ML19031A135

Submit 1977 Annual Report by Atlantic City Electric Company

ML19031A135
Person / Time
Site:	Salem
Issue date:	03/13/1978
From:	Atlantic City Electric Co
To:	Office of Nuclear Reactor Regulation
References
Download: ML19031A135 (28)

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DEADLINE RETURN DATE RECORDS FACILITY BRANCH

Cover The photograph on our cover shows the Delaware River crossing of the newly constructed Keeney-Salem 500 KV line. The tower structures pictured form part of a two and one-half mile crossing of the Delaware River at a point five miles south of the Delaware Memorial Bridge. Seven towers, the tallest of which stands 428 feet above the water, support six spans of transm ission lines over the river that links Dela-ware Valley ports with the rest of the world. The Keeney-Salem 500 KV line has a total length of 25 miles and con-nects Salem Nuclear Generating Station with Keeney Sub-station in D elaware. Construction of the line was completed in 1977. The line is also part of the Pennsylvania-New Jersey-Maryland Interconnection shown on the back cover.

Page Contents Letter to Shareholders 2 The Company 4 Earnings and Dividends 4 Fuel 5 Energy Sales and Revenues 5 Construction Program 5 Financing 7 Conservation 7 Environment 9 Safety and Public Relations 9 Employees 10 Community Activities 11 Financial Statements 12-20 Management's Discussion a nd Analysis of the Statements of Income 21 1977-1967 Statistical Profile and Summary of Operations 22-23 Price Range and Dividends P a id on Stock 24 Transfer Agents 24 Directors and Officers Inside Back Cover Advance The 1978 Annual Meeting of Shareholders will be held Tuesday, April 25, 1978 , at the Compan y's Data Processi ng Notice Center, Bl ac k Horse Pike and Fire Road, near Pleasantville, New Jersey. A Notice of Meeting will be mailed in March to those shareholders entitled to vote.

Results of Operations 1977-1973 0 ~~!~!!~J!!~~~

1977 1976 1975 1974 1973 Sales of Electricity (Billions of Kilowatt-hours) 4.979 4.664 4.378 4.376 4.429 Electric Operating Revenues (Millions) .. . ... $ 235.0 $ 212.0 $ 199.1 $ 176.6 $ 132.9 Net Income (Millions) ................. . . $ 27.4 $ 30.8 $ 28.3 $ 27.0 $ 22.9 Earnings per Share . . . . . . . . . . . . . .. . . . . . . $ 2.06 $ 2.60 $ 2.41 $ 2.54 $ 2.40 Dividends Paid per Share . . . . . . . . . ... ... . $ 1.62 $ 1.56 $ 1.51 $ 1.50 $ 1.4688 Gross Additions to Utility Plant (Millions) ... $ 48.7 $ 41.7 $ 46.7 $ 71.2 $ 67.9 Generating Capacity (Kilowatts) .... . .. . .. . 1,414,700 1,334,700 1,334,700 1,278,700 1,013,500 Utility System Peak Load (Kilowatts) ...... . 1,176,000 1,030,300 1,069,400 1,004,400 1,051,400 Average Annuai Residential Kilowatt-hour Use 7,653 7,320 7,018 6,982 7,303 Electrically Heated Dwelling Units (Year-end) 45,389 42,878 41 ,026 38,146 34,870 Customer Service Installations (Year-end) ... 352,205 343,147 336,105 330,758 320,834

Mr. Alfred C. Linklcttcr, Chairman of the Board of Directors and Mr. John D. Feehan , President and Chief Executive Officer.

plan to file a court appeal of the rate decision in the Superior Court of New Jersey. We wil l keep shareholders advised of this matter. We also arc preparing a request for an addi-tional rate increase- timely rate relief will be needed in 1978 if financial results arc to show an upward trend.

Unless we get adequate rate relief in the future, we will have to make further curtailments in our construction program and consider other serious retrenchments.

Progress was achieved during 1977 in many areas of To Our Shareholders: operations of the Company:

Despite inflation of more than 11 % during the two-year There are many accomplishments that will be reported period 1975-1977 the average price paid per kilowatt-throu ghout this Annual Report about the successful opera- hour by Atlantic Electric's customers only increased about tions of your Company in 1977 . However. the most 4%! Even if an adequate, timely rate increase had been important finan cia l result was not good-ea rnings declined. granted in 1977 the price paid per kilowatt-hour would Earnings available for Common Stock amounted to $2.06 have been about 4L(* lower than inflation growth!

per average share outstanding in 1977 compared to $2.60 Major construction was completed- The first unit of per share in 1976 when there were fewer average shares Salem Nuclear Generating Station was placed in commer-outstanding. cial operation. Thi s not only provides Atlantic Electric with The major factors that caused th e decline in earnings additional generating capacity to meet the electric energy were increased depreciation expenses, higher taxes , increased needs of its customers, but it also provides the benefit to the labor costs, and other increased expenses resulting primarily Company and its customers of lower cost energy-the total from inflation. cost of generating electric energy (including construction Depreciation expense in 1977 amounted to S 19.4 million, costs and fuel) is less through nuclear than any other fuel.

up I I r;( . Total taxes were $43 .2 million, up SS million- Increases in Kilowatt-hour Sales and in Revenues- It' s this I 3.2 r{ increase in taxes had the effect of reducing important to distinguish between orderly growth. which we earnings per share by -+7.3c a share. The effects of increased welcome. and accelerated growth. which we oppose. Order!

labor costs, the increased costs of material and supplies and growth is needed if the economy of Southern New Jersey is general inflation is demonstrated by the $7.2 million to prosper. Our concern about growth has caused us to be increase in Operation and Maintenance Expenses (exclud- a leading promoter of co nservation.

ing fuel and interchange) during 1977 . Kilowatt-hour sales increased 6.8 7c in 1977-7.3 C/c The State of Pennsyh*ania enacted a gross receipts tax in growth was recorded in the residential category , and 6.2 o/c December, I 977 which \\'as made retroactive to January I , and 6. 7 S'c in commercial and industrial categories 1977. lt amounted to $1 million for Atlantic Electric- respectively.

howcvcr, we expect to join \*Vith other utility companies in a Atlantic Electric experienced increases of 11 o/c in resi-suit agaimt Pennsylvania which will contest the legality of dential revenues , l 0.5 r;;, in commercial and 12.2 r;'c in the tax. industrial in 1977. Some of this growth is indicative Qf an Notwithstanding our aggressh*e programs to combat upswing in certain sec tions of the area's economy; higher expenses, it became evident in late 1976 that an a significant amount resulted from the very cold weather increase in electric rates would be necessary in 1977 to in the early months and hotter than normal weather enable Atlantic Electric to earn an adequate return on the in the summer of 1977.

investment of shareholders . On February 11, 1977 we filed Dividend Rei1westment and Stock Purchase Plan contrib*

a request for a $16.5 million rate increase with the New uted funds towards cash requirements-We raised $2.3 Jersey Board of Public Utilities. Unfortunately the rate million in 1977 through the sale of 102,417 shares of increase was not effective until January 27. 1978 and we Common Stock under this Plan. It's gratifying to know that were only granted an $8 million increase. Consequently. we so many of our shareholders and employees have sustained 2

confidence in Atlantic Electric and are investing on a 2. Obtain an adequate rate increase which together continuing basis. with operating efficiencies will result in higher earnings, Several aspects of our Safety and Public Relations Pro- increased dividends and an improved financial rating.

grams were improved-We've been conducting programs 3. Effect the continued use of additional energy-on electrical safety throughou our service area for students efficient appliances, promote conservation and load as well as for other groups. We also work closely with local management.

police and fire departments and present safety seminars in 4. Firm up the generating capacity program for trade schools for apprentice electrician trainees. the future.

Through our public relations program we strive to make Although we have been able to defer many capital the public aware of the realities of the energy situation such expenditures in recent years as a result of the slowdown in as ( l) the need for increased use of coal and nuclear fuel; the economy and conservation, we continue to anticipate (2) the need to conserve energy; (3) the prospects for orderly but sustained growth in Southern New Jersey in the impending energy shortages; and (4) the fact that the age future. Atlantic Electric will be called upon to provide a of inexpensive energy is over. reliable, adequate energy supply to meet the growth. We We had hoped that 1977 would be the year that an must retain our financial strength and flexibility if we are to effective National Energy Policy would be adopted . Unfor- sell securities at reasonable financing costs in order to build tunately, the legislation proposed was more of a revenue the required facilities, and at the same time continue to producing bill with extremely onerous provisions regarding provide existing shareholders with a reasonable return on electric utilities. However, through the efforts of many, their investment. We can assure you that your management including the electric utility industry and shareholders, a will continue to make every effort to strengthen the more effective energy bill will be developed by the joint Company and get public and regulatory understanding of Senate-House Committee. the importance of our need to obtain timely, adequate rate Dividends on Common Stock have been paid for 53 relief. As a shareholder you can add your voice to ours-consecutive years and increases in the dividend payment your support can provide a necessary extra ingredient to have occurred each year for the past 25 years. The Board assure a brighter future for all.

of Directors and Management intend to make every effort to continue this record . We arc fully aware of the need to For the Board of Directors, provide an adequate return to our investors and to provide a measure of protection from inflation. We know that many shareholders are retired and depend upon dividends to sustain them.

a.c.~

Although earnings per share were diluted as a result of A. C. Linkletter the greater average number of shares of Common Stock Chairman of the Board outstanding in L977, the sale of the additional shares

( 1,000,000 shares sold in October, 197 6) enabled Atlantic Electric to strengthen its capitalization structure and the funds obtained($ L9.3 million) helped pay for construction of new generating stations and other electrical facilities required to serve Atlantic Electric's customers. President 1978 promises to be a year of challenge for the people of Atlantic Electric and we plan to make it a year of important progress which will set the pace for more prosperous years to follow. Several of our major objectives are:

1. Continue to control operating expenses to the extent possible to minimize increases in the cost of electricity in Southern New Jersey.

3 j

The Company and The Area It Serves Located in an area close to the major metropolitan centers of Philadelphia and New York, Atlantic Electric provides electric service to the southern one-third of the State of New Jersey. Its 2,700 square mile territory boasts popular seaside resorts, fine residential communities and cities, excellent shopping centers and other commercial business centers, and diversified industrial and agricultural areas.

Atlantic Electric is an investor-owned electric utility serving more than 352,000 customers in an area with a year-round population of 961,000. Approximately 32 % of the holders of Common Stock are also customers of Atlantic Electric-the Company thus feels a strong obli-gation to the area it serves and to the best interests of its customers and shareholders alike. The Company has 43,826 shareholders of Common Stock and 2, 113 holders of Preferred Stock. As of year-end 1977, 10,702,557 shares of Common Stock were outstanding.

Earnings Declined-Dividends Increased Earnings available for Common Stock amounted to $2.06 per average share outstanding in 1977 as compared to

$2.60 in 1976 when there were fewer ave.rage shares out-standing. Dividends paid on Common Stock during 1977 amounted to $1.62 per share, compared with $1.56 paid in 1976. Earnings per share are the lowest since 1971 and their depressed level is attributable to a number of adverse factors including increased depreciation, higher taxes and inflation-generated increases in labor costs and in other operation and maintenance expenses.

4

100 Construction 75 Expenditures (Cash)

(Millions of Dollars) 50 25 0

1973 1974 1975 1976 1977

Types of Fuel and Fuel Costs the 315.3 million increase in kilowatt-hour sales for the Atlantic Electric has achieved substantial stabilization in year. We estimate that over half of the kilowatt-hour sales electric rates in recent years. Although the cost of all forms growth was related to abnormal weather conditions and the of energy (including electricity) is expected to continue to remaining growth attributable to new load being added to rise, there is hope for some stabilization of fuel costs in the the Company's lines.

,short term for the Company through increased production Electric Operating Revenues in 1977 amounted to $235 of energy with nuclear fuel. During 1977 approximately million, up 10.8 % from the prior year. Growth registered 18 % of the electric energy used by our customers was was 11 % in the residential category and 10.5 % and 12.2 %

produced by nuclear fuel-the estimate for 1978 is 24 % . in commercial and industrial respectively .

Coal and oil produced 43 % and 39 % of the 1977 kilowatt- Construction of New Facilities Continued hours respectively-the estimates for 1978 are 42 % for One of the daily challenges facing a utility such as Atlantic

!coal and 34 % for oil. Electric is that of providing the capacity to meet the present and future needs of its customers. As the demand Increases Recorded in Number of for electric energy increases, additional generation, trans-I Electrically Heated Homes mission and distribution facilities must be built if Atlantic

• Kilowatt-hour Sales and Revenues Electric's customers are to continue to receive the reliable The number of electrically-heated dwelling units has service on which they depend. In addition to providing new increased steadily over the years . During 1977, 2,511 such facilities to meet increased demand, we must also replace units were added to the Company's lines; the total included obsolete and worn out equipment. Even in the absence 2,358 newly constructed homes and 153 units which were of load growth, the Company would still be required to converted from other types of fuel. By the end of 1977 there carry out a significant construction program just to replace were 45,389 electrically heated dwelling units in our current facilities as they become worn out.

service area. Residential customers with electric heat repre- The Company's construction expenditures, including sent 14% of our residential customers. Significantly, during nuclear fuel, amounted to $42 million in 1977. Allowance 1977, residential customers with electric heating used for Funds Used During Construction totaled another $6.7 1 28 % of our total residential kilowatt-hour sales and pro- million. Of the 1977 expenditures, $26.9 million was for

<.iuced 23.5% of residential revenue. production facilities and $21.8 million was used for sub-Much colder than normal weather conditions during the stations, and transmission, distribution and general facilities.

first quarter of 1977 and hotter than normal weather It is estimated that cash construction expenditures will during the 1977 summer season were principal reasons for amount to approximately $66.7 million for 1978 .

5

The first unit at the Salem Nuclear Generating Station was placed in full commercial operation on June 30, 1977.

Atlantic Electric's share of this 1,090,000 kilowatt unit is 80,000 kilowatts. Unit No. 2 at Salem is scheduled for completion in 1979. The Company's share of this second unit is 83 ,000 kilowatts.

The Company is also participating in the construction of two nuclear units at the Hope Creek Generating Station located adjacent to the Salem Station. Ownership interest in these units, the first of which is scheduled for completion in 19-84 and the second in 1986, totals 107,000 kilowatts.

The Company also expects to have ownership interest totaling 460,000 kilowatts in four proposed floating nuclear generating units to be constructed under the direction of Public Service Electric and Gas Company. The first unit was scheduled for service in 1985, the second in 1987 and the remaining two in the early 1990's. As this report went to press, Public Service was in the process of negotiating with Offshore Power Systems, which is to construct the units, for a three year delay in delivery of the units. Atlantic Electric's current load projections indicate that new generating capacity must be available in the mid 1980's and it has commenced a study to determine how it will meet this requirement.

To provide these facilities and others needed to meet forecasted increases in demand, Atlantic Electric must always look ahead. Construction of major generating plants can take as long as ten to twelve years from the time the need is clearly defined until the plant is placed in commer-cial operation. Needless delays in application and licensing 6

80 %

Percent ol Kilowatt-Hours

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

Produced From Various Fuels 1973 1974 1975 1976 1977 1978 1979 1980 procedures result in costly increases in the already lengthy ments, it is anticipated that 43 % will be generated from lead times. Given the pressing need for development of internal sources and 4 % will be provided from the sale of future energy supplies, neither Atlantic Electric nor its Common Stock through the Dividend Reinvestment and customers can afford to waste time-a truly valuable Stock Purchase Plan. The balance of 53 % is to be financed resource. Atlantic Electric must provide the plant and temporarily through short-term bank loans and commercial equipment necessary to meet future demand for electricity paper borrowings. However, should economic and market when it occurs, a demand which, including conservation, is conditions during 1978 present a favorable situation for the expected to grow at an average rate of 3.9 % per year for issuance of long-term securities, the Company would the next ten years. consider the sale of such securities.

During 1977, $2.3 million was obtained through the Funds from External Sources are Required issuance of 102,41 7 shares of Common Stock under The production, transmission and distribution of electricity the Company's Dividend Reinvestment and Stock Purchase requires large investments in plant and equipment. Because Plan. This plan makes it possible for shareholders and of this investment and because of the highly capital- employees to purchase additional shares of Common Stock intensive nature of the industry, Atlantic Electric must directly from the Company at a price based on the average raise millions of dollars each year to maintain its ongoing high and low market prices of Atlantic Electric's Common construction program. Stock on the investment date. In January, 1978, the Board In December, 1977, Atlantic Electric raised $10 million of Directors authorized an additional I 00,000 shares of from the issuance and sale through a private placement of Common Stock for issuance under the Plan. At year end 100,000 shares of an $8.25 series of No Par Preferred 1977 there were about 7 ,000 participants in the Plan .

Stock. The proceeds were used to fund part of the cost of the Company's construction program and for repayment of Conservation-Control of Peak Demands its short-term debt incurred to provide interim financing Conservation and control of peak demands continue to be of construction costs. Also in December, $15 million of two of the focal points of Atlantic Electric's efforts to Unsecured Notes were issued bearing an interest rate of minimize increases in the cost of electric energy to custo-7.9 % per year and having a term of five years. The funds mers and simultaneously improve the prospects for earning

• received from the sale of the Notes were used to pay $15 a reasonable return on investment.

I million of 9.90 % Notes which matured on December 15, The Company took a bold step forward in energy con-I 1977. servation and its efforts to suppress the summer peak I

Of the $66.7 million 1978 cash construction require- demand when it became the first electric utility in the nation 7

to enforce a minimum acceptable efficiency ratio for air conditioners. This program was approved by the New Jerse Board of Public Utilities and permits us to refuse to connect electric service to a new building or home with air conditioning equipment having an energy efficiency ratio of less than 7 .0. We believe that this vigorously addresses itself to the problem of the sale and use of inefficient air conditioners, which is a major cause of the undesirable peald demand.

A continuing phase of Atlantic Electric's program is to provide customers with specific information regarding conservation and peak demand control-the Company has encouraged weather protection of homes, proper mainte-nance of heating equipment, use of major appliances during periods of lower energy demand and other energy saving methods.

The Company has always advocated and promoted extensive use of insulation and thermal treatment in elec-trically-heated homes, thereby setting a standard for other heating sources to move up to. If gas and oil heated homes had been built to such standards, vast amounts of energy

• I could have been saved throughout New Jersey and the

<* I nation. The Company hopes that its recently adopted

.. National Energy Watch (NEW) program will be the catalyst behind a further movement to encourage builders to improve thermal treatment in homes under construction.

The program also applies to owners of existing homes and encourages them to install energy efficient equipment and appliances in their homes. The National Energy Watch, based on guidelines provided by the Edison Electric Insti-8

1977 Revenue Dollar SOURCES OF REVENUE DISPOSITION OF REVENU E Residential $ .47 $ .35 Fuel

.3 1 .18

.17 .1 5 - Cost of Invested Funds Other Revenue - .05 .1 2 - Materia ls & Supp li es

.1 0 - Lab or

.08 - Cost of Replacing Equi pment

.02 I Rei nvested Funds Total $1.00 $1.00 Total tute, is an award and certification program aimed at determine the effects of once-through condenser cooling enhancing the marketability of homes that save energy. on fish .

While Atlantic Electric did make progress in peak The D.E.P. also has approved the concept of continued demand control and conservation we still experienced a coal burning in Units 1 and 2 of the B.L. England new record peak load of 1, 17 6,000 kilowatts in July 1977. Generating Station with the installation of additional We estimate that about 58,000 kilowatts of this peak was precipitator equipment. A final decision regarding the caused by the hotter and more humid than normal weather modifications which will be required and the costs involved conditions . The 197 6 peak load was 1,030,300; the is expected to be made early in 1978 .

previous record peak load of 1,069 ,400 was experienced in 1975. Safety and Public Relations Programs were Improved Atlantic Electric is conducting programs on electric safety The Environment and the cost of its Protection throughout its service area. Specially-trained linemen Atlantic Electric has been a leader in Southern New Jersey appear at schools throughout our service area to educate in advocating and promoting environmental protection students who are unaware of the potential hazards of and fulfilling its obligation to provide adequate, reliable electricity and the respect it demands. The Safety Depart-electric service at a reasonable cost while doing its utmost ment often dispatches its personnel to fire departments-to protect the quality of life of this area. We believe our both professional and volunteer-to show films and discuss Company has, over the years, been one of the most respon- the proper way to extinguish electrical fires. Discussions sible citizens of Southern New Jersey and has prudently often center on actions taken by veteran Company linemen weighed the pressing energy needs of the people with their in confronting hazardous situations in their daily work ability to meet the higher cost of energy, while at the experience. Several trade schools have held safety seminars same time doing its best to protect the environment for for the benefit of their apprentice electricians to better future generations. acquaint them with safe methods of handling electrical tools The New Jersey Department of Environmental Protection and electrical fixtures. The demand for the safety program (D.E.P.) and the Federal Environmental Protection Agency has been increasing and we are gratified that the public (E.P.A.) have determined that the B.L. England Gener- is so eager to learn more about electrical safety.

ating Station meets the requirements of New Jersey thermal The Speakers Bureau, comprised of employees of the water quality standards. Atlantic Electric is cooperating Company, continues to be an important part of our with these agencies by conducting biological studies at the program to communicate with those interested in the B.L. England and Deepwater Generating Stations to challenges and controversial issues which affect their 9

electric supply. The Bureau made 197 presentations during 1977 .

The ongoing safety and health program within the Company also was strengthened during 1977 in our efforts to prevent accidents and help employees to recognize potentially dangerous situations both on and off the job.

Our Employees-A Key to Successful Operations Over the years Atlantic Electric has developed a good working relationship with its employees. Without a highly trained, capable and efficient work force, we could not continue to reliably provide electricity to a million people in Southern New Jersey. The varied and diverse roles performed by our people range from the familiar and visible

' ' linemen and meter readers to the "behind-the-scenes" employees, such as power plant operators, engineers, drafts-men and clerical personnel. No matter what their job title, each of the 1,739 employees of Atlantic Electric plays an important and necessary role in the overall operation of the Company. Following the culmination of negotiations with union representatives, a new two-year agreement was entered into in December, 1977. A general wage increase each year and improved benefits were granted to employees by the Company. The increase and benefits will add approximately $2.6 million to the Company's 1978 payroll costs and $2. 8 million to 1979 costs.

Atlantic Electric has implemented an improved Customer Relations and Service Training Program which brings to employees who interact with the public a greater knowledge of various departments in the Company. The program has an all-encompassing curriculum of some 18 subjects which 10

/

Year-End Capitalization

~ Long -term Debt 50% ......

This ca pita li zation chart clearly reflects tw o of our lo ng-range goa ls which have been achieved - a reduced debt ratio and increased share holder equ it y. T hese are key factors in deter-mining fina ncia l rat ings. Common Sloe~---~

will assist employees in becoming more articulate in their dealings with customers and help them develop knowledge 0 % ~~~~~~~~~~~~~~~~

1973 1974 1975 1976 1977 which will enable our employees to better serve our customers. The program consists of 28 classroom sessions covering more than 100 hours0.00116 days <br />0.0278 hours <br />1.653439e-4 weeks <br />3.805e-5 months <br /> and includes examinations.

Community Activities President John D. Feehan has accepted the Delaware Valley Council's 1977 Corporate Award on behalf of Atlantic Electric in recognition of its "People Helping People" program. The program encourages employees to become involved in community activities. The Delaware Valley Council, currently in its 22nd year, concerns itself with the orderly economic development of the 15-county Delaware ALBANY Valley Region , which includes our service area . The Council is comprised of business executives, professional people, community leaders and public officials.

v~

Mr. Feehan also accepted awards from the PITTSBURGH New Jersey Science Teachers Association and NEW YORK the New Jersey Council for the Social Studies in recognition of the Company's work in the field of education. As one of the co-sponsors of the Science-Energy Conferences, we have tried to improve "energy awareness" . Company officials and outside speakers meet in all day sessions with student and faculty representa-tives from area high schools to discuss energy matters from the basics of electric generation to alternate energy sources for the future . We have taken a leadership role in the Science-Energy Conferences for four years.

Serving One-third of the State of New Jersey 11

Statements of Income and Retained Earnings Year Ended December 31 1977 1976 OPERATING REVENUES-ELECTRIC (Note 9) $234,994,695 $212,027,442 OPERATING EXPENSES :

Fuel ... .. ... . .... . ......... . .. .. .... . . . .... . ............ .. .... . 82,734,593 69,233,774 Interchange .... .. ....... .... . . . ..... . .. . ......... . ..... .. .. . . . . . . 3,735 ,245 4,819,194 Power Production-Operation and Maintenance . .. .... .. . . ... ......... . 17,781,985 13,497,991 Other Operation and Maintenance . . ... . . .......... .. ...... . . . . ...... . 29,262,922 26,333,575 Depreciation (Note 1) . . ... . . . . . .. . .................. . . ... . . . .... . . 19,3 68,780 17,394,673 Taxes Other Than Federal Income Taxes . . ....................... . . . .. . 29,069,476 26,341,778 Federal Income Tax Expense (Notes 1 and 6) ..... . . ... ... . ..... . .... . . 13,188,156 11,495,656 Total Operating Expenses . .... . . . . . ...... .. . . . .. . . . . .. ..... .. . 195,141,15 7 169,116,641 OPERATING INCOME 39,853,538 42,910,801 OTHER INCOME:

Allowance for Funds Used During Construction (Note 1):

Debt and Equity (Prior to January 1, 1977) . .... . .. . .. ..... . .... ... . . 7,456,612 Equity (After December 31, 1976) . ....... .. ....... . ... . .... . ..... . 3,906,318 Miscellaneous Non-Operating Income Less Income Deductions . . . . ..... . . . . (24,754) 385 ,583 Total Other Income . . .......... . . ............ . ... . . ..... . . . . 3,881,564 7,842,195 INCOME BEFORE INTEREST CHARGES ..... .. .. . ... . . ..... .. ... .. . . 43,735,102 50,752,996 INTEREST CHARGES:

Interest on Long-Term Debt . . ... . .. . ... . ... .. .... . . ....... .. . ..... . . 18,489, 133 18,948,850 Amortization of Debt Expense and Premium-Net . ........... .. ... ..... . 62,993 52,023 Interest on Short-Term Debt . ................. . .... ...... ... . ...... . 433,725 800,563 Other Interest Expense .. .. .. ...... . ..... .. ....... . ..... . .. . .. .. ... . 162,104 155,864 Total Interest Charges . . . ........ . .. . ....................... . 19,147,955 19,957,300 Allowance for Funds Used During Construction-Debt, after December 31, 1976(Note1) .... . ...................... . .. .. . ... . 2,771 ,148 Net Interest Charges ......... .. ... . ... ..... ... ............ . . . 16,376,807 19,957,300 NET INCOME . .. ... ... ..... ... .. ... . .. .. .. . . ...... . .. .... . .... .. . . 27,358,295 30,795,696 RETAINED EARNINGS AT BEGINNING OF YEAR ............. . .... . . 84,027,439 74,165,678 111,385,734 104,96 1,374 DIVIDENDS DECLARED:

Dividends on Cumulative Preferred Stock . ..... . . . ........ . ...... . . ... . 5,549,678 5,483,936 Dividends on Common Stock (per share 1977-$1.62, 1976-$ 1.58) . . . .. . . 17,235,204 15 ,449,999 Total Dividends Decla red .. . ... .. .. . . .... ... ........ .. . .... .. . 22,784,88 2 20,933,935 RETAINED EARNINGS AT END OF YEAR .. ........ . ........ . ... . .. . $ 88 ,600,852 $ 84,027,439 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING .. . . ..... . 10,629,930 9,747,012 EARNINGS PER SHARE OF COMMON STOCK (Note 4) $2.06 $2.60 See Notes to Financial Statements 12

Statements of Changes in Financial Position Year Ended December 31 1977 1976 SOURCE OF FUNDS Funds from Operations :

Net Income .. ... .. .. . . .. ..... .. . .... . . ....... .. . ..... . . ... . . . .. . $ 27,358,295 $ 30,795 ,696 Principal Non-Cash (Credits) to Income :

Depreciation ........ .. . .................. . .......... . . .... .... . 19,368,780 17,394,673 Amortization of Nuclear Fuel .......... .. ........... . ............ . 1,037,980 Allowance for Funds Used During Construction . ....... .... .... ...... . (6 ,677,466) (7,456,612)

Federal Income Taxes-Deferred-Net . . . ..... .. . . ... . ............. . 7,866,279 4,697,375 Investment Tax Credit Adju stments-Net .... . .................. . ... . 2,850,249 6,419 ,859 Other- Net .. .. ... .. .......... . .. .. .. . .. . . . . . .. ....... ...... .. . (166,944) 132,117 Total Funds from Operations ... . ... .... . . .. . .............. .. . . 51 ,637,173 51 ,983,108 Funds from Outside Sources:

Long-Term Debt ...... . . .... .. . .. . ... . .. ... . ...... . ...... . ...... . 15,000,000 2,500,000 Sale of Common Stock ....... . ... ....... . . . ... . .... . . .... ......... . 3,349,523 20,790,854 Sale of Preferred Stock . .. .... .. ......... ... . . ........... . . .. .. . .. . . 10,000,000 Capital Stock Purchase Plan ... .. ......... . ... . ... . ..... . ....... . . .. . 24,446 Total Funds from Outside Sources . . ......... . .......... . ...... . 28,373,969 23,290,854

• Hope Creek Transfer-Net . ... . .. .. ..... .. ....... . ..... ... ... .. .... . . 3,262,031 Other Sources-Net ...... .... .............. . .. ... .... ...... . .. .... . . 22, 750 (126,801)

Total Source of Funds $ 80,033,892 $ 78,409,192 APPLICATION OF FUNDS Gross Additions to Utility Pl ant ............ . .... . ..... . ............ .. . $ 48,733,032 $ 41,701 ,515 Allowance for Funds Used During Construction ... ....... . . . .. ........... . (6,677,466) (7,456,612)

Net ............. .. ... ... . ......... .. .... ... .... ...... .. . . 42,055,566 34,244,903 Dividends on Preferred Stock . .. . .................. .. ... . .. ... .. ...... . 5,549,678 5,483 ,936 Dividends on Common Stock ......... ... .. . ...... . ... . .. . ......... . .. . 17,235,204 15,449,999 Retirement and Maturity of Long-Term Debt . ... ....... .. .. ... ........... . 15,400,000 10,592,000

• Conversion of Preferred Stock ...... . ............. . . . . ...... ....... .. . . 512,000 25 ,000 Decrease in Short-Term Debt . ... . ...................... . . . .. .. .. . .... . 13,650,000 Investments in Subsidiary Companies (Note 2) . ..... . .. .. ... . .... . ... . .. . . (2,802 ,950) 1, 161 ,473 Increase (Decrease) in Working Capital (see below) . .. ....... .. ..... . . ... . 2,084,394 (2,198,119)

Total Application of Funds .......... . .. . ....... . .. . .. ...... . . $ 80,033,892 $ 78,409,192 NET INCREASE (DECREASE) IN COMPONENTS OF WORKING CAPITAL*

Current Assets:

Cash and Cash Items .... . ....... ..... . .. .............. . ... . . .. ... . $ 2,253,616 $ (993,958)

Accounts Receivable .... . .... . .. . .. .. . .. ................. . .... ... . 94,824 1,366,882 Fuel ......... . . .... .. .. .................... . ...... . . . ........ . . 3,388,800 (2,082,246)

Materials and Supplies .. . .. .. ...... .. ...... . .. .. ........ .. ... .... . . 1,028,650 68,9 15 Prepayments .......... .. . .. .. . . ........... ... ..... . .. . .......... . 319,558 134,299 Other .. . . . ...... ..... . .. .... . .. .. . .. ........ . .... . . .. . ... . .. .. . (3,262,031) 3,262,031 Total .... .. . . . .. ... . ... . . . . ........... . ............. .... . 3,823,417 1,755,92 3 Current Liabilities:

Accounts Payable . ... .. .................................. . ..... . . . (193,576) 2,526,763 Taxes Accrued .... ... .. ................. .. . .... . . .............. . . 3,661,828 336,836 Interest Accrued .... .. . . ..... . ....... . . ... ....... .. ............. . 35,621 (291 ,120)

Other .... . ....... ... ........... . . . ....... ................ .. .. . . (1,764,850) 1,381 ,563 Total .. . ......... . .. ...... . .... .. .. . ......... .. . . ........ . 1,739,023 3,954,042 Net Increase (Decrease) in Working Capital .............. . . . . . .... . .... . $ 2,084,394 $ (2,198,119)

• Excludes Short-Term Debt, Notes and Debentures Maturing in 1977 and 1976.

See Notes to Financial Statements 13

Balance Sheets December 31 Assets 1977 1976 ELECTRIC UTILITY PLANT (Note 1) :

In Service:

Production .. . ... .. .. . . .... . . .... . . . . . . .. .. . . . . .. . .. . . .. ... . .. . $324,354,058 $254,882, 314 Transmiss ion . ..... . . . . . ....... . .. . .... . . . . . . ..... . . . . . .. . . ... . 106,353,003 100,078,636 Distribution .. .. . . . ... .. .. .. . . ...... . .. . ... . . ... . . .... . .... . .. . 210,656,415 197,834,649 General . . .. .. . . ....... . .. . .. . .... . ... . .. . .. . . .. . . .... . . .. .. . . . 15,821 ,460 15 ,961,996 Total .. ... ... . ... . . . ......... . . . . . .. . . . ... ..... . ... . .. .. . . . . 657, 184,936 568,757,595 Less Accumul ated Depreciat ion ... . ... ... . . .. . . . ........ . . . . . . . 151 ,570,215 137,204,449 Net . . . . . ... .... .. .......... ..... ..... . . . .. .... ..... . . . . 505 ,614,721 431,553 ,146 Constructi on Work in Progress . .. . ... . ... . .. . . .. .. . .. . . . . . . . .. . .. . . . 86,700,308 133,754,943 Nuclear Fuel, Less Accumulated Amortization at Dece mber 31, 1977 of $1,037,980 . . . . .. . . . . .. .... .. . . . .. .. .. . . . . 8,346,184 7,8 30,430 Electric Utility Plant-Net .. . .... . . . ... ... ..... .. ... .. .. . .... . 600,661 ,2 13 573,138,519 INVESTMENTS :

Investment in Subsid iary Comp anies, at Equity (Note 2) . . . .. . .. . .... . . . . . 2,955 ,832 5,53 8, 846 Land Purchase Contracts . .... .. . .. . ........ .... .. . . .. . . . .. .. ... . .. . 638,231 635,231 Other .. .. ..... . ..... . .. .. .. . . .. ..... . .. .. . . . . . . . . .. . . . . . . .. . . . . 499,645 422,792 Total Investments . . .. . . . ... .. . . . . . . .. . . . .... . .. . . .. . . .. .. . . . 4,093 ,708 6,596,869 CURRENT ASSETS :

Cash (Note 5) . .. . . ... ....... . ....... . .. . . .. .... . ... .. . . . . . . . ... . 4,993 ,103 4,708,804 Temporary Cash Inves tments .. . . .. . ... ..... ... . .... . . ... . . .. .. .. . . . 2,700,000 600,000 Special Deposits and Working Funds . . . .... . .. ...... . . . .. ... . . ...... . 335 ,886 466,569 Accounts Receivable :

Utility Services .. . ...... . . . ... . . .. ... . . . ..... . .. . .. . ......... . . . 15,123,741 13,546,972 Miscellaneous . ... .. ... . . . .. . . .. .. . .... ... ... ... . ... . .......... . 1,390,018 2,871 ,963 Allowance for Doubtful Accounts .... . .. . .. ... . . . ... . . ... . .. .. . ... . (200,000) ( 200,000)

Fuel (at ave rage cost) . .. . .... .. .. .. . .. .. ... . . . . . ......... . ... .. .. . 18,271 ,502 14,882,702 Materi als and Supplies (at average cost ) . .. . . . . .. . .. . . . . . . . . . ... .. . .. . . 8,295 ,918 7,267,268 Prepayments . .. . . . . .. ..... . ... . . . ... . . . . ... . ... . .... . ..... . . .. . . . 2,026,355 1,706,797 Other . . . .. . ..... ... .. .. . . .. .... . .. . . . . . . .... . . . . . .. . . .... . . . . . . 3,262,031 Total Current Assets .. . . . . .. . . . .. . . . . .. . ... . .. . . . . . . . .. . . .. . 52,936,523 49,113,106 DEFERRED DEBITS:

Unamortized Debt Expense (Note 1) . . .. .. . . . . . ... .. .. .. . . . . .... ... . . 2,028,63 5 2,150,559 Other . .. .... . . . ... .. . . . . . . . . ... .... . .. . . ........ . . . .... . . .... . . 2,894,087 2,058,703 Total Deferred Debits .. . ......... . .... .. .. ... .......... . . . . . 4,922,722 4,209,262 Total Assets . . .. ... . . .. . . . . . . . . . .. . .. . . . . . . . . . . ... . .. . . $662,614, 166 $633,057,756 See Notes to Financial Statements 14

December 31 Liabilities and Shareholders' Equity 1977 1976 SHAREHOLDERS' EQUITY (Note 3):

Cumulative Preferred Stock . ... ... . . . .. .. .. . . .. . . . ... ... . . . .. . .... . . $ 89,554,045 $ 80,066,045 Common Stock, Par Value $3:

Authorized Shares, 14,000,000 Outstanding Shares 1977- 10,702,557 ; 1976-1 0,55 6, 372 ........ . .. . . . 32,107,671 31 ,669 ,116 Premium on Common Stock ... . ... . .. . . . . .. .. . . ... . . . . .. ... .... . . 102,695,631 99,700,474 Total Common Stock ..... .. .. .. ... . ..... . .... . .. ..... . . . . .. . 134,803,302 131 ,369,590 Capital Stock Purchase Plan . . ... .. . . . . . .... ... ... .. . .. . . ... .. . . . .. . 24,446 Capital Stock Expense (not being amortized ) .. .. . . . . ... ... . ....... .. .. . (1,848,1 77 ) (1 , 723 ,230)

R etai ned Earnings . . . ..... . ..... . .. . . .. . . . . . . . .... . . ...... . .... . . . 88,600,852 84,027,439 Total Shareholders' Equity .. . .. .. . .. ... . . . . .. . .. . . . .. . . . . .. .. . 31 1, 134,468 293,739,844 LONG-TERM DEBT (Note 12) .. . . . .. . . . . ....... . .. . ..... . .. . . . . .. . . . 290, 120,223 275 ,635 ,523 CURRENT LIABILITIES:

Current Portion of Long-Term Debt . . .. . . . .. .. . . .. . . ...... . . . . .. . . .. . 15,000,000 Accounts Payable .. .. .. ... . . . .. .. . . ... ... .. ... ......... . . . . . . . .. . . 4,047,067 4,240,643 Customer Deposits . . ... . . . . . .. . .. .. . . . . . .. . . . . . .. . ... .. .. . .. .... . . 2,915 ,418 2,440,353 Taxes Accrued .. . .. . . . ........... . ..... ... . . . . .. ... .. . . . . . . ..... . 6,016,229 2,354,401 Interest Accrued .. . . . .. ...... . . . . .... .. . ..... . . . . . . .. ... .... . . .. . . 3,564,494 3,528,873 Dividends . Declared . . . . . .. .. . . . .. . ... . .. . .. . . .. .. . . .. . . . . .. . . . . . . . 5,784,550 5,644,72 8 Other . . .. . .. . ... . .. . ... . ... ... . . . . . . . .. . . .. .. .... . .. . ... .. .. . . . 3,534,269 5,914,005 T otal Current Liabilities .. .. . . . .. . . . ... . .. .. . . ... .... . . .. . .. . 25,862,027 39,123,003 DEFERRED CREDITS :

Customer Advances for Construction . ... .. . ... . ... . . . . . . .... . . . . . . . . . 597,960 51 7,448 Accumulated Deferred Investment Tax Credits (Notes 1 and 6) . . . . . ..... . . 15,221 ,703 12,371,454 Accumulated Defe rred Income Taxes (Notes 1 and 6) .. ... . . ....... ... . . 18,306,228 10,439,949 Other Deferred Credits . .. . .. . .... .. .. . . . . .. .. . ... . . . . . . ... . . . . .. . . 381,557 230, 535 R eserve for Storm Damage . . .... . .. .. . . ... ... . ... . .. ... . .... .. . ... . 450,000 45 0,000 Other R eserves . .. .. . .. ... . .. ...... . .. . ......... .. . . .. . .. . ... .. .. . 540,000 550,000 Total Deferred Credits . . ... . . . . . .. ....... . . . . . ... . . .. ...... . . 35,497,448 24,559,38 6 COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)

Total Liabilities and Sha reholders' Equity ... .. . .. .. ... .. . . . . . . . . . $662,614,1 66 $633,057,756 See Notes to F in ancial Statements 15

Notes to Financial Statements NOTE 1: SIGNIFICANT ACCOUNTING POLICIES: Nuclear fuel requirements for Peach Bottom Units No. 2 and 3 are REGULATION-The accounting and rates of the Company are subject to being provided by the operating company for Peach Bottom through the requirements of the Board of Public Utilities of the State of New a fuel purchase contract. Presently, such costs are calculated using a Jersey_(B_PU) and in certain respects to the Federal Energy Regulatory zero net salvage value. The Company is responsible for payment of its Comm1ss1on, formerly the Federal Power Commission (FPC). proportionate interest (7.51 %) of the cost of the fuel consumed and of certain operating costs and interest expense during the term of the contract.

ELECTRIC UTILITY PLANT-Property is stated at original cost (cost to All nuclear fuel costs are charged to Fuel Expense.

the person first devoting the plant to public service). Generally the plant is subject to a first mortgage lien. The cost of property additions, FEDERAL INCOME TAXES-Deferred Federal income taxes are provided including replacement of units of property and betterments, is capital-in amounts equal to the tax effect of the difference between tax de-ized. Included in certa in additions is an Allowance for Funds Used preciation computed on depreciable property added after 1973 using During Construction (AFDC) which is defined in the applicable regulatory accelerated methods under the ADR System and the straight-line systems of accounts as the net cost, during the period of construction, method using asset guideline periods. Tax reductions relating to the of borrowed funds used for construction purposes and a reasonable differences between book depreciation and straig~t-line asset guide-rate on other funds when so used. In February, 1977, the FPC issued an order relating to AFDC and revising the Uniform System of Accounts. line depreciation are reflected in Federal income tax expense currently as allowed by the current ratemaking policy of the BPU. In addition, Such order was effective January 1, 1977, and provides a formula for determining the maximum allowable AFDC rate . In addition, the order the Company provides deferred Federal income taxes relating to the use of the repair allowance provisions of ADR. Investment tax credits requires the segregating of AFDC into two component parts; borrowed funds (debt) and other funds (eq uity). Since January 1, 1977, the debt are deferred on the balance sheet and are restored to income over the compon ent has been included in the Interest Charges section of the life of the related property.

Statement of Income as a credit, while the equity component continues to remain as a credit to Other Income. The Company has not reclassi- PENSION PLAN-The Company and Deepwater, referred to in Note 2, fied AFDC into its debt and equity components for periods prior to have in effect a noncontributory insured retirement annuity plan cover-January 1, 1977, since the FPC order does not require reclassification. ing all regular employees. The cost of the plan, determined under the Further, the Company believes that such a reclassification would be aggregate cost actuarial method for the years 1977 and 1976 respec-inappropriate since this would imply that the prior periods were com- tively, amounted to $3,076,000 and $2,544,000 for the Company (in-parable when, in fact, prior to January 1, 1977, separate AFDC rates cludin g $678,000 and $582,000 charged to construction) and $498,000 were not required and were not calculated for the cost of debt and and $414,000 for Deepwater. Based on an actuarial study as of Decem-equity funds. The Company does not expect any adverse effects on ber 31, 1976, the fund assets were in excess of the vested benefits the results of its operations as a result of this order. The 1977 rate for computed under the plan. The Company's plan is in compliance with calculating AFDC was 8%, which is less than the maximum allowed the Employee Retirement Income Security Act of 1974.

under the FPC formula and is the same rate used in 1976.

NOTE 2: INVESTMENT IN SUBSIDIARY COMPANIES:

DEPRECIATION AND MAINTENANCE-The Company provides for de- The Company's investment in Deepwater Operating Company (Deep-preciation on the basis of the estimated service lives of depreciable water), a wholly-owned subsidiary which operates generating and property on a straight-line basis. The over-all composite rate of de- process steam units owned by the Company was $2,301,000 and preciation was approximately 3.3% and 3.2 % for the years 1977 and $2,101,000 at December 31, 1977 and 1976 respectively. The assets 1976 respectively. In addition to the provision for depreciation, income of Deepwater consist almost wholly of working capital in which the is charged with the cost of labor, material, supervision and other equity of the Company is fairly represented by its investment in Deep-expenses incurred in making repairs and minor replacements and in water. The net production costs of Deepwater (after deducting charges maintaining the properties in efficient condition. Accumulated deprecia- to E. I. duPont deNemours & Company) are charged to the Company.

tion is charged with the cost of depreciable property units retired, These costs are included in the Company 's accounts classified as to together with removal costs less salvage and other recoveries. operation, maintenance and taxes.

On November 30, 1977, the Company sold the stock of its wholly-owned subsidiary, Overland Realty, Inc. (Overland). Prior to the sale of DEBT EXPENSE AND PREMIUM-Debt issuance expense and premium Overland 's stock, certain properties and related liabilities of Overland are being amortized over the lives of the issues to which they pertain. were transferred to Atlantic Housing, Inc. (Atlantic), a wholly-owned subsidiary of the Company. The effect on net income resulting from the sale of Overland 's stock was not material and was recorded in NUCLEAR FUEL-The Company 's amortization of the Salem nuclear Oth er Income . The Company's investment in Atlantic, at December 31 ,

fuel is based on a rate using the number of units of thermal energy 1977, amounted to $654,832. At December 31, 1977, Atlantic had produced over the estimated total thermal units to be produced during $2,140,693 invested in land and mortgages of which $1,780,032 is the life of the fuel, plus a factor representing the estimated costs invested as a 20% undivided interest as tenant in common in a future applicable to a "throwaway" cycle. The "throwaway" cycle assumes generating station and industrial site. This site is subject to a mortgage perpetual storage of spent fuel plus associated charges and includes of which the Company is liable for the payment of $780,000 principal no credit for the reprocessing of spent fuel materials. amount and interest under a suretyship agreement.

16

NOTE 3: CAPITAL STOCK:

CUMULATIVE PREFERRED STOCK, Par Value $100 Authorized 799,979 Shares Current Refunding December 31 Redemption Restricted 1977 1976 Price Per Share Prior to (A)

Issued and Outstanding Series:

4% Series-77,000 Shares $ 7,700,000 $ 7,700,000 $105.50 4.10% Series-72,000 Shares 7,200,000 7,200,000 101.00 4.35% Series-15,000 Shares 1,500,000 1,500,000 101.00 4.35% 2nd Series-36,000 Shares 3,600,000 3,600,000 101.00 4.75% Series-50,000 Shares 5,000,000 5,000,000 101.00 5% Series-50,000 Shares 5,000,000 5,000,000 100.00 5'l's% Convertible Series-94,609 Shares (1977) 99,729 Shares (1976) (8) 9,460,900 9,972,900 104.50 7.52% Series-100,000 Shares 10,000,000 10,000,000 106.77 8.40% Series-100,000 Shares (C) 10,000,000 10,000,000 115.00 Feb. 1, 1979 9.96 % Series-200,000 Shares (D) 20,000,000 20,000,000 109.26 Aug. 1, 1984 Total Cumulative Preferred Stock 79,460,900 79,972,900 PREFERRED STOCK, No Par Authorized 2,000,000 Shares Issued and Outstanding:

$8.25 Series (Cumulative)-100,000 Shares issued December 22, 1977 (E) 10,000,000 108.25 Nov. 1, 1987 89,460,900 79,972,900 Premium on Preferred Stock 93,145 93,145 Total Preferred Stock $89,554,045 $80,066,045 Preference Stock, without par value, 3,000,000 Shares authorized, none outstanding.

(A) Prior to the date specified, no shares may be redeemed through certain refunding operations.

(8) The 5'l's % Convertible Series is convertible (subject to adjustment in certain events) into Common Stock at the rate of 3.5 shares of Com-mon Stock for each share of the Preferred (331,132 shares of authorized Common Stock are reserved for the conversion of the Series).

(C) On February 1, 1985, and annually thereafter, 4,000 shares of the 8.40% Series must be redeemed through the operation of a sinking fund at a redemption price of $100.00 per share. At the option of th e Company, an additional 4,000 shares may be redeemed on any sinking fund date, without premium, up to 32,000 shares in the aggregate.

(D) On August 1, 1979, and annually thereafter, 8,000 shares of th e 9.96 % Series must be redeemed through the operation of a sinking fund at a redemption price of $100.00 per share. At th e option of the Company, an additional 8,000 shares may be redeemed on any sinking fund date, without premium, up to 40,000 shares in the aggregate.

(E) On November 1, 1983, and annually thereafter, 2,500 shares of th e 8.25% No Par Preferred Stock Series must be redeemed through the operation of a sinking fund at a red emption price of $100 per share. At the option of the Company, an additional number of shares, not to exceed 2,500 may be redeemed, on any sinking fund date, without premium.

COMMON STOCK-Issues of common stock in 1977 consist of the following:

Shares Dividend Reinvestment and Stock Purchase 102,417 Employee Stock Ownership Pl an 25,848 Conversion of Preferred Stock 17,920 Total 146,185 Premium on Common Stock was credited in 1977 with the amoun t of $2,995,157 representing the excess of proceeds over the par value of shares of Common Stock issued, sold and converted. At December 31, 1977, the Company had reserved 162,159 shares of Common Stock under its Divid end Reinvestm en t and Stock Purchase Plan which became effective in 1976 an d 224,152 shares of Common Stock under its Employee Stock Ownership Plan which became effective in 1977.

17

Notes to Financial Statements NOTE 4: EARNINGS PER SHARE: Federal income tax expense is comprised of the following:

Earnings per share of Common Stock has been computed by dividing Federal Income Tax . . . . . . . . . . . . . . . . . . $ 1,850,404 $ 378,422 net income net of applicable preferred stock dividend requirements Deferred Taxes (as below) . . . . . . . . . . . . 7,866,279 4,697,375

($5,484,691 in 1977 and $5,483,936 in 1976) by the average common Investment Tax Credit- Earned . . . . . . . . 3,850,447 6,708,741 shares outstanding during the year. Investment Tax Credit-Used . . . . . . . . . (378,974) (288,882)

Federal Income Tax Expense . . . . . . . . . . 13,188,156 11,495,656 NOTE 5: SHORT*TERM BORROWINGS AND COMPENSATING BALANCES: Federal Income Tax-Other Income The Company had arrangements for short-term borrowings as follows: (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . 941,768 329,095 Maximum amount of short-term 1977 1976 Total Federal Income Tax Expense . . . . . . $14,129,924 $11 ,824,751 borrowings outstanding at any month end during the year . . . . . . . . . . . $9,600,000 $19,300,000 The provision for Deferred Federal income taxes, net, results from the following timing differences:

Average amount outstanding during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,619,000 $11,629,000 Liberalized Depreciation ............ . . $ 4,137,707 $ 3,264,227 Repair Allowance ..... .... . . .. ... ... . 4,062,510 1,920,000 Average interest rate on above .. .. . .... . 5.8% 6.3%

Accelerated Amortization and Repair Weighted average interest rate on Allowance Amortization . . .. . . ..... . (314,738) (246,852) short-term borrowings outstanding Other ........ . . . . . .. . .. .... .... .. . (19,200) (240,000) during the year: $ 7,866,279 $ 4,697,375 Notes Payable to Banks . ....... .. . . 6.8% 7.2%

Commercial Paper .... . ... . ...... . 5.7% 5.5% Investment tax credit earned in 1977 includes $621 ,000 representing the Company's use of the additional 1% investment tax credit avail-The unused lines of credit available at December 31, 1977 and able under the Tax Reduction Act of 1975. Such amount was used to 1976 were $50,000,000. Demand deposits are maintained with lending purchase 25,848 shares of the Company's Common Stock (See Note 3).

banks certain of which are deemed to constitute compensating bal- At December 31, 1976 Investment Tax Credits of approximately ances which are not legally restricted. Based on lines of credit and $2,697,000 were available for carryforward. All available credits have loans outstanding at December 31, 1977 and 1976 respectively, such been utilized in 1977. Federal income tax returns have been settled compensating balances approximated $2,000,000 and $2,500,000. through 1971.

NOTE 6: FEDERAL INCOME TAXES: NOTE 7: LEASES:

Federal income tax expense applicable to current operations is less Rentals incurred in 1977 and 1976 were approximately $3,600,000 and than the amount computed by applying the statutory rate on book $3,500,000 respectively.

income subject to tax for the following reasons: Certain of the Company's leases meet the conditions for capital iza-Year Ended December 31 , tion under the criteria established by FASB No. 13 and ASR No. 225 1977 1976 but in accordance with rate making treatment are accounted for as

- - - operating leases. Such leases, if capitalized, would have increased Net Income . .... . ..... . .. ... ...... . . $27,358,295 $30,795,696 the Company's assets and liabilities by approximately $18,600,000 Federal Income Tax Expense (as below) .. 14,129,924 11,824,751 and would not have had a material impact on the Company's net Book Income Subject to Tax ..... .. .. . . $41,488,219 $42,620,447 income.

Income Tax at Statutory Rate (48%) .. . . $19,914,345 $20,457,815 Future minimum rental commitments under noncancelable leases as Less: of December 31, 1977 are approximately as follows:

Excess of Tax over Book Depreciation Capital Operating Total (flow-through portion) .. . . .. . .... . 1,788,210 3,655,710 Allowance for Funds Used During 1978-$ 2,400,000 $ 600,000 $ 3,000,000 Construction . .... . . ...... ... ... . 3,205,184 3,579,174 1979- 2,400,000 550,000 2,950,000 Capitalized Overheads .... . .. .. . ... . 796,260 729,801 1980- 2,400,000 500,000 2,900,000 Investment Tax Credits-Used . ..... . 378,974 288,882 1981- 2,400,000 400,000 2,800,000 Accelerated Amortization- 1982- 2,400,000 300,000 2,700,000 Deferred Taxes ... . .......... ... . 103,260 161,852 Thereafter- 27,200,000 1,100,000 28,300,000 Amortization-Repair Allowance . .... . 211,478 85,000 The total minimum rental commitments for capital leases as of Other ... . .. . ........ . ... .. ...... . (698,945) 132,645 December 31, 1977 are applicable to combustion turbine generating Total Federal Income Tax Expense $14,129,924 $11,824,751 units (69%), fuel storage facil ities (19%) and general plant (12%).

Minimum rental commitments for operating leases are appl icable to steam production (55%) and general plant (45%).

18

Lower Thermostats For each degree lower than 70 ° that you set your Do Mean thermostat, you use 3 % less energy . . . compared to the price you'll pay for higher thermostat settings.

Lower Lower thermostats in the winter (and higher thermo-stats in the summer) mean lower energy bills.

Energy Bills NOTE 8: COMMITMENTS AND CONTINGENCIES: NOTE 10: QUARTERLY FINANCIAL RESULTS (UNAUDITED):

Construction expenditures, including nuclear fuel but excluding pro* Quarterly financial data (not examined by independent certified public duction plant, are estimated at $41,000,000 for 1978. Commitments accountants) which reflect all adjustments (which consist of only for the construction of production plant amount to approximately normal recurring accruals) necessary in the opinion of the Company

$110,000,000 of which it is estimated that $26,000,000 will be ex* for a fair presentation of such amounts are as follows:

pended in 1978. Earnings Earnings The Price*Anderson Act places a liability limit of $560 million on Operating Operating Net For Common Per each nuclear generating unit for public liability claims that could arise Quarter Revenues Income Income Stock Share from a nuclear incident. In the event of any such incident, all owners Thousands of Dollars of nuclear generating units licensed to operate would be requi red to 1976 contribute toward satisfaction of such claims. The Company, as a 1st $ 51,074 $ 9,752 $ 6,673 $ 5,302 $ .56 co-owner of the Peach Bottom and Salem Stations, has partially insured 2nd 48,861 9,130 6,063 4,692 .49 for this exposure by purchasing, through the principal owners, private 3rd 61,739 15,363 12,104 10,733 1.13 insurance in the maximum available amount of $140 million. The remainder is provided by the owners of licensed nuclear generating 4th 50,353 ~ 5,956 4,585 .44 units and by indemnity agreements with the Nuclear Regulatory Com- $212,027 $42,910 $30,796 $25,312 $2.60*

mission. Accordingly, in the event of a nuclear incident, which was not 1977 covered by the $140 million private insurance, the Company could 1st $ 57,935 $ 8,956 $ 6,179 $ 4,812 $ .45 be assessed an amount equal to its ownership participation times 2nd 52,338 9,025 6,325 4,959 .47

$5 million for each reactor owned, approximately $375,000 per reactor, 3rd 70,320 14,083 10,746 9,380 .88 not to exceed $10 million per reactor per year, times the Company's 4th 54,402 7,790 4,108 2,723 .25 ownership or approximately $750,000 per reactor. $234,995 $39,854 $27,358 $21 ,874 $2.06*

The Company has an ownership interest in the Construction of off-shore Nuclear Generating Stations and its investment in such projects The revenues of the Company are subject to seasonal fluctuations at December 31, 1977 was $4,055,574. The Department of Energy of due to increased sales and higher residential rates during the summer the State of New Jersey has questioned the schedule and some safety months.

aspects of such units. Also the Department has suggested to the BPU

• The individual quarters do not add to the total, due to the increasing that it should consider possible adverse rate treatment of amounts average number of common shares outstanding at the end of each invested in excess of the Company's current investment. Deferral of quarter.

the completion of construction of the offshore units, or possible relo-cation, is now being considered by the joint owners.

NOTE 11: REPLACEMENT COSTS (UNAUDITED):

The impact of the rate of inflation experienced in recent years has NOTE 9: RATE INCREASES: resulted in replacement costs of productive capacity that are signif-Effective February 5, 1976, the PUC granted the Company an increase icantly greater than the historical costs of such assets reported in the in rates which would have the effect of increasing the annual revenues Company's Financial Statements. The Company's ability to maintain its of the Company by approximately $9.3 million, or 4.7%, when applied productive capacity in the future will be contingent upon its ability to to the billing determinants for 1975, the test year. finance the needed additions. This, in turn, will depend on the Com-Effective January 27, 1978, the BPU granted the Company an increase pany's ability to obtain adequate and timely rate reli ef. In compliance in rates which would have the effect of increasing th e annual revenues with reporting requirements, estimated replacement cost information of the Company by approximately $8.0 million, or 3.8% when appli ed is disclosed in the Company's annual report to the Securities and to the billing determinants for 1976, the test year. Exchange Commission on Form 10-K.

19

Notes to Financial Statements NOTE 12: LONG-TERM DEBT: December 31 Long-Term Debt consists of: 1977 1976 First Mortgage Bonds:

2'l's % Series due (June 1) 1979 . . . .. . . . .. . . . . ....... . . . .... . ........ . . . ... . . . ... . $ 3,000,000 $ 3,000,000 23,4 % Series due (July 1) 1980 ........ . ..... . .... .. . . .. .. .. . .. . .. .. .... . ........ . 4,600,000 4,600,000 2'l's % Series A due (Nov. 1) 1980 ...... . . . . . . . . . . .. . .. ... . . _... .. . . . ... _. .... . . . . 18,400,000 18,400,000 31/4 % Seri es due (March 1) 1982 .. . ...... .. . .. . .. . .. . ... . ........... .. .. . . . .. ... . 4,620,000 4,620,000 31/4 % Series due (Jan. 1) 1983 . . .. . .. .. ... . ... . . .. . . .. . ... . .. .. . . .. . .. ... . .... . . 4,050,000 4,050,000 9V4% Series due (May 1) 1983 . .. ... . . . .. . ... .. ... . . . ... . . . .. .. . . ...... . . . .. . .. . . 35,000,000 35,000,000 3% Series due (March 1) 1984 .... . .... . .. .. . . .. . .... . ... . . . . .. . ........ ... .. .. . 5,000,000 5,000,000 3% % Seri es due (March 1) 1985 .. . .... ... . . .. . ... . . . . .. . .... . .. . . .. . . .. .. . . . . . . . 10,000,000 10,000,000 41/2 % Series due (Jan. 1) 1987 . . ... . .. . . .. . . ... . . .. . . . . .. ... . . .. . . ... ... . .. . .. . . 10,000,000 10,000,000 3'l's % Series due (April 1) 1988 . .. . ... . . .... . .. .. . . .. ...... . ... . . . . .. .. . . . . . . . . . . 10,000,000 10,000,000 41/2 % Series due (April 1) 1989 ... .. .... . .. .. .. . .. . . ... . .. . .. . .... .... .. .. .... .. . 5,000,000 5,000,000 41/2% Series due (March 1) 1991 .. .. . . . . . . . . .. . . .. . . . . .. . . . .. . .. .... . .. .. . ... . .. . 10,000,000 10,000,000 41/2% Series due (July 1) 1992 .. .. . . . . .... . . . .. .. . . . . . . . . . . ........ . .. ... . .. .. . . 15,000,000 15,000,000 43/s% Series due (March 1) 1993 . .. . . . . . . . . .. . .. . ..... .. .... . .... . ...... .. . . . .. . . 15,000,000 15,000,000 5Vs% Series due (Feb. 1) 1996 . .. . . ......... . . .. . ....... . . . .. . . . . . .. .... . .. . .. . . 10,000,000 10,000,000 8'l's % Series due (Sept. 1) 2000 ... .. . .. . . ..... . .. .. . . . . . . . .. .... . . ...... . .... .. . 20,000,000 20,000,000 8% Series due (May 1) 2001 . ... . . .... . . . .. . .. .. . . ... . . . . ..... . . . . . ... . ..... . . . . 27,000,000 27,000,000 71/2% Series due (April 1) 2002 .. .... . . . .. .. . .. . . .... . .. . .. .. .. . . ... . . .. . . .... .. . 20,000,000 20,000,000 73,4 % Series due (June 1) 2003 ..... . ......... . . . . .. .... . . .. .. . . . . . . . . .... . .. .. . . 30,000,000 30,000,000 7% % Pollution Control Series due (Jan. 1) 2005 . . . . ... . . .. . . . . .... . ... . .. . . ... . . . . . 6,500,000 6,500,000 63/s% Pollution Control Series (a) due (Dec. 1) 2006 .... . ... . . . .. . . . . ... . . . . . . . .. . . . . 2, 500,000 2,500,000 265,670,000 265,670,000 Debentures:

5V4% Sinking Fund Deb entures due (Feb. 1) 1996 . . . . . . . . . .. .. . .. .. .... . .. .. . . .. . . . . 3,862,000 3,901 ,000 7V4 % Sinking Fund Debentures due (May 1) 1998 . . . . .. . .. . . .. . . . . . . .... . ........ .. . 4,000,000 4,361 ,000 7,862,000 8,262,000 Notes:

7.90% Notes due (Dec. 15) 1982 .. . .. .. .. . .. .. ... .. . ..... . . .. . . . .... . . . ... . .. . . . . 15,000,000 288,532,000 273,932,000 Add: Unamortized Premi um (Note 1) . . .. . . . .. .. ..... .. . ... . . .... .. . ... . ...... . . . . . . . 1,588,223 1,703,523

$290,120,223 $275,635,523 Deposits in sinking funds for retirement of debentures are required on February 1 of each year, from 1978 through 1995 for the 51/4% deben-tures, and on May 1 of each year from 1978 to 1997 for the 71/4% debentures, in amounts in each case sufficient to redeem $100,000 principal amount plus, at the election of the Company, up to an additional $100,000 principal amount in each year. At December 31 , 1977, the Company had reacquired and cancelled $438,000 principal amount of the 51/4% debentures and $500,000 principal amount of the 7% % debentures toward its requirements for 1978 and subsequent periods.

Annual sinking fund requirements of $1,246,700, in connection with certa in first mortgage bonds outsta nding, are being satisfied by ce rtifi-cation of property additions as provided for in the related mortgage indentures.

Accountants' Opinion Haskins & Sells 550 Broad Street Certified Public Accountants Newark, New Jersey 07102 Atlantic City Electric Company:

We have examined the balance sheets of Atlantic City Electric Company as of December 3 I, 1977 and 1976 and the related statements of income and retained earni ngs and changes in fi nancial position for the years then ended. Ou r exam-ination was made in accordance with generally accepted auditin g standards and, accordi ngly, included such tests of the acco unting records and such other auditing procedures as we considered necessary in th e circumstances.

In our opinion, the accompanyi ng financial statements present fairly the financi al position of the Company at December 31 , 1977 and 1976 and the results of its operations and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

January 31 , 1978 20

M anagement's Discussion and Analysis

- - - - - - of the Statements of Income -------~-~}J_G~-~f_~R~_t~w_gr_J£ O

The Statements of Income reflect the results of past operations and is not intended as any representation as to results of operations for any future period.

The following Summary reflects the year-to-year changes, increase or (decrease) , in the principal items of the State-ments of Income.

Comparison of*

1977 a nd 1976 1976 and 1975 Operating Revenues ... . ........................ .. .. . ... . $22,968 10.8 % $12,948 6.5%

Fuel ....... . ...... . .... . .... ... ... .. ... . ..... .. * * . * *

• 13 ,501 19.5 (2,411) (3.4)

Interchange .... .. ... ... ............... .... ..... . ...... . (1,084) (22.5) 1,964 68.8 Power Production-Operation and Maintenance .. .. . . . .... ... . 4,28 4 31.7 3,230 31.5 Other Operations and Maintenance ............. . .......... . 2,929 11.1 1,702 6.9 Depreciation ......... . .......... . ......... . . ......... . . 1,9 74 11.4 549 3.2 Taxes Other than Federal Income Tax Expense .............. . 2,727 10.4 2,9 48 12.6 Federal Income Tax Expense .................. . .......... . 1,693 14.8 2,8 07 32 .3 Other Income . ................. .. .......... .. ......... . (3,961) ( 50.5) 96 Net Interest Charges . . . . ............... . .... . . ..... .. .. . (3,580) (17.9) (261) ( 1.2)

• A mounts stated in thousands.

OPERA TING REVENUES-Increases arc principally DEPRECIATION-The increase in 1977 is principally attributable to increases in energy sales in 1977 and 1976, attributable to the Salem Nuclear Generating Unit being a rate increase in early 1976 and increased fuel clause placed in service in June. The 1976 increase reflects the revenues in 1977, resulting from higher fuel costs incurred normal growth in the Company's Electric Plant in Service.

in l 977 by the Company. TAXES OTHER THAN FEDERAL INCOME TAX FUEL-The 1977 increase is principally due to higher EXPENSE-These taxes are principally ta xes on the generation, which increased fuel co nsumption and to Co mpany's gross receipts. The increases in 1977 and increasi ng fuel costs in 1977. Stabilization of fuel prices 1976 arc a direct result of increases in the Company's in l 976, resulted in lower fuel costs in 1976. Fuel cost operating revenues . Also, in 1977, the commonwealth of charges arc reflected in fuel clause revenues two months Pennsylvania enacted a gross receipts tax applicab le to later. foreign utilities which own generating stations in the INTERCHANGE-The Company was a net importer of commonwealth.

interchange energy in I 977 and 1976. Decreases in FEDERAL I NCOME TAX EXPENSE-The increases interchange (credits) reflect the Compa ny's ability to sell in 1977 and 1976 are due principally to increased tax (expo rt) interchange energy while increases in inter- deferrals (normalization) relating to accele rated deprecia-change (debits) reflect the Company's ability to acq uire tion and the repair allowance. In l 976, the investment tax (import) such energy at a lower cost than if the Company credit also increased , reflecting the higher availability of had generated the energy. such credit.

POWER PRODUCTION- OPERATION AND OTHER I NCOME-Other Income (principally Allow-MAINTENANCE-The increases in 1977 and 1976 are ance for Funds Used During Construction (AFDC))

principally attributable to increased operational charges decreased in 1977 primarily as a result of the exclusion and major maintenance at our jointly-owned facilities, and of the debt portion of AFDC from Other Income (See to hi gher operational and maintenance costs at our Note l of the Notes to Financial Statements) and the wholly-owned facilities. transfer of the Salem Nuclear Generating Unit into OTHER OPERATION AND MAINTENANCE- se rvice in June.

lncreases in 1977 and 1976 are due principally to higher NET JNTEREST CHARGES-The decrease in 1977 is tran smi ssion and distributi on maintenance expenses a nd principally due to reduction s in the amount of long and incre ased administration and general costs. The increased short term borrowings outstanding during 1977 and to the charges continue to res ult from inflationary press ures, inclusion of the debt portion of AFDC (credit) as an including higher costs of material, supplies and wages. clement of Interest Charges (Sec Note I of the Notes to the Financial Statements) . The decrease in 1976 is as a result of lower interest rates and a reduction of short-term debt.

21

Statistical Review and

_ _ __ _ _ Summary of Operations 1977-1967_

Facil it ies for Service 1977 1976 1975 Total Util ity Pl a nt (Thousa nds) ..... ... .. .. ... . . .. . . .. ... .. .. $ 753 ,269 $ 7 10 ,343 $ 675, 617 Gross Additi ons to Uti lity Plant (Thousands ) .. . . . . .. . . . .. ... .. . $ 48.733 $ 4 1,702 $ 46,745 P ole M il es of Tra nsmission a nd Di stribut ion Lines ... . . . .. ..... . . 6,735 6 ,696 6 ,645 Generatin g Capac ity (Kilowatts) 111 > * ** ** * * * * * * ** * * * . * * * ** * ** *

• 1,4 14.700 1., 334,700 l ,334,700 Maximum Utility System Dema nd-Kw . . .. . . .. .. . . . .. . . .... .. . . 1, 176,000 1,030,300 1,069,400 Source of Energy (Thousa nds of Kw h )

Net G eneration . . . .. . . . .... . . .. . . . . . ..... . ... . . . ... .. . . . . 5,29 3,0 19 4,9 18,906 4,7 15 ,35 7 Purchased and Interc ha nged-N et . .. . . ... ... . . .. . . . .. ... ... . . 224, 169 324, 196 190,852 T otal . ... . . . ... .. .. . . . . . . . . . . ..... . . . . . . . . . . . ... . 5,517 , 188 5,243 , 102 4,906,209 E lect ri c Sa les ( T ho usands of Kwh) J Res identia l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ,221 .250 2,070,766 1,938,724 Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,478,559 1,392,02 9 1,346,2 16 Ind ustrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,220.260 1, 143, 170 1,036,755 All Ot hers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,866 57 ,667 56 ,465 T otal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,978 ,93 5 4 ,663 ,632 4 ,37 8, 160 G ross Reven ue (Thousands of Doll a rs)

E nergy Sa les Residen ti al . . . . . .. . . .. . . . .. . ... . .. . . . .. . .. . . .. . . . . . . .. . $ I 09,818 $ 9 8,904 $ 90,956 Comm ercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.354 66,354 63 ,544'.

Industri al . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,885 36,43 8 34,974 A ll O thers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,63 I 5,406 4,88 1 T otal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,688 207, I 02 194,355 Ot her E lec tric Revenu e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.307 4,925 4.724 Total . .... .. . .. . . . . ... . . . . .... . ....... . .. ... . .... $ 234,995 $ 2 12,027 $ 199 ,0791 Resident ial Electric Service (Average per Custome r )

Amount of E lect ricity used during the year ( Kwh ) ..... .. . ... . .. . . 7,653 7,320 7,0 18 Amount paid for a ye ar's service . . . . . . . .. . . . . . ... . . . . .. . . . . . . $ 378.36 $ 349.64 $ 329.2 51 Price paid per Kil owatt-hour . . . .. . . . . . . ... . . ..... .. . . .. . . . . . 4.94 (- 4 .78 ¢ 4 .691 Customer Service Locations- E lectric ( Year-E nd ) . . .... . . . . . . ... . . 352,205 343, 14 7 336, I 0 5j Popul a ti on Served . . . .. . . . . . .. .. .... . ...... . ... .. . . . ..... . 961,000 9 37 ,000 9 15 ,0001 Summary of O pera tions (T housands of D oll ars)

Ope rating R eve nues- E lect ric . . . . .... . . . . .. .. . . .. .... . . .... . $ 23 4 ,995 $ 21 2,027 $ 199,079 Operating Ex penses Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 ,735 69 ,2 34 71 ,645 Intercha nge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ,735 4 ,8 19 2,855 Power Produ cti on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ,782 13,498 10,26 7 Other Opera tin g and Maintena nce Expenses . . . . . . . . . . . . . . . . . . 29,263 26,333 24, 632 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.369 17,39 5 16,846 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ __4_2-'-,2_5_7 37,83 7 32.08 3, T otal Opera tin g Expenses .. .. . . . . .. .. .. . . . .. . ... .. . .. _ _ 1_9_5-'-,1_4_1 169, 116 15 8,3281 Opera ting Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,854 4 2,9 11 40,75 1 Other Income a nd Ded uctions-Ne t .. . . . . ..... .. .. . .. . . . .... . _ _ --=-. 3"-'

,8c...:8_1 7,842 7,7471 Inco me befo re interest charges . . . . . . . . . . . . . . . . . . . . . . . 43 ,735 50,753 4 8, 4981 Interest Ch arges- Ne t .. . . . .... . . . .. .. . . . ............. . .... _ __1_6-'-,3_7_ 7 19 ,95 7 20,2 18 Ne t Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ,358 30,796 28 ,280-Di vidends Paid or Acc rued on Preferred Stock . . . . .. . .. . .. . . . ... . _ _ _5_,,4 ___8_5 5 ,484 5 ,484 Ea rnin gs for Common Stock ..... . . .... . . . . . . .. . . . . . . =$= =2=1=,8=7=3 $ 25 ,31 2 $ 22,796 A ve rage Sh ares of Common Stock Outstanding .. ... . . .. . ... . . . . . .. 10,629 ,930 9 ,747 ,0 12 9, 4 70,073 E arnings Per Sh a re of Comm on Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.06 $2.60 $2.4 1 Divide nds Decl ared Per Sh a re of Common Stock. . . . . . . . . . . . . . . . . . . $ 1.62 $ 1.58 $ 1. 52 Dividends Paid on Comm on Stock (Cash ). .. . ... ... .. . . . . .. . .. . . . $ 1.62 $ 1. 56 $ 1.5 l (a) Excludes capac ity all ocated to a large industrial customer.

22

• ~~~~~r~ER~!~~J~

1974 1973 1972 197 1 1970 1969 1968 1967

$ 637,250 $ 572 ,555 $ 511 ,274 $ 455 ,9 56 $ 404,364 $ 357,863 $ 324,56 1 $ 300, 435

$ 7 1,220 $ 67.864 $ 58,434 $ 54, 151 $ 48, 200 $ 35 ,306 $ 25 ,406 $ 17,063 6,580 6,5 06 6,408 6,333 6,2 52 6, 187 6, 109 6, 03 8 1,278 ,700 1,013 ,500 965,900 89 7,600 82 1,400 757 ,800 700,800 678,500 1,004,400 1,051 ,400 920,400 829, 300 755 ,500 721 ,800 67 1,600 563,900 4,65 1,334 4,236,08 3 4,07 1,225 4,262,062 4,294,352 4,22 7,31 5 3,929,222 3,598,431

' 229, 197 665.558 45 8,050 -74,395 -358,203 -566,932 -6 15,766 -574,707 4,880,53 1 4,90 1,64 1 4,529,275 4, 187,66 7 3,936, 149 3,660, 383 3,313,456 3,023, 72 4

~

1,882, 560 1,899, 122 1,741 ,89 5 1,6 24,79 3 1,520,939 1,37 5,546 1,253,772 l , 140,797 1,298,858 1,351 ,97 4 l , 183,668 1,059, 498 977,2 10 879,9 16 821.5 38 742, 486 l , 13 6,9 35 1, 119, 47 8 1,061 ,9 32 990,363 954, 111 9 11 , 13 8 80 1,664 755 ,6 24 57.477 58. 129 64.5 31 88 ,96 3 10 1,703 11 6.02 1 9 1,467 8 1. 966 4,375 ,8 30 4,428,703 4,052,026 3, 763.6 17 3,553,963 3,28 2,62 1 2,968,44 1 2,720,873

$ 78,5 12 $ 59,856 $ 5 1,544 $ 42,623 $ 36,979 $ 32,672 $ 29 ,850 $ 27,673 55,7 13 42,804 35 ,868 28,648 23,933 20,584 18,9 12 17,345 33,565 22 ,008 19,350 16,529 13,036 11 ,303 9.738 9,225 4,207 3,86 1 3,763 3,9 19 3,795 3,7 53 3, 302 3,054 171 ,997 12 8,5 29 110,525 9 1,7 19 77,74 3 68, 312 6 1,802 57 ,297 4,6 14 4,365 4, 128 3. 687 3,6.+8 3,731 3,688 3.737

$ 176,6 11 $ 132,894 $ 114,65 3 $ 95,406 $ 8 1,39 1 $ 72 ,043 $ 65 ,490 $ 6 1,034 6,982 7,303 7,008 6,793 6,542 6,072 5,685 5,3 13

$ 29 1. 2 1 $ 230. 19 $ 207.37 $ 178. 19 $ 159.06 $ 144.22 $ 135.34 $ 128.88

• 4.17 ¢ 3. 15¢ 2.96 ¢ 2.62 ¢ 2.43 ¢ 2.38 ¢ 2.38 (' 2.43 ¢ 330,758 320,8 34 309 ,393 297,437 288,538 282 ,274 279 ,976 27 4,360 894,000 865,000 828,000 796,000 77 3,000 753,000 733,000 7 14,000

$ 176,6 11 $ 13 2,89 4 $ 11 4,653 $ 95,406 $ 8 1,39 1 $ 72,043 $ 65 .490 $ 6 1,034 73, 167 37, 144 29,944 28, 705 22 ,457 15 ,69 1 13,057 11 ,9 28 5,862 8, 155 3,979 ( 8 15 ) (2,94 1) ( 3, 165 ) (3, 130) (2,742) 11 ,360 8,8 10 8,060 6,686 5, 111 5,074 3,97 1 3,30 1 2 1,730 2 1, 11 9 19,388 17,462 15 ,692 14, 194 13. 123 12, 176 12.946 11,749 11 , 190 I 0,355 9,632 9,043 7,892 7,479 16,203 16,616 I 5,359 10,60 3 11 , 129 12,292 12,748 I I ,935 14 1,268 I 03,593 87 ,920 72 ,996 61,080 53. I 29 47,66 1 44,077 35,34 3 29,30 1 26 ,733 22 ,41 0 20,3 I l 18,9 14 I 7,829 I 6,9 57 l 0,7 55 8,745 6,647 5, 164 3,520 1,77 3 I ,097 45 0 46,098 38 ,046 33,380 27,574 23,83 I 20,687 I 8,926 17,407 19,088 I 5, 129 13,297 11.64 1 9,276 6, 302 6, 22 6 5,700 27 ,0 10 22,9 I 7 20,083 15 ,933 14,555 14,385 12,700 l I ,707 4.233 2,652 2,456 1,900 1,900 1,900 I ,672 1,3 I 3

$ 22.777 $ 20,265 $ 17,627 $ 14.033 $ I 2.655 $ I 2,485 $ I 1,028 $ 10,394 8,973 ,400 8,453,400 7,8 I 0,073 7,436,7 40 6,920,073 6,8 17,083 6,270,000 6,270,000

$2 .54 $2.40 $2.26 $ 1. 89 $ 1.83 $ l. 83 $ 1. 76 $ 1. 66

$ 1. 50 $ 1.4766 $ 1.43 16 $ 1.3 7 $ l.3 45 $ 1.3 1 $ 1.27 $ l.23

$ 1. 50 $ 1.4688 $ 1. 4 I 44 $ l.36 $ 1.34 $ l.3 0 $ 1.26 $ 1.22 Thi s A n nu a l Repor t has bee n prepa red for th e purpose o f providing ge nera l and stat istica l info rm a ti o n co nce rnin g the Co mp a ny a nd no t in co n nectio n with a ny sa le , offer fo r sa le or sol ic itati o n o f an offe r to buy a n y secu riti es.

23 Printe d in l ' .S. A.

~rice Range of Stock and Dividends Paid on Stock Common Stock The Common Stock of the Company is traded on the New York Stock Exchange (principal market) and the Philadel-phia Stock Exchange. The reported high and low sales prices of the Common Stock on the New York Stock Exchange for each quarterly period during 1977 and 1976 are listed below.

Low 1977 1976 1977 1976 First Quarter . . ... ....... . .. . .... . .... . . $24.375 $ 19.75 $2 1.375 $17.125 Second Quarter ... ..... . ...... ....... .. . 24.00 18.875 21.50 17. 125 Third Quarter ....... . . . ... ........ . ... . 24.625 20.25 22.25 18.50 Fourth Quarter . .. . . ... .. ....... . ...... . 23. 125 24.375 20.375 20.00 Cumulative Preferred Stock The 5Ys % Cumulative Convertible Preferred Stock (par value $100) of the Company is traded on the New York Stock Exchange. The reported high and low sales prices of such Preferred Stock fo r each quarterly period during 1977 and 1976 are listed below. No other seri es of Cumulative Preferred Stock is li sted on a Stock Exchange.

High Low 1977 1976 1977 1976 First Quarter . . . ... . .... .. .. .. . . . .. . .. . . $82.00 $72.00 $8 1.00 $67.25 Second Quarter ...... ........ . .. ... .... . 83.50 71.50 76.50 64.00 Third Quarter .. . .. .................... . 84.75 73.00 80.00 69.50 Fourth Quarter ........... . ... .. ... . . . . . 80.00 83.50 75.00 72.50 Common Stock The Company has paid cash dividends on its Common Stock in each year since 1919. The quarterly cash dividends paid per share was 381h ¢ for the first three quarters of 1976 and 401h ¢ for the fourth quarter of 1976 and 40 1h¢ in 1977.

Cumulative Preferred Stock During 1977 and 1976 the Company paid quarterl y cash dividends on each series of Cumulative Preferred Stock as listed below:

1977 1976 Series Quarterly R ate Quarterly R ate 4% $1.00 $1.00 4.10% 1.025 1.025 4.35 % 1.0875 1.0875 4.75 % 1.1875 1.1 875 5% 1.25 1.25 5Ys % 1.46875 1.46875 7.52 % 1.88 1.88 8.40% 2.10 2.10 9.96% 2.49 2.49 TRANSFER AGENTS REGISTRARS SHARE LISTINGS For Common Stock For Common Stock Common Stock of the Company is Irving Trust Company Morgan Guaranty Trust Company listed on the New York Stock 1 Wall Street of New York Exchange and the Phil adelphia New York, N.Y. 10015 New York, N .Y. 10015 Stock Exchange. The 5'Vs % Cumu-lative Convertible Preferred Stock First National Bank of South Jersey Guarantee Bank of the Company is listed on the Atlantic City, N.J. 08404 Atlantic City, N .J . 08404 New York Stock Exchange.

For Cumulative Preferred Stock For Cumulative Preferred Stock Chemical Bank Irving Trust Company 20 Pine Street New York, N.Y. 10015 N ew York , N .Y. 10015 For Cumulative Convertible For Cumulative Convertible Preferred Stock ATLANTIC CITY ELECTRIC COMPANY Preferred Stock Morgan Guaranty Trust Company 1600 PACIFIC AV E.,

Irving Trust Company ATLANTIC CITY, NEW JER SEY 084 04 of New York New York , N.Y. 10015 New York, N .Y. 10015 24

Directors Eleanor S. Daniel Alfred C. Linkletter Self employed. Former Assistant Vice Consul tant.

President of the Mutual Life Insurance Chairman of the Board of Directors of Company of New York (Senior Economic the Company.

Adviser).

John M. Miner Richard M. Dicke Senior Executive Vice President of Counselo r at Law. Senior Partner T he Fidelity Bank.

of the law fi rm of Simpson Thacher

& Bartlet t.

Frank H. Wheaton, Jr.

John D. Feehan President of Wheaton In dustries.

President and Chief Executive Manufac tu re r of glass and plastic Officer of the Company. containers.

Mack C. Jones Richard M. Wilson Retired Engi neer . Senior Vice President of the Company.

Q16cers John D. Feehan Frank J. Ficadenti Preside nt and Di rector Vice Presiden t-Engineering, Research and Development William S. Cowart, Jr.

Senior Vice Preside nt Edwin L. Gerber Vice President-Frederick Lange Personnel and Public Relations Senior Vice President Ernest D. Huggard Richard M. Wilson Vice Presiden t -

Senior Vice President and Di rector Control and Ass istant Treasurer Charles F. Morgan Jerrold L. Jacobs Vice P resident, Vice Presiden t-Secretary and Treasurer Production David V. Boney Michael A. Jarrett Vice President- Ass istant Vice President-C ustomer a nd Community Services Corporate Services John F. Born Martin R. Meyer Vice President- Assistant Sec retary Electric Operations and Assistant Treasurer Mr. William W. White, who died D ecember 19, progress of the Company, is a grievous loss.

1977, had served as Director of this Company Mr. White was honored not only by us, his since November 25, 1970 and as Chairman of the associates, but throughout the area and his home Board of Directors since April 11, 1972. area of Rutland, Vermont, for his generosity, in-For the Electric Utility Industry his untimely tegrity, affableness and untiring energy. He was death cuts short a career of distinguished and held in the highest esteem by us and by a host of devoted service to the preservation and strength- others for his many fine qualities as a good citizen ening of the American Free Enterprise System. and as a gentleman.

For Atlantic City E lectric Company, its Board of T he Company joins his many friends and asso-Directors and Officers, the passi ng of an accom-ciates in expressing their profound sorrow at his plished leader and a colleague who gave unstint-passing and in heartfelt tribute to his a~complish ingly of his wise counsel and extraordinary busi-ments and his memory.

ness talents, contrib uting lasti ngly to the work a nd

BULK RATE Electric U.S. POSTAGE PAID 1600 PACIFI C AVE ., ATLANTIC CITY ATLANTIC CITY, N.J. 08404 ELECTRIC COMPANY

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PENNSYLVANIA I I

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1977 marked the 50th Anniversary of PJM

- the Pennsylvania - New J ersey-Maryland Interconnection in which Atlantic Electric LEGEND participates. PJM serves an area of about 1 Area Served by 48,700 square miles with a populat ion ex- Atlantic City Electric Company ceeding 21,000,000. The PJM is the most mature, sophisticated energy pool in the - 500 KV lines nation and links more than 500 generating units. - 345 KV lines utilities which comprise PJM help to enhance electric reliability through power pooling and through efficient use of the gen-era ting units. PJM companies continually interchange electricity among one another to achieve the lowest cost energy to all. VIRGINIA The generating units are put on the line at the direction of the control center to optimize reliability and economy. These cost-cutting practices resulted in savings to the participating com-

[J panies totaling $183 million in 1976 and a similar amount in 1977. PJM members passed these savings on to their customers. Power pooling has resulted in PJM companies being able to reduce the number of generating stations which need to be constructed and thus help slow the upward trend in the price of electricity. The map above only portrays higher voltage transmission lines (about 1,300 circuit miles). The P JM is comprised of more than 5,600 cir-cuit miles of transmission lines. Greater electric dependability coupled with economy has been and will always be the hallmark of PIM-America's First Power Pool.