ML19031A133

Submit 1977 Annual Report by Philadelphia Electric Company

ML19031A133
Person / Time
Site:	Salem
Issue date:	03/13/1978
From:	Philadelphia Electric Co
To:	Office of Nuclear Reactor Regulation
References
Download: ML19031A133 (40)

Text

~Philadelohia Electric Company

- NOTICE -

THE ATTACHED FILES ARE OFF ICIAL RECORDS OF THE DIVISION OF DOCUMENT CONTROL. THEY HAVE BEEN CHARGED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETURNED TO THE RECORDS FACILITY BRANCH 016. PLEASE DO NOT SEND DOCUMENTS CHA RGED OUT THROUGH THE MAIL. REMOVAL OF ANY PAGE(S ) FROM DOCUMENT FOR REPRODUCTION MUST BE RE FERRE D TO FIL E PERSONNEL.

• t DEADLINE RETURN DATE

~nual Report RECORDS FACILITY BRANCH 1977

DIRECTORS

• Gustave G. Amsterdam *William W. Hagerty Chairman of the Board and President, Drexel University Chief Executive Officer Bankers Securities Corporation Robert D . Harrison (Merchandising and Real Estate) President and Chief Operating Officer, John Wanamaker, Philadelphia William T. Coleman, Jr. (Merchandising)

Senior Partner of the law firm of O 'Melveny & Myers Paul R. Kaiser Chairman of the Board and

• James L. Everett Chief Executive Officer President of the Company Tasty Baking Company (Diversified Manufacturing)

William S. Fishman Chairman and Chief Executive Joseph C. Ladd Officer of ARA Services, Inc. President, Fidelity Mutual (Service Management) Life Insurance Company

• Robert F. Gilkeson *Joseph]. Mclaughlin Chairman of the Board and President, Beneficial Mutual Chief Executive Officer of Savings Bank the Company

• Member of Executive Committee OFFICERS Robert F. Gilkeson William L. Maruchi Chairman of the Board Vice President Electric Transmission and Distribution James L. Everett President William B. Morlok Vice President Wayne C. Astley Commercial Operations Vice President G eneral Administration Clair V. M yers Vice President John H. Austin, Jr. Purchasing and G eneral Services Vice President Finance and Accounting Theodore S. Fetter Secretary Edward G. Bauer, Jr.

Vice President and General Counsel Morton W. Rimerman Treasurer Vincent S. Boyer Vice President Lucy S. Binder Engineering and *Research Assistant Secretary Clifford Brenner James D . Lynch Vice President Assistant Secretary Corporate Communications George G . Eppright Charles L. Fritz Assistant Treasurer Vice President Personnel and Industrial Relations Alfred M . N ewill Assistant Treasurer Martin F. Gaver Vice President Joseph W. Ruff Gas Operations Assistant Treasurer John L. Hankins Donald P. Scott Vice President Assistant Treasurer Electric Production

CONTENTS ANNUAL MEETING 2 Financial Highlights The annual meeting of the shareholders of the Company will be held on April 5, 3 Letter to Shareholders 1978, at eleven a.m., in the Crystal Ball 5 1977 Tax Story Room, Benjamin Franklin Hotel, Ninth 6 Pictures Tell the Story and Chestnut Streets, Philadelphia, Pennsylvania.

19 Financial Statements Shareholders of record at the close of 24 N otes to Financial Statements business March 1 are entitled to vote at 29 Report of Auditors this meeting.

Notice of the meeting, proxy statement, 29 Financial Statistics and proxy will be mailed under separate 31 Operating Statistics cover. Prompt return of the proxies will Fiscal Agents be appreciated.

32 Inside back cover:

PE Promotes MANAGEMENT CHANGES Southeastern Pennsylvania G eorge G . Eppright was elected assistant treasurer on March 28.

William T. Coleman, Jr. was re-elected to the Board of D irectors on May 23.

On September 26, Charles L. Fritz was elected vice president of Personnel and Industrial Relations, succeeding Henry T. Bryans who retired October 1.

Lucy S. Binder was elected assistant secretary on September 26.

GENERAL OFFICE 2301 Market Street, P.O. Box 8699 Philadelphia, Pennsylvania 19101

FINANCIAL HIGHLIGHTS Percent Increase 1977 1976 (Decrease)

Operating Revenue $1,394,762,229 $1,224,141,382 13.9%

Operating Expenses, including Fuel, Maintenance, Depreciation, and Taxes 1,172,599,293 1,012,716,075 15.8 %

Operating Income 222,162,936 211,425,307 5.1%

Other Income, primarily Allowance for Other Funds Used during Construction 65,055,932 56,842,363 14.4 %

Income before Interest Charges 287,218,868 268,267,670 7.1 %

Interest Charged to Operations (Net ) 113,779,779 103,648,960 9.8%

Net Income 173,439,089 164,618,710 5.4%

Preferred Stock Dividends 40,705,097 39,021,780 4.3 %

Earnings Applicable to Common Stock 132,733,992 125,596,930 5.7%

Dividends on Common Stock 124,893,048 107,682,682 16.0 %

Balance to Retained Earnings $ 7,840,944 $ 17,914,248 (56.2 % )

Shares of Common Stock-Average 70,843,634 65,605,660 8.0%

Earnings Per Average Share $1.87 $1.91 (2.1 % )

Dividends Paid Per Share 1.76 $1.64 7.3 %

Common stock earnings improved from Operating revenue rose to a new high of Financing requirements were met by

$125 .6 million in 1976 to $132 .7 million $1.4 billion, an increase of 13.9 percent the sale of the following securities :

in 1977, an increase of 5.7 percent. over 1976, as sales to electric customers Mortgage Bonds ( Millions )

increased 3.5 percent over 1976 and set a 8 Ys % Series (March) ....... $ 75.0 Earnings per average share decreased new record. 8Ys % Series (July) . . . . . . . . . 75 .0 moderately from $1.91 to $1.87 as the average number of shares outstanding in- Operating expenses were up 15.8 per- Pollution Control Bonds creased 8.0 percent. cent reflecting continued inflation in all 6% Series (February) 23.5 Dividends paid on the common stock areas of doing business. Common Stock were $1.76 a share, of which 27 percent is - public offering Construction expenditures amounted to not taxable in 1977 as ordinary dividend ( 4,000,000 shares ) .. . ..... . 78.3

$393 million, increasing total investment incom e for Federal income tax purposes. - Dividend Reinvestment in plant to $4.2 billion.

The quarterly rate was increased from 41 ¢ and Employee Plans to 45 ¢ effective with the June, 1977 pay- (1,317,952 shares) . . ..... . 25.6 ment. $277.4 WHERE THE DOLLAR WHERE IT WENT.

CAME FROM ...

FUEL 39¢ WAGES & BENEFITS 12¢ O PERATING REVE NU E 96¢ MATERIAL , ETC. 8¢ DEPRECIATION 7¢ TAXES 13¢ INTEREST AND PREFERRED STOCK DIVIDENDS 11 ¢ COMMON STOCK DIVIDENDS 9¢ OTHER INCOME 4¢ RETAINED EARNINGS I¢ 2

TO OUR SHAREHOLDERS:

R. F. Gilkeson, Chairman of the Board 1977 was a year of continued progress for NUCLEAR POWER Philadelphia Electric Company. Electric kilowatt-hour sales set new records; the first of two units at the Salem The first Salem nuclear unit, constructed and Nuclear Power station began commercial operation; operated by Public Service Electric and G as Company, our gas supply improved substantially; and we success- of New Jersey, was placed in commercial operation fully completed a major step forward in customer on June 30, 1977. The Company owns a 42 percent service. Reflecting this progress and our confidence in share in this 1079 megawatt unit and will own a like the future, the quarterly dividend was increased from share of the second unit scheduled for completion in 4 1 ~~ per share to 45 ¢ per share beginning in June. 1979. This addition brings our system nuclear However, 1977 was not without problems. The generating capacity to 1346 megawatts, or about economy of our service territory continued to be 16 % of our total capacity. Nuclear energy is expected sluggish and our sales growth for the year was disap- to account for over 25 % of our annual output in 1978.

pointing. Inflation continued to significantly impact our Our Peach Bottom nuclear units continue to perform expenses. Regulatory delay in approving needed rate well although we were disappointed by the length of increases for incurred costs continued to penalize outages due to some "shakedown" problems. The earnmgs. nuclear units presently in service reduce our system For the year, common stock earnings were $133 fuel costs by about $1 50 million annually.

million, an increase of 6 percent over last year. Earnings Construction continues at the Limerick nuclear per share were $1.87, on 8 percent more average plant. The two 105 5 megawatt units are scheduled for shares outstanding, compared to $1.91 in 1976. Our service in 1983 and 1985. When Limerick is com-1977 earnings benefited by 11 ¢ per share as a result of pleted, nuclear generation should account for more a non-recurring revenue increase due to the conversion than half of our total output.

of residential and small commercial customers from We carried a new record electric peak load last bi-monthly to monthly meter reading and billing, summer of nearly 5900 megawatts without difficulty.

but were penalized by approximately 20 ¢ per share as We have a reserve capacity of about 40 % and our a result of the Salem unit being in service, but not ability to serve our loads is comfortable after a decade in the rate base. of "blackout" worries.

Electric revenue increased $15 3 million, or l 5 percent above last year. The increase was due to the recovery CUSTOMER SERVICE of higher fuel costs, rate increases, and a 3.5 percent increase in electric sales. Recovery of higher fuel costs Efficient, reliable, reasonably priced service is our resulted in an increase in gas revenue of $16 million public responsibility and an essential ingredient to or 10 percent above last year. Steam revenue insuring the present and future profitability of our increased almost $2 million or 4 percent. shareholders' investment. In 1977, we took another 3

major step forward in fulfilling this responsibility. FINANCING/RATE INCREASES Recognizing that energy costs are now a larger part of the family budget, we converted our residential and During 1977, we sold $173.5 million of mortgage small commercial customers from bi-monthly to monthly bonds and over 5 million shares of common stock.

meter reading and billing. Now our customers receive The sale of these securities provided a financing a bill each month for their actual use based on meter mix which preserved our strong equity capital position.

readings, enabling them to pay their actual bills Construction expenditures totaled $393 million, of monthly just as they do most other household bills. which 45 percent was financed by internally generated Our enviable record of reliability for electric service funds. Conservative financing and good cash flow continued through 1977. For the past four years we continue to be fundamental strengths of the Company.

did not quite achieve 100% reliability, but we did In August 1977, we filed with the Pennsylvania achieve over 99.99 % . Public Utility Commission for a two-step change in After years of unheeded warnings, severe shortages of electric rates in order to recover the higher costs of new natural gas finally occurred. The severe winter of 1977, plants now in service and inflation. The first step one of the coldest in the recorded history of eastern proposed to eliminate the fuel adjustment clause for our Pennsylvania, provided a major test of our Company's residential and small commercial customers in return ability to provide reliable service. The eastern half for an improved fuel clause for large commercial and of the United States suffered from shortfalls of gas and industrial customers which would not pass through the increased curtailments. The result was the closing fuel savings of a new nuclear plant until it is fully of schools and the curtailing of natural gas use by reflected in our base rates. The second step proposed to business and industry. increase electric revenue by $119 million.

Despite the severe winter, it was not necessary to The Commission has suspended both parts of the curtail our residential customers. On ] anuary 17, 197 7, request until April, 1978. Hearings on the full increase the Company set a new daily sendout record of 441 are underway and are expected to continue over the million cubic feet of natural gas. Our steam system next several months. Pending completion of the also set a peak load record in ] anuary 1977. hearings, we have asked for interim rate relief because Although we experienced a new all time winter peak our earnings have been decreasing as a result of the and there were heavy demands on our electric system, Salem unit being in service but not in rate base.

our Company, through the PJM Interconnection, was still able to assist in supplying electric energy to other utilities. IN CLOSING In anticipation of the recent coal miners strike, our 1977 was indeed a year of progress for our company-Company accumulated coal reserves which would progress which was the direct result of the combined permit operations through the 1977-78 winter. Nuclear efforts of a capable and dedicated employee team. This units, free from the limitations of conventional fuel progress was accomplished with about 1,000 fewer supply and delivery, perform well in the winter cold. employees than we had five years ago.

Our report this year includes some views of our GAS OPERATIONS PLANS AHEAD employees at work serving our customers, our com-We entered the winter of 1977-78 well prepared. munity and you, our shareholders. We are justifiably Supplies of natural gas from pipelines have been subject proud of these individuals and acknowledge their to less curtailments. In addition, we have taken some contributions to the progress which has been achieved other important steps to firm up our own supply. in the past year.

These steps are increased underground storage capacity, purchases of synthetic natural gas and local refinery gas, and participation in ventures for exploration. We established a wholly-owned subsidiary called Eastern March 1, 1978 Pennsylvania Exploration Company. The subsidiary is a partner in ventures for exploring and drilling for gas in the Gulf Coast area. Some of the ventures have already proven successful.

In the near future, gas supplies look more plentiful. Chairman of the Board Hopefully, regulatory restrictions concerning the addition of new customers could be lifted.

4

THE 1977 TAX STORY From time t o time, questions are raised by variotts groups and public officials about Federal tax payments by tttilities. T hese inquiries receive substantial publicity in the news media and fre quently restdt in the dissemination of erroneous and grossly misleading in formation.

For that reason, your Company, is continuing the practice begun last year of discussing, in some detail, the Company's tax obligations and paym ents.

The Company's total income tax Calculation of Federal Income benefit, because these interest-free obligation (Federal and state) for 1977 Tax Obligation funds which would otherwise be paid was $72 million. Of the total obligation, ( Millions ) to the government help us reduce our

$5 7 million represents Federal income Operating Revenue $ 1,395 external fi nancing requirements and taxes and the remainder represents Less : hold down the cost of supplying energy.

state income taxes. See Note 2 of Notes Operating Expenses $1,075 to Financial Statements on page 25 . Interest Expense 164 These funds are used to finance our The Company's Federal income tax Other Deductions 32 1,271 construction program, including our bill is calculated the same way as the Taxable Income 124 biggest project-the nuclear Limerick individual taxpayer calculates his own Income Taxes on above Generating Station which employs income tax return-the income tax rate at 48 % statutory rate 59 2,000 workers at the site. If the is applied to the Company's income Amortization of Invest- Company did not invest in new facilities after deducting certain allowable ment T ax Credit _ (_2) it would be required to pay the entire '

expenses. Federal Income Tax $ 57 amount of income taxes in cash To illustrate, the Company's revenue currently. By investing, the deferred from sales during 1977 was $ 1,395 taxes are put to work for both our million. From this, we are permitted to tax investment credit for certain new shareholders and our customers.

deduct the expenses of running the plant and equipment. For 1977 this In addition to income taxes, we also business such as fuel, labor, reduction amounted to $2 million and pay many millions of dollars of taxes depreciation, etc. We can consider this brought our total Federal income tax regardless of our income. For 1977 these our first allowable deduction, which obligation to $5 7 million. taxes amounted to $92 million and for 1977 amounted to $1,075 million. However, not all of our income tax included gross receipts taxes (which In addition, we are also permitted to obligations have to be paid currently. are only applicable to util ities), capital deduct interest expenses, that is the Tax laws permit a company to defer stock taxes, real estate taxes, and interest we pay on both long- and payment of its tax obligation to the social security taxes.

shore-term debt, which totaled $164 future if the company invests in new The Company's total tax expense million in 1977. Other allowable plant and equipment for expansion or for 1977 is indicated below :

deductions of $32 million reduced our modernization. In 1977, primarily because of tax depreciation and Total Taxes-1977 taxable income for 1977 to $ 124 ( Mill ions )

million. This is the income on which investment tax credits, we were able to Income $ 72 the tax rate is applied. Our calculated defer all but about $1 million of our tax Gross Receipts 60 tax at the Federal statutory rate ( 48 % ) obligation. This is not a tax "loophole." Capital Stock 13 amounted to $59 million in 1977. Deferral of taxes by industry was expressly Realty 9 In order to encourage companies to provided for by Congress to stimulate Social Security 6 maintain modern and efficient facilities the economy and increase employment. Other 4 and to expand these facilities as When these tax payments are deferred, Total $164 required, the tax laws grant an income both our customers and our shareholders 5

WINTER OF '77 FOUND PHILADELPHIA ELECTRIC COMPANY EQUAL TO THE CRISES The coldest January since 1790 2. nearly $230 million lost in tested the resources of the Company monthly wages; all over the system. All power 3. a reduction of some $3 .8 billion generation equipment was used to in the month for the various maximum capacity. Operating goods, products, and services personnel worked around the clock to that make up gross national keep equipment moving and ready. product.

Records were broken in all three In addition, ten million homes, Company services: a new all-time 1 million stores, office buildings, and electric winter peak of 4,510,000 schools, and 60,000 factories, kilowatts was established on January industries, and manufacturing plants 18; gas distribution reached that may have been served by this 441 ,000,000 cubic feet on January nuclear generation would have 17; steam output reached 2, 796,000 needed their energy requirements pounds per hour on January 18. met by other means.

The freeze caused a national gas Filling these demands for shortage which resulted in electricity by other sources would have Because of its foresight in constructing re-allocation of supplies by the required either 32 million barrels of 500,000-volt transmission Jines such as federal government. This oil, nearly 13 percent of current this in 1967, Philadelphia Electric was necessitated curtailment by monthly domestic production, or able to send large blocks of power to 182 billion cubic feet of natural gas, distressed utilities to the South and West Philadelphia Electric Company of during the big freeze .

supplies to large industrial and more than 10 percent of current commercial customers. The monthly production , or 9.6 million Company also rendered assistance to tons of coal, about 17 percent of others. ln response to an appeal current monthly production.

from the Philadelphia Gas Works, PE service crews and utilization personnel helped restore heat to homes and repair leaks on the PGW system.

Despite heavy electric demands on its system, the Company, through the P JM Interconnection, assisted in supplying electric energy to utilities to the South and West. Philadelphia Electric and its employees are proud that their record of safety and reliability was maintained during the big freeze.

Authoritative sources reported that had the approximately 28 billion kilowatt-hours of electricity estimated to have been produced by nuclear plants in January not been available to the nation, these consequences would have resulted :

l. more than 25 7,000 jobs lost in the month; Daniel Fetterman, Gas Operations, instructs Donna Ranzer, RN , Bryn Mawr Hospital, in proper setting of controls for space heaters lent by Philadelphia Electric when the hospital lost its oil-fired heating system .

I JPinLIAPiY I 6

As Gas Operations experienced a new John Hagner, Gas Operations, monitors sendout record of 441 million cubic gas supply and pressures during the cold feet of gas on January 17, one quarter of period. A number of major weather the supply came from the liquefied factors affect the amount of gas needed.

natural gas holder at West Conshohocken, As these factors change, new information which stores the equivalent of 1.2 billion is fed into a computerized data bank to cubic feet of natural gas. maintain close control over gas operations.

While Philadelphia Electric experienced a larger number of gas emergencies than usual during the cold weather. it was still able to help restore service to Philadelphia An air quality control system such as the "scrubbing" equipment shown here at Eddystone Gas Works customers. Gas Operations Station, as well as water pollution control facilities at Peach Bottom Atomic Power put in a total of 371 crew days during Station, were funded by $23.5 million of pollution control revenue bonds.

PGW's emergency.

I JPinLIPiAY I 7

2 "It is our fervent hope that the achievements recorded in the collection will , indeed, inspire the you ng, gratify the old, and encourage a ll who witness these accomplishments . . ."With these words, Robert F . Gilkeson, chairman of the board, formally presented a permanent collection on outstanding Black scie ntists and inventors to the Afro-American Historical and Cul tural Museum , in downtown Philadelphi a.

Electric T & D crew helped to save lives in apartment fire. When Clarence C.

Allen, Wilmer C. Kulp, Jr., and George T. Sivel , an Electric T & D crew, saw a need , they responded quickly. Employee Allen noticed a police car, then saw smoke while the crew was replacing wooden crossarms at a site in Willow Grove. The crew ran to an intersection where a fire was in progress in an apartment building. They used their bucket truck to assist fi remen in rescuing residents. One person died in the fire a nd four others were injured, but Willow Grove Fire Company officials said th at the p rompt action by the Philadelphi a Electric crew had helped to prevent further tragedy.

FEBAUAAY 8

The more you save ...

ENERGY the more y:ou save.

The display shown here was part of a kickoff campaign held at the Main Office Building to promote an energy conservation program directed to residential consumers. The program provided specific advice on how to put co nservation practices to work in their households. To offer reminders and tips, Joan Specter, Mary Walker, and John Facenda appeared as spokespeople for the campaign. Facenda appeared on all Perso nnel at the Lineman Training School local television stations to introduce completed five weeks of intensive training the campaign and provide viewers with where th ey learn ed basic fundamentals tips emphasizing energy conservation. of electricity, resuscitation practices, and He also deli vered similar messages on instructions in climbing and pole-line area radio stations, as did Ms. Walker, construction techniques.

a former WHAT rad io personality.

In addition, her messages appeared in area newspapers in an advertisement entitled "Conservation Corner." Ms. Specter, An important part of the campaign was Evening Bulletin food columnist PE's offer of free guidebooks for usi ng and a recognized cooking authority, energy wisely. These offers were made was also featured in "Conservation through coupons in the newspaper ads, Corne r" newspaper advertisements. and through special bill enclosures. The booklets were filled with practical, easy-to-follow hin ts on saving energy in the kitchen and throughout the house.

While conservation is a "holding action" in the energy crisis, PE believes its program played a vital role in educating the public to its importance.

The energy conservation program genera ted customer requests for more th an 300,000 pieces of literatu re during the year.

I mAACH I 9

Among the milestones reached at Limerick Generating Station during 1977 was the setting in April of the 83-ton spent fuel pool liner.

Dismantling of Tilghman Street Gas Plant got underway in April. The plant had been reactivated during the January cold spell on a temporary basis, following approvals from regulatory agencies concerned with the environment. It was capable of producing eight million cubic feet of oil-gas a day during the winter emergency.

When gas manufacturing ceased at the Tilghman Street Plant, the gas holder was no longer needed, and it was dismantled in 1977. However, any vessel (holder) or pipeline containing combustible gas must be made safe before being opened to the atmosphere. First, the combustible gas must be displaced by inert gas. This process is called "purging." Photograph , right, shows the crew at work during the dismantling of the holder. The work of purging and disconnecting all piping is a delicate and difficult task and the crew did an excellent job in completing this phase of the dismantling safely and without mishap.

APFUL 10

To keep Philadelphia Electric's older poles in service longer, concrete is used to replace decayed bottom section of wood pole. A steel collar is then used to join new and old sections. "Mod-pole" eliminates need to rewire top section ,

A teacher in the Philadelphia School District works with "Our World of Energy," a saves time and money.

teacher's guide to energy awareness for elementary school students. The program was created by Philadelphia Electric's Energy Information and Education division under the auspices of the Energy Education Advisory Council. The program was developed because surveys indicated that Americans know very little about energy, the energy crisis, natural resources and conservation .

During May the Company began hiring and training additional meter readers to convert meter reading and billing from a bi-monthly to a monthly schedule. A total of 162 new meter readers was hired, since nearly twice as many readings had to be taken daily .

Besides providing improved service to our customers, monthly meter reading and billing reduces delinquencies and chargeoffs, more promptly identifies tampering with service facilities and brings about more frequent personal contact with customers.

Meter reader Peter R . Supplee, who is assigned to the Coatesville area, has read more than 200,000 meters over a 3\/2 year period without an error. His The Company's three natural gas exploration programs in the Gulf Coast area have achievements illustrate the standards of proved successful. A fourth exploration program in West Virginia is being undertaken excellence which employees set for and drilling will begin in the Spring of 1978. Of 109 wells drilled, 29 are productive, themselves to render customers reli able which finding rate is better than the industry average. Martin F . Gavet (third from and accurate service.

left), vice president, Gas Operations, early in May joined with public officials and community residents to mark symbolically the first delivery of gas from the new wells by opening a valve at West Conshohocken.

11

Salem Generating Station of Public Service Electric and Gas Company on the Delaware River in Lower Alloways Creek Township, New Jersey. No. I unit (right) began commercial operation in June, 1977, and construction on No. 2 unit is 78 percent completed. Each unit has a capacity of more than a million kilowatts.

Philadelphia Electric has a 42 percent share in the Salem installation.

Traffic in the southbound lane of U.S. Route I atop Conowingo Dam resumed on June 22. It had been closed since March 1976, for construction work o n the dam.

Drills such as the one shown here bored 537 holes through the structu re and cables were installed to anchor the dam and powerhouse to bedrock to assure safety and stability exceeding the original flood design standards. Project is sheduled for completion in the Spring of 1978 at a total cost of about $7 million.

The last major concrete placement at Limerick Generating Station was made in connection with the pour to the top of Unit 2 containment.

Note men at rim of structure.

12

Since today 's children are tomorrow's citizens, an education in electric power and its uses will equip them to make decisions with respect to energy needs in the future. Energy Education programs were presented at summer day camps and shopping malls throughout the Company's service area. They combined fun with learning when youngsters pedaled a bicycle equipped with a generator to create their own electricity. Depending upon the amount of energy the cyclists pedaled, they could turn on a small portable TV, a radio, and up to a I 00 watt light bulb .

Tips on safety during an electrical storm were illustrated by use of props to dram atize outdoor dangers.

Tn Harford County, Maryland, W. Howard Jarman, superintendent, Conowingo Hydroelectric Station, presents checks totalling $966,800 in payment of real estate and capital stock taxes assessed against the station, and Susquehanna Power Company.

Philadelphia Electric subsidiaries paid taxes in Maryland totalling about

$1.5 million in 1977.

Jn Pennsylvania, Philadelphia Electric paid nearly $100 million in state taxes for the year.

13

On August 5, the Company filed with the Penn sylvani a Public Utilit y Commission fo r an 11.5 percent rate increase ($119 million) in electric rates to be applied to all customers.

Lydia Brennan, Rate Di vision. stands with the thousands of pages of statistics, exhibits and other supporting data generated by the Finance E. S. Halfm ann, Director, Research Di vision, is pictured with th e Volkswagen "beetle" and Accounting Department for its presentation which he has converted to electric operation. Ca r consum es about three-quarters of of Philadelphi a Electric's case for rate relief.

a kilowatt-hour per mile. T he Research Di vision keeps ab reast of battery The volume of paper involved is even greate r developments in th e hope th at electric energy for autos can one day help to alleviate than that shown here, si nce fift y copies of many ou r growing energy shortage. Looki ng on is a reporter for a local newspaper. of these documents had to be p roduced.

Last summer, Phil adelphia Electric's Muddy Run Recreation Park, adjacent to the Company's pumped-storage hydroelectric facility, celebrated the arrival of its two-millionth visitor.

The Park's camping, picniC'king , fishing and boating facilities have provided recreational enjoyment for the entire family since its opening, Memorial Day, 1969.

I PiLiuLIST I 14

In the fall of the year the Company began increasing its inventory of coal in anticipation of a miners' strike in December. This view of Eddystone Station shows a stockpile of about 374,000 tons. By the end of 1977, the Company had on hand a supply of coal sufficient for I 00 days of generation at its coal burning units at Eddystone and Cromby Stations.

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• • 1111111 Beginning September 26 display lights on the top of Philadelphia Electric Company's headquarters building at 2301 Market Street accented the United Way's theme for 1977, Lucky, Lucky You.

The lights were on each night from dusk until 1 a.m., until the end of the campaign .

Late in September, a major milestone was reached at Limerick Generating Station when the plant's second reactor vessel was placed into the No. 2 Unit Containment vessel.

The vessel , constructed of six-inch thick carbon steel , weighs 650 tons, is 63 feet high and has an inside diameter of 21 feet. Note how it dwarfs men at lower left.

I SEPTEmBEPi I 15

The Pennsylvania-New Jersey-Maryland Interconnection (PJM),

America's pioneer power pool completed 50 years of operation in 1977. Governor Milton Shapp of Pennsylvania joined with government officials, civic leaders and utility executives from five states and the District of Columbia to celebrate the anniversary at ceremonies held in PJM headquarters. At the podium with Mr. Shapp is Robert F. Gilkeson, chairman of Problems and alternatives were explored at the Energy Scholars Philadelphia Electric. The Interconnection coordinates the bulk Conference by 140 Philadelphia area students who participated in electricity supply of eleven investor-owned electric companies in the day-long conference which was sponsored by The Electrical the Mid-Atlantic Region serving 21 million people in a 50,000-Association of Philadelphia, the Company's Energy Education square-mile territory. Philadelphia Electric is represented in Advisory Council and the Franklin Institute. PJM through its General Administration Department.

Under Philadelphia Electric Company's program known as PREP James J. Dougherty, Jr., supervisor, and Michael C. Smith both (Program Resulting in Employment Possibilities), conducted in work in Data Processing's dispatch group which is responsible cooperation with the School District of Philadelphia, area high for inserting and mailing of more than one million bills per school seniors receive on-the-job training by attending school month to customers.

four hours a day and working four hours in the afternoon. Philadelphia Electric was one of the first companies to take Training sessions supplement the classroom subjects with practical advantage of a one-cent discount offered by the U.S. Postal Service applications to business situations. Students also receive counseling for large volume mailers who pre-sort mail by zip codes. During and guidance in career opportunities so that they will be better 1977, total savings in postage amounted to about $140,000.

prepared to enter the mainstreams of business and industry upon graduation.

D£::TDBEA 16

ItS good business to be in Southeastern Pennsylvania

. . . midway between New York, a world financial center, and Washington, the nation's capital ... without the headaches of either.

Why Southeastern Pennsylvania?

Here's what five outstanding business leaders say ...

". . . reasonably priced land . . . and lower overall building and construction costs."

G. G. Probst President, Sperry Uniuac, Blue Bell, PA The decision to move Sperry Univac division headquarters to Montgomery County was made based on such considerations as reasonably-priced land - to effectively insure planned company expansion - and lower overall building and construc-tion costs. Of course, being a world-wide company, it was imperative that we be located as close as possible to shipping and transportation centers.

Because Sperry Univac is highly technology-oriented, we need to be able to draw from a large number of talented, well-educated personnel. The many fine colleges and universities in the Philadelphia area provide a wealth of such competent, degreed people to choose from.

We chose a suburban setting, too, because of the ease of travel and quiet surroundings for our employees. The beauty of the Pennsylvania countryside is appreciated by all of us.

". . . highway, air and rail transit is exceptional."

Donald L. Felley Group Vice President-North America, Rohm and Haas, Bristol, PA The first plant designed and built by the Rohm and Haas Company was our Bristol Plant in Bucks County. It has many advantages for Rohm and Haas, including an excellent riverfront location, ample land, a superb labor force and, most important, a great transportation net-work at our doorstep. The plant is also close to our corporate headquarters in Philadelphia.

About one-third of the population of the U.S. lives within 200 miles of our Bucks County facility and high-way, air and rail transit is exceptional.

Particularly important to us is the convenience of the Philadelphia Port, since we're its largest shipper of contain-erized goods. We find that our trucks can move materials down 1-95 to a pier in a matter of minutes_ The Port also serves as an important link to our European markets.

" ... Delaware County provides an ideal environment for business."

Charles L. Andes Chairman of the Board, Franklin Mint Corporation, Franklin Center, PA We believe that Delaware County provides an ideal environment for business. The area has a long tradition of craftsmanship and is rich in highly skilled and motivated workers. The range and quality of the area's cultural, educational and recreational facilities are im-pressive. Being adjacent to Philadelphia and relatively close to New York, Washington and the seashore are additional advantages.

When we outgrew our facilities in Yeadon, we had no trouble finding suitable and sufficient acreage in Franklin Center to accommodate our office, manufacturing, museum and parking facilities. Then, as now, it made good business sense to stay in Delaware County.

"Chester County is a superb place to live."

Bud Carlson Vice Chairman, Lukens Steel Company, Coatesville, PA When Lukens started at its present site in Southeastern Pennsylvania in 1810, water power was available, raw materials were plentiful and products could be moved to nearby customers over the Pennsylvania Toil Road.

Even though times have changed, Lukens stayed and today operates profitably as a specialist in plate steels. We adequately serve our customers from this location and are convenient for suppliers. Chester County is a superb place to live. Excellent schools, cultural and recreational facilities are at hand, and we're close to Philadelphia, New York City and the Nation's Capital.

" .. without a doubt, the best location for us."

Paul R. Kaiser Chairman of the Board, Tasty Baking Co., Philadelphia, PA Ten years ago, we made a hard-nosed economic decision to keep our company, and its 2,000 jobs, in Philadelphia. We had a big investment here, and we were very satisfied with the city services and the availability of labor. It was, without a doubt, the best location for us.

With that decided, we felt we needed to do something to help stabilize the neighborhoods adjacent to our headquarters.

We began with a $40,000 annual investment. Today, our Allegheny West Community Development program has been joined by other business, government and private foundations. We're so pleased with the results that we recently bought a 260,000 square-foot neighboring building for expansion.

The five-county You'll find too , that the cost of living is lower Southeastern Pennsylvania than in comparable metropolitan areas. You'll area, midway between New also find that workers are more skilled, better York and Washington, offers an educated and less inclined to strike exceptionally convenient location combined Valley Forge Park than in other areas.

with a unique quality of life you can't really And, you can count on a diver-find anywhere else. sified pool of engineering and pro-This is an area with so many attractive fessional people who graduate places to live that making a choice will be from the 50 universities and col-difficult. Whether you prefer rolling leges in the area. Most of them countryside or the sophisticated atmo- prefer to live here.

sphere of colonial Society Hill in Phila- We also have an Longwood delphia, you'll find a delightful mix of abundance of water for cosmopolitan city neighborhoods, beautiful industrial use, plus Gardens suburbs or country acres to choose from. ample and reliable And, you'll join a wonderfully diversified business energy supplies.

and industrial community. We have about 90% of all U.S. manufacturing-industrial classifications repre- Best of all, this is not an sented here - a cross-section of the economic base overcrowded area.

of the country. And they're not all corporate giants, Choice plant sites are either. Many are small businesses, available in all five Brandywine so vital to the economic health counties. That in-Museum of any area. cludes over 7500 acres in suburban and Of course, there are many industrial parks. Within Battlefield practical reasons why busi-the city of Philadelphia, nessmen prefer South-we have 1300 acres of fully-eastern Pennsylvania.

improved land available for relocation, and selling For example, our for 10% of the market value. Further-convenient air, sea, more, you can get long-term, low-inter-rail, highway and est loans for 100% of your development mass transit Philadelphia costs. You won't find a more gen-systems. They erous urban land offer in any make for easy access of other major city!

goods, raw materials and people in this Before you make a move, market area of over five look at Southeastern Penn-million. sylvania. Write or call today.

To/ind out more about locating your business in one of the five counties in Southeastern Pennsylvania, simply fill in this coupon, attach it to your letterhead and mail to:

Mr. James O'Brien Title _ _ __ _ __ __ _ _ _ __ _ __ _ _ _ _ _ __

Manager of Area Development Philadelphia Electric Company Company _ _ _ _ _ _ _ _ __ _ _ __ __ _ __ _ _ __

2301 Market Street Philadelphia, PA 19101 Address - - - - - - - -- - -- - - - -- - - - -- -

Telephone (215) 841-5657 City_ __ __ _ _ _ _ _ _~tat~-----~iP*----

A construction program at the North Philadelphia Substation converted the supply from 132,000 volts to a 220,000 volt transmission system, thereby increasing reliable service to the central and northern city areas which it serves.

Here, one of two massive new transformers is being rolled into place.

Through the years, Philadelphia Electric has been honored with numerous awards for the landscaping of its facilities. Last year, it received the 1977 Landscape Horticultural Award of the Greater Philadelphia Chamber of Commerce in cooperation with the Pennsylvania Horticultu ral Society. At the I 50th annual meeting of the Society the award was given for Knowlton Substation which was cited as conforming to the " usual high standards of many of the Company's facilities."

Commercial Operations is working closely with Drexel University, builders, and equipment manufacturers to obtain data and operating experience on solar energy. In a test program, solar panels atop a student dormitory at the University provide the building with domestic hot water. The solar hot water system utilizes a 300-gallon preheat tank in conjunction with an existing 150-gallon oil-fired hot water system.

nauEmBEA 17

Aerial view of Limerick Generating Station construction. By the end of 1977, Unit 1 was 38 percent complete and Unit 2 was 26 percent finished. Overall construction was 34 percent complete.

During 1977, the total Peach Bottom plant generated 8.8 billion kilowatt-hours of electricity, bringing its total generation since beginning operation to 34.5 billion kilowatt-hours. In that time Peach Bottom generation will have saved 22 million barrels of expensive oil.

[]ECEmBEA 18

FINANCIAL SECTION MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED STATEMENTS OF INCOME Electric operating revenue increases of $46.4 million in 1976 charges increased by approximately $950,000 per month as a over 1975 and $ 15 2.9 million in 1977 over 1976 principally result of Salem Unit 1 being placed in commercial operation.

reflect higher fuel ad justment revenues and increased base Salem Unit 1 nuclear generating unit, in which the Company rates which added an aggregate of $23.5 million in 1976 and has an ownership interest of approximately 42 percent, qualified

$123.2 million in 1977. Kwh sales of electricity in 1976 in- as in service for income tax purposes in D ecmber 1976. Federal creased 3.7 percent over 1975, principally reflecting economic and state income taxes for 1976 and for 1977 reflect reductions recovery. For 1977, sales of electricity, excluding the effect of a of $9.1 million and $17.1 million, respectively, associated with change from bi-monthly to monthly meter reading and billing Salem Unit 1 tax depreciation. For 1976, $5.5 million was de-(see below ), increased 2.2 percent over 1976. ferred and $3.6 million flowed through to income. For 1977, Gas operating revenue increases of $40.9 million in 1976 $9.8 million was deferred. The remainder ( $7.3 million) over 1975 and $16.0 million in 1977 over 1976 reflect higher flowed through to income but was substantially offset by book fuel ad justment revenues and increased base rates. Higher fuel depreciation ( $5.7 million) on the unit. The related invest-cost ad justment revenues and base rares added an aggregate of ment tax credit of $29 million for 1976 reduced Federal income

$27.0 million in 1976 and $16.9 million in 1977. Mcf sales of taxes payable and was deferred by charging investment tax gas for 1976 increased 13.4 percent over 1975 as a result of the credits, net of amortization.

availability of gas under emergency contracts and increased Taxes, other than income taxes, have escalated primarily due sendout due to colder weather in October, N ovember and to increases in revenue, which is subject to a gross receipts tax.

December 1976. For 1977, Mcf sales of gas, excluding the The increase in the AFUDC in 1976 over 1975 resulted from effect of a change from bi-monthly ro monthly meter reading an increase in construct ion work in progress and a higher cost and billing (see below), decreased 2.7 percent below 1976 of capital for construction. The increase in 1977 over 1976 was due ro curtailments by the Company's pipeline suppliers which primarily due to the higher cost of cap ital.

were necessi tated by the nation's severe winter. Beginning August 1, 1977, AFUDC has been reduced in th.e In June 1977, the Company began converting its residential aggregate by approximately $2.0 million per month as a result and small commercial electric and gas cusromers from bi- of Salem Unit 1 being placed in commercial operation.

monthly ro monthly meter reading and billing. This conversion, Interest charges on debt and dividends on preferred stock which was completed in November 1977, increased billed sales, have increased substantially in recent years because of the higher and decreased unbilled sales, of electricity and gas by approxi- cost of money and increases in the amounts of debt and pre-mately 340 million kwh and 2,140 million cubic feet, respec- ferred stock outstanding.

tively, for 1977. As a result, there was a non-recurring revenue Earnings available for common stock increased from $108 increase of approximately $24 million, ( $1 7 million electric million in 1975 to $126 million in 1976 and to $133 million in and $7 million gas) . 1977. The sales of approximately 5.1 million shares of common Fuel and energy interchange expense increased by $94.6 stock in 1976, and approximately 5.3 million in 1977 increased million in 1977 over 1976. This increase was due primarily to the average number of shares outstanding by 13 percent in 1976 higher fuel costs and decreased coal generation primarily at and 8 percent in 1977. Earnings per average share increased Eddystone station ( Unit 2 was out of service over 6 months from $1.86 in 1975 to $1.91 in 1976, but decreased slightly ro due to planned inspections and the need for additional work $1.87 in 1977. The 1977 earnings were penalized by approxi-revealed by such inspections) which was replaced by higher mately 20¢ per share as a result of Salem Unit 1 being in cost interchange purchases. service, with the resultant discontinuance of AFUDC and the Other operation and maintenance expenses have increased in accrual of related depreciation charges, while the unit is not each period due to growth in utility plant and inflationary reflected in base rates. The non-recurring revenue increase for pressures. The first refu eling outage at Peach Bottom Unit 2 the conversion of residential and small commercial customers contributed to higher maintenance expenses in 1976 over 1975. from bi-monthly ro monthly meter reading and billing added The outages associated with the refueling of both Peach Bottom 11 ¢ ro earnings per share.

units contributed to higher maintenance expenses in 1977 over Dividends on common stock were paid at the rat~ of $1.64 1976. In addi tion, operation and maintenance expenses were per share in each of the years 1975 and 1976. A dividend increased in 1977 over 1976 due to Salem Unit 1 going into of $.41 per share for the first quarter of 1977 was paid on commercial operation on June 30, 1977. March 30, and dividends of $.45 per share for the remaining Increases in depreciation in 1976 reflect major additions ro quarters of 1977 were paid on June 29, September 29 and new plant in service. Beginning July 1, 1977, depreciation December 21 respectively.

19

CONSOLIDATED STATEMENTS OF INCOME Philadelphia Electric Company and Subsidiary Companies For the Year Ended December 31 1977 1976 (Thousands of Dollars)

Operating Revenue Electric . ...... ... ..................... . ........ .... . $1,177,689 $1,024,814 Gas ...... . ................. ... .... . ........ . . . .... . 174,818 158,865 Steam 42,255 40,462 Total Operating Revenue 1,394,762 1,224,141 Operating Expenses Fuel and Energy Interchange .... ... . ..... . ...... . ...... . 575,272 480,663 Other Operation Expense .. ........ . ... ... . ....... ... . . 201,231 175,801 Maintenance .............. ... ............. . .. . .. .... . 99,398 75,030 Depreciation ........... .. ................. .. ....... . 107,761 97,980 Taxes on Income . ...... .. ....... . ................... . 97,267 100,598 Taxes, Other than Income . . .... . . . .. ..... .... . ........ . 91,670 82,644 Total Operating Expenses 1,172,599 1,012,716 Operating Income 222,163 211,425 Other Income Allowance for Other Funds Used During Construction ...... . 36,230 30,127 Income Tax Credits, net .. . ............. .. ............. . 25,282 24,167 Other, net . .. ....... . .... . .... .. . .... .............. . . 3,544 2,548 Total Other Income 65,056 56,842 Income Before Interest Charges 287,219 268,267 Interest Charges Interest on Long-Term Debt ....... . ...... . ............ . 161,055 147,596 Interest on Short-Term Debt ........................... . 2,573 3,567 Allowance for Borrowed Funds Used During Construction ... . ( 49,848) (47,5 14)

Net Interest Charges 113,780 103,649 Net Income ............................................... . ... ........... . 173,439 164,618 Preferred Stock Dividends . . . . . . . . . . . . . . . . . . . . ......................... .... . 40,705 39,022 Earnings Applicable to Common Stock .... ...... . .............. . ............ . $ 132,734 $ 125,596 Shares of Common Stock-Average (Thousands) ..... .. ...... ... .......... ... .. . 70,844 65,606 Earnings Per Average Share (Dollars) . . . . . . . . . . . ....... .. .................. . $1.87 $1.91 Dividends Per Share (Dollars) .............. . ........... .. ...... ... . . ....... . $1.76 $1.64 See notes and schedules to financial statements.

20

CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION Philadelphia Electric Company and Subsidiary Companies For the Year Ended December 31 1977 1976 (Thousands of Dolla rs)

Source of Funds Net Income ........ . . . ...... ..... .... . . . .. . . . ...... . $173,439 $164,6 18 Charges (Credits) Not Affecting Funds Depreciation ..... .... ... .... .... . ..... ... ... ... . 107,761 97,980 Deferred Income Taxes, net .... .. . . . . ............ . . . 37,237 28,882 Investment Tax Credits, net . . ......... . .. ... . . . ... . 26,488 52,668 Allowance for Ocher Funds Used During Construction . .. . (36,230) (3 0,127 )

Total from Operations 308,695 314,021 Sale of Long-Term Debt .. . . . .. . ..... . .. . . .. .. . ........ . .. . 173,500 200,000 Preferred Stock ....... ... ... . .... . . ..... . . . . .. ... . . 50,000 Common Stock . .. .. .... . ... . ... .. . . . . .... . .. ..... . . 103,917 86,1 28 Increase ( Decrease ) in Shorr-Term Debt ............ .. .. . 7,649 (100,728 )

Proceeds from Contract Terminations-Nuclear Projects 64,000 Total $593,761 $613,421 Use of Funds Additions to Utility Plant .. . .... . .................... . . $393,134 $380,007 Allowance for Other Funds Used During Construction

( Deduction ) .. ....... .. ........................ . ( 36,230) (30,127)

Dividends on Preferred and Common Stock . ... . .. . . . ..... . 165,605 147,097 Retirement of Long-Term Debt .. .. ........ .. .... . . .. .. . 38,945 63,271 Increase in Other Items of W orking Capital .. .. .... . .. .. . 23,433 40,222 Ocher, nee .................. . ..... . ......... . .. . . .. . . 8,874 12,951 Total $593,76 1 $613,421 See notes and schedules co financial srartments.

21

CONSOLIDATED BALANCE SHEETS Philadelphia Electric Company and Subsidiary Companies December 31 1977 1976 ASSETS (T housands of Doll ars )

Utility Plant, In Service at original cost Electric . . ........ . . . .. . ..... .... ... .... . .. . . . ... . . $3,485,102 $3,034,654 Gas ..... . . . .. ... . ... . .. . ... .... . .. . ........ . . . .. . 282,12 3 278,181 Steam .. . . .. . . .. ... . . . . . .. . . . .. . ... . . . . . . . ....... . 52,177 50,877 Common, used in all services ... . ... . ..... . . . .. . . .. .. . . 118,570 118,085 3,937,972 3,481 ,797 Less: Accumulated Depreciation . . . . ...... ... .. .. . . 955,301 860,349 Net Utility Plant in Service .... .. ... . ..... . . .. . . .. . . . . 2,982,671 2,621,448 Construction Work in Progress ... .. . .. . ... .. ..... . . .. .. . 1,094,157 1,189,315 Nuclear Fuel, at amortized cost ... . . . ... . ... .. .. . ... . . . . . 89,019 76,128 4,165,847 3,886,891 Nonutility Property and Other Investments ................ . . ... ...... . ...... . .. . 27,431 13,203 Current Assets Cash and Temporary Cash Investments . . ... . . . . . ..... .. . . . 30,771 23,847 Accounts Receivable Customers .... . ........ . .. . . .. .... . ...... . . . . . .. .. . 163,25 4 137,920 Refundable Federal Income Taxes ... . ... .. . . .. . .... . . . . 14,671 Other . .. .. . ........... .. . ..... . .. . .. . . . .. . .. . ... . 20,761 15,428 Deferred Fuel Expense . .... .. . . . .... . .. .. . ... .. .. . . . . . 23,008 19,854 Materials and Supplies, at average cost Fuel (Coal, Oil and Gas) . .. .. ..... . .. . . .. . . .... . ... . . 69,811 58,722 Operating and Construction .. ...... .... . . ... . .. ..... . 32,424 29,614 Prepayments ................. . .. . ... . . ..... . . . .. . ... . 3,796 2,597 343,825 302,653 Deferred Debits ... . .... . . . .... ... ..... ...... . . .. . ... ... . .... . ... .. . ... .. .. ... . 10,894 14,669 Total $4,547,997 $4,2 17,416 See notes and schedules to financi al statements.

22

December 31 LIABILITIES 1977 1976 (Th ousands of Dollars)

Capitalization Stockholders' Equity Preferred Stock-See Schedule, page 28 ......... . ... .. .. . $ 534,268 $ 535 ,072 Common Stock- See Schedule, Page 28 ..... . ......... . . . 1,106,684 1,002,767 Other Paid-In Capital ....................... . ...... . 1,819 1,713 Retained Earnings ................................. . 328,699 321,190 1,971 ,470 1,860,742 Long-Term Debt- See Schedule, page 28 ... . ........... .. . 2,078,273 1,936,417 4,049,743 3,797,159 Current Liabilities Shorr-Term D ebt Bank Loans .. .. ...... . ........................... . 2,200 800 Commercial Paper .................... . ..... . . ... .. . 12,675 6,426 Current Maturities of Long-Term Debt .................. . 28,653 36,898 Accounts Payable .. ...... ........ .... . .. .. ..... . .. . .. . 82,193 72,278 Taxes Accrued .... . . . . . .. . .... .. ... .. .. ... . .. . . . ..... . . . 24,480 20,170 Deferred ( fuel expense ) ........... ...... ........... . 12,217 10,531 Interest Accrued ..... . ........ .... .... . . ........... . . . 48,597 43,183 Dividends Declared .... . .............. . ...... . ....... . 10,174 11,570 Other .. . . ... ........ . .... . . . ............ . . . . .. . ... . 4,150 4,654 225,339 206,510 Deferred Credits Accumulated Deferred Income Taxes .............. . .. ... . 146,378 110,829 Accumulated Deferred Investment Tax Credits ..... . ..... . . . 110,709 87,957 Other . . ..... .. ... . .. . .. ... . .. . ....... . . . . . ........ . 15,828 14,961 272,915 213 ,747 Total $4,547,997 $4,217,416 See notes and schedules co financia l statements .

23

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Philadelphia Electric Company and Subsidiary Companies For the Year Ended December 31 1977 1976 (Th ousands of D ollars )

Balance, January 1 . . .. . . .. . . ... . . . .. . . ......... . .... . . $32 1,190 $304,678 Net Income ( from page 20) . .. . .. . ... .. . . ....... . ... . . . 173,439 164,618 494,629 469,296 Cash Dividends Declared Preferred Stock .... .. ... .... ... ... ... .. ..... . .. .. . . 40,712 39,414 Common Stock ................................... . 124,893 107,683 Expenses of Capital Stock Issues 325 1,009 165 ,930 148,106 Balance, December 31 $328,699 $321,190 See notes and schedules co financi al statements.

NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies: number of units of thermal energy produced as they relate to General: All utility subsidiary companies of Philadelphia the estimated total thermal units to be produced over the ap-Electric Company are wholly-owned and are included in the proximate four-year life of the fuel. If such reprocessing facil-consolidated financial statements. The accounts are maintained ities are not available, the Company would incur additional in accordance with the uniform system of accounts prescribed costs to dispose of spent fuel.

by the regulatory authorities having jurisdiction. Depreciation: For financial reporting purposes, depreciation is provided over the estimated service lives of the plant on a Revenues: Revenues are recorded in the accounts upon billing straight-line basis. No provision is presently provided for the to the customer. Rate increases are billed from dates authorized estimated decommissioning costs of the nuclear plants. The or p ermitted to become effective by regulatory authorities. annual depreciation provisions, expressed as a percent of average Due to the use of cycle billing there is an amount of unbilled depreciable utility plant in service, were approximately 2.99%

revenue at the end of any period. See "Management's Discus- for 1977 and 2.97 % for 1976.

sion and Analysis of the Consolidated Statements of Income" for effect of meter reading and billing change in 1977. Income Taxes: Deferred income taxes are provided for dif-ferences between book and taxable income to the extent per-Fuel Expenses: For financial reporting purposes the Company mitted by the regulatory authorities for rate-making purposes.

defers that porrion of fuel expense which is recoverable under Investment tax credits, other than credits resulting from fuel adjustment clauses until it is subsequently billed as fuel contributions to the Tax Reduction Act Stock Ownership Plan adjustment revenue in order to effect a better matching of fuel for employees which do not affect income, are deferred and expense with related revenues. Amounts of fuel expense re- amortized by credits to income over the estimated useful life covered under the fuel adjustment clauses are charged to opera- of the related utility plant.

tions with equivalent credits to deferred fuel expense.

Nuclear energy costs are calculated at a zero net salvage value Allowance for Funds Used During Construction (assuming reprocessing facilities will be available for spent ( AFUDC) : AFUDC is defined in the applicable regulatory fuel as needed) and charged to fuel expense on the basis of the system of accounts as "the net cost for the period of construction 24

of borrowed funds used for construction purposes and a reason- viding such amounts are passed on to the employees of the able rate upon other funds when so used." The net after-tax Company in the form of Philadelphia Electric Company com-rates used in determining the allowance averaged 8.65 % in mon stock. Such additional credits have no effect on net income.

1977 and 8.30 % in 1976. The allowance is recorded as a For Federal income tax purposes the 1976 investment tax noncash charge to construction in the plant accounts and the credits eliminated current Federal income taxes payable, $39,-

corresponding credits, in conformity with a change in the 635 ,000 in 1976, and resulted in a claim for refund of prior regularory system of accounts effective January 1, 1977, are ro years' Federal income taxes of $14,671 ,000 which was received "Interest Charges" for cost of borrowed funds, excluding the in 1977.

related income tax benefits, and ro "Other Income" for cost of The aforementioned income tax provisions differ from other funds . AFUDC in 1976 has been reclassified in the con- amounts computed by applying the Federal staturory tax rate to solidated statements for comparative purposes. For income tax adjusted income before income taxes for the following reasons:

purposes, the allowance is not included in taxable income, nor 1977 1976 is the depreciation of the capitalized allowance a tax deduct-(Thousands of Dollars) ible expense. Income tax benefits of $26,237,000 in 1977 and Net Income ............. .. . $173,439 $164,618

$24,701,000 in 1976, arising from interest charges associated with borrowed funds used to finance construction, were allo- Total income tax provisions ... . 71,985 76,431 cated from operating expenses ro other income. Income before income taxes . .. . 245,424 241,049 Deduct-Allowances for Funds

2. Taxes on Income: 1977 1976 Used During Construction (Thousands of Dollars) (non-taxable ) . .. .... . .. . . (86,078) ( 77,641)

Included in operating expenses: Adjusted income before Current income taxes income taxes . . . ...... ... . $159,346 $163,408 Federal . ... .. .. . . . $ 21,413 $ 6,147 Income taxes on above at Federal State . .. . . .. .. . .. . 12,129 12,901 staturory rate ( 48 % ) . . ... . $ 76,486 $ 78,436 Total .. . .... . 33,542 19,048 Increase (Decrease) due to :

Deferred income taxes, net Excess of tax depreciation over Federal . .. .. ...... . 29,778 23,447 book depreciation not State . . ........ . .. . 7,459 5,435 normalized . . . ........... . ( 4,702) ( 5,285)

Total . . . .. . .. . 37,237 28,882 State income tax, net of Federal Investment tax credits, net income tax benefits ...... . . 10,467 9,812 Federal . ......... . . 26,488 52,668 Amortization of investment tax Total credits previously deferred .. . (2 ,183) (1,638)

Federal 77,679 82,262 Other, net . .. .... . . . ..... . . ( 8,083) ( 4,894)

State ... ... . . ... . . . 19,588 18,336 Total income tax provisions $ 71,985 $ 76,431 Total .. .. .. .. . $ 97,267 $100,598 Provision for income taxes as Included in other income : a percent of:

Current income taxes Income before income taxes 29.3 % 31.7 %

Federal . .. .... .... . $ ( 20,225) $ ( 19,684) Adjusted income before income State .... . ... .... . . ( 5,057) ( 4,483) taxes . ....... . .. .. . .... . . 45 .2% 46.8 %

Total .. . . ... . . $ ( 25,282) $(24,167)

Total income tax provisions: Provisions for deferred income taxes consist of the following Federal ...... . . ... . $ 57,454 $ 62,578 tax effects of timing differences between tax and book income :

State . .......... . . . 14,531 13,853 1977 1976 Total . ..... .. . $ 71,985 $ 76,431 (Thousands of Dollars)

Depreciation .. . . .. .. ...... . $3 7,492 $29,770 Investment tax credits consist of (a) the basic credits allow- Deferred fuel expense ..... . . . 1,687 1,054 able at the Federal statutory rate ( 10 % ) plus ( b ) an additional Other ... . ........ ... ..... . ( 1,942) ( 1,942)

(11;2 % ) $3,708,000 in 1977 and (1%) $4,935,000 in 1976

$3 7,23 7 $28,882 allowed the Company to offset Federal income taxes pro-25

3. Taxes, Other than Income: company, t0 the effect that the $560,000,000 "Limit of Liability" 1977 1976 under the Price-Anderson Act contravenes the due process (Thousands of Dollars ) and equal protection provisions of the Fifth Amendment to Gross Receipts ..... . ...... . $59,545 $52,103 the United States Constitution and is, therefore, unenforceable.

Capital Srock .............. . 13,002 10,817 Both defendants appealed the decision directly tO the United Realty ............. . ...... . 9,467 11,127 States Supreme Court and on November 7, 1977 the Court Other, principally social security 9,656 8,597 announced it would review the lower court's decision.

For damage to the nuclear plant facilities which could arise

$91,670 $82,644 from an incident at the Peach Bottom Station, the Company

4. Short-Term Debt: and its co-owners have private insurance up tO $220,000,000; The average short-term borrowings during 1977 aggregated for the Salem Station, the Company through the operaror of the

$33,595,000 at an average rate of 7.66% and during 1976 aggre- Station is a member of Nuclear Mutual Limited (NML) which gated $51,131,000 at an average rate of 6.74 % . The maximum provides for coverage up to $175 ,000,000. In the event of a short-term borrowings outstanding were $94,3 26,000 in 1977 loss at any plant insured by NML, the Company may be subject and $132,200,000 in 1976. The average rate of interest on short- tO a maximum of fourteen times its annual premium (currently term borrowings at December 31, 1977 was 7.75 % for bank not material for any one incident). The Company is a self-loans and 6.85 % for commercial paper. As of December 31, insurer, to the extent of its ownership interests, for any property 1977 the Company had informal lines of credit with banks loss in excess of the aforementioned amounts.

aggregating $212,875,000. The Company generally does not The Company's proportionate share of a commitment for have formal compensating balance arrangements with these nuclear fuel at the Peach Bottom Station as of December 31, banks. The Company maintains deposits with banks for work- 1977, was $51,907,000. An independent fuel company has ing funds for normal operations. been authorized to acquire and own up tO a maximum of

$150,000,000 of such fuel at any one time and has agreed to sell

5. Retirement Plan: the energy therefrom to the Company, as the operator of the The Companies have a noncontriburory, trusteed plan appli- Station.

cable t0 all regular employees. Pension costs which are funded The minimum rental commitments under all noncancelable as accrued, consisting of current and prior service costs, if any, agreements aggregated $162,008,000 at December 31, 1977.

over a twenty-year period, aggregated $18,708,000 in 1977 and Annual rental commitments are estimated to be $21,533,000

$15,225,000 in 1976. Approximately 76 % of such amounts was for 1978; $20,484,000 for 1979; $18,892,000 for 1980; $18,-

charged t0 operating expense and 24 % , associated with con- 712,000 for 1981 and $6,067,000 for 1982. Rentals charged tO struction labor, was included in the cost of new utility plant. operating expenses were $25,470,000 in 1977 and $25,293,000 Based upon actuarial assumptions, the estimated prior service in 1976.

liability of the Plan was substantially fully funded at December Certain leases, including the nuclear fuel contract, meet the 31, 1977. criteria of a capital lease as defined by Statement No. 13 of the Financial Accounting Standards Board, but are not accounted

6. Commitments and Contingent Liabilities: for as such in the rate making process. If such leases were The Companies have incurred substantial commitments in capitalized, the amounts thereof would not have a material connection with their construction program. Construction ex- effect on assets, liabilities, or related expenses.

penditures are estimated t0 be $434,000,000 for 1978 and Complaints have been filed before the Pennsylvania Public

$1,510,000,000 for l 979 -1981. Utility Commission against the Electric Fuel Adjustment Clause.

The Price-Anderson Act places a "Limit of Liability" of Counsel for the Company is of the opinion that no refunds will

$560,000,000 on each nuclear generating facility for public be required of revenues collected under the fuel adjustment liability claims that could arise from a nuclear incident. The clause.

Company and its co-owners of the Peach Bottom and Salem Actions have been filed in the U.S. District Court against the Stations have insured for this exposure by purchasing private Company with respect t0 alleged discrimination in its employ-insurance in the maximum available amount of $140,000,000 ment or promotion practices. Counsel for the Company is of and the remainder is provided by indemnity agreements with the opinion that the Company has meritorious defenses to the Nuclear Regularory Commission (NRC); however, since these suits.

August 1977, the indemnity by the NRC has decreased and in the event of a nuclear incident, the Company tO the extent of its ownership participation, could be assessed $5,000,000 for each reacror owned (maximum $10,000,000 per reacror in a year ) . On March 31, 1977, the United States District Court for the Western District of North Carolina rendered a declara-rory judgment, in a case brought by an environmental group and other plaintiffs against the NRC and an electric utility 26

7. Replacement Cost Information (Unaudited) : Company's common shareholders. Replacement cost of utility Inflation has resulted in replacement costs of utility plant in plant is the Company's estimate of rhe current cosr to replace service rhar are significantly greater than the recorded original existing plant with similar plant of mosr recent design.

cost. The current replacement cost of the gross utility plant in This replacement cost information should not be used ro service ar December 31, 1977, is estimated at $8,800,000,000 evaluate rhe effect of inflation upon rhe Company's financial which compares to recorded cosr of $3,937,972,000. position and results of operations, as reported.

The esrimared replacement cost of utility plant, determined In compliance wirh reporting requirements additional re-by applying indices to recorded cost, does not necessarily reflect placement cost information is disclosed in rhe Company's the current value of these assets, nor does rhe excess of replace- annual report to the Securities and Exchange Commission on ment cost over recorded cost represent additional equity for rhe Form 10-K.

8. Segment Information:

Segment informarion for the year ended December 31, 1977 is as follows:

Electric Gas Sream Tora!

( Thousands of Dollars )

Operating revenue .... . ......... . . . . ..... .. .. ... ... . ..... . ..... . $1,177,689 $174,818 $4 2,255 $1,394,762 Operating expenses, excluding depreciation . . . . ... ..... . .. . ......... . 881,168 145,71 3 37,957 1,064,838 Depreciation ........... ... ...................... ..... .. .... . . . 97,9 16 8,243 1,602 107,761 Tora! operating expenses ... . .. . . .. ......... . ....... .. . .. .. . .. . . 979,084 153,956 39,559 1,172,599 Operating income .................. . .......................... . $ 198,605 $ 20,862 $ 2,696 $ 222 ,163 Construction expendimres $ 382,992 $ 8,941 $ 1,201 $ 393,134 Assets, December 31, 1977:

N et uriliry plant ( * ) ....... . .......... ... .. .......... . ...... . . $3,883,906 $248,054 $33,887 $4,165,847 Materials and supplies ............ .. . .. ..... . .. . ...... . .... . .. . 90,056 11 ,990 189 102,235

$3,973,962 $260,044 $34,076 $4,268,082 Nonallocable assers ................. . ........ .. .... ....... . .. . 279,915 Total assets .. .. . . .. .. .. . ... . ... .. ... . .............. .. . . . .. . $4,547,997

( *) Includes Construction W ork in Prog ress and allocated Common Utiliry Plant.

9. Quarterly Data ( Unaudited ) :

Earnings Earnings Average Per Applicable Shares Average Quarter Operating Net to Common Omstanding Share Ended Revenue Income Stock ( Thousands) ( Dollars )

(Thousands of Dollars) 1977 1976 1977 1976 1977 1976 1977 1976 1977 1976 Mar 31 $365,822 $324,740 $49,559 $42,986 $39,379 $33 ,983 69,336 64,22 1 $.57 $.53 Jun 30 318,772 282,408 39,683 32,715 29,503 23,057 69,676 64,498 .42 .36 Sep 30 380,356 316,011 50,168 44,875 39,990 34,693 70,112 64,818 .57 .54 Dec 31 329,812 300,982 34,029 44,042 23,862 33,863 74,2 06 68,859 .32 .48 27

SCHEDULE OF CAPITAL STOCK-DECEMBER 31, 1977 Philadelphia Electric Company Current Number of Shares Amount Preferred Stock ( $100 par) cumulative: Redemption (Thousands Series Price (A) Authorized Outstanding of Dollars) 9.52 % (Sold 1976 at $100 per share) $109.52 500,000 500,000(B) $ 50,000 9.50% ....... . .. .. ... . ... .... . . 109.50 750,000 750,000 75,000 8.75% ............ .... . ...... . 110.00 650,000 650,000 65,000 7.85% .... .. . . ... ............. . 108.00 500,000 500,000 50,000 7.80 % . . ...... . .............. . . 105.50 750,000 750,000 75,000 7.75% .. ........ .............. . 105.50 200,000 200,000 20,000 7.325% ........... ............ . 106.15 750,000 750,000(C) 75,000 7% .......................... . 107.00 400,000 367,960(D) 36,796 4.68% .. .. ....... ............. . 104.00 150,000 150,000 15,000 4.4 % ......................... . 112.50 274,720 274,720 27,472 4.3% ............ .. . . ...... ... . 102.00 150,000 150,000 15,000 3.8 % .............. ........... . 106.00 300,000 300,000 30,000 Unclassified . ..... ... .... .. ...... . 4,625,280 Total Preferred Srock .. . .. . .. . . 10,000,000 5,342,680 $ 534,268 Common Stock-no par (E) 100,000,000 74,624,517 $1,106,684 (A) Redeemable at the option of the Company, at the indicated dollar amounts per share, plus accrued dividends.

(B) 20,000 shares to be redeemed annually at $100 per share commencing May 1, 1981.

(C) 30,000 shares to be redeemed annually at $100 per share commencing May 1, 197 9.

(D ) 8,000 shares are being redeemed annually at $100 per share. The Company purchased 8,040 shares in 1977 and 7,915 shares in 1976 for this purpose and at December 31, 1977 had applied 40 shares to future redemption requirements. The excess of the aggregate par value of such shares over the aggregate purchase price is reflected in Other Paid-In Capital ($ 106,000 in 1977 and $215,000 in 1976 ).

(E) At December 3 1, 1977 there were 2,040,560 shares reserved for issuance under stock purchase plans. Common Srock issued in 1977 and 1976 was as follows :

Dividend Employee Tax Reduction Act Public Reinvestment Purchase Stock Ownership Sales Plan Plan Plan Total 19 77 -Shares 4,000,000 882,793 179,618 255,541 5,3 17,952 Proceeds $78,340,000 $17,159,000 $3,483,000 $4,935,000 $103,917,000 19 7 6-Shares 4,000,000 899,660 165,8 78 44,689 5,110,22 7 Proceeds $67 ,680,000 $ 14,98 1,000 $2,760,000 $ 707,000 $ 86,128,000 SCHEDULE OF LONG-TERM DEBT-DECEMBER 31, 1977 Philadelphia Electric Company First and Refunding Mortgage Bonds (A) :

Amount Amount Amount (Thousands (Thousands (Thousands Series Due of Dollars) Series Due of Dollars) Series Due of Dollars) 2Ys% 1978 $ 25,000 5% 1989 $ 50,000 11 % 2000 ... . ..... $ 80,000 11 % 1980 125,000 6V2 % 1993 60,000 11 Ys % 2000 . . . . . . . . . 65,000 2%% 1981 30,000 4V2 % 1994 50,000 7%% 2001 ... .... .. 80,000 3Y<i% 1982 35,000 9% 1995 75,200 9Ys % 2002 (Sold 1976) 100,000 3Ys% 1983 20,000 8Y<i% 1996 80,000 8Ys % 2003 (Sold 1977) 75,000 3Ys% 1985 50,000 6Ys% 1997 75,000 8Yi % 2004 . . . . . . . . . 125,000 4%% 1986 50,000 7Y2 % 1998 100,000 9Ys % 2006 (Sold 19 76 ) 100,000 4Ys% 1987 40,000 7Y2 % 1999 100,000 6% 2007 (Sold 1977 ) 23,500 3%% 1988 40,000 7% % 2000 74,625 8Ys% 2007(Sold1977) 75,000 Total First and Refunding Mortgage Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,803,325 Note Payable-Bank . .... .. ... .. . ... 8.835 % 1979-84 ........ ... ..... .... .... .. ... .. .. .. . . ...... 125,000 Pollution Control Note ............. 5.5 % 1978-97...... .. .. .... . ....... . .... .. . .... .. ....... 36,000 Debentures ...... ..... .. ...... . .. 12 % % 1981 ........................................... 100,000 Debentures ....... .... .... ..... .. 4.85 % 1986 ........................................... 26,294 Unamortized Debt Discount and Premium, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,218)

Total Philadelphia Electric Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,084,401 Philadelphia Electric Power Company-a subsidiary :

Sinking Fund Debentures ..... .. . . .. 4 Yi% 1995 ........................................... 22,628 Unamortized Debt Discount . ....... . . : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (103)

Total Long-Term Debt (Annual interest requirements $165,564,000) (B) ..... . ...... . .... .... ... ... ... .. 2,106,926 Current Maturities included in Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,653)

Long-Term Debt included in Capitalization ........... . ... ... . .. .... ... .... ....... . . . ... . ....... .. $ 2,078,273 (A) Utility plant is subject to the lien of the Company's mortgage.

(B) Long-term debt maturities in the period 1978-1982 are as follows: 1978-$28,653,ooo; 1979-$55,694.ooo; 1980-$130,800.000; I

J 1981-$140,300,000; and 1982-$70,3 00,000.

28

REPORT OF AUDITORS To Shareholders and the Board of D irectors Ph iladelphia Electric Company Philadelphia, Pennsylvania We have examined the consolidated balance sheets of Philadelphia Electric Company and Subsidiary Companies as of D ecember 31, 197 7 and 197 6, and the related consolidated statements of income, retained earnings, and changes in financial position for th e years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the consolidated financial statements referred to above present fairly the financial position of Philadelphia Electric Company and Subsidiary Companies as of December 31, 19 77 and 1976, and the results of their operations and the changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

1900 Three Girard Plaza Ph iladelphia, Pennsylvania COOPERS & LYBRAND February 8, 1978 FINANCIAL STATISTICS Summary of Earnings (Millions of dollars) 1977 1976 1975 1974 1973 1972 1967 Operating Revenue (for details see pages 31 and 32) ........................... . . . $1,394.8 $1,224.1 $1,134.8 1,011.7 $766.6 $685.0 $376.5 Operating Expenses Fuel and Energy Interchange ...... .... ... . .. . 575.3 480.7 457.8 439.2 260.3 212 .0 86.7 Labor .... ........ . ............. .. ... . .. . . 179.2 161.9 152.2 134.0 125.6 120.4 81.4 Other Materials, Supplies and Services ... . .. . .. . 121.4 88.9 72.6 73.4 65.5 55.0 27.6 Total Operation and Maintenance . . .. . . . ... . 875 .9 731.5 682.6 646.6 451.4 387.4 195.7 Depreciation ......... . .. . . ............... . 107.8 98.0 91.2 77.8 64.3 60.5 41.8 Taxes . . .. . .............................. . 188.9 183.2 163.9 134.3 102.5 93.6 51.5 Total Operating Expenses ................ . . 1,172.6 1,012.7 937.7 858.7 618.2 541.5 289.0 Operating Income ...... . . ...... .... . .... ... . . 222.2 211.4 197.1 153.0 148.4 143.5 87.5 Ocher Income Allowance for Ocher Funds Used During Construction* .................... . 36.2 30.1 23.3 25.3 28.1 21.4 2.2 Income Tax Credits, net ..... . . .. .. .. .. .. .. . . 25.3 24.2 22.3 25.5 3.4 (0.4) (0.3)

Other, net .. .. . . .... ...... . ... . ... . .... . . . 3.5 2.6 2.0 0.3 2.7 0.2 0.6 Total Ocher Income ........... . ......... . 65.0 56.9 47.6 51.1 34.2 21.2 2.5 Income Before Interest Charges .. .. .. . ....... . 287.2 268.3 244.7 204.1 182.6 164.7 90.0 Interest Charges Interest on Long-Term Debt . ............... . 161.0 147.6 136.5 106.3 84.8 73.4 26.8 lncerest on Short-Term Debt ........... . .... . 2.6 3.6 7.9 14.2 5.5 4.4 2.6 Allowance for Borrowed Funds Used During Construction* ....... . ............ . ( 49.8) ( 47.5) ( 43.6) ( 45.5) ( 30.6) _G_!J ) ( 2.6)

Nee Interest Charges ..... . . .. ........ . ... . 11 3.8 103.7 100.8 75.0 59.7 56.7 26.8 Nee Income ........................... . .... . 173.4 164.6 143.9 129.1 122.9 108.0 63.2 Preferred Srock Dividends ..... ... . .. ......... . 40.7 39.0 36.0 33.7 27.6 21.6 3.7 Earnings Applicable ro Common Stock ....... . .. . 132.7 125.6 107.9 95.4 95.3 86.4 59.5 D ividends on Common Srock . . .. . ..... . ... .. .. . 124.9 107.7 95.4 86.4 78.4 67.7 44.8 Earnings Retained ........... . ... . ... . ...... . $ 7.8 $ 17.9 $ 12.5 $ 9.0 $ 16.9 $ 18.7 $ 14.7 Earnings per Average Share (dollars ) ..... ..... . .

=== $1.87 $1.91 $1.86 $1.81 $1.99 $2.08 $2.13 Dividends Paid per Share (dollars ) ............. . 1.76 $1.64 $1.64 $1.64 $1.64 $1.64 $1.60 Common Srock Equity ( Per Share ) ... . ...... . .. . $19.26 $19.13 $1 9.05 $20.21 $20.22 $2 0.00 $17.66 Shares of Common Srock- Average ( Millions ) .... . 70.8 65.6 58.1 52.7 47.8 41.5 27.9

• 1976 and prior years reclassified for comparative purposes.

See page 19 for D iscussion and Analysis of the Consolidated Statements of Income.

29

FINANCIAL STATISTICS Summary of Financial Condition-December 31 (Millions of dollars) 1977 1976 1975 1974 1973 1972 1967 Assets Utility Plant, at Original Cost ... ... ... $5,121.1 $4,747.2 $4,445 .6 $4,123.9 $3,672. 1 $3,222.6 $1,79 1.5 Less : Accumulated Depreciation .... .. .. 955 .3 860.3 775 .8 717.8 665.4 624.2 459.8 Total Utility Plant ........ .. .... 4,165.8 3,886.9 3.669.8 3,406.1 3,006.7 2,598.4 1,33 1.7 Non utility Property and Other Investments 27.4 13.2 12.3 12.7 11.5 9.5 6.3 Current Assets Cash ..... . .. . .. . . .. . . . . .. . ..... 30.8 23.8 17.4 16.0 16.2 17.8 15.2 Pollution Control Funds . . . .... . .... 12.2 38.0 Accounts Receivable .. .. ... . . . . . . . 184.0 168.0 139.8 111 .9 75.6 72.1 47.0 Deferred Fuel Expense .... . ..... .. 23.0 19.9 17.9 21.7 Materials and Supplies . ..... .. .. ... 102.3 88.3 88.0 72.5 40.2 38.8 23.8 Other . . ................. . . ..... 3.8 2.6 2.5 21.1 3.8 2.8 3.0 Deferred Debits ........ . . .. . .. . .. .. 10.9 14.7 13.8 6.0 9.9 7.5 4.1 T oral Assets .. ............ .. . . . $4,548.0 $4,2 17.4 $3,961.5 $3,668.0 $3,176. 1 $2.784.9 $1,43 1.1 Liabilities Preferred Srock .......... .. ..... . ... $ 534.2 $ 535.1 $ 485.9 $ 486.4 $ 412.0 $ 337.5 $ 87.5 Common Srock .... .. . .. .. .. . .. . . . . . l,l06.7 1,002.8 916.6 782.9 77 1.8 622.5 298.3 Other Paid-In Capital .. ... .. .. ..... .. 1.8 1.7 1.5 1.3 1.3 1.2 1.2 Retained Earnings .. .......... .. .... 328.7 321.2 304.7 293.7 286.2 271.0 213.l Total Srockholders' Equity ... . .... 1,971.4 1,860.8 1,708.7 1,564.3 1,471.3 1,23 2.2 600.1 Long-Term Debt . .... ... ... ........ 2,078.3 1,936.4 1,776.9 l,597.7 1,3 19.1 1,287.2 691.9 Total Capitalization ..... . .. ..... 4,049.7 3,797.2 3,485.6 3,162.0 2,790.4 2,519.4 1,292.0 Current Liabilities Bank Loans ...... . ..... . ..... .. .. 2.2 0.8 50.2 115.1 83.5 41.1 47.7 Commercial Paper .. .... . .. . ...... 12.7 6.4 57.8 62.8 64.2 62.7 Current Maturities of Long-Term Debt 28.7 36.9 60.9 91.9 67.3 13.5 9.6 Accounts Payable and Dividends Declared ........... . ... . ...... 92.4 83.9 80.1 78.8 67.4 49.5 23.9 Taxes Accrued . . .. ..... . .. . .. .. . . 24.S 20.2 34.7 16.S 18.l 18.4 6.8 Taxes Deferred (fuel expense) . . . ... 12.2 10.5 9.5 11.5 Other ........ . .... ... . .. .. .. .. . 52.7 47.8 41.3 34.3 27.4 23.7 9.4 Deferred Cred its ... . ............. .. . 272.9 213.7 141.4 95.1 57.8 44.0 31.1 Contributions in Aid of Construction* .. 12.6 10.9 Total Liabilities ... .... . . ... . . .. $4,548.0 $4,217.4 $3,961.5 $3,668.0 $3,176. 1 $2,784.9 $1,43 1.1

• 'Transferred ro Utility Accounts in 1973.

Common Stock Prices, Earnings and Dividends by Quarters (Per Share) 1977 1976 Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter High Price . ....... .. .. .. . $20~ $2 1 ~ $20 % $18 Ys $18 $17% $16Ys $17Ys Low Price .. ...... . ... . .. $19Ys $18Ys $18Yi $17 Ys $15 Ys $1 5Ys $15 $14Ys Earnings .. .. . .... ...... . 32¢ 57¢ 42¢ 57¢ 48¢ 54¢ 36¢ 53¢ Dividends . .. ... . .. .. ... 45¢ 45¢ 45¢ 41¢ 41¢ 41¢ 41¢ 41¢ 30

OPERATING STATISTICS 1977 1976 1975 1974 1973 1972 1967 ELECTRIC OPERATIONS Output ( millions of kilowatt-hours)

Steam ... .... ..... ... ... . ...... . . . . ... . .. . 11,468 13,385 12,814 16,649 18,536 20,181 17,087 Nuclear ................... .. .. . .. . ....... 4,596 4,937 4,387 1,745 176 97 144 Hydraulic ... . . .. .. . ...... .. ..... . .. . . ... . . 1,997 2,065 2,275 1,938 2,132 2,242 1,895 Pumped Storage Output .... . .. .. ..... . ..... . 1,223 1,062 1,275 1,075 1,318 1,430 400 Pumped Storage Input ........... . ..... . ... .. ( 1,761) (1,506) ( 1,785) (1,515) ( 1,876) (2,018) (555)

Purchase and Net Interchange . .. . ...... . ...... 9,759 7,666 7,363 5,300 7,094 3,472 1,090 Internal Combustion ........ .. ........... . .. 847 792 914 1,200 688 946 53 Other .. ............ .. . . ... . ...... .. ..... . 716 36 1,016 27 1 56 Total Electric Output ................. . .. . . 28,845 28,43 7 27,243 27,408 28,095 26,351 20,170 Sales (millions of kilowatt-hours)

Residential ... .......... .. . ........ ... .. .. . 8,110 7,585 7,424 7,159 7,493 6,856 4,763 Small Commercial and Industrial .. ............ 2,825 2,755 2,624 2,558 2,663 2,503 2,125 Large Commercial and Industrial .............. 14,912 14,662 14,060 14,622 14,953 14,011 10,724 All Other .............................. ... 1,350 1,271 1,227 1,217 1,192 1,136 1,091 Total Electric Sales . . ... .... ..... . . .. ..... 27,197 26,273 25 ,335 25,556 26,301 24,506 18,703 Number of Customers, December 31 Residential . .......... . . . . .. .......... ... .. 1,148,171 1,137,544 1,120,981 1,113,036 1,103,163 1,090,921 1,021,216 Small Commercial and Industrial ............. . 115,883 115,422 114,896 117,237 118,009 118,522 138,898 Large Commercial and Industrial ........ .. . . .. 5,772 5,747 5,719 5,724 5,663 5,645 4,993 All Other ......... . ...... ... ........ .... .. 2,381 2,345 2,305 2,248 2,207 2,163 2,021 Total Electric Customers ............... .. .. 1,272,207 1,261,058 1,243,901 1,238,245 1,229,042 1,21 7,251 1,167,128 Operating Revenue ( millions of dollars)

Residential ....... ...... ... . . . ...... ..... .. $ 427.6 $ 373.2 $ 364.7 $ 314.4 $ 254.4 $ 222.7 $ 110.7 Small Commercial and Industrial .. . ... . ... .... 168.4 149.3 138.9 122.0 97.5 88.1 54.0 Large Commercial and Industrial . ... .. ...... . . 513 .4 442.9 418.3 388.1 257.5 228.6 115.5 All Other .............. . ... ............... 68.3 59.4 56.5 49.0 37.4 35.0 20.7 Total Eleetric Revenue .... . ............... $1,1 77.7 $1,024.8 $ 978.4 $ 873.5 $ 646.8 $ 574.4 $ 300.9 Operating Income Before Income Taxes (millions of dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 284.1 $ 273.8 $ 261.5 $ 196.5 $ 170.1 $ 166.1 $ 105.2 Average Use per Residential Customer ( kilowatt-hours) ...... .. . ..... .. . . ....... .... . .. . . . 7,097 6,710 6,645 6,460 6,829 6,317 4,699 Electric Peak Load, Net Hourly Demand (thous. kw) 5,888 5,346 5,530 5,431 5,760 5,313 3,727 Net Electric Generating Capacity-Summer Rating

( thous. kw) . . . . . . . . . . . . . . . . . . . . . . . ........ . 8,198 7,742 7,186 7,808 6,650 6,348 4,678 Cost of Fuel per Million Btu ................... . $1.40 $1.24 $1.23 $1.42 $0.71 $0.62 $0.32 Btu per N et Kilowatt-hour Generated . . ...... .. . . 10,882 10,529 10,523 10,676 10,523 10,666 10,689 31

OPERATING STATISTICS 1977 1976 1975 1974 1973 1972 1967 GAS OPERATIONS Sales (millions of cubic feet)

Residential .................... . .......... 2,394 2,342 2,334 2,281 2,317 2,418 2,309 House Heating ........ . ............. . . .... 26,335 24,540 20,817 23,793 24,125 26,026 22,197 Commercial and Industrial ..... ... ........ .. . 31,017 33,390 30,012 35,913 37,868 41,490 33,054 All Other ............ .. ..... . . .. ........ .. 86 89 74 79 90 104 69 Total Gas Sales ............. . ... .... .. . . . 59,832 60,361 53,237 62,066 64,400 70,038 57,629 Number of Customers, December 31 Residential ... . ........................ . .. 88,775 89,459 90,117 90,870 91,682 94,035 98,991 House Heating . ....... . . . . . . ... ........... 162,978 162,993 162,914 163,093 163,096 159,780 136,371 Commercial and Industrial ............. . ..... 19,422 19,669 19,874 20,276 20,518 20,312 20,566 Total Gas Customers .. ........ . . .. ....... 271,175 272,121 272,905 274,239 275,296 274,127 255,928 Operating Revenue (millions of dollars)

Residential ......... ...... . .. ...... . ..... . $ 9.6 $ 8.7 $ 8.1 $ 7.1 $ 6.7 $ 6.2 $ 5.6 House Heating ......... . . . ................ 84.l 73.3 54.8 55.4 51.3 48.4 37.6 Commercial and Industrial ....... . ...... . ... . 80.4 76.1 54.5 45.7 42.0 38.2 23.4 All Other . ... .. . ........................ .. 0.2 0.2 0.1 0.1 0.1 0.1 0.1 Subtotal .................... . .. ... .... . . 174.3 158.3 117.5 108.3 100.1 92.9 66.7 Other Revenue . . . . .... ... ......... . ..... .. 0.5 0.6 0.5 0.6 0.4 0.4 0.3 Total Gas Revenue . . ... . .. ... ... .. ..... .. $ 174.8 $ 158.9 $ 118.0 $ 108.9 $ 100.5 $ 93.3 $ 67.0 Operating Income Before Income Taxes (m illions of dollars) . .............. . .......... $ 30.9 $ 34.4 $ 19.6 $ 26.9 $ 22.8 $ 16.9 $ 19.0 STEAM OPERATIONS Sales (millions of pounds) . .... .. ...... .. .. . . 7,165 7,735 7,117 7,600 7,762 8,328 7,252 Number of Customers, December 31 .... . ..... . 670 679 689 710 723 737 1,157 Total Steam Revenue (millions of dollars) ...... $ 42.3 $ 40.5 $ 38.5 $ 29.3 $ 19.4 $ 17.3 $ 8.6 Operating Income Before Income Taxes

( millions of dollars) ....................... $ 4.5 $ 3.8 $ 2.3 $ ( 3.2) $ 0.7 $ 1.2 $ 0.8 FISCAL AGENTS FOR STOCKS AND BONDS PHILADELPHIA ELECTRIC COMPANY-Preferred and Common Stocks Registrars Transfer Agents GIRARD BANK PHILADELPHIA ELECTRIC COMPANY One Girard Plaza, Philadelphia, Pa. 19101 23 01 Market Street, Philadelphia, Pa. 19 10 1 CHEMICAL BANK MORGAN GUARANTY TRUST CO. of N.Y.

20 Pine Street, New York, N.Y. 10015 30 West Broadway, New York, N.Y. 10015 PHILADELPHIA ELECTRIC COMPANY- First and Refunding Mortgage Bonds Trustee New York Agent THE FIDELITY BANK MORGAN GUARANTY TRUST CO. of N .Y.

Broad & Walnut Streets, Philadelphia, Pa. 19109 2 3 Wall Street, New York, N.Y. 10015 PHILADELPHIA ELECTRIC COMPANY- Sinking Fund Debentures PHILADELPHIA ELECTRIC POWER COMP ANY (A Subsidiary) - Debentures Trustee New York Agent THE PHILADELPHIA NATIONAL BANK IRVING TRUST COMP ANY Broad & Chestnut Streets, Philadelphia, Pa. 19101 One Wall Street, New York, N.Y. 10015 All Philadelphia Electric Company securities, except the Sinking Fund Debentures and those series of First a;id Refund ing Mortgage Bonds and Preferred Stock which were sold privately to institutional investors, are listed on the Philadelphia Stock Exchange and the New York Stock Exchange. Philadelphia Electric Power Company Debentures are listed on the Philadelphia Stock Exchange.

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PHILADELPHIA ELECTRIC PROMOTES SOUTHEASTERN PENNSYLVANIA The center spread in this report is illus- These trends toward outmigration trative of the efforts your Company is and economic stagnation are not making toward the revitalization of the unique to Philadelphia but are charac-area we serve. The pull-out is being made teristic of many of the large urban areas avaitabte in mbstantial quantities to area of the Middle Atlantic states, the development agencies and area banks and Northeast and the Midwest. But not all businesses which cire mailing it to their own shareholders. parts of these regions have suffered equally. Some, such as New York City, Ever since PE's first predecessor com- have experienced more severe prob-panies were organized, the health of lems over larger periods than Phila-the Philadelphia regional economy has delphia. Others, such as Boston, have been of concern to Company manage- managed to regain a measure of vigor, ment, employees, and shareholders while yet others such as the cities in alike. Our corporate philosophy-and Wisconsin and Minnesota have man-I'm certain our employees and share- aged to sustain reasonably healthy James L. Everett, President holders agree-has always been that a growth rates throughout the post-healthy utility company, providing W orld War II period. Therefore, education is a crucial part high quaiity service to customers and These differences, along with our of the turnaround process.

adequate returns to investors, is much natural optimism about Philadelphia Of course, initial steps have already more likely to exist in a vigorous, ex- and the qualities of its citizens, en- been taken or have been underway for panding region than in a sick or de- courage us to believe that Philadelphia years, and various area development clining region. and its suburbs can rejuvenate them- agencies in the five-county area have A review of PECo annual reports in selves and become, once again, a more done splendid work.

the 1960's and early 1970's reveals a vigorous, more vital, more rewarding However, Philadelphia Electric very active area development effort on place in which to live, work, and pros- Company is convinced the best efforts of the part of your Company. National per. every private and corporate citizen will advertising campaigns described the We believe that several distinct be needed. We are convinced we can advantages of Philadelphia as a place steps are necessary to achieve the major and must play our part. Company man-in which to live and do business. Com- turnaround which is called for. First is a agement and employees are intimately pany employees, who are experts in frank and uncompromising evaluation familiar with all pares of the region, area development matters, assisted of the advantages and disadvantages of both as a result of their corporate re-hundreds of businesses each year in the region as a place in which to do sponsibilities, and through the indi-their efforts to move into, or expand business. We know it is a good place in vidual responsibilities which many within, our service territory. This assis- which to live, and so do the business- have assumed over the years in civic tance included a multitude of activities men who go elsewhere when they and community activities.

from finding building sites, and helping move or expand their business. What We have a statistical data base de-to cut regional red tape, to preparing we must do is make the region a good scriptive of the region, that, in many to provide reliable electric, gas, and place in which to do business. ways, is second to none in the quality steam services. The second step in the turnaround and diversity of its data. Our area de-In the last few years, our regional process is to forge a strong tri-partite velopment activity, though somewhat development efforts have been signifi- coalition of government, business, and less active in the last few years, has cantly curtailed in order that we might labor committed fully to doing what- retained its basic expertise and is in a act as responsible corporate citizens in ever is necessary to improve the re- position to expand its efforts quickly an era of energy restrictions, and in re- gion's business climate. We can and and efficiently. The center spread is one sponse to demands from regulatory must do much better. All three parts of example of our resurgent posture in agencies to refrain from actively "sell- the coalition will have to be willing to this regard.

ing" our services. change, adapt, and compromise in order We are convinced a job must be However, regional trends which be- to improve this climate. State govern- done. We are convinced, as a major gan 10 or 15 years earlier, have become ment will have to help. National gov- corporate citizen, we can and must increasingly dominant. The Philadel- ernment assistance will be welcomed. help. We are convinced that you, as phia city economy has been moving But there is much that we, as citizens shareholders, will agree. We are going from a period of virtual stagnation to of the Philadelphia area can do with- to make a major effort in this direction one of slow decline when measured in out outside help. in 1978.

terms of population and jobs. Similarly, Achieving the degree of change the economic activity in the surround- needed will require the assistance and d/~

ing four-county region in Southeastern forebearance of each citizen as well as Pennsylvania has been moving from of our political, labor, and business reasonably healthy economic growth leaders. They will have to be convinced toward stagnation. that the reward is worth the effort. President

PHILADELPHIA ELECTRIC COMPANY BULK RATE 2301 MARKET STREET U.S. POSTAGE P.O. BOX 8699 PAID PHILADEI;.PBIA, PA 19101 PECO Address Correction Requested