ML18095A879

Philadephia Electric Co Annual Rept,1990.

ML18095A879
Person / Time
Site:	Salem, Hope Creek
Issue date:	12/31/1990
From:	Paquette J PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC
To:
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ML18095A877	List: ML18095A876 ML18095A878 ML18095A879 ML18095A880 ML18095A881
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NUDOCS 9104190187
Download: ML18095A879 (48)

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910419018 ANNUAL REPORT 1 9 9 0

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PHILADELPHIA ELECTRIC COMPANY ANNUAL REPORT 1990 FINANCIAL HIGHLIGHTS 1990 1989 Operating Revenues $3, 705,161,000 $3,405,629,000 Operating Expenses $2,937,447,000 $2,596,288,000 Taxes Charged to Operations $420, 1 72,000 $435,756,000 Operating lncome $767,714,000 $809,341 ,000 Earnings Appli cable to Common Stock $123,871,000 $493,807,000 Earn ings per Average Common Sha re $0.58 $2.36 Cash Dividends ?aid per Common Sha re $1.45 $2.20 Average Sha res of Common Stock Outstanding 214,356,000 208,901,000 Construction Expenditures $660,757,000 $1,106,174,000 Total Assets $12,565,951,000 $12,681,11 7,000 ONTENTS EARNINGS AND DIVIDENDS CONSTRUCTION EXPENDITURES Dollars Million Dollars 2 Letter to Shareholders $2.50 $ 1 200 4 Mission, Vision and Values 7 Report of 1990 100 0 2.00 Operations - - -

17 Management' s Discussion and 800 Analysis of Financial Condition and 1 .50 Results of Operations 20 Consolidated Financial Statements 1 .00 25 Notes to Financial Statements 38 Report of .5 0 Independent Accountants 39 Financial Statistics 41 Operating Statistics 0 '---- - '---- - '--- .___

43 Officers and 86 87 88 89 90 86 87 88 89 90 Directors M areholder D Earnings Per Share D External Sources

- formation

• Dividends Paid Per Share

• Internal Sources The financia l pages of thi s report are primed on recycled paper. Philadelphia Electric Company 1

T o OUR SHAREHOLDERS:

he year 1990 was one of marked contrasts for our Company.

Financially, the year was extremely disappointing because of the adverse order issued in April by the Pennsylvania Public Utility Commission (PUC), which denied the Company $307 million of its rate request to recover the costs of owning and operating its new Limerick Unit No. 2. As a result of the PU C's action, it was necessary to reduce the quarterly common stock dividend from $0 .55 per share to

$0.30 per share effective with the June payment, and 70%, respectively, and both stations thus causing the market price of the common received higher evaluations from the Nuclear stock, which began the year at $23 per share, to Regulatory Commission.

drop to $15 per share in April. It was also neces-

• The Middle East Crisis has had little impact on sary to take a one-time charge against 1990 the Company since, with the restart of Peach income of approximately $250 million ($1.18 Bottom Unit No. 3 and the completion of per share) because of disallowances made by the Limerick Unit No. 2 in January 1990, 65% of PUC in its order. our electric generation was provided by nuc For the year 1990, earnings amounted to power while only 4% was oil generated.

only $0 58 per share versus $2.36 per share

• Our fossil-fuel and hydroelectric units turned m earned in 1989. The reduction was caused by the strong performances again last year. These units effect of the PUC disallowances, as well as non- were available for operation nearly 80% of recurring costs of an early retirement plan the time.

($0.70 per share) and a lower rate of return

• Our safety record, as measured by lost-time on shareholders' investment as ordered by the accidents, continued to improve, placing the PUC These items were partially offset by cost Company in the top quartile of the industry.

reductions, elimination of the Peach Bottom

• The market price of the Company's common shutdown penalties and an accounting change stock recovered to $18 per share by year-end.

to record unbilled revenues. The year 1990 was also one of significant OPERATIONAL PROGRESS transition for the Company. With the start-up of Despite these financial setbacks, the Company Limerick Unit No. 2, the Company completed a 20-recorded significant progress on several fronts. year expansion program which added 6,800 mega-Some of the highlights were as follows : watts of new capacity, mostly nuclear, and required

• With ample capacity to serve our customers' the investment of $9 billion. Our focus has now needs, approximately $95 million of revenue shifted to achieving operational excellence.

resulted from sales of electric energy and capac- NEW STRATEGIC PLAN ity to other utilities. To provide a sound basis for future activities, we

• Although gas sales declined because of warmer have developed a new Strategic Plan which is weather, new gas house-heating customers centered on improving shareholder value by con-increased 3 .4% as a result of stable gas prices centrating on improving our core business -

and conversions from higher-cost oil heating. providing reliable electric and gas energy in- -

• The performance of our nuclear plants con- southeastern Pennsylvania and northeastern tinued to improve as Peach Bottom and Maryland. Our primary objectives will be to Limerick operated at capacity factors of 78% improve earnings and increase customer saris-2 Philadelphia Electri c Company

continually strive to anticipate, understand and and the public and are committed to conduct meet our customers' changing needs and expecta- all phases of our business with safety as a major tions so that we remain their preferred supplier consideration.

of energy services. INTEGRITY SHAREHOLDER VALUE The Company highly values its reputation for Our shareholders are the owners of the busi- integrity in our dealings with customers, the ness and provide the equity capital necessary public, elected officials, suppliers and other con-to construct and replace our facilities. We will stituencies. We will conduct all of our activities operate our business in a manner that will in a manner which preserves that confidence.

increase shareholder value. ENVIRONMENTAL COMMITMENT EMPLOYEE VALUES We will conduct our business in a manner which We will provide every person with necessary demonstrates our commitment to protect the support, training and the opportunity to public and the environment.

participate in our process of continuous COMMUNITY INVOLVEMENT improvement, to achieve their personal Our Company's future depends on the prosperity potential, and to realize job satisfaction. We of the communities that we serve. The Company will recognize commitment and excellent and its employees will continue to be involved performance. in civic activities, economic development initia-tives and the preservation of our communities.

4 Philadelphia Electric Company

faction by minimizing the need for rate increase to improve our competitive position while restoring requests through improved productivity and shareholder value; to devote the resources and increased utilization of our generating capacity. attention required to achieve excellence in all of We do not view diversification as an attractive our operations; and to comply with increasingly option at this time . strict environmental standards, especially the During the year, your management imple- anticipated stringent regulations to be issued under mented a number of major initiatives to set the the Amendments to the Clean Air Act of 1990.

stage fo r successfully achieving the new Strategic I believe the Company is well positioned to Plan including: address these future challenges since we have (1) Concurrent with the dividend reduction, we already taken a number of difficult but significant Joseph F. Paquette, Jr. (left) announced a plan to reduce operating expenses steps to move ahead through the 1990's.

Chairman of the Board and by $100 million per year by the end of 1991. Specifically, Chief Executive Officer with This is being accomplished through salary

• our current generating capacity is sufficient for Corbin A. McNeill, Jr.

cuts for management, restrictions on overtime our customers' needs into the next decade; President and Chief Operating Officer and the use of outside contractors, an early

• our nuclear units and the scrubbers already retirement program which is expected to reduce installed on our coal units significantly limit employment by about 1,500, and reductions in our exposure to the recently enacted clean air advertising and charitable contributions. legislation; (2) We have developed a new Mission, Vision,

• our low level of oil-fired generation insulates and Values statement for our employees to us from the potential scarcity of fuel oil and provide guidance for the Strategic Plan. The volatility of fuel oil prices; Mission, Vision and Values are presented on

• our commitment to operational excellence and pages 4 and 5 of this report. continuing cost control is firmly established; (3) We announced a comprehensive plan and to reorganize our division operations by

• our construction program and financing needs decentralizing responsibility and transferring have been significantly reduced.

accountability to local division general managers In 1990, the stage was set to tum Philadelphia for improving customer satisfaction and for Electric in a new direction. For 1991, our objective achieving cost-saving objectives. is to complete the implementation of our new (4) Further steps were taken to strengthen the strategies and to demonstrate financial improve-Company's top management and Board of ment at least sufficient to warrant consideration Directors. In April, Corbin A. McNeill,Jr. was of a dividend increase in the near future. Our promoted to the position of President and dedicated body of employees and their commit-Chief Operating Officer after having success- ment to our Mission, Vision and Values will fully provided leadership to our restructured provide the foundation to achieve our objectives.

nuclear department. We were also extremely We extend our sincerest thanks for your fortunate to augment the Board of Directors loyalty to the Company, especially during this with the addition ofJohn M. Palms, President difficult year.

of Georgia State University, James A. Hagen ,

Chairman, President and CEO of Consolidated Rail Corporation, and Richard H. Glanton, Esquire, Partner of the law firm Reed Smith Shaw

&McClay. ]. F Paquette, Jr.

OUTLOOK Chainnan of the Board and We face the future with a number of significant Chief Executive Officer challenges before us. Among these are the need February 1, 1991 Philadelphia Electr ic Company 3

We will aggresQvely manage our natUral gas busi-ness by maximizing our profi1able marketing 1990's. We will achieve this through rigorous opporrunities and rigorously controlling expenses control of expenses and capital expenditures, thus and capital expenditures. This will enable us to minimizing the need for rate increases while remain competitive and minimize the need for rate improving our income. increases. We will consider acquisitions of related CUSTOMER SATISFACTION gas businesses which would permit the creation To achieve customer satisfaction, we will contin- of value.

ually evaluate our performance against their ELECTRIC SUPPLY STRATEGY expectations. We will use the concepts of Quality We will realize the benefits of our significant Management to identify and address oppor- commitment to nuclear power and will con-tunities for service quality improvement and tinue to diligently manage the operation of our cost reduction. nuclear plants to maximize their safety and MARKETING performance.

We will implement strategic marketing and energy Although we have sufficient installed capacity conservation programs that contribute to better to meet expected area load growth beyond the utilization of our facilities, enhance our revenues, tum of the century, we will pursue various options and assist customers in improving their energy use to defer the need for construction of new generat-efficiency. We will aggressively market any tempor- ing facilities, including demand side management.

arily excess capacity and energy through off-system sales when justified.

Philadelphia Electric Company 5

Gordon L. Johnston, Nuclear Maintenance Division: "Our newly developed group was formed to service the reactors at both Limerick and Peach Bottom. Having the same group service both sites makes us more efficient and saves the Company money."

6 Philadelphia Electric Company

• arnings per average share for 1990 amounted to $0 .58 versus energy products.

1 9 9 0 Fl NANCI N G S

$2.36 earned in 1989. The decrease During 1990, the Company raised nearly $290 in earnings was primarily due to million in capital, less than one-third of the $940 the one-time write-off in the first million raised in 1989. The table below summarizes quarter of 1990 of approximately the 1990 financings.

$250 million, or $1.18 per share, associated Millions of with various disallowances made by the Pennsyl- Month Dollars vania Public Utility Commission (PUC) in the October Mortgage Bonds- 10% $100.0 Limerick Generating Station (Limerick) Unit Due 2000 Nuclear fuel Is loaded into No. 2 rate order, as well as a lower rate of Mortgage Bonds- 10 Y2% 100.0 the Limerick Unit No. 1 reactor. This view Is from return allowed by the PUC, and the third quarter Due 2020 directly above the reactor write-o!f of $0.70 per share associated with the January Medium-Term Note Program:

vessel and refueling bridge.

Company's Special Retirement and Service 9% Notes Due 1996 5.0 The 1990 reload required the individual replace- Completion Plan (early retirement plan). This January- Dividend Reinvesttnent ment of one-third of the decrease in earnings was partially offset by electric December & Stock Purchase Plan:

unit's 764 fuel elements 4,976,745 Shares; sales to other utilities, effective cost manage-by exchanging them ment, the net effect of certain accounting changes Average Price of $17.04 84.8 en the spent fuel nd the reactor. and the elimination of costs associated with the Total $289.8 g the reload, some Peach Bottom Atomic Power Station (Peach Bottom) The financing program was designed to take 2,000 maintenance tasks were performed, of which shutdown which adversely affected 1989 results.

EXTERNAL FINANCINGS approximately 1,500 were For a complete discussion of revenue and expense Mill ion Dollars preventive maintenance.

results and accounting changes, please refer

$ 1250 to Management's Discussion and Analysis of Financial Condition and Results of Operations on page 17.

1000 S A L ES RES U LTS Total electric sales increased 5.0% to 34.3 billion kilowatthours, including energy sales to 750 other utilities. Excluding these sales, electric service territory sales decreased 0.7% from 1989 levels primarily due to more moderate weather. 500 Gas sales, including transported gas, decreased 4.4 billion cubic feet or 5.4% from last year.

Gas heating sales were down due to milder weather during the heating season in 1990 as compared to 1989, while transported gas improved by 6.4 billion cubic feet or 35.4%.

More than 10,000 new residential units were 86 87 88 89 90 connected in 1990. Electric space heating was 0 Long-Term Debt installed in 45% of these units and gas heat in 41 %

• Preferred Stock for a total market penetration of86% of new living

• Common Stock units which wi ll be using PE's clean and efficient Philadelphia Electri c Company 1

advantage of opportunities to refund high-interest- LIMERICK RATE ORDER rate debt and high-dividend-rate preferred stock In July 1989, the Company filed a $549 million at lower rates. The Company refunded nearly base-rate increase request with the PUC to include

$220 million of securities in 1990 resulting in in electric rates the costs of owning and operating net annual savings of $12 million. Since the Com- Limerick Unit No. 2 and associated common pany began its refunding program in 1985, nearly facilities. The PUC issued a final order, effective

$1. 5 billion in securities have been refunded for a April 20, 1990, approving an annual rate increase total reduction of $4 7 million in annual interest of only $242 million, or approximately 44%

expense and preferred dividends. of the Company's request. The $307 million of PLANT INVESTMENT revenue disallowed included $106 million due Eddystone Generating The Company invested $661 million in new to the PUC finding that 399 megawatts (MW) Station (left) with Its plant and equipment in 1990, down $445 represented excess capacity and $95 million scrubbing plant (right).

associated with a lowe r authorized rate of return The scrubbers were million from 1989. The level of new plant invest-Installed in 1982 to ment decreased with the completion of Limerick on common shareholder equity. The PUC did remove sulfur dioxide Unit o. 2 injanuary. Construction spending approve recovery of approximately $137 million and particulate emls*

of Limerick Unit No. 1 costs which had pre- sions from the flue gas.

is expected to decrease further to $588 million for 1991 and to average approximately $550 viously been deferred pursuant to a Declaratory million per year through 1994. New transmission Order. On May 18, 1990, the Company filed with and distribution projects will account for a sub- th e Commonwealth Court of Pennsylvania stantial portion of the projected expenditures. (Commonwealth Court) a Petition for Review of the PUC's final order. The Company appealed, CAPITALIZATION Million Dollars among other things, the PUC's disallowance of any return on the common equity investment

$10000 for 399 MW of Limerick Unit No. 2 and associated common facilities based on the PUC's finding of excess capacity. The Office of Consumer Advocate 8000 COCA) also appealed, challenging the permitted recovery of Limerick Unit No. 1 Declaratory Order costs.

6000 On December 3, 1990, the Company, the OCA and others filed a joint petition for settlement of all appeals arising from the PUC's final order. The proposed settlement, which is subject to PUC approval, provides that the Com-pany and the OCA will withdraw their appeals of the Limerick Unit No. 2 rate order and that the Company will not file a request for another base-rate increase before April 1994, except for emergency or single-issue rate filings (e.g., a 86 87 88 89 90 change in costs associated with new legislation or 0 Long-Term Debt regulations). In addition , the Company has agreed Preferred Stock to consolidate the previously authorized Limerick

• Common Equ ity Unit No. 1 and Unit No. 2 phase-in plans and 8 Philadelphia Electric Company

Herman Perez, Eddystone Generating Station:

"Scrubbers allow our Eddystone and Cromby coal plants to operate In compliance with the new clean air legislation.

Through my work on the scrubbers, I am aware of the Company's commit-ment to operate in a way which protects the public and the environment."

Philadelph ia Elemic Company 9

Giibert L. Jones, Peach Bottom Atomic Power Station: "I'm very proud to be part of the successful restart of the Peach Bottom Station. Now that we are operational , I enjoy being part of a team striving for excellence."

10 Philadelphia Electric Company

levelize associated rates over the May 1991 to ment Institute.

December 1992 time period. In return, the Com- A new water processing facility, designed pany will be permitted to retain the net proceeds to cool and treat water from the Delaware River, of any sales to other utilities of the 399 MW of was constructed to meet strict environmental electric capacity/ energy deemed excess by the requirements imposed by the Pennsylvania PUC In addition, beginning in April 1994, the Department of Environmen tal Resources. The Company will be allowed to retain 16.5% of $21 million facility, located in Bucks County, the energy cost savings from the operation Pennsylvania, began operation in June in conjunc-of Limerick Unit No. 1 and Unit No. 2, with cus- tion with the supplemental cooling water system tomers receiving the remainder of such energy for Limerick. This supplemental cooling water A new, two-story, 70,000-square-foot training center savings. The Company's potential benefit from system has provided Delaware River water to (left) was opened at Peach this proposed settlement is limited to $106 million Limerick for more than a year with no negative Bottom during 1990. The per year through 1994 and to higher amounts environmental effects.

facility is adjacent to the thereafter. Please refer to note 2 of the Notes to In December, the Company received a Unit No. 1 building (center) which currently houses Financial Statements for further information. Systematic Assessment of Licensee Performance the control room training OPERATIONS (SALP) evaluation of Limerick from the Nuclear simulator for Units No. 2 Economic advantages of the Company's invest- Regulatory Commission (NRC) covering the period and No. 3. Peach Bottom

't No. 1 was an experi- ment in nuclear power and reduced dependence September 1, 1989 to October 15, 1990. The 1high-temperature on oil were affirmed by events in the Middle East report found that Limerick's performance had ooled reactor which during the second half of 1990. As oil prices rose improved since the last SALP evaluation and operated between 1967 and 1974. Peach Bottom dramatically, the Company's cost of fuel was awarded top scores in five of the seven evaluated Units No. 2 and No. 3 1.28 cents per kilowatthour, down 28% from the areas with continuing improvement noted in the appear in the distance 1989 level. remaining two areas. The SALP evaluation found (right).

The Company has ownership interests in that management involvement was key to the six nuclear units-two each at Limerick, Peach continued strong operating performance at Bottom and Salem Generating Station (Salem). the plant. PE management, it said, continued Limerick is operated and 100% owned by the to demonstrate a commitment to safe, quality Company. The Company operates Peach Bottom operation at Limerick.

and owns a 4 2. 49% share of the plant while During 1990, Peach Bottom continued its Public Service Electric and Gas Company operates record of improving performance since it was Salem, with PE owning a 42.59% share of that restarted following the NRC shutdown. In facility. These six units produced 65% of the February, the NRC announced that "Peach Bottom Company's total output in 1990, equivalent to had demonstrated sustained improvement suf-burning 37.5 million barrels of oil and saving ficient to warrant removal from the category of

$630 million in fuel costs for customers. plants that require increased attention from NRC On January 8, 1990, Limerick Unit No. 2 headquarters and the Regional office." The Com-began commercial operation following a record- pany has a new nuclear management team which setting start-up program of 200 days. Unit No. 2 is committed to excellence and is confident of its operated at an 80% capacity factor during its first ability to operate its nuclear facilities safely and year of operation. The highly praised Limerick efficiently.

Unit No. 2 construction project received yet The SALP evaluation of Peach Bottom's plant another award in 1990-national "Project of the performance for the period July 1989 through Year" honors presented by the Project Manage- May 1990 stated that " .. during this assessment Philadelphia Electric Company 11

period, the licensee successfully implemented An aggressive direct mail campaign to homes the restart and power ascension programs for both located along existing gas mains was mounted in units. A solid foundation of self-assessment early September. As a result, residential conversions programs and a management philosophy of safety- from oil heating for 1990 were ahead of 1989 by conscious operations have been established'.' 24% with over 2,800 homeowners switching to The most recent SALP evaluations for clean, affordable and abundant natural gas. The Limerick and Peach Bottom are the best evaluations number of residential gas heating service contracts the Company has ever received for the stations at the end of 1990 totaled 80,179, representing from the NRC; however, both plants have a number over 31 % of the residential heating customers.

of specifically identified areas where improve- This level of market penetration for service The West Conshohocken ment is required. contracts is one of the highest in the industry.

Llqulfled Natural Gas (LNG)

A new 70,000-square-foot training center The Company's strategy in this market is to Plant supplements the and personnel processing facility, opened at continue to offer highly reliable, reasonably Company's natural gas supply system by provld*

Peach Bottom in October, enables the station to priced natural gas while focusing on becoming a Ing liqulfled natural gas meet the growth and expanding responsibilities premier heating appliance service organization. from storage (tank at left of its Training Division. Extensive work was completed during rear) to meet peak load requirements. During 1990 was also a year of accomplishment planned outages at both Eddystone and Cromby periods of heavy demand for the Company's gas operations. During the Generating Stations in 1990. In addition to In the winter, the plan.t year, the number of residential gas house-heating major boiler and auxiliary equipment mainte- converts the LNG ton gas to supplement re customers topped 250,000 for the first time. nance, significant improvements were made pipeline supplies.

The events in the Middle East caused oil to the Unit No. 2 and Unit o. 4 turbines at prices to increase 50% or more during the fall Eddystone, which has been in operation for of 1990 while natural gas prices remained stable. 30 years. At Cromby, a large section of the Unit ELECTRIC SALES No. 2 boiler was replaced and a major turbine Billion Kil owa tthours inspection on Unit No. 1 was completed.

35 LEGAL MATTERS During 1990, a settlement was reached in the derivative suit brought by certain shareholders against the Company's former Chairman and former President in connection with the events leading to the shutdown of Peach Bottom by the NRC on March 31, 1987. The settlement became final on October 30, 1990. Under the terms of the settlement, two of the Company's director-and officer-liability insurance carriers paid

$34.5 million. The recovery, less $6.5 million for attorneys' fees and expenses, was paid to the Company on November 1. The Company will also arbitrate an insurance coverage issue with 011111 86 87 88 89 90 a third insurance carrier. Depending on the results of the arbitration, another $9 million may be paid as part of the settlement. As a derivative 0 Sales to Other Utllltles suit filed on behalf of the Company, awards are 12 Philadelphia Electric Company

Vernon C. Readman, Ill, West Conshohocken Gas Plant: "Our customers depend on us for a reliable supply of natural gas-even on the coldest winter days. My job Is to be sure that our customers have all the gas they need, when they need It, 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day, 365 days a year."

Philadelphia Electric Company 13

Catherine A. McGinley, Western Division: "As an engineer In Electric Trans-mission and Distribution, I get the opportunity to work in the field with many different groups to coordi-nate projects that will allow the Company to serve Its customers with Increased reliability and quality of service."

14 Philadelph ia Electric Company

paid to the Company and not directly to the CONSERVATION AND LOAD MANAGEMENT shareholders. During the year, the Company accelerated its The two lawsuits ftl.ed by the co-owners of marketing efforts on such customer-benefit pro-Peach Bottom against the Company concerning grams as conservation, load management and the NRC-ordered shutdown of Peach Bottom are compressed natural gas vehicles (N GV's). Through still pending. In these suits, which were both ftl.ed an advertising campaign, "The Power Is In Your on July 27, 1988 in the United States District Court Hands, Use It Wisely;' the Company informed its for the District of New Jersey, the co-owners seek customers-residential, commercial and industrial compensation for certain replacement power -how to use energy more efficiently, thereby costs and other costs which they incurred as a saving on their electric bills and ultimately delaying Providing reliable service requires the installation result of the shutdown. The suits include claims the need for the Company to build or buy expen-of an adequate number of for punitive damages. The parties to the htigation sive additional electric capacity.

transmission substations are currently engaged in ongoing discovery. The Clean air legislation and the Middle East to meet growing load requirements in our service Company continues to defend itself vigorously crisis greatly accelerated interest in NGV's using territory. Workmen inspect against these claims. Please refer to note 3 of the natural gas as a gasoline alternative. NGV's offer a circuit breaker at Plane- Notes to Financial Statements for further information. lower fuel and operating costs, cleaner-burning brook Substation near Exton, Pennsylvania.

ENVIRONMENTAL COMMITMENT engines and less reliance on foreign fuel sources.

Coal was used to produce 18% of the Company's In 1990, several public and private fleet mana-energy in 1990 and a significant portion of that gers made the decision to convert a portion of was generated at Cromby and Eddystone, which their fleets to NGV's. Philadelphia Electric are already equipped with state-of-the-art Company continues to increase the number scrubbing equipment to clean emissions into the of NGV's in its ~eet and plans to increase its atmosphere. These plants already meet the most refueling-station network.

stringent sulfur dioxide limits specified in the GAS SALES & TRANSPORTED GAS Amendments to the Clean Air Act of 1990. Oil Billions of Cubic Feet was used to produce just 4% of the Company's 90 total generation in 1990.

POWER SALES I SAVINGS The commercial operation of Limerick Unit No. 2 enabled the Company to evolve from a buyer to a seller of power and related services. Sales of capacity, energy and transmission system import capability under contract to other utilities during 1990 generated $95 million of revenue for the Company and contributed $0.19 per share to ,

common stock earnings. In addition, through its membership in the Pennsylvania-New Jersey-Maryland Interconnection (P]M) and the continua-tion of its long-standing agreement to purchase coal-fired power from systems outside P]M, the Company achieved savings for customers of approximately $45 million through the purchase 86 87 88 89 90 and sale of economical power.

Philadelphia Electric Company 15

The Company's strong commitment to the direct responsibility and accountability for the environment and the economic well-being of quality and reliability of service to its customers.

its customers, combined with other market forces, Under the reorganization, the remaining may in the long run pave the way for public central operations at the Company's headquarters acceptance ofNGV's. in Philadelphia will continue to supervise the AREA DEVELOPMENT transmission of gas and electricity and will pro-As the 1990's begin, southeastern Pennsylvania vide extensive administrative services to support is positioned to continue the growth and develop- divisional operations in the field.

ment seen in the 1980's. The region's unemploy- The reorganization will also change the ment rate of 5.3% continues to be below both existing boundaries of the Company's suburban the state and national rates. divisions to conform with the geographical The service territory continues to be a boundaries of Bucks, Chester, Delaware, and center for insurance, financial, health care, real Montgomery Counties, thereby realigning divisions estate, publishing, chemical and pharmaceutical that now cross county lines.

industries. Major renovations totaling $700 million The reorganization will also establish two are underway at the Philadelphia International Air- divisions ill Philadelphia, but will leave basically port, and an $80 million four-hotel Airport unchanged the boundaries of Conowingo Power Interplex" is scheduled to be built across from the Company, a PE subsidiary serving portions of airport adjacent to Interstate 95. The Philadelphia Cecil and Harford Counties in Maryland and waterfront has projects representing $1.75 billion a part of York County in Pennsylvania. (Please planned, including hotels, townhouses, condo- refer to the map on the inside front cover.)

miniums, restaurants, retail shopping and EARLY RETIREMENT PLAN marinas. Also, construction of the $530 million As part of the Company's plan to reduce operating Philadelphia Convention Center has begun costs by $100 million by year-end 1991, the in the downtown Philadelphia area. Plans for the Company initiated an early retirement plan center, scheduled to be completed in late 1993, for employees. This plan provided a one-time include a 1,100-room hotel, a ballroom, meet- opportunity for all Company employees who ing rooms and exhibition space. were 50 years of age or older and who had five During 1990, the Company provided loca- or more years of credited service to elect an tion assistance in the service territory to numerous improved pension benefit. The plan provides companies, with 21 establishing new facilities, long-term benefits to the Company as a result of 8 establishing branch plants and 38 relocating the salaries and associated benefits saved through and/or expanding within the service area. As a retirements. Of the 2,608 eligible employees result, 9,300 jobs were either created or retained (23% of total employment), 1,909 employees in PE's service territory. elected to accept early retirement. As a result, DIVISIONAL REORGANIZATION the Company incurred a one-time, pre-tax charge In September, the Company announced a major of approximately $249 million, or $0.70 per share, divisional reorganization designed to bring the in the third quarter of 1990 but expects to save management of the Company's operations closer approximately $75 million per year by the end of to its customers. During 1991, the Company 1992. Please refer to note 5 of the Notes to Financial will decentralize the administration of its electric Statements for further information.

and gas distribution and customer-related func-tions to give its divisional general managers 16 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies NAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS Earnings per share for 1990 were $0.58, including a $0.51 per with the early retirement plan were recognized during the share cumulative effect of an accounting change. These earnings third quarter of 1990. As a result, the Company incurred a one-were $1.78 per share below 1989 earnings of $2.36, when 2.6% time after-tax charge of $150 million applicable to electric and fewer shares were outstanding. The decrease in earnings was gas operations.

due primarily to a one-time charge against income in the first In accordance with a Declaratory Order of the PUC quarter of approximately $250 million, or $1.18 per share, dated May 3, 1989 and modified on February 23, 1990, the associated with various disallowances made by the Pennsylvania Company deferred the operating and maintenance expenses, Public Utility Commission (PUC) in the Limerick Unit No. 2 rate depreciation, and accrued carrying charges on its capital invest-order and the third quarter charge of approximately $150 ment in Limerick Unit No. 2 and associated common facilities million, or $0.70 per share, resulting from the Company's special from January 8, 1990, the commercial operation date of Limerick early retirement plan. In addition, the rates allowed by the PUC Unit No. 2, until April 20, 1990, the effective date of the Limerick rate order were substantially less than the amount requested by Unit No. 2 rate order. At December 31, 1990, these costs, which the Company, resulting in a $0.55 per share decrease in earnings are included in Deferred Limerick Costs, totalled $91 million.

compared to 1989. Partially offsetting these reductions was the Recovery of these costs, which is not assured, will be addressed elimination of penalties associated with the Peach Bottom shut- by the PUC in a subsequent electric rate case.

down which reduced 1989 earnings by $0.25 per share.

On July 21, 1989, the Company filed with the PUC ELECTRIC OPERATING REVENUE a request for an electric rate increase designed to yield $549 Provided below are the components of the net increase in elec-million annually, net of limerick Unit No. 2 fuel savings, prin- tric operating revenue from 1988 through 1990:

cipally to recover costs associated with Limerick Unit No.*2 and Electric Revenue Increase/(Decrease) associated common facilities. On April 19, 1990, the PUC issued (Millions of Dollars) '90 VS '89 '89 VS '88 '88 VS '87 1 order in the Limerick Unit No. 2 rate case approving an 1 rate increase of $24 2 million, or approximately 8%, to be Rate Increase $167 $ 1 Federal Tax Adjusanent Credit $ (2) (55) ed in over approximately a three-year period. Additionally, Fuel Adjusanent Revenue 41 114 16 as a result of the PUC's final order, the Company incurred a one-Energy and Capacity Sales 96 time after-tax charge against income in the first quarter of 1990 Sales and Other _J1) 58 79 of approximately $250 million associated with various $300 $170 $41 disallowances.

In recognition of the adverse impact on future earnings In 1990, kilowatthour (kWh) sales of electricity to retail of the PUC's final order in the Limerick Unit No. 2 rate case, on customers were 0.7% below those in 1989, primarily as a result April 23, 1990, the Board of Directors of the Company reduced of moderate weather. Sales to retail customers increased 1.4% in the Company's quarterly common stock dividend by approx- 1989 over 1988 and 5.5% in 1988 over 1987 due to economic imately 45% to $0.30 per share. growth and favorable weather.

The Company also initiated a Company-wide cost-reduction program designed to reduce operating expenses by at GAS OPERATING REVENUE least $100 million annually by December 31, 1991. The program Gas revenue in 1990 was lower than 1989 due primarily to includes, among other initiatives, a reduction in pay for top milder weather, partially offset by increased revenue from management and in fees for the Board of Directors, a reduction transported gas sales. Total gas sales in 1990, including trans-in the number of contract personnel and in capital spending, ported gas, decreased by 5.4%. Increased gas revenue in 1989 and a special, one-time early retirement plan. over 1988 was primarily due to an increase in the purchased gas The election by eligible employees to accept early cost rate. For 1989, total gas sales, including transported gas, retirement under the plan was required to be made between were essentially the same as 1988.

July 15, 1990 and September 15, 1990. Of the 2,608 eligible FUEL AND ENERGY INTERCHANGE EXPENSE employees, 1,909 employees elected to accept early retirement.

For accounting purposes, fuel and energy interchange costs are In order to ensure an orderly restructuring of the workforce and to provide time for training of replacements, where necessary, deferred until billed as fuel adjustment revenue. (See note 1 of employees who allowed management to schedule their specific Notes to Financial Statements.) In 1990, fuel and energy inter-of retirement receive (upon retirement) payments equal to change costs were $130 million lower than 1989 primarily onths of base salary. Retirements taken pursuant to this due to increased nuclear generation as a result of the return sion are occurring in stages between November 1, 1990 to service of the Peach Bottom Units and the commercial opera-and December 31, 1992. Of the 1,909 employees electing to tion of Limerick Unit No. 2. In 1989, fuel and energy interchange accept early retirement, 1,859 employees opted to allow manage-ment to schedule their retirement dates. The costs associated

@ The financial pages of this report are printed on recycled paper. Philadelphia Electric Company 17

Philadelphia Electric Company and Subsidiary Companies MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RES UL TS OF OPERATIONS costs were $76 million higher than 1988 primarily due to OTHER TAXES increased output, higher cost of fossil generation and costs Other taxes decreased slightly in 1990 compared to 1989 deferred in previous years. primarily due to lower capital stock tax, partially offset by Effective April 20, 1990, the PUC established an Energy increased federal old age benefits taxes.

Cost Adjustment (ECA) which, in addition to reconciling fuel Other taxes increased in 1989 versus 1988 due to higher costs and revenues, incorporates a nudear performance stan- gross receipts taxes, partially offset by lower capital stock taxes.

dard which provides for financial born,1ses or penalties depend-ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION ing upon whether the Company's system nuclear capacity factor exceeds or falls below a specified range. The bonuses or penalties The decrease in Allowance for Funds Used During Construction are based upon average system replacement energy costs. If the (AFUDC) in 1990 compared to 1989 is due to the inclusion of capacity factor is within the range of 60-70%, there is no bonus Limerick Unit No. 2 in rate base. The increase in 1989 versus or penalty. If the capacity factor exceeds or falls below the specified 1988 was due to increases in construction work in progress, range, then progressive incremental bonuses or penalties are primarily related to Limerick Unit No. 2.

incurred. The Company did not incur a bonus or a penalty for 1990. INTEREST CHARGES Effective April 20, 1990, the Energy Cost Rate Factor Interest charges on debt decreased in 1990 compared to 1989 was changed from a credit value of 2.782 mills per kWh to an primarily due to the interest on the settlement of the Salem Unit ECA credit value of 3.744 mills per kWh, which represents a No. 2 safe harbor lease transaction which was reflected in 1989.

decrease in annual revenue of approximately $30 million. The increase in 1989 over 1988 was also associated with th~ safe OTHER OPERATING AND MAINTENANCE EXPENSES harbor lease transaction.

In 1990, non-fuel operating and maintenance expenses increased CHANGES IN ACCOUNTING

$406 million or 38% over 1989 primarily due to a one-time charge In December 1990, effective January 1, 1990, the Coi:ripany associated with the early retirement plan, additional charge-offs for adopted a change in accounting for revenues in order to reco i,mcollectible accounts resulting from the limerick Unit No. 2 electric the estimated amount of operating revenues for sales of ele rate order, the establishment of an allowance for uncollectible and gas service unbilled at the end of each month. This ace accounts for all classes of service, and higher incremental nuclear ing change, reflected as a cumulative effect, resulted in an maintenance and refueling outage costs resulting from the increase in 1990 earnings of approximately $108 million, or adoption of a method of accounting which recognizes a normalized $0,51 per share. The change in accounting had an insignificant monthly level of such costs over the pe1iod of the operating cycle. effect on 1990 earnings before reflecting the cumulative effect of In 1989, non-fuel operating and maintenance expenses such change *atjanuary 1, 1990. (See notes 1and4 of Notes to increased $30 million or 2.9% over 1988 primarily due to Financial Statements.)

expenses associated with the Limerick Unit No. 1 refueling Also in December 1990, effective January 1, 1990, the outage. Company adopted a change in accounting for incremental DEPRECIATION nuclear maintenance and refueling outage costs which Depreciation expense increased in 1990 compared to 1989 recognizes a normalized monthly level of estimated costs over primarily as a result of Limerick Unit No. 2 being placed in com- the period of the unit operating cycle. This accounting change mercial operation. decreased earnings by approximately $17 million, or $0.08 per Depreciation expense for 1989 increased over 1988 share. (See notes 1and4 of Notes to Financial Statements.)

due to plant additions.

• CAPITAL EXPENDITURES AND LIQUIDITY INCOME TAXES The Company's construction program is estimated to require The sum of income taxes charged to operations and income tax expenditures of approximately $588 million in 1991 and $1.6 credits included in other income decreased in 1990 compared billion from 1992 to 1994, which are expected to be fi,nanced to 1989 primarily due to the costs associated with higher primarily from internal sources. The estimated expenditures do operating and maintenance expenses and write-offs associated not include any amounts for cooling towers at the Salem with various disallowances made by the PUC Generating Station or scrubbers at the Keystone and Conemaugh In 1989, compared to 1988, the sum of income taxes Stations that may be required for environmental reasons. Such charged to operations and income tax credits included in other construction expenditures, if required, may be substantial and income decreased primarily due to higher interest charges and may require external sources of financing. The construction higher operating and maintenance expenses. program_ is subject ~o perio_d~c revie"". and revision to re**..,

changes m economic condmons, revised load forecasts

• other appropriate factors. Certain facilities under construction and to be constructed may require permits and licenses which the Company has no assurance will be granted.

18 Philaddphia Electric Company

Philadelphia Electric Company and Subsidiary Companies 11 NAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS While the final order in the Limerick Unit No. 2 rate the initiation of the early retirement plan, thereby depriving case yielded a rate increase substantially below the requested plaintiffs of substantial pension and salary benefits. If the litiga-amount, the Company's liquidity has improved as a result of tion ultimately is determined in favor of the plaintiffs, such deter-the $24 2 million rate increase that was allowed and the reduc- mination is not expected to have a material adverse effect upon tion of the common stock dividend. the Company's financial condition.

The Amendments to the Clean Air Act of 1990 (Act)

OUTLOOK will require, among other things, the reduction in emissions of On December 3, 1990, the Company agreed to a proposed set- sulfur dioxide (S0 2 ) by 10 million tons per year nationwide and tlement of all appeals arising from the April 19, 1990 decision of provide a national limit on S0 2 emissions beginning in the year the PUC on the Company's requested rate increase to recover 2000. The Act will also require the reduction in emissions of the costs of owning and operating Limerick Unit No. 2. The set- oxides of nitrogen (NOx) by approximately 2 million tons per year.

tlement must be approved by the PUC before it can be placed The Company believes that its two service-area coal-fired plants, into effect. Eddystone and Cromby, will comply with the S02 limitations of Under the terms of the proposed settlement, the Com- the Act since both plants are equtpped with flue gas desulfuriza-pany has conditionally agreed not to file a request for another tion equipment, but could require installation of new equipment base rate increase before 1994 and, through a base rate leveliza- to meet the NOx emission limitations to be established by the tion plan, to eliminate some of the volatility in scheduled rate Environmental Protection Agency. The Company is currently changes currently authorized by the PUC from 1991 through studying the impact of the Act on its other fossil-fuel plants, in 1993. In return, the Company will have an opportunity to sell to particular the Keystone and Conemaugh Stations of which the other utilities up to 399 megawatts of the electric capacity found Company is a co-owner. If the Act requires the installation of

• by the PUC to be near-term excess. Further, beginning in April equipment at the Keystone and Conemaugh Stations to meet S02 1994, the Company will be allowed to keep 16.5% of the energy and NOx standards, the Company's share of such capital costs savings from the operation of Limerick Units No. 1 and could be substantial. The Company expects that any such capital with its customers receiving ~e benef~t of the remainin~ costs, as well as any increased operating costs associated with

• of the savings. The Company s potennal benefit from this such equipment, would ultimately be recovered from its customers.

proposed settlement is limited to $106 million per year through In December 1987, the Financial Accounting Standards 1994 and to higher amounts thereafter. This agreement benefits Board (FASB) issued SFAS No. 96, "Accounting for Income customers by minimizing the potential for rate increases for at Taxes;' which must be implemented by 1992 under present least four years and gives the Company an opportunity and guidelines. Adoption of SFAS No. 96 is not expected to have a incentive to gain back for its shareholders what was lost through material effect upon the Company's results of operations. In the excess capacity ruling. (See note 2 of Notes to Financial December 1990, the FASB issued SFAS No. 106, '.'Employers' Statements.) Accounting for Postretirement Benefits Other than Pensions;'

Onjuly 27, 1988, the co-owners of Peach Bottom filed which must be adopted by 1993. SFAS No. 106 is expected to suits against the Company in the United States District Court for significantly increase liabilities reported on the Company's con-the District of New Jersey concerning the shutdown of Peach solidated balance sheets; but, depending on future regulatory Bottom ordered by the NRC. The plaintiffs seek compensation actions taken by the PUC, may not have a material adverse effect for certain replacement power costs which they incurred as a on the Company's results of operations. (See note 18 of Notes to result of the shutdown. Additionally, the complaints allege that Financial Statements.)

the co-owners were deprived of the benefits of their Peach The Limerick Unit No. 2 rate order provided for Bottom ownership interests and investments, that they made substantially less rate relief than requested by the Company and payments to the Company for capital and operating and will have an adverse annual future earnings impact, compared to maintenance costs for which they received no benefit and that the historic level of earnings. Therefore, the Company will rely they incurred increased costs and lost profits. The suits include oi:i its cost-reduction program and sales of the 399 megawatts of claims for punitive damages. Although the Company has taken electric capacity (pending final PUC approval) to offset, or partially the appropriate actions to defend itself against these claims, if the offset, the adverse effects on earnings caused by the rate order.

litigation ultimately is determined in favor of the plaintiffs, such The future financial condition of the Company is also determination could have a material adverse effect upon the dependent upon the continued successful operation of the Company's financial condition. (See note 3 of Notes to Financial nuclear generating facilities in which it has ownership interests.

Statements.) During 1990, nuclear generation provided 65% of actual electric On November 28, 1990, a class action suit was filed in output for the year.

urt of Common Pleas for Philadelphia County on behalf of 4 rmer Company employees who retired between January

- and April 1990. The suit alleges that the Company fraudulently and/or negligently misrepresented or concealed facts concerning Philad~lphia Electric Company 19

Philadelphia Electric Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31 (Thousands of Dollars) 1990 1989 1988 OPERATING REVENUES Electric $3,320,132 $3,019,976 $2,850,315 Gas 385,029 385,653 378,397 TOTAL OPERATING REVENUES 3, 705,161 3,405,629 3,228,712 OPERATING EXPENSES Fuel and Energy Interchange 691,205 820,954 745,110 Other Operating Expenses 879,628 777,190 727,791 Early Retirement Plan 249,252 Maintenance 339,650 285,389 304,751 Depreciation 357,540 276,999 264,091 Income Taxes 181,320 195,765 206,774 Other Taxes 238,852 239,991 237,600 TOTAL OPERATING EXPENSES 2,937,447 2,596,288 2,486,117 OPERATING INCOME 767,714 809,341 742,595 OTHER INCOME AND DEDUCTIONS Allowance for Other Funds Used During Construction 27,184 121,851 98,924 Capitalized Limerick Costs 80;325 82,008 73,074 4-Credit Related to Limerick Unit No. 1 Phase-In Plan 15,325 24,010 26,162 Adjustment to limerick Plant Costs (263,860)

Income Tax Credits, Net 86,869 56,656 Other, Net (25,060) 4,010 TOTAL OTHER INCOME AND DEDUCTIONS (79,217) 288,535 249,527 INCOME BEFORE INTEREST CHARGES 688,497 1,097,876 992,122 INTEREST CHARGES long-Term Debt 579,837 569,689 524,131 Short-Term Debt 31,034 86,429 24,188 Allowance for Borrowed Funds Used During Construction (28,151) (148,649) (122,147)

NET INTEREST CHARGES 582,720 507,469 426,172 Income before cumulative effect of accounting change 105,777 590,407 565,950 Cumulative effect as of]anuary 1, 1990 of accounting change for unbilled operating revenues (Note 4) 108,413 Net Income 214,190 590,407 565,950 Preferred Stock Dividends 90,319 96,600 97,185 EARNINGS APPLICABLE TO COMMON STOCK $ 123,871 $ 493,807 $ 468,765 Average Shares of Common Stock Outstanding {Thousands) 214,356 208,901 201,517 Earnings per average common share before cumulative effect of accounting change (Dollars) $ 0.07 $ 2.36 $ 2.33 Cumulative effect as of January 1, 1990 of accounting change for unbilled operating revenues (Dollars) 0.51 Earnings Per Average Common Share (Dollars) $ 0.58 $ 2.36 $ 2.33 DIVIDENDS PER COMMON SHARE (DOLLARS) $ 1.45 $ 2.20 $ 2.20 See notes to financial statements.

20 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

.SOLIDATED STATEMENTS OF CASH FLOW For the Years Ended December 31 (Thousands of Dollars) 1990 1989 1988 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $214,190 $590,407 $565,950 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Early Retirement Plan, Net of Cash Payments 211,380 Adjustment to Limerick Plant Costs 263,860 Cumulative Effect of Accounting Change (108,413)

Depreciation and Amortization 451,997 318,403 291,277 Deferred Income Taxes (57,713) 107,336 86,156 Investment Tax Credits, Net 5,492 (20,250) (9,291)

Allowance for Other Funds Used During Construction (27,184) (121,851) (98,924)

Increase in Capitalized Limerick Costs (80,325) (82,008) (73,074)

Decrease (Increase) in Unrecovered Phase-In Plan Revenue 57,345 48,057 (61,231)

Credit Related to Limerick Unit No. 1 Phase-In Plan (15,325) (24,010) (26,162)

Amortization of Leased Property 33,500 45,200 36,100 Limerick Unit No. 2 Precommercial Fuel Cost 4,993 29,655 Change in Current Assets and Other Current Liabilities 49,660 (40,749) 193,939 Change in Other Deferred Debits and Credits 101,594 44,065 (28,843)

Net Cash Provided by Operating Activities 1,105,051 894,255 875,897 FLOWS FROM INVESTING ACTIVITIES se in Utility Plant (541,190) (1,037,501) (991,947) owance for Other Funds Used During Construction 27,184 121,851 98,924 Sale of Merrill Creek Reservoir 145,330 (Increase) Decrease in Other Investments (17,574) (10,472) 3,154 Net Cash Used by Investing Activities (531,580) (926,122) (744,539)

CASH FLOWS FROM FINANCING ACTIVITIES Issuance of Common Stock 84,828 117,801 182,345 Issuance of Preferred Stock 50,000 Retirement of Preferred Stock Including Change in Other Paid-in Capital (224,219) (16,842) (20,529)

Dividends on Preferred and Common Stock (398,192) (555,998) (541,526)

Change in Dividends Payable (13,598) 1,514 2,933 Expenses of Issuing Preferred and Common Stock (16,941) (223) (1,632) issuance of Long-Term Debt 205,000 597,000 584,200 Retirement of Long-Term Debt (131,678) (331,905) (395,702)

Premium on Retirement of Long-Term Debt (24,315) (2,800)

Net Borrowings Under Revolving Credit Agreements 225,000 150,000 Cha?ge in Short-Term Debt (43,500) 112,000 (102,000)

Capital Lease Payments (33,500) (45,200) (36,100)

Settlement of Safe Harbor Lease (26,111)

Change in Escrow Funds (30)

Net Cash (Used) Provided by Financing Activities (571,800) 52,721 (130,841)

Net Change in Cash and Cash Equivalents $ 1,671 $ 20,854 $ 517 Cash and Cash Equivalents at the beginning of the period $ 64,452 $ 43,598 $ 43,081 and Cash Equivalents at the end of the period $ 66,123 $ 64,452 $ 43,598 e notes to financial statements.

Philadelphia Electric Company 21

Philadelphia Electric Company and Subsidiary Companies CONSOLIDATED BALANCE SHEETS ASSETS (Thousands of Dollars)

UTILITY PLANT, AT ORIGINAL COST 1990 December 31

• 1989 Electric $12,272,963 $ 9,278,402 Gas 670,870 622,510 Common, used in all services 152,010 148,031 13,095,843 10,048,943 Less: Accumulated Depreciation 2,951,420 2,637,214 10,144,423 7,411,729 Nuclear Fuel, Net 220,137 296,357 Construction Work in Progress 226,815 3,012,678 Leased Property, Net 241,271 273,523 NET UTILITY PLANT 10,832,646 10,994,287 CURRENT ASSETS Cash and Temporary Cash Investments 66,123 64,452 Accounts Receivable, Net Customers 326,374 212,306 Other 11,321 43,455 Inventories, at average cost Fossil Fuel 65,249 4 Materials and Supplies 129,614 14 Unrecovered Phase-In Plan Revenue, Net 119,157 117, Compensated Absences 56,477 67,602 Other 20,384 18,486 TOTAL CURRENT ASSETS 794,699 713,988 DEFERRED DEBITS AND OTHER ASSETS Unrecovered Phase-In Plan Revenue, Net 119,815 163,084 Deferred Limerick Costs 498,548 475,064 Investments 125,826 108,252 Loss on Reacquired Debt 129,321 137,271 Other 65,096 89,171 TOTAL DEFERRED DEBITS AND OTHER ASSETS 938,606 972,842 TOTAL $12,565,951 $12,681,117 See notes to financial statements.

22 Philadelphia Electric Company

Philadelphia Ele~tric Company and Subsidiary Companies CAPITALIZATION AND LIABILITIES December 31 (Thousands of Dollars) 1990 1989 CAPITALIZATION Common Shareholders' Equity Common Stock $ 3,380,213 $ 3,295,385 Other Paid-In Capital 1,214 5,311 Retained Earnings 243,106 444,049 3,624,533 3,744,745 Preferred Stock Without Mandatory Redemption 422,472 622,472 With Mandatory Redemption 330,922 351,044 Long-Term Debt 5,830,813 5,762,741 TOTAL CAPITALIZATION 10,208,740 10,481,002 CURRENT LIABILITIES Notes Payable, Bank 68,500 112,000 Long-Term Debt Due Within One Year 22,350 17,100 Capital Lease Obligations Due Within One Year 60,898 73,726 Accounts Payable 252,539 232,318 Taxes Accrued 154,972 141,140 Deferred Energy Costs 3,447 (39,243) red Income Taxes 49,723 59,021 st Accrued 108,637 124,238 aends Payable 27,491 41,089 Compensated Absences 56,477 67,602 Other 28,447 20,525 TOTAL CURRENT LIABILITIES 833,481 849,516 DEFERRED CREDITS AND OTHER LIABILITIES Capital Lease Obligations 180,373 199,797 Deferred Income Taxes 753,250 809,486 Unamortized Investment Tax Credits 247,693 242,292 Pension Obligation for Early Retirees 180,300 Other 162,114 99,024 TOTAL DEFERRED CREDITS AND OTHER LIABILITIES 1,523,730 1,350,599 COMMITMENTS AND CONTINGENCIES (Note 3)

TOTAL $12,565,951 $12,68lp 7 Philadelphia Electric Company 23

Philadelphia Electric Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY AND PREFERRED STOCK.

Other Common Stock Paid-Jn Retained Preferred Stock (All amounts in thousands) Shares Amount Capital Earnings Shares Amount Balance,january 1, 1988 196,877 $2,995,239 $4,579 $387,070 9,616 $961,618 Net Income 565,950 Cash Dividends Declared Preferred Stock (at specified annual rates) (97,463)

Common Stock ($2.20 per share) (444,063)

Expenses of Capital Stock Issues (1,631)

Issuance of Stock Public Sales 2,000 37,435 500 50,000 Employee Stock Ownership Plans 609 11,478 Dividend Reinvestment and Stock Purchase Plan 7,103 133,432 Redemptions 540 (211) (21,068)

Balance, December 31, 1988 206,589 3,177,584 5,119 409,863 9,905 990,550 Net Income 590,407 Cash Dividends Declared Preferred Stock (at specified annual rates) (96,448)

Common Stock ($2.20 per share) (459,550)

Expenses of Capital Stock Issues (223)

Issuance of Stock Dividend Reinvestment and Stock Purchase Plan* 5,387 117,801 Redemptions 192 (170) (17,034)

Balance, December 31, 1989 211,976 3,295,385 5,311 444,049 9,735 973,516 Net Income 214,190 Cash Dividends Declared Preferred Stock (at specified annual rates) (87,920)

Common Stock ($1.45 per share) (310,272)

Expenses of Capital Stock Issues (16,941)

Issuance of Stock Dividend Reinvestment and Stock Purchase Plan 4,977 84,828 Redemptions (4,097) (2,201) (220,122)

Balance, December 31, 1990 216,953 $3,380,213 $1,214 $243,106 7,534 $753,394

• During 1989, the Employee Stock Ownership Plans were incorporated into the Dividend Reinvestment and Stock Purchase Plan.

See notes to financial statements.

24 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

. E S TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES FUEL AND ENERGY COST ADJUSTMENT CLAUSES Each of the Company's classes of service is subject to fuel adjust-GENERAL ment clauses designed to recover or refund the differences The consolidated financial statements of Philadelphia Electric between actual costs of fuel, energy interchange, purchased Company (Company) include the accounts of its utility sub- power and gas, and the amounts of such costs included in base sidiary companies, all of which are wholly owned. Non-utility rates. Differences between the amounts billed to customers and subsidiaries are not material and are accounted for on the equity the actual costs recoverable are deferred and recovered or method. Accounting policies are in accordance with those refunded in future periods by means of prospective adjustments prescribed by the regulatory authorities havingjurisdiction, to rates. Generally, such rates are adjusted every twelve months.

principally the Federal Energy Regulatory Commission (FERC) Effective December 1989, the PUC permitted the Com-and the Pennsylvania Public Utility Commission (PUC). pany to begin recovery, through a separate purchased gas costs REVENUES clause, of approximately 90% of take-or-pay costs billed to the Company by its interstate pipeline suppliers.

Prior to 1990, the Company recorded revenues as billed to its Effective April 20, 1990, the PUC established an electric customers on a monthly cycle billing basis. At the end of each Energy Cost Adjustment (ECA) which, in addition to reconciling month, there was an amount of unbilled electric and gas service fuel costs and revenues, incorporates a nuclear performance that had been rendered from the latest date of each cycle billing to the month end. In December 1990, effective as of]anuary 1, standard which allows for financial bonuses or penalties depend-1990, the Company began recording revenues for services ing upon whether the Company's system nuclear capacity factor provided but not yet billed to more closely match revenues with exceeds or falls below a specified range (see note 2).

expenses. Adoption of the new accounting policy is discussed NUCLEAR FUEL in note 4. Nuclear fuel is capitalized and charged to fuel expense on the On June 27, 1989, the final phase of the electric rate unit of production method. Estimated costs of nuclear fuel ase approved by the PUC in its June 27, 1986 order became disposal are charged to fuel expense as the related fuel is con-

• ve. This final phase is designed to recover, over approx- sumed. The Company's share of nuclear fuel at the Peach Bottom imately a three-year period, the unrecovered revenue under the Atomic Power Station (Peach Bottom) and Salem Generating Company's 1986 rate increase phase-in plan. Pursuant to a rate Station (Salem) is accounted for as a capital lease. Nuclear fuel at phase-in plan approved by the PUC in its electric rate order the Limerick Generating Station (Limerick) is owned.

dated April 19, 1990, the Company is recording revenue equal to the full amount of the rate increase approved, based on kilowatt- DEPRECIATION AND DECOMMISSIONING hours rendered to customers. This plan is designed to recover For financial reporting purposes, depreciation is provided over the unrecovered revenue over approximately three years. Rate the estimated service lives of the plant on the straight-line increases are billed from dates authorized or permitted to method and, for tax purposes, generally over shorter lives on become effective by the regulatory authorities. As of December accelerated methods. Annual depreciation provisions for finan-31, 1990, the Company had approximately $239 million of cial reporting purposes, expressed as a percent of average .

Unrecovered Phase-in Plan Revenue, Net, which is classified depreciable utility plant in service, were approximately 2.79%

as a current or other asset in the accompanying balance sheets in 1990, 2.92% in 1989 and 2.87% in 1988.

according to whether it will be billed to customers within the The Company's ownership portion of the estimated next year or in subsequent years. costs for decommissioning nuclear generating stations as approved for ratemaking purposes is $643 million as of December 31, 1990. The associated annual expense, which is recovered through rates, currently is being charged to operations consistent with amounts approved for ratemaking purposes. The amounts charged are deposited in escrow and trust accounts and invested for funding of future costs (see note 3).

INCOME TAXES-Deferred income taxes are provided for differences between book and taxable income to the extent approved for ratemaking purposes. In addition, the effects of the Alternative Minimum Tax (AMT) are normalized. Investment Tax Credit (ITC) is deferred and amortized to income over the estimated useful lives of the related utility plant ITC related to plant in service, not included in rate base, is accounted for on the flow-through method. ITC currently utilized applies to transition property only.

Philadelphia Electric Company 25

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION RECLASSIFICATIONS (AFUDC) Certain prior year amounts have been reclassified for com-AFUDC is a non-cash item which is defined in the Uniform parative purposes. These reclassifications had no effect on net System of Accounts as the net cost for the period of construction income.

of borrowed funds used for construction purposes and a reason-able rate on other funds when so used. AFUDC is recorded as a 2. RATE MATTERS charge to Construction Work In Progress, and the credits are to LIMERICK UNIT No. 2 ELECTRIC RATE ORDER Interest Charges for the pretax cost of borrowed funds and to On]uly 21, 1989, the Company filed with the PUC a request for Other Income and Deductions for the remainder as the allow- an electric rate increase designed to yield $549 million annually, ance for other funds. The rates used for capitalizing AFUDC, net of $142 million of estimated Limerick Unit No. 2 fuel savings, which averaged 9.01 % in 1990 and 9.50% in 1989 and 1988, are principally to recover costs associated with Limerick Unit No. 2 computed under a method prescribed by the regulatory authori- and associated common facilities.

ties. The rate is a net after-tax rate and the current income tax In its final order dated April 19, 1990, the PUC approved reductions applicable to the iriterest charges capitalized are recorded a $24 2 million annual increase to be phased in over approx-in Other Income and Deductions. In addition, the PUC permit- imately three years. The Company was denied recovery of certain ted the Company to record, until]anuary 8, 1990, the commer- plant costs, including deferred Limerick costs, resulting in a pre-cial operation date of Limerick Unit No. 2, a carrying charge tax loss of $264 million. Also, as part of the rate order, the equivalent to AFUDC on 50% of Limerick common facilities Company was denied recovery of other costs deferred pending which is deemed associated with Unit No. 2; the credit is to regulatory approval resulting in an additional pre-tax loss of Capitalized Limerick Costs. AFUDC and carrying charges on $32 million.

50% of Limerick common facilities are not included in regular The PUC order also reduced the Company's requested taxable income and the depreciation of capitalized AFUDC and increase by $106 million resulting from a disallowance of a the amortization of carrying charges are not tax deductible. return on common equity for 399 megawatts (mW) ofLimeri Under the Tax Reform Act of 1986, AFUDC and earrying charges Unit No. 2 and associated common facilities, finding that th were considered tax preference items when computing the Company has 399 mW of near-term excess capacity Company's 1989 and 1988 AMT As part of the PUC final order, the PUC approved recovery of $285 million of deferred Limerick costs representing GAS EXPLORATION AND DEVELOPMENT JOINT VENTURES carrying charges and depreciation associated with 50% of The Company has invested in several joint ventures for explor- Limerick common facilities. These costs are included in rate ing and drilling for natural gas. Costs are capitalized under the base and are being recovered over the life of Limerick. The PUC full-cost method and charged to operations commensurate with also approved recovery of $137 million of Limerick Unit No. 1 production. costs which had previously been deferred pursuant to a Declaratory Order dated September 28, 1984. These costs are NUCLEAR OUTAGE COSTS being recovered over a ten-year period without a return on Effective in 1990, incremental nuclear maintenance and refueling investment.

outage costs are accrued over the unit operating cycle of approx- New tariffs implementing the PUC final order became imately eighteen months. For each unit, a reserve for incremental effective on April 20, 1990.

nuclear maintenance and refueling outage expense is estimated On May 18, 1990, the Company filed with the Com-based upon the latest planned outage schedule and estimated monwealth Court of Pennsylvania a petition for review of the costs for the outage. Differences between accrued and actual PUC's final order. The Company appealed the excess capacity expense for the outage are adjusted when such differences are disallowance and the disallowance due to alleged imprudent known (see note 4). construction delays. The Office of Consumer Advocate (OCA)

CAPITALIZED SOFTWARE COSTS filed a Notice of Appeal, challenging the excess capacity Software and installation projects which exceed $5 million are disallowance and the permitted recovery of Limerick Unit No. 1 capitalized. At December 31, 1990, capitalized software costs Declaratory Order costs.

totalled $4.5 million. Such capitalized amounts are amortized ratably over four years when the projects become operational.

GAINS AND LOSSES ON REACQUIRED DEBT Gains and losses on reacquired debt are deferred and amortized to interest expense over the period approved for ratemaking purposes.

26 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

- E S TO FINANCIAL STATEMENTS-Coofumd PROPOSED SETTLEMENT OF APPEALS ENERGY COST ADJUSTMENT (ECA)

On December 3, 1990, the Company entered into a joint petition Effective April 20, 1990, the PUC established an electric ECA for settlement of all appeals arising from the PUC's April 19, which, in addition to reconciling fuel costs and revenues, incor-1990 Limerick Unit No. 2 order. The agreement, which must be porates a nuclear performance standard which allows for finan-approved without modification by the PUC, was reached with cial bonuses or penalties depending on whether the Company's the OCA and other intervenors. As part of the settlement, the system nuclear capacity factor exceeds or falls below a specified Company would be allowed to retain for shareholders any pro- range. The bonuses or penalties are based upon average system ceeds above the average energy cost for sales of up to 399 mW of replacement energy costs. If the capacity factor is within the capacity and/or associated energy. Beginning on April 1, 1994, range of 60-70%, there is no bonus or penalty. If the capacity the proposed settlement also provides for the Company to share factor exceeds the specified range, progressive incremental in the benefits which result from the operation of both Limerick bonuses are earned and, if the capacity factor falls below the Unit No. 1 and Unit No. 2 through the retention of 16.5% of the specified range, progressive incremental penalties are incurred.

energy savings. Through 1994, the Company's potential benefit For the year ended December 31, 1990, the Company from the sale of up to 399 mW of capacity/energy and the incurred neither a bcinus nor a penalty.

retained Limerick energy savings is limited to $106 million per

3. COMMITMENTS AND CONTINGENCIES year, with any excess accruing to customers. Beginning in 1995, in addition to retaining the first $106 million, the Company The Company has incurred substantial commitments in connec-would share in any excess above $106 million with the Com- tion with its construction program. Construction expenditures pany's share of the excess increasing from 10% in 1995 to 30% are estimated to be approximately $588 million for 1991 and in 1997 and thereafter. $1.6 billion for 1992-1994. These estimates are reviewed and In return, except as allowed by the PUC or under terms revised periodically to reflect changes in economic conditions, of the settlement, the Company would not file a base electric revised load forecasts and other appropriate factors. Certain

• crease before April 1994. This would not preclude facilities under construction and to be constructed may require ency or single-issue rate filings (e.g., a substanial change in permits and licenses which the Company has no assurance will

~associated with new legislation or regulations). Further, be granted.

both the Company and the OCA would withdraw their appeals The Price-Anderson Act (Act), as amended, sets the and the Company would consolidate the previously authorized limit of liability of approximately $7.8 billion for claims that Limerick Unit No. 1 and Unit No. 2 phase-in plans and levelize could arise from an incident involving any licensed nuclear associated rate increases between May 1, 1991 and December 31, facility in the nation. The limit is subject to increase to reflect the 1992. The proposed levelization would have no net impact on effects of inflation and changes in the number of licensed reac-income. Additionally, the Company would establish advisory tors. All utilities with nuclear generating plants, including the committees dealing with demand side management issues and Company, obtained coverage for these potential claims through a the evaluation and improvement of the Company's Customer combination of private insurances of $200 million and man-Assistance Program. Approval by the PUC is pending. datory participation in a financial protection pool. Under the amended law, all nuclear reactor operators or owners can be LIMERICK UNIT No. 2 DECLARATORY ORDER assessed up to $63 million per reactor, payable at $10 million In accordance with a Declaratory Order of the PUC dated May 3, per reactor per incident per year. This assessment is subject to 1989, and modified on February 23, 1990, the Company has an additional surcharge of 5% if the total amount of claims and deferred the operating and maintenance expenses, depreciation legal costs exceeds the basic assessment.

and accrued carrying charges on its capital investment in If the damages from an incident at a licensed nuclear Limerick Unit No. 2 and 50% of Limerick common facilities facility exceed $7.8 billion, the President of the United States is to during the period fromjanuary 8, 1990, the commercial opera- submit to Congress a plan for providing additional compensa-tion date of Limerick Unit No. 2, until April 20, 1990. At tion to the injured parties. Congress could impose further*

December 31, 1990, these costs included in Deferred Limerick revenue-raising measures on the nuclear industry to pay claims.

Costs totalled approximately $91 million. Recovery of these costs The Act and the extensive regulation of nuclear safety by the deferred pursuant to the Declaratory Order, which is not NRC do not preempt claims under state law for personal, prop-assured, will be addressed by the PUC in a ~ubsequent electric erty or punitive damages related to radiation hazards.

rate case. The Company maintains property insurance, including contamination coverage, for loss or damage to its nuclear facilities. Although it is not possible to determine the total amount of the loss that may result from an occurrence at these facilities, the Company maintains the maximum amount of Philadelphia Electric Company 27

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued insurance presently available, its proportionate share of $2.325 penalties at Peach Bottom. Action (including discovery) on the billion for each station. Under the terms of the various insurance Company's counterclaims and these additional claims of PSE&G agreements, the Company could be assessed up to $22 million has been stayed. In addition, the co-owners have amended their for losses incurred at any plants insured by the insurance com- complaints to allege that in violation of its purported fiduciary panies. The Company is self-insured to the extent that any losses obligations to the co-owners, the Company misallocated person-may exceed the maximum amount of insurance available. Any nel and other resources to Limerick and to seek an accounting such losses, if not recovered through the ratemaking process, and disgorgement of economic benefits allegedly obtained by the could have a material adverse effect on the financial condition of Company. The parties to the litigation are currently engaged in the Company. ongoing discovery. On Decembed8, 1990, the District Court The Company is a member of an industry mutual issued an order that the fact discovery process relating to all insurance company which provides replacement power cost remaining liability issues in the case shall be limited to the insurance in the event of a major outage at a nuclear station. The period ending May 31, 1991. If the litigation is ultimately deter-premium for this coverage is subject to an assessment for adverse mined favorably to the plaintiffs, such determination could have loss experience. The Company's maximum share of any assess- a material adverse effect on the Company's financial condition.

ment is $18 million per year. A settlement was reached in the consolidated actions OnJuly 27, 1988, Public Service Enterprise Group brought on behalf of the Company by certain shareholders of Incorporated and its subsidiary Public Service Electric and Gas the Company (plaintiffs) against the Company's former Chair-Company (PSE&:G) filed an action against the Company in the man and former President, alleging mismanagement and United States District Court for the District of New Jersey (District negligence in connection with the events leading to the shut-Court) concerning the shutdown of Peach Bottom ordered by down of Peach Bottom by the NRC on March 31, 1987. Under the Nuclear Regulatory Commission (NRC); on the same dare, the terms of a settlement agreement signed on August 30, Atlantic City Electric Company (Atlantic Electric) and Delmarva 1990, two of the Company's director- and officer-liability insurance Power and Light Company (Delmarva) filed a similar suit against carriers paid $34.5 million. The settlement became final o n .

the Company in the same court The two suits allege that the October 30, 1990. The plaintiffs' recovery, less $6.5 million Company breached the provisions of the Owners Agreement attorneys' fees and expenses, was paid to the Company on pursuant to which the four companies own Peach Bottom and November 1, 1990. Recognition of this recovery was deferred, under which the Company operates Peach. Bottom. These suits pending the conclusion of the litigation brought by the Peach also variously allege negligence, gross negligence, failure to Bottom co-owners. The Company will also arbitrate an insur-disclose, fraudulent misrepresentation and negligent misrepre- ance coverage issue with a third insurance carrier. Depending on sentation. The plaintiffs seek compensation for certain replace- the results of the arbitration, an additional $9 million may be ment power costs they incurred as a result of the shutdown of paid as part of the settlement Counsel for the plaintiffs will Peach Bottom and for increased operating and maintenance receive approximately 25% of any recovery resulting from the costs and lost profits. PSE&G and Atlantic Electric further allege arbitration.

that they were required by the New Jersey Board of Public In conjunction with the Company's Limerick Unit Utilities to provide their customers with a credit because of the No. 2 electric rate order, the PUC recognized a revised decom-Peach Bottom shutdown. Neither of the complaints specifies any missioning cost estimate based upon total cost. The Company's dollar amount of damages. Both complaints include claims for share of this revised cost is $643 million expressed in 1990 punitive damages. The Company has filed contingent breach-of- dollars. Under a contract with the U.S. Departinent of Energy contract counterclaims against PSE&:G for outages and NRC (DOE), the DOE is obligated ultimately to take possession of all penalties at the Salem Generating Station (which is operated by spent nuclear fuel generated by the Company's nuclear units for PSE&:G and 4 2.59% owned by the Company), and PSE&:G has long-term storage. The contract currently requires that a spent amended its complaint to include additional contingent breach- fuel disposal fee of one mill ($.001) per net kilowatthour gen-of-contract claims related to other alleged outages and NRC erated be paid to the DOE. The fee may be adjusted prospec-tively in order to ensure full cost recovery. The Company's Peach Bottom and Limerick generating units have on-site storage facilities with the capacity to store spent fuel discharged from the units through the late-1990's and by further modifying spent fuel storage facilities, capacity could be provided to approximately 2010. Salem has spent fuel storage capacity through 1996 fa Unit No. 1 and 2000 for Unit No. 2. PSE&G plans to expar fuel storage capacity of Salem. The Company believes that ultimate cost of decommissioning and spent fuel disposal will be recoverable through adjustments of rates.

28 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

. E S TO FINANCIAL STATEMENTS-Continued On November 28, 1990, 33 former employees of the 5. EARLY RETIREMENT PLAN Company who retired between February and April 1990 filed a On May 25, 1990, the Company's Board of Directors approved a class action suit against the Company in the Court of Common special, one-time early retirement plan for employees who were Pleas for Philadelphia County concerning the Company's one- fifty years of age or older and had five or more years of credited time early retirement plan .on behalf of all 144 persons who service as of December 31, 1990. In accordance with Statement retired from the Company between January and April 1990. The of Financial Accounting Standards (SFAS) No. 88, "Employer's suit alleges that the Company fraudulently and/or negligently Accounting for Settlements and Curtailments of Defined Benefit misrepresented or concealed facts which induced plaintiffs to Pension Plans and for Termination Benefits;' the estimated costs retire or not to defer retirement immediately before the initiation associated with the program of $249 million ($150 million, net of the early retirement plan, thereby depriving plaintiffs of of taxes) were recognized in the third quarter of 1990.

substantial pension and salary benefits. The complaint does not specify any dollar amount of damages. The plaintiffs seek, 6. RETIREMENT BENEFITS among other things, damages representing increased pension The Company and its subsidiaries have non-contributory benefits and nine months salary pursuant to the terms of the trusteed retirement plans applicable to all regular employees.

Company's early retirement plan as well as punitive damages. The benefits are based primarily upon employees' years of The ultimate outcome of this matter is not expected to have a service and average earnings prior to retirement. The Company's material adverse effect on the Company's financial condition. funding policy is to contribute, at a minimum, amounts suffi-The Company is involved in various matters oflitigation, cient to meet ERISA requirements. During 1990, approximately including environmental matters. The ultimate outcome of these 86% of pension costs were charged to operations and the matters is not expected to have a material adverse effect on the remainder, associated with construction labor, to the cost of Company's financial condition. new utility plant.

Pension cost was $12,206,000 in 1990, $7,532,000 in CHANGES IN ACCOUNTING 1989 and $7,101,000 in 1988. Pension costs for 1990, 1989 and ember 1990, effective January 1, 1990, the Company 1988 included the following components:

recording operating revenues for services provided but (Thousands of Dollars) 1990 1989 1988 not yet billed to more closely match revenues with expenses.

Previously, the Company recognized operating revenues when Service cost-Benefits earned during the period $30,365 $ 25,570 $ 24,073 services were billed (see note 1). The cumulative effect of the Interest cost on projected change on the periods prior to January 1, 1990, was $108 benefit obligations 99,554 91,318 85,779 million, net of income tax effect of $2 million, or $0.51 per (24,735) (263,191) (134,647)

Actual return on plan assets share. The effect of the change upon net income for 1990 Amortization of transition asset (4,539) (4,539) ( 4,539) and the pro forma effects for 1989 and 1988 were not con- Amortization and deferral (88,439) 158,374 36,435 sidered material. The income tax expense applicable to the Net pension cost $12,206 $ 7,532 $ 7,101 aforementioned unbilled revenues was recorded in the years reported for tax purposes in accordance with the ratemaking treatment.

Also in December 1990, effective January 1, 1990, the Company adopted a change in accounting method to accrue for incremental nuclear maintenance and refueling outage costs for nuclear plants over the period of the unit operating cycle, which is approximately eighteen months. For 1989 and prior, the Com-pany recognized such costs as incurred during the outage period. The after-tax effect of this accounting change decreased 1990 net income by $17 million or $0.08 per share which includes the cumulative effect on periods prior to January 1, 1990. The amount of the cumulative effect was not considered material. The pro forma effects of the change upon net income for 1989 and 1988 were not considered material.

Philadelphia Electric Company 29

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued CHANGE IN NET PERIODIC PENSION COST In addition to providing pension benefits, the Com-The change in net periodic pension cost in 1990, 1989 and 1988 pany provides certain health care and life insurance benefits for was accounted for as follows: retired employees. Substantially all of the Company's employees will become eligible for these benefits if they reach retirement (Thousands of Dollars) 1990 1989 1988 age while still working for the Company: These benefits and Change in number, characteristics similar benefits for active employees are provided by an and salary levels of participants insurance company whose premiums are based upon the and net actuarial gain $(3,996) $(198) $ 16,189 Change in plan provisions 799 629 375 benefits paid during the year. The Company recognizes the cost Change in actuarial assumptions 7,871 (38,921) of providing these benefits by charging the annual insurance premiums to expense. The cost of providing those benefits for Net change ~ $ 431 $(22,357) approximately 5,200 and 4,100 retirees during 1990, and 1989 Plan assets consist principally of common stock, U.S. and 1988 respectively, is not separable from the cost of pro-government obligations and other fixed income instruments. In viding benefits for approximately 10,500 and 11,100 active determining pension costs, the assumed long-term rate of return employees for the same periods. Total premiums amounted to on assets was 9.5% for 1990, 1989 and 1988. $54 million, $42 million and $39 million for 1990, 1989 and The weighted-average discount rate used in determin- . 1988, respectively.

ing the actuarial present value of the projected benefit obligation was 8.25% and 8.75% at December 31, 1990 and 1989, respec- 7. COMMON STOCK tively: The average rate of increase in future compensation levels At December 31, 1990 and 1989, Common Stock without ranged from 5% to 7% at December 31, 1990, 1989 and 1988. par value consisted of 500,000,000 and 240,000,000 shares Prior service cost is amortized on a straight-line basis authorized and 216,952,649 and 211,975,905 shares outstanding, over the average remaining service period of employees expected respectively. At December 31, 1990, there were 9,522,333 shares to receive benefits under the plan. The funded status of the plan reserved for issuance under stock purchase plans.

at December 31, 1990 and 1989 is summarized as follows: In 1989, the Company established the Long-Term Incentive Plan (Plan) for certain full-time salaried employe (Thousands of Dollars) 1990 1989 the Company: The types oflong-term incentive awards which:

Actuarial present value may be granted under the Plan are non-qualified options to pur-of accumulated plan chase shares of the Company's common stock, dividend benefit obligations: equivalents and shares of restricted stock. Pursuant to the Plan, Vested benefit obligations $(1,155,400) $ (878,074) 4,800,000 shares of stock were authorized for issuance. At Accumulated benefit obligation (1,161,220) (882,504)

December 31, 1990 and 1989, there were options for 1,126,675 Projected benefit obligation for and 938,000 shares outstanding, respectively (at an average price services rendered to date $(1,438,604) $ (1,207,617) of $21.18 and $22.13, respectively) of which options for 884,000 Plan assets at fair value 1,373,764 1,399,656 Funded Status (64,840) "192,039 and 60,000 shares were exercisable. During 1990 and 1989, Unrecognized transition asset (67,477) (72,016) options for 274,177 and 961,000 shares were granted and Unrecognized prior service costs 98,893 107,376 options for 85,502 and 23,000 shares expired. As of December Unrecognized net (gain) (150,997) (221,484) 31, 1990, no options had been exercised pursuant to the Plan.

(Pension liability) prepaid cost $ (184,421) $ 5,915 30 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

. E S TO FINANCIAL STATEMENTS-Continued

8. PREFERRED AND PREFERENCE STOCK At December 31, 1990, Series Preference Stock consisted of 100,000,000 shares authorized, of which no shares were outstanding. At December 31, 1990 and 1989, cumulative Preferred Stock, no par value and $100 par, respectively, consisted of 15,000,000 shares authorized.

Current Refunding Shares Amount Redemption Restricted Outstanding (Thousands of Dollars)

Price (a) Prior to (bl 1990 1989 1990 1989 Series (without mandatory redemption)

$14.15 (c) 500,000 $ 50,000

$13.35 (c) 750,000 75,000

$12.80 (c) 750,000 75,000

$10.75 (d) (d) (d) 500,000 500,000 $ 50,000 50,000

$950 $101.00 750,000 750,000 75,000 75,000

$8.75 101.00 650,000 650,000 65,000 65,000

$7.85 101.00 500,000 500,000 50,000 50,000

$7.80 101.00 750,000 750,000 75,000 75,000

$7.75 101.00 200,000 200,000 20,000 20,000

$4.68 104.00 150,000 150,000 15,000 15,000

$4.4 112.50 274,720 274,720 27,472 27,472

$4.3 102.00 150,000 150,000 15,000 15,000

$3.80 106.00 300,000 300,000 30,000 30,000 Series (with mandatory redemption) (e) 4,224,720 6,224,720 422,472 622,472

.5 105.00 250,000 300,000 25,000 30,000 25 108.70 500,000 500,000 50,000 50,000 44,000 4,400

"'$9.875 109.88 8-1-92 650,000 650,000 65,000 65,000

$952 103.00 276,321 279,523 27,632 27,952

$950 1986 Series 109.50 11-1-91 720,000 750,000 72,000 75,000

$8.75 1978 Series 102.57 266,900 300,200 26,690 30,020

$7.325 102.34 390,000 420,000 39,000 42,000

$7 101.00 256,000 266,720 25,600 26,672 3,309,221 3,510,443 330,922 351,044 Total Preferred Stock 7,533,941 9,735,163 $753,394 $973,516 (a) Redeemable, at the option of the Company, at the indicated redeemable during any long-term period only on the last day of dollar amounts per share, plus accrued dividends. the period or following an unsuccessful auction, in an aggregate (b) Prior to the date specified, none of the shares of each series number which constitutes one or more units (1,000 shares), at a indicated may be redeemed through refunding at an interest or price of $100 per share, plus accrued and unpaid dividends to dividend rate which is less than the dividend rate of such series. the redemption date on the shares redeemed. On any dividend (c) Ownership of these series of preferred stock was evidenced payment date with respect to a short-term period, units are by depositary receipts, each representing one-tenth of a share of redeemable, in whole or in part, at the option of the Company at preferred stock a price of $100,000 per unit, plus an amount equal to accrued (d) The dividend rate through April 30, 1993 is $10.75 per and unpaid dividends to the date of redemption.

annum, and the rate for each subsequent dividend period, either (e) Sinking fund requirements ($100 per share) in the period a long-term period (1-10 years) or a short-term period (49 days), 1991-1995 are as follows: 1991-$20,462,000; 1992-$21,580,000; will be established by an auction held on the business day next 1993-$38,380,000; 1994-$48,380,000; 1995-$28,380,000.

preceding the beginning of each such period. The issue is .

Philadelphia Electric Company 31

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued

9. LONG-TERM DEBT At December 31 (Thousands of Dollars) Series Due 1990 1989 First and Refunding Mortgage Bonds (a) 14% 1990 $ 11,000 14% 1991 $ 11,000 11,000 14% 1992 11,000 11,000

.6Y2%-14% 1993 71,000 71,000 4Y2%-14% 1994 181,000 181,000 9%-10Ys% 1995 202,800 203,781 61h%-15\4% 1996-2000 1,074,025 986,969 T%%-9%% 2001-2005 380,000 380,000 6%-10\4% 2006-2010 363,500 363,500 10Y2%-11%% 2011-2015 536,000 536,000 8Ys%-121h% 2016-2020 1,134,000 1,034,000 Total First and Refunding Mortgage Bonds 3,964,325 3,789,250 Notes Payable-Banks (b) 1991-1996 497,000 572,000 Revolving Credit and Term Loan Agreement (c) 1995-1997 525,000 525,000 Pollution Control Notes 5Y2%-13% 1997-2013 263,700 265,315 Debentures 9.85%-11% 1993-2011 537,000 556,850 Medium-Term Notes (d) 1996-2005 85,000 80,000 Sinking Fund Debentures-Philadelphia Electric Power Company, a Subsidiary Unamortized Debt Discount 4h% 1995 12,516 ,9 and Premium, Net (31,378) (21,332)

Total Long-Term Debt 5,853,163 5,779,841 Due Within One Year (e) 22,350 17,100 Long-Term Debt included in Capitalization (f) $5,830,813 $5,762,741 (a) Utility Plant is subject to the lien of the Company's mortgage. December 31, 1989 (prior to the reduction in the commitment)

(b) At various interest rates. $525 million was outstanding under this agreement (c) The Company has a $525 million revolving credit and term (d) The Company has a program for the issuance of up to $200 loan agreement with a group of banks. The revolving credit million of medium-term notes collateralized by mortgage bonds.

arrangement converts into a term loan in November 1994. The These notes will be offered at varying maturities and interest borrowings are due in six semi-annual installments with the first rates to be set at the time of sale. As of December 31, 1990 and payment due 6 months after the conversion into the term loan. 1989, the Company had outstanding $85 million and $80 Interest on outstanding borrowings is based on specific formulas million under this program at an average coupon rate of 9.05%

selected by the Company involving yields on several types of and 9.06%, respectively.

debt instruments. There is an annual commitment fee of 0.15% (e) Long-term debt m?turities in the period 1992-1995 are on the unused amount At December 31, 1990, $525 million as follows: 1992-$105,413,000; 1993-$372,348,000; was outstanding under this agreement The Company also has a 1994-$214,748,000; 1995-$411,523,000.

$175 million revolving credit and term loan agreement with a (f) The annualized interest on long-term debt at December 31, group of banks which expires in 1992. There is an annual com- 1990, was $567.6 million of which $394.5 million was associated mitment fee of 0.30% on the unused amount At December 31, with mortgage bonds and $173.1 million was associated with 1990, no amount was outstanding under this agreement and at other long-term debt 32 Philadelphia Electric Company I

Philadelphia Electric Company and Subsidiary Companies

. ~ ES TO FINANCIAL STATEMENTS-Continued

10. SHORT-TERM DEBT (Thousands of Dollars) 1990 1989 1988 Average Borrowings $60,344 $94,000 $114,164 Average Interest Rates, Computed on Daily Basis 8.85% 9.98% 8.18%

Maximum Borrowings Outstanding $187,000 $248,500 $216,000 Average Interest Rates at December 31: 8.98% 9.61%

At December 31, 1990, the Company had $68.5 million in short-term debt outstanding under formal and informal lines of credit with banks aggregating approximately $335 million. The Company generally does not have formal compensating balance arrangements with these banks.

11. ACCOUNTS RECEIVABLE Accounts receivable at December 31, 1990, include unbilled interest in accounts receivable under this agreement The Com-operating revenues of $111.5 million related to the change in pany retained the servicing responsibility for these receivables.

accounting, effective January 1, 1990 (see note 4). Accounts The average interest rate computed on a daily basis on the por-receivable at December 31, 1990 are net of allowance for tion of the accounts receivable sold but not yet collected was uncollectible accounts of $30 million. 8.40%, 9.45% and 9.39% for 1990, 1989 and 1988, respectively.

The Company is party to an agreement, expiring in By terms of this agreement, under certain circum-1993, with a financial institution whereby it can sell on a daily stances, up to $75 million of unrecovered phase-in plan revenue basis and with limited recourse up to $200 million of an could be included in the pool of eligible receivables. At December undivided interest in designated accounts receivable. At 31, 1990 and 1989, no unrecovered revenue was included in December 31, 1990, the Company had sold a $200 million tlie pool of eligible receivables.

INCOME TAXES sands of Dollars) 1990 1989 1988 Federal Current $137,554 $ 56,342 $ 57,484 Deferred 15,884 160,972 132,742 Investment Tax Credit, Net 15,638 (20,250) (9,291)

State Current 44,347 14,128 22,982 Deferred (32,102) (15,427) 2,857 INCLUDED IN OTHER INCOME AND DEDUCTIONS:

Federal Current (23,150) (1,063) 16,578 Deferred (42,096) (41,647) (48,732)

Investment Tax Credit, Net (10,146)

State Current (12,078) (17,384) (10,602)

Deferred 601 3438 (711)

Income Tax Effect of Cumulative Effect of Accounting Change for Unbilled Operating Revenues (1,888)

TOTAL $ 92,564 $139,109 $163,307 ITC reduced federal income taxes currently payable by $31 Approximately $191 million of additional business million in 1990, $16 million in 1989, and $23 million in 1988. credits generated from 1984 through 1990 have not been utilized the Tax Reform Act of 1986, ITC has been repealed effec- due to limitations based on taxable income. These credits, which nuary 1, 1986 with the exception of transition property. expire between 1999 and 2005, may be used to reduce federal ompany believes that Limerick Unit No. 2 qualifies as income taxes in future years.

- transition property eligible for ITC.

Philadelphia Electric Company 33

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued Since 1987, the Company's current tax liability was were recorded only on those timing differences normalized for determined under the AMT method resulting in a cumulative ratemaking. The cumulative net amount of such timing dif-tax credit of $182 million which can be utilized in future years ferences for which deferred taxes were not recorded was when regular tax liability exceeds AMT liability. approximately $650 million at December 31, 1990. Since the For a number of years, the Company has used Company expects to charge customers for taxes when the tim-accelerated depreciation for income tax purposes and straight- ing differences reverse, the tax effect of such timing differences is line depreciation for financial reporting purposes. Deferred taxes not recorded currently.

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

(Thousands of Dollars) 1990 1989 1988 Depreciation and Amortization $119,943 $ 89,626 $ 72,966 Deferred Energy Costs (13,761) (7,664) 17,332 Precommercial Operation of Limerick Unit No. 2 (1,221) 59,396 Deferred Limerick Unit No. 2 Costs 8,547 Early Retirement Plan (83,588)

Incremental Nuclear Maintenance and Refueling Outage Costs (11,574)

Uncollectible Accounts Receivable (15,813)

Reacquired Debt (4,526) 6,039 (1,874)

Unrecovered Revenue (24,939) (18,122) 23,425 Alternative Minimum Tux (20,478) (48,873) (29,776)

Adoption of SFAS 90 and SFAS 92 (7,283) 23,993 25,087 Gain on Sale of Merrill Creek Reservoir (19, Other (3,020) 2,941 (

TOTAL $(57,713) $107,336 $ 8 ,

The total income tax provisions differed from amounts computed by applying the federal statutory tax rate to income and adjusted income before income taxes for the following reasons:

(Thousands of Dollars) 1990 1989 1988 Net Income $214,190 $590,407 $565,950 Total Income Tax Provision 92,564 139,109 163,307 Income Before Income Taxes 306,754 729,516 729,257 Deduct: Allowance for Funds Used During Construction 55,335 270,500 221,071 Limerick Carrying Charges 80,325 82,008 73,074 ADJUSTED INCOME BEFORE INCOME TAXES $171,094 $377,008 $435,112 Income Taxes on Above at Federal Statutory Rate of34% $ 58,172 $128,183 $147,938 Increase (Decrease) due to:

Depreciation Timing Differences Not Normalized 20,647 2,612 5,493 Effects of SFAS 90 and SFAS 92 69,284 5,761 5,993 Cumulative Effect of Accounting Change for Unbilled Operating Revenues (37,910)

Unbilled Revenues Not Normalized 8,769 13,551 12,903 State Income Taxes, Net of Federal Income Tax Benefits 507 (10,062) 9,587 Amortization of Investment Tax Credit (20,320) (311) (11,903)

Other, Net (6,585) (625) (6,704)

TOTAL INCOME TAX PROVISION $ 92,564 $139,109 $163,307 Provision for Income Taxes as a Percent of:

Income Before Income Taxes 30.2% 19.1%

Adjusted Income Before Income Taxes 54.1% 36.9%

34 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

. E S TO FINANCIAL STATEMENTS-Continued

13. TAXES, OTHER THAN INCOME-OPERATING (Thousands of Dollars) 1990 1989 1988 Gross Receipts $148,274 $149,210 $137,172 Capital Stock 21,817 25,848 33,519 Realty 33,632 35,296 35,975 Payroll 30,854 28,040 27,095 Other 4,275 1,597 3,839 TOTAL $238,852 $239,991 $237,600

14. LEASES Leased property included in Utility Plant at December 31 1990 1989 (Thousands of Dollars)

Nuclear Fuel $542,851 $534,607 Electric Plant 2,317 9,325 Common Plant 1 Gross Leased Property 545,168 543,933 Accumulated Amortization (303',897} (270,410)

Net Leased Property $241,271 $273,523 The nuclear fuel obligation is amortized as the fuel is consumed. included interest on capital lease obligations of $15.7 million, Amortization ofleased property totaled $33.5 million, $45.2 $19.0 million and $15.4 million in 1990, 1989 and 1988, respec-million and $36.1 million for the years ended December 31, tively. Minimum future lease payments as of December 31, 1989 and 1988, respectively. Other operating expenses 1990 were:

• nding December 31 Capital Leases Operating Leases Total (Thousands of Dollars) 1991 $ 80,919 $ 105,560 $ 186,479 1992 75,691 97,703 173,394 1993 66,647 96,496 163,143 1994 50,288 94,500 144,788 1995 14,297 93,178 107,475 Remaining Years 1,543 664,287 665,830 Total Minimum Future Lease Payments $289,385 $1,151,724 $1,441,109 Imputed Interest (rates ranging from 6.5% to 17%) (48,114)

Present Value of Net Minimum Future Lease Payments $241,271 Rental expense under operating leases totaled $87.5 million, $76.1 million and $64.2 million in 1990, 1989 and 1988, respectively.

Philadelphia Electric Company 35

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued

15. JOINTLY OWNED ELECTRIC UTILITY PLANT The Company's ownership interests in jointly owned utility plant at December 31, 1990 were as follows:

Transmission and Production Plants Other Plant Peach Bottom Salem Keystone Conemaugh Operator Philadelphia Public Service Pennsylvania Pennsylvania Various Electric Electric and Electric Electric Companies Company Gas Company Company Company Participating Interest 42.49% 42.59% 20.99% 20.72% 21%to43%

Company's share of: (Thousands of Dollars)

Utility Plant $629,791 $1,035,573 $79,390 $80,793 $88,126 Accumulated Depreciation 197,832 280,140 33,826 34,078 21,984 Construction Work In Progress 34,852 25,929 3,202 2,187 8 The Company's participating interests are financed with Com- accounted for as if such participating interests were wholly pany funds and, when placed in service, all operations are owned facilities.

16. SEGMENT INFORMATION (Thousands of Dollars) 1990 1989 1988 ELECTRIC OPERATIONS Operating Revenues $ 3,320,132 $ 3,019,976 2,85 Operating Expenses, excluding depreciation 2,243,743 2,009,158 1,913, '.)

Depreciation 337,715 257,420 245,499 Operating Income $ 738,674 $ 753,398 $ 691,091 Utility Plant Additions $ 430,179 $ 961,621 $ 827,620 GAS OPERATIONS Operating Revenues $ 385,029 $ 385,653 $ 378,397 Operating Expenses, excluding depreciation 336,164 310,131 308,301 Depreciation 19,825 19,579 18,592 Operating Income $ 29,040 $ 55,943 $ 51,504 Utility Plant Additions $ 51,073 $ 44,571 $ 46,117 Identifiable Assets* .

Electric $10,510,639 $10,603,988 $10,012,922 Gas 542,917 524,925 500,205 Nonallocable Assets 1,512,395 1,552,204 1,349,725 TOTAL ASSETS $12,565,951 $12,681,117 $11,862,852

• Includes Utility Plant less accumulated depreciation, inventories and allocated common utility property.

17. CASH AND CASH EQUIVALENTS For purposes of the Statements of Cash Flow, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The following supplemental disclosures are required by SFAS No. 95:

(Thousands of Dollars) 1990 1989 1988 Cash paid during the year:

Interest (net of amount capitalized) $597,603 $511,467 $42 Income taxes (net of refunds) $ 97,621 $ 66,864 $

Noncash Investing and Financing:

Capital lease obligations incurred $ 30,845 $ 31,200 $ 35,800 36 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

. E S TO FINANCIAL STATEMENTS-Continued

18. PROSPECTIVE STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In December 1987, the Financial Accounting Standards Board Pensions;' which requires accrual accounting for such costs dur-(FASB) issued SFAS 96, "Accounting for Income Taxes;' which ing the years that the employee renders the necessary service of requires an asset and liability approach for financial accounting the expected cost of providing those benefits to an employee and reporting for income taxes. Current guidelines require and the employee's beneficiaries and covered dependents. The adoption of its provisions by the first quarter of 1992. The provi- Company is required to adopt this statement by 1993.

sions of the statement may be applied cumulatively in the year of SFAS No. 106 will result in a significant increase in the adoption or may be applied retroactively by restating previously related liability reported on the consolidated financial statements.

issued financial statements. Adoption of the statement is not The Company cannot determine the effect of this statement expected to have a material effect upon the Company's results upon the results of operations for subsequent years until a deter-of operations. The Company has not made a determination as to mination is made by the PUC of the recoverability of this liability when it will adopt SFAS No. 96 or the method of adoption. in the ratemaking process. The Company has not made a deter-In December 1990, the FASB issued SFAS No. 106, mination as to when it will adopt SFAS No. 106 or the method "Employers' Accounting for Postretirement Benefits Other than of adoption.

19. INVESTMENTS At December 31 (Thousands of Dollars) 1990 1989 Gas Exploration and DevelopmentJoint Ventures $ 7,217 $ 11,099 Real Estate Developments and Other Ventures 23,959 23,633 Non-Utility Property 20,786 18,745 Trusts and Escrow Deposits for Decommissioning uclear Plants .73,585 53,750 r Deposits 279 1,025 TOTAL $125,826 $108,252

20. QUARTERLY DATA (UNAUDITED)

The data shown below include all adjustments which the Company considers necessary for a fair presentation of such amounts. 1990 quarterly data have been restated for the effect of the change in accounting for unbilled operating revenues discussed in note 4.

Operating Revenues Operating Income Net Income Quarter Ended 1990 1989 1990 1989 1990 1989

• (Thousands of Dollars)

March 31 $ 935,948 $890,371 $201,573 $232,529 $ 31,266 $143,310 June 30 857,765 777,541 219,402 157,123 135,879 108,945 September 30 1,001,462 895,394 151,847 247,451 5,637 205,533 December 31 909,986 842,323 194,892 172,238 41,408 132,619 Earnings (Loss) Applicable Average Shares Earnings (Loss) to Common Stock Outstanding Per Average Share Quarter Ended 1990 1989 1990 1989 1990 1989 (Thousands of Dollars) (Thousands) (Dollars)

March 31 $ 7,269 $118,859 212,171 206,763 $ 0.03 $ 0.57 June 30 112,172 84,795 213,942 208,260 0.52 0.41 September 30 (17,923) 181,534 215,023 209,556 (0.08) 0.87 December 31 22,353 108,619 216,236 210,970 0.10 0.51 Philadelphia Electric Company 37

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued The quarterly amounts previously reported are restated for the effects of the change in accounting for unbilled operating revenues. The cumulative effect of the accounting change, $108 million or $0.51 per share, was recognized in the first quarter.

Earnings (Loss)

Operating Operating Income Net Income Applicable to Earnings (Loss)

Revenues (Loss) (Loss) Common Stock Per Average Share 1990 1990 1990 1990 1990 March 31 $ 953,548 $218,715 $(60,005) $(84,002) $(0.40)

Adjustment (17,600) (17,142) 91,271 91,271 0.43 March 31 Restated 935,948 201,573 31,266 7,269 0.03 June 30 841,865 203,933 120,410 96,703 0.45 Adjustment 15,900 15,469 15,469 15,469 0.07 June 30 Restated 857,765 219,402 135,879 112,172 0.52 September 30 1,011,962 162,076 15,866 (7,694) (0.04)

Adjustment (10,500) (10,229) (10,229) (10,229) (0.04)

September 30 Restated 1,001,462 151,847 5,637 (17,923) (0.08) 1990 first quarter results include a charge of approximately $296 plan (see note 5).

million ($249 million, net of taxes) or $1.18 per share, resulting 1990 fourth quarter results include charges aggregating from the disallowances ordered by the PUC in its final decision approximately $75 million ($46 million, net of taxes) or $0.21 rendered April 19, 1990 (see note 2). per share, including an accrual for the incremental nuclear 1990 third quarter results include a charge of approx- maintenance and refueling outage costs, higher charges for imately $249 million ($150 million, net of taxes) or $0.70 per uncollectible accounts, and a write-off of costs associated wi share, for costs associated with the Company's early retirement damaged nuclear fuel.

REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Philadelphia Electric Company We have audited the accompanying consolidated balance sheets of Philadelphia Electric Company and Subsidiary Companies as of December 31, 1990 and 1989, and the related consolidated statements of income, changes in common shareholders' equity and preferred stock, and cash flows for each of the three years in the period ended December 31, 1990. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial state-ment presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Philadelphia Electric Company and Subsidiary Companies as of December 31, 1990 and 1989, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1990, in conformity with generally accepted accounting principles. .

As discussed in Note 3 to the consolidated financial statements, certain legal actions were filed against the Company in 1988 by the other co-owners of the Peach Bottom Atomic Power Station seeking compensatory and punitive damages related to the shutdown of this Station. The ultimate outcome of these legal actions cannot presently be determined. Accordingly, the provision in the accompany-ing consolidated financial statements for any liability that may result may not be sufficient.

As discussed in Note 4 to the consolidated financial statements, the Company changed its methods of accounting for unbilled operating revenues and for incremental nuclear maintenance and refueling outage costs in 1990.

2400 Eleven Penn Center Philadelphia, Pennsylvania February 1, 1991 38 Philad.elphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

. N C I A L STATISTICS

SUMMARY

OF EARNINGS (MILLIONS OF DOLLARS)

For the Year Ended 1990 1989 1988 1987 1986 1985 OPERATING REVENUES (for details see pages 41 and 4 2) $3,705.1 $3,405.6 $3,228.7 $3,181.5 $3,090.9 $2,945.2 OPERATING EXPENSES Fuel and Energy Interchange 691.2 821.0 745.1 710.6 889.3 1,097.8 Labor 590.3 425.2 424.2 437.6 417.2 370.8 Other Materials, Supplies and Services 878.2 637.3 608.3 564.6 475.2 440.1 TOTAL OPERATION AND MAINTENANCE 2,159.7 1,883.5 1,777.6 1,712.8 1,781.7 1,908.7 Depreciation 357.5 277.0 264.1 251.9 217.7 183.0 Taxes 420.2 435.8 444.4 499.7 517.0 440.9 TOTAL OPERATING EXPENSES 2,937.4 2,596.3 2,486.1 2,464.4 2,516.4 2,532.6 OPERATING INCOME 767.7 809.3 742.6 717.1 574.5 412.6 OTHER INCOME AND DEDUCTIONS Allowance for Other Funds Used During Construction 27.2 121.9 98.9 77.2 76.8 176.3 Capitalized Limerick Costs 80.3 82.0 73.1 66.6 172.9 Adjustment to Limerick Plant Costs (263.9) (368.9)

Credit (Charge) Related to Limerick Unit No. 1 Phase-In Plan 15.3 24.0 26.2 18.4 (91.8)

Income Tax Credits, Net 86.9 56.7 43.5 35.3 279.7 133.4 Other, Net (25.0) 4.0 7.9 18.3 2.4 (3.5)

TOTAL OTHER INCOME AND DEDUCTIONS (79.2) 288.6 249.6 215.8 71.1 306.2 ME BEFORE INTEREST CHARGES 688.5 1,097.9 992.2 932.9 645.6 718.8 INTEREST CHARGES Long-Term Debt 579.8 569.7 524.1 467.3 458.9 435.4 Short-Term Debt 31.0 86.4 24.2 17.2 12.5 17.7 Allowance for Borrowed Funds Used During Construction {28.1) (148.7) (122.1) (92.2) (101.6) (257.2)

NET INTEREST CHARGES 582.7 507.4 426.2 392.3 369.8 195.9 Income From Continuing Operations 105.8 590.5 566.0 540.6 275.8 522.9 Income From Discontinued Operations 1.8 1.9 2.4 Loss on Disposal of Discontinued Operations (1.2)

Income Before Cumulative Effect of Accounting Change 105.8 590.5 566.0 542.4 276.5 525.3 Cumulative Effect of Accounting Change 108.4 NET INCOME 214.2 590.5 566.0 542.4 276.5 525.3 PREFERRED STOCK DIVIDENDS 90.3 96.6 97.2 94.2 90.9 90.6 EARNINGS APPLICABLE TO COMMON STOCK 123.9 493.9 468.8 448.2 185.6 434.7 DIVIDENDS ON COMMON STOCK 310.3 459.6 444.1 423.3 403.5 373.5 EARNINGS (DEFICIT) RETAINED $ (:i.86.4) $ 34.3 $ 24.7 $ 24.9 $ (217.9) $ 61.2 EARNINGS PER AVERAGE CO.MMON SHARE FROM CONTINUING OPE.RATIONS (DOLLARS) $ 0.07 $ 2.36 $ 2.33 $ 2.33 $ 1.01 $ 2.55 EARNINGS PER AVERAGE COMMON SHARE (DOLLARS) $ 0.58 $ 2.36 $ 2.33 $ 2.33 $ 1.01 $ 2.56 DIVIDENDS PER COMMON SHARE (DOLLARS) $ 1.45 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 C MMON STOCK EQUITY (PER SHA RE) $ 16.71 $ 17.67 $ 17.39 $ 17.20 $ 16.95 $ 17.97 AGE SHARES OF COMMON STOCK TSTANDING (MILLIONS) 214.4 208.9 201.5 192.5 183.1 169.8 Philadelphia Electric Company 39

Philadelphia Electric Company and Subsidiary Companies FINANCIAL STATISTICS-Continued

SUMMARY

OF FINANCIAL CONDITION (MILLIONS OF DOLLARS)

December 31 1990 1989 1988 1987 1986 1985 ASSETS UTILITY PLANT, AT ORIGINAL COST $13,542.8 $13,358.0 $12,444.3 $11,641.2 $10,847.8 $10,572.2 Less: Accumulated Depreciation 2,951.4 2,637.2 2,395.8 2,169.4 2,005.7 1,824.4 Leased Property, Net 241.3 273.5 287.5 287.2 281.3 338.l Net Utility Plant 10,832.7 10,994.3 10,336.0 9,759.0 9,123.4 9,085.9 CURRENT ASSETS Cash and Temporary Cash Investments 66.1 64.4 43.6 43.0 90.7 188.8 Accounts Receivable, Net 337.7 255.8 175.7 385.8 375.6 370.9 Inventories 194.9 189.8 170.3 150.3 129.7 123.7 Unrecovered Phase-In Plan Revenue, Net 119.2 118.0 54.1 Other 76.8 86.1 78.9 73.8 78.6 71.8 DEFERRED DEBITS AND OTHER ASSETS Unrecovered Phase-In Plan Revenue, Net 119.8 163.0 251.0 217.6 20.6 Deferred Limerick Costs 498.5 475.1 375.9 286.0 202.7 Investments 125.8 108.2 97.8 100.9 89.7 87.7 Loss on Reacquired Debt 129.3 137.3 118.3

• 119.1 76.8 48.6 Other 65.1 89.2 110.9 68.0 70.7 86.2

$2,-

TOTAL $12,565.9 $12,681.2 $11,812.5 $11,203.5 $10,258.5 $10,063.6

. CAPITALIZATION AND LIABILITIES CommQn Stock $ 3,380.2 $ 3,295.4 $ 3,177.6 $ 2,995.2 $ 2,833.0 Other Paid-In Capital 1.2 5.3 5.1 4.6 7.8 Retained Earnings 243.1 444.1 409.9 387.1 363.3 583.

Common Shareholders' Equity 3,624.5 3,744.8 3,592.6 3,386.9 3,204.1 3,193.0 Preferred Stock Without Mandatory Redemption 422.5 622.4 622.4 572.5 572.5 572.5 With Mandatory Redemption 330.9 351.1 368.1 389.1 374.9 318.3 Long-Term Debt 5,830.8 5,762.7 5,219.5 4,870.7 4,286.8 4,309.2 TOTAL CAPITALIZATION 10,208.7 10,481.0 9,802.6 9,219.2 8,438.3 8,393.0 CURRENT LIABILITIES Notes Payable, Bank 68.5 112.0 102.0 1.0 Long-Term Debt Due Within One Year 22.4 17.l 70.2 80.9 108.6 80.8 Capital Lease Obligations Due Within One Year 60.9 73.8 72.1 60.6 69.4 76.3 Accounts and Dividends Payable 280.0 273.4 220.4 206.0 222.1 185.1 Taxes Accrued 155.0 141.l 140.0 114.7 86.l 58.5 Deferred Energy Costs 3.4 (39.2) (50.4) (6.2) 88.2 (101.7)

Deferred Income Taxes 49.7 59.0 20.0 2.7 (44.8) 51.8 Interest Accrued 108.6 124.3 129.4 121.7 90.7 93.0 Other 85.0 88.1 80.7 72.1 80.0 72.0 DEFERRED CREDITS AND OTHER LIABILITIES Capital Lease Obligations 180.4 199.8 215.5 226.6 212.0 261.8 Deferred Income Taxes 753.2 809.5 753.3 682.9 560.5 502.6 Unamortized Investment Tax Credits 247.7 242.3 273.0 282.3 299.7 302.4 Pension Obligation for Early Retirees 180.3 Other 162.1 99.0 85.7 38.0 47.7 87.0 TOTAL $12,565.9 $12,681.2 $11,812.5 $11,203.5 $10,258.5 40 Certain prior year amounts have been reclassified for comparative purposes.

Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

"'RATING STATISTICS ELECTRIC OPERATIONS 1990 1989 1988 1987 1986 1985 OUTPUT (MILLIONS OF KILOWATTHOURS)

Fossil 7,913 10,470 10,225 9,835 7,864 9,455 Nuclear 23,715 12,890 12,328 11,853 17,125 8,359 Hydraulic 2,266 1,743 1,307 1,590 1,848 1,484 Pumped Storage Output 1,437 1,354 1,515 1,251 1,176 1,235 Pumped Storage Input (2,059) (1,937) (2,163) (1,787) (1,661) (1,754)

Purchase and Net Interchange 2,325 9,165 11,367 9,806 4,258 10,252 Internal Combustion 152 348 285 232 269 178 Other 891 1,063 382 1,254 TOTAL ELECTRIC OUTPUT 36,640 35,096 34,864 32,780 31,261 30,463 SALES (MILLIONS OF KILOWATTHOURS)

Residential 9,815 9,974 10,058 9,441 8,900 8,440 Small Commercial and Industrial 5,066 4,921 4,666 4,341 4,022 3,731 1.2.rge Commercial and Industrial 16,554 16,749 16,516 15,789 15,068 14,920 All Other 1,010 1,031 999 974 993 1,044 Service Territory 32,445 32,675 32,239 30,545 28,983 28,135 Sales to Other Utilities 1,865 TOTAL ELECTRIC SALES 34,310 32,675 32,239 30,545 28,983 28,135 NUMBER OF CUSTOMERS, DECEMBER 31 Residential 1,320,126 1,309,717 1,296,784 1,280,297 1,263,465 1,245,481 Commercial and Industrial 140,305 138,244 135,274 131,279 127,797 124,719 Commercial and Industrial 4,344 4,449 4,520 4,589 4,668 4,881 817 775 779 771 763 773 TOTAL ELECTRIC CUSTOMERS 1,465,592 1,453,185 1,437,357 1,416,936 1,396,693 1,375,854 OPERATING REVENUES (MILLIONS OF DOLLARS)

Residential $1,229.8 $1,157.0 $1,127.8 $1,092.6 $1,023.6 $ 923.9 Small Commercial and Industrial 595.2 537.1 489.4 471.7 437.0 388.7 1.2.rge Commercial and Industrial 1,247.1 1,182.0 1,089.3 1,103.3 1,103.3 1,061.8 All Other 153.5 143.9 143.8 142.1 135.5 141.8 Service Territory 3,225.6 3,020.0 2,850.3 2,809.7 2,699.4 2,516.2 Sales to Other Utilities 94.5 TOTAL ELECTRIC REVENUES $3,320.1 $3,020.0 $2,850.3 $2,809.7 $2,699.4 $2,516.2 OPERATING EXPENSES (MILLIONS OF DOLLARS)

Operating expenses excluding depreciation $2,243.7 $2,009.2 $1,913.7 $1,895.1 $1,961.4 $1,974.2 Depreciation 337.7 257.4 245.5 234.9 201.8 168.2 TOTAL OPERATING EXPENSES $2,581.4 $2,266.6 $2,159.2 $2,130.0 $2,163.2 $2,142.4 ELECTRIC OPERATING INCOME, (MILLIONS OF DOLLARS) $ 738.7 $ 753.4 $ . 691.1 $ 679.7 $ 536.2 $ 373.8 Average Use per Residential Customer (kilowatthours)

Without Electric Heating 6,428 6,488 6,667 6,431 6,177 6,034 With Electric Heating 16,430 17,250 17,738 16,824 16,661 15,923 Total,. 7,553 7,655 7,807 7,427 7,097 6,820 Electric Peak Load, Demand (thousands of kilowatts) 6,755 6,467 6,826 6,547 6,134 6,034 Net Electric Generating Capacity-Year-End Summer rating (thousands of kilowatts) 8,130 7,759 7,762 7,762 7,870 7,599 of Fuel per Million Btu $1.08 $1.37 $1.19 $1.35 $1.18 $1.72 Net Kilowatthour Generated 10,844 10,894 10,881 10,879 10,844 10,843 Philadelphia Electric Company

• 41

Philadelphia Electric Company and Subsidiary Companies OPERATING STATISTICS-Continued GAS OPERATIONS 1990 1989 1988 1987 1986 1985 SALES (MILLIONS OF CUBIC FEET)

Residential 1,778 1,951 1,933 1,854 1,856 1,810 House Heating 25,303 28,301 28,112 26,010 25,731 23,227 Commercial and Industrial 16, 791 30,038 39,073 38,170 33,834 36,254 All Other 8,004 2,344 2,228 1,541 578 1,209 TOTAL GAS SALES 51,876 62,634 71,346 67,575 61,999 62,500 Gas Transported for Customers 24,413 18,033 9,272 7,374 3,907 10,262 TOTAL GAS SALES & TRANSPORTED 76,289 80,667 80,618 74,949 65,906 72,762 NUMBER OF CUSTOMERS, DECEMBE.R 31 Residential 63,267 65,544 66,599 67,688 68,590 69,632 House Heating 254,564 246,273 239,022 231,618 225,010 217,840 Commercial and Industrial 29,456 28,369 27,119 26,021 24,884 24,234 TOTAL GAS CUSTOMERS 347,287 340,186 332,740 325,327 318,484 311,706 OPERATING REVENUES (MILLIONS OF DOLLARS)

Residential $ 18.1 $ 18.0 $ 17.0 $ 16.7 $ 18.0 $ 18.7 House Heating 200.8 195.8 180.6 175.7 189.8 185.4 Commercial and Industrial 119.4 152.5 165.1 167.5 177.7 214.1 All Other 30.9 7.3 6.6 4.4 2.0 5.2

• Subtotal $369.2 $373.6 $369.3 $364.3 $387.5 $423.4 Other Revenues (including Transported for Customers) 15.8 12.1 9.1 7.5 4.0 5.5 TOTAL GAS REVENUES $385.0 $385.7 $378.4 $371.8 $391.5 OPERATING EXPENSES (MILLIONS OF DOLLARS)

Operating expenses excluding depreciation $336.2 $310.2 $308.3 $317.4 $337.3 Depreciation 19.8 19.6 18.6 17.0 15.9 14.8 TOTAL OPERATING EXPENSES $356.0 $329.8 $326.9 $334.4 $353.2 $390.2 GAS OPERATING INCOME (MILLIONS OF DOLLARS) $ 29.0 $ 55.9 $ 51.5 $ 37.4 $ 38.3 $ 38.7 SECURITIES STATISTICS Ratings on Philadelphia Electric Company's Securities Mortgage Bonds Debentures Preferred Stock Agency Rating Date Established Rating Date Established Rating Date Established Duff and Phelps, Im:. BBB 3/80 BBB- 3/80 BB+ 2/83 Fitch Investors Service BBB 9/82 BBB- 9/82 BBB- 4/90 Moody's Investors Service Baa3 1/83 Bai 1/83 bal 1/83 Standard & Poor's Corporation BBB 4/90 BBB- 4/90 BBB- 4/90 NYSE- COMPOSITE COMMON STOCK PRICES, EARNINGS AND DIVIDENDS BY QUARTERS (PER SHARE) 1990 1989 Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter High Price $18% $16% $18 $23112 $24 $24Vi $22~ $21~

Low Price $14% $14112 $15 $17% $21~ $2P4 $19¥1 $19~

Earnings* 10¢ (8¢) 52¢ 3¢ 51¢ 87¢ 41¢ 57¢ Dividends 30¢ 30¢ 30¢ 55¢ 55¢ 55¢ 55¢ 55¢

• First through third quarter earnings for 1990 were restated for the effects of the change in accounting for unbilled operating reve 42 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies FICERS JOSEPH F. PAQUETTE, JR. (56) THOMAS P. HILL, JR. (42) ALVIN J. WEIGAND (52)

Chairman and Chief Vice President and Controller Vice President, Electric Transmission Executive Officer KENNETH G. LAWRENCE (43) and Distribution CORBIN A. MCNEILL, JR. (51) Vice President, Gas Operations LUCY S. BINDER (53)

President and Chief Operating Officer GRAHAM M. LEITCH (56) Secretary NICHOLAS DEBENEDICTIS (45) Vice President, Limerick Generating J. BARRY MITCHELL (43)

Senior Vice President, Corporate Station Assistant Treasurer and Public Affairs JOHN M. MADARA, JR. (47) JON A. KATHERINE (55)

JAMES W. DURHAM (53) Vice President, Engineering and Assistant Treasurer Senior Vice President and Production J. ROBERT CAUSTON (53)

General Counsel ALBERT G. Ml.KALAUSKAS (54) Assistant Treasurer RICHARD G. GILMORE (63) Vice President, Customer and JAMES F. HOHENSTEIN (47)

Senior Vice President, Finance and Marketing Services Assistant Treasurer Chief Financial Officer DONALD B. MILLER, JR. (49)

WILLIAM M. LENNOX, JR. (53)

RAYMOND F. HOLMAN (62) Vice President, Peach Bottom Atomic Assistant Treasurer Senior Vice President, Planning Power Station M. DOROTHY LYONS (49) and Performance MORTON W. RIMERMAN (61) Assistant Secretary DICKINSON M. SMITH (57) Vice President, Finance and Senior Vice President, Nuclear Treasurer DAVID R. HELWIG (39) ALBERT J. SOLECKI (50)

President, Nuclear Engineering Vice President, Information Systems Services and General Services MANAGEMENT CHANGES:

Corbin A McNeill,Jr. was elected President and Chief Operating Morton W Rimerman was elected Vice President, Finance and Officer, effective April 16, 1990. Treasurer, effective November 26, 1990.

Raymond E Holman was elected Senior Vice President, Planning ]. Barry Mitchell was elected Assistant Treasurer, effective and Performance, effective April 16, 1990. November 26, 1990.

Dickinson M. Smith was elected Senior Vice President, Nuclear, John S. Kemper retired as Vice President, Engineering and effective April 16, 1990. Production on December 30, 1990.

David R Helwig was elected Vice President, Nuclear Engineering Raymond C. Williams retired as Vice President, Rates on and Services, effective April 16, 1990. December 30, 1990.

Donald B. Miller, Jr. was elected Vice President, Peach Bottom Thomas P. Hill, Jr was elected Vice President and Controller, Atomic Power Station, effective May 1, 1990. effectiveJanuary 1, 1991.

S.Joseph Kowalski retired as Vice President, Nuclear Engineering, John M. Madara,Jr. was elected Vice President, Engineering onJuly 31, 1990. and Production, effective January 1, 1991.

Donald P. Scott retired as Treasurer on October 31, 1990. James F. Hohenstein was elected Assistant Treasurer, effective January 28, 1991.

Philadelphia Electric Company 43

Philadelphia Electric Company and Subsidiary Companies BOARD OF DIRECTORS SUSAN W. CATHERWOOD (47) JOSEPH C. LADD* (64) DIRECTOR CHANGES:

Chairman, Board of Overseers, Chairman, The Fidelity Mutual Life William S. Gaither resigned from the The University Museum, Insurance Company Board, effective March 31, 1990.

University of Pennsylvania EDITHE J. LEVIT, M.D. * (64) Ralph]. Roberts' term expired on WILLIAM T. COLEMAN, JR., ESQUIRE (70) President Emeritus and Life Member March 31, 1990.

Senior Parmer of the law firm of the Board, National Board Corbin A. McNeill,]r. was elected O'Melveny & Myers of Medical Examiners a member of the Board, effective M. WALTER D'ALESSIO* (S7) ADMIRAL KINNAIRD R. McKEE* (61) April 11, 1990.

President and Chief Executive Officer, Director Emeritus, U.S. Navy John M. Palms was elected a member Latimer & Buck, Inc. (Mortgage Nuclear Propulsion of the Board, effective June 11 1990.

banking and real estate JOSEPH J. McLAUGHLIN (62) development) President and Chief Executive Officer; James A Hagen was elected a member of the Board, effective RICHARD G. GILMORE (63) Beneficial Mutual Savings Bank August 1, 1990.

Senior Vice President, Finance, and CORBIN A. MCNEILL, JR. (Sl)

Chief Financial Officer of the Richard H. Glanton was.elected President and Chief Operating Officer Company a member of the Board, effective of the Company RICHARD H. GLANTON, ESQUIRE (44)

January 28, 1991.

JOHN M. PALMS, PHO. (SS)

Parmer of the law firm Reed Smith President, Georgia State University Shaw & McClay JOSEPH F. PAQUETTE, JR.* (S6)

JAMES A. HAGEN* (SS) Chairman and Chief Executive Chairman, President and Chief Officer of the Company Executive Officer, Consolidated Rail RONALD RUBIN (59)

Corporation General Parmer, Richard I. Rubin &

NELSON G. HARRIS (64)

Company (Real estate development President and Chief Executive and management)

Officer, Tasty Baking Company ROBERT D. HARRISON (67)

Management and marketing consultant

• Member of Executive Committee 44 Philadelphia Electric Company