ML18092A140

Annual Financial Rept 1983

ML18092A140
Person / Time
Site:	Peach Bottom, Salem, Limerick, FitzPatrick, 05000000
Issue date:	12/31/1983
From:	Joseph Austin, Everett J PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC
To:
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ML18092A137	List: ML18092A136 ML18092A138 ML18092A139 ML18092A140 ML18092A141
References
NUDOCS 8404190333
Download: ML18092A140 (46)

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I Philadelphia Electric Company Annua1Report1983 Financial Highlights 1983 I 982 Change Operating Revenue

$2,596,050,000 $2,644,753,000 (2%)

Operating Expenses

$2,202,343,000 $2,256,026,000 (2%)

Taxes Charged to Operations

$ 378,641,000 $ 372,180,000 2%

Operating Income

$ 393,707,000 $ 388,727,000 1%

Earnings Applicable to Common Stock $ 321,705,000 $ 278,623,000 15%

Earnings per Average Common Share

$2.40

$2.39 Cash Dividends Paid per Common Share Average Shares of Common Stock Outstanding Construction Expenditures Total Assets Contents

$2.12

$2.06 133,852,000 11 6,480,000

$1,040,428,000 $ 883,898,000

$8,143,795,000 $7,029,269,000 3%

15%

18%

16%

2 5

Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Accountants' Re ort 22 Consolidated Financial Statements 23 Notes to Financial Statements 27 Financial and Operating Statistics 36 Shareho lder Information 40 Officers and Directors 41 Earnings and Dividends per Share Dollars

.40 79 80 81 82 E:arni ngs Per Share Di vidends Per Share 83 Construction Expenditures Million Dollars 200 79 80 8 1 External Sources Internal Sources 8 2 8.l

To Our Shareholders:

fames L. Everett 2

In spite of several disappointments, 1983 was a year of progress. We note below some of the highlights and invite you to read the balance of this Annual Report for additional details.

• Earnings were $2.40 per share, up one cent from last year. Lower wholesale sales from Salem Unit No. 2, which experienced long outages during the year, prevented more substantial earnings growth.

• Electric sales to retail customers increased 4 %, assisted by hot summer weather and the economic recovery.

• Service reliability to our customers remained at a near perfect level of 99.988%.

• The Company established a new incentive electric rate for man-ufacturing customers, providing lower electric rates in exchange for increased employment and additional investment in facilities.

At year-end, 36 customers had taken advantage of this rate and had added about 3,000 jobs in our service area.

• The Company received an electric rate increase in November from the Pennsylvania Public Utility Commission (PUC), esti-mated to add $144 million of annual revenue. The Company had requested $228 million.

• The construction of Limerick Unit No. 1 remained on schedule for commercial operation in April, 1985.

• Construction of Limerick Unit No. 2 remained suspended, await-ing PUC action on the Company's petition to resume construction.

The Company believes that Limerick Unit No. 2 is needed for

capacity and is the most economic generation available. On Janu-ary 24, 1984, the Company responded to the PUC's latest Order and proposed to suspend construction of Unit No. 2 until Unit No. 1 is in commercial operation.

• Work continued on the Point Pleasant water pumping facilities in Bucks County which are planned to supply water to Limerick, as well as to communities in Bucks and Montgomery Counties, de-spite strong local political opposition to the project.

• The flue gas scrubbing systems that remove more than 90% of the sulfur dioxide from stack gases at the Company's only coal-1 burning stations, Eddystone and Cromby, operated successfully in 1983. These systems allow the Company to continue to burn coal while meeting stringent air quality regulations.

• The Company spent $1.0 billion on construction during the year.

Approximately $800 million of these funds came from the sale of new securities and long-term bank borrowings and the balance from internal sources.

• The quarterly dividend rate on common stock was increased by 2 cents to 55 cents, or $2.20 per share on an annual basis, to be effective March 30, 1984.

The Company is proud of its 10,500 employees who serve so well and is grateful for the support of its shareholders, which now number over 300,000. Your Directors and Management look forward to the future with confidence.

James L. Everett Chairman of the Board and Chief Executive Officer

~°'-'?

John H. Austin, Jr.

President and Chief Operating Officer John H. Austin, Jr.

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New Hotels Philadelphiafeatu.res a nu.m*

ber of fine, new bot els. The 450-room Hershey Phila-delphia Hotel opened in 1983 across from tbe Academy of Mu.sic.

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Muddy Run The Company has a five-year plan/or improving recrea-tion along the Susquehanna River in the Conowingo, Peach Bottom and Muddy Run areas. Fishing, boating and camping are but a few of the many activities avail-able to visitors at Muddy Run Recreation Park. After 15 years of operation, the first major overhaul of Muddy Run generating units was completed injune, 1983.

Earningsllllprove Earnings per share in 1983 amounted to $2.40 per share, one cent per share above the 1982 level. Total common stock earnings were $322 million, 15%

above last year while the number of average shares outstanding also rose 15%. Dividends paid on the common stock amounted to $2.12 a share, 100%

of which were not taxable for federal in-come tax purposes. In addition, 93% of preferred stock dividends paid in 1983 were not taxable.

Lower wholesale sales of Salem Unit No. 2 *output penalized earnings by approximately 3 7 cents per share com-pared with 1982. This was offset by higher electric sales to retail customers and by the full year's effect of rate in-creases granted in 1982.

Dividend Increased On January 23, 1984, the Board of Di-rectors voted to increase the quarterly common stock dividend from 53 to 55 cents per share effective with the first quarter payment in March, 1984.

Sales Results Mixed Total electric sales decreased by 7% to 27.6 billion kilowatthours primarily due to lower sales of the Company's share of the output of Salem Unit No. 2 to Jersey Central Power & Light Com-pany. This jointly-owned unit, which is operated by Public Service Electric and Gas Co. of New Jersey, was shut down for an extended refueling and mainte-nance outage during 1983. It is expected to return to service in early 1984.

Electric sales, excluding sales to Jersey Central, increased 4% to 27.2 bil-lion kilowatthours due to higher aver-age residential usage, one of the hottest summers on record and increased busi-ness activity. This encouraging result represented the first year-to-year gain in retail electric sales in four years.

Gas sales declined 6% to 65 bil-lion cubic feet due to milder weather during the heating season and lower sales to commercial and industrial cus-tomers. Steam sales decreased 10% to 4.6 billion pounds.

Revenue, Expenses Decline Total operating revenue amounted to

$2.596 billion, a 2% decrease from 1982 levels. This $49 million decline was due to $105 million less electric revenue from sales of output of Salem Unit o. 2 to Jersey Central and lower fuel adjustment revenue, which was par-tially offset by rate increases and higher 5

Grays Ferry Capacitors Electric Mechanic Joseph Harmer inspects the newly-installed high voltage capaci -

tors at the Grays Ferry Sub-station. The new capacitors increase the capability to im-port low-cost energy from the west.

Cromby Scntbbers Plant Operator Richard Vag-noni controls operations at the flue gas scrubbing plant of the Crom by coal-fired units. The scrubbing plant successfully completed its first year of operation in 1983.

6 electric revenue from service territory sales. Gas revenue climbed $27 million and steam revenue declined $2 million.

Operating and maintenance ex-penses before depreciation and taxes were down 5% to $1.658 billion, pri-marily due to lower fuel expenses charged to operations. At year-end $1 4 9 million of fuel expenses had been de-ferred pending recovery in customers' rates.

Operating and maintenance ex-penses, excluding fuel, were up 10%

due to higher maintenance costs at nu-clear plants, operating and maintenance costs associated with the new sulfur di-oxide removal equipment at the coal-burning stations, increased labor costs and expenditures for materials and supplies.

Construction Expenditures Investment in new plant and equipment amounted to a record $1.04 billion in 1983, with $710 million or 68% spent on Limerick and related transmission fa-cilities. Outlays for 1984 are expected to be reduced to $857 million as a re-sult of the wind down of activities on Limerick Unit o. 1.

1983 Financing Program The Company raised $1.017 billion in new capital and bank borrowings during 1983 to fund ongoing construction pro-jects and deferred fuel costs and to re-fund maturing securities. The balance of the funds required came from internal cash sources -

chiefly depreciation, re-tained earnings and deferred taxes. The Company's financings for the year are shown on the table at right.

Shareholder Accounting Improvements In March, the Company installed a new shareholder accounting system in which shareholder records are maintained on a new online computer system. Toll-free telephone lines were installed in the Stock Transfer Section as a convenience to shareholders who have questions about their accounts. The new state-of-the-art computer system enables the Company to improve its record of providing shareholders with prompt service and timely, informative reports on Philadelphia Electric shareholdings.

Rate Increases A $14 3. 5 million electric rate increase

Retail Expansion

' The Court at King of Prussia features many fine stores, such as Bloomingdale's. The Court, which op ened in 1981, adjoins the King of Prussia Plaza and together they form 011e of the largest retailing complexes in the world 1983 MAJOR FINANCINGS Month Feb.

Depositary Preferred Stock -

12.80% -

7, 500,000 shares @ $10 Mar.

Common Stock -

6,000,000 shares @$1 7.40 June Mortgage Bonds -

13%% Series due 201 3 Sept.

Pollution Control Revenue Bonds (variable tax*exempt@ 5.2*5.8%)

Oct.

Common Stock-5,000,000 shares @$1 7. 375 Nov.

Depositary Preferred Stock -

13.3 5% -

7, 500,000 shares@$10 Common Stock Purchase Plans:

Dividend Reinvestment, Employee, TRASOP -

6,044,000 Shares Subtotal Bank Borrowings Total Millions of Dollars

$ 75.0 104.4 125.0 50.0 86.9 75.0 98.3

$614.6 402.8

$1,017.4 7

Fine Dining Excellent restaurants abound in Philadelphia and the surrounding suburbs.

Chef Georges Perrier of Le Bee Fin displays some tempting selections from his dessert cart.

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approved by the Pennsylvania Public Utility Commission (PUC) effective November 23 was 63% of the $228.2 million originally requested in Febru-ary, 1983. With this increase, the PUC established a 16.15% return allowance for common stock shareholders' investment.

In addition, the Company lowered its electric Energy Cost Rate (ECR) by approximately one-half cent per kilowatthour effective April 1, 1983 due to expected lower fuel costs. This was the third ECR reduction since May 1, 1982 and it reduced customers' bills by approximately $137 million per year.

The ECR recovers the actual cost of fuel without profit. This reduction did not affect the Company's earnings.

The Company's retail rate in-crease activity during 1983 is sum-marized in the table below.

Limerick Generating Station During 1983, construction work on Limerick Unit No. 1 continued at a rapid pace. As of December 31, 1983, Unit No. 1 and total common plant were ap-proximately 91% complete and the Company's investment amounted to $1.8 billion for Unit No. 1 and $827 million for the common plant.

As the systems and components of Limerick Unit No. 1 near completion, Bechtel Power Corporation, the con-1983 RETAIL RATE INCREASES struction contractor, will relinquish control of these systems and compo-nents to the Company. The initial test program consists of pre-operational test-ing, fuel loading and step-by-step power generation testing to full capacity. The Company's start-up schedule calls for fuel loading of Unit No. 1 by August, 1984 and commercial operation by April, 1985. The entire start-up and commer-cial operation schedule is contingent upon timely licensing by the Nuclear Regulatory Commission which has re-ported potential licensing delays.

Work on Unit No. 2 remained in a suspended status pending resolution of the Pennsylvania PUC's August, 1982 Order which directed the Company to either cancel Unit No. 2 or suspend its construction until Unit No. 1 was com-plete. The Company had appealed that Order but on May 27, 1983, the Penn-sylvania Supreme Court upheld the authority of the PUC to deny the regis-tration of any new Securities Certificates that would provide funds for con-struction of Unit No. 2, pending com-pletion of Unit No. 1.

On July 21, 1983, the Company notified the PUC of its election to re-sume construction of Unit No. 2 in early 1984 as comparable construction tasks are completed on Unit No. I. At the same time, the Company filed a Se-curities Certificate with the PUC to seek Millions of Dollars Application Date Effective Date Annual Revenue Electric -

Pennsylvania 2/ 23/ 83 11 / 23/ 83

$143.5 Electric -

Maryland 11 / 3/ 82 2/ 1/ 83 2.5 Gas 7/ 29/ 83 Pending 40 7 Steam 7/ 29/82 4/ 29/ 83 4 9 Steam 7/ 29/ 83 1/ 1/ 84 2.6 Transportation Center The Compa11ys bigb service reliability record depends in good part 0 11 a well main-tained fleet of uehicles to transport a11d assist Com-pany employees. Sbown here is the modern and efficient Transportation Center in Berwyn.

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Commuter Tunnel Af ter f our years of co11-structio11, tbe $325 million center city Commuter Tun -

n el was essentially completed in 1983. Passenger seruice is expected to begi11 i11 early 1984 linking two preuiously separate sets of tracks -

those of tbe f ormer Pennsyl-va nia Railroad, which f eed into Suburba n Station, a11d those oftbe f orm er Reading Railroad, wbicbfeed into Reading Terminal.

10 E2R2 United States GJpsum Com -

pany was on e of tbe first cus-tomers to ben efit from tbe Employment and Econ omic Recovery Rider ( E2R2) wbicb was put into effect i11 July PE Major Accounts Repre-sentative jay Ammon (cen -

ter) discusses operations with U S. G)psum plant manager Erik And erson (right) and engineer Charles Kahler (left)

approval for a $1.1 billion revolving credit/term loan agreement to be provided by a consortium of major banks which would provide the re-quired debt funds to continue work on the entire project until Unit No. 1 is in rate base.

On December 16, 1983, the PUC rejected the Company's response and clarified its previous Order to define completion of Unit No. 1 as placing the unit in commercial operation, preclud-ing a resumption of Unit No. 2 con-struction until early 1985. The Company was given another 120 days to respond.

On January 24, 1984, the Com-pany responded to the PUC requesting that it approve the Company's election to suspend construction of Unit No. 2 until Unit No. 1 is in commercial opera-tion. Under the Company's schedule for Unit No. 1, this will delay completion of Unit No. 2 from late 1988 to April,

1990, which will increase the project's cost by about $650 million. Neverthe-less, completion of the unit is necessary to supply future energy needs and is the most economical means of doing so. As of December 31, 1983, the Company's investment in Unit o. 2 amounted to

$667 million.

Point Pleasant Construction Construction began in January, 1983 on the Point Pleasant Water Supply System which has been planned to be con-structed and operated by Bucks County and by the Neshaminy Water Resources Authority (NWRA), a municipal au-thority created by Bucks County, under a contract among the Company, NWRA and Bucks County. The Point Pleasant fa-cilities are designed to supply water from the Delaware River for public use and also for supplementary cooling water for Limerick during periods of low river flow on the Schuylkill River.

Excavation for the pumphouse was completed and the initial pour of concrete began in October. At year-end, construction of the pumphouse was 20% complete.

In January, 1984, the Bucks County Commissioners appointed three NWRA board members (a majority) who have declared their opposition to the project. In February, 1984, the NWRA ordered the contractor to stop work on the project and the Company began legal action to have construction resumed.

Other components of the supple-mentary cooling water system are also the subject of legal proceedings.

Commercial Operations The hot summer, the improving econ-omy and increased average residential usage had beneficial effects on electric sales to regular customers in 1983. Total electric sales, excluding sales to Jersey Central, increased 4% to 27.2 billion kilowatthours. Electric residential sales rose 8% and electric house heating sales increased 6%. Increased business ac-tivity helped both small and large com-mercial and industrial sales which increased by 5% and 2%, respectively.

During 1983, 8,500 living units were built in the Company's service ter-ritory, an increase of 37% over 1982.

Company services were used for space heating in 84% of these units -

64%

electric heat, of which one-half were equipped with heat pumps, and 20%

gas. In the commercial market 63% of the floor space added was heated elec-trically, 15% by gas.

In an effort to encourage firms and businesses to locate and remain in our service area, Company representa-tives maintain close contact with com-mercial and industrial customers. In 1983, the Area Development Depart-ment helped 90 industrial and commer-cial firms to locate or expand in the Company's territory. These firms oc-cupied 1.3 million square feet of new space and 3.9 million square feet of ex-isting, unoccupied buildings and provided 9,700 jobs.

The Employment and Economic Recovery Rider was established on July 1 to stimulate economic growth. This rate allows new large industrial custom-ers, as well as existing ones who add

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• Microprocessor The Company has begun using hand-held micro-processors/or data collection in its meter reading opera-tion, eliminating the need f or scannable, paper documents.

These new devices, called Portable Data Recorders, were delivered and tested in the fourth quarter of 1983 and full implementation is expected during 1984.

11

Media Campaign A new series of corporate ra-dio and television messages began in late October. The campaign addresses the top -

ics of energy conservation, home energy audits, electri-cal safety and what custom-ers should do in the event of a power outage.

12 employees or make an investment in plant facilities, to receive up to a one cent per kilowatthour rate reduction on their increased kilowatthour usage. The maximum reduction will apply through 1987 and gradually will phase out by 1991. At year-end, 36 participating in-dustrial customers have employed an ad-ditional 3,000 people and made an additional investment in plant facilities of more than $2 million.

A "high-tech" corridor is de-veloping along Route 202 and the Pennsylvania Turnpike in Chester and Montgomery Counties which promises to enhance the growth potential of the Company's service territory. The nu-cleus of this corridor consists of re-search and development, medical, electronic, and other high technology firms. Some of these prestigious com-panies include Burroughs Corporation, Commodore Business Machine, General Electric, and Shared Medical Systems Corporation.

Philadelphia also is experiencing a revitalization within its center city area. In addition to extensive restoration and modernization of existing build-ings, a great deal of new construction is underway in the city. Several major sites providing additional office space include the first portion of twin, all-electric buildings at 1800 Kennedy Bou-levard with 20 floors and a 32-story building known as One Reading Center, located at 11th and Market Streets, with 720,000 square feet of space. Gallery II was opened during 1983 and, along with its forerunner Gallery I, comprise a 1.7 million square foot, 230-store complex. It is the largest urban shop-ping center in the nation. More than

$750 million has been spent in trans-forming this area, known as Market Street East, into a lively retail center.

Twenty-four minority entrepre-neurs have set up shop in the newly opened Gallery II. It is one of the high-est percentages of minority participation of any major retail development in the country.

The economy within our service area is beginning an upturn and the Company is working with all customers to insure its growth and development.

The Company is also committed to providing its customers with both the highest quality of service and complete and reliable information on energy con-servation. In addition to providing a re-liable product at the lowest possible cost, the Company provides information on how to best use energy to meet cus-tomer needs.

Each customer is treated as an im-portant individual. For example, Phila-delphia Electric Company initiated the

" PE CARES" program to help senior cit-izens and persons receiving disability or survivor benefits. Employees were spe-cifically trained to provide customers with valuable information regarding programs available within our Company and from other outside social service assistance agencies. To date, 25,000

Corporate Headquarters CIGNA Corporation moved its corporate headquarters to Philadelphia in 1983 and oc-cupied this new building in center city Formed by the merger of the !NA Corpora-tion and Connecticut Gen-eral Corporation, CIGNA is now the second largest stock insurance company in the United States with over $30 billion in assets and 40, 000 employees worldwide.

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14 customers have enrolled in this program.

The Company conducted 3,300 home energy conservation audits for customers during 1983, bringing the cumulative total to 12,000 since the program was started in 1981. The audits consist of a complete survey of the home and an analysis of the energy usage savings from recommended con-servation measures. In addition, more than 1,200 inquiries have been received from residential customers for informa-tion concerning appliances, for space heating and air conditioning informa-tion and operating costs, and for energy conservation assistance. Energy con-servation training programs are con-ducted for residential, commercial and industrial customers, including special community-based programs for low in-come customers.

Electric Operations 1983 was a year of many challenges for electric operations. The summer of 1983 produced record-breaking tem-peratures evidenced by 41 days of above 90 degree temperatures. As a result, total electric kilowatthour usage ex-ceeded 1982 levels by 11% during the three-month period of July through Sep-tember. A new one-hour electric peak demand (on a weather-adjusted basis) was established on September 6th. In addition to experiencing one of the hot-test summers on record, three major storms interrupted electric service to 219,000 customers during the summer.

Aggravating these extreme weather situations were the longer-than-anticipated outages of our nuclear units.

When Peach Bottom Unit No. 3 was shut down for scheduled refueling in Febru-ary, 1983, weld cracks caused by stress corrosion were found in the stainless steel piping connected to the reactor vessel. Unit No. 2 was voluntarily taken out of service in July to inspect its welds, and similar cracks were found.

A total of 35 weld cracks were tem-porarily repaired over a 39-week period using a weld overlay technique. Unit No. 3 was returned to service on Octo-ber 15 and Unit No. 2 on December 3.

The permanent repair of the piping will be undertaken during the next sched-uled refueling outages for the units which are set for early 1984 (Unit No.

2) and for 1985 (Unit No. 3).

Despite these major difficulties facing the Company during 1983, the Company's customers experienced no major disruptions to their service. There were no "brownouts" or voltage reduc-tions and the Company maintained its near-perfect record of reliable service with a service availability of 99.988%.

This index is the ratio of the number of customer-hours that service is available compared to the total customer-hours in a year and is used by PE and the electric utility industry as a measure of service reliability.

This high level of performance can be traced to two basic factors. First,

Sports Complex Tbe sports complex in Soutb Pbiladelpbia features Vet-erans Stadium, bome of tbe Pbillies and Eagles; tbe Spec-trum, bome of tbe 76ers and tbe Flyers; and]obn F Ken-nedy Stadium/or football games and otber special events.

Opposite page: Some of Pbila-delpbia s sports be roes -

(left to rigbt) Steve Carlton oftbe Pbillies, Bobby Clarke of tbe Flyers, Wilbert Montgomery of tbe Eagles, and D~ j,

Julius Erving, of tbe 76ers.

15

Transformer Installation First Class Linemen fam es Wiechec (left) and Albert Poulton (right) prepare a 34 kV padmount transformer to supply underground electric service to a new residential development.

16

the Company has sufficient reserve ca-pacity to absorb the temporary loss or outage of a significant portion of its generating capacity without adversely affecting the supply of energy to its cus-tomers. To augment this reserve capac-ity, the Company has over the years entered into agreements for the pur-chase of power from other systems and, during 1983, PE expanded these ar-rangements. Over 12 billion kilo-watthours of economical power was purchased by the Company in 1983 rep-resenting 41 % of total output and the savings to PE customers amounted to ap-proximately $236 million.

Secondly, the Company's high level of performance is maintained by an able and flexible body of transmis-sion and distribution employees who are called into action during major storms. Three hundred linemen, plus the necessary support personnel, were moved into the affected areas to restore service promptly during the summer storms of 1983. As a part of maintaining this employee body, 23 candidates were graduated from an intensive seven-week training school as apprentice linemen and eight from a comprehensive nine-week cable splicing school in 1983.

Despite all the Company's efforts, the unusual circumstances of 1983 did have their negative impact. Due to the unavailability of some of its lower cost nuclear generation, the Company's elec-tric fuel and interchange costs increased 16% in 1983. Nearly $220 million of these costs were deferred to coincide with their recovery in rates.

The Company has a long-standing commitment to provide service to its customers in a manner which is en-vironmentally safe and acceptable. In 1983 the Company completed its initial year of commercial operation of the flue gas scrubbers at its Eddystone and Cromby Stations. The process for remov-ing the sulfur dioxide from the flue gas has performed as designed and has al-lowed Eddystone and Cromby to meet the stringent emission limits of the Pennsylvania Department of Environ-mental Resources.

In this process, sulfur dioxide is removed from the flue gas by a chemi-cal reaction with magnesium oxide. The resultant magnesium sulfite is shipped to one of the Company's two magnesium oxide regeneration facilities where it is regenerated to produce sulfur dioxide for sale for the manufacture of sulfuric acid and magnesium oxide for reuse in the scrubber process. The capital cost for the scrubber, regeneration facilities and waste water treatment facilities to-taled almost $300 million.

Gas Operations The Company added more than 3,800 new gas customers during 1983, bring-ing the total to over 300,000 customers.

Overall gas sales were down 6% to 65 billion cubic feet due to milder winter weather, conservation, and lower com-mercial and industrial sales.

In 1983, the Company instituted a new gas rate called Temperature Con-trolled Service (TCS) that provides for a discount from the general service rate to large commercial and industrial custom-ers. To be served under the rate, new commercial and industrial customers are required to install large dual-fuel boilers. Existing customers with dual-fuel boilers are also encouraged to re-vise their service contract to include the TCS rider. The primary purpose of the new rate is to switch customers from gas to alternate fuels during extremely cold weather to reduce the peak gas sendout and Company costs. The TCS customer can expect to burn alternate fuel for ten to fifteen days a year. A unit installed at the customer's property notifies the cus-tomer when an alternate fuel must be used and a central computer continually moni-tors the gas consumed by the customer.

Other Developments The Company executed an innovative interim sales contract with the Depart-ment of Energy in July, 1983 for the delivery of enriched uranium for the Peach Bottom and Limerick reactors.

Under this agreement, the Company was Gas Service (Above) Gas service is ex-tended to a new residential community near Newtown, PA. Welder Charles Dunlap and Street Mecha11ics Frank-

/i11 Gallagher a11d Earl Scar-borough work on a 2-inch main installation. (Below)

Te111perature-co11trolled gas seruice was inaugurated in 1983. Senior Engineer Gerard Eberz watches as Thomas Shoemaker, a Senior Utilization Mechanic, moni-tors the computer-colltrolled communication between the custom er and the gas system control center.

17

18 Limerick Turbine Work nears completion on Limerick Unit No. 1. Shift Superintendent Charles Gillespie, Auxiliary Operator Cynthia Naughton and Assis-tant Control Operator Stanley Gamble from Electric Production look on as work-men finish applying thermal insulation to the high pres-sure turbine.

able to partially terminate its enrich-ment services under two existing con-tracts and receive uranium enrichment services at a discount. The Department of Energy, in turn, was assured that the Company would not enter the second-ary market for foreign enrichment serv-ices for the years 1983 through 1985. As a result of this agreement, the Company saved about $3 million during 1983 on enriched uranium that was received from the Department of Energy for the initial core of Limerick Unit No. 1. Addi-tional savings are anticipated over the next two years.

PE has been selected by the Elec-tric Power Research Institute to be the host utility for a large-scale test of a unique two-way radio control system.

The system is designed to be used for remote load management, automatic meter reading and the monitoring and control of electric distribution facilities.

Outbound signals from a central compu-ter in our headquarters huilding are sent to a local commercial radio station transmitter by telephone and broadcast by AM radio to points on our distribu-tion system and our customers' meters.

Meter readings and operating data are returned to the Company by VHF radio equipment. The radio station utility signals are not discernible to the sta-tion's listeners.

Central computer and AM broad-cast equipment were installed in 1983 and a small number of receiver units are being tested. In 1984, 1,000 one-way and two-way communications units will be installed throughout our service terri-tory. The test will continue for one year.

On May 2, 1983, after 18 months of negotiations by the Company's Real Estate Department, an agreement was completed between Consolidated Rail Corporation and PE for the conversion of 562 existing license agreements to permanent easements, under which Company facilities occupy railroad rights-of-way, and for the acquisition of approximately 300 railroad structures presently supporting PE facilities at a cost of approximately $5 million pay-able over a four-year period.

The conversion agreement will benefit the Company since it not only obtains permanent rights for transmis-sion and distribution facilities, but also results in significant savings.

In keeping with its corporate ob-jective of good corporate citizenship, PE is committed to the development and use of minority vendors. The Company actively seeks out and encourages mi-nority vendors and contractors who may be interested in doing business with it.

PE has expanded its Minoriry Vendor Development Program by initiating comprehensive involvement with the minoriry business community, resulting in an increase of more than I 00% in the contract dollars awarded to minority vendors.

Center City Housing Philadelphia offers a great variety in urban housing Shown here are areas of re-stored and renovated row homes as well as modern town homes.

19

Managements Discussion and Analysis of Financial, Condition and Results of Operations General In recent years, the Company has experienced substantial increases in operating costs and carrying charges on increased investment in plant and equipment. Any future increases in such costs and charges may be expected to affect future net income and earnings per average common share adversely unless periodic rate relief is obtained to offset them. In addition, the capital carrying charges associated with the construction of Limerick, which are capitalized by crediting income with an allowance for funds used during construction (AFUDC) and recovered through future de-preciation, now represent a major portion of net income and will continue to increase at least until Limerick Unit No. 1 goes into service, which is expected to be in 1985.

Until recently, the sluggish economic condi-tions in the Company's service territory also had an adverse effect on operating results. Although the return on average common equity has increased during the past three years, the return on investment is still below that allowed by the Penn-sylvania Public Utility Commission (PUC) as a fair return in the Company's last rate order.

During 1983, the Company put into effect in-creased rates for electric and steam service totaling approx-imately $151 million per year. On July 29, the Company filed with the PUC for an additional.$40.7 million in gas revenues and $5.5 million in steam revenues. The gas rate increase request has been suspended until April 27, 1984. On Decem-ber 16, 1983, the PUC approved a steam rate increase settle-ment of $2.6 million, effective January 1, 1984.

Electric Operating Revenue The decrease in electric revenue for 1983 compared with 1982 is primarily attributable to the signifi-cant reduction in the sale of output from Salem Unit No. 2 to Jersey Central Power & Light Company as a result of the ex-tended outage of the unit and to lower fuel-related revenue.

Increases in 1982 over 1981 reflect higher base rates and the sale of output and capacity from Salem Unit No. 2 to Jersey Central Power & Light Company. K.ilowatthour sales of elec-tricity to retail customers increased 3.9 percent in 1983, after a decline in 1982.

Electric Revenue Increase/ (Decrease)

Rate Increases Fuel Related Revenue Salem Unit No. 2 Other Total Millions of Dollars

'83 vs. '82

$ 115.6 (188.7)

(104.9) 104.9

$( 73.1)

'82 vs. '81

$198.2 (83.0) 89.6 (25.9)

$I78.9 Gas Operating Revenue Increases in 1983 over 1982 primarily reflect the recovery of higher fuel costs and higher rates. Mcf sales of gas declined 5. 7 percent.

Fuel and Energy Interchange Expense For accounting purposes, fuel and energy in-terchange costs are deferred until billed as fuel adjustment revenue. During 1983, gross fuel and energy interchange costs increased substantially because of extended outages of nuclear units and increased output. However, $219.2 million of electric fuel costs were deferred resulting in a net de-crease in fuel and energy interchange expense compared with 1982.

Fuel and energy interchange expense also de-creased in 1982 from 1981 as a result of higher nuclear out-put and economic purchases of power from other utilities.

Other Operating and Maintenance Expenses Other operating and maintenance expenses have increased in the last two years due to inflation and to growth in utility plant.

Depreciation Increases in depreciation in the last two years reflect additions to plant in service.

Income Taxes Income taxes charged to operations decreased in 1983 from 1982 as a result of lower taxable income caused primarily by significantly lower revenue from Salem Unit No. 2 sales.

Income tax credits, net, included in other in-come, have increased in the last two years as a result of the higher allowance for borrowed funds used during construction.

For 1983, the Company's consolidated taxable income for federal income tax purposes is estimated to be a net loss of approximately $115 million versus taxable income of $261 million in 1982. The decrease was primarily at-tributable to a $272 million increase in fuel expense not re-covered currently from customers, a $105 million decrease in revenue from the sale of Salem No. 2 output and a $62 million charge for future disposal of spent nuclear fuel.

Other Taxes Other taxes have increased due to higher realty, gross receipts, and social security taxes.

Allowance for Funds Used During Construction The increases in AFUDC for the last two years resulted from a higher cost of capital for construction and increases in construction work in progress.

Interest Charges Interest charges on debt increased in the last two years because of additional debt outstanding. The ratio of earnings to mortgage interest, which is a measure of the Company's ability to issue additional long-term debt, was 2.25 times in 1983, above the minimum of 2.0 times re-quired for the issuance of new mortgage debt.

2I

22 Capital Expenditures and Changes in Financial Position The Company is carrying on a construction program which is estimated to require expenditures of $857 million in 1984 and $2.3 billion from 1985 to 1987. A ma-jority of these expenditures relates to the construction of the Company's two 1055 mW nuclear generating units at Limer-ick. Successful completion of this program is dependent on the Company's ability to obtain external financing, primarily through debt arrangements and sales of equity securities which are subject to market conditions and to meeting cer-tain earnings tests. The program also is subject to the licensing requirements of the NRC, to financing approvals by the PUC, and to change due to litigation. The Company can-not predict the outcome of such regulatory reviews, but be-lieves the safety requirements have been or will be met, the economic desirability of the program has been demonstrated, and that the program will be successfully completed and approved.

Interim financing of the construction program is provided by commercial paper borrowings and short-and intermediate-term bank loans, which also are dependent on the Company's financial position.

Return on Average Common Stock Equity Percent Ratio of Earnings to Mortgage Interest Ti mes Covered 15 6

79 80 81 82 83 Accountants' Report To the Shareholders and Board of Directors Philadelphia Electric Company 1.5 1.0

.5 79 80 81 82 83 We have examined the consolidated balance sheets of Philadelphia Electric Company and Subsidiary Companies as of De-cember 31, 1983 and 1982, 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, 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 Philadelphia Electric Company and Subsidiary Companies as of December 31, 1983 and 1982, and the consolidated results of their operations and changes in their financial position 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.

1900 Three Girard Plaza Philadelphia, Pennsylvania February 2, 1984

Philadelphia Electric Company and Subsidiary Companies Consolidated Statements of Income Operating Revenues Electric Gas Steam Total Operating Revenues Operating Expenses Fuel and Energy Interchange Other Operating Expenses Maintenance Depreciation Income Taxes Other Taxes Total Operating Expenses Operating Income Other Income Allowance for Other Funds Used During Construction Income Tax Credits, net Other, net Total Other Income Income Before Interest Charges Interest Charges tong-Term Debt Short-Term Debt Allowance for Borrowed Funds Used During Construction Net Interest Charges Net Income Preferred Stock Dividends Earnings Applicable to Common Stock Average Shares of Common Stock Outstanding (Thousands)

Earnings Per Average Common Share (Dollars)

Dividends Per Common Share (Dollars)

See notes to financial statements.

For the Year Ended December 31 1983 1982 1981 (Thousands of Dollars)

$2,107,897

$2,180,960

$2,002,063 417,042 390,427 356,431 71,111 73,366 74,931 2,596,050 2,644,753 2,433,425 986,634 1,128,498 1,187,635 449,101 411,753 360,840 222,640 199,747 156,878 165,327 143,848 130,283 200,026 207,669 129,484 178,615 164,511 145,312 2,202,343 2,256,026 2,110,432 393,707 388,727 322,993 108,126 65,699 65,013 87,912 75,845 63,164 (3,125)

(717) 2,457 192,913 140,827 130,634 586,620 529, 554 453,627 330,200 308,862 266,691 35,199 32,030 33,155 (167,868)

(147,561)

(123,784) 197,531 193,331 176,062 389,089 336,223 277,565 67,384 57,600 53,804

$ 321,705

$ 278,623

$ 223,761 133,852 116,480 99,557

$2.40

$2.39

$2.25

$2.12

$2.06

$1.90 23

24 Philadelphia Electric Company and Subsidiary Companies Consolidated Balance Sheets ASSETS Utility Plant, at original cost Electric Gas Steam Common, used in all services Less: Accumulated Depreciation Net Utility Plant in Service Construction Work in Progress Net Utility Plant Investments Current Assets Cash and Temporary Cash Investments Accounts Receivable Customers Other Inventories, at average cost Fossil Fuel Materials and Supplies Deferred Energy Costs Other Total Current Assets Deferred Debits Total See notes to financial statements.

December 31 1983 1982 (Thousands of Dollars)

$4,683,726

$4,519,544 416,170 394,876 53,845 53,998 128,379 127,304 5,282,120 5,095,722 1,592,009 1,450, 149 3,690,111 3,645,573 3,582,133 2,810,014 7,272,244 6,455,587 99,445 91,427 65,221 50,025 302,254 284,151 36,354 58,012 75,681 97,478 55,403 45,552 149,246 (85,379) 7,572 7,721 691,731 457,560 80,375 24,695

$8,143,795

$7,029,269

CAPITALIZATION AND LIABILITIES Capitalization Common Shareholders' Equity Common Stock Other Paid-In Capital Retained Earnings Preferred Stock Without Mandatory Redemption With Mandatory Redemption Long-Term Debt Total Capitalization Current Liabilities Short-Term Debt Bank Loans Commercial Paper Long-Term Debt due within one year Accounts Payable Taxes Accrued Deferred Income Taxes-Energy Interest Accrued Dividends Declared Other Total Current Liabilities Deferred Credits and Other Liabilities Deferred Income Taxes Unamortized Investment Tax Credits Nuclear Fuel Disposal Other Total Deferred Credits and Other Liabilities Total See notes to financial statements.

December 31 1983 1982 (Thousands of Dollars)

$2,110,503

$1,826,198 5,856 4,641 452,964 423,596 2,569,323 2,254,435 522,472 372,472 284,863 292,290 3,381,805 3,028,525 6,758,463 5,947,722 218,000 32,200 49,500 32,500 21,280 152,687 164,419 25,841 65,954 76,517 (43,350) 91,787 99,764 27,211 24,167 17,337 24,734 658,880 421,668 346,531 290,538 249,658 296,068 61,843 24,707 68,420 48,566 726,452 659,879

$8,143,795

$7,029,269 25

26 Philadelphia Electric Company and Subsidiary Companies Consolidated Statements of Retained Earnings For the Year Ended December 31 1983 Balance, January 1

$ 423,596 Net Income 389,089 812,685 Cash Dividends Declared Preferred Stock (at specified annual rates) 68,970 Common Stock (per share, $2.12 in 1983,

$2.06 in 1982, and $1.90 in 1981) 283,583 Expenses of Capital Stock Issues 7,168 359,721 Balance, December 31

$ 452,964 Consolidated Statements of Changes in Financial Position Sources of Funds Funds from Operations Net Income Charges (Credits) Not Affecting Funds Depreciation and Amortization Nuclear Fuel Disposal Costs Deferred Income Taxes, net Investment Tax Credits, net of Amortization Allowance for Other Funds Used During Construction Total from Operations Funds from Financings Sales of Securities Common Stock Preferred Stock Long-Term Debt Issuance of Other Long-Term Debt Change in Short-Term Debt Sale of Magnesium Oxide Regeneration Facilities Sale of Salem Generating Station Nuclear Fuel Sale of Tax Benefits Total from Financings Total Sources Uses of Funds Additions to Utility Plant Allowance for Other Funds Used During Construction Dividends on Preferred and Common Stock Retirement of Long-Term Debt Change in Deferred Energy Costs Increase in Nuclear Fuel Escrow Account Change in Other Items of Working Capital Other, net Total Uses See notes to ftnanctal statements.

$ 389,089 165,327 12,166 175,307 (46,064)

(108,126) 587,699 284,305 150,000 175,000 200,000 202,800 37,679 1,049,784

$1,637,483 1,030,321 (108,126) 352,553 41,573 234,625 7,113 63,721 15,703

$1,637,483 1982 1981 (Thousands of Dollars)

$ 387,251

$ 353,570 336,223 277,565 723,474 631,135 57,982 53,762 240,486 189,476 1,410 646 299,878 243,884

$ 423,596

$ 387,251

$ 336,223

$ 277,565 143,848 135,393 15,820 8,638 (10,215) 2,011 101,646 25,049 (65,699)

(65,013) 521,623 383,643 253,810 194,925 30,000 300,000 423,500 20,000 10,475 1,635 100,166 53,743 614,285 773,969

$1,135,908"

$1,157,612 870,715 787,075 (65,699)

(65,013) 298,468 243,238 50,183 137,470 (54,080)

(42,347) 8,204 4,339 9,498 62,144 18,619 30,706

$1,135,908

$1,157,612

Philadelphia Electric Company and Subsidiary Companies Notes to Financial Statements

1. Significant Accounting Policies General All utility subsidiary companies of Phila-delphia Electric Company are wholly owned and are in-cluded in the consolidated financial statements. Non-utility subsidiaries are included in investments and accounted for by the equity method. Accounting policies are in accordance with those prescribed by the regulatory authorities having jurisdiction, principally the Federal Energy Regulatory Com-mission (FERC) and the Pennsylvania Public Utility Commis-sion (PUC).

Revenues Revenues are recorded in the accounts upon billing to the customer. Rate increases are billed from dates authorized or permitted to become effective by the regula-tory authorities.

Fuel Expenses Fuel expenses, which are recoverable under energy adjustment clauses, are recognized when the related revenue is billed to customers.

Nuclear fuel used in the Peach Bottom and Salem Generating Stations is leased. The costs of such leased fuel are charged to fuel expense on the unit of production method. The estimated costs of nuclear fuel disposal are charged to fuel expense as permitted for rate-making purposes.

In its November 22, 1983 rate order, the PUC approved the Company's request for full recovery of assess-ments imposed by the Nuclear Waste Policy Act of 1982 (the Act). Beginning April 7, 1983 such nuclear fuel disposal costs are being charged to fuel expense as the related fuel is burned. Unrecovered assessments imposed by the Act for fuel burned prior to April 7, 1983 are being amortized to fuel expenses over the period ending June 30, 1985.

Depreciation For financial reporting purposes, depreciation is provided over the estimated service lives of the plant on the straight-line method and, for tax purposes, generally, over shorter lives on accelerated methods. The estimated de-commissioning costs of portions of the nuclear plants are being charged to operations as permitted for rate-making pur-poses. Such amounts, net of deferred income taxes, are de-posited in an escrow account and invested for funding of future costs. The Company believes that any additional costs, which may be significant, would be recoverable through

2. Investments At December 31 Gas Exploration and Development Nonutility Property Escrowed Funds for Nuclear Fuel Disposal Escrowed Funds for Decommissioning Nuclear Plants Other Total adjustments of rates charged to its customers. Annual de-preciation provisions, expressed as a percent of average de-preciable utility plant in service, were approximately 3.20%

for 1983, 3.00% for 1982 and 3.01% for 1981.

Income Taxes Deferred income taxes are provided for differences between book and taxable income to the extent permitted for rate-making purposes. Investment tax credits, other than credits resulting from contributions to an em-ployee stock ownership plan (ESOP), which do not affect in-come, are deferred and amortized to income over the estimated useful life of the related utility plant.

Allowance for Funds Used During Construction (AFUDC)

AFUDC is a non-cash item which is defined in the uniform system of accounts prescribed by FERC as "the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used." AFUDC is recorded as a charge to Construction Work In Progress, and the equivalent credits are to "Interest Charges" for the pre-tax cost of borrowed funds and to "Other Income" for the remainder as the allowance for equity funds. The rate used for capitalizing AFUDC, which averaged 9.30% in 1983, 9.20% in 1982, and 8.65%

in 1981, is computed under a method prescribed by the reg-ulatory authorities. The rate is a "net after-tax rate" and the current income tax reductions applicable to the interest charges capitalized are recorded in "Other Income." AFUDC is not included in taxable income and the depreciation of capitalized AFUDC is not a tax-deductible expense.

Retirement Plans The Company has non-contributory trusteed retirement plans applicable to all regular employees. Pension costs include normal cost for the year and amortization of unfunded prior service costs over ten to twenty-year periods.

Approximately 81 % of such costs were charged to operating expense and the remainder, associated with construction la-bor, to the cost of new utility plant.

Gas Exploration and Development Costs The Company has invested in several joint ventures for exploring and drilling for gas. These costs are capitalized under the full cost method and charged to opera-tions commensurate with the production of gas by these ventures.

1983 1982 (Thousands of Dollars)

$47,736

$48,099 14,668 15,911 19,656 12,543 4,927 3,058 12,458 11,816

$99,445

$91,427 27

28 Philadelphia Electric Company and Subsidiary Companies Notes to Financial Statements -

Continued

3. Common Stock At December 31, 1983 and 1982, Common Stock, without par value, consisted of 240,000,000 and 160,000,000 shares, respectively, authorized and 142,811,434 and 125,766,898 shares, respectively, outstanding. At December 31, 1983, there were 8,463,653 shares reserved for issuance under stock purchase plans.

(Thousands of Shares2 (Thousands of Dollars2 Issued and Outstanding 1983 1982 1981 1983 1982 1981 Balance, January 1 125,767 108,507 92,633

$1,826,198

$1,572,388

$1,377,463 Public Sales 11,000 12,000 12,800 186,055 175,620 154,786 Dividend Reinvestment and Stock Purchase Plan 4,788 4,020 2,667 77,196 60,399 34,809 Employee Stock Purchase Plan 641 453 407 10,527 6,677 5,330 Tax Reduction Act Stock Ownership Plan (ESOP) 615 787 10,527 11,114 Total Issued 17,044 17,260 15,874 284,305 253,810 194,925 Balance, December 31 142,811 125,767 108,507

$2,110,503

$1,826,198

$1,572,388

4. Preferred Stock and Other Paid-In Capital At December 31, 1983 and 1982, Preferred Stock $100 par, cumulative Series (without mandatory redemption) 13.35% (c) 12.8% (c) 9.50%

8.75%

7.85%

7.80%

7.75%

4.68%

4.4%

4.3%

3.8%

Series (with mandatory redemption) (d) 17.125% (Sold 1982) 15.25%

Current Redemption Price (a)

$113.35 112.80 106.50 104.00 105.00 103.00 103.00 104.00 112.50 102.00 106.00

$117.125 115.25 Refunding Restricted Prior to (b) 2-1-89 5-1-88 5-1-87 5-1-90 Authorized 750,000 750,000 750,000 650,000 500,000 750,000 200,000 150,000 274,720 150,000 300,000 5,224,720 300,000 500,000 Shares Amount Outstanding 1983 1982 1983 1982 (Thousands of Dollars) 750,000

$ 75,000 750,000 75,000 750,000 750,000 75,000 75,000 650,000 650,000 65,000 65,000 500,000 500,000 50,000 50,000 750,000 750,000 75,000 75,000 200,000 200,000 20,000 20,000 150,000 150,000 15,000 15,000 274,720 274,720 27,472 27,472 150,000 150,000 15,000 15,000 300,000 300,000 30,000 30,000 5,224,720 3,724,720 522,472 372,472 300,000 300,000 30,000 30,000 500,000 500,000 50,000 50,000 10%

104.44 5-1-90 220,000 220,000 220,000 22,000 22,000 9.52%

106.25 5-1-86 500,000 8.75%

106.18 5-1-88 500,000 7.325%

104.39 750,000 7%

104.00 400,000 3,170,000 Unclassified 1,605,280 Total Preferred Stock 10,000,000 (a) Redeemable, at the option of the Company, at the indi-cated dollar amounts per share, plus accrued dividends.

(b) Prior to the date specified, none of the shares of each series indicated may be redeemed through refunding at an interest cost or dividend rate which is less than the dividend rate of such series.

(c) Ownership of the 13.35% and 12.8% Preferred Stocks is 419,660 446,830 41,966 44,683 500,000 500,000 50,000 50,000 600,000 630,000 60,000 63,000 308,970 326,070 30,897 32,607 2,848,630 2,922,900 284,863 292,290 8,073,350 6,647,620

$807,335

$664,762 evidenced by Depositary Receipts, each receipt represent-ing 1/10 of a share of Preferred Stock.

(d) Redemption requirements (par value) in the period 1984-1988 are as follows: 1984-$6,330,000; 1985-

$8,296,000; 1986-$15,727,000; 1987-$16,030,000; 1988-$17,530,000.

Below is a summary of changes in Preferred Stock and Other Paid-In Capital. (All amounts in thousands.)

Issued and Outstanding 1983 Balance, January 1 6,648 Public Sales 1,500 Redemptions (75)

Balance, December 31 8,073

5. Long-Term Debt At December 31, 1983 and 1982 First and Refunding Mortgage Bonds (a)

Shares 1982 6,394 300 (46) 6,648 Total First and Refunding Mortgage Bonds Notes Payable -

Banks Notes Payable -

Other Revolving Credit Notes Pollution Control Notes Debentures Debentures Debentures Sinking Fund Debentures -

Philadelphia Electric Power Company, a Subsidiary Unamortized Debt Discount and Premium, Net Total Long-Term Debt Due Within One Year ( d)

Long-Term Debt included in Capitalization 1981 6,468 (74) 6,394 (a) Utility plant is subject to the lien of the Company's mortgage.

(b) At interest rates ranging from prime rate to 107% of prime rate.

(c) The Company has a $400 million revolving credit and term loan agreement with a group of banks which expires in 1987. Interest on outstanding borrowings is at prime rate through May 1985 and at 105% of prime rate thereafter.

6. Short-Term Debt Average Short-Term Borrowings Average Interest Rates, Computed on Daily Basis Maximum Short-Term Borrowings Outstanding Preferred Stock {Par~

Other Paid-In CaEital 1983 1982 1981 1983 1982 1981

$664,762 $639,401 $646,802

$4,641

$3,888

$2,581 150,000 30,000 (7,427)

(4,639)

(7,401) 1,215 753 1,307

$807,335 $664,762 $639,401

$5,856

$4,641

$3,888 Series Due 1983 1982 (Thousands of Dollars) 311!%

1983 20,000 311!%

1985 50,000 50,000 4%%

1986 50,000 50,000 4%%

1987 40,000 40,000 3'Y4%

1988 40,000 40,000 5%-13'Y4%

1989-1993 235,000 235,000 4Y2%-15l4%

1994-1998 440,864 443,429 7%%-11%%

1999-2003 544,930 549,600 6%-12Y2%

2004-2008 523,500 523,500 13%%-18'Y4%

2009-2013 575,000 450,000 2,499,294 2,401,529 (b) 1985-1989 225,000 225,000 17%

1986-1987 20,000 20,000 (c) 1985-1987 200,000 5Y2%-13%

1997-2013 266,830 229,780 4.85%

1986 21,207 21,330 1411!%

1990 50,000 50,000 14'Y4%

2005 100,000 100,000 4Y2%

1995 16,928 18,193 (17,454)

(16,027) 3,381,805 3,049,805 (21,280)

$3,381,805

$3,028,525 There is an annual commitment fee of%% on the unused amount. As a result of the Limerick investigation, the Company does not meet a condition for borrowing. The banks have waived such condition with respect to the $200 million outstanding at December 31, 1983.

(d) Long-term debt maturities in the period of 1985-1988 are as follows: 1985-$204,267,000; 1986-$190,192,000; 1987-$166,850,000; and 1988-$106,850,000.

1983 1982 (Thousands of Dollars)

$164,429

$ 90,180 9.06%

13.13%

$340,000

$168,725 1981

$146,273 17.80%

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

16.37%

Bank Loans Commercial Paper -

Tax Exempt Commercial Paper -

Taxable As of December 31, 1983 the Company had borrowed $218 million under informal lines of credit with banks aggregating approximately $412 million. The Company 10.53%

5.61%

10.64%

10.37%

4.92%

9.62%

generally does not have formal compensating balance arrangements with these banks.

29

30 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, 1983 were as follows:

Production Plants Transmission Plant Salem Keystone Conemaugh Operator Peach Bottom Philadelphia Electric Company Public Service Pennsylvania Pennsylvania Various Participating Interest Company's share of:

Utility Plant Accumulated Depreciation Construction Work In Progress 42.49%

$414,429 94,371 32,619 The Company's participating interests are financed with Company funds and, when placed in service, all operations

8. Income Taxes Included in operating expenses:

Current federal Current state Total Deferred federal Deferred state Total Investment tax credits, net of amortization-federal Total federal Total state Total Included in other income:

Current federal Current state Total Total income tax provisions:

Federal State Total As a result of the recognition of-certain expenses for federal income tax purposes in 1983, principally deferred energy costs and nuclear fuel disposal costs, the Company incurred a loss for federal income tax purposes of about $115 million.

This loss will be carried back to offset taxes paid in prior years and will result in a refund of about $15 million of federal income taxes paid in 1980 and 1981. Investment tax credits of $37 million have been reversed to the extent they are no longer utilized as a result of the loss carryback. On this basis, available investment tax credits which have not been utilized totaled approximately $140 million at Decem-ber 31, i983, and may be carried forward to reduce federal income tax liabilities in future years through 1997 and 1998.

Investment tax credits consist of the basic credits allowable of 10% plus an additional credit resulting from contributions to the ESOP plan for employees. The ad-ditional credits are equal to 0.5% of employee compensation in 1983 and 1\\12% of the investment tax credit base in 1982 Electric and Electric Electric Companies Gas Company Company Company 42.59%

20.99%

20.72%

21%to43%

(Thousands of Dollars)

$863,167

$50,927

$59,103

$68,865 103,398 21,474 22,217 10,724 12,480 5,514 761 are accounted for as if such participating interests were wholly-owned facilities.

1983 1982 1981 (Thousands of Dollars)

$ 54,495

$ 71,987

$ 75,558 16,288 44,251 26,866 70,783 116,238 102,424 151,259 (8,390) 6,007 24,048 (1,825)

(3,996) 175,307 (10,215)

• 2,011 (46,064) 101,646 25,049 159,690 165,243 106,614 40,336 42,426 22,870

$200,026

$207,669

$129,484 (70,902)

(60,506)

(50,299)

(17,010)

(15,339)

(12,865)

$(87,912)

$ (75,845)

$(63,164) 88,788 104,737 56,315 23,326 27,087 10,005

$112,114

$131,824

$ 66,320 and 1981. Contributions to the plan are in the form of Phila-delphia Electric Company Common Stock and have no effect on net income.

Applicable state income tax laws do not per-mit the carryback of tax losses to prior years. At December 31, 1983, the Company had a tax loss carryforward of ap-proximately $118 million which may be used_to reduce its Pennsylvania income tax liabilities through 1986.

In December 1981, the Company sold the tax benefits attributable to its ownership interest in the Salem Generating Station Uriit No. 2. This transaction was struc-tured under the safe harbor lease provisions of the Economic Recovery Tax Act of 1981. The proceeds from the sale,

$53,743,000, were credited to Deferred Income Taxes

($24, 759,000), Deferred Investment Tax Credits

($21,863,000) and Other Deferred Credits ($7,121,000) and are being amortized to 'income over the estimated useful life of the plant.

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

1983 1982 1981 (Thousands of Dollars)

Depreciation and amortization

$ 38,792

$ 30,042

$ 25,452 Nuclear fuel disposal costs 24,281 (7,865)

(4,299)

Deferred energy costs 119,867 (27,264)

(21,804)

Other (7,633)

(5,128) 2,662 Total

$175,307

$(10,215) 2,011 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 Total income tax provisions Income before income taxes Deduct -

allowance for funds used during construction (non-taxable)

Adjusted income before income taxes Income taxes on above at federal statutory.rate of 46%

Increase (decrease) due to:

Depreciation timing differences not normalized State income taxes, net of federal income tax benefits Taxes and pension costs capitalized but expensed for tax purposes Amortization of investment tax credits previously deferred Other, net Total i~come tax provisions Provision for income taxes as a percent of:

Income before income taxes Adjusted income before income taxes

9. Other Taxes Gross receipts Capital stock Realty Other Total

10. Retirement Plans

$389,089

$336,223 112,114 131,824 501,203 468,047 275,994 213,260

$225,209

$254,787 103,596 117,202 7,941 10,672 12,597 14,627 (673)

(396)

(6,210)

(7,214)

(5,137)

(3,067)

$112,114

$131,824 22.4%

28.2%

49.8%

51.7%

1983 1982 (Thousands of Dollars)

$108,211 19,198 30,975 20,231

$106,090 18,928 22,505 16,988

$164,511

$277,565 66,320 343,885 188,797

$155,088 71,340 (551) 5,436 (3,226)

(4,769)

(1,910)

$ 66,320 19.3%

42.8%

1981

$100,912 19,600 9,555 15,245

$145,312 Retirement plan costs, which are funded as accrued, aggregated $41,000,000 in 1983, $37,800,000 in 1982, and $31,700,000 in 1981. Plan data as of the dates of the most recent actuarial reports is as follows:

Actuarial present value of accumulated plan benefits (7. 0% assumed rate of return)

Vested Nonvested Net assets available for benefits January 1 1983 1982 (Thousands of Dollars)

$404,673 48,545

$453,218

$477,748

$360,835 45,080

$405,915

$359,406 31

Philadelphia Electric Company and Subsidiary Companies Notes to Financial Statements -

Continued

11. Segment Information Electric Gas Steam Total (Thousands of Dollars) 1983 Operating revenues

$2,107,897

$417,042

$71,111

$2,596,050 Operating expenses, excluding depreciation 1,592,027 377,624 67,365 2,037,016 Depreciation 150,898 12,694 1,735 165,327 Total operating expenses 1,742,925 390,318 69,100 2,202,343 Operating income

$ 364,972

$ 26,724

$ 2,011

$ 393,707 Utility plant additions

$1,004,219

$ 26,020 82

$1,030,321 December 31:

Allocable assets Net utility plant (")

6,898,758 349,326 24,160 7,272,244 Inventories 98,391 32,350 343 131,084 Deferred Energy Costs 116,661 29,359 3,226 149,246

$7,113,810

$411,035

$27,729 7,552,574 Nonallocable assets 591,221 Total assets

$8,143,795 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 Total 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 430,652 Total assets

$7,029,269 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 Total operating expenses 1,703,776 333,302 73,354 2,110,432 Operating income

$ 298,287

$ 23,129

$ 1,577

$ 322,993 Utility plant additions

$ 746,535

$ 40,432 108

$ 787,075 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 457,916 Total assets

$6,304,195

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

32

12. Leases Certain leases, including the nuclear fuel contracts for the Peach Bottom and Salem Generating Stations, meet the crite-ria of a capital lease as defined by financial accounting stand-ards, but are accounted for as operating leases in accordance with the rate-making process. If these leases were capitalized they would not have a material effect on assets, liabilities, or related expenses.

On Dece*mber 30, 1983 the Company sold magnesium oxide regeneration facilities for approximately their net book value of $3 7. 7 million. These facilities have been leased back to the Company.

The minimum rental commitments under all noncancelable agreements aggregated $565 million at De-cember 31, 1983. The annual rental commitments are esti-mated to be $105 million for 1984; $112 million for 1985;

$121 million for 1986; $70 million for 1987; and $51 mil-lion for 1988.

13. Nuclear Fuel Disposal The Nuclear Waste Policy Act of 1982 requires the United States Department of Energy (DOE) to assess utilities one mill for each kilowatthour of electricity generated by a nu-clear generating station after April 6, 1983 and to make an equivalent assessment for such generation prior to April 7, 1983. These assessments will provide for the shipment and permanent disposal of fuel discharged. Since May, 1981 the Company has been charging operations for such costs as per-

14. Limerick Generating Station The Company has under construction two nuclear units at Limerick, Pennsylvania. In the latter part of 1980, the PUC began an investigation into various matters concerning the Limerick Generating Station (Limerick). On August 27, 1982, the PUC issued an order stating that continued con-struction of Unit No. 2 simultaneously with Unit No. 1 is not in the public interest and directing the Company to cancel or suspend construction of Unit No. 2. The Company appealed the order to the Commonwealth Court and on December 15, 1982, the Commonwealth Court reversed the PUC order. On January 14, 1983, the PUC petitioned the Pennsylvania Su-preme Court to allow an appeal of the Commonwealth Court's decision.

On May 27, 1983, the Pennsylvania Supreme Court upheld the authority of the PUC to deny the registra-tion, pending completion of Unit No. 1, of any new securities issuances, the proceeds of which would be used, in whole or in part, for construction of Unit No. 2. On June 10, 1983, the PUC issued another order, which was clarified on December 16, 1983, directing the Company to suspend construction of Unit No. 2 pending commercial operation of Unit No. 1, to cancel construction of Unit No. 2, or to continue con-struction of Unit No. 2 with internally generated funds.

15. Commitments and Contingencies The Company has incurred substantial commitments in con-nection with its construction program. Construction expenditures are estimated to be $857 million for 1984 and

$2.3 billion for 1985-1987. These estimates are reviewed and revised periodically to reflect changes in economic con-ditions, revised load forecasts and other appropriate factors.

Rental payments charged to operating ex-penses were as follows:

Nuclear fuel Other Total 1983 1982 1981 (Thousands of Dollars)

$38,268

$61,538

$26,709 28,849 24,356 24,782

$67,117

$85,894

$51,491 The Company's proportionate share of the contractual obligations to purchase nuclear fuel under lease agreements for the Peach Bottom and Salem Generating Sta" tions as of December 31, 1983 was $288 million. Indepen-dent fuel companies have been authorized to acquire and own up to a maximum of $5 50 million of nuclear fuel at any one time and have contracted to sell the energy therefrom to the Company.

mitted for rate-making purposes and such amounts, net of estimated unrealized income tax benefits, have been deposi-ted in an escrow account and are invested for the funding of the pre-April 7, 1983 liability. The Company's pre-April 7, 1983 liability for its share of generation by the Peach Bottom and Salem Generating Stations is approximately $62 million, of which approximately$ 3 7 million has been recovered through rares charged to customers. This liability is expected to be paid to DOE in 1985. The liability for current genera-tion is paid to DOE quarterly.

On January 24, 1984 the Company responded to the PUC order, electing to suspend construction of Unit No. 2 until Unit No. 1 is in commercial operation. The PUC has not yet issued an order accepting or rejecting this re-sponse. Unit No. 1 is scheduled for commercial operation in 1985 and Unit No. 2 in 1990.

Operation of Limerick will require an ade-quate supply of cooling water. To assure an adequate supply, the Company has contracted to obtain supplementary cool-ing water from the Delaware River. Several parties are at-tempting to delay or terminate construction of pumping stations, reservoirs and related facilities to transport the water. The Company expects to protect its interests in the facilities, but any delays in obtaining an adequate supply of supplementary cooling water could delay the scheduled dates of commercial operation, restrict the operating capac-ity and increase the cost of Limerick.

At December 31, 1983, engineering studies indicated Unit No. 1 and common plant were approximately 91% complete and Unit No. 2 approximately 31% complete.

The Company's investment in Limerick was $3.25 billion at December 31, 1983 of which $1.76 billion was allocated to Unit No. 1, $667 million to Unit No. 2 and $827 million to common facilities. The Company is accruing AFUDC on its entire investment in Limerick.

Plant facilities under construction, particularly the Limerick Generating Station, require numerous permits and licenses, which the Company cannot be assured will be issued at com-pletion of the facilities.

The Price-Anderson Act places a "Limit of Lia-bility" of $580 million on each licensed nuclear facility for claims that could arise from an incident involving any li-censed nuclear facility in the nation. The Company has 33

34 Philadelphia Electric Company and Subsidiary Companies Notes to Financial Statemen'IS -

Continued insured for this exposure through a combination of private insurance and indemnity agreements with the Nuclear Reg-ulatory Commission. In the event of such a nuclear incident the Company could be assessed up to $8.5 million per inci-dent with a maximum amount of $17 million in any one year.

The Company maintains insurance coverage against loss or damage to its nuclear facilities by fire or other casualty. Although it is impossible to determine the total amount of the loss that may result from an occurrence at these facilities, the Company maintains the maximum amount of nuclear insurance presently available, being $1 billion for each station. Under the terms of the various insur-ance agreements, the Company could be assessed up to $33 million for losses incurred at plants insured by the insurance companies.

The Company is a member of an industry mu-

16. Quarterly Data {Unaudited) tual insurance company to provide replacement power cost insurance coverage in the event of a major outage at a nu-clear station. The premium for this coverage is subject to an assessment for adverse loss experience. The Company's max-imum share of any assessment is $13 million.

The PUC is conducting an investigation into the outages that started in February 1983 at Salem Generat-ing Station Unit No. 1, operated by Public Service Electric and Gas Company. The PUC has ordered the Company to show cause why it should be permitted to recover the incre-mental costs, if any, of replacing Unit No. 1 generation during the outages. The Company believes that it should not be precluded from recovering such incremental costs and that the ultimate resolution of this matter will not have a material adverse affect on the financial position or results of operations of the Company.

The data shown below include all adjustments which the Company considers necessary for a fair presentation of such amounts.

Quarter Ended March 31 June 30 September 30 December 31 Quarter Ended March 31 June 30 September 30 December 31 Operating Revenues 1983 1982

$723,216 572,153 668,259 632,422

$757,077 592,573 661,594 633,509 Earnings Applicable to Common Stock 1983 1982 (Thousands of Dollars)

$88,248

$77' 138 59,186 48,622 105,146 85,816 69,125 67,047 1983 fourth quarter results include the write-off of ap-proximately $9.5 million (net of $10.1 million of related in-comes taxes) of operating, maintenance, and depreciation costs of certain pollution control facilities which had been

17. Supplementary Information to Disclose the Estimated Effects of Inflation for the Year Ended December 31, 1983 (Unaudited)

_ The following supplementary information is supplied to show the estimated effects of inflation because the Company is required to do so, according to the Statement of Financial Accounting Standards No. 33. The methods required to de-velop this information are approximate and complex, and may not necessarily reflect the true effects of inflation on the Company. Under existing regulatory law, the Company is per-mitted to recover actual operating and capital costs incurred to serve customers and a reasonable return on investment, and the Company believes it will be allowed to recover cost increases caused by inflation as such increases are actually incurred.

Effect of Inflation on Reported Income. In adjusting the Consolidated Statements of Income, as shown below, only depreciation expense was adjusted for the effect of inflation. The "constant dollar" and "current cost" de-preciation expenses were determined by applying the Com-pany's depreciation rates to restated 1983 average depreciable plant in service. Other Operating Expenses were not required to be adjusted.

Operating Income 1983 1982 (Thousands of Dollars)

$105,871

$102,480 79,374 78,253 121,703 115,633 86,759 92,361 1983 Average Shares Outstanding (Thousands) 1982 126,064 108,593 133,021 115,289 134,909 117,478 141,235 124,378 Net Income 1983

$103,975 76,071 122,003 87,040 1982

$ 90,951 63,240 100,402 81,630 Earnings Per Average Share 1983 1982 (Dollars)

$.70

$.71

.44

.42

.78

.73

.48

.54 deferred during the first three quarters of 1983 pending a final determination by the PUC as to their recovery. Recovery was denied on November 22, 1983 at the conclusion of the Company's retail electric rate case.

If the Company had to replace its entire util-ity plant at this time, the costs to do so would greatly exceed the original costs incurred when the facilities were built be-cause of the cumulative effect of inflation. These plant re-placement costs, net of accumulated depreciation, are estimated at $12.1 billion as restated for "constant dollars" and $12.7 billion as restated for "current costs". Under the "constant dollar" method, the Company is required to restate the original costs in terms of dollars of equal purchasing power, as measured by the Consumer Price Index for all Ur-ban Consumers. The "current costs" method uses Handy-Whitman Indices of Public Utility Construction Costs. Re-sults from the two methods differ because construction costs have increased more rapidly than consumer prices in general. Under the "current cost" method, the effect

($441 million) of general inflation in 1983 on net utility plant was greater than the increase ($294 million) in spe-cific prices by $147 million while the effect of general infla-tion was less than specific prices by $9 million in 1982 and greater than specific prices by $205 million, $225 million, and $93 million in 1981, 1980, and 1979, respectively, ex-pressed in average 1983 dollars. In the Company's opinion, the "current costs" method is more appropriate for estima-ting the effect of inflation on utility plant.

Consolidated Statements of Income Adjusted for Inflation for the Year Ended December 31, 1983 (Thousands of Dollars, except per share amounts)

Operating Revenues Depreciation Other Operating Expenses Operating Income Other Income Income Before Interest Charges & Preferred Stock Dividends Interest Charges and Preferred Stock Dividends Earnings Applicable to Common Stock' Earnings Per Average Share"

'Earnings applicable to Common Stock for 1982, 1981, 1980, and 1979, restated in average 1983 dollars, amounted to $91 million,

$67 million, $60 million, and $51 million, respectively, for Constant Dollars, and $50 million and $25 million for 1982 and 1981 and losses of $3 million, and $9 million for 1980 and 1979 for Current Costs.

Effects of Inflation on Shareholders' Equity.

The effect of inflation on the Company's actual original cost of nee utility plant amounted to $250 million for 1983,

($230 million for 1982, $502 million for 1981, $688 mil-lion for 1980 and $766 million for 1979 expressed in aver-age 1983 dollars). These inflationary effects were not recovered because rates are based on depreciation of original cost plant. If the Company were required to charge these amounts against income in 1983 and 1982, earnings applica-ble to common stock would have been reduced to $72 mil-lion and $57 million, respectively, while in 1981, 1980 and 1979, earnings applicable to common stock would have be-come losses of $255 million, $477 million, and $561 mil-lion, respectively. The effect of inflation (3.8% for 1983, 3.9% for 1982, 8.9% for 1981, 12.4% for 1980 and 13.3% for 1979) on the value of the Company's debt and preferred stock approximated $165 million for 1983, $153 million for 1982, $339 million for 1981, $468 million for 1980 and As Adjusted For Constant Dollars Current Cost As Reported (Average 1983 Dollars) (Average 1983 Dollars)

$2,596,050

$2,596,050

$2,596,050 165,327 384,817 435,983 2,037,016 2,037,016 2,037,016 393,707 174,217 123,051 192,913 192,913 192,913 586,620 367,130 315,964 264,915 264,915 264,915

$ 321,705

$ 102,215 51,049 2.40 0.76 0.38 "Earnings per average share for 1982, 1981, 1980, and 1979, based on the restated earnings, were $0.78, $0.67, $0.69 and $0.63, re-spectively, for Constant Dollars, and $0.43 and $0.25 for 1982 and 1981 and losses of $0.03 and $0.11for1980 and 1979 for Current Costs.

$526 million for 1979 (1982, 1981, 1980 and 1979 ex-pressed in average 1983 dollars) and would totally or par-tially offset the effect of inflation on utility plant.

If the Company had earned at the rate of infla-tion (3.8%) on its common shareholders' equity in 1983, earn-ings would have been approximately $92 million compared with reported earnings of $322 million. Thus, reported earn-ings applicable to common stock in 1983 were about $230 million above the level necessary to offset the impact of in-flation on shareholders' equity.

Adjustment of Selected Five Year Financial Information.

In order to reflect the impact of general inflation on selected financial information for each of the years 1979 through 1983, the following table shows actual data compared with data adjusted to 1983 dollars.

Five Year Summary of Selected Financial Information Showing Adjustments to Reflect Inflation 1983 1982 1981 1980 1979 Development of Adjustment Factors Consumer Price Index Average During Year 298.4 289.l 272.4 246.8 217.4 Year End 303.5 292.4 281.5 258.4 229.9 Consumer Price Index Multiplier A = Average (298.4 -:- Index) 1.00 1.03 1.10 1.21 1.37 B =Year End (303.5 -:- Index) 1.00 1.04 1.08 1.17 I.32 Actual and Adjusted Financial Information Dividends Per Common Share Actual Paid

$2.12

$2.06

$1.90

$1.80

$1.80 Adjusted (Actual x A)

$2.12

$2.12

$2.09

$2.18

$2.47 Market Price Per Common Share Actual Year End

$14.38

$17.00

$13.63

$12.50

$13.75 Adjusted (Actual x B)

$14.38

$17.68

$14.72

$14.63

$18.15 Operating Revenues (thousands of dollars)

Actual

$2,596,050

$2,644,753

$2,433,425

$2, 123,394

$1,578,505 Adjusted (Actual x A)

$2,596,050

$2,724,096

$2,676,768

$2,569,307

$2,162,552 Common Shareholders' Equity (thousands of dollars)

Actual Year End

$2,569,323

$2,254,435

$1,963,527

$1,733,614

$1,580,004 Adjusted (Actual x B)

$2,569,323

$2,344,612

$2, 120,609

$2,028,328

$2,085,605 35

Financial Statistics Summary of Earnings (Millions of Dollars)

For the Year Ended 1983 1982 1981 1980 1979 1978 1973 Operating Revenues (for details see pages 3 8 and 3 9)

$2,596.0

$2,644.8

$2,433.4

$2,123.4

$1,578.5

$1,456.8

$766.6 Operating Expenses Fuel and Energy Interchange 986.6 1,128.5 1,187.6 1,090.5 661.7 573.9 260.3 Labor 317.2 291.1 256.8 232.l 209.3 195.0 125.6 Other Materials, Supplies and Services 354.6 320.5 260.9 184.5 155.4 135.0 65.5 Total Operation and Maintenance 1658.4 1,740.1 1,705.3 1,507.l 1,026.4 903.9 451.4 Depreciation 165.3 143.8 130.3 122.9 120.6 116.5 64.3 Taxes 378.6 372.2 274.8 227.4 185.7 194.7 102.5 Total Operating Expenses 2,202.3 2,256.1 2,110.4 1,857.4 1,332.7 1,215.1 618.2 Operating Income 393.7 388.7 323.0 266.0 245.8 241.7 148.4 Other Income Allowance for Other Funds Used During Construction 108.1 65.7 65.0 50.5 46.0 37.6 58.7 Income Tax Credits, net 87.9 75.8 63.2 49.0 33.9 26.3 3.4 Other, net (3.1)

(0.7) 2.5 3.4 1.7 4.6 2.7 Total Other Income 192.9 140.8 130.7 102.9 81.6 68.5 64.8 Income Before Interest Charges 586.6 529.5 453.7 368.9 327.4 310.2 213.2 Interest Charges Long-Term Debt 330.2 308.9 266.7 225.0 193.0 176.3 84.8 Short-Term Debt 35.2 32.0 33.2 13.9 7.3 2.5 5.5 Allowance for Borrowed Funds Used During Construction (167.9)

(147.6)

(123.8)

(97.1)

(67.4)

(53.4)

Net Interest Charges 197.5 193.3 176.l 141.8 132.9 125.4 90.3 Net Income 389.1 336.2 277.6 227.l 194.5 184.8 122.9 Preferred Stock Dividends 67.4 57.6 53.8 52.2 44.8 43.5 27.6 Earnings Applicable to Common Stock 321.7 278.6 223.8 174.9 149.7 141.3 95.3 Dividends on Common Stock 283.6 240.5 189.5 157.4 145.0 135.7 78.4 Earnings Retained 38.1 38.l 34.3 17.5 4.7 5.6

$ 16.9 Earnings Per Average Common Share (Dollars) 2.40 2.39 2.25 2.00 1.86 1.87

$ 1.99 Dividends per Common Share (Dollars) 2.12 2.06 I.90 1.80 1.80 1.80

$ 1.64 Common Stock Equity (Per Share)

$ 17.99

$ 17.93

$ 18.10

$ 18.72

$ 19.06

$ 19.28

$20.22 Average Shares of Common Stock Outstanding (Millions) 133.9 116.5 99.6 87.3 80.5 75.4 47.8 See Page 21 for Management's Discussion and Analysis of Financial Condition and Results of Operations.

Ratings on Philadell!__hia Electric Coml!__an:r. s Securities Mortgage Bonds Debentures Preferred Stock Agency Rating Date Established Rating Date Established Rating Date Established Duff and Phelps, Inc.

9 3/80 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 1/83 bal 1/83 Standard and Poor's Corporation BBB-9/82 BB+

9/82 BB 9/82 36

Summary of Financial Condition December 31 {Millions of Dollars2 1983 1982 1981 1980 1979 1978 1973 Assets Utility Plant, at original cost

$8,864.2

$7,905.7

$7,044.7

$6,415.7

$5,885.5

$5,502.5

$3,672.1 Less: Accumulated Depreciation 1,592.0 1,450.1 1,330.6 1,235.7 1,144.l 1,053.3 665.4.

Net Utility Plant 7,272.2 6,455.6 5,714.l 5,180.0 4,741.4 4,449.2 3,006.7 Investments 99.4 91.4 77.8 58.7 47.4 30.0 11.5 Current Assets Cash and Temporary Cash Investments 65.2 50.0 30.7 6.7 10.6 38.6 26.l Accounts Receivable 338.6 342.2 342.4 300.3 230.9 223.5 75.6 Inventories 131.1 143.0 132.2 121.1 110.0 93.3 40.2 Deferred Energy Costs 149.3 (85.4)

(31.3) 11.0 83.5 4.2 Other 7.6 7.7 6.8 6.2 4.6 4.3 6.1 Deferred Debits 80.4 24.7 31.5 18.5 12.9 7.5 9.9 Total

$8,143.8

$7,029.2

$6,304.2

$5, 702.5

$5,241.3

$4,850.6

$3,176.1 Capitalization and Liabilities Common Stock

$2,110.5

$1,826.2

$1,572.4

$1,377.4

$1,239.6

$1,139.7

$ 771.8 Other Paid-In Capital 5.9 4.6 3.9 2.6 2.2 2.0 1.3 Retained Earnings 452.9 423.6 387.2 353.6 338.2 333.6 286.2 Common Shareholders' Equity 2,569.3 2,254.4 1,963.5 1,733.6 1,580.0 1,475.3 1,059.3 Preferred Stock:

Without Mandatory Redemption 522.5 372.5 372.5 372.5 372.5 372.5 297.5 With Mandatory Redemption 284.9 292.3 266.9 274.3 206.8 210.9 114.5 Long-Term Debt 3,381.8 3,028.5 2,745.7 2,371.9 2,241.9 2,173.2 1,319.l Total Capitalization 6,758.5 5,947.7 5,348.6 4,752.3 4,401.2 4,231.9 2,790.4 Current Liabilities Short-Term Debt 267.5 64.7 54.2 52.6 85.2 16.2 147.7 Long-Term Debt due within one year 21.3 36.1 130.8 127.8 52.9 67.4 Accounts Payable and Dividends Declared 179.9 188.5 188.9 187.6 133.5 120.3 67.4 Taxes Accrued and Deferred 102.3 22.6 51.4 77.8 65.l 44.5 18.1 Interest Accrued 91.8 99.8 82.3 64.9 58.1 51.0 21.9 Other 17.3 24.7 18.1 17.4 13.9 7.9 5.4 Deferred Credits and Other Liabilities 726.5 659.9 524.6 419.1 356.5 325.9 57.8 Total

$8,143.8

$7,029.2

$6,304.2

$5,702.5

$5,241.3

$4,850.6

$3,176.1 37

Operating Statistics ELECTRIC OPERATIONS 1983 1982 1981 1980 1979 1978 1973 Output (millions of kilowatthours)

Steam 10,457 8,598 9,931 11,234 11,279 13,160 18,536 Nuclear 5,520 10,743 7,464 7,333 7,104 7,769 176 Hydraulic 1,739 1,581 1,397 1,240 2,155 1,700 2,132 Pumped Storage Output 979 1,126 1, 101 1,050 1,270 1,109 1,318 Pumped Storage Input (1,427)

(1,665)

(1,624)

(1,526)

(1,847)

(1,606)

(1,876)

Purchase and Net Interchange 12,181 11,120 11, 173 9,973 9,180 6,651 7,094 Internal Combustion 491 178 283 442 454 704 688 Other 528 27 Total Electric Output 29,940 31,681 30,253 29,746 29,595 29,487 28,095 Sales (millions of kilowatthours)

Residential 8,467 7,877 8,014 8,341 7,968 7,875 7,493 Small Commercial and Industrial 3,284 3,142 3,115 3,065 2,928 2,888 2,663 Large Commercial and Industrial 14,478 14, 178 14,916 15,056 15,428 15,302 14,953 All Other 1,003 1,012 1,005 1,159 1,277 1,329 1,192 Service Territory 27,232 26,209 27,050 27,621 27,601 27,394 26,301 Jersey Central Power and Light (Salem #2) 346 3,352 1,218 Total Electric Sales 27,578 29,561 28,268 27,621 27,601 27,394 26,301 Number of Customers, December 31 Residential 1,217,635 1,206,944 1,200,238 1,190,312 1,173,514 1,158,853 1,103,163 Small Commercial and Industrial 119,292 118,407 117,016 116,808 115,724 115,945 118,009 Large Commercial and Industrial 5,437 5,616 5,790 5,820 5,798 5,780 5,663 All Other 751 762 746 736 1,919 2,413 2,207 Total Electric Customers 1,343,115 1,331,729 1,323,790 1,313,676 1,296,955 1,282,991 1,229,042 Operating Revenues (millions of dollars)

Residential

$ 744.0

$ 694.4

$ 643.7

$ 607.8

$ 461.0

$ 430.8

$254.4 Small Commercial and Industrial 316.6 310.6 285.9 249.8 189.0 176.5 97.5 Large Commercial and Industrial 877.4 922.3 917.1 813.9 587.4 544.0 257.5 All Other 139.4 118.3 109.5 95.4 74.5 73.1 37.4 Service Territory 2,077.4 2,045.6 1,956.2 1,766.9 1,311.9 1,224.4 646.8 Jersey Central Power & Light (Salem #2) 30.5 135.4 45.9 Total Electric Revenues

$2,107.9

$2,181.0

$2,002.1

$1,766.9

$1,311.9

$1,224.4

$646.8 Operating Expenses (millions of dollars)

Operating expenses excluding depreciation

$1,592.0

$1,688.4

$1,586.5

$1,414.0

$ 975.4

$ 896.3

$458.9 Depreciation 150.9 130.2 117.3 111.1 110.0 106.3 57.5 Total Operating Expenses

$1,742.9

$1,818.6

$1,703.8

$1,525.1

$1,085.4

$1,002.6

$516.4 Electric Operating Income (millions of dollars)

$ 365.0

$ 362.4

$ 298.3

$ 241.8

$ 226.5

$ 221.8

$130.4 Average Use per Residential Customer (kilowatthours)

Without Electric Heating 6,319 5,875 6,022 6,411 6,227 6,290 6,581 With Electric Heating 16,523 16,813 18,054 19,482 20,760 21,884 24,097 Total 6,990 6,544 6,699 7,058 6,829 6,833 6,829 Electric Peak Load, Demand (thous kw) 5,879 5,691 5,731 6,095 5,641 5,667 5,760 Net Electric Generating Capacity -

Year End Summer rating (thous kw) 7,974 8,006 8,006 7,698 7,727 7,727 6,650 Cost of Fuel per Million Btu 2.25 1.57 2.10 1.90 1.55 1.29

.71 Btu per Net Kilowatthour Generated 10,906 10,918 10,930 10,787 10,810 10,773 10,523 38

GAS OPERATIONS 1983 1982 1981 1980 1979 1978 1973 Sales (millions of cubic feet)

Residential 2,168 2,442 2,446 2,461 2,327 2,316 2,317 House Heating 22,981 24,237 24,675 23,671 23,593 24,974 24,125 Commercial and Industrial 39,043 41,660 45,670 42,890 37,452 32,784 37,868 All Other 672 422 127 92 93 94 90 Total Gas Sales 64,864 68,761 72,918 69,114 63,465 60,168 64,400 Number of Customers, December 31 Residential 72,501 76,638 78,426 81,346 85,315 87,715 91,682 House Heating 206,443 198,910 193,038 182,246 168,905 163,469 163,096 Commercial and Industrial 22,810 22,324 21,578 20,197 19,065 19,207 20,518 Total Gas Customers 301,754 297,872 293,042 283,789 273,285 270,391 275,296 Operating Revenues (millions of dollars)

Residential

$ 19.1

$ 18.1

$ 15.4

$ 14.0

$ 10.7 9.9 6.7 House Heating 165.8 147. l 128.5 108.5 91.2 86.6 51.3 Commercial and Industrial 227.3 221.1 209.7 166.7 118.4 92.2 39.8 All Other 3.0 1.8 0.5 0.3 0.2 0.2 2.3 Subtotal 415.2

$388.1

$354. l

$289.5

$220.5

$188.9

$100.l Other Revenues 1.8 2.3 2.3 1.2 0.6 0.6

.4 Total Gas Revenues

$417.0

$390.4

$356.4

$290.7

$221.1

$189.5

$100.5 Operating Expenses (millions of dollars)

Operating expenses excluding depreciation

$377.6

$354.1

$322.0

$258.0

$194.4

$163.0

$ 77.9 Depreciation 12.7 11.9 11.3 10.2 8.9 8.6 5.7 Total Operating Expenses

$390.3

$366.0

$333.3

$268.2

$203.3

$171.6

$ 83.6 Gas Operating Income (millions of dollars)

$ 26.7

$ 24.4

$ 23.1

$ 22.5

$ 17.8

$ 17.9

$ 16.9 STEAM OPERATIONS Sales (millions of pounds) 4,552 5,086 5,484 6,044 6,581 7,336 7,762 Number of Customers, December 31 545 571 593 618 638 660 723 Operating Revenues (millions of dollars)

$ 71.1

$ 73.4

$ 74.9

$ 65.8

$ 45.5

$ 42.9

$ 19.4 Operating Expenses (millions of dollars)

Operating expenses excluding depreciation

$ 67.4

$ 69.8

$ 71.6

$ 62.4

$ 42.3

$ 39.3

$ 17.2 Depreciation 1.7 1.7 1.7 1.7 1.7 1.6 I. I Total Operating Expenses

$ 69.1

$ 71.5

$ 73.3

$ 64.I

$ 44.0

$ 40.9

$ 18.3 Steam Operating Income (millions of dollars)

$ 2.0 1.9 I.6 1.7 I.5 2.0 I. I Electric Sales (including Salem Unit No. 2)

Gas Sales Billions of Kllowanhours Billions of Cubic Feet 30 20 45 15 30 10 15 79 80 81 82 83 79 80 81 82 83 Salem Uni! No. 2 39

40 Shareholder Information Stock Exchange Listings Most PE Securities are listed on the New York Stock Exchange and the Philadelphia Stock Exchange. Phila-delphia Electric Power Company Debentures are listed on the Philadelphia Stock Exchange.

Dividends The Company has paid dividends on its com-mon stock continually since 1902. The Board of Directors normally considers common stock dividends for payment in March, June, September and December.

The Company estimates that 100% of the

$2.12 per share dividend paid to common shareholders in 1983 represents a return of capital which is not taxable as dividend income for federal income tax purposes. In addi-tion, for 1983, 93% of preferred dividends are not taxable.

Dividend Reinvestment and Stock Purchase Plan Shareholders may use their dividends to pur-chase additional shares of common stock through the Com-pany's Dividend Reinvestment and Stock Purchase Plan. The Company pays all brokerage and service fees.

All common and preferred shareholders have the opportunity to invest additional funds in common stock of the Company, whether or not they have their dividends reinvested -

also with all fees borne by the Company.

The Plan has been amended to enable eligible individual participants in the Plan to elect to defer federal income tax on up to $1,500 of reinvested dividends per year as provided by the Economic Recovery Tax Act of 1981.

Over 30% of the common shareholders are participants. In 1983, they invested more than $77 million through the Plan, including cash payments. Information con-cerning this Plan may be obtained from M. W. Rimerman, Treasurer, Philadelphia Electric Company, 2301 Market Street, P.O. Box 8699, Philadelphia, PA 19101.

Comments Welcomed The Company always is pleased to answer questions and provide information. Please address your com-ments to Mrs. L. S. Binder, Secretary, Philadelphia Electric Company, 2301 Market Street, P.O. Box 8699, Philadelphia, PA 19101.

Inquiries relating to shareholder accounting records, stock transfer and change of address should be di-rected to Philadelphia Electric Company, 2301 Market Street, P.O. Box 8699, Philadelphia, PA 19101, Attn: Stock Transfer Section.

Toll-Free Telephone Line Toll-free telephone lines are available to the Company's shareholders for inquiries concerning their stock ownership. When calling from outside of Pennsylvania, dial 1-800-223-7326. From within Pennsylvania, dial 1-800-242-7326. Local Philadelphia calls should be made to 841-5795.

Annual Meeting The Annual Meeting of the Shareholders of the Company will be held on April 11, 1984, at 10:30 A.M. at the Franklin Plaza Hotel, 17th & Race Streets, Philadelphia, PA.

Common stock shareholders of record at the close of business on March 2, 1984 are entitled to vote at this meeting.

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

Form 10-K Form 10-K, the annual report filed with the Securities and Exchange Commission, is available, without charge, to shareholders upon written request to Philadelphia Electric Company, 2301 Market Street, P.O. Box 8699, Phila-delphia, PA 19101, Attn: Financial Division.

Shareholders The Company has 300,257 shareholders of record of common stock, a 24% increase in 5 years.

Transfer Agents and Registrars PHILADELPHIA ELECTRIC COMPANY -

Preferred and Com-mon Stocks Registrars:

Transfer Agents:

Girard Bank, One Girard Plaza, Phila.,

PA 19101 Morgan Guaranty Trust Co. of NY, 30 W.

Broadway, NY, NY 10015 Philadelphia Electric Company, 2301 Market St., Phila., PA 19101 Morgan Guaranty Trust Co. of NY, 30 W.

Broadway, NY, NY 10015 PHILADELPHIA ELECTRIC COMPANY -

First and Refunding Mortgage Bonds Trustee:

The Fidelity Bank, Broad & Walnut Sts., Phila.,

PA 19109 New York Morgan Guaranty Trust Co. of NY, Agent:

30 W. Broadway, NY, NY 10015 PHILADELPHIA ELECTRIC COMPANY -

Debentures PHILADELPHIA ELECTRIC POWER COMPANY (A Subsidiary)

Debentures Trustee:

The Philadelphia National Bank, Broad &

Chestnut Sts., Phila., PA 19101 New York Irving Trust Co., One Wall Street, Agent:

NY, NY 10015 General Office 2301 Market Street, P.O. Box 8699, Phila., PA 19101. (215) 841-4000.

NYSE -

Composite Common Stock Prices, Earnings and Dividends by Quarters (Per Share) 1983 1982 Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter High Price

$183/s

$17V..

$18 1,4

$18

$17 \\12

$16~

$15 14

$14111 Low Price

$131/2

$15%

$16V..

$16%

$15111

$13\\12

$13

$13111 Earnings 48¢ 78¢ 44¢ 70¢ 54¢ 73¢ 42¢ 71 ¢ Dividends 53¢ 53¢ 53¢ 53¢ 53¢ 53¢ 50¢ 50¢

Directors

• John H. Austin, Jr.

President and Chief Operating Officer of the Company William T. Coleman, Jr., Esq.

Senior Partner of the law firm of 0 'Melveny & Myers M. Walter D'Alessio President and Chief Executive Officer Latimer & Buck, Inc.

(Mortgage Banking and Real Estate Development)

• James L. Everett Chairman of the Board and Chief Executive Officer of the Company Wi lliam S. Fishman Chairman and Chief Executive Officer ARA Services, Inc. (Service Managemen t)

• Robert E Gilkeson Chairman of the Executive Committee

• William W. Hagerty President, Drexel University

• Robert D. Harrison Vice Chairman john Wanamaker, Philadelphia (Merchandising)

Paul R. Kaiser Cb irman Emeritus Tasty Baking Company (Diversified Manufacturing)

Joseph C. Ladd President and Chief Executive Officer Fidelity Mutual Life Insurance Company Edithe]. Levit, M.D.

President and Director National Board of Medical Examiners

• Joseph]. McLaughlin President and Chief Executive Officer Beneficial Mutual Savings Bank

• Member of the Executive Committee Officers James L. Everett Chairman of the Board and Chief Executive Officer John H. Austin, Jr.

President and Chief Operating Officer Vincent S. Boyer Senior* Vice President Nuclear* Power Edward G. Bauer, Jr.

Vice President and General Counsel Clifford Brenner Vice President Corporate Communications Thomas w. Coppock Vice President Electric Transmission and Distribution Shields L. Daltroff Vice President Electric Production Charles L. Fritz Vice President Personnel and Industrial Relations Raymond E Holman Vice President General Administration John S. Kemper Vice President Engineering and Research William B. Morlok Vice President Commercial Operations Philip G. Mu lligan Vice President Gas Operations Clair V. Myers Vice President Purchasing and General Services Joseph E Paquette, Jr.

Vice President Finance and Accounting Lucy S. Binder Secretary Morton W. Rimerman Treasurer James D. Lynch Assistant Secretary

). Robert Causton Assistant Treasurer Jon A. Katherine Assistant Treasurer William M. Lennox, Jr.

Assistant Treasurer