ML18100A390

Atlantic Energy Annual Rept,1992

ML18100A390
Person / Time
Site:	Salem, Hope Creek
Issue date:	12/31/1992
From:	Huggard E, Jo Jacobs ATLANTIC CITY ELECTRIC CO.
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CONTENTS Letter to Shareholders Chairman Doug Huggard and President Jerry Jacobs give their thoughts on the changing utility industry and on how Atlantic Energy will be competitive in this new environment.

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News of1992 Atlantic Generation put two projects in service. Atlantic Energy's Common Smck split two-fur-one in May 1992. Atlantic Electric steps up its economic development efforts. Transmission line construction took to the air.

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Winning Combinations We arc proud to feature just a few of Atlantic Electric's products and services that win for our shareholders, our customers and our world B.E.S. T. Homes-A Prize Winning Package Night Guard Lighting-Pure Gold Geothermal Energy-For Outstanding Performance B

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§ Coach Vince Lombardi once said, "Winning is not a sometime thing; it's an all-the-time thing." We couldn't agree more, especially w.

n it comes to our shareholders, our customers and our world. When our business prospers, shareholders win. When our ener that areholders, our Atlantic Electric At-A-Glance The cool summer of1992 and the loss of two major industrial customers caused sales to decline 3.5% for the year. Sales to the twelve casino/hotels are 7.0% of total sales.

Index to Financial Information Investor Informati Where to turn with que tions on your investment in Atlantic Energy; Common Stock data for 1992; Proposed record and payable dates for dividends; Dividend Reinvestment and Stock Purchase Plan information.

shareholders entitled to v Corporate Address:

6801 Black H orse Pike Pleasantville, New Jersey 08212 (609) 645-4500 FAX:(609)645-4353

tlantic Energy, Inc. is the parent holding company for Atlantic City Electric Company (Atlantic Electric) and four nonutility subsidiaries. Atlantic Energy has paid dividends for 75 consecutive years and has increased the cash dividends paid for 40 consecutive years. Total return (dividends paid plus change in share price) in 1992 was 20.2%. More than 75% of Atlantic Energy's shares are owned by individuals.

Atlantic Electric, a regulated utility, is the core business and makes up 95% of total assets. Atlantic Electric serves over 455,000 customers in outhern New Jersey. In the next few years, improved airport facilities and a new convention center in Atlantic City will bring growth to the area.

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• DIVIDENDS 1.84 1.87 1.75 1.67 Earnings per share of Common Stock is net income divided by the average number of common shares outstanding. D ividends paid per share is the sum of the quarterly dividend payments made in January, April, July 1.5.

1.51 1.46 1.49 1.51 and October.

ATIANTIC ENERGY Earnings and Dividends*

Paid Per Share of Common Stock

• adjusted to reflect two-for-one Common Stock split May 14, 1992 1.33 1.41

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88 89 90 91 92 F

c Earnings Per Common Share (a)

Dividends Paid Per Common Share (a)

Book Value Per Common Share (a)

Number of Common Shares Outstanding -

Year-end (000): (a)

Average Actual Return on Average Common Equity Electric Operating Revenues (000) (b)

Operating Expenses (000) (b)

Net Income (000)

Utility Cash Construction Expenditures (000)

Total Assets (ODO)

Sales of Electricity to Ultimate Customers (KWH) (ODO)

Price Paid Per Kilowatt-hour (Ultimate Customers)

Total Ultimate Electric Customer Accounts (Year-end) ber of Shareholders-Common Stock (Year-end) ber of Atlantic Electric Employees (Year-end)

L 1992 1.67 1.51 15.17 51,592 52,199 B

11.14%

$ 816,825

$ 679,657 86,210

$ 130,700

$2,220,151 7,655,138 10.257¢ 458,549 46,524 2,023 (a) Prior year amounts have been restated to reflect the two-for-one Common Srock split in M ay 1992.

20.50 19.25 11.38 1&.94

• 25 Z3.13

• 20

• 15

• 10

• 5

• 0 88 89 90 91 92 G

% Change 1992-1991 H L 1991

( 4.6) 1.75 1.49 14.84 1.3 2.2 5.3 2.6 (7.9) 1.0 2.4 0.7 (24.2) 3.2 (3.5) 4.5 1.2 6.2 (0.4) 49,008 50,896 12.10 %

s 808,374 s 663,518 85,635

$ 172,425

$2,151,416 7,935,600 9.812 ¢ 453,100 43,802 2,032 This is the closing price of Atlantic Energy's Common Stock on the last trading date of each year, as reported by the ew York Stock Exchange Composite Transactions listing.

ATIANTIC ENERGY Market Price*

Per Share of Common Stock

• adjusted to reflect two-for-one Common Srock split May 14, 1992 G

% Change 1991-1990 H T 1990 15.9 2.1 3.3 1.51 1.46 14.36 7.5 10.8 14.5 9.1 7.7 24.3 3.4 7.2 2.3 5.6 0.8 3.6 (1.1 )

45,590 45,952 10.57 %

$ 740,894

$ 616,332 68,879

$ 166,818

$2,006,010 7,756,867 9.288 ¢ 449,717 42,295 2,055 s

% Change 1990-1989 (19.3) 3.5 0.6 5.4 1.9 (22.5) 2.4 4.7 (14.9) 15.0 7.6 1.8 1.4 1.3 (2.5) 1.7 (b) Prior year amounts have been restated to reflect sales of energy (sales for resale) and capacity to other utilities as revenues rather than as net expense in accordance with Federal regulatory requirements effective January 1, 1992.

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L D E R § market, the price of this electricity is high. But,

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PURPA obligated us to buy it. Ultimately, cus-NJ tomers pay the bill. We owe it to them to do w.

F or Atlantic Energy and the entire electric utility industry, 1992 was a memorable year. On O ctober 24, the National Energy Policy Act became law. This new law lets competition move a giant step forward in our business. It creates a new breed of nonregulated power producers called "exempt wholesale genera-tors." And, the law provides them with access to our transmission lines.

Competition isn't new to us. The Public Utility Regulatory Policy Act (PURPA), passed in 1978, was the first step towards a nonregulated energy market-place. That law is affecting us today. In the last sixteen months, two large industrial customers began to supply their own energy needs. The impact is real. Kilowatt-hour sales to industrial customers, our smallest customer class, dropped about 10% in 1992.

Certainly, competition makes our work more complex and demanding. But, it's also energizing. If it sounds like there's optimism in here, there is. Winners will emerge from these changes, and Atlantic Energy will be among them. We intend to see that shareholders, customers and the environment share in the winning.

Our goals are clear. We'll run our business so that five years from now, our customers will pay about the same price for electricity as others in the region. That's being competitive and it won't be easy. In the next five years, our energy costs will include the cost of electricity generated by four nonutility power producers. In today's A

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ever it takes to make the energy we sell a good value.

We have reduced our five-year construction plan by more than 25%. The economy has slowed, and along with that, the demand for energy is down. Accordingly, some major improvements to our power delivery system can be postponed.

For the first time in many years, we have extra gener-ating capacity. As a result, we have dropped our plans to build generating equipment during this decade. We also made a tough decision to close two units at our Deepwater Generating Station in 1994.

One thing we've learned from all of this is that com-petition requires change. Change happens through teamwork. And teamwork requires leadership, not task management. That's how we'll shine in this competitive world. We're streamlining our organization to make it easier to turn plans into actions. We're giving prudent cost control the highest priority. This is especially important because our financial performance is influ-enced by so many outside factors.

Last year's results were a good example. After tuijus~

for a two-for-one Common Stock split, consolidated e ings per share for Atlantic Energy were $1.67, a declin from the $1. 75 reported last year. Of that, Atlantic Electric, our primary business, contributed $1. 7 4, or 104% of the total. There were a number of one-time

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items in the utility business that added about 26 cents to earnings. The largest single item, about 15 cents, came from a settlement with Philadelphia Electric Com-pany (see ote 10 to the Financial Statements for addi-tional details).

On the non utility side, financial performance was mixed. Together, those activities resulted in a loss of about seven cents per share. The good news was that 1992 was a watershed year for Atlantic Generation (AGI). Two large cogeneration projects began opera-tion and ground was broken for a third. As a result, AGI added three cents per share to earnings. ATE Investment continues to manage its portfolio of invest-ments and contributed one cent to earnings. But a weak real estate market made 1992 a difficult year for both Atlantic Southern Properties and Atlantic Energy Technology, (AET). AET lost nine cents per share pri-marily because of a provision made for a write-off of its

vestment in energy related technologies for homes businesses. In the years to come, our nonutility tivities will be modest and will be directed to activities mostly related to the utility business. (See Management's Discussion and Analysis of Financial Condition and Results of Operations for more details.)

Despite these events, 1992 was a good year for shareholders. Total return for Atlantic Energy shares was 20.2% compared to an industry average of about 8.6%. This reflects the June increase in the quarter-ly dividend rate to 38 cents per share. This is the 40th consecutive year of increases in cash dividends paid. Only five other utilities can match that record!

E.D. Huggard Chairman and Chief Executive Officer P.S. On J anu ary 14, 1993, th e Board of Directors announced my plans to step down as Chief Executive Officer.

t the same time they reported their intention to elect Jerry cobs to succeed me in that position effective after the Annual M eeting of Shareholders in April. I will be retiring from the day-to-day activities of the Company after 38 years of ser-vice. For the last eight years, I h ave served as Chief A

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To top it off, in May we completed a two-for-one Common Stock split.

Financial results would have been better if kilowatt-hour sales had been normal Three factors are responsible for the 3.5% decrease in total sales to 7. 7 billion kilo-watt-hours: competition, weather and the economy. In addition to the industrial customers we lost to cogenera-tion, South Jersey had one of the coolest summers on record. This weather caused a 6% drop in peak load to 1,796 megawatts. The economy didn't help either.

Throughout 1992, weak labor and housing markets con-tinued. As a result, Atlantic Electric added only 4,500 customers. But we believe the economy has started a slow improvement and we expect kilowatt-hour sales to increase slightly.

What helps any company through changing times is a talented, dedicated Board of Directors such as ours. For the past ten years, we have had the pleasure of working with Board member Madeline McWhinney. Having reached the mandatory retirement age, Madeline won't be standing for re-election in April. Her involvement and enthusiasm have made her a true advocate for share-holders. The benefits of her tireless efforts will be felt for years to come.

We are grateful for your continued support. Many of you have been with us through the good times and the challenging ones. Your reward has been a sound invest-ment and steady income. That's one thing in our busi-ness that won't change. It's our pledge to you.

Sincerely, J.L.Jacobs President February 1, 1993 Executive Officer. This transition is the result of a compre-ilj hensive management succession plan. Jerry is well prepared.

For the last three years of his 30-year career he has served as President. I am confident that Jerry's leadership, supported by our excellent management team, will co ntinue to bring Atlantic Energy success in the coming year.

Sincerely, ?/~#-rfd

> E>1ergy

AGI POWERS UP Atlantic Generation, Inc., one of our nonutility subsidiaries, placed two projects in service this year. The first project, located in Peclricktown, ew Jersey, began operating in March. The project serves the electrical and steam needs of a BF Goodrich plant and provides 106 megawatts of capacity and energy to Atlantic Electric. The second project, located in Binghamton, New York, began operating in the second half of 1992. It serves the steam requirements of an International Paper Company facility and pro-vides 50 megawatts of capa-city and energy to New York State Electric & Gas.

A third project, located in southern New Jersey, is under construction and scheduled for completion in 1994. It will provide steam energy to the Progresso Foods processing facility in Vineland, New Jersey and will sell electricity to the City of Vineland.

CO STRUCTION GETS OFF THE GROUND Atlantic Electric broke new ground this year-from the air. For the first time in the United States, a large construction helicopter, or Skycrane, was used to install steel caisson foundations for E

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a transmission line. The line was in a section of wetlands in Salem County, New Jersey.

The helicopter, with an attached vibratory hammer, drove the caissons into the ground, and then later set the 100-foot tall poles in place.

Using the Skycrane left the sensitive wetland area pretty much intact. It eliminated the need to clear away a large area for heavy equipment like ground cranes that would normally do the job.

LIGHTING PROGRAMS SHINE The Light for Sight program has helped almost every municipality in South Jersey save energy. Under the pro-gram, over 24,000 old incan-descent and mercury vapor street lights have been replaced with energy effi-cient, high pressure sodium lights. For 1992, the program represented an energy savings of over eight million kilowatt-hours, while main-taining annual revenues.

Businesses have benefitted by saving energy through Atlantic Electric's Save-A-Watt program. The program offers incentives for replac-ing inefficient lighting sys-tems with high efficiency ones. The 136 customers who joined this program in 1992 will save over five million kilowatt-hours of electricity.

F 1 9 9 NUCLEAR NEWS Atlantic Electric is subject to a penalty under the New Jersey nuclear performance standard if the combined capacity fac-tor for its five jointly-owned nuclear units is below 65% in any year. In 1992, the com-bined capacity factor, as deter-mined by Atlantic Electric for application of the nuclear performance standard, was 64.1 %. As a result, Atlantic Electric will be subject to a modest penalty. A final deter-mination will be made in the 1993 Levelized Energy Clause proceeding.

For the second year in a row, the Institute of Nuclear Power Operations gave the Hope Creek Nuclear Generating Station a rating of"l," the highest rating given for nuclear operating performance.

SOUTHJERSEY-GOOD FOR BUSINESS Atlantic Electric conducted a Target Industry Study in 1992 as part of its plan to promote South Jersey as a prime business location.

2 The study identified 25 industries that have strong growth potential and could operate well within the regional economy. Study results will be used to support Atlantic Electric's economic development efforts, as well as the efforts of state and local agencies throughout South Jersey.

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y PIECES OF THE PAST While performing site work at the B.L. England Generating Station, archaeologists uncovered relics from a Native American settlement that dates back about 4,000 years. Over 10,000 artifacts were uncovered, including spear tips, pottery fragments and arrowheads. The items suggest that the site was used as a seasonal residence for Native Americans. Artifacts and photographs of the site will become a permanent display at the B.L. Engla Generating Station.

CAPITAL NEWS In March, the Board of Directors authorized a two-for-one split of Common Stock, effective May 14, 1992.

The Board took this action with individual investors in mind: Before the split, Atlantic Energy's price per share had been trading at a price higher tl1an peer utilities. The Board also voted to increase the num-ber of authorized shares out-standing to 75 million.

In May, Atlantic Electric issued and sold $60 million in Secured Medium Term Notes (MTNs) through agents. The MTNs were sold in two separate maturities:

$30 million maturing in 1999 and $30 million maturin.

2004. The MTNs have a weighted average interest rate of 7. 75%. Proceeds were applied to reduce Atlantic Electric's short term debt.

Built for Energy Saving Tomorrows 0 ATI.ANTIC B.ECTRIC 1-800-221-0520 The energy efficiency of a B.E.S.T. Home is a great selling point.

"Builders and realtors like to recommend B.E.S.T. because it costs less to operate," said Sharyn Forbes, program manager (above). And customers love the idea of saving money year after year," she added.

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hen it comes to saving energy, saving money and caring for the environment, nothing is better than a B.E.S.T Home. How can one home do so much? Simple. A B.E.S.T. Home, Built for Energy Saving Tomorrows, combines high tech-nology with common sense construction to produce a comfortable, economical, total-electric home.

One of the features that makes a B.E.S.T Home a winner is its use of a heat pump for both heating and cooling. Advances in technology have yielded a new breed of heat pump (see page 8). These improved heat pumps are more than twice as efficient as traditional electric heat. In fact, these heat pumps make electric heat a clean, safe, affordable choice.

Common sense construction is another thing that puts B.E.S.T. Homes on top. The three rules of a B.E.S.T. Home are: insulate - insulate - insulate!

Attics, walls and crawl spaces must meet our high stan-dards for insulation. Places that are normally over-looked, like wall outlets, duct work and hot water pipes, are targets for insulation and caulking. Even the windows must meet efficiency standards to eliminate heat loss. Because of all the insulation, B.E.S.T Home owners get a bonus: they can install a smaller heat pump unit and save on equipment costs.

"Prospective home buyers are impressed by the fact that Atlantic Electric inspects the homes at many stages during construction. That way, they can be sure that things are being done properly," reports Sharyn Forbes, program manager. Along with the inspection service, customers get a "Comfort Assurance" guarantee from Atlantic Electric. That means that Atlantic Electric will make certain that they are satisfied with the home.

B.E.S.T Home owners save energy dollars. As part of the package, they can become members of our Summer Savers Club. That means that they get cash rebates for participating in Atlantic Electric's direct load control program. Some B.E.S.T Home owners can save even more through time-of-use rates. They pay less if they use electricity on nights and weekends times when demand is low. With just a few small changes to their daily routine, customers can save in a big way.

B.E.S.T Homes are good for Atlantic Electric. They help to even out the demand for energy, making the best use of our resources. In winter, they use energy when there's plenty to spare. In summer, they save

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energy because their heat pumps operate more effi-ciently than conventional air conditioners. Saving ener-gy and reducing demand help to delay our need to add new generating sources. Best of all, B.E.S.T. H omes, and their high technology heat pumps, make electricity a competitor once again in the residential heating market.

B.E.S.T. H omes come in first for the environment, too. They are total electric, so there are no fuel emis-sions from the home. Any fossil fuel used to make the electricity is burned at a power plant where specialized equipment controls any emissions. And, since B.E.S.T.

H omes don't burn fossil fuel, indoor air quality is excellent. B.E.S.T. H omes are tightly sealed. That means the heat pump doesn't use as much energy to keep the house comfortable. Any time you save energy, you are giving our world a bonus.

Building a B.E.S.T. H ome is a first place idea.

Customers get a comfortable home that costs less to operate. Atlantic Electric gets satisfied customers. And the world around us gets a little bit better. ~

H ow much can a B.E.S.T. Home save?

Here's how heating and cooling costs of a B.E.S.T. Home compare to a good, energy efficienr-fossil fuel system.

Home#l Home#2 (B.E.S.T.)

(Oil)

Sizeofhome 2,400 square feet 2,400 square feet Heating system variable speed, air-oil furnace, source heat pump, heatingAFUE heatingHSPFof9.4 of.SO Oooling system variable speed, air-electric, central source heat pump, air conditioning cooling SEER 15.0 cooling SEER 10.0 Annual heating cost*

s 418 s

923 Annual cooling cost*

253 s 457 Total cost for the year s

671 s 1,380 UAL SAVINGS 709 s

• Analysis is based on a price of electricity of 10.2¢ per kilowatt-hour and the price of oil"at 90¢ per gallon.

HSPF H'eating Seasonal Performance Factor AFUE

= Annual Fuel Utilization Efficiency SEER

= Seasonal Energy Efficiency Ratio Our comparisons have considered the efficiency of the heating/cooling systems, the amount of heating and cooling required by the home, the quality of construction and the southern New Jersey climate.

{Italicized words are defined in the Glossary on page 15.)

Here's how a heat pwnp works during the winter.

Heat pumps use thermal energy-heat that's already in the air--

and turn it into year round heating and cooling comfort. To under-stand how they work, here's a brief, but not too scientific review of some basic principles: First, heat always exists in the air or the ground, even on cold days. Second, heat always travels from where it's warmer to where it's colder. Finally, increases in pressure result in increases in temperature.

0 Air, containing thermal energy, is circulated across an outside coil called an evaporator that contains a liquid refrigerant colder than the air. The thermal energy in the air transfers to the colder liquid. The liquid then evaporates into a low pressure gas.

f) The low pressure gas moves to a place in the system where it is compressed into a hot, high pressure gas.

C) The hot, high pressure gas is pumped to an inside coil called a condenser.

Cooler air circulates across the hot coils. The heat in the coils transfers to the air. The air, now heated to about 100 degrees, moves through duct work and provides warmth. As heat is removed from the high pressure gas, the gas cools and condenses back to its liquid state.

0 The liquid flows through a metering device where its pressure and temperature are lowered farther.

9 The liquid is then circulated back to the evaporator where t process begins again.

During the summer, with a flip of the switch, the cycle reverses.

The heat pump removes heat from the inside air, providing cool air just like a conventional air conditioner.

p "I've been in myhome fora year now, and I'm really pleased with how low my electric bills have been. I was also glad to know the house was inspected while it was being built.

That way, I knew I was getting a good home."

Desiree Ledden, Sewell, New Jersey T

oday's heat pump is ever. Computer technolo-an energy efficient, gy lets these heat pumps affordable, all electric heat-sense a change in tempera-ing and cooling system. It ture and adjust their speed lives up to its name because of operation as needed. On it "pumps" thermal energy extreme temperature days

- heat - from one location more thermal energy has to another. It gets that heat to be pumped. The system from the Sun and it's free.

uses more electricity. On The only cost to operate a moderate temperature heat pump is the cost of days less thermal energy electricity required to move has to be pumped. The the heat.

system uses less electricity.

Most heat pumps are These new air-source heat "air source"-they use the pumps know just the right thermal energy from the amount of electricity to air. Air-source heat pumps use. That's efficient. And been in use for years.

that saves energy dollars.

there's a new genera-One of the nicest fea-tion of heat pumps on the tures of the new genera-market that are better than tion of heat pumps is the A

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The three rules of a B.E.S.T. Home are: insulate, insulate, insulate!

B.E.S.T. Homes have extra insulation in every nook and cranny. And they top it all off with energy efficient windows.

comfort they give. The marketing engineer.

air that is delivered into We're convinced that the home or business is heat pumps are the most spread evenly. That way, affordable, efficient and the temperature inside is environmentally sound kept at a constant level.

heating and cooling sys-Hot and cold spots are terns available. We're eliminated.

helping to educate and Heat pumps need sup-train heating and air con-port to work efficiently.

ditioning contractors on Proper installation and proper installation tech-sizing are essential. "Too niques. Along with New many times we hear that Jersey's other utilities, heat pumps don't work.

Atlantic Electric partici-That's just not true.

pates in the New Jersey When we investigate, we Heat Pump Council. The find problems with the Council has developed duct work, the installa-standards and criteria to tion of the unit or how certify contractors in the heat pump is used,"

approved installation explains Dave Crouch, procedures.

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A BRIGHTER IDEA Lumens produced using 100 watts of power 8,500 1,000 High Pressure Sodium Light Incandescent Light Atlantic Electric uses the most energy efficient lights on the market today for all fits lighting services. What makes these s so efficient is that they produce e light for the same amount of energy.

e efficiency is measured by comparing the number of watts (energy in) to the number oflumens (light out). Most Night Guard lights are high pressure sodium.

They are recognized by their golden cast.

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verybody wins with Night Guard Lighting, Atlantic Electric's private leased lighting ser-vice. Take, for example, Hammonton, New Jersey. This city wanted to brighten up the business district and make it more secure, without spending a bundle. Night Guard Lighting helped Hammonton meet its goals. "We customized fixtures to fit the city's unique lighting needs. And, we topped those fixtures off with high pressure sodium lamps, giving Hammonton the most light for the least amount of energy. For all of that, they pay one low monthly fee,"

reports Ed Ragazzi, program manager. The city was so pleased with the results that Night Guard lights have spread throughout the city.

Atlantic City is changing its lighting image with Night Guard, too. Some areas of the city are being redeveloped with new housing and small parks. Night Guard's decorative fixtures are there to brighten up the scene. One area is Columbus Park, right in the center of town. Night Guard fixtures like the one on page 10 have made the park more attractive and given it a Victorian look.

Many area businesses are lighting up their buildings and facilities with Night Guard lights as well. To date, more than 2,800 businesses and municipalities are using Night Guard lights. It's good business. In 1992, the program added about $1 million to Atlantic Electric's revenues. What's more, these revenues all come from night-time electric sales, when Atlantic Electric has energy to spare.

Helping customers save energy with more efficient lighting is a long-standing commitment. Because we want our customers to know about the benefits of effi-cient lighting, we became the first New Jersey utility to participate in the U. S. Environmental Protection Agency's Green Lights program.

Sometimes, our shareholders and customers ask us to do more. They're concerned about "light pollution,"

the night-time glare from lighting. We are, too. We have experimented with different lenses and fixtures that focus light where it's most needed. As a result, we now have specialized lighting fixtures available for cus-tomers who request them.

When it comes to saving energy and protecting the environment, we'll always go the extra mile. ~

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The process for heating and cooling with geother-mal energy is simple. There are three main parts:

array of pipes buried beneath the ground called oop," a heat pump and a duct work system to culate the air.

Here's how the system on page 12, known as a closed loop, works. It gets its name from a contin-uous loop of buried pipes connected to an indoor heat pump.

0 In southern New Jersey, the temperature of the earth is a fairly constant 55 degrees. The sandy soil in our area is well suited for pipes to be buried typically 300 feet deep. The "vertical" loop shown here would use up to 1,200 feet of pipe.

8 High strength plastic pipe, that has a 50-year warranty, is used. The pipe is made of materials that are harmless to the soil and have good heat conducting qualities. To connect one pipe with another, the pipes are heated and fused to form a joint that is even stronger than the original.

@ An environmentally safe water and antifreeze solution flows through the pipes. Heat is exchanged when the liquid absorbs the Earth's natural warmth in the winter or rejects heat to the Earth in the summer.

0 The liquid is pumped to a heat pump that operates just like the system described on page 8.

What makes a geothermal energy system so effi-cient is that its heat source is the constant tempcr-re of the ground, rather than the fluctuating perature of the air.

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The southern New Jersey climate, with a ground temperature of about 55 degrees, is ideal for using a geothermal energy system.

eothermal energy. The Sun supplies it by heating the Earth. It's all around us, even in our own backyard. Best of all, it's an energy source that's clean, plentiful, free and renewable.

Geothermal energy systems allow us to harness that energy and turn it into year-round comfort for homes and businesses.

The efficiency and affordability of geothermal ener-gy systems belong in the spotlight. To provide heat-ing and cooling, they use a heat pump that is four to five times more efficient than any conventional sys-tem. They are also the most economical system to operate of any system available today (see page 14).

That gives customers more comfort for their energy dollar. What's more, geothermal energy systems don't have an outside unit. "Customers love that feature. At the shore, there's nothing to corrode in the sea air.

And, landscaping is easier when there's no outside unit," explains Richard Rinck, program manager.

More than 600 homes and businesses in southern New Jersey are heated and cooled with geothermal energy. Atlantic Electric wants more customers to benefit from these systems. To promote geothermal energy, we met face-to-face with over 900 building contractors, architects and realtors in 1992 alone.

We even went national with our story. Atlantic Electric, Stockton State College and the New Jersey Department of Environmental Protection and Energy co-sponsored a local viewing site for a country-wide teleconference on geothermal energy. Over 200 state and local government officials and planners were in the local audience. The national broadcast reached over 300 viewing sites in all. Following the broadcast, Atlantic Electric representatives participated in a panel of experts to answer questions from the local

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T audience. It was so successful that two more national teleconferences, for architects, engineers, contractors and builders, are planned for 1993.

Cable News Network (CNN) also found the geo-thermal developments in southern New Jersey news-worthy. As part of its news segment, Science and Technology, CN featured Atlantic Electric's service area as representative of the progress in geothermal installations. The program featured construction of a SO-well, vertical loop geothermal system. That system now heats and cools a 22,000 square-foot administra-tion building for the Atlantic County Municipal Utilities Authority.

Atlantic Electric plays a leading role in encouraging and supporting the use of geothermal systems through rebates and financing programs. Customers and contractors earn cash rebates for installing a high efficiency unit that rates 12 SEER and above. Rebates vary based on the size and efficiency rating of the unit. And, starting in 1993, the Residential Home Financing Program will provide low interest loans for high efficiency geothermal and other heating and cooling systems.

From any perspective, geothermal energy deserves applause. It takes energy efficiency to new heights and saves money year after year. And, by tapping into the Earth's temperature, we have a clean, safe energy source that reduces our dependence on fossil fuels. R "We moved into our new home two years ago. We knew then that we'd made a good decision to install a geothermal energy system, and we haven't changed our minds. Our heating bills are really low and our house is comfortable in the summer and the winter. We like sav-ing the money, but we also like the idea that our system is kind to the environment. Who wouldn't want all of this?"

Gay and Larry Blohm, Palermo, New Jersey A

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eothermal Energy Systems-An Outstanding Investment Take a look at how an investment in a closed-loop geothermal energy s tern compares with an investment in a good quality fossil fuel system:

Geothermal*

Natural Gas (B.E.S.T.)

(with central air)

Heat pump 3,000 Furnace Air conditioning Ductwork 800 Fuel piping Labor 1,200 Well drilling 3,000 (including materials)

B.E.S.T. Home upgrade 900 Total installation

$ 8,900 Less Atlantic Electric 1,380 average rebate**

Total cost to homeowner 7,520 Cost premium

$ 2,020 Average annual heating cost 293 Average annual cooling cost 184 ANNUAL SAVINGS 634

• New, 1,800 square-foot home with a three-ton air conditioning load.

t Standard construction.

• • Rebates are based on the size and efficiency of the unit.

$ 1,700 1,700 600 300 1,200 5,500 5,500 768 343 While a geothermal energy system costs more initially, there are.

reasons to make the investment. First, the system pays for itselfi just over three years. Second, the extra cost can be financed throug the home's mortgage. At today's rates, the added monthly cost is more than offset by the monthly energy savings. That means more cash for the homeowner at the end of each month. The best part is, the energy savings continue for the life of the system.

>Energy

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t isn't every day that a company gets the chance to teach a college something. But, that's what happened when Stockton State College needed to replace its aging heating, ventila-tion and air conditioning system. Atlantic Electric keeps in close contact with large customers like Stockton. So, when college officers wanted to talk about cutting energy costs, Tom Herzog, energy services engineer, was there to help review some options for air conditioning.

"We worked with them to look at a lot of differ-ent systems, including a geothermal system.

We hosted a series of meetings, bringing college person-nel together with experts in the technology,

added Herzog. With all of this information and an independent study by Stockton's own engi-neering firm, Stockton decided it had found a winner -

a geothermal heating and cooling system.

Stockton gets two kinds of savings with a geothermal system:

dollars and energy.

"Our engineers project that we'll save about

$312,000 each year in energy costs. Our elec-tric usage will go down by 25% and gas usage will drop 75%," reported Dr. Charles Tantillo, chief financial officer of the college. And Stockton has always been a leader in protect-ing the environment, so the geothermal system

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fits right in. A fossil fuel system this size would give off emissions equal to 400 cars each year.

Since the geothermal energy system we're installing gives off no emissions, it's like taking those cars off the road,

he added.

Con truction began on Stockton's new sys-tem in January. It will heat and cool nearly 500,000 square feet of space in the college complex and will cost close to $5 million to install. Stockton's system will be one of the largest geothermal installations in the nation. About 400 wells will house the closed-loop piping.

Seventy-two heat pump units will provide the heating and cooling.

Funding for the project also represented a unique partnership effort among govern-ment, education and business. About three quarters of the funds needed came from vari-ous state agencies.

Atlantic Electric rebates and general funds from the college made up the rest.

Good things come from working together.

The Stockton project is another shining example.

GLOSSARY Efficiency Describes how well a heating or cooling system operates. It compares the amount of useful heating or cooling produced to the amount of energy (electri-city, gas, oil, etc.} consumed.

The more efficient a system is, the less energy it uses. The less energy it uses, the less it costs to operate. Atlantic Electric offers rebates for high efficiency heat pumps and air conditioners. In general, the more efficient the system, the higher the rebate.

The following are terms normally used to describe the efficiency of heating and cooling systems:

Annual Fuel Utilization Efficiency (AFUE)

Applies to furnaces, gas, oil, etc.

It describes the amount of heat produced for every unit of fuel consumed. The higher the AFUE, the more efficiently the furnace operates.

Heating Seasonal Performance Factor (HSPF)

Applies to the heating portion of a heat pump. It compares the heat output to the consumption of electricity. The higher the HSPF, the more efficiently the heat pump operates.

Seasonal Energy Efficiency Ratio (SEER)

Applies to the cooling portion of a heat pump and to tradi-tional air conditioners. It com-pares the cooling output to the consumption of electricity. The higher the SEER, the more efficiently the heat pump or air conditioner operates.

ABOUT WINNING If you'd like to learn more about our winning products and services, we've induded a reader service card after page 54.

We look forward to hearing from you.

T L A ~ T 8*

1.illl 1.411 1.43S 1.395 3.147 3.1163 6

• Z.917

!.74Z 4

• 3.!13 3.n&

3118 3.370 2*

O*

88 89 90 91 92 (in billions of killowatt-hours)

ATLANTIC ELECTRIC Energy Sales by Customer Class

• RESIDENTIAL

• COMMERCIAL

• INDUSTRIAL & OTHER 1179 3.100 1171 The change in kilowatt-hour sales is determined by how many new customers are added, how much electricity each customer uses and weather conditions.

c E L E C T R c A T G L A C E Residential Customers Sales to Residential customers declined 2.8% in 1992 due to mild temperatures in the winter and summer months. More than 3,600 Residential customers were added during 1992, a slight improvement from 1991 when just over 3,300 customers were added.

For the

%Annual Est. % Annual eleven-year period Growth Rate Est.

Growth Rate 1987-1997:

1987 1992

'87-'92 1997

'92-'97 Sales (billion kwh) 3.040 3.276 1.5%

3.756 2.8%

% ofTotal Sales 43 43 44 0.5 Average Use (kwh) 8,281 8,131 (0.4) 8,629 1.2 Peak(MW) 857 1,007 3.3 993 (0.3)

Commercial Customers Sales to commercial customers declined 1.5% as a result of the continued weakness in the regional economy. Sales to the 12 hotel/casinos decreased 1.5% due to the cool weather during the summer months. Sales to the hotel/casinos comprise 7.0% of total sales.

For the

%Annual Est. %Annual eleven-year period GrowthRate Est.

Growth Rate 1987-1997:

1987 1992

'87-'92 1997

'92-'97 Sales (billion kwh) 2.592 3.100 3.6%

3.487 2.4%

% ofTotal Sales 37 40 1.6 40 Average Use (kwh) 55,419 59,623 1.5 59,525 Peak(MW) 586 603 0.6 649 1.5 Industrial & Other Customers Sales to Industrial & Other customers declined 9.8% in 1992 due to the loss of two customers to cogeneration. After adjusting for these two customers, the remainder of the Industrial sector increased its energy consumption by 6. 9%.

For the

%Annual Est. %Annual eleven-year period Growth Rate Est.

GrowthRate 1987-1997:

1987 1992

'87-'92 1997

'92-'97 Sales (billion kwh) 1.382 1.279 (l.5)%

1.383 1.6%

% ofTotal Sales 20 17 (3.2) 16 (1.2)

Average Use (000 kwh)*

1,304 1,242 (l.O) 1,322 1.3 Peak(MW) 166 186 2.3 177 (l.O)

• lndusrrial customers only A

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y Atlantic Electric's Service Area Atlantic Electric serves more than 455,000 customers in a 2, 700 square-mile area in southern New Jersey. Pe load has occurred durin the summer months. Major businesses include tourism, casino gaming, stone, clay, glass, chemical, petroleum, rubber and food processing.

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Report of Management Report of Audit Committee Independent Auditors' Report Consolidated Statement oflncome Consolidated Statement of Cash Flows Consolidated Balance Sheet Consolidated Statement of Changes in Common Shareholders' Equity T

Notes to Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Summary Financial and Statistical Review A

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R E P 0 R T 0 F The management of Atlantic Energy, Inc. and its subsidiaries (the Company) is responsible for the preparation of the finan-cial statements presented in this Annual Report. The financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management made informed judgments and esti-mates, as necessary, relating to events and transactions reported. Management is also responsible for the preparation of other financial information included elsewhere in this Annual Report.

Management has established a system of internal accounting and financial controls and procedures designed to provide rea-sonable assurance as to the integrity and reliability of financial reporting. In any system of financial reporting controls there are inherent limitations. Management continually examines the effectiveness and efficiency of this system, and actions are taken when opportunities for improvement are identified.

Management believes that, as of December 31, 1992, the sys-tem of internal accounting and financial controls over financial reporting is effective. Management also recognizes its responsi-bility for fostering a strong ethical climate in which the Company's affairs are conducted according to the highest stan-dards of corporate conduct. This responsibility is characterized and reflected in the Company's code of ethics and business conduct policy.

The financial statements have been audited by D eloitte &

Touche, Certified Public Accountants. Deloitte & Touche pro-

• vides an objective, independent audit as to management's dis-charge of its responsibilities insofar as they relate to the fairness A

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A G E M E T

of the financial statements. Their. audits are based on p dures believed by them to provide reasonable assurance that financial statements are not misleading and include a review of the Company's system of internal accounting, financial and operational controls and tests of transactions.

The Company's internal auditing function conducts audits and appraisals of the Company's operations. It evaluates the system of internal accounting, financial and operational controls and compliance with established procedures. Both Deloitte &

Touche and the internal auditors periodically make recommen-dations concerning the Company's internal control structure, and management responds to such recommendations as appro-priate in the circumstances. None of the recommendations made for the year ended December 31, 1992 represented sig-nificant deficiencies in the design or operation of the Company's internal control structure.

9-/~

J. L.Jacobs President J. G. Salomone Vice President and Treasurer

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R E P 0 R T 0 F T H E e Audit Committee of the Board of Directors is comprised olely of independent directors. The members of the Committee are: Jos. Michael Galvin, Jr., Gerald A. Hale, Matthew Holden, Jr., Madeline H. McWhinney and Harold J. Raveche. The Committee held three meetings during 1992.

The Committee oversees the Company's financial reporting process on behalf of the Board of Directors. In fulfilling its responsibility, the Committee recommended to the Board of Directors, subject to shareholder ratification, the selection of the Company's independent auditors, Deloitte & Touche. The Committee discussed with the internal auditors and the inde-pendent auditors the overall scope of and specific plans for their respective activities concerning the Company. The Committee also discussed the Company's consolidated financial statements with the independent auditors. The Committee meets regularly with the Company's internal auditors and independent audi-D E P E lD E Deloitte&

Touche Certified Public Accountants Two Hilton Court Parsippany, New Jersey 07054 To the Shareholders and the Board of Directors of Atlantic Energy, Inc.:

T A

We have audited the accompanying consolidated balance sheets of Atlantic Energy, Inc. and subsidiaries as of December 31, 1992 and 1991 and the related consolidated statements of income, changes in common shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1992. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting A

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,\\ U D T c 0 J i1 T T E E tors, without management present, to discuss the results of their activities, the adequacy of the Company's system of accounting, financial and operational controls and the overall quality of the Coinpany's financial reporting. The meetings are designed to facilitate any private communication with the Committee desired by the internal auditors or independent auditors. No significant actions by the Committee were required during the year ended December 31, 1992 as a result of any private communications conducted.

Matthew Holden,Jr.

Chairman, Audit Committee D

T 0 R § R E P 0 R T the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluat-ing the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Atlantic Energy, Inc. and its subsidiaries at December 31, 1992 and 1991 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1992 in conformity with generally accepted accounting principles.

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February 1, 1993

CONSOLIDAT ED

§TA T EME T

0 F (Thousands of Dollars)

For the Years Ended December 31, 1992 1991 1990 Operating Revenues-Electric

$816,825

$808,374

$740,894 Operating Expenses:

Energy 161,134 182,972 185,543 Purchased Capacity 103,173 79,314 57,369 Operations 148,917 146,548 133,582 Maintenance 49,837 51,960 52,351 Depreciation and Amortization 69,371 66,023 62,141 Gross Receipts and Franchise Taxes 97,969 88,932 87,314 Federal Income Taxes 37,143 36,244 26,917 Other Taxes 12,113 11,525 11,115 Total Operating Expenses 679,657 663,518 616,332 Operating Income 137,168 144,856 124,562 Other Income:

Allowance for Equity Funds Used During Construction 2,212 1,814 1,727 Litigation Settlement, net of tax of $4,982 9,671 Other-Net 9,519 7,043 7,585 Total Other Income 21,402 8,857 9,312 Income Before Interest Charges 158,570 153,713 133,874 Interest Charges:

Interest on Long Term Debt 53,284 51,601 54,803 Interest on Short Term Debt 1,579 1,946 1,510 Other Interest E ense 1,099 1,179 109 Total Interest Charges 55,962 54,726 56,422 Allowance for Borrowed Funds Used During Construction (1,414)

(3,059)

(2,226)

Net Interest Charges 54,548 51,667 54,196 Less Preferred Stock Dividend Requirements of Subsidiary 17,812 16,411 10,799 Net-Income

$ 86,210

$ 85,635

$ 68,879 Average Number of Shares of Common Stock Outstanding (in thousands).

51,592 49,008 45,590 Per Common Share:

Earnings 1.67 1.75 1.51 Dividends Declared

$ 1.515

$ 1.495 1.47 Dividends Paid 1.51 1.49 1.46 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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CO.'SOLJDATED S T. T E 11 E

• T 0 F C A § H FLOWS usands of Dollars)

For the Years Ended December 31, 1992 1991 1990 Cash Flows of Operating Activities:

Net Income

$ 86,210

$ 85,635

$ 68,879 Deferred Purchased Power Costs 13,410 (12,938)

(21,840)

Deferred Energy Costs (6,143) 13,180 20,136 Noncash items affecting operating activities:

Preferred Stock Dividend Requirements of Subsidiary 17,812 16,411 10,799 Depreciation and Amortization 69,371 66,023 62,141 Allowance for Funds Used During Construction (3,626)

(4,873)

(3,953)

Nuclear Decommissioning Reserve 6,424 3,010 Deferred Income Taxes-Net 23,386 13,413 12,828 Net Decrease (Increase) in Other Working Capital 8,225 (2,821) 9,591 Other-Net 2,852 7,498 1,290 Net Cash Provided by Operating Activities 217,921 184,538 159,871 Cash Flows of Investing Activities:

Utility Cash Construction Expenditures (130,700}

(172,425)

(166,818)

Leased Property (9,565)

(8,793)

(10,576)

Nuclear Decommissioning Trust Fund Deposits (6,424}

(13,777)

(1,920)

Utility Plant Removal Costs (4,936)

(5,157)

(3,912)

Other-Net (3,588)

(3,400)

(336) et Cash Used by Investing Activities (155,213)

(203,552)

(183,562) h Flows of Financing Activities:

roceeds from Long Term Debt 74,655 38,779 Retirement and Maturity of Long Term Debt (40,599)

(50,170)

(28,625)

(Decrease) Increase in Short Term Debt (6,000)

(23,350) 43,950 Proceeds from Capital Lease Obligations 9,565 8,793 10,576 Proceeds from Common Stock Issued 16,110 72,698 4,694 Proceeds from Preferred Stock Issued 69,720 49,888 Dividends on Preferred Stock (17,812}

(16,411)

(10,799)

Dividends on Common Stock

{65,644}

(62,769)

(56,673)

Other-Net (5,403)

(9,170)

(5,267)

Net Cash (Used) Provided by Financing Activities (35,128}

28,120 7,744 Net Increase (Decrease) in Cash and Temporary Investments 27,580 9,106 (15,947)

Cash and Temporary Investments, beginning of year 18,067 8,961 24,9_9L -

Cash and Temporary Investments, end of year

$ 45,647

$ 18,067 8,961 Supplemental Schedule of Payments:

Interest

$ 55,275

$ 57,221

$ 58,080 Federal income taxes

$ 24,312

$ 23,721

$ 19,279 Noncash Financing Activities:

Common Stock issued from dividends declared under dividend reinvestment plan

$ 12,692

$ 11,304

$ 10,412 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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CO '§OL1DATED

{Thousands of Dollars)

Assets Electric Utility Plant:

In Service:

Production Transmission Distribution General Total In Service Less Accumulated Depreciation Net Construction Work in Progress Land Held for Future Use Leased Property-Net Electric Utility Plant-Net Nonutility Property and Investments:

Investment in Leveraged Leases Nuclear Decommissioning Trust' Fund Nonutility Property and Equipment-et Other Investments and Funds Total Nonutility Property and Investments Current Assets:

Cash and Temporary Investments Accounts Receivable:

Utility Service Miscellaneous Allowance for Doubtful Accounts Unbilled Revenues Fuel (at average cost)

Materials and Supplies (at average cost)

Working Funds Prepayments Deferred Income Taxes Total Current Assets Deferred Debits:

Unrecovered Purchased Power Costs Unamortized Debt Costs Property Abandonment Costs-Net Deferred Energy Costs Other Total Deferred Debits Total Assets B A L A The accompanying ores to Consolidated Financial Statements are an integral part of these statements.

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> Entrgy C E S H E E T December 31, 1992 1991 *

$1,044,068

$1,009,776 312,374 295,044 583,890 557,494 155,679 152,441 2,096,011 2,014,755 599,100 545,829 1,496,911 1,468,926 130,685 102,708 5,045 5,045 49,304 53,093 1,681,945 1,629,772 76,465 75,293 34,617 26,489 15,561 15,039 11,132 4,233 137,775 121,054 45,647 18,067 47,928 49,842 12,533 16,703 (3,000)

(2,400) 39,281 38,078 20,874 21,646 25,763 27,394 15,433 15,955 10,247 11,267 7,031 11,142 221,737 207,694 124,408 137,818 20,693 22,505 10,297 8,502 10,360 23,296 13,711 178,694 192,896

$2,220,151

$2,151,416

housands ofDollars)

Liabilities and Capitalization Capitalization:

Common Shareholders' Equity:

Common Stock, no par value; 75,000,000 shares authorized; issued and outstanding: 1992 - 52,198,624; 1991 - 50,896,074 Retained Earningi; Total Common S~

har-eh-o-ld-e-rs-

, -E-qw-. ty Preferred Stock of Atlantic City Electric Company:

Not Subject to Mandatory Redemption Subject to Mandatory Redemption Long Term Debt Total Capitalization (excluding current portion)

Current Liabilities:

Preferred Stock Redemption Requirement Long Term Debt due within one year Capital Lease Obligations due within one year Short Term Debt counts Payable es Accrued terest Accrued Dividends Declared Customer Deposits Deferred Energy Costs Other Total Current Liabilities Deferred Credits and Other Liabilities:

Deferred Income Taxes Deferred Investment Tax Credits Capital Lease Obligations Other Total Deferred Credits and Other Liabilities Commitments and Contingent Liabilities (Note 10)

Total Liabilities and Capitalization Al/an/ c<

En t

rgy December 31, 1992

. 1991 I 549,147

$ 520,345 242,768 234,894 791,915 755,239 40,000 40,000 190,250 191,300 631,580 565,547 1,653,745 1,552,086 1,050 1,050 19,356 49,450 798 740 14,600 20,600 52,028 57,467 7,697 7,367 14,706 13,638 24,275 23,550 2,955 2,988 8,089 24,592 16,794 16,093 162,348 217,535 277,305 255,495 56,715 59,249 48,505 52,353 21,533 14,698 404,058 381,795

$2,220,151

$2,151,416

CO.'SOLID. TED ST. TEJE. ~T OF CH.'GE§ J.' CO.D10.' SH. REH OLDER§' EQl'lTY (Thousands of Dollars)

Balance, December 31, 1989 Common Stock issued Net Income Capital stock expense of subsidiary Common stock dividends Balance, December 31, 1990 Common Stock issued:

Public offering Other Net income Capital stock expense of subsidiary Common stock dividends Balance, December 31, 1991 Common stock issued Net income Common stock dividends Balance, December 31, 1992 Common Stock issued in 1992, 1991 and 1990 was for the Dividend Reinvestment and Stock Purchase Plan (DRP) and Atlantic City Electric Company (ACE) employee benefit plans. Also, in 1991 Common Stock was issued through a public offering. In January 1992, an additional 1,800,000 shares of Common Stock were registered for issuance under the DRP. At December 31, 1992, 728,167 and 139,455 shares Shares 45,091,434 860,542 45,951,976 4,000,000 944,098 50,896,074 1,302,550 52,198,624 Common Stock

$421,237 15,106 436,343 66,970 17,032 520,345 28,802

$549,147 Retained Earnings

$222,163 68,879 (208)

(67,085) 223,749 85,635 (417)

(74,073) 234,894 86,210 (78,336)

$242,768 were reserved for issuance under the DRP and ACE employee benefit plans, respectively.

On March 12, 1992, the Company's Board of Directors aut rized a two-for-one split of its no par value Common S and increased the number of authorized shares fr 50,000,000 to 75,000,000. The additional shares were issued May 14, 1992. All shares above reflect the effects of the split.

The accompanying otes to Consolidated Financial Statements are an integral part of these statements.

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' OTE S TO CO:\\SOLJDATED Fl L ST TEME 'T§ TEl.

SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Atlantic Energy, Inc. (the Company) is the parent of a consolidated group consisting of the following wholly-owned subsidiaries: Atlantic City Electric Company (ACE),

Atlantic Energy Technology, Inc. (AET), Atlantic Generation, Inc. (AGI), Atlantic Southern Properties, Inc.

(ASP) and ATE Investment, Inc. (ATE). ACE is a public utility primarily engaged in the generation, transmission, distribution and sale of electric energy. Rates for service are regulated by the New Jersey Board of Regulatory Commissioners (BRC). ACE's service territory encompasses approximately 2,700 square miles within the southern one-third of New Jersey. The majority of ACE's customers are residential and commercial. ACE, with its wholly-owned subsidiary that operates certain generating facilities, is the primary company within the consolidated group. AET invests in companies with energy-related products and technologies and has a majority-owned subsidiary that markets geothermal heating and cooling systems in the Pennsylvania, New York and New Jersey area. AGI and its oily-owned subsidiaries are engaged in the development of neration power projects located in New Jersey and New through several partnership arrangements. ASP owns, develops and manages a commercial office and storage facility located in southern New Jersey. ATE provides fund management and financing to affiliates and manages its portfolio of investments in leveraged leases for equipment used in the airline and shipping industries.

PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. ACE, AET and AGI consolidate their respective subsidiaries. AGI accounts for another investment using the equity method by recognizing its proportionate share of the results of operations of that investment. The results of operations of the nonutility companies are not significant and are classified under Other Income in the Consolidated Statement oflncome.

REGULATION The accounting policies and rates of ACE are subject to the regulations of the BRC and in certain respects to the Federal Energy Regulatory Commission (FERC). All significant accounting policies and practices used in the determination of

'",J,o u=1 fo, finwci,J repo,ting pwpo*"*

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ELECTRIC OPERATING REVENUES Revenues are recognized when electric energy services are rendered, and include estimates for amounts unbilled at the end of the period for energy used subsequent to the last billing cycle.

NUCLEAR FUEL Fuel costs associated with ACE's participation in jointly-owned nuclear generating stations, including spent nuclear fuel disposal costs, are charged to Energy expense based on the units of thermal energy produced.

ELECTRIC UTILI1Y PLANT Property is stated at original cost. Generally, the plant is subject to a first mortgage lien. The cost of property additions, including replacement of units of property and betterments, is capitalized. Included in certain property additions is an Allowance for Funds Used During Construction (AFDC) which is defined in the applicable regulatory system of accounts as the cost during the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used.

AFDC has been calculated using a semi-annually compounded rate of8.95%, as approved by the BRC, for the years presented.

DEPRECIATION ACE provides for straight-line depreciation based on the estimated remaining life of transmission and distribution property, and based on the estimated average service life for all other depreciable property. The overall composite rate of depreciation was approximately 3.5% in 1992, 3.7% in 1991 and 3.6% in 1990. Accumulated depreciation is charged with the cost of depreciable property retired together with removal costs less salvage and other recoveries. Depreciable property of the nonutility companies is not significant.

> Energy

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NUCLEAR DECOMMISSIONING TRUST ACE has established a trust to fund the future costs of decommissioning each of the five nuclear units in which it has an ownership interest. The current annual funding amount, as authorized by the BRC, totals $6.4 million and is provided for in rates charged to customers. The funding amount is based on estimates of the future cost of decommissioning each of the units, the dates that decommissioning activities are expected to occur and the return to be earned by the assets of the fund. The BRC has determined that the total estimated cost to decommission ACE's share in nuclear units is $65.5 million in 1987 dollars. The BRC has further established that decommissioning activities are expected to begin in 2006 and continue through 2032. Actual costs and timing of decommissioning activities may vary from the current estimates. ACE will seek to adjust these estimates and the level of rates collected from customers in future BRC proceedings to reflect changes in decommissioning cost estimates and the expected levels of inflation and interest to be earned by the assets in the fund. As of December 31, 1992, the trust had a market value of $36. 7 million, of which

$24. 7 million has been qualified for Federal income tax purposes. ACE had an associated accumulated liability for decommissioning costs of$33.7 million at December 31, 1992.

DEFERRED ENERGY COSTS As approved by the BRC, ACE has Levelized Energy Clauses (LECs) through which the cost of energy is charged to customers. LEC rates are based on projected energy costs and prior period underrecoveries or overrecoveries of energy costs. The recovery of energy costs is made through levelized rates over the period of projection, which is generally a 12-month period. In any period, the actual amount of LEC revenues recovered from customers will be greater or less than the actual amount of energy costs incurred in that period.

Energy expense is accordingly adjusted to match the associated LEC revenues. Any underrecovery or overrecovery of costs is deferred on the Consolidated Balance Sheet as A

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Deferred Energy Costs, which can be an asset or liabili appropriate. These deferrals are recognized in tne Consolidated Statement of Income as Energy expense during the period in which they are subsequently recovered through theLECs.

INCOME TAXES Deferred Federal and state income taxes are provided on all significant current transactions for which the timing of reporting differs for book and tax purposes. Investment tax credits, which are used to reduce current Federal income taxes, are deferred on the Consolidated Balance Sheet and recognized in book income over the life of the related property. The Company and its subsidiaries file a consolidated Federal income tax return. Income taxes are allocated to each of the companies within the consolidated group based on the separate return method.

UNRECOVERED PURCHASED POWER COSTS ACE has agreements for the purchase of 125 megawatts (MWs) of capacity and related energy from Pennsylvania Power and Light Company (PP&L) under two capacity and energy sales agreements. The agreements provided for the purchase of capacity and energy from PP&L's Susquehanna nuclear Unit 1 and Unit 2 through September 30, 1991,'

from certain PP&L coal-fired units through Septembe 2000. The base rates approved by the BRC to recover t estimated non-fuel contract costs of this arrangement are based on a levelization of the estimated non-fuel contract costs to be incurred over the 17-year period of the agreements. The estimated non-fuel contract costs of the nuclear portion of the agreements are higher than the estimated non-fuel contract costs of the coal portion of the agreements. During the nuclear portion of the agreements, the estimated non-fuel costs exceeded the levelized revenues.

The excess estimated non-fuel costs were deferred on the Consolidated Balance Sheet as Unrecovered Purchased Power Costs. Related deferred Federal income taxes have been provided. Beginning with the coal portion of the agreements effective October 1, 1991, the levelized revenues are greater than the estimated non-fuel costs. This enables ACE to amortize the deferred non-fuel costs over the remaining term of the agreements to Purchased Capacity on the Consolidated Statement of Income. Differences between actual non-fuel costs incurred and the estimated costs being recovered are subject to usual base rate recovery procedures.

> Energy

.'OTES TO CO.'SOLlDATED Fl 'A.'ClAL ST TEME TT§ PER1Y ABANDONMENTS AND DISAiLOWANCE

~LANT COSTS A loss is recognized if the carrying amounts of abandoned utility assets exceed the present value of future revenues to be generated by those assets. Any disallowance of the cost of a newly completed utility plant, including an indirect disallowance which provides no return on investment of any portion of the plant, is recognized as a loss.

Property Abandonment Costs that are stated at their net present value in the Consolidated Balance Sheet consist of ACE's investment in the following as of December 31, 1992:

Net Remaining Present Unamortized Recovery Investment Value(OOO)

Cost(OOO)

Period (years)

Offshore Nuclear Generating Units

$ 869

$1,322 6+

Nuclear Generating Unit 3,264 4,472 5

Unrecovered Nuclear Fuel Advances 1,787 2,865 8+

Prs;,osed Plant 1te Costs 1,532 1,927 3+

Additionally, $2.8 million in unamortized cost within ctric Utility Plant in Service is excluded from rate base for oses of computing a return on the investment in the pe Creek Nuclear Generating Station.

The excess of the carrying values of the above assets over their discounted present values was recognized as a loss at the date of abandonment or exclusion. This discount is being restored to income by accretion over the amortization/

depreciation period of the abandoned or excluded costs allowed for ratemaking.

FINANCIAL INSTRUMENTS A number of items within Current Assets and Current Liabilities on the Consolidated Balance Sheet are considered to be financial instruments because they are cash or are to be settled in cash. Due to their short term nature, the carrying values of these items approximate their fair market values.

Accounts Receivable-Utility Service and Unbilled Revenues are subject to concentration of credit risk because they pertain to utility service conducted within a confined geographic region. Investments in Leveraged Leases are subject to concentration of credit risk because they are exclusive to a small number of parties within two industries. The Company has recourse to the affected equipment under lease. Such equipment is of general use within the respective industries.

OTHER Debt premium, discount and expenses of ACE are amortized over the life of the related debt. Costs associated with debt reacquired by refundings are amortized over the life of the newly issued debt as permitted by the BRC in accordance with FERC guidelines. Temporary investments considered as cash equivalents for Consolidated Statement of Cash Flows purposes represent purchases of highly liquid debt instru-ments maturing in three months or less. As.a result of the two-for-one Common Stock split on May 14, 1992, all common share outstanding amounts and per common share calculations contained in the consolidated financial statements for prior year periods have been adjusted accordingly. Amounts in prior year periods presented in the Consolidated Statement of Income that are associated with sales of energy and capacity to other utilities (sales for resale) are now included in Operating Revenues. Prior practice had been to account for these sales as a net expense within Energy and Operating expenses. These reclassifications were made in response to FERC requirements effective January 1, 1992.

Net income for the prior year periods presented was not affected by this reclassification. Certain other prior year amounts have been reclassified to conform to the current year reporting of these items.

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• 0 T E § T 0 c 0 * § 0 L I D A T E [) F ] *. \\ ;-; c ]. L s T A T E M E T T § NOTE2.

FEDERAL INCOME TAXES (000)

The components of Federal income tax expense are as follows:

Current Deferred Investment Tax Credits Recognized on Leveraged Leases Total Federal Income Tax Expense Less Amounts Included in Other Income Federal Income Taxes Included in Operating Expenses Deferred Federal income taxes result from the following:

Liberalized Depreciation Unrecovered Purchased Power Costs Deferred Energy Costs Leveraged Leases Investment Tax Credits Other-Net Total Deferred Federal Income Tax Expense 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 Preferred Stock Dividend Requirements of Subsidiary Federal Income Tax Expense Book Income Subject to Tax Statutory Federal Income Tax Rate Income Tax Computed at the Statutory Rate Items for which deferred taxes are not provided:

Difference Between Tax and Book Depreciation Investment Tax Credits Reversal of Excess Deferred Taxes Utility Plant Removal Costs Other-Net Total Federal Income Tax Expense Effective Federal Income Tax Rate In 1992, the Company's computed Federal Alternative Minimum Tax (AMT), attributable to nonutility operations, was less than its regular Federal income tax by $304 thousand.

In 1991 and 1990, the AMT exceeded regular income tax by

$2.0 million and $9.4 million, respectively. A cumulative AMT credit of $17.0 million is available at December 31, 1992. The AMT credit is available for an indefinite carryforward period against future Federal income tax payable, A

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Years Ended December 31, 1992 1991 1990

$ 22,441

$ 24,202

$ 16,652 23,154 13,043 12,292

{233)

(500)

(752) 45,362 36,745 28,192 8,219 501 1,275

$ 37,143

$ 36,244

$ 26,917

$ 17,762

$ 10,558

$ 11,156 (4,823) 3,477 5,845 3,427 (3,825)

(5,781) 12,375 11,623 7,932 (2,534}

(2,348)

(2,349)

(3,053)

(6,442)

(4,511)

$ 23,154

$ 13,043

$ 86,210

$ 85,635

$ 68,879 17,812 16,411 10,799 45,362 36,745 28,192

$149,384

$138,791

$107,870 34%

34%

34%

$ 50,791

$ 47,189

$ 36,676 5,675 3,631 4,661 (2,767}

(3,038)

(3,277)

{757}

(2,641)

(5,678)

(2,575}

(2,722)

(2,245)

(5,005)

(5,674)

(1,945)

$ 45,362

$ 36,745

$ 28,192 30%

26%

26%

to the extent that the regular Federal income tax payable exceeds future AMT payable.

Federal income tax returns for 1983 and prior year been examined and settled by the Internal Revenue Service In February 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 109 entitled "Accounting for Income Taxes" which is effective for the Company beginning January 1, 1993.

> Energy

.TO T E§ T O CO.T§O LJ D statement supersedes or amends virtually all previously ting standards on accounting for income taxes. Statement No. 109 changes the recording methodology relating to deferred income taxes to an asset and liability approach. The principal impacts to the Company relate to recording, on a current basis, the effect of changes in enacted income tax rates on the amount of income taxes recorded and the recording of deferred tax liabilities not previously recorded by ACE. At December 31, 1992, the cumulative amount of deferred Federal income taxes under current acc?unting standards NOTE3.

RATEMATIERS OF ACE ENERGY CLAUSE PROCEEDINGS Changes in Levelized Energy Clause Rates 1990-1992 Amount Date Filed R::Hliested

(

• ons) 3/90

$(26.2)[1]

3/91 30.6 (6.6) ne 1990 amended filing Amount Granted (millions)

$(35.8) 21.3 (8.5)

Date Effective 6190 6/91 10/92 ACE's Levelized Energy Clauses (LECs) are subject to annual review by the BRC.

In January 1990, ACE and other parties signed a joint position designed to settle certain contested issues of a 1988 LEC proceeding. The joint position provided for an increase in annual base rate revenues of $41.6 million for ACE's four-year agreement to purchase 200 MWs of capacity and associated energy from Philadelphia Electric Company (PE).

Coincident with the base rate increase, LEC revenues were to be decreased by a like amount.

In May 1990, the BRC rejected the joint position, ruling that the capacity costs associated with the PE purchase were reasonable, but only would be considered within a formal base rate proceeding. However, ACE was granted a provisional base rate increase of $41.6 million effective June 1990 (see "Base Rate Case Proceedings").

In March 1990, ACE filed proposed LEC tariffs with the BRC for the period June 1990 through May 1991, which reflected the terms of the joint position discussed above. As a result of the May 1990 BRC action, in June 1990 ACE amended its filing to provide for a decrease in annual LEC revenues of $26.2 million. This amended filing included a est to begin recovery over three years of certain Salem ear Generating Station replacement power costs deferred e 1984 amounting to $10.4 million, recovery of interest payments previously made by ACE related to the deferred Salem replacement power costs and the nuclear performance A

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L § T TE 1E 1 T§ which have not been provided on timing differences, principally depreciation, amounted to approximately $50 million. Upon adoption of Statement No. 109, ACE expects to record an increase to deferred Federal income tax liabilities of approximately $85 million, after effect for revenue requirements necessary to collect such amounts from ratepayers. The adoption of Statement No. 109 by the nonutility companies is not expected to have a material effect on the consolidated financial statements.

standard and retention of a portion of fuel and energy savings associated with the PE power purchase agreement. In June 1990, the BRC approved an interim net decrease in annual LEC revenues of $35.8 million effective June 20, 1990. This ruling was contingent upon subsequent resolution of the rate making treatment of the deferred Salem costs, certain interest calculations on overrecoveries and underrecoveries and ACE's proposal to retain a portion of the fuel savings associated with the PE agreement. In January 1991, an initial decision issued by an Administrative Law Judge (ALJ) ruled against ACE's requested recovery of the three contested issues remaining in the proceeding.

In March 1991, ACE filed a petition requesting revisions of its LECs to reflect an increase of 30.6 million for the period June 1, 1991 through May 31, 1992. On June 11, 1991, the BRC ordered a net increase in annual LEC revenues of

$21.3 million, effective on that date. The June 1991 Order upheld the AL J's January 1991 decision and, as a result, ACE was not permitted to begin recovery of the deferred Salem costs and associated interest payments previously made by ACE. The June 1991 Order denied ACE 's request to retain a portion of the fuel and energy savings associated with the PE purchase.

On January 10, 1992, ACE filed a request with the BRC for rehearing and reconsideration of issues relating to the recovery of the $10.4 million deferred Salem costs, recovery of interest payments previously made by ACE relating to the deferred Salem costs and nuclear performance standard, and retention of a portion of fuel and energy savings associated with the PE power purchase agreement. On February 10, 1992, ACE withdrew portions of its request for rehearing with respect to the issues relating to recovery of interest payments and retention of fuel and energy savings. In late May 1992, ACE and the Staff of the BRC (Staff) entered into a stipulation to settle the open rehearing and reconsideration issue. By the terms of the stipulation, ACE would begin recovery, over a three-year period, of the $10.4 million of

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'OTES TO CO 'SOLJD, TED FL.'A:CJ, L §TATEJE.

1 T§ deferred Salem costs. The stipulation provided that in the event the BRC, in a final determination in a Public Service Electric & Gas (PS) base rate proceeding, reverses its 1988 finding that the deferred Salem costs are prudent and reasonable and orders their return to customers, then ACE, after the exhaustion of all administrative, legal and equitable remedies, would be bound by such order. The Department of the Public Advocate-Division of Rate Counsel (Rate Counsel) was not a signatory to the stipulation. On September 2, 1992, the BRC adopted the stipulation between ACE and Staff and authorized ACE to begin recovery of the deferred Salem costs concurrent with the BRC's approval and implementation of ACE's then pending February 28, 1992 LEC petition.

On February 28, 1992, ACE filed with the BRC a petition relating to its LEC rates for the period June 1, 1992 through May 31, 1993, requesting no change in its current rates. On April 30, 1992, ACE filed revisions to its petition that would result in a rate decrease of $6.6 million, reflecting an allocation to customers of 25% of the net settlement reached in March 1992 in the lawsuit against PE (see Note 10), and an update for the projected overrecovery of prior LEC costs and associated interest. The parties entered into a stipulation of settlement dated August 14, 1992 regarding the February 28, 1992 petition and April 30, 1992 revisions thereto. In October 1992, the BRC issued its written order adopting the stipulation of settlement which resulted in a reduction in annual LEC revenues of $8.5 million that was implemented October 20, 1992, including the recovery over a three-year period of the $10.4 million deferred Salem costs. The amount I

allocated to customers from the PE settlement may be reviewed further by the BRC in ACE's next LEC filing, scheduled for February 1993. It is not possible to predict the outcome of such review.

BASE RATE CASE PROCEEDINGS Changes in Base Rates 1990-1992 Overall Authorized Amount Amount Rate of Return on Test Date Requested Granted Date Return Common Year Filed

{millions)

{millions)

Effective Granted%

Equity% Ending 9/88

$41.6 6190 9190 113.0 50.0 7191 10.52 12.50 5/91 8/91 25.8 12.9 10/92 In compliance with the May 1990 BRC provisional rate order discussed under "Energy Clause Proceedings," in September 1990, ACE filed a petition with the BRC requesting an increase in base rate revenues of $113.0 million on an annual basis. Additionally in this filing, ACE requested that the At/anti

$416 million provisional base rate revenue increase grant.

the BRC effective June 1990, as discussed under "Energy Clause Proceedings," be confirmed and placed permanently in base rates. Also, ACE requested recovery of the first year costs of the PE agreement not covered by the provisional increase, plus full recovery of the costs for the remaining three years of the agreement. In its filing, ACE requested an overall rate of return of 1113% and a return on common equity of 13.7%. At that time, ACE had an authorized overall return of 11.42% and a return on common equity ofl4.1%.

On June 24, 1991, the ALJ issued an initial decision accepting a stipulation between ACE and the parties in the base rate proceeding. The stipulation provided, among other things, for an increase in annual base rate revenues of $50 million based upon a test year ending May 31, 1991, an allowed overall rate of return of 10.52% and an authorized return on common equity of 12.SOOA>. In addition, the parties agreed to confirm and make permanent in base rates the $416 million provisional increase.

On July 3, 1991, the BRC adopted the initial decision of the ALJ and the stipulation of the parties and authorized an increase in annual base rate revenues of $50 million. During the course of the proceeding, the ALJ ruled that a Phase II proceeding was appropriate for the determination of regulatory treatment of consolidated Federal incom benefits derived from affiliated nonutility entities. In its 3, 1991 Order, the BRC ordered that the issue of con-solidated taxes remain open and that ACE file a petition in this matter no later than 60 days from the date of the BRC Order. The stipulation also provided that ACE would not be prevented from requesting regulatory treatment in a Phase II proceeding of any obligations arising from changes in state law with respect to Gross Receipts and Franchise Taxes (GR&FT) that were enacted on June 30, 1991 One of the changes in the GR&FT law requires parties subject to the law to remit their annual GR&FT obligation in a single payment on April 1 of each year. In addition, ACE will be required to remit an additional year of tax within the two-year period 1993-1994 along with its regular tax payments for these years.

The additional payments for 1993 and 1994 will amount to between $46 million and $50 million in each year.

On August 30, 1991, ACE filed its Phase II request with the BRC for an increase in annual base rate revenues of $25.8 million to recover the increased costs relating to the changes in the G R&FT law. The petition also addressed the regulatory treatment of consolidated Federal income tax benefits derived frorri affiliated nonutility entities. The proceeding was transferred to the Office of Administrative Law for hearing.

> Energy

he annual base rate revenues requested by ACE would recover the additional payments for 1993 and 1994 over a five-year period commencing in 1992, with a return on the unamortized portion. With respect to consolidated income tax benefits, ACE asserted in its petition and supporting testimony filed with the BRC that no changes in customer rates should be made on the basis that the consolidated Federal tax benefits are generated by nonutility affiliates.

In May 1992, the ALJ issued an Initial Decision in the proceeding. The ALJ recommended that a consolidated Federal income tax benefit adjustment be made to reduce ACE's rate base, that Rate Counsel's calculation of cash working capital be adopted and that ACE be provided a ten-year recovery of the additional GR&FT payments with interest on the unamortized balance calculated using the average prime rate. The ALJ's decision did not specify a recommended increase in annual revenue requirements. ACE estimated that, using a prime rate in the range of 6%-61/2%,

the ALJ's recommendation would result in an annual revenue requirement of approximately $8.6 million.

On October 20, 1992, the BRC issued its written Order in ACE's Phase II base rate proceeding, accepting the recommendations of the ALJ with certain modifications. By

• Order, the BRC authorized a net increase in annual base revenues of$12.9 million effective October 20, 1992. The ge in base rates included the recovery of $95.6 million in additional GR&FT payments over a ten-year period with interest imputed on the unamortized balance at the rate of 7.5%. This amounted to an increase in annual base rate revenues of approximately $13.5 million. The BRC also granted an increase in annual base rate revenues of $1.6 million to reflect the cash working capital impacts of the NOTE4.

RETIREMENT BENEFITS ACE has a noncontributory defined benefit retirement plan covering substantially all of its employees and those of its wholly-owned subsidiary. Benefits are based on an employee's years of service and average final pay. The plan's policy is to fund pension costs within the guidelines of the minimum required by the Employee Retirement Income Security Act and the maximum allowable as a tax deduction. Each company is allocated its participative share of plan costs and contributions.

Net periodic pension costs for 1992, 1991 and 1990 clod tho following oomponon~'

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acceleration of GR&FT payments to the State. With respect to consolidated Federal income tax benefits, the BRC ordered that a rate base adjustment be made in the amount of $15.4 million. This represents one-half of the total tax benefits for 1990 and the total tax benefits for 1991 realized by affiliated nonutility entities in filing consolidated Federal income tax returns. This rate base adjustment resulted in a reduction in annual base rate revenues of $2.2 million. On December 23, 1992, Rate Counsel filed a Notice of Appeal with the Superior Court of New Jersey, Appellate Division relating to the BRC's decision allowing ACE to increase its base rates with respect to changes in GR&FT. In its filing Rate Counsel asserts that the BRC's decision was unreasonable, not supported by evidence and results in unjust rates. ACE intends to vigorously defend its position. ACE cannot predict the outcome of this matter.

OTHER RATE PROCEEDINGS On August 28, 1992, ACE filed a motion with the BRC requesting approval of ACE's proposed deferred accounting treatment of costs, in excess of current costs, resulting from the implementation of Statement of Financial Accounting Standards No. 106. Under Statement No. 106, ACE will be required to account for postretirement benefits other than pensions on an accrual basis. Presently, ACE accounts for its costs related to those benefits on a modified cash basis.

Statement No. 106 is effective for ACE beginning January 1, 1993, and ACE requested that the deferred accounting order be effective on that date. On December 22, 1992, the BRC verbally approved ACE's request for deferred accounting of excess costs incurred due to implementation of Statement No.

106. (See Note 4 for additional information.)

(000) 1992 1991 1990 Service cost-benefits earned during the period s 7,310 6,662

$ 6,843 Interest cost on Frojected benefit obligation 17,301 16,517 16,179 Actual return on plan (13,.283)

(22,188) 3,060 assets Deferred gain (loss)

(3,623) 7,211 (18,755)

Amortization of unreccognized net

{172)

(172)

(172) transition asset Net periodic pension costs s 7,533 s 8,030 s 7,155

> Entrgy

'OTES TO CO '§OLJD, TED FI

• C I. L § TAT E.1 E ' T § Approximately $4.8 million, $5.l million and $4.7 million of these costs were charged to operating expense in 1992, 1991 and 1990, respectively, and the remaining costs, which are associated with construction labor, were charged to the cost of new utility plant.

A reconciliation of the funded status of the plan as of December 31, 1992 and 1991 is as follows:

(000) 1992 1991 Fair value of plan assets

$218,800

$204,000 Projected benefit obligation 213,459 208,416 Plan assets over Ji under) projected bene it obligation 5,341 (4,416)

Unrec~gnized net (2,066)

(2,238) transition asset Unrecognized net loss (J,7842 7,578 Prepaid pension cost 491 924 Accumulated benefit obligation:

Vested benefits

$160,507

$160,350 Nonvested benefits 646 798 Total

$161,153

$161,148 At December 31, 1992, approximately 67% of plan assets were invested in equity securities, 21% in fixed income securities and 12% in other investments.

The assumed rates used in determining the actuarial present value of the projected benefit obligation at year-end were as follows:

Weighted average discount f\\nticipated ra!e of increase m compensation 1992 8.00%

4.50%

1991 8.50%

6.00%

The assumed long term rate of return on plan assets was 8.00% for 1992, 1991and1990.

In addition to pension benefits, ACE provides certain health care and life insurance benefits for retired employees of ACE and its subsidiary. Substantially all employees may become eligible for these other postretirement benefits if they reach retirement age while working for the companies. Other postretirement benefits are provided through insurance companies and other plan providers whose premiums and related plan costs are based on the benefits paid during the year. ACE has a tax qualified trust to fund these other postretirement benefits. The actuarial present valu.

accumulated other postretirement benefits under the plan was

$70.6 million and $68.6 million at January 1, 1992 and 1991, respectively, exclusive of the effects of new accounting standards discussed below. The cost of these benefits was $6.0 million in 1992, $4. 9 million in 1991 and $3.5 million in 1990. The net asset value of the trust fund was approximately

$13.4 million at December 31, 1992 and $11.0 million at December 31, 1991 In December 1990, the FASB issued Statement of Financial Accounting Standards

o. 106 entitled "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires employers to record an obligation for unfunded accumulated other postretirement benefits immediately or, alternatively, on a delayed basis over the active plan participants' future service periods, or 20 years if longer, and to record on the accrual basis the annual cost of benefits earned. ACE will adopt this new standard effective January 1, 1993, and will elect to recognize the unfunded accumulated other postretirement benefits at January 1, 1993 over 20 years. The latest actuarial study, measured in accordance with the new standard, was performed for ACE on its retiree life insurance and medical benefit plans as of January 1, 1992. The study projects that the annual co-t these benefits could increase approximately $6 million t million, with an unfunded accumulated other postretire benefits obligation of approximately $60 million to $70 million at December 31, 1992. On December 22, 1992, the BRC verbally approved ACE's request for deferred accounting of excess costs incurred due to implementation of Statement No. 106. This permits ACE to accumulate the increased costs as an asset subject to future recovery through rates. ACE cannot predict what ultimate regulatory treatment will be afforded these costs.

In November 1992, the FASB issued Statement of Financial Accounting Standards No. 112 entitled "Employers' Accounting for Postemployment Benefits." This statement is effective for fiscal years beginning after December 15, 1993.

This statement requires employers to recognize an obligation for benefits provided to former or inactive employees after employment but before retirement. The requirements of this standard are not expected to be material to the financial condition or results of operations of the Company.

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'OTE§ T O CO '§OLIDATED FI.'A,'C J AL STATE.IE;;T§ ES.

JOINTLY-OWNED GENERATING STATIONS ACE jointly owns with other utilities several electric production The amounts shown represent ACE's share of each plant at facilities. ACE is responsible for its pro-rata share of the costs of December 31, including AFDC as appropriate.

construction, operation and maintenance of each facility.

Keystone Conemaugh Peach Bottom Salem Hope 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):

1992

$ 10,422

$ 16,718

$ 121,494

$ 195,201

$ 235,738 1991 9,893 15,825 118,050 186,920 233,985 Accumulated Depreciation (000):

1992 3,068 5,861 48,958 71,511 40,492 1991 2,956 5,507 45,305 68,407 33,743 Construction Work in Progress (000):

1992 249 4,718 5,283 7,213 2,268 1991 449 1,383 5,046 10,238 2,060 Operation and Maintenance Expenses (including fuel) (000):

1992 4,976 7,194 29,618 25,461 9,541 1

5,398 10,061 28,651 23,720 9,640 4,855 8,358 27,340 19,154 8,458 neration (MWH):

1992 294,222 457,771 958,740 737,356 351,672 1991 285,506 463,113 758,637 1,068,307 368,900 1990 276,080 448,978 1,062,569 837,486 404,084 ACE provides financing during the construction period for its share of the jointly-owned plants and includes its share of direct NOTE6.

NONUTILI1Y COMPANIES The Company (AEI) is the parent holding company of the consolidated group. Its primary activities are the management of investments in the subsidiary companies, issuance of common equity and performance of administrative functions on behalf of the consolidated group. Principal assets of each of the subsidiary companies are: AET - capital investment and loan principal of approximately $5.9 million in a geothermal heating and cooling subsidiary; AGI - capital investments of approximately $19.5 million in cogeneration development projects and partnerships; ASP - commercial real estate site a net book value of $13.4 million; ATE - leveraged lease ents of approximately $76.5 million. Other financial ation regarding the subsidiary companies, and financial information concerning parent-only operations of the Company, is as follows:

operations and maintenance expenses in the Consolidated Statement oflncome.

Company et Assets Results of Operations (000) 1992 1991 1992 1991 1990 AET

$(5,763) s (970)

$(4,793) $ (970)

AGI 2,122 (1,981) 1,366 (4,015)

(1,162)

ASP 5,478 5,741 (263)

(415)

(417)

ATE 9,959 9,292 667 511 1,304 AEI (401)

(493)

(223)

AET's 1992 results reflect a provision for a restructuring of certain of its business activities. AGI's 1992 results reflect the commercial operation of two cogeneration facilities previously under construction. AGI's results for 1991 and 1990 reflect development and administrative charges incurred during construction of cogeneration projects. AGI's 1991 results also A

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'OTES TO CO 'SO L JDATED Fl,'A,'ClAL STATEME 'TS recognized its share of losses attributable to the reduction of carrying values to net realizable values of certain small cogeneration projects held for sale. AGI's current business is focused on the development, construction and operation of large (greater than 40 MWs) cogeneration projects. ASP's results reflect generally poor market conditions in commercial real estate. ATE's 1992 results benefitted from lower interest NOTE7.

CUMULATIVEPREFERREDSTOCKOFACE ACE has authorized 799,979 shares of Cumulative Preferred Stock, $100 Par Value, two million shares of No Par Preferred Stock and three million shares of Preference Stock, No Par Series Par Value Not Subject to Mandatory Redemption:

4%

$100 4.10%

100 4.35%

100 4.35%

100 4.75%

100 5%

100 7.52%

100 Total Subject to Mandatory Redemption:

9.96%

$100

$8.25 None

$8.53

$8.20

$7.80 Total None None None Less portion due within one year Total 77,000 72,000 15,000 36,000 50,000 50,000 100,000 48,000 65,000 600,000 500,000 700,000 Cumulative Preferred Stock Not Subject to Mandatory Redemption is redeemable solely at the option of ACE.

On August 1 of each year, 8,000 shares of the 9.96%

Cumulative Preferred Stock must be redeemed through the operation of a sinking fund at a redemption price of $100 per share. ACE redeemed 8,000 shares in each of the years 1992, 1991and1990.

On November 1 of each year, 2,500 shares of the $8.25 No Par Preferred Stock must be redeemed through the operation of a sinking fund at a redemption price of $100 per share.

ACE may redeem not more than an additional 2,500 shares on any sinking fund date without premium. ACE redeemed 2,500 shares in each of the years 1992, 1991and1990.

A1/an11t rates on its revolving credit agreement. Results of opera of AEI above exclude its equity in the results of subsidia companies. Net assets of AEI are not meaningful as they primarily represent investments in and intercompany balances with the subsidiary companies and common stock issued on behalf of the consolidated group.

Value. Information relating to outstanding shares at December 31 is shown in the table below.

I 7,700 7,200 1,500 3,600 5,000 5,000 10,000 I 40,000 I

4,800 6,500 60,000 50,000 70,000 191,300 1,050

$190,250 1991 Shares Amount (000) 77,000 72,000 15,000 36,000 50,000 50,000 100,000 56,000 67,500 600,000 500,000 700,000

$ 7,700 7,200 1,500 3,600 5,000 5,000 10,000

$ 40,000

$ 5,600 6,750 60,000 50,000 70,000 192,350 1,050

$191,300 Current Optional Redemption Price

$105.50 101.00 100.00 101.88

$103.54 105.01 104.11 Beginning November 1, 1994 and annually thereafter, 120,000 shares of the $8.53 No Par Preferred Stock must be redeemed through the operation of a sinking fund at a redemption price of $100 per share. At the option of ACE, not more than an additional 120,000 shares may be redeemed on any sinking fund date without premium. Refunding of this series is restricted prior to November 1, 1993.

Beginning August 1, 1996 and annually therea 100,000 shares of the $8.20 No Par Preferred Stock m redeemed through the operation of a sinking fund a redemption price of $100 per share. At the option of ACE, not more than an additional 100,000 shares may be redeemed on any sinking fund date without premium. Other than in

'O T ES TO CO 'SOL J DATED Fl 'A c l ection with the sinking fund, this series is not eemable prior to August 1, 2000.

Beginning May 1, 2001 and annually through 2005, 115,000 shares of $7.80 No Par Preferred Stock must be redeemed through the operation of a sinking fund at a redemption price of $100 per share. On May 1, 2006, 125,000 shares must be redeemed at $100 per share. ACE has the option to redeem up to an additional 115,000 shares without premium on each May 1 through 2005. Other than in connection with the sinking fund, this series is not redeemable prior to May 1, 2006.

Redemption aggregate $1.05 million in 1993, $13.05 million in each of the years 1994 and 1995 and $23.05 million in each of the years 1996 and 1997.

The annual minimum sinking fund provisions of the Cumulative Preferred Stock Subject to Mandatory Cumulative Preferred Stock of ACE is not widely held and generally trades infrequently. The estimated aggregate fair market value at December 31, 1992 of ACE's Cumulative Preferred Stock was approximately $229 million.

This fair market value determination is based on actual trades of certain Series of ACE's Preferred Stock on or nearest to December 31, 1992. Fair market value of other Series of ACE's Preferred Stock is based on actual trades of preferred stock of other companies with similar credit quality, coupon rates and maturities.

NOTES.

LONG TERM DEBT Series Long term debt of ACE consists of the following:

First Mortgage Bonds:

41/2%

8%

7.52% Medium Term Notes 7.54% Medium Term Notes 8%%

8%

7 1/2%

73/.%

7.97% Medium Term Notes 7.98% Medium Term Notes 7%% Pollution Control 6%% Pollution Control 10 1/2% Pollution Control Series B 7%% Pollution Control Series A 10 1/2% Pollution Control Series C 8%%

8 1/.% Pollution Control Series A 9

11.%

6.80% Pollution Control Series A Total Debentures:

Maturity Date July 1, 1992 March 1, 1993 February 1, 1996 November 1, 1996 Mayl9, 1999 Mayl9, 1999 September 1, 2000 May 1,2001 April 1, 2002 June 1, 2003 May 19, 2004 May 19, 2004 January 1, 2005 December 1, 2006 July 15, 2012 April 15, 2014 July 15, 2014 May 1, 2016 July 15, 2017 October 1, 2019 March 1 2021 51/.%

February 1, 1996 Tl.%

May 1, 1998

~~~~~~~~~~~~~~~~~

ortized Premium and Discount-Net 1992 s

9,540 9,980 95,000 26,000 4,000 19,000 27,000 20,000 29,976 10,500 19,500 6,500 2,500 850 18,200 23,150 125,000 4,400 135,000 38865 624961 2,267 2,619 4,886

~~~~~~~~~~~~~~~~~ (4,039)

Total Long Term Debt of ACE Long Term Debt of Other Subsidiaries Less portion due within one year Total Long Term Debt A

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625,808 25,128 19,356

$631,580

> Entrgy December31 1991 (000)

$ 10,350 9,540 9,980 95,000 19,000 27,000 20,000 29,976 6,500 2,500 850 18,200 23,150 125,000 4,400 135,000 38 865 575 311 2,267 2,619 4,886 (4,300) 575,897 39,100 49,450

$565,547

1 0l'E§ TO CON§OL[DATED f[NANC[AL STATEMENT§ In May 1992, ACE issued and sold through its agents $60 million of First Mortgage Bonds, Designated Secured Medium Term Notes (MTNs) Series A, in two separate maturities, with $30 million principal amount maturing in May 1999 and $30 million principal amount maturing in May 2004. The Series A MTNs have a weighted average interest rate of7.75%.

Sinking fund deposits are required for retirement of the 51/.% Debentures on February 1 annually through 1995 and for the 71/.% Debentures on May 1 annually through 1997 in amounts in each case sufficient to redeem $100,000 principal amount. ACE may, at its option, redeem an additional

$100,000 annually in each case. Through December 31, 1992, ACE acquired and canceled $533,000 and $381,000 principal amount of the 511.% and 711.% Debentures, respec-tively, to satisfy its requirements for 1993 and subsequent years. Certain series of First Mortgage Bonds contain provisions for deposits of cash or certification of bondable property currently amounting to $250,000, which ACE has elected to satisfy through property additions. Additional sinking fund requirements are as follows:

Series Beginning Date 6%% Pollution Control Series Due 2006 December 1, 1997 7%% Pollution Control Series Due 2005 January 1, 2000 Annual Sinking Fund

$ 75,000 500,000 Long term debt of other subsidiaries consists primarily of debt of ATE of $23.9 million. ATE has a revolving credit and term loan agreement which provides for borrowings of up to $35 million during successive revolving credit and term loan periods. At ATE's request, this commitment was reduced from $70 million in 1992. Borrowings outstanding under this agreement at December 31, 1992 were $8.9 million. In accordance with provisions of the agreement, the expiration of the revolving credit period was extended from A

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June 1, 1992 to June 1, 1993. Interest rates on borrowing.

determined with reference to periodic pricing options available under the facility. Interest rates on borrowings outstanding in 1992 ranged from approximately 3.7% to 6.4%. In December 1992, ATE privately placed $15 million principal amount of 7.44% Senior Notes due 1999. Proceeds were used to reduce borrowings outstanding under the revolving credit and term loan agreement.

The aggregate amount of scheduled debt maturities, in addition to sinking fund requirements, of ACE and ATE long term debt outstanding at December 31, 1992 are $18.44 million in 1993 and $107.247 million in 1996. No long term debt of ACE and ATE currently outstanding matures in 1994, 1995 and 1997. In 1993, $916 thousand of outstanding debt of another of the subsidiary companies matures.

ACE's long term debt securities are not widely held and generally trade infrequently. The estimated aggregate fair market value of these securities on December 31, 1992 was approximately $672 million, based on actual trades of ACE's long term debt securities that occurred on or nearest to December 31, 1992. Due to the short term nature of the revolving credit facility and the recency of the senior notes, the carrying values of ATE's long term debt approximate their fair market values at December 31, 1992.

In early 1993, ACE issued and sold through its ag

$144 million principal amount of Series B MTNs interest rates that vary from 6.35% to 7.20% and maturities that vary from 1998 to 2004. The Series B MTNs have a weighted average interest rate of 6. 77%. The proceeds will be applied, together with other funds, to the redemption of ACE's First Mortgage Bonds, $95 million principal amount of 8% Series due November 1, 1996, $19 million principal amount of 87/so/o Series due September 1, 2000 and

$27 million principal amount of 8% Series due 2001 at redemption prices of 100.91 %, 102.47% and 102.53%,

respectively, together with accrued interest to March 15, 1993, the date of redemption.

> Energy

.~OTE§ TO CO '§OLJDATED Fl.'A.'CJAL STATE.IE 'T§ SHORT TERM DEBT As of December 31, 1992, ACE had available for use bank lines of credit of $150 million. ACE is charged commitment fees, which are not significant, for these available credit lines.

As of December 31, 1992, ACE had no compensating (000)

Commercial Paper Notes Payable to Banks Maximum amount of total short term debt at any month end:

Commercial Paper otes Payable to Banks balance requirements. Short term debt outstanding at December 31, 1992, 1991 and 1990 consisted of ACE borrowings of 1992 14,600

$107,400 14,600 1991 1990

$20,600

$43,950

$82,700

$46,850 Average amounts of short term debt (based on daily outstanding balances):

Commercial Paper Notes Payable to Banks Weighted daily average interest rates on short term debt:

Commercial Paper Notes Payable to Banks NOTElO.

COMMITMENTS AND CONTINGENCIES CONSTRUCTION PROGRAM ACE's cash construction expenditures for 1993 are estimated to be approximately $142.5 million. Current commitments for the construction of major production and transmission facilities approximate $99.9 million, of which it is estimated approximately $44.8 million will be expended in 1993. These amounts exclude AFDC and customer contributions.

INSURANCE PROGRAMS ACE is a member of certain insurance programs that provide coverage for decontamination and property damage to members' nuclear generating plants. Facilities at the Peach Bottom, Salem and Hope Creek stations are insured against property damage losses up to $2.59 billion per site under these programs.

In addition, ACE is a member of an insurance program which provides coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain ecific conditions. Under the property and replacement er insurance programs, ACE could be assessed ospective premiums in the event the insurers' losses exceed their reserves. As of December 31, 1992, the maximum a~ount of retrospective premiums ACE could be A

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$ 31,567 2,785 4.0%

3.4%

$26,802 6.6%

$16,979 8.1%

assessed for losses during the current policy year was $4.69 million under these programs.

The Price-Anderson provisions of the Atomic Energy Act of 1954, as amended by the Price-Anderson Amendments Act of 1988, govern liability and indemnification for nuclear incidents. All nuclear facilities could be assessed, after exhaustion of private insurance, up to $66.15 million each, payable at $10 million per year, per reactor and per incident.

Based on its ownership share of nuclear facilities, ACE could be assessed up to $23 million per incident. This amount would be payable at $3.48 million per year, per incident.

ENERGY AND CAPACI1Y ARRANGEMENTS Utility ACE has an arrangement to purchase 125 MWs of capacity and energy from PP&L through September 30, 2000. Costs of the contract, exclusive of energy, are charged to Purchased Capacity on the Consolidated Statement of Income and totaled $25.1 million, $28.7 million and $25.8 million in 1992, 1991 and 1990, respectively. The cost of energy associated with the purchase amounted to $13.4 million, $8.6 million and $6. 7 million, respectively. Estimated costs, exclusive of energy, are expected to be $24 million, $25

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'OTES TO CO '§OLIDATED FI L § T T E.1 E.; T § million, $27 million, $28 million and $29 million in the years 1993-1997, respectively, and aggregate $90 million thereafter.

These amounts include recovery of previously deferred costs.

ACE has an arrangement to purchase 200 MWs of capacity and energy from PE through May 31, 1994. Costs of the contract, exclusive of energy, are charged to Purchased Capacity and totaled $52.5 million, $48.2 million and $27.5 million in 1992, 1991 and 1990, respectively. The cost of energy associated with the purchase amounted to $19.2 million, $22.6 million and $13.7 million, respectively. ACE is committed to minimum capacity charges of $56 million and

$24 million in 1993 and 1994, respectively. The minimum costs are subject to annual adjustments under certain conditions.

ACE periodically enters into arrangements with certain other electric utilities for the purchase of short term generating capacity, energy and transmission capacity on an as-needed basis, which are utilized to the extent they are economic and available.

ACE is a member of the Pennsylvania-New Jersey-Maryland Interconnection (PJM), an integrated power pool, that is connected with other utilities for the interchange of energy on an as-needed and as-available basis. ACE is required to plan for reserve capacity based on aggregate PJM requirements allocated to member companies. ACE has satisfied its current reserve requirements. ACE also has an interchange agreement with the City of Vineland, New Jersey, which operates a municipal utility located in' ACE's service territory. The cost of purchases incurred through interchange agreements are reported as Energy expense on the Consolidated Statement of Income and totaled $9.4 million, $11.3 million and $28.5 million in 1992, 1991 and 1990, respectively.

Nonutility ACE has currently contracted, and received BRC approval, to purchase a total of 569 MWs of energy and capacity from nonutility sources, primarily cogenerators. Two projects totaling 181 MWs are currently operational. The remaining two projects, providing 388 MWs, are expected to be in operation beginning in mid-1994. Based on the terms and conditions of the existing agreements, ACE is obligated to construct transmission facilities related to these projects. The cost of the transmission facilities is to be shared by ACE and the nonutility producers, with ACE's portion of the cost approximating $13 million. Certain specified minimum amounts of energy and capacity are to be purchased annually, subject to adjustment for actual performance levels achieved Atlantic <

by these facilities. Purchases of energy and capacity in and 1991 from nonutility producers amounted to $5 million and $4.3 million, respectively.

ENVIRONMENT AL MATTERS The provisions of Title IV of the Clean Air Act Amendments of 1990 (CAAA) will require, among other things, phased reductions of sulfur dioxide (S02) emissions by ten million tons per year, and a limit on S02 emissions nationwide by the year 2000, and reductions in emissions of nitrogen oxides ( OJ by approximately two million tons per year. ACE's wholly-owned B.L. England Units 1 and 2 and its jointly-owned Conemaugh Station are affected during Phase I (1995) and all of ACE's other fossil-fuel steam generating units are affected by Phase II (2000) of the CAAA. ACE is installing flue gas desulfurization equipment (scrubber) on B.L. England Unit 2 costing approximately $75 million. By scrubbing B.L. England Unit 2, Phase I S02 emission requirements are met for both units. Construction began in 1992 and is scheduled for completion in early 1995.

The Conemaugh owners have elected to install scrubbers on Conemaugh Uruts 1 and 2, with ACE's 3.83% share of the total cost estimated to be $14 million. Construction for Conemaugh Unit 1 is to be completed in 1994, and for Conemaugh Unit 2 in 1995. The jointly-owned Keys Station is impacted by the S02 and NOx provisio Title IV of the CAAA during Phase II, and the Keystone owners are studying various methods of compliance. In addition, certain power purchase arrangements will be affected by the CAAA, in amounts that are not presently determinable.

Federal and state legislation authorize various governmental authorities to issue orders compelling responsible parties to take cleanup action at sites determined to present danger from releases of hazardous substances. The various statutes impose joint and several liability without regard to fault for certain investigative and cleanup costs for all potentially responsible parties. ACE has received notification with respect to certain sites as one of a number of alleged responsible parties for cleanup and remedial actions. The total amount of cleanup and remedial measures associated with these sites as claimed by the authorities for all defendants is currently estimated to be $105 million. ACE believes that primary responsibility for the claims rests with other parties and its share, if any, of the claims would not be significant. ACE plans to pursue these matters aggressively. At this time, ACE cannot predict the outcome of these matters.

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TOTE§ TO co '§OLlDATED Fl:\\

• c1~L §TATEYIE:\\'T§ lie concern regarding the possible health effects due to ectric and magnetic fields (EMF) is an emerging national health issue, with some states settings limits on EMF. The outcome of EMF study and/or regulations and public con-cerns regarding EMF could affect ACE's design and location of future electric power lines and facilities and the costs thereof. Such effects, if any, are not presently determinable.

OTHER In 1990, the New Jersey Department of Environmental Protection and Energy (DEPE) issued to PS a revised Draft Permit for surface water discharges for Salem Station. PS is the operator of the station, in which ACE has a 7.41 %

ownership interest. The Draft Permit contained stringent terms and conditions, and, if adopted as proposed, could require the construction of cooling towers and the immediate shutdown of the two generating units for up to a four-year period pending this construction. Public hearings on the Draft Permit have been held and PS has filed written comments and demonstrations, which PS believes establish its position that cooling towers are not required. PS estimates that if construction of cooling towers is necessary, under the most adverse scenario, the costs of construction are estimated to be $627 million (in 1990 dollars), of which ACE's share uld be 7.41%. Replacement power costs during such four-outage would amount to approximately $25 million per for ACE. In addition, a permanent derating of 5% of the station capacity would also occur. ACE has been advised that PS is discussing a proposal with the DEPE that would permit Salem to continue to operate without cooling towers and would require PS to make certain plant modifications and to take certain other actions to enhance the ecology of the affected water body. Any such proposal would be required to be published for public comment before it could be imple-mented. Costs of the proposal would not be material. The outcome of this matter cannot be predicted.

ACE is subject to a performance standard for all of its jointly-owned nuclear units. This standard is used by the BRC in determining recovery of replacement energy costs.

The standard establishes a target aggregate capacity factor within a wne of reasonable performance to be achieved by the units. Performance outside of the wne results in penalties or rewards. Any penalties incurred would not be permitted to be recovered from customers and would be charged against income. For 1992, the aggregate capacity factor of ACE's nuclear units was below the minimum target factor principally due to the outage of Unit 2 at the Salem Nuclear Generating Station, as discussed below. Proceeds from replacement energy insurance coverage associated with the Salem outage were allocated to customers and are cted to mitigate any penalty incurred. Any penalty rred for 1992 is not expected to be significant. ACE cannot predict the rate treatment that will ultimately result regarding the nuclear performance standard for 1992.

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An equipment failure in the non-nuclear portion of the plant caused severe damage to Salem Unit 2 resulting in that unit's shutdown in November 1991 with no release of radiation. The unit returned to service in May 1992.

Substantially all of ACE's share of the repair costs, estimated

• to be between $5 million and $6 million, was covered by property insurance. To date, ACE has received $3.l million for its share of claims submitted under the property insurance policy. ACE incurred replacement energy costs of approximately $2.4 million during this outage. Of this amount, ACE received proceeds of $1.3 million from replacement energy insurance, after application of an initial 21-week policy deductible period.

ACE and the other nonoperating co-owners of the Peach Bottom Atomic Power Station reached a settlement with PE the operator of the station, in connection with litigatio~

regarding the Nuclear Regulatory Commission shutdown of the station from March 1°987 through October 1989.

According to the terms of the agreement, ACE received $18.5 million in October 1992 as its share of the settlement. Of this amount, approximately $3 million represents reimbursement for legal fees previously incurred and expensed during the litigation, and the remaining settlement proceeds of $15.5 million were allocated 75% to shareholders and 25% to customers. This allocation reflects the amount of costs borne by each respective group during the station's outage and is subject to further BRC determination. ACE recorded approximately $9.7 million, which is net of related Federal income taxes of approximately $4.9 million, as Other Income during March 1992, and $3.8 million as a liability to reimburse customers through the LECs.

AGI through its subsidiaries has partnership interests in common with affiliates of Columbia Gas System, Inc.

(Columbia) in certain cogeneration projects. In July 1991, Columbia filed for protection from creditors under Chapter 11 of the Federal Bankruptcy Code. At December 31, 1992, Columbia had not yet filed a plan of reorganization. AGI cannot predict what effect, if any, Columbia's situation may have on AGI's interests in the commonly-owned cogeneration projects.

The National Energy Policy Act of 1992 permits the Federal government to assess investor-owned electric utilities that have ownership interests in nuclear generating facilities an amount to fund the decontaminating and decommission-ing of three Federally operated nuclear enrichment facilities.

ACE currently estimates that, based on its ownership in five nuclear generating units, its assessment i::ould amount to approximately $8.5 million. ACE has provided a liability in this amount at December 31, 1992. ACE has also recorded a regulatory asset in the same amount and will seek recovery of such assessments in LEC rates in the same manner as the utility's other fuel costs. The regulatory treatment afforded these costs cannot be predicted at this time.

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0 T ES T 0 C 0 1~ S 0 L I D TED FI t 'C 1r L S T. TEJE ' TS NOTEll.

LEASES ACE leases various types of property and equipment for use in its operations. Certain of these lease agreements are capital leases consisting of the following at December 31:

(000) 1992 1991 Production plant

$13,521

$13,521 Less accumulated amortization 8,048 7,308 et 5,473 6,213 Nuclear fuel 43,831 46,880 Leased property-net

$49,304

$53,093 ACE has a contractual obligation to purchase nuclear fuel for the Salem, Hope Creek and Peach Bottom stations. The NOTEU.

QUARTERLY FINANCIAL RESULTS (UNAUDITED)

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

Operating Ofnerating Revenues ncome Qyarter (OOO)

(OOO) 1992 1st

$197,833

$ 33,290 2nd 187,387 24,949 3rd 236,892 54,118 4th 194,713 24,811 Annual

$816,825

$137,168 1991 1st

$174,980

$ 22,735 2nd 184,163 25,379 3rd 258,349 69,597 4th 190,883 27,144 Annual 808,374

$144,856 Individual quarters may not add to the total due to rounding, as well as the effect on earnings per share of increasing aver-age number of common shares outstanding. Operating Revenues for 1991 have been restated for sales for resale as explained in ote 1-0ther. Per share amounts for 1991 have Atlantic <

asset and related obligation for the leased fuel are reduced as the fuel is burned, and are increased as additional fuel pur-chases are made. No commitments for future payments beyond satisfaction of the outstanding obligation exist.

Operating expenses for 1992, 1991 and 1990 include leased nuclear fuel costs of approximately $13.5 million, $14.7 mil-lion and $15.4 million, respectively, and rentals and lease payments for all other capital and operating leases of $4.8 million, $4.5 million and $4.2 million, respectively. Future minimum rental payments for all noncancellable lease agree-ments are not significant to ACE's operations. Rental charges associated with other subsidiary companies are not significant.

et Dividends Income Earnings Paid (000)

Per Share Per Share

---

~

$27,937

$.55

$.375 10,908

.21

.375 39,570

.76

.38 7,795

.15

.38

$86,210

$1.67

$1.51

$ 8,519 s.18 s.37 10,667

.22

.37 54,786 1.08

.375 11,664

.23

.375

$85,635

$1.75 Sl.49 been adjusted for the two-for-one Common Stock split in May 1992.

The revenues of ACE are subject to seasonal fluctuations due to increased sales and higher residential rates during the summer months.

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TD A JALY§I§ OF

~

~ -- -----.... ----

~. --

- ~ - -._ -._

.an

~:c EFnelrgy1 T) Alnc1_' (Cthel CAoml pacny)o 1"s th' De p1arTen]t oofla coAn-l [) R E s \\;L '!' s 0 F 0 p E R AT l 0 l T s u

In 1992, ACE contributed $1. 74 to reported consolidated solidated group consisting of the following wholly-owned earnings. Of this, approximately $.15 came from the settlement subsidiaries: Atlantic City Electric Company (ACE),

of a lawsuit with Philadelphia Electric Company (PE) relating Atlantic Energy Technology, Inc. (AET), Atlantic to the shutdown of the Peach Bottom Atomic Power Station Generation, Inc. (AGI), Atlantic Southern Properties, Inc.

several years ago. Additional positive nonrecurring items con-(ASP) and ATE Investment, Inc. (ATE). ACE, the primary tributing to earnings were interest associated with tax refunds subsidiary, is an electric utility regulated by the New Jersey and payments by independent power producers in connection Board of Regulatory Commissioners (BRC). ACE has a with contracts for purchased power. Earnings in 1992 were wholly-owned subsidiary that operates certain generating adversely affected by lower energy sales resulting from cooler facilities. AET invests in companies with energy related than normal summer weather conditions and decreased sales products and technologies and owns a majority interest in a to Industrial customers.

company that currently markets geothermal heating and In 1991, earnings increased primarily due to increased oper-cooling systems. AGI is engaged in the development and ating revenues offset, in part, by the full year costs associated operation of cogeneration and alternate energy projects with the purchase of capacity from PE, and increased Federal through various partnership arrangements. ASP owns, <level-income taxes and Preferred Stock dividend requirements.

ops and manages commercial real estate property. ATE's Nonutility operations resulted in losses for 1992, 1991 and current business activities include providing financing and 1990 of $3.4 million, $5.4 million and $498 thousand, net of fund management to affiliates and managing its existing port-income tax benefits, respectively, or $.07, $.11 and $.01 per folio ofleveraged lease investments.

share, respectively. The loss in 1992 is primarily due to provi-The Company's business plan has been and will continue sions made by AET relating to restructuring of certain busi-to be concentrated on the operations of ACE. Approx-ness activities. That loss is offset, in part, by positive earnings imately 95% of consolidated assets belong to the utility. The of AGI resulting from commercial operation of two of its Company's nonutility business strategy will continue to be cogeneration projects previously under construction and posi-ervative. Future investments will be made only in activi-rive earnings of ATE resulting from lower interest expense.

that utilize existing management skills and resources, The loss recognized in 1991 is attributable to AGI which lost provide acceptable returns in relation to the level of risk and

$.08 per share, due to writedowns of carrying values to net are functionally related to the utility business. The Company realizable values of certain cogeneration projects and develop-reviews and modifies the business plans and operations of the ment and administrative charges incurred during the con-nonutility companies as necessary to reflect changes in con-struction of cogeneration projects.

solidated tax position, economic conditions in the service ter-In June 1992, the quarterly dividend on Common Stock ritory and operating results.

was increased from $.375 to $.38 per share, or an annual rate NOTE: As a result of the two-for-one Common Stock split on May 14, 1992, all common share outstanding amounts and per common share calculations for prior year periods contained herein have heen a4justed accordingly.

Due to Federal regulatory requirements effective January 1, 1992, all prior year operating revenues and certain operating expenses have heen restated to reclassify energy sales to other utilities {sales for resale).

FINANCIAL RESULTS Consolidated operating revenues for the twelve months ended December 31, 1992, 1991 and 1990 were $816.8 million,

$808.4 million and $740.9 million, respectively. The increased revenues in 1992 and 1991 reflect the effect of net rate increases effective in October 1992 and July 1991. The revenue increase in 1991 also is due to increased sales of energy.

Consolidated earnings per share for 1992 were $1.67 on net e of$86.2 million, compared with $1.75 on net income 5.6 million in 1991 and $1.51 on net income of $68.9 ffiillion in 1990.

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of $1.52 per share. The dividend rate was adjusted to reflect the effects of the two-for-one split of Common Stock. Cash dividends paid, adjusted for the stock split, have increased for 40 consecutive years. Information with respect to Common Stock for the period 1990-1992 is as follows:

1992 1991 1990 Dividends Paid Per Share

$ 1.51

$ 1.49

$ 1.46 Book Value Per Share

$15.17

$14.84

$14.36 Annualized Dividend Yield 6.6%

7.3%

8.7%

Return on Average Common Equity 11.1%

12.1%

10.6%

Total Return (Dividends paid plus change in share price) 20.2%

29.8%

(4.4)%

Market to Book Value 152%

138%

118%

Price/Earnings Ratio 14 12 11 Closing Price-New York Stock Exchange

$23.13

$20.50

$16.94

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.L.~AGEJE.~T'§ DJ§Cl'§§JO.' A.'D.

LY§J§ OF FL~A.'ClAL CO.'DITJO.' 1L'D LIQU1DI1Y AND CAPITAL RESOURCES OVERVIEW The Company commenced its business under a holding company structure on November 1, 1987. Since inception, the Company's cash flows have been dependent on the cash flows of its subsidiaries, primarily ACE. Principal cash inflows of the Company are the payment of dividends to it by ACE and funds provided by the issuance of Common Stock.

Principal cash outflows of the Company are investments (capital contributions and advances) in its subsidiaries for their investing activities and the payment of dividends to common shareholders. Cash invested in ACE is utilized pri-marily for the construction of utility generating, transmission and distribution facilities, redemption and maturity of long and short term debt and redemption of Preferred Stock.

Investing activities of the nonutility subsidiaries have been primarily for the development of nonutility power generation projects and energy related technologies.

To facilitate the activities and operations of the sub-sidiaries, separate credit support agreements exist between the Company and ATE and ASP. In addition, agreements between the Company and its subsidiaries provide for alloca-tion of tax liabilities and benefits generated by the respective subsidiaries.

In 1992, 1991 and 1990, the Company recorded $78.3 million, $74.1 million and $67.l million, respectively, in divi-dends from ACE. Other sources of funds available to the Company, which include the issuance of common equity through public offerings, optional cash purchases under the Dividend Reinvestment and Stock Purchase Plan (DRP) and ACE's employee benefit plans, are shown as follows:

Issuance of Common Stock Public Offerings Shares issued Proceeds (000)

DRP Optional Cash Purchases 1992 Shares issued 719,324 Proceeds (000)

$16,034 Employee Benefit Plans Shares issued Proceeds (000) 10,897 259 1991 4,000,000

$67,140 301,272

$ 5,537 12,416 249 1990 172,548

$3,012 101,344

$1,753 Additional common equity is provided by reinvested divi-dends through the DRP. Common shares issued in 1992, 1991 and 1990 were 572,329, 630,410 and 586,650, respec-tively. The Company's current financing plans for 1993-1995 contemplate the issuance of approximately $46.1 million in additional*common equity, to be obtained through the operation of the DRP.

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RESULT§ OF OPER11'10.'§ A

In 1992, the Company declared $78.3 million in divide.

to its common shareholders, and made $24.2 in capital con-tributions and advances to its subsidiaries. In 1991 and 1990, the Company declared $74.l million and $67.1 million, respectively, in dividends. In 1991 and 1990, $83.8 million and $10.6 million (net of repayments), respectively, in advances and capital contributions were made to subsidiaries.

ACE Cash construction expenditures for the 1990-1992 period amounted to $469.9 million and included expenditures for two new combustion turbine units and upgrades to existing transmission and distribution facilities. ACE's current esti-mate of cash construction expenditures for the 1993-1995 period is $408.4 million. These estimated expenditures reflect necessary improvements to transmission and distribu-tion facilities and compliance with provisions of the Clean Air Act Amendments of 1990.

ACE also utilizes cash for mandatory redemptions of Preferred Stock and maturities of long term debt. Optional redemptions of securities are reviewed on an ongoing basis with a view toward reducing the overall cost of funds.

Redemptions of Preferred Stock (at par or stated value) and redemptions and maturities of First Mortgage Bonds the period 1990-1992 are shown as follows:

Preferred Stock (Series) 9.96%

$8.25 Amount (000)

First Mortgage Bonds Principal Amount Retired (000) 1992 8,000 2,500

$1,050

$10,350 1991 (number of shares) 8,000 2,500

$1,050 1990 8,000 2,500

$1,050

$49,000

$21,215 In July 1992, $10.350 million principal amount of First Mortgage Bonds, 4'/2% Series due 1992 matured. In March 1991, $10 million principal amount of First Mortgage Bonds, 4'/i% Series due 1991 matured. In May 1991, $39 million principal amount of First Mortgage Bonds, 11%% Pollution Control Series A due 2011 were redeemed at a price of 103%.

In October 1990, ACE redeemed $21.215 million principal amount of First Mortgage Bonds, llV2% Series due 2015 at a redemption price of108.53%.

Scheduled debt maturities and mandatory Preferred Stock sinking fund requirements aggregate $36.690 million for the years 1993-1995.

> Energy

FL 1 A1 C[Al C01'D[T[O TA ACE's cash flows from operating activities after dividends on Preferred Stock and Common Stock (internal generation) amounted to $116.8 million, or 89.3% of 1992 construction expenditures. In 1991 and 1990, ACE's internal generation was $85.2 million and $75.2 million, and represented 49.4%

and 45.1%, respectively, of construction expenditures.

For the three-year period 1993-1995, ACE's internal gen-eration is expected to average 63% 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-vidual years. Through 2000, ACE's cash flows will be positively affected by the recovery of its U nrecovered Purchased Power Costs. ACE expects that such recovery will provide $14 million, $15 million and $15 million in cash flows in 1993, 1994 and 1995, respectively.

On an interim basis, ACE finances that portion of its construction costs and other capital requirements in excess of internally generated funds through the issuance of unsecured short term debt consisting of commercial paper and borrow-ings from banks. Permanent financing by ACE is undertaken by the issuance of its long term debt and Preferred Stock and m capital contributions by the Company. ACE's nuclear requirements associated with its jointly-owned units been financed through arrangements with a third party.

In 1992, ACE received proceeds of$59.7 million from the issuance of$60 million of First Mortgage Bonds, Designated Secured Medium Term Notes (MTNs) Series A. The MTNs were sold with two separate maturities, with $30 mil-lion maturing in 1999 and the remaining $30 million matur-ing in 2004. The Series A MTNs have a weighted average interest rate of 7.75%. ACE also received $14.6 million in capital contributions from the Company. In 1991, ACE received proceeds of $38.9 million and $69. 7 million, respec-tively, from the issuance of First Mortgage Bonds, 6.80%

Pollution Control Bonds Series A of 1991 and the issuance and sale of 700,000 shares of $7.80 o Par Preferred Stock and received $78.1 million in capital contributions from the Company. In 1990, ACE received proceeds of $49.9 million from the issuance and sale of 500,000 shares of $8.20 No Par Preferred Stock and received $13.5 million in capital contri-butions from the Company.

In early 1993, ACE received proceeds of $143.2 million

• from the issuance of $144 million principal amount of its Series B MTNs. The MTNs were sold with four separate maturities: $50 maturing in 1998; $46 million maturing in 2000; $20 million maturing in 2003 and $28 million matur-in 2004. The Series B MTNs have a weighted average est rate of 6.77%. The proceeds will be applied, together other funds, toward the redemption of$95 million prin-cipal amount of ACE's First Mortgage Bonds, 8% Series due 1996, $19 million principal amount of ACE's First Mortgage LY§J§ OF D RE§UlT§ OF OPERATlO § Bonds, S7/s% Series due 2000 and $27 million principal amount of ACE's First Mortgage Bonds, 8% Series due 2001 at redemption prices of 100. 91%, 102.41 % and 102.53%,

respectively, together with accrued interest to March 15, 1993, the date of redemption.

During the three-year period 1993-1995, ACE expects to issue $105 million in new long term debt in addition to the

$144 million oflong term debt issued for refunding purposes.

Such debt may include First Mortgage Bonds. During the three-year period 1993-1995, ACE expects to receive $46 million in capital contributions from the Company.

ACE's debt securities are rated "NA2" by the major rating agencies and its Preferred Stock is rated "A-'.' In December 1992, a major rating agency lowered its ratings on ACE's senior debt to a rating equivalent to "A" from "A+" and Preferred Stock to "A-" from "A'.' Provisions of ACE's char-ter, mortgage and debenture agreements can limit, in certain cases, the amount and type of additional financing which may be used. At December 31, 1992, ACE estimates additional funding capacities of$373 million of First Mortgage Bonds, or

$523 million of Preferred Stock, or $381 million of unsecured debt. These amounts are not necessarily additive.

AET AET was formed in April 1991 to invest in and to manage investments in companies with energy-related products and technologies. AET has a majority equity interest in a compa-ny that owns a patented technology and has proprietary knowledge relating to alternate energy technologies. Funding of this investment, through a combination of capital contri-butions and loans, totaled $5.9 million at December 31, 1992.

AET obtained the funds for its investment activity through advances from the Company. To date, no cash has been gen-erated from operating activities. AET has made a provision for the restructuring of its business activities that amounts to a 1992 earnings reduction of$.06 per share.

AGI Net cash outlays for investments by AGI for the period 1990-1992 totaled $5.3 million. AGI's activities are repre-sented by partnership interests in cogeneration projects. Such activities have been funded by a combination of capital con-tributions, loans and advances. AGI's current business plan for the period 1993-1995 is to invest an additional $2.3 mil-lion in cogeneration, generating and alternate power projects.

Two cogeneration projects became operational in 1992 and are providing positive cash flows. Another project is under construction and is expected to become operational in 1994.

ASP ASP's real estate investment at December 31, 1992 is a 280,000 square foot office and warehouse facility in Atlantic County, New Jersey, with a net book value of $13.4 million.

Atlantic< J >E n erg y

l 1 : A G E ~1 E: T's D l § c 'C's § I 0 l ~ f

). T D,'ALY§ J§ OF fl:A~'C I AL CO.'D ITJ O:

Approximately 56% of the office space is leased to ACE. As of December 31, 1992, ASP's investment has been fu:ided by capital contributions from the Company and borrowings under a loan agreement with ATE. ASP' s current agreement with ATE provides for the repayment of such borrowings on or before December 31, 1993, but this date may be extended.

ASP's cash flows from operating activities are principally affected by rental income. ASP estimates that its business activities in the 1993-1995 period will be limited to the devel-opment of the existing property and that additional invest-ments will not be significant.

i~D RESL' LT§ OF OPE R. TI O:§ ATE ATE has invested in leveraged leases of three commercial aircraft and two containerships. ATE has loans outstanding to ASP, including unpaid interest, which totaled $8.4 million at December 31, 1992. At December 31, 1992, ATE has obtained funds for its business activities and loans to ASP through capital contributions and advances of $17.7 million from the Company. Funds also have been provided by a revolving credit and term loan facility. In December 1992, ATE privately placed $15 million principal amount of7.44%

Senior Notes due 1999. Proceeds were used to reduce bor-rowings outstanding under the revolving credit and term loan facility. At December 31, 1992, borrowings outstanding under this facility totaled $8.9 million. Future investments by A TE may be undertaken after consideration of the Company's consolidated tax position. ATE's cash flows from operations are expected to continue to be provided from lease rental receipts and realization of existing tax benefits.

RESULTS OF OPERATIONS Operating results are dependent upon the performance of the subsidiaries, primarily ACE. Since ACE is the principal sub-sidiary within the consolidated group, the operating results presented in the Consolidated Statement oflncome are those of ACE, after elimination of transactions among members of the consolidated group. Results of the nonutility companies are reported in Other Income.

A t

I a

n t

i 4*

I.II 3*

1*

88 89 90 91 92

{times coverage)

ATLANTIC ELECTRIC Pre-Tax Interest Coverage Ratio This ratio measures the ability of Atlantic Electric to meet its interest payments to creditors.

It is the number of times that interest charges are "covered" by earnings before the payment of income taxes. For an "A" rated utility, pre-tax coverage should be between 2.5 and 4.0 times. To calculate the coverage ratio, net income is adjusted for certain amounts and then divided by interest charges.

> Energy

10.

Ill 1.7 u

u u

88 89 90 91 92

{in cents)

ATLANTIC ELECTRIC Average Booked Revenue Per Kilowatt-Hour This represents the average amount of revenue recorded for each kilowatt-hour sold. It is calculated by dividing Atlantic Electric's revenue from kilowatt-hour sales by the number of kilowatt-hours sold.

300.

250*

200.

150*

100*

SO*

Iii 117J 7U F] TA 51.1 11.1 m.1

!JJ 171.Z tu 15U 134.5 115.4 M.5 71J 88 89 90 91 92 Tl.ANTIC ENERGY Cash Requirements and Internal Generation of Funds

• CONSTRUCTION &OTHER

• MATURITIES, RETIREMENTS

& SINKING FUNDS

• I TERNAL CASH GENERATION This compares the amount of cash expenditures for construction and other capital needs to the amount of cash that is generated internally from the Company's operations after the payment of dividends to shareholders. The difference between the amount of cash that is required and the amount of cash that is generated internally is the amount of funds that will have to be raised in the capital markets.

41 80*

60.

11 44 40.

20

• 41 41 3

4t 11 44 1

II 14 47 88 89 90 91 92 (in percent)

ATLANTIC ENERGY Year-End Capitalization

• COMMO EQUITY

• PREFERRED STOCK

• LO G TERM DEBT

• SHORT TERM DEBT 1

II 14 47 Atlantic Energy's capitalization is the relative proportion of equity funds provided by its owners, common and preferred shareholders, and borrowed funds provided by creditors, holders of short and long term debt securities. It is calculated by dividing the dollar amount of each class of security by the total amount of capitalization.

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D RESULT§ OF OPE RAT JO '§ REVENUES Operating Revenues--Electric increased 1.0% and 9.1 % in 1992 and 1991, respectively. Components of the overall changes are shown as follows:

(millions) 1992 1991 Base Revenues I 11.0 43.0 Levelized Energy Clauses 23.0 (5.9)

Kilowatt-hour Sales (28.7) 17.1 Unbilled Revenues (2.o) 7.3 Sales for Resale 5.5 6.3 Other (0.3)

(0.3)

Total I

8.5

$ 67.5 Base Revenues increased in 1992 as a result of a $12.946 mil-lion base rate increase effective on October 20, 1992 and a

$50.0 million base rate increase effective July 3, 1991. Base Revenues increased in 1991 due to the July 1991 increase and a $41.6 million base rate increase effective June 1990.

Levelized Energy Clause (LEC) revenues increased in 1992 as a result of the net effects of an $8.484 million decrease effective October 20, 1992 and a $21.3 million LEC increase effective June 1991. LEC revenues decreased in 1991 as a result of the net effects of the June 1991 LEC rate increase and the impact of a $35.8 million LEC rate reduction effec-tive June 1990.

Changes in kilowatt-hour sales are discussed under "Sales." Overall, the combined effects of changes in rates charged to customers and kilowatt-hour sales resulted in increases of 4.4% and 5.2% in revenues per kilowatt-hour in 1992 and 1991, respectively.

Changes in operating revenues in the future will result from changes in customer rates, energy consumption and gen-eral economic conditions in the service area, as well as the impacts ofload management and conservation programs insti-tuted by ACE. ACE's revenues could also be affected by the loss of sales through cogeneration and increasing competi-tion in the generation of electricity by utility and nonutility sources.

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GEJE.~T'§ D1SC'CS§10.' 1.rD A.'. LYSJS OF Fl:\\A.'CJAL CO.'DJTJO.' A.'D RESL'LT§ OF OPERATJO:\\§ A

SALES Changes in kilowatt-hour sales are generally due to changes in the average number of customers and average customer use, which is affected by economic and weather conditions:

Energy sales statistics, stated as percentage changes from the previous year, are shown as follows:.

Customer Class Residential Commercial Industrial Other Total Sales 1992 Avg Use Avg#

of Cost (2.8)% (3.7}% 0.9%

(1.5)

(3.2) 1.8 (10.2)

(9.4)

(0.8}

(0.3}

(0.3}

(3.5)

(4.5}

1.0 Sales 3.1%

2.8 (0.6)

(0.3) 2.3 1991 Avg Use Avg#

of Cost 2.3% 0.8%

1.1 1.6 (0.2) (0.4) 2.2 (2.4) 1.4 0.9 In 1992, total kilowatt-hour sales declined 3.5% primarily due to lower sales to Industrial customers. In the last 15 months, two industrial customers that had received primary service from ACE now have their energy supplied by nonu-tility sources. Energy sales in 1992 were also affected by milder weather in both the heating and cooling seasons.

Total energy consumption was affected by a significant decline in sales to Residential and Commercial customers in July and August of 1992 compared to the same months in 1991 when extraordinarily hot weather was experienced. In 1991, the increase in total kilowatt-hour sales resulted from greater average use by Residential and Commercial customers primarily as a result of the unusually hot summer weather.

ACE is experiencing the effects of legislated competition and structural changes in the electric utility industry. In October 1991, ACE's then largest industrial customer began self-generating its principal electric needs. In March 1992, another large industrial customer of ACE began receiving primary service from a nonutility source. ACE expects that by 1995 two more existing customers will receive primary service from nonutility sources. In 1992, these two existing customers accounted for approximately 12% of Industrial kilowatt-hour sales.

COSTS AND EXPENSES Total Operating Expenses increased 2.4% and 7.7% in 1992 and 1991, respectively. Included in these expenses are the costs of energy, purchased capacity, operations, maintenance, depreciation and taxes. Energy and Purchased Capacity expenses in all periods presented have been impacted by the Federal regulatory requirement effective January 1, 1992 to classify amounts associated with sales of energy and capacity to other utilities (sales for resale) as revenues. This is a change from the prior practice of netting these amounts against expenses. Net income was not affected by this change.

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Energy expense reflects the amount of energy needed.,

meet load requirements, as well as the various fuel and pur-chased energy sources used and operation of the LECs.

Changes in costs reflect the varying availability of low-cost generation from owned and purchased energy sources and in the unit prices of the energy sources used, as well as changes in the needs of other utilities participating in the Pennsylvania-New Jersey-Maryland Interconnection.

The cost of energy is recovered from customers principally through the operation of the LECs. Earnings are not affect-ed by Energy expense because these costs are adjusted to match the associated LEC revenues. In any period, the actual amount of LEC revenue recovered from customers will be greater or less than the actual amount of energy cost incurred in that period. Such respective overrecovery or underrecovery of energy costs is recorded on the Consolidated Balance Sheet as a liability or an asset as appropriate. Amounts in the balance sheet are recognized in the Consolidated Statement oflncome within Energy expense during the period in which they are subsequently recovered through the LECs. ACE was overrecovered by $8.l million and $24.6 million at December 31, 1992 and 1991, respectively. The 1991 over-recovery balance excludes $10.4 million in replacement ene -

gy costs relating to a 1984 outage at the Salem Nu Generating Station. During 1992, the BRC authorized Pl to recognize the recovery of these costs through the LECs.

Energy expense consists of the following:

(000) 1992 1991 1990 Owned Fuel

$ 77,337

$ 93,081

$ 90,305 Purchased Fuel 80,960 64,023 44,535 Interchanged 10,776 12,688 30,567 Deferred Energy (7,939}

13,180 20,136 Energy Expense

$161,134

$182,972

$185,543 In 1992, Energy expense decreased 11. 9% because energy revenues collected from customers during the period were less than energy costs incurred by ACE resulting in a reduc-tion of previously deferred energy costs. Production-related energy costs (owned and purchased fuel and interchanged) for 1992 were slightly less than those in 1991 due to a decrease in net generation. Average unit cost for energy in 1992 increased to 1.80 cents per kilowatt-hour compared to 1.78 cents per kilowatt-hotir in 1991. The increase in the per unit cost is a result of increased amounts of higher cost ener-gy from nonutility sources and decreased supply of lower cost nuclear energy. Energy expense for 1991decreased1.4% pri-marily due to a reduced level of energy costs deferred d-

• the year. The decrease was partially offset by increased duction-related energy costs associated with a 3.4% inc

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.LL'AGEJE.' T'§ DJ§C'G§§JO:. * 'Di.'ALY§J§ OF F l ~A.~CIA L co:D i TIO.'

i' D RESULT§ OF OPERATIO:s net generation. The 1991 average unit cost for energy of Mortgage Bonds, 6.80% Pollution Control Series A due 1.78 cents per kilowatt-hour decreased from 1.85 cents per 2021. In May 1991, ACE redeemed $39 million principal kilowatt-hour in 1990 primarily due to the availability of amount of First Mortgage Bonds, 11%% Pollution Control lower cost energy associated with the PE arrangement begin-Series A due 2011. At December 31, 1992, 1991 and 1990, ning in June 1990.

ACE's embedded cost oflong term debt was 8.8%, 8.9% and Purchased Capacity expense reflects entitlements to gener-9.2%, respectively.

ating capacity owned by others. Purchased Capacity expense Preferred Stock Dividend Requirements of ACE increased 30.1% in 1992 primarily due to capacity supplied by increased 8.5% and 52.0% in 1992 and 1991, respectively, two nonutility power producers beginning in September and reflect the issuance and sale of 700,000 shares of $7.80 1991 and March 1992. Purchased Capacity expense No Par Preferred Stock in May 1991. The increased require-increased in 1991 by 38.3% a result of the PE arrangement.

ments were partially offset by the operation of sinking funds Excluding the effects of certain regulatory matters, of certain series of Preferred Stock. Embedded cost of Operations expenses increased 2.8% in 1992 primarily due to Preferred Stock as of December 31, 1992, 1991 and 1990 nuclear decommissioning expenses previously classified as was 7.7%, 7.8% and 7.7%, respectively.

depreciation expense, in accordance with BRC requirements.

Operations expenses in 1991 increased 8.2%, excluding the effects of certain regulatory matters, due to nuclear decom-missioning charges, increased expenses associated with ACE's marketing efforts and expenses incurred for regulatory proceedings during the year. Maintenance expense decreased 4.1% and 0.7% in 1992 and 1991, respectively, due to the scheduling of maintenance projects. Various cost contain-ment programs have been successful in controlling the wth of ACE's operation and maintenance costs.

epreciation and Amortization expense increased 5.1 %

and 6.2% in 1992 and 1991, respectively, due to net increases in ACE's depreciable plant in service in each of these years.

The method of computing Gross Receipts & Franchi~e Taxes (GR&FT) was changed by legislation in 1992 to a unit tax that is based on kilowatt-hours sold during the year. In prior years, GR&FT was based on revenues collected from customers. GR&FT increased in 1992 and 1991 by 10.2%

and 1. 9%, respectively. The increase in 1992 reflects the accrual of additional GR&FT liabilities, incurred as a result of changes in GR&FT legislation, that are currently being recovered from customers.

Federal Income Taxes increased 2.5% and 34.7% in 1992 and 1991, respectively, due to an increased level of taxable income. Changes in Federal Income Taxes are detailed in Note 2 of the Notes to Consolidated Financial Statements.

Interest on Long Term Debt increased 3.3% in 1992 reflecting the net effects of the issuance of $60 million of MTNs in May 1992, with a weighted average interest rate of 7.75%, and the maturity of $10.35 million principal amount of First Mortgage Bonds, 4'h% Series due 1992 in July 1992.

Interest on Long Term Debt decreased 5.8% in 1991 as a result of various redemptions and maturities of certain series fl irst Mortgage Bonds having higher average rates than long term debt issued in 1991. In March 1991, ACE ed $38.865 million principal amount of its First A

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OUTLOOK The nature of the electric utility business is capital intensive.

ACE's ability to generate cash flows from operating activities and its continued access to the capital markets is affected by the timing and adequacy of rate relief, competition and the economic vitality of its service territory.

Net Income of ACE can be affected by the operational performance of nuclear generating facilities. ACE is subject to a BRC-mandated nuclear unit performance standard.

Under the standard, penalties or rewards are based on the aggregate capacity factor of ACE's five jointly-owned nuclear units. Any penalties incurred would not be permitted to be recovered from customers and would be charged against mcome.

Certain accounting standards applicable to the Company have been issued by the Financial Accounting Standards Board but not yet adopted by the Company. One standard, effective in 1993, relates to the accounting for income taxes and is not expected to have a material effect on the results of operations or financial position. Another standard, also effec-tive in 1993, relates to the accounting for postretirement ben-efits other than pensions and will significantly increase the annual costs of benefits recognized in future years over the amount now recognized. ACE currently estimates that the annual cost for such benefits could increase approximately $6 million to $9 million and result in an unfunded accumulated other postretirement benefit obligation of approximately $60 million to $70 million at December 31, 1992. ACE expects this impact to be lessened by rate regulation; however, it can-not predict the ultimate regulatory treatment that will be afforded these costs. A standard effective in 1994 that addresses postemployment benefits is not expected to have a significant impact.

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The financial performance of ACE will be affected in the future by the level of sales of energy and the impacts of regu-lation. The amount earned on capital investments by the util-ity is subject to general business conditions and regulations.

Other issues which may impact the electric utility business include public health, safety, environmental legislation and competition.

Recent Federal legislation has served to encourage the development of electric generating facilities by nonutilities.

One such project, in which AGI is a partner, was placed in service in March 1992 and serves one of ACE's then largest industrial customers. Two other projects, expected to serve other large industrial customers, are currently underway in ACE's service territory and are expected to be in service by 199 5. It is estimated that these two projects, if completed when expected, could displace the equivalent of 2.0% and 1.2% of 1992 total kilowatt-hour sales and revenues, respec-tively. These effects could be offset to some extent by natural growth in the service territory and additional efforts by ACE to reduce the impact of the potential loss of kilowatt-hour sales and revenues. As a result of economic conditions in the service territory, ACE estimates that the rate of growth of overall sales of energy will be modest. The amount and tim-ing of ACE's projected construction program is premised on the availability of generating capacity from nonutility sources described above. If for any reason these projects are delayed or do not materialize, or if load growth is greater than esti-mated, it may become necessary for ACE to increase its con-struction expenditures. Such an increase would put additional burdens on ACE to generate cash from operations and on ACE's financing programs.

The Clean Air Act Amendments (CAAA) enacted in 1990 relating to acid rain and limitations on emissions at electric generating plants will require modifications at certain of ACE's facilities. Compliance with the CAAA will cause ACE to incur additional operating and/or capital costs.

Presently, ACE's construction budget for 1993 through 1995 includes approximately $80 million related to the cost of compliance. In addition, certain power purchase arrange-ments will be affected by the CAAA, the effects of which are not presently determinable.

The New Jersey Department of Environmental Protection and Energy (DEPE) has proposed modifications to certain environmental permits at Salem. The Salem owners have opposed these modifications that would require the immediate A

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D RESULT§ OF OPERATIO 1 § shutdown of both Salem units, the construction of cooling towers at costs which are estimated to be substantial, and extended outages for the design, licensing and construction of such towers. In addition to the cost of construction, ACE would be required to purchase replacement energy, the cost of which could also be substantial. The retrofitting of cooling towers at Salem would also result in a permanent capacity de-rating of up to 120 MWs, as well as increased operation and maintenance costs. PS, the operator, has filed written com-ments and demonstrations which establish its position that cooling towers are not required. ACE has been advised that PS is discussing a proposal with the DEPE that would permit Salem to continue to operate witho~t cooling towers and would require PS to make certain plant modifications and to take certain other actions to enhance the ecology of the affected water body. Any such proposal would be required to be pub-lished for public comment before it could be implemented.

Costs of the proposal would not be material. The outcome of this matter cannot be predicted.

The National Energy Policy Act of 1992 was signed into law in October 1992. This legislation includes amendments to the Public Utility Holding Company Act of 1935 and Public Utility Regulatory Policies Act of 1978. The le tion creates a new class of independent power produ called exempt wholesale generators and provides for whole-sale transmission access, and is expected to increase competi-tion in the area of wholesale electric generation. As a result of Federal, state and other initiatives, competition in the energy supply industry has increased significantly in recent years.

ACE has been impacted by the loss of two large customers who now obtain their energy supply from nonutility sources.

This trend is expected to continue. ACE's strategy is to keep its customers' rates at a competitive level in order to retain existing customers and to expand the customer base without compromising quality of service and reliability. ACE's spend-ing plans reflect this strategy. This strategy will also affect how ACE evaluates issues concerning capacity needs, energy mix and compliance with legislative mandates, such as the CAAA and the National Energy Policy Act of1992.

INFLATION Inflation affects the level of operating expenses and also the cost of new utility plant placed in service. Traditionally, the rate making practices that have applied to ACE have involved the use of historical test years and the actual cost of utility plant. However, the ability to recover increased costs through rates, whether resulting from inflation or otherwise, de:*

upon the frequency, timing and results of rate case decisi.

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MA TAGEME 11§ Dl§CU§§ I0. 1 AND A 1ALY§l§ OF 6*

l.D I.I S*

4*

4J 4J 4J 3*

2*

l*

0 88 89 90 91 92 IANTIC ENERGY lowance for Funds Used During Construction (AFDC) as a Percent of Net Income Atlantic Energy's net income includes an accounting allow-ance for the utility's cost of borrowed and equity funds used for some construction projects.

It is calculated by dividing total AFDC (borrowed +equity) by net income. Because AFDC represents a noncash addition to net income, it is preferable to maintain a low ratio.

10.

11%

11%

8*

lfll 11%

ft m

m in 6*

54%

4*

• NO UTILITY PURCHASES

• PURCHASED POWER

&INTERCHANGED 2*

• OIL&

ATURALGAS

• NUCLEAR

• COAL O*

88 89 90 (in billions of kilowatt-hours)

ATLANTIC ELECTRIC Total Sources and Costs of Energy*

• Amount... in years prior to 1992 have been recalculated fl> exclude the cffc..:t~ of sale~ for n:.1lc.

91 1% m 92 In the last five years, coal and nuclear fuel sources combined have provided on average more than 70% of Atlantic Electric's total energy requirements. Nonutility purchases are from an independent power producer and a cogeneration facility.

Cost of Energy (in cents per kilowatt-hour) 88 89 90 91 92 COAL 2.09 2.20 2.20 1.99 1.76 NUCLEAR 0.89 0.87 0.83 0.78 0.73 OIL & NATURAL GAS 3.53 3.45 4.17 3.97 3.92 PURCHASED POWER

&INTERCHANGED 3.32 3.29 2.45 1.95 1.75 NONUTILITY PURCHASES 3.95 3.62 YEARLY AVERAGE 2.06 2.08 1.85 1.78 1.80 A

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s [ J R y F

1992 Atlantic Energy, Inc.

Investor Information Operating Revenues (000} (a)

$ 816,825 Net Income (000}

86,210 Average Number of Common Shares Outstanding (000} (b) 51,592 Earnils per Average Common Share (b) 1.67 Total ssets (Year-end) (000}

$2,220,151 Long Term Debt and Cumulative Preferred Stock Sub~ect to Mandatory Redemption (Year-end (000}

$ 842,236 Capital Lease Obli8ations (Year-end) (000}

49,303 Dividends Declare on Common Stock (b) 1.515 Dividend Payout Ratio (b) 90%

Book Value per Share (Year-end) (b) 15.17 Price/Earnings Ratio (Year-end) (b) 14 Times Fixed Charges Earned (pre-tax, Atlantic Electric) 3.76 Common Shareholders (Year-end) 46,524 Employees (Atlantic Electric) (Year-end) 2,023 Atlantic City Electric Company (Principal Subsidiary)

Facilities for Service Total Utility Plant (000}

$2,281,045 Additions to Utility Plant (000}

$ 134,326 Generating Capacity (Kilowatts) (Year-end) (c) (d) 2,160,700 Maximum Utility System Demand (Kilowatts) 1,796,000 Ca{gaci{i Reserve at Time of Peak

% o Installed Generation) 16.9%

Energy Supply (mwh):

Net Generation 5,775,098 Purchased and Interchanged 3,553,247 Total System Load 9,328,345 Electric Sales to Ultimate Customers (mwh):

Residential 3,276,330 Commercial 3,100,132 Industrial 1,229,211 All Others 49,464 Total (c) 7,655,137 Residential Electric Service (Average per Customer)

Amount of Electricity Used During the Year (kwh) 8,131 Revenue for a Year's Service 903.91 Revenue per Kilowatt-hour lJ.12¢ Ultimate Customer Data (Average)

Residential With Electric Heating 82,206 Residential Without Electric Heating 320,744 Total Residential 402,950 Commercial 51,996 Industrial 990 All Others 524 Total Ultimate Customers (e) 456,460 oreeratiI Revenues (000}

E ectnc ervJCe:

Residential

$ 364,232 Commercial 299,866 Industrial 97,475 All Others 10,548 Total from Electric Service 772,121 Unbilled Revenues-Net 1,203 Sales for Resale 35,884 Other Electric Revenues 7,723 Total Operating Revenues (a)(e)

$ 816,931 c

1991

$ 808,374 85,635 49,008 1.75

$2,151,416

$ 807,347

$ 53,093 1.495 85%

14.84 12 3.68 43,802 2,032

$2,175,601

$ 177,298 2,090,700 1,911,000 52%

6,300,891 3,124,024 9,424,915 3,370,327 3,147,318 1,368,329 49,626 7,935,600 8,440 906.66 10.74¢ 81,838 317,486 399,324 51,077 998 524 451,923

$ 362,050 292,349 102,202 10,136 766,737 3,229 30,404 8,112

$ 808,482 A L 1990

$ 740,894 68,879 45,590 1.51

$2,006,010

$ 747,877

$ 57,971 1.47 97%

14.36 11 2.94 42,295 2055

$2,027,138

$ 170,772 1,959,700 1,741,000 10.9%

6,267,559 2,606,067 8,873,626 3,267,606 3,063,069 1,376,423 49,769 7,756,867 8,251 844.37 1023¢ 81,479 314,529 396,008 50,274 1,002 537 447,821

$ 334,375 271,688 96,766 9,668 712,497 (4,055) 24,115 8,448

$ 741,005 A

D 1989

$ 723,216 80,964 43,268 1.87

$1,864,461

$ 725,329 33,146 1.425 75%

14.27 10 3.19 43,383 2,021

$1,846,122

$ 147,886 1,879,700 1,700,000 9.6%

3,265,918 2,917,162 1,380,832 53,872 7,617,784 8,382 840.34 10.03¢ 80,409 309,245 389,654 49,509 1,008 549 440,720

$ 327,443 256,199 94,634 9,901 688,177 7,2.

18, 9,

$ 723,353

{a) Prior year amounts restated to reflect sa1es of energy and capacity to other utilities (sales for resale) as revenues rather than as nee expense in accordencc with Federal regulatory rcquiremenrs effective Januruy 11 1992.

(b) Prior year amounts restated to reflect the rwo-for-one Common Srock split in May 1992.

(c) Excludes capacity allocated to a large indusriral customer.

(d) Includes unit purchases and sales of capacity under contracts with certain other utilities and nonutilities. (e) lncludes sales to an affiliate within the Atlantic Energy consolidated group.

(0 Restated to reflect overrecovered energy costs recognized as energy costs rather than as revenues.

Atlantic <

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§ T A T

§ T c

L R E V E W l 9 9 2 1 9 8 2 88 1987 1986 1985 1984 1983 1982

$ 687,335

$ 635,657

$ 604,716

$ 612,035

$ 582,386

$ 526,681

$ 489,415 72,171 73,765 54,946

$ 46,150 56,433

$ 59,717 42,381 39,186 36,622 36,532 36,138 35,162 33,846 30,232 1.84 2.01 1.50 1.28 1.60 1.76 1.40

$1,660,286

$1,499,381

$1,401,064

$1,319,027 1,253,083

$1,170,993

$1,101,318

$ 594,461

$ 522,815

$ 534,822

$ 521,612

$ 473,462

$ 459,366

$ 462,650 32,880 37,694 37,603 38,857

$ 41,722

$ 39,228

$ 33,178 1.37 1.3575 1.305 1.2775 1225 1.16 1.12 75%

66%

87%

99%

76%

65%

79%

13.58 12.86 12.18 11.98 11.95 11.60 11.00 9

8 12 11 8

7 7

3.06 3.68 2.99 3.06 3.62 4.14 2.59 44,473 45,586 47,133 48,635 47,446 48,299 48,790 2,092 2,148 2,168 2,099 2,012 1,995 2,022

$1,712,614

$1,602,801

$1,503,010

$1,438,643 1,351,392

$1,265,393

$1,186,499

$ 130,281

$ 105,521

$ 109,303

$ 105,213

$ 95,388 83,673

$ 126,893 1,807,700 1,660,700 1,660,700 1,605,700 1,594,200 1,594,200 1,531,200 1,636,000 1,609,000 1,459,000 1,432,000 1,298,800 1,346,700 1,264,200 9.5%

3.1%

12.1%

10.8%

18.5%

15.5%

17.4%

5,863,119 6,157,938 5,966,600 5,817,254 6,237,724 5,913,196 5,676,118 67,871 1,773,837 1,454,491 1,333,174 940,987 1,065,704 966,951 0,990 7,931,775 7,421,091 7,150,428 7,178,711 6,978,900 6,643,069 3,213,010 3,040,410 2,839,114 2,638,121 2,646,813 2,545,351 2,415,292 2,741,976 2,592,232 2,401,199 2,298,895 2,150,464 2,019,468 1,894,535 1,339,005 1,323,567 1,222,981 1,204,971 1,197,392 1,225,637 1,218,520 56,289 58,191 58,120 57,685 59,122 60,978 63,770 7,350,280 7,014,400 6,521,414 6,199,672 6,053,791 5,851,434 5,592,117 8,460 8,281 7,982 7,643 7,866 7,715 7,444 838.70 808.14 (f) 791.09 (f) 79929 (f) 783.47 713.79 (f)

$ 668.52 (f) 9.91¢ 9.76¢ (f) 9.91 ¢ (f) 10.46 ¢ (f) 9.96¢ 925 ¢ (f) 8.98¢ (f) 78,805 75,900 72,640 68,871 65,261 62,272 59,319 300,974 291,253 283,062 276,305 271,207 267,642 265,124 379,779 367,153 355,702 345,176 336,468 329,914 324,443 48,398 46,775 45,359 44,256 43,615 43,152 42,885 1,014 1,015 1,022 1,020 1,015 1,021 1,018 552 554 554 554 544 549 627 429,743 415,497 402,637 391,006 381,642 374,636 368,973

$ 318,520

$ 296,712

$ 281,393

$ 275,897

$ 263,612

$ 235,488

$ 216,897 240,890 222,129 214,230 216,052 190,435 169,795 160,837 91,661 84,476 80,037 83,628 79,123 72,633 75,143 9,935 10,199 10,230 10,470 10,405 9,960 9,459 661,006 613,516(£)

585,890 (f) 586,047 (f) 543,575 487,876 (f) 462,336 (f) 6,716 385 (1,813) 3,076 (1,340) 5,671 (6,795)

,476 12,840 13,045 15,656 32,855 26,130 27,394 8,137 8,916 7,594 7,256 7,296 7,004 6,480

$ 687,335

$ 635,657

$ 604,716

$ 612,035

$ 582,386

$ 526,681

$ 489,415 Atlantic <

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E § T 0 R as of D ecem Dividend and share price information have been adjusted to reflect a two-for-one Common Stock split that was autho-rized in March 1992 and effective May 1992.

Where should I send inquiries concerning my investment in Atlantic Energy, Inc.?

The Company serves as recordkeeping agent, dividend dis-bursing agent and also as Transfer Agent for Common Stock.

Correspondence concerning such matters as the replacement of dividend checks or stock certificates, address changes, transfer of Common Stock certificates, Dividend Reinvest-ment and Stock Purchase Plan inquiries or any general infor-mation about the Company should be addressed to:

Atlantic Energy, Inc.

Investor Records 6801 Black Horse Pike P.O. Box 1334 Pleasantville, New Jersey 08232 Telephone (609) 645-4506 or (609) 645-4507 Ms. S. D. McMillian, Secretary, is the corporate officer responsible for all investor services.

When are dividends paid?

The proposed record dates and payable dates for dividends on Common Stock are as follows:

Record Dates March 22, 1993 June 21, 1993 September 20, 1993 December 20, 1993 Payable Dates April 15, 1993 July 15, 1993 October 15, 1993 January 17, 1994 The following table indicates dividends paid per share in 1992 and 1991 on Common Stock:

1992 1991 First Qyarter

$.375

$.37 Second Qyarter

.375

.37 Third Qyarter

.38

.375 Fourth Qyarter

.38

.375 Annual Total

$1.51

$1.49 Dividends paid on Common Stock in 1992 and 1991 were fully taxable. Some state and local governments may impose personal property taxes on shares held in certain corporations.

Shareholders residing in those states should consult their tax advisors with regard to personal property tax liability.

Who is the trustee and interest paying agent for Atlantic Electrid bonds and debentures?

First Mortgage Bond recordkeeping and interest disbursing are performed by The Bank of New York, 101 Barclay Street, New York, New York 10286. Debenture recordkeeping and interest disbursing are performed by First Fidelity Bank, N.A., 765 Broad Street, Newark, New Jersey 07102.

A t

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F 0 R M T 1 0 btr 3 1,

1 99 2 Whom can I contad regarding the Preferred Stock of Atl.

Electric?

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

Inquiries regarding such matters can be directed to Investor Records at the address listed.

Does the Company have a Dividend Reinvestment and Stock Purchase Plan?

Yes. The Plan allows shareholders of record and interested investors to automatically invest their cash dividends and/or optional cash payments in shares of the Company's Common Stock. Holders of record of Common Stock or interested investors desiring to enroll in the Plan should contact Investor Records at the address listed. In addition, sharehold-ers whose stock is held in a brokerage account may be able to participate in the Plan. These shareholders should contact their broker or Investor Records for more information.

Where is the Company's stock listed?

Common Stock is listed on the New York, Pacific and Philadelphia Stock Exchanges. The trading symbol of the Company's Common Stock is ATE; however, newspaper list-ings generally use AtlEnrg or AtlanEngy.

The high and low sale prices of the Common Stock re in the Wall Street Journal as New York Stock Exchang posite Transactions for the periods indicated were as follows:

1992 1991 High Low High Low First Qyarter Second Qyarter Third Qyarter Fourth Qyarter

$21.000 $18.000 23.500 20.813 24.625 22.500 23.500 21. 750

$18.063 $16.063 18.563 17.063 19.313 17.250 20.875 19.000 Who are the independent auditors for Atlantic Energy, Inc.?

Deloitte & Touche Certified Public Accountants Two Hilton Court, P.O. Box 319 Parsippany, New Jersey 07054-0319 Is additional information about the Company available?

The annual report to the Securities and Exchange Com-mission on Form 10-K and other reports containing financial data are available to shareholders. Specific requests should be addressed to:

Atlantic Electric Financial Services Department 6801 Black Horse Pike Pleasantville, New Jersey 08232 Telephone (609) 645-4655 or (609) 645-4888 FA:x(609)645-4132

> Entrgy

OFF I CE R§ OF ATLA1'T l C E.'ERGY, L'C A.'D §UB§ID[A RIE§ ars of service}

a s o f D e c e m b UGIAS HUGGARD (59/37) airman and Chief Executive Officer of Atlantic Energy Director of Atlantic Energy and all subsidiaries Chairman and Chief Executive Officer of Atlantic Electric Mr. Huggard has served as Chairman and Chief Executive Officer since 1990. He was President and Chief Executive Officer from 1985 to 1989. He joined Atlantic Electric in 1955 as an engineer.

JERROLD L.JACOBS (53/31)

President of Atlantic Energy Director of Atlantic Energy and all subsidiaries President and Chief Operating Officer of Atlantic Electric Mr. Jacobs has served as President of Atlantic Energy and President and Chief Operating Officer of Atlantic Electric since 1990. He was Executive Vice President of Atlantic Electric from 1988 to 1990. He joined Atlantic Electric in 1961 as an engineer.

MEREDITH I. HARIACHER,JR. (50/27)

Vice President of Atlantic Energy Director of Atlantic Energy Technology, Atlantic Southern Properties and ATE Investment Senior Vice President-Utility Operations of Atlantic Electric Mr. Harlacher has served as Vice President of Atlantic Energy since 1987 and was named Senior Vice President-Utility Operations of Atlantic Electric in 1991. Prior to that he was Senior Vice President--

orate Planning and Services of Atlantic Electric. He joined tic Electric in 1965 as an engineer.

YK. LEVARl,JR. (44121)

Vice President of Atlantic Energy Director of all subsidiaries Senior Vice President-Corporate Planning and Services of Atlantic Electric Mr. Levari was named Vice President of Atlantic Energy and Senior Vice President-Corporate Planning and Services of Atlantic Electric in 1991. Prior to that, he served as Atlantic Electric's Vice President--

Power Delivery. He joined Atlantic Electric in 1971 as an engineer.

JOHN R. LILLY(64/4)

Vice President of Atlantic Energy President and Director of Atlantic Southern Properties, Atlantic Generation, Atlantic Energy Technology and ATE Investment Mr. Lilly joined Atlantic Energy in 1988 as Vice President. He was previously self-employed as a financial management consultant. Mr.

Lilly is an attorney.

J.G. SALOMONE (52116)

Vice President and Treasurer of Atlantic Energy Director of all subsidiaries Senior Vice President-Finance & Accounting and Treasurer of Atlantic Electric Certified Public Accountant Salomone has served as Vice President and Treasurer of Atlantic since 1987. He has served as Chief Financial and Accounting r of Atlantic Electric since 1984. He joined Atlantic Electric as ssistant Controller in 1976.

Atlantic <

e r 3 1 1 9 9 2 SABRINAD. McMILLIAN (3717)

Secretary of Atlantic Energy Secretary of Atlantic Electric Ms. McMillian was elected Secretary in 1986. She joined Atlantic Electric in 1985 as Assistant to the Corporate Secretary..

Ms. McMillian is an attorney.

JOHN M. CARDEN (54/25)

Vice President-Customer Service of Atlantic Electric Mr. Carden has served as Vice President-Customer Service of Atlantic Electric since 1988. Prior to that, he was Atlantic Electric's Vice President-Administrative Services. He joined Atlantic Electric in 1967 as an engineer.

THOMAS E. FREEMAN (62/12)

Vice President-Human Resources of Atlantic Electric Mr. Freeman has served as Vice President-Human Resources of Atlantic Electric since 1981. He joined Atlantic Electric in 1980 as Manager of Administration. (Retired effective 1/1/92)

JAMES J. LEES (48/22)

Vice President-Marketing and Rates of Atlantic Electric Mr. Lees has served as Vice President-Marketing and Rates of Atlantic Electric since 1989. He was Vice President-Rates of Atlantic Electric from 1987 to 1989. He joined Atlantic Electric in 1970 as an engineer.

J. DAVID McCANN (41/20)

Vice President-Power Delivery of Atlantic Electric Mr. McCann was named Vice President-Power Delivery of Atlantic Electric in 1991. Prior to that, he was Vice President, Treasurer and Assistant Secretary of Atlantic Electric from 1985 to 1991. He joined Atlantic Electric in 1972 as an engineer.

HENRYC. SCHWEMM,JR. (51/23)

Vice President-Production of Atlantic Electric Mr. Schwemm has served as Vice President-Production of Atlantic Electric since 1980. He joined Atlantic Electric in 1969 as an engineer.

JOHN P. SMALLING (32/2)

Vice President and Secretary of Atlantic Southern Properties and Atlantic Energy Technology Secretary of Atlantic Generation and ATE Inve~tment Mr. Smalling was elected to the above positions and has served as Manager of Diversified Activities since joining Atlantic Energy in 1991. He has previously held positions in corporate finance and banking with other corporations.

LOUISM. WALTERS (40/14)

Treasurer of ATE Investment, Atlantic Southern Properties and Atlantic Energy Technology Certified Public Accountant Mr. Walters was elected to the above positions and was named General Manager-Treasury and Finance of Atlantic Electric in 1991.

Prior to that, he held managerial positions in treasury, taxes and accounting. He joined Atlantic Electric in 1978 as an accountant.

ERNEST L.JOLLY(40/12)

Vice President-External Affairs of Atlantic Electric Mr. Jolly was named Vice President of External Affairs of Atlantic Electric in 1992. Prior to that, he held Station Manager positions at the Deepwater Generating Station from 1987 to 1992. He joined Atlantic Electric in 1980 as an engineer.

> Energy

BOARD OF DJRECTOR§ OF a s o f D ecem b

JOS. MICHAEL GALVIN,jR.

Mr. Galvin, a Director since 1978, is president and chief executive officer of the South Jersey Health Corporation-The Memorial Hospital of Salem County. He is a graduate of the University of Scranton and holds a Master of Business Administration from Xavier University. Age: 47. Professional Experience: personnel, health care management.

Committee Chairman: Personnel. Committee Membership: Audit; Energy, Operations & Research; Pension & Insurance.

GERALD A. HALE Mr. Hale, a Director since 1.983, is president of Hale Resources, Inc.,

an investment and management company. He is chairman of Evans Clay Company and a director of ew Jersey Manufacturers Insurance Company, New Jersey Business and Industry Association and Strong Systems, Inc. He is a graduate of Western University.

Age: 65. Professional Experience: industrial minerals, chemicals and fabricated O.E.M. products.

Committee Chairman: Energy, Operations & Research. Committee Membership: Audit; Corporate Development; Personnel.

MATTHEW HOLDEN, JR.

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

Doherty Professor of Government and Foreign Affairs at the University of Virginia. He is a former commissioner of the Federal Energy Regulatory Commission and the Wisconsin Public Service Commission. He holds a Doctorate of Political Science from Northwestern University. Age: 61. Professional Experience: regula-tory affairs, energy consultation, arbitration.

Committee Chairman: Audit. Committee Membership: Corporate Development; Pension & Insurance; Personnel.

CYRUS H. HOLLEY Mr. Holley, a Director since 1990, is president of Management Consulting Services. He was formerly chief operating officer, execu-tive vice president and director of Engelhard Corporation. He is a graduate of Texas A & M University. Age: 56. Professional Experience: industrial minerals, chemicals and precious metals.

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

E. DOUGlAS HUGGARD Mr. Huggard, a Director since 1984, was elected Chairman and Chief Executive Officer in 1990, and has been Chief Executive Officer since 1985. He serves as a Director of all of the Company's subsidiaries and has been with the Company for 37 years. He is cur-rently a director of the New Jersey State Chamber of Commerce and the Edison Electric Institute. He is a former Navy engineering officer and holds a Master of Mechanical Engineering from the University of Delaware. Age: 59. Professional Experience: utility operations.

Committee Membership: Ex-officio member of all committees except Audit and Personnel.

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1992 JERROLD L.JACOBS Mr. Jacobs was elected President and a Director of the Company 1990 and serves as President and Chief Operating Officer of Atlantic Electric. He is a Director of all of the Company's subsidiaries and has been with the Company for 31 years. He is a graduate of the Newark College of Engineering (New Jersey Institute of Technology). Age:

53. Professional Experience: utility operations.

Committee Membership: Ex-officio member of all committees except Audit and Personnel.

RICHARD B. McGLYNN Mr. McGlynn, Attorney at Law and partner in the law firm of LeBoeuf, Lamb, Leiby & MacRae, has been a Director since 1986.

He is a member of the American and ew Jersey State Bar Associations, as well as the American Bar Foundation and the American Law Institute. He is a former commissioner of the New Jersey Board of Public Utilities and a former judge in Essex County, New Jersey. He is a graduate of Rutgers Law School and Princeton University. Age: 54. Professional Experience: law, utility regulation.

Committee Chairman: Pension & Insurance. Committee Membership: Corporate Development; Energy, Operations &

Research; Finance & Investor Relations.

MADELINE H. McWHINNEY Ms. McWhinney, a Director since 1983, is president of Dale, Elliott

& Company, management consultants. She is a trustee of Charles F. Kettering Foundation, the Institute of Internat' Education and the Managers Mutual Funds. She holds a Mas Business Administration from New York University. Age: 7 Professional Experience: finance, management.

Committee Chairman: Finance & Investor Relations. Committee Membership: Audit; Energy, Operations & Research; Pension &

Insurance.

BERNARD J. MORGAN Mr. Morgan, banking industry executive, was elected as a Director in 1988. He is a director of St. Joseph's University. He is also chairman of the Business Advisory Group of the Greater Philadelphia Girl Scouts. He holds a Master of Business Administration from the Wharton School of the University of Pennsylvania. Age: 56.

Professional Experience: banking, finance.

Committee Chairman: Corporate Development. Committee Membership: Finance & Investor Relations; Pension & Insurance; Personnel.

HAROLD J. RAVECHE Dr. Raveche, who became a Director in 1990, is president of the Stevens Institute of Technology. He was formerly the Dean of Science of the Rensselaer Polytechnic Institute. He is a director of National Westminster Bank, both Bancorp and ew Jersey; a com-missioner of the New Jersey Commission on Science and Technology and a member of the Newark International Airport Advisory Committee. He holds a Doctorate of Physical Chemistry fro-U niversity of California. Age: 49. Professional Experience:

education, science and technology policy.

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

> E n e

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WE 9D LIKE TO HE R YOUR COMMENT§ D §UGGE§TIO §ON THI§ NNU L REPORT.

Please take a few minutes to complete this survey.

0 Which sections of the Annual Report did you find most useful? (select all that apply) a) Letter to Shareholders (p. 2) b) News ofl992 (p. 4) c) Winning Combinations (pp. 5-15) d) Atlantic Electric At-A-Glance (p. 16) e) Financial Statements and Notes (pp. 17-51) f) Investor Information (p. 52) g) Officers &Directors (p. 53) 8 How would you rate the information given in this Annual Report?

a) too complicated b) just right c) too informal 8 Through our Annual Report and Interim Letters, we provide you with information about five times a year. Would you say that this amount of communication is:

too much just right c) not enough If you'd like more information on Atlantic Electric's products and services, call our Selectricity Hotline at 1-800-221-0520 or fill out this card and return it to us.

Detach &Mail I

I i I i I

I i Please check your answers below 0 0@0@)

0© If you receive more than one copy of this Annual Report and would like to eliminate the dupli-cate(s ), please complete the information at right.

Note: Your account number appears on your proxy card.

Name (please print)

Address ZIP Account Number(s)

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Thank you for your response!

Detach &Mail Please send me more information on the products and services featured in this Annual Report.

(check below) 0 B.E.S.T. Homes 0 Night Guard Leased Lighting 0 Geothermal energy systems Are you an Atlantic Electric customer?

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BUSINESS REPLY MAIL FIRST CLASS MAIL PERMIT NO. 29 PLEASANTVILLE, NJ POSTAGE WILL BE PAID BY ADDRESSEE ATLANTIC ELECTRIC FINANCIAL SERVICES I B. KAMINSKY 6801 BLACK HORSE PIKE PLEASANTVILLE NJ 08232-9856 111 *** 1 ** 1 *** 1.1 ** 11 *** 1.11.1 ** 1 ** 1 ** 1.1 ** 11 ** 1 *** 11 I I BUSINESS REPLY MAIL FIRST CLASS MAIL PERMIT NO. 1000 PLEASANTVILLE, NJ POSTAGE WILL BE PAJD BY ADDRESSEE ATLANTIC ELECTRIC MARKETING I J. SHENK 6801 BLACK HORSE PIKE PLEASANTVILLE NJ 08232-9856 111 *** 1 ** 1 *** 1.1 ** 11 *** 1.11.1 ** 1 ** 1 ** 1.1 ** 11 ** 1 *** 11 NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES

---~-------~ -----

BOARD OF DIRECTOR u Jos. Michael Galvin, Jr.

Gerald A. Hale Matthew Holden, Jr.

Cyrns H. Holley E. Douglas Huggard Bernard). Morgan

PERMIT NO. 11 SOUTH JERSEY NJ 08031