ML18095A881

Atlantic Energy Annual Rept 1990.

ML18095A881
Person / Time
Site:	Salem, Hope Creek
Issue date:	12/31/1990
From:	Huggard E, Jo Jacobs ATLANTIC ENERGY, INC.
To:
Shared Package
ML18095A877	List: ML18095A876 ML18095A878 ML18095A879 ML18095A880 ML18095A881
References
NUDOCS 9104190193
Download: ML18095A881 (52)

Text

• 9104190193 910415 PDR ADOCK 0~~00272 I PDR

Contents IJ Letter to Shareholders Chairman Doug Huggard and President Jerry Jacobs discuss financial performance, utility operati ons and expectation s for the next few years .

II The Top Stories of 1990 Kilowatt-hour sales and peak load increased. We filed a request for an increase in base rates of $113 million. A new combustion turbine unit was placed in service. Atlantic Electric records its safest year in history.

II The Power to Shape the Future Do we have the power to shape our own future? You bet we dol Fi nd out how we intend to accomplish this task in the years to come.

lllJ Atlantic Electric At-A-Glance Residential customers used slightly more electricity in 1990.

Over 700 new Commercial customers were added. Sales to lndustrial customers decreased slightly over 1989.

ID Index to Financial Information m Investor Information Where to go for help concerning you r investment in Atlantic Ene rgy; Common stock data for 1990; proposed record and payable dates for dividends.

m Atlantic Energy's Officers and Directors Information regarding officers and directors, with director photographs and committee membership information.

Notice of Annual Meeting The 1991 Annual Meeting of Shareholders will be held on Corporate Address:

Wednesday , April 24, 1991 at Wheaton Village, Millville, 1199 Black Horse Pike New Jersey. A Notice of Annual Meeting will be mailed in Pleasantville, New Jersey 08232 March to those shareholders entitled to vote. (609) 645-4500

financial Highlights

• Results of Operations 1990-1988 1990

% Change 1990-1989 (19 3) $

1989

% Change 1989-1988 1988 3.68 Earnings Per Common Share $ 3.02 3.74 1.6 Dividends Paid Per Common Share $ 2.92 3.5 $ 2.82 1.8 $ 2.77 Book Value Per Common Share $ 28.73 0.7 $ 28.54 5.1 $ 27.16 Return on Average Common Equity 10.57% (22.5) 13.64% (4.1 ) 14.22%

Electric Operating Revenues ($000) $ 716,779 1.7 $ 705 ,020 4.3 $ 675 ,859 Operating Expenses ($000) $ 592,217 3.8 $ 570,275 3.1 $ 553 ,080 Net lncome ($000) $ 68,879 (14 9) $ 80,964 12.2 $ 72,171 Utility Cash Construction Expenditures ($000) $ 166,818 15.0 $ 145,081 14.1 $ 127 ,099 Total Assets ($000) $2,006,010 7.6 $1 ,864,461 12.3 $1,660,286 Sales of Electricity (KWH) (000) 7,756,867 1.8 7,617,784 3.6 7,350,280 Price Paid Per Kilowatt-hour (All Custome rs) 9.288¢ 1.4 9 16 1¢ 1.2 9.055¢ Total Electric Customer Accounts (Year-end) 449,717 1.3 444,018 2.2 434,262 umber of Shareholders - Common Stock (Year-end) 42,295 (2 5) 43,383 (2 5) 44,473 Number of Atlantic Electric Employees (Year-end) 2,055 1.7 2,021 (34) 2,092 in dollars year-end dollars 5 40 38 .50 37.37 33.87 4 ...... . . ... .. . 32.75 30 .30.62.

3.68 3. 74 3 J.02 2.82 2.92 2.77 2.65 20 .

2 10.

1.

0 0 86 87 88 89 90 86 87 88 89 90 ntic Energy Earnings and Dividends Paid Atlantic Energy Market Price Pe.r Share of Share of Common Stock Common Stock EARNINGS - DI VIDE NDS Ti1i s is th e closing price of Atlantic En ergy's Common Stach on th e last trading date of each yeai; as reported by th e Ne w Yorh Stach Exchange Earn ings per share of Co mmon Stach is net income divided by th e Composite Transactions listing.

average number of common shares outstanding. Dividends paid per share is lh e sum of th e quarterly di vidend pay ments made in January, April, July and October.

- 1-

Letter

• To Shareholders E.D. Huggard J.L. Jacobs fter enjoying three of the best earnings years added. This growth, while not matching previous A in your Company's history, earnings per share declined in 1990 to $3.02 from $3.74 in 1989.

years' impressive increases, reflects strong future potential. We achieved a new level of peak dema This 19 percent setback is expected to be temporary. in 1990of1,741megawatts,a2.4 percent increa It is the result of reduced sales growth from mild over 1989. Aggressive load management programs weather, a predicted downturn in economic activity, helped to reduce the peak by about 57 megawatts.

increased shares outstanding and our inability to fully During 1990, we achieved most of our perfor-recover purchased power costs in a timely fashion. mance objectives . We are quite proud of l 990's Your management has already taken action with safety record - it was the safest year in our history' respect to the 1990 financial results by filing a formal We also achieved our objectives in rate stability, relia-request in September with the New Jersey Board of bility and quality of service rendered to our cus-Public Utilities for a rate increase of $113 million. By tomers. Performance of our jointly-owned nuclear the time this case is decided later this year, it will units improved as Peach Bottom turned in a full year have been almost five years since our last general of service, and other units were recognized for out-base rate increase. All that while , we have been meet- standing operating performance.

ing our customers' growing electricity needs. We The most significant challenge for any electric util-made capital investments and experienced added ity is to accurately forecast future requirements and operating costs which now require regulatory action. effectively implement the optimum plan to meet A significant rate increase will be needed in 1991 to those requirements . During 1990, we installed a new reverse the 1990 earnings decline and address the 82-megawatt combustion turbine and have begun problems that prompted the recent downgrade of construction of another such unit to be completed in some of our securities. mid-1991. In addition, our contracted 569 In June , your Board of Directors increased the reg- megawatts of cogeneration is intended to help meet ular quarterly dividend by $.02 per share to $.74. our capacity demand in the mid-1990s. These are Our 38 consecutive years of increases in dividends components of a comprehensive integrated resour paid is a record that speaks for itself - a commit- plan that also includes cost-effective measures on ment to dividend growth! customers' side of the meter to enhance energy effi-By far, the primary business of Atlantic Energy is ciency and reduce the demand for expensive, new Atlantic Electric - the utility. Kilowatt-hour sales capacity. Our planning process also provides for con-grew 1.8 percent and 7,100 new customers were tingencies. In November, we filed a contingent

'ficate of Need for a combined-cycle unit that The electric utility business continues to experi-uld be built in the event that planned cogenera- ence fundamental structural change and we continue tion projects are delayed or cancelled, or load grows to work with our regulators and others to mold that faster than expected. change to the advantage of our shareholders and In all of our planning, we continue to embrace a our customers.

strategy which we call, Strength Through Planned That change has also provided opportunities in Diversity. Our generation is derived from capacity the nonregulated activities of Atlantic Energy.

sources that are appropriate to our size and fuel sup- Atlantic Generation has started construction of a ply which is well diversified , with over 75 percent of 117-megawatt cogeneration plant in our service ter-our energy produced by coal and nuclear power. ritory through its participation in the Pedricktown This has enhanced our ability to hold down costs Cogeneration Limited Partnership. We are also pur-and improve reliability, while focusing mostly on suing development of two other cogeneration proj-domestic resources. ects. These investments have excellent prospects for We will be impacted by the acid rain provisions of earnings enhancement in the next few years.

the recently amended Clean Air Act. Compliance However, in 1990, Atlantic Generation's develop-action will be required by 1995 at our wholly-owned ment costs produced a loss of $.05 per share.

B.L. England Generating Station as well as at two ATE Investment contributed $.06 per share in 1990 western Pennsylvania coal-fired units in which we through its leveraged lease activities, but future tax-have a small ownership interest. While we have not advantaged investments may be limited in this sub-yet fully established our strategy, studies are sidiary. Atlantic Southern Properties experienced a advanced to the point where we can expect to slight operating loss equal to about $.02 per share in

• eve compliance with little impact on financial 1990, as the area real estate market was relatively quiet.

• perating conditions. Future nonregulated investments will probably be ur challenge in a growth-oriented service area limited to cogeneration and independent power proj-entails careful planning of transmission and distribu- ects through Atlantic Generation and other reward-tion as well as generation. We continually update ing business opportunities that are functionally master plans in these areas and assign high priority related to the electric utility business and that will to their implementation. The combined effect on all support the growth in our service territory.

of these plans requires a construction program which The management and Board of Directors of your will exceed $500 million over the next three years - Company are grateful for your loyalty and support.

a financing challenge which we expect to meet while We are confident that we have the power to shape the maintaining a favorable capital structure. future . That confidence springs from a philosophy In a service territory where nearly half of our utility built upon our respect and concern for customers revenues come from residential customers, we can and our desire to let employees realize their highest expect some degree of revenue stability during all potential. The result, we believe, is a safe and reward-cycles of economic activity. In future years, we expect ing investment. That is our commitment to you.

to further enhance revenues through a very compre-hensive marketing strategy. This marketing strategy For the Board of Directors, is intended to give customers a variety of services that offer convenience, satisfaction and value, and makes Atlantic Electric the customers' choice for energy services.

zIf/c4t '!4(-:J E.D. Huggard Chairman and Chief Executive Officer We have always had a deep-rooted conviction that t opportunity exists in the electric utility busi-n South jersey. We have established both cus-r- and shareholder-oriented goals to pursue J.L. Jacobs these opportunities and we have linked those goals President to management compensation. January 31, 1991 The Top Stories

• of 1990 HAPPY BIRTHDAY, D On June 1, Atlantic New jersey's Governor has this award for their heroic OLD FRIEND Electric began purchasing recognized this group for actions to save an infant's life 200 megawatts of capacity their safe work habits. In making the award, and energy under a four- D The 186 employees at the President Jerry Jacobs called year arrangement with B. L. England Generating the workers the "kind of car-Philadelphia Electric Station completed one full ing, compassionate human Company. Also on year without a lost time acci- beings that Atlantic Electric is June 1, Atlantic Electric dent in 1990. This is the first proud to employ."

began purchasing 20 time in over ten years that megawatts of capacity under this record has been set at a NIGHT LIGHTS, a two-year arrangement generating station. BRIGHT LIGHTS with Pennsylvania Power&: D Atlantic Electric's o Several hundred Light Company. The pur- Communications Department Residential, Commercial and Deepwater Station chase will increase to 35 has worked 21 years without Industrial customers made D In June, Atlantic Electric's megawatts in 1991. a lost time accident. their homes and busines.

Deepwater Station celebrated brighter and more secur its 60th year of continuous signing up for Atlantic service to southern New On]uly 5, 1990, a new peak Electric's Night Guard jersey. Built in 1930 at a cost demand of l, 74 l megawatts was Lighting Program. For a of $13 million, it was hailed recorded. Reserve margin at modest monthly fee, Atlantic as "the last word in efficiency time of peak was I0.9 percent. Electric will design, purchase and economy." Today, Load management programs and install energy-efficient, Deepwater is sti ll going reduced demand at time of peak low-maintenance night light-strong. With a net capability by about 57 megawatts. ing for customers. By all of 308 megawatts, it provides accounts, it's a success. The over 25 percent of Atlantic program exceeded its lighting Electric's wholly-owned gen- goals by 200 percent.

eration and operates Atlantic SAFETY TOPS D The President's Award is D One of the most visible Electric's most efficient unit. THE RECORDS an annual recognition of participants in the Night D The safest year in Atlantic employees who make Guard Lighting Program, the MORE POWER TO YOU Electrics' history was recorded extraordinary contributions Trump Taj Mahal Casino D On May 31, Cumbe rland in 1990. Employees' safe to Atlantic Electric's opera-Resort , is a bright addition to Unit #l, an 82-megawatt work habits on the job and on tions, performance and ser-Atlantic City's skyline. Before "peaking" unit began com- the road reduced the number vice. Don Kelly, john of "lost time accidents" - its April opening, Atlantic mercial operation in time to Herman and Larry Stone, work related accidents that Electric representatives serve Atlantic Electric's cus- employees of the Construc-cause employees to lose days showed our new customer tomers during the summer tion Department, received away from their jobs. how it could save money and peak demand. In 1991 , a sec-ond 82-megawatt "peaking" D Over 40 employees at unit will be completed. Both Atlantic Electric's Salem Atlantic Electric's l 990 cash of these units use natural gas Operations center set a record construction expenditures as their primary fuel source. by working one million hours totalled $166.8 million, plus without a lost time accident. $4.0 million in Allowance for In each of the last three years , Funds Used During Construction.

f;?- ;,,

r; 'f; ;, ~-;J!.I

(.Y fli. J ,/p,,

[\,

\l ,,

,( )'I. '-1)

'-.. l ~ j11..---------

Energy's subsidiaries for their that will become a center for

---

""""( .! ' J

---'-1, respective capital and operat- tourism and community The combined capacity Jactor oif \...""=~ ':.;:f/, *,*

Atlantic Electric's five jointly-' ~,...~-=--=.-,-....., ing needs. activity in southern New owned nuclear units for 1990 ~ D In January 1991 , Standard Jersey.

was 70.2%. Coal and nuclear ~ & Poor's lowered its ratings on Atlantic Electric's senior AGI MAKES COGENERA-fuel sources provided almost - ~

secured debt to 'A' from 'A+' TION PROGRESS 80 percent of customers' energy needs, and resulted i . and its ratings on Atlantic o In June, construction start-a savings of $145 million Electric's preferred stock and ed on a 117-megawatt compared to the use of oil. ~ senior unsecured debt to 'A-' cogeneration facility that will

/5-).,x from 'A'. be built and operated by D On September 2 7, Atlantic Cogeneration Partners of Electric filed a petition with America, a partnership Creek and Peach Bottom the New Jersey Board of arrangement that includes Unit 3, were rated among the Public Utilities seeking a Atlantic Generation , Inc.

top ten internationally for $113 million increase in base The facility , located at the availability of boiling water rates. This petition seeks to BF Goodrich plant in reactors. recover the cost of a power Pedricktown, New Jersey ,

o The Salem Nuclear purchase arrangement , capi- will supply 106 megawatts Generating Station matched tal investments in new plant of capacity and energy to its dual-unit continuous run and equipment and the Atlantic Electric. It is expect-record. increased costs of operation. ed to be completed in 1992.

Atlantic Electric is requesting D Cogeneration Partners of THE FINANCIAL PAGE Trump Taj Mahal Casino Resort a 13. 7 percent return on America will manage the o On July 5, Atlantic Electric equity and an overall return construction and operation use energy wisely. The result - issued and sold 500,000 of 11.13 percent. A decision of a SO-megawatt cogenera-26 energy-efficient flood - shares of its $8.20 No Par on the request is expected in tion facility in Binghamton, lights illuminate the build- Preferred Stock at a price to the second half of 1991. New York. Excess electricity ing's grand exterior. the public of $100 per share. generated from the project Atlantic Electric used the HOLLY CITY, USA will be sold to New York NUCLEAR UNITS GET HIGH SCORES funds for general corporate D Atlantic Electric State Electric & Gas under a purposes including construc- announced that it would power purchase agreement.

D The Hope Creek Nuclear tion costs and the repayment rejuvenate its 40-acre holly Generating Station received of short term debt. orchard located on a 1,600-a rating of ' l ' from the D During 1990, Atlantic acre tract of land in Institute of Nuclear Power Energy's Dividend Millville, New Jersey. The Operations, a nuclear Reinvestment and Stock 50-year-old orchard will be industry peer group. This Purchase Plan provided over replanted with new rating recognizes excellence

$13 .3 million in new seedlings from an existing in all aspects of plant oper-Common Equity. An addi- stock of over 3,000 mature

.ons , maintenance and tional $1.8 million of com- trees, representing most of inistration.

mon equity was raised the varieties of holly found ope Creek set a new sta-through the operation of in the United States. When tion record for the number of Atlantic Electric's employee restoration is complete, the days of continuous run. Construction at the Pedricktown site benefit plans. These funds holly farm will be th e site of o Two of Atlantic Electric's were allocated to Atlantic a meeting and exhibit house jointly-owned units, Hope 5 -

I

°'I

WE HAVE .. .

~p T

UJF or the past several years, our success has it difficult to set new financial records over the F been shaped by growth. A robust local economy brought increases in sales, new next few years, we will remain strong. Our time and efforts will be spent breaking new ground customers and peak load. We were challenged to and preparing to harvest the opportunities and manage growth, finding new ways to supply success of years to come.

electricity while keeping it reliable and afford- Do we have the power to shape the future?

able. Manage it we did, and our work gave us You bet we do! The power comes from building strong financial results. partnerships with our customers - getting them In the decade of the 1990s, different fac- to choose us for all of their energy needs and mak-tors will shape success. Because of industry ing sure our electricity represents value to them.

trends which we , too, will experience , growth The power comes from empowering employees in slowed. Kilowatt-hour sales and peak load a more competitive environment, encouraging grow at less than half the rate of recent his- them to think creatively, solve problems and make y We will begin to feel the effects of competi- decisions. And, the power comes from maintaining tion as some of our larger customers become diversity - in our future energy supply, our gener-self-generators. Although these factors will make ating stations and our fuel sources.

he power to shape the future comes from THE T building partnerships with our customers, working together to achieve our mutual goals POWER of energy efficiency and affordable prices. It's giving our customers complete service from start to finish .

It's being competitive, getting customers to choose COMES Atlantic Electric for their energy services.

FROM Good, working partnerships don't happen overnight.

We've been building them for years.

PARTNER- Good, working partnerships don't happen over-SHIPS night. We've been building them for years. We reor-ganized internally to provide more specialized a responsive customer service. We created more an TOBE A

e opportunities for customers to tell us their con-s and needs at consumer roundtables, industrial THE conferences and one-on-one. We listened to cus- BEST...

tomers' suggestions and renewed our commitment to provide choices that save energy and give them more One very special partnership will yield a B. E.S. T. Home in control over how they spend their energy dollar. 1991. Vocational students in Our commitment is underscored by the variety Millville, New j ersey are gain-of marketing programs we can now offer customers. ing valuable experience build-Time-of-Use rates allow customers to save money ing a B. E.S. T. Home with help by using electricity during off-peak hours. Summer from Atlantic Electric. Once Savers customers get paid for allowing Atlantic the house is completed, it will be sold by auction in the com-Electric to switch off major appliances when our sys-munity, where the successful tem demand is reaching a peak. Two programs, Save- bidder can begin enjoying A-Watt and the Night Guard Lighting Program, offer "energy saving tomorrows "

efficient, cost-effective lighting to area homes and right away.

businesses. Through the Home Energy Savings Program, we can help customers determine areas in their home where minor improvements (such as Why build an all-electric out the B.E.S. T Home home? To help our cus- process. We inspect and weather stripping and insulation) can provide long- tomers, our partners, get certify the home at sever-term savings. the most out of their ener- al stages during its con-Our partnerships with customers don't stop with a gy dollar. One of our struction and make sure of programs. Personalized attention, like helping marketing programs is that all work meets our mmunity college solve its heating and air condi- proving that electricity is exacting standards. Once ing needs, investigating the latest technology for the right choice for all of the home is completed, a home's energy needs. our Comfort Assurance Customers in the mar- program sees to it that Our commitment is underscored ket for a new home have customers are completely by the variety of marketing programs told us that they want satisfied with the opera-we can now offer customers. comfart, reliability and tion of the home's heating energy efficiency - all at and cooling systems.

a reasonable cost. We set The first B.E.S. T. Home a glass manufacturer or winterizing the house next out to find the "B.E.S. T was built in a growing door, makes for good relationships with customers in Home" for our customers, area of Cape May County.

an all-electric home ]iuilt Right now, there are 52 the long run.

for Energy S.aving B. E.S. T Homes scheduled We see a renewed concern for energy indepen- Iomorrows. The B.E.S. T to be built in Atlantic dence and security As domestic energy sources Home brings together the Electric's service area.

become more important for meeting energy needs, latest technology in insu- And, judging from the we know that the lasting partnerships we cultivate lation, appliances, win- enthusiasm of the 200 today will produce bountiful resu lts in the future . dows, construction area builders who attend-techniques, and heating ed our recent B.E.S. T and cooling systems. The Home conjerence, we "best" part - customers could see more of these save energy dollars for homes in the near future.

the long haul.

Atlantic Electric works with customers through-uccess in an increasingly competitive world S requires many critical elements: alertness, im ination, prompt decision-making and respon-siveness. A company able to call upon such talents has a strategic advantage that is hard to beat.

It is our good fortune to have enthusiastic, creative and dedicated employees. Even though the number of utility customers has increased significantly over the past five years, the size of our workforce is now It is our good fortune to have enthusiastic, creative and dedicated employees.

about the same as it was in 1985 . The best part is, while costs have been controlled, service has been improved.

To enhance our success and to further encourage our employees, we carefully developed our own Employee Involvement Program and began to imple-Investor Records goes to great SMALL lengths to provide quality ser-vice to shareholders. The team t it throughout the utility Guided by President ry Jacobs , the program focuses on empowering BUT recently visited the New York Stock Exchange to expand employees - encouraging them to work together to make decisions about how to improve their jobs and MIGHTY... their knowledge of securities markets. Pictured are: (I to r)

Carol j ohns, Judy Somers, the Company. He has met personally with over 700 Kathy Taggart, Stephanie employees over the past year, to bring them his per- Scola, MaryAnn Lindsay, spective on the process and to gain their support. His Audrey Lucy, Debbie Silipena endorsement of the program is clear: "We have good, and Marie Stecher.

motivated, intelligent people with lots of ideas who know their jobs best." He added, "There's no limit to what we can achieve when employees have the resources and the decision-making power right on the front lines. "

The program is working well at Atlantic Electric.

At the end of 1990, ten percent of Atlantic Electric's workforce were members of Employee Involvement teams . Their efforts are making a difference. In our Customer Service area, teams have found ways to eliminate paperwork and to shorten the processing time for orders to connect or disconnect service. The Customer Payment area increased productivity by anging work schedules to better match the flow of Keeping track of over when transfers are done, payments received. Employees at the Deepwater 42,000 shareholders and we can turn things around tion heightened their efficiency by streamlining providing them with the usually in a day and we their procedures for purchasing materials. full spectrum of services can give shareholders are big responsibilities. complete service for their Many companies use sev- account," she added.

'There's no limit to what we can achieve eral firms to do the work. With the help of a top-when employees have the resources and the But, at Atlantic Energy, notch computer system, decision-making power right on the front lines.' the eight dedicated people Investor Records can han-

-Jerry Jacobs in the Investor Records dle most shareholders' area (our first Employee requests with the touch of Involvement team) do it a few buttons. The system These examples are but a few of the many cases all with courtesy, preci- is an important tool, used where employees' efforts and accomplishments have sion and style. to keep and manage shown us that we already have the talents needed to The Investor Records records, generate checks, area keeps track of shares print certificates and pre-move forward. Their enthusiasm, energy and creativ- bought and sold, transfers pare statistics. Investor ity are sowing the seeds of success and giving us the certificates to new owners Records' operations and power to shape the future. and complies with appli- their mastery of the sys-cable laws and regula- tem have been used as tions. "The company models for many other saves money as its own companies considering transfer agent," explains bringing their shareholder MaryAnn Lindsay, services in-house.

Investor Records supervisor. "But most of all, we can give our share-holders better service. We have more control over everal years ago, Atlantic Electric decided that THE S the best way to give customers reliable, afford-able energy was to have many different sources POWER of generating capaciry and to use different types of fuel. We gave that strategy a name , Strength Through Planned Diversity, and made it the heart of our busi-COMES ness. It's a strategy that believes in the motto, "Don't put all of your eggs in one basket. " We haven't, and FROM our business has benefited from it. It's a strategy that is even more valid in today's competitive business MANY The best way to give customers reliable, affordable energy is to have many different SOURCES sources of generating capacity and to use different types of fuel.

environment. We've expanded this strategy to inclu energy produced by nonutility power producers, demand-side management programs and energy c .

servation. These elements now constitute important parts of our plans to meet future energy needs .

Atlantic Eledlic's system c.ontml KEEPING center uses state-of-the-an tech-nology to monitor and direct gen-tlantic Electric has several long-term arrange-nts with nonutility power producers, primarily TRACK erating station output, measure the load on transmission lines, cogenerators, to supply energy in the near future.

When these projects come on-line, they would pro-OF THE track weather conditions and pinpoint any trouble spots on the vide for additional operating diversity and the use of POWER ... system. Pictured: Frank Mooney, Jr., shift supervisor.

several different fuel types.

The way customers use electricity will also play an important role in meeting future energy needs.

Successful demand-side management programs that control energy use during peak times, along with customers' energy conservation efforts , result in energy savings. Energy saved by one customer can be available for another.

Traditional utility-supplied capacity will continue to be essential for providing reliable, affordable elec-tricity. Atlantic Electric's generating sources include base load and peaking units that we own and operate ourselves. We also own small portions of units oper-ated by other utilities and have arrangements with How does Atlantic Electric knew conditions were in neighboring utilities for the purchase of energy and keep track of all the gener- place to set a new peak, as capacity. Altogether, there are over 30 generating ating units and their vari- hot, humid weather its that Atlantic Electric can call on to meet cus- ous fuel sources? The started to settle in over answer is Atlantic Electric's the service territory. The ers' energy needs. If one of those units is not system control center. On system control center and ilable to generate electricity, we can rely on the any given day, the center the P]M were ready for other units to carry the load. And, these units use dif- coordinates energy supply the record demand that ferent fuel sources. In fact, some of them can burn from our own base load would be placed on the more than one fuel. If fuel supplies are disrupted or and peaking units. utility network. As the day become uneconomical, other fuels can be used to a The center is linked to progressed, the demand the Pennsylvania-New for energy increased right greater degree. Jersey-Maryland Inter- along with the tempera-connection, (the "P]M") ture. The system control It's a strategy that believes in the motto, which integrates Atlantic center coordinated this

'Don't put all of your eggs in one basket.' Electric's operations with growing demand with those of neighboring utili- available generating units.

ties. The P]M provides Atlantic Electric was We have learned that it is best to depend on fuel pricing and availability ready. Within hours, the supplies that are native to our country. In the last five information about the units temperature reached 95° years , over 75 percent of the energy generated by owned by its eleven mem- and the demand for elec-bers. In addition, the P]M tricity reached a record Atlantic Electric has been provided by coal and makes it possible to sched- level of 1,741 megawatts.

nuclear fuel. Compared to the use of oil, this has ule and operate all the Our units delivered the saved customers almost $500 million. units in the system, using maximum output possible.

Customers expect reliable , affordable energy. With the most economical ones Peak demand may hap-Atlantic Electric's broad range of generating sources, first. These operations pen just a few times each fuel and energy management techniques , the become even more critical year. But, handling it is all when the demand for elec- in a day's work for the sys-prospects for continuing good service and customer tricity reaches a peak. tem control center.

• faction are great indeed. In 1990, Atlantic Electric's system reached its peak on]uly 5th. We HARVESTING THE FUTUR prosperous future reflects careful prepara- employees who are given the opportunity to A tion, teamwork and sound business strate-gies in the present. It comes from doing make decisions that make meaningful contribu-tions to their work. And, it is found in our diver-ordinary tasks in an extraordinary way sity, a business strategy that has served us well in At Atlantic Energy, the power to shape the the past and will continue to do so.

future is with us today. It is found in manage- These elements, with proper cultivation ment's commitment of time and resources to and attention, hold the promise for Atlantic listen and learn what customers expect from an Energys success for years to come. Our labors electric utility, and then developing energy ser- today will bring a harvest of plenty, rich with ser-iliJi.s at competitive prices to satisfy their needs . vices and value for our customers and growth for

• found in the skill , talent and enthusiasm of our shareholders.

Atlantic Electric At-A -Glance Residential Customers Sales to Residential customers increased 0.1%in1990 as a result of over 6,300 new customers added to the system. Average use per customer decreased because of milder temperatures in the 1990 heating season.

% Annual Est. % Annual Growth Rate Est. Growth Rate For the ten-year period 1985 - 1995: 1985 1990 '85-'90 1995 '90-'95 Sales (billion kwh) 2.638 3.268 4.4% 3.720 2. 6%

% of Total Sales 43 42 43 Average Use (kwh) 7,643 8,251 1.5% 8,527 0.7%

Peak (Mw) 680 895 5.6% 941 1.0%

..... . ~

Commercial Customers Sales to Commercial customers increased 5.0% in 1990 as a result of increased customer usage. Sales to 12 hotel/casinos increased 18.9% and comprise 6.8% of total sales.

%Annual Est. % Annual Growth Rate Est. Growth Rate For the ten-year period 1985 - 1995: 1985 1990 '85-'90 1995 '90-'95 Sales (billion kwh) 2.299 3.063 5.9% 3.49 1 2.7%

% of Total Sales 37 40 41 Average Use (kwh) 51,945 60,927 3.2% 63,715 0.9%

Peak (Mw) 562 671 3.6% 737 1.9%

Atlantic Electric serves almost 450 ,000 Industrial & Other Customers customers in a 2 ,700 square-mile area in Sales to Industrial & Other customers decreased 0.6% in 1990 as a result of a the southern one-third of New jersey decrease in the number of customers.

Peak load has occurred during the sum-mer months. Major businesses include  % Annual Est. % Annual gaming, stone, clay, glass, chemical, Growth Rate Est. Growth Rate For the ten-year period 1985 - 1995: 1985 1990 '85-'90 1995 '90-'95 petroleum, rubber and food processing.

Sales (billion kwh) 1.263 1.426 25 % 1.351 (11)%

% of Total Sales 20 18 16 Average Use (000 kwh)* 1181.3 1373.7 3.1 % 1272.5 (1.5)%

Peak (Mw) 190 175 (16)% 146 (3.6)%

' Industrial Customers Only in billions of kilowatt-hours 8 ................................................. . ....

1.435 1.426 7 ...... ********** *** 1.395 1.382 1.281 )06:3 6 2.742 2.592 5 2A01 4

3 3.213 3.266 .. 3..268 .

2.839 2

l 0

86 87 88 89 90 Atlantic Electric Energy Sales by Customer Class .*

- RESIDENTIAL - COMMERCIAL - INDUSTRIAL AND OTHE The growth in kilowatt-hour sales is determined by how many new customers are added, how much electricity each customer uses and weather conditions. Since 1985, kilowatt-hour sales have increased an average of 4.6% each year as a result of customer additions and increased usage per customer Contents Management's Discussion and Analysis of Financial Condition and Results of Operation m Report of the Audit Committee m Report of Management m Independent Auditors' Report m Consolidated Statement of Income m Consolidated Statement of Cash Flows m Consolidated Balance Sheet Consolidated Statement of Changes in Common Shareholders' Equity m Notes to Consolidated Financial Statements Summary Financial and Statistical Review Management's Discussion and Analysis of Financial Condition and Results of Operation Atlantic Energy, Inc. and Subsidiaries Atlantic Energy, Inc. (the Company) is the parent of a con- eration. ASP and ATE will continue to manage their existing solidated group consisting of the following wholly-owned investments. With respect to ASP and ATE, new investments subsidiaries: Atlantic City Electric Company (ACE), Atlantic would be undertaken in light of the Company's consolidated Southern Properties, Inc. (ASP), Atlantic Generation, Inc. tax position, economic conditions and an acceptable balance (AGI) and ATE Investment, Inc. (ATE). ACE, the primary of risk and reward.

subsidiary, is a regulated electric utility which has a wholly-owned subsidiary that operates certain generating facilities. Nonutility operations for 1990, 1989 and 1988 resulted in ASP owns, develops and manages commercial real estate losses amounting to $275,000, $1.9 million and $2.0 mil-property. AGI is engaged in the development of cogeneration lion, net of income tax benefits, or $.01, $.09 and $.10 per and alternate energy projects through various partnership share, respectively. ATE has provided positive results to con-arrangements. ATE manages capital investments for the solidated earnings from its investments in leveraged leases.

Company. Due to a general slowdown in real estate activity and a con-tinuing over-supply of local rental office space, ASP'.s results The Company'.s business plan has been and will continue to continue to show losses. AGI continues to experience operat-be concentrated on the operations of ACE. Approximately ing losses due to higher than expected costs incurred in con-95% of consolidated assets belong to the utility. With respect nection with certain cogeneration projects.

to the nonutility businesses, the Company follows a conser-vative and modest strategy: investments will be made only FINANCIAL RESULTS in activities that utilize familiar management resources, pro- Consolidated operating revenues for the twelve months vide acceptable return in relation to the level of risk and are ended December 31, 1990, 1989 and 1988 were $716.8 ctionally related to the utility business. The Company million, $705.0 million and $675.9 million, respectively.

ts and restructures the business plans and operations of The increased revenues reflect increases in sales of energy onutility companies as necessary to reflect changes in and, in 1990, the effects of a provisional base rate increase consolidated tax position, economic conditions in the ser- granted in June.

vice territory and operating results. As a result, management expects to direct resources to the activities of AGI and the development of alternate power projects, principally cogen-

\lanagcmcnt'-, Discu-,-,ion and .\nal> -,i-, ol Financial Condition and Result-, ol Operation Atlantic En"'X)', Inc. and Subsidiaries Consolidated earnings per share for 1990 were $3 .02 on net by ACE and funds provided by the issuance of new income of $68 .9 million, compared with $3 .74 on net Common Stock. Principal cash outflows of the Company are income of $81.0 million in 1989 and $3 .68 on net income investments (capital contributions and advances) in its sub-of $72 .2 million in 1988. The decrease in net income and sidiaries and the payment of dividends to common share-earnings per share in 1990 from 1989 reflects higher operat- holders. Cash invested in ACE is utilized primarily for the ing expenses, primarily associated with the purchase of construction of utility generating, transmission and distribu-capacity from Philadelphia Electric Company (PE), which tion facilities, redemption and maturity of long and short commenced June 1, 1990. Net income for 1990 was also term debt, and redemption of Preferred Stock. Cash invested affected by increases in depreciation expense, the amount of in the nonutility subsidiaries is utilized primarily for the taxes recorded, interest expense and Preferred Stock divi- development of commercial real estate, the development of dend requirements of ACE. Earnings per share were also nonutility power generation projects and investments in affected by an increase in the average number of shares of financial assets.

Common Stock outstanding during 1990. The increase in earnings per share in 1989 from 1988 is primarily due to To facilitate the activities and operations of the subsidiaries, higher net income resulting from higher sales of energy, off- certain credit support agreements exist between the set in part by increases in operating expenses. Earnings per Company and ATE and between the Company and ASP In share were also affected by an increase in the average num- addition, agreements between the Company and each of its ber of shares of Common Stock outstanding in 1989. subsidiaries provide for allocation of tax liabilities and bene-Earnings in 1989 and 1988 were impacted by regulatory fits generated by the respective subsidiaries.

actions relating to the shutdown of the Peach Bottom Atomic In 1990, 1989 and 1988, the Company recorded $67 .1 mil-Power Station. The per share impacts of those actions lion, $62 .4 million and $54.5 million, respectively, in divi-amounted to reductions of $.30 and $.34, respectively, in dends from ACE. Other sources of funds utilized by the 1989 and 1988. Company include the issuance of common equity through public offerings, the operation of the Dividend Reinvestment In June 1990, the quarterly dividend on Common Stock was and Stock Purchase Plan (DRP) and ACE's employee bene

• increased by $.02 to $.74 per share, or an annual rate of plans, as follows:

$2.96 per share. This is the 38th consecutive year in which cash dividends paid were increased. Information with Issuance of Common Stock 1990 1989 1988 respect to Common Stock for the period 1988-1990 is as ($000) follows:

Public Offerings 1990 1989 1988 Shares issued 2,200,000 1,300,000 Dividends Paid Per Share $ 2.82 $ 2.77 Proceeds $69,850 $42,641

$ 2.92 Book Value Per Share $28.54 $27.16 DRP

$ 28.73 Annualized Dividend Yield 8.7% 7.5% 8.4% Shares issued 379,599 339,603 355,047 Return on Average Proceeds $13,372 $11 ,719 $11,680 Common Equity 10.6% 13.6% 14.2% Employee Benefit Plans Total Return (Dividends paid Shares issued 50,672 8,716 9,995 plus change in share price) (4.4)% 26.2% 16.0% Proceeds $ 1,753 $ 326 $ 332 Market to Book Value 118% 135% 121%

Price/Earnings Ratio 11 10 9 The Company's current financing plans for 1991-1993 con-Closing Price - New York template the issuance of approximately $150.0 million in Stock Exchange $33.875 $38.50 $32.75 additional common equity In 1990, the Company declared $67.1 million in dividends LIQUIDITY AND CAPITAL RESOURCES to its common shareholders, and made $10.6 million in cap-Overview ital contributions and advances, net of repayments, to its The Company commenced its business under a holding subsidiaries. In 1989 and 1988, the Company declared company structure in November 1987. Since its inception, $62.4 million and $54.5 million, respectively, in dividends.

the Company's cash flows have been dependent on the cash In 1989 and 1988, the Company made $83.7 million and flows of its subsidiaries, primarily ACE. Principal cash $51.4 million, respectively, in advances and capital contribu-inflows of the Company are the payment of dividends to it tions to its subsidiaries.

times coverage 4 ......................... .

Cash construction expenditures for the 1988-1990 period 3.68 amounted to $439.0 million and included expenditures for two new combustion turbine units and upgrades to existing 3 ..... *T99 ** . 3-.06 ... . .:U.9... .... :i.94 transmission and distribution facilities. ACE's current esti-mate of construction expenditures for the 1991-1993 period is $519.0 million, an increase of 18.2% from the prior three- 2*

year period. These estimated expenditures reflect the addi-tion of new generating equipment as well as major 1.

improvements to transmission and distribution facilities.

ACE also utilizes cash for mandatory redemptions of 0 Preferred Stock and maturities of long term debt. Optional 86 87 88 89 90 redemptions of securities are reviewed on an ongoing basis with a view toward reducing the overall cost of funds. Atlantic Electric Pre-Tax Interest Coverage Ratio Redemptions and maturities of Preferred Stock (at par or This ratio measures the ability of Atlantic Electric to meet its interest stated value) and First Mortgage Bonds for the period 1988- payments to creditors. It is the number of times that interest charges are 1990 are shown below: "covered" by earnings before the payment of income taxes. For an 'A' rated company, pre-tax coverage should be between 2.5 and 4.0.

1990 1989 1988 Preferred Stock (number of shares) in percent 9.96% 8,000 8,000 8,000

$8.25 2,500 2,500 2,500

$9.45 30,000 40,000 nt (000) $ 1,050 $ 4,050 $ 5,050 t Mortgage Bonds Principal Amount Retired (000) $21,215 $15,800 $10,000 In October 1990, ACE redeemed $21.215 million principal amount of First Mortgage Bonds, ll 1t2% Series due 2015 at a redemption price of 108.53%. In December 1989, $13.025 million principal amount of ll7ifl% Series First Mortgage Bonds due 1993 were redeemed at a price of 101.52%.

Atlantic Energy Year-End Capitalization Scheduled debt maturities and mandatory Preferred Stock

- COMMON EQUITY - PREFFERED STOCK sinking fund requirements aggregate $33.0 million for the years 1991-1993. - LONG TERM DEBT - SHORT TERM DEBT Atlantic Energy's capitalization is the relative proportion of equity ACE's cash flows from operating activities after dividends on funds provided by its owners, common and preferred shareholders, and Preferred Stock and Common Stock (internal generation) borrowed funds provided by creditors, holders of short and long term amounted to $75.2 million, or 45.1%of1990 construction debt securities.

expenditures. In 1989 and 1988, ACE's internal generation was $58.8 million and $63.9 million, and represented 40.5% and 50.3% , respectively, of construction expendi-tures.

For the three-year period 1991-1993, ACE's internal genera-tion is expected to average 50.1 % of currently estimated construction expenditures. However, actual levels may vary within the period based upon specific amounts of construc-tion expenditures and internally generated funds in the indi-

. al years.

Ma nage ment's Discussion and Anal ys is of Fin ancial Condition and Results of Operation Atlantic Energy, Inc. and Subsidiaries in cents 10 ...... ***** ******************************************* *********************** On an interim basis, ACE finances that portion of its con-struction costs and other capital requirements in excess of

9. 1 9.0 9.0 9.2 8.8 internally generated funds through the issuance of unse-8 cured short term debt consisting of commercial paper and 6

borrowings from banks. Permanent financing by ACE is undertaken by the issuance of its long term debt and 4

Preferred Stock, and from capital contributions from the Company. ACE's nuclear fuel requirements associated with 2*

its jointly-owned units have been financed through arrange-ments with nonaffiliated corporations.

0 86 87 88 89 90 In July 1990, ACE received proceeds of $49.9 million from the issuance and sale of 500 ,000 shares of $8.20 No Par Atlantic Electric Average Booked Revenue Preferred Stock. ACE also received $13 .5 million in capital per Kilowatt-Hour contributions from the Company during 1990. In October 1989, ACE issued and sold $135 million principal amount This is Atlantic Electric's total revenue divided by total kilowatt-hours as of First Mortgage Bonds , 9%% Series due 2019. ACE also recorded on the books of the company. It represents the average amount of revenue received for each kilowatt-hour sold. received $69.3 million in capital contributions from the Company during 1989. In 1988, ACE received proceeds of as a percent

$60 .0 million from the issuance of 600,000 shares of $8.53 35 .. .............. . No Par Preferred Stock, and received $40.0 million in capital 30 . 31.0 contributions from the Company.

25. During the three-year period 1991-1993, ACE expects to 20 issue $150 .0 million in First Mortgage Bonds and Preferred 15 . Stock, and to receive $134 .0 million in capital contributi from the Company.

10.

Between October 1989 and January 1991 , two major rating agencies lowered their ratings on ACEs senior debt to a rating 0

equivalent to 'A and Preferred Stock to a rating equivalent to

'A-'. In taking these actions, the agencies cited ACE's on-going Atlantic Energy AFDC as a Percent of Net Income construction program and its continuing need for external financing and growing capacity requirements. The effect of Atlantic Energy's net income includes an accounting allowance for the cost of borrowed and equity fu nds used for some construction projects. these actions will be to increase ACEs financing costs.

Because AFDC represents a non-cash addition to net income, it is preferable to maintain a low ratio. Provisions of ACE's charter, mortgage and debenture agree-ments can limit, in certain cases, the amount and type of additional financing which may be used. At December 31, in millions of dollars 300 ................................. .... 1990, ACE's estimated additional funding capacities 19.9 amounted to $362 .6 million of First Mortgage Bonds, or 250 ... . .... .... .

253"5 $335 .2 million of Preferred Stock, or $313.5 million of 200 .. 1"5".1 **27:9 ** unsecured debt. These amounts are not necessarily additive.

187.6 179.2 150 .

ASP 100 ASP's real estate investment to date has been the purchase

50. and improvement of a 275,000 square-foot office and ware-0 house facility in Atlantic County, New jersey, of which approximately 56% of the office space is leased to ACE. As Atlantic Energy Cash Requirements and of December 31 , 1990, ASP's investment has been funded by Internal Generation of Funds capital contributions from the Company and borrowings under a loan agreement with ATE . ASPs current agreement

- CONSTRUCTIONS & OTHER - INTERNAL CASH GENERATION with ATE provides for the repayment of such borrowings on

- MATURIT!ES, RETIREMENTS, SINKING FUNDS or before May 31, 1991 , but this date may be extended-estimates that its business activities in the 1991-199 3 p This compares the amount of cash expenditures for construction and other capital needs to the amount of cash that is ienerated internally from the will be limited to the development of the existing proper company's operations after the payment oj dividends to shareholders. The and that additional investment will not be significant. ASP's dif.ference between the amount of cash that is required and the amount of cash flows from operating activities are principally affected cash that is generated internally is the amount of funds that will have to be by rental income and financing expenses.

raised in the capital markets.

• Excludes certain optional reti rements Base revenues in 1990 increased as a result of a $41. 6 mil-ATEs operations commenced in 1988 and to date it has invest- lion provisional base rate increase ordered effective June 20, ed in leveraged leases of three commercial aircraft and two 1990. Base revenues decreased in 1989 primarily as a result containerships. Through December 31, 1990, its cash outlay of a $21.8 million rate reduction ordered in April 1988, for that equipment was $60.9 million. ATE also has made mainly reflecting the effects in 1988 of the Tax Reform Act of loans to ASP totaling $6.5 million. Additional capital require- 1986. Base revenues in 1989 were also affected by revenue ments associated with lease investments include deferred credits to ACE's customers of $9.7 million resulting from the equity payments in future years of $8.4 million. As of regulatory treatment of the Peach Bottom outages. Levelized December 31, 1990, ATE obtained funds for its business Energy Clause (LEC) revenues decreased in 1990, reflecting activities and loans to ASP through capital contributions and a net decrease in LEC revenues of $35.8 million ordered advances of $11.6 million, net of repayments, from the effective June 20, 1990. LEC revenues in 1989 increased as a Company. Funds also have been provided by a revolving credit result of a $62 .1 million rate increase ordered effective in and term loan facility. At year-end 1990, borrowings under the April 1988.

$70 million facility totaled $38.9 million. Future investments by ATE will be undertaken with respect to the Companys con- Overall, the combined effects of changes in rates charged to solidated tax position. ATEs cash flows from operations are customers and kilowatt-hour sales resulted in increases of expected to be provided from lease rental receipts, realization 1.7% and 0.5% in revenues per kilowatt-hour in 1990 and of tax benefits and loan repayments from ASP. 1989, respectively. These matters are discussed under "Sales."

AGI Changes in operating revenues in the future will result from changes in customer rates and general economic conditions Net cash outlays for investments by AGI for the period in the service area, as well as the impacts of load manage-1988- 1990 totaled $12 .3 million. AGis activities are repre-ment and conservation programs instituted by ACE and sented by partnership interests in cogeneration development cogeneration projects established within the service territory.

projects. Such activities have been funded by a combination t

pital contributions, loans and advances. At December Sales 990 , $14.3 million has been invested in AGI by the Changes in kilowatt-hour sales are generally due to changes pany. AGI's current business plan for the period 1991- in the average number of customers and average customer 3 is to invest up to an additional $12.0 million in cogen- use, which is affected by economic and weather conditions.

eration, generation and alternate power projects. AGis business activities are primarily directed toward developing Energy sales statistics, stated as percentage changes from the new proj-ects and therefore it does not yet generate cash previous year, are shown below:

from operations. Customer Class 1990 1989 RESULTS OF OPERATION Avg Avg# Avg Avg#

Sales Use of Cust Sales Use of Cust Operating results are dependent upon the performance of the subsidiaries, primarily ACE. Since ACE is the principal Residential 0.1% (1.6)% 1.6% 1.6% (0.9)% 2.6%

Commercial 5.0 3.4 1.5 6.4 4.0 2.3 subsidiary within the consolidated group, the operating Industrial (0.6)

(0.3) 0.3 (0.6) 3.1 3.7 results presented in the Consolidated Statement of Income Other (7.6) (5.5) (2.2) (4.3) (3.8) (0 .5) are those of ACE, after elimination of transactions among Total 1.8 0.2 1.6 3.6 1.1 2.6 members of the consolidated group. Results of the nonutility companies are reported in Other Income. Increases in total kilowatt-hour sales in 1990 and 1989 are primarily a result of increased numbers of customers in the Revenues Residential and Commercial classes and higher average use Operating Revenues-Electric increased $11.8 million or by Commercial customers. In 1990, sales to Residential and 1.7% in 1990 to $716.8 million, compared to $705.0 mil- Commercial customers were adversely affected by milder lion in revenues in 1989 . Total revenues in 1989 increased weather during the 1990 heating season. The slight increase

$29 .1 million or 4.3% over 1988. Components of the overall in sales to Residential customers in 1990 was due to an changes are shown below: increase in the number of customers. Commercial sales increased 5.0%, due to higher average use per customer and (in millions) 1990 1989 an increase in the number of customers in that class includ-Base and Unbilled Revenues $ 16.2 $ (15.8) ing the opening of a new hotel-casino. Industrial sales

- *u-hom Levelized Energy Clauses s.1<.

(17.5) 13.1

$ 11.8 20.5 24.4

$ 29.1

\lanagcrncnt's Discussion and .\nalysis of rinancial Condition and Results of Operation Atlantic Energy, Inc. and Subsidiaries declined slightly in 1990 as a result of a general economic owned generating units and purchased power sources. Costs slowdown, notably in the construction sector. In 1990, eco- of purchased power, exclusive of fuel, principally reflect pur-nomic growth in ACEs service area reflected the overall gen- chases of capacity under long term arrangements.

eral economic weakness in the northeastern United States, with a strong local downturn in construction activity affect- Operations expenses increased by 14.0% in 1990 to $191.0 ing sales to all customer classes. million primarily due to increased capacity charges relating to a four-year purchase power arrangement with PE.

Costs and Expenses Operations expenses increased 3 .1% in 1989 and reflect Total Operating Expenses increased 3 .8% and 3 .1 % in 1990 increases in purchased capacity and employee benefits.

and 1989, respectively. Excluding depreciation and taxes , Maintenance expenses decreased 5.2% and 7.5% in 1990 operating expenses increased 2.1%and3.9% in 1990 and and 1989, respectively, reflecting the completion of major 1989, respectively. Information with respect to those nuclear unit overhauls at jointly-owned nuclear facilities that changes is outlined below. were underway in 1988 and 1989. In addition, the imple-mentation of various cost containment programs by manage-Net Energy Costs reflect the amount of energy needed to ment have been successful in controlling the growth of meet load requirements, as well as the various fuel and pur- certain expenses.

chased power sources used and the operation of the LECs.

Annual fuel , interchange and purchased power costs reflect Costs associated with certain long term purchase power changes in the availability of low-cost generation from both arrangements are deferred on the Consolidated Balance owned and purchased sources and in the unit prices of the Sheet since rates are levelized to collect those costs over the fuel sources used, as well as changes in the needs of other term of the arrangements. The balance of such Unrecovered utilities participating in the Pennsylvania-New jersey- Purchased Power Costs at December 31, 1990 was $124.9 Maryland Interconnection. million, compared to $103.0 million at December 31 , 1989.

The cost of energy is recovered through base rates and by Depreciation and Amortization expense increased 6.3% to the operation of LECs. Earnings are not directly affected by $62 .1 million in 1990 and reflects variances in depreciatia Net Energy Costs because such costs are adjusted to match expense resulting from the cost and mix of electric utility amounts recovered through revenues. In any period, the plant in-service and the respective in-service dates. Gross actual amount of LEC revenue recovered from customers Receipts and Franchise Taxes increased 4 .7% to $87.3 mil-will be greater or less than the actual amount of fuel cost lion in 1990 due to an increased level of revenues subject to incurred in that period. Such respective overrecovery or the tax.

underrecovery of current fuel cost is recorded on the Consolidated Balance Sheet as a liability or an asset as Federal Income Taxes increased 17.7% to $26.9 million in appropriate. These amounts are recognized in the 1990. Federal Income Taxes decreased by 13.6% in 1989.

Consolidated Statement of Income as Deferred Energy Costs Changes in Federal Income Taxes are detailed in Note 2 of during the period in which they are subsequently recovered the Notes to Consolidated Financial Statements.

through the LECs.

Interest Charges before the Allowance for Borrowed Funds Fuel expenses decreased in 1990 compared with 1989 as a Used During Construction rose to $56.4 million in 1990 result of increased availability of nuclear generation from compared to $53 .3 million in 1989 and $52.2 million in the Peach Bottom Station. Increased fuel expenses in 1989 1988. Interest on Long Term Debt in 1990 increased as a compared with 1988 are due primarily to higher levels of result of the issuance in October 1989 of $135 million of kilowatt-hour sales. Interchange expenses in 1990 and 1989 First Mortgage Bonds, 9%% Series due 2019. At December decreased as a result of improved availability of wholly- and 31, 1990 and 1989, ACE's embedded cost of Long Term jointly-owned sources and , in 1990, the purchase of energy Debt was 9 .2% compared with 9 .1% at year-end 1988.

from PE. Deferred Energy Costs increased in 1990 and 1989 Interest on Short Term Debt decreased in 1990 as the result as a result of overrecovery of fuel cost. The 1990 average of lower average balances outstanding and lower average fuel cost per kilowatt-hour was 1.66¢ compared with 1989 interest rates. The increase in short term interest expense in and 1988 average fuel cost per kilowatt-hour of 1.96¢ and 1989 over 1988 reflects higher average balances and higher

1. 99¢ , respectively. The decrease in 1990 average fuel cost average interest rates. Other Interest Expense in 1988 per kilowatt-hour is due to a 30% increase in nuclear gener- includes payments to customers resulting from the over-ation and the purchase of energy from PE. The average fuel recovery of LEC revenues in prior years, as ordered by the cost for 1989 was lower than 1988 because of increased New jersey Board of Public Utilities (BPU), and interest on nuclear generation and lower unit fuel prices. The 1988 deposits from third parties for cogeneration projects.

• average fuel cost per kilowatt-hour reflects generation from higher cost coal sources. The Allowance for Funds Used During Construction (AF including both the Borrowed Funds portion, which reduces Operations and Maintenance expenses amounted to $243 .3 interest expense, and the Equity Funds portion, shown million in 1990 and include costs associated with jointly- under Other Income, was $4.0 million in 1990, $2.8 million

- 89 and $3 .2 million in 1988. The allocation of AFDC i.5 considered generally more stringent than previ.ous stan-a function, among other factors , of the amount of construc- dards and could result in higher penalties, depending on tion in progress. the actual performance of jointly-owned nuclear units in which ACE has an ownership interest.

Increased Preferred Stock Divi.dend Requirements for 1990 reflect the issuance in July of 500,000 shares of $8.20 No The financial performance of ACE also will be affected in the Par Preferred Stock, and for 1989 reflect the issuance in future by the level of sales of energy and the impacts of regu-September 1988 of 600,000 shares of $8.53 No Par lation. In September 1990, ACE filed a request for a $113 .0 Preferred Stock. These increased requirements were offset in million increase in base rates. A decision on the request is part by the effects of sinking fund payments for the 9.96% expected in the second half of 1991 . The amount earned on and $8.25 Series of Preferred Stock in each of the three years, capital investments by the utility is subject to general busi-and in 1989 and 1988 for the $9.45 No Par Preferred Stock. ness conditions and regulation. Other issues which may Embedded cost of Preferred Stock was 7.7% at December 31 , impact the electric utility business include public health, 1990, and 7.5% at December 31 , 1989 and 1988. safety and envi.ronmental legislation.

OUTLOOK Recent Federal legislation has served to encourage the devel-The nature of the electric utility business is capital intensive. opment of electric generating facilities by nonutilities.

ACE's ability to generate cash flows from operating activi.ties Development of several such projects is currently underway and its continued access to the capital markets is affected by in ACE'.s servi.ce territory. It is estimated that , if all such the timing and adequacy of rate relief, competition and the projects were to be completed, by 1994 these projects could economic vi.tality of its servi.ce territory. displace the equivalent of 5.5% and 3.9% of 1990 kilowatt-hour sales and revenues , respectively. That effect could be Income of ACE has been and may continue to be affected by offset to some extent by natural growth in the servi.ce terri-the operational performance of nuclear generating facilities . tory and additional efforts by ACE to reduce the impact of a In July 1990, the BPU revi.sed the nuclear performance stan-for electric utilities under ltS JUrisd1ction. These are the potential loss of kilowatt-hour sales and revenues. As a result of economic conditions in the servi.ce territory,

. wns of kilowatt-hours 7% 15%

• 6% 3%

10% 1% 10%

11 % 10% 2%

3% 29% 4%

27% 38%

2% 11 % ...

6 ... .

i6%

31%

35 %

56% 51%

+

45 % 41 %

42 %

2 0

86 87 88 89 90 Atlantic Electric Total Sources and Costs of Energy

'86 '87 '88 '89 '90 in cents per kilowatt-hour 2.48 3.07 3.40 2.86 1.59.

• INTERCHANGE 3.80 3 .55 4.77 3.35 3.21

• NATURAL GAS 4.09 3 .47 3.43 3.46 4.65 . OIL 0.93 0.89 0.87 0.83 . NUCLEAR 1.85 2.05 2.09 2.06 . COAL 1.81 1.92 1.99 1.96 1.66 YEARLY AVERAGE For each of the last fi ve years, coal and nuclear Juel sources combined have produced 75% of Atlantic Electric's total energy requirements. These fu els are produced within the United States and are the most inexpensive compared to other f uels.

• Includes purchased power f rom PE Management's Discussion and r\nalysis of financial Condition and Results of Operation Atlantic En"'X)', Inc. and Subsidiaries ACE estimates that the rate of growth of overall sales of ener- could be substantial, and would require extended outage.

gy will be slower than that experienced in recent years, the upon completion of construction in order to be integrated extent of which presently is not determinable. The amount with the existing systems.

and timing of ACE's projected construction program is premised on the availability of generating capacity from Certain accounting standards applicable to the Company nonutility sources described above. If for any reason these have been issued by the Financial Accounting Standards projects are delayed or do not materialize, or if load growth Board but not yet adopted by the Company. One standard, is greater than estimated, it may become necessary for ACE effective in 1992, relates to the accounting for income taxes to increase its construction program. Such an increase would and is not expected to have a material effect on the results of put additional burdens on ACE to generate cash from opera- operations or financial position. Another standard, effective tions and on ACE's financing programs. in 1993, relates to the accounting for post-retirement bene-fits other than pensions and will significantly increase the Amendments to the Clean Air Act enacted in 1990 relating annual costs of benefits recognized in future years over the to acid rain and limitations on emissions at electric generat- amount currently recognized. This impact should be less-ing plants will require modifications at certain of ACE's facil- ened by continued contributions to the trusteed plan as well ities, and compliance will cause ACE to incur additional as through rate regulation.

operating and/or capital costs, the exact extent of which has INFLATION not yet been determined .

Inflation affects the level of operating expenses and also the The New jersey Department of Environmental Protection cost of new utility plant placed in service. Traditionally, the (NJDEP) has proposed modifications to certain environ- rate making practices that have applied to ACE have involved mental permits at the Salem Nuclear Generating Station. the use of historical test years and the actual cost of utility The Salem owners have opposed these modifications. plant. However, the ability to recover increased costs through Compliance with the NJDEP proposed modifications would rates, whether resulting from inflation or otherwise, depends require the construction of cooling towers, at costs which upon the frequency, timing and results of rate case decisions.

Report of the Audit Commillee Atlantic En"'X)', Inc. and Subsidiaries The Audit Committee of the Board of Directors is composed ments and the adequacy of the Company's internal control solely of independent directors. The members of the Audit structure with the independent public accountants. The Committee are: Richard B. McGlynn, Chairman, Jos. Michael Committee met regularly with the Company's internal audi-Galvin, Jr., Gerald A. Hale, Matthew Holden, Jr., Madeline tors and independent public accountants, without manage-H. McWhinney and Harold]. Raveche. The Committee held ment present, to discuss the results of their examinations, six meetings during fiscal year 1990. their evaluations of the Companys internal control structure and the overall quality of the Companys financial reporting.

The Audit Committee oversees the Companys financial The meetings also were designed to facilitate any private reporting process on behalf of the Board of Directors. In ful- communication with the Committee desired by the internal filling its responsibility, the Committee recommended to the auditors or independent public accountants.

Board of Directors, subject to shareholder ratification, the selection of the Company's independent public accountants.

The Audit Committee discussed with the internal auditors and the independent public accountants the overall scope and specific plans for their respective audits. The Committee also discussed the Company's consolidated financial state- Richard B. McGlynn Chairman, Audit Committee Report ol Management

. nergy, Inc. and Subsidiari£s REPORT OF MANAGEMENT The management of Atlantic Energy, Inc. and it subsidiaries ness of reported operating results and financial condition.

is responsible for the preparation of the financial statements Their examination is based on procedures believed by them presented in this Annual Report. The financial statements to provide reasonable assurance that the financial statements have been prepared in conformity with generally accepted are not misleading and includes a review of the Companys accounting principles. In preparing the financial statements, internal control structure and tests of transactions.

management made informed judgments and estimates, as The internal auditing function conducts audits and necessary, relating to events and transactions reported.

appraisals of the Companys accounting and other opera-Management is also responsible for the preparation of other tions , and evaluates the financial and operational control financial information included elsewhere in this Annual procedures which have been established, and compliance Report.

with those procedures. Both Deloitte & Touche and the Management has established a system of internal accounting internal auditors periodically make recommendations con-and financial controls and procedures designed to provide cerning the Company's internal control structure, and man-reasonable assurance as to the integrity and reliability of agement responds to such recommendations as appropriate financial reporting. This system is examined by management in the circumstances. None of the recommendations made on a continuing basis for effectiveness and efficiency. for the year ended December 31 , 1990 represented signifi-Management believes that , as of December 31 , 1990, the cant deficiencies in the design or operation of the Companys system of internal accounting and financial controls is ade- internal control structure.

quate to accomplish its objectives. Management also recog-nizes its responsibility for fostering a strong ethical climate in which the Companys affairs are conducted according to the highest standards of corporate conduct. This responsibil-ity is characterized and reflected in the Company's code of J.L.Jacobs et and business conduct policy. President ncial statements have been audited by Deloitte &

e, Certified Public Accountants. The auditors provide an objective, independent review as to management's dis- J. G. Salomone charge of its responsibilities insofar as they relate to the fair- Vice President and Treasurer Independent Auditors* Report Atlantic Energy, Inc. and Subsidiari£S Deloitte& Certified Public Accountants Touche One World Trade Center New York, New York 10048 To the Shareholders and the Board of Directors evidence supporting the amounts and disclosures in the of Atlantic Energy, Inc.: financial statements. An audit also includes assessing the accounting principles used and significant estimates made We have audited the accompanying consolidated balance by management, as well as evaluating the overall financial sheets of Atlantic Energy, Inc. and subsidiaries as of statement presentation. We believe that our audits provide a December 31, 1990 and 1989 and the related consolidated reasonable basis for our opinion.

statements of income , changes in common shareholders' equity, and of cash fl ows for each of the three years in the In our opinion, such consolidated financial statements pre-period ended December 31 , 1990. These financial statements sent fairly, in all material respects , the financial position of are the responsibility of the Company's management. Our Atlantic Energy, Inc. and its subsidiaries at December 31, responsibility is to express an opinion on these financial 1990 and 1989 and the results of their operations and their nts based on our audits. cash flows for each of the three years in the period ended December 31 , 1990 in conformity with generally accepted

• ducted our audits in accordance with generally accounting principles.

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, January 31 , 1991 Consolidated Statement ol Income Atlantic Energy, Inc. and Subsidiaries For the Years Ended December 31 Thousands of Dollars 1~90 1989 1988 Operating Revenues-Electric $716,779 $705,020 $675,859 Operating Expenses:

Energy:

Fuel 134,493 149,808 145,225 Interchange 6,799 17,312 18,138 Deferred Costs 20,136 6,604 (3,838)

Net Energy Costs 161,428 173,724 159,525 Operations 190,951 167,435 162,362 Maintenance 52,351 55,203 59,649 Depreciation and Amortization 62,141 58,485 54,799 Gross Receipts and Franchise Taxes 87,314 83,396 80,556 Federal Income Taxes 26,917 22,865 26,471 Other Taxes 11,115 9,167 9,718 Total Operating Expenses 592,217 570,275 553,080 Operating Income 124,562 134,745 122,779 Other Income:

Allowance for Equity Funds Used During Construction 1,727 359 Miscellaneous Income-Net 7,585 5,450 4,362 Total Other Income 9,312 5,450 Income Before Interest Char es 133,874 140,195 12 Interest Charges:

Interest on Long Term Debt 54,803 47,131 44,506 Interest on Short Term Debt 1,510 5,231 4,958 Other Interest Expense 109 909 2,723 Total Interest Charges 56,422 53,271 52,187 Allowance for Borrowed Funds Used During Construction (2,226) (2,805) (2,823)

Net Interest Charges 54,196 50,466 49,364 Preferred Stock Dividend Requirements of Subsidiary (10,799) (8,765) (5,965)

Net Income $ 68,879 $ 80,964 $ 72,171 Average Number of Shares of Common Stock Outstanding (in thousands) 22,795 21,634 19,593 Per Common Share:

Earnings $3.02 $3.74 $3.68 Dividends Declared $2.94 $2.85 $2.74 Dividends Paid $2.92 $2.82 $2.77 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

. tic

( onsolidatcd Statement of Cash rim\ s Energy, Inc. and Subsidiaries For the Years Ended December 31 Thousands of Dollars 1990 1989 1988 Cash Flows Of Operating Activities:

Net Income $ 68,879 $ 80,964 $ 72,171 Deferred Purchased Power Costs (21,840) (19,660) (18,110)

Deferred Energy Costs 20,136 8,560 (3,838)

Noncash items affecting operating activities:

Preferred Stock Dividend Requirements of Subsidiary 10,799 8,765 5,965 Depreciation and Amortization 62,141 58,485 54,799 Allowance for Funds Used During Construction (3,953) (2,805) (3,182)

Investment Tax Credit Adjustments-Net (2,349) (2,449) (217)

Deferred Income Taxes-Net 15,177 17,616 14,642 Net Decrease (Increase) in Other Working Capital 11,669 (18,880) (2,591)

Other-Net 1,290 902 4,939 Net Cash Provided by Operating Activities 161,949 131 ,498 124,578 Cash Flows Of Investing Activities:

Utility Cash Construction Expenditures (166,818) (145,081) (127,099)

Leveraged Lease Investments 3,993 (27,777) (32,615)

Leased Property (10,576) (9,229) (5,144)

Nuclear Decommissioning Trust Fund Deposits (1,920) (3,263) (5,561)

Nonutility Property and Equipment (129) (3,536) (4,214) oval Costs (3,912) (4,286) (8,963) r-Net (4,200) (4,548) 708 t Cash Used by Investing Activities (183,562) (197,720) (182,888)

Cash Flows Of Financing Activities:

Proceeds from Long Term Debt 150,183 26,500 Retirement and Maturity of Long Term Debt (28,625) (15,998) (10,000)

Increase (Decrease) in Short Term Debt 43,950 (61,000) (2,700)

Proceeds from Capital Lease Obligations 10,576 9,229 5,144 Common Stock Issued 15,106 81 ,244 54,563 Preferred Stock Issued 50,000 60,000 Redemption of Preferred Stock (1,050) (4,050) (5,050)

Dividends on Preferred Stock (10,799) (8,765) (5,965)

Dividends on Common Stock (67,085) (62,395) (54,455)

Other-Net (4,329) (4,044) 90 Net Cash Provided by Financing Activities 7,744 84,404 68,127 Net Increase (Decrease) in Cash and Temporary Investments (13,869) 18,182 9,817 Cash and Temporary Investments, beginning of year 37,539 19,357 9,540 Cash and Temporary Investments, end of year $ 23,670 $ 37,539 $ 19,357 Supplemental Schedule of Payments:

Interest $ 58,080 $ 52,817 $ 48,922 Federal income taxes $ 19,279 $ 14,284 $ 10,822 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements .

Consolidated Balance Sheet Allanlic Energy, Inc. and Subsidiaries December 31 Thousands of Dollars 1990 1989 Assets Electric Utility Plant:

In Service:

Production $ 953,342 $ 897 ,238 Transmission 281,431 268,258 Distribution 494,807 454,819 General 119,892 104,962 Total In Service 1,849,472 1,725 ,277 Less Accumulated Depreciation 504,202 459 ,223 Net 1,345,270 1,266,054 Construction Work in Progress 114,622 81,240 Land Held for Future Use 5,073 6,459 Leased Property-Net 57,971 33,146 Electric Utility Plant- Net 1,522,936 1,386,899 Nonutility Property and Investments:

Investment in Leveraged Leases 75,156 73 ,217 Nuclear Decommissioning Trust Fund 11,784 9,235 Non utility Property and Equipment-Net 15,003 15,336 Other Investments and Funds 7,425 7,463 Total Nonutilit Pro ert and Investments 109,368 105 Current Assets:

Cash and Working Funds 18,670 15,189 Temporary Cash Investments 5,000 22,350 Accounts Receivable:

Utility Service 48,461 53 ,062 Miscellaneous 17,767 13,067 Allowance for Doubtful Accounts (2,000) (1 ,800)

Unbilled Revenues 34,849 38,904 Fuel (at average cost) 26,262 21 ,776 Materials and Supplies (at average cost) 28,221 31 ,404 Prepayments 12,113 13,694 Deferred Taxes 7,476 Deferred Energy Costs 8,725 Total Current Assets 196,819 216,371 Deferred Debits:

Property Abandonment Costs 9,443 10,287 Unrecovered Purchased Power Costs 124,880 103,040 Deferred Energy Costs 10,360 10,360 Unamortized Debt Costs 22,379 22,537 Other 9,825 9,716 Total Deferred Debits 176,887 155,940 Total Assets $2,006,010 $1,864, The accompanying Notes to Consolidated Financial Statements are an integral pan of these statements.

• Thousands of Dollars Liabilities and Capitalization Capitalization:

Common Shareholders' Equity:

1990 December 31 1989 Common Stock, no par value; 50,000,000 shares authorized $ 436,343 $ 421,237 Retained Earnings 223,749 222,163 Total Common Shareholders' Equity 660,092 643 ,400 Preferred Stock of Atlantic Electric:

Not Subject to Mandatory Redemption 40,000 40,000 Subject to Mandatory Redemption 122,350 73 ,400 Long Term Debt 575,577 606,379 Total Capitalization 1,398,019 1,363,179 Current Liabilities:

Preferred Stock Redemption Requirement 1,050 1,050 Long Term Debt due within one year 48,900 44,500 Capital Lease Obligations due within one year 686 636 t Term Debt 43,950 unts Payable 61,890 46,877 es Accrued 10,776 10,224 Interest Accrued 13,128 13,399 Dividends Declared 20,127 18,357 Customer Deposits 2,777 2,773 Deferred Taxes 880 Deferred Energy Costs 11,412 Other 20,997 27 ,813 Total Current Liabilities 235,693 166,509 Deferred Credits and Other Liabilities:

Deferred Investment Tax Credits 61,597 63 ,946 Deferred Income Taxes 236,068 212 ,535 Obligations under Capital Leases 57,285 32 ,510 Other 17,348 25,782 Total Deferred Credits and Other Liabilities 372,298 334 ,773 Commitments and Contingent Liabilities (Note 10) al Liabilities and Capitalization $2,006,010 $1,864 ,461

( un...,ul1datcd '-,Utcrncnt ul ( hangco.., in Curnnwn ._,harchuldrr< rqu1t\

Atlantic Energy, Inc. and Subsidiaries Common Thousands of Dollars Shares Stock Balance, December 31, 1987 18,346,519 $285,430 $186,294 Common stock issued:

Public offerings 1,300,000 42,551 Other 365,042 12,012 Net income 72,171 Capital stock expense of subsidiary (416)

Common stock dividends (54,455)

Balance, December 31, 1988

• 20,011,561 339,993 203,594 Common stock issued:

Public offerings 2,200,000 69,730 Other 334,156 11,514 Net income 80,964 Common stock dividends (62,395)

Balance, December 31, 1989 22,545,717 421,237 222,163 Common stock issued 430,271 15,106 Net income 68,879 Capital stock expense of subsidiary (208)

Common stock dividends (67 ,085)

Balance, December 31, 1990 22,975,988 $436,343 $223,749 As of December 31, 1990, there were 50 million shares Plan (DRP) and ACE employee benefit plans. At December authorized of no par value Common Stock. Common Stock 31, 1990, 575 ,751 and 81,384 shares were reserved for issued during 1990, and other issuances in 1989 and 1988, issuance under the DRP and ACE employee benefit plans, were for the Dividend Reinvestment and Stock Purchase respectively.

The accompanying Notes to Consolidated Financial Statements are an integral pan of these statements.

Notes to Consolidated Financial Statements ntic Energy, Inc. and Subsidiaries NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Organization Electric Utility Plant Atlantic Energy, Inc . (the Company) is the parent of a con- Property is stated at original cost. Generally, the plant is sub-solidated group consisting of the following wholly-owned ject to a first mortgage lien. The cost of property additions, subsidiaries: Atlantic City Electric Company (ACE), Atlantic including replacement of units of property and betterments, Generation, Inc. (AGI), Atlantic Southern Properties, Inc. is capitalized. Included in certain property additions is an (ASP) and ATE Investment, Inc. (ATE). ACE is a public util- Allowance for Funds Used During Construction (AFDC) ity primarily engaged in the generation, transmission, distri- which is defined in the applicable regulatory system of bution and sale of electric energy. Rates for service are accounts as the cost during the period of construction of regulated by the New Jersey Board of Public Utilities (BPU) . borrowed funds used for construction purposes and a rea-ACE's service territory encompasses 2,700 square miles sonable rate on other funds when so used. AFDC has been within the southern one-third of New Jersey. The majority of calculated using a semi-annually compounded rate of ACE's customers are residential and commercial. ACE, with 8.95%, as approved by the BPU, for the years presented.

its wholly-owned subsidiary that operates certain generating Deferred Energy Costs and Revenues facilities, is the primary company within the consolidated As approved by the BPU, ACE has Levelized Energy Clauses group. AGI and its wholly-owned subsidiaries are engaged which are based on projected energy costs and include pro-in the development of cogeneration power projects through visions for prior period underrecoveries or overrecoveries.

various partnership arrangements. ASP owns, develops and The recovery of energy costs is made through levelized rates manages a commercial office and storage facility located in over the period of projection. Any underrecovery or over-southern New Jersey. The operations of ATE are predomi-recovery of costs is deferred in balance sheet accounts as an nately investments in leveraged leases for property used in asset or liability as appropriate. These deferrals are recog-the airline and shipping industries.

nized in the Consolidated Statement of Income during the "nciples of Consolidation period in which they are subsequently recovered through consolidated financial statements include the accounts the clauses.

e Company and its subsidiaries. All significant inter- Depreciation company accounts and transactions have been eliminated in ACE provides for straight-line depreciation based on the consolidation. AGI accounts for its partnership investments estimated remaining life of transmission and distribution using the equity method by recognizing its proportionate property, and based on the estimated average service life for share of the results of operations of the partnerships. The all other depreciable property. Depreciation applicable to results of operations of the nonutility companies are not sig-certain nuclear plant includes amounts provided for decom-nificant and are classified under Other Income in the missioning. The overall composite rate of depreciation was Consolidated Statement of Income.

approximately 3.6% in each of the years presented.

Regulation Accumulated depreciation is charged with the cost of depre-The accounting policies and rates of ACE are subject to the ciable property retired together with removal costs less sal-regulations of the BPU and in certain respects to the Federal vage and other recoveries. Depreciable property of the Energy Regulatory Commission (FERC). All significant nonutility companies is insignificant.

accounting policies and practices used in the determination Nuclear Fuel of rates are also used for financial reporting purposes.

Fuel costs associated with ACE'.s participation in jointly-Electric Operating Revenues owned nuclear generating stations, including spent nuclear Revenues are recognized when electric energy services are fuel disposal costs, are charged to Fuel Expense based on rendered, and include estimates for amounts unbilled at the the units of thermal energy produced.

end of the period for energy used subsequent to the last billing cycle .

Notes to Consolidated Financial Statements Atlantic Energy, Inc. and Subsidiaries Income Taxes Unrecovered Purchased Power Costs Deferred Federal and State income taxes are provided on all ACE has agreements for the purchase of 125 megawatts significant current transactions for which the timing of (MW) of capacity and related energy from Pennsylvania reporting differs for book and tax purposes. Investment tax Power and Light Company (PP&:L) under two Capacity and credits from utility property, which are used to reduce cur- Energy Sales Agreements (the PP&:L Agreements). The PP&:L rent Federal income taxes , are deferred on the Consolidated Agreements provide for the purchase of capacity and energy Balance Sheet and recognized in book income over the life of from PP&:L'.s Susquehanna nuclear Unit 1 and Unit 2 the related property. The Company and its subsidiaries file a through September 30, 1991, and then from certain PP&:L consolidated Federal income tax return. Income taxes are coal-fired units through September 30, 2000. Through allocated to each of the companies within the consolidated September 30, 1991, the estimated costs to be incurred for group based on the separate return method. purchases of capacity and associated energy from the Property Abandonments and Disallowances of Plant Costs Susquehanna units will exceed the levelized costs to be recovered from customers. As authorized by the BPU, such A loss is recognized if the carrying amounts of abandoned unrecovered costs are being accumulated and deferred as utility assets exceed the present value of future revenues to Unrecovered Purchased Power Costs. Related deferred taxes be generated by those assets. Any disallowance of the cost of have been provided. The level of rates approved by the BPU a newly completed utility plant, including an indirect disal- is designed to recover these deferred costs and associated lowance which provides no return on investment of any por-carrying charges during the balance of the contract period.

tion of the plant, is recognized as a loss. Differences between the actual costs incurred and those esti-Property Abandonment Costs, which are stated at their net mated in the agreements are subject to recovery under usual present value on the Consolidated Balance Sheet, consist of cost recovery procedures.

ACE's investment in the following as of December 31, 1990:

Nuclear Decommissioning Trust Remaining Recovery Unamortized ACE established a trust to fund the future decommissioni Investment Period (years) Cost ($000) costs related to the nuclear units in which it has an owner Offshore Nuclear ship interest. Funding is based upon estimates and forecasts Generating Units $1,729 of decommissioning costs. ACE has received favorable Nuclear Generating Unit 6,261 Internal Revenue Service (IRS) rulings that the current fund-Unrecovered Nuclear ings of the trust are deductible for Federal income tax pur-Fuel Advances 3,559 poses. ACE has deposited $10.7 million into the trust fund Proposed Plant balance of $11.8 million at December 31, 1990, with the Site costs 3,113 difference representing net earnings of the trust. In accor-dance with a BPU approved stipulation, ACE is required to Out of an investment level fixed by the BPU for ratemaking deposit an additional $9.2 million by 1993. This represents purposes of $217.4 million associated with the construction the amounts previously collected from customers and pro-of the Hope Creek Generating Station, $3 .4 million are vided for, but not yet funded.

excluded from rate base for purposes of computing a return Other on the investment.

Debt premium, discount and expenses of ACE are amortized Since no return on these costs was granted by the BPU, the over the life of the related debt. Costs associated with debt excess of the carrying value of the assets over their discounted reacquired by refundings are amortized over the life of the present value was recognized as a loss at the date of abandon- newly issued debt as permitted by the BPU in accordance ment. Such discount is being restored to income by accretion with FERC guidelines. Temporary investments considered as over the amortization period allowed for ratemaking. cash equivalents for Consolidated Statement of Cash Flows purposes represent purchases of highly liquid debt instru-ments maturing in three months or less.

Certain prior year amounts have been reclassified to con-form to the current year reporting.

NOTE 2 . FEDERAL INCOME TAXES Years Ended December 31

($000) 1990 1989 1988 The components of Federal income tax expense are as follows:

Current $ 16,652 $ 9,711 $ 11,483 Deferred 12,292 14,554 14,677 Investment Tax Credits Recognized on Leveraged Leases (752) (1,000) (727)

Total Federal Income Tax Expense 28,192 23,265 25,433 Less Amounts Included in Other Income 1,275 400 (1,038)

Federal Income Taxes Included in Operating Expenses $ 26,917 $ 22,865 $ 26,471 Deferred Federal income taxes result from the following :

Liberalized Depreciation $ 11,156 $ 9,564 $ 12,096 Unbilled Revenues (2,848) (2,848) (2,848)

Unrecovered Purchased Power Costs 5,845 5,104 4,577 Deferred Energy Costs (5,781) (2,750) (36)

Costs Associated with Reacquired Debt (409) (1,089) (1,195)

Leveraged Leases 7,932 10,279 3,582 Deferred Investment Tax Credits (2,349) (2,449) (217)

Other-Net (1,254) (1,257) (1,282)

Deferred Federal Income Tax Expense $ 12,292 $ 14,554 $ 14,677 A reconciliation of the reported Federal income tax expense compared to the expected Federal income taxes computed by applying the statutory rate follows:

Net Income $ 68,879 $ 80,964 $ 72,171 Preferred Stock Dividend Requirements of Subsidiary 10,799 8,765 5,965 Federal Income Tax ExEense (as below) 28,192 23,265 25,433 Book Income Subject to Tax $107,870 $112,994 $103,569 Statutory Federal Income Tax Rate 34% 34% 34%

Income Tax Computed at the Statutory Rate $ 36,676 $ 38,418 $ 35,213 Items for which deferred taxes are not provided:

Difference Between Tax and Book Depreciation 4,661 2,437 591 Investment Tax Credits (3,277) (3,519) (3 ,257)

Reversal of Excess Deferred Taxes (5,678) (5,934) (5,578)

Removal Costs (2,245) (2,659) (3,874)

Other-Net (1,945) (5,478) 2,338 Total Federal Income Tax Expense $ 28,192 $ 23,265 $ 25,433 Effective Federal Income Tax Rate 26% 21% 25%

Notes to Consolidated Financial Statements Allantic Energy, Inc. and Subsidiaries In 1990 and 1989 the Company'.s computed Alternative for these years will not have a material adverse effect on its Minimum Tax (AMT), attributable to nonutility operations, results of operations or financial position.

exceeded its regular tax by $9.4 million and $5 .9 million, The Financial Accounting Standards Board (FASB) issued a respectively. This results in a cumulative AMT credit at statement entitled "Accounting for Income Taxes" which was December 31 , 1990 of $15 .3 million. The AMT credit is originally effective for years after 1989. The statement available for indefinite carryforward against future tax changes the recording methodology relating to deferred payable, to the extent that the regular tax payable exceeds income taxes to a liability approach. The principal impacts future AMT payable. to the Company relate to the recording, on a current basis, At December 31 , 1990, the cumulative amount of deferred of changes in tax rates and the recording of deferred tax lia-Federal income taxes which have not been provided on tim- bilities not previously recorded by ACE. The FASB currently ing differences, principally depreciation, amounted to is reexamining certain provisions contained in the original approximately $50 million. statement and in so doing has delayed its application until Federal income tax returns for 1983 and prior years have 1992. The Company expects the impacts of this change to been examined by the IRS. The IRS has proposed certain be lessened due to rate regulation. In the opinion of manage-deficiencies in taxes for 1980 through 1983. The Company ment, the impacts of the final provisions are not expected to has protested the proposed deficiencies and is of the opinion have a material effect on results of operations or financial that the final settlement of its Federal income tax liabilities position.

NOTE 3. RATE MATTERS OF ACE Energy Clause Proceedings ACE requested that such deferrals be considered in conn ACE's energy clauses are subject to annual review by the tion with the next change in energy clause rates but not later BPU. than January 1, 1990. In January 1989, ACE amended its In March 1988, the BPU authorized an increase in annual petitions to request a net increase in energy revenues of $9 .3 energy clause revenues , effective April 1988, of $62 .1 mil- million. Contained in these amended petitions was an alter-lion. The increase is net of a reduction of $5 .4 million in native for energy clause rates to utilize a cost basis of 18 revenue resulting from the disallowance of $4 .8 million of months rather than the usual 12 months. This alternative replacement energy costs due to the application of the BPU would produce a net increase of $4.5 million in annual mandated nuclear performance standard for 1987. This net energy clause revenues. The petitions also provided for a increase was compressed into the remainder of 1988. reduction in revenue of $5 .3 million for the application of the nuclear performance standard regarding 1988 nuclear In September 1988, ACE filed petitions with the BPU seek- operations disallowing the recovery of $4.6 million of ing to continue its existing energy clauses through 1989. replacement energy costs from customers. Earnings for 1988 Although ACE's petitions supported alternative rates that were reduced by a provision in the amount of such disal-would increase energy clause revenues by $9 .3 million, the lowance. An initial decision of the Administrative Law Judge petitions requested deferral of a sufficient level of prior rendered in June 1989 approved the 18-month period and period underrecovered fuel costs to maintain existing rates. found that certain capacity costs requested to be collected in

• energy clause revenues are more appropriately recovered through base rates. This decision also recommended a five-approval to defer the costs not covered by the provisional rates. In December 1990, the BPU rendered an oral decision year amortization of unrecovered deferred energy costs denying ACE'.s motion.

related to certain generator outages at the Salem Nuclear In March 1990, ACE filed proposed LEC tariffs with the BPU Generating Station. for the period June 1, 1990 through May 31 , 1991 , which In January 1990, ACE and other parties signed a joint posi- reflected the terms of the joint position discussed above. As tion which included recommendations designed to settle a result of the May 1990 BPU action, in June 1990 ACE certain contested issues in the proceeding. The joint position amended its request to provide for a decrease in annual LEC provided for an increase in annual base rate revenues of revenues of $26.2 million. This request included recovery

$41.6 million for ACE's four-year power purchase agreement over three years of the Salem costs deferred since 1984 of 200 MW of capacity and associated energy from amounting to $10.4 million, recovery of interest associated Philadelphia Electric Company (PE). Coincident with the with certain overrecovery and underrecovery issues which base rate increase, energy clause revenues were to be previously had been paid to customers and retention of a decreased by a like amount. A level of PE capacity costs in portion of the fuel and energy savings associated with the PE excess of those recovered through the base rate increase power purchase agreement. In June 1990, the BPU approved would have been deferred and recovered through the energy an interim net decrease in LEC revenues of $35.8 million clause over successive three-year periods commencing June effective June 20, 1990. The BPU has transferred the pro-1, 1991 . ACE also agreed that it would not, except under ceeding to the Office of Administrative Law for hearings certain circumstances, further increase base rates before regarding the ratemaking treatment of the Salem deferred October 1, 1992. The BPU approved a motion by ACE to costs, certain interest calculations on overrecoveries and reopen the record in the proceeding to accept additional evi- underrecoveries and ACE's proposal to retain a portion of dence as presented by the joint position. the fuel savings associated with the PE agreement. ACE at ay 1990, the BPU announced that it was rejecting the this time cannot predict the final determination of these t position, ruling that the capacity costs associated with issues.

t e PE purchase were reasonable , but only would be consid- Base Rate Case Proceedings ered within a formal base rate proceeding. ACE was granted The BPU in April 1988 ordered a decrease in base rates of a provisional base rate increase of $41. 6 million effective $21.8 million primarily to reflect the lower corporate June 1, 1990. The provisional base rate increase was imple- Federal income tax rates effective in 1988 resulting from the mented June 20, 1990 and $17.9 million of such revenue Tax Reform Act of 1986.

has been recognized through December 31, 1990. Capacity costs including those not covered by the provisional rates are In compliance with the May 1990 BPU provisional rate being charged to operating expenses as incurred. Through order discussed under 'Energy Clause Proceedings', in December 31 , 1990, $27.5 million of PE capacity costs have September 1990, ACE filed a petition with the BPU request-ing an increase in base rate revenues of $112 .989 million on been charged to operations. A motion to the pending base rate case proceeding, as discussed below under 'Base Rate an annual basis. ACE requested that the increase become Case Proceedings', was filed in November 1990 seeking BPU Notes to Consolidated Financial Statements Atlantic Energy, Inc. and Subsidiaries effective no later than July 1, 1991. Additionally in this fil- for 1989. This stipulation provided for an initial revenue ing, ACE requested that the $41.6 million provisional base credit to ACE's customers of $5 .7 million that was applied in rate revenue increase granted by the BPU effective June 20, April 1989 and covered 12 unit-months of nonoperation.

1990, as discussed in 'Energy Clause Proceedings', be con- Any additional unit-month of nonoperation would result in firmed and continued in permanent rates. Also, ACE has an additional revenue credit of $750,000 and would be requested recovery of the first year costs of the PE agreement applied to customers' future bills.

not covered by the provisional increase, plus full recovery of PE received approval from the NRC in April 1989 to restart the costs for the remaining three years of the agreement. In Peach Bottom Unit 2. In July 1989, the unit was considered its filing, ACE is seeking to increase its net rate base by an to have returned to commercial operation in accordance additional $400 million and has requested an overall rate of with the provisions of the stipulation. In October 1989, the return of 11 .13% and a return on common equity of 13.7%. NRC lifted its March 1987 shutdown order permitting PE to ACE currently has an authorized overall return of 11. 4 2 % operate both units under normal NRC regulations and and a return on common equity of 14.1 %. Hearings are review. In December 1989, Unit 3 was connected to the scheduled for April, May and June 1991, with a decision Pennsylvania-New Jersey-Maryland Interconnection. In expected in the second half of 1991 . January 1990, Unit 3 was considered to have returned to Other Rate Proceedings commercial operation.

ACE is a 7.51 % owner of the Peach Bottom Atomic Power Under the terms of the stipulation, in November 1989, Station, which is operated by PE. The units were ordered ACE's customers received revenue credits of $2 .0 million for shut down by the Nuclear Regulatory Commission (NRC) in the nonoperation of Unit 3 during July, August and March 1987 and could not be restarted without their September. In February 1990, ACE provided customers with approval. Proceedings were initiated before the BPU to additional revenue credits of $1 .8 million for the nonopera-determine whether the base rate revenues stemming from tion of Unit 3 during October, November and December the investment in the station should be made interim and 1989, satisfying the terms of the stipulation. Provisions f subject to refund to customers while the units were out of the above credits were made against 1989 earnings.

operation under the NRC order. In February 1988, the BPU In July 1990, the BPU revised certain aspects of its nuclear ruled that base rate revenues of $27.6 million associated plant performance standards, effective January 1, 1990. The with the Peach Bottom facilities were interim and subject to target capacity factor of 70% remains unchanged, but the refund pending the outcome of further investigations. In zone of reasonable performance has been narrowed to April 1988, the BPU approved a stipulation among ACE and between 65 % and 75%. Rewards and penalties, based on other affected parties resolving all matters related to the replacement power costs, are to be calculated to the bound-Peach Bottom NRC outages from March 31, 1987 through aries of the zone of reasonable performance with penalties December 31, 1988. The stipulation provided, among other calculated incrementally in steps. The revised standards are things, for a revenue credit to ACE's customers of $5.3 mil-to be incorporated in ACES tariffs for electric service, but the lion, which was given in June 1988.

performance standards will not apply to plants designated The Peach Bottom units continued to be out of operation at not used and useful. For 1990, the performance of ACE'.s December 31, 1988. In March 1989, the BPU approved a nuclear units was within the zone of reasonable performance.

stipulation which resolved rate treatment for Peach Bottom NOTE 4. RETIREMENT BENEFITS ACE and its subsidiary have a noncontributory defined ben- At December 31, 1990 approximately 60% of plan assets efit retirement plan covering substantially all their employ- were invested in equity securities, 23% in fixed income ees. Benefits are based on an employees years of service and securities and 17% in other investments.

average final pay. The companies' policy is to fund pension The assumed rates used in determining the actuarial present costs within the guidelines of the minimum required by the value of the projected benefit obligation at year end were as Employee Retirement Income Security Act, and the maxi- follows:

mum allowable as a tax deduction. Pension costs for 1990, 1990 1989 1989 and 1988 were $7.2 million, $6.8 million and $4.1 Weighted average discount 8.50% 8.25%

million, respectively. Approximately 70% of these costs were charged to operating expense and the remainder, which was Anticipated rate of increase associated with construction labor, was charged to the cost in compensation 6.00% 6.00%

of new utility plant. The assumed long term rate of return on plan assets was Net pension costs for 1990, 1989 and 1988 included the fol- 8.00% for 1990, 1989 and 1988.

lowing components: In addition to pension benefits, the companies provide cer-($000) 1990 1989 1988 tain health care and life insurance benefits for retired Service cost-benefits earned employees. Substantially all employees may become eligible during the period $ for these benefits if they reach retirement age while working

$ 6,843 6,094 $ 5,045 for the companies. Benefits are provided through insurance Interest cost on projected companies and other plan providers whose premiums and benefit obligation 16,179 14,294 12,053 related plan costs are based on the benefits paid during the year. ACE and its subsidiary established a qualified tax al return on plan assets 3,060 (34,648) (16,217) exempt trusteed plan in 1986 to fund these other postretire-red ain (loss) (18,755) 21,249 3,390 ment benefits. Funding on behalf of active employees is ExEected return on plan assets (15,695) (13 ,399) (12,827) based on the aggregate cost method over their service lives and is equivalent to normal cost. For current retirees, fund-Amortization of unrecognized ing is based on current actual experience and amortization net transitional asset (172) (172) (172) of expected benefits over the remaining life expectancy of Net periodic pension costs $ 7,155 $ 6,817 $ 4,099 the retiree group. The actuarial present value of accumulated other postretirement benefits under the plan was $45.2 mil-A reconciliation of the funded status of the plan as of lion and $41. 9 million at January 1, 1990 and 1989, December 31, 1990 and 1989 is as follows : respectively, notwithstanding the effects of new accounting

($000) 1990 1989 standards discussed below. The cost of these benefits was Fair value of plan assets $198 ,348 $3.5 million for 1990, $3.4 million in 1989 and $3 .2 mil-

$189,000 lion in 1988. The net asset value of the trust fund was Projected benefit obligation 204,314 186,610 approximately $8.7 million at December 31 , 1990 and $8.0 Plan assets (under) over million at December 31, 1989.

projected benefit obligation (15,314) 11,738 In December 1990, the FASB issued Statement of Financial Unrecognized net transitional Accounting Standards No. 106 entitled "Employers' asset (2,410) (2,583) Accounting for Postretirement Benefits Other Than Unrecognized net loss (gain) 19,178 (8,246) Pensions. " This statement requires employers to record the unfunded and unrecognized accumulated postretirement Prepaid pension cost $ 1,454 $ 909 benefit obligation immediately or, alternatively, on a delayed Accumulated benefit basis over the plan participants' future service periods. The obligation: statement is effective for ACE beginning in 1993. ACE believes that the annual costs recognized for other postretire-Vested benefits $158,473 $141 ,273 ment benefits, as defined by the FASB statement, will Non-vested benefits 3,111 3,000 increase significantly over current levels. Management

$161,584 $144,273 believes that the financial impact of these benefits will be lessened by continued contributions to the trusteed plan as well as through rate regulation.

Notes to Consolidated Financial Statements Atlantic Energy, Inc. and Subsidiaries NOTE 5.JOINTLY-OWNED GENERATING STATIONS ACE participates with other utilities in the construction and The amounts shown represent ACE's share of each plant at operation of several electric production facilities. December 31, including AFDC as appropriate.

Peach Hope Keystone Conemaugh Bottom Salem Creek Energy Source Coal Coal Nuclear Nuclear Nuclear Company's Share (%) 2.47 3.83 7.51 7.41 5.00 Electric Plant in Service ($000):

1990 9,507 15,435 112,902 182,316 230,677 1989 8,951 15,168 106,695 176,150 229 ,068 Accumulated Depreciation ($000):

1990 2,833 5,165 42,300 62,828 26,691 1989 2,652 4,590 38,071 55,293 19,193 Construction Work in Progress ($000) :

1990 381 436 5,089 5,109 1,863 1989 401 374 7,007 3,913 1,368 Operation and Maintenance Expenses (including fuel) ($000):

1990 4,855 8,358 27,340 19,154 8,458 1989 4,768 7,740 25,871 19,851 8,772 1988 5,017 8,421 25,697 21,966 8,668 Generation (MWH):

1990 276,080 448,978 1,062,569 837,486 404,084 1989 292,627 433,660 302,310 1,035,718 329 ,426 1988 298,785 469,092 991 ,322 347,570 ACE provides its own financing during the construction Generation in 1988 for Peach Bottom is zero because the sta-period for its share of the jointly-owned plants and includes tion was shutdown under order of the NRC (see Note 3).

its share of direct operations and maintenance expenses in the Consolidated Statement of Income.

NOTE 6. NONUTIUTY COMPANIES Assets of ASP consist primarily of a commercial real estate investments in leveraged leases which amount to approxi-site with a book cost at December 31 , 1990 and 1989 of mately $75 million and $73 million at December 31, 1990 approximately $15 million. Assets of AGI at December 31, and 1989, respectively. The combined results of operations 1990 and 1989, excluding accumulated equity in invest- of these companies for 1990, 1989 and 1988 were losses of ments, are represented by contributions, loans and advances $275,000 , $1.9 million and $2.0 million, respectively, net of to the partnerships amounting to approximately $15 million income tax benefits of $231,000, $738,000 and $1.7 mil-and $14 million, respectively. Assets of ATE primarily are lion, respectively.

NOTE 7. CUMULATIVE PREFERRED STOCK OF ACE ACE has authorized 799,979 shares of Cumulative Preferred Value. Information relating to outstanding shares at Stock, $100 Par Value, 2 million shares of No Par Preferred December 31 is shown in the table below.

Stock and 3 million shares of Preference Stock, No Par Current 1990 1989 Redemption Series Par Value Shares Amount ($000) Shares Amount ($000) Price Not Subject to Mandatory Redemption:

4% $100 77,000 $ 7,700 77,000 $ 7,700 $ 105.50 4.10% 100 72,000 7,200 72,000 7,200 101.00 4.35% 100 15,000 1,500 15,000 1,500 101.00 4.35% 100 36,000 3,600 36,000 3,600 101.00 4.75% 100 50,000 5,000 50,000 5,000 101.00 5% 100 50,000 5,000 50,000 5,000 100.00 7.52% 100 100,000 10,000 100,000 10,000 103.01 Total $ 40,000 $40,000 Subject to Mandatory Redemption:

9.96% $100 64,000 $ 6,400 72,000 $ 7,200 $ 104.26

$8.25 None 70,000 7,000 72 ,500 7,250 105.51 None 600,000 60,000 600,000 60,000 106.32 None 500,000 50,000 123,400 1,050

$122,350 Cumulative Preferred Stock Not Subject to Mandatory at a redemption price of $100 per share . At the option of Redemption is redeemable solely at the option of ACE. ACE , not more than an additional 120,000 shares may be On August 1 of each year, 8,000 shares of the 9.96% Series redeemed on any sinking fund date without premium.

must be redeemed through the operation of a sinking fund Refunding of this series is restricted prior to November 1, at a redemption price of $100 per share. ACE redeemed 1993 if the effective cost to ACE of any refunding issue is 8,000 shares in each of the years 1990, 1989 and 1988. less than specified rates.

On November 1 of each year, 2,500 shares of the $8.25 No In July 1990, ACE issued and sold 500,000 shares of $8.20 Par Preferred Stock Series must be redeemed through the No Par Cumulative Preferred Stock Series. Beginning August operation of a sinking fund at a redemption price of $100 1, 1996 and annually thereafter, 100,000 shares of this series per share. ACE may redeem not more than an additional must be redeemed through the operation of a sinking fund 2,500 shares on any sinking fund date without premium. at a redemption price of $100 per share . At the option of ACE redeemed 2,500 shares in each of the years 1990, 1989 ACE, not more than an additional 100,000 shares may be and 1988. redeemed on any sinking fund date without premium. Other than in connection with the sinking fund , this series is not On November 1, 1989, ACE redeemed the remaining redeemable prior to August 1, 2000, which is the calculated 30,000 shares of the $9.45 No Par Preferred Stock Series at retirement date of the series.

$100 per share through the regular operation of the sinking fund . The annual minimum sinking fund provisions of the above series aggregate $1.05 million in each of the years 1991

• nning November 1, 1994 and annually thereafter, through 1993 and $13.05 million in each of the years 1994 00 shares of the $8.53 No Par Preferred Stock Series and 1995.

be redeemed through the operation of a sinking fund Notes to Consolidated rinancial Statements Atlantic Energy, Inc. and Subsidiaries NOTE 8. LONG TERM DEBT Maturity December 31 Series Date 1990 1989

($000) long term debt of ACE consists of the following:

First Mortgage Bonds:

4 'Ii% March 1, 1991 $ 10,000 $ 10,000 4 1/2 % July 1, 1992 10,350 10,350 4 3/s % March 1, 1993 9,540 9,540 5 '/s % February 1, 1996 9,980 9,980 8% November 1, 1996 95,000 95,000 8 '/s % September 1, 2000 19,000 19,000 8% May 1, 2001 27,000 27,000 7 V2 % Aprill,2002 20,000 20,000 7 31. % June 1, 2003 29,976 29,976 7 '/s % Pollution Control January 1, 2005 6,500 6,500 6 3/s % Pollution Control December 1, 2006 2,500 2,500 11 5/s % Pollution Control Series A May 1, 2011 39,000 39,000 10 V2 % Pollution Control Series B July 15, 2012 850 850 7 3/s % Pollution Control Series A April 15,2014 18,200 18,200 10 V2 % Pollution Control Series C July 15, 2014 23,150 23,150 11 1/2% October 1, 2015 21,215 .

8 7/s % May 1, 2016 125,000 125,000 8 'I* % Pollution Control July 15, 2017 4,400 4,400 9 '!. % October 1, 2019 135,000 135,000 Total 585,446 606,661 Debentures:

5 %v. February 1, 1996 2,267 2,267 7 %v. May 1, 1998 2,619 2,619 Total 4,886 4,886 Unamortized Premium and Discount-Net (4,755) (5,168)

Total long Term Debt of ACE 585,577 606,379 Revolving Credit and Term loan of ATE May 31 , 1991 38,900 44 ,500 less portion due within one year 48,900 44,500 Total long Term Debt $575,577 $606,379 In October 1990, ACE reacquired the remaining $21.215 ATE has a revolving credit and term loan agreement million principal amount of First Mortgage Bonds, 11 V2% (Agreement) which provides for borrowings of up to $70 Series due 2015 at a price of 108.53% of principal. The million during successive revolving credit and term loan aggregate cost of this reacquisition was $1.5 million, net of periods. In accordance with provisions of the Agreement, the related income taxes. expiration of the revolving credit period was extended from Deposits in sinking funds for retirement of debentures are May 31 , 1990 to May 31, 1991. ATE may request a one year required on February 1 of each year through 1995 for the extension of the revolving credit period. Thereafter, the 5'1.% Debentures and on May 1 of each year through 1997 Agreement provides for repayment of borrowings in four for the 7V.% Debentures in amounts in each case sufficient equal semi-annual installments. Interest rates on borrowings to redeem $100,000 principal amount plus, at the election are determined with reference to periodic pricing options of ACE, up to an additional $100,000 principal amount in available under the facility. Interest rates on borrowings in each year. By December 31, 1990, ACE had reacquired and 1990 ranged from approximately 8.4% to 9.2 %.

cancelled $733 ,000 and $581,000 principal amount of the The aggregate amount of debt maturities, in addition to 5V.% and 7V.% Debentures, respectively, towards its require- sinking fund requirements, of all long term debt outstanding ments for 1991 and subsequent periods. at December 31 , 1990 are $48 .9 million in 1991, $10 .35 Regular redemption prices currently are in effect for each million in 1992 and $9.54 million in 1993. No outstanding series of first mortgage bonds, except for certain pollution long term debt matures in 1994 and 1995 .

control series for which redemption is restricted prior to specified dates. Also , certain pollution control series contain future sinking fund requirements. Redemption of certain series of the first mortgage bonds are restricted prior to spec-ified dates if the redemption is for the purpose of refunding at effective interest costs to ACE of less than specified rates.

ent sinking fund requirements of $500 ,000 in connec-with certain first mortgage bonds outstanding may be sfied by certification of property additions as provided for in the related mortgage indentures.

Notes to Consolidated Financial Statements Allan!ic Energy, Inc. and Subsidiaries NOTE 9. SHORT TERM DEBT AND COMPENSATING BALANCES As of December 31, 1990, ACE had bank lines of credit of which are not significant or legally restricted. ACE is in com-

$129 million, all of which were available for use. ACE is pliance with such compensating balance arrangements. With required, with respect to $9 million of these credit lines, to respect to the remaining available credit lines, ACE paid com-maintain average compensating balances in demand deposits mitment fees for which charges were not significant.

Short term debt outstanding at December 31 consisted of:

($000) 1990 1989 1988 Commercial Paper $43,950 $51,000 Notes Payable to Banks 10,000 Total $43,950 $61,000 Additional information regarding short term debt follows:

($000) 1990 1989 1988 For the year ended:

Maximum amounts of total short term debt at any month end:

Commercial Paper $46,850 $76,550 $84,000 Notes Payable to Banks $10,000 $10,000 Average amounts of short term debt (based on daily outstanding balances) :

Commercial Paper Notes Payable to Banks

$16,979 $50,015

$ 3,351

$59,S.

$ 2,8 Weighted daily average interest rates on short term debt:

Commercial Paper 8.1% 9.4% 7.6%

Notes Payable to Banks 9.6% 7.8%

NOTE 10. COMMITMENTS AND CONTINGENCIES Construction Program during prolonged outages of nuclear units caused by certain ACE's cash construction expenditures for 1991 are estimated specific conditions. Under the property and replacement at approximately $189 million. Current commitments for power insurance programs, ACE could be assessed retro-the construction of major production and transmission facil- spective premiums in the event the insurers' losses exceed ities approximate $100 million of which it is estimated their reserves. As of December 31, 1990, the maximum approximately $54 million will be expended in 1991. These amount of retrospective premiums ACE could be assessed amounts exclude AFDC and customer contributions. for losses during the current policy year was $5.64 million under these programs.

Insurance Programs ACE is a member of certain insurance programs which pro- The Price-Anderson provisions of the Atomic Energy Act of vide coverage for decontamination and property damage to 1954, as amended by the Price-Anderson Amendments Act of 1988, govern liability and indemnification for nuclear members' nuclear generating plants. Facilities at the Peach incidents. All nuclear facilities could be assessed, after Bottom, Salem and Hope Creek Stations are insured against exhaustion of private insurance, up to $66.15 million each, property damage losses up to $2 .185 billion per site under payable at $10 million per year, per reactor and per incident.

these programs.

Based on its ownership share of nuclear facilities, ACE coul In addition, ACE is a member of an insurance program be assessed up to $30.9 million per incident. This amou which provides coverage for the cost of replacement power would be payable at $4.67 million per year, per incident.

• Purchased Energy and Capacity Arrangements ACE has an arrangement for a limited term purchase of energy and capacity from Allegheny Power System (APS) which is subject to annual extensions. In addition, ACE can procure scenario could require at least four years. The overall cost associated with constructing the cooling towers, including replacement power costs incurred during station outage time, could approximate $2 billion. PS has advised ACE that from selling members of the local power pool their available it intends to vigorously defend against the proposed need to transmission capability entitlements through negotiated short construct the cooling towers and that it is prepared to pur-term arrangements and a monthly competitive bidding pro- sue all available remedies of any conditions that may be cess. Through these entitlement purchases ACE is able to pur- imposed by a Final Permit.

chase additional energy and capacity from APS and another In November 1990, the Clean Air Act of 1970 was amended utility's system. ACE also conducts energy transactions to provide for further restrictions on acid deposition and through separate arrangements with two other utilities. limitations on sulfur dioxide (S0 2) and other emission ACE has an agreement with PE for the purchase of 200 MW sources. Phase I of the legislation mandates certain controls of capacity and energy for a four-year period that began June by January 1, 1995, and Phase II mandates further controls 1, 1990. Under this agreement, ACE incurs a basic monthly by January 1, 2000. ACE's wholly-owned B. L. England charge aggregating on an annual basis approximately $48 Units 1 and 2 and its jointly-owned Conemaugh Units 1 and million, $52 million, $56 million and $24 million in the 2, in which ACE has an undivided 3.83% ownership inter-respective years 1991 through 1994. The basic charge is est, are specifically named in the legislation for emission subject to annual adjustment based on PE'.s actual annual reductions during Phase I. The jointly-owned Keystone nuclear capacity achieved. ACE also has an agreement with Units 1and2, in which ACE has a 2.47% ownership inter-PP&:L to provide for a capacity purchase of 20 MW through est, would require emission reductions during Phase II.

May 1991, and 35 MW thereafter through May 1992. Compliance with the legislation will cause ACE to incur Additional sources of energy and capacity for use by ACE are additional capital and/or operating costs. ACE'.s preliminary expected to be made available from nonutility sources, prin- estimates indicate that the cost of compliance for S0 2 limita-lly cogenerators. ACE has currently contracted, and tions for all affected units could ultimately increase rates ed BPU approval, to purchase an aggregate of 569 MW charged to customers by approximately 5% based on 1990 ergy and capacity from nonutility sources. To date, 181 revenues, pending appropriate regulatory approvals. The MW are in the construction phase and 388 MW are sched- costs of certain power purchase arrangements between ACE uled to go to financial closing in 1991 . Based on the terms and other electric utilities may also be affected by the legisla-and conditions of the existing agreements, ACE is obligated tion. Any capital costs that may be incurred to comply with to construct 230 KV transmission facilities and to purchase this legislation are not included in ACE's current estimate of certain specified minimum amounts of electric power annu- construction expenditures. Other provisions of the legisla-ally from these sources. ACE currently expects the first of tion will require capital and/or operating costs to reduce such facilities to be operational in 1991 , with the remaining emissions of nitrogen oxide . Specific cost estimates for com-projects to be in operation through 1994. However, com- pliance with these provisions are not yet available.

mencement of required minimum purchase payments is ACE is involved in various other environmental matters initi-conditioned upon ultimate commercial operation, which can ated by governmental agencies. While it is not possible to vary within agreed upon construction extension periods. predict the results of these matters, they are not expected to Also, the amount of such payments is subject to adjustment materially affect ACE'.s financial position. Additional pollution for actual performance levels achieved by these facilities . control expenditures may be required in the future if more Environmental Matters stringent standards become applicable or when facilities are In October 1990, the New jersey Department of added or expanded. These additional amounts, beyond what Environmental Protection issued for public comment a Draft is included under 'Construction Program,' as discussed Permit pertaining to the Salem Station, of which ACE has a above, are not presently determinable.

7.41 % ownership interest. The Draft Permit proposes that Other recirculating water cooling towers are necessary at the sta-In connection with the extended outage of the Peach Bottom tion to minimize adverse environmental impacts in the Station under the 1987 NRC order, ACE has filed suit along Delaware River. The Draft Permit does not provide for con-with another co-owner of the station against PE. ACE is tinued operation of the station during construction of the seeking compensatory and punitive damages resulting from cooling towers. Public Service Electric and Gas Company the outage of the station, including the costs incurred for he operator of the station, has advised ACE that it is replacement energy necessitated by the outage. ACE is esently able to determine whether it is possible to unable to predict the outcome of this litigation or its effect at and construct cooling towers to meet the conditions this time.

in the Draft Permit. If it is possible to do so, PS advises that

- the design, licensing, construction and related system tie Notes to Consolidated Financial Statements Atlantic Ene.gy, Inc. and Subsidiaries NOTE 11. LEASES ACE leases various types of property and equipment for use in its operations. Certain of these lease agreements are capi-tal leases consisting of the following at December 31 :

($000) 1990 1989 Production plant $13,521 $13,521 Less accumulated amortization 6,622 5,986 Net 6,899 7,535 Nuclear Fuel 51,072 25,611 Leased property- net $57,971 $33,146 ACE has a contractual obligation to purchase nuclear fuel for outstanding obligation exist. Operating expenses for 1990, the Salem, Hope Creek and Peach Bottom nuclear generating 1989 and 1988 include leased nuclear fuel costs of approxi-stations from Pearl Fuel Corporation. The leasing arrange- mately $15 .4 million, $8 .6 million and $9.9 million, respec-ments with Pearl Fuel were amended and restated in March tively, and rentals and lease payments for all other capital 1990 to include the fuel requirements for Peach Bottom in and operating leases of $4.2 million, $4.5 million and $5.5 the amount of $28 .9 million. The asset and related obliga- million, respectively. Future minimum rental payments for tion for the leased fuel are reduced as the fuel is burned, and all noncancellable lease agreements are not significant to are increased as additional fuel purchases are made. No ACE's operations .

commitments for future payments beyond satisfaction of the NOTE 12. QUARTERLY FINANCIAL RESULTS (UNAUDITED)

Quarterly financial data, reflecting all adjustments necessary in the opinion of the Company for a fair presentation of such amounts , are as follows :

Operating Operating Net Earnings Quarter Revenues Income Income Per Share 1990 ($000) ($ 000) ($000) 1st $166,738 $ 28,247 $15,114 $ .67 2nd 165,132 25,407 12,111 .53 3rd 218,885 53,237 38,310 1.68 4th 166,024 17,670 3,344 .15 Annual $716,779 $124,562 $68,879 $3.02 1989 1st $160,773 $ 25 ,627 $12 ,624 $ .63 2nd 162,920 30,105 16,200 .76 3rd 207,333 51 ,628 38,971 1.74 4th 173,991 27,384 13,168 .58 Annual $705,020 $134,745 $80,964 $3.74 Individual quarters may not add to the total due to round- The revenues of ACE are subject to seasonal fluctuation ing, as well as the effect on earnings per share of increasing to increased sales and higher residential rates during the average number of common shares outstanding. summer months.

Summary financial and Statistical Rc\*ic\\' 1990-198'5 4115~ '"'"'* ""' '"k""""

• ~

1990 1989 1988 1987 1986 1985 Atlantic Energy, Inc.

Investor Information Operating Revenues ($000) $ 716,779 $ 705,020 $ 675,859 $ 648,173 $ 582,961 $ 579,733 Net Income ($000) $ 68,879 $ 80,964 $ 72,171 $ 73,765 $ 54,946 $ 46,150 Average Number of Shares Outstanding (OOO) 22,795 21,634 19,593 18,311 18,266 18,069 Earnings per Average Common Share $ 3.02 $ 3.74 $ 3.68 $ 4.03 $ 3.00 $ 2.55 Total Assets (Year-end)($000) $2,006,010 $1,864,461 $1,660,286 $1,499,381 $1,401,064 $1,319,027 Long Term Debt and Cumulative Preferred Stock Subject to Mandatory Redemption (Year-end) ($000) $ 747,877 $ 725 ,329 $ 594,461 $ 522,815 $ 534,822 $ 521,612 Capital Lease Obligations (Year-end) ($000) $ 57,971 $ 33,146 $ 32,880 $ 37,694 $ 37,603 $ 38,857 Dividends Declared on Common Stock $ 2.94 $ 2.85 $ 2.74 $ 2.715 $ 2.61 $ 2.555 Dividend Payout Ratio 97% 75% 75% 66% 87% 99%

Book Value per Share (Year-end) $ 28.73 $ 28.54 $ 27.16 $ 25.71 $ 24.37 $ 23.96 Price/Earnings Ratio (Year-end) 11 10 9 8 12 11 Times Fixed Charges Earned (pre-tax, Atlantic Electric) 2.94 3.19 3.06 3.68 2.99 3.06 Shareholders and Employees (Year-end):

Common Shareholders 42,295 43 ,383 44,473 45,586 47,133 48,635 Employees (Atlantic Electric) 2,055 2,021 2,092 2,148 2,168 2,099 Atlantic City Electric Company (Principal Subsidiary)

Facilities for Service Total Utility Plant ($000) $2,027,138 $1,846,122 $1,712,614 $1,602,801 $1,503,010 $1,438,643 Additions to Utility Plant ($000) $ 170,772 $ 147,886 $ 130,281 $ 105,521 $ 109,303 $ 105,213 Generating Capacity (Kilowatts) (a) (b) 1,959,700 1,879,700 1,807,700 1,660,700 1,660,700 1,605,700 ximum Utility System Demand owatts) 1,741,000 1,700,000 1,636,000 1,609,000 1,459,000 1,432,000 ity Reserve at Time of Peak of Installed Generation) 10.9% 9.6% 9.5% 3.1% 9.1 % 10.8%

Energy Supply (Thousands of kwh):

Net Generation 6,265,335 6,260,942 5,863,119 6,157,938 5,966,600 5,817,254 Purchased and Interchanged-Net 2,044,174 2,110 ,554 2,209,777 1,483,685 1,131,900 1,049,393 Total System Load 8,309,509 8,371,496 8,072 ,896 7,641 ,623 7,098,500 6,866,647 Electric Sales (Thousands of kwh)

Residential 3,267,606 3,265,918 3,213,010 3,040,410 2,839,114 2,638,121 Commercial 3,063,069 2,917,162 2,741 ,976 2,592,232 2,401,199 2,298,895 Industrial 1,376,423 1,380,832 1,339,005 1,323,567 1,222,981 1,204,971 All Others 49,769 53,872 56,289 58,191 58,120 57,685 Total (c) 7,756,867 7,617,784 7,350,280 7,014,400 6,521,414 6,199,672 Residential Electric Service (Average per Customer)

Amount of Electricity Used During the Year (kwh) 8,251 8,382 8 ,460 8,281 7,982 7,643 Revenue for a Year's Service $ 844.37 $ 840 .34 $ 838.70 $ 838.08 $ 780.43 $ 778.77 Revenue per Kilowatt-hour 10.23¢ 10.03¢ 9.91¢ 10.1 2¢ 9.78¢ 10 19¢ Customer Data (Average)

Residential With Electric Heating 81,479 80 ,409 78,805 75,900 72,640 68,871 Residential Without Electric Heating 314,529 309,245 300,974 291 ,253 283 ,062 276,305 Total Residential 396,008 389,654 379,779 367,153 355 ,702 345 ,176 Commercial 50,274 49,509 48,398 46 ,775 45,359 44,256 Industrial 1,002 1,008 1,014 1,015 1,022 1,020 Other 537 549 552 554 554 554 Total Customers (c) 447,821 440 ,720 429 ,743 415 ,497 402,637 391,006 Operating Revenues ($000)

Energy Revenues:

Residential $ 334,375 $ 327,443 $ 318,520 $ 307,704 $ 277 ,601 $ 268 ,814 Commercial 271,688 256,199 240,890 231 ,498 211,023 209,880 Industrial 96,766 94,634 91 ,661 89 ,261 78 ,404 80,392 All Others 9,668 9,901 9 ,935 10,409 10,152 10,315 ta! Energy Revenues 712,497 688,177 661 ,006 638,872 577,180 569,401 ed Revenues-Net (4,055) 7,215 6,716 385 (1,813) 3,076 Electric Revenues 8,448 9,765 8,137 8 ,916 7,594 7,256 Total (c) $ 716,890 $ 705,157 $ 675,859 $ 648,173 $ 582,961 $ 579,733 (a) Excludes capacity allocated to a large industrial customer.

(b) Includes unit purchase of capacity under contracts with certain other utilities.

(c) Includes sales to an affiliate within the Atlantic Energy consolidated group.

I mTstor In format ion Atlantic Energy, lnc. and Subsidiaries Where should I send inquiries concerning my invest* When are dividends paid?

ment in Atlantic Energy, Inc.?

The proposed record dates and payable dates for dividends on The Company serves as recordkeeping agent, dividend Common Stock are as follows :

disbursing agent and also as Transfer Agent for Common Stock.

Correspondence concerning such matters as the replacement of Record Dates Payable Dates dividend checks or stock certificates, address changes, transfer of Common Stock certificates, Dividend Reinvestment and March 15, 1991 April 15, 1991 Stock Purchase Plan inquiries or any general information about June 18, 1991 July 15, 1991 the Company should be addressed to: September 24, 1991 October 15 , 1991 December 17, 1991 January 15, 1992 Atlantic Energy, Inc.

Investor Records P.O. Box 1334 The following table indicates dividends paid per share in 1990 1199 Black Horse Pike and 1989 on Common Stock:

Pleasantville, New jersey 08232 Telephone (609) 645-4506 or (609) 645-4507 1990 1989 Ms. S. D. McMillian, Secretary, is the corporate officer responsi- First Quarter $ .72 $ .69 ble for all investor services. Second Quarter .72 .69 Third Quarter .74 .72 Does the Company have a Dividend Reinvestment Fourth Quarter .74 .72 and Stock Purchase Plan?

Annual Total $2.92 $2 .82 Yes. The Plan allows shareholders to automatically invest their cash dividends and/or optional cash payments in shares of the Company's Common Stock. Holders of record of Common Dividends paid on Common Stock in 1990 and 1989 were fully Stock interested in enrolling in the Plan should contact Investor taxable. Some state and local governments may impose person-Records at the address above. In addition, shareholders whose al property taxes on shares held in certain corporations.

• stock is held in a brokerage account may be able to participate Shareholders residing in those states should consult their ta in the Plan. These shareholders should contact their broker for advisors with regard to personal property tax liability.

more information.

Who is the trustee and interest paying agent for Where is the Company's stock listed? Atlantic Electric's bonds and debentures?

Common Stock is listed on the New York, Pacific and First Mortgage Bond recordkeeping and interest disbursing are Philadelphia Stock Exchanges. The trading symbol of the performed by The Bank of New York, 101 Barclay Street, New Company's Common Stock is ATE; however, newspaper list- York, New York 10286. Debenture recordkeeping and interest ings generally use At!Enrg or AtlanEngy. disbursing are performed by First Fidelity Bank, N.A., 765 Broad Street, Newark, New jersey 07102 .

The high and low sale prices of the Common Stock as reported in the Wall Street journal as New York Stock Whom can I contact regarding the Preferred Stock Exchange-Composite Transactions for the periods of Atlantic Electric?

indicated were as follows:

Atlantic Electric serves as recordkeeping agent, dividend dis-1990 1989 bursing agent and Transfer Agent for its Preferred Stock.

Inquiries regarding such matters can be directed to Investor High Low High low Records at the address listed above .

First Quarter 38 1/ 2 35112 33 314 32 1/2 Who are the independent auditors for Atlantic Second Quarter 37 718 347/e 36 32 1/2 Energy, Inc.?

Third Quarter 36 318 31 7/a 38 1/s 35 t1i Fourth Quarter 34314 323/a 39 314 35 Deloitte & Touche Certified Public Accountants One World Trade Center Is additional infonnation about the Company available?

New York, New York 10048 The annual report to the Securities and Exchange Commission on Form 10-K and other reports containing financial data are avail-able to shareholders. Specific requests should be addressed to:

Atlantic Electric Financial Services Department P.O. Box 1264 1199 Black Horse Pike Pleasantville, New jersey 08232 Telephone (609) 645-4655 or (609) 645-4888 Olliccrs of .\tlantic Encrg: . Inc . and ~uhsidiarics December 3 1, 1990 icers of Atlantic Energy, Inc. Officers of Atlantic City Electric Company E. DOUGLAS HUGGARD Directors of Atlantic Years of Service Chairman and Chief Energy's subsidiaries are:

Messrs. Huggard ,

E. DOUGLAS HUGGARD 35 Executive Officer Chairman and Harlacher, Jacobs, JERROLD L. JACOBS Parent and Salomone. Chief Executive Officer President JERROLD L. JACOBS 29 MEREDITH I. HARLACHER, JR. President and Vice President Chief Operating Officer JOHN R. LILLY MEREDITH I. HARLACHER, JR. 25 Vice President Senior Vice President-BRIAN A. PARENT Corporate Planning Vice President And Services

].G. SALOMONE BRIAN A. PARENT 23 Vice President and Treasurer Senior Vice Presiqent-Utility Operations SABRINA D. McMILLIAN Secretary ].G. SALOMONE 14 Senior Vice President-J. DAVID McCANN Finance and Accounting Assistant Treasurer and Assistant Secretary JOHN M. CARDEN 23 Vice President-Customer Service Officer of Atlantic Generation, Inc. LANCE E. COOPER 8 Vice President- Control and Assistant Treasurer ent, Treasurer and Secretary THOMAS E. FREEMAN 10 Vice President-Officers of Atlantic Southern Properties, Inc. Human Resources JAMES]. LEES 20 JOHN R. LILLY Vice President-President Marketing and Rates J . DAVID Mc CANN HENRY K. LEVARI , JR. 19 Treasurer and Secretary Vice President-Power Delivery Officers of ATE Investment, Inc. J. DAVID McCANN 18 Vice President, Treasurer

].G . SALOMONE and Assistant Secretary President SABRINA D. McMILLIAN 5 LANCE E. COOPER Secretary Vice President MORGAN T. MORRIS III 21 JOHN R. LILLY Vice President-Vice President Administrative Services J. DAVID McCANN HENRY C. SCHWEMM, JR. 21 Treasurer and Secretary Vice President-Production Board of Directors of Atlantic Energy, Inc.

as of December 31, 1990 JOS. MICHAEL GALVIN, JR. JERROLD L. JACOBS Mr. Galvin, a Director since 1978, is president and chief executive Mr. Jacobs was elected President and a Director of the Company in officer of the South jersey Health Corporation - The Memorial 1990 and serves as President and Chief Operating Officer of Atlantic Hospital of Salem County. He is also immediate-past chairman of the Electric. He is a Director of all of the Company's subsidiaries and has board , New jersey Hospital Association and a trustee for the Center of been with the Company for 29 years. He is currently a director of the Health Affairs. He is currently a member of the Southern New jersey South jersey Chamber of Commerce and is regional chairman of U.S.

Chamber of Commerce and of the editorial board of Modem Savings Bonds sales.

Healthcare Magazine. Committee Membership: Ex-officio member of all committees Committee Chainnan: Personnel. Committee Membership: Audit; except Audit.

Energy, Operations & Research; Pension & Insurance.

RICHARD B. McGL YNN GERALD A. HALE Mr. McGlynn, Attorney at Law and partner in the law firm of Stryker, Mr. Hale, a Director since 1983, is president of Hale Resources, Inc., Tams & Dill , has been a Director since 1986. He is a member of the an investment and management company. He serves as chairman and American, New jersey State and Essex County Bar Associations, as director of the Evans Clay Company, and as a director of New jersey well as the American Bar Foundation and the American Law Institute.

Manufacturers Insurance Company, New jersey Business and Industry He is a former commissioner of the New jersey Board of Public Association and Strong Systems, Inc. Utilities and a former judge in Essex County, New jersey.

Committee Chainnan: Energy, Operations & Research. Committee Committee Chainnan: Audit. Committee Membership: Corporate Membership: Audit; Corporate Development; Personnel. Development; Energy, Operations & Research; Finance & Investor Relations; Pension & Insurance.

MATTHEW HOLDEN, JR.

MADELINE H. McWHINNEY Mr. Holden , a Director since 1981, is the Henry L. and Grace M.

Doherty Professor of Government and Foreign Affairs at the University Miss McWhinney, a Director since 1983, is president of Dale , Elliott &

of Virginia. He is also an arbitrator and an energy and regulatory affairs Company, management consultants. She is a trustee of the Charles F.

consultant. He is a former commissioner of the Federal Energy Kettering Foundation, the Institute of International Education and Regulatory Commission and the Wisconsin Public Service Commission. Management of Managers Mutual Funds.

Committee Chainnan: Pension & Insurance. Committee Membership: Committee Chainnan: Finance & Investor Relations. Committee Audit; Corporate Development; Personnel. Membership: Audit; Energy, Operations & Research; Pension &

Insurance.

CYRUS H. HOLLEY Mr. Holley, executive vice president - Engelhard Corporation, was BERNARD J. MORGAN elected as a Director in early 1990. Mr. Holley joined Engelhard in Mr. Morgan, banking industry executive, was elected as a Director in 1979, where he has served in various executive positions. He is chair- 1988. He is a director of the Philadelphia Chamber of Commerce and man of the Independent College Fund of New jersey and is active in St. Joseph's University.

several civic and educational organizations. Committee Chainnan: Corporate Development. Committee Committee Membership: Corporate Development; Energy, Operations & Membership: Finance & Investor Relations; Pension & Insurance; Research; Finance & Investor Relations; Personnel. Personnel.

E. DOUGLAS HUGGARD HAROLD J. RAVECHE Mr. Huggard, a Director since 1984, was elected Chairman and Chief Dr. Raveche, who became a Director in 1990, is president of the Executive Officer in 1990, and has been Chief Executive Officer since Stevens Institute of Technology. He is president of the Association of 1985. He serves as a Director of all of the Company's subsidiaries and Independent Technological Universities, chairman of the board of has been with the Company for 35 years. He is currently a director of trustees of the New jersey Consortium for Surface Engineered the New jersey State Chamber of Commerce and First Fidelity Bank of Materials, a director of National Westminster Bank, NJ, and a member South jersey. of the U.S. Council on Competitiveness.

Committee Membership: Ex-officio member of all committees Committee Membership: Audit; Corporate Development; Energy, except Audit. Operations & Research; Finance & Investor Relations .

Jos. Michael Galvin, Jr. Gerald A. Hale Matthew Holden, Jr. Cyrus H. Holley

• E. Do*gla* Hogga,. Jerrold L. Jacobs Richard B. McGlynn Madeline H. McWhinney Bernard J. Morgan Harold J. Raveche Design: Mueller&: Wister, Inc .

Illus tration: Ro bert Byrd Photogra phy: Kelly/M ooney Photography; Impac t Multi Image Printing: Innova tion Printing and Lithography Sixty-o ne percent of this annua l report is printed on recycled paper.

BULK RATE U.S. POSTAGE PAID PERMIT NO . 11 SOUTH JERSEY ,

N.J .

08031 1"111ll"lnI1'-

ENERCiY 1199 Black Horse Pike Pleasantville, New jersey 08232