ML18092A139

Annual Financial Rept 1983

ML18092A139
Person / Time
Site:	Salem, Hope Creek, 05000000
Issue date:	12/31/1983
From:	Curtis N DELMARVA POWER & LIGHT CO.
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ML18092A137	List: ML18092A136 ML18092A138 ML18092A139 ML18092A140 ML18092A141
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Text

Delmarva Power Annual Report 1983

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REGULATORY DOCKET FILE RECORDS FACILITY BRANCH

On a crisp fall morning, water vapor rises from the cooling tower ofthe Indian River power plant. This coal-fired power plant, which supplies much ofthe electricity for the people of the Delmarva Peninsula, is symbolic of the success ofDelmarva Power's strategy to switch away from oil.

This strategy is one ofseveral designed to improve the return on your investment while managing the price ofenergy for the customer.

Our report this year discusses those strategies and how they came together in 1983 to yield record earnings while reducing the average unit price ofelectricity. For the future, flexibility will be the key for continuing this progress.

Financial Highlights Percent Increase 1983 1982 (Decrease)

Revenues $ 649.8 million $ 636.7 million 2.1 Net Income $ 85.1 million $ 73 .6 million 15.6 Earnings Per Share $ 2.45 $ 2.13 15.0 Dividends Declared $ 1.68 $ 1.595 5.3 Common Stock Outstanding Average Shares 29,541,415 28,488,623 3.7 Common Stock Book Value $ 16.87 $ 16.11 4.7 Construction Expenditures $ 76.! million $ 110.6 million (31.2)

Internally Generated Funds $ 117.6 million $ 771 million 52.5 Electric Sales 7.88 billion kwh 7.25 billion kwh 8.7 Electric Customers (Average) 294,965 288,607 2.2 Average Residential Usage 8,109 kwh 7,860 kwh 3.2 Gas Sales 16.45 million mcf 15.60 million mcf 5.4 Gas Customers (Average) 73,436 72 ,949 0.7 Average Residential Usage 81.8 mcf 88.1 mcf (7.1)

Contents 2 To Our Stockholders 4 Completing The System 6 lncreasinJ!, Effectiveness 8 Increasing Customer Satisfaction 10 Providing Energy In The '90s 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 Report Of Independent Accountants 22 Consolidated Statements 28 Notes To Consolidated Financial Statements 40 Consolidated Statistics 42 General Information 43 Officers 45 Board of Directors

To Our Stockholders In 1983, several .Years ofpreparation Asummary of 1983 starts with the financial results.

and hard work paid off Earnings Earnings increased 15% to $2.45 per share increased 15% to record levels while the from $2.13 per share. Electric sales increased 8.7%.

average price paid by customers for a unit of Quarterly dividends were increased to 45 cents per share for an indicated annual rate of $1.80. The electricity decreased 6.6%. The safety record price of stock increased to $19~ per share in improz*ed significantly, and new programs to December from $15% per share in January.

hef/J custornerro began. The quality of earnings continued to improve Much of Delmarva Power's strong financial because of a minimal construction program with performance this year can be attributed, on first no nuclear or other generating units under glance, to the hot summer and improved economy construction. Rates are in place in two jurisdictions on the Delmarva Peninsula. That helped. However which more closely match operating costs. AFUDC the significance of 1983 is that it was a year where has decreased to 3.7% of net income. The company's the strategies developed and implemented over the bond rating is the equivalent of M in the language past few years in power production, facilities planning, of the different raters.

cost control, customer service, and personnel came These achievements result primarily from a stra-together to pay dividends for stockholders, customers, tegic plan developed several years ago to make elec-and employees. When the hot summer and economic tric rates more competitive regionally and, at the recovery occurred, Delmarva Power was positioned to same time, improve the return on your investment.

take advantage of these circumstances. The key parts of this plan were to reduce fuel costs Our report this year discusses the progress on and operate plants more efficiently; to reduce oper-those strategies and talks about some of the people ating and maintenance costs and increase employee who helped carry them out. The report also tries to effectiveness; to increase customer satisfaction; and, communicate that special feeling - a feeling of through flexibility, to minimize new capital invest-confidence and enthusiasm - which occurs when ment and utilize existing assets more fully.

plans and projects come together. We hope you conclude as we do that Delmarva Power is a finan-cially strong company which works for and is concerned about stockholders, customers, and employees. It is a company where people deliver what they promise.

2

In March, the conversion of the Edge Moor 3 For the future, we will continue to scrutinize generating unit from oil to coal was finished, com- capital investment opportunities, believing that pleting a program begun in the mid-1970s to switch flexibility will be the key to providing energy at away from costly oil. In 1984, only 15%of the elec- the lowest reasonable cost in the 1990s. We will be tricity generated will come from oil compared with wary of capital investment that could be rendered 53%in 1979. Since much of the oil-fired generation unprofitable by technology breakthroughs later in is sold to the regional power grid, the percentage the century and will place increasing emphasis on of oil-fired electricity for Delmarva customers will managing energy from raw material to the customer.

be even less. The following text details the progress in all To operate more effectively, major efforts were these strategies.

undertaken this year to reduce accidents and increase Continued success requires additional training, employee participation in decisions affecting their creative thinking, and hard work from the 2508 jobs. These followed decisions in 1982 to consolidate people who make up the Delmarva Power team.

five district offices and seven storerooms and to They have demonstrated their willingness to take reduce the workforce by 6%through attrition and on challenges and the will to succeed.

early retirement. We thank them for the achievements in 1983 The safety program this year reduced lost-time and look forward to working as a team to meet the accidents by 77%. This spared employees and their challenge of the future.

families the pain and anxiety associated with injuries.

The programs to switch away from costly for- Sincerely, eign oil, to cut costs, and to improve productivity have resulted in a leveling off of the price of electric- --k~ ~ C,r;--

ity over the past 24 months to increases significantly Nevius M. Curtis below the national inflation rate. Chairman of the Board Finally in the area of minimizing capital invest- and Chief Executive Officer ment, the management continues to feel comfortable February 6, 1984 with the decision a year ago to postpone until 1995 the next power plant at Vienna, Maryland.

In the gas business, a major effort was under-taken to attract and connect new customers without significantly increasing investment.

3

Completing The System If ingerden Jr located IJIS commercwl greenhouse business in

!be Delnum*a Pe111nsula be-cause of!be reliable sup/JI) of ene'KI' and 4

\eu 11

,, ere 1dded 11 111111111111/ cap e\/Jtnit Engineers Ken Pjeil Dan Sked~ieleuskt For example, in August, Delmarva Power's cus-andjohn lfiller miled hroadh as they tomers demanded 23 %more electricity than the ualked acroi;, the tage t t applause of 100 previous August, and 88%of this demand was fulfilled by electricity generated from coal and colleague' l heJ u ere bet n honoredjor leadmg nuclear fuel.

the team that completed thl c al (mu er. on The Wilmington News Journal reported that o f.d t' itonr n t ~ r11 t m and on hudf!et this reliable electric power was a reason New The completion of the conversion of Edge Moor York's Morgan Bank chose to locate a sub-unit 3 from oil to coal in March was the final step sidiary in Delaware.

in a plan to reduce dependence on oil from 53%in With well-running facilities in place, capital 1979 to 15%in 1984. That plan included the comple- expenditures can be minimized. The company had tion of the 400-megawatt, coal-fired Indian River 4 no major external financing in 1983 and expects no power plant in 1980, completion of the Salem 2 major external financing until the late 1980s.

nuclear unit in 1981 (Delmarva Power owns In the natural gas business, strategies which paid 82 megawatts) , and the conversion to coal from off this year were the adding of customers near exist-oil of Edge Moor unit 4 in 1982. Also, the company ing mains and increasing sales to current customers buys coal-fired electricity from midwestern utilities without increasing significantly workforce or capital while selling much of its oil-fired generation to the investment. This will produce about $4.5 million PJM power pool. in increased annual revenues.

This strategy, along with PJM membership, has Anew natural gas pipeline which can supply the already provided customers with about $150 million increasing natural gas requirements of the Chrysler in net savings and reduced foreign oil consumption assembly plant and surrounding residential commu-by 14 million barrels from 1980 through 1983. Price nity in northern Delaware was built.

increases throughout the service territory have been Other system highlights in 1983 include the held to levels less than increases in inflation. completion of the 69 KV line from Wattsville, So, when the hot summer of 1983 occurred along Virginia, to Chincoteague with special care for with a rebounding economy, Delmarva Power was the natural life and beauty of the area; the able to supply most of the record demands of its implementation of more sophisticated standards customers with fuel sources that were about two for determining line replacement; the increase of times cheaper than the predominant fuel source 7,753 electric customers to the system; and, as a of 1979. result of consolidation, the opening of new district office buildings in Chestertown, St. Michaels, and Westover, Maryland, and Exmore, Virginia.

5

Increasing Effectiveness A special training program in lineman's safety u*asan idea generated and del'eloped b)'

Delm<trta Pou*er employees.

The light turned green. Mike Malloy, In 1982, the company intensified its commitment ofthe electric meter department, to increase employee participation by providing started his l'an through the intersection. training to increase the involvement employees have in decisions affecting their job.

Suddenly a screech, then a sickening thud.

By the end of 1983, about 20%of the company's The van had been rammed, and Mike was employees had participated in some form of the training upside down He walked away unhurt. Lucky? in both philosophy and technique. Evaluators de-

,Vo. He walked away because u hen the l'an cided that the program was so successful that train-flipped, he was u*earing his seat belt a ing should be accelerated to reach all company conscious decision he makes ernry* time employees by the fourth quarter, 1986. Several exam-ples of productivity gains achieved include the he sits in a i ehicle.

reduction of write-offs from unpaid bills, the decreas-An aggressive program was pursued not only to ing of meter reader errors, and improvements in the provide the tools to do jobs safely, but also to in- gas valve maintenance program.

crease the awareness of potential hazards both on "Not only are ideas flowing and productivity in-and off the job. creasing, but an unexpected result of this program Specific accident reduction goals were set and is the personal growth of many of the participants,"

achievement of them was made a top corporate says Harland M. Wakefield, Jr., senior vice president.

priority of 1983. Investigative committees of top "Many people who for many years were afraid to managers of the company were established to review speak in public now lead group discussions. That's all accidents. An employee's safety performance was good for the company and good for the people."

made an increasingly important part of salary re- Throughout Delmarva Power, 1983 was a year views, and the safety performance of a group was of consolidation. Many of the most significant cost-made part of a supervisor's salary review. cutting strategies, such as a 6%reduction in work-The results were dramatic. Lost-time accidents force through attrition and early retirement and were reduced by 77%; lost workdays, by 74%; and the combining of several company facilities, had oc-recordable accidents, by 44%. curred in late 1982 and early 1983. As a result, 1983 The program reduced pain and anxiety caused was a year when many people were doing new jobs.

by accidents and saved money for the company It was a year to focus on safety, efficiencies, and and its customers. examination of current work methods.

Another program showing progress is the Par-ticipatory Skills Program.

6

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Increasing Customer Satisfaction encrntri(~e5 the design con5fruc flm1 mu/ salt of enerx.J -effic ent Da/'1~ quuk engrmers assisted re/JOrfm[, ofa Herwles Inc m traj/rc accide111 emluating wt 'I{

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/1rr1~ri1m Chris Smith and Greg Malone;*. Time-of-use rates, previously available in marketing engineers, helped the Delaware, were established in Maryland this year Dorchester General Hospital in Jfaryland to give customers more options.

conl'ert its air condit1oners from an oil Besides working to control price, the company offered several information programs to help people to an electrical SJStem. The hospital sal'ed make wise energy choices.

$179.000 in just four months, and DehrUlrt'a The Super E+ program encourages the design, Pou*er's elPrtrir sales increased. construction, and sale of energy efficient homes, and the Home Energy Saver Program evaluates the The cost of energy is a major concern of most energy efficiency of a customer's existing home.

customers. Delmarva Power has developed several Marketing representatives provide information and strategies to help manage the price of electricity and help customers receive the most value for the expertise to help customers who are considering.

replacing heating or cooling systems. Energy effi-money they spend on energy.

ciency programs for business and industry encourage The fuel-mix and cost-cutting strategies discussed the conversion from oil to gas and heat pumps to earlier are working. Over the past 24 months, in- reduce overall energy cost.

creases in the price of electricity for typical residen-Customer information specialists work with tial customers throughout the Delmarva Peninsula human service agencies throughout the Delmarva have been in the range of 2% to 5% - significantly Peninsula to discover who in the community needs below the national inflation rate of 8% for assistance and to distribute federal funds to them.

that period.

Delmarva Power customer service representatives Here is how the average total cost (in cents/kWh) help directly by arranging installment payments of 1

of electricity in Wilmington ranks among East Coast previous bills, setting up budget billing, alerting _a cities: New York, 13.3; Atlantic City, 9.7; Newark, NJ, friend if service is about to be disconnected, making 8.4; Boston, 7.8; Philadelphia, 7.4; Wilmington, 6.7; special efforts to inform customers by telephone.

Baltimore, 5.9. when power is about to be disconnected, and ~eepmg Also Delmarva Power officials have advocated power on where life support systems or medical consistently before regulators that when current rates emergencies exist.

are based on current costs, price can be managed In 1983, the Good Neighbor Energy Fund was more effectively for the customer. The Delaware begun. It brought $125,000 into the c~mmunity ~o Public Service Commission and the Federal Energy help people having trouble paying their energy bills.

Regulatory Commission set 1983 rates on that princi-Every $3 of customer contributions were matched by ple. In those jurisdictions, the company announced

$1 of stockholder contributions.

rate increases would not be requested in 1983.

9

Providing Energy In The '90s Researchers Uary*

Ellen Bailey and Dare Sneeringer help cma(1*ze customer characteristics mulfutu re needs.

"The future u ill demand flexibility," will be made in the next few years in order to supply says Vel'ius M. Curtis, chairman energy in the next decade. The group is charged with of the board and chief executil'e officer. The integrating forecasting and the several corporate planning functions so that the evolving needs of the electric pou*er industry can be affected by a customer and developing technology can be matched.

u*ide L'ariety of issues and events far outside One energy source which will be evaluated is the the control ofDelmarz a Power With the lesson 1

fuel cell. As part of a national demonstration pro-learned in the railroad industry* that a large gram, the company plans to install a demonstration capital inl'estment can be oz*ertaken b) tech- fuel cell at a small commercial operation in 1984.

nology breakthroughs or changing economics. This technology enables Delmarva Power to Delmarz*a needs to be flexible and creative to add generation sources in small increments and use natural gas as the fuel source. It can also be meet and finance future ene11.!J! demands. used to evaluate customer reaction to dispersed The scheduling of Vienna 9 illustrates the concept energy sources.

of flexibility. In 1982, faced with a growth rate which The company is looking at new ways to sell its was not meeting previous projections, the completion products and services. Construction began on facili-date of that plant was delayed five years until 1995. ties to sell steam to a Du Pont Company processing Projections show that if no actions are taken, the facility in Wilmington, Delaware. Electrical design plant will be needed by 1993. With the implemen- engineering work was performed at a profit for two tation of a load control program, the plant can be major corporations in the service territory.

deferred until 1995. The plant can be moved up or The company also has two subsidiaries funded pushed back depending on how the growth projec- from earnings, Delmarva Energy Company and tions hold or how load management technology Delmarva Industries. They seek and produce oil and develops. The plant size can vary depending on natural gas.

changing growth projections and the number of Delmarva Power is continuing its investment partners who may wish to participate in the owner- ($1.3 million in 1983) in the utility industry research ship of the plant. pool, the Electric Power Research Institute (EPRI).

With this concept in mind, a team of high-level Finally, incentive programs are being expanded managers is preparing the analyses for decisions that to reward initiative, performance and entrepreneur-ship. A participatory style of management culture is being developed to seek ideas and enable employees to become more involved and motivated about their work.

10

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11

Our Service Territory The Delman*a Peninsula stands out as one of the most distinctiz e geo-graphical jeatures nn the East Coast close enough to the Eastern megalopolis to henejlt from its markets and financial centers

}et remote enough to hate its ou*n identi~r and aualz~y oflife.

The peninsula has a diverse blend of industrial, agricultural, commercial, and recreational activity that makes the demand for electricity and natural gas here less affected by extreme fluctuations in the national economy than in other places in the nation.

To service this diverse area, Delmarva maintains an electric system with 2,226 megawatts of generation capacity, 1369 miles of transmission lines, 7386 miles of distribution lines and a natural gas system with 1028 miles of gas main.

Delmarva Power owns and 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 299,000 electric customers and 74,000 natural gas customers are served by 2508 employees working in 19 customer service locations on the peninsula, division headquarters in Christiana, Delaware, and Salisbury, Maryland, and corporate headquarters in Wilmington, Delaware.

12

Delmarva Power & Li ght Company Selected Fi.nancial Data (Dollars in Thousands)

For the Years Ended December 31 1983 1982 1981 1980 1979 Operating Operating Revenues $ 649,799 $ 636,666 $ 608,504 $ 520,470 $ 424,699 Operating Income 129, 138 116,573 107,325 80,716 74,859 Net Income 85,063 73,571 58,711 48,957 53,376 Earnings and Dividends Earnings Per Share 2.45 2.13 1.78 1.60 1.91 Dividends Declared on Common Stock 1.68 1.591/z 1.531/z 1.49 1.401/z Average Shares Outstanding (000) 29,541 28,489 25,747 24,682 23,215 Total Assets 1,533,263 1,509.771 1,460,529 1,380,922 1,249,606 Construction Expendituresrn 76,056 110,646 84,206 110,739 112,061 Internal Generation of Funds 117,582 77,061 72,346 37,866 53,435 Capitalization Long Term Debt< 2 > 567,935 592,615 596,219 569,724 536,779 Preferred Stock without mandatory redemption 105,000 105,000 105,000 105,000 105,000 Preferred Stock with mandatory redemption< 3> 49,383 50,000 50,000 50,000 . 20,000 Common Equity 503,513 468,073 437,080 395,546 385,616 Total $1,225,831 $ 1,215,688 $ 1,188,299 $ 1,120,270 $ 1,047,395 Capitalization Ratios Long Term Debt 46% 49% 50% 51% 51%

Preferred Stock without mandatory redemption 9% 9% 9% 9% 10%

Preferred Stock with mandatory redemption 4% 4% 4% 5% 2%

Common Equity 41% 38% 37% 35% 37%

Total 100% 100% 100% 100% 100%

Electric/Gas Sales Electric Sales (Kwh 000) 7,878,476 7,249,442 7,395,324 7,460,380 7,491,800 Gas Sales (Mcf 000) 16,449 15,604 16,520 15,693 13,962

<0 Excludes Allowance for Funds Used During Construction.

<*>Includes long-term debt due within one year.

<3 >Includes mandatory redemption due within one year.

14

Delmarva Power & Light Company Financial Review and Analysis Results of Operations Earnings Earnings per share of common stock were $2.45 for 1983, an increase of 32¢ or 15% from 1982. Increased sales, which were impacted by the unusually warm summer weather as well as an improved economy, timely rate relief in the form of higher base rates and reduced levels of construction expenditures contributed to the record earnings level.

Earnings per share of common stock were $2.13 for 1982, an increase of 35¢ or 20% from 1981. The increase in 1982 earnings, despite a decline in sales, was primarily attributed to timely and significant rate relief, strengthening of cost control measures and lower financing costs and debt levels.

Dividends In December 1983, the Board of Directors increased the quarterly dividend 9.8% to 45¢ per share, the seventh consecutive annual increase. The current indicated annual dividend rate has increased to $1.80 per share from $1.64 per share. This increase reflects a dividend policy which is to gradually increase dividends on an annual basis, earnings permitting, and thus provide stockholders with a fair and competitive return on their investment.

Electric Revenues and Sales Electric revenues, net of fuel costs, increased $42.7 million or 12.1 % in 1983 and $51.3 Earnings and million or 17.0%in 1982. The principal factors affecting the net revenue increases in 1983 Dividends Declared were sales growth and rate relief in all jurisdictions. These numbers also reflect that the (cents) company recently announced a voluntary plan to refund, in March 1984, at least $4 millon 250 - - - - - - -

to Delaware retail electric customers, in order to bring the 1983 actual earned rate of return in line with the authorized rate of return of 11.1%. The refund was attributed to the warmer summer weather which led to higher electric consumption and greater than anticipated revenues. The increase in 1982 net revenues was attributed to timely and significant rate relief. See the accompanying text, *'Rate Regulation'* and the chart Status of Rate Cases" for additional information concerning rate case filings .

Electric sales increased 8.7%in 1983 due to the unusually warm summer weather, increased customers, and increased economic activity throughout the company's service area. Sales to all classes of customers experienced increases with the industrial class showing a 15.3%increase. Residential and commercial classes increased 5.4% and 6.6% ,

respectively. A new system peak of 1625 megawatts was achieved in August 1983, an increase of 2.8%over the historic peak of 1581setin1980. Electric sales decreased 2.0%

in 1982 primarily due to lower industrial sales in a recession year.

The economy of the entire Delmarva Peninsula continues to improve. Construction activity is strong as new residential and small commercial construction is at the highest level since the mid-1970's. Also, in the Wilmington area, new office buildings, many in response to the Financial Development Center Act, have been completed or are underway. Future electric sales will continue to be affected by the overall economic situation and the level of business activity in the company's service territory, as well as by weather conditions, use of alternative fuels for heating, and customer conservation efforts.

79 80 81 82 83

• Dividends

& Earnings 15

Delmarva Power & Light Company Financial Review and Analysis Gas Sales Gas sales increased 5.4% in 1983 compared to a 5.5% decrease in 1982. The increase in 1983 sales was primarily due to a substantial increase in usage by industrial customers.

Warmer winter weather and customer conservation has continued to reduce residential gas sales for heating by 7.0% in 1983 and 2.1 % in 1982. Future gas sales will be affected by the availability of gas, weather, the deregulation of gas prices and the price of alternative fuels for which gas is a substitute.

Rate Regulation 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 increases were granted in all retail jurisdictions in 1983 and were structured to recover the capital and operating costs for the conversion to coal of the Edge Moor units, to recover increases in operating and maintenance costs, and to improve the return on utility investment. A summary of the Generation status of these filings is found in the table below.

Fuel Mix (percent)

Status of the 1983 Rate Cases (Dollars in Thousands)

Requested Granted Jurisdiction Amount Date Amount Date Delaware $42,797 7/09/82 $28,403 3/16/83 Virginia 2,011 3/31/83 944 8/15/83 Maryland 7,779 5/27/83 2,966 12/23/83 Electric rate cases for both Delaware and FERC were scheduled for filing during 1983, but were not needed due to responsive rate relief in those jurisdictions in previous cases.

Electric cases in Maryland and Virginia and a gas case in Delaware are under con-sideration for 1984.

Fuel Mix To further reduce its dependency on oil, the company converted from oil to coal unit 3 at the Edge Moor plant in March, 1983. Unit 4 was converted in October, 1982. With the conversion of these two units, the completion of the Salem 2 nuclear plant in 1981 and the completion of Indian River 4 coal plant in 1980, the portion of total generation provided from oil-fired plants is expected to be reduced from 53% in 1979 to 15% in 1984.

The savings in fuel costs, from displacing oil with lower cost coal and nuclear fuel, are being passed on to our customers. When each new plant became operational and when each 79 81 82 83 84 conversion was completed, the company lowered the price of electricity to our customers.

In addition to changing the fuel mix, the company has been able to import coal-fired elec-

• coal tricity from the Midwest and to continue to sell a large quantity of oil fired generation to the

• Nuclear Oil PJM power pool. The effective customer fuel cost, including net interchange credits, has declined 26% from 2.64¢/kWh in 1980 to 1.96¢/kWh in 1983.

16

Delmarva Power & Light Company Financial Review and Analysis Operating Expenses Other operation and maintenance expenses have increased since 1981 primarily as a result of higher payroll and associated benefits and the increased costs of materials and supplies. However, these increases would have been greater without the company's efforts of continuing cost control through a 6% reduction in the work force and the con-solidation of district offices and storerooms.

In 1983, the increases also reflect higher production expenses associated with the nuclear units due to refueling and maintenance activities and higher uncollectible accounts due to the write-off of $2.6 million associated with Phoenix Steel, a large industrial customer who filed on August 12, 1983, a voluntary petition for relief under Chapter 11 of the U.S.

Bankruptcy Code.

Impact of Inflation The year 1983 was marked by a decrease in the rate of inflation as measured by the average Consumer Price Index (CPI). During 1983, the increase in the CPI was 3.2% as compared to 6 .1 % for 1982 and 10. 4 % for 1981. 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 maintaining its financial strength and flexibility and believes that it is important to have a strong capital structure including manageable levels Ratio of Earnings of debt. The company's capitalization goals are 45-48% long-term debt, 10-12% preferred to Fixed Interest stock and 42-45% common equity. These goals have been attained by increasing common Charges (SEC method) equity through increased earnings and the sale of common equity primarily through the Dividend Reinvestment Plan. New debt has been minimized and has been primarily issued 4.0 on a tax exempt basis. See Selected Financial Data for the actual capitalization ratios.

Credit ratings on the company's first mortgage bonds have been upgraded during the year. Moody's raised its rating to Aa2 from Aa3 and Duff and Phelps raised its rating to 3, which is approximately equivalent to an Aa2 rating. The upgrading was 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.

The Ratio of Earnings to Fixed Interest Charges, which is measured by the amount of pre-tax earnings as related to fixed interest charges, showed significant improvement in the last two years and is expected to continue to rise, although more moderately. This ratio, as computed on the SEC method, for 1983 was 3.9 as compared to 3.5 in 1982 and 2.7 in 1981. Improved interest coverage ratios are another indicator of the company's improved credit position.

In 1983, financing activity consisted of common equity sales under the Dividend Re-investment and Common Share Purchase Plan and a $5.5 million short-term tax-exempt commercial paper issue to finance future gas facilities . Also during 1983, a $10 million tax-exempt bond issue due August 1984 was refunded early with short-term tax-exempt commercial paper. These tax-exempt issues, together with $23 million in tax-exempt 79 80 81 82 83 commercial paper, are classified as a term loan agreement, for a total of$38.5 million , and will be refinanced on a more permanent basis.

17

Delmarva Power & Light Company Financial Review and Analysis Financing and Capitalization (continued)

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 until the late 1980's except for the aforementioned refinanc-ing, refundings of maturing debt and through the issuance of common stock under the Dividend Reinvestment Plan.

Capital and Construction Requirements For the period 1981-1983, the company had total capital requirements of $379 million, including $271 million for construction (excluding AFUDC). During the same period

$267 million was generated internally which represents 70% of the capital requirements and 99% of the construction requirements. C9.pital requirements for the period 1984-1986 are estimated to be $334 million, including $247 million for construction (excluding AFUDC). The company presently anticipates that, for the period 1984-1986, internally generated funds will be $352 million which equals 105% of the total capital requirements and 143% of its construction requirements.

The company estimates that its annual energy and peak load growth for the next 10 years will be at a rate of 1.86% and 1.64%, respectively. The company's present generating Construction capacity of 2225.7 megawatts provided a reserve of approximately 37% against the peak Expenditures load experienced during the summer of 1983. Delmarva continues to plan for a load and Internally management program beginning in 1986 and for new generation at Vienna, Maryland Generated Funds in 1995.

(millions of dollars)

The construction program and related expenditures may vary from the estimates set forth 125 above as a result of, among other factors, higher than anticipated inflation, regulation and legislation, rates ofload growth, licensing and construction delays, results of rate proceed-ings, as well as the cost and availability of capital.

100 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 financ-ing necessary for construction projects. The company has lines of credit with banks in the amount of $44.5 million. These lines are available for bank loans and to secure commercial paper borrowings as the need arises. At December 31, 1983, the company 75 had no commercial paper or bank loans outstanding.

50 25 0

82 83 84 85 86

• 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 bee.n prepared by company personnel in conformity with generally accepted accounting principles, based upon currently available facts and circumstances and management's best estimates and judgements of the expected effects of events and transactions. It is the responsibility of management to assure the integrity and objectivity of such financial statements and to assure that these statements fairly report the financial position of the company and the results of its operations.

Delmarva Power & Light Company maintains a system of internal controls designed to provide reasonable, but not absolute, assurance of the reliability of the financial records and the protection of assets. The internal control system is supported by written administrative policies, a program of internal audits, and procedures to assure the selection and training of qualified personnel.

These financial statements have been examined by Coopers & Lybrand, independent certified public accountants. Their examination was conducted in accordance with generally accepted auditing standards which include a review of internal accounting controls to determine the nature, timing and extent of auditing procedures, as well as such other procedures they deem necessary to produce reasonable assurance as to the fairness of the company's financial statements and to enable them to express an opinion thereon.

The audit committee of the Board of Directors, composed of outside Directors only, meets with management, internal auditors and the independent accountants to review accounting, auditing and financial reporting matters. The independent accountants are appointed by the Board on recommendation of the audit committee, subject to shareholder approval.

Nevius M. Curtis Chairman of the Board and Chief Executive Officer Howard E. Cosgrove Senior Vice President 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 66, 463 holders of common stock as of December 31, 1983.

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, 1983 were approximately $97,900,000 under the most restrictive of these provisions.

1983 1982 Dividend Price Dividend Price Declared High Low Declared High Low First Quarter $.41 167/a 151/z $.395 14% 11 1/z Second Quarter .41 17 157/a .395 15 131/2 Third Quarter .41 17% 151/z .395 151/a 13%

Fourth Quarter .45 195/a 165/a .41 161/z 13 3/4 20

Delmarva Power & Light Company Report of Independent Certified Public Accountants 7b 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, 1983 Delmarva Power and 1982, 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, 1983. 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, 1983 and 1982, 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, 1983, in conformity with generally accepted accounting principles applied on a consistent basis.

COOPERS & LYBRAND 1900 Three Girard Plaza Philadelphia, Pennsylvania February 3, 1984 21

Delmarva Power & Light Company Consolidated Statements of Income (Dollars in Thousands)

For the Years Ended December 31 1983 1982 1981 Operating Revenues Electric $ 542,252 $ 534,770 $ 504,119 Gas 94,358 84,747 83,070 Steam 13, 189 17, 149 21,315 649,799 636,666 608,504 Operating Expenses Operation:

Fuel for electric generation 275,117 239,965 284,646 Net interchange and purchased power (108,654) (79,678) (97,950)

Purchased gas 72,475 58,690 56,662 Deferral of energy costs (24,507) 20,837 18,679 Other operation 107,496 100,956 89,172 Maintenance 53,781 43,947 37,316 Depreciation 49,596 49,929 46,833 Tuxes on income 67,584 58,500 39,903 Tuxes other than income 27,773 26,947 25,918 520,661 520,093 501,179 Operating Income 129, 138 116,573 107,325 Other Income Allowance for other funds used during construction 2,447 4,548 4,090 Other, net 2,440 2,015 1,250 4,887 6,563 5,340 Income Before Interest Charges 134,025 123, 136 112,665 Interest Charges Long-term debt 45,697 48,895 51,622 Short-term debt and other 3,999 2,181 5,355 Allowance for borrowed funds used during construction 734) ( 1,511) ( 3,023) 48,962 49,565 53,954 Earnings Net income 85,063 73,571 58,711 Dividends on preferred stock 12,818 12,818 12,818 Earnings applicable to common stock $ 72,245 $ 60,753 $ 45,893 Common Stock Average shares outstanding (thousands) 29,541 28,489 25,747 Earnings per average share $ 2.45 $ 2.13 $ 1.78 Dividends declared per share $ 1.68 $ 1.591/z $ 1.531/z See accompanying Notes to Consolidated Financial Statements.

22

Delmarva Power & Light Company Consolidated Statements of Sources of Funds for Construction Expenditures (Dollars in Thousands)

For the years ended December 31 1983 1982 1981 Sources of Funds Provided from operations:

Net income $ 85,063 $ 73,571 $ 58,711 Less-Preferred dividends declared 12,818 12,818 12,818

-Common dividends declared 49,668 45,471 39,857 Earnings reinvested during the year 22,577 15,282 6,036 Items not requiring (providing) funds:

Depreciation 56,599 51, 121 46,833 Amortization of credit arising from sale of contracts ( 7,003) ( 1,192)

Amortization of nuclear fuel 2,394 6,192 3,187 Allowance for funds used during construction ( 3,181) ( 6,059) ( 7,113)

Investment tax credit adjustments, net 3,495 5,718 17,198 Deferred income taxes, net 42,701 5,999 6,205 Funds provided from operations 117,582 77,061 72,346 External financing:

Long-term debt:

First mortgage bonds 50,000 Term loan 15,500 ( 3,550) (23,450)

Common stock 12,863 15,711 35,521 Change in short-term debt (28,475)

Redemption of long-term debt (40,100)

Redemption of preferred stock ( 617)

Externally financed funds (12,354) 12, 161 33,596 Other sources (uses):

Decrease (increase) in working capital* (17,709) (13,172) 48,604 Net decrease (increase) in pollution control funds held by trustee ( 1,041) 32,507 (35,422)

Credit arising from sale of contracts 850 222 (36,088)

Other, net (11,272) 1,867 1,170 Other sources (uses) (29,172) 21,424 (21,736)

Construction Expenditures (excluding allowance for funds used during construction) $ 76,056 $ 110,646 $ 84,206 Decrease (increase) Accounts receivable $( 7,586) $ 679 $ (15,064) in working capital* Deferred fuel costs, net (23, 126) 21,374 18,781 Inventories 5,428 ( 9,516) 11,482 Accounts payable 7,993 ( 3,607) ( 7,896)

Tuxes accrued ( 4,488) (21,877) 34,386 Interest accrued ( 1,016) ( 9,265) 15,082 Other, net 5,086 9,040 ( 8, 167)

Total $(17,709) $ (13,172) $ 48,604

• Other than short-term debt, long-term debt due and preferred stock redeemable within one year and current deferred income taxes.

See accompanying Notes to Consolidated Financial Statements.

23

Delmarva Power & Light Company Consolidated Balance Sheets (Dollars in Thousands)

ASSETS As of December 31 1983 1982 Utility Plant- Electric $ 1,499,606 $ 1,451,044 at original cost Gas 75,067 69,083 Steam 24,108 24,023 Common 65,772 59,522 1,664,553 1,603,672 Less: Accumulated depreciation 440,079 405,830 Net utility plant in service '1,224,474 1,197,842 Plant held for future use 14,844 22,021 Construction work in progress 36,264 45,702 Nuclear fuel, at amortized cost 22,520 13,272 1,298, 102 1,278,837 Nonutility Property and Net nonutility property, at cost 12,436 3,289 Other Investments Pollution control funds held by trustee 10,645 9,604 23,081 12,893 Current Assets Cash 15,585 21,889 Marketable securities, at cost 6,983 2,035 Accounts receivable:

Customers 47,938 43,090 Other 22,419 19,681 Inventories, at average cost:

Fuel (coal, oil and gc;i.s) 51,693 57,921 Materials and supplies 23,532 22,732 Prepayments 3,943 3,968 Deferred income taxes 3,128 12,308 175,221 183,624 Deferred Charges and Refundable taxes and interest 30,134 27,531 Other Assets Unamortized debt expense 4,915 5,162 Other 1,810 1,724 36,859 34,417 Total $ 1,533,263 $ 1,509,771 See accompanying Notes to Consolidated Financial Statements.

24

Delmarva Power & Light Company Consolidated Balance Sheets (Dollars in Thousands)

LIABILITIES As of December 31 1983 1982 Capitalization Common stock $ 100,714 $ 98,039 (see Statements Additional paid-in capital 225,585 215,397 of Capitalization) Retained earnings 177,214 154,637 Total common stockholders' equity 503,513 468,073 Preferred stock:

Without mandatory redemption 105,000 105,000 With mandatory redemption 48,583 50,000 Long-term debt 557,835 562,515 1,214,931 1,185,588 Current Liabilities Long-term debt due and preferred stock redeemable within one year 10,900 30,100 Accounts payable 32, 109 24, 116 Tuxes accrued 13,794 18,282 Deferred fuel costs, net 2,880 26,006 Interest accrued 19,289 20,305 Dividends declared 13,409 11,910 Other 16,229 13,046 108,610 143,765 Deferred Credits And Credit arising from sale of contracts 33,637 39,790 Other Liabilities Deferred income taxes, net 98,744 66,200 Deferred investment tax credits 63, 133 59,638 Nuclear fuel disposal costs 10,888 7,757 Other 3,320 7,033 209,722 180,418 Other Commitments and Contingencies (Notes 6 and 10)

Total $ 1,533,263 $ 1,509,771 See accompanying Notes to Consolidated Financial Statements.

25

Delmarva Power & Light Company Consolidated Statements of Capitalization (Dollars in Thousands)

As of December 31 1983 1982 Common Stockholders' Common stock, par value $3.375 per share Equity authorized 35,000,000 shares, outstanding 29,841, 182 and 29,048,445 shares $ 100,714 $ 98,039 Additional paid-in capital 225,585 215,397 Retained earnings 177,214 154,637 Total Common Stockholders' Equity 503,513 41% 468,073 38%

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 Preferred Stock without Mandatory Redemption 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 50,000 Less: Reacquired preferred shares held in treasury (at cost) 617 49,383 4% 50,000 4%

Less: Amount to be redeemed within one year 800 Preferred Stock with Mandatory Redemption 48,583 50,000 Long-Term Debt First Mortgage and Collateral Trust Bonds:

Maturity Interest Rates Jan. 1, 1983 9%% 30,000 May 1, 1984 3Vs% 10,000 10,000 Aug.1, 1984 9Yz% 10,000 Dec. 1, 1985 3112% 10,000 10,000 Jun. 1, 1988 37/s% 25,000 25,000 1994-1997 45/s%-63/a% 50,000 50,000 1998-2002 7%-11%% 158, 100 158, 100 2003-2007 6.6%-11% 121,250 121,250 2008-2011 9%%-12% 111,900 111,900 486,250 526,250 Pollution Control Notes: Series 1973, 5.7% effective rate, due 1983-1998 7,900 8,000 Series 1976, 7.3% effective rate, due 1992-2006 34,500 34,500 42,400 42,500 Term Loan 38,500 23,000 Unamortized premium and discount, net 785 865 567,935 46% 592,615 49%

Long-term debt due within one year (10, 100) (30, 100)

Total Long-Term Debt 557,835 . 562,515 Total Capitalization $1,214,931 100% $ 1, 185,588 100%

• Redemption prices at December 31, 1983 are $107 (9% Series) and $113 (12.56% Series).

See accompanying Notes to Consolidated Financial Statements.

26

Delmarva Power & Light Company l

Consolidated Statements of Changes in Common Stockholders' Equity (Dollars in Thousands)

Additional For the Three Years Ended Common Par Paid-in Retained December 31, 1983 Shares Value Capital Earnings Tbtal Balance as of January 1, 1981 24,931,006 $ 84,142 $178,085 $133,319 $395,546 Net income 58,711 58,711 Cash dividends declared:

Common stock ($1.53Vz) (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 ($1.59Vz) (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 Common stock expense ( 250) ( 250)

Balance as of December 31, 1982 29,048,445 98,039 215,397 154,637 468,073 Net income 85,063 85,063 Cash dividends declared:

Common stock ($1.68) (49,668) (49,668)

Preferred stock (12,818) (12,818)

Issuance of common stock:

Dividend Reinvestment and Common Share Purchase Plan 792,737 2,675 10,526 13,201 Common stock expense ( 338) ( 338)

Balance as of December 31, 1983 29,841,182 $100,714 $225,585 $177,214 $503,513 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.

Accounting policies are in accordance with those prescribed by the regulatory commissions having jurisdiction with respect to accounting matters.

In December 1982, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation (Statement). The provisions of the Statement are effective with respect to the company's financial statements beginning in 1984 .. The company believes that the provisions of the Statement will not have a material effect on its financial position or its results of operations.

Certain reclassifications, not affecting income, have been made to amounts reported in 1982 and 1981 to conform to the presentations used in 1983.

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.

Depreciation and Maintenance The annual provision for depreciation is computed on the straight-line basis using com-posite rates by classes of depreciable property. Provision for the costs of decommissioning of nuclear plant is made to the extent of the net cost of removal allowed for rate purposes (approximately 20% of plant cost). The relationship of the annual provision for depreciation for financial accounting purposes to average depreciable property was 3.4% for 1983, 3.6% for 1982 and 3.5% for 1981.

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.

Nuclear Fuel The company's share of nuclear fuel costs relating to jointly-owned nuclear generating stations is charged to fuel expense on a unit of production basis, which includes a factor for spent nuclear fuel disposal costs pursuant to the Nuclear Waste Policy Act of 1982. The company is collecting future storage and disposal costs for *spent fuel as authorized by the regulatory commissions in each jurisdiction and is paying such amounts quarterly.

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 income and 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 production costs deducted currently for income tax purposes, and (3) other timing differences involving 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 1Vz % in 1982 and 1981 related to the Tux Credit Employees Stock Ownership Plan (a TRASOP plan) and of Vz % in 1983 related to the Payroll Based Employees Stock Ownership Plan (a PAYSOP plan) does not affect net income and is recorded as a liability until the contribution is made to the 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 7 .8%

in 1983, 9 .1 % in 1982 and 8 .7% in 1981.

2. Taxes on Income Income tax expense for 1983, 1982 and 1981 is as follows:

(Dollars in Thousands) 1983 1982 1981 Operations:

Federal:

Current $ 16,557 $ 37,508 $ 10,234 Deferred 36,654 4,700 5,301 State:

Current 4,345 7,672 4,936 Deferred 6,047 1,363 1,048 Investment tax credit adjustments, net 3,981 7,257 18,384 Other income:

Current 816 2,046 1,654 Deferred (64) (144)

Total $ 68,400 $ 60,482 $ 41,413 Investment tax credits utilized to reduce federal income taxes payable amounted to

$7,654,000 in 1983, $10,445,000 in 1982 and $20,917,000 in 1981. The amounts for 1983, include PAYSOP credits of $360,000 and 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) 1983 1982 1981 Amount Rate Amount Rate Amount Rate Statutory income tax expense $70,594 46% $ 61,664 46% $ 46,057 46%

Reduction in taxes resulting from:

Exclusion of AFUDC for income tax purposes (1,463) (1) (2,787) (2) (3,272) (3)

Excess of tax depreciation over book depreciation not normalized ( 171) (1,312) (1) (2,826) (3)

Investment tax credits amortized to income (3,673) (2) (3,188) (2) (2,533) (3)

State income taxes, net of federal tax benefit 5,682 4 5,065 4 3,365 3 Amortization of credit arising from sale of contracts (3,221) (2) (548) (1)

Other, net 652 1,588 1 622 1 Income tax expense $68,400 45% $ 60,482 45% $41,413 41%

The components of deferred income taxes relate to the following tax effects of timing differences between book and tax income:

(Dollars in Thousands) 1983 1982 1981 Depreciation $22,799 $ 19,274 $ 15,832 Deferred fuel costs 12,480 (10,402) (9,352)

Capitalized overhead costs 1,648 926 992 Nuclear fuel storage costs 5,675 ( 2,054) (1,332)

Other, net 99 ( 1,745) 65 Total $42,701 $ 5,999 $ 6,205 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. The assessment would result in net additional federal and state income taxes of approximately $20.3 million and interest of $17.4 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's appeal on the taxability of the net proceeds is presently in Tax Court. 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.

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 financial position or results of operations.

30

Delmarva Power & Light Company Notes to Consolidated Financial Statements (Dollars in Thousands)

3. Taxes Other Than Income 1983 1982 1981 Delaware utility $ 12,341 $ 11,733 $ 11,437 Property 6,483 6,129 5,811 Other gross receipts 4,149 3,601 3,444 Payroll, franchise and other 4,800 5,484 5,226 Total $ 27,773 $ 26,947 $ 25,918

4. Pension Plan The company has a trusteed noncontributory pension plan covering all regular employees.

Pension contributions for 1983, 1982 and 1981 were $4,400,000, $4,895,000 and $4,371,000 including $765,000, $914,000 and $717,000 charged to construction, respectively. The contributions provide for normal cost and amortization of prior service costs over periods often to twenty-five years.

The actuarial present value of accumulated plan benefits, determined as of January 1, 1983 was $72,432,000 for vested benefits and $11,901,000 for accrued nonvested benefits.

The market value of net assets, at that date, available for plan benefits were $161,749,000.

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 market value of net assets, at that date, available for plan benefits were $125,050,000. The assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 8.0% for 1983 and 1982.

5. Capitalization Common Stock At December 31, 1983 there were 1,523,026 shares of common stock reserved for issuance under the Dividend Reinvestment and Common Share Purchase Plan and the PAYSOP.

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, 1983 was approximately $97,887,000.

Preferred Stock The annual preferred dividend requirements on all outstanding preferred stock at December 31, 1983 are $12,746,000. 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, 1983).

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, 1987 and 1988. (5) During 1983, the company purchased 7,200 shares of its 9% preferred stock for a total cost of$617,400, which will be held in Treasury. '

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 PElrcent (1 %) of the greatest aggregate prillcipal 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 1981-1983, 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

$38,500,000 revolving credit commitment through December 31, 1984, convertible into a term loan due December 31, 1987. From time to time, the company issues short-term tax-exempt revenue notes, and, in recognition of the long-term financing commitment, these notes have been classified as long-term debt (term loan). The loan agreement requires a commitment fee of 3/s % on any unused portion of the revolving credit commitment and term loans may be prepaid at any time without penalty and would bear interest at 105% of the prime rate. (4) In January, 1983 $30 million First Mortgage and Collateral Trust Bonds were redeemed. In August, 1983 the company redeemed $10 million Pollution Control Revenue Bonds due August 1, 1984. (5) Maturities of long-term debt during the next five years are 1984-$10,100,000; 1985-$10,100,000; 1986 and 1987-$150,000; 1988-$25,150,000. (6) The annual interest requirements on all borrowings classified as long-term debt at December 31, 1983 are $45,249,000.

• 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

Delmarva Power & Light Company Notes to Consolidated Financial Statements

6. Commitments The company estimates that approximately $84,330,000, excluding AFUDC, will be expended for construction purposes in 1984. The company also has commitments under long-term fuel supply contracts.

Minimum commitments as of December 31, 1983 under all non-cancellable lease agreements are as follows:

1984 $ 13,055,000 1985 12,845,000 1986 11,252,000 1987 9,888,000 1988 2,637,000 Remainder 4,587,000 Total $ 54,264,000 The total minimum rental commitments are applicable to the following types of property:

company's share of Peach Bottom nuclear fuel, $28,793,000; railroad coal cars, $1,872,000; distribution facilities, $5,252,000; other, principally computer equipment, $18,347,000.

Rentals charged to operating expenses aggregated $10,960,000 in 1983, $13,949,000 in 1982 and $9,986,000 in 1981 including $4,283,000, $7, 112,000 and $5,282,000 for nuclear fuel, respectively.

The company has certain leases for property and equipment which meet the criteria for capitalization, but under current rate-making treatment are accounted for as operating leases. Statement of Financial Accounting Standards No. 71, effective January 1, 1984, requires that all leases meeting the requirements of a capital lease be accounted for as

- such and recorded on the balance sheet. The implementation of Statement No. 71 will not have a significant effect on assets, liabilities, or expenses.

The company has 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 $2,101,000 in 1983, $2,454,000 in 1982 and $2,941,000 in 1981. The amount of required payments is $1,912,000 in 1984, $1,682,000 in 1985,

$2,004,000 in 1986, $1,701,000 in 1987, $1,173,000 in 1988 and $12,942,000 between 1989 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 (Summit) and related fuel, net of related plant expenditures which are considered of no future value to the company, are classified as a deferred credit in the balance sheet. The credit has been reduced by applicable income taxes and related interest (See Note 2). The company has obtained regulatory approval for this account-ing treatment. As a result of ratemaking orders commencing in 1982, the company is amortizing the net credit in all retail jurisdictions over approximately five years and is recording the credit for financial reporting purposes as a reduction in depreciation ex-pense. Amounts amortized in 1983 and 1982 were $7,003,000 and $1, 192,000, respectively, which includes, in 1983, amortization of $3,818,000 for the resale jurisdiction.

In November 1983, the company informed the Delaware Public Service Commission of its decision to sell the land that was originally acquired as the site for the nuclear plant.

Accordingly, the cost of the land and associated rights-of-way ($7 ,660,000) has been reclassified from plant held for future use to net non-utility property. Subject to regulatory approval, it is the company's intent to record the sales transaction against the related deferred credit in the balance sheet.

33

Delmarva Power & Light Company Notes to Consolidated Financial Statements

8. Short-Turm Debt and As of December 31, 1983, the company had unused bank lines of credit of $44,500,000 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, 1983 is as follows:

(Dollars in Thousands)

Construction Ownersmp Plant in Accumulated Work in Share Service Depreciation Progress Nuclear:

Peach Bottom 7.51% $ 73,493 $21,554 $ 5,446 Salem 7.41% 172,536 34, 121 16,201 Coal-Fired:

Keystone 3.70% 9,145 3,778 830 Conemaugh 3.72% 12,942 4,691 95 Total $268, 116 $64,144 $22,572 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 ($967 ,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.

a) FERG Rate Cases The company received orders from the Federal Energy Regulatory Commission (FERC) in 1983 for rate cases that were effective December 1, 1978 and December 1, 1980.

Concerning the FERC rate case that was effective December 29, 1981, no order has been received, however customers which have not previously settled have stipulated that rates be based upon the results of the cost of service issues in the previous cases (1978 and 1980). Regarding the FERC rate case that was effective November 1, 1982, a settlement has been reached with all customers. Based upon settlements with resale customers, net revenues recorded pursuant to interim rate increases effective with the 1981 and 1982 cases are approximately $1.6 million and $4.4 million, respectively. These increases are subject to refund pending FERC approval, and the company believes that substantially all such revenues will be approved.

b) Plant Held for Future Use In 1982, the company delayed the construction schedule for the 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 of $13,467,000 is classified as plant held for future use and is anticipated to be recoverable through the normal ratemaking process.

34

_J

Delmarva Power & Light Company Notes to Consolidated Financial Statements l

10. Contingencies c) Nuclear Insurance (continued) The Company's insurance coverages applicable to its nuclear power units are as follows:

(Millions ofDollars)

Maximum Retrospective Maximum Assessment for a Type and Source of Coverage Coverage c3 J single incident Public Liability:

Private $160 None Price Anderson Assessment0 J 410 $1_5<2)

$570C3)

Property Damage:<4 J Peach Bottom< 5l $460 Salemml $500 $4.3 All units< 1J $425 $1.2 Replacement Power:

Nuclear Electric Insurance Limited (NEIL) c3 J $2.5 $2.3 m Retrospective premium program under the Price-Anderson liability provisions of the Atomic Energy Act of 1954 as amended. Subject to retrospective assessment with respect to loss from an incident at any licensed nuclear reactor in the United States.

<*>Maximum assessment would be $3,000,000 in the event of more than one incident in any year.

<3 >Limit of liability under the Price Anderson Act for each nuclear incident.

<*> The company is a self insurer, to the extent of its ownership interest, for any property loss in excess of the stated amounts.

<5 >For property damage to the Peach Bottom nuclear plant facilities, the company and its co-owners have private insurance up to $460 million.

<5>Nuclear Mutual Limited, a utility-owned mutual insurance company with which the company and the Salem nuclear facility co-owners are members. Subject to retrospective assessment with respect to loss at any nuclear generating station insured by the mutual insurance company.

7

< >All units are insured by Nuclear Electric Insurance Limited (NEIL II) for losses in excess of $500 million. In the event of losses, the company would be Subject to a minimum assessment of seven and a half times the annual premiums.

cs> Utility owned mutual insurance company with which the company is a member which provides coverage against extra expense incurred in obtaining replacement power during prolonged accidental outages of nuclear power units. Maximum weekly indemnity for 52 weeks which commences after the first 26 weeks of an outage.

Also provides $1,250,000 weekly for an additional 52 weeks. -

d) Atlantic City Contract 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. The DPSC has postponed until the completion of the contract the issuance of a final order regarding the extent, if any, that the net benefits from the contract be passed to the stockholders.

e) Other 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.

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) 1983 1982 1981 Operating Revenues:

Electric $ 542,252 $ 534,770 $ 504, 119 Gas 94,358 84,747 83,070 Steam 13, 189 17, 149 21,315 Total $ 649,799 $ 636,666 $ 608,504 Operating Income:

Electric $ 122,993 $ 109,620 $ 100,836 Gas 4,928 5,800 5,294 Steam 1,217 1,153 1,195 Total $ 129, 138 $ 116,573 $ 107,325 Utility Plant:<u <2 J Electric $ 1,242,145 $ 1,226,140 $ 1,166,376 Gas 51,033 47,044 45,608 Steam 4,924 5,653 6,259 1,298,102 1,278,837 1,218,243 Other Identifiable Assets:

Electric 106,308 114,931 134; 168 Gas 12,351 14,710 14,741 Steam 471 455 419 119, 130 130,096 149,328 Assets Not Allocated 116,031 100,838 92,958 Total Assets $ 1,533,263 $ 1,509,771 $ 1,460,529 Depreciation Expense:< 3 J Electric $ 52,530 $ 47,276 $ 43,238 Gas 3,173 2,950 2,703 Steam 896 895 892 Total $ 56,599 $ 51, 121 $ 46,833 Construction Expenditures: <4 J Electric $ 70,927 $ 107,533 $ 81,651 Gas 5,070 3,019 2,531 Steam 59 94 24 Total $ 76,056 $ 110,646 $ 84,206 0

>rnc!udes plant held for future use, construction work in progress and allocation of common utility property.

<2>Stated net of the respective accumulated provisions for depreciation.

< lExcludes amortization of credit arising from sale of contracts.

3 WExcludes allowance for funds used during construction.

Operating income by segments is reported in accordance with generally accepted accounting and ratemaking principles within the utilityindustry 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 Intonnation 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 1983 Dollars)

Operating Revenues $ 649,799 $ 649,799 $ 649,799 Operating Expenses:

Operation and Maintenance 375,708 375,708 375,708 Depreciation 56,599 102,504 110,055 Amortization-Summit (7,003) (7,003) (7,003)

Taxes 95,357 95,357 95,357 Other Income-Net (4,887) (4,887) (4,887)

Interest Charges 48,962 48,962 48,962 Net Income<ll $ 85,063 $ 39,158 $ 31,607 Earnings per common share (after preferred dividend requirements)< 2> $ 2.45 $ .89 $ .64 Increase in current cost of utility plant held during the year< 3> $ 165,061 Adjustment to net recoverable cost $ (2, 135) (79,800)

Effect of increase in general price level (79,845)

Excess of increase in current costs after adjustment to net recoverable cost over increase in general price level 5,416 Purchasing power gain on net amounts owed 22,680 22,680 Net $ 20,545 $ 28,096 rn Including the adjustment to net recoverable cost, the income (loss) on a constant dollar and current cost basis for 1983 would have been $37,023 and $(48,193), respectively.

< > Excluding adjustment to net recoverable cost.

2

< > At December 31, 1983, current cost of net utility plant was $2,211,873, while historical cost was $1.298,102.

3 In 1983, the method of computing the reserve for depreciation under current cost was changed. Had this method been applied in 1982, the current cost of net utility plant would have been $2,080,261.

37

I -

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 Thousandscn of Average 1983 Dollars)

For the Years ended December 31 1983 1982 1981 1980 1979 Operating revenues Historical cost dollars $ 649,799 $636,666 $608,504 $ 520,470 $424,699 Constant dollars 649,799 657,147 666,584 629,288 582,936 Net income Constant dollars 39,158 28,448 22,270 19,371 39,948 Current costs 31,607 23,213 16,461 10, 111 27,487 Earnings per common share Constant dollars .89 .54 .32 .33 1.18 Current costs .64 .35 .10 (.05) .65 Net assets at year end< 2l Historical cost dollars 608,513 573,073 542,080 500,546 490,616 Constant dollars and current costs 598,288 584,832 574,624 578,030 636,798 Excess of increase in general priceleveloverincreasein current costs<3 l 5,416 3,735 (65,956) (113,141) (134,926)

Purchasing power gain on net amounts owed 22,680 23,409 54,813 75,358 81,763 Cash dividends declared per common share Historical cost dollars $ 1.68 $ 1.591/z $ 1. 531/z $ 1.49 $ 1.40V2 Constant dollars 1.68 1.65 1.68 1.80 . 1.93 Market price per common share at year-end Historical cost dollars 19.25 16.38 12.63 11.75 12.63 Constant dollars 18.93 16.72 13.39 13.57 16.39 Average Consumer Price Index (1967 = 100) 298.4 289.1 272.4 246.8 217.4 0 >Except per share amounts.

c2 >At net recoverable cost.

c3 >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 1979-1983, the company's monetary liabilities exceeded monetary assets which resulted in a purchasing power 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.

Eamings Earnings Applicable Average per Quarter Operating Operating Net to Common Shares Average Ended Revenue Income Income Stock Outstanding Share (Dollars in Thousands) 1983 March 31 $ 156,749 $ 30, 164 $ 19,906 $ 16,702 29,237 $ .57 June 30 152,452 27,485 16,218 13,013 29,443 .44 September 30 188,155 45,130 33,687 30,483 29,655 1.03 Decerriber 31 152,443 26,359 15,252 12,047 29,831 .41

$ 649,799 $ 129, 138 $ 85,063 $ 72,245 29,541 $ 2.45 1982 March 31 $ 179,138 $ 31,174 $ 20,512 $ 17,308 28, 104 $ .62 June 30 144,106 24,657 13,948 10,743 28,302 .37 September 30 166,382 36,123 25,303 22,099 28,516 .78 December31 147,040 24,619 13,808 10,603 29,033 .36

$ 636,666 $ 116,573 $ 73,571 $ 60,753 28,489 $ 2.13 In the fourth quarter 1983, adjustments were recorded for FERC rate issues which increased income and charges for a voluntary Delaware revenue refund and other regulatory items. The net effect of these adjustments was to reduce fourth quarter net income by approximately $2,200,000 (7¢ per share).

39

Delmarva Power & Light Company Consolidated Statistics 10 Years of Review 1983 1982 1981 1980 Electric Revenues (thousands): Residential $ 193,021 $ 183,258 $ 164,919 $ 144,637 Commercial 140,809 137,434 123,099 112, 166 Industrial 126,703 127,441 129,601 116,401 Other utilities, etc. 68,991 73,469 73,602 63,698 Miscellaneous revenues 12,728 13, 168 12,898 7,025 Total electric revenues $ 542,252 $ 534,770 $ 504,119 $ 443,927 Electric Sales (1,000 kilowatt-hours): Residential 2,136,265 2,026,398 1,996,647 2,046,546 Commercial 1,844,324 1,729,863 1,660, 147 1,648,776 Industrial 2,600,492 2,255,673 2,454,685 2,429,842 Other utilities, etc. 1,297,395 1,237,508 1,283,845 1,335,216 Total electric sales 7,878,476 7,249,442 7,395,324 7,460,380 Electric Customers (end of period): Residential 267,357 260,371 255,646 246,887 Commercial 30,751 29,966 29,450 28, 162 Industrial 723 741 788 821 Other utilities, etc. 434 434 434 440 Total electric customers 299,265 291,512 286,318 276,310 Gas Revenues (thousands): Residential $ 36,694 $ 36,505 $ 34,123 $ 26,525 Commercial 16,527 15,792 14,344 10,342 Industrial 23,232 20,112 22,259 12,404 Interruptible 17,026 11,733 11,711 9,293 Other utilities, etc. 115 53 61 46 Miscellaneous revenues 764 552 572 430 Total gas revenues $ 94,358 $ 84,747 $ 83,070 $ 59,040 Gas Sales (million cubic feet): Residential 5,640 6,062 6,193 6,321 Commercial 2,677 2,768 2,704 2,683 Industrial 4,378 4,108 4,809 3,937 Interruptible 3,723 2,656 2,802 2,738 Other utilities, etc. 31 10 12 14 Total gas sales 16,449 15,604 16,520 15,693 Gas Customers (end of period): Residential 69,608 69,092 68,608 67,784 Commercial 4,075 4,057 3,967 3,846 Industrial 160 166 167 155 Interruptible 19 18 16 16 Other utilities, etc. 1 1 1 1 Total gas customers 73,863 73,334 72,759 71,802 Refinery Service Electricity delivered 313,086 322,804 343,063 328,420 (1,000 kilowatt-hours)

Steam delivered 6,965,904 7,778,929 7,673,420 7,570,944 (1,000 pounds) 40

Average Annual Compound%

1979 1978 1977 1976 1975 1974 1973 Rate of Growth

$ 115,381 $ 105,237 $ 97,691 $ 80,416 $ 77,069 $ 68,730 $ 51,799 14.06 91,798 82,796 74,641 60, 111 58,169 51,192 37,888 14.03 98,023 83,972 76,801 64,458 64,141 66,381 41,284 11.87 53,782 40,840 38,974 34,896 35,606 32,976 21,518 12.36 4,682 5,261 3,461 2,398 4,370 9,194 5,287 9.18

$ 363,666 $ 318, 106 $ 291,568 $ 242,279 $ 239,355 $ 228,473 $ 157,776 13.14 1,968,452 1,979,624 1,924,723 1,787,663 1,672,180 1,597,472 1,629,641 2.74 1,598,299 1,568,600 1,495,796 1,412,259 1,359,673 1,303,053 1,360,216 3.09 2,624,438 2,418,527 2,277,630 2,260,661 2,142,151 2,461,303 2,512,877 0.34 1,300,611 1,281,498 1,207,941 1,199,155 1,218,785 1,230,528 1,252,977 0.35 7,491,800 7,248,249 6,906,090 6,659,738 6,392,789 6,592,356 6,755,711 1.55 242,745 237,925 233,106 230,579 221,780 215,516 208,073 2.54 27,998 28,421 29,648 28,345 27,345 27, 132 26,708 1.42 874 858 921 1,002 923 891 867 (1.80) 478 480 561 550 545 501 506 (1.52) 272,095 267,684 264,236 260,476 250,593 244,040 236,154 2.40

$ 25,719 $ 28,370 $ 21,829 $ 18,826 $ 15,365 $ 14,298 $ 13,018 10.92 8,954 10,154 7,133 6,062 4,676 4,201 3,715 16.10 9,884 10, 191 6,950 5,984 4,343 3,726 3,505 20.82 4,440 716 169 1,301 1,211 1,532 1,363 28.72 55 93 49 44 33 26 30 14.38 270 116 103 31 45 96 22 42.58

$ 49,322 $ 49,640 $ 36,233 $ 32,248 $ 25,673 $ 23,879 $ 21,653 15.86 6,423 6,941 6,751 6,956 6,540 6,863 7,134 (2.32) 2,415 2,593 2,439 2,586 2,429 2,526 2,614 0.24 3,388 3,290 2,811 3,264 2,849 3,215 3,653 1.83 1,720 319 81 953 1,073 2,257 2,346 4.73 16 29 17 20 18 16 23 3.03 13,962 13,172 12,099 13,779 12,909 14,877 15,770 0.42 66,631 66,364 66,231 67,754 68, 160 68,262 68,562 1.50 3,712 3,773 3,738 4,154 4,189 4,356 4,418 (0.80) 131 163 163 198 198 195 197 (2.06) 16 21 21 21 21 21 21 (1.00) 1 1 1 1 1 1 1 70,491 70,322 70,154 72,128 72,569 72,835 73, 199 0.90 262,159 270,006 289,049 318,389 297,282 350,021 341,700 (0.87) 6,378,705 6,016,095 4,888,366 5,301,421 5,517,000 5,921,000 5,926,000 1.63 41

Delmarva Power & Light Company General Information Trustees Corporate Address First Mortgage and Collateral Trust Bonds- Delmarva Power, Chemical Bank, 800 King Street, P.O. Box 231, New York, New York. Wilmington, Delaware 19899.

Pollution Control Revenue Bonds- Telephone (302) 429-3011 Girard Bank Delaware, Wilmington, Delaware Annual Meeting The Annual Meeting will be held on April 24 Bank of Delaware, at 12:30 p.m., in the Grand Opera House, Wilmington, Delaware 818 Market Street Mall, Wilmington, Delaware.

Wilmington Trust Company, Wilmington, Delaware. Additional Reports To supplement information in this Annual Transfer Agents and Registrars Report, a Financial and Statistical Review Preferred Stock- (1973-1983) and the Form 10-K are available Wilmington Trust Company, upon request. Please write to Stockholder Wilmington, Delaware. Relations, Delmarva Power, 800 King Common Stock- Street, P. 0. Box 231, Wilmington, Wilmington Trust Company, Delaware 19899 Wilmington, Delaware, Manufacturers Hanover Trust Company, New York, New York.

Stock Symbol Common Stock, DEW-listed on the New York and Philadelphia Stock Exchanges.

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, Jefferson Building, P.O. Box 1197, Richmond, Virginia 23209.

42

Delmarva Power & Light Company Officers Management Changes Robert D. Weimer resigned as chairman of the board and as a director effective December 31, 1983. Nevius M. Curtis, president and chief executive officer, has been elected to also hold the office of chairman.

Frank A Cook and Howard E. Cosgrove have been promoted to senior vice presidents.

Mr. Cook's primary responsibility is production operations, while Mr. Cosgrove oversees all division operations and engineering. Roger D. Campbell has been promoted to vice president and chief financial officer replacing Mr. Cosgrove. Rounding out the senior management team is Harland M. Wakefield, Jr., senior vice president, whose responsibilities include information systems, personnel, indl,lstrial relations, and administrative services and H. Ray Landon, senior vice president, whose responsibilities include regulatory practice, marketing, corporate communications, resale services, and legal services.

Nevius M. Curtis Executive Committee Chairman of the Board, President Nevius M. Curtis, Chairman; and Chief Executive Officer Werner C. Brown; Oscar L. Carey; Dr. E. Arthur Trabant; Frank A. Gook Harland M. Wakefield, Jr.

Senior Vice President Audit Committee Howard E. Cosgrove Oscar L. Carey, Chairman; Senior Vice President Werner C. Brown; John R. Cooper H. Ray Landon Nominating Committee Senior Vice President Dr. E. Arthur Trabant, Chairman; Nevius M. Curtis; Scilly V. Hawkins Harland M. Wakefield, Jr.

Senior Vice President Compensation Committee Werner C. Brown, Chairman; Roger D. Campbell Oscar L. Carey; Nevius M. Curtis; Vice President and Chief Financial Officer William G. Sirneral Donald E. Gain Division Vice President, Northern Division Wayne A. Lyons Division Vice President, Southern Division Paul S. Gerritsen Vice President, Regulatory Practices Thomas S. Shaw, Jr.

Vice President, Production Alfred G. Thawley, JL Secretary and Treasurer Charles Marchyshyn Comptroller 43

Mr. Robert D. Weimer retired as chairman ofthe Board ofDirectors ofDelmarva Power & Light Company effective December 31, 1983.

Mr. Weimer held numerous positions during his 36 years ofservice. He was elected chiefexecutive officer one month after the Arab oil embargo of 1973. He led Delmarva Power through a period of unprecedented rapid change in the energy business.

The company's strongfinancial position today is a reflection ofthat leadership.

Board of Directors Nevius M . Curtis Chairman of the Board, President and Chief Executive Officer of the Compa.ny Sally V Hawkins Werner C. Brown Director and President of Delaware Retired Chairman of the Board of Hercules, Broadcasting Company and President and Incorporated (chemical manufacturer)

General Manager of Station WILM (radio Wilmington , Delaware broadcasting), Wilmington , Delaware Charlotte Lee Cannon James 0 . Pippin, Jr.

Director ofH . P Cannon & Son, Inc. President and Director of the (food processing firm) Centerville National Bank of Bridgeville, Delaware Maryland, Centerville, Maryland Oscar L. Carey William G. Simeral President and Director of Larmar Corporation Director and Executive Vice President (general real estate and home builders) and a member of the Executive Committee Salisbury, Maryland of E. I. du Pont de Nemours & Company (energy and diversified manufacturing)

Wilmington, Delaware Frank A. Cook Dr. E. Arthur Trabant Senior Vice President of the Company President of the University of Delaware Newark, Delaware John R. Cooper Harland M. Wakefield, Jr.

Manager of Environmental Affairs and Senior Vice President of the Company Occupational Health, Petrochemicals Department of E. I. du Pont de Nemours &

Company (energy and diversified manufacturing)

Wilmington, Delaware