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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ML18100A389	List: ML18100A388 ML18100A390 ML18100A391
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NUDOCS 9306020086
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B 0 § CONTENTS < *>

< > A tlantic Electric Letter to Shareholders Coach Vince Lombardi once said, A t-A-Glance The cool summer of1992 Chairman Doug Huggard and the loss of two major and President Jerry Jacobs give their thoughts on the "Winning is not a sometime thing; it's industrial customers caused sales to decline changing utility industry 3.5% for the year. Sales to and on how Atlantic the twelve casino/hotels Energy will be competitive an all-the-time thing." We couldn't are 7.0% of total sales.

in this new environment.

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News of1992 agree more, especially w. n it comes to Index to Financial Information Atlantic Generation put two projects in service. Atlantic our shareholders, our customers and our < >

Energy's Common Smck Investor Informati split two-fur-one in May 1992. Atlantic Electric steps Where to turn with que up its economic development world. When our business prospers, tions on your investment efforts. Transmission line in Atlantic Energy; construction took to the air. C ommon Stock data for

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Winning Combinations shareholders win. When our ener 1992; Proposed record and payable dates for dividends; Dividend Reinvestment and W e arc proud to feature just a few of A tlantic Electric's Stock Purchase Plan information.

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 E nergy-For Outstanding Performance that shareholders entitled to v areholders, our 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.

• EARNI NGS

• DIVIDENDS

• 25 1.87 Z3.13 Earnings per share of Common 1.84 1.75 Stock is net income divided by the 1.67 20.50 average number of common shares 19.25

• 20 This is the closing price of 1.51 1.49 1.51 outstanding. D ividends paid per 1.5 . 1.46 Atlantic Energy's Common 1.33 1.41 share is the sum of the quarterly 11.38 1&.94 Stock on the last trading date dividend payments made in of each year, as reported by January, April, July

• 15 the ew York Stock Exchange and October. Composite Transactions listi ng .

• 10 ATIANTIC ENERGY ATIANTIC ENERGY Earnings and Dividends* Market Price*

Paid Per Share of .5 . Per Share of Common Stock

• 5 Common Stock

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

• 0 88 89 90 91 92 88 89 90 91 92 F c L B G H L G H T s

% Change  % Change  % Change 1992 1992-1991 1991 1991-1990 1990 1990-1989 Earnings Per Common Share (a) $ 1.67 ( 4.6) $ 1.75 15.9 $ 1.51 (19.3)

Dividends Paid Per Common Share (a) $ 1.51 1.3 $ 1.49 2.1 $ 1.46 3.5 Book Value Per Common Share (a) $ 15.17 2.2 $ 14.84 3.3 $ 14.36 0.6 Number of Common Shares Outstanding -

Year-end (000): (a)

Average 51,592 5.3 49,008 7.5 45,590 5.4 Actual 52,199 2.6 50,896 10.8 45,952 1.9 Return on Average Common Equity 11.14% (7.9 ) 12.10 % 14.5 10.57 % (22.5)

Electric Operating Revenues (000) (b) $ 816,825 1.0 s 808,374 9.1 $ 740,894 2.4 Operating Expenses (000) (b) $ 679,657 2.4 s 663,518 7.7 $ 616,332 4.7 Net Income (000) $ 86,210 0.7 $ 85,635 24.3 $ 68,879 (14.9)

Utility C ash Construction Expenditures (000) $ 130,700 (24.2) $ 172,425 3.4 $ 166,818 15.0 Total Assets (ODO) $2,220,151 3.2 $2,151,41 6 7.2 $2,006,010 7.6 Sales of Electricity to Ultimate Customers (KWH) (ODO) 7,655,138 (3.5) 7,935,600 2.3 7,756,867 1.8 Price Paid Per Kilowatt-hour (Ultimate Customers) 10.257 ¢ 4.5 9.812 ¢ 5.6 9.288 ¢ 1.4 Total Ultimate Electric Customer Accounts (Year-end) 458,549 1.2 453,100 0.8 449,717 1.3 ber of Shareholders-Common Stock (Year-end) 46,524 6.2 43,802 3.6 42,295 (2.5)

• ber of Atlantic Electric Employees (Year-end) 2, 023 (0.4) 2,032 ( 1.1 ) 2,055 1.7 (a) Prior year amoun ts have been restated to reflect the two-for-one C ommon Srock split in M ay 1992 .

(b) Prior year amoun ts have been restated to reflect sales o f energy (sales for resale) and capaci ty to other utilities as revenues rather than as net expense in accordance with Federal regulatory requirements effective J anuary 1, 1992.

A I I a n I i / <+> E n e ' g y

T 0 0 v R § H R E 0 L D E R § or A tlan tic Energy and th e entire . market, the price of this electricity is high. But, F electric utility indu stry, 1992 was a memorable year. On O ct ober 24, the National Energy Policy Act became law. This new

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

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

law lets competition move a giant step forward in our We have reduced our five-year construction plan by business. It creates a new breed of nonregulated more than 25%. The economy has slowed, and along power producers called "exempt wholesale genera- with that, the demand for energy is down. Accordingly, tors ." And, the law provides them with access to our some major improvements to our power delivery system transmission lines . can be postponed.

Competition isn't new to us. The Public Utility For the first time in many years, we have extra gener-Regulatory Policy Act (PURPA), passed in 1978, was ating capacity. As a result, we have dropped our plans to the first step towards a nonregulated energy market- build generating equipment during this decade. We also place. That law is affecting us today. In the last sixteen made a t ough de cision to close two units at our months, two large industrial customers began to supply Deepwater G enerating Station in 1994.

their own energy needs. The impact is real. Kilowatt- One thing we've learned from all of this is that com-hour sales to industrial customers, our smallest customer petition requires change. Change happens through class, dropped about 10% in 1992. teamwork. And teamwork requires leadership, not task Certainly, competition makes our work more complex management. That's how we'll shine in this competitive and demanding. But, it's also energizing. If it sounds like world. We're streamlining our organization to make it there's optimism in here, there is. Winners will emerge easier to turn plans into actions. W e're giving prudent from these changes, and Atlantic Energy will be among cos t control the highest priority. This is especially them. We intend to see that shareholders, customers and important because our financial performance is influ-the environment share in the winning. enced by so many outside factors .

Our goals are clear. We'll run our business so that five Last year's results were a good example. After tuijus~

• years from now, our customers will pay about the same for a two-for-one Common Stock split, consolidated e price for electricity as others in the region. That's being ings per share for Atlantic Energy were $1.67, a declin competitive and it won't be easy. In the next five years, from the $1. 75 reported last year. Of that, Atlantic our energy costs will include the cost of electricity Electric, our primary business, contributed $1. 74, or generated by four nonutility power producers. In today's 104% of the total. There were a number of one-time A t I a n I i c < >En e rgy

items in the utility business that added about 26 cents To top it off, in May we completed a two-for-one to earnings. The largest single item, about 15 cents, came Common Stock split.

from a settlement with Philadelphia Electric Com- Financial results would have been better if kilowatt-pany (see ote 10 to the Financial Statements for addi- hour sales had been normal Three factors are responsible tional details). for the 3 .5% decrease in total sales to 7. 7 billion kilo-On the non utility side, financial performance was watt-hours: competition, weather and the economy. In mixed. Together, those activities resulted in a loss of addition to the industrial customers we lost to cogenera-about seven cents per share. The good news was that tion, South Jersey had one of the coolest summers on 1992 was a watershed year for Atlantic Generation record. This weather caused a 6% drop in peak load to (AGI). Two large cogeneration projects began opera- 1,796 megawatts . The economy didn't help either.

tion and ground was broken for a third. As a result, Throughout 1992, weak labor and housing markets con-AGI added three cents per share to earnings. ATE tinued. As a result, Atlantic Electric added only 4,500 Investment continues to manage its portfolio of invest- customers. But we believe the economy has started a slow ments and contributed one cent to earnings. But a weak improvement and we expect kilowatt-hour sales to real estate market made 1992 a difficult year for both increase slightly.

Atlantic Southern Properties and Atlantic Energy What helps any company through changing times is a Technology, (AET). AET lost nine cents per share pri- talented, dedicated Board of Directors such as ours. For marily because of a provision made for a write-off of its the past ten years, we have had the pleasure of working

vestment in energy related technologies for homes with Board member Madeline McWhinney. Having businesses. In the years to come, our nonutility reached the mandatory retirement age, Madeline won't tivities will be modest and will be directed to be standing for re-election in April. Her involvement activities mostly related to the utility business. (See and enthusiasm have made her a true advocate for share-Management's Discussion and Analysis of Financial holders. The benefits of her tireless efforts will be felt for Condition and Results of Operations for more details.) years to come.

Despite these events, 1992 was a good year for We are grateful for your continued support. Many of shareholders. Total return for Atlantic Energy shares you have been with us through the good times and the was 20.2% compared to an industry average of about challenging ones. Your reward has been a sound invest-8.6%. This reflects the June increase in the quarter- ment and steady income. That's one thing in our busi-ly dividend rate to 38 cents per share. This is the ness that won't change. It's our pledge to you.

40th consecutive year of increases in cash dividends paid. Only five other utilities can match that record! Sincerely, E.D. Huggard J.L.Jacobs Chairman and ChiefExecutive Officer President February 1, 1993 P.S. On J a nu ar y 14, 199 3 , th e Boa rd of Direc t or s Executive Officer. This transition is th e result of a compre- ilj announced my plans to step down as Chief Executive O ffi cer. hensive manage ment succession plan . Jerry is well prepared .

t the same tim e they reported their intention to elect Jerry For the last three years of his 30-year career he has served as cobs to succeed me in that position effective after the Annual President. I am confident that Jerry's leadership, supported by M eeting of Shareholders in April. I will be retiring from the our exce lle nt manage ment te a m , will co ntinue to bring day- to-day activities of the C ompany after 38 years of ser- Atlantic Energy success in the coming year .

vice . Fo r th e last eig ht yea rs, I h ave ser ved as Chi ef Sincerely,  ?/~#-rfd A t I a n I ; c < > E>1ergy

E § 0 F 1 9 9 2 AGI POWERS UP a transmission line. The line NUCLEAR NEWS A tlantic Generation, Inc., one was in a section of wetlands A tlantic Electric is subject to a of our nonutility subsidiaries, in Salem County, New Jersey. penalty under the New Jersey placed two projects in service The helicopter, with an nuclear performance standard this year. The first project, attached vibratory hammer, if the combined capacity fac-located in Peclricktown, ew drove the caissons into the tor for its five jointly-owned Jersey, began operating in ground, and then later set the nuclear units is below 65% in March. The project serves 100-foot tall poles in place. any year. In 1992, the com- PIECES OF THE PAST the electrical and steam needs Using the Skycrane left the bined capacity factor, as deter- While performing site work at of a BF Goodrich plant sensitive wetland area pretty mined by Atlantic Electric the B.L. England Generating and provides 106 megawatts much intact. It eliminated for application of the nuclear Station, archaeologists of capacity and energy to the need to clear away a large performance standard, was uncovered relics from a Atlantic Electric. The area for heavy equipment like 64.1 %. As a result, Atlantic Native American settlement second project, located in ground cranes that would Electric will be subject to a that dates back about 4,000 Binghamton, New York, normally do the job. modest penalty. A final deter- years. Over 10,000 artifacts began operating in the mination will be made in the were uncovered, including second half of 1992. It serves 1993 L evelized Energy spear tips, pottery fragments the steam requirements of Clause proceeding. and arrowheads. The items an International Paper For the second year in a suggest that the site was used Company facility and pro- row, the Institute of Nuclear as a seasonal residence for vides 50 megawatts of capa- Power Operations gave Native Americans. Artifacts city and energy to New York the Hope Creek Nuclear and photographs of the site State Electric & Gas. Generating Station a rating will become a permanent A third project, located of"l ," the highest rating display at the B.L. Engla in southern New Jersey, is LIGHTING given for nuclear operating Generating Station.

under construction and PROGRAMS SHINE performance.

CAPITAL NEWS scheduled for completion The Light for Sight program In March, the Board of in 1994. It will provide steam has helped almost every Directors authorized a two-energy to the Progresso municipality in South Jersey for-one split of Common Foods processing facility in save energy. Under the pro- Stock, effective May 14, 1992.

Vineland, New Jersey and gram, over 24,000 old incan- The Board took this action will sell electricity to the City descent and mercury vapor with individual investors in of Vineland.

street lights have been mind: Before the split, Atlantic replaced with energy effi- Energy's price per share had cient, high pressure sodium SOUTHJERSEY-been trading at a price higher lights. For 1992, the program GOOD FOR BUSINESS tl1an peer utilities. The Board represented an energy savings Atlantic Electric conducted a also voted to increase the num-of over eight million Target Industry Study in ber of authorized shares out-kilowatt-hours, while main- 1992 as part of its plan to standing to 75 million.

taining annual revenues. promote South Jersey as a In May, Atlantic Electric Businesses h ave benefitted prime business location. issued and sold $60 million by saving energy through The study identified 25 in Secured Medium Term Atlantic Electric's Save-A- industries that have strong Notes (MTNs) through CO STRUCTION GETS W att program. The program growth potential and could agents. The MTNs were sold OFF THE GROUND offers incentives for replac- operate well within the in two separate maturities:

Atlantic Electric broke new ing inefficient lighting sys- regional economy. Study $30 million maturing in 1999 ground this year-from the tems with high efficiency results will be used to support and $30 million maturin.

air. For the first time in ones. The 136 customers Atlantic Electric's economic 2004. The MTNs have a the United States, a large who joined this program development efforts, as well weighted average interest rate construction helicopter, or in 1992 will save over five as the efforts of state and of 7. 75%. Proceeds were Skycrane, was used to install million kilowatt- hours of local agencies throughout applied to reduce Atlantic steel caisson foundations for electricity. South Jersey. E lectric's short term debt.

A t I a n t i c <+> E n e ' g y

• 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 Built for Energy cooling. Advances in technology have yielded a new Saving Tomorrows 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 0 ATI.ANTIC B.ECTRIC heat a clean, safe, affordable choice.

1-800-221-0520 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!

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 Attics, walls and crawl spaces must meet our high stan-to operate," said Sharyn Forbes, program manager (above). And dards for insulation. Places that are normally over-customers love the idea of saving money year after year," she added.

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 A t I a n t i c < >E n e r g y

B . E . S . T .

energy because their heat pumps operate more effi -

ciently than conventional air conditioners. Saving ener- H ow much can a B.E.S.T. Home save?

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

gy and reducing demand help to delay our need to add Home#l Home#2 new generating sources. Best of all, B.E .S.T. H omes, (B.E.S.T.) (Oil) and their high technology heat pumps, make electricity Sizeofh ome 2,400 square feet 2,400 square feet a co mpetitor once again in the residential h eating Heating system variable speed, air- oil furnace, market. source heat pump, heatingAFUE B.E.S.T. H omes come in first for the environment, heatingHSPFof9.4 of.SO Oooling system variable speed, air- electric, central too. They are total electric, so there are no fuel emis- source heat pump, air conditioning sions from the home. Any fossil fuel used to make the cooling SEER 15.0 cooling SEER 10.0 electricity is burned at a power plant where specialized Annual heating cost* s 418 s 923 equipment controls any emissions. And, since B.E.S.T. Annual cooling cost* $ 253 s 457 H omes don't burn fo ssil fuel, indoor air quality is Total cost for the year s 671 s 1,380 excellent. B.E.S.T. H omes are tightly sealed . That UAL SAVINGS $ 709 s

• Analysis is based on a price of electricity of 10.2¢ per kilowatt-hour and the means the heat pump doesn't use as much energy to price of oil"at 90¢ per gallon.

keep the house comfortable. Any time you save energy, HSPF H'eating Seasonal Performance Factor AFUE = Annual Fuel Utilization Efficiency you are giving our world a bonus. SEER = Seasonal Energy Efficiency Ratio Building a B.E .S.T. H ome is a fir st place idea. Our comparisons have considered the efficiency of the heating/cooling Customers get a comfortable home that cos ts less to systems, the amount of heating and cooling required by the home, the operate. Atlantic Electric gets satisfied customers. And quality of construction and the southern New Jersey climate.

the world around us gets a little bit better. ~ {Italicized words are defined in the Glossary on page 15.)

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

Heatpumps 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 basicprinciples: First, heat always exists in the air or the ground, even on cold days. Second, heat always travelsfrom 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 removedfrom the high pressure gas, the gas cools and condenses back to its liquid state.

0 The liquidflows through a metering device where its pressure and temperature are loweredfarther.

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

During the summer, with aflip ofthe switch, the cycle reverses.

The heatpump removes heatfrom the inside air, providing cool air just like a conventional air conditioner.

p n c T.

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.

"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- comfort they give. The marketing engineer.

an energy efficient, gy lets these heat pumps air that is delivered into We're convinced that affordable, all electric heat- sense a change in tempera- the home or business is heat pumps are the most ing and cooling system. It ture and adjust their speed spread evenly. That way, affordable, efficient and lives up to its name because of operation as needed. On the temperature inside is environmentally sound it "pumps" thermal energy extreme temperature days kept at a constant level. heating and cooling sys-

- heat - from one location more thermal energy has Hot and cold spots are terns available. We're to another. It gets that heat to be pumped. The system eliminated. helping to educate and from the Sun and it's free. uses more electricity. On Heat pumps need sup- train heating and air con-The only cost to operate a moderate temperature port to work efficiently. ditioning contractors on heat pump is the cost of days less thermal energy Proper installation and proper installation tech-electricity required to move has to be pumped. The sizing are essential. "Too niques. Along with New the heat. system uses less electricity. many times we hear that Jersey's other utilities, Most heat pumps are These new air-source heat heat pumps don't work. Atlantic Electric partici-

"air source"-they use the pumps know just the right That's just not true. pates in the New Jersey thermal energy from the amount of electricity to When we investigate, we Heat Pump Council. The air. Air-source heat pumps use. That's efficient. And find problems with the Council has developed been in use for years. that saves energy dollars. duct work, the installa- standards and criteria to there's a new genera- One of the nicest fea- tion of the unit or how certify contractors in tion of heat pumps on the tures of the new genera- the heat pump is used," approved installation market that are better than tion of heat pumps is the explains Dave Crouch, procedures.

A I I a n I c < >E 11 e r g y

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, A BRIGHTER IDEA the program added about $1 million to Atlantic Lumens produced using Electric's revenues. What's more, these revenues all 100 watts of power come from night-time electric sales, when Atlantic 8,500 1,000 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 High Pressure Incandescent Agency's Green Lights program.

Sodium Light Light Sometimes, our shareholders and customers ask us to Atlantic Electric uses the most energy do more. They're concerned about "light pollution,"

efficient lights on the market today for all the night-time glare from lighting. We are, too. We fits lighting services. What makes these have experimented with different lenses and fixtures s so efficient is that they produce e light for the same amount of energy. that focus light where it's most needed. As a result, we e efficiency is measured by comparing now have specialized lighting fixtures available for cus-the number of watts (energy in) to the tomers who request them.

number oflumens (light out). Most Night Guard lights are high pressure sodium. When it comes to saving energy and protecting the They are recognized by their golden cast. environment, we'll always go the extra mile. ~

A t I a 11 t i c < >E n e r g y

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-uou s 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 The southern New Jersey climate, with a ground temperature of that are harmless to the soil and have good heat about 55 degrees, is ideal for using a geothermal energy system.

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. eothermal energy. The Sun supplies it by

@ An environmentally safe water and antifreeze heating the Earth. It's all around us, even in solution flows through the pipes. Heat is exchanged when the liquid absorbs the Earth's our own backyard. Best of all, it's an energy natural warmth in the winter or rejects heat to the sou rce that 's clean, plentiful, free and renewable.

Earth in the summer.

Geothermal energy systems allow us to harness that 0 The liquid is pumped to a heat pump that operates just like the system described on page 8.

energy and turn it into year-round comfort for homes What makes a geothermal energy system so effi- and businesses.

cient is that its heat source is the constant tempcr-The efficiency and affordability of geothermal ener-re of the ground, rather than the fluctuatin g perature of the air. 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 geo therm al energy. Atlantic Electric wants more customers to benefit from these sys tems. 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 A t I a n I i t < >E nergy

T \ L 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 eothermal Energy Systems-unit. And, starting in 1993, the Residential Home GAn Outstanding Investment Financing Program will provide low interest loans for Take a look at how an investment in a closed-loop geothermal energy s high efficiency geothermal and other heating and tern compares with an investment in a good quality fossil fuel system:

cooling systems. Geothermal* Natural Gas (B .E.S.T.) (with central air)

From any perspective, geothermal energy deserves Heat pump 3,000 applause. It takes energy efficiency to new heights Furnace $ 1,700 and saves money year after year. And, by tapping into 1,700 Air conditioning the Earth's temperature, we have a clean, safe energy 800 600 Ductwork source that reduces our dependence on fossil fuels. R F uel piping 300 Labor 1,200 1,200 Well drilling 3,000 (including materials)

B.E.S.T. Home upgrade 900 Total installation $ 8,900 5,500 Less Atlantic Electric 1,380 average rebate**

Total cost to homeowner 7,520 5,500 Cost premium $ 2,020 $

Average annual heating cost 293 768 Average annual cooling cost $ 184 $ 343 ANNUAL SAVINGS 634 $

• New, 1,800 square-foot home wi th a three-ton air condi tioning load.

t Standard construction.

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

"We moved into our new home two years ago. We knew then that While a geothermal energy system costs more initially, there are .

we'd made a good decision to install a geothermal energy system, and reasons to make the investment. First, the system pays for itselfi we haven't changed our minds. Our heating bills are really low and just over three years. Second, the extra cost can be financed throug our house is comfortable in the summer and the winter. We like sav- the home's mortgage. At today's rates, the added monthly cost is ing the money, but we also like the idea that our system is kind to the more than offset by the monthly energy savings. That means more environment. Who wouldn't want all of this?" cash for the homeowner at the end of each month. The best part is,

- G ay and Larry Blohm, Palermo, New Jersey the energy savings continue for the life of the system.

A I. I a n I i c < >Energy

(' I* r' T I I l* R \ . \ I, GLOSSARY fits right in. A fossil fuel system this size would Efficiency give off emissions equal Describes how well a heating to 400 cars each year. or cooling system operates. It compares the amount of useful Since the geothermal heating or cooling produced to energy system we're the amount of energy (electri-city, gas, oil, etc.} consumed.

installing gives off no The more efficient a system is, emissions, it's like taking the less energy it uses. The less those cars off the road, energy it uses, the less it costs to operate. A tlanti c Electric offers he added. rebates for high efficiency heat Con truction began pumps and air conditioners. In general, the more efficient the on Stockton's new sys-system, the higher the rebate.

tem in January. It will The following are terms normally heat and cool nearly used to describe the efficiency of 500,000 square feet of heating and cooling systems:

college person- space in the college Annual Fuel Utilization nel together with experts complex and will cost Efficiency (AFUE) in the technology, close to $5 million to Applies to furnaces , gas, oil, etc.

added Herzog. With all It describes the amount of heat install. Stockton's system produced for every unit of fuel t isn't every day that a of this information and I company gets the chance to teach a college an independent study by Stockton's own engi-will be one of the largest geothermal installations in the nation. About consumed. The higher the AFUE, the more efficiently the furnace operates.

something. But, that's neering firm, Stockton 400 wells will house the Heating Seasonal Performance Factor what happened when decided it had found a closed-loop piping. (HSPF)

Stockton State College winner - a geothermal Seventy-two heat pump Applies to the h eating portion needed to replace its heating and cooling units will provide the of a heat pump. It compares the heat output to the consumption aging heating, ventila- system. heating and cooling. of electricity. The higher the tion and air conditioning Stockton gets two Funding for the project HSPF, the more efficiently the kinds of savings with heat pump operates.

system. Atlantic Electric also represented a keeps in close contact a geothermal system: unique partnership Seasonal Energy dollars and energy. Efficiency Ratio with large customers like effort among govern-(SEER)

Stockton. So, when "Our engineers project ment, education and Applies to the cooling portion college officers wanted that we'll save about business. About three of a heat pump and to tradi-tional air conditioners. It com-to talk about cutting $312,000 each year in quarters of the funds pares the cooling output to the energy costs, Tom energy costs. Our elec- needed came from vari- consumption of electricity. The Herzog, energy services tric usage will go down ous state agencies . higher the SEER, the more efficiently the heat pump or air engineer, was there to by 25% and gas usage Atlantic Electric rebates conditioner operates.

help review some options will drop 75%," reported and general funds from for air conditioning. Dr. Charles Tantillo, the college made up the "We worked with them chief financial officer rest.

ABOUT to look at a lot of differ- of the college. And Good things come WINNING ent systems, including Stockton has always from working together.

a geothermal system. been a leader in protect- The Stockton project is If you'd like to learn more about our winning products and We hosted a series of ing the environment, so another shining services, we've induded a reader meetings, bringing the geothermal system example. service card after page 54.

We look forward to hearing from you.

// I I a 11 I i ( <

T LA~ T c ELECTR 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 8* Peak(MW) 586 603 0.6 649 1.5 1.411 1.illl 1179 1.43S 1.395 Industrial & Other Customers 3.147 Sales to Industrial & Other customers declined 9.8% in 1992 due to the loss of 3.1163 3.100 6* Z.917 two customers to cogen eration. After adjusting for these two customers, the

!.74Z 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 4*

Sales (billion kwh) 1.382 1.279 (l.5)% 1.383 1.6%

3.370 3.!13 3.n& 3118 1171  % ofTotal Sales 20 17 (3.2) 16 (1.2)

Average Use (000 kwh)* 1,304 1,242 (l.O) 1,322 1.3 2* Peak(MW) 166 186 2.3 177 (l.O)

• lndusrrial customers only O*

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

ATLANTIC ELECTRIC Atlantic Electric's Energy Sales by Service Area Customer Class Atlantic Electric serves more

• RESIDENTIAL than 455,000 customers in a

• COMMERCIAL 2, 700 square-mile area in

• INDUSTRIAL & OTHER southern New Jersey. Pe The change in kilowatt-hour load has occurred durin sales is determined by how the summer months. Major many new customers are added, businesses include tourism, how much electricity each casino gaming, stone, clay, customer uses and weather glass, chemical, petroleum, conditions. rubber and food processing.

A I I a n I i c < >E t r g y

c 0 T E T s 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 Notes to Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Summary Financial and Statistical Review A t I a n I < > f

R E P 0 R T 0 F A G E ME T The management of Atlantic Energy, Inc. and its subsidiaries of the financial statements. Their .audits are based on p (the Company) is responsible for the preparation of the finan- dures believed by them to provide reasonable assurance that cial statements presented in this Annual Report. The financial financial statements are not misleading and include a review of statements have been prepared in conformity with generally the Company's system of internal accounting, financial and accepted accounting principles. In preparing the financial operational controls and tests of transactions.

statements, management made informed judgments and esti-The Company's internal auditing function conducts audits and mates, as necessary, relating to events and transactions appraisals of the Company's operations. It evaluates the system reported. Management is also responsible for the preparation of internal accounting, financial and operational controls and of other financial information included elsewhere in this compliance with established procedures. Both Deloitte &

Annual Report. Touche and the internal auditors periodically make recommen-Management has established a system of internal accounting dations concerning the Company's internal control structure, and financial controls and procedures designed to provide rea- and management responds to such recommendations as appro-sonable assurance as to the integrity and reliability of financial priate in the circumstances. None of the recommendations reporting. In any system of financial reporting controls there made for the year ended December 31, 1992 represented sig-are inherent limitations. Management continually examines the nificant deficiencies in the design or operation of the effectiveness and efficiency of this system, and actions are taken Company's internal control structure.

when opportunities for improvement are identified.

Management believes that, as of December 31, 1992, the sys-9-/~

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- J. L. Jacobs dards of corporate conduct. This responsibility is characterized President 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- J. G. Salomone charge of its responsibilities insofar as they relate to the fairness Vice President and Treasurer A t I a n t t c < >E n e 'g y

R E P 0 R T 0 F THE ,\ U D T c 0 J i1 T T E E e Audit Committee of the Board of Directors is comprised tors, without management present, to discuss the results of olely of independent directors. The members of the Committee their activities, the adequacy of the Company's system of are: Jos. Michael Galvin, Jr., Gerald A. Hale, Matthew Holden, accounting, financial and operational controls and the overall Jr., Madeline H. McWhinney and Harold J. Raveche. The quality of the Coinpany's financial reporting. The meetings are Committee held three meetings during 1992. designed to facilitate any private communication with the The Committee oversees the Company's financial reporting Committee desired by the internal auditors or independent auditors. No significant actions by the Committee were process on behalf of the Board of Directors. In fulfilling its required during the year ended December 31, 1992 as a result responsibility, the Committee recommended to the Board of Directors, subject to shareholder ratification, the selection of of any private communications conducted.

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 Matthew Holden,Jr.

with the Company's internal auditors and independent audi- Chairman, Audit Committee DE P E lD E T A D T 0 R § R E P 0 R T Deloitte& Certified Public Accountants the amounts and disclosures in the financial statements. An Touche Two Hilton Court audit also includes assessing the accounting principles used and Parsippany, New Jersey 07054 significant estimates made by management, as well as evaluat-ing the overall financial statement presentation. We believe that To the Shareholders and the Board of Directors our audits provide a reasonable basis for our opinion.

of Atlantic Energy, Inc.:

In our opinion, such consolidated financial statements present We have audited the accompanying consolidated balance fairly, in all material respects, the financial position of Atlantic sheets of Atlantic Energy, Inc. and subsidiaries as of December Energy, Inc. and its subsidiaries at December 31, 1992 and 31, 1992 and 1991 and the related consolidated statements of 1991 and the results of their operations and their cash flows for income, changes in common shareholders' equity, and cash each of the three years in the period ended December 31, 1992 flows for each of the three years in the period ended December in conformity with generally accepted accounting principles.

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 February 1, 1993 audit includes examining, on a test basis, evidence supporting A t I a n t i c <

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.

Atlantic < > En' r g y

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 .

At/anti< < > Ent r g y

CO '§OL1DATED BAL A C E S HE ET

{Thousands of Dollars)

Assets Electric Utility Plant:

In Service:

1992 December 31, 1991 Production $1,044,068 $1,009,776 Transmission 312,374 295,044 Distribution 583,890 557,494 General 155,679 152,441 Total In Service 2,096,011 2,014,755 Less Accumulated Depreciation 599,100 545,829 Net 1,496,911 1,468,926 Construction Work in Progress 130,685 102,708 Land Held for Future Use 5,045 5,045 Leased Property-Net 49,304 53,093 Electric Utility Plant-Net 1,681,945 1,629,772 Nonutility Property and Investments:

Investment in Leveraged Leases 76,465 75,293 Nuclear Decommissioning Trust'Fund 34,617 26,489 Nonutility Property and Equipment- et 15,561 15,039 Other Investments and Funds 11,132 4,233 Total Nonutility Property and Investments 137,775 121,054 Current Assets:

Cash and Temporary Investments 45,647 18,067 Accounts Receivable:

Utility Service 47,928 49,842 Miscellaneous 12,533 16,703 Allowance for Doubtful Accounts (3,000) (2,400)

Unbilled Revenues 39,281 38,078 Fuel (at average cost) 20,874 21,646 Materials and Supplies (at average cost) 25,763 27,394 Working Funds 15,433 15,955 Prepayments 10,247 11,267 Deferred Income Taxes 7,031 11,142 Total Current Assets 221,737 207,694 Deferred Debits:

Unrecovered Purchased Power Costs 124,408 137,818 Unamortized Debt Costs 20,693 22,505 Property Abandonment Costs-Net 10,297 8,502 Deferred Energy Costs 10,360 Other 23,296 13,711 Total Deferred Debits 178,694 192,896 Total Assets $2,220,151 $2,151,416 The accompanying ores to Consolidated Financial Statements are an integral part of these statements.

A t I a n I c < > Entrgy

. housands ofDollars) December 31, 1992 . 1991 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 I 549,147 $ 520,345 Retained Earningi; 242,768 234,894 Total Common S~ har

- eh-o-ld-e-rs-,-E-qw

- .ty 791,915 755,239 Preferred Stock of Atlantic City Electric Company:

Not Subject to Mandatory Redemption 40,000 40,000 Subject to Mandatory Redemption 190,250 191,300 Long Term Debt 631,580 565,547 Total Capitalization (excluding current portion) 1,653,745 1,552,086 Current Liabilities:

Preferred Stock Redemption Requirement 1,050 1,050 Long Term Debt due within one year 19,356 49,450 Capital Lease Obligations due within one year 798 740 Short Term Debt 14,600 20,600 counts Payable 52,028 57,467 es Accrued 7,697 7,367 terest Accrued 14,706 13,638 Dividends Declared 24,275 23,550 Customer Deposits 2,955 2,988 Deferred Energy Costs 8,089 24,592 Other 16,794 16,093 Total Current Liabilities 162,348 217,535 Deferred Credits and Other Liabilities:

Deferred Income Taxes 277,305 255,495 Deferred Investment Tax Credits 56,715 59,249 Capital Lease Obligations 48,505 52,353 Other 21,533 14,698 Total Deferred Credits and Other Liabilities 404,058 381,795 Commitments and Contingent Liabilities (Note 10)

Total Liabilities and Capitalization $2,220,151 $2,151,416 Al/an/ c< > En t rgy

CO.'SOLID. TED ST. TEJE. ~T OF CH .'GE§ J.' CO.D10.' SH. REH OLDER§' EQl'lTY (Thousands of D ollars) Common Retained Shares Stock Earnings Balance, December 31, 1989 45,091,434 $421,237 $222,163 Common Stock issued 860,542 15,106 Net Income 68,879 Capital stock expense of subsidiary (208)

Common stock dividends (67,085)

Balance, December 31, 1990 45,951,976 436,343 223,749 Common Stock issued:

Public offering 4,000,000 66,970 Other 944,098 17,032 Net income 85,635 Capital stock expense of subsidiary (417)

Common stock dividends (74,073)

Balance, December 31, 1991 50,896,074 520,345 234,894 Common stock issued 1,302,550 28,802 Net income 86,210 Common stock dividends (78,336)

Balance, December 31, 1992 52,198,624 $549,147 $242,768 Common Stock issued in 1992, 1991 and 1990 was for the were reserved for issuance under the DRP and ACE employee Dividend Reinvestment and Stock Purchase Plan (DRP) and benefit plans, respectively.

Atlantic City Electric Company (ACE) employee benefit plans. Also, in 1991 Common Stock was issued through a On March 12, 1992, the Company's Board of Directors aut public offering. In January 1992, an additional 1,800,000 rized a two-for-one split of its no par value Common S shares of Common Stock were registered for issuance under and increased the number of authorized shares fr the DRP. At December 31, 1992, 728,167 and 139,455 shares 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.

A I I a n I 1 c < > £n,rgy

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

SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION ELECTRIC OPERATING REVENUES Atlantic Energy, Inc. (the Company) is the parent of a Revenues are recognized when electric energy services are consolidated group consisting of the following wholly-owned rendered, and include estimates for amounts unbilled at the subsidiaries: Atlantic City Electric Company (ACE), end of the period for energy used subsequent to the last Atlantic Energy Technology, Inc. (AET), Atlantic billing cycle.

Generation, Inc. (AGI), Atlantic Southern Properties, Inc.

NUCLEAR FUEL (ASP) and ATE Investment, Inc. (ATE). ACE is a public utility primarily engaged in the generation, transmission, Fuel costs associated with ACE's participation in jointly-distribution and sale of electric energy. Rates for service are owned nuclear generating stations, including spent nuclear regulated by the New Jersey Board of Regulatory fuel disposal costs, are charged to Energy expense based on Commissioners (BRC). ACE's service territory encompasses the units of thermal energy produced.

approximately 2,700 square miles within the southern one- ELECTRIC UTILI1Y PLANT third of New Jersey. The majority of ACE's customers are Property is stated at original cost. Generally, the plant is residential and commercial. ACE, with its wholly-owned subject to a first mortgage lien. The cost of property subsidiary that operates certain generating facilities, is the additions, including replacement of units of property and primary company within the consolidated group. AET betterments, is capitalized. Included in certain property invests in companies with energy-related products and additions is an Allowance for Funds Used During technologies and has a majority-owned subsidiary that Construction (AFDC) which is defined in the applicable markets geothermal heating and cooling systems in the regulatory system of accounts as the cost during the period of Pennsylvania, New York and New Jersey area. AGI and its construction of borrowed funds used for construction oily-owned subsidiaries are engaged in the development of purposes and a reasonable rate on other funds when so used.

neration power projects located in New Jersey and New AFDC has been calculated using a semi-annually through several partnership arrangements. ASP owns, compounded rate of8.95%, as approved by the BRC, for the develops and manages a commercial office and storage facility years presented.

located in southern New Jersey. ATE provides fund management and financing to affiliates and manages its DEPRECIATION portfolio of investments in leveraged leases for equipment ACE provides for straight-line depreciation based on the used in the airline and shipping industries. estimated remaining life of transmission and distribution property, and based on the estimated average service life for PRINCIPLES OF CONSOLIDATION all other depreciable property. The overall composite rate of The consolidated financial statements include the accounts of depreciation was approximately 3.5% in 1992, 3.7% in 1991 the Company and its subsidiaries. All significant and 3.6% in 1990. Accumulated depreciation is charged with intercompany accounts and transactions have been the cost of depreciable property retired together with removal eliminated in consolidation. ACE, AET and AGI costs less salvage and other recoveries. Depreciable property consolidate their respective subsidiaries. AGI accounts for of the nonutility companies is not significant.

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*"*

A t I a n t i c < > Energy

i'OTE§ TO CO '§OLlDATED Fl1 A1'CJAL §T 1 L" ~ ** _,.- - -~ - ~~

• r * ~ - - ..... ' - ~ * > 4' * - " E a * * * * ~

NUCLEAR DECOMMISSIONING TRUST Deferred Energy Costs, which can be an asset or liabili ACE has established a trust to fund the future costs of appropriate. These deferrals are recognized in tne decommissioning each of the five nuclear units in which it has Consolidated Statement of Income as Energy expense during an ownership interest. The current annual funding amount, the period in which they are subsequently recovered through as authorized by the BRC, totals $6.4 million and is provided theLECs.

for in rates charged to customers. The funding amount is INCOME TAXES based on estimates of the future cost of decommissioning Deferred Federal and state income taxes are provided on all each of the units, the dates that decommissioning activities significant current transactions for which the timing of are expected to occur and the return to be earned by the assets reporting differs for book and tax purposes. Investment tax of the fund. The BRC has determined that the total credits, which are used to reduce current Federal income estimated cost to decommission ACE's share in nuclear units taxes, are deferred on the Consolidated Balance Sheet and is $65 .5 million in 1987 dollars. The BRC has further recognized in book income over the life of the related established that decommissioning activities are expected to property. The Company and its subsidiaries file a begin in 2006 and continue through 2032. Actual costs and consolidated Federal income tax return. Income taxes are timing of decommissioning activities may vary from the allocated to each of the companies within the consolidated current estimates. ACE will seek to adjust these estimates group based on the separate return method.

and the level of rates collected from customers in future BRC proceedings to reflect changes in decommissioning cost UNRECOVERED PURCHASED POWER COSTS estimates and the expected levels of inflation and interest to ACE has agreements for the purchase of 125 megawatts be earned by the assets in the fund. As of December 31, (MWs) of capacity and related energy from Pennsylvania 1992, the trust had a market value of $36. 7 million, of which Power and Light Company (PP&L) under two capacity and

$24. 7 million has been qualified for Federal income tax energy sales agreements. The agreements provided for the purposes. ACE had an associated accumulated liability for purchase of capacity and energy from PP&L's Susquehanna decommissioning costs of$33.7 million at December 31, 1992. nuclear Unit 1 and Unit 2 through September 30, 1991,'

DEFERRED ENERGY COSTS from certain PP&L coal-fired units through Septembe 2000. The base rates approved by the BRC to recover t As approved by the BRC, ACE has Levelized Energy estimated non-fuel contract costs of this arrangement are Clauses (LECs) through which the cost of energy is charged based on a levelization of the estimated non-fuel contract to customers. LEC rates are based on projected energy costs costs to be incurred over the 17-year period of the and prior period underrecoveries or overrecoveries of energy agreements. The estimated non-fuel contract costs of the costs. The recovery of energy costs is made through levelized nuclear portion of the agreements are higher than the rates over the period of projection, which is generally a 12-estimated non-fuel contract costs of the coal portion of the month period. In any period, the actual amount of LEC agreements. During the nuclear portion of the agreements, revenues recovered from customers will be greater or less than the estimated non-fuel costs exceeded the levelized revenues.

the actual amount of energy costs incurred in that period.

The excess estimated non-fuel costs were deferred on the Energy expense is accordingly adjusted to match the Consolidated Balance Sheet as Unrecovered Purchased associated LEC revenues. Any underrecovery or overrecovery Power Costs. Related deferred Federal income taxes have of costs is deferred on the Consolidated Balance Sheet as 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 .

A t I a n t i c < > Energy

.'OTES TO CO.'SOLlDATED Fl 'A.'ClAL ST TEME T T§

& PER1Y ABANDONMENTS AND DISAiLOWANCE values of these items approximate their fair market values.

~LANT COSTS Accounts Receivable-Utility Service and Unbilled Revenues A loss is recognized if the carrying amounts of abandoned are subject to concentration of credit risk because they pertain utility assets exceed the present value of future revenues to be to utility service conducted within a confined geographic generated by those assets. Any disallowance of the cost of a region. Investments in Leveraged Leases are subject to newly completed utility plant, including an indirect concentration of credit risk because they are exclusive to a disallowance which provides no return on investment of any small number of parties within two industries. The Company portion of the plant, is recognized as a loss. has recourse to the affected equipment under lease. Such Property Abandonment Costs that are stated at their net equipment is of general use within the respective industries.

present value in the Consolidated Balance Sheet consist of OTHER ACE's investment in the following as of December 31, 1992: Debt premium, discount and expenses of ACE are amortized Net Remaining over the life of the related debt. Costs associated with debt Present Unamortized Recovery reacquired by refundings are amortized over the life of the Investment Value(OOO) Cost(OOO) Period (years) newly issued debt as permitted by the BRC in accordance Offshore Nuclear with FERC guidelines. Temporary investments considered as Generating Units $ 869 $1,322 6+

cash equivalents for Consolidated Statement of Cash Flows Nuclear Generating Unit 3,264 4,472 5 purposes represent purchases of highly liquid debt instru-Unrecovered Nuclear ments maturing in three months or less. As .a result of the Fuel Advances 1,787 2,865 8+ two-for-one Common Stock split on May 14, 1992, all Prs;,osed Plant common share outstanding amounts and per common share 1te Costs 1,532 1,927 3+

calculations contained in the consolidated financial statements for prior year periods have been adjusted Additionally, $2.8 million in unamortized cost within accordingly. Amounts in prior year periods presented in the ctric Utility Plant in Service is excluded from rate base for Consolidated Statement of Income that are associated with oses of computing a return on the investment in the sales of energy and capacity to other utilities (sales for resale) pe Creek Nuclear Generating Station. are now included in Operating Revenues. Prior practice had The excess of the carrying values of the above assets over been to account for these sales as a net expense within Energy their discounted present values was recognized as a loss at the and Operating expenses. These reclassifications were made in date of abandonment or exclusion. This discount is being response to FERC requirements effective January 1, 1992.

restored to income by accretion over the amortization/ Net income for the prior year periods presented was not depreciation period of the abandoned or excluded costs affected by this reclassification. Certain other prior year allowed for ratemaking. amounts have been reclassified to conform to the current year FINANCIAL INSTRUMENTS reporting of these items.

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 A I I a n I i c <+> E n t r g* y

• 0 T E§ T 0 c0 * § 0 L I D A T E [) F ] *.\ ;-; c ]. L sT A T E ME T T§ NOTE2.

FEDERAL INCOME TAXES Years Ended December 31, (000) 1992 1991 1990 The components of Federal income tax expense are as follows:

Current $ 22,441 $ 24,202 $ 16,652 Deferred 23,154 13,043 12,292 Investment Tax Credits Recognized on Leveraged Leases {233) (500) (752)

Total Federal Income Tax Expense 45,362 36,745 28,192 Less Amounts Included in Other Income 8,219 501 1,275 Federal Income Taxes Included in Operating Expenses $ 37,143 $ 36,244 $ 26,917 Deferred Federal income taxes result from the following:

Liberalized Depreciation $ 17,762 $ 10,558 $ 11,156 Unrecovered Purchased Power Costs (4,823) 3,477 5,845 Deferred Energy Costs 3,427 (3,825) (5,781)

Leveraged Leases 12,375 11,623 7,932 Investment Tax Credits (2,534} (2,348) (2,349)

Other-Net (3,053) (6,442) (4,511)

Total Deferred Federal Income Tax Expense $ 23,154 $ 13,043 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 $ 86,210 $ 85,635 $ 68,879 Preferred Stock Dividend Requirements of Subsidiary 17,812 16,411 10,799 Federal Income Tax Expense 45,362 36,745 28,192 Book Income Subject to Tax $149,384 $138,791 $107,870 Statutory Federal Income Tax Rate 34% 34% 34%

Income Tax Computed at the Statutory Rate $ 50,791 $ 47,189 $ 36,676 Items for which deferred taxes are not provided:

Difference Between Tax and Book Depreciation 5,675 3,631 4,661 Investment Tax Credits (2,767} (3,038) (3,277)

Reversal of Excess Deferred Taxes {757} (2,641) (5,678)

Utility Plant Removal Costs (2,575} (2,722) (2,245)

Other-Net (5,005) (5,674) (1,945)

Total Federal Income Tax Expense $ 45,362 $ 36,745 $ 28,192 Effective Federal Income Tax Rate 30% 26% 26%

In 1992, the Company's computed Federal Alternative to the extent that the regular Federal income tax payable Minimum Tax (AMT), attributable to nonutility operations, exceeds future AMT payable.

• was less than its regular Federal income tax by $304 thousand. Federal income tax returns for 1983 and prior year In 1991 and 1990, the AMT exceeded regular income tax by been examined and settled by the Internal Revenue Service

$2.0 million and $9.4 million, respectively. A cumulative In February 1992, the Financial Accounting Standards AMT credit of $17.0 million is available at December 31, Board (FASB) issued Statement of Financial Accounting 1992. The AMT credit is available for an indefinite Standards No. 109 entitled "Accounting for Income Taxes" carryforward period against future Federal income tax payable, which is effective for the Company beginning January 1, 1993.

A t I a n I i c < > Energy

.TO T E§ T O CO.T§O LJ D L § T TE 1E 1 T§

- statement supersedes or amends virtually all previously which have not been provided on timing differences,

. ting standards on accounting for income taxes. Statement principally depreciation, amounted to approximately $50 No. 109 changes the recording methodology relating to million. Upon adoption of Statement No. 109, ACE expects to deferred income taxes to an asset and liability approach. The record an increase to deferred Federal income tax liabilities of principal impacts to the Company relate to recording, on a approximately $85 million, after effect for revenue current basis, the effect of changes in enacted income tax rates requirements necessary to collect such amounts from on the amount of income taxes recorded and the recording of ratepayers. The adoption of Statement No. 109 by the deferred tax liabilities not previously recorded by ACE. At nonutility companies is not expected to have a material effect December 31, 1992, the cumulative amount of deferred on the consolidated financial statements.

Federal income taxes under current acc?unting standards NOTE3.

RATEMATIERS OF ACE ENERGY CLAUSE PROCEEDINGS standard and retention of a portion of fuel and energy savings associated with the PE power purchase agreement. In June Changes in Levelized Energy Clause Rates 1990-1992 1990, the BRC approved an interim net decrease in annual Amount Amount LEC revenues of $35.8 million effective June 20, 1990. This R::Hliested Granted Date Date Filed ( *ons) (millions) Effective ruling was contingent upon subsequent resolution of the rate 3/90 $(26.2)[1] $(35.8) 6190 making treatment of the deferred Salem costs, certain interest 3/91 30.6 21.3 6/91 calculations on overrecoveries and underrecoveries and ACE's (6.6) (8.5) 10/92 proposal to retain a portion of the fuel savings associated with the PE agreement. In January 1991, an initial decision issued ne 1990 amended filing by an Administrative Law Judge (ALJ) ruled against ACE's requested recovery of the three contested issues remaining in ACE's Levelized Energy Clauses (LECs) are subject to the proceeding.

annual review by the BRC.

In March 1991, ACE filed a petition requesting revisions In January 1990, ACE and other parties signed a joint of its LECs to reflect an increase of 30.6 million for the position designed to settle certain contested issues of a 1988 period June 1, 1991 through May 31, 1992. On June 11, 1991, LEC proceeding. The joint position provided for an increase the BRC ordered a net increase in annual LEC revenues of in annual base rate revenues of $41.6 million for ACE's four-

$21.3 million, effective on that date. The June 1991 Order year agreement to purchase 200 MWs of capacity and upheld the ALJ's January 1991 decision and, as a result, ACE associated energy from Philadelphia Electric Company (PE).

was not permitted to begin recovery of the deferred Salem Coincident with the base rate increase, LEC revenues were to costs and associated interest payments previously made by be decreased by a like amount.

ACE. The June 1991 Order denied ACE 's request to retain a In May 1990, the BRC rejected the joint position, ruling portion of the fuel and energy savings associated with the PE that the capacity costs associated with the PE purchase were purchase.

reasonable, but only would be considered within a formal base On January 10, 1992, ACE filed a request with the BRC rate proceeding. However, ACE was granted a provisional for rehearing and reconsideration of issues relating to the base rate increase of $41.6 million effective June 1990 (see recovery of the $10.4 million deferred Salem costs, recovery of "Base Rate Case Proceedings").

interest payments previously made by ACE relating to the In March 1990, ACE filed proposed LEC tariffs with the deferred Salem costs and nuclear performance standard, and BRC for the period June 1990 through May 1991, which retention of a portion of fuel and energy savings associated with reflected the terms of the joint position discussed above. As a the PE power purchase agreement. On February 10, 1992, result of the May 1990 BRC action, in June 1990 ACE ACE withdrew portions of its request for rehearing with amended its filing to provide for a decrease in annual LEC respect to the issues relating to recovery of interest payments revenues of $26.2 million. This amended filing included a and retention of fuel and energy savings. In late May 1992, est to begin recovery over three years of certain Salem ACE and the Staff of the BRC (Staff) entered into a ear Generating Station replacement power costs deferred stipulation to settle the open rehearing and reconsideration

• e 1984 amounting to $10.4 million, recovery of interest issue. By the terms of the stipulation, ACE would begin payments previously made by ACE related to the deferred recovery, over a three-year period, of the $10.4 million of Salem replacement power costs and the nuclear performance A I I a n I i c < >E n t r g y

'OTES TO CO 'SOLJD, TED FL.'A:CJ, L §TATEJE. 1 T§ deferred Salem costs. The stipulation provided that in the $416 million provisional base rate revenue increase grant.

event the BRC, in a final determination in a Public Service the BRC effective June 1990, as discussed under "Energy Electric & Gas (PS) base rate proceeding, reverses its 1988 Clause Proceedings," be confirmed and placed permanently in finding that the deferred Salem costs are prudent and base rates. Also, ACE requested recovery of the first year reasonable and orders their return to customers, then ACE, costs of the PE agreement not covered by the provisional after the exhaustion of all administrative, legal and equitable increase, plus full recovery of the costs for the remaining three remedies, would be bound by such order. The Department of years of the agreement. In its filing, ACE requested an overall the Public Advocate-Division of Rate Counsel (Rate rate of return of 1113% and a return on common equity of Counsel) was not a signatory to the stipulation. On 13.7%. At that time, ACE had an authorized overall return of September 2, 1992, the BRC adopted the stipulation between 11.42% and a return on common equity ofl4.1%.

ACE and Staff and authorized ACE to begin recovery of the On June 24, 1991, the ALJ issued an initial decision deferred Salem costs concurrent with the BRC's approval and accepting a stipulation between ACE and the parties in the implementation of ACE's then pending February 28, 1992 base rate proceeding. The stipulation provided, among other LEC petition. things, for an increase in annual base rate revenues of $50 On February 28, 1992, ACE filed with the BRC a petition million based upon a test year ending May 31, 1991, an relating to its LEC rates for the period June 1, 1992 through allowed overall rate of return of 10.52% and an authorized May 31, 1993, requesting no change in its current rates. On return on common equity of 12.SOOA>. In addition, the parties April 30, 1992, ACE filed revisions to its petition that would agreed to confirm and make permanent in base rates the $416 result in a rate decrease of $6.6 million, reflecting an million provisional increase.

allocation to customers of 25% of the net settlement reached On July 3, 1991, the BRC adopted the initial decision of in March 1992 in the lawsuit against PE (see Note 10), and the ALJ and the stipulation of the parties and authorized an an update for the projected overrecovery of prior LEC costs increase in annual base rate revenues of $50 million. During and associated interest. The parties entered into a stipulation the course of the proceeding, the ALJ ruled that a Phase II of settlement dated August 14, 1992 regarding the February proceeding was appropriate for the determination of 28, 1992 petition and April 30, 1992 revisions thereto. In regulatory treatment of consolidated Federal incom October 1992, the BRC issued its written order adopting the benefits derived from affiliated nonutility entities. In its stipulation of settlement which resulted in a reduction in 3, 1991 Order, the BRC ordered that the issue of con-annual LEC revenues of $8.5 million that was implemented solidated taxes remain open and that ACE file a petition in October 20, 1992, including the recovery over a three-year this matter no later than 60 days from the date of the BRC period of the $10.4 million deferred Salem costs. The amount Order. The stipulation also provided that ACE would not be I

allocated to customers from the PE settlement may be prevented from requesting regulatory treatment in a Phase II reviewed further by the BRC in ACE's next LEC filing, proceeding of any obligations arising from changes in state scheduled for February 1993. It is not possible to predict the law with respect to Gross Receipts and Franchise Taxes outcome of such review. (GR&FT) that were enacted on June 30, 1991 One of the changes in the GR&FT law requires parties subject to the law BASE RATE CASE PROCEEDINGS to remit their annual GR&FT obligation in a single payment on April 1 of each year. In addition, ACE will be required to Changes in Base Rates 1990-1992 remit an additional year of tax within the two-year period Overall Authorized Amount Amount Rate of Return on Test 1993-1994 along with its regular tax payments for these years.

Date Requested Granted Date Return Common Year The additional payments for 1993 and 1994 will amount to Filed {millions) {millions) Effective Granted% Equity % Ending between $46 million and $50 million in each year.

9/88 $ - $41.6 6190 On August 30, 1991, ACE filed its Phase II request with 9190 113.0 50.0 7191 10.52 12.50 5/ 91 the BRC for an increase in annual base rate revenues of $25 .8 8/ 91 25.8 12.9 10/92 million to recover the increased costs relating to the changes in the G R&FT law. The petition also addressed the In compliance with the May 1990 BRC provisional rate order regulatory treatment of consolidated Federal income tax discussed under "Energy Clause Proceedings," in September benefits derived frorri affiliated nonutility entities. The 1990, ACE filed a petition with the BRC requesting an proceeding was transferred to the Office of Administrative increase in base rate revenues of $113.0 million on an annual Law for hearing.

basis. Additionally in this filing, ACE requested that the At/anti < > Energy

. he annual base rate revenues requested by ACE would acceleration of G R&FT payments to the State. With respect recover the additional payments for 1993 and 1994 over a to consolidated Federal income tax benefits, the BRC ordered five-year period commencing in 1992, with a return on the that a rate base adjustment be made in the amount of $15.4 unamortized portion. With respect to consolidated income million. This represents one-half of the total tax benefits for tax benefits, ACE asserted in its petition and supporting 1990 and the total tax benefits for 1991 realized by affiliated testimony filed with the BRC that no changes in customer nonutility entities in filing consolidated Federal income tax rates should be made on the basis that the consolidated returns. This rate base adjustment resulted in a reduction in Federal tax benefits are generated by nonutility affiliates. annual base rate revenues of $2.2 million. On December 23, In May 1992, the ALJ issued an Initial Decision in the 1992, Rate Counsel filed a Notice of Appeal with the proceeding. The ALJ recommended that a consolidated Superior Court of New Jersey, Appellate Division relating to Federal income tax benefit adjustment be made to reduce the BRC's decision allowing ACE to increase its base rates ACE's rate base, that Rate Counsel's calculation of cash with respect to changes in GR&FT. In its filing Rate working capital be adopted and that ACE be provided a ten- Counsel asserts that the BRC's decision was unreasonable, year recovery of the additional GR&FT payments with not supported by evidence and results in unjust rates. ACE interest on the unamortized balance calculated using the intends to vigorously defend its position. ACE cannot predict average prime rate. The ALJ's decision did not specify a the outcome of this matter.

recommended increase in annual revenue requirements. ACE OTHER RATE PROCEEDINGS estimated that, using a prime rate in the range of 6%-61/2%,

On August 28, 1992, ACE filed a motion with the BRC the ALJ's recommendation would result in an annual revenue requesting approval of ACE's proposed deferred accounting requirement of approximately $8.6 million.

treatment of costs, in excess of current costs, resulting from On October 20, 1992, the BRC issued its written Order in the implementation of Statement of Financial Accounting ACE's Phase II base rate proceeding, accepting the Standards No. 106. Under Statement No. 106, ACE will be recommendations of the ALJ with certain modifications. By required to account for postretirement benefits other than

• Order, the BRC authorized a net increase in annual base pensions on an accrual basis. Presently, ACE accounts for its revenues of$12.9 million effective October 20, 1992. The costs related to those benefits on a modified cash basis.

ge in base rates included the recovery of $95.6 million in Statement No. 106 is effective for ACE beginning January 1, additional GR&FT payments over a ten-year period with 1993, and ACE requested that the deferred accounting order interest imputed on the unamortized balance at the rate of be effective on that date. On December 22, 1992, the BRC 7.5%. This amounted to an increase in annual base rate verbally approved ACE's request for deferred accounting of revenues of approximately $13.5 million. The BRC also excess costs incurred due to implementation of Statement No.

granted an increase in annual base rate revenues of $1.6 106. (See Note 4 for additional information.)

million to reflect the cash working capital impacts of the NOTE4.

RETIREMENT BENEFITS ACE has a noncontributory defined benefit retirement plan (000) 1992 1991 1990 covering substantially all of its employees and those of its Service cost-benefits wholly-owned subsidiary. Benefits are based on an employee's earned during the period s 7,310 $ 6,662 $ 6,843 years of service and average final pay. The plan's policy is to Interest cost on Frojected benefit obligation 17,301 16,517 16,179 fund pension costs within the guidelines of the minimum Actual return on plan required by the Employee Retirement Income Security Act assets (13,.283) (22,188) 3,060 and the maximum allowable as a tax deduction. Each Deferred gain (loss) (3,623) 7,211 (18,755) company is allocated its participative share of plan costs and Amortization of unreccognized net contributions. transition asset {172) (172) (172)

Net periodic pension costs for 1992, 1991 and 1990 Net periodic pension costs s 7,533 s 8,030 s 7,155

. clod tho following oomponon~'

A I I a n t i t < > Entrgy

'OTES TO CO '§OLJD, TED FI *CI . L § TAT E .1 E ' T § Approximately $4.8 million, $5.l million and $4.7 million of postretirement benefits. The actuarial present valu.

these costs were charged to operating expense in 1992, 1991 accumulated other postretirement benefits under the plan was and 1990, respectively, and the remaining costs, which are $70.6 million and $68.6 million at January 1, 1992 and 1991, associated with construction labor, were charged to the cost of respectively, exclusive of the effects of new accounting new utility plant. standards discussed below. The cost of these benefits was $6.0 A reconciliation of the funded status of the plan as of million in 1992, $4. 9 million in 1991 and $3.5 million in December 31, 1992 and 1991 is as follows: 1990. The net asset value of the trust fund was approximately

$13.4 million at December 31, 1992 and $11.0 million at (000) 1992 1991 December 31, 1991 Fair value of plan assets $218,800 $204,000 In December 1990, the FASB issued Statement of Projected benefit obligation 213,459 208,416 Financial Accounting Standards o. 106 entitled "Employers' Plan assets over Jiunder) projected bene it obligation 5,341 (4,416) Accounting for Postretirement Benefits Other Than Unrec~gnized net Pensions." This statement requires employers to record an transition asset (2,066) (2,238) obligation for unfunded accumulated other postretirement Unrecognized net loss (J,7842 7,578 benefits immediately or, alternatively, on a delayed basis over Prepaid pension cost $ 491 $ 924 the active plan participants' future service periods, or 20 years Accumulated benefit obligation: if longer, and to record on the accrual basis the annual cost of Vested benefits $160,507 $160,350 benefits earned. ACE will adopt this new standard effective Nonvested benefits 646 798 January 1, 1993, and will elect to recognize the unfunded Total $161,153 $161,148 accumulated other postretirement benefits at January 1, 1993 over 20 years. The latest actuarial study, measured in At December 31, 1992, approximately 67% of plan assets were accordance with the new standard, was performed for ACE invested in equity securities, 21% in fixed income securities and on its retiree life insurance and medical benefit plans as of 12% in other investments. January 1, 1992. The study projects that the annual co- t The assumed rates used in determining the actuarial these benefits could increase approximately $6 million t present value of the projected benefit obligation at year-end million, with an unfunded accumulated other postretire were as follows: benefits obligation of approximately $60 million to $70 1992 1991 million at December 31, 1992. On December 22, 1992, the B R C verbally approved ACE's request for deferred Weighted average discount 8.00% 8.50%

accounting of excess costs incurred due to implementation of f\nticipated ra!e of increase m compensation 4.50% 6.00% Statement No. 106. This permits ACE to accumulate the increased costs as an asset subject to future recovery through The assumed long term rate of return on plan assets was rates. ACE cannot predict what ultimate regulatory treatment 8.00% for 1992, 1991and1990. will be afforded these costs.

In addition to pension benefits, ACE provides certain In November 1992, the FASB issued Statement of health care and life insurance benefits for retired employees of Financial Accounting Standards No. 112 entitled "Employers' ACE and its subsidiary. Substantially all employees may Accounting for Postemployment Benefits." This statement is become eligible for these other postretirement benefits if they effective for fiscal years beginning after December 15, 1993.

reach retirement age while working for the companies. Other This statement requires employers to recognize an obligation postretirement benefits are provided through insurance for benefits provided to former or inactive employees after companies and other plan providers whose premiums and employment but before retirement. The requirements of this related plan costs are based on the benefits paid during the standard are not expected to be material to the financial year. ACE has a tax qualified trust to fund these other condition or results of operations of the Company.

A I I a n t 1 c <+> R n e r g y

'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 operations and maintenance expenses in the Consolidated share of the jointly-owned plants and includes its share of direct Statement oflncome.

NOTE6.

NONUTILI1Y COMPANIES The Company (AEI) is the parent holding company of the Company et Assets Results of Operations (000) 1992 1991 1992 1991 1990 consolidated group. Its primary activities are the management of investments in the subsidiary companies, issuance of AET $(5,763) s (970) $(4,793) $ (970) $

common equity and performance of administrative functions AGI 2,122 (1,981) 1,366 (4,015) (1,162) on behalf of the consolidated group. Principal assets of each of ASP 5,478 5,741 (263) (415) (417) the subsidiary companies are: AET - capital investment and ATE 9,959 9,292 667 511 1,304 loan principal of approximately $5.9 million in a geothermal AEI (401) (493) (223) heating and cooling subsidiary; AGI - capital investments of approximately $19 .5 million in cogeneration development AET's 1992 results reflect a provision for a restructuring of projects and partnerships; ASP - commercial real estate site certain of its business activities. AGI's 1992 results reflect the

• a net book value of $13.4 million; ATE - leveraged lease commercial operation of two cogeneration facilities previously ents of approximately $76.5 million. Other financial ation regarding the subsidiary companies, and financial under construction. AGI's results for 1991 and 1990 reflect information concerning parent-only operations of the development and administrative charges incurred during Company, is as follows: construction of cogeneration projects. AGI's 1991 results also A I I a n I i c <+> E n t r g y

'OTES TO CO 'SO L JDATED Fl,'A,'ClAL STATEME 'TS recognized its share of losses attributable to the reduction of rates on its revolving credit agreement. Results of opera carrying values to net realizable values of certain small of AEI above exclude its equity in the results of subsidia cogeneration projects held for sale. AGI's current business is companies. Net assets of AEI are not meaningful as they focused on the development, construction and operation of primarily represent investments in and intercompany balances large (greater than 40 MWs) cogeneration projects. ASP's with the subsidiary companies and common stock issued on results reflect generally poor market conditions in commercial behalf of the consolidated group.

real estate. ATE's 1992 results benefitted from lower interest NOTE7.

CUMULATIVEPREFERREDSTOCKOFACE ACE has authorized 799,979 shares of Cumulative Preferred Value. Information relating to outstanding shares at December Stock, $100 Par Value, two million shares of No Par Preferred 31 is shown in the table below.

Stock and three million shares of Preference Stock, No Par Current Optional 1991 Redemption Series Par Value Shares Amount (000) Price Not Subject to Mandatory Redemption:

4% $100 77,000 I 7,700 77,000 $ 7,700 $105.50 4.10% 100 72,000 7,200 72,000 7,200 101.00 4.35% 100 15,000 1,500 15,000 1,500 4.35% 100 36,000 3,600 36,000 3,600 4.75% 100 50,000 5,000 50,000 5,000 5% 100 50,000 5,000 50,000 5,000 100.00 7.52% 100 100,000 10,000 100,000 10,000 101.88 Total I 40,000 $ 40,000 Subject to Mandatory Redemption:

9.96% $100 48,000 I 4,800 56,000 $ 5,600 $103.54

$8.25 None 65,000 6,500 67,500 6,750 105.01

$8.53 None 600,000 60,000 600,000 60,000 104.11

$8.20 None 500,000 50,000 500,000 50,000

$7.80 None 700,000 70,000 700,000 70,000 Total 191,300 192,350 Less portion due within one year 1,050 1,050 Total $190,250 $191,300 Cumulative Preferred Stock Not Subject to Mandatory Beginning November 1, 1994 and annually thereafter, Redemption is redeemable solely at the option of ACE. 120,000 shares of the $8.53 No Par Preferred Stock must be On August 1 of each year, 8,000 shares of the 9.96% redeemed through the operation of a sinking fund at a Cumulative Preferred Stock must be redeemed through the redemption price of $100 per share. At the option of ACE, operation of a sinking fund at a redemption price of $100 per not more than an additional 120,000 shares may be redeemed share. ACE redeemed 8,000 shares in each of the years 1992, on any sinking fund date without premium. Refunding of this 1991and1990. series is restricted prior to November 1, 1993.

On November 1 of each year, 2,500 shares of the $8.25 No Beginning August 1, 1996 and annually therea Par Preferred Stock must be redeemed through the operation 100,000 shares of the $8.20 No Par Preferred Stock m of a sinking fund at a redemption price of $100 per share. redeemed through the operation of a sinking fund a ACE may redeem not more than an additional 2,500 shares redemption price of $100 per share. At the option of ACE, on any sinking fund date without premium. ACE redeemed not more than an additional 100,000 shares may be redeemed 2,500 shares in each of the years 1992, 1991and1990. on any sinking fund date without premium. Other than in A1/an11t <

'O T ES TO CO 'SOL J DATED Fl 'A cl ection with the sinking fund, this series is not Redemption aggregate $1.05 million in 1993, $13.05 million eemable prior to August 1, 2000. in each of the years 1994 and 1995 and $23.05 million in Beginning May 1, 2001 and annually through 2005, each of the years 1996 and 1997.

115,000 shares of $7.80 No Par Preferred Stock must be Cumulative Preferred Stock of ACE is not widely held redeemed through the operation of a sinking fund at a and generally trades infrequently. The estimated aggregate redemption price of $100 per share. On May 1, 2006, fair market value at December 31, 1992 of ACE's 125,000 shares must be redeemed at $100 per share. ACE Cumulative Preferred Stock was approximately $229 million.

has the option to redeem up to an additional 115,000 shares This fair market value determination is based on actual trades without premium on each May 1 through 2005. Other than of certain Series of ACE's Preferred Stock on or nearest to in connection with the sinking fund, this series is not December 31, 1992. Fair market value of other Series of redeemable prior to May 1, 2006. ACE's Preferred Stock is based on actual trades of preferred The annual minimum sinking fund provisions of the stock of other companies with similar credit quality, coupon Cumulative Preferred Stock Subject to Mandatory rates and maturities.

NOTES.

LONG TERM DEBT December31 Series Maturity Date 1992 1991 Long term debt of ACE consists of the following: (000)

First Mortgage Bonds:

4 1/2% July 1, 1992 s $ 10,350 March 1, 1993 9,540 9,540 February 1, 1996 9,980 9,980 8% November 1, 1996 95,000 95,000 7.52% Medium Term Notes Mayl9, 1999 26,000 7.54% Medium Term Notes Mayl9, 1999 4,000 8%% September 1, 2000 19,000 19,000 8% May 1,2001 27,000 27,000 7 1/2% April 1, 2002 20,000 20,000 73/.% June 1, 2003 29,976 29,976 7.97% Medium Term Notes May 19, 2004 10,500 7.98% Medium Term Notes May 19, 2004 19,500 7%% Pollution Control January 1, 2005 6,500 6,500 6%% Pollution Control December 1, 2006 2,500 2,500 10 1/2% Pollution Control Series B July 15, 2012 850 850 7%% Pollution Control Series A April 15, 2014 18,200 18,200 10 1/2% Pollution Control Series C July 15, 2014 23,150 23,150 8%% May 1, 2016 125,000 125,000 8 1/.% Pollution Control Series A July 15, 2017 4,400 4,400 911.% October 1, 2019 135,000 135,000 6.80% Pollution Control Series A March 1 2021 38865 38 865 Total 624961 575 311 Debentures:

5 1/.% February 1, 1996 2,267 2,267 Tl.% ~~~~~~~~~~~~~~~~~

May 1, 1998 2,619 2,619 4,886 4,886 ortized Premium and Discount-Net ~~~~~~~~~~~~~~~~~

(4,039) (4,300)

Total Long Term Debt of ACE 625,808 575,897 Long Term Debt of Other Subsidiaries 25,128 39,100 Less portion due within one year 19,356 49,450 Total Long Term Debt $631,580 $565,547 A I I a n I i c < > Entrgy

1 0l'E§ TO CON§OL[DATED f[NANC[AL STATEMENT§ In May 1992, ACE issued and sold through its agents $60 June 1, 1992 to June 1, 1993. Interest rates on borrowing.

million of First Mortgage Bonds, Designated Secured determined with reference to periodic pricing options Medium Term Notes (MTNs) Series A, in two separate available under the facility. Interest rates on borrowings maturities, with $30 million principal amount maturing in outstanding in 1992 ranged from approximately 3.7% to May 1999 and $30 million principal amount maturing in 6.4%. In December 1992, ATE privately placed $15 million May 2004. The Series A MTNs have a weighted average principal amount of 7.44% Senior Notes due 1999. Proceeds interest rate of7.75%. were used to reduce borrowings outstanding under the Sinking fund deposits are required for retirement of the revolving credit and term loan agreement.

51/.% Debentures on February 1 annually through 1995 and The aggregate amount of scheduled debt maturities, in for the 7 1/.% Debentures on May 1 annually through 1997 in addition to sinking fund requirements, of ACE and ATE amounts in each case sufficient to redeem $100,000 principal long term debt outstanding at December 31, 1992 are $18.44 million in 1993 and $107.247 million in 1996. No long term amount. ACE may, at its option, redeem an additional debt of ACE and ATE currently outstanding matures in

$100,000 annually in each case. Through December 31, 1994, 1995 and 1997. In 1993, $916 thousand of outstanding 1992, ACE acquired and canceled $533,000 and $381,000 debt of another of the subsidiary companies matures.

principal amount of the 511.% and 711.% Debentures, respec- ACE's long term debt securities are not widely held and tively, to satisfy its requirements for 1993 and subsequent generally trade infrequently. The estimated aggregate fair years. Certain series of First Mortgage Bonds contain market value of these securities on December 31, 1992 was provisions for deposits of cash or certification of bondable approximately $672 million, based on actual trades of ACE's property currently amounting to $250,000, which ACE has long term debt securities that occurred on or nearest to elected to satisfy through property additions. Additional December 31, 1992. Due to the short term nature of the sinking fund requirements are as follows: revolving credit facility and the recency of the senior notes, the carrying values of ATE's long term debt approximate their fair Annual Series Beginning Date Sinking Fund market values at December 31, 1992.

6%% Pollution Control In early 1993, ACE issued and sold through its ag Series Due 2006 December 1, 1997 $ 75,000 $144 million principal amount of Series B MTNs 7%% Pollution Control interest rates that vary from 6.35% to 7.20% and Series Due 2005 January 1, 2000 500,000 maturities that vary from 1998 to 2004. The Series B MTNs have a weighted average interest rate of 6. 77%. The proceeds Long term debt of other subsidiaries consists primarily of will be applied, together with other funds, to the redemption debt of ATE of $23.9 million. ATE has a revolving credit of ACE's First Mortgage Bonds, $95 million principal and term loan agreement which provides for borrowings of amount of 8% Series due November 1, 1996, $19 million up to $35 million during successive revolving credit and term principal amount of 8 7/so/o Series due September 1, 2000 and loan periods. At ATE's request, this commitment was $27 million principal amount of 8% Series due 2001 reduced from $70 million in 1992. Borrowings outstanding at redemption prices of 100.91 %, 102.47% and 102.53%,

under this agreement at December 31, 1992 were $8.9 respectively, together with accrued interest to March 15, 1993, million. In accordance with provisions of the agreement, the the date of redemption.

expiration of the revolving credit period was extended from A I I a n I i c < > 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 balance requirements. Short term debt outstanding at lines of credit of $150 million. ACE is charged commitment December 31, 1992, 1991 and 1990 consisted of ACE fees, which are not significant, for these available credit lines. borrowings of As of December 31, 1992, ACE had no compensating (000) 1992 1991 1990 Commercial Paper $ $20,600 $43,950 Notes Payable to Banks 14,600 Maximum amount of total short term debt at any month end:

Commercial Paper $107,400 $82,700 $46,850 otes Payable to Banks 14,600 Average amounts of short term debt (based on daily outstanding balances):

Commercial Paper $ 31,567 $26,802 $16,979 Notes Payable to Banks 2,785 Weighted daily average interest rates on short term debt:

Commercial Paper 4.0% 6.6% 8.1%

Notes Payable to Banks 3.4%

NOTElO.

COMMITMENTS AND CONTINGENCIES CONSTRUCTION PROGRAM assessed for losses during the current policy year was $4.69 ACE's cash construction expenditures for 1993 are estimated million under these programs.

to be approximately $142.5 million. Current commitments The Price-Anderson provisions of the Atomic Energy Act for the construction of major production and transmission of 1954, as amended by the Price-Anderson Amendments facilities approximate $99.9 million, of which it is estimated Act of 1988, govern liability and indemnification for nuclear approximately $44.8 million will be expended in 1993. These incidents. All nuclear facilities could be assessed, after amounts exclude AFDC and customer contributions. exhaustion of private insurance, up to $66.15 million each, payable at $10 million per year, per reactor and per incident.

INSURANCE PROGRAMS Based on its ownership share of nuclear facilities, ACE could ACE is a member of certain insurance programs that provide be assessed up to $23 million per incident. This amount coverage for decontamination and property damage to would be payable at $3.48 million per year, per incident.

members' nuclear generating plants. Facilities at the Peach Bottom, Salem and Hope Creek stations are insured against ENERGY AND CAPACI1Y ARRANGEMENTS property damage losses up to $2.59 billion per site under Utility these programs. ACE has an arrangement to purchase 125 MWs of capacity In addition, ACE is a member of an insurance program and energy from PP&L through September 30, 2000. Costs which provides coverage for the cost of replacement power of the contract, exclusive of energy, are charged to Purchased during prolonged outages of nuclear units caused by certain Capacity on the Consolidated Statement of Income and ecific conditions. Under the property and replacement totaled $25.1 million, $28.7 million and $25.8 million in er insurance programs, ACE could be assessed 1992, 1991 and 1990, respectively. The cost of energy ospective premiums in the event the insurers' losses associated with the purchase amounted to $13.4 million, $8.6 exceed their reserves. As of December 31, 1992, the million and $6. 7 million, respectively. Estimated costs, maximum a~ount of retrospective premiums ACE could be exclusive of energy, are expected to be $24 million, $25 A I I a n I i '< >E n t 'g y

'OTES TO CO '§OLIDATED FI L § T T E .1 E .; T § million, $27 million, $28 million and $29 million in the years by these facilities. Purchases of energy and capacity in 1993-1997, respectively, and aggregate $90 million thereafter. and 1991 from nonutility producers amounted to $5 These amounts include recovery of previously deferred costs. million and $4.3 million, respectively.

ACE has an arrangement to purchase 200 MWs of ENVIRONMENTAL MATTERS capacity and energy from PE through May 31, 1994. Costs of the contract, exclusive of energy, are charged to Purchased The provisions of Title IV of the Clean Air Act Capacity and totaled $52.5 million, $48.2 million and $27.5 Amendments of 1990 (CAAA) will require, among other million in 1992, 1991 and 1990, respectively. The cost of things, phased reductions of sulfur dioxide (S0 2) emissions energy associated with the purchase amounted to $19.2 by ten million tons per year, and a limit on S02 emissions

• 1 million, $22.6 million and $13.7 million, respectively. ACE is nationwide by the year 2000, and reductions in emissions of committed to minimum capacity charges of $56 million and nitrogen oxides ( OJ by approximately two million tons per

$24 million in 1993 and 1994, respectively. The minimum year. ACE's wholly-owned B.L. England Units 1 and 2 and costs are subject to annual adjustments under certain its jointly-owned Conemaugh Station are affected during conditions. Phase I (1995) and all of ACE's other fossil-fuel steam ACE periodically enters into arrangements with certain generating units are affected by Phase II (2000) of the other electric utilities for the purchase of short term CAAA. ACE is installing flue gas desulfurization equipment generating capacity, energy and transmission capacity on an (scrubber) on B.L. England Unit 2 costing approximately $75 as-needed basis, which are utilized to the extent they are million. By scrubbing B.L. England Unit 2, Phase I S0 2 economic and available. emission requirements are met for both units. Construction ACE is a member of the Pennsylvania-New Jersey- began in 1992 and is scheduled for completion in early 1995.

Maryland Interconnection (PJM), an integrated power pool, The Conemaugh owners have elected to install scrubbers on that is connected with other utilities for the interchange of Conemaugh Uruts 1 and 2, with ACE's 3.83% share of the energy on an as-needed and as-available basis. ACE is total cost estimated to be $14 million. Construction for required to plan for reserve capacity based on aggregate PJM Conemaugh Unit 1 is to be completed in 1994, and for requirements allocated to member companies. ACE has Conemaugh Unit 2 in 1995. The jointly-owned Keys satisfied its current reserve requirements. ACE also has an Station is impacted by the S0 2 and NOx provisio interchange agreement with the City of Vineland, New Title IV of the CAAA during Phase II, and the Keystone Jersey, which operates a municipal utility located in' ACE's owners are studying various methods of compliance. In service territory. The cost of purchases incurred through addition, certain power purchase arrangements will be interchange agreements are reported as Energy expense on affected by the CAAA, in amounts that are not presently the Consolidated Statement of Income and totaled $9.4 determinable.

million, $11.3 million and $28.5 million in 1992, 1991 and Federal and state legislation authorize various governmental 1990, respectively. authorities to issue orders compelling responsible parties to take cleanup action at sites determined to present danger from Nonutility releases of hazardous substances. The various statutes impose ACE has currently contracted, and received BRC approval, joint and several liability without regard to fault for certain to purchase a total of 569 MWs of energy and capacity from investigative and cleanup costs for all potentially responsible nonutility sources, primarily cogenerators. Two projects parties. ACE has received notification with respect to certain totaling 181 MWs are currently operational. The remaining sites as one of a number of alleged responsible parties for two projects, providing 388 MWs, are expected to be in cleanup and remedial actions. The total amount of cleanup operation beginning in mid-1994. Based on the terms and and remedial measures associated with these sites as claimed conditions of the existing agreements, ACE is obligated to by the authorities for all defendants is currently estimated to construct transmission facilities related to these projects. The be $105 million. ACE believes that primary responsibility for cost of the transmission facilities is to be shared by ACE and the claims rests with other parties and its share, if any, of the the nonutility producers, with ACE's portion of the cost claims would not be significant. ACE plans to pursue these approximating $13 million. Certain specified minimum matters aggressively. At this time, ACE cannot predict the amounts of energy and capacity are to be purchased annually, outcome of these matters.

subject to adjustment for actual performance levels achieved Atlantic < >E n t r g y

TOTE§ TO co '§OLlDATED Fl:\

• c1~L §TATEYIE:\'T§ lie concern regarding the possible health effects due to An equipment failure in the non-nuclear portion of the ectric and magnetic fields (EMF) is an emerging national plant caused severe damage to Salem Unit 2 resulting in that health issue, with some states settings limits on EMF. The unit's shutdown in November 1991 with no release of outcome of EMF study and/or regulations and public con- radiation. The unit returned to service in May 1992.

cerns regarding EMF could affect ACE's design and location Substantially all of ACE's share of the repair costs, estimated of future electric power lines and facilities and the costs

• to be between $5 million and $6 million, was covered by thereof. Such effects, if any, are not presently determinable. property insurance. To date, ACE has received $3.l million OTHER for its share of claims submitted under the property insurance policy. ACE incurred replacement energy costs of In 1990, the New Jersey Department of Environmental approximately $2.4 million during this outage. Of this Protection and Energy (DEPE) issued to PS a revised Draft amount, ACE received proceeds of $1.3 million from Permit for surface water discharges for Salem Station. PS is replacement energy insurance, after application of an initial the operator of the station, in which ACE has a 7.41 %

21-week policy deductible period.

ownership interest. The Draft Permit contained stringent ACE and the other nonoperating co-owners of the Peach terms and conditions, and, if adopted as proposed, could Bottom Atomic Power Station reached a settlement with PE require the construction of cooling towers and the immediate the operator of the station, in connection with litigatio~

shutdown of the two generating units for up to a four-year regarding the Nuclear Regulatory Commission shutdown of period pending this construction. Public hearings on the the station from March 1°987 through October 1989.

Draft Permit have been held and PS has filed written According to the terms of the agreement, ACE received $18.5 comments and demonstrations, which PS believes establish million in October 1992 as its share of the settlement. Of this its position that cooling towers are not required. PS estimates amount, approximately $3 million represents reimbursement that if construction of cooling towers is necessary, under the for legal fees previously incurred and expensed during the most adverse scenario, the costs of construction are estimated litigation, and the remaining settlement proceeds of $15.5 to be $627 million (in 1990 dollars), of which ACE's share million were allocated 75% to shareholders and 25% to uld be 7.41%. Replacement power costs during such four-customers. This allocation reflects the amount of costs borne outage would amount to approximately $25 million per by each respective group during the station's outage and is for ACE. In addition, a permanent derating of 5% of the subject to further BRC determination. ACE recorded station capacity would also occur. ACE has been advised that approximately $9.7 million, which is net of related Federal PS is discussing a proposal with the DEPE that would income taxes of approximately $4.9 million, as Other Income permit Salem to continue to operate without cooling towers during March 1992, and $3.8 million as a liability to and would require PS to make certain plant modifications reimburse customers through the LECs.

and to take certain other actions to enhance the ecology of AGI through its subsidiaries has partnership interests in the affected water body. Any such proposal would be required common with affiliates of Columbia Gas System, Inc.

to be published for public comment before it could be imple-(Columbia) in certain cogeneration projects. In July 1991, mented. Costs of the proposal would not be material. The Columbia filed for protection from creditors under Chapter outcome of this matter cannot be predicted.

11 of the Federal Bankruptcy Code. At December 31, 1992, ACE is subject to a performance standard for all of its Columbia had not yet filed a plan of reorganization. AGI jointly-owned nuclear units. This standard is used by the cannot predict what effect, if any, Columbia's situation may BRC in determining recovery of replacement energy costs.

have on AGI's interests in the commonly-owned The standard establishes a target aggregate capacity factor cogeneration projects.

within a wne of reasonable performance to be achieved by The National Energy Policy Act of 1992 permits the the units. Performance outside of the wne results in penalties Federal government to assess investor-owned electric utilities or rewards. Any penalties incurred would not be permitted to that have ownership interests in nuclear generating facilities be recovered from customers and would be charged against an amount to fund the decontaminating and decommission-income. For 1992, the aggregate capacity factor of ACE's ing of three Federally operated nuclear enrichment facilities.

nuclear units was below the minimum t arget factor ACE currently estimates that, based on its ownership in five principally due to the outage of Unit 2 at the Salem Nuclear nuclear generating units, its assessment i::ould amount to Generating Station, as discussed below. Proceeds from approximately $8.5 million. ACE has provided a liability in replacement energy insurance coverage associated with the this amount at December 31, 1992. ACE has also recorded a Salem outage were allocated to customers and are regulatory asset in the same amount and will seek recovery of cted to mitigate any penalty incurred. Any penalty

• such assessments in LEC rates in the same manner as the rred for 1992 is not expected to be significant. ACE utility's other fuel costs. The regulatory treatment afforded cannot predict the rate treatment that will ultimately result these costs cannot be predicted at this time.

regarding the nuclear performance standard for 1992.

A t I a n t j c < >E n t r g y

0 T ES T 0 C 0 1~ S0 L I D TED FI t 'C 1 r L S T . TEJE ' TS NOTEll.

LEASES ACE leases various types of property and equipment for use asset and related obligation for the leased fuel are reduced as in its operations. Certain of these lease agreements are capital the fuel is burned, and are increased as additional fuel pur-leases consisting of the following at December 31: chases are made. No commitments for future payments beyond satisfaction of the outstanding obligation exist.

(000) 1992 1991 Operating expenses for 1992, 1991 and 1990 include leased Production plant $13,521 $13,521 nuclear fuel costs of approximately $13.5 million, $14.7 mil-Less accumulated amortization 8,048 7,308 lion and $15.4 million, respectively, and rentals and lease et 5,473 6,213 payments for all other capital and operating leases of $4.8 Nuclear fuel 43,831 46,880 million, $4.5 million and $4.2 million, respectively. Future Leased property-net $49,304 $53,093 minimum rental payments for all noncancellable lease agree-ments are not significant to ACE's operations. Rental ACE has a contractual obligation to purchase nuclear fuel for charges associated with other subsidiary companies are not the Salem, Hope Creek and Peach Bottom stations. The significant.

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 et Dividends Revenues ncome Income Earnings Paid Qyarter (OOO) (OOO) (000) Per Share Per Share

---

~

1992 1st $197,833 $ 33,290 $27,937 $ .55 $ .375 2nd 187,387 24,949 10,908 .21 .375 3rd 236,892 54,118 39,570 .76 .38 4th 194,713 24,811 7,795 .15 .38 Annual $816,825 $137,168 $86,210 $1.67 $1.51 1991 1st $174,980 $ 22,735 $ 8,519 s .18 s .37 2nd 184,163 25,379 10,667 .22 .37 3rd 258,349 69,597 54,786 1.08 .375 4th 190,883 27,144 11,664 .23 .375 Annual 808,374 $144,856 $85,635 $1.75 Sl.49 Individual quarters may not add to the total due to rounding, been adjusted for the two-for-one Common Stock split in as well as the effect on earnings per share of increasing aver- May 1992.

age number of common shares outstanding. Operating The revenues of ACE are subject to seasonal fluctuations Revenues for 1991 have been restated for sales for resale as due to increased sales and higher residential rates during the explained in ote 1-0ther. Per share amounts for 1991 have summer months.

Atlantic < >E n ' 'g y

TD A JALY§I§ OF

..... ~ - - .... - . - ,_,, ~ ---

- - -- - .... - - -- ...... - - ............. ._. "" - ... ~ . -- - ~ -- ._ - ._ - .. *- - . - - -- .- - . -

.an~:c u EFnelrgy 1T) A lnc1_' (Cthel CAoml pacny)o 1"s th solidated group consisting of the following wholly-owned

' D e p1arTen]t oofla coA n - l [) REs\;L '!' s 0 F 0 p ERAT l 0 l T s In 1992, ACE contributed $1. 74 to reported consolidated 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 of $1.52 per share. The dividend rate was adjusted to reflect NOTE: As a result of the two-for-one Common Stock split on the effects of the two-for-one split of Common Stock. Cash May 14, 1992, all common share outstanding amounts and per dividends paid, adjusted for the stock split, have increased for common share calculations for prior year periods contained 40 consecutive years. Information with respect to Common herein have heen a4justed accordingly.

Stock for the period 1990-1992 is as follows:

Due to Federal regulatory requirements effective January 1, 1992, all prior year operating revenues and certain operating 1992 1991 1990 expenses have heen restated to reclassify energy sales to other $ 1.49 $ 1.46 Dividends Paid Per Share $ 1.51 utilities {salesfor resale).

Book Value Per Share $15.17 $14.84 $14.36 FINANCIAL RESULTS Annualized Dividend Consolidated operating revenues for the twelve months ended Yield 6.6% 7.3% 8.7%

December 31, 1992, 1991 and 1990 were $816.8 million, Return on Average Common Equity 11.1% 12.1% 10.6%

$808.4 million and $740.9 million, respectively. The increased Total Return (Dividends revenues in 1992 and 1991 reflect the effect of net rate increases paid plus change in effective in October 1992 and July 1991. The revenue increase share price) 20.2% 29.8% (4.4)%

in 1991 also is due to increased sales of energy. Market to Book Value 152% 138% 118%

Consolidated earnings per share for 1992 were $1.67 on net Price/Earnings Ratio 14 12 11 e of$86.2 million, compared with $1.75 on net income Closing Price-New York 5.6 million in 1991 and $1.51 on net income of $68.9 Stock Exchange $23.13 $20.50 $16.94 ffiillion in 1990.

A t I a n I i c < >E n e r g y

.L .~AGEJE.~T'§ DJ§Cl'§§JO.' A.'D . LY§J§ OF FL~A.'ClAL CO.'DITJO.' 1L'D RESULT§ OF OPER11'10.'§ A LIQU1DI1Y AND CAPITAL RESOURCES In 1992, the Company declared $78.3 million in divide.

OVERVIEW to its common shareholders, and made $24.2 in capital con-tributions and advances to its subsidiaries. In 1991 and 1990, The Company commenced its business under a holding the Company declared $74.l million and $67.1 million, company structure on November 1, 1987. Since inception, the respectively, in dividends. In 1991 and 1990, $83.8 million Company's cash flows have been dependent on the cash and $10.6 million (net of repayments), respectively, in flows of its subsidiaries, primarily ACE. Principal cash advances and capital contributions were made to subsidiaries.

inflows of the Company are the payment of dividends to it by ACE and funds provided by the issuance of Common Stock. ACE Principal cash outflows of the Company are investments Cash construction expenditures for the 1990-1992 period (capital contributions and advances) in its subsidiaries for amounted to $469.9 million and included expenditures for their investing activities and the payment of dividends to two new combustion turbine units and upgrades to existing common shareholders. Cash invested in ACE is utilized pri- transmission and distribution facilities. ACE's current esti-marily for the construction of utility generating, transmission mate of cash construction expenditures for the 1993-1995 and distribution facilities, redemption and maturity of long period is $408.4 million. These estimated expenditures and short term debt and redemption of Preferred Stock. reflect necessary improvements to transmission and distribu-Investing activities of the nonutility subsidiaries have been tion facilities and compliance with provisions of the Clean primarily for the development of nonutility power generation Air Act Amendments of 1990.

projects and energy related technologies. ACE also utilizes cash for mandatory redemptions of To facilitate the activities and operations of the sub- Preferred Stock and maturities of long term debt. Optional sidiaries, separate credit support agreements exist between redemptions of securities are reviewed on an ongoing basis the Company and ATE and ASP. In addition, agreements with a view toward reducing the overall cost of funds.

between the Company and its subsidiaries provide for alloca- Redemptions of Preferred Stock (at par or stated value) tion of tax liabilities and benefits generated by the respective and redemptions and maturities of First Mortgage Bonds subsidiaries. the period 1990-1992 are shown as follows:

In 1992, 1991 and 1990, the Company recorded $78.3 million, $74.1 million and $67.l million, respectively, in divi- 1992 1991 1990 dends from ACE. Other sources of funds available to the Preferred Stock Company, which include the issuance of common equity (Series) (number of shares) through public offerings, optional cash purchases under the 9.96% 8,000 8,000 8,000 Dividend Reinvestment and Stock Purchase Plan (DRP) and $8.25 2,500 2,500 2,500 ACE's employee benefit plans, are shown as follows: Amount (000) $1,050 $1,050 $1,050 Issuance of Common Stock 1992 1991 1990 First Mortgage Bonds Principal Amount Public Offerings Retired (000) $10,350 $49,000 $21,215 Shares issued 4,000,000 Proceeds (000) $67,140 DRP Optional Cash Purchases In July 1992, $10.350 million principal amount of First Shares issued 719,324 301,272 172,548 Proceeds (000) $16,034 $ 5,537 $3,012 Mortgage Bonds, 4'/2% Series due 1992 matured. In March Employee Benefit Plans 1991, $10 million principal amount of First Mortgage Bonds, Shares issued 10,897 12,416 101,344 4'/i% Series due 1991 matured. In May 1991, $39 million Proceeds (000) $ 259 $ 249 $1,753 principal amount of First Mortgage Bonds, 11%% Pollution Control Series A due 2011 were redeemed at a price of 103%.

Additional common equity is provided by reinvested divi- In October 1990, ACE redeemed $21.215 million principal dends through the DRP. Common shares issued in 1992, amount of First Mortgage Bonds, llV2% Series due 2015 at a 1991 and 1990 were 572,329, 630,410 and 586,650, respec- redemption price of108.53%.

tively. The Company's current financing plans for 1993-1995 Scheduled debt maturities and mandatory Preferred Stock contemplate the issuance of approximately $46.1 million sinking fund requirements aggregate $36.690 million for the in additional *common equity, to be obtained through the years 1993-1995.

operation of the DRP.

A t I a n t i c < > Energy

LY§J§ OF

• FL A1 C[Al C01'D[T[O TA D RE§UlT§ OF OPERATlO § 1

ACE's cash flows from operating activities after dividends Bonds, S7/s% Series due 2000 and $27 million principal on Preferred Stock and Common Stock (internal generation) amount of ACE's First Mortgage Bonds, 8% Series due 2001 amounted to $116.8 million, or 89.3% of 1992 construction at redemption prices of 100. 91%, 102.41 % and 102.53%,

expenditures. In 1991 and 1990, ACE's internal generation respectively, together with accrued interest to March 15, was $85.2 million and $75.2 million, and represented 49.4% 1993, the date of redemption.

and 45.1%, respectively, of construction expenditures. During the three-year period 1993-1995, ACE expects to For the three-year period 1993-1995, ACE's internal gen- issue $105 million in new long term debt in addition to the eration is expected to average 63% of currently estimated $144 million oflong term debt issued for refunding purposes.

construction expenditures. However, actual levels may vary Such debt may include First Mortgage Bonds. During the within the period based upon specific amounts of construc- three-year period 1993-1995, ACE expects to receive $46 tion expenditures and internally generated funds in the indi- million in capital contributions from the Company.

vidual years. Through 2000, ACE's cash flows will be ACE's debt securities are rated "NA2" by the major rating positively affected by the recovery of its U nrecovered agencies and its Preferred Stock is rated "A-'.' In December Purchased Power Costs. ACE expects that such recovery will 1992, a major rating agency lowered its ratings on ACE's provide $14 million, $15 million and $15 million in cash senior debt to a rating equivalent to "A" from "A+" and flows in 1993, 1994 and 1995, respectively. Preferred Stock to "A-" from "A'.' Provisions of ACE's char-On an interim basis, ACE finances that portion of its ter, mortgage and debenture agreements can limit, in certain construction costs and other capital requirements in excess of cases, the amount and type of additional financing which may internally generated funds through the issuance of unsecured be used. At December 31, 1992, ACE estimates additional short term debt consisting of commercial paper and borrow- funding capacities of$373 million of First Mortgage Bonds, or ings from banks. Permanent financing by ACE is undertaken $523 million of Preferred Stock, or $381 million of unsecured by the issuance of its long term debt and Preferred Stock and debt. These amounts are not necessarily additive.

m capital contributions by the Company. ACE's nuclear AET requirements associated with its jointly-owned units been financed through arrangements with a third party. AET was formed in April 1991 to invest in and to manage In 1992, ACE received proceeds of$59.7 million from the investments in companies with energy-related products and issuance of$60 million of First Mortgage Bonds, Designated technologies. AET has a majority equity interest in a compa-Secured Medium Term Notes (MTNs) Series A. The ny that owns a patented technology and has proprietary MTNs were sold with two separate maturities, with $30 mil- knowledge relating to alternate energy technologies. Funding lion maturing in 1999 and the remaining $30 million matur- of this investment, through a combination of capital contri-ing in 2004. The Series A MTNs have a weighted average butions and loans, totaled $5.9 million at December 31, 1992.

interest rate of 7.75%. ACE also received $14.6 million in AET obtained the funds for its investment activity through advances from the Company. To date, no cash has been gen-capital contributions from the Company. In 1991, ACE received proceeds of $38.9 million and $69. 7 million, respec- erated from operating activities. AET has made a provision for the restructuring of its business activities that amounts to tively, from the issuance of First Mortgage Bonds, 6.80%

Pollution Control Bonds Series A of 1991 and the issuance a 1992 earnings reduction of$.06 per share.

and sale of 700,000 shares of $7.80 o Par Preferred Stock AGI and received $78.1 million in capital contributions from the Net cash outlays for investments by AGI for the period Company. In 1990, ACE received proceeds of $49.9 million 1990-1992 totaled $5.3 million. AGI's activities are repre-from the issuance and sale of 500,000 shares of $8.20 No Par sented by partnership interests in cogeneration projects. Such Preferred Stock and received $13.5 million in capital contri- activities have been funded by a combination of capital con-butions from the Company. tributions, loans and advances. AGI's current business plan In early 1993, ACE received proceeds of $143 .2 million for the period 1993-1995 is to invest an additional $2.3 mil-

• from the issuance of $144 million principal amount of its lion in cogeneration, generating and alternate power projects.

Series B MTNs. The MTNs were sold with four separate Two cogeneration projects became operational in 1992 and maturities: $50 maturing in 1998; $46 million maturing in are providing positive cash flows. Another project is under 2000; $20 million maturing in 2003 and $28 million matur- construction and is expected to become operational in 1994.

. in 2004. The Series B MTNs have a weighted average est rate of 6.77%. The proceeds will be applied, together ASP other funds, toward the redemption of$95 million prin- ASP's real estate investment at December 31, 1992 is a cipal amount of ACE's First Mortgage Bonds, 8% Series due 280,000 square foot office and warehouse facility in Atlantic 1996, $19 million principal amount of ACE's First Mortgage County, New Jersey, with a net book value of $13.4 million.

Atlantic< J >E n erg y

l 1 : AGE~1 E: T's Dl § c 'C's § I 0 l ~ f ). T D ,'ALY§ J§ OF fl:A~'C I AL CO.'D ITJ O: i~D RESL' LT§ OF OPE R. T I 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 4*

10. Ill 1.7 under a loan agreement with ATE. ASP' s current agreement u

with ATE provides for the repayment of such borrowings on u u or before December 31, 1993, but this date may be extended.

I.II ASP's cash flows from operating activities are principally 3* 1*

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.

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- 88 89 90 91 92 88 89 90 91 92

{times coverage) {in cents) rowings outstanding under the revolving credit and term loan facility. At December 31, 1992, borrowings outstanding ATLANTIC ELECTRIC ATLANTIC ELECTRIC under this facility totaled $8.9 million. Future investments by Pre-Tax Interest Average Booked Revenue Coverage Ratio Per Kilowatt-Hour A TE may be undertaken after consideration of the Company's consolidated tax position. ATE's cash flows from This ratio measures the ability This represents the average operations are expected to continue to be provided from lease of Atlantic Electric to meet its amount of revenue recorded for rental receipts and realization of existing tax benefits. interest payments to creditors. each kilowatt-hour sold. It is calculated by dividing Atlantic It is the number of times that RESULTS OF OPERATIONS Electric's revenue from interest charges are "covered" kilowatt-hour sales by the Operating results are dependent upon the performance of the by earnings before the payment number of kilowatt-hours sold.

subsidiaries, primarily ACE. Since ACE is the principal sub- of income taxes. For an "A" sidiary within the consolidated group, the operating results rated utility, pre-tax coverage should be between 2.5 and 4.0 presented in the Consolidated Statement oflncome are those times. To calculate the of ACE, after elimination of transactions among members of coverage ratio, net income is the consolidated group. Results of the nonutility companies adjusted for certain amounts are reported in Other Income. and then divided by interest charges.

A t I a n t i ' < > Energy

F] TA D RESULT§ OF OPE RAT JO '§ REVENUES Operating Revenues--Electric increased 1.0% and 9 .1 % in 300. 41 3 1 1 1992 and 1991, respectively. Components of the overall II II 4t 51.1 41 changes are shown as follows:

11.1 250* (millions) 1992 1991 80*

m.1 Base Revenues I 11.0 43.0 Levelized Energy Clauses 23.0 (5.9)

!JJ 200. Iii Kilowatt-hour Sales (28.7) 17.1 117J

60. 14 14 Unbilled Revenues (2.o) 7.3 171.Z tu 11 Sales for Resale 5.5 6.3 11 150* 15U Other (0.3) (0.3) 134.5 41 47 47 Total I 8.5 $ 67.5 44 44 40 .

115.4 100* M.5 Base Revenues increased in 1992 as a result of a $12.946 mil-7U lion base rate increase effective on October 20, 1992 and a 71J

$50.0 million base rate increase effective July 3, 1991. Base 20

• SO* 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 88 89 90 91 92 88 89 90 91 92 effective October 20, 1992 and a $21.3 million LEC increase (in percent) effective June 1991. LEC revenues decreased in 1991 as a result of the net effects of the June 1991 LEC rate increase Tl.ANTIC ENERGY ATLANTIC ENERGY Cash Requirements and Year-End and the impact of a $35.8 million LEC rate reduction effec-Internal Generation Capitalization tive June 1990.

of Funds Changes in kilowatt-hour sales are discussed under

• COMMO EQUITY

• CONSTRUCTION &OTHER "Sales." Overall, the combined effects of changes in rates

• PREFERRED STOCK

• MATURITIES, RETIREMENTS

• LO G TERM DEBT charged to customers and kilowatt-hour sales resulted in

& SINKING FUNDS

• SHORT TERM DEBT increases of 4.4% and 5.2% in revenues per kilowatt-hour in

• I TERNAL CASH GENERATION Atlantic Energy's capitalization 1992 and 1991, respectively.

is the relative proportion of Changes in operating revenues in the future will result This compares the amount of cash equity funds provided by its expenditures for construction and owners, common and preferred from changes in customer rates, energy consumption and gen-other capital needs to the amount shareholders, and borrowed eral economic conditions in the service area, as well as the of cash that is generated internally funds provided by creditors, impacts ofload management and conservation programs insti-from the Company's operations holders of short and long term after the payment of dividends to debt securities. It is calculated tuted by ACE. ACE's revenues could also be affected by shareholders. The difference by dividing the dollar amount the loss of sales through cogeneration and increasing competi-between the amount of cash that of each class of security by the tion in the generation of electricity by utility and nonutility is required and the amount of cash total amount of capitalization.

sources.

that is generated internally is the amount of funds that will have to be raised in the capital markets.

A t I a n t i c < >E n t r g y

GEJE.~T'§ D1SC'CS§10.' 1 .rD A.'. LYSJS OF Fl:\A.'CJAL CO.'DJTJO.' A.'D RESL'LT§ OF OPERATJO:\§ A SALES Energy expense reflects the amount of energy needed. ,

Changes in kilowatt-hour sales are generally due to changes meet load requirements, as well as the various fuel and pur-in the average number of customers and average customer chased energy sources used and operation of the LECs.

use, which is affected by economic and weather conditions: Changes in costs reflect the varying availability of low-cost Energy sales statistics, stated as percentage changes from generation from owned and purchased energy sources and in the previous year, are shown as follows: . the unit prices of the energy sources used, as well as changes in the needs of other utilities participating in the 1992 1991 Customer Avg Avg# Avg Avg# Pennsylvania- New Jersey-Maryland Interconnection.

Class Sales Use of Cost Sales Use of Cost The cost of energy is recovered from customers principally Residential (2.8)% (3.7}% 0.9% 3.1% 2.3% 0.8% through the operation of the LECs. Earnings are not affect-Commercial (1.5) (3.2) 1.8 2.8 1.1 1.6 ed by Energy expense because these costs are adjusted to Industrial (10.2) (9.4) (0.8} (0.6) (0.2) (0.4) match the associated LEC revenues. In any period, the actual Other (0.3} (0.3} (0.3) 2.2 (2.4) amount of LEC revenue recovered from customers will be Total (3.5) (4.5} 1.0 2.3 1.4 0.9 greater or less than the actual amount of energy cost incurred in that period. Such respective overrecovery or underrecovery In 1992, total kilowatt-hour sales declined 3.5% primarily of energy costs is recorded on the Consolidated Balance due to lower sales to Industrial customers. In the last 15 Sheet as a liability or an asset as appropriate. Amounts in the months, two industrial customers that had received primary balance sheet are recognized in the Consolidated Statement service from ACE now have their energy supplied by nonu- oflncome within Energy expense during the period in which tility sources. Energy sales in 1992 were also affected by they are subsequently recovered through the LECs. ACE milder weather in both the heating and cooling seasons. was overrecovered by $8.l million and $24.6 million at Total energy consumption was affected by a significant December 31, 1992 and 1991, respectively. The 1991 over-decline in sales to Residential and Commercial customers in recovery balance excludes $10.4 million in replacement ene -

July and August of 1992 compared to the same months in gy costs relating to a 1984 outage at the Salem Nu 1991 when extraordinarily hot weather was experienced. In Generating Station. During 1992, the BRC authorized Pl 1991, the increase in total kilowatt-hour sales resulted from to recognize the recovery of these costs through the LECs.

greater average use by Residential and Commercial customers Energy expense consists of the following:

primarily as a result of the unusually hot summer weather. (000) 1992 1991 1990 ACE is experiencing the effects of legislated competition Owned Fuel $ 77,337 $ 93,081 $ 90,305 and structural changes in the electric utility industry. In Purchased Fuel 80,960 64,023 44,535 October 1991, ACE's then largest industrial customer began Interchanged 10,776 12,688 30,567 self-generating its principal electric needs. In March 1992, Deferred Energy (7,939} 13,180 20,136 another large industrial customer of ACE began receiving Energy Expense $161,134 $182,972 $185,543 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 In 1992, Energy expense decreased 11. 9% because energy customers accounted for approximately 12% of Industrial revenues collected from customers during the period were kilowatt-hour sales. less than energy costs incurred by ACE resulting in a reduc-tion of previously deferred energy costs. Production-related CO STS AND EXPENSES energy costs (owned and purchased fuel and interchanged)

Total Operating Expenses increased 2.4% and 7.7% in 1992 for 1992 were slightly less than those in 1991 due to a and 1991, respectively. Included in these expenses are the decrease in net generation. Average unit cost for energy in costs of energy, purchased capacity, operations, maintenance, 1992 increased to 1.80 cents per kilowatt-hour compared to depreciation and taxes. Energy and Purch ased Capacity 1.78 cents per kilowatt-hotir in 1991. The increase in the per expenses in all periods presented have been impacted by the unit cost is a result of increased amounts of higher cost ener-Federal regulatory requirement effective January 1, 1992 to gy from nonutility sources and decreased supply of lower cost classify amounts associated with sales of energy and capacity nuclear energy. Energy expense for 1991decreased1.4% pri-to other utilities (sales for resale) as revenues. This is a change marily due to a reduced level of energy costs deferred d-

• from the prior practice of netting these amounts against the year. The decrease was partially offset by increased expenses. Net income was not affected by this change. duction-related energy costs associated with a 3.4% inc A I I a n I i c < >E n e r g y

.LL'AGEJE.' T'§ DJ§C'G§§JO: . *'Di .'ALY§J§ OF F l ~A.~CIA L co:D i TIO.' i' D RESUL T§ 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 OUTLOOK effects of certain regulatory matters, due to nuclear decom- The nature of the electric utility business is capital intensive.

missioning charges, increased expenses associated with ACE's ability to generate cash flows from operating activities ACE's marketing efforts and expenses incurred for regulatory and its continued access to the capital markets is affected by proceedings during the year. Maintenance expense decreased the timing and adequacy of rate relief, competition and the 4.1% and 0.7% in 1992 and 1991, respectively, due to the economic vitality of its service territory.

scheduling of maintenance projects. Various cost contain- Net Income of ACE can be affected by the operational ment programs have been successful in controlling the performance of nuclear generating facilities. ACE is subject wth of ACE's operation and maintenance costs. to a BRC-mandated nuclear unit performance standard.

epreciation and Amortization expense increased 5 .1 % Under the standard, penalties or rewards are based on the and 6.2% in 1992 and 1991, respectively, due to net increases aggregate capacity factor of ACE's five jointly-owned nuclear in ACE's depreciable plant in service in each of these years. units. Any penalties incurred would not be permitted to be The method of computing Gross Receipts & Franchi~e recovered from customers and would be charged against Taxes (GR&FT) was changed by legislation in 1992 to a unit mcome.

tax that is based on kilowatt-hours sold during the year. In Certain accounting standards applicable to the Company prior years, GR&FT was based on revenues collected from have been issued by the Financial Accounting Standards customers. GR&FT increased in 1992 and 1991 by 10.2% Board but not yet adopted by the Company. One standard, and 1. 9%, respectively. The increase in 1992 reflects the effective in 1993, relates to the accounting for income taxes accrual of additional GR&FT liabilities, incurred as a result and is not expected to have a material effect on the results of of changes in GR&FT legislation, that are currently being operations or financial position. Another standard, also effec-recovered from customers. tive in 1993, relates to the accounting for postretirement ben-Federal Income Taxes increased 2.5% and 34.7% in 1992 efits other than pensions and will significantly increase the and 1991, respectively, due to an increased level of taxable annual costs of benefits recognized in future years over the income. Changes in Federal Income Taxes are detailed in amount now recognized. ACE currently estimates that the Note 2 of the Notes to Consolidated Financial Statements. annual cost for such benefits could increase approximately $6 Interest on Long Term Debt increased 3.3% in 1992 million to $9 million and result in an unfunded accumulated reflecting the net effects of the issuance of $60 million of other postretirement benefit obligation of approximately $60 MTNs in May 1992, with a weighted average interest rate of million to $70 million at December 31, 1992. ACE expects this impact to be lessened by rate regulation; however, it can-7.75%, and the maturity of $10.35 million principal amount not predict the ultimate regulatory treatment that will be of First Mortgage Bonds, 4'h% Series due 1992 in July 1992.

afforded these costs. A standard effective in 1994 that Interest on Long Term Debt decreased 5.8% in 1991 as a addresses postemployment benefits is not expected to have a result of various redemptions and maturities of certain series significant impact.

irst Mortgage Bonds having higher average rates than fl long term debt issued in 1991. In March 1991, ACE ed $38.865 million principal amount of its First A t I a n t i c < >E n t r g y

D RESULT§ OF OPERATIO 1 § The financial performance of ACE will be affected in the shutdown of both Salem units, the construction of cooling future by the level of sales of energy and the impacts of regu- towers at costs which are estimated to be substantial, and lation. The amount earned on capital investments by the util- extended outages for the design, licensing and construction of ity is subject to general business conditions and regulations. such towers. In addition to the cost of construction, ACE Other issues which may impact the electric utility business would be required to purchase replacement energy, the cost of include public health, safety, environmental legislation and which could also be substantial. The retrofitting of cooling competition. towers at Salem would also result in a permanent capacity de-Recent Federal legislation has served to encourage the rating of up to 120 MWs, as well as increased operation and development of electric generating facilities by nonutilities. maintenance costs. PS, the operator, has filed written com-One such project, in which AGI is a partner, was placed in ments and demonstrations which establish its position that service in March 1992 and serves one of ACE's then largest cooling towers are not required. ACE has been advised that industrial customers. Two other projects, expected to serve PS is discussing a proposal with the DEPE that would permit other large industrial customers, are currently underway in Salem to continue to operate witho~t cooling towers and ACE's service territory and are expected to be in service by would require PS to make certain plant modifications and to 1995. It is estimated that these two projects, if completed take certain other actions to enhance the ecology of the affected when expected, could displace the equivalent of 2.0% and water body. Any such proposal would be required to be pub-1.2% of 1992 total kilowatt-hour sales and revenues, respec-lished for public comment before it could be implemented.

tively. These effects could be offset to some extent by natural Costs of the proposal would not be material. The outcome of growth in the service territory and additional efforts by ACE this matter cannot be predicted.

to reduce the impact of the potential loss of kilowatt-hour The National Energy Policy Act of 1992 was signed into sales and revenues. As a result of economic conditions in the law in October 1992. This legislation includes amendments service territory, ACE estimates that the rate of growth of to the Public Utility Holding Company Act of 1935 and overall sales of energy will be modest. The amount and tim-Public Utility Regulatory Policies Act of 1978. The le ing of ACE's projected construction program is premised on the availability of generating capacity from nonutility sources tion creates a new class of independent power produ described above. If for any reason these projects are delayed called exempt wholesale generators and provides for whole-or do not materialize, or if load growth is greater than esti- sale transmission access, and is expected to increase competi-mated, it may become necessary for ACE to increase its con- tion in the area of wholesale electric generation. As a result of struction expenditures. Such an increase would put additional Federal, state and other initiatives, competition in the energy burdens on ACE to generate cash from operations and on supply industry has increased significantly in recent years.

ACE's financing programs. ACE has been impacted by the loss of two large customers The Clean Air Act Amendments (CAAA) enacted in who now obtain their energy supply from nonutility sources.

1990 relating to acid rain and limitations on emissions at This trend is expected to continue. ACE's strategy is to keep electric generating plants will require modifications at certain its customers' rates at a competitive level in order to retain of ACE's facilities. Compliance with the CAAA will cause existing customers and to expand the customer base without ACE to incur additional operating and/or capital costs . compromising quality of service and reliability. ACE's spend-Presently, ACE's construction budget for 1993 through 1995 ing plans reflect this strategy. This strategy will also affect includes approximately $80 million related to the cost of how ACE evaluates issues concerning capacity needs, energy compliance. In addition, certain power purchase arrange- mix and compliance with legislative mandates, such as the ments will be affected by the CAAA, the effects of which are CAAA and the National Energy Policy Act of1992.

not presently determinable. INFLATION The New Jersey Department of Environmental Protection Inflation affects the level of operating expenses and also the and Energy (DEPE) has proposed modifications to certain cost of new utility plant placed in service. Traditionally, the environmental permits at Salem. The Salem owners have rate making practices that have applied to ACE have involved opposed these modifications that would require the immediate 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.

A t I a n t t < >E n e r g y

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

• 6* l.D I.I 10 .

1%

m 11%

S* 11%

8*

lfll 11%

ft 4* 4J 4J 4J m m in 6*

3*

54%

4*

2*

• NO UTILITY PURCHASES

• PURCHASED POWER

&INTERCHANGED 2*

l*

• OIL&

ATURALGAS

• NUCLEAR 0 O*

88 89 90 91 92

• COAL 88 89 90 91 92 (in billions of kilowatt-hours)

IANTIC ENERGY ATLANTIC ELECTRIC lowance for Funds Used Total Sources and Costs of Energy*

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

(AFDC) as a Percent of Net Income 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 Atlantic Energy's net income and a cogeneration facility.

includes an accounting allow-ance for the utility's cost of Cost of Energy borrowed and equity funds used (in cents per kilowatt-hour) 88 89 90 91 92 for some construction projects.

It is calculated by dividing total COAL 2.09 2.20 2.20 1.99 1.76 AFDC (borrowed +equity) by NUCLEAR 0.89 0.87 0.83 0.78 0.73 net income. Because AFDC OIL & NATURAL GAS 3.53 3.45 4.17 3.97 3.92 represents a noncash addition PURCHASED POWER to net income, it is preferable to &INTERCHANGED 3.32 3.29 2.45 1.95 1.75 maintain a low ratio. NONUTILITY PURCHASES 3.95 3.62 YEARLY AVERAGE 2.06 2.08 1.85 1.78 1.80 A t I a n t i r < >E r g y

s[ J R y F c AL A D 1992 1991 1990 1989 Atlantic Energy, Inc.

Investor Information Operating Revenues (000} (a) $ 816,825 $ 808,374 $ 740,894 $ 723,216 Net Income (000} $ 86,210 $ 85,635 $ 68,879 $ 80,964 Average Number of Common Shares Outstanding (000} (b) 51,592 49,008 45,590 43,268 Earnils per Average Common Share (b) $ 1.67 $ 1.75 $ 1.51 $ 1.87 Total ssets (Year-end) (000} $2,220,151 $2,151,416 $2,006,010 $1,864,461 Long Term Debt and Cumulative Preferred Stock Sub~ect to Mandatory Redemption (Year-end (000} $ 842,236 $ 807,347 $ 747,877 $ 725,329 Capital Lease Obli8ations (Year-end) (000} $ 49,303 $ 53,093 $ 57,971 $ 33,146 Dividends Declare on Common Stock (b) $ 1.515 $ 1.495 $ 1.47 $ 1.425 Dividend Payout Ratio (b) 90% 85% 97% 75%

Book Value per Share (Year-end) (b) $ 15.17 $ 14.84 $ 14.36 $ 14.27 Price/Earnings Ratio (Year-end) (b) 14 12 11 10 Times Fixed Charges Earned (pre-tax, Atlantic Electric) 3.76 3.68 2.94 3.19 Common Shareholders (Year-end) 46,524 43,802 42,295 43,383 Employees (Atlantic Electric) (Year-end) 2,023 2,032 2055 2,021 Atlantic City Electric Company (Principal Subsidiary)

Facilitiesfor Service Total Utility Plant (000} $2,281,045 $2,175,601 $2,027,138 $1,846,122 Additions to Utility Plant (000} $ 134,326 $ 177,298 $ 170,772 $ 147,886 Generating Capacity (Kilowatts) (Year-end) (c) (d) 2,160,700 2,090,700 1,959,700 1,879,700 Maximum Utility System Demand (Kilowatts) 1,796,000 1,911,000 1,741,000 1,700,000 Ca{gaci{i Reserve at Time of Peak

% o Installed Generation) 16.9% 52% 10.9% 9.6%

Energy Supply (mwh):

Net Generation 5,775,098 6,300,891 6,267,559 Purchased and Interchanged 3,553,247 3,124,024 2,606,067 Total System Load 9,328,345 9,424,915 8,873,626 Electric Sales to Ultimate Customers (mwh):

Residential 3,276,330 3,370,327 3,267,606 3,265,918 Commercial 3,100,132 3,147,318 3,063,069 2,917,162 Industrial 1,229,211 1,368,329 1,376,423 1,380,832 All Others 49,464 49,626 49,769 53,872 Total (c) 7,655,137 7,935,600 7,756,867 7,617,784 Residential Electric Service (Average per Customer)

Amount of Electricity Used During the Year (kwh) 8,131 8,440 8,251 8,382 Revenue for a Year's Service $ 903.91 $ 906.66 $ 844.37 $ 840.34 Revenue per Kilowatt-hour lJ.12¢ 10.74¢ 1023¢ 10.03¢ Ultimate Customer Data (Average)

Residential With Electric Heating 82,206 81,838 81,479 80,409 Residential Without Electric Heating 320,744 317,486 314,529 309,245 Total Residential 402,950 399,324 396,008 389,654 Commercial 51,996 51,077 50,274 49,509 Industrial 990 998 1,002 1,008 All Others 524 524 537 549 Total Ultimate Customers (e) 456,460 451,923 447,821 440,720 oreeratiI Revenues (000}

E ectnc ervJCe:

Residential $ 364,232 $ 362,050 $ 334,375 $ 327,443 Commercial 299,866 292,349 271,688 256,199 Industrial 97,475 102,202 96,766 94,634 All Others 10,548 10,136 9,668 9,901 Total from Electric Service 772,121 766,737 712,497 688,177 Unbilled Revenues-Net 1,203 3,229 (4,055) 7,2.

Sales for Resale 35,884 30,404 24,115 18, Other Electric Revenues 7,723 8,112 8,448 9, Total Operating Revenues (a)(e) $ 816,931 $ 808,482 $ 741,005 $ 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) l ncludes 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 < >E n e r g y

§ T A T § T c L RE 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 < > Ent r g y

E § T 0 R F 0 R M T 1 0 as of D ecem b t r 3 1 , 1 99 2 Dividend and share price information have been adjusted to Whom can I contad regarding the Preferred Stock ofAtl.

reflect a two-for-one Common Stock split that was autho- Electric?

rized in March 1992 and effective May 1992. Atlantic Electric serves as recordkeeping agent, dividend dis-bursing agent and Transfer Agent for its Preferred Stock.

Where should I send inquiries concerning my investment in Inquiries regarding such matters can be directed to Investor Atlantic Energy, Inc.?

Records at the address listed.

The Company serves as recordkeeping agent, dividend dis-bursing agent and also as Transfer Agent for Common Stock. Does the Company have a Dividend Reinvestment and Stock Correspondence concerning such matters as the replacement Purchase Plan?

of dividend checks or stock certificates, address changes, Yes. The Plan allows shareholders of record and interested transfer of Common Stock certificates, Dividend Reinvest- investors to automatically invest their cash dividends and/or ment and Stock Purchase Plan inquiries or any general infor- optional cash payments in shares of the Company's Common mation about the Company should be addressed to: Stock. Holders of record of Common Stock or interested Atlantic Energy, Inc. investors desiring to enroll in the Plan should contact Investor Records Investor Records at the address listed. In addition, sharehold-6801 Black Horse Pike ers whose stock is held in a brokerage account may be able to P.O. Box 1334 participate in the Plan. These shareholders should contact Pleasantville, New Jersey 08232 their broker or Investor Records for more information.

Telephone (609) 645-4506 or (609) 645-4507 Ms. S. D. McMillian, Secretary, is the corporate officer Where is the Company's stock listed?

responsible for all investor services. Common Stock is listed on the New York, Pacific and Philadelphia Stock Exchanges. The trading symbol of the When are dividends paid?

Company's Common Stock is ATE; however, newspaper list-The proposed record dates and payable dates for dividends on ings generally use AtlEnrg or AtlanEngy.

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

March 22, 1993 April 15, 1993 1992 1991 June 21, 1993 July 15, 1993 High Low High Low September 20, 1993 October 15, 1993 December 20, 1993 January 17, 1994 First Qyarter $21.000 $18.000 $18.063 $16.063 Second Qyarter 23.500 20.813 18.563 17.063 Third Qyarter 24.625 22.500 19.313 17.250 The following table indicates dividends paid per share in Fourth Qyarter 23.500 21. 750 20.875 19.000 1992 and 1991 on Common Stock:

1992 1991 Who are the independent auditorsfor Atlantic Energy, Inc.?

First Qyarter $ .375 $ .37 Deloitte & Touche Second Qyarter .375 .37 Certified Public Accountants Third Qyarter .38 .375 Two Hilton Court, P.O. Box 319 Fourth Qyarter .38 .375 Parsippany, New Jersey 07054-0319 Annual Total $1.51 $1.49 Is additional information about the Company available?

Dividends paid on Common Stock in 1992 and 1991 were The annual report to the Securities and Exchange Com-fully taxable. Some state and local governments may impose mission on Form 10-K and other reports containing financial personal property taxes on shares held in certain corporations. data are available to shareholders. Specific requests should be Shareholders residing in those states should consult their tax addressed to:

advisors with regard to personal property tax liability.

Atlantic Electric Who is the trustee and interest paying agent for Atlantic Financial Services Department Electrid bonds and debentures?

6801 Black Horse Pike First Mortgage Bond recordkeeping and interest disbursing Pleasantville, New Jersey 08232 are performed by The Bank of New York, 101 Barclay Street, Telephone (609) 645-4655 or (609) 645-4888 New York, New York 10286. Debenture recordkeeping and FA:x(609)645-4132 interest disbursing are performed by First Fidelity Bank, N.A., 765 Broad Street, Newark, New Jersey 07102.

A t I a n t t c < > Entrgy

OFF I CE R§ OF AT LA1'T l C E.'ERGY, L'C A.'D §UB§ID[A RIE§ ars ofservice} a s o f D e c e m b e r 3 1 1 9 9 2 UGIAS HUGGARD (59/37) SABRINAD. McMILLIAN (3717) airman and Chief Executive Officer of Atlantic Energy Secretary of Atlantic Energy D irector of Atlantic Energy and all subsidiaries Secretary of Atlantic Electric Chairman and Chief Executive Officer of Atlantic Electric Ms. McMillian was elected Secretary in 1986. She joined Atlantic Mr. Huggard has served as Chairman and Chief Executive Officer Electric in 1985 as Assistant to the Corpo rat e Secretary. .

since 1990. He was President and Chief Executive Officer from 1985 Ms. McMillian is an attorney.

to 1989. He joined Atlantic Electric in 1955 as an engineer.

JOHN M. CARDEN (54/25)

JERROLD L.JACOBS (53/31) Vice President-Customer Service of Atlantic Electric President of Atlantic Energy Mr. Carden has served as Vice President-Customer Service of Atlantic Director of Atlantic Energy and all subsidiaries Electric since 1988. Prior to that, he was Atlantic Electric's Vice President and Chief Operating Officer of Atlantic Electric President-Administrative Services. He joined Atlantic Electric in 1967 as an engineer.

Mr. Jacobs has served as President of Atlantic Energy and President and Chief Operating Officer of Atlantic Electric since 1990. He was THOMAS E. FREEMAN (62/12)

Executive Vice President of Atlantic Electric from 1988 to 1990. He Vice President-Human Resources of Atlantic Electric joined Atlantic Electric in 1961 as an engineer.

Mr. Freeman has served as Vice President-Human Resources of MEREDITH I. HARIACHER,JR. (50/27) Atlantic Electric since 1981. He joined Atlantic Electric in 1980 as Vice President of Atlantic Energy Manager of Administration. (Retired effective 1/1/92)

Director of Atlantic Energy Technology, Atlantic Southern JAMES J. LEES (48/22)

Properties and ATE Investment Vice President-Marketing and Rates of Atlantic Electric Senior Vice President-Utility Operations of Atlantic Electric Mr. Lees has served as Vice President-Marketing and Rates of Mr. Harlacher has served as Vice President of Atlantic Energy since Atlantic Electric since 1989. He was Vice President-Rates of 1987 and was named Senior Vice President-Utility Operations of Atlantic Electric from 1987 to 1989. He joined Atlantic Electric in Atlantic Electric in 1991. Prior to that he was Senior Vice President-- 1970 as an engineer.

orate Planning and Services of Atlantic Electric. He joined tic Electric in 1965 as an engineer. J. DAVID McCANN (41/20)

Vice President-Power Delivery of Atlantic Electric YK. LEVARl,JR. (44121)

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

of Atlantic Electric HENRYC. SCHWEMM,JR. (51/23)

Mr. Levari was named Vice President of Atlantic Energy and Senior Vice President-Production of Atlantic Electric Vice President-Corporate Planning and Services of Atlantic Electric in 1991. Prior to that, he served as Atlantic Electric's Vice President-- Mr. Schwemm has served as Vice President-Production of Atlantic Power Delivery. He joined Atlantic Electric in 1971 as an engineer. Electric since 1980. He joined Atlantic Electric in 1969 as an engineer.

JOHN R. LILLY(64/4) JOHN P. SMALLING (32/2)

Vice President of Atlantic Energy Vice President and Secretary of Atlantic Southern Properties and President and Director of Atlantic Southern Properties, Atlantic Atlantic Energy Technology Generation, Atlantic Energy Technology and ATE Investment Secretary of Atlantic Generation and ATE Inve~tment Mr. Lilly joined Atlantic Energy in 1988 as Vice President. He was Mr. Smalling was elected to the above positions and has served as previously self-employed as a financial management consultant. Mr. Manager of Diversified Activities since joining Atlantic Energy in Lilly is an attorney. 1991. He has previously held positions in corporate finance and banking with other corporations.

J.G. SALOMONE (52116)

Vice President and Treasurer of Atlantic Energy LOUISM. WALTERS (40/14)

Director of all subsidiaries Treasurer of ATE Investment, Atlantic Southern Properties and Senior Vice President-Finance & Accounting and Treasurer of Atlantic Energy Technology Atlantic Electric Certified Public Accountant Certified Public Accountant Mr. Walters was elected to the above positions and was named Salomone has served as Vice President and Treasurer of Atlantic General Manager-Treasury and Finance of Atlantic Electric in 1991.

since 1987. He has served as Chief Financial and Accounting Prior to that, he held managerial positions in treasury, taxes and r of Atlantic Electric since 1984. He joined Atlantic Electric as accounting. He joined Atlantic Electric in 1978 as an accountant.

ssistant Controller in 1976.

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.

Atlantic < > Energy

BOARD OF D JRECTOR§ OF TLA T J C E rERGY, J NC.

a s o f D ecem b er 3 1 , 1992 JOS. MICHAEL GALVIN,jR. JERROLD L.JACOBS

• Mr. Galvin, a Director since 1978, is president and chief executive Mr. Jacobs was elected President and a Director of the Company officer of the South Jersey Health Corporation-The Memorial 1990 and serves as President and Chief Operating Officer of Atlantic Hospital of Salem County. He is a graduate of the University of Electric. He is a Director of all of the Company's subsidiaries and has Scranton and holds a Master of Business Administration from Xavier been with the Company for 31 years. He is a graduate of the Newark University. Age: 47. Professional Experience: personnel, health care College of Engineering (New Jersey Institute of Technology). Age:

management. 53. Professional Experience: utility operations.

Committee Chairman: Personnel. Committee Membership: Audit; Committee Membership: Ex-officio member of all committees except Energy, Operations & Research; Pension & Insurance. Audit and Personnel.

GERALD A. HALE RICHARD B. McGLYNN Mr. Hale, a Director since 1.983, is president of Hale Resources, Inc., Mr. McGlynn, Attorney at Law and partner in the law firm of an investment and management company. He is chairman of Evans LeBoeuf, Lamb, Leiby & MacRae, has been a Director since 1986.

Clay Company and a director of ew Jersey Manufacturers He is a member of the American and ew Jersey State Bar Insurance Company, New Jersey Business and Industry Association Associations, as well as the American Bar Foundation and the and Strong Systems, Inc. He is a graduate of Western University. American Law Institute. He is a former commissioner of the New Age: 65. Professional Experience: industrial minerals, chemicals and Jersey Board of Public Utilities and a former judge in Essex County, fabricated O .E.M. products. New Jersey. He is a graduate of Rutgers Law School and Princeton Committee Chairman: Energy, Operations & Research. Committee University. Age: 54. Professional Experience: law, utility regulation.

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

MATTHEW HOLDEN, JR. Research; Finance & Investor Relations.

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

Doherty Professor of Government and Foreign Affairs at the MADELINE H. McWHINNEY University of Virginia. He is a former commissioner of the Federal Ms. McWhinney, a Director since 1983, is president of Dale, Elliott Energy Regulatory Commission and the Wisconsin Public Service & Company, management consultants. She is a trustee of Commission. He holds a Doctorate of Political Science from Charles F. Kettering Foundation, the Institute of Internat' Northwestern University. Age: 61. Professional Experience: regula- Education and the Managers Mutual Funds. She holds a Mas tory affairs, energy consultation, arbitration. Business Administration from New York University. Age: 7 Committee Chairman: Audit. Committee Membership: Corporate Professional Experience: finance, management.

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

CYRUS H. HOLLEY Insurance.

Mr. Holley, a Director since 1990, is president of Management Consulting Services. He was formerly chief operating officer, execu- BERNARD J. MORGAN tive vice president and director of Engelhard Corporation. He is a Mr. Morgan, banking industry executive, was elected as a Director in graduate of Texas A & M University. Age: 56. Professional 1988. He is a director of St. Joseph's University. He is also chairman Experience: industrial minerals, chemicals and precious metals. of the Business Advisory Group of the Greater Philadelphia Girl Committee Membership: Corporate Development; Energy, Scouts. He holds a Master of Business Administration from the Operations & Research; Finance & Investor Relations; Personnel. Wharton School of the University of Pennsylvania. Age: 56.

Professional Experience: banking, finance.

E. DOUGlAS HUGGARD Committee Chairman: Corporate Development. Committee Mr. Huggard, a Director since 1984, was elected Chairman and Membership: Finance & Investor Relations; Pension & Insurance; Chief Executive Officer in 1990, and has been Chief Executive Personnel.

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- HAROLD J. RAVECHE rently a director of the New Jersey State Chamber of Commerce and Dr. Raveche, who became a Director in 1990, is president of the the Edison Electric Institute. He is a former Navy engineering officer Stevens Institute of Technology. He was formerly the Dean of and holds a Master of Mechanical Engineering from the University Science of the Rensselaer Polytechnic Institute. He is a director of of Delaware. Age: 59. Professional Experience: utility operations. National Westminster Bank, both Bancorp and ew Jersey; a com-Committee Membership: Ex-officio member of all committees except missioner of the New Jersey Commission on Science and Technology Audit and Personnel. 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.

A t I a n t c< >E n e r g

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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