $34 .0 million. which will be re-

4. Compensating Balances funded to customers through reduced bills during the remain-Cash at December 31. 1982 and December 31. 1981 consisted ders of the respective current levelized periods. The offsetting primarily of compensating balances under informal arrange- balance of $12.5 million represents underrecovered electric ments with various banks to compensate them for services costs from prior periods which are expected to be recouped by and to support lines of credit of $180.9 million and $178.2 mil- the end of February 1984 .

lion. respectively. There are no legal restrictions placed on the withdrawal or other use of these bank balances. In addition. at Nuclear Fuel Disposal Costs December 31. 1982 and December 31. 1981. the Company had In February 1982 previously unallowed nuclear fuel disposal

$35.0 million and $30.0 million. respectively. of lines of credit costs were recorded and amortization of such costs com-which were compensated for by fees. menced. Sa lem 2 costs are being amortized over two years and Peach Bottom 2 and 3 costs are being amortized over seven

5. Deferred Items years. The unamortized balance consists of $1.6 million applica-Abandon ment of Hope Creek Unit No. 2 ble to Salem 2 and $45.6 million applicable to Peach Bottom.

During 1983 the Company expects to amortize $8.9 million of On December 23. 1981. the Company abandoned the construc -

such costs less related taxes of $4.1 million. In 1982 the tion of Hope Creek Generating Station Unit No. 2 in Lower Company recorded $58.6 million of estimated nuclear fuel Alloways Creek Township. New Jersey. Total unrecovered costs disposal costs applicable to Peach Bottom 2 and 3 together of $290.8 million. including an estimated $67.8 million of can-with a deferred liability pending the establishment of a payment cellation and close-out costs. were charged to Extraordinary schedule by the Department of Energy (D.O.E.). Until regula -

Property Losses and the associated tax reduction of $126.3 tions are issued by the D.O. E.. the Company is presently unable million was included in Accumulated Deferred Income Taxes.

to determine when payments of the deferred liability will com-On March 4. 1982. the BPU authorized the transfer of $112 mence or the amounts of such payments.

million of Hope Creek 2 costs to Hope Creek 1 and recovery of

6. Bank Loans and Commercial Paper all after-tax abandonment costs for Hope Creek 2 from custom-ers through the levelized electric energy adjustment clause. The Bank loans represent the Company's unsecured promissory recovery is over 15 years on an accelerated method which com- notes issued under credit arrangements with various banks and menced June 1982. During 1983. the amount of amortization have a term of eleven months or less. Such notes were issued to will be $33.2 million. less related taxes of $13.5 million. a limited extent in 1981.

Abandonment of Atlantic Proj ect Commercial paper represents the Company's unsecured bearer In December 1978. the Company cancelled its floating nuclear promissory notes sold to dealers at a discount with a term of plant project which was to have consisted of four generating nine months or less. Certain information regarding short-term units. The BPU is allowing the Company to recover the costs debt follows:

relating to the project over a period of 20 years commencing 1982 1981 on April 17. 1980 exclusive of $18.6 million which. after a re- (Thousands of Dollars) lated tax reduction of $5.4 million. resulted in a net extraordi - Maximum amount outstanding at any nary charge to income in 1980 of $13.2 million or 18C per month end $216.015 $207.55 1 average share of Common Stock. Average daily outstanding (A) $107.950 $101.226 Weighted average annual interest rate (B) 12.95% 16.27%

Costs are being amortized in the amount of $15.1 million annu - Weighted average interest rate for ally. less related taxes of $6.3 million. commercial paper outstanding at year end None 12.72%

Gross Receipts Taxes (A) Computed by dividing the sum of the daily principal amounts out-Effective January 1. 1973. the Company began accruing New standing during the year by the total number of days in the year.

35

(B) Computed by dividing short-term interest expense by the average the balance of such advances. of which approximately 30% is daily short-term net proceeds. the responsibility of the other co-owners. is dependent upon the sale of uranium concentrates by Kerr-McGee to the

7. Pension Plan Company or other buyers or upon the sa le by Kerr-McGee of The Company has a non-contributory. trusteed plan covering all the project properties. The Company cannot presently predict employees who complete one year of service. As of December the extent to which such advance payments will ultimately be

31. 1982. the unfunded prior service costs were approximately recovered. For additional information see page 13.

$323.370.000. Information on accumulated plan benefits and The Company's insurance coverages for its nuclear operations net assets follows:

are as follows: Maximum December 31. 1982 1981 Retrospective (Thousands of Dollars) Maximum Assessment for a Actuarial present value of Type and Source of Coverage Coverage singleincident accumulated plan benefits (Millionsof Dollars)

Vested $357.290 $326.343 Public Liability Nonvested 45. 782 33.616 American Nuclear Insurers $160 $None Federal Government (A) 400 ~(B )

$403.072 $359.959 --

$560 (C) $ 8.5 Assumed rate of return 10.0% 10.5% Property Damage Market value of Plan Net Assets $367.702 $283.021 Nuclear Mutual Limited (D) $500 $30.4 Nuclear Electric Insurance Limited (D) 415 7.7 The Company's annual contribution is actuarially determined to American Nuclear Insurers 67 None provide for full funding by December 31. 2001. Pension costs - - --

$982 $38.1 for the past three years were charged as follows :

Replacement Power 1982 1981 1980 Nuclear Electric Insurance (Thousands of Dollars) Limited (D) $ 2.5 (E) $13.5 Operating Expenses $50.286 $47.505 $38.042 Utility Plant and Other (A) Combined retrospective premium program under the Price-Accounts 10.344 10.954 10.284 Anderson liability provisions of the Atomic Energy Act of 1954. as amended. Subject to retrospective assessment with respect to loss Total Pension Costs $60.630 $58.459 $48.326 from incident at any licensed nuclear reactor in the United States.

(B) Maximum assessment wou ld be $17.0 million in the event of more The Company offered a special early retirement program dur- than one incident in any year.

ing the period from June 1. 1980 to October 1. 1980 to em- (C) Limit of liability under the Atomic Energy Act of 1954. as ployees meeting certain age and service requirements. Under amended. for each nuclear incident.

the program . 1.367 employees retired. Employees who retired (D) Utility-owned mutual insurance company of which the Company is under the program are paid an unreduced pension under the a member. Subject to retrospective assessment with respect to loss at Company's Pension Plan and a special supplement. initially any nuclear generating station covered by such insurance.

$500 per month and increasing to $650 per month. payable (E) Maximum weekly indemnity for 52 weeks which commences after out of the Company's general funds. The special supplement the first 26 weeks of an outage. Also provides $1.25 million weekly for ceases at age 65. upon death. or upon re-employment by the an additional 52 weeks.

Company. It is estimated that the special supplement will cost the Company $50 million over ten years beginning 1980. As al- 9. Accounting for Leases lowed by the BPU. these costs are being recovered as incurred. The Company has certain leases for property and equ ipment The unreduced pension provision under the Plan requires addi- that meet the criteria for capitalization. but in accordance with tional funding which is included in the unfunded prior service rate-making treatment are accounted for as operating leases.

cost. The capita lization of such leases would not have a significant ef-fect on assets. liabilities or expenses.

8. Commitments and Contingent Liabilities The Company has substantial commitments as part of its con - 10. Supplementary Information Concerning the Effects of struction program as well as commitments to obtain sufficient Inflation (Unaudited) sources of fuel for electric generation and adequate gas sup- The Company's financial statements are prepared in accordance plies. Construction expenditures of $3.8 billion. including $736 with generally accepted accounting principles and are stated on million of AFDC. are expected to be incurred during the years the basis of historical costs. namely. the prices that were in ef-1983 through 1987. fect when the underlying transactions occurred . The following supplementary financial information. prepared in accordance A contract with Kerr-McGee Nuclear Corporation to supply with Financial Accounting Standards Board Statement No. 33 uranium concentrates was amended in 1980 to substantially (FAS 33). is an estimate of the effects on the Company of curtail open pit mine operations. In November 1982 an agree- general inflation (Constant Dollar) and changes in specific prices ment was reached with Kerr-McGee which calls for an extension (Current Cost).

of the curtailed operations until January 1. 1986. As of Decem-ber 31. 1982. the Company and the co-owners of the Salem and The Company advises readers of the imprecise nature of this Hope Creek Generating Stations had advanced $40.5 mi llion to data and of the many subjective judgments required in the Kerr-McGee against deliveries of uranium concentrates. restatement of selected historical costs to Constant Do!lar and Current Cost. This data should not be used to make acfjust-Credits have been received amounting to $14.5 million. includ- ments to the Company's primary financial statements and the ing interest of $4 .7 million. The recoupment of $30.7 million. related earnings per average share of Common Stock other 36

than those adjustments shown in the following supplementary lower than the inflation adjusted amounts. Also required under financial data. Current Cost is the disclosure of the increase in Current Cost of Net Utility Plant held during the year and the related effect of Constant Dollar costs we re determined by adjusting historical genera l inflation . The amounts shown in the following table costs of Utility Plant and certain other items into dollars of the illustrate that during 1982 the increase in general inflation was same general purchasing power by using the Consumer Price less than the increase in the Current Cost of Net Utility Plant. Jn Index for All Urban Consumers (CPl-U). addition. the amounts shown as Adjustments of Net Utility Plant to Recoverable Cost (both Constant Dollar and Current Current Cost data purports to show the estimated cost of cur- Cost) are adjustments to Historical Cost in average 1982 dol-rently replacing existing Utility Plant and was measured by lars. Historical Cost is the amount permitted to be recovered applying primarily the Handy-Whitman Index of Public Utility under the rate regulatory process for utilities in New Jersey.

Construction Costs to the historical costs of Utility Plant.

During inflationary periods. holders of monetary assets. such as Depreciation and Amortization expense. and Amortization of cash and receivables. suffer losses of general purchasing power Nuclear Fuel (included in Electric Fuel. Interchanged Power and while holders of monetary liabilities experience gains. In 1982 Gas) were adjusted for Constant Dollar and Current*Cost using the Company's monetary liabi lities. primarily long-term debt.

the rates and methods for computing book depreciation and exceeded its monetary assets resulting in a gain. Since this gain amortization applied to the appropriate inflation adjusted is primarily attributable to long-term debt which has been used Utility Plant balances. In accordance with FAS 33. income tax to finance Utility Plant. it is netted against the amount by which expense was not adjusted. the increase in general inflation is (higher) lower than the in-crease in Current Cost of Net Utility Plant after adjustment to FAS 33 requires the disclosure of the amount required to re- recoverable cost in the following table.

flect Net Utility Plant at its Recoverable Cost if that cost is Supplementary Financial Data Adjusted for the Effects of Changing Prices for the Year Ended December 31 . 1982 (Unaudited)

Historical Cost Constant Dollar Current Cost (Condensed from the (Average (Average Financial Statements) 1982 Dollars) 1982 Dollars)

(Thousands of Dollars)

Operating Revenues $3.873.976 $3.873.976 $3.873.976 Operating Expenses Electric Fuel. Interchanged Power and Gas 1.780.861 1.784,238 1.797.299 Other Operation and Maintenance 715.916 715.916 715.916 Depreciation and Amortization 192.860 439.971 489.097 Taxes 729.880 729.880 729.880 Total Operating Expenses 3.419.517 3.670.005 3.732.192 Operating Income 454.459 203.971 141.784 Other (including Interest Expenses) (111.632) (111,632) (111.632)

Income from Continuing Operations (excluding Adjustment of Net Utility Plant to Recoverable Cost) $ 342.827 $ 92.339* $ 30,152 Increase in Current Cost of Net Utility Plant held during the year** $ 612.070 Adjustment of Net Utility Plant to Recoverable Cost $ 35.342 (150.475)

Effect of the increase in General Inflation (364.066)

Amount by which increase in general inflation is lower than increase in Current Cost of Net Utility Plant after adjustment to Recoverable Cost 97.529 Gain from decline in purchasing power of Net Monetary Liabilities 103.892 103.892 Net $ 139.234 $ 201.421

• Including Adjustment of Net Utility Plant to Recoverable Cost. Income from Continuing Operations adjusted for Constant Dollar would have been

$127.681.000.

• • At December 31. 1982 the Current Cost of Net Utility Plant was $10.136.132.000. while historical (net recoverable) cost was $6.035.066.000.

37

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 1982 dollars)

For the Years Ended December 31. 1982 1981 1980 1979 1978 Operating Revenues Historical $3.873.976 $3.471.652 $2.994.054 $2.416.707 $2.219.785 Acf)usted for General Inflation $3.873.976 $3.684.488 $3.507.216 $3.213.753 $3.284.237 Income (Loss) from Continuing Operations (excluding Adjustment of Net Utility Plant to Recoverable Cost)

Historical $ 342.827 $ 264.137 $ 275.401 $ 233.329 Acf)usted for General Inflation $ 92.339 $ 46.930 $ 115.557 $ 103.108 Acf)usted for Current Cost $ 30.152 $ (13.402) $ 39.510 $ 20.155 Income (Loss) from Conti nuing Operations per Average Common Share (excluding Adjustment of Net Utility Plant to Recoverable Cost)*

Historical $ 3.24 $ 2.63 $ 3.13 $ 2.85 Acf)usted for General Inflation $ .43 $ ( 10) $ .84 $ .62 Acfjusted for Current Cost $ (27) $ (84) $ (20) $ (65)

Amount by which increase in general inflation is (higher) lower than increase in Current Cost of Net Utility Plant after acf)ustment to Recoverable Cost $ 97.529 $ ( 190.813) $ (396.969) $ (466.956)

Cain from decline in purchasing power of Net Monetary Liabilities $ 103.892 $ 235. 151 $ 331.151 $ 362.346 Net Assets at Year End**

Historica l $3.080.877 $2.832.930 $2.646.928 $2.435.516 Acfjusted for General Inflation and Current Cost $3.046.107 $2.909.414 $2.961.404 $3.062.669 Cash Dividends Declared per Common Share Historical $ 2.53 $ 2.44 $ 2.29 $ 2.20 $ 2.08 Acf)usted for General Inflation $ 2.53 $ 2.59 $ 2.68 $ 2. 93 $ 3.08 Market Price per Common Share at Year End Historica l $23.25 $18.00 $17.00 $19.25 $20.25 Acf)usted for General Inflation*** $2325 $18.70 $19.24 $24.48 $29.18 Consumer Price Index ( 1967 = 100)

Average 289.1 272.4 246.8 2 17.4 195.4 Year End 292.4 281.5 258.4 229.9 202.9

• After deducting Cumulative Preferred Stock and $1.40 Dividend Preference Common Stock dividends on a historical basis in 1982 and in Average 1982 Dollars for prior years.

• • Equals Common Equity and Preferred Stock without mandatory redemption .

• • • Year-end 1982 Dollars.

Prices have been increasing over the last five years. The average Market price per common share at year end from 1978 to CPl -U increased from 195.4 in 1978 to 289.1 in 1982. an aver- 1982 had an average annua l increase of 3.5% or from $20.25 age annual increase of 10.3%. The increase f rom 1981 to 1982 to $23.25. Restated in year-end 1982 dollars the 1978 ma rket was 6.1 %. an indication that the rate of inflation in 1982 has price wou ld have been $29.18 instead of $20.25 resulting in an slowed. average annual decrease of 5.5% from 1978 to 1982.

Revenues for the five-year period increased from $2.220 bi l- As shown in the tables above. the gain from decl ine in purchas-lion in 1978 to $3.874 billion in 1982. an average annual ing power of net monetary liabilities was not enough to offset increase of 14.9%. Restated in average 1982 dollars. revenues the significant effect of inflation on capital costs (utility plant).

for the same peri od would have increased from $3.284 billion nuclea r fuel costs and depreciation.

to $3.874 billion. an average annual increase of on ly 4.2%.

Lack of adequate recognition of inflation in rate-making in addi -

Cash dividends declared per common share went from $2 .08 in tion to delayed rate relief accelerates attrition . thereby 1978 to $2.53 in 1982 or an average annual increase of 5.0%. co ntri buti ng to poorer cash fl ow. By the time increased costs However: such dividends wou ld have decreased at an average are included in rates. the re lated funds have already been annua l rate of 4.8% or from $3.08 in 1978 to $2.53 in 1982 expended.

when restated in average 1982 dolla rs.

38

11 . Jointly-Owned Facilities The Company has an ownership interest and is responsible for of each jointly-owned project and the corresponding direct ex-providing its share of the necessary financing for the following penses are included in the Statements of Income as an operat-jointly-owned facilities. All amounts reflect the Company's share ing expense.

Amount of Utility Plant Accumulated Provision Amount of Plant Plant Ownership Interest Jn Service for Depreciation Under Construction (Thousands of Dollars)

Coal Generating Conemaugh 22.50% $ 67.629 $ 17.642 Keystone 22.84% 55.308 17.835 Nuclear Generating Peach Bottom 42.49% 408.087 111.441 Salem 42.59% 712.198 97.571 Hope Creek 95.00% $1.825.704 Nuclear Training Center Various 6.747 132 8.130 Pumped Storage Generating Yards Creek 50.00% 16.884 3.567 Transmission Facilities Various 74.485 7.347 27.476 Merrill Creek Reservoir 13.906% 3.445 Linden Synthetic Natural Gas 90.00% 65.988 34.329

12. Financial Information by Business Segments Electric Gas Total For the Years Ended December 31 . 1982 1981 1980 1982 1981 1980 1982 1981 1980 (Thousands of Dollars)

Operating Revenues $2.543.191 $2.322.042 $2.083.900 $1.330.785 $1.149.610 $910.154 $3.873.976 $3.471.652 $2.994.054 Depreciation and Amortization 146.643 134.050 127.655 46.217 44.482 42.332 192.860 178.532 169.987 Operating Income Before Income Taxes 533.855 378.082 407.662 99.108 94.937 101.147 632.963 473.019 508.809 Gross Additions to Utility Plant 735.997 615.976 551.110 77.378 67.873 74.420 813.375 683.849 625.530 December 31.

Net Utility Plant $5.369,929 $4.813.875 $4.570.355 $ 665.137 $ 632.218 $606.894 $6.035.066 $5.446.093 $5.177.249 Gas Exploration Subsidia ry and LNG Project 287.911 261.000 220.484 287.911 261,000 220.484 Other Corporate Assets 1.148,364 1.168.539 944.195 435.626 401.457 382.932 1.583.990 1.569.996 1.327.127 Total Assets $6.518.293 $5.982.414 $5.514.550 $1.388.674 $1.294.675 $1.210.310 $7.906.967 $7.277.089 $6.724.860

13. Selected Quarterly Data (Unaudited)

The information shown below in the opinion of the Company Due to the seasonal nature of the business. quarterly amounts includes all adjustments. consisting only of normal recurring vary significantly during the year.

accruals. necessary to a fair presentation of such amounts.

Calendar Quarter Ended March 31. June 30. September 30. December 31.

1982 1981 1982 1981 1982 1981 1982 1981 (Thousands where applicable)

Operating Revenues $1.144.277 $982.938 $872.657 $733.255 $872.292 $809.805 $984.750 $945.654 Operating Income 111.347 101.669 100.839 74.1 83 126.805 94.677 115.468 83.738 Net Income 83.389 77.404 71.530 52.941 98.289 71.665 89.619 62.127 Earnings Available for Common Stock $ 70.226 $ 65.865 $ 58.386 $ 39.339 $ 84.975 $ 58.447 $ 75.375 $ 48.948 Earnings per Average Share of Common Stock $.81 $.86 $.67 $.51 $.95 $.69 $.80 $.57 Average Shares of Common Stock Outstanding 86.181 76.680 87.176 77.526 89.626 84.252 93.861 85.261 39

% Annual Increase -

1982 compared with (000 omitted where applicable) 1982 1981 1981 1972 Electric Revenues from Sales of Electricity (a)

Residential $ 791 .279 $ 728.642 8 .60 12.76 Commercial 981,795 871.377 12.67 15.61 Industrial 716.662 684.976 4.63 14.28 Public Street Lighting 37.809 33.249 13.71 9.14 Total Revenues from Sales to Customers 2.527.545 2.318.244 9.03 14.15 Interdepartmental 1.709 1.6 12 6.02 10.22 Total Revenues from Sales of Electricity 2.529.254 2.3 19 .856 9.03 14.15 Other Electric Revenues 13.937 2.186 537.56 24.59 Total Operating Revenues $2.543.191 $2.322.042 9.52 14.19 Sales of Electricity - kilowatthours (a)

Residential 7.686.548 7.795.988 (1.40) .38 Commercial 11.114.655 10.940.609 1.59 2.98 Industrial 10.017.613 10.923.042 (8.29) (1 .26)

Public Street Lighting 301 .603 275.489 9.48 2.04 Total Sales to Customers 29.120.419 29.935.128 (2.72) .64 Interdepartmental 25.154 25.567 (1 .62) (.26)

Total Sales of Electricity 29.145.573 29.960.695 (2.72) .64 Kilowatthours Produ ced. Purchased and Interchanged - net 31 .563,231 32.204.19 1 (1.99) .68 Load Factor 51 .2% 52.3%

Capacity Factor 34.7% 33.2%

Heat Rate - Btu of fuel per net kwh generated 10.677 10.725 (.45) (.01)

Net Installed Generating Capacity at December 31 - kilowatts 8.995 9.101 ( 1.16) 1.39 Net Peak Load - kilowatts (60-minute integ rated ) 7.042 7.034 .11 1.28 Cooling Degree Hours 6.329 8.615 (26.54) (1.40)

Temperature Humidity Index Hours 12.155 15.494 (21 .55) (1.71 )

Average Annual Use per Residential Customer - kwh 5.156 5.261 (2.00) (.29)

Meters in Service at December 31 1.746 1.739 .40 .53 Gas Revenues from Sales of Gas (a)

Residential $ 716.308 $ 604.521 18.49 14.56 Commercial 371.027 302.281 22.74 17.99 Industrial 241.437 240.7 11 .30 19.58 Street Lighting 350 290 20.69 14.80 Total Revenues from Sa les to Customers 1.329.122 1.147.803 15.80 16.23 Interdepa rtmenta I 1,068 1.075 (.65) 6.82 Total Revenues from Sales of Gas 1.330,190 1.148.878 15.78 16.22 Other Gas Revenues 595 732 (18.72) 15.32 Tota l Operating Revenues $1.330.785 $1.149.610 15.76 16.22 Sales of Gas - therms (a)

Residential 994.647 993.527 .11 (.47)

Commercia l 581 ,739 555.806 4.67 1.83 Industria l 465.835 5 14. 136 (9.39) (.59)

Street Lighting 331 334 (.90) (3.00)

Tota l Sales to Customers 2.042.552 2.063.803 (1.03) .10 Interdepa rtmenta I 2.090 2.430 (13.99) (7.31)

Total Sa les of Gas 2.044.642 2.066.233 (1.04) .08 Gas Produced and Purchased - therms 2.148.875 2. 145.325 .17 .17 Effective Daily Capacity at December 3 1 - therms 19,139 19.010 .68 1.19 Maximum 24-hour Gas Sendout - therms 16.201 14.812 9 .38 2.94 Heating Degree Days (a) 4.820 5.082 (5.16) (.12)

Average Annual Use per Residential Customer - therms 853 857 (.47) (.88)

Meters in Service at December 31 1.384 1.378 .44 .34 (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 1972. heating degree days remain on a sales-year basis.

40

1980 1979 1978 1977 1972

$ 684.343 $ 545.049 $ 512.071 $ 492.473 $238.025 765.356 625.596 574.557 531. 118 230, 176 598.716 484.037 444.595 414,058 188.667 32.693 31.437 29.925 27.622 15.773 2.081.108 1.686.119 1.561.148 1.465.271 672,641 1.720 1.559 1.670 1.916 646 2.082,828 1.687.678 1.562.818 1.467.187 673.287 1.072 2.179 2.016 2.931 1.546

$2.083.900 $1 .689.857 $1.564.834 $1.470.118 $674,833 8.129. 198 7.777.369 7.760,868 7.769.629 7.399.963 10.726.086 10.336.445 10.152.827 9.747.908 8.289.066 11.049.642 11.185.952 11.134.634 10.627.734 11.375,579 265.126 260.915 260,922 259.277 246.496 30,170,052 29.560.681 29.309,251 28.404.548 27.31 1.104 27.684 26.629 32.638 38,331 25.807 30.197.736 29.587.310 29.341,889 28.442.879 27.336.911 32.703.504 32.021.737 3 1.628,876 30.771.719 29,509.136 52.0% 54.3% 54.6% 50.9% 54.2%

35.6% 31 .8% 34.4% 32.7% 3B.6%

10.713 10.566 10.599 10.677 10.685 9.242 9.023 9.061 9.247 7.836 7.159 6.736 6.615 6.895 6.201 9.869 7.201 7.188 8.269 7,287 16.526 14.545 13.899 14.883 14.450 5.443 5.233 5.378 5.403 5.307 1.732 1.724 1.713 1.704 1.656

$ 515.013 $ 415.157 $ 399.134 $ 344.444 $183.953 228.577 179.970 163.931 137.811 70.953 164.762 129.665 90.240 78.474 40.38 1 282 274 248 178 88 908,634 725.066 653.553 560.907 295.375 925 790 802 572 552 909.559 725.856 654.355 561.479 295.927 595 994 596 1.198 143

$ 910.154 $ 726.850 $ 654.951 $ 562.677 $296.070 1.023.027 970.462 1.013.043 980.570 1,042.793 506,550 456.902 447.923 432.810 485.358 447.474 410.605 306.672 329.211 494.454 335 350 367 376 449 1.977.386 1.838,319 1.768,005 1.742.967 2.023.054 2.322 2.328 2.490 2.064 4.463 1.979.708 1.840.647 1.770.495 1.745.031 2.027.517 2.077.653 1.931 .549 1.852.869 1.811.019 2.112,844 18.439 18.639 18,639 18.933 16.999 14.444 13.349 12.235 14.006 12.125 5.256 4.677 5.317 5. 155 4.879 875 833 893 862 932 1.370 1.357 1.350 1.350 1.338 41

(000 omitted where applicable) 1982 1981 Condensed Statements of Income (a) Amount  % Amount  %

Operating Revenues Electric $2.543,191 66 $2.322.042 67 Gas 1.330,785 34 1.149.610 33 Total Operating Revenues 3,873,976 100 3.471 .652 100 Operating Expenses Fuel for Electric Generation and Interchanged Power - net 959,382 25 1.059.539 31 Gas Purchased and Mat eria ls for Gas Produced 821.479 21 692.319 20 Other Operation Expenses 452.115 12 385.149 11 Maintenance 220.456 6 192.768 6 Depreciati on and Amort izat ion 192,860 5 178.532 5 Amortizati on of Property Losses 43,345 1 15.362 Taxes Other than Federal Income Taxes 553,241 14 474.979 14 Federal Income Taxes 176.639 4 118.737 3 Total Operating Expenses 3.419,517 88 3.117,385 90 Operating Income Electric 383.213 10 288.087 8 Gas 71,246 2 66.180 2 Total Operating Income 454.459 12 354.267 10 Allowa nce for Funds Used During Construction (Debt and Equity) 91.427 2 95.679 3 Other Income - net 17.578 1 15.780 Interest Charges (220.637) (6) (201 .589) (6)

Income before Extraordinary Items 342.827 9 264.137 7 Extraordina ry Items. net of income ta x:

Unrecoverable costs of Atlantic Project Gain on sale of Transport of New Jersey Net Extraordinary Items Net Income 342,827 9 264,137 7 Preferred and Preference Stock Dividends 53,865 2 51,538 1 Earnings Available for Common Stock $ 288.962 7 $ 212.599 6 Shares of Common Stock Outstanding End of Year 94.845 86.089 Average for Year 89.233 80.962 Earnings per average share of Common Stock $3.24 $2.63 Dividends Paid per Share $2.53 $2.44 Payout Ratio 78% 93%

Rate of Return on Average Common Equity (c) 12.22% 9.79%

Ratio of Earnings to Fixed Charges Before Income Taxes (d) 3.32 2.87 Book Value per Common Share (e) $25.90 $25.66 Utility Plant $8,100,579 $7.320,764 Accumulated Depreciation and Amortization $2,065.513 $1.874.671 Total Assets $7.906.967 $7.277,089 Capitalization Mortgage Bonds $2.341, 142 41 $2.140.835 40 Debenture Bonds 238,640 4 269.268 5 Other Long-Term Debt 720 Tota l Long -Term Debt 2.579.782 45 2.410.823 45 Preferred Stock with Mandatory Redemption 111,250 2 77.913 2 Preferred Stock without Mandatory Redemption 554.994 9 554.994 10

$1 .40 Dividend Preference Common Stock and Common Stock 1.610.879 28 1.423.739 27 Premium on Capital Stock 557 557 Paid-In Capital 26.185 1 26.143 Retained Earnings 888,262 15 827.497 16 Total Common Equity 2,525.883 44 2,277.936 43 Total Capita lization $5.771.909 100 $5.321.666 100 (a) See Summary of Significant Accou nting Policies. page 25. Notes to (b) Excludes the net extraordinary gain of $6.31 6.000 or $.09 per Financial Statements. page 34. and Management's Discussion and Anal - share.

ysis of Financial Condition and Resu lts of Operations. page 44. (c) Balance available for $1.40 Dividend Preference Common Stock and Common Stock divided by the thi rteen-month average of Common Equity.

42

1980 1979 1978 1977 1972 Amount  % Amount  % Amount  % Amount  % Amount  %

$2.083,900 70 $1.689,857 70 $1.564.834 70 $1 .470.118 72 $ 674,833 70 910.1 54 30 726,850 30 654,951 30 562.677 28 296,070 30 2,994,054 100 2.416,707 100 2,2 19,785 100 2.032.795 100 970.903 100 866,802 29 620,546 26 54 1,802 24 538.916 27 203.381 22 513,988 17 384,759 16 327,990 15 257,897 13 117,910 12 322,220 11 287.086 12 267.731 12 250,531 12 168, 132 17 169,8 13 6 149,027 6 127.423 6 124.876 6 80,215 8 169,987 6 162,989 7 158,248 7 147,652 7 91,037 9 11,024 303 1,038 1. 185 431,890 14 364.411 15 328.216 15 293,796 14 132,827 14 131 ,178 4 123,965 5 146,937 7 120,969 6 (991 )

2,616,902 87 2,093,086 87 1,899,385 86 1,735,822 85 792.511 82 307,372 10 269.443 11 266,513 12 250,385 13 141 ,181 14 69,780 3 54,178 2 53,887 2 46,588 2 37,211 4 377,152 13 323,621 13 320.400 14 296.973 15 178,392 18 77,552 2 56,593 3 41 ,305 2 49,540 2 45.011 5 10.259 6,263 4,515 1,447 (5, 166) ( 1)

(1 89,562) (6) (153,148) (6) (137.434) (6) (133,718) (7) (102,034) (10) 275,401 9 233,329 10 228,786 10 214.242 10 116.203 12 (13,219) 19.535 6.316 28 1,7 17 9 233.329 10 228,786 10 214,242 10 116,203 12 46,341 1 46,799 2 46.799 2 45,065 2 21, 117 2

$ 235,376 8 $ 186,530 8 $ 181 ,987 8 $ 169,177 8 $ 95,086 10 76,615 68,914 64,120 59,806 43.861 73,069 65,409 61 ,783 59.243 41.541

$3.13 (b) $2.85 $2.95 $2.86 $2.29

$2.29 $2.20 $2.08 $1 .92 $1.70 73% (b) 77% 71 % 67% 74%

11 .63% 10.46% 11.01 % 10.95% 9.36%

3.14 3.36 3.77 3.52 2.08

$26.38 $26.26 $26.13 $25.57 $23.48

$6,881,209 $6,325,033 $5,810,329 $5.654,097 $3.999.474

$1,703,960 $1 .589,049 $1,447,039 $1,314,916 $ 831 ,673

$6.724.860 $6,088.766 $5,508,164 $5,125,497 $3,402.305

$2,041,556 41 $1 ,940,513 41 $1 ,692,642 39 $1,647,445 40 $1,239,602 39 276,590 5 314,726 7 322.682 7 330,812 8 430,857 14 1,200 1,680 2,160 2,640 2.319,346 46 2,256,919 48 2.017.484 46 1,980,897 48 1,670.459 53 29,750 3 1,500 35,000 35,000 554,994 11 554.994 12 554,994 13 554,994 13 374,994 12 1,252,103 25 1,106,824 23 1.014.184 23 919.752 22 622.878 20 557 557 557 557 539 26,093 1 26,065 1 26,065 1 26,065 26.065 1 813, 181 16 747,076 16 704,909 16 651.885 16 443.443 14 2,091,934 42 1,880,522 40 1,745,715 40 1,598,259 38 1,092,925 35

$4,996,024 100 $4,723,935 100 $4,353,193 100 $4.169. 150 100 $3.138,378 100 (d} Net Income plus Income Taxes. Deferred Income Taxes, Investment pense and. starting in 1980. an interest factor in rentals.

Tax Credits and Fixed Charges divided by Fixed Charges. Fixed Charges (e) Total Common Equity divided by year-end Common Stock shares include Interest on Long-Term and Short-Term Debt. Other Interest Ex- plus double the $1 .40 Dividend Preference Common Stock shares.

43

1982 - Electric kilowatthour sales decreased 2.7%. The cooler and less humid weather in 1982 and continued cus-tomer conservation were the main reasons for the 1.4%

drop in Residential sales. Also. Industrial sales declined 8.3%

as a result of the economic recession. These decreases were slightly offset by the 1.6% increase in Commercial sales.

On January 7. 1983. the Company filed a petition with the 1981 - Electric kilowatthour sales decreased .8% from Board of Public Utilities of the State of New Jersey (BPU) 1980. Despite an increase in customers. Residential sales de-designed to increase base rates by $464.5 million on an creased 4.1 % primarily due to customer conservation and annual basis. The total is comprised of $397.4 million for the cooler and less humid weather during the summer. The electric service and $67.1 mil lion for gas. The request was 1.1 % decline in Industrial sales was due to a drop in produc-necessary due to inadequate financial relief in recent rate tion levels as a result of the sluggish economy during the cases. the need for improved cash flow to complete the con - year. Commercial sales increased 2.0%. principally due to a struction program. and the decline in electric and gas sales slight increase in customers. All classes of sales continued to due to the slow economic recovery. As more fully discussed reflect the overall impact of the economic slump and the on page 6. the Public Advocate of New Jersey has moved to effect of continued energy conservation throughout the dismiss the Company's petition. The motion is currently Company's service area.

being considered by the BPU. Gas revenues rose 15.8% in 1982 and 26.3% in 1981.

A more detailed discussion of the Company's operating The principal factors are shown below:

results. liquidity and capital resources follows.

Increase or (Decrease) 1982 vs. 1981 1981 vs. 1980 Earnings and Dividends (Millions of Dollars)

Earnings per average share of Common Stock were $3.24 Changes in base rates $ 39 $ 24 for 1982. an increase of 61 Cor 23% from 1981. Increased Recoveries of gas costs 136 204 revenues. reflecting the February 1982 rate increase. out-Therm sales 6 11 paced the rise in operating costs.

Earnings per share were $2.63 for 1981. a decline of SOC $181 $239 or 16% from 1980 before giving effect to the net extraordi-nary gain of 9C in 1980. Including the 1980 extraordinary 1982 - Gas therm sales decreased 1.0%. Industrial sales items. earnings were lower by 59C per share. Revenues in fell 9.4% from 1981 primarily as a result of the continuing 1981 did not keep pace with operating costs as a result of economic recession. Commercial sales were up 4.7%. the re-continuing inflation. minimal sales growth. and lack of addi- sult of greater customer usage and an increase in customers.

tional rate relief. Residential sales were held to an increase of .1 % principally Dividends paid to holders of Common Stock have grown due to moderate weather conditions experienced late in the over the last three years rising to $2.53 per share in 1982 year and continued conservation.

from $2.44 per share paid in 1981. and $2.29 per share in 1981 - Gas therm sales increased 4.4%. Commercial 1980. Such amounts. compared to earnings before extraor- and Industrial sales increased 9.7% and 14.9%. respectively.

dinary items. resulted in payout ratios of 78%. 93%. and These gains came about as the price advantage and availabil -

73%. respectively. Total Common Stock dividend payments ity of gas continued to spur conversions from oil during the in 1982 increased 15% over 1981 and 35% over 1980 due year. Over 300 large Commercial and Industrial customers to the increase in shares of Common Stock outstanding as were added. Despite an increase in customers. Residental well as the higher dividend rate. therm sales decreased 2.9% from 1980 as winter tempera-tures were less severe and customers continued to conserve.

Revenues and Sales Substantially all revenues are subject to New Jersey gross Total revenues increased in 1982 due primarily to higher receipts taxes and as a result the amount of these taxes rates and in 1981 to greater recoveries of electric energy varies in direct proportion to revenues. The effective rate is and gas fuel costs. Electric energy and gas fuel costs follow approximately 13%.

amounts recovered through revenues. as permitted by energy cost rate orders. and therefore have no effect on Energy Costs earnings.

Electric revenues increased 9.5% in 1982 and 11.4% in The year 1982 marked the first time in over a decade that 1981. The components of these changes are highlighted in the cost of fuel for electric generation decreased. As a result of a full year's generation from Salem 2 and outstanding the table below:

performances by the two Peach Bottom units. nuclear gen-Increase or (Decrease) eration increased by more than a third over the previous 1982vs. 1981 1981 vs. 1980 year and provided 34% of the Company's total energy re-(Millions of Dollars) quirements compared to 25% in 1981. These factors made Changes in base rates $291 $ 36 it possible to reduce higher priced steam generation from oil Recoveries of energy costs (49) 216 and natural gas an average of 22%. Demands for other gen-Kilowatthour sales (33) (15) eration and Pennsylvania-New Jersey-Maryland (P JM) inter-Other operating revenues 12 1 changed power pool energy. two of the higher priced

$221 $238 sources when compared to nuclear power. were down 55%

and 39%. respectively.

44

Effective June 1982 the electric Levelized Energy Adjust- Construction Program ment Clause (LEAC). with the approval of the BPU. was re- The Company maintains a continuous construction program.

duced $250 million over the ensuing 13 months. The which includes payments for nuclear fuel and investments in reduction was made possible by an increase in nuclear and advances to energy resource subsidiaries. This program generation. a decline in oil prices. purchases of power at is periodically revised as a result of changes in economic lower cost. and completion of the recovery of nearly all elec- conditions. and depends on the ability of the Company to fi -

tric costs of previous periods. On January 13. 1983, the nance construction costs and to obtain timely rate relief.

Company filed a petition with the BPU to lower the LEAC for Changes in the Company's plans and forecasts. price a second ti me. by $104 million. for the 17-month period changes. cost escalation under construction contracts. and through June 1984. again reflecting projected greater requirements of regulatory authorities may also result in nuclear production and lower fuel costs. The BPU took the revisions of the construction program.

request under consideration. Construction expenditures of $842 million in 1982 and As a member of the PJM and as a party to several agree- $717 million in 1981 included allowance for funds used dur-ments which provide for the purchase of available power ing construction (AFDC) of $91 million and $96 million.

from neighboring utilities. the Company is able to optimize respectively. Construction expenditures are estimated at its mix of internal and external sources using the lowest cost $3.8 billion for the five years ending in 1987 and include energy available at any given time. Energy costs are adjusted AFDC of $736 million.

to match amounts permitted to be recovered through These estimates are based on certain expected comple-revenues and have no effect on earnings. tion dates and anticipated escalation due to inflation of ap-Total energy costs decreased 9% in 1982, as compared to proximately 8.5%. Therefore. construction delays or an increase of 22% in 1981 over 1980. as described below: inordinate inflation levels could cause significant increases in Increase or (Decrease) these amounts. The Company expects that with adequate 1982 vs. 1981 1981 vs. 1980 rate relief it will generate internally approximately 50% of (Millions of Dollars) its construction expenditure requirements. excluding AFDC.

Change in prices paid for fuel No assurance can be given as to future rate increases. The supplies and power purchases $(122) $110 balance will be provided by permanent financing through the Kilowatthour output (19) (13) sale of securities and may include term bank loans.

Adjustment of actual costs to match recoveries through Long-Term Financing revenues 44 93 During 1982 the Company raised more than $443 million Replacement energy costs in through the sale of $223.5 million of Mortgage Bonds.

1981 for which recovery was $187.1 million of Common Stock and $35.0 million of Pre-disallowed by BPU (3) 3 ferred Stock. As a result. the Company's interest and divi-dend requirements have continued to increase.

$(100) $193 At December 31. 1982 book value per common share amounted to $25.90 compared to $25.66 at December 31 .

Gas costs are adjusted to match amounts recovered through 1981 . The market value of common shares expressed as a revenues and do not affect earnings. Costs were 19% higher percentage of book value was 89.8% and 70.1% at year-end in 1982 and 35% higher in 1981. Contributing factors are 1982 and 1981. respectively.

shown below: In addition to periodic sinking fund redemption require-Increase or (Decrease) ments. five bond issues aggregating $206 million will ma-1982 vs. 1981 1981 vs. 1980 tu re and will require refinancing by 1987.

(Millions of Dollars) Under the terms of the Company's Mortgage and Higher prices paid for gas Restated Certificate of Incorporation. at December 31. 1982 supplies $104 $141 t he Company could issue an additional $1.1 billion principal Refunds from pipeline suppliers 4 (17) amount of Mortgage Bonds at a rate of 12.25% or $800 Therm sendout 1 18 million of Preferred Stock at a rate of 12.0%. Present plans Adjustment of actual costs to for 1983 call for the issuance of Mortgage Bonds. Common match recoveries through Stock and Preferred Stock.

revenues 20 36 In April 1982 the Company renewed a then existing $125 million domestic revolving credit agreement and increased

$129 $178 the line of credit to $200 million. The present revolving agreement expires in April 1984. but permits the Company Liquidity and Capital Resources to convert the balance outstanding at the end of the period The Company's liquidity is affected principally by the con-to term loans due in April 1987. The Company also has the struction program and. to a lesser degree. by other capital option to extend the agreement on a year to year basis. The requirements such as maturing debt and sinking fund re-Company has not made any borrowings under this quirements. The capital resources available to meet these re-agreement.

quirements are funds from internal generation and external In 1982. PSE&G Overseas Finance N.V.. a wholly-owned financing. Internally generated funds depend upon economic Netherlands Antilles subsidiary. was formed . The financial conditions and adequate and timely rate relief. whi le access subsidiary will be able to provide the Company with access to the long-term and short-term capital and credit markets to long-term capital markets abroad.

is necessary for obtaining funds externally.

45

Short-Term Financing For interim financing. the Company is authorized to have a total of $300 million of short-term obligations outstanding at any given time. The availability of short-term financing provides the Company greater flexibility in the issuance of long-term securities. The Company's average daily short-term debt during 1982 was $108 million - $7 million over last year's average. However. at year end the Company had no short-term debt outstanding.

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 for one month. three months or six months at a rate based upon the London Interbank Offered Rate for deposits in United States Dollars. No borrowings have been made under this arrangement.

The Company continues to have to finance larger cus-tomer accounts receivable. As of the end of 1982 receivables from customers approximated $361 million (excluding un-billed revenues of $182 million) and were $22 million higher than at the end of 1981. Reflecting the slowdown in the economy. customer payments have slowed as the amounts of bills have increased. Furthermore. net write-off of uncol-lectible accounts this year was $5.4 million greater than the

$27.0 million in 1981. The increases in accounts receivable and uncollectible accounts also reflect a requirement of the BPU prohibiting the termination of electric and gas service in New Jersey during the winter months with respect to cer-tain customers with financial need who are unable to pay utility bills.

Cash Position The Company's cash position improved greatly during 1982 as a result of the collection of energy costs deferred from prior years. the overrecoveries of 1982 energy costs. rate relief granted in February 1982. and equity and long-term debt financing.

Any improvement resulting from overrecoveries is only temporary because any overrecovery remaining at the end of one levelized period is returned to customers with inter-est in the subsequent period.

Effects of Inflation Inflation continues to affect the national economy and the Company but not as severely as in the past few years. The Average Consumer Price Index was 289.1. an increase of 6%

over 1981 compared to increases of over 10% for the preceding three years. The Company has experienced record interest charges in recent years and increased dividend re-quirements at a time when substantial amounts must be raised in the capital markets to finance needed construction.

Rising prices also have impacted construction. fuel and labor costs.

For additional information on the effects of changing prices. see Note 10 of Notes to Financial Statements.

46

Stock Symbol PEG Additional Reports Available The Company's Common Stock and $1.40 Dividend Preference Common Stock are Form 10-K traded on the New York Stock Exchange and Stockholders or other interested persons the Philadelphia Stock Exchange. wishing to obtain a copy of the Company's The following table shows the quarterly 1982 Annual Report to the Securities and dividends paid for the periods indicated and Exchange Commission. filed on Form 10-K.

the high and low NYSE Composite prices of may obtain one without charge by writing to such stocks: the Vice President and Treasurer. Public Service Electric and Gas Company, P.O. Box Common Stock 570, Newark, New Jersey 07101. The copy so 1982 1981 provided will be without exhibits. Exhibits Dividend 64C* 61 c may be purchased for a specified fee.

Price Financial and Statistical Review First Quarter 20 1/4- 17% 19 1/4-17 Second Quarter A comprehensive statistical supplement to this 2 F/a- 19 1/a 19%- 17 Third Quarter 23 1/4- 19 1/a 19 1/4- 16 1/z report. containing financial and operating data Fourth Quarter 23%- 20% 20 1/a- 16 1/z for the years 1972-1982 will be available this

• 61 CFirst Quarter only. Spring. If you wish to receive a copy, please write to the Vice President and Treasurer.

$1.40 Dividend Public Service Electric and Gas Company.

Preference Common Stock P.O. Box 570. Newark. N.J. 07101.

1982 1981 Dividend 35C 35C Price First Quarter 11 - 93/a 107/a- 10 1/a Second Quarter 11 - 9 1/z 10%-10 Third Quarter 11 %- 9% 10%- 9 1/z Fourth Quarter 12%-107/a 11 - 9 1/z 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. P.O. 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 47

Omcers Robert I. Smith Everett L. Morris Charles E. Maginn. Jr.

Chairman of the Board and Senior Vice President - Vice President - Human Resources Chief Execut ive Officer Customer Operations Wallace A. Maginn Harold W. Sann Frederick W. Schneider Vice President and Treasurer President and Chief Senior Vice President -

Operating Officer Corporate Planning Winthrop E. Mange, Jr.

Vice President -

William E. Scott Donald A. Anderson Corporate Services Executive Vice President - Vice President -

Finance Computer Systems and Services Thomas J. Mart in Vice President -

Stephen A. Mallard Frederick M. Broadfoot Engineering and Construction Senior Vice President - Planning Vice President - Law and Research and President of Parker C. Peterman PSE&G Research Corporation Robert M. Crockett Vice President and Comptroller Vice President - Fuel Supply and James B. Randel, Jr. President of Energy Pipeline Louis L. Rizzi Senior Vice President of the Corporation and Energy Terminal Vice President - Customer and Company and President of Services Corporation Marketing Services Energy Development Corporation Fredrick R. Desanti Robert J. Selbach Richard M. Eckert Vice President - Vice President - Transmission Senior Vice President - Energy Rates and Load Management and Distribution Supply and Engineering Robert H. Franklin Rudolph D. Stys Robert W. Lockwood Vice President - Public Relations Vice President - System Planning Senior Vice President - Administration Carroll D. James Richard A. Uderitz John F. McDonald Vice President - Vice President - Nuclear Senior Vice President - Administrative Planni ng Governmental Affairs Robert S. Smith Frank P. Librizzi Secretary Vice President - Production Changes in Organization Edward J. Lenihan. Vice President - Board of Directors elected Frederick W. Lawrence R. Codey was elected Vice Public Relations. retired on February 28. Schneider as Senior Vice President - President and Corporate Rate Counsel.

1982. after more than 43 years of ser- Corporate Planning. and Frank P. also effective January 1. 1983.

vice. Robert H. Franklin was elected Librizzi to succeed Mr. Schneider as Vice President - Public Relations by the Vice President - Production. both John F. McDonald. Senior Vice Presi-Board of Directors. effective March 1. effective September 1. 1982. dent - Governmental Affairs. retired 1982. effective December 31. 1982. after Frederick M. Broadfoot retired as Vice more than 34 years of service. Willia m Edward G. Outlaw. Executive Vice President - Law on December 31. 1982 President - Corporate Planning, Saller was elected Vice President -

after 34 years of service. Effective Jan- Governmental Affairs. effective retired effective August 31. 1982. after uary 1. 1983. R. Edwin Selover was January 1, 1983.

more than 43 years of service. The elected Vice President and General Cou nsel.

48

Directors James R. Cowan , M.D. William E. Marfuggi President and Chief Executive Officer. United Chairman of the Board and director. Victory Optical Hospitals Medical Center. Newark. New Jersey. Manufacturing Company (ma nufactures ophtha lmic Member of Audit Committee. frames) and Chairman of the Board and director.

Plaza Sunglasses. Inc. (manufactu res sunglasses) .

W. Robert Davis both of Newark. New Jersey.

Former Chairman of the Board and Chief Executive Member of Finance Committee.

Officer. Bancshares of New Jersey. Moorestown.

New Jersey. Marilyn M. Pfaltz Chairman of Audit Committee and Member of Partner of P and R Associates (public relations and Nominating Committee. publicity specialists). Summit. New Jersey.

Member of Audit Committee.

T.J. Dermot Dunphy President. Ch ief Executive Officer and director. James C. Pitney Sealed Ai r Corporation (manufactures protective Partner in the law fi rm of Pitney. Hardin. Kipp &

packaging systems). Saddle Brook. New Jersey. Szuch. Newark and Morristown. New Jersey.

Member of Nominating Committee and Member of Audit Committee and Executive Organization and Compensation Committee. Committee.

Robert R. Ferguson, Jr. Kenneth C. Rogers President. Chief Executive Officer and director. First President. Stevens Institute of Technology, National State Bancorporation. Newark. New Jersey. Hoboken. New Jersey.

Member of Finance Committee. Chairman of Nominating Committee and Member of Organization and Compensation Committee.

Margery Somers Foster Professor of Economics Eme ri tus. and former Dean William E. Scott of Douglass College. Rutgers. The State University of Executive Vice President- Finance of the Company.

New Jersey, New Brunswick. New Jersey. Member of Executive Committee and Chairman of Member of Audit Committee and Nominating Finance Committee.

Committee.

Robert I. Smith D. Wayne Hallstein Chairman of the Board and Chief Executive Officer of Director and fo rmer President. Ingersoll -Rand the Company.

Company (diversified manufacturer of machinery. Chairman of Executive Committee and Member of equ ipment and tools). Woodcliff Lake. New Jersey. Finance Committee.

Member of Finance Committee and Organization and Compensation Committee. Harold W. Sann President and Chief Operating Officer of the Irwin Lerner Company.

President. Chief Executive Officer and director. Member of Executive Committee and Finance Hoffmann-La Roche Inc. (manufactu res Committee.

pharmaceuticals and fi ne chem icals and provides health testing services). Nutley. New Jersey. Robert V. Van Fossan Member of Organization and Compensation Chairman of the Board. Chief Executive Officer and Committee. director. The Mutual Benefit Life Insurance Company.

Newark. New Jersey.

Member of Executive Committee and Finance Committee and Chairman of Organization and Compensation Committee.

PS~G Public Service Electric and Gas Company U.S. Postage 80 Park Plaza. Newark. New Jersey 07101 PAID Mailing Address: Bulk Rate P.O. Box 570. Newark. New Jersey 07101 Public Service Electric and Gas Company

NOTICE -

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DEADLINE RETURN DATE RECORDS FACILITY BRANCH

Cumulative Peach Bottom Savings Versus Plant Cost (PE. Por tion)

Tutal Plant Cost

Page Phlladelphla Electric Company

' Annual Report 1982 Flnanclal Hlghllghts 1982 1981 Change Operating Revenues $2,644,753,000 $2,433,425,000 9%

Operating Expenses $2,256,026,000 $2, 110,432,000 7%

Tuxes Charged to Operations $ 372,180,000 $ 274,796,000 35%

Operating Income $ 388,727,000 $ 322,993,000 20%

Earnings Applicable to Common Stock $ 278,623,000 $ 223,761 ,000 25%

Earnings per Average Common Share $2.39 $2.25 6%

Cash Dividends Paid per Common Share $2.06 $1.90 8%

Average Shares of Common Stock Outstanding 116,480,000 99,557,000 17%

Construction Expenditures $ 883,898,000 $ 793,959,000 11%

'Ibtal Assets $7,157,998,000 $6,352,546,000 13%

Letter to Shareholders 2 Financial Matters 4 Rate Matters 8 Electric Operations 12 Gas Operations 16 Customer Activities 18 Financial Section 21 Shareholder Information 40 Officers and Directors 41 Earnings and Construction Dividends Expenditures Per Share Dollars M1lhon Dollars 2 40 1.000 200

• - - 800 160 600 120 400 BO 200 40 78 79 BO 81 82

- Earmn9s Per Share - External Sources

• Dividends Per Share

• Internal Sources

Page z lb Our Shareholders:

Despite the severe with which we compare ourselves.

recession, 1982 was a year of achieve- Excellent performance by our low-ment for Philadelphia Electric Com- cost nuclear plants (which generated pany Here are the highlights. 34%of the Company's electricity) and Earnings per share purchases of coal-generated electric-increased from $2.25 in 1981 to $2.39 ity from midwestern utilities lowered in 1982. Return on common share- fuel costs. These savings were passed holders' equity increased from 12.3% on to our customers and largely offset to 13.4%. While the improvement is the base rate increase granted by gratifying, we still have a way to go to the PUC.

achieve an adequate return. Salem Unit No. 2 nuclear The dividend rate on generator ( 43% owned by the Com-common stock was increased from pany) completed its first full year of

$2.00 to $2.12 per year. operation in 1982. Its performance Sales of electricity; was excellent. The Company's share gas and steam were weak due to the of its output was sold to Jersey Central effects of the severe recession and Power & Light Company, resulting in the weather. Particularly hard hit were $135 million of revenue.

our major customers: the steel com- Our Peach Bottom panies, the oil refineries and paper nuclear plant had another excellent products manufacturers. year. Unit No. 3 set another record Rate increases were for electric generation, exceeded only granted by the Pennsylvania Public by its sister unit, No. 2 in 1979. It oper-Utility Commission (PUC) for all three ated at full capacity 94% of the time, services to offset higher costs. Electric a record unmatched by any of our rates were permitted to increase fuel-burning units in the history revenue by $221. 7 million; gas and of the Company steam rate increases will add $31 .5 The Company's con-million and $3.4 million to revenue, struction program continued at a fast respectively pace during 1982 to assure continued Rates remained com- reliable service with up-to-date, state-petitive with other urban utilities on of-the-art facilities. Limerick nuclear the northeastern seaboard. The Com- Unit No. 1 is within two years of com-pany's electric rates are at or below pletion, and operating license pro-the median of the eleven companies ceedings are in progress.

James L. Everett in the lobby of the Franklin Plaza Hotel, Philadelphia

Pag....

a Flue gas scrubbers, engineer, nationally-recognized courageous. I have lived a long time. I which remove sulfur dioxide gas and industrial leader and distinguished have seen history repeat itself again particulates from the smokestacks of citizen of the Greater Philadelphia and again. I have seen many depres-the Company's coal-burning plants, community, Mr. Gilkeson's 43-year sions . .. Always, America has come were completed at Eddystone and career at Philadelphia Electric has out strong and more prosperous. Be Cromby Stations. These plants are in contributed greatly to the Company's as brave as your fathers were before full compliance with air pollution con- shareholders, customers and person- you. Have faith-go forward." That trol standards, while continuing to nel. He continues as a Director and message is just as appropriate today have the capability to burn high-sulfur Chairman of the Executive Commit- and we pledge no less to our

. coal, a Pennsylvania resource. tee. shareholders .

The PUC ordered the This year's Annual No Annual Report would Company either to abandon construc- Report featlires pictures of a cross be complete without recognizing the tion of Limerick Unit No. 2 or delay its section of the Company's larger cus- outstanding employee team at Phila-completion until Unit No. 1 is finished, tomers. In them we see excellent delphia Electric. Our 10,200 dedi-in spite of the PUC Administrative examples of the modern use of cated, competent, professional and Law Judge's finding that completing energy - electricity, gas and steam highly skilled men and women pro-both units as expeditiously as pos- As we look toward the future, it is vide reliable and economical service sible was in the best interests of the essential that our area-and our to nearly 4,000,000 people. They are Company's customers. However, the nation - have adequate supplies of the Philadelphia Electric Company Company appealed the order to Com- energy at reasonable cost, free from We thank our share-monwealth Court, which reversed the the threat of foreign interruption. We holders for their interest in and sup-Commission. We are convinced that remain dedicated to meeting these port of our Company We will continue Limerick Unit No. 2 is the least cost objectives for our customers. to work diligently to make your invest-alternative for supplying needed A little over a 100 years ment a sound one and a fruitful one.

capacity for the future . Therefore, we ago, Thomas Edison founded our in-are planning to continue construction dustry He was widely recognized on the unit for service in late 1988. as a genius, but he was also a practi- James L. Everett Unit No. 1 is ahead of schedule for cal man. He was active in inventing Chairman of the Board service in early 1985. and developing new devices and pro- and Chief Executive Offic er Robert F Gilkeson cesses during his entire life. He never retired from the position of Chairman lost faith in American ingenuity At.

of the Board on June 28. During his age 84, in 1931 , when our nation was years of leadership, he guided the in a depression that makes even to- john H Austin, Jr.

Company through one of its most day's economic troubles seem trivial, President difficult periods An innovative he said in his last public message, "Be and Chief Operating Officer John B. Awstin, Jr., near the guided missile cruiaer Josephus Daniels at the Philadelphia Naval Shipyard.

Page 4

Eamings Increase Common stock earnings in 1982 were $2. 39 per share, an increase of 6% over 1981 earnings of $2.25. 'Ibtal common stock earnings were $279 million, up $55 million or 25% from 1981. The average number of shares outstanding increased 17% to 116 million. John Wanamaker The increase in earnings was due primarily to electric Electric, Gas and Steam Customer and gas rate increases which became effective in 1981 and 1982. The Eagle in the grand court of John Wanamaker's center city department store has been a famous meeting place Conunon Stock Dividend Raised for over 70 years. This bird's eye view of On July 26, the Board of Directors voted to increase the the court is from atop the great organ, another Wanamaker landmark. The organ quarterly common stock dividend from fifty to fifty-three cents per - a six-manual console, with 451 stops, 964 share, effective with the third quarter payment. .As a result, dividends controls, and over 30,000 pipes - is one o per share paid in 1982 amounted to $2.06, compared to $1.90 in 1981. the largest and finest in the world and has been played every business day since its The increase, the second in two years, recognizes the necessity of installation in 1911. Retail operations con-providing a competitive return on the common stock shareholders' sist of 16 stores, with 8 stores in our service territory which employ nearly investment. 4,600 people.

Electric Sales Rise; Gas, Steam Sales Fall

'Ibtal electric sales increased by 5% to 29.6 billion kilowatthours (kWh). The increase was due to higher sales of the Company's share of the output of Salem Unit No. 2 to Jersey Central Power & Light Company Electric sales to regular customers, excluding sales to Jersey Central Power & Light CompanYi declined by 3% to 26.2 billion kWh. The recession caused depressed kilowatthour sales to large commercial and industrial customers. A cooler summer in 1982 held air conditioning loads below 1981 levels.

Gas sales decreased by 6% to 69 billion cubic feet as a result of milder weather and lower sales to large commercial and industrial customers. Steam sales dropped 7%to five billion pounds as a result of continued conservation and conversion to other fuels by our steam customers.

Revenue, Expenses Increase

'Ibtal operating revenue amounted to $2.6 billion, 9%

above 1981. Electric operating revenue rose to $2.2 billion, an increase of $179 million or 9% over 1981. This increase reflects higher base rates and an increase in revenue from the sale of Salem Unit No. 2 output and capacity Gas revenue amounted to $390 million, an increase of 10% over 1981, and steam revenue reached $73 million.

'Ibtal operating expenses before depreciation and taxes amounted to $1.7 billion, an increase of $35 million or 2% over 1981.

The major elements of this increase were $18 million of increased costs associated with the full-year operation of Salem Unit No. 2, higher wages and benefits and increased costs for materials and supplies. Management continued to hold controllable costs to a minimum, consistent with reliable service. Interest charges increased

$41 million ( 14%) and preferred dividends increased $4 million (7%).

Page 5

Construction Program Expenditures for new plant and equipment in 1982 amounted to $884 million. Of this amount, approximately $588 million were spent on the Limerick project and related transmission facilities, and $104 million in completing the flue gas scrubbing systems, or "scrubbers", for Eddystone and Cromby coal-fired generating stations.

The remainder was spent for necessary projects throughout the electric, gas, and steam systems. Estimated construction outlays are

$996 million for 1983.

1982 Financing Program During 1982, the Company raised more than $600 million, .the second-highest amount of capital ever raised by Philadelphia Electric, to meet the needs of our construction program and refundings. The Company's major 1982 financings are sum-marized in the table on page 7. Internal cash sources, primarily depreciation and deferred taxes, provided the remaining funds for construction.

The magnitude of the Company's construction program, as well as recent market conditions, have caused the Company to utilize several innovative financing techniques to tap new sources of capital. For example, the Company sold $30 million of tax-exempt commercial paper to provide interim financing for the magnesium oxide regeneration facility in Claymont, Delaware at an average interest rate of 4.6% during the last four months of 1982.

In December, the Company sold $100 million of a new, tax-exempt security called a Floating Rate Monthly Demand Note.

Although the notes may remain outstanding for 30 years, they offer the Company significant savings since they carry an interest rate which fluctuates monthly tied to an index related to 30-day tax-exempt commercial paper. Interest rates on these notes are currently about one-half the rate paid on long-term, fixed-rate notes.

The Economic Recovery Tax Act of 1981 provided for special tax treatment of public utility dividends which are reinvested in qualified new-issue common stock. As a result, the Company experienced record growth in its Dividend Reinvestment and Stock Philadelphia International Airport Electric Customer Within the radar room of the new control tower at Philadelphia International Airport, an air traffic controller guides arriving and departing nights.

Page 7

Boeing Vertol Company Purchase Plan (DRIP) in 1982. Over 25,000 additional shareholders Electric and Gas Customer enrolled in the DRU~ bringing the total participation in the Plan to Final inspection of the battery compartment of a CB-47D Chinook 79,900, or 28% of our common stock shareholders. The total invested helicopter is performed at Boeing Vertol in the Plan during 1982, including cash purchases, amounted to $60 Company's plant in Ridley Township, PA.

Vertol manufactures helicopters for both million, up 74% from 1981.

commercial and military customers. In Our 1983 financing program will require the sale of addition, the company fabricates approximately $750 million of new debt and equity securities.

components and sheet metal assemblies for fixed-winged aircraft. Vertol, one of the major operating divisiom of the Major Financings Boeing Company, employs approximately Date Millions of Dollars 4,200 people in our service territory.

2/82 Preferred Stock-300,000 Shares $ 30 3/82 Mortgage Bonds- 18% Series due 2012 100 4/82 Common Stock-6,000,000 Shares 82 6/82 Serial Notes-17% due 1986 & 1987 20 9/82 Mortgage Bonds-15:Ys% Series due 2010 100 10/82 Common Stock-6,000,000 Shares 94 12/82 Pollution Control Notes (tax exempt) 100 Common Stock Purchase Plans:

DRIP, Employee, TRASOP-5,259,801 shares 78 Total $604

Page Rate Matten 8 Rate Increases The Company must regularly raise the prices of its prod-ucts to offset the effects of inflation, to improve the Company's financial performance, to maintain the ability to attract new capital and to balance supply and demand. Rate proce edings for all e nergy services are summarized on the table on page 11 .

On May 21 , the Pennsylvania PUC approved an annual electric rate increase of $221. 7 million (12% ). The increase was 64% of the $344.4 million originally requested in July, 1981 and reflected a The Children's Hospital Philadelp 17.75% return allowance on common stock equity The majority of the Electric and Steam Custome disallowed revenue was related to the PUC's refusal to include Many modem hospitals serve the Greate Limerick construction-work-in-progress (CWIP) in rate base. Delaware Valley Area. This operatin room at The Children's Hospital o Tvvo load management incentives became effective as part Philadelphia uses the latest technol of the new electric rates approved in May A time-of-day energy including this surgical microscope use adjustment for large industrial or comme rcial customers now provides for ear, nose and throat operatio a price incentive to shift energy usage from on-peak to off-peak periods. Also, a billing credit is available for large, high-voltage customers who are willing to have part of their usage interrupted on short notice.

On June 25, the PUC authorized an annual gas rate increase of $31 .5 million (9.5% ), representing 81 % of the $38.7 million requested and reflecting a 16.5% return on common stock equity Limerick Investigation On March 26, 1982, the PUC's Administrative Law Judge (ALJ) issued his initial recommended decision concerning the investigation of the necessity, economic justification, and reasons for increases in costs of the Limerick Gene rating Station. After 39 days of evidentiary hearings and almost 4,000 pages of testimony from 37 witnesses, the ALJ concluded that, at the present time, there is no alte rnative available that can replace Limerick at a lower cost to the consumer and that both nuclear units should be brought on line as close as possible to the projected 1985/1987 completion dates.

Drexel University Electric and Steam Custom er Our service territory encompasses more than 50 colleges and universities. Drexel University in Philadelphia uses both elec*

tricity and steam for energy and space heating requirements. Seen from under the geodesic dome is the new library under construction (left) with the sports complex (center) and the Nesbitt College of D~sign, Nutrition, Buman Behavior, Borne Economics (right).

r Page 10 Dividend Reinvestment Proceeds &

Shareholder Participation M1lhon Dollars Par11c1pants 70 60 50 40 30 90,000 20 60.000 10 30.000 78 79 80 Bl 82

- Reinvested D1v1dends (Left Scale)

- Add1t1onal Cash Investments (Left Scale)

• Shareholders Part1c1patmg (Right Scale)

Page 11 Despite the AL]'s recommendation, the PUC adopted a motion on May 7, 1982, that "either the cancellation or suspension of construction at Limerick Unit No. 2 would be in the public interest."

The Commission cited its inability and unwillingness to provide the revenue necessary to complete both Llffierick units as proposed and its belief that an aggressive conservation program could substantially offset the cancellation of Limerick Unit No. 2.

On August 27, the PUC issued its final order finding that Limerick Unit No. 2 should be cancelled or suspended until Umt No. 1 is completed; that the public interest requires timely completion of Limerick Unit No. l; and that the Company must pursue an aggressive conservation program to offset the absence of Unit No. 2. The order criticized construction delays announced by the Company in 1976 and 1978. It gave the Company 120 days to respond to the orde r.

The Company appealed the PUC order to the Common-wealth Court and, on December 15, the Court unanimously reversed the PUC's August 27 order. The PUC and the Consumer Advocate have petitioned the Pennsylvania Supreme Court for approval to appeal the Commonwealth Court decision. The Company's studies continue to demonstrate that completion of both Limerick units is in the public Tasty Baking Company interest and is the least cost alternative for meeting our customers' Electric Customer increasing e nergy demands. Construction of Unit No. 2 is continuing on Tastykake "Chocolate Juniors move a schedule for service in late 1988, the earliest feasible date. Comple-towud the wrapping operation at '.lasty tion of Unit No. 1 has been advanced by two months and should be Baking Company, Philadelphia. The corn-y bakes and sells small cakes and ready for fuel loading in the summer of 1984, with commercial opera-pies and also has cookie distribution and tion anticipated in early 1985. Tutal cost to build the Limerick project is graphic ill'ts subsidiaries. Tasty, employ-ing about 2,200 people, has been head- now estimated at $5.8 billion based on the 1985/ 1988 service dates.

quartered in Philadelphia since 1914. This cost estimate is in line with other units scheduled for completion in the same time frame.

As of December 31 , 1982, the Company had invested $2.54 billion in the Limerick project-$1.35 billion for Unit No. 1, $563 million for Unit No. 2, and $627 million for facilities common to both units.

Energy Cost Rate Reduced The Company's Electric Energy Cost Rate (ECR) was reduced twice during 1982, resulting in reductions of about $200 million per year (10%). These decreases resulted from the continued good performance of our nuclear units, economic purchases of power from other utilities and lower prices for oil than anticipated. ECR rate reductions substantially offset higher base rates for Company customers, but did not affect the Company's earnings.

Millions of Dollars 1982 Retail Rate Application Annual Increases Date Approved Revenue Electric-Pennsylvania 7/ 29/81 5/ 21182 $221.7 Maryland 8/1 8/8 1 3/17/82 3.3 Maryland 1113/82 2/1183 2.5 Gas 9/ 28/8 1 6/ 28/ 82 3 1. 5 Steam 9/ 28/8 1 1/15/82 3.4 7/ 29/82 Pending 8.4

Page IZ Nuclear Power The Company's nuclear power plants performed superbly during 1982. The Peach Bottom and Salem plants operated at a 68%

capacity factor.

Peach Bottom Umt No. 3 produced more than 8.5 billion kilowatthours of energy during the year. The production nearly equalled the free world record previously set by Peach Bottom Unit No. 2 in 1979, since surpassed by larger foreign units. The Peach Bottom units now hold the all-time first and second positions in the United States for annual electrical e nergy production by a single generating unit, either nuclear or fossil fueled. The achievement was made possible, in part, by the Company's implementation of an 18-month, rather than a 12-month, refueling cycle for its nuclear units.

This eliminated the need for refueling Unit No. 3 durmg 1982 when it experienced only three outages and was in continuous operation from May 31 to year-end.

Tutal fuel savings to Company customers from the opera- Christian Schmidt Bre tion of both units at Peach Bottom and Salem Unit No. 1 amounted to more than $400 million in 1982.

The outstanding performance by our nuclear units was a Kegs of beer are sealed at the Christi Schmidt Brewing Company, headquarter -

significant factor in reducing the Company's use of fossil fuel. The in Philadelphia. This is just one part of Company reduced its consumption of heavy and light oil in 1982 by extensive, energy-intensive plant t produces more than 20 different kinds 40% and 32%, respectively; compared to 1981. Less than 8% of electric beer. Schmidt's employs nearly 1,20 output in 1982 was generated by oil-burning units. people in our service territo Coal-Fired Generation The completion of flue gas scrubbers at Eddystone and Cromby Stations brings these coal-fired stations into full compliance with air quality regulations. These innovative facilities were designed and constructed under a Consent Decree between the Company; the Environmental Protection Agency and the Pennsylvania Department of Environmental Resources in order to satisfy air quality standards which limit permissible leve ls of visible emissions, sulfur dioxide and particu-late matter emissions from the stacks of the stations. The Eddystone and Cromby scrubbers use a regenerative process which produces no sludge for disposal. Including the regeneration facilities, the total cost of the scrubbers is about $317 million.

Transmission and Distribution Electric service reliability continued at a high level in 1982.

The annual service availability of 99. 991 % was comparable to the average for the last five years. In other words, the average customer was without electric service for only 46 minutes during 1982.

The Company's 220 and 500 kV systems have proven to be very reliable. Nevertheless, the towers which support the aerial lines are vulnerable to storms and accidents. Reliable e lectric service at the lowest possible cost requires a dependable high-voltage transmission system. An extended line outage would be very costly; particularly if it interrupted the supply from a low-cost source of power, such as a nuclear generating station. The Company has prepared for these

Page 1a

Page 14 United States Steel Corporation Electric and Gas Customer Bot metal is poured into an open hearth steel-making furnace at United State*

Steel ColJ>Oration, Fairless Bills, PA. U.S.

Steel's Fairless Works manufactures vari-ous types of semi-finished steel products.

About 8,000 people are employed by U.S.

Steel in our service territory.

Page 15 contingencies by its recent design and acquisition of unique temporary towers enabling us to restore up to a mile of 500 kV line in as little as 48 hours5.555556e-4 days <br />0.0133 hours <br />7.936508e-5 weeks <br />1.8264e-5 months <br />.

Power Purchases During 1982, the Company continued to utilize its transmission interconnections to purchase economical power from the Pennsylvania-New Jersey-Maryland Interconnection (PJM) and from systems outside of PJM. The purpose of these purchases was to minimize operation of higher-priced, oil-fired generating stations. Over 3.5 billion kilowatthours of coal-fired power were imported from systems in western Pennsylvania, West Virginia, Ohio and Indiana.

Another 150 million kilowatthours of oil-fired power were purchased during peak load hours from Central Hudson Gas and Electric Corpo-ration in New York, which is permitted to burn lower-cost oil. These purchases, together with 7.2 billion kilowatthours of power purchased from PJM, produced savings to the Companys customers amounting to approximately $200 million in 1982.

Limerick Supplementary Cooling Water System Construction began in early 1983 on the Point Pleasant Water Supply System, by which the Neshaminy Water Resources Authority (NWRA) will supply water from the Delaware River for public use and also for supplementary cooling water for Limerick during periods of low flow on the Schuylkill River. NWRA will pipe the water 2Y2 miles from a pumping station.which it will construct on the Delaware River, to the Company's 70 million gallon reservoir and pumping station. The Company will then pipe water from the reservoir 6Y2 miles to the Perkiomen Creek and ultimately another 7Y2 miles to Limerick by way of another pumping station and pipeline. Construction of Company facilities, estimated to cost $22 million, is scheduled to begin in early 1983.

Southeastern Pennsylvania Transportation Authority Electric and Gas Customer Adjustments are made on a trolley car at the new maintenance facility of the Southeastern Pennsylvania Transportation Authority (SEPTA) in Philadelphia. The modem fieet of 148 electrically-powered cars has replaced 30 to 40 year-old trolleys. SEPTA is responsible for operating man transit services in the five-county southeastern Pennsylvania region. Also, new electric subway trains are currently being phased into operation along the Broad Street subway. SEPTA employs more than 7,500 people in our service territory.

Page 16 Record Gas Sendout On January 17, 1982, temperatures averaging minus 2 degrees produced a record gas sendout of 529 million cubic feet of natural gas. This exceeded the previous daily record by 9%.

Philadelphia Naval Ship Gas Supplies Improve Electric Custome Natural gas availability from pipeline suppliers continued at Work on the guided missile destroye adequate levels in 1982. The Company increased its winter supply Coontz nears completion at th from underground storage by expanding its normal winter natur.al gas Philadelphia Naval Shipyard. This larg dry dock was used for refurbishing th by 672 million cubic feet (2%) for the 1982-1983 heating season. aircraft carrier Saratoga which w completed in 1982 and will be used ag

• for work on the aircraft carrier Forrest Gas Customers and Sales beginning in 1983. Due to the increase The Company added nearly 5,000 new gas customers in activity at the Navy Yard, the work fore at the Navy Base has grown t 1982 for a total of 298,000 customers. Despite the additional customers, approximately 14,000 civilian employee gas sales decreased nearly 6% to 69 billion cubic feet due to warmer and about 5,500 military personne including ships' personne weather, conservation and the recession.

Temperature Controlled Service Winter space heating loads during cold weather cause high peak usage which must be met by relying on gas storage or alternative supplies. In addition to creating potential capacity problems, this results in higher costs. Since April 1980, gas sales to new or expanding commercial and industrial customers have been limited to assure an adequate winter supply to all existing customers.

Off-peak supplies of gas are now adequate and the Com-pany is again accepting requests for firm gas supplies from commer-cial and industrial customers for large process loads. Use of space heating by these customers will continue to be restricted by requiring large temperature-sensitive, gas-burning equipment to switch to alter-nate fuels during cold winter periods.

Scott Paper Company Electric and Gas Customer This continuous paper winding operation at Scott Paper Company, Chester, PA, produces rolls of paper towels. Scott, headquartered in Philadelphia, together with its international affiliates, is one of the world's leading producen of sanitary tissue paper products and also has expanded into many other areas. Scott employs about 3,300 people in our service territory.

Page 17

P<<ge 18 SmithlUine Beckman Corporation Electric and Steam Customer Shown here is the modem, tablet polishing operation at SmithKline Beclanan Corporation, Philadelphia.

'Ecotrin,' an enteric-coated aspirin tablet, is in the final stage of production.

SmithKline Beckman Corporation is a health care company headquartered in Philadelphia that researches, manufactures and markets ethical pharmaceutical and proprietary medicines, animal health products, eye care products, as well as laboratory analytical instruments. SmithKline Beckman provides jobs for approximately 4,300 people in our service territory.

(Photograph supplied by Sm11 hKtme Beckma Area Development Of the many construction activities currently in progress throughout the Company's service territory, two deserve particular attention. The first is Philadelphia's $325 million Center City Commuter Connection project, the largest in the City's history, including a four-track tunnel that will link 580 miles of 13 regional electrified commuter rail lines of the former Reading and Penn Central railroads into an integrated, flexible rail transit system. Extending more than 25 blocks through central Philadelphia, it is the keystone of a master plan for the revitalization of Center City Linked with the tunnel project is the $200 million second phase of the Market Street East Redevelopment Proj-ect, comprised of two new shopping malls, a major department store and three office buildings. Work is proceeding on schedule with completion expected in late 1983. The tunnel project and Market East redevelopment are providing jobs for approximately 4,000 people.

Another important asset of the area's economy is the Philadelphia Naval Shipyard. During the past three years, 18 vessels, including the aircraft carrier Saratoga, have been rehabilitated at the yard. Eight more ships, including the carrier Forrestal, are scheduled for refitting, and the total cost of these projects will be over $2 billion.

As a result of the work, civilian employment at the Navy Yard has doubled to approximately 14,000 employees.

Residential Space Beating During 1982, 11,000 additional residential units selected Company-supplied electricity or gas for space heating. Electric space heating was installed in 5,500 units and gas space heating was installed in another 5,500 units. For new construction, 54% of residential

Page 19 ll. E. Staley Manufacturing customers chose electric heat and 31 % chose gas heat for a total Company Electric and Gas Customer market penetration of 85% for Company energy A. E. Staley Manufacturing Company, As part of the overall space heating activity; the Company Morrisville, PA, is a manufacturer of and local industry actively promoted and marketed the installation of high-fructose com sweetener and genetic food starches. This view shows the upper energy-saving heat pumps in 1982. This effective campaign resulted in end of a mechanical recompression unit more than 850 customers converting their heating systems to the heat in the final stage of syrup production. pump in 1982. The industry's continuing activities also had an effect Staley is a leading processor of grain and oil seeds, ranking as a major, domestic on the new business market. Approximately 39% of all individually-com refiner and soybean crusher. metered, new residential living units constructed in our service territory have been equipped with heat pumps which are less costly than oil-fired units and one of the most efficient systems commercially available today PE Cares PE Cares, a new person-to-person program especially for senior citizens and people receiving disability or survivor benefits, was expanded to include customers in the entire service area in July, 1982.

PE Cares is available to any Company customer who is 62 years of age or older, is permanently retired and receiving Social Security benefits, is receiving survivor benefits under Social Security or is disabled and receiving benefits under Supplemental Security Income or a similar program.

The program works through the assignment of a special PE Cares representative to each participating customer. This representa-tive is available to assess the participant's situation and provide informa-tion on both Company programs and outside agencies for assistance.

Currently, 20,000 customers are participating in the program.

Page zo Fl-anklln Mint Corporation Electric and Gas Customer Finishing touches are carefully applied to a porcelain figurine at Franklin Mint Corporation's porcelain factory near corporate headquarters in Franklin Center, PA. A division of Wamer CommmiicatiollB Inc.,

Franklin Mint produces a broad range of collectible, luxury, home decor and leisure products, including medallic art, works of silver and gold, porcelain figurines and decorative plates, sculpture, jewelry, and fine books. The mint employs about 1,800 persona in our service area.

Philadelphia Electric Company Financial Section Z1 Contents Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Consolidated Statements of Income 23 Consolidated Balance Sheets 24 Consolidated Statements of Retained Earnings 26 Consolidated Statements of Changes in Financial Position 26 Notes to Financial Statements 27 Accountants' Report 35 Financial Statistics 36 Operating Statistics 38 Management's Discussion and Analysis of Financial Condition and Results of Operations General Company Salem Unit No. 2 sales will be reduced in 1983 The revenue growth of recent years has due to a scheduled outage for refueling, maintenance and been accompanied by substantial increases in operating Nuclear Regulatory Commission (NRC) mandated costs and carrying charges on increased investment in modifications.

plant and equipment. Any future increases in such costs Kilowatthour sales of electricity to retail and charges may be expected to affect future net income customers declined slightly in 1981 and 1982.

and earnings per average common share adversely unless periodic rate relief is obtained to offset them. See Note 16 Gas Operating Revenue of Notes to Financial Statements for the estimated effects of Increases in 1982 over 1981 primarily reflect inflation. In addition, the capital carrying charges the recovery of higher fuel costs and higher rates. Mcf associated with the construction of the Limerick station sales of gas declined 5.7 percent in 1982 from the record which are capitalized by crediting income with an high sales of 1981.

allowance for funds used during construction (AFUDC) and recovered through future depreciation now represent Fuel and, Energy Interchange Expense a major portion of net income, and will continue to Fuel and interchange expense decreased increase at least until the first of the Limerick units goes 5.0 percent in 1982 from 1981 as lower electric fuel costs into service in 1985. resulting from the excellent performance of our nuclear Sluggish economic conditions in the units and economic purchases of power from other utilities Company's service area also are having an adverse effect were partially offset by increased gas fuel expense. The on operating results. Although the return on average 8.9 percent increase in fuel and interchange expense in common equity has increased during the past three years, 1981 over 1980 was the result of higher prices for all fuels.

the return on investment is still substantially below what the Pennsylvania Public Utility Commission (PUC) allowed Other Operation & Maintenance Expenses as a fair return in the Company's last rate order. Other operation and maintenance expenses During 1982, the Company put into effect have increased in the last two years due to inflation and to increased rates for all three services- electric, gas and growth in utility plant.

steam-totaling approximately $260 million per year. On July 29, 1982, the Company filed with the PUC for an Depreciation additional $8.4 million in steam revenues. The PUC has Increases in depreciation in the last two suspended the rate increase until April 28, 1983. years reflect additions to plant in service, primarily Salem Unit No. 2.

Electric Operating Revenue Taxes on Income Electric Revenue Increases Millions of Dollars Tuxes on operating income increased in 1982

'82 vs. '81 '8 1 vs. '80 over 1981 as the result of higher income.

Rate Increases $198.2 $1484 Income tax credits, net, included in other Fue l Charges (83.0) 40.l income, have increased in the last two years as a result of the higher allowance for borrowed funds used during Salem Unit No. 2 89.6 45.9 construction.

Other (25.9) 0.7

'Ibtal $178.9 $235. 1 Taxes Other Than Income Tuxes, other than income, have increased Increases in 1982 and 1981 reflect higher due to increases in revenue, which is subject to a gross base rates and the sale of output and capacity e quivalent receipts tax, and due to higher realty and social security of Salem Unit No. 2 to Jersey Central Power & Light taxes.

zz Allowance for Funds Used During such regulatory reviews, but believes the safety Construction requirements have been or will be met, the economic The increases in AFUDC for the last two desirability of the program has been demonstrated and years resulted from a higher cost of capital for construction that the program will be successfully completed and and increases in construction work in progress. approved.

During 1982 a number of events occurred Interest Charges regarding the PUC's investigation of the Limerick project.

Interest charges on debt increased in the On August 27, 1982, the PUC issued its final order finding last two years because of additional debt outstanding. The that cancellation or suspension of Limerick Unit No. 2 ratio of earnings to mortgage interest, which is a measure would be in the public interest. The Company appealed of the Company's ability to issue additional long-term debt, the PUC order to the Pennsylvania Commonwealth Court increased to 2.42 times in 1982 and remained above the and on December 15, Commonwealth Court reversed the minimum of 2.0 times required for the issuance of new PUC's August 27 order. On January 7, 1983, the PUC voted mortgage debt. to petition the Pennsylvania Supreme Court for Approval of Appeal of the Commonwealth Court's order.

Capital Expenditures The Company estimates that the final cost of and Changes in Financial Position the Limerick project will be $5.8 billion when completed The Company is carrying on a construction in late 1988.

program which is estimated to require expenditures of Placing the Limerick units into service will

$996 million in 1983 and $2.6 billion from 1984 to 1986. A enable the Company to retire some of its older, less majority of these expenditures relates to the construction efficient fossil units and to lessen its dependence on high-of the Company's two 1055 mW nuclear generating units at cost oil. In addition, when the units are completed, it is Limerick, PA. Successful completion of this program is expected that the Company will realize substantial fuel dependent on the Company's ability to obtain external savings compared to obtaining electricity from alternative financing, primarily through sales of new debt and equity generating sources.

securities which are subject to market conditions and to Interim financing of the construction program meeting certain earnings tests. The program is also is provided by commercial paper borrowings and short-subject to the licensing requirements of the NRC, to and intermediate-term bank loans, which are also financing approvals by the PUC and to change due to dependent on the Company's financial position.

litigation. The Company cannot predict the outcome of Return on Ratio of Eamings Electric Sales Gas Sales Average Common to Mortgage (including Salem Equity Interest Unit No. 2) 81lhons of Percent 'I\mes Covered 81lhons of KWH Cubic Feet 15 2.50 30 75

-:7 ,........,

-  :.~~ i 12

- 2.00 25 60

--- 20 9 150 45 15 6 I 00 30 10 3 50 15 5

0 0 0 78 79 BO 81 82 78 79 BO Bl 82 78 79 BO 81 82

• Salem Umt No. 2

Philadelphia Electric Company and Subsidiary Companies Consolidated Statements of Income ZS For the Year Ended December 3 1 1982 198 1 1980 (Thousands of Dollars)

Operating Revenues Electric $2,180,960 $2,002,063 $1,766,956 Gas 390,427 356,431 290,743 Steam 73,366 74,931 65,695 Total Operating Revenues 2,644,753 2,433,425 2, 123,394 Operating Expenses Fuel and Energy Interchange 1,128,498 1,187,635 1,090,497 Other Operation Expense 411,753 360,840 279,587 Maintenance 199,747 156,878 136,963 Depreciation 143,848 130,283 122,947 Tuxes on Income 207,669 129,484 93,673 Tuxes, Other than Income 164,511 145,312 133,761 Total Operating Expenses 2,256,026 2, 110,432 1,857,428 Operating Income 388,727 322,993 265,966 Other Income Allowance for Other Funds Used During Construction 65,699 65,013 50,483 Income Tux Credits, net 75,845 63, 164 49,025 Other, net (717) 2,457 3,425 Total Other Income 140,827 130,634 102,933 Income Before Interest Charges 529,554 453,627 368,899 Interest Charges Long-Term Debt 308,862 266,691 224,970 Short-Term Debt 32,030 33, 155 13,865 Allowance for Borrowed Funds Used During Construction (147,561) (123,784) (97,067)

Net Interest Charges 193,331 176,062 141, 768 Net Income 336,223 277,565 227,131 Preferred Stock Dividends 57,600 53,804 52, 181 Earnings Applicable to Common Stock $ 278,623 $ 223,761 $ 174,950 Average Shares of Common Stock Outstanding (Thousands) 116,480 99,557 87,302 Earnings Per Average Common Share (Dollars) $2.39 $2.25 $2.00 Dividends Per Common Share (Dollars) $2.06 $1.90 $1.80 See notes to financial statem ents.

1982 Revenue Dollar Sources 1982 Revenue Dollar Uses

!Uel&

Interchange Expe..s 41' Electnc 71f Other Operation & Maintenance Expenses Z7¢

Philadelphia Electric Company and Subsidiary Companies Consolidated Balance Sheets 4 December 31 1982 1981 (Thousands of Dollars)

ASSETS Utility Plant, at original cost Electric $4,519,544 $4,163,088 Gas 394,876 371,239 Steam 53,998 54, 152 Common, used in all services 127,304 118,701 5,095,722 4,707, 180 Less: Accumulated Depreciation 1,450,149 1,330,611 Net Utility Plant in Service 3,645,573 3,376,569 Construction Work in Progress 2,810,014 2,337,517 Total Utility Plant 6,455,587 5,714,086 Investments 91,427 77,780 Current Assets Cash and Temporary Cash Investments 50,025 30,678 Accounts Receivable Customers 284,151 277,292 Other 58,012 65, 131 Inventories, at average cost Fuel (coal, oil and gas) 97,478 83,612 Materials and Supplies 45,552 48,581 Deferred Income Tuxes 43,350 17,052 Prepayments 7,721 6,819 Total Current Assets 586,289 529, 165 Deferred Debits 24,695 31,515 Total $7,157,998 $6,352,546 See notes to financial statements.

December 31 1982 1981 (Thousands of Dollars)

CAPITALIZATION AND LIABILITIES Capitalization Common Shareholders' Equity Common Stock $1,826,198 $1,572,388 Other Paid-In Capital 4,641 3,888 Retained Earnings 423,596 387,251 2,254,435 1,963,527 Preferred Stock Series Without Mandatory Redemption Requirements 372,472 372,472 Series With Mandatory Redemption Requirements 292,290 266,929 Long-Term Debt 3,028,525 2,745,723 Total Capitalization 5,947,722 5,348,651 Current Liabilities Short-Term Debt Bank Loans 32,200 54,225 Commercial Paper 32,500 Current Maturities of Long-Term Debt 21,280 36,062 Accounts Payable 164,419 165,485 Tuxes Accrued 65,954 68,421 Interest Accrued 99,764 82,294 Dividends Declared 24,167 23,380 Deferred Fuel Credits 85,379 31,299 Other 24,734 18, 130 Total Current Liabilities 550,397 479,296 Deferred Credits Accumulated Deferred Income Tuxes 290,538 273,528 Accumulated Deferred Investment Tux Credits 296,068 204,061 Other 73,273 47,010 Total Deferred Credits 659,879 524,599 Total $7,157,998 $6,352,546 See notes to finandal statements.

Philadelphia Electric Company and Subsidiary Companies .' ....;- .

Consolidated Statements of Retained Earnings '~- .- ' '*--r For the Year Ended December 31 1982 1981 1980 (Thousands of Dollars)

Balance, January 1 $ 387,251 $ 353,570 $338, 154 Net Income 336,223 277,.565 227, 131 723,474 631.135 565,285 Cash Dividends Declared Preferred Stock (at specified annual rates) 57,982 53,762 52,973 Common Stock (per share, $2.06 in 1982,

$1.90 in 1981 and $1.80 in 1980) 240,486 189.476 157.423 Expenses of Capital Stock Issues 1,410 646 1,319 299,878 243,884 211.715 Balance, December 31 $ 423,596 $ 387,251 $353,570 Consolidated Statements of Changes in Financial Position Sources of Funds Funds from Operations Net Income $ 336,223 $ 277.565 $227, 131 Charges (Credits) Not Affecting Funds Depreciation, Amortization and Spent Fuel Costs 159,668 144,031 130,354 Deferred Income Tuxes (10,215) 2,011 (12, 121)

Investment Tux Credits, net of Amortization 101,646 25,049 28,135 Allowance for Other Funds Used During Construction (65,699) (65,013) (50.483)

'Ibtal from Operations 521;623 383,643 323,016 Funds from Financings Sales of Securities Long-Term Debt 320,000 423,500 275,000 Preferred Stock 30,000 72,000 Common Stock 253,810 194,925 137,816 Change in Short-Term Debt 10,475 1,635 (32,597)

Sale of Salem Station Nuclear Fuel 100, 166 Sale of Tux Benefits 53,743

'Ibtal from Financings 614,285 773,969 452,219 Total Sources $1,135,908 $1, 157,612 $775,235 Uses of Funds Additions to Utility Plant 870,715 787,075 579,802 Allowance for Other Funds Used During Construction (65,699) (65,013) (50.483)

Dividends on Preferred and Common Stock 298,468 243,238 210,396 Retirement of Long-Term Debt 50,183 137.470 140,671 Change in Other Items of Working Capital (44,582) 19, 797 (108,750)

Other, net 26,823 35,045 3,599 Total Uses $1,135,908 $1, 157,612 $775,235 See notes to financial statements.

P,.tc'.C Philadelphia Electric Company and Subsidiary Companies c:J)C-/

'--, /.

Notes to Financial Statements /

-* -~'~

I. Significant Accounting Policies: were approximately 3.00% for 1982, 3.01% for 1981 and 3.06% for 1980.

General.

All utility subsidiary companies of Income Taxes.

Philadelphia Electric Company are wholly owned and are Deferred income taxes are provided for included in the consolidated financial statements. Non- differences between book and taxable income to the utility subsidiaries are included in investments and extent permitted for rate-making purposes, Investment tax accounted for by the equity method. The accounting credits, other than credits resulting from contributions to policies are in accordance with those prescribed by the the Tux Reduction Act Stock Ownership Plan for regulatory authorities having jurisdiction. employees, which do not affect income, are deferred and amortized to income over the estimated useful lifE? of the Revenues. related utility plant Revenues are recorded in the accounts upon billing to the customer. Rate increases are billed from Allowance for Funds dates authorized or permitted to become effective by the Used During Construction (AFUDC).

regulatory authorities. AFUDC is a non-cash item which is defined in the uniform system of accounts prescribed by regula-Fuel Expense. tory authorities as "the net cost for the period of construc-The Company recognizes fuel expense tion of borrowed funds l)Sed for construction purposes and which is recoverable under energy adjustment clauses a reasonable rate on other funds when so used." AFUDC is when it is billed to customers. recorded as a charge to Construction Work In Progress, The Company leases nuclear fuel for use in and the equivalent credits are to "Interest Charges" for the its nuclear generating stations. Nuclear fuel costs are pre-tax cost of borrowed funds and to "Other Income" for charged to fuel expense on the basis of the number of the remainder as the allowance for equity funds. The rate units of thermal energy produced as they relate to the used for capitalizing AFUDC, which averaged 9.20% in estimated total thermal units to be produced over the life 1982, 8.65% in 1981, and 7.85% in 1980, is computed under of the fuel. Commencing in May; 1981, the estimated a method prescribed by the regulatory authorities. The disposal costs of spent fuel are being charged to opera- rate is a "net after-tax rate" and the current income tax tions as permitted for rate-making purposes. Such reductions applicable to the interest charges capitalized amounts, net of related deferred income taxes, are are recorded in "Other Income." AFUDC is not included in deposited in an escrow account and invested for funding taxable income and the depreciation of capitalized of future costs. The Company believes that any additional AFUDC is not a tax-deductible expense.

costs, which may be significant, would be recoverable through adjustments of rates charged to its customers. Retirement Plan.

The Company has a non-contributory trus-Depreciation. teed retirement plan applicable to all regular employees.

For financial reporting purposes, deprecia- Pension costs include normal cost for the year and amor-tion is provided over the estimated service lives of the tization of unfunded prior service costs, over ten to twenty-plant on the straight-line method and, for tax purposes, year periods. Approximately 80% of such costs were generally; over shorter lives on accelerated methods. The charged to operating expense and the remainder, associ-estimated decommissioning costs of portions of the nuclear ated with construction labor, to the cost of new utility plant plants are being charged to operations as permitted for rate-making purposes. Such amounts, net of deferred Gas Exploration income taxes, are deposited in an escrow account and and Development Costs.

invested for funding of future costs. The Company believes The Company has invested in several joint that any additional costs, which may be significant, would ventures for exploring and drilling for gas. These costs are be recoverable through adjustments of rates charged to its capitalized under the full cost method and charged to customers. The annual depreciation provisions, expressed operations commensurate with the production of gas by as a percent of average depreciable utility plant in service, the ventures, Z. Investments:

At December 31, 1982 and 1981: 1982 1981 (Thousands of Dollars)

Gas Exploration and Development Costs $48,099 $46,294 Nonutility Property 15,911 15,433 Escrowed Funds for Future Decommissioning of Nuclear Plant & Disposition of Spent Nuclear Fuel 15,601 5,798 Other 11,816 10,255 Total $91,427 $77,780

,)*1.

Philadelphia Electric Company and Subsidiary Companies Notes to Financial Statements continued

3. Common Stock:

At December 31, 1982 and 1981, Common Stock, without outstanding. At December 31, 1982, there were 6,531,056 par value, consisted of 160,000,000 shares authorized and shares reserved for issuance under stock purchase plans.

125,766,898 shares and 108,507,097 shares, respectively; Shares Amounts Common Stock Issued: 1982 1981 1980 1982 1981 1980 (Thousands of Dollars)

Public Sales 12,000,000 12,800,000 7,000,000 $175,620 $i54,786 $101,360 Dividend Reinvestment and Stock Purchase Plan 4,019,605 2,667,081 2,399,418 60,399 34,809 31,593 Employee Stock Purchase Plan 453,013 407,445 349,937 6,677 5,330 4,863 Tux Reduction Act Stock Ownership Plan 787,183 11,114 Totals 17,259,801 15,874,526 9,749,355 $253,810 $194,925 $137.816

4. Preferred Stock:

At December 31, 1982 and 1981, Preferred Stock, $100 par, cumulative:

Shares Amounts Current Refunding Redemption Restricted Outstanding Price (a) Prior to (b) Authorized 1982 1981 1982 1981 (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%

7.80%

105.00 103.00 500,000 750,000

. 500,000 750,000 500,000 750,000 50,000 75,000 l

50,000 . .

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):

l 7.125o/o (Sold 1982) 117.125 . 5-1.-87 300,000 300,000 30,000 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 5-1-86 500,000 446,830 453,920 44,683 45,392 8.75% 108.75 5-1-88 500,000 500,000 500,000 50,000 50,000 7.325% 104.69 750,000 630,000 660,000 63,000 66,000 7% 104.00 400,000 326,070 335,370 32,607 33,537 3, 170,000 2,922,~00 2,669,290 292,290 266,929 Unclassified 3, 105,280' Total Preferred Stock 10,000,000* 6,647,620 6,394,010 $664,762 $639,401 (a) Redeemable, at the option of the Company, at the 1983-1987 are as follows: 1983-$3,362,000; 1984-$8,937,000; indicated dollar amounts per share, plus accrued 1985-$9, 130,000; 1986-$16,030,000; and 1987-$16,030,000.

dividends. (d) The excess of the aggregate par value of reacquired (b) Prior to the date specified, none of the shares of each shares, 46,390 shares in 1982, 74,010 shares in 1981 and series indicated may be redeemed through refunding at .45,210 shares in 1980, over the aggregate purchase price an interest cost or dividend rate which is less than the is reflected in Other Paid-In Capital: $753,000 in i982, dividend rate of such series. $1,307,000 in 1981 and $378,000 in 1980. *

(c) Redemption requirements (par value) in the period

, 5. Long-Term Debt:

At December 31, 1982 and 1981:

Philadelphia Electric Company Series Due 1982 1981 (Thousands of Dollars)

First and Refunding Mortgage Bonds (a) 3Y4% 1982 $ 35,000 3Ys% 1983 $ 20,000 20,000 3Ys% 1985 50,000 50,000 4%% 1986 50,000 50,000 4%% 1987 40,000 40,000 3%%-13%% 1988-1992 215,000 215,000 4Y2%-15W1'o 1993-1997 403,429 405,256 7%%-11%% 1998-2002 574,600 584,988 6% -12\.12% 2003-2007 498,500 498,500 9Ys%-18%% 2008-2012 550,000 350,000

'Ibtal First and Refunding Mortgage Bonds 2,401,529 2,248,744 Notes Payable-Banks (b) 1984-1987 225,000 225,000 Notes Payable-Other 17% 1986-1987 20,000 Pollution Control Notes 5.5% - 13% 1984-2012 229,780 130,205 Debentures 4.85% 1986 21,330 22,710 Debentures 14Ys% 1990 50,000 50,000 Debentures 14%% 2005 100,000 100,000 Sinking Fund Debentures of Philadelphia Electric Power Company-a subsidiary 1995 18,193 19,356 Unamortized Debt Discount and Premium, Net (16,027) (14,230)

'Ibtal Long-Term Debt 3,049,805 2,781,785 Current Maturities included in Current Liabilities (c) (21,280) (36,062)

Long-Term Debt included in Capitalization $3,028,525 $2,745,723 (a) Utility plant is subject to the lien of the Company's in 1987, under which no amounts were outstanding as of mortgage. December 31, 1982. Interest is based on the prime rate and (b) At interest rates ranging from prime rate to 107% of there is an annual commitment fee of 3/s% on the unused prime rate. amount. As a result of the Limerick investigation, the (c) Long-term debt maturities in the period of 1983-1987 Company does not presently meet certain conditions for are as follows: 1983-$21,280,000; 1984-$92,949,000; borrowing. The Company has requested and the banks 1985-$160,020,000; 1986-$90,300,000, and 1987-$109,500,000. have tentatively agreed to modify or waive such The Company has a $400 million revolving credit and conditions.

term loan agreement with a group of banks which expires

6. Short-Tenn Debt: 1982 1981 (Thousands of Dollars)

Average Short-Term Borrowings $ 90,180 $146,273 Average Interest Rates, Computed on Daily Basis 13.13% 17.80%

Maximum Short-Term Borrowings Outstanding $168,725 $266,512 Average Interest Rates on Short-Term Borrowings at December 31:

Bank Loans 10.37% 16.37%

Commercial Paper-Tux Exempt 4.92%

Commercial Paper-Tuxable 9.62%

As of December 31, 1982, the Company had borrowed $339,175,000. The Company generally does not have formal

$32,200,000 under lines of credit with banks aggregating compensating balance arrangements with these banks.

Philadelphia Electric Company and Subsidiary Companies Notes to Financial Statements continued

7. Jointly-Owned Electric Utility Plant:

The Company's ownership interests in jointly-owned utility plant at December 31, 1982 were as follows:

Production Plants Transmission Plant Peach Bottom Salem Keystone Conemaugh Operator Philadelphia Public Service Pennsylvania Pennsylvania Various Electric Electric and Electric Electric Companies Company Gas Company Company Company Participating Interest 42.49% 42.59% 20.99% 20.72% 21% to 43%

Company's share of: (Thousands of Dollars)

Utility Plant $405,848 $820,298 $47,481 $58,602 $69,503 Accumulated Depreciation 81,664 78,576 21,273 18,289 8,863 Construction Work in Progress 8,551 23,475 3,774 904 The Company's participating interests are financed with operations are accounted for as if such participating Company funds and, when placed in service, all interests were wholly-owned facilities.

8. Taxes on Income:

1982 1981 1980 (Thousands of Dollars)

Included in operating expenses:

Current Federal $ 71,987 $ 75,558 $ 55,416 Current State 44,251 26,866 22,243 Total 116,238 102,424 77,659 Deferred Federal (8,390) 6,007 (4,653)

Deferred State (l,825) (3,996) (7,468)

Total (10,215) 2,011 (12,121)

Investment tax credits, net of amortization-Federal 101,646 25,049 28, 135

'Ibtal Federal 165,243 106,614 78,898

'Ibtal State 42,426 22,870 14,775 Total $207,669 $129,484 $ 93,673 Included in other income:

Current Federal (60,506) (50,299) (39, 132)

Current State (15,339) (12,865) (9,893)

Total $(75,845) $(63,164) $(49,025)

'Ibtal income tax provisions:

Federal 104,737 56,315 39,766 State 27,087 10,005 4,882 Total $131,824 $ 66,320 $ 44,648 Investment tax credits reduced Federal income taxes cur- In December, 1981, the Company sold the tax rently payable by $108,860,000 in 1982, $29,817,000 in 1981 benefits attributable to its ownership interest in the Salem and $32,428,000 in 1980. Approximately $18,500,000 of addi- Station Unit No. 2. This transaction was structured under tional investment tax credits available in 1982 have not the safe harbor lease provisions of the Economic Recovery been realized due to limitations based on taxable income. 'Tux Act of 1981. The proceeds from the sale, $53, 743,000, These credits may be used to reduce Federal income were credited to Deferred Income 'Tuxes ($24,759,000),

taxes in future years through 1997. Investment tax credits Deferred Investment 'Tux Credits ($21,863,000) and Other consist of (a) the basic credits allowable of 10% plus (b) a Deferred Credits ($7,121,000) and are being amortized to credit of 1W1'o resulting from the 'Tux Reduction Act Stock income over the estimated useful life of the unit.

Ownership Plan for employees ($9,600,000 in 1982 and Beginning June 1, 1982, the normalization of

$6,200,000 in 1981, and none in 1980). The additional credits state income taxes associated with accelerated deprecia-which are passed on to the employees of the Company in tion was adopted for both accounting and rate-making the form of Philadelphia Electric Company Common Stock purposes.

have no effect on net income.

Provisions for deferred income taxes consist of the tax effects of the following timing differences between tax and book income:

1982 1981 1980 (Thousands of Dollars)

Depreciation and amortization $ 30,042 $ 25,452 $ 25,655 Nuclear fuel disposal costs (7,865) (4,299)

Deferred fuel credits (27,264) (21,804) (37,369)

Other (5,128) 2,662 (407)

Total $ (10,215) $ 2,011 $(12, 121)

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 $336,223 $277,565 $227, 131

'Ibtal income tax provisions 131,824 66,320 44,648 Income before income taxes 468,047 343,885 271,779 Deduct-allowance for funds used during construction (non-taxable) 213;260 188, 797 147,550_

Adjusted income before income taxes $254,787 $155,088 $124,229 Income taxes on above at Federal statutory rate of 46% 117,202 71,340 57, 145 Increase (decrease) due to:

Depreciation timing differences not normalized 10,672 (551) (1,338)

State income tax, net of Federal income tax benefits 14,627 5,436 2,636 Tuxes and pension costs capitalized but expensed for tax purposes (396) (3,226) (7,028)

Amortization of investment tax credits previously deferred (7,214) (4,769) (4,293)

Other, net (3,067) (1,910) (2,474)

Total income tax provisions $131,824 $ 66,320 $ 44,648 Provision for income taxes as a percent of:

Income before income taxes 28.2% . 19.3% 16.4%

Adjusted income before income taxes 51.7% 42.8% 35.9%

9. Tuxes, Other than Income:

1982 1981 1980 (Thousands of Dollars)

Gross receipts $106,090 $100,912 $ 90,487 Capital stock 18,928 19,600 19,046 Realty 22,505 9,555 9,398 Other 16,988 15,245 14,830 Total $164,511 $145,312 $133,761

10. Retirement Plan Costs:

Retirement plan costs, which are funded as accrued, aggregated $37,800,000 in 1982, $31,700,000 in 1981, and $28,575,000 in 1980. Plan data as of the dates of the most recent actuarial reports is as follows:

January 1 1982 1981 (Thousands of Dollars)

Actuarial present value of accumulated plan benefits (based on 7.0% and 6.5% assumed rate of return for 1982 and 1981, respectively):

Vested $360,835 $326,786 Nonvested 45,080 38,317

$405,915 $365,103 Net assets available for benefits $359,406 $332,027

Philadelphia Electric Company and Subsidiary Companies Notes to Financial Statements continued

11. Segment Information:

Electric Gas Steam 'Ibtal (Thousands of Dollars) 1982 Operating revenues $2,180,960 $390,427 $73,366 $2,644,753 Operating expenses, excluding depreciation 1,688,365 354,093 69,720 2,112,178 Depreciation 130,225 11,916 1,707 143,848

'Ibtal operating expenses 1,818,590 366,009 71,427 2,256,026 Operating income $ 362,370 $ 24,418 $ 1,939 $ 388,727 Utility plant additions $ 843,371 $ 27,125 $ 219 $ 870,715 December 31:

Allocable assets:

Net utility plant ( *) 6,097,411 332,437 25,739 6,455,587 Inventories 105,035 37,645 350 143,030

$6,202,446 $370,082 $26,089 6,598,617 Nonallocable assets 559,381 Total assets $7,157,998 1981 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

'Ibtal operating expenses 1, 703, 776 333,302 73,354 2, 110,432 Operating income $ 298,287 $ 23, 129 $ 1,577 $ 322,993 U\ility plant additions $ 746,535 $ 40,432 $ 108 $ 787,075 December 31:

Allocable assets:

Net utility plant (*) 5,372,240 314,652 27, 194 5,714,086 Inventories 101,956 29,986 251 132, 193

$5,474, 196 $344,638 $27,445 5,846,279 Nonallocable assets 506,267 Total assets $6,352,546 1980 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, 169 1,672 122,947

'Ibtal operating expenses 1,525, 144 268,232 64,052 1,857,428 Operating income $ 241,812 $ 22,511 $ 1,643 $ 265,966 Utility plant additions $ 540,628 $ 38,833 $ 341 $ 579,802 December 31:

Allocable assets:

Net utility plant ( *) 4,867,879 283,414 28,748 5, 180,041 Inventories 102, 193 18,582 311 121,086

$4,970,072 $301,996 $29,059 5,301, 127 Nonallocable assets 401,422 Total assets $5,702,549

(*)Includes construction work in progress and allocated common utility property.

12. Leases:

Certain leases, including the nuclear fuel contracts for Rentals charged to operating expenses were as follows:

Peach Bottom and Salem, meet the criteria of a capital 1982 1981 1980 lease as defined by Financial Accounting Standards, but (Thousands of Dollars) are accounted for as operating leases in accordance with the rate-making process. If these leases were capitalized Nuclear fuel $41,417 $26, 709 $21,177 they would not have a material effect on assets or liabilities, Other 24,356 24,782 21,235 and they would have no effect on related expenses. Total $65,773 $51,491 $42,412 The minimum rental commitments under all noncancelable agreements aggregated $400,654,000 at The Company's proportionate share of the December 31, 1982. The annual rental commitments are contractual liabilities to purchase nuclear fuel under lease estimated to be $100,039,000 for 1983; $104,176,000 for 1984; agreements for the Peach J3ottom Station and Salem Station

$86,084,000 for 1985; $42,375,000 for 1986; and $10,333,000 as of December 31, 1982 was $225,318,000. Independent for 1987. fuel companies have been authorized to acquire and own up to a maximum of $525,000,000 of nuclear fuel at any one time and have contracted to sell the energy therefrom to the Company:

13. Limerick Generating Station:

The Company has under construction two nuclear units at The Company has completed a review of Limerick, Pennsylvania. In the latter part of 1980, the the Limerick project and believes that completion of the Pennsylvania Public ,Utility Commission (PUC) began an project is financially feasible and in the best interest of its investigation into various matters concerning the Limerick customers. The Company has revised the schedule for the Generating Station. On August 27, 1982, the PUC issued an construction and completion of Limerick Unit No. 2 which order stating that continued construction of Unit No. 2 is not is expected to be in service in late 1988. Unit No. 1 is in the public interest and directing the Company to cancel expected to be in service in early 1985. The total final cost or suspend construction within 120 days of the order. The of the project is presently estimated at $5.8 billion-Company appealed the order to the Commonwealth Court $2. l billion for Unit No. 1, $2.4 billion for Unit No. 2 and and, on December 15, 1982, Commonwealth Court $1.3 billion for common plant facilities.

reversed the PUC order. On January 14, 1983, the PUC At December 31, 1982, engineering studies petitioned the Pennsylvania Supreme Court to allow an indicated Unit No. 1 and common plant facilities were appeal of the Commonwealth Court's decision. approximately 83%complete and Unit No. 2 approximately If Unit No. 2 were ultimately cancelled, the 30% complete. The Company's allocated investment in Unit Company would request regulatory authorities to permit No. 1, Unit No. 2 and common plant facilities was $1.35 the recovery of its investment, but there can be no billion, $563 million, and $627 million, respectively:

assurance that such requests would be granted.

14. Commitments and Contingencies:

The Company has incurred substantial commitments in The Company is insured for damage to its connection with its construction program. Construction nuclear plant facilities for losses up to $967,000,000. Under

• expenditures are* estimated to be $996,000,000 for 1983 and the terms 'of the various insurance agreements, the

$2,603,000,000 for 1984-1986. These estimates are reviewed Company could be assessed up.to $28,000,000 for losses and revised periodically to reflect changes in economic incurred at any of the plants insured by the insurance conditions, revised load forecasts and other appropriate companies. The Company is a self-insurer, to the extent of factors. Plant facilities under construction, particularly its ownership interests, for any property loss in excess of Limerick, require numerous permits and licenses, which th.e insurance coverage. °"'

the Company cannot be assured will be issued at comple- The Company is a member of an industry tion of the facilities. mutual insurance company to provide replacement power The Price-Anderson Act places a "Limit of cost insurance coverage in the event of a major outage at a Liability" of $560,000,000 on each licensed nuclear facility nuclear station. The premium for this coverage is subject for claims that could arise from an incident involving any to an assessment for adverse loss experience. The Com~

licensed nuclear facility in the nation. The Company has pany's maximum share of any assessment is $12,860,000.

insured for this exposure through a combination of private Actions have been filed in the U.S. District insurance and indemnity agreements with the Nuclear Court against the Company with respect to alleged Regulatory Commission. In the event of such a nuclear discrimination in its employment or promotion practices.

incident, the Company could be assessed up to $8, 500, 000 Counsel is of the opinion that the ultimate outcome of these per incident wlth a maximum amount of $17, 000, 000 in any actions would not have a material adverse effect on the one year. financial position of the Company:

Philadelphia Electric Company and Subsidiary Companies Notes to Financial Statements continued IS. Quarterly Data (Unaudited):

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 Earnings Quarter Operating Applicable to Average Shares Per Average Ended Revenues Net Income Common Stock Outstanding Share (Thousands of Dollars) (Thousands) (Dollars) 1982 1981 1982 1981 1982 1981 1982 1981 1982 1981 March 31 $757,077 $647,927 $90,951 $69,904 $77,138 $56,382 108,593 92,706 $.71 $.61 June 30 592,573 543,612 63,240 58,475 48,622 45,017 115,289 98,383 .42 .46 September 30 661,594 620,697 100,402 79, 198 85,816 65,763 117,478 99,227 .73 .66 December 31 633,509 621, 189 81,630 69,988 67,047 56,599 124,378 107,749 .54 .53

16. Supplementary Information to Disclose the Estimated Effects of Inflation for the Year Ended December 31, 1982 (Unaudited):

The following supplementary information is supplied to exceed the original costs incurred when the facilities were show the estimated effects of inflation because the built because of the cumulative effect of inflation. These Company is required to do so, according to the Statement plant replacement costs, net of accumulated depreciation, of Financial Accounting Standards No. 33. The methods are estimated at $11,246,000,000 as restated for "constant required to develop this information are approximate and dollars" and $11,795,000,000 as restated for "current costs."

complex, and may not necessarily reflect the true effects Under the "constant dollar" method, the Company is of inflation on the Company Under existing regulatory law, required to restate the original costs in terms of dollars of the Company is permitted to recover actual operating and equal purchasing power, as measured by the Consumer capital costs incurred to serve customers and a reasonable Price Index for all Urban Consumers. The "current cost" return on investment, and the Company believes it will be method uses Handy-Whitman Indices of Public Utility allowed to recover cost increases caused by inflation as Construction Costs. Results from the two methods differ such increases are actually incurred. because construction costs have increased more rapidly Effect of Inflation on Reported Income. In than consumer prices in general. Under the "current cost" adjusting the Consolidated Statements of Income, as shown method, the effect ($413,000,000) of general inflation in 1982 below, only depreciation expense was adjusted for the on net utility plant was less than the increase ($422,000,000) '

effect of inflation. The "constant dollar" and "current cost" in specific prices by $9,000,000 while the effect of general depreciation expenses were determined by applying the inflation exceeded specific prices by $197,000,000, Company's depreciation rates to restated 1982 average $218,000,000 and $90,000,000 for 1981, 1980 and 1979, depreciable plant in service. Other Operating Expenses respectively; expressed in average 1982 dollars. In the were not required to be adjusted.

• Company's opinion, the "current cost" method is more If the Company had to replace its entire appropriate for estimating the effect of inflation on utility utility plant at this time, the costs to do so would greatly plant.

Consolidated Statements of Income Adjusted for Inflation for the Year Ended December 31, 1982 (Thousands of Dollars)

As Adjusted For Constant Dollars Current Costs As Reported (Average 1982 Dollars) (Average 1982 Dollars)

Operating Revenues $2,644,753 $2,644,753 $2,644,753 Depreciation 143,848 334,000 374,000 Other Operating Expenses 2, 112, 178 2, 112, 178 2, 112, 178 Operating Income 388,727 198,575 158,575 Other Income 140,827 140,827 140,827 Income Before Interest Charges And Preferred Stock Dividends 529,554 339,402 299,402 Interest Charges and Preferred Stock Dividends 250,931 250,931 250,931 Earnings Applicable to Common Stock* $ 278,623 $ 88,471 $ 48,471 Earnings Per Average Share (Dollars)** $2.39 $0.76 $0.42

• Earnings applicable to Common Stock for 1981, 1980, and **Earnings per average share for 1981, 1980 and 1979, 1979 restated in average 1982 dollars, amounted to $64, 707,000, based on the restated earnings were $0.65, $0.67 and

$58,379,000 and $49,617,000, respectively; for Constant Dollars $0.62, respectively; for Constant Dollars and $0.25, for 1981 and $24,427,000 for 1981 and losses of $2,461,000 and $8,903,000 and losses for 1980 and 1979 of $0. 03 and $0.11, respectively; for 1980 and 1979, respectively; for Current Costs. for Current Costs.

' . ~;:.

Effects of Inflation on Shareholders' Equity.

The effect of inflation on the Company's actual original cost on the value of the Company's debt and preferred stock of net utility plant amounted to $223,000,000 for 1982, approximated $149,000,000 for 1982, $326,000,000 for 1981,

($483,000,000 for 1981, $666,000,000 for 1980, and $453,000,000 for 1980 and $511.000,000 for 1979 (1981, 1980

$743,000,000 for 1979 expressed in average 1982 dollars). and 1979 expressed in average 1982 dollars) and would These inflationary effects were not recovered because partially offset the effect of inflation on utility plant.

rates are based on depreciation of original cost plant. If If the Company had earned at the rate of the Company were required to charge these amounts inflation (3.9%) on its common shareholders' equity in 1982, against income in 1982, earnings applicable to common earnings would have been approximately $82,000,000 stock would have been reduced to $55,623,000, while in compared with reported earnings of $278,623,000. Thus, 1981, 1980 and 1979, earnings applicable to common stock reported earnings applicable to common stock in 1982 would have become losses of$246,173,000, $461,038,000 were about $197,000,000 above the level necessary to and $544,372,000, respectively: The effect of inflation (3.9% offset the impact of inflation on shareholders' equity:

for 1982, 8.9% for 1981, 12.4% for 1980 and 13.3% for 1979)

Adjustment of Selected Five Year Financial Information.

In order to reflect the impact of general inflation on through 1982, the following table shows actual data selected financial information for each of the years 1978 compared with data adjusted to 1982 dollars.

Five Year Summary of Selected Financial Information Showing Adjustments To Reflect Inflation 1982 1981 1980 1979 1978 Development of Adjustment Factors Consumer Price Index Average During Year 289.l 272.4 246.8 217.4 195.4 Year End 292.4 281.5 258.4 229.9 202.9 Consumer Price Index Multiplier A = Average (289. l -:- Index) 1.00 1.06 1.17 1.33 1.48 B = Year End (292.4 + Index) 1.00 1.04 1.13 1.27 1.44 Actual and Adjusted Financial Information Dividends Per Common Share Actual Paid $2.06 $1.90 $1.80 $1.80 $1.80 Adjusted (Actual x A) $2.06 $2.01 $2.11 $2.39 $2.66 Market Price Per Common Share Actual Year End $17.00 $13.63 $12.50 $13.75 $15.50 Adjusted (Actual x B) $17.00 $14.18 $14.13 $17.46 $22.32 Operating Revenues (thousands of dollars)

Actual $2,644,753 $2,433,425 $2, 123,394 $1,578,505 $1,456,758 Adjusted (Actual x A) $2,644,753 $2,579,431 $2,484,371 $2,099,412 $2, 156,002 Common Shareholders' Equity (thousands of dollars)

Actual Year End $2,254,435 $1,963,527 $1,733,614 $1,580,004 $1,475,276 Adjusted (Actual x B) $2;254,435 $2,042,068 $1,958,984 $2,006,605 $2, 124,397 Accountants' Report

'Ib 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, 1982 and 1981, 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, 1982. 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 31, 1982 and 1981, 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, 1982, in conformity with generally accepted accounting principles applied on a consistent basis.

1900 Three Girard Plaza Philadelphia, Pennsylvania February 2, 1983

'-'("~. ~*

Financial Statistics Summary of Earnings (Millions of Dollars)

For the Year Ended 1982 1981 1980 1979 1978 1977 1972 Operating Revenues (for details see pages 23 and 32) $2,644.8 $2,433.4 $2, 123.4 $1,578.5 $1,456.8 $1,394.8 $685.0 Operating Expenses Fuel and Energy Interchange 1,128.5 1, 187.6 1,090.5 661.7 573.9 575.3 212.0 Labor 291.l 256.8 232.l 209.3 195.0 179.2 120.4 Other Materials, Supplies and Services 320.5 260.9 184.5 155.4 135.0 121.4 55.0

'Ibtal Operation and Maintenance 1,740.l 1,705.3 1,507.1 1,026.4 903.9 875.9 387.4 Depreciation 143.8 130.3 122.9 120.6 116.5 107.8 60.5 Tuxes 372.2 274.8 227.4 185.7 194.7 188.9 93.6 Total Operating Expenses 2,256.l 2, 110.4 1,857.4 1,332.7 1,215. l 1, 172.6 541.5 Operating Income 388.7 323.0 266.0 245.8 241.7 222.2 143.5 Other Income Allowance for Other Funds Used During Construction 65.7 65.0 50.5 . 46.0 37.6 36.2 21.4 Income Tux Credits, net 75,8 63.2 49.0 33.9 26.3 25.3 (0.4)

Other, net (0.7) 2.5 3.4 1.7 4.6 3.5 0.2 Total Other Income 140.8 130.7 102.9 81.6 68.5 65.0 21.2 Income Before Interest Charges 529.5 453.7 368.9 327.4 310.2 287.2 164.7 Interest Charges Long-Term Debt 308.9 266.7 225.0 193.0 176.3 161.0 73.4 Short-Term Debt 32.0 33.2 13.9 7.3 2.5 2.6 4.4 Allowance for Borrowed Funds Used During Construction (147.6) (123.8) (97.1) (67.4) (53.4) (49.8) (21.1)

Net Interest Charges 193.3 176.1 141.8 132.9 125.4 113.8 56.7 Net Income 336.2 277.6 227.1 194.5 184.8 173.4 108.0 Preferred Stock Dividends 57.6 53.8 52.2 44.8 43.5 40.7 21.6 Earnings Applicable to Common Stock 278.6 223.8 174.9 149.7 141.3 132.7 86.4 Dividends on Common Stock 240.5 189.5 157.4 145.0 135.7 124.9 67.7 Earnings Retained $38.l $34.3 $17.5 $4.7 $5.6 $7.8 $18.7 Earnings Per Average Common Share (Dollars) $2.39 $2.25 $2.00 $1.86 $1.87 $1.87 $2.08 Dividends per Common Share (Dollan) $2.06 $1.90 $1.80 $1.80 $1.80 $1.76 $1.64 Common Stock Equity (Per Share) $17.93 $18.10 $18.72 $19.06 $19.28 $19.26 $20.00 Average Shares of Common Stock Outstanding (Millions) 116.5 99.6 87.3 80.5 75.4 70.8 41.5 See Page 21 for Management's Discussion and Analysis of Financial Condition and Results of Operations.

Ratings on Philadelphia Electric Company's Securities Mortgage Bonds Debentures Preferred Stock Agency Rating Date Established Rating Date Established Rating Date Established Duff and Phelps, Inc. 9 3180 10 3/80 11 2/83 Fitch Investors Service BBB 9/82 BBB- 9/82 BB+ 9/82 Moody's Investors Service Baa3 1/83 Bal 1183 bal 1183 Standard and Poor's Corporation BBB- 9/82 BB+ 9/82 BB 9/82

~J.J*71;:\

?;c;;--*

~),J Summary of Financial Condition December 31 (Millions of Dollars) 1982 1981 1980 1979 1978 1977 1972 Assets Utility Plant, at original cost $7,905.7 $7,044.7 $6,415.7 $5,885.5 $5,502.5 $5, 121.1 $3,222.6 Less: Accumulated Depreciation 1,450.l 1,330.6 1,235. 7 1,144.l 1,053.3 955.3 624.2 Net Utility Plant 6,455.6 5,714.1 5, 180.0 4,741.4 4,449.2 4, 165.8 2,598.4 Investments 91.4 77.8 58.7 47.4 30.0 27.4 9.5 Current Assets Cash and Temporary Cash Investments 50.0 30.7 6.7 10.6 38.6 30.8 55.8 Accounts Receivable 342.2 342.4 300.3 230.9 223.5 184.0 72.l Inventories 143.0 132.2 121.1 110.0 93.3 102.3 .38.8 Deferred Fuel Expense 11.0 83.5 4.2 23.0 Deferred Income Tuxes 43.4 17.0 Other 7.7 6.8 6.2 4.6 4.3 3.8 2.8 Deferred Debits 24.7 31.5 18.5 12.9 7.5 10.9 7.5 Total $7,158.0 $6,352.5 $5,702.5 $5,241.3 $4,850.6 $4,548.0 $2,784.9 Capitalization and Liabilities Common Stock $1,826.2 $1,572.4 $1,377.4 $1,239.6 $1,139.7 $1,106.7 $622.5 Other Paid-In Capital 4.6 3.9 2.6 2.2 2.0 1.8 1.2 Retained Earnings 423.6 387.2 353.6 338.2 333.6 328.7 271.0 Common Shareholders' Equity 2,254.4 1,963.5 1,733.6 1,580.0 1,475.3 1,437.2 894.7 Preferred Stock:

Series Without Mandatory Redemption Requirements 372.5 372.5 372.5 372.5 372.5- 372.5 297.5 Series With Mandatory Redemption Requirements 292.3 266.9 274.3 206.8 210.9 161.7 40.0 Long-Term Debt 3,028.5 2,745.7 2,371.9 2,241.9 2, 173.2 2,078.3 1,287.2

'Ibtal Capitalization 5,947.7 5,348.6 4,752.3 4,401.2 4,231.9 4,049.7 2,519.4 Current Liabilities Short-Term Debt 64.7 54.2 52.6 85.2 16.2 14.9 103.8 Current Maturities of Long-Term Debt 21.3 36.l 130.8 127.8 52.9 28.7 13.5 Accounts Payable and Dividends Declared 188.5 188.9 187.6 133.5 120.3 92.4 49.5 Tuxes Accrued and Deferred 66.0 68.4 77.8 65.l 44.5 36.7 18.4 Interest Accrued 99.8 82.3 64.9 58.l 51.0 48.6 18. l Deferred Fuel Credits 85.4 31.3 Other 24.7 18. l 17.4 13.9 7.9 4.1 5.6 Deferred Credits 659.9 524.6 419.l 356.5 325.9 272.9 56.6 Total $7,158.0 $6,352.5 $5,702.5 $5,241.3 $4,850.6 $4,548.0 $2,784.9

P':1';~_

L --*,, r;:;*- l Operating Statistics ~Jc£~

ELECTRIC OPERATIONS 1982 1981 1980 1979 1978 1977 1972 Output (millions of kilowatthours)

Steam 8,598 9,931 11,234 11,279 13, 160 11,468 20, 181 Nuclear 10,743 7,464 7,333 7, 104 7,769 4,596 97 Hydraulic 1,581 1,397 1,240 2,155 1,700 1,991 . 2,242 Pumped Storage Output 1,126 1, 101 1,050 1,270 1, 109 1,223 1,430 Pumped Storage Input (l,665) (1,624) (1,526) (1,847) (1,606) (1, 761) (2,018)'

Purchase and Net Interchange 11,120 11,173 9,973 9,180 6,651 9,759 3,472 Internal Combustion 178 283 442 454 704 847 946 Other 528 716 1 Total Electric Output 31,681 30,253 29,746 29,595 29,487 28,845 26,351 Sales (millions of kilowatthours)

Residential 7,877 8,014 8,341 7,968 7,875 8,110 6,856 Small Commercial and Industrial 3,142 3, 115 3,065 2,928 2,888 2,825 2,503 Large Commercial and Industrial 14,178 14,916 15,056 15,428 15,302 14,912 14,011 Jersey Central Power & Light (Salem #2) 3,352 1,218 All Other 1,012 1,005 1, 159 1,277 1,329 1,350. l, 136 Total Electric Sales 29,561 28,268 27,621 27,601 27,394 27, 197 24,506 Number of Customers, December 31 Residential 1,206,944 1,200,238 1, 190,312 l, 173,514 1, 158,853 1, 148, 171 1,090,921 Small Commercial and Industrial 118,407 117,016 116,808 115,724 115,945 115,883 118,522 Large Commercial and Industrial 5,616 5,790 5,820 5,798 5,780 5,772 5,645 All Other 762 746 736 1,919 2,413 2,381 2,163 Total Electric Customers 1,331,729 1,323,790 1,313,676 1,296,955 1,282,991 1,272,207 1,217,251 Operating Revenues (millions of dollars)

Residential $ 694.4 $ 643.7 $ 607.8 $ 461.0 $ 430.8 $ 427.6 $ 222.7 Small Commercial and Industrial 310.6 285.9 249.8 189.0 176.5 168.4 88.l Large Commercial and Industrial 922.3 917.1 813.9 587.4 544.0 513.4 228.6 Jersey Central Power & Light (Salem #2) 135.4 45.9 All Other 118.3 109.5 95.4 74.5 73.l 68.3 35.0 Total Electric Revenues $2,181.0 $2,002.1 $1,766.9 $1,311.9 $1,224.4 $i,177.7 $ 574.4 Operating Expenses (millions of dollars)

Operating expenses excluding depreciation $1,688.4 $1,586.5 $1,414.0 $ 975.4 $ 896.3 $ 881.2 $ 392.3 Depreciation 130.2 117.3 111.1 110.0 106.3 97.9 54.3 Total Operating Expenses $1,818.6 $1,703.8 $1,525. l $1,085.4 $1,002.6 $ 979.l $ 446.6 Electric Operating Income (millions of dollars) $ 362.4 $ 298.3 $ 241.8 $ 226.5 $ 221.8 $ 198.6 $ 127.8 Net Electric Utility Plant (millions of dollars) $6,097.4 $5,372.2 $4,867.9 $4,449.5 $4, 167.1 $3,883.9 $2,330.5 Average Use per Residential Customer (kilowatthours)

Without Electric Heating 5,875 6,022 6,411 6,227 6,290 6,584 6,082 With Electric Heating 16,813 18,054 19,482 20,760 21,884 23,593 27,029

'Ibtal 6,544 6,699 7,058 6,829 6,833 7,097 6,317 Electric Peak Load, Demand (thous. kW) 5,691 5,731 6,095 5,641 5,667 5,888 5,313 Net Electric Generating Capacity

- Year End Summer rating (thous. kW) 8,006 8,006 7,698 7,727 7,727 8, 198 6,348 Cost of Fuel per Million Btu $1.57 $2.10 $1.90 $1.55 $1.29 $1.40 $0.62 Btu per Net Kilowatthour Generated 10,918 10,930 10,787 10,810 10,773 10,882 10,666

P<::c;e

?~J(?1

~-0*-J1

._ _ _ J rI GAS OPERATIONS 1982 1981 1980 1979 1978 1977 1972 Sales (millions of cubic feet)

Residential 2,442 2,446 2,461 2,327 2,316 2,394 2,418 House Heating 24,237 24,675 23,671 23,593 24,974 26,335 26,026 Commercial and Industrial 41,660 45,670 42,890 37,452 32,784 31,017 41,490 All Other 422 127 92 93 94 86 104 Total Gas Sales 68,761 72,918 69,114 63,465 60, 168 59,832 70,038 Number of Customers, December 31 Residential 76,638 78,426 81,346 85,315 87,715 88,775 94,035 House Heating 198,910 193,038 182,246 168,905 163,469 162,978 159,780 Commercial and Industrial 22,324 21,578 20, 197 19,065 19,207 19,422 20,312 Total Gas Customers 297,872 293,042 283,789 273,285 270,391 271,175 274, 127 Operating Revenues (millionS of dollars)

Residential $ 18.l $ 15.4 $ 14.0 $ 10.7 $ 9.9 $ 9.6 $ 6.2 House Heating 147.l 128.5 108.5 91.2 86.6 84.l 48.4 Commercial and Industrial 221.l 209.7 166.7 118.4 92.2 80.4 38.2 All Other 1.8 0.5 0.3 0.2 0.2 0.2 0. 1 Subtotal $388.l $354. 1 $289.5 $220.5 $188.9 $174.3 $ 92.9 Other Revenues 2.3 2.3 1.2 0.6 0.6 0.5 0.4 Total Gas Revenues $390.4 $356.4 $290.7 $221.1 $189.5 $174.8 $ 93.3 Operating Expenses (millions of dollars)

Operating expenses excluding depreciation $354.l $322.0 $258.0 $194.4 $163.0 $145.7 $ 73.9 Depreciation 11.9 11.3 10.2 8.9 8.6 8.2 5. 1 Total Operating Expenses $366.0 $333.3 $268.2 $203.3 $171.6 $153.9 $ 79.0

\ Gas Operating Income (millions of dollars) $ 24.4 $ 23.l $ 22.5 $ 17.8 $ 17.9 $ 20.9 $ 14.3 Net Gas Utility Plant (millions of dollars) $332.4 $314.7 $283.4 $261.7 $250.5 $248. 1 $239.7 STEAM OPERATIONS Sales (millions of pounds) 5,086 5,484 6,044 6,581 7,336 7,165 8,328 Number of Customers, December 31 571 593 618 638 660 670 737 Operating Revenues (millions of dollars) $ 73.4 $ 74.9 $ 65.8 $ 45.5 $ 42.9 $ 42.3 $ 17.3 Operating Expenses (millions of dollars)

Operating expenses excluding depreciation $ 69.8 $ 71.6 $ 62.4 $ 42.3 $ 39.3 $ 38.0 $ 14.8 Depreciation 1.7 1.7 1.7 1.7 1.6 1.6 1.1 Total Operating Expenses $ 71.5 $ 73.3 $ 64.1 $ 44.0 $ 40.9 $ 39.6 $ 15.9 Steam Operating Income (millions of dollars) $ 1.9 $ 1.6 $ 1.7 $ 1.5 $ 2.0 $ 2.7 $ 1.4 Net Steam Utility Plant (millions of dollars) $ 25.8 $ 27.2 $ 28.7 $ 30.2 $ 31.6 $ 33.8 $ 28.2

Shareholder Information Stock Exchange Listings. Annual Meeting.

Most PECo Securities are listed on the New The Annual Meeting of the Shareholders of York Stock Exchange and the Philadelphia Stock the Company will be held on April 13, 1983, at 10:30 AM Exchange. Philadelphia Electric Power Company Deben- at the Franklin Plaza Hotel, 17th & Race Streets, tures are listed on the Philadelphia Stock Exchange. Philadelphia, PA.

Common stock shareholders of record at the Dividends. close of business on March 4, 1983 are entitled to vote at The Company has paid dividends on its this meeting.

common stock continually since 1902. The Board of Direc- Notice of the meeting, proxy statement, and tors normally considers common stock dividends for pay- proxy will be mailed under separate cover. Prompt return ment in March, June, September and December. of the proxies will be appreciated.

The Company estimates that the $2.06 per share dividend paid to common shareholders in 1982 is Form 10-K.

fully taxable as dividend income for Federal income tax Form 10-K, the annual report filed with the purposes. Securities and Exchange Commission, is available without charge to shareholders upon written request to Philadelphia Dividend Reinvestment and Electric Company; 2301 Market Street, PO. Box 8699, Stock Purchase Plan. Philadelphia, PA 19101, Attn: Financial Division.

All common and preferred shareholders may use their dividends to purchase additional shares of com- Shareholders.

mon stock through the Company's Dividend Reinvestment The Company has 283,438 shareholders of and Stock Purchase Plan. The Company absorbs all fees record of common stock, a 21 % increase in 5 years.

for purchases under the Plan.

Shareholders have the opportunity to invest Transfer Agents and Registrars.

additional funds in common stock of the Company; whether PHILADELPHIA ELECTRIC COMPANY-Preferred and or not they have their dividends reinvested-also with all Common Stocks fees borne by the Company. Registrars: Girard Bank, One Girard Plaza, The Plan has been amended to enable eligi- Philadelphia, PA 19101 ble individual participants in the Plan to elect to defer Morgan Guaranty Trust Co. of NY, Federal income tax on up to $1,500 of reinvested dividends 30 W. Broadway; NY, NY 10015 per year as provided by the Economic Recovery Tux Transfer Philadelphia Electric Company; Act of 1981 for a joint return. Agents: 2301 Market St., Phila., PA 19101 More than 28% of the common shareholders Morgan Guaranty Trust Co. of NY, are participants. In 1982, they invested more than $60 mil- 30 W. Broadway; NY, NY 10015 lion through the Plan, including cash payments. Informa- PHILADELPHIA ELECTRIC COMPANY-First and tion concerning this Plan may be obtained from M. W. Refunding Mortgage Bonds Rimerman, Treasurer, Philadelphia Electric Company; 2301 Trustee: The Fidelity Bank, Broad & Walnut Sts.,

Market Street, PO. Box 8699, Philadelphia, PA 19101. Phila., PA 19109 New York Morgan Guaranty Trust Co. of NY, Comments Welcomed. Agent: 23 Wall Street, NY, NY 10015 The Company always is pleased to answer PHILADELPHIA ELECTRIC COMPANY-Debentures questions and provide information. Please address your PHILADELPHIA ELECTRIC POWER COMPANY comments to Mrs. L. S. Binder, Secretary; Philadelphia (A Subsidiary)-Debentures

• Electric Company; 2301 Market Street, PO. Box 8699, Trustee: The Philadelphia National Bank, Philadelphia, PA 19101. Broad & Chestnut Sts., Phila., PA 19101 Inquiries relating to shareholder accounting New York Irving Trust Co., One Wall Street, records, stock transfer and change of address should be Agent: NY, NY 10015 directed to Philadelphia Electric Company; 2301 Market Street, PO. Box 8699, Philadelphia, PA 19101, Attn: Stock General Office.

Transfer Section. (215) 841-5795. 2301 Market Street, PO." Box 8699, Phila., PA 19101. (215) 841-4000. .

NYSE-Composite Common Stock Prices, Earnings and Dividends by Quarters (Per Share) 1982 1981 Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter High Price $171/s $16% $15% $14 1/a $14Y4 $14% $13% $14 Low Price $151/s $131/z $13 $131/s $12\12 $12\14 $11% $11Ys Earnings 54¢ 73¢ 42¢ 71¢ 53¢ 66¢ 46¢ 61¢ Dividends 53¢ 53¢ 50¢ 50¢ 50¢ 50¢ 45¢ 45¢

NOTICE -

THE ATTACHED FILES ARE OFFICIAL RECORDS OF THE DIVISION OF DOCUMENT CONTROL. THE '/ 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 cPJaf;lOOt/67 La.,;(tf,,_ ~l~~--

RECORDS FACILITY BRANCH

Financial Highlights Percent Increase 1982 1981 (Decrease)

Revenues $ 636.7 million $ 608.5 million 4.6 Net Income $ 73.6 million $ 58 .7 million 25.4 Earnings Per Share $ 2.13 $ 1.78 19.7 Dividends Declared $ 1.595 $ 1.535 3.9 Common Stock Outstanding Average Shares 28 ,488,623 25,747,441 10.6 Common Stock Book Value $ 16.11 $ 15.66 2.9 Construction Expenditures $ 110.6 million $ 84.2 million 31.4 Internally Generated Funds $ 77.1 million $ 72.3 million 6.6 Electric Sales 7.25 billion kwh 7.40 billion kwh (2.0)

Electric Customers (Average) 288,607 280,769 2.8 Average Residential Usage 7,860 kwh 7,967 kwh (1.3)

Gas Sales 15.60 million mcf 16.52 million mcf(5.5)

Gas Customers (Average) 74,209 73,299 1.2 Average Residential Usage 86.5 mcf 89.4 mcf (3.2)

Contents ..,_

2 Letter to Stockholders 4 Switching Away from Oil 6 Reducing Costs 8 Increasing Customer Satisfaction 10 Looking Toward the Future 12 Our Service Territory 13 Financial Section 14 Selected Financial Data 15 Financial Review and Analysis 19 Report of Management 20 Quarterly Common Stock Dividend and Price Ranges 21 Reportoflndependent Accountants 22 Consolidated Statements 28 Notes to Consolidated Financial Statements 40 Consolidated Statistics 42 Board of Directors 43 Officers 44 General Information 1

Letter to Stockholders T his was a good year for both stockholders and customers. Significant achievements were:

~ Earnings increased to $2 .13

~ The beginning of additional, innovative programs designed to increase productivity.

~ The re-opening of gas service to new industrial customers as well as costs and increase employee effectiveness.

Progress was made in each of these areas in 1982. That progress is highlighted here and detailed in per share from $1.78 per share, residential customers. the body of this report.

or 19.7 %, despite a 2% decline in We believe these results and Raw material-fuel-represents electric sales and a 5.5% decline in action plans demonstrate that your 38% of our costs. In October, the gas sales. This was accomplished company is financially strong and conversion of the Edge Moor 4 through continued tight cost con- positioned well for the 1980's. generating unit from oil to coal trol and rate relief. Dividends were Financial rating agencies agree. was completed. Fuel savings from increased to 41 cents per share Three such companies, Standard the conversion enabled the price quarterl y-a n indicated annual & Poors Corp., Moody's Investors of electricity to be reduced for rate of $1.64. Service, Inc., and Duff and Phelps, customers throughout the service

~ The price of electricity has been Inc. , upgraded Delmarva Power's territory.

less volatile because of the program credit rating on first mortgage bonds. Capital costs represent 35% of to switch away from oil as a prime In the equivalent language of each total expenses. The most significant generating fuel and a more stable of these companies, Delmarva's decision made in 1982 to minimize worldwide fuel market. For most rating climbed from A to AA capital costs was to delay until 1995 of our residential customers, the minus. The company's common the next major generating plant price of electricity was less in stock price also increased 29.7 % -the 500 megawatt, coal-fired December, 1982, than it was in in 1982. Vienna 9 unit. Virtually all capital the previous January. These achievements result pri- spending on the project has ceased.

Major decisions made in 1982 to marily from a strategic plan devel- This decision is based on present keep this momentum going included: oped several years ago to make forecasts. If they should change,

~ The postponement of construc- electric rates more competitive there is ample time to accelerate tion of the Vienna 9 generating regionall y and, at the same time, the timetable if needed. Reduced station for five years (until 1995) to improve the return on your sales forecasts also mean that ad-as part of a thorough review of investment. ditions to and upgrading of the the demand for electricity on the Key components of the plan were transmission and distribution Delmarva Peninsula. This means to reduce fuel costs and operate system can be deferred .

stockholders will not need to plants more efficiently; to minimize Finally, operating, maintenance, support a substantial construction new capital investment and utilize and other expenses represent 27%

program until at least the late 1980s. existing assets more full y; and to of total costs.

~ The consolidation of five district reduce operating and maintenance Since the company had been pre-offices and seven storerooms to pared for a higher rate of growth streamline operations and reduce than now forecast, management future costs. decided to reduce the workforce by 2

Left: Nevius M.

Curtis, president and chief executive officer; right:

Robert D. Weimer, chairman of the board.

heating. Thus, large growth rates are no longer projected. Price and consumer attitudes, while always important, have become more dom-inant in decision making. In this atmosphere, tighter cost control, utilization of the latest technology and increased productivity are critical.

While several programs respon-sive to customer needs have been developed, we think the key to customer satisfaction will be to keep increases in the price of electricity and natural gas as small as possible.

That's why our strategic plan is so important.

With the near completion of our program to switch away from oil, the absence of a major construction 165 positions by March 31, 1983. We are pleased that this strategic program, excellent generation and Current plans are to meet that goal plan is helping our customers in transmission facilities in place, and through attrition and an early re- the form of stabilized rates and a highly competent and dedicated tirement program. our stockholders in the form of employee team, we are in position Other important areas for cost- increased earnings. This mutual to achieve this goal.

savings indude improvement benefit is essential to our success Success depends on the contin-in productivity and continued in an industry where sources of ued hard work of the 2,697 people utilization of the latest technology income are changing. who make up the Delmarva Power available. In 1982, a program was For several decades, growth team. We thank them for the prog-introduced to help managers in- was obtained through technology ress made so far and the progress crease the involvement of employees advancements and increased sales. we expect in the future for you in the decisions affecting their However, the shock of the Arab oil and our customers.

• jobs. We have also strengthened embargo and subsequent steep the commitment to safety and the price increases for energy brought reduction of job-related accidents. about the need for new business Robert D. Weimer Additional effort was made to use strategies. Customers found ways Chairman of the Board the results of industry research. to use less energy. These included choosing kerosene and wood for ~C,t:*

Nevius M. Curtis President and Chief Executive Officer February 4, 1983 3

Switching Away from Oil D elmarva Power's pro-gram to reduce fuel costs worked its way to the customers' pocketbook during 1982. The price of electricity was less in December than it was the previous January for many resi-dential customers, mainly because of lower fuel costs.

The company has been working on a strategy to switch away from oil wherever possible.

In 1980, the 400-megawatt, coal-fired Indian River 4 plant was com-pleted and in 1981, the Salem 2 nuclear power plant became operational.

The key events of 1982 were the completion of the conversion of the 167-megawatt Edge Moor 4 generat-ing unit from oil to coal and the first full year's operation of the Salem 2 nuclear power plant (Delmarva Power owns 82 megawatts).

This program will be completed in early 1983 when the conversion of the 82-megawatt Edge Moor 3 is finished. In 1984, the company will have reduced its dependence on foreign oil to 11 % from 53 % in 1979.

Oil consumption will have been reduced from 8 million barrels an-nually to 2 million barrels annually.

4

"I know this job.

This is where my heart is," saysJoe Merkel who moves coal from the train to the boiler. Del-marva Power has nearly completed its program to switch away from foreign oil.Joe worked at his job for 11 years until 1971 when the Since coal and nuclear fuel are m-iginal Edge Moor substantially less expensive than coal plants were oil, savings in fuel costs can be converted to oil passed on to the customer. When which then was cleaner and cheaper. each new plant became operational He moved inside, or when each conversion was com-but when some pleted, the company lowered the of the units were price of electricity for the customer converted back and earned a return on the invest-to coal, he volun-teered to go back ment for the shareholder. The into the yard. "It's company expects this to occur again the job I like." when Edge Moor 3 is converted.

While investors are still not earn-ing the full amount authorized by regulators, the near completion of the construction program puts the company in position to make prog-ress on achieving that full return.

In addition to changing the fuel mix, the company has been able to import coal-fired electricity from the Midwest where the recession in the auto and steel industries has reduced industrial demand .

Also, the company sold some Joseph H. Merkel Senior Fuel Equip- of its oil-fired generation to the ment Operator, PJM power pool.

Edge Moor In 1982, Delmarva Power saved Power Station about $25 million for customers by purchasing power from the Mid-west and through its association inPJM.

• 5

Reducing Costs G rowth characteristics of the Delmarva peninsula are changing. Company managers see more new activity in the commercial sector during the While industrial growth is slow, there is considerable activity in the commercial sector-new office buildings in Wilmington to house banks moving to Delaware; a new mid 1980s than in the industrial hospital in Stanton, Delaware; large sector. This growth is not expected insurance office buildings in the to be as energy intensive. Wilmington suburbs; and condo-The company had been prepared minium development in Ocean to serve an anticipated demand City, Maryland.

which is not materializing. In 1982, Delmarva Power managers see the company was approaching a emphasis towards such commercial decision point when capital expen- development in the peninsula's ditures would rapidly escalate in short-term economic future. How-order to build Vienna 9 by 1990. ever, they also see a lower overall Thus, a thorough review of the rate of growth in energy demand Vienna 9 project and growth ( 1.6%) than previously projected.

projections was undertaken. In view of the reduced forecast Here are the conclusions: and significant amount of gener-Flat sales growth of the last four ation capacity now available, the years has demonstrated that the company decided to postpone-previous projections of sales were from 1990 until 1995-the com-not being achieved. There was no mercial operating date of Vienna 9 new record set in 1982 for single- and to stop all current capital invest-hour electrical use. The recession ment on the project.

was worse and more prolonged than Another significant result of this expected. Other forces which could growth analysis was a review of the not be anticipated were cutting company's commitment to load man-into a key area which had provided agement-shifting the demand for growth in the past-the industrial electricity away from peak periods.

sector. For example, a petrochemical The company committed itself plant was destroyed by fire and was to finding ways to move to off-peak not replaced. hours, 100 megawatts of power The prognosis is that flat to low which otherwise would have been sales growth in this sector is likely demanded at peak times in the to be a way of life as long as the early 1990s. Instituting a load man-economy remains sluggish. agement program in the late 1980s, 6

"Sal.es growth is being abl.e to introduce a busi-nessman to new ways he can use el.ectricity," says Chris Smith, power engineer.

Studies compl.eted in 1982 show that substantial growth is not expected in the energy-intensive industrial sector when the technology is more full y as wngasthe developed, will be a cost-effective economy remains method of postponing generating sluggish. Sales ca pacity needs.

growth is expected to come through Since the company was staffed the commercial for larger growth and sales than sector. And, it can are now anticipated, the company's come through the management decided to reduce efforts of Smith the workforce to meet current and others to show work needs. The goal is to reduce businessmen how electricity can employment by 165 positions by increase their March 31, 1983, through attrition profits. and an early retirement program.

In another cost-cutting move, the company announced plans to consolidate five district offices, two line crews, and seven storerooms.

To avoid misunderstanding, several points must be stressed:

~ These actions do not imply financial weakness. The company is financiall y strong. With the near completion of the program to switch away from oil and the delay in con-struction of Vienna 9, the resulting Christopher A. Smith Power Engineer, reduced construction program will Marketing, increase financi al strength.

Southern Division ~ These actions will not affect the General Office reliability of service. There is now a substantial reserve of generation capacity. The company will be flex-ible to accelerate the construction of capacity shou ld demand increase.

~ These actions will not affect the quality of service to customers.

• 7

Increasing Customer Satisfaction H el ping customers use energy wisely and solve energy problems are major, on-going efforts. The com-pany continued successful programs in 1982 and began several new ones.

The following are examples.

There are many programs designed to help customers who can't pay their bills because of unusual circumstances. Customer information specialists work with human service agencies to discover who in the community needs assis-tance. Delmarva Power customer service representatives can help by arranging installment payments of previous bills, setting up budget billing, alerting a friend if service is about to be disconnected, and keeping power on where life sup-port systems or medical emergencies exist. Special efforts are made to inform senior citizens of these programs.

Operators of Delmarva's radio-equipped vehicles are helping to solve a community problem-crime in neighborhoods.

They participate in Radio Watch, a program developed to help increase police effectiveness. Employees driving company radio-equipped vehicles report suspicious events, crimes in progress, or other emer-gency conditions. These vehicles are marked with decals easily visible to the people in the community who may ask company employees to relay emergency messages.

8

"Listening. First and foremost, that is the most impor-tant thing I can do," says Debbie Lanier, customer information spe-cialist. Debbie is one of many employees who concentrate on matching Delmarva Power's numerous customer service Also, the company installed programs and pol- special electronic equipment to icies to the needs communicate with customers with of a diverse range speech or hearing impairments.

of customers includ- The company has several pro-ing homeowners, businessmen, farm -

grams designed to help customers ers, senior citizens, make wise energy choices.

and summer resi- The Super E+ program was dents. "I look at developed to encourage the con-my job as a liaison struction and purchase of homes between my cus-designed to use energy efficiently.

tomers and my company. I These homes offer energy cost enjoy that." savings without substantially increas-ing construction costs. More than 64 builders on the peninsula are participating in this program.

In order to help customers make their homes more energy efficient, Delmarva Power has conducted more than 9,300 comprehensive home energy audits throughout the Delmarva Peninsula since the pro-gram began in 1981. The most common, cost-effective recommen-dations include wrapping water heaters with insulation and install-ing insulation in the attic and under the first floor of a home. Follow-up surveys show that more than 90 %

of customers are pleased with the aud it. The Department of Energy says the response rate for Delmarva Power's service is one of the highest in the country.

• Deborah]. Lanier Customer Informa-tion Specialist, Wilmington Offu:e 9

Looking Toward the Future F inding ways to improve power production technology is crucial for providing energy in the future.

During 1982, Delmarva Power hazards, but also to improve the attitude toward safety both on and off the job.

Another important effort for the future is to encourage employees invested $1.2 million in the utility to become more involved in deci-industry research pool, the Electric sions affecting t heir jobs .

Power Research Institute (EPRI). Employees have many good Forty-four percent of the ideas . For example, one employee company's funds went for genera- recently suggested a new way to tion research to improve existing compute more accurately the bills fossil-fired and nuclear generation of about 500 large customers. T he systems. The company is following idea saves the company about closely EPRI projects to mix coal $50,000 annuall y.

and other fossil fuels with limestone In 1982, the company's man-to allow their combustion in agement renewed its commitment environmentally acceptable ways. to get such ideas out from behi nd The company is also interested the workbench and desk. The long-in research in load management term goal is to intensify an envi-and computerized transmis- ronment at Delmarva Power where sion design. the ideas of the ind ivid u al are The company also sponsors respected, where j u dgement is local research on the Delmarva Pen- exercised, and wh ere decisions insula such as the study of off-peak can be made as close to the local electric heating of chicken houses. situation as feas ible.

Looking ahead in another area, A key part of this training is the the company is expanding its safety teaching of how to set effective and program. This effort grew out of a easily understood measu remen ts of concern for the well-being of the job performance so accou ntability families of employees as well as the goes hand-in-hand with passing employees themselves. decisions downward.

An aggressive program was Special efforts begun in 1982 not only to provide are being made to the tools to do the job safely and to include more peo-increase the awareness of potential ple in decisions affecting their jobs.

10

"My dad (Phil, kjt) makes sure peopk have ekctricity and natural gas.

That's important.

But what's more important to me is that he comes home each night to talk and help me with my school work;'

says Heather Dougherty. The Delmarva Power also e ncou rages company has al- the insta llation of heat pu mps ways had a strong th roughou t the service territory.

on-the-job safety H eat pumps p rov ide the compa ny program. This with increased kil owatt hou r sales year, special ef forts were made to du r in g off-peak hours. This lead s increase aware- to increased sales without building ness of safety at new power pla n ts-a nother be ne-home as well as at fit bo th to th e cu sto me r a nd work. The com- th e stockhold er.

pany is concerned about the families Anothe r mu tual benefit is the of all its empwyees re-ope nin g of the natu ral gas busi-as well as the em- ness for commercial a nd industrial pwyees themselves. cu sto m ers a nd cu sto m e r s wh o require extensio n of gas mains.

Finall y, Delma rva e mployees a re lead ers in the community th roug h service, educational, a nd non-profit or ga niza tions. Em ployees co ntrib-u te their time a nd e ne r gy to help orga ni za tio ns such as the United Way, Junior Ac hieveme nt, Leader-ship Delawa re, a nd the Boy Sco u ts of A merica grow a nd prosper.

With the utilizatio n o f the la test technology a vail a ble, the beginnin g of innovative p rogra ms d esig ned to increase p rod uctivity, a nd co n-tinued tigh t cost control, the com-pa ny ex pects to p roduce benefits for both cu stome rs a nd stockh older s.*

Heather Dougherty, daughter of Philip L. Dougherty, Ekctric Utility Serviceman, Northern Division General Office 11

The Delmarva Our Service Territory Peninsula stands out as one of the most distinctive geographical features on the East Coast.

Centrally wcated within the major East Coast mar-kets and.financial centers from New P

York to Richmond, Pennsylvania roduction and distribu- the Peninsula has tion of safe, reliable, a uni,que b/,end j ~ Maryland and economical energy for the people, businesses, and of industrial, agricultural, / - .7 Baltimore W~hin~~ ~

commercial, and industries of the Delmarva Penin-recreational ac-sula is Delmarva Power's business. tivities. Living and To service a diverse are a,

~

working here is a Delmarva maintains an electric system with 2,3 65 megawatts of pleasure.

generation capacity, 1,338 miles of transmission lines, 10,83 0 miles of R ichmond

-~ ..

distribution lines and a natural gas system with 1,022 miles of gas main. -;r" ,

Delmarva Power owns and Virginia I

operates four major fossil fuel power plants within the service territory and shares ownership of two coal plants and two nuclear plants outside the service territory.

Our 292,000 electric customers and 75,000 natural gas customers are served by 2,697 employees working in 25 customer service locations on the peninsula, division headquarters in Christiana, Dela-ware, and Salisbury, Maryland, and corporate headquarters in Wilmington, Delaware.

• 12

Delmarva Power & Li ght Comp any Selected Financial Data (Dollars in Thousands)

For the Years Ended December 31 1982 1981 1980 1979 1978 Operating Operating Revenues $ 636,666 $ 608,504 $ 520,470 $ 424,699 $ 378,702 Operating Income 116,573 107,325 80,716 74,859 71,563 Net Income 73,571 58,711 48,957 53,376 47,448 Earnings and Dividends Earnings Per Share 2.13 1.78 1.60 1.91 1.85 Dividends Declared on Common Stock 1.591/z 1.531/z 1.49 1.40V2 1.301/z Average Shares Outstanding (000) 28,489 25,747 24,682 23,215 21,582 Total Assets 1,471,457 1,445,694 1,380,922 1,249,606 1,120,305 Construction Expendituresrn 110,646 84,206 110,739 112,061 130,272 Internal Generation of Funds 77,061 72,346 37,866 53,435 41,900 Capitalization Long Term Debt< 2> 592,615 596,219 569,724 536,779 478,955 Preferred Stock without mandatory redemption 105,000 105,000 105,000 105,000 105,000 Preferred Stock with mandatory redemption 50,000 50,000 50,000 20,000 20,000 Common Equity 468,073 437,080 395,546 385,616 343,257 Total $ 1,215,688 $ 1,188,299 $ 1, 120,270 $ 1,047,395 $ 947,212 Capitalization Ratios Long Term Debt 49% 50% 51% 51% 51%

Preferred Stock without mandatory redemption 9% 9% 9% 10% 11%

Preferred Stock with mandatory redemption 4% 4% 5% 2% 2%

Common Equity 38% 37% 35% 37% 36%

Tutal 100% 100% 100% 100% 100%

Electric/Gas Sales Electric Sales (Kwh 000) 7,249,442 7,395,324 7,460,380 7,491,800 7,248,249 Gas Sales (Mcf 000) 15,604 16,520 15,693 13,962 13, 172 rnExcludes Allowance for Funds Used Duling Construction.

c2 >Includes long-term debt due within one year.

14

Delmarva Power & Light Company Financial Review and Analysis Results of Operations Earnings Earnings per share of common stock were $2.13 in 1982 compared with $1.78 in 1981 and $1.60 in 1980. This improvement in financial performance is also reflected in an improved return on average common equity to 13.3% in 1982 from 11 .2% in 1981 and 10.0% in 1980. However, it is still below the rate of return authorized by the company's regulatory authorities. In addition, the quality of the company's earnings continues to improve because of higher internally generated funds and a modest construction program. AFUDC , a non-cash earnings item which is affected by the level of construction expenditures, has decreased to 8% of net income in 1982 when compared to 12% in 1981 and 38% in 1980.

The increase in 1982 earnings, despite a decline in sales, can be attributed primarily to (1) timely and significant rate relief, (2) continuing tight cost controls and (3) lower financing costs and debt levels. With substantially reduced capital requirements in the future, the company believes it will be able to maintain this improved financial position.

Dividends Earnings and Dividends Declared In December, the quarterly dividend on common stock was increased to 41¢ per share (cents) from 391/z ¢ per share. This increase reflects a dividend policy which is designed to gradually increase dividends on an annual basis, earnings permitting and thus provide 250 - - - - - - - stockholders with a fair and competitive return on their investment. The current indicated annual dividend rate is $1.64 per share.

Electric Sales and Revenue Electric revenues, net of fuel costs, increased by $51.3 million in 1982 and by $71.7 million in 1981. The principal factor affecting these net revenue increases was rate relief in all jurisdictions. See the accompanying text, "Rate Matters" and the chart "Status ofRate Cases for additional information concerning rate case filings. kWh sales decreased slightly in 1982 and 1981 by 2.0% and 0.9%, respectively, due to a recessionary economy, customer conservation and price elasticity. In 1982, lower industrial sales of 8.1% have been the direct result of reduced industrial activity throughout the company's service area, whereas residential and commercial sales have increased 1.5% and 4.2%, respectively, due primarily to customer growth. Future electric sales will continue to be affected by the overall economic situation and level of business activity in the company's service territory, as well as by weather conditions, use of alternative fuels for heating and cus-tomer conservation efforts. Electric sales have been forecasted to increase approximately 2.0% annually through 1987.

Gas Sales Gas sales decreased 5.5% in 1982 compared to a 5.3% increase in 1981. The decline in 1982 sales was due to a substantial decrease in usage by industrial customers and warmer 7B 79 BO Bl B2 winter weather which reduced gas sales for heating. The increase in 1981 sales reflected

• Dividends greater usage by industrial customers due to the improved availability of gas. Future gas

• Earnings sales will be affected by the availability of gas, the deregulation of gas prices and the price of alternative fuels for which gas is a substitute.

15

Delmarva Power & Light Company Financial Review and Analysis Rate Matters The company is subject to regulation with respect to its retail sales of electricity by the Delaware and Maryland Public Service Commissions, and the Virginia State Corporation Commission, which have broad powers over rate matters, accounting and terms of service. The Federal Energy Regulatory Commission (FERC) exercises jurisdiction with respect to the company's accounting systems and policies and the transmission and sale at wholesale (resale) of electric energy in interstate commerce.

The company has been filing rate increase applications on an annual basis in an effort to have rates set that more closely reflect current costs. Rate cases were filed in all jurisdictions in 1982 and were structured to recover the capital and operating costs for the conversion to coal of Edge Moor units 3 and 4, to recover increases in operating and maintenance costs, and to improve the return on utility investment. A summary of the status of these filings is found in the table below.

Status of the 1982 Rate Cases (Dollars in Thousands)

Generation Requested Granted Fuel Mix (percent) Jurisdiction Amount Date Amount Date Virginia $ 2, 139 4/15/82 $ 863 9/12/82 Maryland 16,168 5114182 5,620 12/15/82 Delaware 42,797 71 9/82 24,628*

FERC 6,242 8/31/82 **

• Case still pending. Interim rates placed into effect on 2/8/83.

• • Effective 11/1/82, subject to refund.

Fuel Mix To further reduce its dependency on oil, the company converted from oil to coal unit 4 at the Edge Moor plant in October, 1982. Unit 3 is scheduled to be converted by April, 1983 .

With the conversion of these two units, the company's portion of total generation provided from oil-fired plants is expected to be reduced from 53% in 1979 to 11 % in 1984. For years 1982 and 1981 the percentage of oil-fired generation was 27% and 35%, respectively. The predominant fuel sources are now coal and uranium. As a result of the changing fuel mix, the effective customer fuel costs, including net interchange credits, have declined from 2.80 C/kwh in 1980 to 2.32 C/kwh in 1982.

Operating Expenses Other operation, maintenance and depreciation expenses have increased since 1980 primarily as a result of higher payroll and related costs, general inflation and increased production expenses associated with the commercial operation of Indian River coal unit 4 79 81 82 83 84 and Salem nuclear unit 2, which were placed in service in October 1980 and September

• 1981, respectively. Taxes on income increased because of increased taxable income and

• Coal an increase in the effective tax rate. Interest charges decreased in 1982 primarily due to

• Nuclear OOil lower interest rates and reduced debt levels.

16

Delmarva Power & Light Comp any Financial Review and Analysis Impact of Inflation Inflation continues to have an adverse impact on the company because rates are gen-erally 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, where permitted, 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.

Liquidity and Financing and Capitalization Capital Resources The company is committed to improving its financial strength and financing flexibility and believes that it is important to have a strong capital structure and manageable levels of debt. At December 31, 1982, the company's capitalization goals were 48-50% long-term debt, 10-12% preferred stock and 38-40% common equity. These goals have been attained by increasing common equity and by reducing the relative proportions of debt and pre-ferred stock. See "Selected Financial Data" for the actual capitalization ratios.

Credit ratings on the company's first mortgage bonds were upgraded by Duff and Phelps, Moody's Investors Service and Standard & Poor's. The rating was raised from A to AA minus by Standard & Poor's, as well as the equivalent upgrading by both Moody 's and Duff and Phelps. The upgradings are primarily due to the company's improved return on equity, substantially increased internal generation of funds, increased equity capitalization and reduced future external financing requirements.

Ratio of Earnings The Ratio of Earnings to Fixed Interest Charges, which is influenced by the extent and to Fixed Interest stability of pre-tax earnings as related to fixed interest charges, showed significant Charge s improvement in the last two years and is expected to continue to rise , although more (SEC method) moderately. This ratio, as computed on the SEC method, for 1982 was 3.5 as compared to

2. 7 in 1981 and 2.2 in 1980. Improved interest coverage ratios are another indicator of the 4.0 - - - - - - - company's improved credit position.

The financing program for 1982 consisted of $15.7 million raised by issuance of shares of common stock in accordance with the company's Dividend Reinvestment and Common Share Purchase Plan and through the TRASOP. Also, in November, the Delaware Eco-nomic Development Authority sold $11 million of short-term tax-exempt revenue notes pursuant to an existing agreement with the company at an average annual rate of 4 % %.

These tax-exempt notes, together with a previous issue of $12 million in short-term tax-exempt notes and a $10 million tax-exempt note due August, 1984, will ultimately be refinanced on a more permanent basis.

With a reduced construction program (see Capital and Construction Requirements' '

below) and assuming reasonable rate treatment, the company does not expect any further external long-term financings before 1987 except for the aforementioned refinancing and through issuance of common stock under the Dividend Reinvestment Plan and PAYSOP.

78 79 80 81 82 17

Delmarva Power & Light Company Financial Review and Analysis Capital and Construction Requirements For the period 1980-1982, the company had total capital requirements of $370.9 million, including $305.6 million for construction (excluding AFUDC). During the same period

$187.3 million was generated internally which represents 50% of the capital requirements and 61 % of the construction requirements. Capital requirements for the period 1983-1985 are estimated to be $266.5 million, including $222.3 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 1983-1985, internally generated funds will be $332.4 million which equals 125% of the total capital requirements and 150% of its construction requirements.

The company has delayed the construction schedule for the 500-megawatt, coal-fired Vienna 9 generating unit by five years to 1995. The decision is based on the company's current load forecast, which indicates a lower rate of growth in the coming decade. The deferral also reflects a program of load management to be instituted in the late 1980's when it may be cost-effective for Delmarva and the technology may be more fully developed. As a result of these actions, the company's construction budget will be Construction reduced through at least 1986.

Expenditures and Internally Generated Funds The construction program and related expenditures may vary from the estimates set forth (millions of dollars) 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 proceed-125 - - - - - - - ings, as well as the cost and availability of capital.

Working Capital 100 - Working capital increased by $13.2 million in 1982, decreased by $48.6 million in 1981 and increased by $5.3 million in 1980. See page 23, 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 75 -~ >-

necessary for construction projects. Additional cash requirements will result from the payment of the Summit state tax liability (see Notes 2 and 7 of Financial Statements) and the future repayment of the over-recovered deferred fuel costs.

50 - >--

25 1: f; 0 ~

81 82 83 84 85

• Construction Expenditures (excluding AFUDC)

• Internally Generated Funds 18

Delmarva Power & Light Company 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.

~C~*

Nevius M. Curtis President and Chief Executive Officer 1iwJt?.~

Howard E. Cosgrove Vice President and Chief Financial Officer 19

Delmarva Power & Light Company Quarterly Common Stock Dividends and Price Ranges Common Stock 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 67,059 holders of common stock as of December 31, 1982.

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, 1982 were approximately $75,300,000 under the most restrictive of these provisions.

1982 1981 Dividend Price Price Dividend Price Price Declared High Low Declared High Low First Quarter $.395 14% 111/z $.38 12% 11Ys Second Quarter .395 15 131/z .38 125/s 101/z Third Quarter .395 151/a 13% .38 123/a 11 Fourth Quarter .41 161/z 13% .395 12% 111/a Withholding Tax on Dividends The Tax Equity and Fiscal Responsibility Act of 1982 requires the company to withhold taxes at the rate of 10% from each dividend payment on or after July 1, 1983. However, certain exemptions are allowed, provided that the shareholder requests and qualifies for such exemption. Exemptions will be allowed for individuals who paid no more than $600

($1,000 on a joint return) of Federal income tax for the prior year. Individuals 65 or older who paid no more than $1,500 ($2,500 on a joint return) of Federal income tax for the prior year also would be exempt. Certain other recipients of dividends, including corporations, governments, certain securities dealers, money market funds, tax-exempt organizations and certain nominees or custodians will also qualify for exemption.

Dividends reinvested in a qualified dividend reinvestment plan, such as Delmarva Power's Dividend Reinvestment and Common Share Purchase Plan, are automatically exempt from withholding.

It will not be necessary for you to call the company to request an exemption form. Exemp-tion certificates and instructions will be sent to all stockholders on or about April 25, 1983.

20

Delmarva Power & Light Company Report of Independent Certified Public Accountants Tu the Board of Directors We have examined the consolidated balance sheets and statements of capitalization of and Stockholders Delmarva Power & Light Company and subsidiary companies as of December 31, 1982 Delmarva Power and 1981, and the related consolidated statements of income, changes in common and Light Company stockholders' equity and sources of funds for construction expenditures for each of the Wilmington, Delaware three years in the period ended December 31, 1982. 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, 1982 and 1981, 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, 1982, in conformity with generally accepted accounting principles applied on a consistent basis.

COOPERS & LYBRAND 1900 Three Girard Plaza Philadelphia, Pennsylvania February 4, 1983 21

Delmarva Power & Light Company Consolidated Statements of Income (Dollars in Thousands)

For the Years Ended December 31 1982 1981 1980 Operating Revenues Electric $ 534,770 $ 504,119 $ 443,927 Gas 84,747 83,070 59,040 Steam 17, 149 21,315 17,503 636,666 608,504 520.470 Operating Expenses Operation:

Fuel for electric generation 239,965 284,646 236, 139 Net interchange and purchased power (79,678) (97,950) (24,178)

Purchased gas 58,690 56,662 42,252 Deferral of energy costs 20,837 18,679 ( 3.173)

Other operation 100,956 89,172 79,569 Maintenance 43,947 37,316 33,986 Depreciation 49,929 46,833 37,955 Taxes on income 58,500 39,903 14.483 Taxes other than income 26,947 25,918 22,721 520,093 501, l 79 439,754 Operating Income 116,573 107,325 80,716 Other Income Allowance for other funds used during construction 4,548 4,090 12,540 Other, net 2,015 1,250 569 6,563 5,340 13, 109 Income Before Interest Charges 123, 136 112,665 93,825 Interest Charges Long-term debt 48,895 51,622 46,997 Short-term debt and other 2,181 5,355 3,862 Allowance for borrowed funds used during construction ( 1,511) ( 3,023) ( 5,991) 49,565 53,954 44,868 Earnings Net Income 73,571 58,711 48,957 Dividends on Preferred Stock 12,818 12,818 9.427 Earnings Applicable to Common Stock $ 60,753 $ 45,893 $ 39,530 Common Stock Average shares outstanding (thousands) 28,489 25,747 24,682 Earnings per average share $ 2.13 $ 1.78 $ 1.60 Di_vidends declared per share $ 1.591/z $ 1.531/z $ 1.49 See accompanying Notes to Consolidated Financial StatemP.nts.

22

Delmarva Power & Light Company Consolidated Statements of Sources of Funds for Construction Expenditures (Dollars in Thousands)

For the years ended December 31 1982 1981 1980 Sources of Funds Provided from operations:

Net income $ 73,571 $ 58,711 $ 48,957 Less-Preferred dividends declared 12,818 12,818 9,427

-Common dividends declared 45,471 39,857 36,805 Earnings reinvested during the year 15,282 6,036 2,725 Items not requiring (providing) funds:

Depreciation 49,929 46,833 37,955 Amortization of nuclear fuel 6,192 3,187 1,549 Allowance for funds used during construction ( 6,059) ( 7,113) (18,531)

Investment tax credit adjustments, net 5,718 17,198 1,795 Deferred income taxes, net 5,999 6,205 12,373 Funds provided from operations 77,061 72,346 37,866 External financing:

Long-term debt:

First mortgage bonds 50,000 45,000 Term loan ( 3,550) (23,450)

Common stock 15,711 35,521 7,730 Preferred stock 30,000 Change in short-term debt (28,475) 11,525 Redemption of long-term debt (12,000)

Externally financed funds 12,161 33,596 82,255 Other sources (uses):

Decrease (increase) in working capital* (13, 172) 48,604 ( 5,266)

Net decrease (increase) in pollution control funds held by trustee 32,507 (35,422) ( 3,463)

Credit arising from sale of contracts ( 970) (36,088) 99 Other, net 3,059 1,170 752)

Other (uses) 21,424 (21,736) ( 9,382)

Construction Expenditures (excluding allowance for funds used during construction) $ 110,646 $ 84,206 $ 110,739 Decrease (increase) Accounts receivable $ 679 (15,064) $ ( 9,064) in working capital* Deferred fuel costs, net 21,374 18,781 ( 3,173)

Inventories ( 9,516) 11,482 (20,603)

Accounts payable ( 3,607) ( 7,896) 19,634 Tuxes accrued (21,877) 34,386 5,347 Interest accrued ( 9,265) 15,082 3,322 Other, net 9,040 ( 8,167) ( 729)

Total $ (13, 172) $ 48,604 $ ( 5,266)

• 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.

23

Delmarva Power & Light Company Consolidated Balance Sheets (Dollars in Thousands)

ASSETS As of December 31 1982 1981 Utility Plant- Electric $ 1,459,713 $ 1,364, 113 at original cost Gas 69,083 66,031 Steam 24,023 24,008 Common 59,522 46,194 1,612,341 1,500,346 Less: Accumulated depreciation 405,830 362,270 Net utility plant in service 1,206,511 1, 138,076 Construction work in progress 59,054 64,915 Nuclear fuel, at amortized cost 13,272 15,252 1,278,837 1,218,243 Nonutility Property and Net nonutility property-at cost 3,281 3,324 Other Investments Pollution control funds held by trustee 9,604 42,111 Other 8 25 12,893 45,460 Current Assets Cash 21,889 15,474 Marketable securities 2,035 Accounts Receivable:

Customers 43,090 43,001 Other 19,681 20,449 Deferred fuel costs, net (26,006) ( 4,632)

Inventories, at average cost:

Fuel (coal, oil and gas) 57,921 50,164 Materials and supplies 22,732 20,973 Prepayments 3,968 3,683 145,310 149,112 Deferred Charges and Refundable taxes and interest 27,531 25,877 Other Assets Unamortized debt expense 5,162 5,415 Other 1,724 1,587 34,417 32,879 Total $ 1,471,457 $ 1,445,694 See accompanying Notes to Consolidated Financial Statements.

24

(Dollars in Thousands)

LIABILITIES As of December 31 1982 1981 Capitalization Common stock $ 98,039 $ 94, 191 (see Statements Additional paid-in capital 215,397 203,534 of Capitalization) Retained earnings 154,637 139,355 Total common stockholders' equity 468,073 437,080 Preferred stock:

Without mandatory redemption 105,000 105,000 With mandatory redemption 50,000 50,000 Long-term debt 562,515 596,219 1, 185,588 1, 188,299 Current Liabilities Long-term debt due within one year 30,100 Accounts payable 24,116 27,723 Tuxes:

Accrued 18,282 40,159 Deferred (12,308) (10,203)

Interest accrued 20,305 29,570 Dividends declared 11,910 11,024 Other 13,046 4,454 105,451 102,727 Deferred Credits Credit arising from sale of contracts 39,790 40,760 Accumulated deferred income taxes, net 66,200 49,799 Accumulated deferred investment tax credits 59,638 53,920 Other 14,790 10, 189 180,418 154,668 Other Commitments and Contingencies (Notes 6 and 10)

Total $ 1,471,457 $ 1,445,694 See accompanying Notes to Consolidated Financial Statements.

25

Delmarva Power & Light Company Consolidated Statements of Capitalization (Dollars in Thousands)

As of December 31 1982 1981 Common Stockholders' Common stock, par value $3.375 per share Equity authorized 35,000,000 shares, outstanding 29,048,445 and 27,908,345 shares $ 98,039 $ 94,191 Additional paid-in capital 215,397 203,534 Retained earnings 154,637 139,355 Total Common Stockholders' Equity 468,073 38% 437,080 37%

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 Redemption:

Series Outstanding 3.70%-4.56% 240,000 shares 24,000 24,000 5.00%-7.84% 330,000 shares 33,000 33,000 7.88%-8.96% 480,000 shares 48,000 48,000 105,000 9% 105,000 9%

With Mandatory Redemption:*

9.00% Series 200,000 shares 20,000 20,000 12.56% Series 300,000 shares 30,000 30,000 50,000 4% 50,000 4%

Long-Term Debt First Mortgage and Collateral 'Itust Bonds:

Maturity Interest Rates Jan. 1, 1983 93/s% 30,000 30,000 May 1, 1984 31/s% 10,000 10,000 Aug.1, 1984 9112% 10,000 10,000 Dec. 1, 1985 3112% 10,000 10,000 Jun. 1, 1988 3%% 25,000 25,000 1994-1997 4%%-6%% 50,000 50,000 1998-2002 7%-113/4 % 158, 100 158, 100 2003-2007 6.6%-11% 121,250 121,250 2008-2011 9%%-12% 111,900 111,900 526,250 526,250 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 23,000 26,550 Unamortized premium and discount, net 865 919 592,615 49% 596,219 50%

Long-term debt due within one year (30, 100)

Total Long-Term Debt 562,515 596,219 Total Capitalization $ 1, 185,588 100% $ 1,188,299 100%

• Redemption prices at December 31, 1982 are $110 (9% Series) and $113 (12.56% Series).

See accompanying Notes to Consolidated Financial Statements.

26

Delmarva Power & Light Company Consolidated Statements of Changes in Common Stockholders' Equity (Dollars in Thousands)

Additional For the Three Years Ended Common Par Paid-in Retained December 31, 1982 Shares Value Capital Earnings Total Balance as of January 1, 1980 24,300,758 $ 82,015 $ 173,007 $ 130,594 $ 385,616 Net income 48,957 48,957 Cash dividends declared:

Common stock ($1.49) (36,805) (36,805)

Preferred stock ( 9,427) ( 9,427)

Issuance of common stock:

Dividend Reinvestment and Common Share Purchase 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 ($1.53Yz) (39,857) (39,857)

Preferred stock (12,818) (12,818)

Issuance of common stock:

Public offering 2,200,000 7,425 20,350 27,775 TRASOP 101,947 344 882 1,226 Dividend Reinvestment and Common Share Purchase 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 Net income 73,571 73,571 Cash dividends declared:

Common stock ($1.59Yz) (45,471) (45,471)

Preferred stock (12,818) (12,818)

Issuance of common stock:

TRASOP 290,671 981 3,346 4,327 Dividend Reinvestment and Common Share Purchase Plan 849,429 2,867 8,767 11,634 Capital stock expense:

Common ( 250) 250)

Balance as of December 31, 1982 29,048,445 $ 98,039 $ 215,397 $ 154,637 $ 468,073 See accompanying Notes to Consolidated Financial Statements.

27

Delmarva Power & Light Company Notes to Consolidated Financial Statements

1. Significant Financial Statements Accounting Policies 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.

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 3.6% for 1982, 3.5% for 1981and3.2% for 1980.

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.

28

Delmarva Power & Light Company Notes to Consolidated Financial Statements

1. Significant Accounting Income Taxes Policies (continued)

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 the Accelerated Cost Recovery System and other 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.

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 1112 % (1% in 1980) related to the Tax 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 non-cash 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 9 .1 % in 1982, 8.7% in 1981and8.0% in 1980.

2. Taxes on Income Income tax expense for 1982, 1981and1980 is as follows:

(Dollars in Thousands) 1982 1981 1980 Operations:

Federal:

Current $ 37,508 $ 10,234 $ (1,351)

Deferred 4,700 5,301 10,439 State:

Current 7,672 4,936 441 Deferred 1,363 1,048 1,934 Investment tax credit adjustments, net 7,257 18,384 3,021 Other income:

Current 2,046 1,654 693 Deferred (64) (144)

Total $ 60,482 $ 41,413 $15,177 Investment tax credits utilized to reduce federal income taxes payable amounted to

$10,445,000 in 1982, $20,917,000 in 1981 and $5,516,000 in 1980. The amounts for 1982 and 1981 include TRASOP credits of$1,553,000 and $3,281,000, respectively.

29

Delmarva Power & Light Company Notes to Consolidated Financial Statements

2. Taxes on Income The following is a reconciliation of the difference between income tax expense and the (continued) amount computed by multiplying income before tax by the federal statutory rate:

(Dollars in Thousands) 1982 1981 1980 Amount Rate Amount Rate Amount Rate Statutory income tax expense $ 61,664 46% $ 46,057 46% $ 29,502 46%

Reduction in taxes resulting from:

Exclusion of AFUDC for income tax purposes (2,787) (2) (3,272) (3) (8,524) (13)

Excess of tax depreciation over book depreciation not normalized 443 (1,349) (1) (3,324) ( 5)

Investment tax credits amortized to income (3, 188) (2) (2,533) (3) (2,495) ( 4)

State income taxes, net of federal tax benefit 5,065 4 3,365 3 1,295 2 Other, net (715) (1) ( 855) (1) (1,277) ( 2)

Income tax expense $ 60,482 45% $ 41,413 41% $15,177 24%

The components of deferred income taxes relate to the following tax effects of timing differences between book and tax income:

(Dollars in Thousands) 1982 1981 1980 Depreciation $ 18,493 $ 14,951 $ 10,097 Deferred fuel costs (10,402) (9,352) 1,656 Capitalized overhead costs 926 992 1,176 Nuclear fuel storage costs ( 2,054) (1,332) (997)

Other, net ( 964) 946 441 Total $ 5,999 $ 6,205 $ 12,373 The company's federal income tax returns have been examined for the years 1975 through 1979. The company has been assessed additional taxes and interest resulting predominantly from the taxability, on an ordinary income basis, of the net proceeds from the sale of contracts for a nuclear steam supply system (See Note 7). The assessment would result in net additional federal and state income taxes of approximately $20.3 mil-lion and interest of $18.9 million. These amounts are net of anticipated refunds that result from the reversal of the previous tax treatment applied to the sale of the contracts. The company is appealing the taxability of the net proceeds. In the opinion of management and tax counsel, it appears probable that this issue will ultimately be resolved as taxable in an amount which approximates taxes on a capital gains basis. Accordingly, in 1981, the company accrued a net tax liability on a capital gains basis.

During 1982, the company made federal tax and interest payments totalling $28.5 million, on a capital gains basis, to prevent the compounding of interest on the tax deficiency. The ultimate disposition of this issue will not have a material effect on the company's fL.11ancial position or results of operations.

30

Delmarva Power & Light Company Notes to Consolidated Financial Statements (Dollars in Thousands)

3. Taxes Other Than Income 1982 1981 1980 Delaware utility $ 11,733 $ 11,437 $ 9,873 Property 6,129 5,811 5,550 Other gross receipts 3,601 3,444 3,068 Payroll 3,558 3,216 2,598 Franchise and other 1,926 2,010 1,632 Total $ 26,947 $ 25,918 $ 22,721

4. Pension Plan The company has a trusteed noncontributory pension plan covering all regular employees.

Pension contributions for 1982, 1981 and 1980 were $4,895,000, $4,371,000 and $6,421,000 including $914,000, $717,000 and $1,253,000 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 1981 and 1980 was increased by approximately

$938,000 (4¢ per share) and $603,000 (2¢ per share), respectively, principally as a result of changed actuarial assumptions.

The actuarial present value of accumulated plan benefits, determined as of January 1, 1982 was $60,862,000 for vested benefits and $12,769,000 for accrued nonvested benefits.

The net assets, at market value, available for plan benefits were $125,050,000. The actu-arial present value of accumulated plan benefits, determined as of January 1, 1981 was

$51, 175,000 for vested benefits and $8,915,000 for accrued nonvested benefits. The net assets, at market value, available for 1981 plan benefits were $121,957,000. The assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 8.0% for 1982 and 1981.

5. Capitalization Common Stock At December 31, 1982 there were 2,315,763 shares of common stock reserved for issuance under the Dividend Reinvestment and Common Share Purchase 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, 1982 was approximately $75,300,000.

Preferred Stock The annual preferred dividend requirements on all outstanding preferred stock at December 31, 1982 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 $106 at December 31, 1982).

31

Delmarva Power & Light Company Notes to Consolidated Financial Statements

5. Capitalization Preferred Stock (continued)

(continued)

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 1984 and 1985 and $1,700,000 in 1986 and 1987.

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) 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 1980-1982, the company elected to certify property additions to satisfy its sinking fund requirements equal to 1% of each series as permitted by the indenture. (2) Substantially all utility plant of the company now or hereafter owned is subject to the lien of the related Mortgage and Deed of Trust. (3) Pursuant to a bank loan agreement the company has a

$25,000,000 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/s% 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 1981and1982, the company sold $12 million and

$11 million, respectively, of short-term tax-exempt revenue notes. In recognition of the long-term financing commitment, these borrowings have been classified as long-term debt.

(4) Maturities of long-term debt during the next five years are 1983-$30, 100,000; 1984-

$20,100,000; 1985-$10,100,000; 1986 and 1987-$150,000. (5) The annual interest require-ments on all borrowings classified as long-term debt at December 31, 1982 are $45,586,000.

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.

32 L

Delmarva Power & Light Company Notes to Consolidated Financial Statements

6. Commitments The company estimates that approximately $90,440,000, excluding AFUDC, will be expended for construction purposes in 1983, in connection with which substantial commitments have been incurred. The company also has commitments under long-term fuel supply contracts.

Minimum commitments as of December 31, 1982 under all non-cancellable lease agreements are as follows:

1983 $ 8,206,000 1984 7, 196,000 1985 6,854,000 1986 6,527,000 1987 579,000 Remainder 5,095,000 Total $ 34,457,000 The total minimum rental commitments are applicable to the following types of property:

company's share of Peach Bottom nuclear fuel, $22,310,000; railroad coal cars, $2,150,000; distribution facilities, $5,498,000; other, principally computer equipment, $4,499,000.

Rentals charged to operating expenses aggregated $13,949,000 in 1982, $9,986,000 in 1981 and $9,463,000 in 1980 including $7,112,000, $5,282,000 and $5,357,000 for nuclear fuel, respectively.

The company has certain leases for property and equipment which meet the criteria for capitalization, but in accordance 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.

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 $2,454,000 in 1982, $2,941,000 in 1981 and $2,747,000 in 1980. The amount of required payments is $2,240,000 in 1983,

$2,038,000 in 1984, $1,793,000 in 1985, $2,137,000 in 1986, $1,813,000 in 1987 and

$15,047,000 between 1988 and 1999.

7. Sale of Contracts The proceeds received by the company for the sale in 1975 of the contracts for a nuclear for Nuclear Plant steam supply system and related fuel, net of related plant expenditures which are consid-ered of no future value to the company, are classified as a deferred credit in the balance sheet. The credit has been reduced by applicable income taxes and related interest (See Note 2). The company has obtained regulatory approval for this accounting treatment.

Subject to regulatory approval, the net credit will be amortized to income, or alternatively used to reduce the cost of subsequent replacement plant capacity.

For ratemaking purposes, the net credit has been reflected as a reduction in rate base.

However, in 1982, the company received a revenue order from the Maryland Public Service Commission which required the company to amortize the Maryland portion of the credit (approximately $5,960,000) over a five-year period and reduce the company's rate base by the unamortized portion of the credit. The company amortized $1, 192,000 of the credit in 1982. This amortization of the net credit will not have a material effect on the company's financial position or results of operations.

33

I Delmarva Power & Light Company Notes to Consolidated Financial Statements

8. Short-Term Debt and As of December 31, 1982, the company had unused bank lines of credit of$58,000,000 Lines of Credit and is generally required to pay commitment fees for these lines. Such lines of credit are periodically reviewed by the company, at which time they may be renewed or cancelled.

9. Jointly-Owned Plant Information with respect to the company's share of jointly owned plant, including nuclear fuel for the Salem plant, as of December 31, 1982 is as follows:

(Dollars in Thousands)

Construction Ownership Plant in Accumulated Work in Share Service Depreciation Progress Nuclear:

Peach Bottom 7.51% $ 71,983 $ 18,806 $ 1,125 Salem 7.41% 165, 172 31,895 10,626 Coal-Fired:

Keystone 3.70% 8,349 3,509 709 Conemaugh 3.72% 12,789 4,303 164 Total $ 258,293 $ 58,513 $ 12,624 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 of loans ($1,075,000 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.*

10. Contingencies See Note 2 for possible payment of taxes.

In January 1983, the company reached a settlement with four Delaware municipal electric wholesale customers who had filed anti-trust suits against the company in 1977.

The settlement of this suit, which is subject to FERC and District Court approval, did not have a material impact on the company's results of operations.

Based upon settlements with resale customers, revenues recorded pursuant to interim rate increases effective December 1, 1978, December 1, 1980, December 29, 1981 and November 1, 1982, are approximately $6.5 million, $6.9 million, $2.0 million and

$.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, licensing, fuel contracts and other matters. In the opinion of management, 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 replacemenL power during prolonged accidental outages of nuclear power units. After the deductible period of 26 weeks, weekly indemnity of up to $2.5 million is provided for 52 weeks and $1.25 million for an additional 52 weeks, for each insured unit. Insured members are contingently liable 34

Delmarva Power & Light Company Notes to Consolidated Financial Statements

10. Contingencies for payment of a retrospective premium adjustment of up to five times the annual pre-(continued) mium iflosses exceed accumulated funds available to NEIL. The company's maximum share of retrospective premium adjustments currently approximates $2.3 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 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 $460 million. The company and the Salem nuclear facility co-owners are members of Nuclear Mutual Limited (NML), which provides insurance coverages up to $500 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 $3.9 million. In addition, each of the facilities are insured for

$400 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 $1.1 million for both plants. The company is a self-insurer, to 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 FERC 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. In July 1982, the DPSC recognized that the expected value of this contract may not be ascertainable and postponed the final issuance of their Order to permit further investigation of this matter during the remaining time of the operation of the contract. As of December 31, 1982, the company believes that profits on the contract will be substantially in excess of the initial projection of $8.6 million.

The company's coal-buying practices and contracts associated with the Indian River unit 4 became the subject of an investigation in 1982 fuel adjustment hearings before the DPSC. The Commission initially assessed damages to the company for $3.9 million which was reduced to $2.9 million. Once an order is received, the company intends to appeal the case to the Delaware Superior Court.

In 1982, the company delayed the construction schedule for the 500-megawatt, coal-fired Vienna 9 generating unit. The plant is now scheduled to begin commercial operation in 1995. The decision is based on the company's current load forecast, which indicates a lower rate of growth in the coming decade than had previously been projected. The net investment, including AFUDC, at December 31, 1982, is $13.4 million, which is anticipated to be recoverable at the rescheduled in-service date.

35

Delmarva Power & Light Company Notes to Consolidated Financial Statements

11. Segment Information Segment information with respect to electric, gas and steam operations was as follows:

(Dollars in Thousands) 1982 1981 1980 Operating Revenues:

Electric $ 534,770 $ 504, 119 $ 443,927 Gas 84,747 83,070 59,040 Steam 17,149 21,315 17,503 Total $ 636,666 $ 608,504 $ 520,470 Operating Income:

Electric $ 109,620 $ 100,836 $ 74,461 Gas 5,800 5,294 5,155 Steam 1,153 1,195 1,100 Total $ 116,573 $ 107,325 $ 80,716 Utility Plant: w <2 >

Electric $ 1,226,140 $ 1, 166,376 $ 1,132,992 Gas 47,044 45,608 45,711 Steam 5,653 6,259 6,959 1,278,837 1,218,243 1, 185,662 Other Identifiable Assets:

Electric 81,155 120,914 93,060 Gas 10, 172 13, 160 10,005 Steam 455 420 343 91,782 134,494 103,408 Assets Not Allocated 100,838 92,957 91,852 Total Assets $ 1,471,457 $ 1,445,694 $ 1,380,922 Depreciation Expense:

Electric $ 46,084 $ 43,238 $ 34,321 Gas 2,950 2,703 2,775 Steam 895 892 859 Total $ 49,929 $ 46,833 $ 37,955 Construction Expenditures: <3 >

Electric $ 107,533 $ 81,651 $ 107,063 Gas 3,019 2,531 3,500 Steam 94 24 176 Total $ 110,646 $ 84,206 $ 110,739 corncludes construction work in progress and allocation of common utility property.

c2lstated net of the respective accumulated provisions for depreciation.

cs)Excludes allowance for funds used during construction.

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 on income and general corporate expenses.

36

Delmarva Power & Light Company Notes to Consolidated Financial Statements

12. Supplementary Information The following supplementary financial information, as prescribed by the Financial to Disclose the Effects of Accounting Standards Board in Statement No. 33, is supplied for the purpose of providing Changing Prices (Unaudited) 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 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)

For the Year ended December 31, Historical Cost Constant Dollar Current Cost (Average 1982 Dollars)

Operating Revenues $ 636,666 $ 636,666 $ 636,666 Operating Expenses:

Operation and Maintenance 384,717 384,717 384,717 Depreciation 49,929 95,939 101,010 Taxes 85,447 85,447 85,447 Other Income-Net (6,563) (6,563) (6,563)

Interest Charges 49,565 49,565 49,565 Net Incomem $ 73,571 $ 27,561 $ 22,490 Earnings per common share (after preferred dividend requirements)<2 ) $ 2.13 $ .52 $ .34 Increase in current cost of utility plant held during the year< 3l $ 116,311 Adjustment to net recoverable cost $ (1,452) (24,036)

Effect of increase in general price level (88,656)

Excess of increase in current costs after adjustment to net recoverable cost over increase in general price level 3,619 Purchasing power gain on net amounts owed 22,679 22,679 Net $ 21,227 $ 26,298 m Including the adjustment to net recoverable cost, the income (loss) on a constant dollar and current cost basis for 1982 would have been $26, 109 and $(1,546), respectively.

<2 > Excluding adjustment to net recoverable cost.

<3 > At December 31, 1982, current cost of net utility plant was $2,402,922 while historical cost was $1,278,837.

37

Delmarva Power & Light Company Notes to Consolidated Financial Statements

12. Supplementary Information Supplementary Five-Year Comparison of Selected Financial Data (continued) Adjusted for the Effects of Changing Prices (In Thousands' 0 of Average 1982 Dollars)

For the Years ended December 31 1982 1981 1980 1979 1978 Operating revenues Historical cost dollars $ 636,666 $ 608,504 $ 520,470 $ 424,699 $ 378,702 Constant dollars 636,666 645,805 609,679 564,765 560,290 Net income Constant dollars 27,561 21,576 18,767 38,703 Current costs 22,490 15,948 9,796 26,630 Earnings per common share Constant dollars .52 .31 .32 1.14 Current costs .34 .10 (.05) .63 Net assets at year end<2 >

Historical cost dollars 573,073 542,080 500,546 490,616 Constant dollars and current costs 566,597 556,715 560,015 616,951 Excess of increase in general price level over increase in current costs<3 > 3,619 (63,900) (109,614) (130,721)

Purchasing power gain on net amounts owed 22,679 53,105 73,009 79,215 Cash dividends declared per common share Historical cost dollars $ 1.591/z $ 1.531/z $ 1.49 $ 1.401/z $ 1.301/z Constant dollars 1.591/z 1.63 1.741/z 1.87 1.93 Market price per common share at year-end Historical cost dollars 16.38 12.63 11.75 12.63 13.25 Constant dollars 16.20 12.97 13.15 15.88 18.88 Average Consumer Price Index (1967 = 100) 289.1 272.4 246.8 217.4 195.4 mExcept per share amounts.

2

' >At net recoverable cost.

3

' >After adjustment to net recoverable cost.

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 1979-1982, the company's monetary liabilities exceeded monetary assets which resulted in a purchasing povver gain on net amounts owed during the year.

38

Delmarva Power & Light Company Notes to Consolidated Financial Statements

12. Supplementary Information The rate regulatory process limits the company to the recovery of the historical cost of (continued) 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.

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.

13. Quarterly Financial The quarterly data presented below reflect all adjustments necessary in the opinion of Information (Unaudited) 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 Outstanding Share

~ (Dollars in Thousands) 1982

~ March 31 June 30

$ 179,138 $ 31,174 144, 106 24,657

$ 20,512 13,948

$ 17,308 10,743 28,104 28,302

$ .62

.37 September 30 166,382 36,123 25,303 22,099 28,516 .78 December 31 147,040 24,619 13,808 10,603 29,033 .36

$ 636,666 $ 116,573 $ 73,571 $ 60,753 28,489 $ 2.13 1981 March 31 $ 160,919 $ 27,061 $ 14,266 $ 11,062 25,078 $ .44 June 30 137,445 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 39

Delmarva Power & Light Company Consolidated Statistics 10 Years of Review 1982 1981 1980 1979 Electric Revenues (thousands): Residential $ 183,258 $ 164,919 $ 144,637 $ 115,381 Commercial 137,434 123,099 112, 166 91,798 Industrial 127,441 129,601 116,401 98,023 Other utilities, etc. 73,469 73,602 63,698 53,782 Miscellaneous revenues 13,168 12,898 7,025 4,682 Total electric revenues $ 534,770 $ 504,119 $ 443,927 $ 363,666 Electric Sales (1,000 kilowatt-hours): Residential 2,026,398 1,996,647 2,046,546 1,968,452 Commercial 1,729,863 1,660, 147 1,648,776 1,598,299 Industrial 2,255,673 2,454,685 2,429,842 2,624,438 Other utilities, etc. 1,237,508 1,283,845 1,335,216 1,300,611 Total electric sales 7,249,442 7,395,324 7,460,380 7,491,800 Electric Customers (end of period): Residential 260,371 255,646 246,887 242,745 Commercial 29,966 29,450 28, 162 27,998 Industrial 741 788 821 874 Other utilities, etc. 434 434 440 478 Total electric customers 291,512 286,318 276,310 272,095 Gas Revenues (thousands): Residential $ 36,505 $ 34,123 $ 26,525 $ 25,719 Commercial 15,792 14,344 10,342 8,954 1 Industrial 20,112 22,259 12,404 9,884 Interruptible Other utilities, etc.

11,733 53 11,711 61 9,293 46 4,440 55

~

Miscellaneous revenues 552 572 430 270 Tutal gas revenues $ 84,747 $ 83,070 $ 59,040 $ 49,322 Gas Sales (million cubic feet): Residential 6,062 6,193 6,321 6,423 Commercial 2,768 2,704 2,683 2,415 Industrial 4,108 4,809 3,937 3,388 Interruptible 2,656 2,802 2,738 1,720 Other utilities, etc. 10 12 14 16 Total gas sales 15,604 16,520 15,693 13,962 Gas Customers (end of period): Residential 70,356 69,865 69,024 67,823 Commercial 4,057 3,967 3,846 3,712 Industrial 166 167 155 131 Interruptible 18 16 16 16 Other utilities, etc. 1 1 1 1 Total gas customers 74,598 74,016 73,042 71,683 Refinery Service Electricity delivered 322,804 343,063 328,420 262, 159 (1,000 kilowatt-hours)

Steam delivered 7,778,929 7,673,420 7,570,944 6,378,705 (1,000 pounds) 40

Average Annual Compound%

1978 1977 1976 1975 1974 1973 1972 Rate of Growth

$ 105,237 $ 97,691 $ 80,416 $ 77,069 $ 68,730 $ 51,799 $ 43,878 15.37 82,796 74,641 60, 111 58, 169 51, 192 37,888 31,810 15.76 83,972 76,801 64,458 64, 141 66,381 41,284 35,962 13.49 40,840 38,974 34,896 35,606 32,976 21,518 16,833 15.88 5,261 3,461 2,398 4,370 9,194 5,287 2,857 16.51

$ 318, 106 $ 291,568 $ 242,279 $ 239,355 $ 228,473 $ 157,776 $ 131,340 15.07 1,979,624 1,924,723 1,787,663 1,672, 180 1,597,472 1,629,641 1,463,821 3.31 1,568,600 1,495,796 1,412,259 1,359,673 1,303,053 1,360,216 1,227,230 3.49 2,418,527 2,277,630 2,260,661 2,142,151 2,461,303 2,512,877 2,412,239 (0.67) 1,281,498 1,207,941 1, 199, 155 1,218,785 1,230,528 1,252,977 1,137,272 0.85 7,248,249 6,906,090 6,659,738 6,392,789 6,592,356 6,755,711 6,240,562 1.51 237,925 233, 106 230,579 221,780 215,516 208,073 200,595 2.64 28,421 29,648 28,345 27,345 27,132 26,708 25,856 1.49 858 921 1,002 923 891 867 869 (1.58) 480 561 550 545 501 506 496 (1.33) 267,684 264,236 260,476 250,593 244,040 236,154 227,816 2.50

$ 28,370 $ 21,829 $ 18,826 $ 15,365 $ 14,298 $ 13,018 $ 12,944 10.92 10,154 7,133 6,062 4,676 4,201 3,715 3,532 16.16 10, 191 6,950 5,984 4,343 3,726 3,505 3,265 19.94 716 169 1,301 1,211 1,532 1,363 1,035 27.48 93 49 44 33 26 30 25 7.80 116 103 31 45 96 22 18 40.82

$ 49,640 $ 36,233 $ 32,248 $ 25,673 $ 23,879 $ 21,653 $ 20,819 15.07 6,941 6,751 6,956 6,540 6,863 7,134 7,737 (2.41) 2,593 2,439 2,586 2,429 2,526 2,614 2,696 0.26 3,290 2,811 3,264 2,849 3,215 3,653 3,875 0.59 319 81 953 1,073 2,257 2,346 2,134 2.21 29 17 20 18 16 23 20 (6.70) 13, 172 12,099 13,779 12,909 14,877 15,770 16,462 (0.53) 67,550 67,400 68,978 69,418 69,525 69,833 69,891 0.07 3,773 3,738 4,154 4,189 4,356 4,418 4,407 (0.82) 163 163 198 198 195 197 195 (1.60) 21 21 21 21 21 21 21 (1.53) 1 1 1 1 1 1 1 71,508 71,323 73,352 73,827 74,098 74,470 74,515 0.01 270,006 289,049 318,389 297,282 350,021 341,700 295,236 0.90 6,016,095 4,888,366 5,301,421 5,517,000 5,921,000 5,926,000 7,261,000 0.69 41

Delmarva Power & Light Company Board of Directors Board of Directors Werner C. Brown Nevius M. Curtis Director and Retired Chairman of the Board of President and Chief Executive Officer of Hercules, Incorporated (chemical manufacturer) the Company Wilmington, Delaware Sally V. Hawkins Mrs. Henry P. Cannon, II Director and President of Delaware Director of H. P. Cannon & Son, Inc. Broadcasting Company and General (food processing firm) Manager of Station WILM Bridgeville, Delaware (radio broadcasting),

Wilmington, Delaware Oscar L. Carey President and Director of Larmar Corporation William G. Sirneral (general real estate and home builders) Director and Executive Vice President Salisbury, Maryland and a member of the Executive Committee ofE. I. du Pont de Nemours & Company Frank A. Cook (chemical manufacturer)

Vice President of the Company Wilmington, Delaware John R. Cooper Dr. E. Arthur Trabant Manager of Environmental Affairs and President of the University of Delaware Occupational Health, Petrochemicals Newark, Delaware Department ofE. I. du Pont de Nemours &

Company (chemical manufacturer) Robert D. Weimer Wilmington, Delaware Chairman of the Board of the Company 42

Delmarva Power & Light Company Officers Officers Robert D. Weimer Executive Committee Chairman of the Board Robert D. Weimer, Chairman; Werner C. Brown; Oscar L. Carey; Nevius M. Curtis Nevius M. Curtis; President and Chief Executive Officer Dr. E. Arthur Trabant H. Ray Landon Audit Committee Senior Vice President Oscar L. Carey, Chairman; Werner C. Brown; John R. Cooper Harland M. Wakefield, Jr.

Senior Vice President Nominating Committee Dr. E. Arthur Trabant, Chairman; Frank A. Cook Sally V. Hawkins; Robert D. Weimer Vice President Compensation Committee Howard E. Cosgrove Werner C. Brown, Chairman; Vice President and Chief Financial Officer Oscar L. Carey; Nevius M. Curtis; William G. Simeral Donald E. Cain Division Vice President, Northern Division Wayne A. Lyons Division Vice President, Southern Division Paul S. Gerritsen Vice President, Regulatory Practices Alfred C. Thawley, Jr.

Secretary and Treasurer Charles Marchyshyn Comptroller 43

Delmarva Power & Light Company General Information General Information Trustees Corporate Address First Mortgage and Collateral Trust Bonds, Delmarva Power, Chemical Bank, New York, New York. 800 King Street, P.O. Box 231, Pollution Control Revenue Bonds, Girard Bank Wilmington, Delaware 19899.

Delaware, Wilmington, Delaware, Bank of Dela- Telephone (302) 429-3011 ware, Wilmington, Delaware, and Wilmington Trust Company, Wilmington, Delaware. Annual Meeting The Annual Meeting will be held on April 26 Transfer Agents and Registrars at 12:30 p.m., in the Grand Opera House, Preferred Stock-Wilmington Trust Company, 818 Market Street Mall, Wilmington, Delaware.

Wilmington, Delaware.

Common Stock-Wilmington Trust Company, Wilmington, Delaware, and Manufacturers Additional Reports 1b supplement information in this Annual Hanover Trust Company, New York, New York.

Report, a Financial and Statistical Review (1972-1982) and the Form 10-Kare available upon request.

Stock Symbol Please write to Stockholder Relations, Delmarva Common Stock, DEW-listed on the New York Power, 800 King Street, P.O. Box 231.

and Philadelphia Stock Exchanges. Wilmington, Delaware 19899 Regulatory Commissions 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.

44

.Delmarva Power Bulk Rate 800 King Street -----1 U. S. Postage 0

P. O. Box 231 Paid Wilmington, DE 19899 ---Permit No. 68

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I i

l

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

Results of Operations 1982-1981 1982 1981 Change Electric Operating Revenues $ 444,178,000 $ 469 ,683 ,000 (5.4)

Operating Expenses $ 381,408,000 $ 396,172,000 (3.7)

Net Income* $ 49,055,000 $ 46,988,000 4.4 Earnings Per Common Share* $ 2.76 $ 3.03 (8.9)

Dividends Paid Per Common Share $ 2.20 $ 2.04 7.8 Total Assets $1,077,969,000 $1,013 ,789,000 6.3 Cash Construction Expenditures $ 118,460,000 $ 113 ,221 ,000 4.6 Sales of Electricity (KWH) 5,592,117,000 5 ,675 ,367 ,000 ( 1.5)

Total Customer Service Installation s (Year-end) 391,989 386,046 1.5 Number of Shareholders -

Common Stock (Year-end) 48,790 48 ,424 .8 Number of Employees (Year-end) 2,022 2,035 (.6)

Book Value $ 22.45 $ 22.40 .2

• See Note 4 (Change in Accounting for Revenues) of Notes to Financial Statements.

Dividends Per Share of Common Stock Earnings Per Share of Common Stock (in dollars) (in dollars) 2.50 3.75

- 2.00 3.00

- ,_ - - f--

1.50 2.25 f-- - - f--

1.00 1.50

,_ - - ,_ .so .75 0 0 79 80 81 82 78 79 80 81 82

President John D. Feehan listens to a customer's viewpoint during a Consumer Roundtable, a forum for open discussion of Atlantic Electric's operations and service.

2

To Our Shareholders, Customers and Employees:

uring the past year the our last filing allowed by the BPU. program over the next 15 years . The measure of our finan- This continuation will deal primarily immediate impact was the lowering cial performance was with our contract with Pennsylvania of planned construction expenditures influenced by two Power & Light Company for 62 mega- for the 1983 to 1987 period to $382 critical factors: timely watts of their Susquehanna Unit million from the previously projected and adequate rate No. I. This unit is expected to go into $716 million .

relief and the cost of financing the service in May , 1983. Timely and ful'I In Appreciation. The Company's Company's substantial construction recovery of the cost of this energy shareholders deserve a well-earned program . These major challenges will prevent an adverse effect on "thank you" for their support and were announced well in advance of financial performance in 1983 .

encouragement during 1982. One of last year and 1982 was accurately Major Gains. Despite this setback in the toughest years in recent times predicted to be a period of transition.

rate relief, positive financial develop- was weathered, whi le plans that will For 1982 earnings per share were ments occurred during 1982 that provide the basis for our future per-

$2.76, a decline of9% from 1981. contributed to the Company's pres- formance were put in place. These Dividends , however, increased to an ent and future health. They were: achievements would also not have annual rate of $2.28 as a result of a D U nrecovered fuel costs , which been possible without the contribu -

four cents per share quarterly reached a peak of $62 million in 1981, tions of the Company's 2,022 increase. This marked the 30th con- were fully recovered from our cus- dedicated and loyal employees.

secutive year of increases in the tomers in 1982.

On December 31, 1982 , Alfred C.

dividend paid . Included in reported D Financing for the $11 8 million con-Linkletter relinquished his position as earnings were 68 cents per share due struction and modernization program Chairman of the Board , in anticipa-to an accounting change that incorpo- was successfully obtained at a rea-tion of hi s retirement as a Director rated unbilled revenues into reported sonable cost; we ended the year this April. The five years during revenue starting in 1982. (Note 4 to without any short-term borrowings.

which Alfred Linkletter served as Financial Statements, page 29). D Fuel cost charges to customers , a Chairman have brought significant reflection of energy expenses, were The timing of rate relief had by far changes for the Company with reduced by $159 million, calcu lated the most significant impact on the respect to regulation , financing and on an annual basis , through three year's results. A February 1982 filing long-term planning. During these separate decreases in the Energy to the New Jersey Board of Public years, his leadership, experience and Adjustment.

Utilities (BPU) requesting a $172.4 integrity have enabled the Company D The price of electricity to custom-million rate increase resu lted in to meet its chall enges and to plan a ers was stabilized by increased use of lengthy proceedings and the granting course for successful management in coal , continued reliability of nuclear of a $73.7 million increase in Decem- the future.

generating units and by importing ber. Unfortunately, this decision will low-cost energy from utilities with For the Board of Directors not permit the Company to achieve excess capacity .

the 15% return on common equity that the BPU specified. Atlantic Planned Growth. The New Direction Electric will be seeking additional program , announced at the 1981 revenues through a continuation of Annual Meeting , began to show J. D . Feehan results. This program is designed to Chairman of the Board limit future constructio n costs by and President aggressively promoting conservation, efficient energy use , and altern ative electric sources. The reduction in the forecasted annual growth rate of the peak demand, from 2.4% to 1.6%,

reflects the expected impact of the 3

Alfred C. Linkletter, former Chairman of the Board, discusses the future of Atlantic Electric.

4

A Look at Yesterday, Today and Tomorrow:

hi s year's Annual Meet- fo rced to co nvert to low sulfu r oil. adj ust me nt s that are fa irer to the ing will be my last as a In stead , it was ready for use, in case Company a nd take less time to member of the Atlantic of just such a n e merge ncy . compl ete.

Electric Board of The second event was the Co m- This Nation mu st set its energy pri-Directors. During my pany ' s winning the Outstanding orities now. Looking be yo nd the 12 years as a Member E lectri c Utility of th e Year Award in electrical generat ing capacity cur-of the Board and five years as Chair-198 1. This Natio nal Award was given rently und er co nstruction, ab und a nt man , I have been pri vileged to be a by E lectric Light & Power Magazine American coa l shou ld be the major part of a c ha ll e ngi ng period in Atlan-and the selection was made by an fuel source. But ma ny e nviro nmental tic Electric 's lo ng hi story.

independent panel of judges. It was issues must sti ll be resolved . The On the occasion of my retirement , I proof-positive that we were succeed- cost of co nstru cti ng a ny type of new have bee n as ked to present m y ing in our efforts to excel. ge nerating capacity is extre me ly thoughts about our Company during high and shows no sign s of dec lining.

Today. Our efforts have produced the my tenure. Conservation a nd energy-efficient desired results , pl acing us, I believe ,

appli a nces mu st be pa rt of the solu-Yesterday. Recentl y, I was as ked what in a n excellent pos iti o n. Our ge nerat-tion . Efforts to remove emotionalism my impress io ns were when I joined ing capacit y is now extensively from energy iss ues, a nd to balance the Board in 1970. Immedi atel y , I diversified , whic h protects o ur c us-immediate needs against future needs, recalled my first meet ings with the tomers from loss of power shou ld a n are urge ntl y required.

ma nagement team. They clearly dem- emergenc y knoc k o ut any one gener-onstrated that they were knowledge- ator. Our management team is I leave the Board of Atla nti c E lectric able and upbeat. As an engineer, I stro nge r and deeper than ever before. co nfid ent that steps will be taken to knew the importa nce of pl a nning a nd We have youth , experience and lead- meet these c ha ll e nges, ju st as co n-anticipation, particularly in the areas ership potential at a ll leve ls , a n tinuing need s suc h as recruiting a nd of new construction and ma inte- unu sual circumstance for a utilit y of retaining o ut standing people , stream-na nce. From the first day, I was our size . Our sha rehold ers support us lining operations a nd increasi ng aware that thi s Co mpany was because we have continued a remark- efficie ncy wi ll be met.

active ly prepa ring for the future. able record of di vid e nd payments and I wish to add that , after thi s year's increases. Our communications In th e years that followed , my initia l Annua l Meeting, I wi ll remai n as a effo rts , inc luding our New Direction impressions were reinforced many private shareho lde r. Like all of us, progra m, have earned a better times. Two eve nts stand out a mong I will close ly fo ll ow the progress of und ers ta nding of the lo ng-term ma ny. The first was the wo rld- "O ur Co mpa ny. " I a m co nfid e nt that considerations in pro vi ding electric wrenching Arab oil embargo in 1973. o ur concerns will be minimal a nd that power to a diverse serv ice area.

We ta ke great pride in having been o ur rewards will increase yearl y.

the first utility to convert bac k to Tomorrow. Whil e we have co me a coal, a feat th at was possible only because our coal ha ndling a nd burn-lo ng distance , there is still much to accomp li sh. A high priority has to be ac. ~

ing eq uipment had not been cast given to more efficient rate regu la- A. C. Linkl etter as ide years before whe n we were tion. The process mu st be stream-lined and insulated from the political are na. Too mu ch time a nd money are put into a never-e nding se ri es of rate hearings and a ppeals. Everyone would be better served by rate 5

BURLINGTON Mickleton Station

.... Cedar Station SALEM 0 Hope Creek ATLANTIC Carlis Corner Station CUMBERLAND B.L. England Station CAPE MAY Delaware Bay Atlantic Ocean

• Steam Electric Generating Station A. Combustion Turbine Generating Station e Jointly Owned Nuclear Generating Station O Jointly Owned Nuclear Generating Station Under Construction Other Ownership Interests (All located in Pennsylvania)

Conemaugh Generating Station Keystone Generating Station Peach Bottom Atomic Power Station 6

At a Glance: The Atlantic Electric Service Area Atlantic Electric serves over one million people in a 2,700 square mile area in Southern New Jersey. It is a region diverse in economic activity within close proximity to Philadelphia, New York, Baltimore and Washington. Tourism plays a significant role in the economy of the coastal areas while the inland is agricultural and industrial.

Customer Base 1982 Electric Consumption Fifteen Year Outlook Residential In 1982, the Company served over Residential customers represented Residential customers are projected 324,000 customers in 129 49% of the annual peak demand. The to comprise 47% of the total peak in municipalities in eight counties. residential sector consumed nearly 1997 and consume 3.2 billion About 20% of these dwellings have 2.4 billion kilowatt-hours last year or kilowatt-hours, or 43 % of total electricity as their conventional 43% of total sales . The average projected sales. Average residential heating source. 50% have electric residential customer used 7 ,444 kilowatt-hour consumption is ex-water heaters and 60% have air- kilowatt-hours . More than 4,400 new pected to increase to 7 ,900 in 1997.

conditioning. About 18% of all residential customers were added The residential sector is estimated to dwellings are currently occupied on during the year and 50% of all new have a compound growth rate in peak a seasonal basis. residential "connects" during the demand of only 1.2% over the next year had electric heat. 15 years.

Commercial Atlantic Electric served 42 ,885 Total commercial customers The commercial sector is estimated commercial customers in 1982. The accounted for 36% of the annual peak to comprise about 39% of the total highest concentrations of commercial demand . This sector represented 34% peak expected in 1997 and activity are along the eastern of total sales, consuming 1.9 billion commercial sales are expected to seashore resort areas and in Camden, kilowatt-hours. Casinos, which are increase to 2.6 billion kilowatt-hours ,

Gloucester and Cumberland part of the commercial group , were or 36% of projected total sales . The Counties. 3% of the total peak demand and 5% casino portion of the commercial of total sales. sector will be 3.2% of the total peak At year-end, the Company served demand and 4.4% of total projected nine hotel-casinos in Atlantic City. A sales. The entire commercial sector is tenth was under construction. expected to experience a 2.3%

Also, 1,700 commercial customers compound growth rate in peak were engaged in agricultural demand over the 15 year period.

activities .

Industrial The Company served an average of Industrial customers represented 15% The industrial class portion of total 1,018 industrial customers in 1982. of the annual peak demand. They peak demand is forecast as 14% in Principal manufacturing industries consumed 1.2 billion kilowatt-hours, 1997. Industrial sales are expected to included food, chemicals, rubber and or 22% of total sales. About 34% of grow to 1.5 billion kilowatt-hours or plastic products , stone , clay, glass all industrial sales were to the stone , 20% of the total projected sales. The and electrical and electronic clay and glass industries. compound growth rate in peak equipment. demand for the industrial sector is expected to be 0.9%.

7

00 Managed Growth he golden days of rapid the strategies were developed and in growth, cheap fuels, low- place to more effectively manage cost borrowing and infre- load growth and energy consumption, quent rate increases are raise necessary capital and keep future long past. Today, the earnings at an acceptable level.

faltering economy, high Critical Issues. Atlantic Electric fur-prices and expensive energy are mak- ther defined its obligations, setting ing growth a difficult and expensive these priorities for the near future.

process. This Company understands D Increased public acceptance of the the challenge of growing while meet-Company ' s efforts to provide neces-ing its obligations to shareholders ,

sary energy and encourage ~on customers, employees, regulators servation.

and the environment.

D Longer-range preparedness for Management is able to respond developments beyond the Company's rapidly to these challenges because control in load growth and regulatory improvements and programs are in actions.

place that permit the Company to D Improved profitability and internal meet the future with assurance. cash generation.

Atlantic Electric is proud of its repu- Planning and Forecasting. A quiet, tation of being innovative, aggressive but significant development during and unconventional. During 1982 , the 1982 was the additional application of future availability of safe and ade- sophisticated computer programs to quate electrical service was ad- the Company's planning and fore-vanced by these actions : casting tools. It is now possible to D Refining corporate strategy more effectively monitor economic D Identifying critical issues for the and demographic conditions . It is future also possible to analyze complex D Strengthening planning and interrelationships which can alter forecasting electrical demands and have a finan-D Developing additional managerial cial impact on the Company. In skills and depth addition, Atlantic Electric' s planning Corporate Strategy. The Company's horizon has been extended beyond 15 overriding objective has been to pre- years through the use of this new dict the future demands for electricity technology.

and to prepare to meet these needs. Managerial Skills and Depth.

The problems dealt with, included " Planned Diversity" is a strength that the very high cost of constructing the Company has advocated over the new facilities while keeping elec- years. Nowhere is it more applicable tricity affordable and maintaining than in the area of developing mana-earnings. At the conclusion of 1982, gerial skills and depth . In recent years, senior managers have exchanged responsibilities for major operating segments of the Company.

Annual management conferences and regular strategic planning meetings bring different points of view together for open discussion and resolution.

9

Ernest D. Huggard, Executive Vice President, inspects a turbine rotor being prepared for installation in a coal-fired generator at the B. L. England Generating Station at Beesley's Point.

10

Operating Efficiency roductivity and cost con- siders critical is the mandated level of tainment were two areas its reserve generating capacity. We on which the Company have shown a consistency of per-concentrated its efforts formance in terms of avoiding during 1982. As a result, breakdowns, or forced outages, Atlantic Electric was because of on -going preventive main-able to produce electric power at 15% tenance programs . The Company, as less per kilowatt hour than in 1981. a member of the Pennsylvania-New This reduction was due, in part, to Jersey-Maryland (PJM) Interconnec-greater availability of economical tion, is required to maintain a much generating capacity , both within the smaller generating capacity reserve Company and from utilities outside than the PJM system-wide average.

the service area. Overall , operating This translates into a substantial efficiency was improved by more savings in construction costs for gen-effective use of resources in these erating capacity additions.

areas:

Improvements were a lso made in the D Energy production transmission and distribution net-D System operations works within the Atlantic Electric D Corporate admini stration service area. Work was performed to Energy Production. The use of lower- raise the voltage on distribution lines cost fuels was enhanced by installing and to increase the efficiency of other more efficient pollution control components of the electrical system .

equipment , which permitted greater Corporate Administration. The con-burning of coal. This included two solidation of 800 management and new electrostatic precipitators ($30 administrative personnel into the new million) at the B. L. England Station Administrative Complex in Pleas-and a new system to clean exhaust antville was completed in November.

gas ($19 million) on Unit #6 at the This modern, energy-efficient com-Deepwater Station. Two coal-fired Production Cost Per Kilowatt Hour plex is projected to satisfy office boilers at B.L. England were also (in cents) space needs at least through 1990.

rebuilt ($11 million), to increase relia-4.0 During 1982 , the scope of the training bility and extend useful life.

~

effort was increased , offering instruc-In addition, the Company was able to tion in communicatio n ski ll s, time purchase economical coal-produced management and decision making, as 3.2 electricity from other utility systems. well as courses in long-established Significant sources in 1982 were the areas such as leadership, instructor Delmarva Power & Light Company development and supervision. Con-

~

1-- ~

- ~~

2.4 and the Allegheny Power System. solidation and expansion were assisted by new computer technology System Operations. A measure of

~

that resulted in increased productiv-1.6 efficiency that Atlantic Electric con-1-- 1-- t-- 1-- ity and a decrease in the number of employees. Office automation now includes electronic word processing 1--

- - - .8 and message transmission, and the new corporate forecasting system was designed to permit transfer of 0 massive amounts of data between

'78 79 80 81 82 computer-based models.

11

Frank J. Ficadenti, Senior Vice President-Engineering and Construction, visits the recently completed exhaust-gas cleaning system at Deepwater Generating Station.

12

System Flexibility he electric energy needs sy lv ani a Power & Light Company's of the Atlantic Electric Susquehanna Station , expected to serv ice area are di- start service during 1983 , and b y a verse . In order to meet 5% ownership in Hope Creek the needs of our cus - Nuclear Generating Station , sched -

tomer base, we have uled for se rvice in 1986.

built a fle xible a nd responsive gener-Diversifying Energy Sources. The ating and delivery syste m . The e m-variety of generating facilities, and phasis during 1982 was in the se areas:

D Adjusting to changing growt h the types of fuels consumed , are key patterns elements in the Company's program D Joint participation in new generat-of diversifying its sources of energy .

ing unit s Existing capacity is located through-D Diversifying fuel and energy out the service area and in adjacent so urce s states and spread over seven coal-fired units , four residual oi l-fired Changing Growth Patterns. Designing units, four nuclear units and 12 com-and building an e lectric syste m that is bustion-turbine pea king generators.

geared to any eventuality is the c hal- The large st amount of capacity in a lenge; const ruction of new base load single unit accounts for only about ge nerating capacit y can take 8 to 10 10% of the total system capacity .

years to complete. At the close of Therefore , the unexpected los s of 1982 , the projected annual growth any generating unit within the Atlan-rate over the next 15 year period for tic Electric system doe s not have a the Atlantic Electric service area was major impact on performance .

lowered to 1.6% from the pre viou sly projected 2.4% . Effective programs Those generating units capable of of load management , conservation burning more than one type of fuel initiatives , aided by basic demo- have the conversion equipment avail-graphic c ha nges in our se rvi ce area , able should a n une xpected change Cash c.onsttuction Expenditures occur in the availability or cost of a should prove to be effective (in millions of dollars) particular fuel.

responses to the dilemmas posed by 125 high interest rates and sp iraling con- Fuel sources las t year were 48% coal ,

struction costs. At the sa me time , the 31 % nuclear and 20% oil, with natura l Company reta in s it s ability to meet gas and interchange with other util-100 the future need s of c ustomers. ities constituting the remainder.

Joint Participation. One effective During 1982, coal and nuclear were means of minimizing risk and im- again the two most economical 75 sources of power. Oil costs did level proving system reliability has bee n through joint participation in new off, but remained high , and the price generating unit s built by other of natural gas was on the ri se.

50 utilities. Atlantic E lectric has built a flexible Future base load capacity addition s generat ing system , one that is of 178 megawatts will come from designed to minimize the Company 's 25 contracted purchases from the Pe nn- dependence on imported oil. In 1973 ,

at the time of the Arab oi l embargo, over 70% of our customers' electrical needs came from oil. As a result of 78 '19 80 81 82 83 84 85 86 87 our aggressive conversion program , in 1983 we expect that less than 15% of these need s will come from oil.

13

Jerrold L. Jacobs, Senior Vice President-Finance, on Wall Street, en route to a meeting with a financial analyst.

14

Financial Stability he importance to the In addition, we replaced some of our Company of adequate short-term debt with an is sue of $45 and timely rate relief million of floating-rate notes. The was demonstrated dur- floating rate feature enabled the ing 1982 by the decline Company to reduce interest expense in earnings, but that when market rates fell. Tax benefits issue should not overshadow other on $2.9 million of assets were pur-events. Atlantic Electric continues chased from an unrelated company ,

its efforts to improve financial which had a positive impact on stability by: Federal taxes paid. Sale of common D Diversifying financing source s stock included a public offering of 1.5 D In creasing the equ it y base million shares and the issuance of over D Seeking rate relief 487 ,000 shares through the Com-D Improving dividend performance pany's Dividend Reinvestment and Stock Purchase Plan . Over 128,000 Financing Sources. Construction shares were sold through the requirements for 1982 were $11 8 Employee Stock Ownership Plan.

million , up from $113 million the previous year. A significant positive Rate Relief. Shortly after the deci-development was that 42% of these sion , in January 1982 , of the last need s were generated internall y. The base-rate case , the Company filed for remainder of necessary capita l was an additional base-rate increase of raised from a number of sources, $172.4 million. This reque st incorpo-including the sale of 2.1 million rated the changes in our cost of shares of common stock, floating rate service since 1980 and a number of notes and leasing of nuclear fuel. foreca sted items intended to reduce or eliminate regul atory lag. This Increased Equity. The long-term would provide us with a n opportunity objective of reaching a minimum to earn an appropriate rate of return.

common equity ratio of 41 % was Market Price Per Share of achieved during 1982. One of the The rate case proceeding las ted* mo st c.ommon Stock factors in reaching this important of the year, requiring extensive testi-25 goal was the retirement (through mony to support our position and (year-aid) repurchase) of $9.4 million of our address current ratemaking polic y (mdollars) outstanding Bonds. These purchases issues. The decision by the BPU in 20 were made early in the year when December to grant us an increase of interest rates were at peak levels. $73.7 million fell short ofour need s.

The Company paid an average 57¢ on Because that deci sion was based the dollar for these Bond s. essentially upon the Company's 1S financi a l performance during the At year-end the Company had no period ending September 30, 1982 and outstanding short-term debt. Among did not include the items nece ssary to 10 the reasons for this were the recovery eliminate regulatory lag , we will not of deferred energy costs from cus-be ab le to earn the a llowed 15%

tomers, the public sale of common return on common equity in 1983.

5 stock a nd the receipt of $21 million as a result of leasing our nuclear fuel. Dividend Performance. In June , 1982 the Board of Directors increased the 0 dividend per share to 57¢ from 53¢ a quarter. This was the 30th year of paying higher dividends a nd marked the 64th year of dividend payments ,

accomplishments that are rivaled by few companies.

15

Michael A. Jarrett, Senior Vice President-Corporate Services, answers questions from customers during a radio talkshow.

16

Corporate Involvement ommunicating with the Regulators and Legislators. The pro-more than one million duction, cost and use of electrical people who live and energy is now an important social as work in the Atlantic well as an economic iss ue . Taking an Electric serv ice area active part in regulatory and legi sla-continued to be of tive developments has become a great importance. Regulators and leg- growing re sponsibility. For example, islators were key audiences. All three during 1982 , legislation was co nsid-groups hold great influence over ered in New Jersey that would Atlantic Electric's future. During require a certification of need for new 1982, corporate involvement pro- generating capacity. Atlantic E lectric grams were expanded in these areas: officers and manage rs contributed D Residents of the service area their expertise and opinions to the D Government officials shaping of thi s bill , suggesting D Employees changes that would serve consumers as well as the utility industry.

Residents. The indispensable nature of electricity and the increases in its Public involvement also crossed state cost in recent years have resulted in lines. National matters relating to greater involvement by customers in utilities range from Federal income the ratemaking process. They bring tax benefits for dividend reinvest-great pressure to bear on the regul a- ment plans, to environmental issues tors who make rate relief deci sions. surrounding the generation of power, For these reasons , the Company con- to technical aspects of dispo sing of tinued and expanded its programs of spent nuclear fuel.

citizen roundtable di scus sions, elec-Employees. All of the Company's tric safety and energy efficiency employees are encouraged to address presentation s, the Speakers' Bureau, issues involving their profess ion and student telephone conferences, media Company . Many do so by writing appearances and interviews.

letters to the media and government A precedent-setting move during 1982 officials, providing testimony and was the decision to commit $3.7 participating in community organiza-million to promoting energy conser- tions . They act as private citizens, vation. This action grew out of rate but are highly knowledgeable about relief proceedings before the Board the energy field.

of Public Utilities. The fund s will be

" Breakfast with the President" has used to expand home and business been the newest effort in the Com-energy audit s, develop time-of-use pany's continuing programs to kee p pricing structures, finance rebates to its workers well informed and moti-consumers who purchase energy-effi-vated. The "S peak-up " program cient appliances and provide low-cost offers employees unre stricted oppor-loans for home conservation tunities to voice their opinions and improvements.

provide suggestions that are responded to by Management.

Corporate in volvement is the catalyst for bringing all as pects of the Com-pany's activities to the attention of those who need , judge, regulate, operate and support Atlantic Elec-tric. During 1982 , these audiences were reached with greater effective-ness and responded with increased understanding. For everyone, the re sult was greater efficiency , fle xibil-ity, strength and involvement.

17

~anag~ment's J?~scussion and Analysis of Fmanc1al Condition and Results of Operations General well as issuance of common stock through the Company's As an investor-owned electric utility , Atlantic Electric Dividend Reinvestment and Stock Purchase Plan and is a participant in a capital intensive industry. In order Employee Stock Ownership Plan. Interim financing was to provide electric energy service to our customers , the provided by the issuance of short-term debt.

Company has made an investment in property and plant of During 1982 , cash construction expenditures aggregated more than $1 billion. Electric energy rates to support the

$1 18 million which is the highest ever experienced by the costs of owning, operating and maintaining this investment Company. However, the Company has made significant are regulated by the New Jersey Board of Public Utilities progress in the reduction of our construction program. The (BPU). Additional rate relief will be necessary to finance five year (1983 -1987) cash construction expenditures are the Company 's capacity and construction program ,

currently projected to be $382 million, reduced from the maintain service reliability and provide a fair rate of return previously projected $7 16 million. This reduced level of on investment to our shareholders .

projected construction expenditures is a direct re sult of the Company's revised capacity plan. Our current forecast of Liquidity and Capital Resources peak load growth for the period 1983-1997 is 1.6% per year.

During 1980 through 1982 , approximately 38% of the cash This forecast reflects an aggressive program of promoting requireme.nts for construction , debt maturities and sinki ng conservation , implementing effective load ma nagement fund requirements were ge nerated from operations techniques and promoting economic alternative energy exclusive of unbilled revenues, after deductions for

~ource s. The current construction program was developed dividends , and working capital need s but exclusive of m response to the need to replace existing plant , upgrade cha.nges in temporary cash investme nts. During the same our tran smission a nd distribution system, and provide for penod a total of $290 million was obtained from the sales projected growth. Due to inflation a nd changes in of First Mortgage Bonds and Pollution Control Bonds technology , depreciation accruals are not adequate to fund intermediate term borrowings, sale and leaseback of '

the replacement of existing utility plant when neces sary nuclear fuel, sales of common stock and preferred stock as (see su pplementary information concerning the effects of inflation, page 35).

Assuming adequate rate relief, our estimates indicate that over the five year period from 1983 to 1987 an average of at least 45% of our total cash construction requirements , debt 1982 Revenue Dollar Year to Date-December 31, 1982 Where It Came From

- - - - - - - - - - - - - - - Industrial $.16

---

Residential $.47

- - - - - - - - - - - - Commercial $.35

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Other $.02 Where It Went

~---------------Taxes $.17

---- - - - - - - - Material and Supplies $.13

- -- - - - - - - -- - --Labor $.09

- - - - - - - -*- - - - - Interest $.07 Preferred and Common Stock Dividends $.08

' - - - - - - - - - - - - - - - - Depreciation $.06

- - - - - - - - - - Fuel and Purchased Power $.40

maturities and sinking fund requirements will be generated Results of Operations internally. The additional cash requirement will be raised The costs of owning the Company ' s over $1 billion through the capital markets with the objective of main- investment (original cost before accumulated depreci at ion) taining a capital structure of less than 48% long-term debt , in property and plant (depreciation, taxes and cost of a minimum of 41 % common equity with the balance com- invested funds) were equivalent to 38% of operating posed of preferred stock. Our current capitalization ratios revenues in 1982. Net energy a nd purchased power costs are 47% long-term debt, 42% common and 11% preferred were 40% of operating revenues with labor , materials and stock. We will continue to use short-term financing on an other costs accounting for the remaining 22% .

interim basis and currently maintain total lines of credit of

$115,000,000. Refer to Note II of Notes to Financial Revenues Statements for additional details on short-term financing. Operating revenues have increased from $358 million in 1980 to $444 million in 1982. This increase reflects the net The tabulation on page 37 includes key indicators which result of base rate increases , changes in the Levelized we believe are helpful in evaluating the performance of the Energy Clause (LEC), the recording of unbilled revenue Company over the past five years . The tabulation also and a net decrease in kilowatt-hour sales. The effect of the includes certain unaudited supplementary information above factors on 1982 and 1981 revenues is shown below:

showing estimates of the effects of changing prices. This data , which should be viewed as estimates of the approx- (Thousands of Dollars) 1982 1981 imate effects of inflation rather than as precise measures, Base Rate Increases $ 10,021 2.1% $ 37 ,977 10.6%

is expressed in the dollars of the earliest comparative LEC Rate Increase year (1978). The trends demonstrated reflect the need (Decrease) (21,841) (4.6) 70 ,677 19.8 to control costs and point out the responsibility of Kilowatt-hour Sales Increase (Decrease) (6,890) (1.5) 2,638 0.7 regulatory agencies to provide timely and adequate rate Unbilled Revenues relief. Additional supplementary information concerning Current Year (6,795) (1.4) the effects of changing prices is included on page 35. ($25,505) (5.4%) $111 ,292 31.1 %

Additional changes in operating revenue s wi ll reflect general economic conditions in our service area , the timeliness and adeq uacy of rate relief and the results of load management a nd conservation programs.

Year-End Capitalization (%)

• Common Equity

• Preferred Stock

• Long term debt.

100 80 60 40 20 0 19 73 74 75 76 77 78 79

Operating Expenses unrecovered LEC costs had been recovered. The amount The aggregate of fuel, interchange and purchased power of $15,869,000 shown on the Balance Sheet as Deferred costs have decreased by 23% during 1982 reflecting the Energy Revenues at December 31, 1982 represents an over-availability of lower cost nuclear generation, a shift in the recovery of energy costs which is reflected in the current Company's interchange power position and favorab le LEC billing rate (see Note 3 of Notes to Financial purchases of capacity from other utilities whic h have Statements).

resulted in less use of more expensive generation faci lities and sources. Increases in power production and other operation and maintenance costs reflect increases in the price of The following presents our progress toward greater use of materials, supplie s and services as well as increases in lower cost energy so urces: wages and employee benefits.

1982 1981 1980 Increases in depreci ati on expense reflect increased Sources:  % ¢/kwh  % ¢/ kwh  % ¢/ kwh investment in depreciable plant.

Coal 48 2.573 45 2.177 37 1.504 New Jersey gross receipts taxes have increased in 1982 Nuclear 31 .518 22 .384 21 .379 Oil 20 5.137 20 5.7 11 24 4. 783 reflecting 1981 revenue increases. Such taxes are Natural Gas 3 5.133 4 5.249 8 4.191 recognized as expenses in the year of payment.

Interchange (2) (4.985) 9 7.529 10 5.987 100 2.457 100 3.083 100 2.73 1 Other Expenses Interest expenses have increased 38% since 1980 as a result Net Deferred Energy Costs of $23,273 ,000 in 1982 and of the continuation of hi storicall y higher interest rates .

$14,043,000 in 198 1 represent the recognition via increased Recent debt fin ancing has been of an intermediate term in revenues of unrecovered fuel costs whi ch were deferred an effort to maintain financing flexibility in support of our during 1980 and 1981. At December 31, 1982, all previously reduced construction program . Even though we have made use of pollution control financing and intermediate term variable rate debt , the embedded cost of long term debt has ri sen , reflecting the refinancing of maturing debt at higher prevai ling rates , from 8.01% in 1980 to 8.86%

in 1982 .

Sources of Energy Average Cost of Fuel in Cents Per Gallon

(% of utility system) Month of December (in billions of kilowatt-hours)

• Oil

• Gas

• Coal

• Nuclear 7.5 90

• Interchange

• Coal

• Gas

• Nuclear

• Oil 6.0 72 4.5 54 3.0 36 1.5 18 0 0 78 79 80 81 82

• Expo rted energy 20

Report of Management Auditors' Opinion The financial statements presented herein have been Deloitte Haskins & Sells One World Trade Center prepared by management in conformity with Generally Certified Public Accountants New York, New York 10048 Accepted Accounting Principles applicable to rate-regulated public utilities. Such Accounting Principles are To the Shareholders and the Board of Directors consistent in all material respects with the accounting of Atlantic City Electric Company:

prescribed by the Federal Energy Regulatory Commission and the New Jersey Department of Energy , Board of We have examined the balance sheets of Atlantic City Public Utilities. In preparing the financial statements, Electric Company as of December 31, 1982 and 1981 and management makes informed judgments and estimates the related statements of income and retained earnings and relating to events and transactions that are currently being of changes in financial position for each of the three years reported. The Company has established a system of in the period ended December 31, 1982. Our examinations internal accounting and financial controls and procedures were made in accordance with generally accepted auditing designed to insure that the books and records reflect the standards and, accordingly, included such tests of the transactions of the Company and that established policies accounting records and such other auditing procedures and procedures are followed. This system is examined by as we considered necessary in the circumstances.

management on a continuing basis for effectiveness and efficiency and is reviewed on a regular basis by an internal In our opinion , the accompanying financial statements audit staff that reports directly to the Audit Committee of present fairly the financial position of the Company at I the Board of Directors. December 31 , 1982 and 1981 and the results of its oper-The financial statements have been examined by Deloitte ations and the changes in its financial position for each of Haskins & Sells , Certified Public Accountants. The the three years in the period ended December 31, 1982, in auditors provide an objective , independent review as to conformity with generally accepted accounting principles management's discharge of its responsibilities insofar as applied on a consistent basis, except for the change in they relate to the fairness of reported operating results and 1982, with which we concur, in the method of accounting financial condition. Their examination includes procedures for unbilled revenues , as described in Note 4 to the believed by them to provide reasonable assurance that the financial statements.

financial statements are not misleading and includes a review of the Company's system of internal accounting and financial controls and a test of transactions.

The Board of Directors has oversight responsibility for determining that management has fulfilled its obligation in January 31 , 1983 the preparation of financial statements and the ongoing 1

examination of the Company's system of internal

• accounting control. The Audit Committee, which is composed solely of outside directors and reports to the Board of Directors , meets regularly with management, Deloitte Haskins & Sells and the internal audit staff to discuss accounting, auditing and financial reporting matters . The Audit Committee reviews the program of 1

audit work performed by the internal audit staff. To insure auditor independence , both Deloitte Haskins & Sells and the internal audit staff have complete and free access to

' the Audit Committee.

I 21

Statement of Income and Retained Earnings For the Years Ended December 31 (Thousands of Dollars Except Per Share Amounts) 1982 1981 1980 Operating Revenues-Electric (Notes 3 and 4) $444,178 $469,683 $358,391 Operating Expenses:

Energy Fuel 153,986 154,652 131 ,894 Interchange (7,459) 39,312 38 ,029 Deferred Costs 23,273 14,043 (20,281)

Net Energy 169,800 208,007 149,642 Purchased Power-Exclusive of Fuel 7,482 7,238 1,827 Power Production-Operation and Maintenance 44,650 36,206 28,819 I Other Operation and Maintenance 55,902 50,366 44 ,890 Depreciation 29,962 25, 161 23,593 Taxes Other Than Federal Income Taxes (Note 14) 60,548 44 ,200 35,546 Federal Income Tax Expense (Note 2) 13,064 24,994 17,841 I Total Operating Expenses 381,408 396, 172 302,158 Operating Income 62,770 73 ,5 11 56 ,233 Other Income:

Allowance for Equity Funds U sect During Construction 3,354 6,045 4,997 Miscellaneous Income-Net 3,571 3,684 2,609 Total Other Income 6,925 9,729 7,606 Income Before Interest Charges 69,695 83 ,240 63,839 Interest Charges:

Interest on Long Term Debt 36,650 30,831 26,762 Interest on Short Term Debt 2,362 8,150 1,573 Other Interest Expense 633 1,323 321 Total Interest Charges 39,645 40,304 28,656 Allowance for Borrowed Funds U sect During Construction (5,079) (4,052) (3,355)

Net Interest Charges 34,566 36 ,252 25,301 Income Before Cumulative Effect of Change in Accounting Method 35,129 46 ,988 38 ,538 Cumulative Effect to January 1, 1982 of Change in Accounting Method, Net of Federal Income Taxes ($11,863) (Note 4) 13,926 Net Income 49,055 46,988 38,538 Retained Earnings at Beginning of Year 121,078 108,977 100,697 170,133 155,965 139,235 Dividends Declared:

On Cumulative Preferred Stock 7,353 7,508 6,340 On Common Stock 33,955 27,379 23,918 Total Dividends Declared 41,308 34,887 30,258 Retained Earnings at End of Year $128,825 $121,078 $108,977 Earnings for Common Stock:

Net Income $ 49,055 $ 46,988 $ 38 ,538 I Less Preferred Dividend Requirements 7,368 7,531 6, 161 Balance Available for Common Stock $ 41,687 $ 39,457 $ 32 ,377 Average Number of Shares of Common Stock Outstanding (Thousands) 15,116 13 ,034 12 ,372 Per Common Share:

Earnings Before Cumulative Effect of Change in Accounting Method $ 1.84 $ 3.03 $ 2.62 Cumulative Effect to January 1, 1982 of Change in Accounting Method .92 Total Earnings $ 2.76 $ 3.03 $ 2.62 '

Dividends Declared $ 2.24 $ 2.08 $ 1.93 Dividends Paid $ 2.20 $ 2.04 $ 1.90 The accompanying Notes to Financial Statements are an integral part of these statements.

22

Statement of Changes in Financial Position For the Years Ended December 31 (Thousands of Dollars) 1982 1981 1980 1

Source of Funds:

1 Funds from Operations:

Income Before Cumulative Effect of Change in Accounting Method $ 35,129 $ 46,988 $ 38,538 Principal Non-Cash Charges (Credits) to Income:

Depreciation 29,962 25,161 23,593 Amortization of Nuclear Fuel 4,863 2,951 1,595 Allowance for Funds Used During Construction (8,433) (10,097) (8,539)

Deferred Federal Income Taxes- Net 11,427 14,648 6,158 Investment Tax Credit Adjustments-Net 12,547 7,141 5,045 Other- Net 650 458 422 Funds from Operations 86,145 87,250 66,812 Cumulative Effect of Change in Accounting Method 13,926

' Funds from Outside Sources:

Long Term Debt 45,000 60,000 75,000 Pollution Control Funds (Held) Released by Trustees 15,098 (27 ,874)

Subtotal 60,098 32,126 75,000 Sale of Common Stock 41,166 32,441 6,514 Sale of Preferred Stock 20,000 Sale of Nuclear Fuel 21,140 Increase (Decrease) in Short Term Debt (25,825) 10,525 (24,175)

Funds from Outside Sources 96,579 75,092 77,339 1 Other-Net 3,413 (3,451) (717)

Total Source of Funds $200,063 $158,891 $143,434 I Application of Funds:

Gross Additions to Utility Plant $126,893 $123,318 $ 97,330 Property Abandonment Costs (15,956) 1 Allowance for Funds Used During Construction (8,433) (10,097) (8,539)

Net 118,460 97,265 88,791 Dividends on Preferred Stock 7,353 7,508 6,340 Dividends on Common Stock 33,955 27,379 23,918 Retirement and Maturity of Long Term Debt 28,996 5,682 23,847 Property Abandonment Costs 15,956 Conversion of Preferred Stock 847 1,993 877 I Redemption of Preferred Stock 800 800 1,600 Investments in Subsidiary Companies 126 (96) 320 Increase (Decrease) in Working Capital* 9,526 2,404 (2,259)

Total Application of Funds $200,063 $158,891 $143,434 Increase (Decrease) in Working Capital*

Cash and Cash Items $ 13,286 $ 3,845 $ (889)

Accounts Receivable (7,275) 10,740 6,727 Unbilled Revenues 18,994 Fuel (2,645) 5,890 1,422 Materials and Supplies (420) 2,365 1,500 Deferred Energy Costs and Revenues (39,046) (14, 104) 18,741 Accounts Payable 3,923 2,959 (11,202)

• Taxes Accrued 8,512 (5 ,285) (4,587)

Accumulated Deferred Taxes 7,508 3,894 (6,500)

Other 6,689 (7 ,900) (7,471)

Increase (Decrease) in Working Capital $ 9,526 $ 2,404 $ (2,259)

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

The accompanying Notes to Financial Statements are an integral part of these statements .

23

Balance Sheet December 31 (Thousands of Dollars) 1982 1981 Assets Electric Utility Plant (Note 6):

In Service:

Production $ 492,415 $ 422,162 Transmission 170,297 154,418 Distribution 300,079 280,842 General 37,632 20,274 Total 1,000,423 877,696 Less Accumulated Depreciation 247,008 225,372 Net 753,415 652,324 Construction Work in Progress 152.403 158,995 Nuclear Fuel (Notes 1 and 6) 495 28,237 Less Accumulated Amortization 7,692 Net 495 20,545 Electric Utility Plant-Net 906,313 831,864 Non Utility Property and Investments (Note 7) 6,432 5,537 Pollution Control Construction Funds Unexpended-Held by Trustees 12,776 27,874 Current Assets:

Cash and Working Funds (Note 11) 3,752 2,915 Temporary Cash Investments 18,249 5,800 Accounts Receivable:

Utility Service 25,967 35,410 Miscellaneous 8,037 5,669 Allowance for Doubtful Accounts (1,200) (1,000)

Unbilled Revenues (Note 4) 18,994 Fuel (at average cost) 26,931 29,576 Materials and Supplies (at average cost) 16,221 16,641 Prepayments 9,382 3,771 Deferred Energy Costs (Notes 1 and 3) 23,177 Total Current Assets 126,333 121,959 Deferred Debits:

Property Abandonment Costs (Notes 1 and 12) 19,680 19,934 Unamortized Debt Expense 3,257 3,598 Other 3,178 3,023 Total Deferred Debits 26,115 26,555 Total Assets $1,077,969 $1 ,013,789 The accompanying Notes to Financial Statements are an integral part of these statements.

24

December 31 (Thousands of Dollars) 1982 1981 Liabilities and Capitalization Capitalization:

Common Shareholders' Equity:

Common Stock (Note 8) $ 49,722 $ 43,284 Premium on Capital Stock 195,293 160,499 Capital Stock Purchase Plan 48 78 Capital Stock Expense (1,738) (1,730)

Retained Earnings 128,825 121,078 Total Common Shareholders' Equity 372,150 323,209 Cumulative Preferred Stock Not Subject to Mandatory Redemption (Note 9) 42,684 43,531 Cumulative Preferred Stock Subject to Mandatory Redemption (Note 9) 54,400 55,200 Long Term Debt (Note 10) 368,220 371,769 Total Capitalization 837,454 793,709 Current Liabilities:

Current Portion:

Cumulative Preferred Stock Subject to Mandatory Redemption (Note 9) 800 800 Long Term Debt (Note 10) 39,050 19,620 Notes Payable to Banks (Note 11) 7,500 Commercial Paper (Note 11) 18,325 Accounts Payable 21,946 25,869 Taxes Accrued 4,468 12,980 Interest Accrued 5,800 5,757 Dividends Declared 11,278 9,509 Deferred Energy Revenues (Notes I and 3) 15,869 Customer Deposits 2,757 2,810 Accumulated Deferred Taxes (Notes l and 2) 8,737 16,245 Other 4,668 7,505 Total Current Liabilities 115,373 126,920 Deferred Credits:

Accumulated Deferred Investment Tax Credits (Notes l and 2) 49,272 36,725 Accumulated Deferred Federal Income Taxes (Notes I and 2) 64,936 53,509 Other 10,934 2,926 Total Deferred Credits 125,142 93, 160 Commitments and Contingent Liabilities (Note t 2)

Total Liabilities and Capitalization $1,077,969 $1,013,789 25

Notes to Financial Statements Note 1. Significant Accounting Policies: Nuclear Fuel. The Company' s amortization of Salem Units No. 1 & 2 nuclear fuel is based on a rate using the number Regulation. The accounting and rates of the Company are of units of thermal energy produced during the life of the subject to the regulations of the State of New Jersey ,

fuel , plus a factor representing the estimated future costs Department of Energy , Board of Public Utilities (BPU) and of storage and disposal of spent nuclear fuel (See Note 6).

in certain respects to the Federal Energy Regulatory Commission (FERC). All significant accounting policies Nuclear fuel requirements for Peach Bottom Units No. 2 and practices used in the determination of rates are also and 3 are being provided by the operating company for used for financial reporting purposes. The financial Peach Bottom through a fuel purchase contract. The statements are prepared on the basis of the Uniform Company is responsible for payment of its proportionate System of Accounts prescribed by FERC. interest of the cost of the fuel consumed during the term of the contract. Beginning in 1982, amounts were provided for Operating Revenues. Prior to 1982, revenues were a portion of the estimated future costs of storage and recognized when electric energy service bills were disposal of spent nuclear fuel.

rendered to customers . As of January 1, 1982 the Company changed its method of accounting to recognize Federal Income Taxes. Deferred Federal Income Taxes are revenues for services rendered subsequent to the last provided on depreciable property added after 1973 , but billing cycle and prior to the end of the period. See Note 4 before January 1, 1981 , for the difference between tax for additional.information concerning this accounting accelerated and tax straight-line depreciation under the change . ADR system . Tax reductions relating to the difference between tax straight-line and book depreciation are Electric Utility Plant. Property is stated at original cost.

reflected currently (flowed-through) in Federal Income Tax Generally the plant is subject to a first mortgage lien. The Expense as allowed by the BPU.

cost of property additions , including replacement of units of property and betterments , is capitalized. Included in For all property placed in service after December 31 , 1980, certain additions is an Allowance for Funds Used During the Company provides deferred Federal Income Taxes for Construction (AFDC) which is defined in the applicable the difference between tax depreciation computed using regulatory systems of accounts as the net cost during the the Accelerated Cost Recovery System (ACRS) under the period of construction of borrowed funds used for Economic Recovery Tax Act of 1981, and tax straight-line construction purposes and a reasonable rate on other funds depreciation computed using book lives .

when so used. AFDC has been calculated using a rate of In addition , the Company provides deferred Federal 8.5% for 1982, as ordered by the BPU (See Note 3) , and 8%

Income Taxes relating to the deferral of energy costs, for 1981 and 1980. Such rates are less than the maximum unbilled revenues and , up to December 31 , 1980, the use of allowed by the FERC.

the repair allowance provisions of ADR. Investment Tax Deferred Energy Costs and Revenues. The Company has a Credits are deferred on the balance sheet and are restored Levelized Energy Clause (LEC) which utilizes projected to income over the life of the related property.

energy costs and includes a provision for prior period Gains on reacquired debt are recognized currently for book under or over recoveries. The recovery of energy costs is purposes and as a reduction of property accounts for tax made through levelized monthly charges over the period of purposes. Therefore , such gains result in reduced tax projection. Any under or over recoveries are deferred in depreciation expense over the lives of the property.

balance sheet accounts as a current asset or current Accordingly , the Company provides related deferred liability as appropriate. Such deferrals are recognized in Federal Income Taxes on its books.

the Statement of Income in the period in which they are subsequently recovered through the LEC. Retirement Plan. The Company has in effect a non-contributory defined benefit retirement plan covering all Depreciation and Maintenance. The Company provides for regular employees. Concurrent with a 1979 amendment, straight-line depreciation based on the estimated remaining the Board of Directors established a funding policy life of transmission and distribution property and , based on providing for direct payment, from plan assets, of the estimated service life, for all other depreciable retirement benefits relating to services on or subsequent to property. Depreciation applicable to nuclear plant includes January 1, 1979. (Benefits were previously provided by the certain amounts for decommissioning. The overall purchase of individual annuities upon the retirement of composite rate of depreciation was approximately 3.3% for Plan participants.) Such funding arrangements were also 1982, 1981 and 1980. Accumulated depreciation is charged with the cost of depreciable property units retired together with removal costs less salvage and other recoveries .

26

extended to service prior to January 1, 1979 for those The Hope Creek No. 2 investment will be amortized over a employees consenting to the change. Costs of the plan are 15 year period beginning in 1983. The off-shore nuclear

, determined under the aggregate cost method. units are being amortized over a 20 year period.

Property Abandonment Costs. These costs consist of the Other. Capital Stock expense is being amortized on a Company's unamortized investment in Hope Creek Unit ratable basis over 20 years.

No. 2, a nuclear generating unit which was cancelled in Debt premium , discount and expenses are amortized over December, 1981, and four off-shore nuclear units which the life of the related debt.

were cancelled in December, 1978.

Note 2. Federal Income Taxes:

Federal income tax expense applicable to current the statutory rate on book income subject to tax for the operations is less than the amount computed by applying following reasons:

Years Ended December 31 (Thousand s of Dollars) 1982 1981 1980 1

Net Income $49,055 $46,988 $38 ,538 Federal Income Tax Expense (as below) 27,004 27,332 19,700 Book Income Subject to Tax $76,059 $74 ,320 $58 ,238 Income Tax at Statutory Rate (46%) $34,987 $34,187 $26 ,789 Less:

Allowance for Funds Used During Construction 3,879 4,645 3,842 Capitalized Overheads 1,301 1,242 1, 179 Investment Tax Credits-Used 1,485 1,075 914 Other 1,318 (107) 1,154 Total Federal Income Tax Expense $27,004 $27 ,332 $19,700 Federal Income Tax Expense is compri sed of the following:

Federal Income Tax Currently Payable $ (1,430) $13,124 $ (667)

Deferred Federal Income Taxes (as below) 78 4,438 12,657 Investment Tax Credit-Earned 15,901 8,507 6,765 Investment Tax Credit-Used (1,485) (1 ,075) (914)

Federal Income Tax Expense included in Operating Expenses 13,064 24 ,994 17 ,841 Deferred Federal Income Taxes on the Cumulative Effect of Change in Accounting Method (as below) 11,863 Federal Income Tax Expense 24,927 24,994 17 ,841 Federal Income Tax-Other Income:

Currently Payable (242) 826 1,859 Deferred (as below) 2,319 1,512 Total 2,077 2,338 1,859 Total Federal Income Tax Expense $27,004 $27 ,332 $19,700 Deferred Federal Income Taxes result from the following timing differences:

Liberalized Depreciation $ 9,879 $ 6,195 $ 4, 189 Repair Allowance 2,551 Amortization-Accelerated Depreciation , Repair Allowance and Property Abandonment Costs (692) (708) (625)

Property Abandonment Costs 6,700 Gains on Reacquired Debt and Purchased Tax Benefits 2,319 1,512 Other (79) 949 43 Total 11,427 14,648 6, 158 Current Liabilities:

Deferred Energy Costs (10,661) (6,488) 8,620 Deferred Revenue 4,757 (2,210) (2, 121)

Unbilled Revenues 8,737 Total Deferred Federal Taxes $14,260 $ 5,950 $12,657 27

Financial Notes continued Investment tax credit earned in 1982, 1981 and 1980 The Company's federal income tax returns for 1979 and includes $1,869,000, $291,000 and $806,000 respectively , prior years have been examined by the Internal Revenue representing the Company's use of the additional Service and the Company 's federal income tax liabilities investment tax credit available under the Tax Reduction for all years through 1976 have been determined and Act of 1975. settled. In January 1983, the Company received a revenue agent's report in which certain deficiencies in tax have The Company has purchased tax benefits on equipment been proposed for the years 1977 through 1979. The having an aggregate tax basis of approximately $2,900,000 Company intends to protest the proposed deficiencies and in 1982 and $2,600,000 in 1981. Such tax benefits include is of the opinion that the final settlement of its federal 6% investment tax credit and an ACRS life of 3 years.

income tax liabilities for these years will not have a material adverse effect on its results of operations or financial position.

Note 3. Rate Increases:

During the three year period ended December 31, 1982 base rate increases have been approved by the BPU as follows, based in each case on the applicable test year indicated:

Amount Amount Date Req_uested Date Approved Increase Test Petition (millions) Effective (millions) In Revenue Year November 1979 $ 85.7(1) Sept. 26, 1980 $50.6 16.0% June30, 1980 August 1981 Jan. 29, 1982 11.3 June 30, 1980 February 1982 172.4(2) Dec . 14, 1982 73.7 15 .0% Sept. 30, 1982 (I) The Company's request included $16, 100 ,000 (including disposal phase of the case .

co ts) to recognize the cost of owning and operating its share of the Salem (2) The request was updated to $162.500,000 after the actual data for the Unit No . 2 Nuclear Generating Station. This amount was revised to test year was reported .

14 ,4 00,000 (excluding disposal costs) in August 1981 during a second On December 6, 1982 the BPU granted the Company an cannot presently predict the final outcome of these increase of $73 ,700,000 in base rates. The increase is proceedings or the effect, if any on the Company.

equivalent to approximately 16% of the Company's 1982 Effective October I, 1981 the BPU ordered a separate base revenues. The BPU decision granted an overall return of rate and a separate marginal energy adjustment clause 11.7% with a return on common equity of 15% and allowed (MEC) for casino hotels in Atlantic City. The effect of this the Company to amortize the abandonment costs change by the BPU is to increase the rates for such associated with Hope Creek No. 2 ratably over a 15 year customers with a corresponding reduction in the rates paid period without a return on the unamortized balance. In by all other customers. The casino hotels are seeking reaching its decision the BPU computed the Company's further proceedings before the BPU and have filed appeals revenue requirement by reducing the Company's rate base in the courts on this issue. The Company cannot presently to reflect deferred taxes associated with unbilled revenues predict the final outcome of these proceedings or the as if the Company had accrued unbilled revenues on its effect, if any , on the Company.

books during the test year. This rate base reduction lowered the rate increase granted to the Company. In December 1981 , the Company proposed a reduction in Further, the BPU directed the company to change its its LEC based on declining unrecovered energy costs and a accounting treatment to record unbilled revenues as of the slight decrease in the projected 1982 total cost of energy.

time service is furnished (See Note 4). In addition,the BPU During 1982 the BPU ordered reductions in the Company's increased the Company' s AFDC rate from 8% to 8.5% . annual LEC revenues of approximately $159,000,000. The BPU also ordered an interim annual reduction in MEC The BPU has granted a second phase of the base rate revenues of approximately $2 ,000,000 in January 1982, proceeding to review the Company's load forecast and followed by an annual increase of approximately capacity plans and the revenue requirements associated

$5,000,000 in August 1982. The combination of the LEC with the Company 's purchase of capacity and energy from decreases, the MEC net increase and the January , 1982 Pennsylvania Power & Light's Susquehanna Unit No. I, base rate increase of $11,300,000 resulted in a $145,000,000 which is expected to begin commercial service in May aggregate annual reduction in the Company's rates in 1982.

1983. The second phase would also review residential customer service charges and revenue requirements On January 13 , 1983 , the BPU ordered a 1983 reduction in associated with land held for future use. The Company MEC revenues of approximately $6,000,000 on an annual basis and a continuation of the LEC at its present level.

28

Note 4. Change in Accounting for Revenues:

As a part of the December, 1982 rate decision (See Note 3) with service rendered from the time the meters were last the BPU directed the Company to adopt a policy of read to the end of the period. The implementation of this recording revenues based on service rendered to the end of change in accounting reduced the current year's income the period. The Company adopted this accounting change before the cumulative effect of such change by $3,669,000 in 1982. ($.24 per share) after the related income taxes of

$3,126,000. See Note 15 for restated 1982 quarterly As required by generally accepted accounting principles, earnings. The cumulative effect of this change as of the adoption of this change in accounting has been effected January I, 1982 amounts to $13,926,000 (after the related as of the beginning of the accounting period (January I, provision for federal income taxes of $11,863 ,000) and is 1982). Prior to this change, the Company recognized separately identified in the 1982 Statement of Income and revenues when bills were rendered to customers based on Retained Earnings. Allocation of the cumulative effect to monthly cycle meter readings. In recording unbilled prior years would not materially change previously

• revenues, the Company estimates the revenues associated reported earnings for 1981 or 1980.

Note 5. Retirement Plan:

The cost to the Company in providing a retirement plan for January I its employees was $5,908,000, $5,476,000 and $4,652,000 in (Thousands of Dollars) 1982 1981 1982, 1981 and 1980, respectively. Approximately 80% of Actuarial present value of these costs were charged to operating expense and the accumulated plan benefits:

remaining 20%, which was associated with construction Vested $72 , 156 $67,810 labor, was charged to the cost of new utility plant. Non vested 1,495 1,370 Total $73 ,651 $69, 180 A comparison of accumulated plan benefits and plan net assets (including purchased annuity contract amounts) for Net Assets available for benefits $85 ,823 $83,989 the Company's Plan, as of the most recent actuarial valuation dates, is as follows: The weighted average assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 7% . The Company's Plan is in compliance with the Employee Retirement Income Security Act of 1974.

Note 6. Jointly-Owned Generating Stations and Nuclear Fuel:

The Company participates with other utilities in the The amounts shown represent the Company's share of construction and operation of several jointly-owned each jointly-owned plant at December 31, and includes an electric production facilities . allowance for funds used during construction.

Electric Plant Construction Energy Company' s in Service Work in Progress Generation Station Source Share 1982 1981 1982 1981 1982 1981 (Thousands of Dollars) (KWHs)

Keystone Coal 2.47% $ 5,808 $ 5,752 $ 495 $ 173 261,237 213 , 104 Conemaugh Coal 3.83 11 ,547 11,189 92 165 273,738 290,209 Peach Bottom Nuclear 7.51 72 ,584 63 ,778 1,587 7,438 996,769 730,034 Salem( I) Nuclear 7.41 145 ,505 140,849 4, 140 3,647 883 ,903 577,113 Hope Creek(2) Nuclear 5.00 99,555 72 ,207 (I) Salem Unit 2 was placed in commercial operation in October, 1981. (2) Hope Creek Unit 2 was cancelled in December 1981 (See Note 12) .

29

Financial Notes continued The Company provides its own financing during the leaseback. Energy production based lease payments of construction period for its share of the jointly-ow ned $522,736 were charged to fuel expense for November and plants and includes its share of direct operations and December, 1982. Under this agreement, the Company maintenance expenses in its Statement of Income. continues to have responsibility for management of the fuel. Under certain conditions of termination, the In November 1982 the Company sold, at no gain or loss ,

Company will be required to purchase all nuclear fuel then nuclear fuel materials, which were in use or in preparation existing at a price which will allow the lessor to recover its for use at the Salem and Hope Creek generating stations, net investment costs.

aggregating $21, 140,000 to a lessor for subsequent Note 7. Investment in Subsidiary Companies:

The Company's investment in Deepwater Operating (after deducting contract charges) are charged to the Company (Deepwater), a wholly-owned subsidiary which Company. These costs are included in the Company's operates generating and process steam units owned by the accounts classified as to operation, maintenance and taxes. '

Company , was $2,841,000 at December 31, I 982 and 1981.

The Company also has an investment in Atlantic Housing ,

The principal asset of Deepwater is working capital in Inc. (Housing), a wholly-owned subsidiary, which which the equity of the Company is fairly represented by amounted to $946,987 and $820,538 at December 31, 1982 its investment. The net production costs of Deepwater and 198 I, respectively . Housing 's principal investment is a 20% undivided interest as tenant in common in a future generating station and industrial site.

Note 8. Common Stock:

As of December 31, 1982 and 1981, the Company's authorized shares of Common Stock ($3 par value),

Common Stock included 25,000,000 and 18,000,000 respectively. Shares issued and outstanding:

1982 1981 1980 Beginning of Year 14,427,990 12,538,880 12 , 196,486 Sale of Common Stock 1,500,000 I ,500,000 Dividend Reinvestment and Stock Purchase Plan 487,601 302,726 257 ,095 Employee Stock Ownership Plan 128,797 16,641 54,616 Conversion of Preferred Stock 29,633 69,743 30,683 Shares at end of year 16,574,021 14,427,990 12,538,880 At $3 Par Value $49,722,063 $43,283,970 $37,616,640 Premium on Capital Stock was credited in 1982, 1981 and to its Dividend Reinvestment and Stock Purchase Plan 1980 with $34,793,441, $26,785,552 and $5,428,822 which became effective in 1976 and 223,841 shares of respectively representing the excess of proceeds over the Common Stock authorized for issuance pursuant to its par value of shares of Common Stock issued , sold and Employee Stock Ownership Plan. At December 31, 1982 converted. At December 31, 1982 there were 1,053 ,168 93 ,970 shares of Common Stock were reserved for the shares of Common Stock authorized for issuance pursuant conversion of S7/s% Convertible Series of Preferred Stock.

Note 9. Cumulative Preferred Stock:

The Company has authorized 799,979 shares of Cumulative shares may, or may not, possess mandatory redemption Preferred Stock , $100 Par Value , 2,000,000 shares of characteristics upon issuance. In certain circumstances , if Cumulative Preferred Stock, No Par Value, and 3,000,000 dividends on issued Cumulative Preferred Stock are in shares of Preference Stock, No Par Value . Unissued arrears voting rights for the election of a majority of the Board of Directors becomes operative.

30

Note 9(A).

Cumulative Preferred Stock Not Subject To Mandatory Redemption :

Dece mber 31 Cumulative Preferred Stock Not Subject to Mandatory Redemption is redeemable solely at the option of the Current Rede mp- Company upon payment of the redemption price plus ti on accumulated and unpaid dividends to the date fixed for Price redemption. Premium on such Preferred Stock was $93 ,000 1982 198 1 Pe r Share (Thousa nd s of Dollars) at December 31 , 1982 and 1981.

$100 Par Value-Cumulative The 5Vs% Convertible Series , of which 8,467 , 19,927 and and Non-participating shares 8,767 shares were converted in 1982, 1981 and 1980 issued and outstanding:

Series: respectively, is convertible (subject to adjustment in 4% 77 ,000 Shares $ 7,700 $ 7,700 $105 .50 certain events) into Common Stock at the rate of 3.5

4. 10% 72 ,000 Shares 7,200 7,200 101.00 shares of Common Stock for each share of Preferred.

4.35% 15 ,000 Shares 1,500 1,500 101.00 4.35% 36,000 Shares 3,600 3,600 101.00 4.75% 50,000 Shares 5,000 5,000 101.00 5.0% 50,000 Shares 5,000 5,000 100.00 S7/s% Convertible Series :

26 ,844 Shares (1982) 2,684 103 .00 35 ,313 Shares (1981 ) 3,531 7.25% 100,000 Shares 10,000 10,000 104.89 Total $42,684 $43 ,531 Note 9(B).

Cumulative Preferred Stock Subject To Mandatory Redemption :

Current Refunding Par December 31 Redemption Restricted Value 1982 1981 Price Per Share Prior to (Thousand s of Dollars)

Shares Issued and Outstanding:

Series:

8.40% 100,000 Shares $100 $10,000 $10 ,000 $115 .00 9.96% 152 ,000 Shares (1982) 100 15,200 107.14 August I , 1984 160,000 Shares (1981 ) 100 16,000

$8.25 100,000 Shares None 10,000 10,000 107.20 November 1, 1987

$9.45 200,000 Shares None 20,000 20,000 November 1, 1989 55,200 56,000 Less Portion due within one year 800 800 Total $54,400 $55 ,200 On August I, annually 8,000 shares of the 9.96% Series On February I, 1985, and annually thereafter, 4,000 shares must be redeemed through the operation of a sinking fund of the 8.40% Series must be redeemed throught the at a redemption price of $100 per share. At the option of operation of a sinking fund at a redemption price of $100 the Company , an additional 8,000 shares may be redeemed per share . At the option of the Company, an additional on any sinking fund date , without premium , up to 40,000 4,000 shares may be redeemed on any sinking fund date shares in the aggregate. The Company redeemed 8,000 without premium, up to 32 ,000 shares in the aggregate.

shares at par in both 1982 and 1981.

On November I, 1986, and annually thereafter, 40,000 On November I, 1983 , and annually thereafter, 2,500 shares of the $9.45 No Par Preferred Stock Series must be shares of the $8.25 No Par Preferred Stock Series must be redeemed through the operation of a sinking fund at a redeemed through the operation of a sinking fund at a redemption price of $100 per share . At the option of the redemption price of $100 per share . At the option of the Company , an additional 40 ,000 shares may be redeemed on Company , an additional number of shares not to exceed any sinking fund date , without premium , up to 50,000 2,500 may be redeemed on any sinking fund date without shares in the aggregate.

premium.

31

Financial Notes continued The minimum sinking fund provisions of the abo ve series aggregate $1 ,050,000 in 1983 a nd 1984, $1,450,000 in 1985, and $5,450,000 in 1986 and 1987.

Note 10. Long Term Debt:

Deposits in sinking fund s for retirement of debenture s a re December 31 required on February l of each yea r through 1995 for the (Thousands of Dollars) 1982 1981 5Y4% debentures , and on May l of each yea r through 1997 First Mortgage Bonds: for the 7Y4% debentures in amounts in each case sufficient 31/4% Series due (March I) 1982 $ $ 4,620 to redeem $100,000 principal amount plus a t the election of 3V4% Series due (January I) 1983 4,050 4,050 91/4% Series due (May I) 1983 35,000 35 ,000 the Company , up to an additional $100,000 principal 3% Series due (March I) 1984 5,000 5,000 amount in each year. At December 31 , 1982 the Company 9% Pollution Control Series due had reacquired and cancelled $1 ,533 ,000 principal amount (May I) 1984 21,000 21 ,000 of the 5Y4% debentures and $1 ,381 ,000 principal amount of 3V4% Series due (March I) 1985 10,000 10,000 the 7Y4% debentures toward its requirements for 1983 and 4V2% Series due (January I) 1987 10,000 10,000 37/s% Series due (April I) 1988 10,000 10,000 subsequent periods. During 1982 the Company reacquired ,

4V2% Series due (April I) 1989 2,775 5,000 at amounts below par value , $9 ,376,000 principal amount 4V2% Series due (March I) 1991 10,000 10,000 of First Mortgage Bonds and Debentures. This 4 1/2% Series due (July I) 1992 10,350 12,350 reacquisition resulted in a gain , net of Federal income 43/s% Series due (March I) 1993 9,540 13 ,500 taxes and expenses , of $1 ,816 ,000.

5Vs% Series due (February I) 1996 9,980 9,980 87/s% Series due (September I) 2000 19,000 20 ,000 The aggregate amount of debt maturities a nd sinking fund 8% Series due (May I) 2001 27,000 27 ,000 requirements of all First Mortgage Bonds outstanding at 7'/2% Series due (April I) 2002 20,000 20 ,000 7314% Series due (June I) 2003 29,976 30,000 December 31 , 1982 are $39 ,050,000 in 1983 , $26,000,000 in 75/s% Pollution Control Series due 1984, $10 ,000 ,000 in 1985 , $48 ,000 ,000 in 1986 and (January I) 2005 6,500 6,500 $13 ,000 ,000 in 1987. Current sinking fund requirements of 63/s% Pollution Control Series due $940,500 in connection with certain first mortgage bonds (December I) 2006 2,500 2,500 outstanding are being satisfied by certification of property 125/s% Series due (January I) 2010 75,000 75 ,000 I P/s% Pollution Control Series due additions as provided for in the related mortgage (May I) 2011 39,000 39,000 indentures .

356,671 370,500 The amounts of $2,785 ,000 and $1 ,537 ,000 a s of December Debentures: 31 , 1982 and 1981 , respectively , which represent 5V4% Sinking Fund Debentures due unexpended investment earnings on pollution control (February 1) 1996 2,267 2,267 construction funds held by trustees , are included in 7V4% Sinking Fund Debentures due (May I) 1998 2,619 2,786 Miscellaneous Accounts Receivable. Such amounts are restricted for use on the related pollution control projects .

4,886 5,053 Notes-7 .90% Notes due (December

15) 1982 15 ,000 Variable Rate Notes due (April 30) 1986 45,000 45,000 15 ,000 Unamortized Premium and Discount-Net 713 836 407,270 391 ,389 Deduct First Mortgage Bonds and Notes due within one year (39,050) (19 ,620)

$368,220 $371 ,769 32

Note 11. Short Term Debt and Compensating Balances: The Company ' s insurance coverages applicable to its participation in four nuclear units are as follows:

As of December 31, 1982, the Company had bank lines of credit available for use of $115,000,000. The Company is Maximum required, with respect to $17 ,000,000 of these credit lines , Retrospective Maximum Assessment for a to maintain average compensating balances of $850,000 Type and Source of Coverage Coverage single incident plus an equivalent additional amount if these lines are fully (Millions of Dollars) utilized. These compensating balances are maintained in Public Liability:

demand deposits which are not legally restricted. The Private $160 None Company is in compliance with such compensating balance Federal government (I) 400 $1.5 (2) arrangements. With respect to the remaining available $560 (3) credit lines of $98,000,000 the Company pays commitment Property Damage:

fees ranging from 3/s% to Y2% which aggregated $390,000 Nuclear Mutual Limited (4) $500 $4.2 for 1982 and $401,000 for 1981. Certain other information Nuclear Electric Insurance Limited (4) $400 $1.4 regarding short term debt follows: Replacement Power:

(Thousands of Dollars) 1982 1981 1980 Nuclear Electric Insurance Limited (4) $ 2.5 (5) $2.3

' As of end of year-Weighted average interest rate for (I) Retrospective premium program under the Price-Anderson liability short term debt outstanding: provisions of Atomic Energy Act of 1954 as amended . Subject to Commercial Paper 12.2% 18.3% retrospective assessment with respect to loss from an incident at any Notes Payable to Banks 12.8% 19.3% licensed nuclear reactor in the United States .

For the year ended- (2) Maximum assessment would be $3 ,000,000 in the event of more than Maximum amount of total short one accident in any year.

term debt at any month-end: (3) Limit of liability under the Atomic Energy Act of 1954 for each nuclear Commercial Paper $22,000 $62 ,475 $16,725 incident.

Notes Payable to Banks $ 3,000 $ 7,500 $ 3,500 (4) Utility-owned mutual insurance company of which the Company is a Average amount of short term debt member. Subject to retrospective assessment with respect to loss at any (based on daily outstanding nuclear generating station insured by the mutual insurance company.

balances): (5) Maximum weekly indemnity for 52 weeks which commences after the Commercial Paper $10,550 $43 ,284 $ 8,879 first 26 weeks of an outage . Also provides $1 ,250,000 weekly for an Notes Payable to Banks $ 4,497 $ 3,661 $ 1,810 additional 52 weeks .

Weighted daily average interest rates on short term debt: The Company has a five-year agreement expiring May 31, Commercial Paper 12.8% 16.4% 11.4% 1985, with Delmarva Power & Light (DP&L) for the Notes Payable to Banks 13 .7% 16.7% 13.1 % purchase of 50 MW of power from the output of DP&L's coal-fired Indian River Unit No. 4. The Company and Note 12. Commitments and Contingencies: Pennsylvania Power & Light Company (PP&L), have entered into an agreement whereby the Company will Total construction expenditures for 1983 are estimated at purchase 5.94% of the net capacity and energy output of approximately $84,000,000. Commitments for the construction of major production and transmission facilities amount to approximately $145 ,000,000 of which it is estimated approximately $24,000,000 will be expended in 1983. These amounts exclude allowances for funds used during construction.

33

Financial Notes continued each of two PP&L 1050 MW nuclear generating units agreed amount, the Company's Shareholders could share scheduled to be placed in service in the second quarter of in the savings. On the other hand , under certain 1983 and the fourth quarter of 1984, respectively. The conditions , if the final cost of the unit exceeds the agreed purchase of power from PP&L will commence with amount, the Company could be penalized by not being able commercial operation of the units and continue through to earn a return on the entire amount of the cost overrun.

September 30, 1991. If the BPU approves the Agreement, the New Jersey Department of Energy and the New Jersey Department of In 1981 , the Company entered into an agreement with the the Public Advocate would not challenge the need for Allegheny Power System (APS) which entitles the the unit.

Company to 50 MW of coal-fired capacity from the APS Pleasants Station in St. Mary's , West Virginia for the years 1982 through 1985. This agreement has been modified for Note 13. Leases:

the years 1983 and 1984 to provide the Company access to The Company has certain leases for property and a cogeneration source on an APS subsidiary's operating equipment, including the nuclear fuel lease arrangement system. In addition, the Company has a commitment from mentioned in Note 6, which meet the criteria for Public Service Electric and Gas Company (PSE&G) to capitalization, but in accordance with rate making provide up to 125 MW of power for the years 1992 through treatment are accounted for as operating leases. The 1995 . capitalization of such leases would not have a significant The Company 's planned $770 million , 290 MW coal-fired effect on assets, liabilities or operating expenses.

Cumberland Unit No . I, which was to go in service in the fall of 1991, has been deferred beyond the Company' s Note 14. Supplementary Income Statement Information:

planning horizon as a result of a revised load forecast Operating expenses include taxes and other items not which reflected a reduction in the summer peak demand separately identified in the Statement of Income as growth rate from 2.4% to 1.6% over the long term.

follows:

The Company had planned to participate as a 5% owner in Year Ended December 31 the construction of two 1,067 MW nuclear units, known as (Thousandsof Dollars) 1982 1981 1980 Hope Creek Units No. I and 2 to be located in Salem County , New Jersey. In December 1981, PSE&G, who Taxes Other Than Federal Income Taxes:

owns 95% of the project, announced the cancellation of 944 Real and Personal Property Taxes $ 1,027 $ 918 $

Hope Creek Unit No. 2. Accordingly , the Company State Gross Receipts , Sales, Excise cancelled its 5.0% share of Hope Creek Unit No. 2 in and Franchise Taxes and December 1981. The Company's investment in Hope Creek Miscellaneous State and Local Unit No. 2 was written off for federal income tax purposes Taxes 57,066 41 ,204 32,924 Payroll Taxes-Federal and State 2,455 2,078 1,678 in 1981. However, for book purposes, the Company's investment of $15 ,956,476, including $2,390,676 of AFDC, Total $60,548 $44,200 $35,546 has been transferred from Construction Work in Progress Maintenance Expense $30,313 $28,087 $24,251 to Property Abandonment Costs and an appropriate Charges to income for royalties and advertising are less amount of deferred federal income taxes has been than 1% of gross revenue.

provided. Amortization of the book basis investment over a 15 year period will begin in January, 1983 (See Note 3).

In August 1982, the Company signed an Agreement with PSE&G , the New Jersey Department of Energy and the New Jersey Department of the Public Advocate which, if approved by the BPU, would establish an incentive program to contain the continuing construction cost of Hope Creek Unit No . I, which is currently planned for completion in .1986. Pursuant to terms of the incentive program, if the final cost of the facility is less than the 34

Note 15. Quarterly Financial Results (Unaudited):

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

Before Cumulative Effect Operating Operating Earnings For Earnings Quarter Revenues Income Income Common Stock Per Share (Thousand of Dollars) 1982 Ist (I) $128,259 $13,875 $ 7, 191 (2) $ 5,337 (2) $ .37 (2) 2nd (I) 103,044 14,464 8,521 6,668 .46 3rd (I) 115,794 22,080 13,788 11,938 .81 4th 97,081 12,351 5,629 3,818 .23

$444, 178 $62,770 $35,129 $27,761 $1.84 (3) 1981 I st $112,762 $18,969 $13,760 $11,856 $ .94 2nd 101,908 15,194 8,739 6,845 .54 3rd 133,552 24,963 17,499 15,627 1.22 4th 121,461 14,385 6,990 5,129 .36

$469,683 $73,511 $46,988 $39,457 $3.03 (3)

(I) Results for the first three quarters of 1982 have been restated from of $13,926,000 (net of tax) and on earnings per share of $.96 (based on amounts previously reported to reflect the change in accounting method average shares outstanding in the first quarter).

(See Note 4). Net income and earnings per share of common stock as (3) The individual quarters do not add to the total due to the increasing reported prior to the accounting change were $10,701,000 ($.61 per share), average number of Common shares outstanding at the end of each

$6,911 ,000 ($.35 per share) and $14,666,000 ($.87 per share) , for the quarter.

quarters ended March 31, June 30 and September 30, 1982, respectively .

(2) Restated earnings for the first quarter exclude the cumulative effect of The revenues of the Company are subject to seasonal the accounting change on net income and on earnings for common stock fluctuations due to increased sales and higher residential rates during the summer months.

Supplementary Information Concerning The Effects Of Changing Prices (Unaudited)

The following supplementary information about the effects Public Utility Construction Costs to historical cost by of changing prices is calculated under two different vintage years, reflecting the current cost of replacing methods. The cumulative effect of a change in accounting resources actually used in the Company's operations described in Note 4 has been excluded from the following (current costs).

supplemental information.

Constant dollar amounts differ from current cost amounts The first method, which uses the Consumer Price Index for because, over the period utility plant is held, specific All Urban Customers (CPI-U), adjusts data for general prices increase more or less rapidly than general inflation.

inflation, providing financial information in dollars of Both of these methods involve the use of assumptions, equivalent value or purchasing power (constant dollars). approximations and estimates and therefore the resulting The purpose of this method is to make financial data more measurements should be viewed in that context and not as comparable by reporting the financial statement effects of precise indicators of the effects of inflation.

the Company's investment in Utility Plant over a period of time in terms of a common unit of purchasing power.

The second method adjusts the financial data for changes in specific prices of the components of the Company's utility plant by applying the Handy-Whitman Index of 35

Statement of Income From Continuing Operations Adjusted for Changing Prices Year Ended December 31, 1982 (In Average 1982 Dollars)

Results of Operations: In Constant At Current (Thousands of Dollars) Historical Dollars Cost Operating Revenues $444,178 $444, 178 $444, 178 Operation and Maintenance Expenses 338,382 338,382 338,382 Depreciation and Amortization Expense 29,962 73,698 74,987 Federal Income Tax Expense 13,064 13,064 13,064 Other 27,641 27,641 27,641 Income from Continuing Operations (a) $ 35,129 $ (8,607) $ (9,896)

(a) Before cumulative effect of change in accounting method (See Note 4 of Notes to Financial Statements).

Depreciation and amortization expense expressed in transmission; distribution and general plant) by multiplying constant dollar and current cost amounts were determined the respective cost data by a percentage representing the using the rates and methods used for computing book expired life of existing facilities of each class at December depreciation and amortization applied to utility plant 31, 1982.

balances re-expressed in terms of constant dollars and Fuel inventories, the cost of fossil fuels used in generation, current costs.

have not been restated from their historical cost. New Only depreciation and amortization of nuclear fuel have Jersey regulation controls fuel costs, through the operation been specifically adjusted for inflation in the above of a levelized energy clause, such that recovery is schedule. Operating revenues and other operating ultimately limited to actual cost. For this reason fuel expenses were generally incurred rateably over the year, inventories are effectively monetary assets.

accordingly, the stated amounts already reflect, in effect, Net Utility Plant Costs Recoverable:

average 1982 dollars.

Under rate making prescribed by the regulatory Significant to this data is the impact of a fixed income tax commissions to which the Company is subject, only the rate. Income taxes were not adjusted because the present historical cost of utility plant is recoverable in revenues as tax laws do not allow a deduction for depreciation and depreciation. Therefore , the excess of the cost of utility amortization adjusted for the impact of inflation. plant stated in terms of constant dollars or current cost Therefore, the Company's effective tax rate rises from over the historical cost of plant is not presently 35.5% under the historical cost basis to 146.8% and 157.8% recoverable. Due to this feature, the value of utility plant under the respective constant dollar and current cost basis. and its effect on income from continuing operation adjusted for changing prices must be considered in terms This supplementary information should not be used to of its net recoverable cost which is historical cost. While assess the probability of future cash flows when existing the rate making process gives no recognition to the current utility plant is replaced. The estimates do not reflect the cost of replacing utility plant, based on past practices the effects of the regulatory process nor the specific plans of Company believes it will be allowed to earn on the the Company for the replacement or modernization of increased cost of its net investment when replacement of utility plant. A meaningful estimate of the estimated level facilities actually occurs.

of future capital expenditures is set forth on page 18 of the annual report. Current Year Decline in Purchasing Power of Net Amounts Owed:

Current Year Effect of Increased Price Levels:

The current year decline in purchasing power of net (Thousands of Dollars) amounts owed was $21,666,000. During a period of Increase in Specific Prices on Utility Plant Held $66,684 inflation, holders of monetary assets such as cash and Increases in General Price Levels on Utility Plant Held 59,543 receivables suffer a loss of general purchasing power while Excess of Increase in Specific Prices Over Increases in holders of monetary liabilities, generally long term debt, General Price Levels $ 7,141 experience a gain because debt will be repaid in dollars having less purchasing power. The Company's gain from At December 31, 1982 the cost of utility plant, net of the decline in purchasing power of its net amounts owed is accumulated depreciation was $1,657 ,601,000 on a constant primarily attributable to the substantial amount of debt and dollar basis and $1,701,498,000 on a current cost basis, cumulative preferred stock subject to mandatory while historical cost was $906,313,000. The accumulated redemption which has been used to finance utility plant.

provisions for depreciation and amortization under both This gain, however, should not be considered as providing constant dollar and current cost methods were estimated funds to the Company, since the Company is limited under for each major class of utility plant (production; rate procedure to the recovery only of its embedded cost 36 of debt.

Five-Year Comparison Of Selected Financial Data Including Unaudited Supplementary Data Adjusted For Changing Prices (In Thousands of Dollars Except Per Share Amounts-Constant Dollar and Current Cost Amounts Expressed in 1978 Dollars)

Years Ended December 31 1982 1981 1980 1979 1978 Operating Revenue

-historical $ 444,178 $ 469,683 $358,391 $283, 106 $255,058

-in constant dollars (a) 300,008 336,917 283,750 254,457 255,058 Income from Continuing Operations (b)

-historical $ 49,055 $ 46,988 $ 38,538 $ 34,307 $ 30,064

-in constant dollars (a) 3,593 5,593 6,824 10,882

-at current cost (a) 2,729 5,486 4,390 6,25 1 Income from Continuing Operations per Share of Common Stock (b)

-historical $ 2.76 $ 3.03 $ 2.62 $ 2.36 $ 2.21

-in constant dollars (.09) .OJ .16 .46

-at current cost (.15) .01 (.03) .06 Effective Income Tax Rate

-historical 35.5% 36.8% 33.8% 35.5% 38.8%

-constant dollar basis 88.3 83.0 74 .3 63.3

-current cost basis 90.8 83.3 81.8 75. l Excess of Increases in General Price Levels Over Increases in Specific Prices (a) $ (4,823) $ (18,079) $ 34,485 $ 40,677 Decline in Purchasing Power of Amount Owed (a) $ 14,634 $ 28 ,386 $ 35,641 $ 42,525 Net Assets at Year End

-historical $ 414,834 $ 338,846 $324, 127 $310,231 $279,897

-in constant dollars (average) 275,335 235,206 245,103 262,421 308,916 Net Income as a Percent of Operating Revenue (b)

-historical 11.04% 10.00% 10.75% 12.12% 11.79%

-trended in 1978 dollars 7.46 7.17 8.52 10.89 11.79%

Earned Rate of Return on Shareholders ' Equity

-historical 11.20% 12.21 % 11.62% 10.70% 10.26%

-trended in 1978 dollars 7.56 8.76 9.20 9.62 10.26%

Total Assets at Year End-historical $1,077,969 $1,013,789 $879,795 $779,026 $699,861 Long Term Debt and Cumulative Preferred Stock Subject to Mandatory Redemption

-historical $ 462,470 $ 447 ,389 $394,288 $324,848 $329,781 Dividends Declared per Share of Common Stock

-historical $ 2.24 $ 2.08 $ 1.93 $ l.79 $ 1.70

-in constant dollars 1.51 1.49 1.53 1.61 1.70 Market Price per Common Share at Year End

-historical $ 20.75 $ 17.25 $ 15.75 $ 17.125 $ 18.00

-in constant dollars 14.02 12.37 12.47 15.40 18.00 Average Consumer Price Index 289.3 272.4 246.8 217.4 195.4 Certain comparative per share data trended in average 1982 dollars (without adjustment of earnings for the pro forma effects of inflation on depreciation amounts) are as follows:

Earnings (b) $ 2.76 $ 3.22 $ 3.07 $ 3.14 $ 3.27 Dividends Declared 2.24 2.21 2.26 2.38 2.52 Market Price (Year End) 20.75 18.32 18.46 22.79 26.65 (a) These amounts will differ from those shown for constant dollar and current costs in Statement of Income From Continuing Operations Adjusted for Changing Price because a different base year has been used (1978) in the data presented above and (1982) in the Changing Price information in order to

' illustrate the impact of changing prices in alternative forms.

(b) Income from Continuing Operations, Net Income and Earnings Per Share data for 1982 include the cumulative effect of change in accounting method (See Note 4 of Notes to Financial Statements).

37

Statistical Review 1982-1972 Facilities for Service 1982 1981 1980 1979 Total Utility Plant (Thousands) $1,153,321 $1,064,928 $ 962 ,052 $ 870 ,075 Gross Additions to Utility Plant (Thousands) $ 126,893 $ 123,318 $ 97,330 $ 72,773 Pole Miles of Transmission and Distribution Lines 6,918 6,910 6,879 6,831 Generating Capacity (Kilowatts) (a) (b) 1,531,200 1,524,600 1,434,700 1,384,700 Maximum Utility System Demand-Kw 1,264,200 1,263,000 1,261,700 1,192,600 Margin of Reserve at Times of Peak (% of Avail. Gen.) 17.4% 17.1% 12.1 % 13 .9%

Energy Supply (Thousands of Kwh)

Net Generation 5,676,118 5,302 ,023 5,533 ,178 5,397 ,338 Purchased and Interchanged-Net 466,667 946,241 643,106 464,143 Total System Load 6,142,785 6,248,264 6, 176,284 5,861,481 Electric Sales (Thousands of K wh)

Residential 2,415,292 2,480 ,225 2,514 ,738 2,411,732 Commercial 1,894,535 1,849,863 1,769,208 1,580,384 Industrial 1,218,520 1,279 ,724 1,286,205 1,255 ,304 I All Others 63,770 65,555 63 ,753 60,799 Total 5,592,117 5,675,367 5,633,904 5,308,219 '

Residential Electric Service (Average per Customer)

Amount of Electricity used during the year (K wh) 7,444 7,751 8,003 7,849 Amount paid for a year's service $ 644.77 $ 670.66 $ 536.99 $ 439.92 Price paid per Kilowatt-hour 8.66¢ 8.65¢ 6.71¢ 5.61¢ Customer Data (Average)

Residential With Electric Heating 59,319 56, 100 52 ,225 48,339 Residential Without Electric Heating 265,124 263 ,904 261,988 258,941 Total Residential 324,443 320,004 314,213 307,280 Commercial 42,885 43 ,219 43,267 43 ,219 Industrial 1,018 1,032 1,041 1,048 Other 627 634 654 667 Total Customers 368,973 364,889 359,175 352,214 ~

Total Service Locations 391,989 386,046 379 ,242 371 ,362 Population Served 1,069,000 1,056,000 1,037,000 1,015,000 Financial Data (Thousands of Dollars)

Energy Sales Residential $ 209,191 $ 214,614 $ 168,733 $ 135 ,178 Commercial 154,792 156,624 115 ,973 88,819 Industrial 71,255 82,908 60,512 47 ,590 All Others 9,255 9,700 7,836 6,624 Total Energy Sales-Billed 444,493 463,846 353 ,054 278,211 Unbilled Revenues-Net (6,795)

Other Electric Revenue 6,480 5,837 5,337 4,895 Total $ 444,178 $ 469,683 $ 358,391 $ 283 ,106 Investor Information Earnings per Average Common Share $ 2.76(c) $ 3.03 $ 2.62 $ 2.36 Average Number of Shares Outstanding (In Thousands) 15,116 13,034 12,372 11,980 Dividends Paid on Common Stock (Cash) $ 2.20 $ 2.04 $ 1.90 $ 1.765 Dividend Payout Ratio 80% 67% 73% 75%

Book Value Per Share (Year End) $ 22.45 $ 22.40 $ 22.22 $ 21.63 Price Earnings Ratio (Year End) 8 6 6 7 Times Fixed Charges Earned (before income taxes) 2.27(c) 2.84 3.03 3.62 Shareholders and Employees (Year End)

Common shareholders 48,790 48 ,424 47 ,762 48 , 194 Employees 2,022 2,035 1,968 1,903 (a) Excludes capacity allocated to a large industrial customer.

(b) Includes unit purchase of capacity 50,000 kilowatts under contract with Delmarva Power and Light Company .

(c) Earnings calculation includes the cumulative effect of an accounting change. Financial ratio is computed excluding the cumulative effect.

38

1978 1977 1976 1975 1974 1973 1972

$ 802 ,473 $ 753,269 $ 710,343 $ 675 ,617 $ 637 ,250 $ 572 ,555 $ 511 ,274

$ 58,073 $ 48,733 $ 41 ,702 $ 46,745 $ 71 ,200 $ 67 ,864 $ 58,434 6,786 6,735 6,696 6,645 6,580 6,506 6,408 1,414 ,700 1,414,700 1,334 ,700 1,334 ,700 1,278 ,700 1,013 ,500 965 ,900 1, 177,400 1, 176,000 1,030 ,300 1,069 ,400 1,004 ,400 1,051 ,400 920,400 16.7% 16.9% 22.8% 19.9% 21.5% 4.7%

5,625 ,988 5,293 ,019 4,918 ,906 4,715 ,357 4,651 ,334 4,236 ,083 4,071 ,225 130,037 224 , 169 324 , 196 190,852 229, 197 665 ,558 458 ,050 5,756,025 5,517' 188 5,243 , 102 4,906,209 4,880,531 4,901 ,641 4,529,275 2,377 ,202 2,221 ,250 2,070,766 1,938 ,724 1,882 ,560 1,899, 122 1,741 ,895 1,586,097 1,478 ,559 1,392,029 1,346,216 1,298 ,858 1,351,974 1, 183 ,668 1,250,636 1,220,260 1, 143 , 170 1,036,755 1, 136,935 1, 119,478 1,061 ,932 60 ,705 58,866 57 ,667 56,465 57 ,477 58 , 129 64 ,531 5,274 ,640 4,978 ,935 4,663 ,632 4,378 , 160 4,375 ,830 4,428 ,703 4,052 ,026 7,951 7,653 7,320 7,018 6,982 7,303 7,008

$ 406.18 $ 378.36 $ 349 .64 $ 329.25 $ 291.21 $ 230.19 $ 207.37 5.11¢ 4.94¢ 4.78¢ 4.69¢ 4.17¢ 3.15¢ 2.96¢ 44 ,387 40,318 37 ,581 35 ,235 32 ,215 28 ,627 25,105 254 ,592 249,927 245,296 241,019 237 ,397 231,408 223 ,449 298 ,979 290 ,245 282 ,877 276 ,254 269 ,612 260 ,035 248 ,554 42,672 42 ,033 41 , 170 40 ,608 40,351 39 ,810 38 ,009 1,034 1,047 1,071 1, 100 1,080 948 1,011 673 676 681 684 679 678 757 343 ,358 334 ,001 325 ,799 31 8,646 311 ,722 301 ,471 288 ,331 362 , 131 352 ,205 343 , 147 336, 105 330,758 320 ,834 309,393 990,000 961 ,000 937 ,000 915 ,000 894 ,000 865 ,000 828 ,000

$ 121,440 $ 109,818 $ 98 ,904 $ 90,956 $ 78 ,512 $ 59,856 $ 51 ,544 80,539 73,354 66,354 63 ,544 55 ,713 42,804 35 ,868 42 , 185 40 ,885 36,438 34 ,974 33 ,565 22 ,008 19,350 5,973 5,630 5,406 4,881 4,207 3,861 3,763 250, 137 229,687 207 , 102 194,355 171 ,997 128,529 110,525 4,921 5,308 4,925 4,724 4,614 4,365 4, 128

$ 255 ,058 $ 234 ,995 $ 212 ,027 $ 199,079 $ 176,611 $ 132,894 $ 114,653

$ 2.21 $ 2.06 $ 2.60 $ 2.41 $ 2.54 $ 2.40 $ 2.26 10,791 10,630 9,747 9,490 8,973 8 ,453 7,810

$ 1.67 $ 1.62 $ 1.56 $ 1.51 $ 1.50 $ 1.4688 $ 1.4144 76% 79% 60% 63% 59% 61 % 63%

$ 21.27 $ 20 .71 $ 20.25 $ 19.34 $ 18.45 $ 17.85 $ 16.77 8 11 9 7 5 7 10 3.62 3.17 3.14 2.88 2.33 2.62 2.70 44 ,490 43 ,826 42 ,516 39 ,232 39 ,054 36,835 35,549 1,797 1,739 1,714 1,741 1,811 1,810 1,743 This Annual Report has been prepared for the purpose of providing general a nd stati sti cal information concerning the Compan y a nd not in connection with any sale , offer for sale or solicitation of a n offer to bu y any ecurities.

39

Common Stock Price Range and Dividends Corporate Data The high and low sales prices of the Common Stock as reported in the Wall Dividend Reinvestment and Stock Street Journal as New York Stock Exchange-Composite Transactions for the Purchase Plan periods indicated were as follow s: The Company continues to offer a Dividend Reinvestment and Stock Dividends Paid Purchase Plan which enables 1982 1981 Per Share shareholders and employees to High Low High Low 1982 1981 automatically invest their cash First Quarter 18 Ys 16% 17 Y4 15 Y4 $.53 $.49 dividends in Company stock, and also make optional cash payments Second Quarter 18% 17 181/4 15 l/4 $.53 $.49 without paying brokerage Third Quarter 20 Y2 17 17% 161/s $.57 $.53 commissions or service charges.

Over 487 ,000 shares were purchased Fourth Quarter 2l3/s 19 18 1/4 16 $.57 $.53 through the Plan in 1982 with pro-ceeds to the Company in excess of $9 For your convenience , listed below are the proposed 1983 record dates and million. There were 15,737 payable dates , for dividends on Common Stock: participants in the Plan at year-end.

To enroll , please contact our Investor Record Dates Payable Dates Records Department. See address on March 17, 1983 September 15 , 1983 April 15, 1983 October 15 , 1983 this page.

June 16, 1983 December 15 , 1983 July 15, 1983 January 15, 1984 Share Listings Investor Records: Communications regarding stock transfer requirements or Common Stock of the Company is lost certificates should be directed to the appropriate Transfer Agent. Changes listed on the New York Stock of address, inquiries on dividends or matters concerning the Dividend Exchange, the Philadelphia Stock Reinvestment and Stock Purchase Plan should be addressed to: Exchange and the Pacific Stock Exchange. The 57/s% Cumulative Atlantic City Electric Company Convertible Preferred Stock of the Investor Records Department Company is listed on the New York P.O . Box 1334 Stock Exchange.

Pleasantville , New Jersey 08232 10-K Report Available or telephone Area Code 609/645-4506 or 4507 . The annual report to the Securities and Exchange Commission on Form 10-K is available to shareholders and may be obtained by writing to the Company , Attention: Mr. M. R.

Meyer, Secretary. See address on this page.

Transfer Agents For Common and Preferred Stock Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10015 For Common Stock First National State Bank of South Jersey Atlantic City , New Jersey 08404 New Corporate Address Atlantic Electric P.O. Box 1264 1199 Black Horse Pike Pleasantville, New Jersey 08232 40

0 Atlantic Electric 1199 Black Horse Pike Pleasantvi lle , NJ 08232 Bulk Rate U.S. Postage PAID Atlantic City Electric Company Atlantic Electric's new Administrative Complex in Pleasantville was completed in November, 1982.